PLDT Inc (PHI) 2012 Q4 法說會逐字稿

Good afternoon, everyone and welcome to the PLDT conference call for the Company's financial and operating results for 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 MS Melissa Vergel de Dios, Head of Investor Relations for PLDT for the introduction. Please go ahead.

Good afternoon and thank you for joining us today to discuss the Company's financial and operating results for the full year 2012.

As mentioned in the conference call invitation, today's presentation is posted on our website. For those who have not been able to do so, you may download the presentation from www.pldt.com.ph under the investor relations box.

Today's presentation will be (inaudible) members of the PLDT Group management team namely Mr. Manual Pangilinan, Chairman of the Board; Mr. Napoleon Nazareno, President and Chief Executive Officer for PLDT Smart; Mr. Chris Young, Chief Financial Advisor of PLDT; MS Anabelle Lim Chua, SVP 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 (inaudible).

Good afternoon and thank you for joining us today. Allow me to present to you PLDT's financial and operating results for 2012.

Our financials for 2012 reflect full year results of Digital for the first time as well as our successful navigation of the various challenges we faced during the year, the intense competition into wireless space, the integration of digital and (inaudible) operations into the Group, the continued push for the growth of broadband and ICP (inaudible), the completion of our network transformation, plus a rollout of [ACTH] and [LPE], the rationalization of our business portfolio leading to the sale of the BPO businesses and the beginning of our involvement in the media space.

We are happy to report that we are starting to see some improvements in the 2012 results. Consolidated service revenues rose 10% or PHP15.4 billion to PHP169.3 billion in 2012. EBITDA dropped by 3% to PHP77.3 billion, reflecting the impact of PHP3.8 billion in manpower reduction expenses incurred during the year. EBITDA margin stood at 46%. Reported net income rose by 12% to PHP35.5 billion. In line with guidance, core income excluding exceptional items declined to PHP37.3 billion from PHP39 billion in 2011.

There appears to be stability, if not improvement, in the financials, particularly if we exclude the impact of the manpower reduction program expenses we incurred as part of folding Digital into the PLDT Group. EBITDA and core income for the second half of 2012 would have been higher (inaudible) first half 2012 and second half of 2011. Moreover, fourth quarter 2012 results would have shown growth over the third quarter of 2012 and over the fourth quarter of 2011.

On the next slide, today the Board of Directors declared a dividend of PHP112 per share consisting of the final regular dividend of PHP60 per share and a special dividend of PHP52 per share. Inclusive of the PHP60 interim dividend paid in August, both our dividends for 2012 is PHP172 per share or 100% of core earnings. This is the sixth consecutive year that PLDT has declared 100% of its earnings as dividends. This on PLDT's floating share price of PHP2920 on March 4, PLDT's dividend yield is 5.9%, one of the highest in the market today.

On the next slide, our combined cellular subscriber base grew by 10% or 6.2 million to 69.9 million at the end of 2012. Sun Cellular subscribers stood at 15.7 million, growing by one million from the end of 2011. The combined Smart and talk and text subscriber base, 54 million or 6.4 million of net adds for the year. This represents the highest annual net adds of the combined [brands] since 2003.

TNT subscribers rose by eight million subscribers to 28.4 million, overtaking the number of Smart subscribers now at 28.5 million. Smart is being positioned as our premium brand while talk and text will more clearly be positioned as our no frills brand. And Sun Cellular will continue to be a (inaudible) brand and the vehicle for unlimited offers.

Prepaid subscribers accounting for 97% of our total subscriber base, grew by 5.8 million or 9% year on year to 67.6 million.

While the market will remain to be largely prepaid, greater effort has been recently directed towards our postpaid business in order to be well positioned to capture the early adopters and heavier users of data. As a result, postpaid subscribers registered an 18% increase to 2.3 million in 2012. This represents net adds of about 400,000 for 2012. Worth noting is that the net adds in Smart's postpaid subscriber base of 133,000 in 2012 is a 10 year all-time high.

On the next slide, our broadband subscriber base continues to grow double digits year on year to reach 3.3 million at the end of 2012, more than double that of competition. Of this there were 1.7 million post paid subscribers and 1.6 million prepaid subscribers.

