Good afternoon. I am Chi Seung-Hoon, KT's IRO. This earnings release call is being webcasted via our website, and you can refer to the presentation slides as you listen in on the call. Let us now begin KT's 2019 Q3 earnings presentation. Please note that KT's earnings are based on the consolidated financial statement under the IFRS standards.

We will begin with CFO, Yoon Kyung-Keun's opening remarks, followed by highlights on 2019's Q3 results..

Good afternoon. I am KT's CFO, Yoon Kyung-Keun. Thank you for joining our Q3 earnings conference call. In the third quarter, KT recorded solid growth in core businesses, including 5G. First, in 5G.

KT has acquired more than 1 million subscribers within six months of launching its commercial service, and we expect subscribers to grow to 1.5 million by the year's end. With growing number of 5G subscribers, Wireless ARPU increased 0.5% quarter-on-quarter, and we expect to record year-over-year growth from the fourth quarter.

5G service coverage is expanding nationwide. As of the end of October, KT is operating 63,000 5G base stations and providing 5G service in 85 cities all the way to the dorm, that is street level. From Q4, KT plans to expand the 5G in-building coverage, focusing primarily on major buildings with high foot traffic.

Since the launch of the 5G commercial service in April, fierce marketing competition ensued. In the process of initial market formation, however, with wider coverage and more diverse handset lineups, such heated competition has been gradually cooling down and stabilizing.

[Foreign Language] Going forward, KT will focus even more on service differentiation and monetization. KT aims to deliver solid business performance in 5G by leading the market with world's best 5G network quality and differentiated services.

[Foreign Language] In 5G B2B, KT is identifying new business opportunities through cooperation with various industries. Currently, we are in cooperation with Hyundai Heavy Industries group to improve manufacturing productivity and efficiency, including 5G robotics, smart factory and more.

With Hyundai Mobis, we are preparing for future mobility through the development of 5G autonomous driving technology. KT is exerting efforts to expand the 5G business lineup through cooperation in diverse sectors, such as construction automation, smart power generation, smart hospital and new media.

[Foreign Language] KT is working hard to secure future competitiveness through 5G-based innovative AI platform. [Foreign Language] Korea's number 1 AI platform, GiGA Genie, is the first domestic service to surpass 2 million cumulative subscribers.

GiGA Genie is not only increasing the convenience of people's daily lives but also invoice payment, apartments, hotels, call centers, for example. KT's AI platform is improving productivity and efficiency in various business areas to create distinct competitive advantage.

[Foreign Language] In the future, KT will continue to strengthen its AI competencies, upgrade the 5G-based AI platform and provide more innovative values to customers to lead the hyper intelligent society where everything is connected through AI anytime, anywhere.

[Foreign Language] KT's IPTV business has been growing consistently for the past 10 years. KT is the premier media service provider with a record high 270 channels and 250,000 VOD titles in Korea.

Recently, in accordance with the rapidly changing trend on how people consume content, KT has been cooperating with global companies to provide high-quality content, including first time movie releases and contents for the children and education sector.

At the group level, KT is gradually increasing proprietary content and focusing on strengthening its content production capabilities by establishing a joint venture with the global media group Discovery.

With the vast and fast-paced changes in the domestic and international media markets, KT will steadfastly maintain its position as the number one media platform by improving its competitiveness in the overall media business, including IPTV with greater original content lineup and sourcing killer contents.

Before I present the Q3 earnings performance, I'd like to comment on the 2019 dividend payout. Taking into account KT's annual earnings outlook and capital position, 2019 dividend will be set around KRW 1,100 per share, which will be confirmed by the BoD at the beginning of next year.

Please note that this decision was undertaken, taking into consideration that currently, we have to make the necessary investments required and undertake the necessary plans so that we are able to capture the momentum and to be able to improve our profitability in the future and secure the future growth that we will need to have in order to increase shareholder value.

Let me now present the third quarter earnings results. [Foreign Language] In the third quarter of 2019, on a consolidated basis, revenue was KRW 6,213.7 trillion, up 4.5% on year.

