PLDT Inc (PHI) 2012 Q2 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 half 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 introduction. 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 half 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, Mr. Poly Nazareno, President and Chief Executive Officer of PLDT and Smart; Mr. Chris Young, Chief Financial Adviser of PLDT, Ms. Anabelle Lim Chua, SVP, Treasurer of PLDT and Chief Financial Officer of Smart; and Debbie Tan of Smart.

At this point, let me turn the floor over to Mr. Poly 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 the first six months of 2012.

Profitability in the first half of 2012 continued to reflect the demanding operating environment from the second half of 2011 that exerted downward pressure on our margins. Consolidated service revenues for the first half of 2012 rose 12% to PHP84.7b, compared with PHP75.6b in the same period last year. EBITDA declined by PHP2.2b or 5% year on year to PHP39.3b, largely due to PHP1.7b of manpower reduction costs booked in the second quarter. Margin dipped to 46%.

Reported net income for the first semester was lower by 8% year on year, at PHP21.3b, while core net income excluding exceptional items declined by 11% year on year to PHP18.7b.

The peso closed at PHP42.28 against the US dollar at the end of June 2012, lower by 2% year on year. The average peso/dollar exchange rate for the period was PHP42.90, or a 1% appreciation versus last year.

On the next slide, a comparison of our first-half 2012 results with those of the second half last year shows signs of stabilizing market conditions. Excluding the impact of Digitel, consolidated service revenues were only 1% lower, half on half. Consolidated EBITDA dipped by 4% half on half, while Wireless EBITDA was stable. Core income for PLDT, excluding the impact of Digitel, was in fact higher by 2% half on half, while reported net income was up 70% at the second half included the impact of a PHP8.5b asset impairment.

Including Digitel, first-half 2012 service revenues improved by 8%, EBITDA by 2%, core net income by 4%, all compared with the second half of 2011.

The Group's financial position, on the next slide, remains strong with free cash flow for the first six months of 2012 of PHP24.4b. Today, the Company's Board of Directors declared a payment of an interim regular dividend of PHP60 per share, representing 70% of the first-half core income, consistent with PLDT's dividend policy. Record date for the dividend is August 31, while payment date is September 28.

Next slide, our core income of PHP39b for 2011 consisted of PHP21b for the first half and PHP18b for the second half of the year. The weaker second semester of 2011 reflects the more challenging operating environment in what is historically a stronger semester.

As anticipated, core net income for the first half of 2012 was 11% lower, at PHP18.7b, compared with the same period of 2011, which enjoyed more favorable operating conditions. As mentioned earlier, core income for the first half is 4% higher than that of the second half of 2011. Note that core income for the second quarter of 2012, of PHP9.4b, is stable quarter on quarter.

Reported net income for the first six months, PHP19.5b, is 8% lower year on year, resulting from the combined effect of lower core income and higher net ForEx and derivative gains.

On the next slide, the PLDT Group's combined cellular subscriber base rose to 67.4m at the end of June 2012, reflecting net additions of 3.7m from the end of 2011. Our cellular subscriber base continues to grow strongly, having climbed to over PHP68m at the end of July.

The Group's total broadband subscriber base rose to PHP3.1m at the end of the first half of 2012, with 2.2m wireless subscribers and almost 900,000 DSL subscribers.

Finally, our fixed line subscriber base stood at 2.1m at the end of June, 1.8m of which are PLDT subscribers and the balance Digitel subscribers.

On the next slide, consolidated service revenues at the end of June 2012 grew by 12% year on year or PHP9.1b, to PHP84.7b. This included PHP11.1b of revenues from Digitel, which accounted for 13% of total Group revenues. Data and BPO revenues rose by 18% or PHP7.1b to PHP47.7b, while voice revenues were higher by 6% or PHP2b to PHP37b.

Consolidated EBITDA for the first half declined by 5% to PHP39.3b, as higher revenues were offset by increases in cash operating expenses, more specifically higher selling and promo expenses, subsidies, and PHP1.7b paid in connection with the Manpower Reduction Program. Excluding the said MRP cost, or Manpower Reduction Program cost, EBITDA would have only been lower by PHP500m or 1% year on year, and would have been 7% higher compared with the second half of 2011.

