PLDT Inc (PHI) 2010 Q4 法說會逐字稿

Good afternoon, everyone, and welcome to the PLDT conference call to discuss the Company's full-year 2010 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 Melissa Vergel de Dios, Head of Investor Relations for PLDT, for the introductions. Please go ahead. Thank you.

Good afternoon and thank you for joining us to discuss the company's full-year 2010 financial and operating results. As mentioned in the conference call invitation, today's presentation is posted on 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, namely; Mr. Manny Pangilinan, Chairman of the Board; Mr. Napoleon Nazareno, President and Chief Executive Officer of both PLDT and Smart; Mr. Chris Young, Chief Financial Advisor of PLDT; Miss. Anabelle Lim Chua, SVP Treasurer of PLDT and Chief Financial Officer of Smart; and [Attorney], Ray C. Espinosa. At this point let me turn the floor over to Mr. Napoleon Nazareno for the presentation.

Good afternoon, and thank you for joining us today. Allow me to share with you PLDT's financial and operating results for 2010.

Our results for 2010 were favorable, given the challenging environment within which we operated during the year. Service revenues for the year decreased by 2% to PHP142.2b, compared with PHP145.6b in '09. EBITDA for 2010 declined by 3% year on year, to PHP83.7b, with EBITDA margin steady at 59%. Reported net income for the year rose by 1% year on year, to PHP40.2b. Core net income increased by 2% to PHP42b, from PHP41.1b in '09. This translates to earnings per share of PHP222 for 2010 compared with PHP218 last year.

The peso closed at PHP43.81 against the US dollar at the end of December 2010 compared with PHP46.43 at the end of '09, or a 6% appreciation year on year. The average peso/dollar exchange rate for the period was PHP45.13, an appreciation of 5% versus the same period last year.

On the next slide our core net income for 2010 grew by PHP900m, or 2%, to PHP42b compared with PHP41.1b in '09. The increase resulted primarily from higher earnings contributions from Meralco, ePLDT and SPi, and a lower tax charge. Note that core -- that our core net income for all quarters of 2010 was consistently higher compared with the same period in the prior year.

Our reported income for 2010, of PHP40.2b, was 1% higher than the PHP39.8b in '09. Total exceptional items for the year amounted to PHP1.8b, consisting of an asset impairment of PHP1.5b, PHP700m pertaining to the non-core portion of our equity share in Meralco's earnings, tax effect of PHP100m, all offset by net ForEx gains of PHP500m arising from our foreign currency assets and liabilities.

On the next slide, in line with the committed 70% dividend payout ratio the PLDT Board today declared a regular cash dividend of PHP78 per share to stockholders on record as of March 16, and payable on April 19 this year. This is in addition to the PHP78 interim regular dividend paid in September.

Following our look-back policy the Board also declared special dividends of PHP66 per share, representing an additional 30% payout and bringing total dividends per share to PHP222, or a payout of 100% for 2010. This is the fourth consecutive year that PLDT paid out 100% of its core earnings as dividends. Under the approved share buyback program PLDT may still acquire up to 2.3m of its shares from the market.

On the next slide PLDT's consolidated service revenues declined by 2% year on year, to PHP142.2b in 2010 due to the combined effect of new revenue streams contributing to the decline in our traditional revenue sources, impact of the 5% average appreciation of the peso during the year, resulting in lower revenues of approximately PHP2.2b, a reduction of approximately PHP9m in revenues from the sale of our satellite business.

Consolidated EBITDA for 2010 declined by 3% year on year due to lower revenues and higher cash operating expenses. As part of our managing our costs we undertook a manpower reduction program, or MRP, in the fourth quarter of 2010 that involved close to 1,100 employees of Smart and PLDT and a one-time cost of about PHP2.1b. EBITDA margin for the year remained stable at 5. -- at 59%.

Approximately 26% of our total service revenues are linked to the US dollar. Had the peso remained stable, our service revenues would have declined by only 1% year on year.

Our free cash flow that's on the next slide, of PHP43.7b at full year in 2010, was lower than the PHP44.4b in the same period last year. Increases in cash from operations of PHP2.9b were offset by a PHP700m increase in CapEx and a PHP500m increase in net interest due to additional debt incurred in '09. Note that free cash flow, of PHP43.7b, is higher than our core income of PHP42b and free cash flow to revenue is stable at 31%.

PLDT's gross debt at the end of 2010 stood at $2.1b, $100m lower than the end of '09. 45% of our total debt is in US dollars. Taking into account our hedges, peso loans and dollar cash holdings, only a quarter of our debt remains un-hedged. 76% of our debts are fixed-rate loans. PLDT's debt profile remains healthy, with maturities well spread out. The Group's net debt stood at $1.3b at the end of 2010 with net debt to EBITDA of 0.7, both similar to the levels at the end of '09.

