PLDT Inc (PHI) 2007 Q1 法說會逐字稿

Good afternoon, everyone. Welcome to the PLDT conference call to discuss the Company's first quarter 2007 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 Ms. Anna Bengzon for the opening remarks and a bit of introduction. Please go ahead, thank you.

Good afternoon, everybody. Thank you for joining us today for the PLDT investor call to discuss the company's first quarter 2007 financial results.

We hope you received the presentation, MD&A and financial statements, which we have made available at various PLDT IR sites. Please go to www.pldtuk.com/pldt/irindex.htm for those who do not have a copy of the presentation.

For today's presentation, we have with us the management team of PLDT Group. We have our President and CEO, Mr. Napoleon Nazareno, Christopher Young, our Chief Financial Advisor, Annabel Chua, the CFO of Smart, Debbie Tan, the Head of Investor Relations of Smart, and from ePLDT we have Ray Espinosa, the President, and the CFO, (inaudible).

At this point we'd like to turn over the call to Mr. Nazareno for the presentation.

Good afternoon and welcome to this afternoon's Group conference call.

On slide 1, the PLDT Group generated revenues of PHP33 billion in the first three months of the year, up 10% over last year. The PHP3 billion increase in revenues year-on-year principally came from our Wireless business, which reported a 10% growth in revenues. ICT also enjoyed significant growth in revenues, mainly due to the consolidation of SPI and the continued growth of Ventus, our call center business. Our fixed line business declined by 3%, however, aggravated by the 5% year-on-year appreciation of the peso.

Our revenue mix continues to shift in favor of data and ICT revenues, which in total grew by 21% to PHP16 billion. Today about 48% of our consolidated revenues comes from data and ICT services compared with 44% in the first quarter of '06. Voice revenues rose 1% on account of higher cellular voice revenues, which more than offset the decline in traditional fixed line voice revenues.

We believe that the trend we are now seeing in the cellular sector indicates that there is still room for meaningful growth in this business. Broadband on the other hand is still in the nascent stage and we remain focused on spearheading the development of this sector. In addition, the booming outsourcing business in the Philippines is encouraging and will benefit the PLDT Group in more ways than one.

Let us now move on to our net income numbers on the next slide. With a 10% increase in revenues, the Group's core profits grew by 11% to PHP8.4 billion, on track to achieve the top end of our earlier earnings guidance of PHP32 billion to PHP33 billion for the year. The appreciation of the peso continued to have negative effects on our results, pulling down our core net income by almost PHP280 million -- to almost PHP280 million in the first quarter of '07. Reported net income was flat at PHP8.6 billion as the non-recurrence of the additional depreciation charges we had last year was offset by higher taxes and lower foreign exchange gains.

On slide 4, we have the Group's EBITDA and the free cash flow. EBITDA improved 3% to hit PHP20.4 billion in first quarter '07. Our EBITDA margin declined to 62% as a result of the combined impact of one, stable wireless margins at 65%; two, lower fixed line margin of 55% from an average of 58% in '06; and three, a higher contribution from the ICT business with margins lower, holding at 17%.

The Group's CapEx spend in first quarter '07 reached PHP5.9 billion. PLDT Fixed Line invested PHP3.8 billion in CapEx in '07 -- in the first quarter '07 for the rollout of the next generation network and the upgrade of international cable facilities. As of the end of March '07, PLDT had in place 230,000 NGN lines, up 80,000 in the first three months alone from 150,000 as of year-end '06. Smart incurred CapEx of almost PHP2 billion, principally due to expand the capacity with cellular network, including the upgrade of certain of its transmission facilities and the rollout of wireless broadband. As of the end of '07 -- first quarter '07 Smart already had close to 2,600 wireless broadband capable sites, making SmartBro the most pervasive broadband network in the country today.

Despite the higher CapEx, the Group continued to generate robust free cash flows. In the first three months, the PLDT Group recorded a free cash flow of PHP17.5 billion. On April 20 of '07, PLDT utilized part of this cash to pay PHP9.4 billion in common dividend. The Group reduced debts by almost $85 million during the quarter with PLDT Fixed Line paying down maturing debts, replaced in part by Smart's PHP5 billion borrowing, with interest rates lower than PLDT's debt obligations.

