PLDT Inc (PHI) 2006 Q3 法說會逐字稿

Good afternoon everyone and welcome to the PLDT conference call to discuss the Company's nine months 2006 financial and operating results. This conference call is being recorded. Replay information will be provided at the end of the call.

At this point I would like to turn you over to Miss. Anna Bengzon for the opening remarks. Please go ahead. Thank you.

Good afternoon. Thank you for joining us today for PLDT's announcement of its first nine months 2006 financial results. The conference call is being recorded and the replay information has been provided to you by email and, again, will be provided at the end of this call.

We hope you've got the presentation which we have made available at our website. For those who have not downloaded the presentation please go to www.PLDT.com.ph on the Investor Relations page.

For today's presentation we have with us the Management Team of PLDT Group. Mr. Napoleon Nazareno, President and Chief Executive Officer. Mr. Chris Young, Chief Financial Advisor. From [Smifield] Annabelle [L.] Chua, CFO and Debutante Head of Investor Relations. From ePDLT we have Ray Espinosa, we also have Mr. Don [Roo]. At this point I'd like to turn the call over to Mr. Nazareno for the presentation.

Good afternoon. Thank you for joining us today. PLDT Group service revenues grew by 3% to PHP92b mainly driven by the 6% year-on-year growth of our Wireless Service revenues. More importantly, EBITDA increased by 5% to PHP60.7b with EBITDA margin improving to 66% for the first nine months for '06.

Core net income in the third quarter, reached PHP8b, up 11% versus third quarter last year. Core net income for the first nine months, grew to PHP23.2b, PHP2.3b higher than last year.

Reported net income surged to PHP10.4b in the third quarter, mainly due to foreign exchange gains and the recognition of deferred tax assets recorded during the quarter. Reported net profit for the first nine months is up 4% to PHP25.7b. Our core earnings per share was up 8% to PHP125.

Slide three tracks our profits for the year. Core earnings grew by 11% to PHP23.2b in the first nine months as we continued to push revenue growth while remaining watchful over our expenses. Third quarter core earnings improved 5% quarter-on-quarter to PHP8b.

As a result of the appreciation of the peso to 50.25 at the end of September from 53.22, as of the end of June, and the recognition of deferred tax assets, our reported net income in the third quarter jumped to PHP10.4b from PHP6.7 in the second quarter.

Reported net income for the first nine months improved by 4% to PHP25.7b as the additional depreciation charges of PHP6.1b were more than offset by the ForEx gains of PHP1.4b and the recognition of deferred tax assets amounting to PHP5.6b.

While the peso continues to strengthen, we anticipate lower revaluation foreign exchange gains for us moving forward. Based on our net U.S. dollar debt balances as of the end of September, a PHP1 change in ForEx rates will translate to a pre-tax ForEx gain or loss of PHP500m or a PHP325m post-tax gain or loss.

Slide four shows our consolidated revenues and EBITDA. Consolidated service revenues grew by 3% to PHP92b in the first nine months of '06. Wireless revenues accounted for 63% of the total, while Fixed Line and ICT contributed 33% and 4% respectively.

Our third quarter revenues of PHP31.4b already take into account the consolidation of SPI beginning July '06. EBITDA increased by 5% to PHP60.7b mainly due to lower provisions which offset, in part, the rise in certain cash expenses, more notably, our compensation benefits expense.

During the third quarter, we incurred higher incentive plan accruals as a result of the increase in share price from PHP1,830 as of June 30, to PHP2,270 as of end of September. EBITDA margins, however, remain strong at 66% for the first nine months up from 64% last year.

Moving on to slide five, to discuss our Data Broadband business. Consistent with our strategy to diversify revenues from traditional Voice to higher growth segments, such as Data and ICT, about 44% of consolidated revenues are now being generated from Data Services compared with 40% last year. Total Data and ICT revenues increased by 14% to PHP40.7b, while traditional Voice revenues decreased by 5% to PHP51.3b.

