PLDT Inc (PHI) 2012 Q3 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 nine month 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 nine months of 2012. As mentioned in the conference call invitation, today's presentation is posted on our website. For those who've 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. Polly Nazareno, President and Chief Executive Officer for PLDT and Smart, Mr. Chris Young, Chief Financial Advisor to PLDT, Ms. Anabelle Lim Chua, SVP/Treasurer of PLDT and Chief Financial Officer of Smart, and Attorney Rey Espinosa. At this point let me turn the floor over to Mr. Polly Nazareno for the presentation.

Good afternoon and thank you for joining us today. For 2012 we anticipated that these challenging operating conditions that arose in the second half of 2011 would carry into the first half of 2012 and would begin to improve in the second semester. Our results for the first nine months of the year are largely in line with this.

Consolidated service revenues as of the end September 2012 grew by 12% to PHP126.2b compared with PHP112.3b in the same period last year. EBITDA dipped by PHP2.5b or 4% year on year to PHP58.6b largely due to the PHP1.8b of reduction costs booked in the second quarter. Margin was lower at 46%. Reported net income for the first semester declined by 6% year on year to PHP28.7b while core net income excluding exceptional items was lower by 8% year on year at PHP28b.

Worth mentioning is that the results of the third quarter of 2012 are generally better quarter on quarter even without the contribution from Digitel. In addition, although third quarter metrics were lower than the same period last year, they showed improvement compared with the second quarter year-on-year results.

Our core income of PHP28b on the next page. Our core income of PHP28b at the end of September 2012 was lower year on year by PHP2.6b. The bulk of the decline or PHP2.4b pertains to the first six months of 2012 compared with the same period in 2011. This reflects the impact in the first semester of competitive pressure which led to higher selling and promotion expenses and subsidies. As well as the one-time manpower reduction cost in the Fixed Line. In contrast, the core income decline of PHP200m in the third quarter was significantly lower year on year and is in line with our outlook for a stronger second half of the year.

Reported net income for the first nine months of PHP28.7b was 6% lower year on year due to lower core income and higher net ForEx and derivative gains.

On the next page, the PLDT Group's combined cellular subscriber base grew to 68.6m at the end of September 2012, with 4.9m new subscribers from the end of 2011. Strong growth was registered by Talk N' Text having added 2.5m in the third quarter alone. Smart subscriber base stood at 25.6m while the number of Sun subscribers crossed the 16m mark. The Group's combined postpaid cellular subscriber base inclusive of Sun Cellular's 1.5m postpaid customer count stood at 2.2m in the end of the first nine months of 2012. Smart's postpaid additions of 108,000 for the nine month period are almost double than net additions recorded in the same period in 2011. We expect to have 70m subscribers at the end of 2012.

The Group's total Broadband subscriber base rose to 3.2m at the end of the first nine months of 2012, reflecting net adds for the year of over 240,000, 100,000 of which were added in the third quarter alone. The combined Wireless and Fixed Broadband subscriber base grew to 2.3m and 902,000 respectively. Finally our Fixed Line subscriber base stood at 2.1m at the end of September.

On the next slide, the consolidated service revenues at the end of September 2012 rose by PHP14b or 12% year on year to PHP126.2b. Digitel accounted for 13% or PHP16.6b in total Group service revenues.

As in other markets, our revenue mix is changing with declines in contributions from legacy businesses such as SMS, NLD and inbound international voice partly replaced by increases in Broadband and BPO revenues. At the end of December, for example, our BPO and Broadband revenues grew by PHP2.7b. However, the combined decline in revenues from our NLD and ILD businesses amounted to PHP3.8b, of which PHP2.2b were from international revenues. Improvements in overall top line revenues will be muted by this trend until the contribution of Broadband and BPO increases significantly.

Note that the structural change in revenue mix is also exerting pressure on EBITDA margins at the higher margin SMS and the international voice revenues are being replaced by relatively lower margin revenue streams of Broadband and BPO.

Consolidated EBITDA at the end of December dipped by 4% to PHP58.6b, although PHP2.2b of the PHP2.5b year-on-year decrease was from the first half of the year. Higher revenues were offset by increases in cash operating expenses, more specifically higher selling and promo expenses, subsidies and PHP1.8b paid in connection with the manpower reduction program. Excluding the said MRP cost, EBITDA would have only been PHP700m or 1% lower year-on-year. EBITDA margin for the period, which would have declined to 48% without the MRP cost, was lower at 46%, partly reflecting the impact of Digitel's lower margin, the change in revenue mix and the higher cash operating expenses as mentioned.