On the next slide, CapEx for 2010 amounted to PHP28.8b compared with PHP28.1b in '09. Of that amount, PHP17b was spent on the Wireless business, PHP11.1b for the Fixed Line and about PHP700m for our ICT business. CapEx for the year included investments for increased capacity and coverage in support of higher Broadband and Voice usage, which included the build out of our second network for low-cost Voice delivery. We also invested in modernizing our access and core networks to improve operating and cost efficiencies.

At the end of 2010 our Cellular population coverage stood at 99% for 2G, 52% for 3G and 69% for the Fixed Wireless Broadband. As for the Fixed-Line network, the upgrade to the next generation network, or NGN, continues and nears completion.

Next slide, let me now share with you more details on the different businesses, starting with Broadband. PLDT's combined Broadband subscriber base grew 25% to over 2m subscribers at the end of 2010, representing net adds of over 406,000 for the year. Of our over 2m Broadband subscribers, about 1.4m are Wireless subscribers, of which over 925,000 are Plug-It Prepaid subscribers. DSL subscribers numbered more than 640,000, or over a third of our total Fixed Line subscriber base.

Total revenues from Broadband for 2010 grew by 16% year on year to PHP16.9b, or 12% of total service revenues, up from 9% at the end of '09. Wireless Broadband revenues, including revenues from Mobile Internet, increased by 19%, while DSL revenues grew by 17%. The industry experienced a relative slowdown of Wireless Broadband subscriber take-up in the fourth quarter, although the trend appears to have reversed, with the take-up rebounding in the first two months of 2011.

The slowdown in the fourth quarter is attributed to, among others, the subsidy reduction for dongles, partial subscribers shifting to DSL and rapid increase in Broadband subscribers affecting network capacity in the second half of 2010.

However, the growth momentum in Mobile Internet continues, with revenues for 2010 at PHP725m, an increase of 37%, or PHP530m, in '09. Since take-up is sensitive to the price of handsets/smartphones, Smart has collaborated with the handset suppliers for the introduction of the Netphone, a pioneering smartphone specially designed to serve a broad market of users.

On the next slide, the combined Smart subscriber base grew to 45.6m as of the end of 2010, or net additions for the year of 4.3m. Of this number, 1.9m were Talk N Text subscribers, 1.5m were Buddy subscribers, while 900,000 were Red Mobile subscribers. Wireless Service revenues for 2010 declined to 2% year on year, to PHP93.8b. Excluding satellite operations and the impact of the peso appreciation, revenues would have been stable year on year.

The change in the revenue mix of our Wireless business continues, with a strong year-on-year growth of 17% and 9% recorded in Wireless Broadband and Cellular Voice respectively. Voice revenues, of PHP42.3b, now contribute 49% of our total Cellular Service revenues compared with 44% in '09. Wireless Broadband revenues, of PHP6.3b, now contribute about 7% to total Wireless Service revenues compared with 6% last year.

In anticipation of the increase in Voice traffic resulting from our introduction of various unlimited and low-cost Voice Services we invested in our second network to where we direct and contain the higher-voice traffic arising from such offers. In contrast, Text revenues for 2010 registered a 12% decline year on year to PHPH41.5b, as the lower yields from bucket plans and unlimited offerings offset the 19% increase in text volumes. Wireless EBITDA for 2010 was lower by 1% to PHP58.9b, compared with PHP59.4b last year, largely due to the 2% decrease in Service revenues offset by a 3% decline in cash operating expenses.

On the next slide Fixed-Line service revenues decreased by 5% to PHP48.6b at the end of 2010, resulting from the combined effect of the growth in Corporate Data and DSL revenues and the declines in LEC, ILD and NLD revenues. Although the number of postpaid billed lines increased, our LEC revenues, or LEC revenues, were lower in 2010 as a result of bundled Voice and Data Services. A 29% decrease in call volumes resulted in lower NLD revenues, which the peso appreciation versus the US dollar, as well as the lower average settlement rate for inbound international calls, negatively impacted our ILD revenues.

Corporate Data and DSL revenues were stable year on year, with non-Group data and DSL revenues higher by 11% with a continued demand from the off-shoring and outsourcing industry and the healthy demand for DSL services. In addition, International Data Service revenues have grown 16% year on year, primarily due to higher I-Gate revenues. Revenues from Corporate Data and DSL now account for 45% of total Fixed-Line service revenues compared with only 42% last year.

EBITDA for the year amounted to PHP22.7b, a 10% decline year on year, principally as a result of lower revenues and higher cash operating costs that included the cost of the manpower reduction program of about PHP1.7b (sic - see presentation). EBITDA margin of 47% was lower than 49% for the full year of '09. Excluding the MRP cost, margin would have improved to 50% in 2010. Approximately 25% of our Fixed-Line revenues are denominated in US dollars. Had the peso remained stable revenues would have been higher by PHP700m.

