PLDT Inc (PHI) 2012 Q1 法說會逐字稿

Good afternoon everyone and welcome to the PLDT conference call to discuss the Company's financial and operating results for the first quarter of 2012. 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 today to discuss the Company's financial and operating results for the first quarter of 2012. As mentioned in the conference call invitation, today's presentation is posted on our website. For those who have not yet 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, Manny Pangilinan, Chairman of the Board, Mr Napoleon Nazareno President and Chief Executive Officer for PLDT and Smart, Mr Chris Young, Chief Financial Advisor of PLDT, Miss Anabelle Lim-Chua, a VP Treasurer of PLDT, and Chief Financial Officer of Smart and Attorney, Ray Espinosa. At this point let me turn the floor over to Mr Nazareno for the presentation.

Good afternoon and thank you for joining us today. Let me now share with you the highlights of our first quarter 2012 financial and operating results.

The operating environment remained challenging in the first quarter of 2010 where there appeared to be early signs of stabilizing market conditions, as reflected in our results. Service revenues for the quarter rose 13% to PHP42.8 billion, compared to PHP37.7 billion in the same quarter last year. EBITDA dipped by PHP500 million, or 2% year-on-year, to PHP20.5 billion, with a margin of 48%.

Reported net income for the quarter declined by 6% year-on-year, to PHP10.1 billion, but core and net income, including exceptional items, was lower by 12% year-on-year at PHP9.3 billion.

On the next slide our core income of PHP39 billion for 2011 consisted of PHP21 billion for the first half and PHP18 billion for the second half of last year.

The lower core income in the second semester, which is historically a stronger period, reflects the more challenging operating environment arising from deteriorating competitive conditions.

As anticipated, given more favorable operating conditions in the first quarter last year, core net income for the first quarter of 2012 was 12% lower at PHP9.3 billion, inclusive of PHP200 million from Digitel. This is high end of our core net income in the first quarter of 2011 and it's broadly in line with our core income guidance of PHP37 billion for the full-year, reflecting stabilizing market conditions. The decline in core income was a result of higher service revenues offset by higher operating expenses, lower equity shares in earnings of Meralco/Beacon and higher provision for income taxes.

Reported net income for the first quarter of PHP10.1 billion, inclusive of PHP700 million from Digitel is 6% lower year-on-year. This is due to the combined effect of lower core income, higher net forex and derivative gains, and adjustment of our share in core earnings of Meralco being lower compared with last year.

On the next slide, the PLDT Group's combined cellular subscriber base grew to 66.1 million at the end of March 2012, representing net additions of 2.4 million from the end of 2011. This consisted of 27.5 million Smart subscribers, 22.2 million Talk 'N Text subscribers, 15.6 million Sun subscribers and 900,000 Red subscribers.

The Group's postpaid cellular subscriber base exceeded 2 million at the end of March, 1.4 million of which were from Sun Cellular.

Our cellular subscriber base continues to grow strongly. For the month of April we added about 900,000 subscribers, bringing out total subscriber base to 67 million. For broadband, the Group's total subscriber base hot the 3 million mark at the end of first quarter with 2.1 million wireless subscribers and nearly 900,000 DSL subscribers.

Finally, our fixed line subscriber base is stood at 2.2 million at the end of March, 1.9 million of which are PLDT subscribers and the balance Digitel subscribers.

On the next slide, consolidated service revenues for the first quarter of 2012 improved by 13% year on year, or PHP5.1 billion to PHP42.8 billion. This included PHP5.6 billion of revenues from Digitel, which account for 13% of total Group revenues.

Combined PLDT, Smart and SPi revenues for the period dipped by 1% or PHP500 billion [sic - see press release], to PHP37.2 billion.

Voice climbed by 9% year on year, whilst data BPO revenues registered a 17% increase versus last year.

Consolidated EBITDA for the first quarter decreased from PHP21 billion to PHP20.5 billion. As the higher EBITDA from our BPO business was offset by decreases in EBITDA in our wireless and fixed line businesses where higher cash operating expenses reduced service revenue gains.

Digitel contributed PHP1.6 billion of EBITDA. EBITDA margin for the period declined to 48% due to the effect of Digitel's lower margin of 29%.

Our first quarter results show quarter-on-quarter gains, indicating early signs of stabilizing conditions, resulting from our initiatives that aim to create a platform for the return to growth, which includes the Digitel acquisition and our network modernization program.

