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

Q3 2007 Earnings Call

October 31, 2007, 6:30 AM ET

Executives

Dr. Shyue-Ching Lu - President

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

Shaio-Tung Chang - Sr. VP

Analysts

Anand Ramachandran - Citigroup

Danny Chu - Lehman Brothers

Tim Culpan - Bloomberg

Helen Zhu - Goldman Sachs

Shirley Tse - UBS

Presentation

Operator

Good evening ladies and gentlemen. Welcome to the Chunghwa Telecom Conference Call for the company's Third Quarter 2007 Operational Results. During the presentation, all lines will be on listen-only mode. When the briefing is finished, directions for submitting your question will be given in the question and the answer session.

Now I would like to turn it over to President Lu, the host of conference. Thank you. President Lu, please go ahead.

Dr. Shyue-Ching Lu - President

Thank you, operator. Good evening everyone. This is Shyue-Ching Lu, President of Chunghwa Telecom. I would like to thank you all for joining our third quarter 2007 earnings results conference call. On today's call, our CFO, Dr. Shieh, and our Senior Vice President, Mr. Chang will take us through a review of our financial results and business operations. Then I will guide you through our near-term strategic outlook. At the end of the presentation, we will be happy to take your questions.

Before we begin, please note our Safe Harbor statement on our slide number one.

Now let me hand the call over to Dr. Shieh to review our financial.

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

Thank you, President Lu. Now let us move on to the financial results based on U.S. GAAP for the third quarter 2007.

Again I would like emphasize that for U.S. ROC GAAP to calculate our dividends. If you are following live with the slides, I would now move on to slide 3.

Our total revenues for first nine months 2007 were NT$148.5 billion, which is a 7% increase year-over-year. This was mainly driven by continued growth in the Internet and the data and the mobile business and the consolidation of revenues from SENAO.

EBITDA for the first nine months increased 5.3% year-over-year to NT$77.1 billion. Operating profit increased by 2.9% year-over-year to NT$47.9 billion and the net income increased by 23.9% year-over-year to NT$38.3 billion. The growth was mainly due to the increased personnel expenses, earnings from subsidiaries and a decrease on disputed tax spend.

On the right hand side of slide 3, we show quarterly figures. For the third quarter 07, revenues increased by 10% year-over-year, EBITDA increased by 3.1%. The operating profit and the net income increased by 12.4% and 6.8% respectively, primarily due to the aforementioned reasons.

On slide 4, we take a look at our individual business units. Internet revenues and the data revenues continue to increase. Internet revenue benefited from increased broadband subscriber numbers and the successful initiatives to upgrade customers to a higher speed ADSL and FTTB services. Mobile revenues from January to September increased as well. This was driven by the 2.9% growth in postpaid subscriber and a 23% growth in value added service revenue year-over-year.

In the fixed-line business, local and domestic loan distance revenues decreased by 3.9% and 7.2% respectively year-over-year, mainly due to mobile substitution and VoIP. International long distance revenues increased by 4.4% compared with the same period last year, mainly due to the increase of the sales of international prepaid cards to foreign workers and a increase in wholesale revenues. For the quarter result, third quarter Internet revenues were NT$9.5 billion, a 5.5% increase year-over-year. Data revenues were NT$2.9 billion. Revenues for the mobile business increased by 1.4% to NT$18.9 billion and the fixed-line revenues decreased by 1.9% to NT$15.5 billion year-over-year.

On slide 5, the total operating costs and expenses for the first nine months 2007 increased by 4.5% year-over-year, which was mainly due to the NT$7 billion increase in costs and expenses from our subsidiaries. However, the increase was partially mitigated by the 9.5% decrease in personnel expenses and the 30% decrease in handset subsidies year-over-year owing to the headcount reduction earlier this year and our intention to maintain profitability. Depreciation and operation expenses also decreased NT$1 billion, representing a 3.1% decline year-over-year. This reflects our capital expenditure reduction which began in year 2002. On the right hand side of the slide 5, we provide you the data for third quarter. Operating costs and expenses increased by 8.8% year-over-year, mainly due to the consolidation of operating costs and expenses of NT$2.8 billion from the newly SENAO.

