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Executives

Fu-Fu Shen – Director-Investor Relations

Shyue-Ching Lu – Chairman and Chief Executive Officer

Yen-sung Lee – President

Shu Yeh – Chief Financial Officer

Analysts

Joseph Quinn – Macquarie

Chate Benchavitvilai – Credit Suisse

Piyush Mubayi – Goldman Sachs

Gary Yu – Morgan Stanley

Chunghwa Telecom Co., Ltd. (CHT) Q4 2012 Earnings Call January 30, 2013 4:00 AM ET

Operator

Good evening, ladies and gentlemen, welcome to the Chunghwa Telecom Conference Call for the company’s operating results for full year of 2012. During the presentation, all lines will be on listen-only mode. When the briefing is finished directions for submitting your questions will be given in the question-and-answer session. And for your information, this conference call is now being broadcasted live over the Internet and 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 would like to turn it over to Fu-Fu Shen, the Director of Investor Relations. Thank you. Ms. Shen, go ahead please.

Fu-Fu Shen

Thank you. This is Fu-Fu Shen, the Investor Relations Director of Chunghwa Telecom. Welcome to our fourth quarter 2012 results conference call. Joining me on the call today are Dr. Lu, Chairman and Dr. Lee, President and Dr. Yeh, CFO. During today’s call, management will first discuss business, operational and the financial highlights, then followed by Q&A.

On slide number two, please note our Safe Harbor statements. Now, I would like to turn the call over to Chairman Lu.

Shyue-Ching Lu

Thank you, Fu-Fu. Hello, everyone. This is Shyue-Ching Lu, Chairman of Chunghwa Telecom. Thank you all for joining our fourth quarter 2012 earnings results conference call.

On slide number three, I would like to report to you that our total and quarterly consolidated revenue reached NT$220.3 billion and net income was NT$40.1 billion both meeting our 2012 guidance despite stronger market competition and the continued tariff deductions from the NCC.

2013 will remain a challenging year due to competition and the NCC’s tariff deduction continuing to exist pressure on our top line. Nevertheless, we have set a goal of maintaining revenues, controlling costs, and investing effectively in fixed and the mobile broadband construction as well as emerging businesses including ICT and cloud businesses.

In the network today reached our large infrastructure footprint by establishing new business opportunities and revenue streams.

Moving on to slide number four, we have maintained a 19% payout ratio for the past few years and this is expected to continue. Taking into consideration our cash position as well as the EPS in 2012 as compared with the previous years, we are thinking of the possibility of distributing a special dividend at the moment. Once we decide, we will report to you at an appropriate time.

Now, Dr. Lee joining our earnings call for the first time would like to report to you his business management plan after having assumed this position. His prior title in the company was Senior Executive Vice President, responsible for marketing sales, customer care and information systems.

Dr. Lee, please.

Yen-sung Lee

Thank you, Chairman, Lu. Hello everyone. This is Yen-sung Lee, President of Chunghwa Telecom. This is my first time joining the earnings call and I am glad to share with you my (inaudible) range for Chunghwa Telecom over the coming years. Our key goals are to grow all user base across all our business lines. For 2013 we anticipate our mobile internet users will grow by over 1 million to 3.5 million subscribers by the year end. This will be driven by our offering of more than NT$20 price and the large screen smartphone handset include exclusively NT$100 pricing trend that we are talking on non-data customer.

For fixed broadband service, we aim to provide a higher number of customers with higher speed service. For 2013, we expect to grow our customer base of 50 megabit per second connection or higher to over 1.5 million. Additionally, we expect to continue to grow our MOD ability and emerge ICT and cloud business. We believe that such services will eventually leverage our high speed fiber network by being faster, reliable and cost effective solution to our retail and enterprise customers.

In order to enhance and streamline our control process, we will aim to construct a comprehensive internal revenue chain that will include the integration of various operations and the support system. This will further reduce internal rate cap and enhance the coordination of our internal operation by creating a more seamless and efficient process for new service offering to the markets.

We believe this will help dramatically to improve the process of allocating internal resource to all areas of growth and further enhance investment and marketing decisions in order to be able to more effectively control cost and resource allocation. By encouraging these values (inaudible) control mechanics we aim to further reduce internal operating expense and improve our performance over years to come.