For the next slide, let me now cite selected highlights of our operating segments, starting with broadband and BPO, which show the greatest potential. Broadband service revenues climbed by 34% to PHP5.8 billion in the first quarter of 2012. We expect the profitability of our broadband business to be further enhanced by the increase in volume-based offers such as our Data Lite and the Always On offers, as well as the implementation of fair usage policies.

An expanded menu of products that provide upselling opportunities. These include variants differentiated by speeds and price points, as well as bundles that maximize our fixed and wireless delivery platforms.

PLDT's competitive advantage and cost efficiencies brought about by multi-year investments in our extensive integrated network. The anticipated increase in revenues when the existing Internet browsing habits and usage shifts from the Internet cafes to the mobile environment, which we expect to happen once branded affordable platforms are more widely available.

Note that with only about 3 million 3G smartphones on our network, we registered PHP573 million in mobile browsing revenues in the first quarter, representing a 71% year-on-year growth.

Moving to our BPO video business, service revenues for the first quarter of PHP2.4 billion was 20% higher year-on-year, mirroring overall industry growth. Prospects for the business remain positive. SPi recently signed up new clients for CRM and KPS business, including expansion of existing contracts. Our recent acquisition, Laserwords, has been fully integrated in our content solution business. We expect margins to continue to expand as SPi leverages its fixed costs and infrastructure over a higher revenue base. Finally, a strong sales pipeline for 2013 has been put in place.

Next slide, our wireless business registered a service revenues of PHP28.9 billion, or a 15% year-on-year increase. Improvements in this business will come from the expected growth in wireless broadband and mobile Internet browsing. Improvement in yields and profitability following more stable operating conditions in our brand and product rationalization initiatives.

Examples of this are new bucket plans that offer more SMS than voice minutes and capped Tri-net offers that allow calling among Smart, TNT and Sun. Cost and operating efficiencies that will result from the network modernization program and the rationalization of networks and operations of the expanded Group to eliminate overlaps and optimize resources.

Last, but not the least, revenues of our fixed line business improved by 9% to PHP15.6 billion in the first quarter of 2012. With the continued double-digit increases in DSL and third party corporate data revenues, which now comprise the bigger share of the fixed line revenue mix, we expect the fixed line to show year-on-year increases moving forward. DSL revenues are anticipated to grow with the introduction of services such as fiber to home or FTTH and triple-play bundles that include content.

The growth of the outsourcing industry, as well as the rapid expansion of SME markets in the Philippines, will propel revenues for our corporate and SME businesses.

Finally, we opened our second data center in Subic, in anticipation of higher demand for our data center and cloud-based services.

On the next slide, our pursuit of undisputed market leadership is strengthened by our network modernization program, which we embarked on in 2011 and which we expect to complete this year.

By the end of 2012, the PLDT Group network will deliver additional capacity that is flexible and scalable to allow future business growth and allow seamless transition to becoming a cutting edge broadband multimedia provider. This slide outlines what our network would be when the modernization program completes at the end of 2012. Work is on-track with progress in the first quarter, including almost 60% 3G population coverage, fast approaching the year-end target of 90%. Increase in our IP ready sites, further improving the capability of our transport network. Planned installation of new switches, more than 50% complete, fourth cable landing station expected to be operational by second half of the year. Even this early, our subscribers are already beginning to experience the benefits of our efforts.

On the next slide, since the completion of the Digitel acquisition in late October 2011, last year, several areas of synergy were identified, largely related to network integration. These initiatives are either sources of OpEx or CapEx savings, or provide the potential for incremental revenues.

We already mentioned the PHP8 billion CapEx avoidance in 2012, after we reviewed network CapEx plans and were able to identify duplications and various opportunities for complementation.

We are happy to report that progress continues to be made, a few highlights of which can be seen on this slide. Sun's 2G coverage has increased from 59% to over 75%. Further to site consolidation we are exploring the further streamlining of our cell sites and base station architecture where we can accommodate both Sun and Smart base stations in one site, which should lead to further OpEx savings.

We completed the transfer of Digitel's directory assisted calls and directory assistance to PLDT and Digitel now has access to PLDT's Internet gateway. Once fully implemented, we can expect to see operational and cost efficiencies, which should help relieve margin pressure.

In the area of organization, over 850 fixed line employees, or about 18% of the total Digitel headcount availed of the voluntary retirement program recently offered. The majority of those who avail are from the network group.