As a result, the PLDT Group's debt balance is now down to $1.6 billion and the net debt balance is down to about $1.1 billion after taking into account the common dividend payment in April.

The next slide is a summary -- a financial summary of the first quarter '07 results. Our consolidated revenues charged ahead 10% year-on-year to PHP33 billion, buoyed up the strong growth in our cellular data, broadband and ICT revenues. EBITDA remained strong at PHP20.4 billion with margins healthy at 62%. Core net income was up 11% to PHP8.4 billion with core earnings per share improving by 7% to almost 44 per share. Reported net income was stable at PHP8.6 billion.

Focusing on the results for our Wireless business on the next slide, please. Wireless service revenues grew 10% year-on-year to PHP20.8 billion driven by a 12% increase in cellular data, an 8% improvement in voice revenues and a burgeoning wireless broadband business. We are pleased to note that wireless revenues in first quarter '07 came in even higher than our fourth quarter '06 revenues of PHP20.4 billion. We believe this reflects our efforts to provide superior packages to subscribers; that make the service more affordable and of greater value. Wireless EBITDA grew by 9% to PHP13.5 billion with margins sustained at 65%.

On the next slide, Smart and Talk 'N Text added 1.3 million subscribers in the first three months, to end the quarter with 25.5 million subscribers. This strong take-up was sustained in April, allowing us to reach 26 million subscribers by end of April. Clearly the cellular market continues to grow, boosted by a more positive environment and a higher economic activity in the country.

Smart's extensive infrastructure and robust platforms enable us to continue being the leader in developing innovative voice and text packages that offer the most value and variety to its customers.

Next slide please. But beyond our basic voice and text services we are moving forward, seemingly more sophisticated services, which we believe will prove to be just as necessary and valuable. As you know, last February at the 3GSM Congress in Barcelona, we announced the launch of pilot project in the Middle East and Europe offering low cost remittance services using our mobile phone based financial services platform.

On April 29 of this year we successfully tested Smart Remit, our text-based remittance service with selected OFWs in Bahrain. These OFWs were able to send remittances to their beneficiaries in the Philippines, check the balance of their local accounts and determine how much their remittance would amount to in Philippine pesos using their cell phones. A commercial launch is expected within the year.

In addition we continue to use Smart Money, Smart's award winning mobile commerce platform, as the foundation and launch pad for building new businesses. We also continue to sign up more domestic partner [bets] such as RCBC, [BDP] and LandBank as well as forge tie-ups with various institutions such as Gawad Kalinga, SuperFerry and the MNTC. These services, and others still in development, form part of what we call Smart Wireless Consumer Solutions, our holistic approach to encouraging retention of what we call [thickness] and increased usage.

Slide 9 shows the highlights of our Fixed Line business. Fixed Line revenues decreased by 3% to PHP11.8 billion in the first quarter of '07, as the increase in broadband and corporate data services were more than offset by declines in our traditional Fixed Line voice services.

The 5% appreciation of the peso continues to negatively impact our local exchange and ILD business. Excluding the impact of the peso appreciation, the Fixed Line business would have reported a lower decline of 1%.

EBITDA was also lower at PHP6.5 billion with margins down to 55% compared with the full year '06 average of 58%. The Fixed Line business continues to be challenging. Our local exchange ILD and NLD remain under pressure due to several factors, principally fixed to mobile substitution.

Our Corporate Data and Broadband business remain a bright spot however. We are committed to rolling out the next generation network to spur the growth of our data services and, at the same time, introduce more efficient networks and processes that will eventually allow us to improve the cost structure of the business.

Slide 10 shows the progress we have made on both our Fixed Line and our Wireless Broadband businesses. As of the end of March 2007 we had close to 330,000 combined DSL and wireless broadband subscribers reflecting net additions of about 62,000 during the first quarter alone. With nearly 2,600 wireless broadband capable sites, SmartBro was able to add over 42,000 subscribers in the first three months alone. PLDT DSL added close to 20,000 subscribers during the period and we expect take up of DSL to ramp up over the balance of the year as we increase DSL capacity.

