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Chunghwa Telecom Co., Ltd. (NYSE:CHT)

Q3 FY08 Earnings Call

October 30, 2008, 06:00 AM ET

Executives

Fu-fu Shen - IR

Shyue-Ching Lu - Chairman and CEO

Joseph C. P. Hsieh - Sr. VP and CFO

Analysts

Anand Ramachandran - Citigroup

Henry Cobbe - Nevsky Capital

Kathy Chen - Goldman Sachs

Terry Chan - Credit Suisse

Shirley Tse - UBS

Mitchell Kim - Morgan Stanley

Operator

Please proceed.

Fu-fu Shen - Investor Relations

Thank you. This is Fu-fu Shen, Investor Relations Director of Chunghwa. Welcome to our Third Quarter 2008 Results Conference Call.

Today, we have Dr. Lu, our Chairman and CEO, and Dr. Hsieh, our CFO on the call.

Dr. Hsieh will review our financial results and the business operations, and Dr. Lu will review our business outlook. At the end of the presentation, we will be happy to take your question.

Now I would like turn to the call over Dr. Lu, our Chairman and CEO.

Shyue-Ching Lu - Chairman and Chief Executive Officer

Thank you, Fu-fu. Hello, everyone. This is Shyue-Ching Lu, Chairman of Chunghwa Telecom. Thank you all for joining our third quarter 2008 earnings results conference call.

First, please note our Safe Harbor Statement on slide 1. Next, I would like to report the foreign exchange derivative contracts that we entered into with Goldman Sachs in September 2007 expired on October 24, 2008 when the NT dollar versus U.S. dollar exchange rate hit 32.7 in accordance with the contract terms.

As a result, all previously incurred mark-to-market unrealized losses under the contract will be fully written back at the end of October including recognized losses of NT$580 million in 2007.

In addition, we will have a non-operational gain resulting from the net profit from the contract due to the cumulative NT$13 million cash inflow from all settlements that occurred since the purchase of the contract. Furthermore, you may be aware that we offered an early retirement program in September. There were 160 employees participated in the program and will leave the company on November 1, 2008.

Despite the ERP compensation of NP$170 million could be recognized in the fourth quarter we will benefit from the savings of their two months salary for November and December this year.

I would like also to update you on our capital reduction program. At the Extraordinary Shareholders' Meeting on August 14th, two resolutions were approved by our shareholders. One is to increase the company's capital stock by 100% from our capital surplus. The other is to subsequently reduce the capital stock by the same amount. The capital increase took place in September.

With the capital reduction, a trading suspension is expected to happen between the end of February and early March through '09 just before the cash payment date.

In the future, our capital management priorities will continue to be first, investment in our core business which has always been our primary focus. Second, M&A opportunities synergistic to our overall growth trends. Our third priority is to return cash to shareholders via capital reduction or share repurchase.

The current financial crisis has impacted the global economy, especially in the States. Based on our current outlook given that telecommunication is a utility-like service and our dominant leadership in Taiwan, the impact on us will be relatively small. As a result currently we're still confident that we should be able to achieve our annual guidance which we set out earlier into '08.

Dr. Hsieh will now continue with our financial and business review. Dr. Hsieh, please go ahead.

Joseph C. P. Hsieh - Senior Vice President and Chief Financial Officer

Thank you, Chairman Lu and I thank you all for joining us. Please turn to slide 4, showing income statement, highlights on a consolidated basis.

Our total revenue for the nine months for '08 was NT$151.9 billion, a 3% increase year-over-year. EBITDA increased by 2.7% to NT$75.6 billion, operating profit decreased by 1.8% to NT$46.9 billion. And the net income amounted to NT$36.5 billion representing a decrease of 3.3%.

While our Internet and data business were positive contribution, 2008 year-to-date revenue growth was mainly driven by the inclusion of our subsidiary Senao for the full nine months period, as only 5.5 months of Senao operations results were included in our consolidated financials for the first nine months of 2007 last year.

The EBITDA and the net margin declines can also be primarily attributed to the consolidation of Senao, which operates at a lower margin than the parent company.