EBITDA margin for the second -- for the period declined to 46%, partly reflecting the impact of the change in revenue mix from high-margin SMS and ILD revenues to lower-margin broadband and voice, cash operating expenses, as previously mentioned, and Digitel's lower margin.

Let me now share with you highlights of our different operating segments.

Broadband service revenues continued to climb, with a 32% year-on-year growth to PHP11.6b for the first half of 2012, and a 16% increase over the second half of 2011. Opportunities in broadband are rich, given a large population of Filipinos living abroad, high literacy rates, popularity of social networks and a relatively young domestic population with purchasing power.

The unrivaled quality and superiority of the PLDT Group network will support the expected explosion in broadband, and the availability of smartphones below the $100 level will further fuel demand for the service.

Note that with only over 3m phones on our network accessing data regularly, we recorded PHP1.4b in mobile Internet browsing revenues for the first half of 2012, which reflects a 97% growth compared with the same period last year.

Moving to our BPO business, service revenues for the first half, of PHP4.8b, were 17% higher year on year, broadly in line with the overall industry growth. The outlook for SPi, like that for the BPO industry, remains bright. The recent rejection of the bill by the US Senate removing tax incentives for businesses that outsource is positive for the Philippine BPO industry. SPI continues to sign up new clients and secure expansion of existing contracts.

On the next slide, service revenues from our Wireless business grew 16% or PHP8.2b year on year, to PHP58.5b. We continue to focus on improving profitability of the Wireless business, with initiatives aimed at improving top line growth such as the introduction of Tri-Net and other bucket offers, as well as the pursuit of operating efficiencies to bring down costs.

Moving on to our Fixed Line business, service revenues rose by 5% to PHP30.4b at the end of June 2012. Although our more traditional revenues from LEC, ILD and NLD still account for 49% of our fixed line revenues and registered a year-on-year decline of PHP1b during the period, we are seeing growth -- we are seeing growing contribution from DSL and third-party corporate data revenues, which continue to show double-digit year-on-year increases.

Improved overall economic conditions and sustained growth of domestic consumption bode well for the Fixed Line business, as these present opportunities to push our suite of DSL offers for the home, our array of business solutions for corporates and SMEs, as well as our data center and cloud based services, all enabled by the formidable strength of the PLDT Group network.

On the next slide, now (inaudible) on our CapEx investment, designed to future-proof the PLDT network and cement its unrivaled premier position in terms of coverage, capacity, resiliency and content. At the end of June, we already booked PHP9.3b of the PHP38b we expect to spend on CapEx in 2012. The Group's investments have produced a network that is unrivaled in terms of coverage, capacity and resiliency.

An access network that is 3G and LTE enabled, with 3G percent -- population coverage of up to 65% and a growing number of LTE pilot sites. A transport network that has the most extensive fiber coverage in the country, with 3 terabits per second capacity; 80% of Metro Manila sites and 36% of provincial sites are now on fiber. A core network that has been upgraded ahead of schedule, and a fourth cable landing station to be up by the third quarter of 2012 and 12 international cable systems alliances in place.

On the next slide, synergy initiatives with Sun Cellular continue to be refined, both in terms of revenue enhancement and expense rationalization. Tri-Net offers have improved yields.

Co-location and consolidation of sites are proceeding, 200 sites already implemented, with expected annual savings of PHP500m. Implementation of national roaming has increased Sun's 2G and 3G geographic coverage to 85% and 17%, respectively. And consolidation of outside plant facilities have minimized CapEx build out and improved existing fixed line services.

On the next slide, our first-half results support our position that we are gradually seeing our way out of the tough. Second-quarter financial metrics showed no deterioration of the -- sorry. We are gradually seeing a way out of the trough. Second-quarter financial metrics showed no deterioration vis-a-vis the first quarter, and second-quarter figures are ahead of the average quarterly numbers in the second half of 2011.

We will continue to exert our utmost effort to get back on the profit growth track as quickly as we can, and as we harness the opportunities for synergy within the Group. We maintain our core net income guidance for the full year 2012 at PHP37b.

Thank you for joining us today, and we are now ready to take on your questions.

