[Foreign Language] Good afternoon. I am Jeong Hwan Choi, the IRO of SK Telecom. Today's conference call will consist of the presentation on the earnings results for Q3 of 2019 and the future management plans and strategic direction by Poong-Young Yoon, CFO and Executive Vice President of the Corporate Center, followed by a Q&A session.

[Foreign Language] Today's conference call will provide consecutive interpretation, and we also have here with us executives from relevant business divisions to help deepen your understanding. Before we begin, we want to remind you that all forward-looking statements are subject to change depending on the macroeconomic and market situations.

Let me now present our CFO..

[Foreign Language] Good afternoon. This is Poong-Young Yoon, CFO of SK Telecom. Let me first discuss the consolidated earnings highlights for Q3 of 2019.

[Foreign Language] Consolidated revenue for Q3 recorded KRW 4,561.2 billion, with the MNO revenue turning around on a year-on-year basis for the first time since Q3 of 2017 and solid growth trends in media, security and other subsidiary businesses, consolidated revenue increased by 9% year-on-year and 2.8% quarter-on-quarter.

[Foreign Language] Consolidated operating income recorded KRW 302.1 billion, similar to that of the previous year, with the increase in 5G-related marketing costs and depreciation costs being offset by non-MNO business growth.

Commerce business reached BEP for three consecutive quarters, while media and security businesses maintained a stable operating income level, thereby contributing to earnings. [Foreign Language] Net income recorded KRW 274.4 billion, down 73.9% year-on-year due to equity method income on SK Hynix, while increasing by 5.9% quarter-on-quarter.

[Foreign Language] Let me now move on to major business achievements. [Foreign Language] MNO revenue recorded KRW 2,486.4 billion, up 0.1% year-on-year and 2.1% quarter-on-quarter.

Building on the quarter-on-quarter revenue turnaround in Q2, it also increased on a year-on-year basis this quarter, thanks to the growing number of 5G subscribers as well as greater data usage. [Foreign Language] The number of 5G subscribers exceeded the world's first $1 million mark on August 21.

As of the end of September, the number reached $1.54 million and is expected to reach $2 million by the end of the year. [Foreign Language] Media business recorded an IPTV revenue of KRW 333.7 billion, with total IPTV subscribers continuing to rise.

Qualitative growth, including greater content usage also took place, leading to a 14% increase in IPTV revenue year-on-year and 3.6% increase quarter-on-quarter.

[Foreign Language] Through the integration process of our Oksusu and the three terrestrial broadcasters Pooq, which began early this year, the new OTT Service wavve was finally launched on September 18. Wavve plans to acquire 5 million paying subscribers by the year 2023, thereby leading the domestic OTT industries growth and enter the global market.

We have recently signed a KRW 200 billion investment contract for content production and other endeavors. [Foreign Language] As for the security business revenue, it increased by 3% quarter-on-quarter to record KRW 306 billion, thanks to the increasingly solid earnings growth of SK Infosec.

Operating income remained similar quarter-on-quarter at KRW 41.4 billion, providing stable support for consolidated earnings. [Foreign Language] Commerce business recorded KRW 188.5 billion in revenue and KRW 1.5 billion in operating income.

Increased sales of SK Stoa helped maintain the revenue, and the business recorded a surplus for three consecutive quarters, thereby improving the operating income by KRW 26.9 billion year-on-year.

In the commerce market, where large operating losses have become the norm, SK Telecom will differentiate its commerce business based on stable revenue and healthy business fundamentals that can maintain sustainable profitability. [Foreign Language] Meanwhile, this Monday, we seized yet another opportunity for growth.

Along with exchanging KRW 300 billion worth of shares with Kakao. We have established a strategic partnership and agreed on closely cooperating in four major areas of MNO, commerce, digital content and future ICT.

Through the partnership between two leading companies in their respective fields, we will strengthen our growth portfolio and lead innovation and growth of the nation's ICT ecosystem together. [Foreign Language] On top of business achievements, SK Telecom made history this quarter in the areas of sustainable management and customer satisfaction.

In September, SKT became the first Asian company and the company with the longest record in Korea to be included in the DJSI World Index for 12 consecutive years and was ranked number 1 in mobile communications business in the Korean Customer Satisfaction Index for 22 consecutive years.

[Foreign Language] As we continue to innovate, we will remain loyal to fundamentals and always be genuine with our customers, doing our very best to maintain our reputation as a leading Korean company. We ask for your continued support and encouragement. Thank you..

[Foreign Language] Now Q&A Session will begin. [Operator Instructions] [Foreign Language] The first question will be provided by Hoi Jae Kim from Daishin Securities. Please go ahead, sir..

[Foreign Language] Hello, I have two questions.