On the next slide our highlights for the various segments starting with broadband and BPO, which show the most promise. Broadband service revenues accounting for 14% of total service revenues remain robust with a 30% year-on-year growth to PHP17.6b for the first nine months of 2012.

Despite low penetration levels of access devices, broadband usage and the popularity of social networks continue to expand. This is supported by the large number of overseas Filipinos, high literacy rates, a relatively young population and increasing purchasing power from remittances and BPO employments. With PLDT's network advantage and the availability of a wide variety of service offers catering to various customer budgets and preferences, we expect to capture an even greater share of the broadband market.

Moving to our BPO business, service revenues at the end of September grew by 16% year-on-year to PHP7.3b, tracking overall industry growth. The outlook for SPI like that of the BPO industry is bullish. SPI continues to focus on growing its top line by expanding its sales pipeline with existing and new clients in current and new geographies, and exploring new verticals.

On the next slide, service revenues from our Wireless business rose 18% or PHP13.1b year on year to PHP87.3b. As competitive challenges remain in this space our strategy focuses on pushing offers that aim to improve ARPU and yield. Among these are bucket plans and variants that keep subscribers on the network longer. Where necessary we have responded with competitive offers in order to defend market share. In the execution of this strategy we are leveraging on the PLDT group's network advantage and ability to provide better quality of service.

Moving to our Fixed Line business, service revenues are highly -- service revenues were higher by 5% or PHP2b at PHP45.5b at the end of September 2012. Data and other network revenues were up by 12% or PHP2.1b at PHP19b, including PHP1b from Digitel. However, NLD and ILD revenues were lower by PHP700m as Digitel's NLD and ILD revenues of PHP800m partly offsets the PHP1.5b decline at PLDT. Our DSL and corporate businesses, which account, which together account for 40% of Fixed Line service revenues are expected to benefit from the continued improvements in the economy, particularly in the BPO industry, as well as the sustained growth in domestic consumption.

Hereto the Group's network advantage boosts PLDT's ability to offer higher valued services to both retail and enterprise customers. PLDT's network advantage was reinforced --- that's on the next slide -- by the recent completion of a two-year accelerated CapEx investment program, which entailed PHP31.2b in 2011 and about PHP38b this year. The CapEx investments were directed at all the network elements ensuring that our access, transport, core and international networks individually and as a whole are unrivaled in its capacity, reach, robustness and efficiency. This will further improve our ability to deliver quality of service to our customers especially for broadband and content.

To further support the anticipated growth in internet traffic following the launch of our fiber and LTE offerings, we have now investments to increase our internet gateway capacity, additional backhaul coverage and fiber rollout that would pass by 2m homes by the end of 2013. We believe that having a strong and integrated fixed line and cellular network is key to maintaining the industry leadership and ensuring growth especially as the industry moves more and more into data.

On the next slide, many of you are aware that we earlier obtained board and shareholder approvals to create a class of preferred shares entitled to vote in the election of directors following the Supreme Court decision in June 2011 on the petition filed by Wilson Gamboa. In the said decision the Supreme Court ruled that the term capital as used in Section 11, Article 12 of the 1987 Constitution refers only to the shares of stocks entitled to vote in the election of directors, and directed the SEC to determine whether PLDT was in violation of the 40% constitutional foreign ownership limit based on the said definition.

On October 9 the Supreme Court denied with finality -- that is on the next slide -- the motions for reconsideration filed by respondents in the Gamboa petition, following the Supreme Court decision of June 2011. On October 12, pursuant to the definition of capital as contained in the Supreme Court decision, the PLDT Board approved the issuance of 150m voting preferred shares to BTF Holdings Inc, a wholly-owned company of the PLDT Beneficial Trust Fund. BTFH paid PHP150m for the said shares. With the issuance of these shares PLDT's foreign ownership based on outstanding voting shares stands at 34.5%, well within the 40% foreign ownership cap and compliant with the Supreme Court decision.

On the last slide, last quarter we said that our first half results support our position that if we are gradually seeing our way out of the tough, with second quarter financial metrics showing no deterioration compared with the first quarter and that the second quarter figures were ahead of the average quarterly numbers in the second half of 2011. The return to the profit growth track seems to be underway as can be seen in our third quarter numbers and consequently in the nine month results.