(Operator Instructions). Our first question is from Arthur Pineda. Your line is now open. Please go ahead.

Thanks for the call. I actually have four questions for management. Firstly, you mentioned in the last conference call that the marketing efforts will be focused towards ARPU accretion. Can you please elaborate what you have done so far in the second quarter, as well as August, to support this?

Second question I had was with regard to synergies with Digitel. Where are you now with regard to employee right-sizing and site co-location? Are you done with it and when do we see the benefits on the cost level?

Third question I had is with regard to your treasury shares. Any plan to either retire them or reissue them for any acquisitions?

And last question I had was with regard to accounting. Can you just please clarify the PHP2b gain from the transfer of Meralco shares? Was that included in your 2Q '12 core income computation? Thank you.

You want to try that last one, Anabelle, core income?

Well, I guess I will do the last two questions. On the treasury shares, there is no plan to reissue the treasury shares that we have.

And the PHP2b gain that was recognized in the 2Q, that was considered as part of the 2Q core income.

On your first question, let me just state that as one of our ARPU enhancing promos we have gone to -- increased the Tri-Net offers to PHP40 per day, with added value in it. And that is one of the examples that I can cite on ARPU increasing promos.

I think on the synergies, I think we are making fairly good progress. The headcount adjustment so far, the BRP, are principally focused on the Fixed Line business. And the costs associated with that were reflected in the results in the first half, as were the (inaudible) aside, the costs associated with the MRP at PLDT itself, which Poly referred to earlier. It is likely that -- going back to Sun Digitel, that we will look again at headcount numbers, more focused on the wireless side during the second half.

In terms of the network synergies, we continue to work on that. There are a number of sites which have been identified for co-location, between site sharing and co-location close to 1,000. As we indicted, again, in the first-quarter results, that there are certain costs today in the consolidating of cell sites and the co-location, which will affect the results this year. But we would expect the full-year benefit to run a minimum of about PHP0.5b, to be fully reflected as we go into 2013 and later years.

Sorry, if I could just have a follow-up with regard to the question on ARPU initiatives, do you find that consumers are willing to accept higher spending on this, or do you -- and do you also see competitors mirroring your moves on ARPU accretion?

Well, we feel that there is a trend towards flight to quality. And since we have just completed our modernization and expansion program, we are seeing that there is a window for us to really offer value to our consumers with the quality of our network, and that is what we are headed for. Of course, we have to defend our market share in certain areas and where we are seriously under attack regionally by the competitor.

Understood. Thank you.

Our next question is from Mr. Luis Hilado. Your line is now open. Please go ahead.

Hi. Good afternoon. Thanks for the call. I also have three questions. The first was on the compensation and benefits. The MRP cost of PHP1.7b, just wanted to verify whether it is not added back to core income, so it is sort of considered recurring. And also, if you could give us like details on how much of it was for Digitel versus the PLDT cost, and how many employees involved on both sides.

Second question regards to the other income. Part of that was the gain on the Meralco transfer. I was just wondering if there are any more such transfer gains that we can expect in the second half.

And last question is regarding the increase in equity income by about 200 -- over 200% in the quarter on quarter. Does that include the gain from the Rockwell estate sale? And similarly, is it adjusted in the core income numbers? Thanks.

Okay. I'll that your questions, Luis. On the MRP cost of PHP1.7b, we classify that as a recurring item, or effectively it hits core income.

The breakdown of that, PHP1.3b of that is associated with the PLDT fixed line MRP program, which involved around 522 employees. The Digitel voluntary retirement program on the Digitel LEC side was a cost of PHP400m, involving 860 employees.

So, with respect to your question on other income, aside from the PHP2b that we recognized in the second quarter related to the Beacon Meralco shares, the other transaction that we recently announced, which involved the sale of our PhilWeb 27% stake, that would give us a gain that will be recognized in the second half of this year and up to December next year. It is in four tranches. So the gains will come in with -- in timing with the four tranche payments.

And then, on the increase in the equity earnings from Meralco, the gain that Meralco booked with respect to the Rockwell property dividend or the divestment is classified as non-core earnings at the Meralco level. So it follows that at the PLDT level that is also considered non-core.