The PLDT Board today approved an investment in Philippine depository receipts or PDRs, of MediaQuest. Allow me to brief you on the background and highlights of this investment.

Media investments of the PLDT Group have historically been made and merged to MediaQuest, a wholly-owned entity of the PLDT Beneficial Trust Fund, or BTF. The two largest investments of the BTF, TV5 and Cignal have grown -- the former from a little over 2% market share in 2007 to between 15% to 18% market share at the end of 2011. On the other hand, with over 250,000 subscribers, Cignal is the largest DTH pay TV operator in the Philippines.

Given that our investment in media is consistent with PLDT's overall strategic direction of expanding its presence in the value chain in order to evolve into a multimedia organization, and given that the additional investments are required to sustain the growth momentum of TV5 and Cignal, PLDT, through ePLDT, a wholly-owned subsidiary, have obtained Board approval to take a PHP6 billion investment in PDRs of MediaQuest.

On the next slide, under the broad strategy MediaQuest will serve as the anchor for the media and multimedia service offerings of the PLDT Group. With our investment in MediaQuest PDRs, the Group can expect to gain economies of scale in the production of content for all platforms and produce proprietary content to be a source of differentiation for the Group.

Media will also provide new revenue streams in the form of higher subscription revenues across the Group's various platforms, as well as maximize advertising potential available from the sizeable subscriber base of the Group.

Finally, the investment will enable the Group to tap new markets outside the Philippines, particularly the 12 million Overseas Filipino Workers to whom we can offer a menu of services that includes telecoms, local content delivery, and money remittance.

On the next slide, the investment in MediaQuest will be made by Philippine Depository Receipts, or PDRs. A structure similar to those in place for ABS-CBN and GMA-7.

PDR instruments grant PDR holders the right to delivery or sale of the underlying shares and the distribution of cash in respect of cash dividends. On the other hand, the PDR issuer remains a stockholder of record and retains voting rights over the underlying shares. This investment in MediaQuest will be considered as an investment in subsidiary for consolidation purposes under internal accounting standards and international -- sorry, under international accounting standard and international financial reporting standards. As such, the TV5 and Cignal will be consolidated in the accounts of PLDT, with 70% non-controlling interests. We expect Cignal to be profitable in 2013 and TV5 to reach breakeven by 2014.

On the next slide, we show here selected financials of TV5 and Cignal TV for 2010 and 2011 as well as some estimates for 2012. So the consolidation of TV5 and Cignal's financial results in the accounts of PLDT, will have some negative impact. These are not expected to materially affect our core guidance for 2012.

Let me now turn over the floor to our chairman Mr Manny V Pangilinan, for the outlook for the rest of the year.

Well thank you [Poley]. Based on our first quarter results we are maintaining our core cost guidance for the entire year 2012 at PHP37 billion. And as well as the outlook for 2013 being PHP39 billion and for 2014 PHP42 billion. So there's no reason for us to change the outlook for all of (inaudible) as we speak. And as Poley indicated, (inaudible) the benefits of assimilating Digitel and Sun and the benefits of completing the network expansion modernization by year-end are slowly start -- slowly filtering into the accounts and operating results of the Group.

However in the course of the year certain rationalization measures will continue to be undertaken. I believe Poley said that with respect of the headcount or the fixed line basis of Digitel, about 850 people have voluntarily agreed to retire in the course of the year. On the fixed line side of PLDT there is a manpower rationalization program that will be undertaken to reduce headcount by anywhere between 500 to 600 people.

So there'll be certain one-off charges to the P&L within the year, but will be realized (inaudible) the result is that -- short term measures. At the same time the financial investment in MediaQuest, while we think -- we believe will produce long term benefits, will have certain adverse impact in the short term on the P&L of PLDT. But on the whole, as Poley indicated, these will be offset by certain transactional gains we envisage to be completed in the course of the year such that the core profitability of PLDT will be maintained at PHP37 billion for 2012.

I think that's basically it and so thank you for joining us today and we are now ready to take your questions.

Operator, are there any questions on the phone?

The floor is now open for your questions. (Operator instructions). Our first question is from Sachin Salgaonkar, your line is now open.

Hi thank you for the call, I have three questions. Firstly I want to understand your thoughts on competition in the cellular market for PLDT stand-alone cellular revenues in 1Q showed actually a 4% YoY decline. So when could be see this YoY decline trend reversing?

Secondly, I wanted to understand the various different products and services which could be now offered after ePLDTs investment in TV5 and Cignal. Also if you could quantify the adverse P&L impact which you mentioned?

