Fu-fu Shen - Director of Investor Relations Mu-Piao Shih - President Bo Yung Chen - Senior Executive Vice President and Chief Financial Officer.

Anand Ramachandran - Barclays Capital Peter Milliken - Deutsche Bank Gopal Kumar - Nomura Jack Xu - Sinopac Securities Asia Ltd. Livia Wu - Yuanta Neil Anderson - HSBC Gary Yu - Morgan Stanley Gopakumar Pullaikodi - Nomura Alastair Jones - New Street Research.

Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom Conference Call for the company’s second quarter 2015 operating results. 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.

For your information, this conference call is now being broadcast live over the Internet. Webcast replay will be available within an hour after this 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, please go ahead..

Thank you. This is Fu-fu Shen, the Director of Investor Relations for Chunghwa Telecom. Welcome to our second quarter 2015 earnings results conference call. Joining me on the call today are Mr. Shih, President; and Mr. Chen, CFO.

During today’s call management will first discuss business operational and financial highlights; then we will move on to the QA session. On Slide number 2, please note our Safe Harbor statement. Now, I would like to turn the call over to President Shih..

Thank you, Fu-fu. Hello everyone. This is Mu-Piao Shih. Thank you for joining our second quarter 2015 conference call. We reported a robust operational result for the second quarter with total revenues operating income, pretax income, net income and EPS all increasing year-over-year and outperforming our guidance.

We remain on track in our goal of acquiring 4G subscribers, accumulating over 2.9 million 4G subscribers in July. We expect to reach 3 million 4G subscribers in early August. As you know, we launched our 4G unlimited data promotional brand pack on April 16th for NT$988 per month.

The brand has since expired at end of June, which demonstrates our intention to gradually move forward toward a healthier tier pricing structure. Furthermore, we continue to target the high-end customers for 4G migration.

But have also begun targeting mid to low end customer as well with the launch of our new promotional tiered data program for this target group on July 1.

Additionally, we have focused on further promoting the mobile value-added services by factoring in the Hami services, such as mobile TV, audio and video streaming when introducing attractive promotional brands.

We expect this initiative to help continue the 4G service growth momentum and allow us to reach our 4.2 million subscribers target by the end of this year. Slide 5 provides an update on our mobile business. During the second quarter mobile VAS revenue grew by 16.8% year-over-year, mainly driven by the 22.6% increase in mobile Internet revenue.

For mobile operations, we are focusing on the 4G services promotions and the mobile Internet subscriber expansion by further targeting the mid to low end customers.

We continue leveraging our high speed 4G network to promote value-added services and the new applications, as well as migrating our 2G customers to the 3G and 4G networks and promoting the usage of mobile – more data services. As mentioned, we launched the NT$988 unlimited data plan with low subsidy and voice allowances in mid-April.

Through the end of June approximately 100,000 subscribers had already signed up for the plan, which successfully help drive subscriber growth momentum. Slide 6 shows the results for our broadband business. During the second quarter, we continued to see a steady migration of subscriber to higher speeds fiber services.

We witnessed the 57% year-over-year growth in subscribers opting for connection speed of 100 megabit per second or higher, reaching 985,000 by the second quarter of 2015. We will continue leveraging our network capabilities offering high speed optical [ph] services and optimizing broadband network quality to increase the customer satisfaction.

As an integrated telecom services provider, we will leverage our mobile, broadband and Wi-Fi capabilities to offer seamless Internet services. Last, but not least, we will expedite OTT service offerings and the Content Delivery Network, CDN, construction to enhance our competitiveness within our digital convergences product.

Moving on to Slide 7, our IPTV revenue increased year-over-year primarily attributable to the significant growth in content distribution, VOD and advertisement revenues; as such, ARPU increased year-over-year. In addition, customers have continued to sign up for additional packages in the SVOD programs.

Household TV usage rate continue to steady climb, signifying the increase in the popularity of the MOD programs. And that was a recognition they are receiving from customers.

In addition to the fiber convergence plan, which encourages more IPTV subscriptions, we will continue enriching local content and the VOD programs, as well as including OTT services. We will also focus on optimizing the MOD cost structure to the enhance capital efficiency. Please see Slide 8 for an update on our ICT and cloud initiatives.

We will continue leveraging our competitive advantages with regard to network infrastructure; IDC, CDN, et cetera, to offer customized and comprehensive ICT solutions to enterprise customers. Now, I would like to hand it over to Mr. Chen to go through our financial result..

Thank you, President Shih. Now, I will review our financial result beginning on Slide 10. Slide 10 contains our income statement’s highlights. For the second quarter of 2015, total revenues increased by 2%, and operating cost and expenses increased by 0.6% year-over-year.