Service revenue was KRW 5,058.1 trillion, down 0.8% on year due to a decline in financial service and real estate revenue despite improvement in Wireless service revenue and continued growth in the media and content business.

[Foreign Language] Operating profit was KRW 312.5 billion, down 15.4% on year due to the increase of front 5G marketing expenses. Net income was KRW 213.3 billion, down 10.9% Y-o-Y, and EBITDA was KRW 1,209.8 trillion, up 2.1% year-over-year. [Foreign Language] On the next page, I will explain the operating expense.

In Q3 2019, operating expense was KRW 5,901.2 trillion, up 5.8% on year. Marketing expenses increased by 23.4% year-over-year due to an increase in wired and Wireless selling expenses. [Foreign Language] On the next page, I will explain KT's financial highlights. As of the end of Q3, debt-to-equity ratio was 121%. Net debt ratio was 28.1%.

And now I will talk about CapEx. [Foreign Language] Total CapEx spend up to Q3 was KRW 2,095.2 trillion. Now on each business. [Foreign Language] Wireless revenue was down 0.2% year-over-year to KRW 1,756.4 trillion. Of this, Wireless service revenue was up 1.0% Y-o-Y to KRW 1,656 trillion, backed by increasing 5G subscribers and ARPU.

[Foreign Language] As of the end of Q3, 5G subscribers was 1.06 million, and total Wireless subscribers stood at 21.77 million, with a net addition of 220,000. Currently, more than 85% of 5G subscribers have signed up for the unlimited data rate plan, named the Super Plan, which is driving the growth of Wireless ARPU and revenue.

Next fixed line business. Fixed line revenue was down 1.5% year-over-year to KRW 1,168.2 trillion. While fixed line revenue has been consistently declining, continued growth in the broadband Internet is offsetting the decline in revenue.

Broadband Internet, in particular, saw continued subscriber growth from GiGA Internet, with its revenue at KRW 503.3 billion, up 0.7% year-over-year. GiGA Internet subscribers reached 5.35 million, with a net addition of 129,000 in the third quarter to represent 60% of the total Internet subscribers.

With a greater number of high-quality services requiring high-traffic volume and more connected devices in the home, subscribers of the premium 1G Internet service surpassed the 1 million mark, showing a continued upward trend. Next is the media and content business. Media and content revenue was up 13.8% year-over-year to KRW 701.3 billion.

In particular, IPTV net addition of 116,000 subscribers in Q3, increased the total subscriber base to 8.23 million, and stand-alone KT revenue increased on year by 16.1%, with the growth in high-quality subscribers and value-added service revenue. Content revenue was up 24.1% year-over-year, thanks to the fast growth of KT subsidiaries.

[Foreign Language] Even music has expanded its platform through the merger with CJ music last year and is differentiating its offering by providing the high fidelity music streaming service befitting the 5G era.

For KTH, T-commerce revenue is growing fast by securing premium channels and diversifying product lineup going forward by linking with the mobile platform. We plan to cement KT's T-commerce leadership by launching a variety of proprietary brands and strengthening product competitiveness. [Foreign Language] Next is financial and other services.

[Foreign Language] Financial service revenue was down 5.2% Y-o-Y to KRW 836.2 billion on reduction in merchant fee for BC card. Other service revenue was down 8.6% year-over-year to KRW 596 billion due to a reduction in pre-sale revenue of the real estate development business..

[Foreign Language] For further details, please refer to the earnings presentation material we have provided. We will now start the Q&A session..

[Foreign Language] [Operator Instructions] The first question will be provided by Hoi Jae Kim from Daishin Securities. And the next question will be provided by Jae-min Ahn from NH Securities. Mr. Hoi Jae Kim, please go ahead with your question..

[Foreign Language] I have two questions. My first question is related to your plans to whether or not you want to further increase your 5G market share.

If you reconsider what has happened in the past where you have started after SKT but, at the same time, you had a very successful launch of your pilot service at the PyeongChang Olympic games, and you have the most extensive network currently for 5G in Korea.

