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Edited Transcript of 2412.TW earnings conference call or presentation 27-Apr-17 7:00am GMT

Thomson Reuters StreetEvents

Q1 2017 Chunghwa Telecom Co Ltd Earnings Call

Taipei May 3, 2017 (Thomson StreetEvents) -- Edited Transcript of Chunghwa Telecom Co Ltd earnings conference call or presentation Thursday, April 27, 2017 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Bo-Yung Chen

Chunghwa Telecom Co., Ltd. - CFO and Senior EVP

* Chi-Mau Sheih

Chunghwa Telecom Co., Ltd. - President and Director

* Fu-Fu Shen

Chunghwa Telecom Co., Ltd. - Director of IR

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Conference Call Participants

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* Cindy Wang

CL Securities Taiwan Company Limited, Research Division - Research Analyst

* Jack Xu

SinoPac Securities Investment Service, Research Division - Research Analyst

* Patrick Chen

Nomura Securities Co. Ltd., Research Division - VP

* Peter Milliken

Deutsche Bank AG, Research Division - Head of Asia-Pacific Telecom Research Team

* Varun Ahuja

Crédit Suisse AG, Research Division - Associate

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom conference call for the company's first quarter 2017 operating results. (Operator Instructions) For your information, this conference call is now being broadcast here live over the Internet. Webcast replay will be available within an hour after the conference is finished. Please visit CHT IR website, www.cht.com.tw/ir, under the IR Calendar section.

Now I'd like to turn it over to Ms. Fu-Fu Shen, the Director of Investor Relations. Ms. Shen, please go ahead.

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Fu-Fu Shen, Chunghwa Telecom Co., Ltd. - Director of IR [2]

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Thank you. This is Fu-Fu Shen, the Director of Investor Relations for Chunghwa Telecom. Welcome to our first quarter 2017 results conference call. Joining me on the call today are Mr. Sheih, our President; and Mr. Chen, our CFO.

During today's call, management will first discuss the overview of our business during the quarter, followed by operational and the financial highlights. Then, we will move on to the Q&A session.

Now I would like to hand the call over to President Sheih.

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Chi-Mau Sheih, Chunghwa Telecom Co., Ltd. - President and Director [3]

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Thank you, Fu-Fu, and hello everyone. Welcome to our first quarter 2017 earnings conference call.

For the first quarter of 2017, the market remained competitive in both mobile and the broadband sectors. However, we continued to retain our market-leading position in mobile subscriber and mobile revenue, and managed to have the lowest churn rate despite these constant challenges. We are pleased to say that we have successfully mitigated the mobile subscriber loss and even saw a small net-add in March. Further on, we will focus on strengthening subsidy efficiency by allocating more resource on high-end bundled plans, aiming to reinforce user stickiness and acquisition of new, high-end customers.

On the broadband side, competition from cable operators remained intense and we experienced some subscriber loss in the first quarter, but the rate of contraction continues to decline, which is encouraging. We will continue to leverage our marketing analytics for precision marketing to further strengthen our high-speed service adoption and enable customers to enjoy quality content via diversified internet-based platforms.

In addition, in March, we announced the rollout of our 4K service trials, aiming to incentivize the adoption of MOD and the 300-megabit per second broadband bundled service.

Going forward, we will continue to leverage our expertise in cutting-edge communications technology as well as our marketing resources to strengthen our product offerings, diversification and to defend our market share. Now I will walk you through each of our business lines.

On Slide 5, I would like to update you on our mobile business. Our 4G subscribers and the mobile Internet adopters continue to grow, and consequently, drove the mobile Internet revenue to increase 3.4% year-over-year. To cater to customers' demands and compete more effectively with other players in the market, we extended the 699 and 777 plans, which have effectively brought in new customers. Given the mitigation of subscriber loss, in the meantime, we have decreased the subsidies and have removed the credits for the mid- to low end plans gradually. Moreover, we will take opportunities of the availability of high-end smartphone models this year to further strengthen ARPU by leveraging handset subsidy for high-end models.

