Chunghwa Telecom Co., Ltd ( CHT)

Q3 2011 Earnings Call

October 28, 2011 4:00 AM ET

Executives

Fu-fu Shen – Director of Investor Relations

Shyue-Ching Lu – Chairman & CEO

Shaio-Tung Chang – President

Shu Yeh – CFO

Analysts

Sam Chate (ph) – Credit Suisse

Danny Chu – Nomura

Anand Ramachandran – Barclays Capital

Joseph Quinn – Macquarie

Ravi Sarathy – Citigroup

May Lin – Yuanta

Operator

Good evening, ladies and gentlemen. Welcome to the Chunghwa Telecom Conference Call for the Company’s Q3 2011 Operating Results. During the presentation all lines will be in listen-only mode. When the briefing is finished, directions for submitting your questions will be given at the Q&A session.

For your information, this conference call is being broadcast live over the Internet. Webcast replay will be available within an hour after the conference is finished. Please visit www.cht.com.tw/ir under the In Focus section.

Now, I would like to turn the call over to Fufu Shen, the Director of Investor Relations. Ms. Shen, please begin.

Fu-fu Shen

Fu-fu: Thank you. This is Fu-fu Shen, Investor Relations Director of Chunghwa Telecom. Welcome to our third quarter 2011 results conference call. Joining me on the call today are Dr. Lu, Chairman and CEO, Mr. Chang, President, and Dr. Yeh, CFO.

During today’s call, management will discuss business, operational and financial highlights for the quarter. This will be followed by Q&A. Before we continue, please note our Safe Harbor Statement on Slide No. 2. Now I would like to turn the call over to Chairman, Lu.

Shyue-Ching Lu

Thank you, Fu-fu. Hello, everyone. This is Shyue-Ching Lu, Chairman of Chunghwa Telecom. Thank you all for joining our third quarter 2011 earnings results conference call.

On Slide No. 3, total consolidated revenue for the third quarter of 2011 amounted to NT$55.7 billion, with the increase mainly from higher fixed line revenue, mobile VAS and handset sales. Higher property sales from our property development subsidiary also contributed to the revenue growth, and we continued to expand our traditional telecom service business during the quarter.

Moving on to Slide No. 4, which shows our cash return over the last several years. This year, we have returned NT$19.4 billion via capital reduction and distributed dividends of NT$42.9 billion relating to the year 2010. Going forward, we will remain committed to distributing dividends to shareholders.

I will now hand over to Chang for our business overview.

Shaio-Tung Chang

Thank you Dr. Lu. Now let me take you through our business performance. We’ve outlined our business highlights on Slide 6 to give an overview of some key corporate developments.

Beginning with our mobile business, smartphones as a percentage of total handsets sold continued to grow, reaching 45% for the third quarter compared to 40% for the first half of the year. Due to a close correlation with the popularity of the smartphone, VAS revenue as percentage of total mobile revenue increased to 21.6% for the third quarter as compared to 15% for the same period of last year. We successfully addressed the market competition by offering limited “Free on-net call” and “My hot line” packages to enhance customer loyalty.

In terms of broadband, we reduced our broadband tariff in June, especially for higher speed services such as 20 Mbps and 50 Mbps in order to speed up the migration to fiber solutions and facilitate the take-up of relevant applications. As of now, 50 Mbps subscribers total 365,000.

As for our IPTV services, this has proved to be competitive and has performed quite well this year, with subscribers already totaling 980,000. We expect the growth momentum to continue as customers have reacted positively to the enriched Family Package.

On the content front, we expect to have 43 HD channels by year-end, making our platform a topnotch one in the Taiwan market. In addition, in response to customer demand for ubiquitous services, we plan to launch our new IPTV platform in December of this year. Via the new platform, customers will be able to enjoy our high quality programs on TVs, computers, tablets, as well as handsets by taking advantage of our cloud computing technology.

Slide 7 focuses on our mobile business. We have been maintaining the highest number of subscribers and the lowest churn rate in the market. Although our churn rate increased in the third quarter due to market competition, we managed to lower it by providing limited “Free on-net call” and “My hot line” packages. We are carefully monitoring the competitive landscape and will retain the flexibility to implement appropriate measures to maintain our leadership.

On Slide 8, due to the continued popularity of smartphones, mobile internet and mobile data usage continue to increase. At the end of September, there were 1.32 million mobile internet subscribers, compared to 809,000 as of December 2010, evidencing strong growth momentum. We expect to accumulate 1.47 million mobile internet subscribers by year-end.

The construction and capacity expansion of base stations are on track. We already have over 2,000 base stations with speeds of 21 Mbps. We believe we continue to maintain the best quality of our mobile service in Taiwan based on our survey of the quality of major networks.

In addition, we are continuing to install Wi-Fi APs to offload traffic on mobile networks, and we expect to accumulate 20,000 public Wi-Fi APs by the end of 2011.

Slide 9 shows the results for our broadband business. Due to the previously mentioned reduction in our broadband tariff, our broadband ARPU dropped to NT $742 for the third quarter as compared to NT$780 dollars for the second quarter. Although the lower broadband tariff had a temporary impact on our revenue, we believe the speed upgrade will have a positive effect on our promotion of broadband value added services in the long run.

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