Third question there is on your BPO business, the revenue and EBITDA was strong in 1Q and should we use this strength particularly on margin to be sustainable going forward?

Let me take the first question which is with regards to the revenues and how it is trending. In the first quarter of this year the gap between last year and this year has been reduced and this is basically on the Smart brand, where our revenues are lagging behind compared to last year. We are looking at the third quarter of this year for our revenues to start feeling an increase when it comes to the cellular side, especially on the Smart brand.

The Talk 'N Text brand is already trending higher than last year and the first quarter of last year was extraordinarily high. Actually the first two quarters of last year was extraordinarily high and in spite of that Talk 'N Text has managed -- the revenues of Talk 'N Text are well -- been higher in the first quarter this year compared to last year. So we are looking at the third quarter for us to recover in terms of revenues for both -- for the [photo] cellular business when Smart finally hits a figure which is higher than the previous year's. The number two question Chris.

Maybe I can try on the second question. In terms of the negative impact I think we are expecting something in the region of about PHP600 million to PHP700 million negative impact from the TV5 and Cignal acquisition in the current year. Based on the projections we're seeing that we should be maybe about half of that number in the following year, 2015 and we would then see a small positive impact on 2014.

In terms of products, the one that's most likely to impact us this year is really in terms of the triple-play product that we'll offer on the fixed line side. I think you are aware that we're beginning the role out of the Fiber To The Home and Fiber To The Building on the PLDT fixed line. The installations are ongoing at the moment and that should begin to happen during the second half of the year. So it -- they will be modest, for the current year but we would expect that to begin to pick up as we go into 2013 and 2014. There are a number of other initiatives in the wireless area, but these are more likely to affect us in the later years, 2013, 2014 and onwards.

If the third question is on the BPO, the revenue growth is, as you know it, has been quite strong and the EBITDA margins are up to little over 20%. I think we feel that that's indicative of how the year will look for the BPO business. I think it's quite well positioned; in fact it has repositioned itself in recent years with greater emphasis on the KPS business. Though there has been some success recently and additional CRM business, but the KPS business tends to be somewhat higher margin and really that's the one that we anticipate growing faster over the next few months and years. In fact we think there could be a possibility to see further margin improvement beyond the current 21%.

Got that, very clear, thank you. Just one follow-up question for you Chris. If you could share with us the debt and balance sheet on TV5 and Cignal TV that would be helpful.

The total debt at the end of last year in Pesos is about PHP3.2 billion, so about $83 million/$84 million.

Okay and this is combined for both of them, right?

Yes that's a combined debt of both companies.

Okay perfect, thanks a lot.

Our next question is from Luis Hilado, Sir your line is now open.

Hi good afternoon and thanks for the call. I have two questions, the first one again on the investment in the PDR. Just wondering if the PHP6 billion were [already covering] the CapEx requirements for the next several years, and whether the debt that you mentioned Chris will be maintained at that level, or whether it's going to be going up? I guess related to that is of course you mentioned that Cignal will be profitable in 2013 and TV5 2014 break even. What kind of revenue levels will it take to get those two companies to those target numbers?

Second question is -- apologies it's a bit of a big question, but there seems to be quite rather quieter and quieter changes in [regards to OpEx]. Compensation and benefits up 25%, meanwhile selling and promotion down 50% and all the other items down as well quite significantly. If you could let us know which of those are recurring savings in nature and whether there's any one-off expenses as well behind those numbers?

Yes maybe I can try on the expenses. The reason for that significant increase in the compensation and benefit line is really because in the last quarter of last year you may recall we reversed a (inaudible) for the long term incentive plan. So it was low in the final quarter of the year and low, relatively low for the full year, because we had made an accrual in respect of 2010. So I think in terms of the compensation and benefits, a more appropriate benchmark is probably the Q1 this year.

Now having said that, as both Poley and Manny indicated, there will be quite a lot of activity in terms of compensation. The effect of the headcount reduction on the compensation expense in Q2, as Poley indicated, the headcount at Digitel as a whole would be down by close to 20% and we have another ongoing MRP at PLDT. So while the second quarter could be a bit higher, that should set us at a lower level going into the second half of the year, after we absorb the impact of that in Q2.