Moving on to slide 6. CapEx for the first nine months of 2007 was approximately NT$15.8 billion, a decrease of 14.6% year-over-year. This was many due to the decline in spending in our mobile division by NT$3.4 billion. CapEx for 07 is expected to be NT$27 billion. Going forward, our CapEx may increase due to investment, focus on our core business and our effort to migrate mobile and data customers to higher revenue platforms including 3G and a 3.5G assistant, IP-based NGN, FTTx and xDSL.

Before I hand it over to Mr. Chand, I would like to elaborate a little bit of the development of our capital management program. As shown on slide 7, our capital reduction plan was approved at the AGM this year. According to this plan, we are going to reduce around 9.1% of our total shares outstanding. A trading suspension is scheduled to start on December 21st this year and end on January 8, 2008 right before the cash payment day. Since the cash return is derived from our capital surplus, it's deemed as shareholders contribution. There is no cash issue in this regard. Please refer to line seven of slide [ph] for the calculation of the difference price following the capital reduction.

In addition to the upcoming capital reduction, the company completed a repurchase program last week. The Board approved the repurchase of 250 million ordinary shares, representing 2.35% of the company's total outstanding shares. From end of August to October 28th, we have repurchased about 121 million shares, equivalent to about 1.14% of the total outstanding share. We plan to cancel these shares... I'm sorry, we plan to cancel these repurchased share in the first quarter of 2008.

We have been continuing our dialog with the regulator on lifting the cap on the transfer of the capital surplus to the capital stock. Recently a rule regarding the cap has been reviewed and expected to be revised in the near future.

Now let me hand over to Mr. Chang.

Shaio-Tung Chang - Senior Vice President

Thank you, Dr. Shyue. Chunghwa Telecom's total revenue for the first nine months of 2007 was NT$148.5 billion, an increase of 7% year-over-year.

On the left side of slide 8, pie-chart shows our revenue breakdown for the first nine months of 2007. As you can see, total fixed-line revenue as a percentage of total was 31%. Mobile revenue was 37%. The Internet data was 25%. As a leading integrated telecom service provider in Taiwan, we continue to be the dominant payer in the fixed, mobile and in the Internet data market.

As shown on slide 9, during the first nine months of 2007, we had 4.2 million broadband subscribers with 57% of those customers opting for service speed higher than 2 megabit per second. Our broadband access revenue for the first nine months of 2007 reached roughly NT$15 billion, up about 6.2% compared to the same period of last year. We expect the growth trend to continue, reflecting our successful efforts to promote our broadband services.

Slide 10 shows our initiative to migrate the customer to higher access speed and their progress of our fiber deployments. By the end of September 2007, we had more than 1.1 million broadband subscribers with a service speed of at least 8 megabit, representing 26.4% of our total broadband subscribers. We continue to increase our fiber penetration rate by deploying our fiber network in residential buildings, campuses and the commercial buildings, allowing more opportunities to access and adopt a variety of Internet value-added services.

In addition, I would like to emphasize that of the 15,000 plus commercial buildings we serve, we have 90% profit share. As you can see on left side of this slide, the average bandwidth per user continued to increase over the last few years while the number of fiber subscribers also shows strong growth. Looking forward, we expect this trend to continue.

Now I would like to move on to our mobile business on slide 11. Chunghwa Telecom has maintained its number one mobile market share position. At the end of September 2007, we had 8.7 million mobile subscribers including 2 million 3G customers. You can observe that the number of 3G subscribers as a percentage of total mobile subscriber space keeps increasing.

During the last year, we have seen successful mobile value-added service growth at about -- our exclusive mobile VAS platform, emome. Among these services, total VAS and the mobile Internet exhibited 23%, 34% year-over-year growth respectively. Therefore, data revenue as a percentage of mobile revenue increased to 6.8% for the first nine months 2007.

Moving to slide 12, we had 2 million 3G subscribers at the end of September 2007, of which 49% utilized 3G handsets. 3G ARPU was 51% higher than 2G ARPU, primarily as a result of our innovative 3G strategy for customized handsets and the promotions of mobile office services. For instance, we launched the HSDPA handset last year, the CHT9000 series of handsets has mobile office functionality like push-mail, calendar, to-do lists plus other features. So far we have 51,000 total CHT9000 series users and the ARPU for its users reached 1367, of which 30.5% is from VAS. With strategic partnership with other renowned venders, we will continue to roll out more new customize models to provide the customer with additional choices.

On the left side of slide 13, please note how our international calling card traffic increased significantly over the last several quarters. For the first nine months, the number of minutes increased by 71% over the same period last year.

