VNET Group, Inc. (VNET) Q4 2013 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Thank you, everyone, and welcome to 21Vianet Group's Fourth Quarter Earnings Conference Call. [Operator Instructions] Before we begin, I will read the Safe Harbor statement. This call may contain forward-looking statements made pursuant to the Safe Harbor provisions for the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and observations that involve known and unknown risks, uncertainties and other factors not under this company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or expectations implied by these forward-looking statements. All forward-looking statements are expressly qualified in their entirety by the cautionary statements, risk factors and details of the company's filings with the SEC. 21Vianet undertakes no duty to revise or update any forward-looking statements for selected events or circumstances after the date of this conference call. With us today is Mr. Shang Hsiao, Chief Financial Officer. Following management's prepared remarks, we will conduct the Q&A. At this time, I will now like to turn the conference call over to Mr. Shang Hsiao, 21Vianet's Chief Financial Officer, for opening remarks.

Thank you, operator. Good morning, and good evening, everyone, and welcome to 21Vianet fourth quarter earning conference call. Today, because our President, Frank, is on the road, it will also read the opening remarks and strategic overview. 2013 was a important year for 21Vianet development, as well as the China Internet infrastructure industry. Mobile Internet and cloud computing become increasingly pervasive, both in China and globally. In China, communication infrastructure expanded greatly driven by the surging demand for data traffic, favorable government support and heavy investment by Chinese telecommunication company and Internet company. With this backdrop, we are seeing tremendous growth opportunity on the horizon, and we are committed to capture this emerging opportunity by implementing and executing upon our growth strategies. Now let me take a minute to highlight the achievement and pathways we have made in 2013 before walking you through our detailed financial result. Over the course of 2013, we made great strides in expanding our capacity and market footprint, as well as expanding in our service by establishing new partnership and expanding upon other existing one with several world class global corporation. For our core IDC business, as we remain focused on growing our capacity to meet customer demand, we have at the same time, tried to beef up our marketing effort in strategic region markets and improve our overall utilization. We were very pleased that we're managing a utilization rate of 71.2% and achieved a EBITDA margin of 18.8% in the fourth quarter. We're increasing our capacity in the second half of 2013. This strong performance was powered by the increasing customer demand for our IDC business service and the expanded sale capabilities throughout the China market. For 2014, the core focus of our IDC strategy is to accelerate capacity buildout in our strongest market when continuing to improve market penetration in our region. Overall, we aim to deploy additional 10,000 cabinets and achieve approximately 25,000 total cabinets by the end of 2014. In order to accomplish this goal, in December 2013, we entered into a partnership agreement with Huawei, a leading global ICT solution provider to work together in further developing China data center market. By leveraging Huawei technical expertise, we will be able to speed up our IDC construction, reduce lead times and in turn, significantly enhance our ability to keep up with fast-growing customer demand. With Huawei vast experience in China enterprise data market, we are also very confidence our cooperation will support our marketing effort, especially in the southern part of China. In addition to strengthening our leadership in the IDC market, we also expect this partnership will help us further optimize our cloud strategy, as both party collaborate over issue related to engineering, R&D, sales, customer service and other element of our business operation. Now looking at our cloud business. We see that cloud business as a long-term engine of our growth, as Chinese user and company are increasingly utilizing the software and application based in the cloud. In this regard, we are very proud to have developed a key strategic partnership with 2 global leaders to accelerate the growth of our cloud business going forward. First, let me give you a few recent updates regarding to our Microsoft partnership. Since we become selective commercialization of the Azure and Office 365 in the late of the 2013, our cloud business revenue outperformed our initial expectation for the fourth quarter of 2013. Not only was we able to secure several thousand client for our data platforms as of end of the 2013, but we were also successfully in migrating a number of extremely large customer in to the longer-term contracts, putting us well on track to fully commercialize Microsoft Window Azure by March and Office 365 in April of this year. Following the launch of the public cloud service with Microsoft, we developed another key partnership with IBM to win their management private cloud to China, targeting larger enterprise in China with complicate IT infrastructure requirements. We aim to facilitate migration and management of this enterprise mission-critical workload and application in the cloud. We, together with IBM, are firmly committed to commercialize or