PLDT Inc (PHI) 2009 Q3 法說會逐字稿

Good afternoon everyone and welcome to the PLDT conference call to discuss the Company's nine months 2009 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. Melissa Vergel de Dios, Head of PLDT Investor Relations, for the introductions. Please go ahead, ma'am. Thank you.

Good afternoon and thank you for joining us today to discuss the Company's nine months 2009 financial results. 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 are Mr. Napoleon Nazareno, President and Chief Executive Officer of PLDT and Smart, Mr. Christopher Young, Chief Financial Adviser, Mr. Orlando Vea, Chief Wireless Adviser for Smart and Ms. Annabelle Lim Chua, Treasurer of PLDT and Chief Financial Officer of Smart. At this point, let me turn the floor over to Mr. Nazareno for the presentation.

Good afternoon. Let me share with you PLDT's financial and operating results for the first nine months of 2009.

As we have pointed out in the past, the third quarter is seasonally the weakest of the year. Last quarter we also signaled that we may feel the lag effect of the weak global condition in the balance of the year. Taking all that into consideration the underlying strength of PLDT's businesses still continues to be evident in the Company's nine month results.

For the first nine months of 2009, service revenues for the Group registered a PHP2.7b or 3% increase to PHP108.3b compared to PHP105.6b in '08. EBITDA was stable year-on-year at PHP65.7b with EBITDA margin at 61%. Reported net income grew by PHP3.8b or 15% to PHP30b from PHP26.2b last year.

Net of the impact of the impairments and ForEx and derivatives, core income after tax for the nine months 2009 increased by PHP3.2b or 11% year-on-year to PHP31b. This translates to an earnings per share of PHP163.70 or 12% higher, compared to that of the same period last year.

The peso stood at PHP47.42 at the end of September 2009. The average peso/dollar exchange rate for the first nine months this year stood at PHP47.93, an 11% depreciation (sic - see presentation) from the PHP43.22 last year.

On the next slide, this is to compare this year's third quarter performance versus last year. Consolidated service revenues for the third quarter grew by 1% year-on-year, with revenues from our Wireless business remaining flat. Fixed Line registered a remarkable 6% growth.

Consolidated EBITDA stood at PHP21.7b, slightly lower than the PHP21.8b in the same quarter last year.

Reported income for the third quarter amounted to PHP10.3b reflecting a 49% year-on-year increase. Third quarter core income rose by 11% to PHP10.1b, compared to PHP9.1b in the third quarter of '08.

On page four, as cited earlier, core net income for the first half registered a PHP3.2b or 11% growth year-on-year to PHP31b, largely on account of a 3% rise in service revenues, a reduction in the provision for income tax, principally due to the lower corporate tax rate, the recognition of PHP361m of equity share in the earnings of Meralco, and partly offset by a 5% increase in cash OpEx.

Reported net income grew 15% or PHP3.8b to PHP30b as of September 2009. This reflected higher recurring net income, adjusted for the impact of the ForEx revaluation losses of our financial assets and liabilities in derivatives, offset by a mark-to-market gain from the exchangeable note related to the Meralco acquisition, as well as the recognition of PHP1.7b in asset impairments.

Slide five provides some detail on our service revenues and EBITDA, which I will discuss when we get to the individual business segments.

On page six, CapEx for the first nine months of 2009 reached PHP18b, approximately two-thirds of the PHP27b CapEx projected for the year. Of the PHP18b, PHP10.6b was CapEx for the Wireless business, largely consisting of investments in the 3G HSPA and Broadband networks, as well as upgrades in our existing transmission, core and access networks.

A total of PHP7b in CapEx for the Fixed Line was recorded at the end of September, mainly for the continued rollout of the NGN and the rehab of the outside plant facilities. We estimate the total damage to our network from typhoons Ondoy and Pepeng at between PHP300m to PHP400m, partly to be claimed against insurance. It will be noted that despite damages sustained there was minimal interruption to communication services, showcasing the resiliency of the entire PLDT network.

We continue to invest in expanding the capacity of our GSM network, to cover incremental data, SMS and voice traffic. Provision of capacity and expanded coverage for mobile broadband drives our HSPA850 CapEx. Our investment on 3G focuses on blanketing urban areas and taking on more voice traffic. CapEx for NGN will allow our Fixed Line to expand its offers beyond voice and data.