I would like to highlight that for ILD, our market share was 62% at the end of September 2007. As a incumbent, we did a very good job defending our fixed-line market share and are confident that our strong market position will continue in the future.

Now moving to slide 14. In order to meet customer demand for convergence services, the company continues to construct a user friendly platform and enrich the content. Following the NCC certification of the MOD open platform in January 2007 to have continuous MOD as a telecom service, by the end of September 2007, there were 358,000 MOD subscribers compared to 205,000 one year ago.

We have also been working hard on the content side. There have been more movie titles from major Hollywood studios. In addition to Major League Baseball, there will be many sports such as basketball and soccer on our platforms, namely MOD, 3G and hiChannel.

That's all for our operations review.

Next, I would like to update you with the current status of the regulatory regime on slide 15. Our MOD platform was certified by NCC earlier this year. Complying with NCC's regulation, MOD is now deemed to be a telecom service as I explained earlier. We expect to have more [indiscernible] aggregators to join in and to provide... diversify the content.

Local loop was classified as a bottleneck facility in December last year and the cost-based rental fees are yet to be decided by regulators. We are obligated to co-locate it with alternative operators if there is enough capacity. Currently, 13 tolls which are co-located with alternative fixed-line operators and another 13 with mobile operators.

Pricing rights for fixed to mobile calls are expected to revert back to the fixed line operators by April 1, 2010 according to NCC's announcement. As a technology shift toward the digital convergence, the regulatory environment is shifting in accordance. Currently, our regulator is reviewing the existing telecom industry, related media and trying to adopt a new law to integrate them into one single law to meet the new challenges in technology. However, the processing procedure is expected to be lengthy as the legislative approval is required.

Now I would like to hand the call over to President Lu for our strategic outlook.

Dr. Shyue-Ching Lu - President

Thank you, Mr. Chang. Let us highlight the key aspects of our near-term strategy on slide number 17. First, in our core businesses, we intend to continue to grow our broadband subscriber base while migrating high-end customers to fiber. We will expand HSDPA coverage to attract more mobile Internet users. We will also strengthen our partnership with big [ph] enterprise on convergence service would increase our customer base and also to meet customers' demand by enriched, diversified content.

Second, for merger and acquisitions,[we would like to explore the opportunities in the vertical and horizontal integration of telecom industry in order to provide quality customers total solution. Recently, we acquired 30% of KKBOX, a local leading online music content provider to enhance our VAS and further facilitate our cross platform marketing. Finally, we remain truly committed to maximizing value for our shareholders. While maintaining our high dividend payout policy, we will continue exploring opportunities to enhance shareholders returns through capital and cash management.

With revitalized unused land, we will establish a property development management subsidiary to operate real estate businesses with specialty and efficiency. The company is expected to begin operating by the end of this year, and we will start the second phase of the works. We expect this contribution from property revitalization to be a bonus for our return on equity.

This concludes our presentation. We are now happy to take your questions. Thank you.

Question And Answer

Operator

Now we are going to the question and the answer session. [Operator Instructions]. Thank you. The first question, you are on the line. Go ahead please.

Anand Ramachandran - Citigroup

Hi, can you hear me?

Unidentified Company Representative

Yes.

Anand Ramachandran - Citigroup

Yes, hi. Good evening. My name is Anand Ramachandran calling from Citigroup. Thank you for the call and congratulations on the good numbers. I had three questions. Firstly, share buy back, you had initially targeted 2.5%... sorry, 2.35%, but you've stepped short of that target. Any reasons why? Secondly, on slide 7, very interesting comment you made that you think you are nearer to getting an approval for a rise in the capital surplus limit. I mean is there any specific issue that gives you that much more confidence? When you say near future, I mean is it possible to further get into specifics on whether it is 3 months, 6 months, a year, or any timeline that gives you this increased confidence to put this on this slide? And thirdly, I guess just a specific question, have you finalized a record date for the capital reduction? Thank you.

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

Okay. Regarding the share repurchase, we purchased about 1.14% of the share outstanding. The reason we didn't reach the target is because the capital market conditions. We found... we further purchased more share from the market. It may not be the best interest for shareholders. And so that's why we only can talk about 48% of our original target. And about capital management issue and you mentioned about the 10% capital surplus transfer, right, we have been dialogue with the regulator on lifting the limit on the capital surplus to capital stock. And we found the regulator, SFC, has been [indiscernible] consider our request and is under the review of the possibility of lifting the cap under certain circumstances and is expected to be revised in the near futures. If the operating rule are revised, we will consider to propose to have the bigger size of the capital management to report [ph] for next year.