On the next slide, our ICT business continued to push forward. Service revenues for 2010 declined by 2% year on year to PHP10.7b, accounting for about 7% of the total PLDT Group service revenues. The Data Center business sustained its strong performance, with a 25% increase in Service revenues compared with last year, largely as a result of the increasing contracts for co-location and server hosting, disaster recovery and business continuity services.

Service revenues for our BPO business grew 8% year on year in dollar terms. However, due to the peso appreciation the growth translated to a mere 1% increase in peso terms. Our customer relationship management, or CRM business, registered a 15% decline in Service revenues for 2010 compared with 2009. This was mainly due to lower domestic sales, international revenues and the impact of the peso appreciation.

70% of ICT's 2010 revenues were dollar denominated. Had the peso remained stable service revenues for the year would have grow 2% year on year. ICT's EBITDA for 2010, of PHP1.7b, reflects a 30% improvement year on year. EBITDA margin, likewise, rose to 16% for the period compared with 12% in '09. Contributing to this was the 5% decrease in cash operating expenses, largely due to lower compensation and benefit costs arising from a reduction in headcount. Note that EBITDA for the fourth quarter reached 21%.

Prospects for our reorganized BPO business continue to improve. Our CRM unit launched three new US-based clients, obtained an agreement with its largest client for a price increase and expanded existing accounts. On the other hand, Healthcare and Content Solutions, our higher-margin verticals, are expected to grow by at least 15% in 2011, or this year, given growth from existing and new clients.

On the next slide, on page 12, I would like to cite a few highlights on Meralco, whose financial results are equity accounted as a result of our shares in Meralco held directly by PLDT Communications and Energy Ventures, formerly Piltel, and indirectly through PCEV's 50% ownership in Beacon Electric.

Meralco's consolidated Service revenues for 2010 rose by 33% to PHP245.5b, driven by a 10% increase in energy sales, an increase in its customer base, higher average pass-through generation and transmission charges, and the upward adjustments to the distribution rate. Consolidated expenses were up 32% year on year, resulting from the higher cost of purchased power. Meralco's system loss hit an all time low of 7.94% compared with a new system loss cap of 8.5%.

EBITDA, for PHP18.2b, is a 38% increase year on year. Meralco registered core and reported income for 2010 of PHP12.2b and PHP9.7b, representing a year-on-year growth of 74% and 61% respectively. These increases largely reflect the impact of the various tariff increases granted to Meralco under the performance-based rates settings scheme, or PBR, also applied on the higher volume of energy sales.

Meralco's Board approved a PHP2.65 dividend at its meeting yesterday. This brings total dividends for 2010 to PHP6.45, or a payout ratio of 60% of core earnings. We are confident that the improvement in Meralco's performance will continue.

At this point, let me turn over the floor to our Chairman, Manny Pangilinan, for the outlook of this year and beyond.

Thank you, Poli, and good afternoon to all of you. Thank you for joining us for this briefing this afternoon. I only have four slides to cover. The first slide deals with the context under which we have determined our 2011 and 2012 guidance numbers. I guess we are starting to be a bit more sensitive about the macro environment under which the Group operates in because of increasing or continuing intensity and competitive pressure and, as well, higher margins under which the business operates in.

Amongst the principal concerns we have with respect to these macro factors are the continuing unrest in the Middle East, not so much because of the political aspects of it, but because of the impact to crude oil prices and the collateral effect it has on commodity prices, particularly on those commodities that the country imports because there is a derivative pressure on inflation and, finally, the impact on disposal income left [with] the Filipino consumer with respect to his Telco spend. And, of course, related to the Middle East turmoil is the -- are the OFW deployments and the related remittances that could be impacted by the return of a number of these OFWs to the country.

And linked to that is the currency appreciation. Poli has reported to you that revenue is down by 2%, partly because the currency appreciated by 5% in the course of 2010 and, therefore, about half of the decrease of 2% in Service revenues were accounted for by the currency appreciation and, of course, the overall GDP growth, which we probably anticipate that would probably see a bit of a slowdown this year compared to 2010.

Of course, in our own industry we expect competition in the legacy businesses of Voice and SMS to continue to be intense, with the popular -- continuing popularity of bucket plans and unlimited offerings. Traffic volumes will continue to grow exponentially, but yields on SMS and Cellular Voice will be under pressure. So the competition will shift to Data and Broadband, because that is where the future of Telcos generally will lie. But the not so good news is that will leak into the old businesses, if you may, of SMS and old traffic ILD and NLD.

However, unlike SMS and Voice the new business of Broadband and Data will require more network resources, given the subscribers' requirement for speed and reliability, higher quality customer service and the low tolerance for poor quality of that service. So it's important that PLTD builds a superior and integrated wired and wireless network in the future to confer a significant competitive advantage to it moving forward.

So our response -- our strategic response to these challenges will require a change in the way we operate and a change in our operational model. Maybe it would have four or five key components; one is what I indicated. We have to modernize, upgrade and expand the quality and reach of our network. That's why we subsequently -- in subsequent slides I'll show you the extent to which CapEx will increase.