On page seven, PLDT's free cash flow remains strong, having generated PHP43.3b in the first nine months of 2009, a PHP4.2b increase compared to the same period last year. An additional PHP18.8b in cash was provided from net borrowings, while the uses of free cash included common dividend payments, the buyback of shares and investments which covered, among others, the PHP20b for the acquisition of the 20% stake in Meralco, the PHP6.6b for the tender offer to Piltel minority shareholders, and an advance to the PLDT retirement fund for the purchase of the 10.17% Meralco stake.

Our dividend payout ratio remains at 70% of core earnings per share, while a look-back approach at the end of the year for the possibility of declaring special dividends. We paid out an interim dividend of PHP77 in September, with an announcement of the remaining dividend and any special dividends to be made when our full year results are released in March next year.

Slide eight discusses our debt profile. At the end of September 2009, total Group debt amounted to $2.1b, compared to $1.6b (sic - see presentation) last year. US dollar denominated debt declined further, to 55% of total debt. Taking into account our peso borrowings, our long-dated hedges of $412m and our US dollar cash holdings, only 24% of our outstanding debt remains unhedged. About 65% of our loans are fixed rate loans, while 35% are floating rate loans.

Net debt stood at $1.5b at the end of September, with net debt to EBITDA at 0.8 times. Of the total PHP38b in borrowings planned for 2009, approximately PHP34b has been drawn and the remaining PHP4b already committed. As of end September total debt repayments amounted to PHP15b. Net borrowing for the year is projected at PHP20b, resulting in a projected net debt to EBITDA ratio at year end of about 0.9 times.

Slide nine recaps segment highlights for the first nine months of 2009. We will discuss this in greater detail later.

On page 10, as of September 2009, the combined Smart and TNT subscriber base stood at 39.1m, reflecting a 15% growth year-on-year. The 3.9m net additions in the first nine months of 2009 were 5% lower than the 4.1m added in the same period last year.

Net blended ARPU declined by 13% year-on-year to PHP189. Margins remained above 60%, with prepaid subscriber acquisition costs or SAC recovered well within a month.

With headline cellular penetration at around 80% inclusive of multiple SIMs, new subscribers come from the lower market segments which are expected to contribute lower ARPUs. To help boost usage and in response to changing market dynamics, we have started offering low cost voice products on a limited basis, mindful however of the need to manage the impact on the network and differentiating the quality of service aligned with pricing.

Our network and marketing teams continue to work together to strike the appropriate balance among the competitiveness of our offers, incremental revenue streams and the additional network investments required.

On page eleven, service revenues for the wireless business for the first nine months of 2009 grew by 3% to PHP71.2b and contributed 61% to total PLDT Group service revenues. Growth was driven by a 26% rise in wireless broadband revenues, a 4% increase in cellular voice revenues, while cellular data revenues remained flat. Underpinning these increases was the growth of our cellular and broadband subscribers by 15% and 70% respectively.

Data services accounted for 54% of total cellular service revenues in the first nine months of 2009, with bucket-priced SMS packages accounting for 57% of data revenues. EBITDA was stable at PHP44.5b. With the growth in broadband contribution, EBITDA margin is expectedly lower at 63% compared to 65% last year.

Compared to the same quarter last year, service revenues for the third quarter held steady at PHP23.1b. This resulted from the combined effect of reduced consumer spending starting in the third quarter, the higher number of non-working and school holidays this quarter compared to last year and the impact of several typhoons. We also estimate that implementation of the extended validity of load resulted in [foregone] services or foregone service revenues of about 1% to 1.5% of cellular service revenues.

The increase in wireless service revenues was largely driven by the growth in wireless broadband, which was supported by aggressive activation programs. This included reduced dongle prices and a distribution plan that includes partnering with PC vendors and targeted school campaigns, and a superiority claim on speed.

Increased usage was driven by added values such as offering SMS to Smart Bro subs, starting July. All these resulted in the dramatic growth in broadband subscribers and revenues.

On slide 13, compared to the same period last year, Fixed Line service revenues rose by 4% to PHP38.2b. Consistent with previous quarters the growth in corporate and DSL service revenues more than offset declines in revenues from our local exchange, national long distance and international long distance business.