Now I would like to discuss our 2013 business operating plan. Please refer to slide six for our mobile business. We continue to maintain our leadership by providing fast, reliable and a seamless wireless access and at the same time, a great customer service experience for our subscribers. This is exemplified by the fact we grew our subscriber base by 197,000 in 2012 mobile internet subscriber grew by over 64.6% year-to-year and our churn rates remained at an impacted level of only 1.15% for December 2012.

For the first quarter of 2012, smartphone accounted for 75% all new handset sales as a percentage of postpaid subscriber, smartphone penetration increased to 38%. At the end of the first quarter in 2013, we target to increase smartphone penetration to 49% of all handsets sold.

We will further introduce mid to low tier smartphones to expand mobile internet subscriber base and accelerate 2G customer migration to 3G network to target potential data user. In addition, we continue the expansion and the transformation with many our retail stores. During the first quarter, we aimed to 25 service stores bring our total to 630 service centers.

Moving to slide seven. Mobile internet service revenues, one of our key driver continued its strong growth momentum in 4Q. 2012 crossed over 63.7% year-to-year growth. We believe that this trend would remain sustainable as we continue to see the strong adoption of the smartphone and other mobile internet devices whereas the upgradations of digital products that further attract consumer engagement on our networks.

Slide eight shows the results of our broadband business. As we aim to provide a reform in Taiwan the ability to stream any internet based content and obtaining the option to zoom, we remain focused on building out our fast fiber network to further enable such demand. In doing so, attracting new customers from migrating, existing broadband customer to higher speed service continue to be our key strategy and a focus.

While competition in cable industry becoming more intense, we believe that our key differentiator will be the higher quality we offer through our competitive price fiber and ADSL connections. This will support our higher net addition of subscribers in the past years as compared with cable operators.

For 2013, we are focused on promoting 100 mega fiber broadband service and expected growth in this space by 300,000 subscribers. Broadband ARPU remains stable at NT$7 and NT$8 in the first quarter. We are also happy to see more subscribers sign up for higher speed connections which would contribute to incremental ARPU growth over the long term as the end of the 2012 subscribers signing up for 15 mega connections reached to 905,000 subscribers.

On slide 9, ARPU for MOD increased by over 7.3% to NT$147 in the first quarter from NT$133 in the prior period. Ability as there was high revenue almost doubled in second half of 2012 compared with that of the first half. This dividend another great avenue for opportunity that Chunghwa take up as we continue to grow our content offering on our network.

In addition, we are cooperating with Hon Hai to co serve its 60 inches TV set with our IPTV service bundled together providing customers with a high quality HD user experience. This effort with further increase customer business and attract quality customers through our increasing demand more high quality entertainment options.

Since this business more than prove to be successful we will continue to cooperate with Hon Hai and other local TV manufacturers to co-marketing TV sets with other quality MOD service.

On slide ten, our ICT and cloud computing business are growing importance as a revenue contributor for Chunghwa Telecom. For our ICT business, we continue to focus on expanding our existing enterprise solutions while at the same time, looking to put in our new offering to our enterprise customers because of this cost effective approach, we plan to leverage our existing infrastructure while scaling each enterprise solution with customer demand.

On the cloud business side, we are providing cloud service and solutions to retail and enterprise accounts and government we have been developing cloud core technology to offer innovative cloud services to our customer. We plan to continue to leverage our enterprise high speed broadband network and offer VAS, as well as explore other emerging service opportunities.

We continue to acquire more major, some major government projects and expect to inject additional revenues in this CAVE. This year our focus will be more on cloud service to enterprise and then retail customer. We believe that general acceptance of CAVE service will take sometime to direct but us it may begin to gain traction and the market acceptance we will position to benefit on our wide range of services.

Slide 12 provide an update on the regulatory front as you are all aware that NCC has mandated mobile interconnection rate reduction from January 2 2013 or four years and the tariff reduction for broadband service IP peering and domestic leased line wholesale service price reduction from April 1 for four years we have incorporated the dividend impact from the regulation in our guide for 2013 with the act we would like to see the amendment to take effect to be consistent as part of digital convergence registration along with the three broadcasting related regulations.

In order to facilitate business operators additionally, the NCC announced a draft of 4G technology-neutral license and spectrum bidding. However, the final rules are expected to be released by the June 30 2013 and the bidding process was to finish by the end of this year.