Broadband revenues surged by 46% to PHP1.6 billion representing close to 5% of the consolidated service revenues. With the pace of the growth of broadband in the country, we are confident that the PLDT Group will be able to achieve our target of doubling our broadband subscriber base to over 530,000 by the year end.

On the next slide, the growth of broadband, corporate data and other next generation services in the country will require a significant increase in international cable capacity in the years ahead. As such, the PLDT Group has moved forward and joined other worldwide telecommunications leaders to upgrade and build new submarine cable systems.

APCN2 is currently being upgraded to provide additional capacity of 40 gigabits per second by middle of this year. Together with MPT we are also participating in the consortium to build a new Japan, US cable system which allows us to increase our international capacity going to the US by as much as 60 gigabits per second.

We have also just announced an investment in Asia America Gateway, or AAG, a new cable system, that will link South East Asia directly to the United States. It will provide us another 100 gigabits per second capacity and will go live by the fourth quarter of '08. With these cable facilities we are able to not just build additional capacity intra-Asia and to the US, but also create redundancies in our route and landing sites.

The PLDT Group expects to invest a total of $100 million in '07 and '08 in order to increase our international cable capacity from 20 gigabits per second today to about 100 gigabits by the end of '08. This investment is included in the CapEx estimate of the Group during this period.

Slide 12 focuses on ePLDT. ePLDT reported 198% increase in revenues to PHP2.4 billion, mainly due to the strong growth of Ventus and the consolidation of SPI. Excluding the revenue contribution of SPI, ePLDT service revenues would have grown by 42% organically. ePLDT now accounts for 7% of the Group's consolidated revenues. EBITDA margins remain stable at 17% year-on-year and bettered its full year '06 average of 13%.

Next slide takes a closer look at ePLDT's outsourcing business. Ventus continues to grow its business organically, increasing its revenue base from PHP563 million in first quarter '06 to PHP782 million in the first quarter '07. We are pleased to see Ventus gaining recognition in the market as the leading provider of voice services in the country. Our past few months -- over the past few months Ventus has increased its client base to include Fortune 500 companies in the pharmaceutical, retail, financial services and electronic industries.

SPI generated revenues of PHP1.3 billion in the first quarter '07, of which 37% came from its publishing and legal business and another 26% from the healthcare business. It's recent acquisition of Springfield, a US-based medical billing and accounts receivable management service provider is expected to boost its healthcare business as it completes its revenue cycle management offers.

SPI is gradually migrating part of its US-based services in the Philippines in order to generate cost savings while protecting service quality. This includes the closure of three locations related to the (inaudible) position. Through operational consolidation overhead costs rationalization and increased offshoring, SPI is expected to show revenue and margin gains in the coming months.

Last slide, in conclusion our performance in the first three months has allowed us to refine our core net income guidance to PHP33 billion for '07. Notwithstanding the continued appreciation of the peso, we believe that PLDT Group is on track to meet this profit target largely due to the growth we are seeing in the Wireless business.

CapEx is still expected to reach PHP20 billion to PHP22 billion this year. Cash flows remain strong and we remain committed to our previous guidance of an increased dividend payout of 70%, half of which we anticipate to declare when we announce our first half results in August. During the course of the year we will continue to look at investment areas that can provide ways for us to expand growth. In the event such opportunities do not arise, or when they do, prove unattractive, we will consider the option of returning additional cash to our shareholders in the most efficient manner possible. Thank you.

Now we're prepared to respond to your questions.

Thank you sir, we will now proceed to the question and answer session. (OPERATOR INSTRUCTIONS). Our first question is coming from Luis Hilado; please go ahead, thank you.

Hi, good afternoon, thanks for the call and congratulations on the results. I have three questions. First of all, just wondering if there's a potential for you in the near term or medium term to bundle the fixed line and mobile service and broadband in order for you to arrest the decline of the fixed line?

Second question is just noticed that for mobile net adds for the first quarter, Smart Buddy had more net adds than Talk 'N Text, should we expect you to be going strategically forward in the same direction?

And last question is one of housekeeping, and fixed line subs for the first quarter seem to have increased by 70,000 versus the fourth quarter '06, fixed line numbers that we had. Is this driven by prepaid or is it more of a booking method?

