May 2, 2013
Executives
Fu-Fu Shen – Director, IR Lee Yen-Sung – Chairman Shih Mu-Piao – President Shu Yeh – CFO
Analysts
Lucy Liu – JP Morgan Chate Bend – Credit Suisse Joseph Quinn – Macquarie Jack Xu – Sinopac Securities Sydney Zhang – Merrill Lynch
Operator
Good evening, ladies and gentlemen. Welcome to the Chunghwa Telecom Conference Call for the Company’s First Quarter 2013 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 broadcasted live over the Internet. Webcast replay will be available within an hour after the 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, go ahead.
Fu-Fu Shen
Thank you. This is Fu-Fu Shen.
Welcome to our first quarter 2013 results conference call. Joining me on the call today are Dr.
Lee, Chairman; Mr. Shih, President; and Dr.
Yeh, CFO. During today’s call, management will first discuss business, operational and financial highlights, then followed by Q&A.
On slide number two, please note our Safe Harbor statement. Now, I would like to turn the call over to Chairman Lee.
Lee Yen-Sung
Thank you, Fu-Fu. Hello everyone, this Yen-Sung Lee, the newly appointed Chairmen for Chunghwa Telecom.
Thank you all for joining our first quarter 2013 earnings results conference call. To begin with, as the new Chairman, I would like to inform the investment community that we will not maintain and sudden change and aim to maintain our company’s strong vision and direction and we will remain focused on the successful execution of this strategy.
And I also excited to introduce Mr. Mu-Piao Shih, our new President to you.
Mr. Shih was with the company’s Senior Executive Vice Preside Incharge of Corporate planning and network deployment at Chunghwa.
Prior to that, he was the President of the company’s mobile business. With his extensive and diverse business operation experience, we are sure that he will contribute a lot to the company’s strategic execution and business development going forward.
Another important area to address is regarding the election of our board members in our upcoming Annual general meeting. In order to improve Chunghwa Telecom’s overall corporate governance position, we will increase the number of independent directors on our board from three members to five members out of the total 13 members.
We believe this step clearly demonstrates our commitment to improving Chunghwa’s overall corporate governance. Moving onto slide three, our first quarter operating results, we are proud to say that we outperformed our competitors in adding more mobile internet subscribers since December 2012.
This resulted in a 42.2% year-to-year increase in mobile VAS revenue in the first quarter this year. As our broadband and MOD subscriber numbers in the first quarter remained flat, we will offer fiber convergence plan combing our MOD family packages to stimulate subscriber growth for these two businesses.
Moving on to slide four. As we understand the importance of the dividend distribution to our investors, the board approved a special cash dividend of NT$0.7205 per share from capital surplus.
Including the earning distribution of NT$4.6295 per share for fiscal year 2012, the total amount of payment to shareholders will be NT$5.35 per share. A timetable will be announced following shareholder approval for this proposal at the AGM scheduled to be held on June 25, 2013.
Now, President Shih, joining our earnings call for the first time, he would like to lead you through our business overview.
Shih Mu-Piao
Thank you, Chairman Lee. Please refer to the slide number six for our mobile business.
In the first quarter, mobile Internet service performance was outstanding. Our mobile Internet subscriber represented a strong growth of 59.6% year-over-year to NT$2.87 million, resulting in an increase of our mobile internet subscriber market share to over 33.3%.
Also our mobile data revenue growth rate was 42.2% year-over-year, significantly higher than our peers. Also, taking into consideration of ending of the 20% discount for subscribers whose data usage was less than 1 gigabyte, we still maintained the highest growth rate.
We believe that the success was partly due to our strategy to migrate our 2G subscribers to 3G service through attractive promotions. These promotions helped stimulate increased the smartphone adoption and the mobile Internet subscriptions, proving the effectiveness of our strategy.
On slide number seven, our focus on promoting the mid-to-low end of smartphones is one of the major reasons for our continuous increase in the mobile Internet revenue and the subscriber numbers. In the first quarter, we successfully migrated 2G customers to 3G network with the smartphone adoption.
Thus, we’ll continue this effort by introducing more mid-to-low end smartphone models and the tablets and continue to expand this data service subscriber business while enhancing top-tier smartphone subscribers’ stickiness. Slide number eight shows the results for our broadband business.