On slide four, we show third quarter 2008 figures. Revenues decreased by 1.5% year-over-year, EBITDA increased by 12.4%. Operating profit increased 15.6% mainly due to increased marketing and personnel expenses from parent company and Senao's costs on a consolidated basis.

As shown on slide 5, total operating costs and expenses for the first nine months of 2008 were NT$104.9 billion, an increase of 5.3% when compared to the fist nine months of 2007. The increase was many attributable to the consolidation of our subsidiaries, especially Senao.

For the parent company, total operating costs and expenses increased by NT$1.5 billion, representing a year-over-year increase of 1.6%. This was primarily coming from an increase in handset sales costs and the handset subsidies.

For the third quarter of 2008, total operating costs and expenses increased by 6.2% mainly due to the same reasons aforementioned for the nine months results.

On slide 6, we show the revenue performance for each individual business segment in the first nine months of 2008. Internet and the data revenue continued to increase due increased broadband subscriber numbers and the statistical initiatives to upgrade customers to higher speed ADSL and FTTx services.

On our mobile business we had a progress on our subscriber numbers... data, sorry. We reported a 2.5% increase in subscriber numbers and 26.8% higher value added service revenue compared to that at the end of September last year. However this was offset by the traffic decline and price costs imposed by the National Communication Commission, leading to a 2% revenue decrease year-over-year.

In fixed line business, local and domestic long distance revenues decreased by 2.9% and 6.5% respectively, year-over-year for the first nine months of 2008 mainly due to mobile and the VOIP substitution.

International long distance revenues decreased by 4.2% compared to the same period in 2007. This was mainly due to the increased competition from calling card and the decrease in settlement income resulting from the fluctuation of foreign exchange rates. However, the decline was mitigated in September.

Other revenue increased by 60.57% mostly from the consolidation of our subsidiary Senao. For the third quarter 2008, Internet revenue was 0.3% lower year-over-year because of revenue reclassification and the tariff reduction.

Data revenues increased by 2.5%, mobile revenue decreased by 3.4% mainly due to the price cuts imposed by the NCC and the promotional packages. Fixed line revenue as a whole decreased by 5.1% as compared to the same period last year.

Please turn to slide 7, showing our cash flow performance. Our cash flow from operating activities decreased by 2.1% to NT$54.1 billion. The decrease was primarily because of an increase in inventories and the decrease in depreciation and amortization. Free cash flow for the first nine months 2008 decreased by 9.5% when compared with the same period 2007 as CapEx was 15.4% higher.

Our cash and the cash equivalents amounted to NT$103.1 billion as of the end of September this year. This 85.2% increase is a result of the timing of our cash dividend distribution this year which will fall in November while it was in August in 2007 However, we're still accumulating cash despite the dividend distribution factor.

For the third quarter of 2008, cash flow from operating activities decreased significantly by 44.3%. The decrease was primarily owing to the decrease in tax payable and that decrease in mark-to-market loss of financial assets.

Next on slide 8, CapEx for the first nine months of 2008 was NT$18.3 billion, an increase of 15.4% year-over-year. This was mainly due to an increase in other spending of NT$1.2 billion in the first quarter for the purchase of state-owned land, where one of our outlets is located.

Going forward, our CapEx may increase due to investments focused on our core business and our efforts to migrate mobile and the data customers to higher revenue platforms, including 3G, 3.5G systems, IP-based NGN, FTTx and xDSL.

Now, let us move on to operational details for our business. Please turn slide 10, you can see that Chungwa Telecom's total revenues for the first nine months 2008 was NT$151.9. On the left hand side, you could see the breakdown of our revenue and on right hand side, we demonstrate our market position. Chungwa has a commanding first place market position in each of our business segments.

We have been successfully defending our fixed line market share and are confident that our strong market position will sustain.

Next on slide 11, I will review our broadband progress. Our broadband subscriber number continues to increase. Of the 4.3 million broadband subscribers at the end of September, 2008, more than 78% used services with speed higher than 2 Mpbs. Internet value-added services drive the broadband service revenues. Top contributors include LAN Administration Information Service and our Internet pornography gatekeeper which accounted for 33% and 90%of VAS revenues respectively.