With regard to bundling of service, Luis, thank you for the three questions by the way, we have been looking at this in our promos and experimenting on them, and right now the main thing that we are doing is testing a fixed wireless offering in a certain part of the country for about 25,000 lines, and we are seeing and waiting for the results of this test and hopefully once this test delivers some favorable results we can move forward in rolling out the service. Other than that we are already bundling our fixed service DSL with our voice service in connection with a rollout of the NGN, and at the same time also in the launch of the wireless broadband together with the DSL in our broadband efforts. So in a way we have been looking at bundling our service.

The thing with the fixed revenues right now it is really dramatically affected by the 48% of our revenues that are fixed is dollar linked. That is [the LET] which we have with (inaudible) component that we have to adjust whenever the currency -- whenever the peso appreciates or depreciates, and of course our ILD revenues which is the international long distance.

So these two actually are affecting dramatically our top line.

One follow up on that, on the fixed wireless project, is that going to be based on GSM or the same technology?

It is based on GSM, Luis; it is right now being tested on several thousand lines being sold. It has a different tariff regime of course because it runs through our wireless network, but it has also similar features as our wireless with built-in directory etc. But it looks like a fixed line and it follows the fixed line numbering protocol.

The number two question is on --?

(inaudible)

Well we are not consciously emphasing any brand at this point. Our -- we are following the demand and in fact we are now moving into regionally splitting our efforts within the country, looking at what we can do on a localized basis. And we are seeing that the Talk 'N Text in fact in April picked up very well, maybe because we are now mining the lower end of the market. So I would imagine that if there will be any fluctuations between Buddy and Talk 'N Text it will be largely demand driven.

I think [reading] on the last point, that's really mainly, I think, a result of a change in the investment of calculation; I don't think we're anticipating any growth in the absolute number of fixed line subscribers. If you look at the end of March this year -- the end of first quarter this year versus end of first quarter 2007 it's down by about 7,300 subscribers and I think we expect a gradual decline both in the postpaid and the prepaid at least during the first few months of this year, unless, as Mr. Nazareno indicated, there is a pickup in the initial service which he described the fixed wireless (inaudible).

Okay thanks (inaudible).

Thank you Mr. Hilado. Our next question is coming from Karen Ang from Citigroup, please go ahead.

Hi, good afternoon, I have four questions please. The first is, there seems to be a resurgence in wireless revenue and subscriber growth in the first quarter, both for yourselves and your competitor, are you now reviewing your outlook for the overall growth prospects for wireless in the Philippines? And I suppose related to that is, is the momentum that you are seeing in the first quarter continuing through in the second quarter for wireless?

The second question is if you can please give us some updates on the NGN upgrade initiatives so far, i.e. how many lines have been upgraded so far in the first quarter and what is your target for the year?

The third question is if you can please give us some sort of guidance or target for ICT margins for '07, I've seen they've improved at least quarter-on-quarter in first quarter '07.

And the last question is if you can provide any updates on planned acquisitions this year, if you have anything more solid in the pipeline. Thank you.

Well that's a very comprehensive set of questions. Thank you. Let me try to tackle the first two questions. The wireless growth is indeed, we're seeing a surge in the wireless growth being double-digit right now on revenues. And we're also seeing that the April revenues are better than expected and an improvement compared to March so we are looking at a sustainable type of growth in wireless.

However, you have to bear in mind that come May 14 these elections. And therefore there has been an extraordinary liquidity available in this regard within the economy and the people can spend more at this point in time. Although some parts of it have gone to the media in terms of TV advertising which was not there before in previous elections. Having said that, we believe that we're feeling the effects through of additional consumer spending during this time of the advent of the elections.

With regards to the NGN upgrade, we now have 230,000 lines as I indicated previously, and we have added 80,000 lines over the first quarter compared to -- we ended up the year 150,000 lines. Part of this 230,000 lines, I think roughly about 30% are already in operation and been tested, and undergoing observation so far. Towards the end of the year we intend to bring it up to between 600,000 to 700,000 lines, depending on the base by which we can install them and at the same time the success that we will have with the technology and the processes that are put in place right now.

Third question, Chris?

Maybe I can just comment. Basically the ICT margins are coming in about 17% during the first quarter. I think we expect improvements really on the BPO side during the balance of the year. I think we're reasonably happy of where the voice margins are at the moment on the call centers. So, maybe as the year progresses we could see that trending up towards the 20% level.