Wireless broadband subscribers accounted for over 72% of total subscribers and registered a 14% increase to 2.4 billion at the end of 2012. Worth noting is that the net adds for each of the first and fourth quarters of 2012 was maintained at over 90,000.

DSL subscribers rose by 5% to about 900,000 representing nearly 45% of total fixed line subscribers and nearly three times that of competition.

Total fixed line subscribers for 2012 stood at 2.1 million. In 2013, the remaining DIGITEL fixed line subscribers will be migrated to the PLDT fixed line network to give them access to better facilities. This is expected to provide uplift in fixed line revenues.

On the next slide, core net income for 2012 of PHP37.3 billion was 4% lower than the PHP39 billion in 2011. This reflects the impact of the pressure on revenues resulting from aggressive pricing and product offers, in response to intense competitive pressures. Our margins were reduced by higher subsidies and selling and promotion expense.

In addition, we took the opportunity to streamline the PLDT Digitel, Smart and (inaudible) organizations following the acquisition of Digitel, giving rise to manpower reduction expenses of PHP3.8 billion. It is worth noting that the core income of PHP18.7 billion for the second half of 2012 was stable compared to that of the first half and a 4% improvement over the core income of PHP18 billion in the second half of 2011.

Reported net income for 2012 grew by 12% or PHP3.8 billion year-on-year to PHP35.5 billion. This reduced to lower core income by PHP1.7 billion, higher net ForEx and derivative gains of PHP1.8 billion and lower asset impairment of PHP5.6 billion.

On the next slide, consolidated service revenues rose by 10% or PHP15.4 billion to PHP169.3 billion. 27% of service revenues are dollar linked. Had the pressure remained stable, consolidated service revenues would have been higher by about 1% or PHP1.2 billion.

Voice revenues grew by 8% to PHP77.8 billion. Domestic voice revenues were 13% higher at PHP53.9 billion. In contrast, international voice revenues were lower by 2% at PHP23.1 billion.

SMS revenues rose 7% to PHP48.5 billion. Non-SMS data revenues increased by 22% to PHP30.5 billion.

Consolidated EBITDA dipped by 3% or PHP2.7 billion to PHP77.3 billion at the end of 2012. EBITDA margin stood at 46% and excluding MRP expenses, or manpower reduction expenses of PHP3.8 billion booked during the year, EBITDA would have been PHP1.1 billion higher and margin would have been 48%.

On the next slide, for the highlights of the various segments starting with broadband BPO which registered double digit year on year on growth in 2012. Broadband service revenues contributing 13% of total revenues maintained this growth momentum with 26% year on year rise to PHP33.7 billion. This includes mobile internet browsing revenues of PHP3.1 billion which was an 83% increase from 2011.

Social networking continues to gain popularity given a relatively young population with increased purchasing power, high literacy rates and a growing number of Filipinos overseas. With our superior network ready for the exponential growth of data, we are confident of capturing a significant amount of data usage as prices of access devices, including smartphones, reduce.

Moving to our BPO business, service revenues for 2012 grew by 15% year on year to PHP9.9 billion in line with the overall industry growth.

In February, we announced that we agreed to sell our BPO business to Asia Outsourcing Gamma Ltd or AOG and our intention to take a 20% stake in AOG. These transactions are expected to close by end March or early April and will provide net cash in excess of $300 million.

On the next slide, our wireless business also registered double digit service revenue growth increasing by 15% to PHP117.4 billion from 2011 with Sun contributing PHP20.9 billion in revenues.

Even as we defend market share by matching competition's offers, we have also pursued several initiatives in growing our revenues amidst price focused competition. This includes making available higher denomination and longer duration variants to stabilize ARPU. In addition, greater effort has been directed at growing the postpaid business as postpaid users are bigger users of data and also for stickiness and retention. We are innovating postpaid services that allow for postpaid growth with minimal acquisition costs such as Freedom Plans which do not entail handset subsidies.

Moving to the fixed line, this business grew 4% year on year to PHP61.3 billion in 2012. Here we continue to see the concession between legacy revenues such as ILD and NLD to new revenue streams such as VSL and corporate data.

Growth momentum in fixed line revenues will be further fueled by initiatives focused on the home and the enterprise. These include FTTH, or fiber to the home, triple play offers, video on demand, all made possible via our supercharged network. In addition, various business solutions customized for large corporate, BPOs, SMEs and micro SMEs are being made available.