launch our private cloud service by midyear of 2014. Our cloud partnership with Microsoft and IBM, not only will help us speed up our effort to develop a premium cloud ecosystem, comprised of both public and private cloud service, but also will support customer expansion and diversification. Taking through 2014, we expect our cloud service partnership to become an increasingly important growth driver for our overall business. As such, we expect our cloud service partnership will generate approximately 10% of total revenue by the year end of 2014. With the robust foundation we establishing in 2013, we are well positioned as an integrated Internet service provider in China, supported by multiple secular business drivers that will help power our growth going forward. Now I will go through our financial detail. I would like to state that we will present non-GAAP measure on today's conference call. Our non-GAAP result excludes certain noncash expenses which are not as part of our core business. The detail on these expenses may be found in the reconciliation table included in our earlier release. Also note that all the financial number we are presenting today are in RMB amount unless otherwise noted. Our net revenue for the fourth quarter of 2013 increased by 30.6% year-over-year to RMB 545.9 million. Net revenue from hosting and related service increased by 43.6% year-over-year to RMB 364 million, primarily due to an increase in total cabinet under management, as well as increased demand for the company's CDN service. The MRR per cabinet was RMB 10,694 in the fourth quarter of 2013, as compared to RMB 10,520 in the third quarter of the 2013. Net revenue from management network service increased to RMB 181.9 million in the fourth quarter of 2013. This increase was primarily because of increasing network capacity demand for data transmission service. For the fourth quarter of 2013, adjusted gross profit increased by 28.6% to RMB 158.5 million. Adjusted gross margin was 29% in the fourth quarter of 2013, compared with the 29.5% in the prior year and 28.9% in the third quarter of 2013. Adjusted operating expenses increased to RMB 102 million. As a percentage of the net revenue, adjusted operating expenses was 18.7%, compared with 18.5% in the prior year period and 17.8% in the third quarter of 2013. Most specifically, adjusted sales and marketing expenses increased to RMB 41.7 million from RMB 28.5 million in the prior year period, due to the expansion of our sale and service support team and our marketing effort associated with the launch of Microsoft premier cloud service. Adjusted general and administrative expenses increased to approximately RMB 41.1 million from RMB 33 million in the prior year period, primarily due to an increase in headcount, office rental and other expansion-related expense associated with our effort to expand this cloud computing service offering. Adjusted research and development expenses increased to RMB 19.2 million from RMB 16 million, which reflect our effort to further strengthen in its research and development capability and expand our cloud computing service offering. The difference between adjusted operating expenses and our higher GAAP, total operating expenses amount is primarily due to the change in the fair value of contingent purchase consideration payable which was a loss of RMB 7.2 million and share-based compensation expense of RMB 22 million. The change in the fair value of contingent purchase consideration payable result from an increase in the present value of estimate cash and share consideration as December 31 of 2013, associated with our company, post-acquisition. From a profitability perspective, adjusted EBITDA for the fourth quarter of 2013 increased by 31.4% to RMB 102.9 million. Adjusted EBITDA margin for the quarter was 18.8%, compared with 18.7% in the prior year period and 18.6% in the third quarter of 2013. Our adjusted net profit for the quarter increased to RMB 41 million from RMB 39.5 million in the prior year period. Adjusted net profit margin was 7.5%, compared with 9.5% in the prior year period and 5.7% in the third quarter of 2013. Adjusted diluted earnings per share for the quarter was RMB 0.10, which represents the equivalent of RMB 0.60 or USD 0.10 per ADS. As of December 31, 2013, our cash and cash equivalent and short-term investment was RMB 2.6 million (sic) [billion] equivalent to USD 423 million. For the full year of 2013, our net revenue increased by 29% to RMB 1.97 billion. Adjusted EBITDA increased by 24.3% to RMB 365.6 million. Our full year 2013 adjusted net profit was RMB 120.5 million with adjusted and diluted per share of RMB 0.31, which represents a equivalent of RMB 1.86 per ADS. Looking at our financial outlook. Currently, we expect first quarter 2014 net revenue to be in the range of RMB 575 million to RMB 590 million. This represent a growth approximately 33% in the comparable period in 2013. Adjusted EBITDA is expect to be in the range of RMB 111 million to RMB 115 million. Beginning this quarter, we will also provide full year 2014 guidance. Net revenue for the full year 2014 are expected to be in the range of RMB 2.71 billion to RMB 2.85 billion, represented approximately 40% growth over 2013. For the full year 2014, adjusted EBITDA is expected to be in the range of RMB 566 million to RMB 595 million, represented more than 55% growth over 2013. This forecast reflects the company current and preliminary view, which is subject to change. This conclude our prepared remark for today. Operator, we are now ready to take some question.

