Jeong Hwan Choi - IRO Keun-Joo Hwang - CFO and EVP, Strategy and Planning Division Kan Shu Pak - Head of Finance Management at SK Planet Lee Sang Heon - Head of CR Strategy.

Hoi Jae Kim - Daishin Securities Yang Jongin - Korea Investments & Securities Sean Lee - Citigroup Jee-Hyun Moon - Mirae Asset Daewoo Ahn Jae-Min - NH Investments & Securities.

[Interpreted] Good afternoon and good evening. First of all thank you all for joining this conference call. And now we will begin the conference call by the Fiscal Year 2016 Fourth Quarter Earnings Results by SK Telecom. This conference will start with the presentation followed by a divisional Q&A session.

[Operator Instruction] Now we shall commence the presentation by SK Telecom..

[Interpreted] Good afternoon. I am Jeong Hwan Choi, the IRO of SK Telecom.

Today conference call will consist of the presentation and the earnings results for Q4 as well as the annual results for 2016 and the future management plans and strategic direction by Keun-Joo Hwang, CFO and Executive Vice President of the Strategy and Planning Division followed by a Q&A session.

Today we have here with us relevant management here to help deepen your understanding. Today's call will provide consecutive interpretation. We want to remind you that all the forward looking statements are subject to change depending on the macroeconomic and market situations. Let me now present Mr. Keun-Joo Hwang..

[Interpreted] Good afternoon. This is Keun-Joo Hwang, CFO and Executive Vice President, Strategy and Planning Division at SK Telecom. Let me first discuss the consolidated earnings highlights for Q4 and 2016.

Revenue for 2016 recorded KRW 17,091.8 billion down 0.3% year-on-year, while recording KRW 4,352.3 billion for Q4, up 2.6% quarter-on-quarter due to revenue growth of subsidiaries including SK Broadband.

Operating income and EBITDA for 2016 recorded KRW 1,535.7 billion, down 10.1% year-on-year and KRW 4,603.4 billion, down 2.1% year-on-year respectively due to depreciation and increased losses of subsidiaries.

As for Q4, operating income recorded KRW 301.9 billion down 28.8% quarter-on-quarter and EBITDA recorded KRW 1,104.2 billion, down 7.1% due to the year-end seasonality among others.

Mainly due to divestiture of investments assets, net income for 2016 increased by 9.5% year-on-year to record KRW 1,660.1 billion and recorded KRW 474.7 billion for Q4, up 47.4% quarter-on-quarter.

The provided earnings results show that while a temporary rise in costs related to responding to competition and loss of subsidiaries have had a negative impact of the process, our M&O revenue grew quarter-on-quarter and media revenue remained strong, thereby proving that the fundamentals of our business are unshaken.

We will continue to manage the quality of consolidated earnings including our subsidiaries to achieve improvement. Let me now move on to the strategic direction for the year 2017.

At SK Telecom, we plan to make the lead to become Korea’s leading new ICT company by discovering new business models that reach beyond the current competition paradigms as we welcome the era of the Fourth Industrial Revolution marked by convergence and intelligence.

To do so, we will further strengthen our M&O leadership as the number one operator as well as expand the business portfolio into the two axes of media and IoT based on our unique AI platform thereby leading the new ICT ecosystem.

First, in the M&O business, we will achieve revenue growth based on our sound handset subscriber base by increasing the customer pool of premium price plans, also through cooperation with various players in the industry and developing 5G core technologies, we will continue to strengthen our prestige as the industry leader pioneering the 5G era.

In the media arena, we will continue the current growth. With SK Broadband at the center, we will grow the giga internet and higher price plan subscriber base as well as enhance the content power, while also strengthening the competitiveness of the media business such as IPTV by utilizing the mobile channel.

We will also strengthen the date analysis system to provide customized content tailored to each user through more accurate analysis of usage patterns. As for IoT since the commercialization of the LoRa Network last year, we are expanding the ecosystem through partnerships and cooperation with various players.

Going forward, enterprise solution, self-driving cars and smart home will be our main business areas as we continue to seek various business models and monetization. The quality data accumulated throughout the IoT business development process will serve as a bridge to discovering more business models.