Longer term the objective is to try to bring the BPO margins closer to where the voice has been. Now, that may take a few years to get there and will cause -- will require some rationalization to achieve that. The margins on the voice have been getting as high as 24% to 25%.

I think the last question was on acquisitions. I think we're really looking at two or three different areas. As you know the intention has been to build part of the BPO business by acquisition and I think to date we've announced one so far this year, Springfield. I think it's possible that there could be another acquisition in that area during -- by the end of the year, basically to supplement what we have there at present. I think we're looking at one or two things quite seriously there.

We also continue to look as we have done for some time. There are one or two smaller telcos here in the Philippines in the provincial areas where Smart and PLDT are not as strongly represented as we are in certain other areas, which we continue to look at. And then the other things which we are looking at really are on the content/media side which we've been looking at things for some time now and there are one or two initiatives in that area where we continue to review the situation. But nothing, I would say imminent at the moment.

Just a ball park, [how much]?

(Inaudible) how much?

Potential acquisitions will cost let's say this year? Additional acquisitions this year.

Well I think acquisitions it, that's why were heading -- hedging a little bit I think on this capital management because really it depends how many acquisitions are done, and which acquisitions complete. I think maybe on the low side it could be $100 million if one or two of the other larger things that we were looking at actually transpired, it could be several multiples of that. I guess it's quite difficult to say. It depends on which particular transaction pushes ahead and what percentage of it you acquire and I guess what the final negotiation is in respect of the price.

Thank you.

Thank you Miss Ang, does that answer your questions?

Yes.

Thank you. Our next question, it's coming from [Mr. Tindall] from GIC. Please go ahead.

Hi, good afternoon everyone. Thank you very much for the call. I've got three questions as well. The first question is just on your mobile ARPU. The Smart prepaid ARPU, that came off a little quarter-on-quarter, whether that was just a seasonal thing and you would expect a second quarter revival or that is a step down?

The second question is just whether you could share any targets at all on the Smart Remit and also your mobile TV service subscriber take-up, that sort of thing, what you'll be hoping for?

And the third question is just on your value added services for mobile. But the non-text messaging portion, that came off year-on-year and I think in the MD&A you've ascribed that to the [non-Z] and the [Smart-Z] services being used less. What contributed to that lower usage? Thank you.

Well let me try to answer the first question which is regarding ARPU. The ARPU, specifically in the first quarter of '07 for the prepaid went down actually from 286 on the fourth quarter to 267 on a net basis, on the first quarter of '07. And for the Talk 'N Text prepaid which is from 184 down -- no up to 187. And on the postpaid our ARPU actually went up from 1,425 to 1,483.

The apparent decline in our prepaid [by the] ARPU was caused by the fact that of course we are now mining the lower end of the market and since the take-up has increased dramatically in the first quarter, normally what we're seeing is that the first month that they are into the service, they use only half of their normal usage. And then it starts to increase over the period of time that they are in the service. And in fact in the second month they begin to be using it on a regular basis or they begin to fall within the average ARPU of the (inaudible) prepaid setup. And as they go -- as they move along the months of staying with our network they gradually increase their ARPU. It might be worthwhile to note that we have of course contained our low turn; it is now running at between 3% to 3.5%, which means that our subscriber base within the network with an average of about 27 to 28 months.

The second question --

Just to pick up on (inaudible).

Well the Smart Remit, we have not yet really commercially launched it; we tested it last April 29. We have had the first dollars so to speak, that went through the system from three overseas workers in Bahrain. Went to -- they used their cell phones to remit and we have recorded it on film actually. It was remitted from an overseas worker to the mother here in the -- residing in the country. It went from the cell phone of the remitter to the -- her bank account in Bahrain. Our partner bank there is Ahli United Bank and our partner operator there is MTC-Vodafone and the amount that were remitted were in a few thousand pesos, and interesting experience is that when we recorded these remittances, they were all very happy that it's quite convenient, and the person remitting was able to number one, check the balance of his account after the remittance by the -- through the cell phone, check the equivalent amount in pesos of what she had remitted, and at the same time be able to check later, by calling the recipient whether she or he had received it. And this all happened without her leaving her post of work.