Of course, we have to continue to integrate our products and services, including devices, especially with the introduction of Netphone which gives greater access to the Internet. A clearer segmentation of the customer, particularly in terms of the individual, the home, the enterprise and even international business. Item number four is the increasing integration of our operations, of our networks and even the organization itself, which could translate into, perhaps, some headcount assessment moving forward. And maintaining focus on cost efficiencies, cost controls in order to protect the margins moving forward.

The penultimate slide relates to the increasing CapEx. I think we have announced earlier that CapEx levels for 2011 and 2012 will be in the approximate amount to PHP67b; about PHP34b spend in 2011 and about PHP33b spend in 2012. Now this is meant to really upgrade and modernize the network to address the more Voice- and Data-centric environment we foresee in the coming years, and less of SMS, and increase quality and coverage and effectively to differentiate PLDT from its competitors on the base of quality.

There are certain technical and commercial objectives we want to achieve, plus certain IT support systems that need to be built to make the network effective in servicing future demand or Voice and Data. I think you might get it -- we might get that a bit later with your questions. But the financial impact of this increased CapEx is that CapEx will translate to about 24% of Service revenues in each of the two years and this will be funded mainly by internal resources and by additional debt.

I guess you will have questions as to what -- to the extent to which the impact the incremental debt would be on the gearing of the Company. And let me assure you that the net debt to EBITDA, which is our key indicator for the additional debt, will rise slightly in 2011 but move down slightly in 2012. Starting 2013 CapEx levels should be normalized at between 18% to 20% of Service revenues.

So in terms of guidance for '11 and '12 we anticipate Service revenues to be flattish for both years, despite a 2% year-on-year decline in 2010 and, similarly, EBITDA will be flattish for 2011, 2012. So you, I think, might ask the question why the core profit guidance is lower by about 4%, or PHP1.5b, for each of the two years. And that's really because of the increased appreciation and interest expense for each of the two years. We expect to return to the growth path in profitability starting 2013.

Having looked at our own cash flow forecast for those years, for 2011, 2012, we are committed to maintaining our dividend policy with respect to regular dividends being 70% of core income and a look back of 30%. We actually anticipate maintaining our dividend payout of 100% of course -- of core income for the next few years.

So that ends our presentation for this afternoon and we are ready for questions.

Thank you, sir. The floor is now open for your questions. (Operator Instructions).

We'll first take questions from those who have joined us in the conference facility before we take questions from the floor, operator?

We have a question from [Luis Hilado].

Hi, good afternoon and thanks for the call. Just initially had three questions. I guess based on the guidance it looks a bit somber, but I just wanted to ask if you know, realistically, if rationality were to return to the market, a degree of rationality, would you see SMS or Voice being where prices --?

Luis.

Luis, just a minute.

Yes.

Could you speak a little louder?

Yes, sorry. Yes, realistically going forward, if rationality were to return to a certain degree to the market, do you think it would be SMS or Voice yields which could improve once that happens?

Second question is, I guess, in relation to -- the balance sheet remains healthy and it is indicated that it will remain healthy even with the increased CapEx. But actually could you be even more aggressive in terms of increasing gearing or, in short, improving the payout beyond 100% during these years where the profit returns aren't there, perhaps, dividend yield can be improved?

And the last question is regarding -- longer term, if I am looking at Fixed Broadband versus Wireless Broadband, which do you think is going to be the bigger component of revenues and EBITDA, whether in the medium term or the long term?

Thank you for those questions, Luis, but we had a hard time trying to decipher because the audio facility where we are is not too clear. Yes, maybe you could explain the questions (inaudible).

Anyway, if rationally -- your first question was if rationality takes over in the market would it be Voice or SMS that would be the driver for the increase in revenues. I think it would be both. Right now the profile of the subscriber base is now more on Voice, actually, and so our volumes on Voice have significantly increased because of the bucket pricing and the unlimited offers. And SMS goal did not remain or did not decrease. SMS, in fact, increased by another 19% last year. But the yields were down so that's why the revenues in SMS is down, as you know. So if rationality takes over that would be really welcome.

I think the other question was what is the bigger opportunity; is it Fixed or Wireless Broadband? I would imagine it is Wireless, but right now the profile is that the Fixed Broadband revenues are a little bit higher than the Wireless revenues, [I am thinking]. What we are looking at really is the Mobile Broadband revenues and that is the one that is fastest growing. Last year Mobile Broadband revenues which is on mobile handsets grew by 37%, although it's still less than 1b, but it is growing quite robustly this year.

And I guess the last question is regarding if you would be even more aggressive in terms of gearing up and perhaps improving beyond the 100% payout, or if there's any regulatory restrictions to paying more than that?

No, I think we've been asked that question in the past. And I think the intention is to stick to a maximum of 100% payout. So, as indicated by Poli (inaudible), the balance sheet will accommodate the higher-demand CapEx, but at the end the intention is not to leverage up for more than 100% dividend.