As technologies related to AI and cyber agents take center stage, our voice recognition device NUGU will also become more functional with greater personalized and intelligence services centering on search and suggest features.

While such AI based platform technologies seek their own business models, we will also be supporting the monetization of the aforementioned business areas organically integrated into the form of commerce. I will now discuss the company’s management plans for the year 2017. First of all, the target consolidated revenue for 2017 is KRW 17,800 billion.

We will do our best to grow our revenue by launching new products and services that provide greater customer value for data usage as well as continuing to enhancing the competiveness of our media and commerce business areas. SK Telecom ended last year with a non-consolidated CapEx of KRW 2 trillion as was guided at the beginning of the year.

We are also planning on KRW 2 trillion for 2017. While there are factors that entail new investment such as the newly acquired frequency spectrum or ICT related businesses, we will manage the expenditure at the similar level as that of last year through higher investment efficiency.

The annual dividend for 2016 was determined at KRW 10,000 including the paid out KRW 1,000 interim dividend at the meeting of the Board of Directors and will be declared final after the approval of the Annual General Shareholders’ meeting. We will continue to maintain the balance between a stable shareholder returns and growth.

Going forward, SK Telecom will continue to lead the ecosystem of the new ICT era and do its top most to earn the recognition of our customers and the market through growth. We ask for the continued support of our investors and analysts. Thank you..

[Interpreted] Now Q&A session will begin. [Operator Instructors] The first question will be given by Mr. Hoi Jae Kim from Daishin Securities. Please go ahead, sir..

[Interpreted] Hi, thank you. My first question has to do with the main areas of focus in terms of the new CEO’s plans for 2017? And my second question is, you announced your plans to invest KRW 11 trillion over the course of next three years including - in various areas including the new ICT business area on January 11th.

And my question is will this plan have an impact on your CapEx plans with the new year?.

[Interpreted] First of all, thank you for your question. And let me address your first question regarding the main areas of focus on the new CEO. First of all, our new CEO firmly believe that SK Telecom’s goal is to secure the leadership as the new ICT as the leader in the new ICT ecosystem within the era of the Fourth Industrial Revolution.

He also believes that we must lead innovation and growth. And when we talk about new ICT at SK Telecom, it refers to the convergence of innovation technologies including artificial intelligence and big data and also the creation of new business models throughout the industry thereby creating a system of sharing, openness and cooperation.

And in order to do so, we will first of all strengthen our traditional core business area which is the M&O business model and also focus on the two axes of our business models which are media and IoT. And we also plan to create our unique artificial intelligence platform.

So we plan the convergence of all of the aforementioned four business areas and we believe that they should ultimately be integrated with the commerce business model. We believe that all of this will thereby create cycle in which all these business areas are organically integrated.

And to achieve this, board innovation is necessary and this will be achieved by openness and cooperation with various industry players and this refers to both domestic and overseas companies and if necessary we are also willing to cooperate with our competitors as well.

Let me now address your second question regarding the impact of the announcement of our plans to invest KRW 11 trillion on our CapEx plan.

As you mentioned, we did make announcement on our plans to invest KRW 11 trillion over the course of next three years including SK Broadband and SK Planet in order for us to lead the establishment and development of the new ICT ecosystem and to promote consistent and permanent growth.

To go into a little bit more detail, we will be allocation KRW 6 trillion in infrastructure for network leadership and KRW 5 trillion in establishing the ICT ecosystem and to finding the next growth engine. And these investments not only include investments in network but also R&D and technology as well.

As for when and how much these investments will be taking place, and we will make sure to communicate with the market according to the overall industry environment and changes in the trends. And SK Telecom will make sure to refrain from any sort of excessive investment burdened through efficient network investment. Thank you..

[Interpreted] Next question will be provided by Mr. Yang Jongin from Korea Investments & Securities. Please go ahead sir..

[Interpreted] Thank you for the opportunity; I have the following two questions regarding your subsidiary companies. The first question has to do with SK Planet; I'd like to hear about the overall business direction in 2017.

We are seeing revenue growth so when will be able to see the deficit shrinking and also if the external funding does not go as planned will this lead to lower marketing costs.