Our income from operations increased by 6.8%, and our net income increased by 5.1%. In addition, our EBITDA margin increased to 37.9% in the second quarter from 37.4% in the same period in 2014. Please refer to Slide 11, for an update on our business segment revenue.

The increase in total revenues was driven by the growth in mobile value-added service revenue and ICT projects revenue which offset the decrease in fixed and mobile voice revenue. We are pleased that our mobile VAS revenue continue to grow rapidly and the decline rate of mobile voice revenue was lower year-over-year.

Moving on to Slide 12, our second quarter 2015 operating cost and the expenses increased by 0.6% year-over-year mainly due to the higher cost of goods sold, increasing cost for ICT projects and higher 4G license amortization expenses, which offset the decrease in interconnection and depreciation expenses.

On Slide 13, in the second quarter cash inflow from operating activities increased by NT$3.78 billion or 26.2%, compared to the same period last year. As of June 30, 2015, we had NT$34.31 billion of cash and cash equivalents.

The increase in EBITDA margin was primarily due to the total revenue growth and the decrease of interconnection expenses in the second quarter of 2015. Slide 14 show our second quarter operating results as compared to our guidance.

We reported robust operating result in the second quarter of 2015 with total revenues, operating income, pretax income, net income and EPS all increasing year-over-year and outperforming our guidance. The better than expected revenues in operating income were mainly due to higher revenue from mobile services and the domestic ICT business.

In addition, investment income under equity measures and the foreign currency exchange gains were also higher than expected. As a result, net income and EPS all exceeded our guidance. Looking at our performance so far in 2015, we believe our business operations and the developments are on track.

And that we are confident that we will achieve results that exceeds our full-year guidance. Lastly on Slide 15, though we will continue to construct our 4G network aggressively we are still budgeting a lower CapEx of NT$30.7 billion this year when compared with that of the 2014.

We will continue monetizing our existing install equipment and the building infrastructure for new such as a 300 megabit broadband based on the potential demand and the effectiveness of the service.

Furthermore, the mobile network will be constructed according to the existing equipment utilization status and the business growth potential to enhance capital efficiency. Thank you for your attention. And we would like to open up for your question..

Yes, thank you. We will now begin our question-and-answer session. [Operator Instructions] Thank you. The first question is from Anand Ramachandran from Barclays. Go ahead, please..

Yes, hi. Thank you for the call. I had a couple of questions. Firstly, on 4G pricing you indicated you want to see tiered pricing come in and you’ve taken out promotional plans for the NT$988 plan, what it’s there for all the other higher priced plans.

When should we expect to see these promotional plans go away entirely or do you think it stays a function of, I guess, 4G adoption moving a little higher or anything else? So that’s question number one. Question two is on dividend policy.

Now that your CapEx is down year-on-year, I’m guessing and that’s the question, I guess, should we expect CapEx to continue to fall into next year given 4G build-out is complete? But with CapEx potentially having peaked you start to see free cash flow expanding again.

Therefore should we expect Chunghwa to rethink dividends with regard to probably more capital reductions in order to repay the shareholders? Thank you..

So the NT$998, [ph] our promotion plan is NT$988..

I’m sorry, NT$988..

It’s already expired. So we now have no promotional pricing under NT$1,000. The bigger price in the….

But you still have above NT$1,000, right?.

Yes. So….

And do you have any plans to remove them?.

Please go ahead..

I’m sorry. I apologize.

So I was asking promotions higher than NT$1,000 pricing plans, do you have any intentions to remove them at some point in time? Are there any timelines which we should be watching in that regard?.

I think, the unlimited data plan you know above NT$1,000, I think those plans which was started last September, that price will continue over next year and, of course, I think our President mentioned in the first quarter result call that we will consider to remove some time next year. But time we haven’t decided yet..

Okay. Thank you, Fu-fu Shen.

And on dividends?.

Yes, regarding the dividend policy and CapEx, I think, the majority of the 4G construction already completed this year. And we are still planning the next year capital expenditure, and we think that the total CapEx will be lower in this year’s summer.

Regarding the dividend policy, I think, our statement always that depending on our capital expenditure and also the operating result. But I think that this year, I think, we have a very high confidence to reach and exceed our guidance with better operating result.

So I think it’s a deserved – a more positive expectation for the cash dividend payout for next year..

Understood. Thank you so much..

Next question, Peter Milliken from Deutsche Bank. Go ahead, please..