But despite this fact that what we can say is that your current market share may actually fall slightly below expectations, and that's why I'm just wondering whether or not the company going forward has any plans to further drive up its market share in 5G.

Or rather, you would actually not focus too much on growing the top line and focus more on growing the bottom line and have a higher profitability.

My second question is that compared to the competition and how the other companies are applying the depreciation period, my understanding is that your period is at -- depreciation period is shorter than the competition.

Could you please elaborate on why this is still?.

Let me address your first question. In respect to the 5G subscribers, as of end of this year, we will grow our total 5G subscribers to 1.5 million, which will be -- which would represent 10% of our total handset subscribers. And for next year, our aim is to increase this up to 30%. As you have noted, market share is the important indicator.

However, for KT, for the time being, our driving market share target is not going to be our top priority.

Rather, what we want to actually focus on is to really lead the market with sound and healthy competitive practices to also have service differentiation and to secure competitive advantage in our network quality and to face competition in this way.

And we have communicated this point many, many times before, we do want to stay away from actually competing based on cost as much as possible. Very important that we have sound growth, and we continue to drive healthy growth in our ARPU. And to move on to your second question.

As we looked into the implication of introducing the IFRS standards in 2020, we took the conservative measure and shows six years as the depreciation period. And if you consider the subscriber acquisition cost and the fact that KT not only provide telecom services but we also provide handsets as well.

All of these calculations on the current depreciation period is based on the expected policy period of our subscribers as well. [Foreign Language] I have to make a correction. The period I mentioned earlier was 2020, but to correct that is actually 2010.

[Foreign Language] And therefore, when you actually look at the depreciation period, there are accounting rules to take into consideration and situations where each company may differ, and that is why it would not be right to actually do an apple-to-apple comparison..

[Foreign Language] the next question will be provided by Jae-min Ahn from NH Securities..

[Foreign Language] I have two questions. My first question is related to marketing expenses. Earlier, CFO, you had mentioned that KT will try to stay away from overheated competition in the market.

And thus, my question is, if possible, could you provide us with a guidance related to your marketing expenditure for Q4 and 2020? My second question is related to ARPU, which we recognize has turned around and is now on the rise, and we expect that Y-o-Y growth to be realized in the fourth quarter as well.

And thus, we can also anticipate that there will be full year 2020 ARPU growth as well.

But specifically, my question is, how much do you think ARPU could grow further next year?.

[Foreign Language] To address your first question on marketing expenses, and I've already explained the situation in my opening remarks.

As you can see that there is a gradual stabilization of the market competition taking place currently, and for us, what is very important is to look at the current development in the market where now we have more greater handset lineup.

And as we look to see more application of 5G services, I believe that the market competition will further cool down and stabilize going forward. And if we have a more stable market competition in the future, then subscriber acquisition costs will also gradually reduce as well.

But if you consider the accounting aspect, as we follow the IFRS 15 accounting standard, the cost that you actually spend at present time is also an important factor. But historical cost is also deferred and reflected in our accounting rule.

And so if you just look at a snapshot of the current marketing expenses and track that, it is going to be somewhat difficult to considerably reduce our marketing cost in the short term.

To address your question related to the ARPU outlook, we have already experienced two consecutive quarters of ARPU growth, and we anticipate that we will also record a year-over-year growth in the fourth quarter for ARPU as well.

And as we also communicated to you of the performance that we had incurred for the third quarter, we know that currently, the third quarter ARPU is actually higher than the last fourth quarter's ARPU as well. And we anticipate to attract more 5G subscribers going forward.

And thus, we are looking to see both the ARPU and Wireless service revenues to grow in tandem. But to talk about more specific numbers, as you can understand, we're currently in the process of developing our business plan for next year.

And once we have more visibility on what we are going to plan -- what we plan to do next year, then I'll come back to the market and communicate the details to you..

The next question will be provided by Seyon Park from Morgan Stanley..