My second question has to do with ST Broadband; I would like to hear about the major business achievement as well as your business direction and outlook for 2017?.

[Interpreted] Thank you for your questions, among the two questions, let me first address your question about SK Broadband. As you all are aware with the new added value being created on data internet or IPTV on the fixed line service. We are seeing a new chapter being open on the fixed line business area.

Especially when you look at the IPTV business area it has been showing visible achievements in throughout all different indices including revenue ARPU and subscriber number and it has thereby led the growth of SK Broadband.

For example, in 2016 the annual IPTV revenue grew by 33.4% compared to the previous year and ARPU grew by 12% and the subscriber base grew by 13.8% compared to the previous year.

As for high speed internet with the expansion of the giga coverage as well as subscribers subscribed on the giga internet at 2016 was a year for us to lay the foundation for full scale growth. For example, when you look at the giga internet subscriber portion from 4% in 2015 number grew to 15% in 2016.

In the New Year SK Broadband will base our plans on our strong service and content as well as infrastructure which are add a differentiated level of our competitors, and so we will not only achieve the subscriber base growth, but also we will be expanding the portion of high added value services including UHD and giga internet thereby continuing the current strong growing trend.

As for your question regarding SK Planet let me hand the mike over to Kan Shu Pak, the Head of Finance Management at SK Planet..

[Interpreted] Hell I am Kan Shu Pak as was introduced, Head of Finance Management at SK Planet.

If I may just briefly look over what was achieved in 2016 before I explain to you our plans for 2017 while it is true of that our deficit saw a little - slight increase due to our aggressive market operating efforts, however when you look at the GMV and you re numbers internally we believe that we have succeeded in securing the industry leadership.

If you look at 2017 we stand firmly by our direction that we will either maintain or strengthen the current leadership that we have in the industry. However, when it comes to the deficit or the gain and losses it will definitely be improving and we expected to turn around by the year 2019.

There are various factors that we - I can present to you as a foundation for our plans to achieve improvement in our gain and losses. The first, I would say is the willingness of the management from 2017 we will be selecting and concentrating areas of focus and we will also be strengthening the cost efficiency as well.

So we firmly believe that numbers will definitely improve and you will be able to see them turn around by 2019. And the second sensor I would have to say is the level and direction of the market competition.

Currently as you all are aware the profitability of your players in the market are not very good, and recently when you look at our competitors all of us are moving toward reducing costs.

Therefore I believe that we will be able to see a qualitative change in terms of market competition, and I believe that market competition will indeed be alleviated, SK Planet is also planning to do so we will be focusing more on providing quality products and services which include various customer friendly features including suggest and search features and also conversation type commerce.

And to answer your second question, as of the end of 2016 SK Planet holds KRW 300 billion versus cash and we are also capable of financing whatever we need. Therefore we, it is safe to say that we are capable of running our own business for the time being.

And so regardless of what happens with the external funding plan, I can say that there aren’t any issues regarding liquidity. And in 2017, again as I mentioned before we will be focusing on selection and concentration and strengthening the cost efficiency. So we will not or we will refrain from cost based competition.

And so I want to make clear that the results of our plans for external funding and the marketing costs are not directly related..

[Interpreted] Next question will be presented by Mr. Sean Lee from Citigroup. Please go ahead, sir..

[Interpreted] Thank you for the opportunity, I have two questions. The first has to do with your with SK Telecom strategies regarding market operation for 2017. I would also like to know about your M&O profit outlook for the year as well. The second question has to do with SK Planet external funding.

Are there any details that you can update us on and if these plans do not go as was initially planned by SK Planet will SK Telecom be supporting SK Planet in any way and also does SK Planet have any plans to acquire other commerce companies..

[Interpreted] Thank you for your question; let me first address your first question regarding SK Telecom’s market operation strategies for the New Year.

On SK Telecom we stand firmly by our principle in terms of market direction that we will refrain from destructive market share competition and move to one that is based on quality products and services that give our customers true value.

Especially in 2017 through accurate customary data analysis we will strengthen the competitiveness of our products and services, and we will also create new markets centering on handset accounts and by securing a market operations system that is based on cost efficiency. We plan to lay the strong foundation for stable profit growth.

