PLDT Inc (PHI) 2008 Q4 法說會逐字稿

Good afternoon everyone and welcome to the Philippine Long Distance Telephone Company's conference call to discuss our full year 2008 financial and operating results. This conference call is being recorded. Replay information will be provided at the end of the call.

Good afternoon. Thank you for joining us today. As mentioned in the conference call invitation, today's presentation is posted at our website. For those who have not been able to do so, you may download the presentation from www.pldt.com.ph under the Investor Relations section.

For today's presentation we have with us members of the PLDT Group management team. Joining us today are Mr. Manuel Pangilinan, Chairman, Mr. Polly Nazareno, President and Chief Executive Officer of PLDT and Smart, Christopher Young, Chief Financial Advisor of PLDT, Ms. Annabelle Lim Chua, Treasurer of PLDT and Chief Financial Advisor of Smart. And from ePLDT, we have Ray Espinosa, President and CEO. At this point let me turn the floor over to Mr. Polly Nazareno for the presentation.

Thank you, Melissa. Allow me now to share with you PLDT's 2008 full year financial and operating results. PLDT delivered another solid performance in 2008, as you will note from our financial performance indicators.

Service revenues for the Group in 2008 increased by PHP7.4b or 5% to PHP142.9b compared to '07. EBITDA for '08 grew by 6% year-on-year to PHP87.6b with EBITDA margin steady at 61%. Income before tax rose 2% to PHP5.4 -- PHP54.5b and reported net income stood at PHP34.6b down 4% from PHP36b in '07. Core net income increased by 8% to PHP38.1b from PHP35.2b in '07. This translates to earnings per share of PHP200 and PHP184 for '08 and '07 respectively.

The peso closed at PHP47.647 against the US dollar at the end of '08, compared to PHP41.411 in '07, or an appreciation of -- or a depreciation of about 15%. However, the peso average dollar exchange rate for the year was PHP44.474, 4% lower than '07.

Core net income increased by PHP2.9b or 8% to PHP38.1b in '08 versus PHP35.2b in '07 as a result of increases in revenues and EBITDA of 5% and 6% respectively and decrease in financing costs by 14%.

Our reported income was declined -- has declined by 4% to PHP34.6b largely due to asset impairments amounting to PHP2.5b largely in our ICT business, a net ForEx loss of PHP1.6b due to the movement in peso-dollar exchange rate and in peso and dollar interest rates. Though it is the first decline in reported net income since 2002, note that core income from '02 to '08 has grown year-on-year at a compounded average growth rate of 32% from PHP7.1b in 2002.

In line with our solid performance in '08 and our strong cash position, the Board has approved today the payment of PHP70 per share final dividend for '08 in addition to the PHP70 interim dividend paid in 2008. This brings the total regular dividend per share for 2008 to PHP140 in line with the 70% dividend payout policy.

Further to this and in accordance with the look-back approach, the Board also approved the payment of a special dividend of PHP60 per share resulting in a total dividend payment of PHP200 per share. This is effectively a 100% dividend payout for '08 following the 100% dividend payout of '07 and the 85% dividend payout ratio for '06.

Note that the dividend declaration in addition to share buyback we undertook in '08 where nearly 2m shares were bought back into treasury. For '09 we are committed to a 70% regular dividend payout and will again assess the possibility of any special dividends using our look back approach.

Consolidated service revenues grew by 5% to PHP142.9b in '08. This was on account of a 12% growth in the data and ICT revenues, which now comprises 53% of total service revenues and which included a 45% increase in broadband revenues and a 1% decline in voice revenues resulting from the average peso appreciation which offset increases in cellular voice traffic. Approximately 28% of consolidated service revenues are dollar linked. Had the peso remained stable, PLDT would have registered another PHP1.6b in service revenues or a 6% growth year-on-year.

EBITDA increased by 6% to PHP87.6b in '08 while margins held steady at 61%. Wireless margins increased to 65%, Fixed Line margins reduced to 52% while ePLDT margins decreased to 10% on a base that grew by 4%. Service revenues for the fourth quarter '08 stood at PHP37.3b, having grown by 7% year-on-year and 6% quarter-on-quarter. On the other hand fourth quarter '08 EBITDA registered a 1% quarter-on-quarter to PHP22b and an increase of 6% year-on-year.