Our total Broadband subscribers grew by 45,000 in the third quarter alone to almost 220,000 as of the end of September.

The increased take up for SmartBro and PLDT DSL moves us ahead of our initial target to double our Broadband subscribers by year end '06. Overall, our Broadband Services contributed PHP3b in revenues in the first nine months of '06, up 50% year-on-year.

We see an enormous opportunity in Broadband in the Philippines. As such, we are rolling out Broadband on both our Fixed and Wireless networks in major cities throughout the country.

For DSL, we are addressing network capacity and coverage constraints by accelerating our NGN roll out in areas where we already have identified demand for Broadband. Meanwhile, we continue to focus on the small and medium-sized businesses and the high-end residential homes to generate higher ARPU from customers who demand higher speeds.

SmartBro, on the other hand, is moving in quickly to satisfy demand in areas with no fixed line or broadband coverage. SmartBro is also beginning to penetrate the dealer network of Smart to offer Internet access in the towns and become a mini Internet cafe. This program is intended to cultivate the PC Internet culture, break affordability barriers and foster entrepreneurship among Filipinos.

Moving on to slide seven. CapEx for PLDT Group rose to PHP16.9b in the first nine months as a result of the continuing upgrade and expansion of our networks. We expect full year CapEx to reach no more than PHP20b, or about 16% of consolidated service revenues.

Approximately 125,000 lines in various exchanges have been upgraded to NGN. Our fixed line CapEx this year includes the equipment and roll out costs for 300,000 lines. The significant expansion of our depot in North Luzon and the initial investment needed to increase our international cable capacity to support our Broadband and Corporate Data Services.

Smart has rolled out about 2,300 wireless broadband capable sites and has expanded its overall network capacity to handle more traffic for our Cellular business.

Free cash flow remains strong at PHP32b despite the increase in CapEx. Our free cash flow is being utilized to pay down debts, pay higher dividends and invest in new growth areas in our ICT businesses where about PHP9.5b has been utilized for the investments in SPI, [Diamond], [Silweb] and [Level up].

Slide number eight highlights the improvements in our balance sheet position. In the first nine months of the year, we paid down close to $323m of debt with consolidated debt levels declining to $1.8b and net debt at $1.4. Net debt to EBITDA is 0.85 times, while net debt to free cash flow is down to 1.7 times.

After pre-paying 45% of its debt in June '06, PilTel has sent notices to pre-pay the full balance of its restructured debts before year end. PilTel will pay down debt amounting to $233m in December, of which $161m is owed to Smart and $72m to third parties. We expect the full year debt reduction for the Group to reach $350m.

The increase in PLDT's share price, coupled with the dividends we've paid on our common shares, have led to substantial voluntary conversions of our Series V, VI and VII preferred shares. As of end of September, only 1.3m Series V and Series VI shares remain outstanding as the entire block of Series VII shares were converted in August. More conversions have since taken place and our total outstanding common shares are up to 188.4m as of end of October, with about 900,000 convertible preferred shares left.

On slide nine, we show the performance of our Wireless business. In the third quarter, Smart and Talk 'N Text added 465,000 subscribers to end the period with 16.5m Smart subscribers and 6.4m Talk 'N Text subscribers. For the first nine months of the year, Smart and Talk 'N Text added 2.5m new subscribers.

Wireless revenues grew 6% to PHP58b, driven by a 10% increase in our Data Services, mainly due to our SMS [bucket plan] offerings. EBITDA was up 6% year-on-year to PHP38.9b while margins remained steady at 67%.

The third quarter has normally been a seasonally low quarter. As such, revenues declined quarter-on-quarter by 1% to PHP19.4b as a result of lower voice usage and the negative impact of Typhoon Milenyo towards the end of September.

Smart and PilTel's pre-paid ARPU in the next slide, in the third quarter, were lower at PHP280 and PHP184 respectively. The pre-paid ARPUs reflect the impact of lower outbound voice usage in subscribers, which offset the increase in average SMS per subscriber.