On the other expenses you're right, there are quite a number of one offs, particularly you'll see that professional and other fees are moving around quite a bit. That's because we had some expenses related to the Digitel transaction which affected us in the second half of last year, particularly in the fourth quarter, we flowed through a little bit into the second quarter as well, but generally the expenses are lower there. So I think it's correct to say there are quite a number of Q on Q adjustments, but I think you'll see things begin to settle down as we move into the third and fourth quarter, because after that we'll effectively see the effect of the headcount reductions flow through into Q2.

(Inaudible) expenses Luis last year it was heavy skewed towards the latter part of the year, particularly the fourth quarter. But we have indicated previously that we expect more or less the same level of [sales] on a full year basis but a bit more evenly spread out this year, compared to the pattern last year. Albeit for first quarter typically it's a little lower in the first quarter (inaudible).

Okay great thanks, one follow up question, sorry I didn't catch it, what is the one -off cost for the Digitel VRP and potentially for the PLDT MRP?

Those have not been recognized in the first quarter yet, they will be second quarter expenses. On the Digitel side it will be in the area of around PHP400 million. On the PLDT side the program is still ongoing so we don't have a firm number yet, but we expect it to be significantly higher than the Digitel level.

Okay.

I think the first question relates to TV5.

Yes to which the profitability levels for TV5 were easily by profitable by 2014 (inaudible) around PHP8.8 billion, and for Cignal to reach profitability by next year, 2013, we would need just subscriptions -- subscription revenues of around PHP2.3 billion.

Okay great thanks. One final question, that was whether the PHP6 billion will cover the CapEx for the next few years or whether you have to raise debt as well?

The PHP6 billion (inaudible) for 2012 after we have CapEx (inaudible) for 2013 which is around PHP2.5 billion and for 2014 another PHP1 billion.

We have a PHP1 billion working capital [line].

Okay so 2013 and 2014 there probably -- will they be self-financing or CapEx will have to be via loans?

It will be a combination of our revenues and (inaudible) loans.

Okay great, thanks a lot.

Our next question is from Neeraja Natarajan, your line is now open.

Hi guys thanks for the call. My first question is on competition. I mean once again it seems like your revenues have come down so how are you seeing competition improve, is there more stability in pricing or has the advertising promotional activity come down, so how should we think of this going ahead? That would be very helpful.

My second question is on this acquisition, I understand that you only -- I mean you only -- will you be integrating MediaQuest into PLDT longer term? Is that something that we should look for -- look towards down the line?

Secondly, I mean it sounds like (inaudible) more into broadcasting, so how does that fit into the PLDT profile? I understand DTH because [they see] in lots of other markets integrated players offering pay TV as well, so if you can throw some color in that? In terms of cost with the manpower reduction, how should be see cost -- this cost item in the next year?

The other question I had was in terms of margins, if you see, I think 1Q '12 and 4Q '11, even adjusting to the Digitel acquisition, the margins have come off quite sharply year-over-year. So are we looking at a much more faster decline in margins, the (inaudible) like 100 to 200 with year-over-year guidance that you have given, but are we now looking at something more sharper? That's [my question], thank you.

I think with regards to your first question which is competition, it seems to me that I think the greater opportunity will be in broadband where there will be opportunities to shift from the time based typed of charging to volume based. We're starting to do that now with our Data Lite and Always On offers as I mentioned. That we feel will be the trend so that we are able to ensure that the margins will be enhanced with regards to the broadband services.

We will be also offering different shaded speeds and price points and bundling of services on both fixed and wireless delivery platforms, that's the other opportunity. The next -- for the margins to be enhanced cost efficiencies will be brought into play, based on the modernization program that we have embarked on last year and which we intend to complete this year.

Maybe I can talk about the integration and then maybe we can get something added about the TV5 [effect]. I think on the integration it's not likely to work that way, there are some restrictions on investing in the content business and the broadcast business in the Philippines, that's why the majority of investment will still be held by the BTF. So PLDT will have 30% of the economic interest in TV5 and Cignal. However the voting shares will remain with the BTF. However that obviously doesn't preclude us working very closely together and that's really the major reason for the investment.

Maybe I can try an initial answer on the TV5 which is the broadcast. I think you have to look at TV5 beyond just the broadcast company, behind that in the Philippines the free-to-air broadcast companies also involved in producing content, be it games programs, talent search programs, sports, news, (inaudible), they're actually involved in the production of the content. While their main business in generated from advertising sales, what it does allow us to do is generate a -- or will us allow us to do, generate a body of content, an extensive body of content, which will be available over the (inaudible) platforms of the Group.