CapEx for '08 increased by close to PHP400m to PHP25.2b, representing about 18% of total service revenues. This level was lower than our guidance of PHP27b due to rescheduling of CapEx. Of total CapEx PHP16.7b or 66% was spent for the Wireless business, 31% for the Fixed Line and 3% for ICT. The Fixed Line CapEx of close to PHP8b was largely utilized for broadband and NGN core, last mile and international facilities, while the Wireless CapEx of about PHP17b was deployed for 2G and 3G core, HSPA 850 transport and support facilities.

The 2008 CapEx spend reflects PLDT's continued investment in the business, which is sustained in the forecast CapEx spend of PHP27b for 2009. We are looking beyond the near term uncertainty and investing for the long term as we prepare the infrastructure for the future to allow us to be well positioned when market conditions stabilize and improve. Our CapEx is scalable, giving us the flexibility to accelerate or downscale according to market conditions.

We all know that achieving revenue growth in a challenge -- is a challenge in this environment. In order to preserve our margins and profitability, we are maintaining a tight watch on our cash operating expenses. Our cash operating expenses grew 4% year-on-year largely in repairs and maintenance, rent and taxes and licenses, costs associated with expanded operations and serving more subscribers.

Note however that 2008 cash OpEx constituted 35% of service revenues compared to 36% in '07, as we have managed to maintain most of our cash OpEx at the same percentage of service revenues. Most notable is our having increased revenues and subscribers despite selling and promotion spread remaining at about 4% of service revenues.

Free cash flow in 2008 increased by PHP1.3b to PHP47.9b from PHP46.5 in the previous year. The increase in cash flow resulted from higher cash from operations of almost PHP900m in '08, a net reduction in the interest expense of about PHP1b and increased CapEx of close to PHP400m. The bulk of the free cash flow was utilized for capital management initiatives, including PHP36.5b in dividend payments and PHP5.3b for PLDT share buybacks and Piltel redemption. I would like to point out that the amount of cash returned to shareholders last year was greater than our CapEx spend.

The Group's net debt declined to $800m as of year end '08 with net debt to EBITDA at 0.4. PLDT's debt profile remains healthy with maturities well spread out. 78% of our total debt is denominated in US dollars. 33% of total debt is hedged, increasing to 62% if we take into account our dollar cash holdings. We have begun to tap available local credit to gradually reduce dollar denominated debt. Despite markets and pricing being volatile, PLDT has been able to avail of new loans without significant increases in interest rate spreads.

We have cash and short term investments of PHP40.4b at the end of '08 of which 14% are denominated in US dollars. Our cash and short term investments are largely in bank placements, government securities and selected Philippine corporate debt.

Moving on to our various business segments, slide 10 contains highlights of our Wireless subscriber numbers which continued to grow strongly in '08.

The Smart and Talk N Text subscriber base exceed 35m at the end of '08. Total net adds for the year reached 5.2m, higher than our guidance of 4m to 5m. Of total net adds, 4.6m were Talk N Text subscribers. This brought the total Talk N Text subscribers base to 14.3m making it the number two in the Philippines behind SmartBuddy with 20.9m subs. Margins improved to 65%, a 13% decline in net blended ARPU to PHP217 year-on-year as subscription acquisition costs continued to decline with subscriber acquisition costs equivalent to about a week's ARPU.

Slide 11 discussed selected financials of the Wireless business for '08. Service revenue grew 8% to PHP93.6b, now contributing 65% of consolidated Group revenues. Growth in '08 was on account of the 8% increase in data revenues, 3% growth in voice revenues and a remarkable 81% increase in wireless broadband revenues.

Combined Smart and Talk N Text maintained their leadership in both subscriber and revenue terms at approximately 52% and 60% market share respectively. Basic SMS continues to drive data services comprising 55% (sic - see presentation) of cellular service revenues. EBITDA for 2008 increased by 10% to PHP60.6b compared to PHP55.3b in '07. Margin improved to 65% on higher revenues. Fourth quarter '08 service revenues grew 10% year-on-year and 8% quarter-on-quarter to PHP24.8b consistent with the fourth quarter benefiting from holiday spending.

Slide 12 highlights some of the major initiatives in the Wireless business in the year 2008. In cellular, we launched thematic campaigns, cheap voice offerings via Red Mobile. Red Mobile is a flanker brand offering cheap voice on 3G.

For our post-paid subscribers we offered GoldLite, a SIM only plan that offers lower voice rates. In addition we undertook various usage campaigns and launched Uzzap, an IP based messaging service for mobile phones and PCs. For Broadband we introduced the SmartBro Plug-it Prepaid in April 2008 and in less than one year, the price of the Plug-it kit has come down to PHP1,995.