The fastest growing VAS, our Internet advertisements and the Internet pornography gatekeeper. Internet advertisement service was launched since April 2007, and it exhibited year-over-year revenue growth of 115% for six months from April to September as compared to that of the same period last year.

Internet pornography gatekeeper also performed a 65% year-over-year revenue growth for the nine months of 2008.

Total broadband access revenue was approximately NT$15 billion which was 4.2% higher than that of the prior year period. The growth rate is lower due to the tariff cuts imposed by the NCC.

Now as shown on slide 12, our key initiative for the broadband business are first, to migrate our customers to higher access speed. And second, to continue to increase our fiber coverage by deploying fiber networks in residential buildings, campuses and commercial buildings allowing more opportunities for customers to access and adopt a variety of internet value added services.

These initiatives have shown satisfactory progress. As you can see on the left hand side of this slide the average bandwidth per user has continuously increased over the last few years and they'll reach 4.2 mega bit per second in the third quarter 2008.

In addition, about 1.5 million broadband subscribers utilized a service speed of at least 10 mega bit per second, representing about 35% of our total broadband subscribers.

The number of fiber subscriber has also shown strong growth with 946,000 subscribers at the end of September this year. In addition, I would like to emphasize that nearly 17,000 buildings to which we offer fiber access service represents market share of about 91%. Going forward, we expect this trend of growing broadband business to continue.

Regarding mobile service, Chunghwa Telecom has maintained its number one mobile market share position. As shown on slide 13 at end of September 2008 we had 8.9 million mobile subscribers including 3.2 million 3G subscribers. 3G subscribers as a percentage of the total mobile subscriber base continue to increase. Of the 3.2 million 3G subscribers 76% utilized 3G handsets. In addition, 11.7% of 3G ARPU was from data usage compared with 10.8% for 2G ARPU.

Moving to slide 14, I want to provide some more detail on our VAS initiatives for our mobile business. During the first nine months of this year, we were encouraged by our mobile value added service growth, primarily due to the success of our exclusive Mobile VAS platform, emome.

Total VAS grew by 26.8% year-over-year. Of this mobile Internet exhibited the highest growth which was 48.5%. Data card business has also performed well over the past several months.

At the end of September we had 98,000 data card subscribers. The associated ARPU for which was robust at NT$885. As a result, data revenue as a percentage of mobile revenue increased to 9.5% for the first nine months of this year.

For business customers we offer a customized service called mPro along with customized handset models. For the third quarter this year we won 17,000 subscriptions and hence accumulated 15,000 users by the end of September. Furthermore, 35.5% of ARPU for mPro users was from VAS usage. The strong growth in subscriber number was because that we are opening economic mPro packages at low rates until the end of the year to attract more subscribers. And this has recently brought more than 1,000 subscription per week. With the penetration of mPro services, we expect mPro to continue contributing positively to our revenue growth later on.

For younger customers in the third quarter this year, we began to offer handset discounts along with mCool services. The promotion proved to be effective by the end of September, we had above 100,000 mCool users which was our 2008 full year package. And then VAS usage contributes 16% of ARPU.

Moving to slide 15, let me update you on our progress in convergence services. As we reported in the last call, the delivery of 2008 Olympic Games over our three platforms has firmly established our new media leadership position in this market.

The MOD rating picked over 40% during the Games and maintained around 34% after the Games, which is 10% higher than that of the first half of the year. By the end of September 2008, there were above 591,000 IPTV subscribers, which represented growth of 50% as compared to the end of 2007.

Furthermore, we are continuing our efforts to improve user interface and to enrich content so as to enjoy opportunities among three platforms, including MOD for IPTV, emome for mobile services, and hiChannel for ISP Service. We are also promoting the ever-popular sports program.

We will continually enhance the content of all our VOD and provide interactive value added service such as games, karaoke and the exclusive services for corporate customers. In our high quality service offering we have made more high definition video-on-demand and the high definition channel for sports, drama and the variety shows available. We also had more channel aggregator, like Fox International join our MOD platform.

In our last call, in August, we reported to you the roadmap for the deployment of our Next Generation Network. Today, I would like to present an update; please refer to slide 16, which shows the infrastructure deployment status.