Where the increase in the second-quarter revenues or income of Meralco comes from is basically an approval they have from the ERC for a recovery of certain local franchise taxes. So, that was booked as part of the core earnings of Meralco for the second quarter. So that explains why the second-quarter earnings are higher with respect to the equity income share.

Thanks, Anabelle. Just a follow-up on the other income portion. How about any further gains on Beacon transfers? There won't be anything in subsequent quarters, unless of course you transfer more shares?

Yes. At the moment, what we have done is basically achieve a 50/50 ownership of both the common and the preferred, so we align the preferred also along that basis. So I guess at the moment there is no plan to do any further, I guess, transfers.

Thanks a lot.

Our next question is from Rama Maruvada. Your line is now open. Please go ahead.

Hello. Good afternoon. Three questions from me, please. Firstly, with regard to the media asset Cignal TV and the free-to-air channel that you have -- you were supposed to acquire, if you could elaborate on what the status is in terms of when is the deal expected to close and when will you be booking the revenues and the costs from there.

Secondly, associated with this is the talk on GMA Network. What are your thoughts in terms of potential risks or potential rewards for the shareholders of PLDT?

The second one has to do with just a minor check on Fixed Line IDD revenues. The data seems to be a little bit odd, because the second-half revenues are actually lesser than the first quarter. So I'm just wondering is it a reclassification issue, or if you could you just talk through on what is happening on IDD revenues in Fixed Line. And yes, basically I will stop there, with those two questions.

On the investment in the TV5 and Cignal, which we approved previously for a PHP6b investment and we had announced that earlier, the funds are being, I guess, disbursed already into the company, but it is currently booked as a deposit for a future subscription, basically because there are not enough shares to cover such incremental capital infusion. So, as such, there is no P&L effect yet that has been recognized as of the moment, until we basically regularize the investment.

On GMA 7, discussions are ongoing. No definitive agreement has been reached yet. That is all I can say.

Just on the Fixed, I think the issue was on the IDD. I think you -- maybe you can just ask the question again?

Yes. I'm looking at the IDD revenues. First of all, it looks like the second-quarter revenue from IDD seems to have fallen down a fair bit. But when I look at vis-a-vis the first quarter, the first-half revenues are lesser than the first quarter. I'm just wondering if there's been a reclassification here.

That's the case, Rama.

No. I think, Rama, that -- no, certainly that's not the way -- maybe we just need to correct you on the numbers. The second quarter is slightly lower than the first quarter, I think which is consistent with the trend, but it's not significantly lower.

One thing that has come down quite a bit is the -- maybe that's what you're thinking of -- is the NLD. The NLD was, from a Q-on-Q basis, down from about PHP2.5b to -- sorry, PHP2.8b to PHP2.5b. I think our take on that is, because of the increasing number of all-net promotions on the wireless network, we're beginning to see an acceleration of the decline in the NLD. But I think that's maybe -- maybe we --

It's not as dramatic as that.

Well, I think it's PHP2.8b to PHP2.5b.

I think -- yes, I haven't missed that. Actually, it is for Digitel, not the overall Fixed Line (multiple speakers).

Yes.

Maybe we can do an offline reconciliation with you, Rama.

Yes. I think the only one that -- yes, sorry. Yes, go on.

Can I throw in one more question in terms of the compensation costs? Now that it's booked in the second quarter, how do you -- how are you thinking about EBITDA margins going forward, for Fixed as well as Wireless?

Say that again, Rama?

What is the outlook for EBITDA margins for Fixed Line and Wireless business, going forward?

I think, other than the MRP effect, I think the trends are broadly what we said previously, that with the change in the revenue mix, both on the Wireless and the Fixed side, that there would be some weakening in terms of the EBITDA margin itself. Plus, as we incorporate the full-year results of Digitel, that will also generally lower the margins. So I think, excluding the MRP costs and the full-year Digitel effect, we -- yes, we're basically saying it was coming off by about 1% per annum. So I think we're sticking to that outlook.

Okay. Thank you very much.

Our next question is from Chate Ben. Your line is now open. Please go ahead.