I guess related to that is if the guidance for 2011 and 2012 is met you think the -- at least 100% can be maintained or --?

Yes, Luis. Our Chairman has already confirmed that in his last statement.

Okay, great. Thanks a lot.

Thank you, sir. Our next question is coming from the line of [Chate Benchavitvilai] from Credit Suisse. Please go ahead.

Hi, good afternoon and thank you so much for the call. I have five questions. Number one is that over the past two quarters, actually, we have noticed that PLDT has start losing revenue market share in Cellular. You have not experienced that before so what has actually changed?

Number two is regarding the Wireless Broadband revenue. Actually, over the past two quarters again it has reported a decline in revenue for two consecutive quarters. What is happening there?

Number three question is on the Red Mobile package, the promotion you have launched. How is the traction over there has been and how is the ARPU?

And also the fourth question is on the EBITDA margin side. Because you are guiding for flat revenue and EBITDA over the next two years means that the EBITDA margin should remain stable. This is an improvement compared to your previous guidance of a decline in the EBITDA margin by around 1% per year, so what has changed in there?

The last question is actually related to CapEx. You said after 2013 that it should decline to a normalized level of 18% to 20%. However, I think that's still high compared to other Telcos in the region in the mature state. Could we see this figure continue to decline, perhaps, to 15% beyond 2015, or longer term, or you think that it's still difficult to see at the current level? Thank you.

Chate, could I ask, the first question was whether we were losing -- that we were losing revenue market share in Cellular and what has changed? Is that correct?

That is correct, the revenue market share in Cellular, yes.

And then your second question was in terms of Wireless Broadband revenue. We didn't get the second question. Could you repeat, please?

Yes. The Wireless Broadband revenue, actually, you reported a decline in Wireless Broadband revenue over the past two quarters, so I just would like to get the picture of what's actually happening there. Is the ARPU declining faster than expected?

Yes. On the second question, which is the Wireless Broadband revenues, there was a relative industry slowdown on the Wireless Broadband subscriber take-up in the fourth quarter -- in the third and fourth quarter actually. But it has been reversed now on the apparently favorable take-up on the first two months of this year, so it's rebounding back.

The slowdown was caused by, number one, the subsidy reduction on the dongles and the partial subscriber shifting from the Fixed Wireless Broadband set-up, or our [KLB] set-up, into DSL subscribers, which is within [the Q2], and the rapid increase in Broadband subscribers affecting the network capacity because the network capacity build up or reaching out to capacity in some of the -- in the areas -- in the urban areas. So these are the three reasons why we had a little bit of a slowdown on the Fixed Wireless and on the dongles for the third and fourth quarter.

Let me just emphasize that on the first two months of this year the net activations have already rebounded back to about three times the level on the fourth quarter of last year, so it's trending back better now.

On Web Mobile the subscriber take-up continues, contrary to what we were afraid of. Actually, the take-up on the PHP4 and PHP8 offerings is a micro-portion of the revenues. They are still speaking to the PHP30 bucket. And we are looking at good traction on the Red Mobile, especially on the PHP30 bucket, which includes connectivity to the entire Smart base. And this is a premium of PHP5 per day compared to the SmartTalk, or the All Text program on the Smart subscriber base.

The other question is why EBITDA has improved over a decline in 2010.

Maybe I can try answering that one. I guess there's two factors that we see on EBITDA that are really somewhat consistent with the trends we've seen over the last couple of years. On the revenue side, the changing mix tends to be negative. Obviously, some of the highest margin revenue sources that we have, such as the international and the national long distance, are declining, to be replaced by Broadband, so that's a negative trend and we would expect that to continue.

But that's something that the Company has been dealing with over the past few years. And the way we've been offsetting that really is a strong focus on cost control and containment. And I think that really will continue probably in even a more enhanced way over the next couple of years.

On the network side, part of the CapEx that's been spent, particularly in terms of the modernization, should result in quite significant cost savings for us. And we would expect that to begin to impact in 2011 and continue into 2012. Also, as indicated by Mr. Pangilinan, there will be a greater focus on integrated offerings across the Group, particularly in respect of the [whole] market and, again, I think that will give us opportunities to be more efficient in addressing that market.

So I think you're correct to say it's a challenge. It's somewhat of an improvement from what we had anticipated, but I think there are enough opportunities there for us to come out with that forecast of EBITDA being flat over the next year.

In terms of the CapEx, as indicated, the 2011, 2012 will be higher, with a combined PHP67b. After that you see the completion of the so-called modernization on the Wireless and the coming to an end of the upgrade of the Fixed-Line network, so that's why I think the forecast is for that to reduce as we get into 2013 and later years. At the moment the reason we mentioned 18% to 20%, I guess, is that there is a sense that the current competitive environment will continue and that that will mean that we would need to spend at about that level.