So Cignal actually will take advantage of that content but on the fixed line with our Fiber To The Home project, again we will be able to use the content produced by the Group. As we see more and more smartphones out there, again we'll be working very closely with Channel 5 to make that content accessible on the mobile platform. Obviously things like sports and news lend themselves well to shorter clips in the mobile environment. So we will be working very closely with both Cignal and TV5 going forward.

Sorry, if I may just come back, thanks for this, on the cost side. [For the] manpower reduction, per se, can you give us more specific guidance on how much the cost saving could be from 2013 onwards? I think also on competition, I mean are you seeing a pullback from (inaudible) more specifically? That's it.

I think on the compensation benefits line, if you're trying to model it, I think after the headcount reductions in the second quarter we should be able to -- maybe see the compensation expenses relatively flat for the balance of 2012 and into 2013. Because while there are headcount reductions going on, there are some mandated increases that we will see, so maybe it will allow us to flatten the compensation number.

With regards to the competitive situation I [can't] say that we're seeing a pullback from the other side, but we're not seeing any new predatory pricing initiatives at this point and on our side what is working for us is the -- with regards to anticipating higher yields and improved profitability is the shift from the offers -- from the voice offers to more of SMS in the bucket plans and at the same time the strong traction that our tri-net offers are getting in the market at this point, tri-net meaning Smart, TNT and Sun offerings taking advantage of the 67 million subscriber base that we have.

Alright thank you.

Our next question is from Arthur Pineda, your line is now open.

Hi thanks for the call, three questions for me. Firstly on your ARPUs on Smart Postpaid and Smart Buddy, I'm just wondering what is driving down the ARPUs in 1Q, it seems to have dropped a lot sharper this time around than the previous years?

Secondly on your strategy on pay TV, or not pay TV, but on media. As a telco how do you actually monetize and (inaudible) media and content? I see this [not] in the other markets but that's really more on the pay TV5 with shared network infrastructure. So what does TV5 bring to PLDT in terms of economic advantage and is there any good example out there in the region to support this?

Lastly a question on the dividends. Given the PBR investment in MediaQuest, does that alter your appetite for special dividends or would you be financing this with (inaudible)? Thank you.

Let me try to answer the first question on the ARPUs. On the Postpaid ARPUs we have been trying to stimulate the take-up on smartphones and lately a huge portion -- or not a huge portion -- but a substantial portion of our take-up in the Postpaid has been on a particular smartphone called -- on the Samsung model Galaxy Y, which is low priced and therefore had to be in a lower plan level. That is what is taking off as far as the postpaid offerings are concerned, so therefore bringing down the overall ARPU average.

If you take a look at the total Group including Sun, as you know the subscriber base of the Postpaid is about 2 million right now, 1.4 million of that is Sun and their ARPUs are much lower compared to the smart ARPU. Chris --

(Inaudible) the question regarding the free to air and pay television. It's true that most of the references that you can find out there involve -- (technical difficulty).

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One moment sir.

Hello, hello?

Hello Sir.

Hello?

Yes, go ahead please.

We should also I think pay close attention to the more recent strategy of (inaudible), but (inaudible) cable operator [wanting to start] in order to fortify its leadership in (inaudible) generation (inaudible) So if you look at what's happening in this particular investment you have to look at TV5 and cable and Cignal really as a bundle together. The way Cignal can stand up and fortify itself as a pay television provider and an operator of multi-channels is to have a [content] engine and a [content] engine particularly has been the free to air networks.

So that's really what PLDT as a telco will be acquiring, rather than limiting itself to the pay television investment which has been typical in the case of most of the telco companies. But the cable companies have become resurgent and in the Philippines I think you can see that cable has been battling it out -- battling it with PLDT in terms of fixed network. So you have to be able to replicate the capability of cable network in terms -- not only of delivering multi-channels but as well as developing (inaudible) and that's where the TV network really comes from. That's the reason why Sky has been quite successful, because the engine for the process (inaudible).

In terms of the funding for the PHP6 billion investment, we expect that to be financed through debt. So the P&L impact that Chris has indicated earlier takes into account the associated financing or interest costs for that funding.

Understood, so if I could just put two follow up questions here; firstly on the pre-paid ARPUs -- I understand the issues on the post-paid side, if you could just touch on what's driving down the pre-paid ARPUs as well? And a follow up question on MediaQuest, on Luis' earlier question, does the guidance include the CapEx -- sorry, is the PHP6 billion inclusive of the CapEx as well for the year? Or is there more fat or capital there?