Corporate data and DSL grew by 17% year-on-year, now contributing 42% to Fixed Line revenues. International long distance revenues continued to decline, due to lower call volumes as subscribers shift to cellular and with the increased use of alternatives such as VOIP and email.

EBITDA for the first nine months of 2009 slightly decreased by 1% to PHP20.3b on account of an 11% increase in cash OpEx, largely due to higher provisions for incentive plans and pension funds, and pension costs and higher rental expenses for international leased circuits to support the data and broadband business.

EBITDA margin stood at 53%, higher than that of the full year of '08 of 52%, but lower than the 56% of the same period last year.

The Fixed Line registered a strong third quarter performance with a 6% year-on-year growth in service revenues, a 2% increase in EBITDA and an improved EBITDA margin of 55%.

The Fixed Line business on page 14 continues to pursue initiatives aimed at tapping new markets and gathering -- and generating higher ARPUs. These initiatives leverage on both the Fixed and Wireless networks. In the third quarter alone, we introduced several new offers to both our retail and corporate subscribers. In particular, our SME group continues to make available products that will enable small and medium enterprises to grow.

On page 15, we strengthened our lead in Broadband with a combined subscriber base of 1.4m. This is a 37% increase from the end of 2008 or about 370,000 net adds. In the third quarter alone, we added over 150,000 Broadband subscribers. For the nine months '09, DSL added 116,000 subscribers whilst SmartBro added more than 254,000. We now have 802,000 wireless broadband subscribers of which 429,000 are post-paid while over 372,000 are prepaid.

Total service revenues from Broadband stood at PHP10b, as at the nine months of 2009 or a growth of 26% compared to last year. Third quarter Broadband service revenues grew by 25% to PHP3.5b compared to the same period last year. Broadband and internet revenues account for 9% of total service revenues.

PLDT offers an extensive range of Broadband offerings to address customers' varied budgets, uses and preferences. This is enabled by our continuing investment in a network infrastructure that includes the use of our copper network for DSL, the fiber/NGN network for Fiber to the home, Motorola Canopy and WiMax for fixed wireless broadband and HSPA850 for mobile broadband.

On page 16, service revenues of ePLDT, our ICT business, increased by 5% to PHP8b for the first nine months of 2009, contributing 7% to total PLDT Group service revenues. ePLDT's revenue growth was the combined result of a 57% increase in data center revenues due to a greater number of contracts for co-location and server hosting, disaster recovery and business continuity services and a 1% decline in call center revenues as international clients deferred new and expansion decisions due to economic uncertainties.

However, outsourced business from domestic clients continued to increase. Revenues from our BPO operations also decreased by 1%, as increases in the medical billing business were offset by declines in the medical transcription and content verticals.

ePLDT's EBITDA for the first nine months showed a dramatic growth of 23% to PHP846m, with an improvement in margin to 11%. The increase was a result of the positive impact of the peso depreciation on ePDT's dollar revenues, offset by increases in compensation, maintenance and cost of sales expenses.

Third quarter 2009 service revenues improved by 5% year-on-year with EBITDA at PHP335m or a growth of 70%.

On page 17, Piltel completed the purchase of the 20% stake in Meralco by a payment of PHP20b in July. PLDT's third quarter results already reflect PHP361m equity share in the earnings of Meralco for the period July 14 to September 30, '09. A PHP1.2b derivative gain was also recognized from the PHP2b exchangeable note issued by First Philippine Utilities Corporation as part of Piltel's acquisition.

As some of you may not have been following Meralco, we would like to cite some highlights from its third quarter results as announced on October 29. Compared to nine months '08, Meralco's 2009 electricity revenues at the end of September declined by 1% to PHP139.2b. Meralco's revenue consists of charges for transmission, generation and distribution services, the first two of which are passed through.

Net of cost of purchased power, Meralco's gross distribution income registered an 18% growth year-on-year to PHP25.3b for the first nine months of 2009. Contributing to the increase in distribution revenues for the nine-month period were the 1% growth in sales volumes to approximately 20.4b kWh, a 2.8% increase in the customer base, now at 4.7m, and the approval of the performance-based regulation rate setting mechanism for PBR -- or PBR, in May 2009, which allowed Meralco to increase the rate it charges to its' customers to PHP1.22 per kilowatt hour.