We structured and aligned our sales distribution channels in order to improve our ability to offer more targeted packages to subscribers. We signed up communities including schools, local government units and OFW-Seafarers to boost brand affinity and improve activation and usage.

As for Smart Money, its subscriber base is now 7.5m. This increase was achieved through intensified linkages to sources of funds for mobile commerce ecosystem, tapping micro financing stores, commercial and rural banks among others.

Having reorganized the Fixed Line with themes focusing on retail, corporate and SME markets, new initiatives and programs are being implemented to revive growth in the Fixed Line. Landline Plus and askPLDT have generated new subscribers and arrested churn for the retail business. PLDT Business Solutions has made available different offers addressing the corporate customers' needs bundling hardware, software and telecommunication solutions as appropriate. Last but not last, our SME unit has made inroads in capturing a significant share in a growing segment of the market estimated at over 600,000 active enterprises.

As a result at the end of '08, our Fixed Line subscriber based registered a 3% increase. Though the growth is modest, it is encouraging for us to see that the programs deployed have begun to arrest the decline of the Fixed Line subscriber base and as you will see in the next slide, help generate growth in revenues.

Slide 14 shows highlights of our Fixed Line business. With a 1% growth in service revenues for full year '08, the Fixed Line maintained the momentum of growth registered in the last few quarters. Service revenues reached PHP49.3b resulting from the increase in corporate data and DSL service revenues offset by declines in the local exchange, national long distance and international long distance revenues.

Data revenues increased by 17% to PHP18.6b in '08 and now represent 38% of the total Fixed Line service revenues. Fixed Line service revenues would have increased by about PHP470m or another 1% year-on-year had the peso remained stable.

EBITDA declined by 2% to PHP25.8b in '08. Margin also declined from 54% to 52% in '08. The decrease or the increase in revenues was offset by increases in cash OpEx primarily maintenance expenses related to service restorations and IT software maintenance costs and rent, mostly of international leased circuits. The continued pursuit of cost management programs have kept the bulk of our cash OpEx expenses under control.

Slide 15 focuses on Broadband, which continued to grow in '08, seemingly impervious to overall market conditions. The PLDT Group covered wider ground in Broadband with its combined subscriber base just shy of the 1m mark as of the end of '08. SmartBro added approximately 245,000 subscribers in '08 bringing its base to 547,000 at the end of the period. For 2008, a total of 124,000 Plug-it prepaid subscribers were registered since the launch in April. DSL subscribers grew by 168,000 in 2008 bringing total DSL subscribers to nearly 433,000.

Total revenues from Broadband grew 45% year-on-year to PHP11b which now represents 8% of the total service revenues in '08 from 6% in '07.

The momentum in Broadband take-up continues. The Internet savvy and Internet hungry Filipino continues to find barriers to entry coming down with the availability of cheaper access devices as well as affordable Broadband offerings such as our PHP10 for 30 minute usage via prepaid service. Enabling us to cover more ground in Broadband is the deployment of platforms that work from DSL to Canopy and soon via HSPA 850.

On to slide 16, ePLDT, our ICT business, registered a 4% growth in service revenues for '08. Its revenue of PHP10.4b represents 7% of total PLDT Group service revenues. 78% of ePLDT service revenues are dollar denominated. Service revenues were thus somewhat impacted by the 4% average appreciation of the peso in '08.

The call center and data center operations continued to register growth of 4% and 29% respectively, while BPO revenues were flat year-on-year. The review and rationalization of our BPO operations was the focus in '08. As a result a painful decision was reached to close the electronic data discovery or EDD unit of the legal business. We also bit the bullet and recognized major provisions and impairments in 2008 on account of the EDD closure and the lower medical transcription revenues.

A new CEO for medical transcription has been appointed and we expect him to make the necessary changes. And for 2009, planned operational improvements for medical transcription include the migration of 43% of US lines to Asia, adoption of an incentive program to improve productivity and rationalization and culling of accounts.

ePLDT's EBITDA of PHP1b is 9% decrease over '07. EBITDA margin slightly declined to 10% in '08, due to the impact of the peso appreciation as well as higher compensation costs, with the increase in the number of CSRs for call center and full year impact of medical billing acquired in the second quarter of '07. Encouragingly, fourth quarter '08 EBITDA improved [91%] quarter-on-quarter and 14% year-on-year. Fourth quarter '08 EBITDA margin likewise improved to 13% in fourth quarter '08 from 12% in fourth quarter '07 and 7% in third quarter '08.

ePLDT will continue to position itself to capture opportunities in the area of outsourcing, being presented under current market conditions. In parallel we will proceed with efforts to streamline its operations to improve its margins.