With the completion of Stage 1 NGN/IMS network and the new IP platform, we will be able to launch a multimedia videophone in the first quarter of 2009 which is next year. 10 gigabit per second and 1 gigabit per second VPN service and the leased line service, with the increase in the FTTx ports and the enhanced 3.5G base station coverage

We expect to able to promote better services for the more superior high definition TV, VPM, Mobile Internet, mPro, mCool and Mobile TV which will be the part of the major growth driver for our business.

This completes my business review. Now I'll pass the call back to Chairman Lu for our business outlook.

Shyue-Ching Lu - Chairman and Chief Executive Officer

Thank you, Dr. Hsieh I would like to make a few comments on our business outlook. On slide number 18, let me highlight the key aspects of our near term strategy.

First, in our core businesses, we'll continue deploying NGN as a cutting edge platform for developing new digitalized services. We'll also enhance fiber coverage for upgrading customers to higher speed broadband services.

To encourage usage of Mobile Internet service, we will provide promotional packages integrating mobile services and the terminal equipment. We will conduct cross-platform operations to capture new growth opportunities. Based on our superior network facilities and the geographic advantage, we would strengthen our regional transmission service.

Second, we'll provide corporate customers innovative services. These services include ITS/Telematics, iEN, corporate information security service, PBX or IMO and call center. ITS, or Telematics, include fleet management systems customized Telematic service in real time to potential information service.

iEN is a total energy-savings solution that was developed based on our extensive experience. Our corporate information security service is comprised of our anti-hacker service, invasion prevention service and the information security alert system. In addition, the integration of ICT and corporate database will facilitate the real time call center services for corporate customers.

Third is cost control. As we mentioned earlier, we are going to have 160 employees participating in the early retirement program and leave the company on November 1st, we expect to save NT$268 million of personnel expenses for the year 2009.

And we were also benefited from consolidating broadband core networks which expect the result in the saving of NT$120 million per year starting next year. First, we were extra optimistic for our joint ventures and M&A. So, remember we are establishing a joint venture with a company in Thailand to offer an intelligent network imaging solution for corporate customers. We will be able to leverage this experience to offer similar services overseas in the future. In addition, we are collaborating with our local subsidiary to provide ICT solutions for corporate customers.

Fifth is on our CSR commitments. A strong commitment to corporate governance is one of the cornerstones as we are a world-class company. We are dedicated to increasing energy utilization efficiency and decreasing greenhouse gas emission. We will also create digital opportunities to reducing digital divide. In addition, we continue to promote corporate volunteering under community service programs as a means of protecting the environment and assisting those who are in need.

As we emphasize that we will continue our commitment to create shareholders' value. While maintaining our high cash dividend payout policies we will continue to explore opportunities to enhance shareholders' return through capital and cash management, including capital reduction on share buyback.

Again, I would like to reiterate that our financial policies will remain conservative.

Now we will be happy to take your questions.

Question And Answer

Operator

[Operator Instructions]. Your first question comes from the line of Anand Ramachandran with Citigroup. Please proceed.

Anand Ramachandran - Citigroup

Yes, hi, good evening. My name is Anand Ramachandran calling from Citigroup. Thank you so much for the call. I had two questions, firstly if I look at the EBITDA margins quarter-on-quarter, you've seen a 300 basis points dip. I was wondering if you could tell us what are the costs that went up in the third quarter to reflect that margin decline and what could you forecast for the trend for these costs going ahead? So that's question number one. Question two would be on the ERP that you've indicated, now these costs of NT$117 million, should we expect that to be reflected in the fourth quarter this year? And do you will see any extra cost coming through from that into next year as well on another ERP program? Thank you.

Shyue-Ching Lu - Chairman and Chief Executive Officer

Okay, your first question on the EBITDA margin for the Q3. Yes, as indicated in slide number four, the EBITDA margin declined in a somewhat in Q3 2008 as compared with Q3 2007. This mainly due to as explained earlier -- this is due to the increase in marketing costs and also due to somewhat deep decline in revenue as indicated in this slide. And looking... going forward we will exercise internally cost control, so that the cost will not be extraordinarily high for Q4, and we are also encouraging our colleague to promote our services. So that we will be able to have stable revenue.