As at end of September, Meralco's core income grew by 67% year-on-year to PHP5.9b while reported income improved by 42% to PHP5.3b. On October 29, Meralco declared a dividend of PHP1.50 per share, bringing total dividends declared in 2009 for 2008, or relative to 2008 income to PHP2.50 per share.

The Energy Regulatory Commission or ERC recently issued decisions that will result in a PHP278m net cash outflow for Meralco. The under-recoveries have not been recognized in Meralco's financials.

On page 18, this slide highlights the various areas of synergy between PLDT and Meralco that teams from each are presently exploring. A three-year Joint Pole agreement was signed in September. Other quick wins are in the areas of facilities' co-location, use of Meralco's digital mapping system, sister savings via joint procurement, among others.

On October 29, PLDT and Meralco announced their latest offering, Meralco on your mobile, also called Meralco Mobile Services or MMS. This service aims to make the mobile phone the most ubiquitous touch point for Meralco's customers. The features of this service include the ability to get latest service advisories and updates via mobile phone, send to and receive messages from Meralco and will eventually cover meter reading, bill increase and payment reminders.

On slide 19 we cite some factors to be considered in determining our guidance for the full year. We anticipate the usual boost from holiday spending in the fourth quarter, although the uncertainty this year is whether this will be dampened in any way by the impact of typhoons Ondoy and Pepeng. Among others, these typhoons caused extensive damage to homes in wide areas of much of Manila and Northern Luzon. Damaged as well were crops about to be harvested. On one hand OFW remittances which underpin consumer spending have remained unexpectedly strong. These are expected to increase further as additional funds are sent to reconstruction. However, what remains uncertain is how people will adjust budgets and spending patterns or priorities in the months to come.

We foresee that the peso/dollar exchange rate may possibly impact our fourth quarter results as well. This will largely depend on the inflow of OFW remittances and the extent of intervention by the BSP or the Bangko Sentral ng Pilipinas.

The impact of the oncoming presidential elections will likely be felt in early 2010, as formal declaration of candidacies is scheduled in November. Finally, we expect that our results may also be affected by the NTC memorandum circular that we price voice billing from a permanent basis to a per six second pulse mode. The effect on our financials will depend on the rate structure approved by the NTC and whether consumer usage patterns would change accordingly.

On page 20, while we anticipate the usual boost in the fourth quarter from holiday spending we expect that this may be somewhat dampened as the recent typhoons caused extensive damage all around. Even with OFW remittances holding up, we may see consumers adjusting their budgets and rethinking their spending priorities. As such we are tempering our guidance for both service revenues and EBITDA for the full year from PHP148b to PHP146b on service revenues, and EBITDA from PHP90b to between PHP88b and PHP88.5b.

However, we are maintaining our core income guidance of PHP41b, which we believe we can achieve with the help of expected contribution from our investment in Meralco. Over the weekend yet another typhoon hit the Philippines, causing even more damage. Despite this new setback, we at PLDT will strive to enable our subscribers through our various services, while the process of rebuilding takes place and aim to continue to deliver superior returns to our shareholders.

That ends our presentation. We are now ready to take your questions. Thank you.

At this time we'll open the floor for questions. Operator Instructions). The first question will be coming from the line of Miss Karen Ang from Citigroup, please go ahead.

Hi, good afternoon everyone. I have three questions. First is on your unlimited voice offering. I'm just wondering what percentage of you wireless service revenues are generated from the likes of Smart Talk and if you can share what the average tariff or effective tariff is, for such unlimited packages.

The second question has to do with the per pulse billing. Can you remind us again when you expect that to be in effect and if we should anticipate that the effective per minute tariff for this new charge to be higher than, let's say, you know, what you're charging on a per minute basis?

And the third question is -- has to do with the impairment charge, relating to something you mentioned like ProtoStar. Can you please provide more detail or background on that and if we should expect more impairment charges around that? Thank you.

As you know our Smart Talk offering is limited at this point to roughly about between 450,000 to 500,000 subscribers at any one point in time. So the revenues are not as much as you can really expect. Of course, the minutes of use is of course larger than the normal subscribers. I think, around -- about 80 to 85 minutes per day, so that's about the number of minutes they use.