Going forward, we will continue to weigh the risks and rewards of adjusting our pricing strategy. But we will also remain consistent in strengthening our subscriber acquisition and the retention initiatives to further solidify our market share.

Slide 6 shows the performance of our broadband business. During the first quarter of 2017, we continued to see a migration of subscribers to higher-speed fiber service. Furthermore, the number of users signing up for connection speeds of 100-megabit per second or higher grew by 10.1% year-over-year to 1.19 million. We are pleased with the results we are seeing and will continue to promote and upsell our broadband services and encourage customer migration to higher-speed services. We believe we are taking the right steps to further improve user experience and user stickiness on our network.

Let's move on to Slide 7. Our IPTV customers continued to sign up for additional packages and SVOD programs, as household TV usage rates also continued to steadily climb. To enhance our quality content offerings and drove the industry to develop, we embarked on the preliminary task force for 4K service trial in the first quarter, and expect to roll out the service the fourth quarter. In addition, we also increased the shopping channel to our channel portfolio.

Continuing the growth trend of IPTV revenue from third quarter of 2016, IPTV revenue for the first quarter of '17 increased by 4.8% year-over-year, primarily driven by healthy growth of IPTV and SVOD subscribers. Additionally, household TV usage rate also increased to 75.3%. Going forward, we will continue to enrich the IPTV content and also upsell packages to increase customers' contribution and total revenues.

Please turn to Slide 8 for an update on our ICT initiatives. We are delighted to see continued solid growth in our ICT business. Going forward, we remain committed to leveraging our competitive advantage in network infrastructure, IDC and CDN to offer reliable, customized and comprehensive ICT solutions to our enterprise customers.

Additionally, by leveraging our cloud, big data and the information security capabilities, we have rolled out IoT platform during the fourth quarter of 2016, which develops green energy, smart building, video surveillance and intelligent transportation solutions for enterprises to facilitate their business development. Enterprises from different industries can also develop their own solutions over the platform using our network and the cloud resources.

We are pleased by the initial results we are seeing and the platform showcased great potential to attract enterprise customers and to facilitate the further adoption of IoT applications. Going forward, we will continue to develop new opportunities in ICT business and cooperate with our partners to build on our core capabilities and establish a comprehensive ecosystem in this sector.

Now I would like to hand over the call to Mr. Chen for our financial results.

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Bo-Yung Chen, Chunghwa Telecom Co., Ltd. - CFO and Senior EVP [4]

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Thank you, President Sheih. Now I will go through our financial results in details, beginning on Slide 10.

Slide 10 provides you with highlights from our income statement. For the first quarter of 2017, total revenues decreased by 4.2%, and operating cost and expenses decreased by 0.4% year-over-year. Our income from operations decreased by 16.3% and our net income decreased by 17.7%. In addition, our EBITDA margin decreased to 36% in the first quarter, from 38.5% in the same period of 2016.

Please refer to Slide 11 for revenue breakdown by business segments. The decline in total revenue for the first quarter of 2017 was driven by the decrease in voice revenue, smart device sales and ICT project revenue, which was partially offset by the increase in mobile value-added service revenue and application value-added service revenue under Internet segment.

Moving on to Slide 12. Our operating costs and the expenses decreased by 0.4% year-over-year in the first quarter, mainly due to the lower interconnection expense, ICT project costs, and the depreciation offset by the higher marketing and the commission expenses and the amortization expense.

On Slide 13, cash flow from operating activities for the first quarter of 2017 increased by TWD 4.16 billion or 64.1%, compared to the same period of 2016, mainly due to the lower cash contributions to pension funds and the decrease of our receivables, which was partially offset by the increase in inventories, the decrease in payables and pretax income.

Slide 14 shows our operating results as compared to our guidance. In the first quarter of 2017, our revenues were lower than our expectation. However, our results of operating income, net income and EPS had outperformed our first quarter guidance.