That ends my presentation and let me turn your over to our Chairman, Mr. Manny Pangilinan for the outlook for the rest of the year.

Thank you and good afternoon to everybody. Once again I'd like to express from all of us here our thanks to all of you for attending this 2008 briefing. So let me just go to the numbers very quickly.

In terms of core net income guidance, we're guiding our numbers in net income terms to PHP40b, driven by organic growth from -- income growth from both the Wireline and Wireless business, and a breakeven net income position on a core basis from ePLDT. That implies a growth of PHP2b in net income terms and 5% growth over 2008. I think the growth, the organic growth in net income will be abetted to a degree by the lower income tax rate starting this year from 35% last year to 30%.

Service revenues growth will track the 5% growth in net income from PHP143b last year to PHP150b next year. PHP2b to PHP3b of that increase, of that PHP7b increase will come from the Fixed Line side and about PHP4b or PHP5b from the Wireless business.

In terms of CapEx we envisage a slightly higher CapEx level, PHP27b compared to PHP25.2b as we are committed to investing in the future of the Company with more modern, more robust networks on the Fixed, Internet and the Wireless side of our business.

Cash flows will continue to be strong for 2009 with EBITDA projected to increase by PHP4b from about PHP88b last year to PHP92b this year.

And in terms of capital management we are maintaining our dividend payout ratio at the policy level of 70% of core EPS with a look-back approach towards the end of this year. There's a balance of about 3m common shares that is subject to a buyback program that has been approved by the Board. So we will -- as you know if the equities market continues to be weak, PLDT will be in the market to buyback those shares.

In terms of subscriber numbers on the Wireless side, we're looking at 3.5m net adds for the year compared to about 5.2m net adds in 2008, something that we signaled towards the end of last year. And at least 400,000 Broadband subscribers on both the Fixed Line and Wireless Broadband platforms.

Having reviewed yesterday the January numbers this year, I must say that the income numbers we've seen are ahead of last year. And actually we're off to a good start both in terms of revenues, subscriber net adds and certainly in terms of bottom line for the Group as a whole. Of course this is only one of twelve months, but I must say also that subscriber net adds for February has been encouraging and is tracking about the guidance number on the Wireless side.

Thank you so much. I think we're ready for your questions.

We are now ready for the Q&A. We'll take questions first from those who have joined us through conference call. Then we'll take questions from the floor. Operator?

Thank you. The floor is now ready for your questions. (Operator Instructions). Our first question will be coming from the line of Ms. Karen Ang from Citigroup. Please go ahead.

Hi good afternoon and thanks for the call. I have two questions. First is looking at your Fixed Line EBITDA margins, I think they're down from last year's 54% to 52%. I was just wondering when should we start expecting the cost savings from the NGN upgrade to materialize in higher Fixed Line EBITDA margin. Or should we not expect it any more?

The next question is if you can provide more color on your Wireless Broadband service, i.e. what sort of ARPUs are you seeing and what's the run rate in terms of -- at least so far in the first couple of months of the year in terms of subscriber take-up? Are you seeing that accelerate or is that being hurt by the slowdown in the economy as well? Thank you.

I think I'll try the first one which is the EBITDA margins of the Fixed. You observed that they're down from 54% to 52%. I think that's exactly as we've been guiding. As the contribution from Broadband increases we have anticipated that the margins will trend down marginally year from year. We've actually been guiding for about a 1% decrease. So we're a shade over that but broadly in line with what we were forecasting.

The NGN build out is now expected to complete some time in 2011 -- towards the end of 2010, 2011. So we would expect that to begin to benefit the margins of the business in 2011 and help us to maintain the margins at roundabout the 50% level.

Before the second question is answered, if I can follow up on that. Is it possible to split what the margins are for the traditional [talk] business and then the newer data driven broadband sort of business?

No it's not really possible to do that because basically the Broadband products are riding on the main network. So it's very difficult to split that out.