We are about to commercially launch it, probably within the next two to three months, and we now have about 1,500 people lining up to join the service. We are however dependent on our partner bank and its ability to process the applications and therefore we are waiting for that to be finalized and perfected.

The third question by -- what was the third question?

The decline in VAS.

The decline in VAS. If you recall the first half of last year we have had a problem with the NTC restricting us on the value added service broadcast service and we have accordingly cut this off. And now it is strictly on a full basis on the service and that's how -- that's why this affected our value added service revenues to a certain extent.

However, we are pushing for more value added services to be launched and I think there is a very robust pipeline that has been [vetted] for the balance of the year to sort of compensate for the drop in the value added service revenues. This however constitutes less than 5% of our revenues.

Okay, thank you.

Thank you Mr. Tindall. Does that conclude your question, sir?

Yes.

Thank you. Our next question is coming from Arthur Pineda from ABN Amro. Please go ahead.

Hi thank you for the call; I have four questions. First how much [a factor] do you believe election spending played in usage and revenue levels for the first quarter? Maybe if you could put this in historical perspective in terms of how much bump up in price in terms of usage, this will be very useful.

Secondly, it seems like your mobile revenue mix is becoming increasingly different from your competitor, which is more focused on data versus voice. If you could provide me an idea in terms of how different your packages are in your marketing focus for the first quarter?

And third, going to a question which was posted a while ago; are there any issues with regard to anti-competitiveness should you decide to bundle your wireless and wireline together as well as broadband. Shouldn't this really limit your capability to bundle on all these three services?

And lastly, what is the rationale for fixed wireless launch in the Philippines given that this may actually result in potential subscriber migration to lower price substitutes? Thank you.

It's hard to say about the election spending. Right now the only difference that I see is that most of the money that has been spent are -- may not be trickling down to consumer expenses because of the proliferation of (inaudible) of candidates and that's one difference which was not in the previous election.

As to how much exactly is caused by election spending? It's hard to say but let me just point out that the revenues of our first quarter '07 is slightly higher than the fourth quarter of last year, which is normally boosted by the Christmas season spending. And normally the first quarter is a little bit lower than the fourth quarter so there is a difference but it's not that much. I think it's going to build up towards election date.

I guess I another way of looking at it is, are you seeing more provincial usage now as compared to the previous periods or is it so --?

Not really. The provincial usage has remained about the same compared to the previous. It's just an overall increase that we're seeing.

Okay, thank you.

With regards to revenue mix, why ours is different than our competitors; I can answer for ours and perhaps you can ask them about theirs. Our data revenue is high, mainly because of the preponderance of SMS in our revenue base. We're now averaging something like between 700 million to 750 million messages a day and that is well within our capacity of about 1.3 billion messages a day. And that is what is spurring the growth of data which is largely -- which is almost double the growth in our voice revenues.

I guess it is also the profile of the subscriber base because we are more prepaid, less of the postpaid and therefore we also have more of the mass market, having 26 million subscribers now. That accounts for a more texting type of subscriber base, that's the way we can maybe put it.

The third question --.

Maybe I'll try on the third and fourth. I think in terms of the fixed wireless, obviously to avoid cannibalization, we're offering that in areas where we don't have current fixed line facilities so it's unlikely that -- you just couldn't switch from one to the other.

Also in terms of pricing, we're pricing that in a way which is closer to the fixed line tariffing structure than it is for the wireless so again I don't think that's so much of an issue. In terms of the bundling, again I think that's something that we would like to do more of, however, I think as you're aware that to the extent that we do do that, then we do get claims from our competitors of predatory pricing. So as a result, we have been limited in the bundle packages that we've offered so that basically the promotions that we've had have effectively been restricted or to the fixed line or to the wireless, but don't effectively cross between the two.

Sorry but doesn't that imply as well that you cannibalize your mobile division? Instead I understand you may launch it on areas where you don't have a fixed line division but would it cannibalize now --?

No we don't find that; we find that in most of these areas people, if they have a phone with effectively -- a mobile phone would already have one. I think there is still a desire -- we find there's a desire for people, some people to have a communication device in their home or location based device as well as a phone which is a personal device which is for their -- which they would take to be their mobile handset. So we do not find that that cannibalization occurs.