Hi. Good afternoon, and thank you so much for the opportunity to ask a question. My first question actually is related to the IDD revenue as well, just follow up on my peers there, but I guess we'll take that offline. Moving on to the cellular side, you have launched Tri-Net and also obviously have stepped up in terms of the marketing activities into this year. Do you see stronger revenue momentum coming into third quarter? Would we see some like significant revenue growth in the second half already, or would you still expect it to be more gradual improvement on that front? Just a little bit of thought on that.

Second question is again related to the activities. I understand that you have been guiding for ARPU accretive promotions, but seems like, from your competitor side, Globe seems to be thinking that you are offering more and more discount and actually the pricing is getting worse instead of getting better. What's actually your thought on that?

The third question is just to confirm on the MRP side. So, basically, there would be more MRP activity in the second half of the year, right? Is there any indication in terms of the size relative to what you recorded in the first half at all?

And the fourth question is actually more of a general view. So, the first half is done. Is it in line with your expectation or is it in fact weaker or stronger than you expected? And are you more optimistic or less optimistic for the year than you were before at the last conference call? Thank you.

I think let me take a stab as to the competitive situation. The trend on the third -- normally, the third quarter is seasonally a low quarter, and that we can expect. Having said that, we're seeing that there is, as I said, the flight to quality, and that we intend to take advantage of by giving offers that is related to value generating for our superior network.

In terms of the offers that are getting worse, we -- as far as I know, we are just responding to the regional tactical pricing strategy that our competitor has employed, and we're just responding to a certain extent to protect our market share. That's about what we're doing.

I don't see any offers that are dramatically low at this point. They are all almost the same. The denoms are the same. There are existing denoms that range from PHP5 to PHP15 for two days, up to PHP25, but combined with a 10-minute voice combo. So, right there and then, you can see that the offers are quite low.

I believe the competitive intensity will remain and hopefully an equilibrium will be reached. And then, moving forward, hopefully the trend will be better. But as far as we're concerned, we are here to defend what we have.

Maybe in terms of the -- how the first half was against expectations, I think it broadly was as we had indicated in the first-quarter call and I think also as we had anticipated when we came out with the full-year results announcement. So there are some areas where things have gone well; there are some other areas where things maybe are a little bit slower than we had expected. But broadly, if we look at the results, I think they are in line with expectation. And as a result, we have maintained our guidance both on the net income, CapEx and capital management side for the full year.

Again, as Poly said on his -- in his remarks, I think what we are encouraged with is that the significant investment that we have made in recent years in the network continues to help us both on the Fixed and on the Wireless side, in particular as we see our data business, both Fixed and Wireless, growing. So these investments I think were beginning to pay off for us. So I think, again, the outlook is as we anticipated, and as a result we're maintaining the guidance numbers that we had at the beginning of the year.

Thank you. Just (multiple speakers).

In terms --

-- the MRP, whether that will be more in the second half and, yes, that's it.

Yes, we are anticipating that there will be some additional MRP or VRP expenses in the second half. We don't have any definitive numbers as yet. However, I think probably on balance it's likely to be a lower expense than the one we booked in the first half.

Right. Then just on the back of that MRP, I just would like to confirm again that I understand correctly. So, PHP1.7b total, PHP1.3b PLDT and PHP400m Digitel? It's not PHP1.7b PLDT only?

Yes, that's correct.

Yes. Anabelle -- yes, that's consistent with the breakdown that Anabelle gave a little bit earlier.

Thank you so much.

Our next question is from Neeraja Natarajan. Your line is now open. Please go ahead.

Hi. Thanks for the call. I just have a couple of questions. Despite the gain that you had, it looks like the tax rate is quite low. So, any color that you can show on that?

And on the MRP, have you given out the extent of MRP program probably in the back half? I recall you said that you would look at the Wireless business more.

And then, on the GMA acquisition, I understand it's still very early days, but this will be channeled more to PLDT, is that the right understanding? That's it for me.

Well, I guess as you correctly say, the GMA transaction, it's very early days. And as Poly indicated, while there are discussions, there's nothing anywhere near definitive as yet.

Having said that, if there was to be a transaction, we would need to take into account the restrictions for a media company, which will restrict the bond ownership involvement in that company. So if PLDT were to invest, we would probably have to do it through some form of PDR structure. So, the principal investor would probably be MediaQuest, which is the company which invested in both Cignal and TV5 and which is owned by the Beneficial Trust Fund, but PLDT could take an economic interest through a PDR structure.