During the quarter, we continued to see the strong migration of subscribers to higher speed fiber services. We experienced over 82% a year-over-year growth in the numbers of subscriber opting for speed of the 15 megabit per second and higher, growing to more than 960,000 in the first quarter.
In addition, we reduced our broadband service tariff in April, to facilitate subscriber migration to higher speed fiber services. Overall, even though total broadband subscriber numbers remained flat in the first quarter, we continue to encourage our subscribers to migrate to higher speed of fiber offering by offering attractive fiber convergence plans that combine our fiber solution with MOD family packages, leveraging both our network footprint and the diverse content offering.
As social networking activities become more integrated in our daily lives, we aim to also leverage our faster connections by cross-selling additional services like the hi-cloud box storage service into our large customer base. On slide number nine.
Our IPTV revenue increased by over 8.4% year-over-year and the advertising revenue doubled in the first quarter of 2013. On the advertising fronts, we are increasingly focused on working with channel partners to aggressively grow our advertising revenue.
We believe that advertisers are increasingly looking for such marketing opportunities and we will continue to focus on this opportunity throughout the year. Even though the growth of the MOD subscriber was slow in the first quarter, we observed absorbed a moderate net add of 2,000 subscriber in April.
We aim to offer new promotions to cross-sell our MOD and the broadband services together in order to further stimulate subscriber growth. In addition, we continue to encourage the adoption of our Digital Convergence Services offerings by further enhancing this growing platform.
By integrating our networks and leveraging over cloud technology, we are able to offer services like multi-screen MOD at any time via any device. Furthermore, we will continue our marketing campaign with HonHai’s TV, with the Big TV and plan to duplicate this model by cooperating with other local TV manufacturers, offering our high quality MOD programs combined with the HD TV to enhance user experience.
On slide number 10, we will continue to leverage the core telecom infrastructural and the services to expand services including cloud computing, energy saving, implementing security, intelligent buildings and IOT services. This year, our key focus will remain on promoting the cloud services including the Government Cloud, Virtual Private Cloud for major accounts, SaaS for SMEs and Personal Cloud for retail customers.
In addition, we will also focus on offering ICT applications on information security to enterprise customer and intelligent buildings that helps increase the customers’ asset value. On slide number 12 provides an update on the regulatory front.
As you are all aware, the NCC mandates mobile interconnection rate reduction became effective as of January 5, 2013 for the next four years. Accordingly, we have reduced our mobile voice tariff.
Additionally, the tariff reduction for broadband services, IP peering and domestic leased line wholesale also began as of April for the next four years. For the Telecom Act, the NCC provided an amended draft in February 2013 after it was returned Executive Yuan in October last year for reconsideration.
From Chunghwa’s perspective, we would like to see the amendment of Telecom Act to be considered as part of the Digital Convergence legislation along with the three broadcasting related regulations, in order to facilitate and streamline the cross-business our operations. Additionally, regarding the fee IP peering issue, the NCC held a public hearing on April 25 to collect opinions from the stakeholders and academics since the related draft amendment announced in September last year caused a lot of disputes.
We have maintained our position at the NCC should revoke the draft because it does not conform to internationally accepted practices which advocate light regulation and business negotiation amongst ISPs. To the best of our knowledge, we are not aware of any case in any market where a government authority has imposed such regulation on IP peering.
Finally, the final rules for the 4G technology-neutral licenses are expected to be released this month. We are studying our options and have begun to prepare our building strategies in order to acquire the desired licenses and the spectrum by November this year.
Now, I would like to hand it over to Dr. Yeh for our financial overview.
Thank you.
Shu Yeh
Thank you, President Shih and good day everyone. Thanks for joining us today.
I will review of financial results in detail, beginning with slide 14. On slide 14 are our income statement highlights.
Total revenues for the first quarter grew by 2.1%, and operating costs and expenses increased by 3.1% year-over-year. As a result, income from operations and the net income decreased by 2% and 4.7% respectively.
In addition, the EBITDA margin decreased from 35.21% to 34.02% in the first quarter as compared to the same period for last year. Please refer to slide 15 for our business segment revenue.
Our total revenue increase was driven by 42.2% year-over-year growth in mobile VAS revenue and 17% growth in handset sales. This strong growth was mainly driven by our mobile Internet subscriber increase.