The PHP6 billion funding that will go to the PDRs will principally be used for the CapEx requirements of TV5 and Cignal this year.

Understood.

But that's not part of the PHP38 billion.

Not part of the PHP38 billion, so it's in addition to?

Yes, (inaudible) --

So the (inaudible) CapEx --

Total CapEx about PHP3.7 billion (inaudible) PHP3.7 billion for MediaQuest for this year.

Understood. Sorry, just on the pre-paid ARPU drop?

I guess that's basically reflective of the overall market situation, the increasing multiple SIM ownership as well, and I guess the shift towards more of an unlimited type of usage, away from buckets and the regular rate. So that all combined contributes to a decline in the pre-paid ARPUs. But, as we -- this year, we started to put more focus on some of the tri-net offers, which are buckets in nature, away from the unlimited types of offers.

And the tri-net offers are of a higher denomination -- denom, compared to the normal offering.

So should we expect things to improve or at least stabilize then going forward, with these tri-net offers?

Yes, we're looking at, once the tri-net subscriptions are gaining volume, that should stabilize and -- in fact, we're also experimenting on another offer for [un-leased] that is higher, but with additional value to the consumer.

Understood, thank you very much.

Our next question is from Rajesh Raman, your line is now open.

Hi, this is Rajesh from HSBC, thanks very much for the call. I just had a couple of questions; first, I just wanted to understand the nature of the asset impairment charges of PHP621 million and whether these are recurring in nature? And also, I guess a follow up is; why isn't this counted in the calculation of your normalized profit?

And my second question was to do with the option of (inaudible) frequency; if you could guide us on the timetables for this and what you think could be the potential [floor] price? Thank you.

Sorry, what was that second question?

I was just wondering, you know, for (inaudible) --

For the other impairment charges basically relate to receivables and inventories because those are, I guess, recurring in our classification for the PHP621 million that we -- we're citing for the first quarter. Now, under (inaudible) by definite process, we have basically a period up to -- towards the end of July to transition out the subscribers and the business and the fixed assets of the Company, and then commence a process of, I guess, discussion and leading to the actual bidding and divestment, the six month period thereafter.

Right, so the floor price would be -- you would be able to guide us then?

Yes, so the principle is that we would basically have a cost recovery amount, basically reflective of the cost that the Company has spent for a quick [cure], and that will form the floor price for purposes of any bidding and then any proceeds above the floor price will be shared 50/50 between ourselves and (inaudible).

Okay, thanks a lot.

Our next question is from Chate [Ben], their line is now open.

Hi, thank you very much for the call; I have, in total, four questions. The first question is regarding cellular traditional services revenue particularly. Apart from the tri-net, are you also exploring or looking to do anything regarding the pricing of special promotion that currently is not in the market yet and you can share with us?

The second question is regarding the mobile data users; how many mobile data users are there on your network right now? I understand it is not in the presentation.

The third question is regarding the investment in the Media, I understand that PHP6 billion CapEx is budget for the Media company, however, the CapEx in the previous years is ranging from PHP2 billion to PHP4 billion. What is this Media company investing in for the PHP6 billion?

Yes, and the last question is regarding the breakeven, particularly for TV5, so it basically would come from an increase in advertising revenue, to lead to that breakeven in 2014? Or is there any other elements? Thank you very much.

I think, with regards to the first question on the traditional services for cellular, let me just state that in general for promos moving forward, we are looking at ARPU enhancing type of promos, as I said earlier. And we are looking at generally trying to improve the value to the consumer by us being able to offer a wide network coverage and at the same time also improved efficiencies, especially on broadband -- mobile broadband access, which is growing quite fast. So in general it's more ARPU enhancing type of promos that we will be focusing on.

Mobile data users. Data users -- number of [mobile data chart].

I think -- well, when it comes to smart phones, the 3G enabled phones in our networks today number about a little over 3 million and roughly about 600,000 to 700,000 of that are, right now, smartphones. The mobile broadband, or Internet apps usage are still done -- more than half of it is actually done on feature phones with 3G connectivity. So that is the nature of the situation right now.

The growth on mobile broadband revenue is at over 70% this year, versus last year.

On the CapEx side, the estimated CapEx for 2012 is about PHP3.7 and in the next year will be around PHP2.8. These CapEx are earmarked to complete our media center and to say the facility in the (inaudible) to house the studio, the new studio, and production facilities of TV5.