On the per pulse billing, we expect the ruling to be in effect sometime in December although our proposal has been to the effect that it would be neutral to us, revenue-wise.

On the ProtoStar, this goes back to an investment that we made last September, where we were doing effectively a reorganization of our investment in Mabuhay, our satellite company. As part of that we advanced -- made an advance for transponder capacity to one of the satellites within the ProtoStar company called ProtoStar 1. And unfortunately that whole ProtoStar company got into financial difficulties and actually filed for bankruptcy.

So we've taken a conservative view and we've fully provided against the advance that we made for transponder capacity to the ProtoStar group. So there should not be any additional hit going forward. In fact, we would hope that we should be able to make some recovery in the bankruptcy process. But at this stage we decided to take a conservative view and fully provide. So there's no additional exposure going forward.

Okay. If I may follow up on the Smart Talk question, because I'm just trying to get an idea what the elasticity picture is for voice demand. You say that MOU is around 80 to 85 minutes per day. Can you give me an idea what the effective tariffs are for Smart Talk packages and if you can remind me what the MOUs are for your, well, normal, non-Smart Talk type of packages?

Well the offer right now for Smart Talk is PHP100 for five days.

Okay

Yes, so that's the kind of tariff we are having, you know, and it's unlimited.

Okay and the MOU for a normal package?

We have two offers. We have Smart Talk and Smart Talk Plus. The Smart Talk Plus is limited only to the regular non-peak hours, you can do unlimited and during the peak hours you can do unlimited texting -- Smart Talk Plus.

Unlimited during the off-peak hours and there's a rate for --

Oh there's a rate during --

Per minute and for SMS.

Per minute, yes.

And I suppose the last question is, if you can share with me what the MOUs are for a regular package.

It's quite low and the average for our total base is only about -- less than 30 minutes a month.

Less than 30 minutes a month and that's charged on average at PHP6.50, is that right, per minute?

Not any more Karen. There's a lot of also other types of bucket offers. There are many variants already in terms of voice offers.

But in the bucket I think sometimes we could offer PHP2 per minute.

Okay. Alright. Thank you.

Thank you. The next question will be coming from the line of Tim Storey, JP Morgan. Please go ahead.

Thank you very much for the call this afternoon. Just a couple of questions.

First of all to follow up, there were some news stories this morning and afternoon on Bloomberg regarding the strategy for the Meralco stake. And I guess they, you know, the question there is if you could just elaborate a little bit in terms of what you would see, that relationship in terms of ownership of the Meralco shares and your long-term strategy are.

The second question is just a couple of points on Broadband and specific to slide 15 in your presentation book. The difference in DSL ARPU and your broadband wireless ARPU is quite significant. And I'm just wondering if you can elaborate a little bit on pricing strategies and a medium to longer term view of whether or not the gap between the two is likely to be sustained or whether there's any reason that that gap actually could narrow.

And then also related again to wireless broadband, can you tell me a little bit about where your HSPA850 network is in terms of population coverage?

And out of the --I think it's 818,000 broadband subscribers you had at the end of the quarter, how many of those are actually HSPA subs? Thanks.

With regards to the news that you have seen on Meralco shares, we understand there is -- an offer has been lodged. And however, we have not received an actual copy of the offer. As you may know, we do have certain rights, namely the tag-along rights and a right to first refusal. And both options, of course, we are -- we will be weighing seriously in the next few days and weeks.

Right now, these rights have not been triggered because the offer has not been -- is still under review by the Lopez Group.

In terms of your second question on the Broadband ARPU, on the DSL side, our basic package is for PHP1,000 per month. But there are also higher value packages that SMEs and small businesses avail of. That's why the ARPUs on the DSL side tend to be higher.

On the wireless side, for the postpaid wireless Canopy plan, that's also basically PHP1,000 a month. But for the prepaid wireless which is the fastest growing segment, we basically charge PHP10 for every 30 minutes of use. And the average -- what we're experiencing in terms of the ARPUs for the prepaid wireless broadband is roughly a little under PHP300 per month.

Can I just follow up on that before we move on and just to get a sense. Do you think that's a familiarity issue, i.e. people are just getting on to the kind of prepaid service to test out what it's like to be broadband customers and therefore, perhaps, the PHP300 number reflects a sort of an early familiarization level of spending but not necessarily the default usage experience yet and therefore, there's room to see that number go up? Or do you think that number is fairly stable and the upside of the PHP300 is not very obvious to you?