Lastly, on Slide 15. We are budgeting CapEx of TWD 30.3 billion for year 2017. We will focus on investment for core business, including FTTx, 4G and IDC, among others, under precision construction principle.

Thank you for your attention, and we would now like to open up for questions.

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Operator [5]

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Our first question is coming from Patrick Chen, Nomura.

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Patrick Chen, Nomura Securities Co. Ltd., Research Division - VP [6]

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I only have a quick one on your intention to solidify your subscriber share. Can you share with us your rationale in solidifying your subscriber share? And how do you balance your expenses, profitability alongside the market share on the different market segments? How do you balance between the top line or market position, as well as your profitability? That's my first question.

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Chi-Mau Sheih, Chunghwa Telecom Co., Ltd. - President and Director [7]

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Okay. About this question, I've mentioned in presentation earlier that we will focus on -- more on strengthening our subsidy efficiency by allocating more resource on high-end bundled plans. But at the same time, we have decreased subsidies and removed credit for the mid- to low end plans gradually. Therefore, overall, subsidy amount is targeted to have a small decrease year-over-year.

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Patrick Chen, Nomura Securities Co. Ltd., Research Division - VP [8]

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Okay. My follow-up is on your first quarter financial guidance traction. I see on the profit and OP income side you are actually tracking ahead of your regional expectations. Could you elaborate more on where these profitability or earnings upsize is coming from?

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Bo-Yung Chen, Chunghwa Telecom Co., Ltd. - CFO and Senior EVP [9]

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Okay. If your question is regarding the difference between our actual number and our forecast, I think we -- EPS-wise, we outperformed our first quarter guidance. The reason is that there are many elements. The first one is our handset sales. I think our handset sales is a little bit lower than our expectations. So overall, the total amount of subsidy was also lower than our original plans. Okay, and the second one, I think in terms of the ICT projects, this year, we are -- we become very selective. We need to identify the case and to improve the ICT profit margins. So on the overall profit, ICT revenue a month is a bit lower than our expectation; but however, the associate cost is also reduced as well.

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Patrick Chen, Nomura Securities Co. Ltd., Research Division - VP [10]

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And lastly, any update on the Southbound Policy? How do you leverage on the government's biggest initiative on this Southbound development policy?

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Chi-Mau Sheih, Chunghwa Telecom Co., Ltd. - President and Director [11]

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Okay, thank you for your question. First of all, we would like to extend our cooperation with our partners such as local governments and Taiwanese companies in Southeast Asia to further explore opportunities in the area. We established our subsidiary in Thailand and expect to offer data service in the beginning, and we will focus on Indonesia and Malaysia markets as well. We'll continue exploring opportunities in Southeast Asia for years, which is important to our long-term development. In the mid- to long term, we expect to offer our ICT, IoT and the digital convergence services to this market for investment companies.

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Operator [12]

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The next question is coming from Jack Xu, SinoPac Securities.

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Jack Xu, SinoPac Securities Investment Service, Research Division - Research Analyst [13]

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I have 2 questions. The first [2] question is, could you share how many 4G subscribers in the 2000 -- in the first quarter -- accumulate 4G subscribers in the first quarter? My second question is kind of we have mentioned we will select the ICT project. Could you give us some kind of color or some picture of how does our ICT business grow in 2017?

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Bo-Yung Chen, Chunghwa Telecom Co., Ltd. - CFO and Senior EVP [14]

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The 4G subscriber in the first quarter of '17 is around 7.12 million subscribers.

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Chi-Mau Sheih, Chunghwa Telecom Co., Ltd. - President and Director [15]

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Regarding your question about how ICT business. As we mentioned in the presentation, I think, lately, our focus will be more on the green energy and smart building and the video surveillance and transportation-related. And I think during the past few years, Chunghwa Telecom already accumulated certain experience and expertise in these areas. I think -- still believe with this focus on these segments, you see we focus on ICT revenue and we will have a lower double-digit growth this year.