[Operator Instructions] Your first question today comes from the line of James Breen from William Blair.

Shang, I was wondering if you could just talk about the progression of the Microsoft contract and how do you think about that over the course of the next 12 months? And then also, I think in the last quarter call, you talked about some competition that -- of the network side of the business. Just, are you seeing -- just from a competitive standpoint, what are you seeing in terms of competition for both the network and the data center side?

Okay. Thank you, Jim. For the Microsoft, actually, we're started the partial commercialization in late September of the last year. And during the last call, I did mentioned about it. We expect Microsoft will generate USD 1 million revenue, okay, for 21Vianet, okay, in the fourth quarter of the 2013. The number already come out, okay. Actually, the number significantly beat the USD 1 million, so we have a lot more than USD 1 million revenue from the Microsoft in the 4Q. And during the past couple of months, Microsoft and our company, actually, we already signed a lot of we call VIP customer, the customer who will contribute more than RMB 100,000 per year to us. And the signing process, okay, is very encouraging. Like on a daily basis, we are signing a lot of customer. So I also did guide the total revenue, okay, from the Microsoft partnership for us in 2014. So like earlier, I mentioned, okay, right now, the revenue we estimate, should be somewhere around USD 40 million, 4-0, okay, U.S. dollars, okay. Right now, the number should be on track based on the number of the customer we already have, okay. And I also mentioned about it, okay. In March -- actually, this March, Microsoft and 21Vianet, okay, jointly, we will have a event formally announce for the commercialization of the Window Azure, okay, in Shanghai. And that's -- will happen in this month. In the beginning of the April, which is also be very close by now, we will also announce Office 365 for the commercialization. So it's very exciting for us. So far, look like everything will be on track, okay, so we will see, okay. That's for the Microsoft update. And for the network side, if you guys can recall, okay, during the -- our last quarter call, I did mention about the pricing competition from the network side. Because at that time, China Telecom, Unicom did make announcement, they will reduce the bandwidth costs for the 30% during the next 5 years. So we did see impact, but come down to like November, okay, last year and everything become stabilized. Yes, the company did reduce price also. So that impact the revenue. But however, the demand still remain quite good. So everything right now become stabilized. You can see from our number, okay, we still have the Q-by-Q growth. And that's a little bit better than our original expected. So thing look like they are settle down. So for the 2014, we will continue to see the growth from the management network service, okay, probably between 10% to 15%, okay. Okay, Jim?

Your next question today comes from the line of Chad Bartley from Pacific Crest.

So in terms of your hosting revenue, if you exclude cloud, which was better than expected, and then you just indicated that network was better than expected, does that imply that the core hosting business was maybe a little weaker than you thought? So you can you comment on that? And then separately, in terms of self-built cabinet additions, that was lower than we had been forecasting. So what drove that, and can you give us any help in terms of the expected additions in Q1 and maybe after that this year?