Meanwhile, subscriber acquisition cost remains under control and is down to PHP103 in the first nine months of '06 compared with PHP250 last year.

Slide 11 shows the performance of our Fixed Line business. Fixed Line revenues decreased by 2% to PHP35.9b due to the negative impact of the 6% year-on-year peso appreciation on our local exchange and ILD revenues, as well as lower international long-distance inbound minutes.

With approximately 54% of Fixed Line revenues linked to the U.S. dollar, the Fixed Line business would have reported a 2% growth in revenues if the peso remained stable year-on-year. Data revenues grew by 32% to PHP9b in the first nine months of '06 and now accounts for 26% of Fixed Line revenues. Propelling the growth of this segment is the 38% increase in our DSL Vive revenues and the 29% increase in Corporate Data revenues.

Notwithstanding the decline in revenues, EBITDA increased by 4% to PHP21.2b and margins improved to 59% as a result of lower provisions and lower network and other operating expenses.

Slide 12 gives a snapshot of our ICT business under ePLDT. Service revenues increased by 80% year-on-year to PHP3.8b, driven by the strong performance of ePLDT Ventus and the consolidation of SPI beginning July. The right-hand chart shows that about 75% of ePLDT's revenues are now being generated from its outsourcing businesses, 15% from its Internet and gaming businesses and the balance from Vitro Internet Data Center.

The combined pro forma revenues of SPI and ePLDT, in the first nine months of '06, would account for 6% of the Group's revenues. We expect that the significant growth potential of the Call Center and BPO business will allow ePLDT to increase its contribution to the entire Group in the years ahead.

Slide 13 will focus closely on the results of ePLDT Ventus. Ventus revenues surged 41% year-on-year to PHP1.9b. EBITDA grew by 30% to PHP453m or an EBITDA margin of 24%. While the appreciation of the peso had some negative effect on Ventus' top line growth, we are confident that this growth -- this strong growth in revenues will be sustained as companies overseas recognize the ability of Ventus to meet the quality standards that most U.S. companies are demanding from their outsourcing partners.

Ventus now operates over 5,000 seats with over 5,000 people across its 7 sites. Ventus is able to maximize capacity utilization, as it is able to build up seats efficiently while utilizing existing ePLDT facilities being vacated as NGN is implemented.

We are also pleased to report that, as of end of September, about 430 of our call centers' seats are being utilized for the Infosys tie up. The Infosys arrangement is an important strategic move to expand our reach as the Philippines continues to develop a solid reputation as an attractive location for Voice Services.

As mentioned earlier, we began to consolidate the results of SPI in July this year. SPI generated PHP3.1b of revenues in the first nine months of '06 of which PHP930m is consolidated in ePLDT. As companies overseas continue to seek cost effective and high quality alternatives to service their back office requirements, we anticipate more services to be moved offshore to countries such as the Philippines. SPI being one of the largest independent BPO service providers worldwide is well positioned to capture a bigger share in the global outsourcing market. Its core capabilities include content, editorial and production, litigation support coding and electronic discovery, medical transcription and database structuring and management.

SPI currently has over 3,500 seats in support of its various business lines. Presently, SPI is ramping up its Healthcare division owing to its acquisition of Cymed. The gradual offshoring of medical transcription services from the U.S. to the Philippines is expected to generate cost savings for SPI. In addition, ePLDT and SPI are reviewing the overall structure and revenue mix of SPI, in order to generate stable and recurring revenues while rationalizing costs.

On the last slide in conclusion, let me just recap the objectives we have set out for 2006. Our result in the first nine months demonstrates that we are able to grow our core earnings, mainly from increases in our Wireless and Data businesses. The debt reduction we have achieved has also resulted in significant declines in our financing costs and has also mitigated our foreign exchange risk exposures.

Cash flows remain strong and can support the investments we are making in our network and in new businesses. These investments lay the foundations for our future growth. In addition, we are committed to provide better returns to shareholders with a target to increase our dividend pay out to 70% of '07 core earnings from 60% this year.