However, if you do look at the mix of the Fixed Line business, what I think you can see is that the [talk] part of the business, which is both the ILD and the NLD are contributing less in percentage terms as time goes on. And the data business, which is a mix of corporate and retail data -- retail data being the DSL -- is increasing in terms of importance. And at the margin, the data business is a lower business than the traditional ILD and NLD business. So that is effectively what is reducing the margin or has reduced the margin over the last year or so.

We would expect that to continue because data will, both through the corporate and the retail side, become increasingly important to the Fixed. And we would expect that particularly the ILD business to be under continued pressure as a result of VoIP and Fixed to Mobile substitution. But as I said, as the NGN completes and we begin to see some of the benefits of the cost reduction there, that should help us maintain the margins as we go into 2011 and beyond.

With regards to the ARPU for Broadband, our most popular package on the postpaid is the PHP999 pesos per month with unlimited use. And on the prepaid it's -- the ARPU right now is roughly between PHP350 to PHP400 a month. As you know our rate on prepaid is PHP10 for 30 minutes use.

Do you foresee that to come down even sharply to stimulate mass adoption of Wireless Broadband?

Not really. I think as we increase the subscriber base and as people get used to accessing the Internet and going to other content that are available, I think the ARPUs will even go up on the prepaid side. And on the post-paid side, I agree after maybe we milked this middle income segment of the market, the ARPUs might go down slightly as we are mining the lower end of the market.

But right now, the total [days] for the industry is about 1.2m to 1.3m broadband subscribers. So we still have a long way to go considering that there are 18m homes in the country and roughly there are an estimate of about 20m internet unique users at this point in time already.

So what is the run rate in terms of monthly net adds for yourself and for the industry so far in 2009?

Could you please repeat?

The monthly net adds for the industry and yourself, PLDT, so far, in 2009, for Wireless Broadband?

What is the run rate per month?

The run rate for '09, January is quite positive actually and the trend continues. It is about similar to last year. It is on track following last year's steep growth on acquisition.

Okay, thank you.

Thank you, ma'am.

Our next question will be coming from the line of Sachin Salgaonkar from Morgan Stanley. Please go ahead.

Hi, thanks for the call. I have three questions. One, is it possible to give us more color on your service guidance? You expect a 5% growth in '08 so how much growth will be coming from a wireless/wireline division and your ICT or BPO business?

Secondly, on CapEx, is it possible to give an indication of how much of your spend of PHP27b would be a discretionary spend which could be delayed if the economy deteriorates from these levels.

And third isn't EBITDA -- if I'm not wrong, Broadband is a low margin business so as Broadband revenues grow, it might pressurize the margins. Your guidance of 5% EBITDA growth, are you modeling any other division to show an increase in EBITDA margin, which offsets the declines from Broadband business? Thanks.

Maybe, Sachin, I could try the one on the EBITDA. I think your observation is correct, we would expect some decline in margin as we go forward from the Broadband business. However, particularly as we go into, well, the current year 2009, I think we are anticipating that there would be some recovery in the margins at the ePLDT level. There is quite a significant rationalization of the business gone on in the last quarter of 2008 and we would think that that would help us deliver some improvement in margins as we go into 2009.

The next question was additional color and service revenue guidance for the three business segments.

I guess we're again tracking what we've seen in recent years. On the Wireless I think we will grow at a faster pace than in the Fixed.

On the revenues from ePLDT, actually, I guess it may be flattish in 2009 because we have effectively closed down the legal business, legal discovery business, so we won't get the benefit of these revenues in 2009.

So it's really, I guess if you look at what we've done in 2007/2008, the bulk of the growth would come through from Wireless, a combination of the traditional voice and text business, and Wireless Broadband. With the Fixed, actually we are anticipating some growth but obviously at a much lower percentage and a relatively flat year. For ePLDT, on the revenue side, we have improving margins as a result of the rationalization at legal and medical transcription.

On the CapEx, I think we would say that the bulk of it is -- can effectively be managed during the year depending on demand, other than the part which might be more of a maintenance CapEx type. So if we said that that was approximately one third of the total, I guess we are saying that something in the region of PHP17b to PHP18b we could manage should there be a significant break, a slower take up on the Wireless or the Broadband side than we are anticipating.

Okay, great. Thanks.

Thank you. Our next question will be coming from the line of Mr. Luis Carillo from JP Morgan. Please go ahead, sir.

Hi, good afternoon. Thanks for the call and congratulations on the results. I have three questions.