Anand Ramachandran - Citigroup

Is there a timeline when you expect something to come from the SFC? I mean is it three months, six months or you don't know?

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

Yes, see, there is not timeline. If we have the chance to do the bigger sized capital management, probably, we will do one time a year. And so the timeline if we do next year, the timeline will be the same as this year.

Unidentified Company Representative

Your question also related to the possibility to finish the revision on the regulation. And since this is governed by the regulator, the SFC, so we have seen a draft of the revised article on that regard. But we limit review on the process, and so sooner the better. But it's not within our control. So we would like to follow the procedures that been taken by the SFC here.

Anand Ramachandran - Citigroup

Okay, thank you. And the record date for the capital reduction?

Unidentified Company Representative

For capital reduction, you mean for... the current capital reduction --

Anand Ramachandran - Citigroup

Yes.

Unidentified Company Representative

That has to be conducted.

Unidentified Company Representative

Anand, did you mention about the last trading day? The last trading day will be December 20, okay.

Anand Ramachandran - Citigroup

Okay. And when will the stock start to trade ex the capital deduction? Will it be December 20th as well?

Unidentified Company Representative

That's will... because you know we have trading situation.

Anand Ramachandran - Citigroup

So it will be Jan 8th or Jan 9th, right?

Unidentified Company Representative

Yes, there will be starting from December 21st to January 8th.

Anand Ramachandran - Citigroup

Okay.

Unidentified Company Representative

So the new shares will be listed at January 9th.

Anand Ramachandran - Citigroup

Okay, thank you.

Unidentified Company Representative

Thank you. You're welcome.

Operator

Next question, please go ahead. You are on the line. Please go ahead.

Danny Chu - Lehman Brothers

Hello?

Unidentified Company Representative

Yes, please.

Danny Chu - Lehman Brothers

Yes, this is Danny Chu from Lehman Brothers. Thanks for the conference call. I just have three quick questions here. The first one is can you comment on the recent news that Chunghwa Telecom may cooperate with PCCW on using PCCW's now TV platform in Taiwan? Second question is in terms of your future CapEx, can you provide rough breakdown in terms of the CapEx spending? What is the percentage that will be spent on the mobile business? What is the percentage that will be spent on the NGN and also the broadband business? And finally is on the property with development and management business. Roughly, in terms in terms of timeline, when should we expect this business will be contributing earnings or revenue to the company? Thank you.

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

Well, the company intends to collaborate with PCCW on their now TV. But the specific timing for launch of programs offered by PCCW is yet to be determined, okay. There are certain legal procedures need to be done. The second question related to the future CapEx spending. The general for CapEx is about 15% of our revenue, and most of the spendings will be on NGN, fiber to the x solutions for broadband. And certainly we would appropriate enough among the spend on mobile because mobile is very important. In terms of percentage, roughly, maybe something like 30%, 30% to 35% will be on the mobile and the rest on broadband including access and ISPs, or the broadband infrastructure under costs. As we migrate PSDN to NGN, certain CapEx is required. But we will monitor together with our deployment with all this CapEx the services we deploy to our customers and the revenue streams is also very important. So we... while we are spending on CapEx, we also observe new services offering, okay. The property also --

Unidentified Company Representative

Regarding our newly established property subsidiary, the new subsidiary, property subsidiary will be operating in the beginning of next year. And we expect that next year the... although just beginning, but the new subsidiary will contribute earning to Chungwa Telecom, although it's not sizeable.

Danny Chu - Lehman Brothers

Thank you.

Operator

Next question you are on the line. Go ahead please.

Tim Culpan - Bloomberg

Hi, this is Tim Culpan from Bloomberg. You have revised down a little bit your CapEx this year. You had originally said 30 billion; now you are looking at 27. Can you give us an idea of next year what you are looking at for CapEx? I think it's pretty clear what you are going to be spending it on, but if you can give us some numbers? Also, at the last... the last time we met, Joseph, you said that 10% growth in profit this year was achievable. You seem to be on track with that given the latest update. Do you still feel that's the case or maybe could be even higher than that? What do you think might be achievable now? Thanks.