Local service revenue decreased by 7.6% mainly due to mobile and the VoIP substitution. In addition, the higher declining rate is attributed to the mobile promotional package offering as well as an increase of the amortization period of fixed line installation revenue beginning earlier this year.
Moreover, the 15.2% revenue decline in the DLD business was primarily due to tariff reductions which began in January 2012 and was reflected one month later in the February 2012 financials, resulting higher year-over-year comparison basis. Mobile voice revenue decreased 7.8% due to promotion package and the mandatory tariff reduction.
If we factor out the mandated interconnection rate reduction starting this year, the declining rate is similar to previous quarters. On slide 16, the operating costs and the expenses increased 3.1% year-over-year.
The increase in operating costs was mainly from the rising cost of handsets sold, resulting from a strong mobile Internet and the handset sales growth during the quarter. Operating expenses increased primarily because of higher marketing expenses, including bad debt as well as personnel and the rental expenses related to Chunghwa and the subsidiary’s channel expansion.
As shown on slide 17. Cash flow from operating activity decreased to NT$8.5 billion during the first quarter.
This was mainly due to the delay of bill payment due to holidays, and the higher handset procurement quantity which was necessary to meet customer demand. We maintained a strong cash position with cash and cash equivalents amounting to NT$35.1 billion as of March 31 this year.
Meanwhile, the EBITDA margin decrease was primarily due to the tariff cut and the higher handset sales, of which the EBITDA margin is lower than our traditional telecom services. In addition, please refer to note numbers three for the different definitions of cash, and the cash equivalent under ROC GAAP and T-IFRSs, which explains the lower cash position by the end of the first quarter of this year.
Slide 18, shows our 2013 first quarter result as compared to our guidance for the quarter. We achieved relatively higher revenue, operating income, net income and the EBITDA, as compared to our first quarter guidance, which was mainly attributable to higher handset sales and the mobile VAS revenues.
However, EBITDA margin was lower than expected due to the lower margins for handsets. Currently, we expect our full year operating result to remain in line with our earlier guidance.
Lastly, on slide 19, budgeted CapEx for this year is NT$37.2 billion. The spending will continue to focus on broadband and the mobile network construction and cloud deployment including cloud data center construction.
We will review our CapEx budget and the execution plan on a regular basis, focusing on making the most cost effective spending decisions possible. With increased CapEx devoted to this area, we aim to continue improving our customer offering, experience and the satisfaction.
By facilitating customer migration to 3G services and the higher speed fiber solutions, we hope to enhance the quality of their overall experience on our network, providing the best customer experience available in Taiwan. Thank you for your attention and now we would like to open for questions.
Operator
Thank you. We will now begin our question-and-answer session.
(Operator Instruction). So the first question is coming from Lucy Liu, JP Morgan.
Go ahead, please.
Lucy Liu – JP Morgan
Hi. Thank you very much for the opportunity to ask questions.
So, I have three main questions. One is on your mobile business, so I noticed that you, through to add service revenue market share in the first quarter this year, which actually was a very big trend.
So just can you elaborate more in terms of what exact promotions you have launched or strategy change in the a last quarter to help you to gain the market share? This is number one.
Number two is on broadband. So, I noticed that mandatory tariff cuts are for April, but it seems like you also took some voluntary price cut for the broadband business.
So, just wonder what’s the plan for the rest of the year, are you aiming for further tariff reductions for the broadband service? And lastly is the MOD service.
So just I wonder why you guys don’t do even more aggressive content acquisition from – for those very popular contents that are – that’s basically provided by cable. So, what prevent you from even more aggressive content acquisition?
Thank you.
Lee Yen-Sung
Okay. So, first question is regarding the mobile promotions.
We have a special package that we offer good tariff in net and also compared with the smartphone and we also do some promotion on the mid to – midterm to the low-end smartphones, so this is also one of the reason we can get the more market share. Regarding the...
Lucy Liu – JP Morgan
Sorry, can I follow up one thing on the mobile side? So I know that you cancelled – you actually removed the price discounts you used to offer like last year to the low-usage data customers, right.
So do you see that after removing this you see the customers still coming as you planned, do you see any positive impact from this action.
Lee Yen-Sung
Yeah, by end of last year we have so called discounts on the usage less than 1 gigabyte. So we already ended, this promotion has been ended.