Okay, thank you.

Thank you, sir. Does that answer your questions?

Yes, it does. Thank you.

Thank you for your questions. Our next question is coming from Rama Maruvada from Macquarie. Please go ahead.

Hi. Good afternoon, everyone. Thanks for the call. I have three questions.

Firstly, with regards to your effective tax rate, I think it's coming closer to 35% in this quarter. What do you think it would be for the full financial year?

Secondly, with regards to your guidance for net profit at PHP33 billion, obviously this depends a fair bit on where the exchange rate is. And in this regard, my question is what is the kind of currency assumption or the range that is embedded in this guidance?

Thirdly is, to the extent that you can, I do understand that you want to reserve some cash for acquisitions. But if you could set forth a timetable for capital management, in terms of would you rather wait till the end of the full financial year till you find opportunities? Or is there a chance that you would probably undertake capital management initiatives earlier than the end of the financial year? That'll be great.

I think on the -- to just answer them in sequence. Basically, the tax rate I think we're looking at 33% to 34% for the full year. As indicated, that is higher than last year because we don't have the benefit this year of the reversal of the previous deferred tax asset allowances.

In terms of exchange rate, we're assuming a rate of between PHP47 to PHP48 to the dollar.

And lastly, again, we are hedging our bets a little bit. I think our intention really is to wait towards the end of the year. We said we would have this concept of the look back to see what actually happened during the year. And depending on what happened in terms of acquisitions see what would be the appropriate level of capital management to take, whether that be buyback or additional dividends or the like. So I think it's likely to be more towards the end of the year.

Okay, thank you very much.

Thank you, sir. Does that conclude your questions?

Yes, it does. Thank you.

Thank you. Our next question is coming from Kathy Chen from Goldman Sachs.

Hi. Thanks for the call. I have four questions as well.

Firstly, can you explain why it seems like the fixed line EBITDA margins fell quite a bit in the quarter, in terms of year-on-year basis? It looks like a lot of the cost increases related to the maintenance expansion and to a certain extent compensation. What was the reason for the increase in these two cost line items? And should this be the run rate going forward for the rest of the year?

And secondly, there was some news recently that Infosys is deciding to start its own BPO services in the Philippines. Is there any expected impact on ePLDT's expectations on their revenues? And what does this mean for the alliance that was announced last year?

Thirdly, can you give me an update on the regulatory side? I think recently, there's been some public hearings and consultations on the RAO. And it's been pretty quiet on the significant market powers. So if you can update there that'll be appreciated.

And then lastly, can you give us guidance on when Piltel can begin paying common dividends?

Thanks.

Maybe I can try a couple of them. I think in terms of the fixed line, you are correct. The margins are down to about -- the EBITDA margin is about 55% from an average of about 58% last year. It's down by about 3%. I think that's partly -- is indicated because the exchange rate impact, which Mr. Nazareno described. But partly as you indicated, there's some cost increases.

I think on the maintenance side, we are going through an enhanced maintenance program, which actually we probably expect to continue for at least this year. And on the compensation side, while we have seen decreases in the headcount, I think we're down to about 8,700 now. There have been some CBA or collective bargaining agreement mandated increases which have worked their way through. I think on balance, we think the margins are probably going to stay round about the 55% for the year.

I think Kathy, we indicated in discussions with investors over the last 12 months or so that we saw it coming down to that level, because certainly the strengthening peso affects the fixed line business quite a bit. I think again as mentioned about 48% -- almost 50% of our revenues have a linkage to the dollar.

On the issue of the regulatory environment, I think you're correct that actually it has been quite quiet recently. I think there has been -- there were some changes at the senior level at the NTC. So I guess the new people themselves are taking a look at the situation again. And also again, with the election, things tend to slow down there as well.

So I think your observation is correct. It has been rather quiet. And from our side, it's been similar. There hasn't been a lot of activity on that front over the last few months. And in fact, we probably wouldn't anticipate anything much in the next two to three months, until we get past the election period.

I'll turn it over to Ray Espinosa who'll probably comment on the Infosys.

On the Infosys, we don't see that as negatively impacting the business of our voice call center. In fact, we were quite cognizant of the fact that at some point, Infosys would set up shop in the Philippines.