Okay. Well, we saw -- yes, thank you, Chad. Okay, with additional revenue from the cloud business, okay, if you exclude that, okay, you will see our data center business, our core business. Okay, right now we forecast we are going to have a growth somewhere around 32%, 31% to 32%, okay, if you exclude that. But overall, the company will have a growth of 40% in term of the revenue. Because according to the IDC report, okay, the data center business, okay, for the next 5 years, should have a CAGR growth, okay, around 31%. At this moment, okay, we take a very conservative view, okay, for our hosting business because this is the first time the company provides any revenue guidance, okay, to the Street. So we tried to be conservative a little bit. But the management remain strong confidence, okay. We may, okay, have a better number for our hosting business. And if we look at the last year, okay, 2013 over the 2012, our hosting business actually increased by 40%. Okay, we have more than 40% growth. Hopefully, we can replicate, okay, the last year performance. And like I say, okay, it's the first time we provide the annual guidance. We try to take a conservative approach on this one. So that's your first question. And second question, regarding to the deployment, okay, of the data center, okay. And yes, okay, we postponed some of the deployment, okay, from the 2013 to 2014. Particularly, okay, for some of the big data center, okay, in order to maintain, okay, the utilization rate and then stable gross margin, et cetera. And we did mention, okay, earlier, this year, we will deploy 10,000 cabinets. Actually, that 10,000 cabinet come out from 13, 1-3, 13 different data center, and -- but again, okay, 2/3 of those cabinets will be deployed in the northern part of China where we have a very strong demand, okay. The purpose over here, I just want to ensure you, okay, the demand remain very strong, okay. Anything we build in the northern part of China, actually even before we complete the deployment, okay, typically, you will see the 70% to 80% utilization rate already, okay. That demand continue to be very, very strong. Okay, in the southern part, data center at this moment, typically will take us 6 months after deployment, okay, to reach, okay, let's say, 60% to 70% utilization rate. So the northern part demand still a lot stronger than the southern part demand. Okay, that's still the trend, okay. That's still the trend. So this year, okay, if you -- I think that you also asked Q-by-Q deployment of the cabinet. Again, okay, right now, okay, the current trend is, you probably will see okay, somewhere around 1,000 to 1,500 cabinets in Q1. And you go to then -- we go to the 2,000 cabinet in Q2; and 3,000 in Q3; and another 3,000 probably, in Q4. Okay, that's our current plan for the deployment schedule. Okay, Chad?

Your next question today comes from the line of Lucy Liu from JPMorgan.

I have 3 questions. One is on your utilization rate. I noticed that in fourth quarter, you added 700 [ph] cabinets, but utilization rate seems like you've extended [ph] over from 74% in the third quarter to 71%. So just to wonder, what's the reason behind that? And also, how should we read the utilization rate guidance for this year, given quite much of capacity you're going to add? So this is number one. Number two, we wonder in terms of your agreement with Huawei, can you explain a bit further in terms of what kind of cooperational -- what kind of the business we can really benefit from this agreement? You said earlier that it can help us to accelerate the construction and also shorten the lead [ph]. Just wonder how that's going to work? And then lastly, just in terms of the enterprise market, I remember from the previous conversation, you mentioned that some initiative have been done there. So wondering what's going on? How much of the additional revenue we can expect from enterprise market?