And your second question is on ERP, the cost incurred that we reported that there will be about NT$170 million for this year and there will be no additional charges next year but as I said, the saving will result from this ERP will be something like NT$168 million personnel expense for next year. Are we going to have another ERP next year? Well we will see if the situation permits us to conduct another ERP. Maybe we will do it earlier next year, rather than this date in this year.

Anand Ramachandran - Citigroup

Thank you. And quickly follow up on the ForEx derivative contract that you've terminated. You mentioned we should expect a one-time, non-operating gain of NT$580 million which is last year and then another NT$30 million is coming through from the cash inflow so the P&L impact will be NT$610 million for the month of October?

Shyue-Ching Lu - Chairman and Chief Executive Officer

Regarding the foreign exchange contract terminations, about NT$30 million cash flow and this amount already booked in last year earnings, last year revenues. So but this year... for this year since we have about NT$3 billion unrealized market loss. But this NT$3 billion market loss seems the termination of this kind of, we'll be reason pack [ph]. Since last year we've already booked about NT$518 million on our income statements, so that remaining about 2.4 PDNT ERP will impact this year.

Anand Ramachandran - Citigroup

Thank you.

Operator

[Operator Instructions]. And your next question is from line of Henry Cobbe with Nevsky. Please proceed.

Henry Cobbe - Nevsky Capital

Hi there. Could you just update your CapEx budget for this year and next year?

Shyue-Ching Lu - Chairman and Chief Executive Officer

The CapEx for this year is likely we would stand about 31 PDNT for this year and for next we are at the stage... at the process of budgeting for next year. So maybe as I said in the previous calls that the CapEx will next year will be something like NT$32 billion to NT$33 billion.

Henry Cobbe - Nevsky Capital

Okay and also just looking at the mobile revenues it seems like they are coming under increasing pressure. Could you just describe what the operating environment is likely for you at the moment?

Shyue-Ching Lu - Chairman and Chief Executive Officer

The Taiwan Mobile market usually... it has been rational until very recently. Some of the minor operators, small operators they offered some very sweetened packages to customers. So, we have experienced a little bit of a decline in the overall size of the market in terms of revenue, is the contraction of about 43% I suppose. In mobile.

Henry Cobbe - Nevsky Capital

Okay.

Shyue-Ching Lu - Chairman and Chief Executive Officer

Yes, this is mainly, the reason from the similar operators and they are offering a bit sweetened --

Henry Cobbe - Nevsky Capital

Okay.

Shyue-Ching Lu - Chairman and Chief Executive Officer

Of course. Also NCC imposed tariff cuts for 2G operations, GSM operations and that had some impact as well.

Henry Cobbe - Nevsky Capital

Okay. And on capital management what is the basis you said that, obviously you have been [indiscernible] equipment or you'll be looking for other opportunities. Can you just clarify what your targets are?

Shyue-Ching Lu - Chairman and Chief Executive Officer

Yes, for the capital management and as you have been knowing that this... August this year our AGM meeting already approved the capital reduction for about 20% capital reduction. And we've been assured that we'll be receiving those cash benefits by end of March of next season.

Looking forward I think that we will base on evaluating of our merger and acquisition opportunity and the capital expenditure needs from our core business. And we can promise that we're periodically evaluating the possibility of the further capital reductions and we are also aware we do have excessive capital surplus but I cannot make a final answer at this moment because we're still on the evaluating stage.

Henry Cobbe - Nevsky Capital

Okay, okay. Thank you.

Operator

[Operator Instructions]. And your next question comes from line of Kathy Chen with Goldman Sachs.

Kathy Chen - Goldman Sachs

Hi thanks for the call. I've actually four questions sorry.

Firstly, regarding again the cost, it looks like usually every year we get higher cost in the fourth quarter, so in terms of this year can we expect this similar seasonality for example its looks like the fourth quarter last year EBITDA margins dropped to about 45%, would it be reasonable to assume a similar level this year as well?