Yes, good afternoon, and thanks for the call. Now, on the NT$988 plan you have – you’ve stopped from – you stopped offering that about a month ago. I just was interested in the reasoning why you’ve stopped doing that, because it does seem to have been good for industry ARPU, driving users onto this – onto the 4G plans.

Did you find that the incremental users were no longer be incrementally profitable, as they went from 3G to 4G, or is it just you wanted to start the industry repricing, because you think it’s something that should begin?.

I think the NT$988 that plan, it’s a kind of bridge. I think, we would like to – we mentioned early, we would like to reach 4.2 million 4G subscriber as a goal for this year. So I think we are – we – I think before we launched that NT$988, that’s in April – mid-April.

Before that we see some slow of the 4G subscriber pickup compared with the previous early this year. So we think this is kind of bridge to bring back the momentum for 4G net add. And so we set a target, we set a timeline and said end of June we are going to stop it. And then we enter into another way of the promotional program.

We enter – we target low to end – mid- to low-end customers for the further 4G migration. I think that’s pretty good, quite successful. You see we – our peers actually follow that strategy. And we see the momentum of the net add 4G subscribers continue to be quite stable. So I think that’s my answer to the questions..

Very good. Okay. Thank you very much..

Next in line Gopal Kumar from Nomura. Go ahead, please..

Yes, hi. Sorry, I’m not sure if this question has been asked before.

But my question is regarding the unlimited tiered plans on 4G, do you have any target before, which you would roll it back for tiered pricing? Is there any subscriber target that you’re looking at? And secondly, is it realistic to expect this is to be rolled back probably in the first-half of next year, or would you think that this could be continued even beyond that? Thank you..

I think the unlimited plan will be finished in the near future. We expect the next year will be a good time to stop the unlimited package..

Thanks..

[Operator Instructions] Our next question is coming from Jack Xu, Sinopac Securities. Please ask your questions..

Hello. Thanks for [indiscernible] conference, and I have two questions. The first question, what’s our plan in the 2.6 gigahertz, so what are the plans? Thank you..

2.6 gigahertz spectrum is good for the uploading of the traffic. We expect to acquire some spectrum resources at reasonable price for the 2.6 bidding in September. So our first priority is FTT spectrum. Thank you..

One follow-up question.

Will we – what will the – how many – upon budget [ph] how many megahertz in the 2.6 gigs of this spectrum will the company want to acquire?.

The D1, D2, D3 is good for the spectrum bandwidth 20 megahertz. So D4 is only 10 megahertz is less effective. So we think that our priorities are on D1, D2 and D3..

Thank you.

And my second question is, will we change our forecast – the whole year forecast right now?.

We still hold on – stick to our original forecast. And we mentioned before that with a higher counting [ph] we can reach and we can stick to the forecast..

Thank you..

Now we are having questions from Livia Wu, Yuanta. Go ahead, please..

Just we have been noticed that compared to our peers like Taiwan Mobile and FarEasTone, we have post strongest mobile service revenue growth in the second quarters. May I know the main reason for that? That is my first question.

And my second is that, how do we expect our blending mobile ARPU to grow this year? Yes, this is… [Multiple Speakers] Hello?.

Yes. I think – I understand that James from Taiwan Mobile, he was asking the – how he is – how Taiwan Mobile see no service revenue. Mobile service revenue is, the growth in the second quarter is much lower than their competitors. Actually, I think probably you should check out the number, it’s not really that much difference, okay? Thank you..

Okay.

And how do we expect our blending ARPU to grow this year?.

Probably let me add the – I think we are back to your first question. I think the – for the second quarter or first year – first-half this year, I think, we are doing pretty good especially in the – not only in the value-added service, okay, the mobile Internet part, we also the revenue growth rate continue to increase.

And also, I think, we are doing pretty good in our mobile voice part. I think, the mobile voice revenue, I think, the decline accelerated. I think, that’s also contributed to the mobile revenue growth..

Okay, I see. Just is it because while we have the 4G data plan, but there is limited voice minute that is given to our subscribers. So if I would like to maintain a level voice usage there will be higher fees that I have to pay to Chunghwa Telecom, so that lead to decreasing less – less decreasing in mobile voice revenue.

Is this what happened in the past, in the second quarter and in the first quarter to Chunghwa Telecom?.

I think the reason we have this – you see this increase – the deceleration of the mobile voice revenue decline is – the main reason is some of our – let me put it this way, okay.

We’re doing pretty good in the enterprise part, okay? So that’s also attribute – more revenue and also we have some the deal of our 3G promotional plan, because you go back to two years ago we have big saving that plan, that has some temporary suffering for the mobile voice revenue decline, but now it’s getting back.