I have two questions. One question is related to CapEx. In 2019, actually, the company did incur one-off CapEx expenses, it's really to build up the nationwide coverage. But as we move on to 2020, now that you have sufficient extensive coverage in Korea, I heard that your focus is going to be to also improve the in-building coverage as well.

And so can you actually give us more color on what we can actually expect CapEx to be like for next year? And next question is related to the actual application of the licensing period for the 28 gigahertz, because my understanding is that as you receive this bandwidth license that it was for a period of 5 years.

But as this service has been postponed, I'm just wondering when the time will start.

Would it be from when you were granted the 28 gigahertz license? Or from actually when you are able to commence the service? Because if it's the former, then you only have 4 years left, and then we may actually have to factor in the additional bandwidth licensing costs from after 4 years and not after 5 years..

[Foreign Language] For next year, for our CapEx in 5G, we are going to actually focus more on improving the coverage holes or shadow zones as well as the in-building coverage. We're currently in the process of developing our capital investment plan for next year.

But what I can share with you is that we are planning to be more efficient than what we have been in 2019. And once we're able to have a confirmed plan, I will come back to the market and communicate our plans with you. [Foreign Language] And moving to your second question related to the 28 gigahertz.

Currently, we are in the process of developing necessary equipment as well as we are testing these other equipment. And that is why we believe that next year, we will be able to provide partial 28 gigahertz service. And in respect to when the depreciation will begin, it will begin from next year.

[Foreign Language] And as you have noted, the period that we have been granted is up until December 2023. And at this present time, we have no specific plan related to whether we're going to get an extension to this -- whether we're going to get an extension..

[Foreign Language] The next question will be presented by Taewon Kim from UBS Securities..

I would like to actually ask the company to provide some guidance on the outlook of next year's operating profit margin, because I'm actually interested more on the profitability outlook of the company.

If I look at your individual businesses, for example, the Wireless revenue, we see that there is strong momentum for further revenue growth on this side.

If you also get the fixed line revenue, we are seeing that -- we are seeing some sound performance coming out here as well because for fixed side or telephony-related decreases have been slowing down. And in your other businesses, including media and content, we also see very good growth drivers and revenue drivers as well.

But currently, your company does not provide detailed breakdown on your expenses or cost side. And so I want to get more understanding of what will comprise all of your nonoperating P&L. And thus, at the present available information, it's not really for -- easy for us to actually understand the overall margin potential of the company next year.

You did mention that when it comes to marketing expenses that the market will pull down next year at more -- stability to ensue. But of course, this is also depending on market situation.

But does the company have any specific op margin target that it manages? And if so, could you actually elaborate on this?.

I think your question is a follow-up to the previous question. And once again, I have to reiterate that the company is currently in the process of developing our plan for next year. And so it's not -- I'm not able to go into the details. But what we can expect for 2020 is that there'll be more diverse 5G handset lineup to be launched in the market.

We'll have more network stability. And also, we'll have more 5G-related contents services available for next year, which will really lay the foundation for a very robust growth of the 5G market next year.

With the accelerated pace of 5G subscriber acquisition, we believe that this current growth momentum that we have for Wireless revenue and ARPU will continue to be sustained. However, as I have already alluded to, in respect to the marketing cost, there is also a deferred effect that you have to also factor into account.

[Foreign Language] And just to add, in respect to the current cost that we'll be bearing for depreciation, if you look at the current trend, we believe that it will actually slightly be larger than before. But once again, I mentioned that the company will continue to exert efforts in improving its cost structure. Moving to the IPTV's business.

We see very good strong growth here, and we also believe that our profitability to also increase as well. And we are also seeing positive earnings performance from our subsidiary, including our real estate development aspect as well.

And so from all these things, we'll do our best to continue to increase our profitability potential for next year as well. But for more details, I will come back to market early next year to provide more details..

[Foreign Language] If there are no more questions, we will close the Q&A session. Thank you once again for your questions and interest. Thank you participants for your time despite your busy schedule, and we'll now close the 2019 Q3 earnings call..