And the second question is percent now could you show us what the EBITDA margin was in the third quarter and if there is room to improve the margins there? The third question is on personal expense, this figure you gave us was NT$268 million of savings in '09. Is this a number that we can expect on a recurring basis, in terms of going forward and given the number of total production that have been done over the last few years. And, then just lastly is, what is the Board's current thoughts on potential share buyback? Thanks.

Shyue-Ching Lu - Chairman and Chief Executive Officer

Let me answer the questions from the Group side, okay? As our CFO Dr. Hsieh has mentioned share buyback... well given these kind of circumstances we are evaluating or assessing the situation but we do not have any definite conclusion yet. So we will assess this from time to time to see if it's the right thing top do at the right time.

On the personnel costs going forward, this related to the proper sizing of the company in terms of headcount, and we believe with our business and the complexity of all these services, currently we have about 24,500 employees is about the right size. So, what we would like to do is to increase the younger employees by recruiting, so if possible we would like to have some kind of swap of our personnel composition. With early retirement programs and more senior employees who leave the company we're able... this will give room for us to recruit young people for this new technologies, expertise in all new technologies.

So we would see this kind of swapping if possible, so we will consider more sophisticated type of arrangements for our employees to consider in the future period early retirement programs. So the personnel costs would stay relatively stable for the coming year. On the EBITDA, Dr. Hsieh would give light on EBITDA, Hsieh.

Joseph C. P. Hsieh - Senior Vice President and Chief Financial Officer

About the EBITDA and I think for the third quarter this year the EBITDA if we look at the challenge here staying along and our EBITDA did not reduce much only from 54% to 53%. But we see there is quite reduction of EBITDA on the third quarter primarily because of the consolidation of our subsidiary Senao and because this year we had to book the full year EBITDA of Senao but last year we only booked 1.5 months since the timing of the merger and acquisition of Senao.

Looking into the third quarter, I think the similar to last [ph] the third quarter EBITDA may be a little bit lower compared to fourth quarter EBITDA maybe a little bit lower compared to the previous three quarters. Regarding the subsidiary Senao of EBITDA and the margin for fourth quarter, is doing great, and we don't expect then Senao margin will be substantial decline. No, probably it remain flat. Thank you.

Kathy Chen - Goldman Sachs

Sorry, can I follow-up? What was Senao's EBITDA margin in the third quarter?

Joseph C. P. Hsieh - Senior Vice President and Chief Financial Officer

We don't disclose it.

Kathy Chen - Goldman Sachs

Okay. And actually Senao was already consolidated in third quarter 2007 numbers, right? If I remember correctly, it was consolidated in the second quarter. So, third quarter year-on-year should be a clean comparison, is that right?

Unidentified Company Representative

Kathy, could you repeat the question?

Kathy Chen - Goldman Sachs

Sorry, if I remember right, I think Senao was consolidated in the second of 2007, so I think for third quarter '08 compared to third quarter '07, I think should be clean comparison right, where Senao is consolidated for all three months ?

Shyue-Ching Lu - Chairman and Chief Executive Officer

Yes, this year we have full-year booking of the Senao's revenue and cost.

Kathy Chen - Goldman Sachs

Yes, and then third quarter 2007 was also as for full booking for Senao to right?

Unidentified Company Representative

Yes, actually we took in 2007, we booked in Senao starting from April 12 through the end of the year, so that means in the third quarter, it's a full-booking but with last year.

Kathy Chen - Goldman Sachs

Okay. Thank you.

Operator

Your next question comes from line of Terry Chan with Credit Suisse. Please proceed.

Terry Chan - Credit Suisse

Hi. Thank you for the call. I have two questions. The first one is, is it fair to use the EBITDA margin in 3Q as a trend for the coming three or four quarters? My second question is can you give us colors on your property development and your recent MVNO service with Carrefour? Thank you.

Joseph C. P. Hsieh - Senior Vice President and Chief Financial Officer

Yes, the EBITDA in the following quarter may be a little bit... EBITDA margin will be a little bit lower than the previous three quarters due to the effect in the first quarter, the cost may be it could be higher than the previous quarters. But as our Chairman mentioned earlier, we are confident in reaching the target of the guidance in the probably very high.