My first question is, with the recent launch of wavve, I'd like to know about the paying subscribers as of yet and as well as the outlook going forward? I'd also like to hear about your funds and contents acquisition, plans going forward? Also, we all know that you recently announced your partnership – a strategic partnership with Kakao, is that something that you did with wavve launch in mind? And also, are there any possibilities of you participating in partnerships with any other OTT companies, both at home and abroad? My second question is, we all know that you have been expanding your 5G coverage compared to the initial launch of your 5G service, including the in-building coverage.

We would like to hear about your coverage outlook by the end of this year? And also, when do you plan to begin your investment in the 28 gigahertz spectrum?.

[Foreign Language] Thank you, Mr. Kim, for your questions. [Foreign Language] Let me first address your question regarding the launch of wavve.

[Foreign Language] First of all, wavve will utilize the three terrestrial broadcasters, real-time broadcasting capabilities as well as their content competitiveness and also leverage our company's subscriber base as well as marketing capabilities to secure at an early stage, the economy of scale in terms of subscriber base and also in producing original content.

[Foreign Language] As of the end of October this year, the subscriber number is at 1.4 million. And we feel that we are smooth sailing to reach the 5 million target for the year 2023.

[Foreign Language] To enhance the content competitive of wavve, we have recently signed an investment contract worth KRW 200 billion, and we will continue such efforts going forward. [Foreign Language] We will be producing about four to five major contents – original contents per year.

And with partnership with Kakao, we will also be able to utilize Kakao's very rich IP assets on our own platform and our own – in connection with our own platform. So we expect great synergies in that area as well.

[Foreign Language] Also to strengthen the content competitiveness of wavve as well as to invigorate the K-content ecosystem, we wish to partner with many entities and players in the market, including broadcasters and producers and other companies. [Foreign Language] And let me now address your second question regarding 5G coverage.

[Foreign Language] Currently, we are focusing on the major densely populated areas of the 85 cities, including Seoul and the metropolitan areas as well as the neighborhood units.

[Foreign Language] And by the end of this year, we plan to expand our coverage to the major, around, 70 5G clusters, so that our consumers can really feel the high-quality 5G service and also major KTX lines, highways and other neighborhood units – areas within the 85 cities.

[Foreign Language] As for the in-building coverage, we are continuing to expand the equipment for that in-line with our clusters. And by the end of this year, focusing on large shopping malls, exhibition halls, airports. Among others, we plan to extend our in-building coverage points to 1,000.

[Foreign Language] And as for your question on the 28 gigahertz investment because the network vendors, equipment development and device handset chipset development is probably going to gain more clarity during the first half of next year, the official commercial launch or use of the 28 gigahertz spectrum, we'll have to develop accordingly, hand-in-hand with that schedule.

[Foreign Language] And as for the annual CapEx for 2019, while there is room for flexibility regarding 5G competition and subscriber growth, but we will control the CapEx spend within KRW three trillion, which was what was guided previously.

[Foreign Language] And this year because of the initial stage of the 5G commercial launch, we focused our investments in rolling out the network, focusing on the major 85 city areas.

[Foreign Language] And so in the year 2020, through efficient and strategic network rollout focusing on the 5G-related clusters and an efficient CapEx spending, we plan to manage the CapEx level to less than that of this year. [Foreign Language] Thank you..

[Foreign Language] The next question will be presented by Jong In Yang from Korea Investment & Securities..

[Foreign Language] Thank you for the opportunity. I have two questions. The first question is regarding your market competition with the efforts to acquire more subscribers during Q3, we saw a slight increase in your marketing costs.

What is your outlook going forward for marketing costs? And also, do you plan to increase your 5G penetration in terms of your – out of your total subscriber base up to 48%? My second question is during the last conference call, you mentioned that Q4 ARPU will see a quarter-on-quarter increase or growth.

Is this still valid? And I would like to hear about your ARPU outlook for Q4 as well as next year?.

[Foreign Language] Thank you. Mr. Yang, for your questions. [Foreign Language] First of all, the 5G subscriber number reached 1.5 million in September. So it was – it’s growing at a faster speed than we expected. [Foreign Language] Market share also continued to increase. And as of now, we have about 44% of market share in terms of 5G.

[Foreign Language] While SK Telecom doesn’t have an internal market share target, we will do our best to transfer our 4G leadership into that of 5G, so that we can further solidify our leadership position.

[Foreign Language] And as I briefly mentioned, by the end of this year, we expect this 5G subscriber number to exceed two million and for next year, about seven million.

[Foreign Language] As for the marketing cost competition, going forward, we will refrain from cost or price competition and focus on 5G cluster based quality network and quality service as well as providing benefits, so a competition that centers on service.

[Foreign Language] In fact, we are already seeing a more stable market operation in – beginning in September, and this is a trend that we will continue going forward. [Foreign Language] Let me now address your question on ARPU for Q4.

[Foreign Language] As we mentioned, due to growing handset subscribers and the launch of 5G as well, we saw the ARPU turnaround on a quarter-on-quarter basis beginning from Q2, and this was accelerated during Q3, and we saw an even year-on-year increase in terms of ARPU.