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Jack Xu, SinoPac Securities Investment Service, Research Division - Research Analyst [16]

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Okay. I had just one follow-up question. Will we cooperate with some foreign companies, like content provider such as Netflix or Google or et cetera? Will we have any plan to corporate with this kind of companies in 2017 or in the near future?

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Chi-Mau Sheih, Chunghwa Telecom Co., Ltd. - President and Director [17]

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I think it is always open. Our attitude is always open and trustful. But as to who is going to be our partner, sorry, we cannot just tell you the name at this moment.

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Operator [18]

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The next question is coming from [Yul King Yi], CIMB.

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Unidentified Analyst, [19]

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Just a question about the unlimited data plan in Taiwan. Just wondering what's Chunghwa Telecom view about the unlimited data plan? And is there any plan to remove that? And how do you plan to do it?

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Chi-Mau Sheih, Chunghwa Telecom Co., Ltd. - President and Director [20]

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About our unlimited data plan, there's always a demand in the market. However, we still believe that tier pricing under the Fair Use Policy, if it's correct or rational, operator should work for -- towards it.

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Unidentified Analyst, [21]

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Okay. If that's the fair way to price data, but why aren't we seeing any of the Taiwan telcos doing that? And why is Chunghwa not taking the lead?

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Chi-Mau Sheih, Chunghwa Telecom Co., Ltd. - President and Director [22]

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I think we are still waiting for the right timing to do that, and still subject to the market competition landscape. But however, I think that -- I can tell you that it's a very -- there's a certain demand for unlimited program in the market. So we believe, certain programs, we have limited -- unlimited programs stay for a while.

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Unidentified Analyst, [23]

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When would be the right time to do it?

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Chi-Mau Sheih, Chunghwa Telecom Co., Ltd. - President and Director [24]

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As we just mentioned, we are still waiting for the right timing. And see, it still depends -- subject to the market competition landscape and our market share, and there are many elements.

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Unidentified Analyst, [25]

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So what kind of market share level that you need to see before you move on to tier pricing?

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Chi-Mau Sheih, Chunghwa Telecom Co., Ltd. - President and Director [26]

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I think, definitely, the market share is -- should be better than the current status.

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Unidentified Analyst, [27]

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Do you have a specific number or...?

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Chi-Mau Sheih, Chunghwa Telecom Co., Ltd. - President and Director [28]

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Sorry, only for ARPU. The ARPU situation is also the one our condition need to...

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Unidentified Analyst, [29]

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Because if you don't move to tier pricing, you won't be able to increase your ARPU. It [works like that.]

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Fu-Fu Shen, Chunghwa Telecom Co., Ltd. - Director of IR [30]

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Well, actually, no. Even though we haven't really removed the [lows] of price plan moment, but as mentioned in the presentation earlier that we would focus more on strengthening subsidy efficiency by allocating more resource on high-end bundled plans. By this time, we have already decreased the subsidies and removed some credits for the need to lower price range gradually. So I think that's kind of demonstrating that we would like to move toward the correct direction. So it's really now timing kind of issue at the moment.

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Unidentified Analyst, [31]

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Okay. If that's the case, help me understand why the guidance EBITDA is 4% lower compared to last year.

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Bo-Yung Chen, Chunghwa Telecom Co., Ltd. - CFO and Senior EVP [32]

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I think we are not just a mobile service provider. We have a fixed line broadband. And I think our EBITDA is lower at -- there are a few reasons. The first one is, our voice-related revenue declined. That is a major reason. And the second one is the -- our ICT revenue, the profitability is unlike the traditional telecom voice data-related profitability. And the third one, in order to defend the market share. I think we call this higher marketing expenses, subsidy and the commission. I think that, together, to lower down our EBITDA margin.