I think that’s the main reason for that. We also – we still get some – I think that’s what we want to say..

Do you have the 3G ARPU YOY growth number for second quarter, only 3G?.

We don’t disclose our 3G ARPU, we only disclose our blended ARPU. Blended ARPU is actually rose, yes, quarter-over-quarter..

And in second quarter how many the data usage in 4G subscribers in second quarter on average?.

The 4G data usage is above 8 gigabyte, 8.2 gigabyte per month..

Okay. Thank you..

Next question from Neil Anderson, HSBC.

Go ahead, please?.

Hi, good afternoon, just following-up on the average usage figure, I had two questions. So we had the tiered data tariffs that were introduced – were prevalent until about August 2014, when they were replaced by flat rate plans.

Do you think it’s still feasible to go back to those tiered data plans, if average usage is over 8 gigabytes presumably that would involve a big price increase for customers if they want to keep the same level of usage.

So it will be good to get your views on that? Secondly, really on the same point, so average usage in Taiwan is much higher than other markets in the region like Korea, Hong Kong, and Japan. But so far the capital intensity from operators like Chunghwa has been lower.

Do you have a view on why that is? Do you think you’re – because you’re rolling out 4G late, you’re getting a lower or better unit cost on the equipment, or do you think it’s more effective use of spectrum? I’ll be very interested in your views. Thank you..

I think go back to tier plan, that’s our target. We would like to see that. And, of course, currently you can see that the average data usage, the volume kind of getting kind of stable. If you look in the first quarter, we see the average usage in Chunghwa Telecom Network, it’s about 7.5 gigabyte.

But in second quarter it’s only about 8, it’s increased only about half of the – half giga. So actually the increased rate – the growth rate of the data volume usage is getting slower.

And we – I think the – so probably this is a time -- so we mentioned about, we are looking at the possibility, the opportunity to get back to tier plan to remove out our limited data plan by next year. Of course, this is not an overnight kind of things to do. I think, we would think about it.

We are – right now we are – we would think about it how to do it. It should be step-by-step. I think, end of June, we remove our – that temporary, that plan NT$988 that unlimited data plan in due time. I think that’s just demonstrating our will to do that, okay..

Got it. Thank you..

Regarding the, your second question about the – our CapEx intensity. I think that you see the number, the NT$8.3 billion CapEx for 4G is mainly for the equipment. But if the backhaul capital expenditure is included in it, then the total number was similar to our other competitors.

And I think due to the technology advance, now the 4G CapEx per customer or per data rate, I think is lower than the 3G, I think that is the current status..

Great, thank you..

Next question from Gary Yu, Morgan Stanley. Go ahead, please..

Hi, thanks for the time. My first question is on 4G ARPU for the same customers migrating from 3G, 2G to your 4G. What kind of ARPU uplift are we seeing for the same group of customers? Secondly, if I look at your dividend policy, we are already at very close to 100% payout.

Do we expect any further return of cash to shareholder in the form of any special or additional payout, or we should pretty much expect dividend to grow in line with earnings going forward? My last question is on earnings outlook, where you previously mentioned that this year that we are confident there will be exceeding out guidance on earnings, given the fact that we have already passed a peak 4G investment cycle should we expect even better earnings outlook starting from next year with the potential of further operating leverage going forward? Thank you..

Again, let me repeat the dividend policy again. I think the dividend policy is still subject to our capital expenditure and also operating result. And which we are now, we are planning next year the forecast. But however, as I just mentioned, given so far it looks like it’s probably better than guidance results.

I think it’s well deserved a more positive expectation about the cash dividend payout for next year..

Back to your question number one. I think we still see continuing 4G ARPU increase. I’m talking about the 3G to 4G migration. We see some – still see some increase quarter-over-quarter. But the number is still very limited and still one digit number percentage..

Thank you. And final question on earnings outlook for next year. Should we expect even better than this year with operating leverage potential? Thank you..

Okay. I think we have a higher confidence, I mean to exceed that this year – I mean guidance. So that is the current status. We don’t – we have no plan to change the guidance now..

Okay. Thank you..

Next question Gopakumar, Nomura. Go ahead, please..

Yes, hi, I just had a follow-up question. You indicated that you’ve discontinued NT$988 plans. But given that you expect further 4G additions from your mid-end subscribers and your peers are still offering these plans, I know NT$998 plans.

Do you think that the possibility that you could reintroduce some of these plans, especially given your subscriber and market share targets? Thank you..