A critical part of the strategy going forward is that, as we move more and more into Broadband, that's where the revenues are coming from, the reach of the network, the coverage will be more important. The environment capacity available, the reliability, the general quality of service will be critical factors in the success and we think that, as a result of that, it will be the plan for CapEx level around about 18% to 20%. If there is a risk, I think you're probably right, it may run a little bit lower than that, but at the moment that's what we think it's appropriate to guide for.

Thank you very much.

Thank you, sir. Our next question is coming from the line of Neeraja Natarajan from Nomura. Please go ahead.

Hi, I have a few questions. Actually, firstly, on the revenue markets beyond the Wireless side, I didn't quite catch your answer. So you have been losing market share in the last couple of quarters, so is this a metric that is something which you monitor? And are you looking to reverse this or stop this in the subsequent quarters, firstly?

Secondly, in terms of your outlook for 2011 in terms of revenue growth, can you give a sense of what you are baking in in terms of Wireless and also in terms of Wireless Broadband? Do you see growth picking up to the kind of growth that we saw in early 2010 for Wireless Broadband? Thank you.

Our market share overall has been -- in terms of wallet share or revenue share, has been maintained at 58% year on year. You're correct. Towards the third and fourth quarter, especially on the fourth, we had a slight reduction in market share when it comes to the subscriber net adds on the Broadband side and, basically, on the Fixed Wireless Broadband and, thereby, resulting to a little bit less on revenues. But that is not -- the effect on the overall market share is about 1% less on the fourth quarter, but overall our market share remains to be 58%.

Let me just deal with the Broadband. On Broadband, our market share right now on the entire Broadband space is about 73% of the market, so we've got a very comfortable share. But, as you know, as the competitors go into bridging markets, or markets where they are not in, that's where we are a little bit vulnerable because they would gain a little bit of the subscriber base in those areas where their base stations will be turned on.

So we are being proactive in moving into these markets. And that's the reason why we are expanding our capacity, given the exponential trend on the usage on Broadband. So we're expanding our market and we're modernizing our network so that the efficiencies will be in place to deal with a more intensive situation when it comes to competition and a more stringent demand from our consumer stream.

Even your second question was what kind of growth we're seeing for Wireless and Wired Broadband. Is that the question?

Yes.

With respect to Wireless Broadband, broadly similar to what we've been seeing, so somewhere in the -- for 2010 we grew about 17% in the Wireless Broadband. So it will broadly be in that -- on that border. I think for 2011 one of the things we'd like to see is to contain the decline in the text or the SMS service that we saw last year, which was a 12% decline (inaudible). So that's one area where we hope to see some improvement come (inaudible).

Hello?

Yes? Anything else?

Sorry, I didn't catch. Did you -- what did you say for the Wireless business side? I got the Wireless Broadband, but I missed out the Wireless growth outlook for Voice and Data -- Voice and SMS basically.

Broadly speaking, we're seeing growth in the Voice business, we're seeing growth in the Wireless Broadband business, but the challenge is to arrest the declining SMS revenue stream.

Thank you.

Thank you. Our next question is coming from Rama Maruvada from Daiwa. Please go ahead.

Yes, hi. Good afternoon all. I have four questions. Firstly, with regards to the introduction of on-network plans by some of your competitors, if you could provide some color on what impact are you seeing on your on-net as well as cross-net traffic volumes since they have been introduced in the market? That would be good.

Secondly, with regards to the guidance, if you could split -- provide a bit more color on the revenue on the EBITDA margin on a divisional basis and, again, what the underlying currency assumption is when you have given your guidance for 2011 and 2012. That would be great.

Thirdly, with regards to the manpower rationalization program that you have undertaken now, how do you expect staff costs to trend in 2011?

And, finally, a housekeeping question on your tax rate. It seems to be a bit low on 2010. What do you expect for 2011 on the effective tax rate as well as cash tax?

Let me try to tackle the first question. When it comes to on-net traffic, as you may know, this is a very unique market. Right now our traffic on-net, because of the bucket plans and the unlimited offerings on-net, is -- over 95% of our traffic is on-net. So that is the peculiar situation of our market.

Maybe I can just try on the EBITDA guidance and revenue guidance. Basically, I think we're looking for overall revenues in Wireless and in Fixed to be relatively flat, possibly down a little bit, and similarly on the EBITDA side. What we would anticipate offsetting that is that we are expecting some growth from the ICT business. So the ICT business would include both the owner Internet businesses at PLDT, in particular our data center and growth on SGI, which we think will grow both on a revenue and EBITDA basis. So it's something of a mix right across the Group.

I think the last question I recall was on the tax rate. I think the tax rate, you're correct, is a little bit lower this year. I think you probably see the consolidated rate may be up to about maybe the 27% level as we go into 2011, 2012.

Staff costs I think will benefit; there's two effects that we have. One is that we'll benefit from the headcount reduction. Against that, we are locked into CBA, collective bargaining agreement, increases. And in 2010 we did benefit to a degree from a lower contribution to our retirement benefit plan. We had significant over-funding in the previous years. So there will be a little bit of a catch-up there as we go into 2011, 2012.