And about the property management, given the fact that we have reached cash management, I mean we have cash rich company and strong balance sheet and also consider the core strong property market in Taiwan and that we're taking longer approach for property management. So, first of all we are continuing our rezoning policies. And secondly we also fully use of our idle assets that we're building or do some audios [ph]. So we don't want we have idle property on hand and but regarding the property business running I think we are looking for the long-term rental revenues. We expect... given the building and the property we have we anticipate for next five years we accumulative to have a NT$3.5 billion rental revenues. That's our current forecast.

Terry Chan - Credit Suisse

Thank you. Can you give us some colors on your MVNO service?

Shyue-Ching Lu - Chairman and Chief Executive Officer

Probably you have heard of the news that we had entered into a contract with Carrefour. It's a wholesale retail store... it's a wholesale store. Yes, MVNO yes, so with this Carrefour and it's just started. They announced this yesterday I believe it appeared in the news today. They have around 60 outlets spreading around Taiwan. And so they will help us with their incentive program for their customers, we would like to see even more prepaid type of service will be offered through this newly separate channel.

Terry Chan - Credit Suisse

Okay. Thank you.

Operator

Your next question comes from line of Shirley Tse with UBS. Please proceed.

Shirley Tse - UBS

Hi. Thanks very much for the call. I have four questions. First, I just want to follow-up on the ForEx write-back because I understand as of September, the accumulated unrealized losses was only around NT$1 billion, but you mentioned that write-back could be in the order of 2.5. I was wondering if you could clarify on that.

Secondly, I know the forecast of 2009 has not been given announced yet, but I was wondering if you have some qualitative comments in terms of whether you expect there could be further growth on the top line side and if so which would be the key drivers?

And thirdly, there was the some news about a fine in Kaohsiung for the land use of around NT$400 million, I was wondering if that's been already recognized in your fourth quarter number.

And finally on potential acquisition front, would you consider during mobile operators acquisition overseas and if so if there is any criteria that you look at? Thanks.

Joseph C. P. Hsieh - Senior Vice President and Chief Financial Officer

Regarding our foreign exchange write-back, as I mentioned for the... I said earlier, we will have NT$2.4 billion write-back just for this year whole year, but since its NT$1.4 billion already written-back before September. So, for this month... for September and so you will see in the end of October figure, you will see NT$1.95 billion will be written back. This is for the October numbers.

So, if we look at the summation of the previous of the written-back, about 1.4 billion, plus, nearly 1 billon written-back in October, so the total will be close to more than 2.4 billion as I mentioned already. Is that clear?

Shirley Tse - UBS

Yes. Thanks.

Joseph C. P. Hsieh - Senior Vice President and Chief Financial Officer

Okay. And regarding the fourth question is about the acquisition for the overseas mobile. I think investment policy, our investment policy, we... as our Chairman announced earlier we will focus on our core business area, information, communication, technology, these three areas. So, we don't rule out the possibility of having the overseas mobile acquisition, but we will consider as you mentioned what would be our criteria, I think the criteria will be, we will have to consider the valuation and also consider the growth potential and also the cartel issue and whether we can have the contribution to this potential new venture or not. So those are some qualitative effect that we have to consider and regarding the 2009, probably my Chairman will say that.

Shyue-Ching Lu - Chairman and Chief Executive Officer

But for the acquisition overseas acquisition mobile, I would like to emphasize that we have no specific target at this stage and mo. On your second question what do we expect for the year 2009. We would like to see if we are able to maintain our top-line. Under these circumstances if you're maintaining top-line in telco it's a good performance I believe. So we will do our best to maintain this.

Of course the key drivers for growth in our business is, again, in value-added services. And in Mobile it's the high speed Mobile Data service, like Mobile Internet and all these value-added services probably will help us sustain our top line. And on Fixed Line, there Broadband plus all kinds of new services, including delivery of video service over the Fixed Line. And also as we illustrated in presentation, new services, innovative services is an area where we would like to try to get some results. Of course, the new service we aim to target business accounts corporate accounts.

And your third question, on the fine of about NT$400 million in from Kaohsiung City and related to the Kaohsiung City is one issue for the use of the road, that issue. It's already booked in Q3 this year, it's already booked.