Clearly, 2006 is a concession year for PLDT. We are perfecting and maximizing our [Base Cellular] and Text Line businesses. We are expanding the capacity and coverage of our networks to propel the growth of Broadband and other new generation services, which we believe will be relevant to Filipinos everywhere.

Our larger presence in the Call Center and BPO industry is a key growth area for the Group and also helps us diversify our revenue streams. We continued to face many challenges but we remain focused on continuing to deliver growth, while providing meaningful returns to our various stakeholders. That ends my presentation. Thank you.

We'll open up for questions now.

The floor is now open for your questions. [OPERATOR INSTRUCTIONS]. Our first question will be coming from [Joe Cheran] from Citigroup. Please go ahead sir. Hello, Mr. Joe Cheran, please go ahead with your question.

Hello, I think I pressed the wrong button. I don't have any questions.

Our next question will be coming from Mr. [Avicular] from Morgan Stanley. Please go ahead sir.

Hi, thank you for the conference call. Three questions from my side actually. First, there was this news article today talking about some capital restructuring at PilTel to enable the company to pay dividends. If you could elaborate on that a little bit, what your thinking there is?

Second, you mentioned about the revenue contribution for SPI in the third quarter, if you could also talk about the EBITDA and the net income contribution, even if for the negative net income contribution, if you would elaborate on that, that would be great.

And the third question on CapEx. What do you think your 2007 CapEx will be? And given that this year you're only going to covert 300,000 lines to NGN, should we expect this CapEx bulge remain for the next three to four years, given that your total lines and services close to 2m? Thank you.

Let me -- I'll take the first question on the PilTel capital reorganization. The next step that we plan to do on the PilTel -- if you look at the financial statements of PilTel, the company now has a positive stockholders' equity of about [PHP13b]. But in terms of the retained earnings we have adapted this equivalent of about a little over PHP23b. So, there is a plan to capital reorganization or what is termed as the [inaudible] organization here in the Philippines to wipe out the deficit in order to put the company in the position to be able to pay dividends in the future.

So, I think [certain to] slide five from some of the questions that came up earlier during the press briefing. This does not involve any new capital infusion but its affecting the [inaudible] happen that will essentially wipe out the deficit.

On your second question [Avin] regarding the SPI, initially the EBITDA margins of SPI has been low at around 6%, and because of the rationalization of our costs both here and abroad that we are doing, we expect that by next year it should go up in the neighborhood of around 12 to 13%. And going up in the suceeding years, as the businesses will be, for example, in the medical transcription will be increasingly transferred from the U.S. to the Philippines.

On the third question of CapEx, moving forward, it looks like the level of CapEx will hit about the same level as in '06 or slightly lower. We're looking at between PHP18 to PHP20b over the next three years.

I think it's also helpful to look at page seven, where you can see the actual CapEx over the period '03 to forecast for '06. I think if you look at that analysis, it's probably somewhat unfair to characterize 2006 as a bulge in CapEx.

[Super] thank you.

Thank you. Sir does that answer your question?

Yes thank you.

Thank you very much. Our next question will be coming from Miss. Karen [Ang] Citigroup. Please go ahead madam.

Hi, thanks for the call. I have three questions. First is on your planned debt repayment for 2007. What is the amount that you've earmarked and do you see a need to significantly slow down or even stop overall repayments in 2007?

The second question is on your guidance for personnel expenses for the full year of 2006 and, maybe for 2007 as well, perhaps if you can provide guidance as a percent of overall revenues?

And the last question is a follow up on the NGN lines. What percent of your 2m or so Fixed Line network will be converted to NGN by end of 2007 and 2008? Thank you.

I'll take the first question Karen. In terms of the debt repayment for 2007, the actual amortizations that are falling due next year is a little over $330m. Now, we -- I guess the question from a capital structure standpoint is how much debt should we continue to pay down or, maybe the other way to look at it is, what are the alternatives uses for the free cash flow that the Company is generating.