Okay. No, but I guess my question was more from the whole financial participation. Although it may be held by MediaQuest, do you have to -- any thoughts on how the funding could be probably spread, more than anything else?

Well, if there was PDRs to be acquired by PLDT, we could fund these directly. To the extent that MediaQuest invested, then MediaQuest would obviously have to fund that itself.

Okay.

On your question on the tax rate, I think the -- while you may regard it as being low, it's basically the PHP2b of deferred gain that was recognized that we discussed earlier. That particular item doesn't attract any tax. So, if you're just doing an effective tax rate, you have to take that into account.

Okay. All right. And sorry, my last question was on the MRP. What is the size of the program for the second half, please?

There is nothing definitive as of yet, but we are, I guess, looking at some selective application of that MRP program. So, nothing definitive yet.

Okay. All right. Thanks very much.

Our next question is from Surabhi Chandna. Your line is now open. Please go ahead.

Hi. Thanks for the opportunity. I have two questions, mainly pertaining to OpEx. One is on the interconnect cost that was down sharply this quarter. Is it largely because of the Tri-Net offers? And what do you expect going into the second half of the year?

And the second one is on sales and marketing. I'm not sure if you answered this question earlier. What is your outlook for sales and marketing? Going into the third quarter, you said it's seasonally weak. Does that mean that we can expect some reduction in sales and marketing from the high expenditure in this quarter?

On the sales and marketing, basically, I guess if you look at last year to begin with, it was very much back-ended, meaning it was high in the third and even higher in the fourth quarter. This year, I think we're taking a more -- the full year last year on a more evenly spread out basis, although there are of course some seasonality impact that does come into play.

On the interconnect, I guess it's basically focusing more on the Tri-Net rather than all-net type of offers, is one of the things where we've -- I guess indirectly benefits us from the interconnect expense side.

If I can just follow up on the sales and marketing question, last year I noticed the expenditure was close to the range of PHP8b, and this year you're annualizing a slightly higher number. So, is it fair to assume that the first-half average is something we can see sustained in the second half as well?

I guess you have to break it down between subsidies versus A&P, so it's slightly different dynamics for those two items. So, subsidies are really more driven by activation levels, particularly on the postpaid business.

And on the sales and --

(Multiple speakers) your subsidies would sit in the cost of sales, right?

Yes, yes, that's right. Yes.

Right.

Okay.

And on the sales and promo, that really depends on how the competitive situation evolves. And so we're -- we'll be basically planning our expense there as a response to competitive threats.

Thank you.

Our next question is from Jambi Reyes. Your line is now open. Please go ahead.

Hi. Thank you. Thank you very much. My first question is actually about PLDT's investments on expanding international bandwidth, particularly the Asia Submarine-cable Express scheduled for completion Q3 this year. After that's done, is there any scope for bringing down bandwidth costs to the consumer?

And then my next question is about the LTE deployment. Right now you have trials, but is there any target date for commercial deployment? And then, what percentage of the population do you expect to cover upon launch? Thank you.

The LTE, we are conducting volume trials at this point in time, and it really depends on the availability of LTE-enabled handsets. And as you know, we have completed already our modernization in our access network, which means that all of our base stations are already LTE-ready. And therefore, an LTE rollout is highly scalable and immediate on our part. So we're really just gauging the market and looking at availability of terminals for that. So, on that basis, we will proceed on how to roll it out. Most probably it will be more on the urban areas first.

On the -- yes, on the additional international cable link, I think it's not necessarily something which we would be proceeding with just as a price measure. I think, again, as we laid out some time ago, with the network upgrade, we're very much focused on quality of service, and particularly in having a lot of redundancy and producing a robust network for both our corporate and individual customers. So I think with the anticipated growth in data, this was an important initiative for us that we planned some time ago and are bringing online now.

Having said that, it does give us significant additional capacity, and to begin with we will only light up a certain portion of the fiber. I think it's only about 15% or so of the total capacity. So, as the data business grows on both the consumer Fixed and Wireless side and on the corporate side, there will be opportunities to bring down the cost of international bandwidth. But really more, I think, at this stage it was more focused on quality of service and having a very robust network with significant points of redundancy in it.