Ideally we would like to try to maintain the increase to low single digit if we can. The other area that we will be looking at is if there are opportunities for further rationalization. Here, as I indicated earlier, if we take a more integrated view of the customer, particularly as we address the whole market and others, there may be opportunities for efficiencies across the Group.

Thank you very much. If I can just follow up on my -- the first question in terms of the on-network plans. Perhaps what I'm looking for is -- specifically is has there been a change in terms of call volumes that are going to your competitor networks versus what you're getting from an incoming interconnect basis since the introduction, or has there been no significant shift that you have seen in terms of volume? Is there elasticity in on/off-net or Voice at the moment?

No significant change.

Okay. Thank you very much.

Are we getting other questions?

Yes, we have three more questions from the audio. Our next one is coming from Arthur Pineda. Please go ahead.

Hi. Thank you for the call. Several questions from me. Firstly, is it possible to please articulate in numbers what PLDT aims to achieve with the increased CapEx? What kind of incremental revenues or cost savings could this generate to make the investment worthwhile?

Secondly, how big a segment do you expect the non-SMS data to tick up over the next two years as a percentage of revenues? (Inaudible) Data revenues will not merely come at the expense of Voice that should drive the ARPU the levels.

Third question I had is with regard to data again. It seems that [significant trends] are emerging as [young] like Indonesia and Thailand in terms of non-SMS data usage. What do you think causes this kind of behavior and what can be done to change it going forward?

Maybe I can just try on the CapEx. I think it's -- well, we can go through it in considerable detail, but really the broad thrust of the CapEx spend is really two-fold and is really encapsulated in the guidance numbers which we've given for -- and that's why we've given it already for 2011 and 2012.

On the CapEx revenue side, basically, there will be -- and there's several answers that are being [considered]. Anticipated strong growth on the Broadband side of the business, be that on the Wireless or the Fixed DSL, or WiMAX side. So the CapEx anticipates that there will be continued and, in fact, faster-than-anticipated build out of the various underlying networks to support the growth of Broadband.

Now, as Poli also indicated, because of the nature of the market at the moment, even though, for example, say, on the SMS side, we are seeing reductions in revenue, that is not coming from reductions in volume. So, again, within the CapEx number we are incorporating additional spend to be able to accommodate additional volume both on the SMS and Voice side. But the overall thrust really is to evolve and adapt the networks to become really Broadband, Data-driven networks.

We are still quite bullish on the growth of the corporate and SME market. Important network elements of that are to increase the coverage of the network, to increase the resilience of the domestic network and to include greater international capacity. These are all very important, particularly to the rapidly growing outsourcing and off-shoring industry.

So all of these are encapsulated within the CapEx number, but as you've seen in 2010, while we are seeing certain parts of our revenue growing rapidly, particularly in the Broadband and Data side, because of the weakness on, say, [ARB] and ILD, the top line is flat to, in fact, last year, 2010, 2%. So we are seeing similar trends continue for 2011, 2012. Our best estimate at the moment is that it'll come in as flat overall.

On the costs side the two major initiatives that we're looking at is the Wireless modernization, which should result, I think, with the move to the single [ramp] technology, with significantly lower operating costs on the Fixed. And secondly we're looking to -- which will not necessarily affect 2011 and 2012, but should begin to give us some positive effect as we move into the years after that, is the completion of the Fixed-Line upgrade. This has been a long-running project and, to a degree, has led in certain areas to duplication of costs as we still have the legacy but we don't yet have the full new NGN up and running. So, again, that's another area where we can hope to have cost savings going forward.

Again, it's difficult, particularly in a large forum like this, to go through item by item. But what we do think is that the network savings that we will get will partially offset the more inflation-driven costs that we would see in other parts of our cost base, so, again, the guidance for a relatively flat EBITDA number.

In terms of the question on non-SMS data, at the moment we're a Mobile business that is, as you rightly observe, still a relatively small amount invested; about less than 10% of our Mobile Data is accounted for by non-SMS revenue streams. I guess for -- in terms of the comparison with other countries, one key driver, for example, is the ownership of the smartphones in terms of our 3G phones relative to the total base. So, like I said in the speaking, that the amount of ownership of those type of phones is probably less compared to our neighbors.

But certainly if you look at other indicators, like the number of Facebook members when you search in the Philippines, that's a growing number. And we're seeing increasingly people use Facebook mobile. So there are certain applications that will, I guess, start to contribute to higher take-up of these types of data usage.

Sorry, just to clarify, do you see that as actually driving the revenues or reallocating revenues between Data and Voice?

I guess it's -- there is an element of usage shifting to social networks out -- and coming out of SMS or something that's happening. But I guess, more than that, it's really more SMS is also being purchased by bundles or buckets. So at some point it becomes a bit indifferent because you're no longer charging SMS by -- per text any how. So at some point we'd -- the nature of the traffic will not matter too much.