Our focus remains on improving profitability, profitability levels for our existing portfolio businesses even as we look for new growth areas and opportunities for synergy within the Group. Given the results to date and the outlook for the rest of the year we maintained 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 your questions.

Operator, can you read the questions for -- mechanics for participants to ask questions?

Thank you. The floor is now open for your questions. (Operator Instructions). Our first question is from Mr. Sachin Salgaonkar. Your line is now open. You may go ahead.

Hi. Thank you for the call. I have three questions. My first question is do you see risk of competitive intensity picking up in 4Q and beyond as Globe resolves its capacity constraint issues and could potentially get more aggressive?

My second question is if we look at your data and mobile internet revenue showing a decent growth, but when we look at the overall ARPU the sharp decline continues. I was wondering if this is an indication of any cannibalization and at what point should we see this trend changing as in the ARPU stabilizes or increases.

And lastly, PLDT had an intention of selling the BPO business, SPI. I was wondering if there are any updates on that or if that has taken a backseat. Thank you.

With regards to the first question which is the competitive intensity, over the last two or three quarters the competitive intensity has remained actually quite tight and we're seeing that will continue, but what is happening is that the market shares are stabilizing. Our market share for example has -- in terms of revenue on outbound cellular revenues have more or less remained the same. So we are seeing that has stabilized to a certain extent. Our objective therefore is to protect our strongholds and to respond to whatever threats would be occurring in the different regions within the countries and make sure that we will not lose a single percentage point of market share.

The number two question was?

When do you see ARPU stabilizing?

Right now there is still a slight of downgrading from higher bucket-priced services to the lower bucket price. And as long as the competitive intensity remains I think there will still be a decline in the ARPU albeit it may not be as high as it has been in the last three to four quarters. We're optimistically looking at a reduction in ARPU a little bit on a lower range compared to what is happening today.

I think the last question was on SPI. I think the reason that SPI was discussed earlier was in the context of the overall funding for a possible GMA7 transaction. I think, as you know, that transaction is not now proceeding. So while we are looking at the overall funding or the media investments that we have at the moment, we have no definitive plan in respect of SPI currently.

Okay, got it. That's very clear. Just this one follow-up question on competitive intensity. The one argument out there is maybe the markets has stabilized the last couple of quarter because of the capacity issues at Globe. Now if the capacity issues are resolved, if Globe continues to maybe target increased market share, PLDT is focusing on not trying to lose any market share, there is a risk that competitive intensity might further pick up. So any thoughts on that?

If that is your assumption that we continue to be intensified, the competitive situation will continue to intensify. But I think the overall -- if market shares are stabilizing to a certain extent quarter on quarter, which has been happening in the last two to three quarters, then maybe things would be more rationale moving forward regardless of whether one has capacity or not because we do have capacity too because we have just finished our supercharging of our network.

Okay, got that. Very clear. Thank you.

Our next question is from Mr. Luis Hilado. Your line is now open. You may go ahead and ask your question.

Hi. Good afternoon. Thanks for the call. I had three questions, one on revenues, one on OpEx and one on other income. On the revenue side we noticed that the average revenue per minute for voice has improved quite substantially quarter on quarter and I was just wondering if there is any particular reason for that. But as Mr. Nazareno mentioned, the yield on bucket pricing and even standard SMS was under pressure. I was just wondering if there is again seasonal or structural reasons for that.

The second question was on OpEx for a few items like professional and contracted services, rent and insurance, Q-on-Q, they seem to be up double digit. Any one-off factors for that or should we use those numbers going forward?

And last question is if you could tell us what the other income number was for in this quarter. It seems to be about over PHP1b based on what we estimate for the quarter, PHP1.6b.

We'll compare notes, Luis, but yield per minute Q-on-Q did not increase significantly as per your observation. But maybe you should just take it offline in terms of how we are looking at this.

Yes. I'm getting about PHP1.04 versus PHP0.92 the previous quarter. But yes, I'll take it off line.

And the last question on the other income in the third quarter, that includes the gain on sale of the PhilWeb shares with respect to the first tranche that was closed in July this year.

Okay. There's another tranche coming in the fourth quarter, I believe or --

Yes, yes. We post the second tranche this October.

Okay.

I think on the expense side the reason for most of the increases is this year we are consolidating the Sun and Digitel P&L whereas last year it's not in there yet. We didn't --

Actually, Chris, it's Q-on-Q. It's not -- it's quarter on quarter actually.