Now, I would like to hand it over to Dr. Yeh, for our financial overview.

Shu Yeh

Thank you, President Lee and good day everyone. Thanks for joining us today. I will review our financial results in detail beginning with slide 14. On slide 14 are our income statement highlights while total revenue for the first quarter were 2.5% higher year-over-year, and operating cost expenses reported a 4.8% increase year-over-year. As a result, income from operations and net income decreased by 5.6% and 8.9% respectively

Please refer to slide 15 for our business segment revenues. Total revenues for the fourth quarter of 2012 increased by 2.52% year-over-year. This was primarily due to the growth in mobile VAS revenue, ICT revenue, handset sales and the international leased line, which offset the decline in voice and the broadband revenues.

Slide 16 shows the breakdown of operating cost and expenses. The operating cost and expenses increase in the fourth quarter was mainly from the rising cost of handsets sold and higher ICT project costs.

As Shown on slide 17, cash flow from operating activity decreased to NT$24.5 billion during the first quarter. This was mainly due to the decline in income from operations, an increase in land acquired by our property development subsidiary as well as the exemption of deposits for mobile VIP customers.

We maintained a strong cash position with cash and cash equivalents amounting to NT$53.2 billion as of December 31, 2012. Meanwhile, the EBITDA margin decrease was primarily due to the tariff cuts and the higher handset sales of which the EBITDA margin is relatively lower than our traditional telecom services.

Slide 18 shows our 2013 consolidated guidance. Looking ahead at 2013, we will continue our strategical focus on the build out and expansion of fiber and the mobile broadband networks to provide the quality services to customers and remain our market leading position us stay ahead of the competition.

Total revenue for 2013 is expected to decrease by NT$2.5 billion to NT$217.8 billion due to less construction revenue from our property development subsidiary declines in voice revenue, mandated tariff reduction and the mobile internet rate reduction. However, growth in mobile internet revenue, broadband service revenue, MOD and the cloud computing service is expected to partially offset the decline.

Operating cost and expenses for 2013 are expected to increase by NT$1.5 billion for two reasons. First, bad debt reversal in 2012 versus the bad debt provision in 2013, second, depreciation amortization maintenance and the material expenses which are expected to increase due to the promotion of our mobile content and broadband business and the cloud services.

Furthermore, mobile interconnection expenses are expected to be reduced due to the mandate of the NCC and the construction cost to be decreased from the subsidiary, Light Era.

As a result, income from operation, EBITDA comprehensive income attributable to owners of the parents and our EPS are expected to decrease as compared to 2012.

On slide 19, as stated in our earlier guidance, we moderately increased our CapEx expenditure for 2012 with a focus on fixed and the mobile broadband construction. Budgeted CapEx for 2013 is NT$37.2 billion. The spending were continued focus on broadband and the mobile network construction and cloud deployment including cloud datacenter construction.

Please also note that 4G investments are not included in this estimate due to the inability to forecast this amount prior to the auction, which increased the CapEx devoted to the aforementioned area we have continued to significantly improve our customer experience and the satisfaction and that we will further facilitate customer migration to higher speed fiber solution and to enhance the quality of our mobile networks.

We will review our CapEx budget and the execution on a regular basis, focusing on making the most cost-effective spending decision possible. Now, I would like to hand over to Dr. Lu for a business outlook.

Shyue-Ching Lu

Thank you Dr. Yen. Moving on to slide number 20. Looking ahead over the next couple of years we have some general thoughts and I would like to share with you. First leveraging on our solid and quality customer base, expanded network capacity and enhanced network capabilities. We would like to further enhance our fixed and mobile VAS services offering and promotions.

Additionally, covering trend of smart economy, we are offering ICT enabling services as well as cloud computing services. We are allocating more resources into leveraging our broadband network by providing more services over our fiber and the mobile networks and believe this trend will continue as everyone’s data needs grow with better connectivity.

Secondly as discussed, we plan to increase investment into further expanding our fixed and mobile broadband networks as well as cloud related infrastructure by approximately 13% from 2012 level and will increase satellite and projects peak in 2014, after which we anticipate it beginning to slowly decline.

We realize this is a big increase but we think it’s necessary in order to offer the services we see emerging in an increasingly digital world.