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Unidentified Analyst, [33]

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Okay. On the Southbound initiative, can you tell me what are you offering and -- like in Thailand, you're saying that you're offering some data service. I was wondering if those are mobile data plan, or you're offering in the fixed line data service. What kind of data service are you offering there?

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Fu-Fu Shen, Chunghwa Telecom Co., Ltd. - Director of IR [34]

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Basically, no, it's not a mobile data. It's not infrastructure-related kind of services. It's more like Type 2 kind of services. Okay?

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Unidentified Analyst, [35]

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Sorry, what's Type 2 kind of service?

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Fu-Fu Shen, Chunghwa Telecom Co., Ltd. - Director of IR [36]

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It's like some data transition. It's like you collect some kind of volume that telecom managing their communications so we can do some changes, or something like that. I'm sorry, I cannot really talk very clearly. But at the moment, it's not infrastructure-related. It's something I would like to focus on.

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Unidentified Analyst, [37]

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Okay. So for the Southbound initiative, just wondering, going forward, say, like 5 years later, how much would Southeast Asia contribute in terms of revenue to Chunghwa Telecom?

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Bo-Yung Chen, Chunghwa Telecom Co., Ltd. - CFO and Senior EVP [38]

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I think it's a good question. But, however, so far we have no specific numbers how much contribution from the Southbound-related investments. I think within 5 years, gradually we will see probably single-digit portion in our total revenue pool.

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Fu-Fu Shen, Chunghwa Telecom Co., Ltd. - Director of IR [39]

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And also, I think not only the service or destination, also we did a pretty good job like the smart city kind of cases in Taiwan -- in major Taiwan cities. So we also like to copy our success for smart city cases we did recently in the major cities in Taiwan, in those countries in Southeast Asia. I think -- but at the moment it's like seeing a donation. We don't really have any country number to disclose.

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Unidentified Analyst, [40]

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Okay. Because there's an opportunity now in Singapore. Because M1, the largest telco player, is up for sale. I'm not sure if Chunghwa Telecom will be interested. There will be an opportunity for you to come into, sorry, the issue in a big way?

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Fu-Fu Shen, Chunghwa Telecom Co., Ltd. - Director of IR [41]

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At the moment, I think Singapore is not really in our radar screen.

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Operator [42]

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Our next question is coming from Peter Milliken, Deutsche Bank.

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Peter Milliken, Deutsche Bank AG, Research Division - Head of Asia-Pacific Telecom Research Team [43]

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Two questions. First one is, your earnings were down 18% in the first quarter, and yet that was still 7.5% above your expectations. And your expectations for the year was for a 8% decline. That implies you were thinking the first quarter was going to be very bad. Why would you see the skew where the first quarter is so -- both going to be so weak? And what happens in the following quarter to drive profitability up? That's the first question. And the other one was, you talked in the beginning of the presentation about pushing into IDC, CDN, ICT, cloud, big data, all the stuff, which is great. But how do you see the net benefit of your push into that versus the cloud -- couple of cloud providers squeezing you out of some of your traditional revenues?

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Bo-Yung Chen, Chunghwa Telecom Co., Ltd. - CFO and Senior EVP [44]

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I think, first, regarding your question one, the first quarter result, the revenue is lower than our expectation. I think the reason is twofold. The first one is that it's a decline in our voice-related revenues. The second one is that we are more selective in the ICT projects. So with that, this year our priority is to improve the profitability of the ICT projects. So that's the reason you see the revenue is lower than expectation. However...

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Peter Milliken, Deutsche Bank AG, Research Division - Head of Asia-Pacific Telecom Research Team [45]

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I mean, profits. Profits were weak in the first quarter. They're expected to be very weak in the first quarter.

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Bo-Yung Chen, Chunghwa Telecom Co., Ltd. - CFO and Senior EVP [46]

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But the first quarter, the bottom line, I think, is better than our forecast. If you see the slides -- are you all right?