2Q to 3Q --- it's 2Q.

Alright.

Our next question is from Rajesh Raman. Your line is now open. You may go ahead.

Yes, hi. This is Rajesh from HSBC. Thanks for the call. I have three questions. Firstly on media could you guide us if there are any revisions for the media budgets for ABC-5 with the GMA acquisition now called off?

Second, could you please remind us on the timing for the CURE auction and what is the minimum bid price?

And lastly, your effective tax rate during the quarter was 19% so could you please guide us on your full year tax rate please? Thank you.

What was the question on media?

All the investments for (technical difficulty).

What is the question? Sorry, what is the question on the media?

Sorry, media, I was just wondering if there are any revisions to your media budgets given that your -- the GMA transaction's been called off so I was just wondering if there was anything that you have to revise in terms of the media budget, anything that you can guide on for ABC-5.

The broad approach I guess it was that the GMA-7 transaction that was either a buy or a build through TV5 and Cignal. I think we're currently reviewing with the management at TV5 and Cignal how the businesses are developing this year. As yet we don't have any updated numbers for 2013 and 2014 yet. I think on balance it would appear that Cignal, which is the direct-to-home satellite TV business is doing quite well and should make if not exceed its numbers, initial outlook for next year. I think for TV5 it is probably a little bit behind of where we are expecting it to be, but again the numbers have been looked at for this year and so -- for next year and 2014.

At this stage as yet there is no impact on the PLDT financial statements. We are -- I'm sure this will come up later -- we are still reviewing how that investment should be made into MediaQuest given the current discussions that are going on following the Supreme Court ruling on the definition of capital. So as yet there's no direct impact but it will certainly begin to affect us going into 2013/2014.

Okay.

On your second question with regards to CURE auction, the prescribed timetable based on the regional ruling was to have the auction process happen I guess no later than sometime in January next year. We have submitted what we call our cost recovery amount, but it is up to the NTC to determine what the minimum bid price will be, whether it will be the cost recovery amount or something higher than cost recovery amount.

The tax rate for PLDT Group, you need to take into account the items that are I guess not taxable from our perspective or --- so, for example, the gain on the PhilWeb sale, the equity share in our Meralco become earnings, previously that gain on the disposal of the [B Contract]. So all of those things have to sort of be netted out to arrive at the more what would really be the operating tax rate for the business. So those things are sometimes distorted if you just do a straightforward mathematical calculation.

Okay. Thank you.

Our next question is from Mr. Arthur Pineda. Your line is now open. Please go ahead.

Thanks. Three questions from me. Firstly, on your OpEx, could you please quantify how much of your OpEx this year was actually linked to the network restructuring? I just wanted to clarify what a clean number for OpEx should be if you were to strip out restructuring activities for the year.

Secondly, you mentioned that there were another 850 towers to be consolidated. Just to clarify, the PHP1b cost savings from 2013 onwards, is that just on 850 or is that on 1,700 towers? Also is there room for more consolidation in the future?

Lastly I wanted to clarify your tower rental expenses. It seems to have risen significantly, up by more than 20%. Is there any reason for this and should we see that reverting in the next quarters?

Arthur, we're not sure what you mean by network restructuring expenses. We have not undertaken any item that we characterize as such.

Presumably you've taken expenses on consolidating the Digitel and PLDT network beyond just the labor expenses. Is there any clarity on how much that has actually costed you this year?

What we are seeing from the sites, for example, the consolidation of sites where it will cost us about PHP1m for every two sites that we consolidate, and so far we have been able to consolidate about 200 sites out of the 1,800 that we are planning to do over the next two to three years. That's the only type of restructuring cost that you might be referring to, but that's about it.

Understood. Sorry, on the towers, the PHP1b, is that referring to just 850 towers or is that a total of 1,700 towers?

The savings that we refer to is after we complete the process then there is a recurring savings of over PHP1b. So the program will take two to three years to complete so I guess it's progressive, but that's after the completion of the program that we see over PHP1b in savings.

And the 1,800 is the maximum that we could expect?

Yes. That's the --

Right now that is what we're seeing based on our evaluation of all the sites physically.

Understood.

And the savings will come from not just tower rental savings but I guess electricity etc. etc.

Understood. Sorry, just the last one on the rentals. It seems to be up a bit quarter on quarter. Is there any reason for this?