Lastly, we expect to see EBITDA margin for our telecom businesses to stabilize in the coming couple of years. Of course, this does not take into consideration any new regulatory changes that may occur.

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

Question-and-Answer Session

Operator

We will now begin our question-and-answer session. (Operator Instructions) The first question is from Joseph Quinn from Macquarie. Go ahead please.

Joseph Quinn – Macquarie

Thank you for the call and quite informative info on the presentation as well. I kind of have two questions. One is focused right into a brief one, it’s more on the smartphone ARPU. I noticed it fell off in the fourth quarter. I just want to get some insights into what was driving that. The second question is around your broadband. So I see you are looking to at about 100,000 broadband subs in 2013, but you had a very slow growth in 2012 and actually in the fourth quarter 2012 you’ve actually seen a decline. So I was just wondering what you think is going to grow that top line number for the broadband side. And thirdly, in terms of the overall ICT cloud business, clearly on the CapEx side, you are increasing your spend quite significantly there. Can we get a bit more insight into how much of that business or how much of your revenue is really coming from that business now and is it possible we get more clarity going forward, maybe on a monthly or a quarterly basis on just exactly what the declines were? And just overall, on your CapEx side, those, as you said, it looks like it will peak in 2013 and 2014, do you think that’s realistic with the potential LTE rollout that you need to provide going forward? And I’ll stop there. Thank you.

Fu-Fu Shen

I think probably answering your questions, on number two about the broadband, about the broadband subscriber number, okay, we do expecting to increase a small amount of subscriber number in 2013. I think the reason for the – in the fourth quarter 2012, that you see we had some declining. Basically, the reason for the declines, I would like to do some explanation now. I think first of all, in the December, we do have some – we uninstalled some part of Wi-Fi, it’s in certain area. It’s not really that effective and we planned to move to other areas, other location. I think that’s one of the reason for the decline. The other part is, you do understand we have, we’ve been facing the competition from the cable guys. So, we try to – we do have some customer try to disconnecting the broadband service for the past year. So some of them we would like to retain them very hard, we were trying to pay a lot of effort to try to retain. But end of last year, we decided to do the disconnections. So I think that’s kind of one time for the end of last year. So I think that’s probably my explanation for the fourth quarter decline for the broadband subscriber number. But this year, we mentioned about we would like to see more – 300,000 subscribers for the above 50 megabit, got the high speed subscription. So I think the major resource is high speed broadband subscriber for the adding.

Joseph Quinn – Macquarie

I’m not very much concerned on your – actually increasing your high end speeds, it’s just how you increased the overall user base. Sorry, and just to follow-up, in terms of you said, you are honest to off some public Wi-Fi, so should I be correct to assume that this 30 odd hotspots is included as a every single users to one Wi-Fi hotspot? Is that right to assume that?

Fu-Fu Shen

Joseph, can you say it again?

Joseph Quinn – Macquarie

So you said in December, you uninstalled some public Wi-Fi hotspots.

Fu-Fu Shen

Yes.

Joseph Quinn – Macquarie

If so, am I right to assume that the 30,000 Wi-Fi hotspots that you have are included in your user base of broadband connections?

Fu-Fu Shen

Yes, yes. We, right now, when we are talking about broadband subscriber, it is also included some internet things, some kind of machine base, so altogether.

Joseph Quinn – Macquarie

Okay, thank you.

Fu-Fu Shen

You are welcome.

Yen-sung Lee

The broadband subscriber would be increased due to – we maybe from some point of view, one is, maybe, we think a small, maybe have a room to get into the more subscriber and the second too maybe, we review our ICT as application like ITS, like some IOT application. This is not just the human as maybe for machine to machine operation. So maybe, the broadband subscriber will be increased.

Joseph Quinn – Macquarie

Thank you. Is it possible given obviously this divergence in growth, maybe, more growth coming from ICT going forward and possibly looks like more on the enterprise side as well. Is it possible going forward we can get the splits between where the subscribers are broadband are where they lie?