Okay. Thank you, Lucy. Okay, utilization for the fourth quarter of 27, okay, at 2013, okay, was 71% -- more than 71%. It's like this, the company in the last day of the Q3, okay, actually on September 30, the company released a lot of cabinet, particularly for the M6 data center. At that time, I believe we released close to 900 cabinet, okay. That's our release on the last day of Q3, okay. So in terms of utilization, their impact at Q3 is not that big, okay. But in Q4, okay, it's not 900 cabinet. Actually, it will be 40, in term of the weighted, okay, when we calculate the weighted utilization rate. But that 900 cabinets, actually have been all sold out, okay. So you are -- they contribute some of the revenue in the Q4, and you will see the -- they will contribute a lot of revenue in the Q1, okay. So we use a weighted average to calculate the utilization rates, that's why you see some of the decreased utilization rate over there. But in term of the reality, okay, we increased and saw [ph] more cabinet, okay in the Q4, okay. In terms of the utilization rate guidance for the 2014, like I say, okay, each quarter we will only deploy 1,000 to 2,000 cabinets. So the management goal is to maintain more than -- in any cases, more than 70%, 7-0, 70% of the utilization rate for the -- through the 4 year after 2014. Okay, that's our goal. And the second question is regarding to the Huawei strategic partnership, okay. As you guys are aware, okay, typically, will take the company 16 -- let's say 12 to 18 months, okay, to complete a data center construction, okay. Huawei have a certain technology, okay, can helping the company to deploy a data center. The time, we only need probably 10 to 12 months. They plan to shorten 6 months of time of our data center construction, okay, through certain technology we call the module. In Chinese, we call [Chinese]. So that was totally [indiscernible] with the construction of the data center, okay. And that will save us a lot of cash flow, okay. So that's main thing. So right now, we are already have, I believe, assigned 2 data center to Huawei for the construction, okay, 2 new data center. And Huawei will be the contractor, okay, to help us to build the data center. Okay, we've seen last shorter period of time. So that's most important one, okay, for the strategic partnership. We also talked about our cloud collaboration, including the Huawei server and everything, okay. But at this moment, our partnership with Microsoft, okay, we are using the payout [ph] server. And for the IBM, IBM they are using their own server too, okay, without the involvement of the Huawei. So Huawei right now, is more focus on company core business, helping us to do the data center construction. Okay, so that's our partnership with Huawei. And the third one is enterprise market. Yes, we already initiate, okay. The enterprise market grew. They are already started. Probably, give us 1 more month, okay, a couple of weeks later, okay, the company will announce to the Street. This is very, very exciting. Because starting from the late of the 2012 and also for the year of 2013, in China, we're starting to see a lot of financial institutions or even the big stay-home enterprise, they are willing to outsourcing their server to the third-party data center service provider like 21Vianet. That never happened in China before. Okay, if you guys can recall in the U.S., okay, the enterprise, okay, probably will generate a lot more revenue from the Internet sector, okay, in the U.S. But in China, at this moment, 2/3 of the company revenue, all from the Internet sector, okay, only 1/3 of the revenue generated from the enterprise. And before, never have financial institution willing to outsourcing, okay. Right now, okay, more and more, the company sign, okay, actually several more bank. They are willing to outsourcing part of their server, okay, to the service provider, okay, like 21Vianet. So we expect, okay, the China enterprise market we're starting to pick it up okay, from this year, and also, and going forward. This is a huge market. So the company actually already put together an enterprise group [ph] leading team. And the leader, okay, our General Manager from this enterprise group, actually used to work for one of our U.S. peers, okay. They are operation in China. They work for Equinix. So the Equinix China had actually joined us to become the 21Vianet enterprise group General Manager, okay, to help our enterprise grow. So the new leader have excellent experience, okay, with his experience from the Equinix. So that's what we will do. Okay, they already have the business plan, and we have put together a team under the new leadership okay, for this new business opportunity and development, okay. Thank you, Lucy.

[Operator Instructions] Your next question today comes from the line of Colin McCallum from Crédit Suisse.

Shang, just a question on VAT reform in China, supposed to go ahead in April, I think. What impact will that have on you in terms of, first of all, will you be expected to pay VAT? Will you have to pay more for bandwidth from China Telecom, Unicom? Would you be able to pass that on to your customers? How does that whole thing work for Vianet, please?