If I can just ask one follow-up question with regard to competition. Would the Company be comfortable with seeing some degree of slippage on subscriber and revenue market share, or do you think this would facilitate a more rational pricing environment, or would you actually prefer to defend share going forward?

Definitely we will protect our stronghold. Our market share, as I said, overall right now is at 58% in revenue share. And, by the way, we are focusing more on the revenue share, which is really more important compared to the subscriber figures because of the multiples in ownership. So definitely we are looking at protecting our market share. And that is the reason why we have embarked into a low-cost delivery -- Voice delivery network on our second network late last year -- I'm sorry, in '09, in order to be able to have an arsenal by which we can combat competition.

On the non-SMS data revenue, if I may add what Anabelle has mentioned, I think the important thing is also the device strategy. As you may know, we have launched our own version of the Netphone at the GSMA conference in Barcelona. And the Netphone -- what is unique on the Netphone is that the interface -- user interface is geared towards the Filipino way of nominating in the handset and, therefore, it is more geared towards our market and it is quite affordable. So with that we hope that the traffic -- the non-SMS data type of traffic would improve and, moving forward, this is part of our strategy overall when it comes to trying to get that revenue up.

Maybe I can just add one other point on the market share, which I think you, Poli, commented on the Wireless side. I think on the Fixed we continue to have a market share above 60% and we continue to perform very strongly in the corporate SME and the retail whole market. That's an area where I think, particularly the CapEx that we're spending, will reinforce the PLDT Group position.

Again, as indicated in the statement, we would see ourselves offering more integrated offerings across the Group. So I think that it's a situation where, as a Group, we have a unique position to use our position on both the Fixed and the Wireless side to offer integrated products across the corporate, SME and whole market. And I think that's something we will be working on hard and something which will allow us to help maintain market share as well as an opportunity for us to rationalize the cost base. So I think that's important -- some important initiatives for us in 2011 and 2012.

Understood, thank you very much.

Thank you, sir. Our next question is coming from the line of Gio Dela-Rosa from Deutsche Bank. Please go ahead.

Hi. Good afternoon, everyone. I just wanted to ask a question on the asset impairment charge. Can you give more color on that item, the PHP1.5b?

That really covers three areas. One is an investment which was made some years back by SPi, which relates to part of their medical business and more on the transcription side. We have rationalized that business because it's a relatively low-margin business and one which we think has limited opportunity going forward. SPi is doing extremely well in its medical claim business, but there are some issues there on the transcription side. So I think we've decided to rationalize that.

There are two smaller investments which were part of the ePLDT Group. One related to a [buy and trade] and there was another small games business which we invested in which, again, we've taken some provisions against. But really [in these figures] the biggest one was the SPi medical transcription business.

Thank you.

Are there more questions on the phone teleconference?

We have one more question coming from the line of Vishesh Gupta from JP Morgan. Please go ahead.

Hi. Thanks for the call. I have just two questions. The first one is on competition.

Vishesh, could you speak a little louder, please?

Hi. I have two questions. The first one is on competition. Who out of the three is the most aggressive in the market now and what levels of competitive threat do we expect from the San Miguel Group going ahead?

And the second one would be if you can just repeat the expected tax rate for 2011. I missed it. Thank you.

The tax rate I think we expect to be something in the region of 27%.

I think the other one was on competition; who is the most aggressive and the entry of San Miguel impact in that. I'll turn it over to Poli.

First of all, the entry of San Miguel is on a limited scale on the Broadband space as of the moment and they are, I think, quite limited on the Metro Manila area. So we have not seen any major or significant impact yet with regards to that.

The most aggressive is, of course, Sun and they have been consistent on this over the last six or seven years. They have bundled offers of unlimited on Voice, Text and Data usage.

Okay. Thank you.

Operator, no more questions from the call (multiple speakers)?

No questions from the phone. Back to you, thank you.

All right. We'll take questions from the floor. There are microphones in the aisle for those who want to ask questions. From the teleconference, any other questions before we go back to the floor? Operator?

(Operator Instructions).

No more questions from the floor and the teleconference facility. We'll have the operator repeat the replay numbers. Operator?

Thank you. And that concludes the question and answer portion. Before I turn the conference back over to Mr. Pangilinan I would like to give everyone the instant replay information of this call.

This conference call will be available on a 24-hour instant replay, starting today daily on through March 15, 2011. Replay information, international caller number 852 3018 4303, US toll free 1800 477 5518, pass code 5189. Conference leader is Melissa Vergel de Dios.

I would like to turn the conference back over to Mr. Pangilinan for any additional or closing remarks. Please go ahead. Thank you.

I would like to thank everyone for joining us this afternoon and we look forward to seeing you again for our mid-year results for [2011]. Thank you.

Thank you for your questions (inaudible).

Thank you, and that concludes today's conference. Thank you for your participation. You may disconnect your line (inaudible). Thank you.