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Peter Milliken, Deutsche Bank AG, Research Division - Head of Asia-Pacific Telecom Research Team [47]

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Yes, yes, certainly. My point was -- essentially, first quarter was down 18% and you expected it to be down even more than that. Why were you expecting things to get better in the coming quarters? Is it just the 2.6 gigahertz network from rolling off on year-over-year basis? Or would you rather think you see driving profitability up on a Q-on-Q basis?

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Fu-Fu Shen, Chunghwa Telecom Co., Ltd. - Director of IR [48]

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But actually, when we gave out the guidance, it's actually 4 quarters. It's not really averaged out in the numbers. So usually in the first quarter, you have to look at this is some kind of seasonal effect. Usually in the first quarter, it's a bit of [free curve] amount for (inaudible). Okay. So if you're not really seeing -- it won't take a slightly average result number. So for -- even for the first quarter, if you look at our guidance, the performance compared with our guidance, we see we're a bit of weak in the top line. For the rest of the lines, I think, we outperformed.

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Operator [49]

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The next question is coming from Varun Ahuja, Crédit Suisse.

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Varun Ahuja, Crédit Suisse AG, Research Division - Associate [50]

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My question is, again, on mobile side. Can you provide an update on 699 plan? I remember last call you mentioned you will kind of try to get away with this plan. Again, you're highlighting that you want to move to the high-end segments. So just wanted to hear your views, what is the future of this 699 unlimited plan that has been there in the market for the last 6, 9 -- 6 months or so? Secondly, again, I wanted to get more understanding of your strategy on mobile when you say that you want to focus more on mid-end segment and want to increase more subsidies on that front while your overall subsidies should marginally decline, I thought you had said. So net-net, my understanding is, on EBITDA side, on the profitability side, there should not be -- there won't be any change. So what will you prefer, having lower subsidies overall, and let the ARPU a little bit down? Or what is the management thinking on that trend in terms of profitable growth? I just want to hear what is the mobile strategy going forward.

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Bo-Yung Chen, Chunghwa Telecom Co., Ltd. - CFO and Senior EVP [51]

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Okay. The overall subsidy amount is packaged to have some more decrease over -- year-over-year. And as for the commission, the total amount will increase slightly year-over-year. But the average quarterly amount this year is actually lower than that of the second half 2016, during which we increased channel commission to match with our peers.

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Fu-Fu Shen, Chunghwa Telecom Co., Ltd. - Director of IR [52]

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Just like we mentioned about earlier, Varun, 699, that's [planning] now. We actually seeing the expiration date. But in the meantime, we are already in the 60 level and also the (inaudible) for that plan. So at the moment, we don't really have any specific date for when to remove that plan. It all depends on the market sentiment.

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Varun Ahuja, Crédit Suisse AG, Research Division - Associate [53]

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I'm not looking for any specific date. But my understanding is for last 2 quarters or so, you have been saying that you want to move towards the higher kind of a plan, get towards much more. The market is not kind of, competition-wise, it's not there. But if you look at that last year also the high -- the unlimited threshold was increased to 3099. But again, you saw the launch of 699 and all those plans. Now again, you're kind of highlighting that the threshold for unlimited plan should keep on increasing, but the reality is it keeps on decreasing. So just wanted to hear how do you think and how do you want to put into actions what's been your objective in terms of what moves the market towards a better pricing environment?

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Fu-Fu Shen, Chunghwa Telecom Co., Ltd. - Director of IR [54]

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So actually, we already took the action. For now we're at profile for the new subscription -- for the subscription for April. We're already seeing the increase of the high-end plan -- price plan subscription. So that means it's really working. We like, for example, in this month, we have this phone Sony. Sony XZs. This plan -- this model, it's a high-end model. So we're lavishing this high-end model have an ability to attract the more high-end customers. So I think we are on track.

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Operator [55]

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(Operator Instructions) The next question is from [Roni Chu], UBS.