Well, I guess we're still in the early days of wireless broadband in that the prepaid subscriber base is still under 400,000. We have quite aggressive targets going forward and I guess, if you go by the experience on the cellular side, as you sort of reach a bigger part of the population, then there's a tendency for the ARPUs to sort of come off a bit as you sort of get into a deeper part of the market.

But as I've said, it's still early days in terms of the offering. So I guess we could also potentially see that -- this point you are making about people getting more familiar and finding it of higher utility, that could also potentially provide some upside in the spend.

Thank you. Thanks, Annabelle.

And on the coverage?

On the coverage of HSPA, the population coverage is about 45%.

Okay, so that is over the HSPA network -- not just 3G but HSPA is 45%?

Yes. And that is mostly in urban areas.

Okay. Thank you.

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

Hello, everyone. I have two questions.

Firstly with regards to the Protosta, I may have missed the comment. But could you just clarify one more time that it's fully provided for in the current financial statements or are there any more provisions you need to make going forward on that line?

Secondly, with regards to voice revenues, if you could provide a bit more clarity in terms of how we should be thinking about the pricing environment because when you look at the nine-months volume on an absolute basis, that's up 10% but the follow through in terms of the voice revenues is up only about 2%. So it suggests a fairly significant pricing pressure across the platform but SmartTalk is not supposed to be -- seems to be carefully calibrated not to impact a wide range of customers.

So if you could provide a bit more clarity there in terms of how we should be thinking about your voice revenues going forward?

Just on the first one, I can confirm that we took a full provision against the Protostar transponder lease payments. So there will be no additional amount going forward.

And to take up the second point --

With regard to voice revenues, we of course, see it as a potential growth area. But we are recognizing that this has impact on our network given the unlimited offers. So we are carefully studying how we can align ourselves when it comes to service with regards to pricing too.

But can I clarify, other than Smart Talk, are there any other pricing initiatives that you have launched on the voice front for this quarter?

Mainly these are bucket price offerings similar to our bundling it also with SMS. With PHP100, you can have 100 messages and then -- on net and about 10 messages off-net and maybe a three minute phone call, things like that.

These are --

Thank you very much.

[Separate] buckets that we are continually offering and these are changing on a weekly basis.

Okay, thank you very much.

Thank you, sir. The next question will be coming from the line of Arthur Pineda from RBS. Please go ahead.

Hi, thank you for the call. I have four questions.

Firstly on the ABC 5 acquisition, how much of the Beneficial Trust Fund is spent to acquire this and what advances could be required from PLDT accordingly?

The second question I had is with regard to the typhoon damage. You mentioned PHP300m to PHP400m as a result of this. How will this be treated on its books? Will it be on additional CapEx or will it be on the OpEx side and what percent will be covered by insurance?

The third question I had is with regard to the trends in mobile. I see that the subs base is up around 15% year-on-year while revenue and EBITDA is actually flat or declining. Do you think that the competitive environment is actually heating up or this is merely a function of the economy? And is it really worth pushing unlimited offers at this point?

Last question I had is with regard to Broadband. I'm just curious on the technology lifecycle of your Motorola Canopy platform. Do you think this is a sustainable platform going forward or would you need to eventually migrate subscribers to other platforms such as HSPA or WiMAX?

Well, first on the last question, regarding Broadband. We are already installing initial deployments of our WiMAX system. And that should take care of the roadmap from Canopy to WiMAX but we still have -- we believe, a lot of runway on -- even on Canopy.

So as WiMAX gets deployed, we'll continue to use Canopy for areas where the technology is adapted.

On ABC 5 --

On ABC 5, basically no additional funding from the Beneficial -- to the Beneficial Trust Fund for the purchase that was made because essentially, there was -- it was funded out of the proceeds from the sale of the Meralco shares to MPIC for which a cash component was received. So that cash was essentially recycled towards the investment in ABC 5.

Sorry, before we jump off to the next question, I just wanted to check how much advances are left with the Trust Fund at this point?

The same level as what we've reported previously, so that's PHP8.2b level.