And through these efforts we will grow the company by providing the actual value to our customers as well as the market that be fit our prestige as the number one operator. Let me now move on to your question regarding the M&O profit outlook for 2017.

Excluding the impact of the elimination of the signup fee despite the growing subscribers are subscribed to the selective discount plans. We believe that the M&O service revenue, the falling trend of the M&O service revenue has become somewhat stable.

Currently the data needs are continuing to grow which is leading to the growth of subscribers subscribe to premium price plans as well.

And so again through accurate data analysis of our customers’ usage patterns we will increase the product line up that has a greater so-called willingness to pay on the customers and thereby translating this to greater M&O revenue.

And to give you a little bit more detail on that, over 40% of all new subscribers and handset upgrade subscribers are opting for price plans higher than the so-called 59 or the band data perfect price plan and also including key signature other customer benefit oriented products are leading to an up selling.

Now moving on to your question regarding the funding plans for SK Planet. We firmly believe that the e-commerce market will continue to grow and our plans are to make sure that SK Planet becomes the number one leader in that area.

However along with the e-commerce business area we are also SK Telecom is also has plans to execute investments in various areas of new ICT namely IoT, media and platform.

And so from an overall management portfolio management point of view as well as considering resource allocation in these various areas, we do not have any plans for a capital increase as of now.

And first regarding your question, when you look at the current competition situation in the market it is becoming very fierce and when that happens it is inevitable that the profitability of these companies are compromised. And so when that happens the overall restructuring of the market and the industry is inevitable.

However what I can tell you at this time is that SK Planet is not reviewing any potential M&As or investment and distributors as of now. Regarding any details that we may update you on regarding the funding let me hand the mike over again to Mr. Pak..

[Interpreted] Yes to give you a little bit of update on the funding plan, as you know the overall process is a series of negotiations, we began the process of beginning last year and it is true that it is being somewhat delayed due to disagreements on the evaluation and terms of the funding.

And as I have said before SK Planet is fully capable of finance and what it needs and then we also hold the cash that we need for the time being. So there aren't any issues regarding liquidity, because acquiring for the resources is not the only reason of our external funding plans we do not have any reason to rush this.

So we will take the time necessary in carrying out this process. As for the timeline the size and the detail terms of the funding we row the sure to communicate that to the market when they become more concrete..

[Interpreted] Next question will be provided by Mr. Jee-Hyun Moon from Mirae Asset Daewoo. Please go ahead sir..

[Interpreted] Thank you for the opportunity, I will just add some of the details that I had wanted to ask you into one question regarding the depreciation, your marketing cost expenditure and your numbers for the similar companies what is the profitability outlook the gain and loss outlook for 2017 and I would also like to hear about the mid-to-long term profitability outlook of the company..

[Interpreted] Thank you, Mr. Jee-Hyun welook for your question. Let me answer your question on the earnings outlook for 2017 as well as a mid-to-long term outlook. In 2017 we will be managing the growth and profitability not just on SK Telecom alone, but from a portfolio point of view with that includes our subsidiaries.

As for the top line we will achieve growth for the consolidated revenue through growth on M&O revenue as well as new business revenue growth and that include our subsidiaries and IoT business area.

M&O revenue for SK Telecom is continuing we will be continue to improve because as you may know the subscribers opting for the selective discount plans is becoming a little bit more stable, and we are also seeing consistent data usage growth, also there's new business area revenue that include our IoT business will continue to grow, therefore we believe that the overall M&O revenue for SK Telecom will be improved due to these factors.

As for our subsidiary revenue, as you know SK Broadband and SK Planet are both showing strong signs of growth and they will contribute greater to the consolidated revenue.

In terms of operating costs for SK Telecom we will achieve cost efficiencies through more stable market and as for our subsidiaries through efficient resource management namely the selection and concentration method we will make sure to achieve overall profitability improvement..

[Interpreted] Next question will be provided by Mr. Ahn Jae-Min from NH Investments & Securities. Please go ahead sir..

[Interpreted] Hi, thank you for the opportunity. I have two questions. You did briefly touch upon this, but I am quite concerned about the following M&O market share. I believe that this will lead to a slower revenue growth, and so I'd like to hear your plans on how to respond to that.