I don't think that's tower rental. That rental expense also includes if we see a short term requirement to boost the lease of international capacity. We usually, as you're aware, we usually build that and we are opening the cable landing station in Daet towards the end of the year. But I think with the take-up in broadband we have rented a bit of additional capacity to bridge us through to the go-live of the Daet cable landing station. So that -- these are generally six or 12 months rentals, but it doesn't relate to the tower business -- that doesn't relate to the rental of the towers.

Understood. Okay. Thank you very much.

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

Hi. Good afternoon and thank you for the opportunity to ask questions. I have in total four questions. The first question is regarding your subscriber growth. I see it's mainly coming from your Talk 'N Text plan, which has a lower ARPU compared to the Smart prepaid main brand, which seems to continue to report a subscriber decline. Just trying to get a sense from you is there some kind of internal cannibalization, subscribers migrating from your Smart main brand on to Talk 'N Text.

The second question is regarding the CapEx. You said that it's going to normalize to pre-2011 level. Is it refer to CapEx to the sales or is it the absolute CapEx of PHP28b, PHP29b?

The third is regarding your core net income guidance. In the previous quarter you seemed to also guide that you'd return to PHP42b by 2014 as well, but this quarter guidance you seem to only talk about 2012. Does that -- just want to ask whether there's anything we should read into that or you just didn't mention it.

The last question is on the foreign ownership. I understand that the SEC has come up with a draft guidance yesterday which comply with basically the Supreme Court's recent judgment that the channel should be considered separately by class and therefore this might impact what you and also some other company as well. What's your view on that, on this SEC new draft regulations? Thank you.

Thank you for your questions, Chate. Let me answer the first one. I think to a certain extent, you are right. There is a certain migration from the Smart subs base towards of course the cheaper bucket offerings on the Talk 'N Text brand and to a certain extent that has resulted to our ARPUs, overall ARPUs or the combined ARPUs going down slightly. But what we are doing is we are looking at trying to differentiate the Smart brand versus the Talk 'N Text no-frills brand and therefore adding more value to the Smart brand so that the premium that it commands will justify to a certain extent. But yes, we're trying to manage that shift and we are aware of this shift.

The number two question?

I think the CapEx rate, we're more focused on a number at the moment for 2013/2014. We indicated we think it would come down to about the PHP30b to PHP31b range, which I guess is a little bit above the number that you were mentioning. But I think we're reasonably optimistic about the growth in data going into 2013/2014 both in the fixed and mobile as well as continued corporate growth, so I think we're targeting that number.

On the guidance I think the reason we've not put that in is, one, that we are in the middle of the budgeting updates at the moment and we need to reassess what the outlook for 2013/2014 will be. I think we -- it would probably be fair to say at the moment if we looked out to that 2014 number of PHP42b that that's maybe quite challenging as we sit here now. Two principal reasons for that. One is that in terms of the competitive situation, so-called market repair given where we find ourselves today, I think it's going to take -- it looks like it's going to be -- take longer than we initially anticipated. So I think that will affect the numbers as we go into 2013/2014.

So we still think that, as Poli said in his presentation, that we're seeing the situation stabilize in the current year, but certainly the outlook is it's going to take a little bit longer to get back to that PHP42b number, though as we also indicated, we'll give some firm guidelines or guidance numbers when we come out with the full-year results.

On the last question regarding the SEC exposure draft pertaining to the Gamboa decision, just as a first point, insofar as PLDT is concerned we have taken the view that by issuing the voting preferred shares PLDT has effectively complied with the Gamboa decision, in particular the dispositive portion of the June 28, 2011 Gamboa decision, which actually limits itself to clarifying the definition of capital as referring only to shares entitled to vote in the election of directors for the purposes of determining the allowable foreign investment or foreign ownership limit in PLDT or in public utility companies.

Insofar as the draft SEC rule is concerned, yes, we have noticed that the SEC in its rule-making, policy-making function has actually adopted two statements of the court found in the Gamboa opinions. And the one that you dealt with refers really to the application of the 60/40 rule to each class of share.

Now we have sounded off the SEC and the local business community that we find this particular rule to be very concerning. It does bring into question and doubt the validity of a significant amount of foreign investment, particularly in listed companies like PLDT, Globe, ICTSI, Manila Water, PNOC, EDC, where if you were just to apply the 60/40 rule on the common stock only the level of foreign ownership in each of these companies exceed in varying degrees the 40% allowable limit. The voting preferred shares were created by all of these companies and belatedly by us actually to address the foreign ownership limit and to create in fact more headroom for additional foreign investment which these companies would need for their expansion.