Shyue-Ching Lu

Our ICT and the cloud businesses are included into our enterprise account revenue. So it’s all accounted there. Okay, at this moment, we do not offer separate numbers for these emerging businesses. And to answer your first questions about the ARPU, relatively lower than in previous quarter, the Q4 has slightly declined from Q3 of 2012. This is due to the fact that we promote the adoption to mid to lower tier smartphones to increase our customer base through our promotional packages. Overall, this is good for the company because we are upgrading lower ARPU customers hopefully to higher ARPU, or the increase the number of customers with lower ARPU and that will somehow bring down the average. And the CapEx, this is our best forecast and we anticipate that it will pick in 2014. Of course, it depends on the pace how we rollout our 4G once we obtain the license from our government and the faster pace maybe require additional CapEx, but we do not make that assumption here because in our five years plan we factor in introduction of 4G according to our reasonable assumption of our pace.

Joseph Quinn – Macquarie

Okay, thank you. And just on ICT, sorry can I go back to that, are you able to provide any at least top line numbers in terms of what it provides for the overall business in terms of a percentage?

Yen-sung Lee

For ICT cloud revenue, I think the revenue we did not give the exact number, but growth rates, last year the growth rate is more than 50% and in this year, the revenue growth will be also expect to more than two-digit growth of CAVE revenue.

Joseph Quinn – Macquarie

Okay, thank you. It will be great if you can give more detail later on possibly, given the volume of CapEx that you are expanding on this division. Thank you.

Operator

The second question is coming from Chate Ben from Credit Suisse, Hong Kong. Go ahead please.

Chate Benchavitvilai – Credit Suisse

Good afternoon everyone and thank you so much for the opportunity to ask the questions. I have multiple questions. The first one is, kind of general, out of your FY’13 guidance, what do you see as a key upside week and downside week to that guidance. And the second questions are just a follow-up on ICT and cloud revenues I understand that you cannot give us that headlines any much details about that. But just in terms of general profit contribution of it, do you think that the growth rate that you see right now would be significant enough for this ICT and cloud to start driving the EBITDA growth into 2014 or should we expect something of a longer term in nature compared to that? The third question is regarding the interconnection, I understand that change in the connection rate both lower your revenue and also lower your cost. So just on the net-net basis this lower interconnect actually benefit or hurt you and to what magnitude if you can share? Thank you.

Shyue-Ching Lu

As I just discussed for the forecast, seeing the upside, we steer – see some growth in mobile internet revenue and also the broadband service, MOD and the cloud computing service. We expect it would grow in this year. And of course there are some downside that could decline in voice revenue and also like mandated tariff reduction and also inter – mobile internet, interconnection rate reduction.

All these areas would decrease our revenues. And on the cost side, we see mainly the increase is because we want to maintain a high quality service to our customer so the depreciation amortization maintenance and the material expenses, we expect it would increase. So that’s pretty much the upside and the downside of that.

And for the cloud revenue, I think currently, it’s a steer in early stage of business. But however, we have to invest to secure. So currently we are kind of - base the foundation for that business. So among our steer, kind of insignificant so we don’t intend to disclose the detail yet. And interconnection cost, it’s pretty much neutral of course it would decrease interconnection cost and - but however it will also decrease interconnection revenue. So to us it’s kind of neutral – neutral one. Okay.

Chate Benchavitvilai – Credit Suisse

Okay, thank you. Just as few follow-up questions if you do not mind. Firstly it’s regarding you MOD services. Is it profitable at the current level and if it’s not what kind of the MOD subscriber scale or revenue scale you see it would contribute a profit in more significant way? The second question is regarding the mandatory tariff reduction on the fixed line side the new X factor is out there. I read through your presentation and it seems like this one would affect fiber to the best circuit as well as, FTTB. So does it means that this would affect your fiber access revenue as well? Can you help the clarifying on that? And lastly it’s regarding the dividend and as you said that you may aim to maintain a stable dividend. Does it mean stable payout or actually a stable dividend per share and therefore it would mean an increase in payout be on 90%. Thank you very much.

Shu Yeh

Yeah, in terms of MOD, currently is still not profitable yet. Yeah, but as the question is more than just how many subscribers, of course we would work on increasing the subscribers, but on the other hand we also have to figure out more ways to increase the revenues such as the advertisement and also how to have the customer use other additional packaged service of MOD. So that’s the area we spend a lot of effort on that area. But it’s not just straightforward to answer your question yet.