So yes we, we – users are now is quite happy with our network, so it have no effect at all.
Lucy Liu – JP Morgan
Okay.
Operator
The next question is coming from....
Shih Mu-Piao
Broadband, effective from April 1, we have not mandated tariff reduction. So it’s not really voluntary price cuts.
Lucy Liu – JP Morgan
Okay.
Shih Mu-Piao
And for the MOD, I think we are aggressive in acquiring the content. Yeah, but – some of the price probably would be too high.
So currently we are attractive to have the content provider get onto our main work and we would continue our best efforts try to attract more content providers to come on our platform. Thank you.
Lucy Liu – JP Morgan
Okay. Thank you.
Shih Mu-Piao
Just, on the question two is regarding the broadband tariff. Actually, yes, we proposed NCC for approval of the price cut and also we have upgraded speed of the Internet access.
So this is – so far we are doing very big campaign to try to attracting more subscribers. And probably this year, so far we have no plan.
Thank you.
Lucy Liu – JP Morgan
Thank you. So for the broadband, so do have a plan to provide even higher speed broadband, I noticed that your current broadband speed is only up to 100 mac, but your network should be able to provide like up to I don’t know in developed some operators provide up 1 gig.
Do you see this will be – it will be within your plan?
Shih Mu-Piao
Yes. We’re now promoting the 100 megabits per second by using so called the fiber to the home or the bundling technology using the VDSL2.
We already had a 1 gig trial for thousands of subscribers. But so far is not too many users need this kind of high speed.
So, but in the future, we planned to introduce higher speed more than 200 megabit per second, for 220 megabit per second. But there is a technology behind should be fiber to the home.
We cannot do it by VDSL2. So, yes, we will have some trend in the near future.
Lucy Liu – JP Morgan
Thank you.
Operator
The next question is coming from Chate Bend with Credit Suisse. Go ahead please.
Chate Bend – Credit Suisse
Yep. Good afternoon, everyone.
Thank you for the opportunity to ask the question. So, I have four questions in total.
The first one is regarding the broadband. Just further discussion regarding the price cuts in April.
The last time that we have the price cut in the mid of the year 2012 like the – mid of the year 2011 and then beginning of 2012, it seems like that impact on revenue is quite material and it takes time to recover. May also you expect that impact to be pretty similar this time or is there in terms of difference in the price cut that you are implementing that this time that will not impact the revenue as much.
The second question is regarding the deduction in broadband again. Is it effective right now the price cut that you intend to implement and after that you see a pickup in terms of the subscriber growth or not in terms of broadband subscribers.
The third and the fourth question is quite housekeeping. The first one is regarding the succession of your mobile data service discount.
What is the impact of succession of data discount on your revenue growth on mobile data if you split that out what would be the year-on-year growth in mobile data revenue? And the last question is regarding the MOD and understand that you mentioned that advertising revenue from MOD right now, may I ask what’s the percentage of revenue actually is coming from the MOD advertising?
Thank you.
Shu Yeh
Yeah. The price cut, we’ve already factored into our guidance.
So, there would be some impact of cost, but however, we hope this price cut can also migrate our subscriber into higher speed. So, that will offset the decline in the price.
The – for your first question, the other advertisement on MOD is kind of insignificant, but however, we are glad to see advertiser now they fund. This is good channel to put at.
So, we would put more effort in this area.
Chate Bend – Credit Suisse
Okay. If it’s less than 10% of your MOD revenue currently?
Shu Yeh
Yes. It’s less than 10%.
Chate Bend – Credit Suisse
Yes. My other two questions are; number one, what’s the year-on-year total mobile data revenue if we remove that impact from the data usage discount.
And the other one is the – regarding the effect of the – in broadband tariff with – after that do you see a pickup in subscriber growth on our fixed broadband services or not?
Shih Mu-Piao
Okay. The year-over-year, the increase in 42.2%, in which we cover the 20% of this 1 gigabyte.
The year-over-year increase is 33.5%. So, we removed the effect of 20% discount.
The year-over-year increase is 33.5%. The overall is 42.2%.
Shu Yeh
For your question number three, we don’t see the pickup in the subscriber numbers due to cost cutting. But however, we see our subscriber may migrate into higher speed and that give us higher ARPU.
Thank you.
Shih Mu-Piao
Thank you very much.