I guess the -- in terms of the target gearing we've indicated to investors that we're looking at what [size] net debt to EBITDA is a comfortable level and that we were prepared to keep this within the 1 to 1.5 times, if there opportunities in terms of M&A acquisitions or other activities that may require us to gear up in the future should we chose to -- should we have opportunities to invest for growth.

On the other hand, pending such kind of an activity, then, it is roughly [the debt is before] the ratio to come lower first before it goes up again. But I think in terms of -- I guess for the purposes of guidance, I think broadly we probably will look at maintaining the debt levels more or less around the levels where we will end the year. I feel quite comfortable with those debt levels [inaudible].

Okay, and on the question of the NGN lines, this is an evolving program as we go. We're well underway. We're looking at somewhere between 500,000 and 700,000 lines next year and then likely that amount or slightly more in the following year.

I guess the -- for purposes of your modeling this isn't a linear equation. There's different parts of the network that are easier and less expensive to do. For example, when we start taking out some of the big central office switches we get very big numbers of lines quite quickly and quite cheaply. When we're doing street [cabinets] it has a different cost profile when we're doing -- in building it also has a different cost profile and, indeed, when we go to new areas, again, a different cost profile. So, I wouldn't get too concerned about bumps up and down just now. It really is a two and a half to three year program. We are attacking all parts of this.

Next year the emphasis will switch to central offices. So, hopefully, we will see bigger numbers at lower costs as we go through that part of the rebuild. But I wouldn't look -- our guidance has been where we're going to stick to the -- with the CapEx envelope that we discussed before and, indeed, that -- we will build as much as we can within that envelope as it's the general approach that we're following. We will -- it won't be just a straight line process that you can apply a simple cost per line on a renew basis. Unfortunately, real life is not like that sometimes.

Does that answer the question?

Yes, thanks, and personnel expense?

Yes, I think the -- you'll see a decline in the last quarter, down from about 5.6, probably down by about 1b. There are two offsetting effects. One is that the LTIP accrual was high in the third quarter because of the increase in the share price. So that will reduce in the fourth quarter. Against that there will be effectively accrual consolidation of the SPI expenses, which I think just came in in about mid July. So we're down for about 1b. So, overall, I think we see the compensation line coming in round about the 18b level for the full year.

And as a percent of revenues, should that be -- should I use that for 2007 as well?

No, I think that you have to [work out the X] factor in the full year impact of SPI where, as you know, the margins are a bit lower than they are in the main business. Also, the way the accrual normally works for the share based compensation, it would tend to be more -- if it's a three-year plan, it will tend to accrue more in the latter part of the period rather than the early part of the period. So I think you have to make some assumptions in respect to SPI and you would have a lower accrual in respect of the LTIP expense.

Thank you.

Thank you, does that conclude your question, madam?

Yes.

Thank you very much. Our next question will be coming from Mr. Louis Suado from JP Morgan. Please go ahead, sir.

Hi, good afternoon and thanks for the call and congratulations on the results. I have two questions as well. Just to get some color on the third quarter net adds. It seems to have come off quite a bit from second quarter. Is that seasonal or any [inaudible] in the period?

And second question is related to the LTIP for 2007. Anything you can roughly budget for in terms of the amount that will be paid out and what would be accrued for '07?

And the last question is in terms of the pre-payment of PilTel's debt as disclosed today. Just wondering what the accounting impact will be at consolidated level and the accretion expenses [that appear] for any other items? And related to that is what does Smart intend to do with the cash that is [used] from PilTel?

Thanks for your question, Louis. Regarding the first question on the net adds, our net adds on the third quarter was roughly about 465,000 subscribers. And normally the third quarter is a -- seasonally the low quarter in terms of net adds. But it doesn't mean that the fourth quarter will be the -- will follow the trend in the third because, as you know, it is Christmas season on the fourth quarter. The difference between the net adds on the second quarter, which was quite huge, was because we launched a promo on the second quarter that encouraged people without [loads] to reload again. And our churn went down to about less than 2% when that happened.