Fu-Fu Shen

Regarding to your question about the tariff reduction for this round starting from April 1, okay, yes it’s going to include the fiber access part and according to the NCC’s announcement in this time you know fiber is included, but he mentioned about the speed higher than 100 mega download and 40 mega upload is not included. I think that’s the answer for your question.

Chate Benchavitvilai – Credit Suisse

Just a quick follow for the question about dividend regarding the fiber revenue that’s going to be a factor. How of the total fiber access revenue that you have right now or fiber access subscribers? How much it’s actually higher that 100 Meg and therefore we will not be affected by this?

Shyue-Ching Lu

Okay in terms of that it’s kind of complicated to apply the rule and so we have the number into - incorporate the number into the guidance, but we don’t want to provide the detail number here.

Okay, in terms of dividend, the dividend is stable – okay, the stable dividend, yes, as our Chairman just mentioned about, since this year’s, last year’s net income was kind of low historically and so we are still thinking the possibility of paying out additional such as special dividend. That is a possibility we are discussing. But as our Chairman just mentioned, if there is any progress, we will report to you according to the law, okay.

And I think currently the payout ratio of 90% in the past has been maintained and we think that is a good idea. However any dividend policy and the final amount is subject to the board to decide. Thank you.

Chate Benchavitvilai – Credit Suisse

That’s very clear. Thank you very much.

Operator

(Operator Instructions) Okay, the next question is coming from Joseph Quinn of Mcquarie. Go ahead, please.

Joseph Quinn – Mcquarie Securities

Thank you. And just a quick follow-up in terms of what you are talking about and potential increase in payout. Can you run over briefly the priority in terms of the cash usage? If my understanding is correct, operational uses were probably the first area of call and you have obviously increased your CapEx quite substantially in 2013 and there obviously will be a quite a big burden from 4G auctions as well. Can you just put in perspective, how that priority will work and how that will be different or if there is a different focus? Thanks.

Shu Yeh

I think currently, we still maintain what we have repeated many times before, okay. Basically, first we would like to have the cage for the CAPEX. So in order to maintain a long term network quality, ok, but that is still a top priority, but we also have some cash reserve before. So we have to take into consideration of the cash what we have and the possible CapEx requirement in the future. So at last why we still kind of debating, whether we should have a special dividend or not. So as mature men say it, we are considering okay so we still we have to figure out, since as we also mentioned we still have - in the next couple of years, the 4G OTE and other network CapEx among us it looks like still substantial. So we have to calculate that very carefully, but at least this stage, we initiated the study of this issue, but we haven’t any decision yet. Thank you.

Joseph Quinn – Mcquarie Securities

Thanks, that’s very helpful.

Operator

And next in line is Piyush Mubayi, from Goldman Sachs. Go ahead please and ask your question.

Piyush Mubayi – Goldman Sachs

Good afternoon, thank you for the chance to ask questions. Can I just ask a few questions related to your CapEx, your CapEx rise is again into 2013 and I can understand that. Could you give us a feel whether 2013 in your view represents a peak or should we expect this to be the new level of spending for the term given that this doesn’t include LTE in the outer years? The second is that, could you give us a sense of whether they have moved to Taiwan IFRS makes a meaningful difference to you? And those are my two questions and I have a follow up with another one. Thank you.

Shu Yeh

The first question regarding the CapEx (inaudible), yes from our estimate, the – that we put up this time for the year 2013 this NT$37 some bidding NT$ and we believe – we also are factoring in the requirements for LTE during our discussion of prior year’s spend and indicated that with the reasonable pace low outs, the statement that we just made about picking up to 2014 and going forward so definite decline is probably the case. Unless the market change is so rapidly that we have to adjust our pace, that’s maybe something that we have to consider, maybe one year later or two years. Okay

Piyush Mubayi – Goldman Sachs

And related to this, what is your fiber to the home coverage at the end of 2012? And where does you CapEx get us to at the end of 2013 please?

Fu-Fu Shen

Piyush, we do have a presentation. If you look at the end of the presentation, we do have a reference here out there. The end of last year, we have the fiber coverage rights. We have end of last year, the penetration, the home coverage is up to – for 100 mega, it’s up to 73.6% and we do expecting this percentage should be reaching 85% end of this year.

Piyush Mubayi – Goldman Sachs

Okay. And then it’s flatten so end of this year onwards the pressure from fiber will reduce in terms of CapEx?