[Foreign Language] And such trends are expected to continue into the fourth quarter as well. [Foreign Language] And considering the current rate of 5G subscriber growth increase, we expect the ARPU growth to continue going forward. So we feel that in Q4 of this year, we should be able to see the ARPU turnaround on a year-on-year basis.

[Foreign Language] While it’s difficult for us to provide you with an ARPU outlook for next year as of now. But because we feel that the ARPU will definitely turn around during Q4, we believe that the ARPU growth trend should continue into 2020.

[Foreign Language] Especially, when we look at the 5G subscriber uptick, they are mostly opting for the standard or prime price plans. And when we look at the 5G growth and development trend, we feel that we should be able to see at least a mid-single-digit growth. [Foreign Language] Thank you. [Foreign Language].

[Foreign Language] The next question will be presented by the Jay Yoo from Merrill Lynch. Mr. Yoo please go ahead sir..

[Foreign Language] Hello, I have two questions. My first question is regarding the merger of t-broad.

What’s the current status like? And what’s the schedule going forward? And my second question is, are there any updates you can give us regarding your year-end dividend?.

[Foreign Language] Thank you, Mr. Yoo for your questions. [Foreign Language] Let me first address your question on the merger with t-broad.

[Foreign Language] At this particular time because we are waiting for the FTC’s approval regarding the acquisition and merger of t-broad, it would be difficult for us to give you the actual or the final merger conditions.

[Foreign Language] After the FTC’s approval goes through, there are still some other processes left, including the approval process by the KCC and the Ministry of Science and ICT and the merger process. And so we feel – we believe that the over – the entire merger process should be concluded during the first quarter of next year.

[Foreign Language] And when once merged, the merged entity will utilize the infrastructure integration of its – the both companies’ network and media infrastructure and enhance efficiency. So it will be focusing on enhancing the level of synergy in terms of cost and business management.

[Foreign Language] As for more color into the possible synergies that could take place. We will be sure to communicate it to the market once the entire processes process is completed. [Foreign Language] And now moving onto your question regarding the year-end’s dividend.

[Foreign Language] As for the year-end dividend, as was mentioned during the last conference earnings call, due to the full-scale commercial launch of 5G, we do have some cash demand more so than what we had originally expected. But we still want to maintain a stable level of shareholder return policy.

[Foreign Language] As for the exact amount, we will communicate it to you after the Board makes its decision..

[Foreign Language] Thank you..

[Foreign Language] The next question will be presented by Neale Anderson from HSBC. Mr. Anderson please go ahead sir..

Thank you. I had two questions, please. The first one is relating to the Project xCloud, the partnership with Microsoft.

I was wondering if that is based on revenue sharing, and if that’s something new in 5G that you think might bring additional revenues, the possibility of partnering with content providers such as Microsoft? And also, if you can give any details on the latency improvement as I understand you’re hosting some of the content at your mobile edge compute locations? That’s the first question.

The second question relates to the dividend outlook for next year, and particular, the possibility of linking the interim dividend to the performance of associates. That was something that was discussed earlier, but has been postponed. And I was wondering if that is a possibility for next year? Thank you..

[Foreign Language] Thank you, Mr. Anderson for your questions. [Foreign Language] Let me first answer your question on the xCloud partnership. [Foreign Language] Basically, Microsoft and our company, we are focusing on creating a business model that is based on subscription. So a subscription-based business model, that is the purpose of our partnership.

[Foreign Language] As for the revenue sharing business model or any kind of details, we should be deciding on those after we see the results of the public preview. So regarding RS or any price points, all of that will be decided after the public preview period is over.

[Foreign Language] I will hand the mic over to our executives from the relevant division to answer your question on the mobile edge computing and latency..

[Foreign Language] As for the MEC, that leads to a lower latency of – when it comes to the Internet part at about 10 to 20 milliseconds. As for what happens on our network, we plan to achieve lower latencies through installing MEC equipments. And in terms of the network terms, we are looking at about 10 milliseconds..

[Foreign Language] Let me move on to your question regarding the dividend. [Foreign Language] During the last conference call, we did mention that we are reviewing or we are considering linking results of our subsidiaries, namely SK Hynix to our interim dividend.

But we decided that rather than linking some of the more variables, both from at-home and abroad regarding the characteristics or the nature of the business that SK Hynix is in to our interim dividend. We decided that we would rather provide – would rather stick to a stable DPS for now.

[Foreign Language] However, we are always on the lookout and are always contemplating the most – the best option to increase shareholder value when it comes to our dividend policy. As for next year’s dividend, we will be able to communicate it with you during the conference call that will take place next year. [Foreign Language] Thank you..

[Foreign Language] With that, this concludes the earnings conference call for Q3 of 2019. Thank you..