Unfortunately, the promo could not be sustained as the ones who could afford the load all reloaded already during the second quarter. So on the third quarter we have the 465,000 are real subscribers, and they are ARPU generating subscribers. We hope to have an increase on the fourth, which is seasonally expected during Christmas, for the fourth quarter net adds.

I'll pick the third question first, Louis, with respect to the impact of the PilTel pre-payment on the consolidated P&L. In terms of the financing cost there will be a higher amortization of debt discount as a result of the pre-payment. The debt that PilTel [are] -- have been booked based on fair-values and there will be a conditional amortization of debt discount that you would have to book when you pre-pay to bring the debts to their nominal value.

On the other side, however, because Smart on the other hand basically has the receivables [parts], this whole part of the debt of PilTel is sometimes offset for that. But the net basis you would still have an additional amortization debt discount of financing costs equivalent to about PHP1.4b.

Now the other effect of the built-up pre-payment as we highlighted in the announcement, is that we have effectively recognized all the different assets of the PilTel level, the full year amount of which is equivalent to about PHP5.6b. As a result of the pre-payment, the restriction under the mortgage costing venture will effectively go away and we will be freely able to dispose of the assets of PilTel. So that's why the accounting would effectively require you to recognize already the potential tax benefits from the disposal of such fixed assets.

So that's the other effect of the PilTel pre-payment. From a cash standpoint, PilTel has certain receivables from Smart which it intends to collect as part of the funding for the pre-payment that will happen in December. So there will be a settlement of that receivable from Smart to PilTel. Yet, on the other hand, PilTel will as [inaudible] the debt. It means that [inaudible] a portion of that will effectively be received by Smart. So in the end the net cash impact of that in Smart is [inaudible].

I wonder [inaudible] the actual rate that you expect in the fourth quarter now that all the [inaudible].

It should be close to the statutory tax [rate already].

Thank you.

On the -- I think the question was on the new LTIP plans. We -- the target it's meant to pay out is about PHP3.2b. Most -- the way that that accrual works, it's back-ended a bit. So we would expect to accrue about PHP1b in 2007. But, of course, that really would depend to some extent on what happens with the share price, but round about that level for '07.

And for the new one that will be setting up? What do you think you should adjust --

That's the new one. That's the new one we basically the LTIP [1 we'll get] at the end of '06. And then the new plan will begin at the beginning January '07. And have a life of three years, so '07, '08 or '09. So that PHP3.2b, you are looking to accrue that over a previous period, to the end of '09.

Thank you. Does that answer your question, sir?

Yes, it does.

Thank you very much. Our next question will be coming from Mr. Arthur Pineda from ABN Amro. Please go ahead, sir. Our next question will be coming from Miss. Kathy Chen. Please go ahead.

Hi, I have three questions. The first one is on the provisions. [I don't think] there was a pretty significant drop this quarter, and if I back into the third quarter, actually, it's a negative number. Could you explain what happened here and what the run rate is for the fourth quarter and also for 2007?

The second question is, there was an article, a Reuters article earlier today citing the Chairman saying that 2006 net profit had reached PHP35b if PLDT sells its satellite service provider ACeS before year end. Can you please elaborate on this?

And then the third question is, can you give some outlook for BPO and Call Centers in 2007? Is there any guidance yet available for how many Call Center seats [or] customers representative will there be in the total by year end '07?

Maybe I can start on the provisions. The main reason for the low number in the third quarter is effectively ForEx driven. You'll see that there are several parts of our provisioning. But one part is the provision for onerous contracts. There the outstanding onerous contract is effectively a dollar denominated contract. So the value of that has reduced in peso terms during the period.

In terms of the normal recurring provision for -- against receivables, that should run at about PHP250m a quarter, so say about PHP1b for the full year.

The second question, if I'm not mistaken, is the profit guidance for '07 -- for '06, year end?

Yes, I read an article saying that 2006 net profit had reached PHP35b, if you sell the satellite service provider, ACeS, before year end.