So all of these bountiful effects of a structure that includes the voting preferred shares seems to be put to lock by this draft rule and in general is really a question on how much of this excess foreign ownership can really be sold down in a market where there is very limited foreign capital -- local capital to acquire these shares at current market prices.

By our calculation the foreign ownership in common shares exceeding 40% of PLDT, Globe, Manila Water, ICTSI and Ayala Land would account to about PHP150b. Quite obviously given the trading volumes of the PSE and the amount of genuine Filipino capital that is available to acquire, these shares cannot be sold down in any short period of time. So we have cautioned the SEC and the business community that this will actually depress the prices of the shares and not just the shares that have this effective ownership, but the prices as well of the other listed shares in the PSE, and which could eventually lead to actually a meltdown of the stockmarket.

It has really created an inhospitable climate for foreign investments because until all of this have been clarified by the SEC and perhaps again ultimately by the Supreme Court, foreign investments in the Philippines or foreign investors in the Philippines will not be sure whether or not their current investments are legitimate and will not be required to be divested. So we've encouraged media to encourage the PSE and other business groups to attend the first SEC public consultation hearing on November 9 and to voice their opinions. We will certainly be there with our lawyers to explain to the SEC our position and what we believe would be the negative profound effects of the rule if it were adopted on the stockmarket foreign investment and the economy in general.

We also have sounded off the SEC and the PSE that this kind of rule if it is ever promulgated in its substantive form would actually affect and erode the unprecedented credit ratings so far achieved by the present government and something that all of us should be concerned about. This is not a matter for just the SEC to consider independently of the economic managers of the country.

We have made appeals to the executive branch that the economic managers of the country, particularly the Department of Trade and Industry and the Department of Finance, should get involved and put their inputs to bear on the SEC rule and what we should adopt is a rule or a framework that would be foreign investment friendly and not one that will drive away foreign investments. Because it's easy for foreign money to look for countries where they're welcome and the atmosphere for foreign investments are hospitable.

Okay. Thank you very much. Just a bit of a follow-up. Is there any definite timeframe on when the SEC needs to rule on this?

We have no indication yet when the SEC intends to finally promulgate the rule. What we know so far is they will hold the first public consultation on November 9, after which they will -- they actually allow participating parties to submit their position papers. I think our interest is to attend on November 9, voice out our views, submit our position paper shortly thereafter, and encourage the SEC to hold a second consultative meeting so that the issues can be more intelligently discussed in an open forum between the regulator and all of the affected parties.

Our next question --

Thank you very much. Yes.

Our next question is from Chesca Tenorio. Your line is now open. You may go ahead.

Yes, thanks. Yes, just a question on non-recurring items which is included in the core earnings computation. One is on the manpower reduction. I do understand you have booked already manpower reduction expenses for the first nine months. Just want to know how much is your -- the balance to be booked for the fourth quarter.

Same goes for the gain on sale of the PhilWeb. I do understand the first tranche has already been booked in the first nine months and again what amount will be for the balance of the full year? That's all. Thanks.

On the PhilWeb first tranche, it closed in the third quarter and then the second tranche will close in the fourth quarter. So there will be a similar amount of gain booked in the fourth quarter of approximately about PHP800m.

I think on the MRP the number is not definite yet. I think there are still discussions going on. It could be a higher number. I think, we think it may be something in the region of about PHP500m, maybe a little bit higher than that. It's difficult to know with these things in advance because you're never entirely sure what the take-up might be. But PHP500m, maybe a little bit higher.

Thanks. For the first nine months how much was the manpower reduction? Is that available to be --

PHP1.8b.

Okay, first nine months. That's alright. Thank you.

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

Hi. Thanks for the opportunity. I just wanted to clarify one thing on the computation cost. Is there anything in the third quarter which was part of the MRP as well?

Did you say MRP, manpower reduction?

Yes, because the reason I asked this is last time it was PHP7.8b and you had suggested it's PHP1.8b of excess or one-time. And currently compensation costs are again up so I'm just wondering is there some one-off element there for the third quarter alone?

The manpower reduction program was booked in the second quarter so not in the third quarter.

PHP6.5b for the current quarter would be like the recurring going rate in the future as well?

Please say that again? The compensation costs for the third quarter is about PHP6.6b.