The first one is just on guidance again. I seem to notice that the forecast, the impact of the change in tax rate this year is a positive PHP3b, but for core net income it is only a PHP2b increase despite EBITDA still growing. I'm just wondering what's happening between the EBITDA and the core net income line to suppress profit for the guidance at least.

The second question is, looking at the fourth quarter trends for SMS, we noticed that standard SMS seems to have recovered quite handily in the fourth quarter whereas bucket SMS revenues are slightly down or flattish. I'm just wondering if that is just a quarter -- is that an adjustment or it is more like a trend going forward and what brought it about?

And third question is that there seems to be an article in newswires about potential foreign investment, foreign overseas investment. I'm just wondering if there's any material developments of that front.

Maybe I'll just try on the guidance number. I think you're correct that there will be a positive impact from the anticipated reduction in the tax charge in 2009. I think you could assume it is between PHP2b and PHP3b. Obviously, the actual tax reduction will depend at the end of the day on a number of factors, in particular, I guess, the pace of CapEx spend, the utilization of [Norco] and a number of other factors.

I guess we are being reasonably conservative in the guidance number so I don't think there is anything particular that we would point you to, but it is not just as easy as just taking a PHP3b reduction. You have to look at what would make up at tax charge.

And I will pass you to Manny on the investment.

That potential investment opportunity abroad relates -- I guess must have come from the question that was raised by (inaudible) earlier. And he said that given the declining values currently of equities, and in particular telcos, particularly in the region, that it is I think opportune for PLDT to look at telco opportunities in Asia generally. Because valuations have come down particularly in certain countries in Asia and PLDT share price have not suffered as much as its regional peers.

Now I did emphasize in that briefing and in the briefing here that there are no opportunities that are imminent. And we have been looking in the past, actually the valuations were much higher and we just said that it would be remiss if we didn't look at similar telco opportunities, particularly in the cellular space that maybe available in some parts of Asia.

Thanks, that's very clear.

Luis, on the question regarding I guess standard versus bucket SMS, I think the general trend holds true that more and more the usage is moving towards the bucket rather than the standard. Although I guess in the fourth quarter, there is an element of the Christmas spending might have an influence on that, but I think it will be that -- you should expect that over time the more value-conscious people are becoming, the more they will be availing of the bucket promos and that's what we are seeing in the market.

Thanks, Annabelle.

Question, operator?

Thank you, our next question will be coming from the line of Mr. Brian Wee from Goldman Sachs. Please go ahead.

Alright, thank you for the conference call. I have two questions basically, one on the CapEx. On the CapEx guidance of PHP27b versus PHP25b this year, where do you see the increase coming from and what is the percentage of CapEx denominated in foreign currency?

The other question I have is for your ePLDT. You have indicated that ePLDT revenue will remain flat in spite of the closing down of your legal services so where do you see growth coming from and does it offset the decline given the general economic slowdown?

The first one, Brian is -- did we get this correctly, you are asking where the growth in CapEx is from the PHP25b this year to the PHP27b guidance next year and what percentage is in ForEx?

Yes.

Is that correct, Brian?

That's right. Thank you.

As far as the CapEx is concerned, as you know the original, the outdated target for this year which was stipulated in the middle of last year was that we would reach about PHP27b at the end of the year in '08. And what we have done is we have managed to hold back the CapEx down to PHP25.2b by rescheduling some of the unnecessary CapEx and carrying them over to '09 and mostly that is the reason why the PHP25.2b will go up to PHP27b next year.

In terms of a breakdown, for the Fixed Line more than half of it will consist of the NGN, the last mile which is the upgrading of our outside plan and of course, transmission, and also a part of -- and the rest would be broadband at 11% and IT of course, which we are upgrading and doing a tech refresh at the (inaudible) site, which would account for about 15%.

For the Wireless, CapEx will be 2G and 3G for the HSPA 850 roll out transport and of course the IT support that goes with it. And of course other CapEx related to transmission will be part of the 29% on the others. Wireless in general will account for about 65% of the total CapEx next year.

Right.

Percentage of the CapEx that is ForEx denominated.

The percentage of dollar-denominated or foreign currency denominated CapEx is about half of the total CapEx.

So what is the exchange rate that you are assuming for this guidance year?

Right now, the exchange rate is hovering around PHP48 to $1.

I've got you and you maintain that rate on this guidance?

(multiple speakers). Sorry.

Thank you. Okay.

The second question was if ePLDT revenues are expected to be flat, where will the growth be coming from?