That's not quite an accurate description as to what could happen. Effectively, and this ties in to some extent with this onerous contract discussion. We have an investment in an entity called ACeS, both an equity [inaudible] investment in something called ACeS International. And we own -- it's called ACeS Philippines, which is a network service provider.

Now as part of these arrangements, there were some contracts which were entered into which, from an accounting perspective, were considered to be onerous contracts. And in earlier years we have had to make some provisions against, not just the contracts themselves, but the investment in ACeS. And that was quite a substantial amount.

Now we are currently reconfiguring ACeS which would really change the business model, and bring in -- in fact it's already announced, a group called Inmarsat, who would effectively allow ACeS -- which would allow ACeS to sell a number of new products which it doesn't currently sell, and give the business a future. At the same time a number of these contracts which are currently in place would be renegotiated.

Now if that happens, the provisions which we set up would not be required, or would -- some of them, half of them, would not be required. So we'd be able to reverse the provisions which we'd made in previous years. And I think in that article that you're quoting from, the estimate is that that amount could be as high as PHP2b. Now that is -- it's accurate, but it still requires the transactions to happen and fall into place. Now we think there is a likelihood that that can happen before the end of the year. If that's the case then it's probably -- then it is accurate to say that there could be some reversals, maybe of an order of PHP2b against the ACeS investment and the onerous contracts associated with the ACeS investment.

Thank you --

The revenue, '07 revenue for Ventus is expected to be PHP3.5b. That's before 6% year-on-year growth from prior years. SPI is -- [before tax it will] deliver PHP5.11b, registering a 24% growth. End [part] for Ventus would be -- or net profit after tax would be PHP548m, representing a 43% growth, whereas, for SPI it will be around PHP152m representing a 151% growth, coming from a loss -- full year loss this year.

As for the expansion of the Call Centers, we are planning to expand capacity to 6,100 seats by opening by our eighth and ninth Call Centers next year. Plus opening the second floor of one of our existing Call Centers in [Ghana] after the NGN roll out in that building is completed. Utilization capacity for next year would expect to be around 5,800 [broadband equivalent].

And then is it the system there [inaudible] SPI will be relatively flat next year?

I'm sorry?

The SPI seats to date stands at 3,500 seats. Depending on the growth of the medical transcription business that could most likely increase around 4,000 to 4,200 seats.

Thank you.

Thank you, madam. Our next question will be coming from -- a follow up question from Mr. Louis Suardo from JP Morgan. Please go ahead, sir.

Hi, I had just one follow up question. I wonder if you could give an indication of the impact of your budget text promotion where you are offering cheap international SMS?

What was that again, Louis? I'm sorry.

If you could give an indication of any impact of your budget text promotion, the one where you have cut international SMS rates quite [inaudible].

I think we -- in spite to our -- part of our MVNO strategy focusing areas like Hong Kong, Singapore, where we have an IBO [inaudible] preference. I think we've undertaken those kinds of promotions, to basically -- yes, encourage people to come into the MVNO side as well as [inaudible] on this side [inaudible] incentivize as well to communicate by international SMS. So it's specific to both areas where we have an MVNO at this point. So the effect of that is, I guess, essentially to try to stimulate the volume to price reductions in the [text link].

[Is it only] a one month promotion or do you plan to extend it [inaudible] so far?

If it had generated more subscribers, we would. But at this point in time, Louis, as you know, the MVNO volumes are not that large really, or that material that would substantially alter the results up to the end of the year.

Thank you.

Thank you, sir. [OPERATOR INSTRUCTIONS]. Our next question will be coming from [Voysa Estera] from Sun Life Financial. Please go ahead.

Hi, just a couple of questions. One is -- can you give us some guidance on the actual trends on international long distance or, basically, long distance revenues?

Looking at the [NBNE] what -- the call volumes dropped by about 9%, possibly due to alternative means of communication. So I don't know if you can say how much of that is actually captured back by PLDT via the Data and the Wireless business, and how much of that is actually lost through non-use of ILD services?