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

The CapEx spending for this year, we were mentioning about NT$30 billion earlier because we believe that's what's required for the year. But since our procedure is to purchase equipment in countries today [ph], and I mentioned during the half year results call that about 90% is the target that is expected to be achieved. So that's why we adjust this year's forecast for the CapEx. At this time, it's about NT$27 billion. So this is the more realistic number from today's point of view. Next is CapEx. As I said before, it's around NT$30 billion, it's around 30... our earlier planning, I mentioned about NT$30 billion to NT$31 billion or NT$32 billion. But we believe is around NT$30 billion for next year. We are at the stage of preparing our budget for next year. We have not yet finalized all these numbers. The second question from Dr. Shyue.

Dr. Shyue-Ching Lu - President

Well, I would say last time, 10% of our land is ready to be... further development, which means about NT$10 billion worth of value land. And we plan to gradually over next five year period to transfer those then to our newly formed property subsidiaries.

Tim Culpan - Bloomberg

Thank you.

Operator

You are on the line. Go ahead please.

Helen Zhu - Goldman Sachs

Hi, it's Helen Zhu from Goldman Sachs. I have some follow-up questions with relation to the capital management issues that we were discussing earlier. Firstly, in terms of the stock repurchase, you said that it wasn't in the best interest of shareholders to continue. I was wondering whether you could elaborate and also whether you would consider to do another share buy back next year. Secondly, in terms of the capital management, the proposal, you said you saw a draft with the SFC. Is that draft to increase the transfer limit from 10% to 30% or is it a more general upwards revision? And also if that doesn't go through, are you committed to doing another 10% in April this year of next year? And then finally, I was just wondering if you could give us the CapEx spend breakdown between the fixed-line and then the Internet and data, because I think previously you gave those two separate, but in this quarter, you lumped them together. Thanks.

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

Okay, Helen, the CapEx for this report, we put together the fixed-line and the Internet data together in wireline because we believe this is more accurately reflect the nature of our network and our operation.

Helen Zhu - Goldman Sachs

Okay.

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

So from now on, we were to raise, it's wireline or wireless or mobile. For us it's mobile. The wireline spending up until... it is already show on this slide number 6. Out of the NT$15.8 billion, about NT$13 billion are from wirelines and for mobile it's about NT$2.4 billion.

Helen Zhu - Goldman Sachs

Okay.

Unidentified Company Representative

Regarding the buyback program, we have conducted buyback last year and this year. For remaining of this year and next year, we will consider the buyback... the capital market condition is appropriate. So we don't do all the possibilities. About capital management at 10% cap, we feel there is a pretty good chance that SFC may revise the 10% cap. If that's the case, we will propose to the Board and AGM and to have a bigger size of the capital management. And it would... and this, the 10% if that the SFC does not change operating rule, which mean they remain 10% unchanged, we still consider to propose an additional 10% transfer fund, capital surplus, capital stock and reduce our share annually, the same as we did this year. And so, again, I would say if there is a possible to change for more share to capital stock, we would do that and it's proposal to the Board. If that's not the case, that is we will do the 10% transfer and propose to our Board and AGM. Thank you.

Helen Zhu - Goldman Sachs

Okay, thank you.

Operator

The next question, you are on line. Go ahead please. Hello, please go ahead,

Unidentified Analyst

Hi, this Franklin [ph] from Morgan Stanley. Just one question on the tax rate. It seems to date the tax rate has been quite volatile in the last few quarters. Just wondering if you can give us the guidance on 2007's annual tax rate as well as 2008. That will helpful. Thanks.

Unidentified Company Representative

Well the tax rate for this first nine months is about 21% and we'd like to maintain this kind of effective tax rate. But it's difficult for us to forecast what will be the figures for next year.

Unidentified Analyst

So what... for the whole year 2007, 21% should also be the number that what we should be looking at?

Unidentified Company Representative

It is so, yes.

Unidentified Analyst

Okay, thank you.

Operator

[Operator Instructions]. You are on the line, please go ahead.