My second question has to do with the regulatory changes that may occur this year there could be an early presidential election taking place this year and there are certain sunset clauses that will expire this year as well.

So I would like to hear your plans regarding those changes?.

[Interpreted] Thank you, Mr. Ahn for your question. I will have Mr. Pung Ko [ph], Head of the Service Strategy answer your first question regarding the falling market share, and as for your second question regarding regulation, I will hand the mike over to Mr. Lee Sang Heon, Head of CR Strategies..

[Interpreted] I am in Pung Ko [ph], Head of Service Strategy as was introduced. First of all as you mentioned it is true that our market share did slightly suffer. However if you look at the overall market environment we are seeing a more stable market that is focused on handset upgrades and you can also see that MMP numbers are shrinking.

And so under our strong direction, strategy direction of providing quality products and services that can then set our customers in a very real way, we will refrain from market share competition and transition into a strategy that focuses on growing our subscriber base through quality products and services..

[Interpreted] Hello I’m Lee Sang Heon, Head of CR Strategy and I will be answering your question regarding the regulatory changes of the New Year. First of all due to various recent situations and state affairs it is quite difficult for us to anticipate what the ICT related policy direction will be of the next administration.

However basically we believe that it will be focused on, number one strengthening the national competitiveness through the Fourth Industrial Revolution and number two finding the next growth engine, and I believe - and we believe that the policy will also be focused on those two things as well.

And from an overall point of view considering the importance of the role operators have to play in achieving the Fourth Industrial Revolution. We expects a quiet reasonable discussion to be held that takes into consideration that need for growth and customer benefit as well as how operators can contribute to these changes.

Next to address your question regarding the expiration or the amendment regarding the sunset clause in the distribution act. The subsidy cap is expected to expire by September this year and we expect there will be further discussions on amendments in the details of the handset act.

We believe that even after the subsidy cap expires, various things will be taken into account including the initial intentions of a handset act and the balance and the room for investment for the operators..

[Interpreted] Last question will be given by [indiscernible] from CLSA. Please go ahead..

[Interpreted] Thank you. I have two questions. The first has to do with your dividend. We saw an increase on the dividend gains on Hynix and also your competitor has increased its dividend as well. So what are your plans regarding their dividend policy. And my second question has to do with the new administration of the United States.

There are talks about change making changes to the net neutrality issue so I would like to hear about SK Telecom’s point of view on that and do you have any plans to make it into a public discussion in Korea as well..

[Interpreted] Thank you for your questions first of all. Let me first address your question regarding the dividend policy. As you mentioned there was an increase on the dividend in 2016 by SK Hynix but this is not directly related to a SK Telecoms dividend policy.

As of now, we believe that the annual dividend for this year will be maintained at a similar level of that of last year.

As was mentioned during today’s call in order to lead the establishment and development of the new ICT ecosystem, we plan to pursue a consistent and permanent growth going forward and to do so we will be investing in we will be making investments to establish the ecosystem for the future as well as to lead the new network era.

However, through efficient investment execution and resource allocation we will make sure to protect our shareholder value. And also we will make sure to continue to maintain the balance between investment for growth and dividends.

And going forward we will maintain our current principle that we want to make sure to protect or insure both the company’s growth as well as increasing shareholder returns in the future. Regarding your next question on the net neutrality issue I will have the head of CR strategy answer this..

[Interpreted] As for the net neutrality issue in Korea the next the related guideline was devised in 2011 and two years after that specific plans and read and guidelines regarding a reasonable network operation was set in place and our operators are abiding by that.

And at the end of - near the end of 2016 KCC made announcements regarding specific guidelines on the net neutrality issue in Korea. However, the specific details have not yet been made.

And as for the United States which has been strictly against net neutrality, they recently appointed someone completely opposite of that you had the FTC, however, as for as specifics regarding Korea, we will have to wait and see.

However, what I can say is that we believe that in the future by activating various services including the zero rating, the burden placed on customers will be decreased and I think this will also have a positive impact on the revenue as well..

[Interpreted] With that, thus conclude the earnings conference call for Q4, 2016. Thank you..