Operator
(Operator Instructions). And now the next question is coming from Joseph Quinn from Macquarie.
Go ahead, please.
Joseph Quinn – Macquarie
Thank you for the opportunity. I’ll ask a few questions.
Just on the broadband side, can you give us some expectations what do you see on ARPU growth going forward in the next year or so, obviously, taking into account that you are going to have a repo coming in second quarter. Should we still expect then ARPU to be steady as your users migrate over?
On the MOD side, you highlighted in your slides that you want to continue to enhance or wrench your local content. Can you talk over how you plan to do that.
What are you going to look to reduce your own content or how do you plan to work on that side of things? And on the IP peering side, can you give us an idea if there is a free IP peering if you’re forced to do so.
What revenue impact should we expect here. How significant is it?
And then lastly, just on your dividend side, have you seen obviously you’ve increased the dividend quite substantially. A) Are you looking to increase your overall dividend policy?
Or are you looking to maintain more of a stable dividend that seems to be rather stable number year-on-year? Thank you.
Shih Mu-Piao
Okay. The question one is, the broadband expectation of the ARPU growth.
Because of the X value. So we expect the – in the short-term that Q2, the ARPU maybe a little bit decreased.
But after our upgrade plan for our customer, the ARPU expect it to increase gradually. So if the cost subscriber growth, we expect the revenue can be steadily gross.
Joseph Quinn – Macquarie
Okay. And so just on terms of your subscriber growth, can I have an idea of where you’re seeing more subscriber growth like – your total number of subscribers seems to be moving up fractionally?
Can I have an idea of where you’re seeing mostly of these subscriber growth? Is this coming from enterprise, more home, where you’re seeing most growth?
Shih Mu-Piao
The appropriate subscriber number, we expect maybe grows from in the Personal Cloud and SME or some...?
Lee Yen-Sung
Or some like IOT subscriber.
Joseph Quinn – Macquarie
Okay.
Shu Yeh
Regarding the repeating, the direct impact where these loss of the NT$2.5 million for the year income. 250 million.
Sorry, NT$250 million for year.
Joseph Quinn – Macquarie
Okay.
Shu Yeh
And we think the Philippines lines also affect internet ecosystem in Taiwan. So regarding this issue we still need to watch under the exit – access it carefully.
Joseph Quinn – Macquarie
You’re referring to might introduce more competition. Sorry when you mean, it might affect ecosystem.
You mean it might introduce more competition. Is that what you mean?
Shu Yeh
IP peering is a dispute so far, so we still haven’t communicated with all the parties evolved. So still uncertain, but we think it’s not a good to partnership.
Joseph Quinn – Macquarie
Understood.
Lee Yen-Sung
Okay, for MOD, we are actively talking to the different content providers, yeah, but we don’t disclose the details now. And therefore, our dividend policy for dividend distribution.
We will continue prudently, not just our dividend distribution. Based on our operational result.
Expenditure and the cash enhanced. Of course, any proposals we need the approval by the board meeting in the AGM.
Thank you.
Joseph Quinn – Macquarie
Okay. So, can I just follow up there?
In terms of your MOD, I understand and I appreciate you can’t disclose who you are talking with in that sense. But can you give us some idea in terms of the hurdles or difficulties that maybe you faced in the past in relation to get any local content?
And on the dividend policy, can you maybe give us some insight into just thinking behind the increase in the dividend this year. Obviously, this year you have a rather high CapEx and operations are steady, but you’re going to have LTE licenses as well.
I’m just curious to think the – the thinking behind the management’s decision there? Thanks.
Shih Mu-Piao
I think first, to talk about dividend, you can see in the past few years our payout ratio was 90% and this year given the low earnings of last year and our rich cash balance even after the CapEx for the next few years, the board – they think we can offered a payout ratio of more like 103%. And of course, the board would decide in the future based on the similar factors like the cash in hand and the CapEx and the loss kind of factors.
And yeah, so, that’s – while we – the board have made a decision based on these factors.
Joseph Quinn – Macquarie
Okay.
Shih Mu-Piao
Regarding the MOD program, we still do our best to negotiate with some local content providers. Also I think, my friends always have a very, very positive feedback about the MOD’s quality and the channels.
And – but yes, some local subscribers, they tried to have the content from the cable TV. So we’re still discussing in the negotiations with some local content.