Shirley Tse - UBS

So it was already in the operating expenses or was that in the non-operating expense?

Shyue-Ching Lu - Chairman and Chief Executive Officer

In the non... it's in the operating expense, yes.

Shirley Tse - UBS

Okay. Thank you.

Shyue-Ching Lu - Chairman and Chief Executive Officer

Thanks.

Operator

Your next question comes from line of Mitchell Kim with Morgan Stanley. Please proceed.

Mitchell Kim - Morgan Stanley

Yes, thank you just one question. I wanted to revisit your statement about increasing competition in the mobile market. Can you just be a little bit more specific about what you have seen in the third quarter in terms of what smaller operators are doing to become more aggressive?

And what did you do to respond to tell that to your margin reduction if you could be little bit more specific in terms of whether it took a toll on your revenues or your marketing cost such as interest subsidies or advertisement a one of? And if you share with us some thoughts what kind of subsidies your competitors are giving out or may be perhaps its beyond that pretty on that calls and if you could also share with us what is the level of competition now and whether you're responding to it in the same manner you have been in third quarter. And also if you could just share with us what would happen if smaller operators continue to be aggressive in 2009, how would you response to it?

Shyue-Ching Lu - Chairman and Chief Executive Officer

Yes, this is a very good question and the current market mobile in Taiwan is... if you describe the similar operators they have been offering very sweet packages for customers and particularly the so called free on-net call [ph] somewhat objective to some nomad [ph] customers that is part of... just statement of the customers and then we've seen number portability now. The outgoing number portability customers is increasing somewhat as compared with previous quarters. So as a company we are... we would like to maintain profitability and this would be the most important theme for us.

But from what we understand, all these offerings are promotional packages. It's not permanent offering so and that we also gauged their performance in the sense that such a steep discount offering to customers. Of course, customers very much enjoy free minutes. But on the other hand, as a sensible management team for the company, my thinking is that a sensible management team would balance the interest among customers, of course, employees, shareholders and even some social responsibilities. We should balance out... not catering [ph] towards very specific targets of all this. So, what I'm saying is... what I'm getting at is this very sweet packages is really taking away the benefit or the value from shareholders towards some customers.

And in the long run I don't think it's a viable business. I've been saying that maybe somebody has to consider whether such kind of behavior is the right thing to do in the market. Okay, anyway it's a little bit long in the same resource but the company would monitor the development in the market and we are considering.

We prefer not to implement it. We are considering to have some new type of tariff plans to respond to kind of development, if it softens. If it continues through the year and continue next year, we would perhaps to do something there.

Mitchell Kim - Morgan Stanley

Thank you.

Shyue-Ching Lu - Chairman and Chief Executive Officer

Thank you.

Operator

And your last question comes from line of Mei Ling with Yunta [ph]. Please proceed.

Unidentified Analyst

Hi, thanks for taking my question. Just a very quick question about, how about the other market like broadband market, how's the outlook for year 2009 and year 2010? We all know like mobile market the competition is becoming more intensified and how about outlook about the other drivers? Thanks.

Shyue-Ching Lu - Chairman and Chief Executive Officer

In Broadband remember, in fixed line Broadband we have a very solid programs to deploy Broadband service throughout island to almost the every home in the future. So this is included in our NGN and... NGN program. As we reported earlier that we had nearly 1 million customers with fiber access and we'll continue deploying fibers to wherever our customers express their needs. Along this line we will also promote our MOD multimedia on demand services, video services. So this is the an area where we believe will help us protect our customers. We will let you know more about the 2009 when we have our guidance available sometime next year.

Unidentified Analyst

Okay, thank you.

Shyue-Ching Lu - Chairman and Chief Executive Officer

Yes.

Operator

As there are no further questions in the queue, at this time I'd like to turn the call back over to Chairman Lu for closing remarks.

Shyue-Ching Lu - Chairman and Chief Executive Officer

Well thank you very much for participating in this conference call for the Q3 results 2008. Thank you very much. .

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Source: Chunghwa Telecom Co. Ltd. Q3 2008 Earnings Conference Call Transcript
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