Second question is, since you're going full speed on the BPO and ICT services, do you have an idea on how much, say, market share you're losing in terms of being a bandwidth provider for the other BPO providers in the country? And if your path is actually going beyond being just a bandwidth provider, being -- getting the entire BPO business in your fold?

And lastly, I would like to have some guidance on the -- how Data and BPO will be a driver going forward for PLDT's revenues, given the magnitude of PLDT's revenues? Maybe if PLDT can provide a number as to how much percentage will the BPO and the Data revenues comprise going forward?

With regards to the international revenues for the Fixed, as you may know, the minutes have done down. But if you take in total both the international traffic of the Fixed and the Mobile, you will see that the Mobile has tremendously increased. So there seems to be a shift between Fixed terminating international calls inbound to Mobile terminating international calls. In fact our Mobile terminating international calls have grown to -- by about 30 to 40% this year.

In volume 40.

In volume 40% in fact. So as you can see there is a -- whatever the decrease, it is being captured by the entire Group at this point in time.

The second question was -- what was the second question?

[Inaudible] provider of [inaudible].

On the connectivity side I believe PLDT has not lost ground in terms of market share. In fact its market share in relation to the Call Center BPO industry has increased. New operators coming into the Philippines are basically choosing PLDT as their primary network and connectivity provider. And expansions in fact of the existing customers of PLDT in this space are getting the additional requirements from PLDT. So the industry does not see our entry or ePLDT's entry into the outsourcing space as basically [an incentive for them] to go forth with PLDT network. In fact it perhaps even convinces them that the network is resilient and robust because we are using it for all new business.

Thank you. Does that answer your question, sir?

Last question I guess would be guidance, on how big will the Data and the BPO business be going forward? Will it be the next Mobile, or will it just be one of the smaller drivers compared to what Mobile was?

Just to give you an idea of the Broadband -- the way the Broadband business is evolving, I've pointed out earlier, our subscriber growth will more or less double this year from 114,000, we are now at 220,000 Broadband subscribers, both Fixed and Wireless. And, therefore, end up -- the growth alone on the third quarter was 45,000. So if you factor that in, that should be roughly about 250,000, 260,000 subscribers by year end. In terms of revenue, on the Broadband revenue grew by 50% versus last year from PHP2b to PHP3b. So we are looking at Broadband to really grow between 30 to 40% in the succeeding years.

When it comes to the offshoring business, BPO and our Call Center businesses, the growth is between 30 to 40% too, compared to the previous years. So we are looking at these two major businesses to be our growth businesses in the next two years.

Having said that, as you know this Cellular business is that huge and the Fixed business is also that huge. The Cellular, or our Mobile business has been displaying a 6% growth in revenues, and this we expect to continue in the succeeding years.

In the Fixed, however, because of the strengthening of the peso, the revenue went down by 2%, but we are looking at a volume increase of actually 2% in its traffic. So if the peso remains stable, the Fixed will have increased in terms of revenue by 2%. So moving forward, Fixed going down slightly. It depends on the ForEx rate, on how it's going to evolve. And the Cellular still growing, although, maturing already at single digit. And the Broadband growing at multiple, about 30 to 40% both Broadband and BPO and Call Center business.

Thank you very much.

Thank you, sir. [OPERATOR INSTRUCTIONS]. There appears to be no further questions at this point. And that concludes the question and answer session. Before I turn the conference back over to Mr. Napoleon Nazareno, I would like to give everybody the instant replay information of today's call. [OPERATOR INSTRUCTIONS]. At this time I will turn the conference back to Mr. Napoleon Nazareno for any additional or closing remarks.

Thank you. On behalf of the Group Management of the PLDT Group who are here with me, I wish to thank you all for participating in this conference call. And we all look forward to seeing you, or talking to you, end of February when we will deliver to you the results of -- the full year results of '06. Thank you.

And that concludes today's conference. Thank you for your participation. You may disconnect your line in your own time.