And should we look at this as the recurring rate?

Well, as Chris indicated earlier, there could be another expense related to manpower expense in the fourth quarter.

Manpower reduction expense.

Yes. And then the other thing we probably would need to revisit at some point is really the pension costs as a function of the change in manpower and also I guess some accounting changes next year.

Okay. My second question is on the tax rate. I understand you stated there are a lot of one-offs for the current year. Do you have any guidance for next year ex of this, the PhilWeb transaction?

Typically ex the capital gains and Meralco we are a little under 30%. 30% is the statutory tax rate. So taking away the effects of all the other things we come in 2%, 3% below 30% typically.

And this is not impacted by any changes in the Fixed Line versus Wireless contribution in terms of income because I saw some note in your MDA which suggested something that you have lower provisions because of Fixed Line revenues declining.

It shouldn't. I think there are certain, as a result of the Digitel-Sun transaction there are certain tax, what they call, net operating losses, NOLCOs, which, depending on the outlook for the Wireless or the Fixed Line business, may or may not be recognized. If it's a NOLCO per se normally that relates -- you create a deferred tax asset. So when you reverse it, as Anabelle says, you come out with roughly a tax rate 2% to 3% below the 30%. If there is a situation where there's a NOLCO, which hasn't been recognized but because of improving profitability you can begin to recognize it, that can have a positive effect on your tax rate. But otherwise you're running at about the 27%, 28% level.

Sure. My final question is on the cash inflows that we have so far because of the Beacon and ePLDT transactions. Could you summarize the total amount and planned use of these funds considering now that GMA talks have terminated? So any plans on use of this cash?

Under Beacon-related tax law we receive about PHP3.6b from the disposal of the certain prefs to MPIC. But earlier in the year we had also infused PHP2.7b into Beacon to -- as our 50% share with respect to certain additional share purchases that were made, Meralco share purchases that were made from the Lopez Group. So that's the -- yes. And then under PhilWeb I guess we receive approximately PHP2b this year and then potentially another a little over PHP2b next year. So I guess in a way you can look at that PHP2b also versus the MRP costs that we have basically also shouldered.

Thank you so much.

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

Hi, good afternoon. Just two questions from me please. The first one again following up on the OpEx budgetary, can I just check with you in terms of where you see the longer term EBITDA margins for the fixed line division? They are about 10 percentage points below what they were last year because of the consolidation so any clarity there would be helpful.

The second one is with regards to Digitel DSL subscriber base. I noticed that it's been trending down in the past three quarters. Just wondering what's going on here.

Maybe just to answer the second question first on the DSL, I think really on the Digitel on the Fixed Line that's really a clean-up exercise I think on our behalf. We have fairly strict credit control policies on the PLDT Fixed side, receivables being a perennial problem there over the years. So as the year has progressed we have had Digitel adopt these more stringent credit management policies and I think that as a result we've seen some fall out in subscriber numbers there. That should be fully in place by the end of the year and shouldn't continue as we go into 2013.

In fact I think in case of the residual base of Digitel going forward, given they will have access to improved quality of service on the network because of a closer integration, either full integration or closer integration with PLDT, that improved quality of service I think should encourage more people to take up, more of the voice subscribers to take up DSL going forward.

On the Fixed Line I think guidance on the margins remains the same as we've been giving for the last four or five years, is that broadly revenues are staying fairly flat. We're getting a little bit of drop, but we still are seeing the dynamic where the international inbound and the NLD declined offset by the growth in the data business for the consumer DSL and corporate. And again, as mentioned by Poli in his presentation, the margins on that part of the business that's growing are somewhat lower than that which is declining.

So we have been forecasting the EBITDA margin to come off by about 1% per annum until that NLD and ILD gets down to a much lower number than it is now, and I think that's how we see the trend continuing. Obviously we would consider the PHP1.7b to be something to be added back in terms of how we look at the margins.

Okay, understood. Thank you very much.

Operator, are there any more questions?

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

If there are no more questions we'd like to turn the floor over to you for the replay details.

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 November 20, 2012. Replay information for the CPM call, international caller number country code 852-3018-4300; US toll-free is 1800-945-6576; pass code is 4168; conference leader is Melissa Vergel de Dios. I will now turn the conference back to PLDT for any additional or closing remarks.

On behalf of my colleagues I want to thank you all for joining us today and we look forward to the next call, which would be sometime early March about the year-end results for the Group. Thank you.

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