Got it.

And the third question?

Typhoon damage, Chris.

I'll take it. The typhoon damage number that we've given of PHP300m to PHP400m is effectively net of an anticipated insurance recovery. What's not fully been quantified at the moment is how much is CapEx, in terms of CapEx replacement and how much might be OpEx.

At the moment, it looks like the majority would be CapEx. So we might have a slightly higher CapEx number going into the fourth quarter than we originally anticipated.

Sorry, Chris. This is already included in the guidance, I assume, for the PHP41b? -- for the non-CapEx portion?

The CapEx guidance number at the moment is PHP27b. If this is CapEx, it won't have an impact really on our OpEx number. But the -- we still have a PHP27b CapEx guidance number that actually might -- if we have to take this into account, it might be slightly higher than PHP27b for the full year.

But it won't have an effect on -- we're not anticipating it to have any effect on our OpEx on the fourth quarter. So the guidance number of PHP41b takes that into account.

Got it.

With regards to the third question which is -- which seemed to imply that we are reaching a maturity -- a saturation point in our subscriber take-up, well, let me just state that at 80% penetration rate, we are seeing that one of the reasons why the third quarter went down is basically because of seasonality and of course, the less -- the more number of holidays and school holidays and non-working holidays.

And so, therefore, that affected the take-up to a certain extent. But in October, we're seeing a trend, an increasing trend which normally happens in the fourth quarter. So we -- I don't think we are ready to say that we are hitting the ceiling when it comes to subscriber net adds.

Sorry, my question actually pertained on the revenue side. I see that subscriber growth is actually quite healthy. But when I look at the revenue and EBITDA performance on a year-on-year basis which strips out the seasonality effects, it just seems to me that things are really hitting a maturity stage now. I'm just wondering if it's flattish as a result of the competition actually heating up or is it a function of just the economy at this stage, pulling down consumption levels.

I think it's more the--

(Technical difficulty).

Operator, any other questions?

The next question will be coming from the line of Mr. [John Ogden] from Linus Capital. Please go ahead.

Good afternoon, thanks so much for the presentation. Just a couple of quick questions, just a longer term view of things.

The first is can you give us an idea of the amounts of CapEx that's involved in upgrading your 2G to make it HSPA-capable?

I'm thinking that's sort of an upgrade rather than starting afresh. So it may be cheaper to do that than to install it fresh and therefore, you could generate quite a lot of revenues through mobile wireless without the same amount of CapEx.

So putting it another way, will CapEx as a percent of revenues over the next five years be higher or lower than it has been in the last five years?

And the second question -- just a longer term view on regulatory issues. Is things getting a bit more difficult over the next few years versus the previous years? There have been a lot of different articles in the paper in the last few months such as this cooperation from Senator Gordon suggesting that text revenue should go to help schools and hospitals and there's been various other ideas kicked around.

So it seems like the powers that be are all casting eyes on the telecoms industry and its quite high profitability. So I just wanted to get your thoughts on that one.

Thanks very much.

Yes, on HSPA, that is really -- you're right, it's an upgrade on our existing network and most of it is co-allocated in the existing base stations. So in terms of civil works and infrastructure, we have relied on the existing network.

As you know, we have about more than 8,000 cell sites all over the country. And so that is -- that makes the CapEx more or less incremental as we just put in the necessary equipment on the same base station.

The CapEx -- that incremental CapEx for the base -- for the HSPA850, right now, the coverage is about 45% of the population. And we now have, on air, about 1,800 base stations out of the 8,000 plus that is all over the country.

As you know, with 850, you need not have the same extensive topography as the others or coverage as the 2G because the 850 has more reach. And so therefore, the incremental CapEx there would be -- I don't know, what is the number, I don't have it right now. It's about -- I think it's about 100 -- it's roughly close to $62 per sub.

That's the incremental CapEx more or less.

On the regulatory side --

On the regulatory side, I think the more sober forces have prevailed. So what you were hearing about taxes on SMS, that's been, for now, shelved by Congress.

The focus is more now on partnership with the government. Like in Broadband, we are now being asked to provide access to thousands of schools and that's -- I think, a more benign way of treating the telcos as partners in governance.

Okay, thanks.