I think that we were just introduced the different, I mean the promotion program from time-to-time. And currently, I think given that today’s news price we probably where just that reached over 3 million subscribers in early August.

So I think that depends on the market competition and the out of our market share status we will decide to launch a different program. So it still depends on the market situation competition. Yes, that’s it..

Sorry.

Can you please remind me, what’s your current 4G market share? And what’s your target now, is it 4.2 million or is it 4 million?.

We have, our target subscriber number is 4.2 million by end of this year. So market share we expected more than 38%, we better to reach 40%..

Thank you..

Next in line Jack Xu from Sinopac Securities. Go ahead, please..

Thank you. I have two questions. The first of the question is what’s the percentage of revenue from enterprise customers? And what is our target, the percentages in the end of this year? Thank you..

We don’t have the separate numbers – separate percentage for mobile. But for the overall revenue we have approximately 30% of the revenue came from enterprise part..

Okay.

So what is our competition advantage in the enterprise sector?.

Jack, let me revise the percentage for question number one. Approximately one-third of our revenue came from enterprise..

One-third, okay.

So what is our competitive…?.

We have a very big customer, enterprise customers. We have many government subscribers and the big companies because we have a very trusted brand and a very strong team on the effort to acquire and maintain our customer – enterprise customers. So we still keep the leading position on the market..

Okay.

Will any – were any growth in this enterprise sector in 2015 even in the 2016?.

Yes, I think there is some business growth from enterprises especially for the ICT part. And for the enterprise which will be more focus on the – like the big data, like the cloud computing and ICT related. So that is also our focus for this year and next year..

Okay.

My last question is, if the enterprise customers ARPU is higher than the average?.

You mean ARPU is for what segment, what product segment?.

Sorry.

ARPU from the enterprise customer is higher than the average?.

Let me put this way, okay. Usually, we don’t compare this way, okay. I think it’s we have bigger – major account. But let me put this way, we see the continue growing of our enterprise sector revenue. I think that’s probably something we want to say.

But we really don’t have any comparison for customer – for enterprise customer ARPU versus retail, sorry..

Okay. Thank you..

Next question from Livia Wu from Yuanta. Go ahead, please..

We in total now already launched 20 megahertz 4G spectrum.

I just want to know how much of the coverage ratio now for 1800 and 900 megahertz spectrum? And do you have any plan to out another 5 megahertz in the near future?.

We have a target to reach 99% of coverage by end of this year. We have a 15 megahertz on the C5 is 1800 megahertz, and also 10 megahertz on the 900 megahertz spectrum. So we have a carrier application technology to put the two spectrum work together..

So do we expect our CapEx next year will decrease significantly if we already reached a very high coverage ratio? And is this related to our 4G subscriber’s number, like we’ll reach 4.2 million end of this year only, but if increase to 5 million or 6 million, will we need to increase our CapEx?.

For 4G CapEx we don’t think we have significant decrease. We are very aggressive on the deployment on the 4G network, not only the 1800 megahertz, but also 900 megahertz..

Okay. Thank you..

Next question Alastair Jones from New Street Research. Go ahead, please, and ask a question..

Yes. Hi. I was just wondering looking at your results relative to your guidance or your forecast that you had in place I was just wondering, in terms of revenues and EBITDA what really surprised you on the upside, because I see it’s about 3% ahead on Q2 and about 2.5% on EBITDA in the first half.

So what’s been going in the market that maybe is slightly better than you had anticipated at the beginning of the year, and what – how that if expect to continue for the rest of the year? And then the second question is just on the spectrum auction, the 2.6.

Are you expecting Taiwan Star and APT to be involved in that or do you expect it’s just probably going to be the big three that will be primarily involved in that auction? Thank you..

I think our many growths mainly from the ICT revenue and also the mobile data revenue which is I think beyond our original expectation. So that we will see a higher revenue and EBITDA..

And the mobile data revenue surprises had to do with the fast uptake of 4G than you expected or anything else?.

Yes, data revenue mainly mobile 4G, yes, because the hourly customer growing rate is faster than we originally expected..

Okay..

Regarding the 2.6 gigahertz auction, we have no comment on the position of the Taiwan Star. But also we observe the five operators should have interest on the auction..

Thank you..

[Operator Instructions] If there are no further questions, I will turn it over back to President, Shih. Please go ahead..

Okay. Thank you for your attendance on the result – performance result call. Thank you very much, comrades [ph]..

Thank you, President, Shih. And we thank you for your participation in Chunghwa Telecom’s conference. There will be a webcast reply within an hour. Please visit www.cht.com.tw/ir under the IR calendar section. You may now disconnect. Good-bye..