Thank you, Colin. Okay, you asked a very good question, okay. This one is coming. And when we say VAT, okay, it is, we call value-added tax. That's because for our business, normally, before the VAT reform -- actually, even including currently, we are paying the business tax. And the revenue we provided to the Street, actually, it's a net sales. It's already after the business tax, okay. So the China is under a reforming, okay, because our headquarter is located in Beijing. And right now, Beijing tax bureau still ask the company, okay, to do the -- to pay the business tax. And we are not sure when that will be changed, okay, but nationwide, based on the National Tax Bureau in China, they say they're not going to ask other company to do that, okay. But for 21Vianet, normally, like value-added tax for something like that, typically, we will just pass through to our customer, because this is a national policy. And for the telecommunication industry, actually, we -- before when we are paying the business tax, okay, our business tax average in China actually is around, between 5% to 6% of the turnover. But for telecommunication industry, it's only 3% because this is a restrictive, encouraging industry by the Chinese government. So we always paying 3% versus 5%, okay, for other industry, okay. So for the value-added tax, what that mean is the company, okay, the service provider, need to pay the value-added portion, okay, for the tax, okay. And -- but the normal value-added tax, okay, in China is 17%, okay. But for 21Vianet, okay, at this moment for the value-added tax, we only need to pay the 6%. But at this moment, we really don't know when that was started, okay. But for us, I don't think that tax impact okay, will be that big compared to the industry. Okay, because telecommunication industry, okay, with the value-added tax, we only need to pay 6% on the value-added portion. So original business tax, we paid the whole thing for the 3%, okay. So we are not sure whether or not it would be a benefit to us or it's a loss to us. But in any given case, those tax costs, eventually, will be included in the price that we'll pass through our customer, okay. Thank you, Colin. Okay.

Your next question today comes from the line of Kai Qian from CICC.

The first question is about how is the operating cash flow for the last year, 2013. And then my second question is about the preorder or the demand side for the 2014. And Shang just mentioned that we will increase the 10,000 cabinets in this year. And I just want to know how preorder and the pre-sales? And the next question which is about the process of the Dongguan, and the management mentioned that the company negotiated with [indiscernible] for the C2C [ph] license, maybe in Dongguan as [indiscernible]. So how is going on, and any expectation from this? And the last 2 questions is, how about the EBITDA -- adjusted EBITDA margin? And for the 2014, how we're to focus on this adjusted EBITDA margin?