Joseph Quinn – Macquarie
Okay. Thank you.
Operator
Next in line is Jack Xu from Sinopac Securities. Please ask your question.
Jack Xu – Sinopac Securities
Hello. Thank you.
I see the penetration ratio of your smartphone growth have reached ARPU from the smartphone has declined in comparison with the last – in the same quarter last year and could you tell us well, what is the change for ARPU from the smartphone? Thank you.
Shih Mu-Piao
We – regarding the smartphone ARPU, because we’re now moving some effort to the mid and to low-end subscribers. So it’s a natural trend that maybe ARPU was a little bit decreased.
So we tried to increase that to the user base because we now have around 2.8 million Internet – mobile Internet subscribers, but we have a more than 10 million subscriber. So we know that the most important thing is to expand our subscriber base.
So in the long-term, the user ARPU is a little bit decreased. But, we – the total effect would increase our revenue.
Jack Xu – Sinopac Securities
Okay. So, on the amount of the revenue from the smartphone is increasing in the future.
Shih Mu-Piao
Yes, yes.
Jack Xu – Sinopac Securities
Okay. So, another question.
Could you tell us what the MOD subscribers in the first quarter in 2013? Thank you.
The MOD subscriber in first quarter. Thank you.
Shu Yeh
One, pretty nice, that’s pretty nice. 1.19 million, yeah it’s around 1.2 million.
Jack Xu – Sinopac Securities
So, it’s back with the fourth quarter of 2012.
Shu Yeh
Is it almost the same as last year, correct.
Jack Xu – Sinopac Securities
Okay, what’s the target this year?
Shih Mu-Piao
We have an aggressive goal is to 1.4 million by end of this year. So, we will do our best to do some promotion and even to corporate with the Big TV and other campaign.
So, the goal is still 1.4 million by end of this year.
Jack Xu – Sinopac Securities
We will wonder, well if does that mean, well, big growth in the net cap – in the, I mean in the third quarter?
Shih Mu-Piao
Yes, from the second quarter to end of this year as we need to do many efforts to reach the goal.
Jack Xu – Sinopac Securities
That will increase, the more expense, I mean, the – especially the marketing expense we only increased highly or high level are expected?
Shih Mu-Piao
Yes. I think, the marketing expenses were increased, yes, to some – for this campaign.
Jack Xu – Sinopac Securities
Thank you.
Operator
(Operator Instructions). Next question is from Vicky Lin, Merrill Lynch.
Go ahead, please.
Sydney Zhang – Merrill Lynch
Hi. This is – Thanks for the opportunity.
And this is Sydney Zhang from Merrill Lynch. I have a three questions.
One, is would you comment on the current status of a competition in the market, as all the companies are now trying to focus on the mid or low end of the customers, would that lead to price competition? And my second question is on the your – you have smartphone penetration now reached 43%.
What is the actual penetration for people who have real have actually signed up their data plans because there although smartphone penetration is more than 40%, but the people – the subscriber penetration is below 40%. Third question is in – you have – the interconnection rate reduction what is the expected impacts to your EBITDA?
Thanks.
Shih Mu-Piao
If you can refer to page number six of our presentation, you can see that we mentioned about our mobile Internet subscriber number by the end of first quarter, this year is about 2.87 million subscribers. If we divide it by our 10 million subscribers, you can see the percentage for the real.
But in this number these subscribers that they are all subscribing now our plan already, okay. So, you can see that.
You can calculate that percentage.
Sydney Zhang – Merrill Lynch
Okay, great.
Shu Yeh
Yes. The interconnection rate cuts have impact on our EBITDA.
But, however, all of the impacts has been factored into this year guidance. Here now, we still maintain our guidance for this year.
Thank you.
Operator
(Operator Instructions).
Lee Yen-Sung
I will answer the question regarding to actual number of people that have signed up for the data plan. The subscriber that procure the smartphone around 80% to 90% overall 80% and 90% of the subscriber who by smartphone subscribe to our data package.
Operator
And Mr. Zhang you are still on line.
Would you like to ask more question sir.
Sydney Zhang – Merrill Lynch
Just comment on a competition please.
Shih Mu-Piao
have seen a lot of the mid-end and low-end from the vendors like Samsung and other models, so we see. We already see a lot of this kind of models.