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Unidentified Analyst, [56]

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I have a question. This is also related to the special plan which is, besides the 699, I heard we also have a 777 plan, which is offered to all the existing subscribers. And do you expect this one will lower -- or will attract our high-end subscriber down to subscribe this low tariff plan? And by the way, I've also calculated, even we offer lower handset subsidy with the 699 plan, but I think the real tariff is still lower than I understand if we -- when we buy high-end handsets. And would you please explain why people would choose 3099 instead of 699? That's my question.

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Fu-Fu Shen, Chunghwa Telecom Co., Ltd. - Director of IR [57]

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I already mentioned that. 699, we, starting from early this year, beginning of this year, we started to remove some of the subsidy -- lower the subsidy level and also removed the credit -- additional credits, even end of last month. Okay. So it's not really that attractive, talking about the overall contents of 699. But people just -- some people just attract those price level. So we keep this plan in the market, just want to suit some of the customers. Okay. So we would also like to redirecting the people to take 777. This is what we really would like to do. So that's the current situation.

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Unidentified Analyst, [58]

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Okay. And a follow up to another question. One is about the competition on the fixed line broadband market. We're seeing the government has allowed the cable players to operate across regionally under cable-TV business. So I think the cable business will be intensified. And on another -- in another way, high-end cable players will pay more attention on the broadband business. Do you think that will intensify out fixed line broadband competition? And one another question is about our dividends policy. Are we trying to maintain a stable EPS or dividend payout ratio? That's my question.

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Chi-Mau Sheih, Chunghwa Telecom Co., Ltd. - President and Director [59]

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Okay, regarding -- about the broadband competition. We still experience some subscriber loss in the first quarter, so the rate of contraction continues to decline. Facing continuous competition from cable operator, we will keep migrating our customers to fiber service by leveraging our network capability to offer high-speed [cabling] service.

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Unidentified Analyst, [60]

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I'm sorry. By the way, can we compare our network speed with the cable players, because I've heard their speed may be faster.

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Fu-Fu Shen, Chunghwa Telecom Co., Ltd. - Director of IR [61]

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Talking about the speed. I think we always have better upload speed compared with the broadband, data technology. Another thing is, even though they almost digitized -- or their network almost digitized, but talking about the capacity, we have roughly almost 75% of the share and our customer is kind of satisfied with our service. So if they want to match with our capacity and to increase their share, they really need to do more -- additional more CapEx for their network.

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Unidentified Analyst, [62]

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So our market share will be stable eventually?

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Fu-Fu Shen, Chunghwa Telecom Co., Ltd. - Director of IR [63]

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Pardon?

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Unidentified Analyst, [64]

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Do you expect our fixed fiber end market share will be stable in the future -- this year and thereafter?

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Fu-Fu Shen, Chunghwa Telecom Co., Ltd. - Director of IR [65]

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Yes. We've been facing the competition not from this year. It's been several years already. And last of the customers who are -- the past 2 years, I still remember in '15, we lost roughly about 14,000; last year, 20,000. And the first quarter this year as applied to this quarter, it's only 4,000. I think we make a lot of effort to try to retain our leading position.

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Bo-Yung Chen, Chunghwa Telecom Co., Ltd. - CFO and Senior EVP [66]

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In response to your dividend policy question. I think dividend policy always depends on the operational performance and the CapEx spending and also there is any huge investment. And we all know the final decision is still up to the board's approval. Here, I would say that is likely that we would do the way that we have found in the past few years for dividend policy.

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Unidentified Analyst, [67]

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Okay, okay. And sorry for the time. Just one last question. What's your view on the upcoming spectrum auction?

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Chi-Mau Sheih, Chunghwa Telecom Co., Ltd. - President and Director [68]

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Okay. The spectrum to be released at this time, it is thought about 150 megahertz on 1,800 megahertz and 2,100 megahertz band. I think these bands are not popular for preliminary 5G development. We expect that bidders were limited to current 4G players. There is limited incentive for newcomers. But for this penetration, it's already high and the market is mature and competitive in Taiwan.