All right. Thank you. Thank you very much.

Our next question is from Juin Huang. Your line is now open. Please go ahead.

Hi, and thanks for the opportunity to ask some questions. Can I just check on your CapEx? Is this PHP9.3b within your expectations? Are you expecting it to be back-loaded? And could you maybe give us a view on whether this is on time or is it -- is there a chance that it could be late?

Can you shed some more light on the competitive environment going forward, given that you've invested -- or you will be plowing in a lot of CapEx into your network and doing all the upgrades? Do you see a strong push to gain market share after that has happened? Thanks.

On the CapEx, we have basically maintained our guidance that it will approximate PHP38b for this year. So, as you can see from the numbers, it will be pretty back-loaded, given the PHP9.3b spend that we have booked in the first half.

Now, it doesn't mean that it's not on time. I think the bookings reflect more the documentation and acceptance of certain CapEx spend. But in terms of the progress of the network upgrades, they are pretty much on track, if not a little ahead of schedule.

On the competitive situation, on the Wireless side we are seeing some stability really, if you can call it that. Our first quarter -- our second-quarter revenues at the Smart level is about the same as the first-quarter revenues, at PHP24.2b. So there we are seeing some kind of stability versus the first quarter and the fourth quarter of last year, which was a decline of 2%.

So, I think, moving forward, we are very conscious in taking the opportunity of the trend that we are seeing on flight to quality. And we will be emphasizing value, offering value to our customers, on the basis or on the strength or on the back of our very superior network. That is the first strategic intent that we have. And of course -- but at the same time, we are not going to give up a single inch in our market share at this point in time.

Okay. Maybe could I follow up on that? How many percent of your subscriber base is smartphone capable and how many percent is using data?

Right now, we have about 3m to 3.5m subscribers for 3G-enabled phones, and roughly about 1m of what you can classify as smartphones in our network.

Okay. Thanks.

Our next question is from Luis Hilado. Your line is now open. Please go ahead.

Hi. Thanks. Just two questions for me. One is just a follow-up on the MRP. Sorry to belabor a point, but why is it considered as a recurring expense? Is it going to happen again in 2013 and going forward?

And second question is, the 22% effective tax rate in the second quarter, should we expect that for second half, or what should the full-year tax rate be?

Luis, we've been classifying our MRP expenses as recurring items over -- I guess for the longest time, given that we do do it quite often.

And the effective tax rate for the second quarter, I think it's probably -- you kind of have to back out the PHP2b deferred gain for you to get to, I guess, a closer tax rate, because the PHP2b does not attract any tax.

Okay. Thanks.

Our next question is from Vishesh Gupta. Your line is now open. Please go ahead.

Yes. Hi. Thanks for the call. Just one question from me. Just trying to understand, on the CURE spectrum divestment, we've heard a few disagreements as to what the price should be. Just trying to understand what happens in a scenario where that spectrum is not taken by anyone? Can PLDT keep it for long or does it go through a separate process, or does the regulator take the spectrum back?

We go through a divestment process under the supervision of the NTC. Should there be no bidders, then the 10 megahertz reverts back to the company.

Sorry. So, can you use it in that case, going ahead?

Yes, yes. So, basically we were asked to give that up as part of the condition for acquiring Digitel, right? So, if nobody wants to buy it, then I guess it's --

We would be happy to have it back.

Yes.

Are there any more questions, operator?

At this time, we don't have any other questions on queue.

In which case, I'll turn the floor back to Mr. Nazareno for any final words before you give us the replay instructions.

On behalf of my colleagues, thank you very much for joining us this afternoon, and we look forward to the same talk some time on November for our third-quarter results. Thank you.

I would like to give everyone the instant replay information for today's call. This conference will be available on a 24-hour instant replay starting today daily, on through August 21, 2012. Replay information for CPM call, international caller number, country code 852-3018-4144. US toll-free is 1-866-386-1322. Pass code is 7770. Conference leader is Melissa Vergel de Dios. I will now turn the conference back to PLDT for any additional or closing remarks.

We'll see you in November. Thank you for joining us.

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