Alongside with that we would also move to a bigger facility for our Cignal. Currently we're renting a small space to house our [stuff], our (inaudible) system and some of the equipment of Cignal. The plan is to buy a property and build a facility.

We expect to start that this month and the estimated completion would be early 2013. Going back with the media center, I think we're about to complete the phase one of the (inaudible) for media center, which would house the [news block]. The total investment for the media -- the (inaudible) is close to about PHP1 billion and we also need to work in -- outfit it with some technical equipment and we estimate to spend additional PHP1 billion for phase one. And phase two, albeit, would be started -- we have already started this March and expect to be completed by 2014.

So moving to CapEx [we] will be using this to support opportunities for TV5 and also Cignal.

(Inaudible).

(Inaudible) so far the (inaudible) business, the target is to achieve a break-even in -- or a positive net income by 2014 and to achieve that we need to at least register a net revenue, a (inaudible)revenue of between PHP8 billion or PHP9 billion. Or that's roughly around 30% market share. So I think we just need to be more focused and increase our market share by increasing our market share from the guide 15.6% to roughly around 30%.

Thank you. First a follow-up question to Poley, regarding the mobile data users. I'm just referring back to your full-year presentation. You mention on your full-year presentation that PLDT has around 5 million 3G handsets and approximately 3 million of that are accessing data on a regular basis. So is there any comparable number towards that or do you hold on to that 5 million 3G handsets and 3 million data users figure you provide at the end of the last quarter? Thank you.

(Inaudible), as I mentioned earlier, the 3 million accessing right now are mostly feature phones with, you know, the normal GPRS access when they get into their social networking sites. And so that is the figure that we are seeing right now in the network. And as I said, about 600,000 to 700,000 of this is our smartphones. So it really ties up with the -- there are 5 million, but not all of them are accessing the network. Only about 3 million are really accessing the network.

Okay, thank you very much.

Our next question is from (inaudible). Your line is now open.

Hi, thanks for the opportunity. I just want to follow-up regarding the MediaQuest investment. Can you elaborate on the transactional gains you spoke about, which will allow you to offset the negative impact to the core income for 2012?

I think we can elaborate but maybe I guess within (inaudible) we anticipate it happening during the second quarter. So we probably -- I think we can let you know, I guess, sometime -- I think we anticipate middle of June, something like that, or early June.

Okay, thank you. I also wanted to check on the quarterly trends of mobile Internet revenues. Especially in the last two or three quarters you spoke on YoY trends. How are they trending on a quarterly basis?

It's up 70% year-on-year --

Year-on-year for the first quarter.

Have you seen growing in the last two, three quarters?

Yes, they have been growing over the last two years actually.

To about 13% quarter-on-quarter.

Okay, thank you.

But year-on-year is 71% year-on-year.

Great, is there any more questions?

We have one more question from Neeraja Natarajan. Your line is now open.

Hi, I just had a question on Digitel's revenue and margins. I'm not sure if my -- if it's right or wrong, but I mean extrapolating for the full-quarter revenues last quarter. It looks like they did 11% revenue growth, is that right? That seems pretty strong, so if you can throw some color on that?

Also the margins seem to have come off QoQ, is it really -- can you provide some color on that as well, with respect to the Digitel business? Thank you.

The Digitel numbers for third quarter were only two months, where for the first quarter it's basically a full quarter in terms --

No, I mean what I'm saying is assuming that if you extrapolated two months as -- into three -- for three months for the for the full-quarter, and if you look at the growth trends, it looks like -- (inaudible) the wireless segment for Digitel, it looks like a pretty strong sequential growth. Is that right? Any thoughts on what the sequential growth for that business was?

I don't have it here but (inaudible) higher but not the level you seem to be indicating. We will get back to you and (inaudible) Q1 (inaudible).

Is there any more questions operator?

I don't have any other questions on queue. And that concludes the question and answer portion. Before I send the conference back over to PLDT, I would like to give everyone the instant replay information for today's call. This conference will be available on the 24 hour instant replay, starting today, (inaudible) May 22 2012. Replay information PPM call. International caller number is 852 3018 4307. US Toll free, it's 1-888-485-2358. Pass code is [8274]. Conference leader is Melissa Vergel de Dios. I will now send the conference back to PLDT for any additional or closing remarks.

Thank you all for joining us today. We look forward to seeing you sometime in August for the first half results. Thank you.

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