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Unidentified Analyst, [69]

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So you think the competition should be rationalized?

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Chi-Mau Sheih, Chunghwa Telecom Co., Ltd. - President and Director [70]

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The spectrum to be released is for capacity enhancement. Therefore, we expect that premier to small price won't be as high as the first one in 2013.

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Unidentified Analyst, [71]

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Yes, yes, I know. And do you expect rate will be housed in Q3 this year or Q4?

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Fu-Fu Shen, Chunghwa Telecom Co., Ltd. - Director of IR [72]

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Q4.

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Chi-Mau Sheih, Chunghwa Telecom Co., Ltd. - President and Director [73]

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Q4.

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Operator [74]

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Our next question is coming from Cindy Wang, CLSA.

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Cindy Wang, CL Securities Taiwan Company Limited, Research Division - Research Analyst [75]

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So I have 2 questions. So the first one is, if we look at our mobile ARPU, it continues to decline in first quarter and total subscribers also declined due to some costs consolidation. So when are we going to see the ARPU to rebound and the total subscriber number to be stabilized? And the second question is, given that now we have 4G subscribers of 7.1 million, what is our current 4G amount this year? And what is our target for 4G subscriber in 2017?

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Chi-Mau Sheih, Chunghwa Telecom Co., Ltd. - President and Director [76]

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About the mobile ARPU, we're expecting 217 full year blended ARPU to slightly lower than that of 2016. However, we anticipate our blended ARPU will continue to have slight decrease for not 1 or 2 quarters, then it will bargain up and get back to the similar level of the fourth quarter 2016 in this year, quarter 4.

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Fu-Fu Shen, Chunghwa Telecom Co., Ltd. - Director of IR [77]

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According to the most recent data that our 4G market share is already above 77%. It's quite similar to our blended market share. So in '17, you won't basically forecast -- I think we already mentioned about it. For this year, expect our overall -- our 4G subscriber number to be 8.4 million by the end of this year.

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Cindy Wang, CL Securities Taiwan Company Limited, Research Division - Research Analyst [78]

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Okay, okay, great. One more quick question. So the next round 4G bidding will be held in fourth quarter. And now because the NCC, like, changed their rule for the bidding law, going to change to big spectrum amount first, and the silo spectrum location later. So what do you think, will this change will -- going to impact the pricing for the bidding?

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Bo-Yung Chen, Chunghwa Telecom Co., Ltd. - CFO and Senior EVP [79]

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We have no comment about this.

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Operator [80]

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The next question is coming from Jack Xu, SinoPac Securities.

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Jack Xu, SinoPac Securities Investment Service, Research Division - Research Analyst [81]

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I have 2 questions. The first question, will we use some techniques, like LPWA to provide the services in the near future? Or will we just assume the trial? My second question is, right now, all 4G subscribers is over the -- 7.1 million users -- subscribers. This number is far -- is more than our competitors. Will it have any change in our strategy in the 2017?

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Fu-Fu Shen, Chunghwa Telecom Co., Ltd. - Director of IR [82]

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About that LPWA, that part we came up with our partners. We are doing some project at the moment. So it's -- definitely, we will have this kind of service in the future. As for the second question, will we see any change in the strategy in '17? I think we already mentioned about our mobile strategy many times in this presentation and Q&A, so I think that is it.

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Operator [83]

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If there are no further questions, I will turn it back over to our President Sheih. Please go ahead.

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Chi-Mau Sheih, Chunghwa Telecom Co., Ltd. - President and Director [84]

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Thank you for participating. Thank you.

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Operator [85]

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Thank you, President Sheih. Thank you for your participation in Chunghwa Telecom's conference. There will be a webcast replay within an hour. Please visit www.cht.com.tw/ir, under the IR Calendar section. You may now disconnect. Goodbye.