Just coming back to the first issue again, what I'm trying to understand is will your sort of load of CapEx versus revenues over the next five years be down versus what you have experienced as you built out your mobile network in the last five years. I'm just trying to get an understanding of what your cash flows might be.

I think what we are anticipating is that it may be a little bit higher moving into 2010-2011. I think that across both platforms, the fixed and the wireless, that is where we are anticipating that the build out to support Broadband, the bulk of the expenditure will happen.

During that time, we are also going through the upgrade of the Fixed Line infrastructure from a legacy network to NGN. We would anticipate that that process would be almost complete by the end of 2011.

So we would anticipate some elevation in the CapEx 2010, possible going into 2011. But we would then expect as we go to 2012 and thereafter, that the CapEx will actually come down and that it would actually be in percentage terms, probably below what we would experience this year in 2009.

So we don't think or don't -- we're not planning for a longer period of time where we would anticipate CapEx being at an elevated level. We are, at the moment, seeing it somewhat higher in 2010 and 2011.

But when I say -- I'm not talking about hugely higher, maybe at the very most, certainly less than 10% higher than we are likely to experience in 2009, just to give you a steer as to where it might come out.

Okay. Thanks.

Thank you. We have two last follow up questions after Mr. Brian Wee. Please go ahead, sir.

Hi, thanks for the conference call. I have a question on your Broadband growth

With the decline in Broadband revenue growth against the higher CapEx intensity, how do you see the business model going forward?

And given your mobile broadband -- mobile ARPU of about PHP200 per month, do you think that Broadband tariffs will need to fall such that the ARPU level is about the same as that before the take-off of the Broadband usage?

Brian, could you repeat your question?

Sure, okay. Basically my question --

Could you speak up a bit?

Okay, is this better?

Yes, that's better.

Okay, thanks.

Basically, my question is with regard to your Broadband growth. With the decline in Broadband revenue growth against the higher CapEx intensity, how do you see the business model going forward? And given your mobile ARPU of about PHP200 per month, do you think that the Broadband tariff needs to come down such that the mobile broadband ARPU is about that level before the take-off of the broadband usage?

Are you suggesting that the mobile broadband ARPU --

The wireless broadband ARPU for the wire -- fixed wireless prepaid is about PHP300 a month and that's based on a PHP10 per 30 minute usage rate.

So it's using the dongle. So that's pretty low in terms of -- it's again this concept of small denomination sort of pay-as-you-go type of charging.

Okay, could you give me some color as to what percentage of that wireless broadband net adds is coming from prepaid versus postpaid in the last quarter.

It's in the slide. The higher growth is coming from the prepaid segment.

The dongle.

Yes, okay.

And do you anticipate the ARPU for the mobile broadband coming down to -- say the 300 level within the next one to two years?

Well, in terms of the net adds for example, on the wireless side, in the third quarter of 150,000, 38,000 were postpaid and 113,000 were prepaid. So the higher growth is under prepaid side with the plug-it device, the dongle.

I'm not sure what you -- the ARPU is -- to begin with it's about PHP300 now. So I guess if you go by historical basis, once your subscriber numbers hit a bigger number, then the tendency is the ARPU tend to go down on a per user basis but the overall revenues would continue to grow.

Okay. Right, thank you.

Thank you, a follow up question coming from the line of Karen Pineda -- Karen Ang, sorry, please go ahead.

Hi, Karen Ang here. I just have one follow up question on Meralco. I remember you mentioned that PLDT's stake will be capped at 20% around the time you made that -- the acquisition. Is that statement still correct?

And by PLDT at 20%, do you mean PLDT or [PLDT and PTF]?

Thank you.

Yes, that is still correct at this point in time.

Okay, thank you.

Operator, one last question.

Thank you. That was the last question.

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 of today's call.

This conference will be available on a 24 hour instant replay starting today, daily on to November 17, 2009.

Replay information, 3pm call, international caller number 852-2802-5151, US toll free 1-800-477-5821. Passcode is 710-500, conference leader is Ms. Melissa Vergel De Dios.

At this time, I will turn the conference back to Mr. Nazareno for any additional or closing remarks. Sir, please.

On behalf of my colleagues who are here today, we wish to thank you all for joining us this afternoon and we look forward to the next conference call which would be after our year end results. It would be announced sometime on March. Thank you very much.

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