As Chris stated, we will remain flat in the year, largely because of the closure of the EDD business, which we had to do given its inability to grow as fast as we wanted it to. However, the growth will come from the other verticals, which are showing good growth and continue to show good growth in the outsourcing space that is mainly our publishing verticals and the medical transcription vertical.

The growth in medical transcription will be very modest. The main objective is to turn around that business my migrating almost 90% of the total lines from the US to Asia which is mainly in India and the Philippines. The other area of growth would really be the data center business, which in the last two years have shown significant growth and will still show good growth this year.

Operator, the next question please.

My next question will be coming from the line of Rama Maruvada from Macquarie. Please go ahead.

Good afternoon everyone and congratulations on a very good set of numbers. I have three questions. Firstly, with regards to your Fixed Line business, have you entered into any hedging contracts to hedge the currency exposure for 2009?

And with regards to this, what is the exchange rate that you have hedged for 2008?

The second one is with regards to you Wireless service revenue growth, a pretty strong up-tick in the fourth quarter. And I don't know that you talk a little bit on the IDD front so is that the main reason why the growth have been strong or are there any other drivers there that you have seen in the fourth quarter?

The final one is a little bit of a housekeeping question where just looking at the adjustments that you need to get to your EBITDA line, and perhaps you can send me an answer after the call, is if I look at the numbers like asset impairment I think the charge that you actually put in for arriving at your EBITDA estimate is somewhat different from what you have in your cost of services. So if you could just give me a bit more guidance on how you are actually getting to the EBITDA number.

The first one was on the Fixed Line, whether we have hedged our revenues and what we hedged it at in 2008.

We haven't hedged any of the revenues for 2009 and the rate that we used -- that we hedged in 2008 was about PHP43 to the dollar, but that was only for approximately half of the dollar denominated revenues.

The second question was the up-tick in the Wireless, what it was attributed to? The uptick in the revenues of wireless in the fourth quarter, is that correct, Rama?

Yes, Wireless voice to be exact.

Wireless voice.

The up-tick on the fourth quarter last year is normal occurrence really because of the holiday season. And normally we have our SMS volume goes up towards -- we climb up starting in the middle of the year and up to Christmas eve and then it also goes up again to a new high at the New Year's eve. So really, that is part of the Filipino's strong propensity for networking during those times.

The last question was a question on the computation of EBITDA, Rama?

Yes, that's correct. In particular, the adjustment that you do for asset impairment line seems to be a bit different for how you arrive at the EBITDA number that you report versus the asset impairment charges you book on the P&L.

Rama, in the impairment line of the assets, that is not just purely asset impairment. There are other types of -- like provision for bad debts, inventory obsolescence, but those are now called impairment in the P&L line. The item that we back out for purposes of the core earnings only relates to asset impairment.

Okay, understood. Thank you.

Operator, are there any other questions on the conference for those who have joined into the conference call?

Yes, we have a question coming from the line of Arthur Pineda from RBS. Please go ahead, sir.

Hi, thanks for the call. I have three questions. First, could you please provide a breakdown of the impairment charges? Was there any write downs in the Fixed Line side due to the NGN build out?

Secondly, could you give an indication with regard to the revenue contributions of the BPO business that you're closing down? What impact would that have for the margins for the ICT segment going forward?

And the third question I had was with regard to the debt levels and the currency. Based on your current debt levels and revenue profiles, is the weaker peso actually detrimental to you or is it actually positive on balance? I'm just trying to get a better understanding on why there is a preference to raise local debt given that a third of your revenues continue to be linked to the dollar? Thanks.

On the impairment, Arthur, basically, none of it relates to the fixed line NGN. I think you may recall if you go back to 2006/2007, there was some accelerated depreciation charge in both of these years. And at that stage, we basically identified the major NGN components which would no longer be part of the NGN going forward. So we still get into account -- I think it was close to PHP16b over that period split approximately over each year. So most of the assessment of the Fixed Line in terms of what other impairment would be required has been taken into account.

On the impairment, the majority of it relates to the two verticals of SPI, the closure of the legal vertical and the further rationalization of the medical transcription vertical. There are some other smaller amounts in there which relate to some intangibles, which were sitting in PLDT related to some investments which had been made there over a period of time and some of the other small businesses of ePLDT. But they are more of a traditional type of impairment charge rather than any network related items.

I'll pass you first to Annabelle on the debt level, the ForEx and the debt.

Arthur, we are accessing the local market. One is essentially to try to change our mix of debt more towards local currency over time.