Fu-Fu Shen

Yes.

Piyush Mubayi – Goldman Sachs

Okay.

Shyue-Ching Lu

In terms of IFRS impact, last year, we are required to provide the possible impact in the quarterly report. So please refer to quarterly report and since this year’s financial report is not yet out yet. So we don’t have any number to discuss yet. Thank you.

Piyush Mubayi – Goldman Sachs

Okay, thank you very much.

Fu-Fu Shen

Yes, Piyush, also for your information, we do have some major impact description in the first quarter 2012 in this result presentation. You can also check out to see it, okay.

Operator

All right. So the next question is coming from Gary Yu of Morgan Stanley. Please ask your questions.

Gary Yu – Morgan Stanley

Hi, thank you for the opportunity to ask questions. I just have one question on the broadband side. Given last year you have quite a special price reduction for both ADSL and fiber. Do you expect something similar in 2013? I know directly it has a X value reduction requirement for ADSL and fiber, but is there anything more substantial than that that you expect for 2013 similar to what you did last year? Thank you.

Shu Yeh

I think in our financial guidance, we too estimated the possible impacts of those price reductions. But however some of the detail of regulation isn’t ready out yet. So we have some assumptions and we don’t like to share these assumptions to you yet. But we do consider those factors, thank you.

Gary Yu – Morgan Stanley

Okay thank you.

Operator

Next in line is (inaudible) from JPMorgan. Go ahead please.

Unidentified Analyst

Hi, thank you very much. I have two questions. One is on your mobile strategy in 2013, I think you mentioned that the competition is due quite fierce, but just wonder what is actually the competition I feel because – in my view I think the competition environment in Taiwan mobile side virtually quite benign. But I think jut from your perspective, I think you’ve been losing some market share in the last year and I am just wondering now given the mobile CapEx has been increased last year and do you – anything that the network have improved? So what’s your main strategy to do this year? Is that going to do more low-end and mid end migration or what are the other new strategies you are going implement?

Number two question is on your 4G, so just wonder that, do you have an estimate about how much in terms of the amounts you are going to – for the in terms of bidding for the spectrum and also after getting that, are you going to aggressively rolling out to 4G or you are going to do it gradually on a more smooth pace? Thank you.

Yen-sung Lee

For mobile strategy we this year we said aggressive target for mobile internet business. We want to net add the subscriber number to increase them and this amount is 1 billion and we are also trying to sell the smartphones to medium and low and smartphone. For this as we have a new promotion plan already in place. We offer more than 20 low price and large screens smartphone handsets. That’s where we increase the smartphone subscriber number. And for the mobile internet, where we accelerated migration of 2G customer to 3G and that we will offer, different tier smartphones and then low price trend or different data service provider, service subscriber. Thank you. Your second question is regarding month, I apply that is not appropriate for me to say anything here at this moment, okay.

Unidentified Analyst

But how about the network rollout strategy after getting 4G?

Yen-sung Lee

Pardon me.

Unidentified Analyst

Sorry, just the 1 million, once your strategy of network upgrade after getting the 4G license, so is that going to be done gradually or you want to just reverse some anti momentum being on mobile, do you want to accelerate the network upgrade?

Shyue-Ching Lu

Our 4G, once we obtain the license, we will rollout in a very cost-effective manner, so that we will maintain, maybe still have some 2G subscribers, 3G subscribers, 3G network and the 4G network. We will consider all of these together to be competitive and yet cost-effective, yeah.

Unidentified Analyst

Okay, thank you.

Operator

Next question is coming from Piyush Mubayi from Goldman Sachs. Please go ahead, please.

Piyush Mubayi – Goldman Sachs

Sorry, my question is already asked. Thank you.

Operator

Thank you. (Operator Instructions) If there isn’t anymore question, I would turn it back over to Dr. Lu. Dr. Lu, please proceed.

Shyue-Ching Lu

Okay, thank you very much for joining our conference call on the results of the fourth quarter of 2012. Thank you very much for joining us. Good night from Taipei.

Operator

Thank you Chairman Lu. Thank you for your participation in Chunghwa Telecom’s conference and there will be a webcast replay within one hour. Please visit www.cht.come.tw/ir under the IR calendar section. You may disconnect now and good bye.

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