Especially, we will migrate our 2G subscriber to 3G in the coming half year or later. So, we think is we are trained at, all the subscriber, who will not subscribe our package, data package will we potential subscribers for data.
So, the handset is very important, because of the iPhone, the HTC phone usually is quite relatively high-end, so the companion, the package be high tariff, but for the most of the people, maybe not required, not necessary, so we have a data application that have less than 1000 NT. We will give them a good handset in the very affordable price.
So, after our subsidy, it is very easy for the entry level customer to use.
Sydney Zhang – Merrill Lynch
Okay thank you.
Operator
Now the next question is coming from the Lucy Liu from J.P. Morgan.
Go ahead and ask your question please.
Lucy Liu – JP Morgan
Hi. Thank you.
I have two or more follow up questions, one is on your 4G, to understand that you have your 2G license extended and is supposed to be technology neutral. So just to wonder on the – what’s the thought of bidding for 4G licenses – 4G spectrum, can you actually use the 2G spectrum currently in a reform for 4G or you need to bid for new.
And this is number one. Number two is on the fixed line large model.
So, there was previous news on saying that government will urge you to open up the last quarter on the local loop, so is there any updates on that? Thank you.
Shih Mu-Piao
Yes. The Question one is regarding the 4G option, by the end of this year, three frequency band and totally 135 megahertz bandwidth including the 700 megahertz spend and the 900 megahertz and the 1,800 megahertz.
So, according to the regulators policy, is where the technology neutral. So Chunghwa Telecom now have 2G spectrum in 900 megahertz and 1,800 megahertz.
So, if we can bid for LTE, we can deploy the 4G on the freak – on the spectrum, but because the 900 megahertz mega spend now have no, no LTE equipment. So, we are focusing maybe 1,800 megahertz will be more easy to deploy and also this iPhone 5 already have a royalty utility.
So, answer your question, yes, we can deploy a royalty the existing 900 megahertz and 1,800 megahertz. Regarding the 700 megahertz frequency band, it’s a new spectrum, it’s also called APT, Asia Pacific Telecommunication band.
So far, we’ll – we cannot find the equipment vendors. So, we will do our best to have a good decision to choose the best frequency spectrum for Chunghwa Telecom.
We can use – continue using the 2G for GSM in the – by end of year 2016 – 2016, 2017 – 2017, because we already extend our license for 2G until 2017. So, it’s very interesting, maybe you can do some study that how Taiwan’s regulator do ask that operator to launch the service as soon as possible, even the change available early next year.
Thank you.
Lucy Liu – JP Morgan
Thanks. So, you’re saying that even before the licensing is officially given, you have already launched 4G service by using the current existing section you have, right?
So, do you have plan to do that?
Lee Yen-Sung
It depends on the high frequency you get, you are granted because we still have the 2G subscriber around 3 million – more than 3 million. So, we need to clear up.
For example, 1800 megahertz for the LTE deployment or exist. Yes, we can do that, if we can get the spectrum, the same.
Okay.
Lucy Liu – JP Morgan
Thank you. And how about the fixed line last mile local loop?
Shih Mu-Piao
Yeah. The government still has – the NCC still have some proposal to open up and we don’t see how it will happen.
Thank you.
Lucy Liu – JP Morgan
Okay. Thank you very much.
Operator
Okay. We are running out of time.
So, we are opening for the last question and the last question is from Jack Xu from Sinopac Securities. Go ahead and please ask your question sir.
Jack Xu – Sinopac Securities
Okay. Thank you.
Could you tell, which set of the revenue will have better performance? Thank you – in the second quarter – because we have fixed line mobile and the Internet and could you inform us when the ongoing sector will have better performance in the second quarter?
Thank you.
Shih Mu-Piao
I think you can start either trend and trend probably will continue. Thank you.
Jack Xu – Sinopac Securities
Thank you.
Operator
Thank you very much for your questions. Now I would send it back over to Chairman Lee for closing comments.
Chairman Lee, go ahead please.
Lee Yen-Sung
Yes, thank you for all your participation and good day and good evening everybody. Thank you.
Operator
Thank you Chairman Lee. And thank you all for your participation in Chunghwa Telecom’s conference.
There will be a webcast replay within 1 hour. Please visit www.cht.com.tw/ir under the IR calendar section.
You may disconnect now. Good night and good bye.