Okay. Thank you, Kai. Okay, the CapEx spending for the 2013, okay, we spent around RMB 550 million, okay. Original, we guide the Street, okay, that would be around RMB 600 million, okay. But we only spent RMB 550 million, because maybe we delay some of the cabinet to be deployed from 2013 to 2014. Okay, so that's your first question. Second question, regarding to the preorder for the 10,000 cabinets, okay. Because some of the cabinet will be deploying the second half, but I can give you some preorder, some of them, they are not legal binding, okay. This is a indication, depend on the -- subject to inspection of the new data center. But at this moment, we already have more than 2,500, okay, cabinets, okay, have been reserve by many Internet company and also, the enterprise and also our cloud partner, including from the Microsoft and IBM, okay. So that one already more than 2,500 cabinets we can see, okay. So -- but the total amount will be deployed will be 10,000 cabinets. So we do expect this number will continue to go up, preorder one, okay, quarter-by-quarter. So that's the number two. Number three is Dongguan JV. Yes, okay, as you are aware, okay, the company say at the Dongguan joint venture, okay, and joint venture, actually already started the operation. One of the major tax, okay, for the Dongguan joint venture is, okay, to capture the opportunity, okay, which state by the central government, okay, which there is official partnership come out from the central government of China last year. One of the most important policy for us is the central government actually like to encourage the domestic company to engage in the basic telecommunication, okay, industry in China. Okay, that's a great thing though. What that mean is that China, okay, our central government try to break out certain monopoly, okay, of the telecommunication, okay, industry in China. As you guys can recall, okay, China, when we say fixed line, or broadband provider, actually it's China Telecom and Unicom. And so the joint venture set up is with Dongguan government, okay. And Dongguan government, actually right now, is negotiating and also we are putting to report application to the central government, okay, try to get certain license. Okay, I'm not going to say, it's a basic license, okay. Maybe similar to basic license for broadband license application, okay. 21Vianet, we do have the interest, okay, to get a basic license, okay, or get a broadband license, okay, not to spending a lot of money to do the voice, okay. That's not a thing we will touch. But, okay, to engage in broadband business, that's very critical for the company for the next couple of years. And you guys can recall, okay, the biggest -- okay, the company cost of sale actually it's to purchase bandwidth from the China Telecom, Unicom. Okay, each year, the company, okay, will spend somewhere around RMB 500 million to RMB 600 million, okay, to purchase the bandwidth, okay, because we cannot -- when we purchase bandwidth, we purchase 100%. I'll just let everybody on the call know, okay, in U.S., peering to peering, okay, everybody can do that. But in China right now, the track [ph] is still under the transit [ph]. Okay, but if you can broadband license, let's say -- or basic license, typically, you can starting to do the peering to peering. That's first thing, okay. Then, actually, we got a lot of customer in our data center. We generate traffic, but we still need to purchase the bandwidth 100% China Telecom, Unicom. Because we don't have an basic related license. So we can now sign the reciprocal agreement with the China Telecom and Unicom. But if 1 day, Chinese government, okay, they allow us to engage in basic, okay, telecommunication industry, in the other, well, we don't spend any money. Just give us legal, okay capability, then we may, okay, sign the reciprocal agreement with the China Telecom, Unicom and -- to exchange the traffic. And by doing that, our bandwidth purchase from China Telecom, Unicom will be significantly reduced, even more than 50% based on the current traffic, okay, generate from our data center, a lot of traffic, okay. So we will see. This is a very encouraging policy, okay, to like a domestic company like 21Vianet, okay. And you guy also understand our peers, data center service provider from the U.S., one of their most profitable business we call cross-connect, okay. The margin could be more than 90%, okay, cross-connect, okay. What that mean is very simple. If you have a data center customer and you a data center, they want to exchange through the transmission of their data and content directly, okay. And all you need to do, just connect to fiber, or to connect the cable and you can ask them -- and you can collect the fee, transmission fee from both of the company, okay, so you have the bandwidth. But in China, that's still not allowed, because all the traffic need to be restricted as a transit, okay. But if we can get a basic license, then the 21Vianet we can have -- we can legally, okay, operate cross-connect. That will significantly generate -- increase the company profitability, also increase the revenue. That's all potential, okay. That could happen in any point, okay, because China want to open the telecommunication industry. So the Dongguan JV, okay, 21Vianet hold 90%, with a 10% from the Dongguan; and behind that is Guangdong province, the biggest telecommunication consumption province. Together, we put in the application and report to the central government. So that one is in the process. So that will be -- if we can get certain license like that, that will totally change the company profitability and financial model, okay. So that's very encouraging. So we are still waiting, and we expect that maybe doing the middle of this year, okay, maybe we can see the first indication from the ministry for central government to see how we're going to proceed that. Again, it's no guarantee, but we just follow central government policy, okay. And your last question, sorry, I spend a lot of time over there just to keep everybody updated on this important issue, okay. Okay, and the last one is EBITDA margin, okay, for the 2014. Because as you guy are aware, okay, our EBITDA margin -- adjusted EBITDA margin in the whole year of 2013 was 18.8%, okay, or 19%, it's like that. Due to the cloud, because we already commercialized Microsoft cloud, IBM cloud, and those service, we only recognize the net revenue. So the EBITDA margin, actually are a lot higher than our core business, okay. So we do expect in the 2014, okay, our EBITDA margin, you're probably aware, have the 2% increase for the overall company, not just to the end of the 2014. I'm talking about like our average for the whole years, okay, whole years. So we should increase 2%. So probably, like 18.9% to 20.9%, that will be our EBITDA margin forecast for the whole year of the 2014, okay. So profitability should increase, that's a very, very good sign. Okay. Thank you, Kai.

[Operator Instructions] We have no further questions on the line today. I would now like to hand the call back to Mr. Hsiao for closing remarks.

Okay. Thank you, everyone, okay, to share our remark, okay, for 2013 and the outlook for 2014. 2014 should be a very exciting year for the 21Vianet. So thank you so much for your time today. Thank you. Bye-bye.

Ladies and gentlemen, that does conclude the call for today. Thank you, all, for your participation. You may now disconnect.