Helen Zhu - Goldman Sachs

Hi, it's Helen from Goldman again. I was wondering if I could just ask a couple of additional questions. Firstly, Taiwan Mobile just issued fourth quarter guidance for their mobile business showing that they are expecting EBITDA margin to be down fairly noticeably versus the third quarter. So we were just wondering whether you have any comment on the competitive landscape outlook for the fourth quarter and whether you are expecting any kind of heat up of price war or subsidy action. And then the other question I had is with relation to Taiwan Mobile's triple play plan which they are looking to launch in the first quarter of 2008. We were wondering whether you have any comment on that, any defensive mechanisms or any thoughts on what their sales and marketing strategy may be. Thanks.

Dr. Shyue-Ching Lu - President

Thank you, Helen. The mobile market remains aggressional [ph] in Taiwan and we believe the fourth quarter of this year will remain about the same. We don't believe very severe price war will occur in this market. In Chungwa Telecom, we emphasize the quality of services and also to introduce value-added services to our customers and we will remain competitive in this market. As to the triple play everybody these days is talking about triple play, and of course the other operators, they have some plan and they announced to make some kind of promotion. We emphasize that Chunghwa Telecom is the leading incumbent with fixed-line mobile and Internet data services. We maintain very, very high quality of services and customer care. So we don't have comments on other operators promotion, but we emphasize at this time... during this kind of period of competition, Chunghwa Telecom is best policy for our customers

Helen Zhu - Goldman Sachs

Okay. Thank you very much

Dr. Shyue-Ching Lu - President

Thank you.

Operator

[Operator Instructions]. And you are on the line. Please go ahead

Shirley Tse - UBS

Hi, thanks very much for the call. It's Shirley Tse from UBS. I was just... I just have two quick follow-up questions. First, on the property subsidiary, would you be considering some land disposals as well as development of the land bank that you have or would that be predominantly cooperating with some developers in terms of developing the land and for revenue sharing purposes? And secondly, I was wondering if you have any plans for any further employee reduction programs and if so, what would be the scale and timeline for that? Thanks.

Dr. Shyue-Ching Lu - President

As I mentioned earlier, since we have the newly formed property subsidiary, so we would gradually transfer land to this new subsidiary. And we don't internally, I mean under Chunghwa Telecom side, we don't have any plan to dispose more land. And for those unused land, we would transfer any share to newly formed subsidiaries. And whether this new subsidiary, we dispose then or not, that will be their decision. Since it would... with the consideration of the land that there is scarcity of land in Taiwan, probably, we will prefer in the near future and we can... and if we can keep land for a commercial building and rent to outsider, and they that be preferred. But for residential, probably, if our newly formed subsidiary have this kind of residential project, probably they will see how. And this is regular practice in Taiwan. Can you say again your second question?

Shirley Tse - UBS

Are there any plans to conduct further employee reduction programs going forward and so what would be the scale and timeline for that?

Unidentified Company Representative

For the capital reduction program?

Shirley Tse - UBS

Employee.

Unidentified Company Representative

I'm sorry, yes. For last few years, we have conducted several changes [ph] of early retire program and we, for next year, we don't have plan for early retirement programs. We feel the current steps, about 25,000 step is appropriate at this moment.

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

In general, as I said in the second half, the first half will result [ph] that the company's management is reviewing our headcount requirement. And we don't have any specific plan for next year regarding headcount reduction, but recently I have heard some of the colleague there mentioning whether the company will conduct similar programs next year, because seems to have... seem to them those who raise this to me, saying that some of the employees are looking for such opportunities. So we may consider small sized headcount, early retirement programs next year. But at this stage, it's not specific programs been set up.

Shirley Tse - UBS

Thanks. Can I just ask a quick question, a follow up to the capital surplus transfer? Can you just remind me quickly that apart from... after the SFC has drafted the regulations, does it require further approval by the Legislative Yuan or other regulatory bodies?

Unidentified Company Representative

Not required. Regarding the lifting the limit of capital surplus, it's decision could be made by the SFC. That's just only regarding operating rule. So it shouldn't be going through the legislative process.

Shirley Tse - UBS

Okay. Thank you.

Operator

If there are no further questions, I will turn it back over to President Lu.

Dr. Shyue-Ching Lu - President

Well thank you very much for participating in our third quarter results conference call. Thank you very much. Good night from Taipei.

Operator

Thank you, President Lu. That's all for today's conference call. Replay detail will available on CHT website at www.cht.com.tw. We would like to thank you all for the time and thank you for using Chunghwa Telecom Audio Conference Service. You may now disconnect your line. Good night.

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