We do have a partnership with them. They've booked quite a number of seats with us and that partnership will continue. [Chiefly] it's the new business that will find its way to this Infosys facility. And we have very good relations with Infosys. We expect that in respect of certain businesses that they could not handle or the facility can't handle in the Philippines, they will look to us as their partner. So we've seen that happen in the past. We've had a similar relationship with TeleTech and our relationship with TeleTech still continues. They still have 500 seats with us, which we operate the service as subcontractor to serve their customer requirements.

We had indicated in yesterday shareholder's meeting for Piltel, the broad plan would be to try to pay the preferred -- the cumulative dividend going to the Piltel preferred shareholders which as of March, amounted to about PHP2.6 billion. And the principal beneficiary of that would be PLDT, with respect to the preferreds that were subscribed when the PLDT infused money into the Piltel for the letter of support, during the -- [debt] restructuring in previous years.

Now once the dividends on the preferreds have basically been updated then that would then put Piltel in a position to be able to start paying common dividend, assuming the retained earnings balance would build up over time, as Piltel reports its earnings. So initially, sometime in 2008 is our target for common dividends to be paid with respect to Piltel shares.

Actually if I could just follow up on the regulatory issue. I understand it's been quiet. But there was -- it looked to me like there was some progress made on the reference access offer. Do you have any color on potential impacts on what that would mean?

That's still under review, please. The new NTC head -- and the [chief of] staff are actually reviewing the previous policies set by their predecessor. And that (inaudible) is part of the general anti-competitive measures that they want to put in place.

So as Chris said, we really don't see very much activity at NTC level until after the elections are over and the results are announced. So maybe some time in the -- closer to the third quarter and some activity advantage will be soon.

I think (inaudible) on interconnect is that it's an issue which is raised from time to time. As far as we are concerned, we have effectively interconnected with everyone who's requested it. The only issue that we've raised from time to time with the regulator is that the situation where we have interconnected with another operator and they don't pay. And that has happened to us on a fairly regular basis.

I think in that situation it becomes an interesting discussion in that you don't want to deprive the subscribers of the other operator's service. On the other hand, I think commercially you cannot go on for an indefinite length of time without getting paid. So I think there are issues on the interconnect on both sides.

In terms of price, I think our own, what we have done would indicate that the interconnect rates are at levels which are very defensible. And if we benchmark them against other rates around the world, we are -- the rates here are probably on the low side rather than on the high side. So we don't think within the general discussions on interconnect that there is anything which would have a terribly negative effect on us long term. And if we could clarify this issue of non-settlement from the other operators, it's something that may actually give us some protection going forward in the medium to long term.

Okay, thanks. That's very clear.

Thank you, Ms. Chen. We have a follow up question from Luis Hilado from JP Morgan. Please go ahead.

Quick follow up questions.

If you could remind us of what your target capital structure is in the long term. Whether it's gearing or debt to capital or debt to EBITDA?

And second is whether the proposal before, for a tax exemption for 3G revenues or subscribers, whether that's already completely off the table or it's just in delay?

With respect to the targets for the capital structure, the long term target would be to look at the leverage of around 1 to 1.5 times net debt to EBITDA. That's the kind of structure that we would have in the long term.

I guess tax exemption for 3G, there's still some communications with the BOI on this matter and we'd expect some kind of information gathering. But we're not quite sure where, directionally this may be headed at the moment.

Okay, thanks.

Thank you, sir. Does that answer your questions?

Yes, it does.

Thank you. (OPERATOR INSTRUCTIONS). Thank you and that concludes the question and answer session.

Before I turn the conference back over to Mr. Nazareno, I would like to give everybody the instant replay information for today's conference call. This conference will be available on a 24 hour instant replay starting today, daily on through May 23, 2007. Replay information 3 pm call, international caller number 852-2802-5151. US toll-free number is 1-800-8392867; pass code 798960. Conference leader is Anna Bengzon.

At this time, I will turn the conference back over to Mr. Nazareno for any additional or closing remarks. Please go ahead. Thank you.

Thank you very much for joining us this afternoon. And we look forward to talk to you again come early August for our first half results. Thank you.

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

END OF PART 7 AND 8