Second, I guess a very practical reason, the liquidity in the local market has been there for the last few months whereas the US dollar market from offshore sources is pretty much been affected by the global crisis whereas the local markets have been more or less insulated from that. There were like, for example, significant maturities of the RTDs, the government securities, so there was essentially better liquidity available for private borrowers like ourselves.

And the other reason is essentially to take away the volatility in our P&L resulting from the mark-to-market or the re-evaluation of the foreign currency liabilities that keep our balance sheet -- to our balance sheet items.

Is there an ideal ratio for you for the US dollar debt position given that you still have a third of your revenues in dollars as well?

We pretty much, I guess, have at the moment, probably natural hedge to in like one and a half years essentially cover our foreign currency debt, foreign currency liabilities. We probably would want to pare it down a bit to sort of match one year's basically natural flows.

Okay, thank you. Sorry, on my second question a while ago, what is the revenue contribution on the BPO segments that you closed down?

And if you could provide guidance on how that will impact the margins going forward as well at least on the ICT side. Thank you.

The electronic, the EDD business which has closed down, looking at our 2008 budget, that was about $18m. So that ramps off. However, part of that really has to do with the, what we call the legal coding, which has now moved to our publishing unit and that accounts for about $3.2m, so that goes back in.

The growth in the other verticals, mainly publishing and medical billing and a modest growth in our call center business, compensates for the $15m that comes off, leaving essentially basically about $5.2m of negative variance from the 2008 revenue budget to the 2009 revenue budget. However, with the closure of the EDD business, there will be an improvement in our EBITDA margins actually because all of the expenses that are related and associated with that business would come off as well.

Any indications on how big that will be or is that something you can discuss in terms of kind of margin expansion you can assume for the ICT side?

How much more will margin improve as a result.

(inaudible) the EBITDA margin for 2009 would be 11% coming from 3% in 2008.

Okay, got it. Thank you very much. Thank you.

Operator, any other questions from the conference call?

(Operator Instructions).

Actually I may add in terms of the anticipated EBITDA performance, I think with the closure of EDD and the streamlining, it is anticipated that on a full year basis for 2009 we will basically break even compared to a net loss last year on a core basis. However, there will still be certain exceptional charges in terms of streamlining and headcount reduction costs of between $2m to $3m this year. So before that, actually, we anticipate the remaining verticals in the medical billing and more so, publishing, will report a net profit contribution after corporate overheads of between $2m to $3m.

So that is how -- but that will occur towards the second half of this year. We'll have to go though the pain in the first half of some loss, lower than last year in the first half of this year.

Any more questions from the conference call?

There is no question as of the moment, you many now proceed with your questions from the floor. Thank you.

Okay, there are microphones on the floor for anybody who wants to ask questions for those who are present here. No questions? If there are no questions, we will hand over the floor to the operator for him to give us the replay details.

Thank you.

Operator?

That concludes the Question and answer session. Before I turn the conference back to Mr. Pangilinan, I would like to give everyone the instant replay information of today's call.

This conference will be available on a 24-hour instant replay starting today, daily on through March 18, 2009. Replay information, 3pm call, international caller number 852-2802-5151, US toll Free 1-800-945-6576, the pass code is 732590. The conference leader is Melissa Vergel de Dios.

I shall now turn the conference back to Mr. Pangilinan for any additional or closing remarks. Sir, please?

I'd like to simply close by thanking all of you once again for joining us in this year's briefing. Now maybe just two observations.

One is that indeed, as I think (inaudible) pointed out, we will get a tax break this year which will improve the bottom line and as Chris indicated that could be around PHP2m, maybe slightly higher. I don't think we can be overly precise. So in a way, we are being given the time as we are being somewhat conservative in terms of our guidance of the net income for 2009.

I'd like to single that based on the initial indications that we have seen of the January numbers, revenues, EBITDA and net income for the Group as a whole, that it is very encouraging to us to have seen those numbers in the first month and I indicated the sub-numbers of February as well continue to be rather strong. So of course, there is still about 10 months to go in the year, but it is, as I said, it is a good start.

And the cash continues to be strong and we hope we could -- absent new investments, we are hoping to give a significant dividend, which Chris noted nobody has asked about, for 2008. We are quite proud of giving 100% payout for whole year income, right?

So thank you very much and we report the first quarter results, which probably could give you some indication of where we are headed for the year, on May 4 -- May 5. Okay. Thank you so much.

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