On the next slide, PLDT completed its PHP67 billion two year network transformation program in 2012 resulting in a supercharged network that is unrivaled in the Philippines. We have in place a network that is future capable, scalable, resilient and cost efficient. For 2013, CapEx will reduce by PHP7.4 billion to PHP29 billion as most of the major network investments have already been completed. This year's CapEx will include investments in additional 5000 kilometers of fiber, expansion of 3G and LTE coverage, construction of three domestic cable landing stations, build out of service delivery platforms for IP based multimedia content and expansion of international capacity.

We will continue to invest in fortifying our network advantage in order to ensure the best quality and experience for our customers.

On the next slide, let me now update you on our plans in the media space.

In May last year we announced that the Board approved a PHP6 billion financial investment by ePLDT in MediaQuest in the form of Philippine depository receipts or PDRs. The money has since been advanced as a deposit on future PDR subscription. The PHP6 billion investment will give ePLDT a 40% interest in MediaScape which operates the DTH PayTV business under the brand name CignalTV.

Cignal had 441,000 subscribers at the end of 2012, of which about 85% are prepaid. The monthly ARPU for the business is about PHP337. Sky Cable is its main competitor, who had about 500,000 subscribers prior to the acquisition of Destiny Cable, which had about 180,000 subscribers.

The PLDT groups' investment in MediaScape is consistent with the overall strategy of growing the PLDT groups distribution platforms, and increases its ability to deliver multimedia content to its customers across the group's broadband and mobile networks. Today the PLDT board approved additional investments, this year amounting to PHP5.55 billion, consisting of PHP3.6 billion for a 40% economic interest in Start ventures, which holds the residual 60% economic interest in MediaScape. And PHP1.95 billion for 100% economic interest in Hastings Holdings, which holds print related investments, including minority positions in the Philippine Daily Inquirer, Philippine Star and BusinessWorld.

On the next slide, this provides some insight in the Philippine pay TV market, which remains under penetrated with just 11.3% of TV homes subscribing to cable or direct-to-home service. There are a total of 1.7 million pay TV subscribers in the Philippines, with Cignal's market share of 28%. Revenues for the pay TV industry are estimated at PHP11.6 billion in 2012. Key success factors for the pay TV business are acquisition of key content, coverage and critical mass of subscribers. Cignal's competitive strength is its ability to expand coverage faster than competition, given the ease of roll-out of DTH, which is the direct-to-home over satellite, compared with cable.

At this point, let me turn over the floor to our Chairman, Mr. Pangilinan, for this year's outlook and design.

Thank you, Napoleon. Good afternoon to all of you. Taking all of the items that Poly described to you earlier we are guiding the core [netting] down for PLDT for 2013 to improve by PHP1 billion to PHP38.3 billion for this year, which is PHP37.3 billion in 2012. This was after two years of profit decline reflecting 2011 and 2012 numbers, and we take comfort from the fact that the first two months flash numbers of the group are quite encouraging, showing increases in both revenues, improving EBITDA and the bottom line core profitability for the first two months.

So we can say that we are likely to be of the growth (inaudible) and we expect to continue on this trajectory for 2013 and beyond.

As to cash flows, we foresee improving cash flows or improving cash flows for 2013 arising from improving EBITDA margins, lower CapEx, so PHP7.4 billion, which Poly said earlier, and the balance of (inaudible) of the (inaudible) shares, which we expect to receive in 2013, and of course the proceeds of the 80% divestment of SBI, which will amount to over $300 million, of which closing we expect to do by early April.

As to dividends, we are comfortable about maintaining the regular dividends of 70% and the 30% special dividends out of the 2013 core profitability. I believe that ends our presentation for today. Thank you again for joining us. I'd like to turn over the microphone to Melissa.

We're now ready to take your questions. We'll first take questions from those who've joined us at the conference in Philippines, before we take questions from the floor. Operator can we turn the floor over back to you?

Thank you. The floor is now open for your questions.

(Operator instructions)

Our first question is from Mr. Sanchin [Santo Encarr]. Your line is now open. You may go ahead.

Hi, thank you for the call. I have three questions. Firstly is it possible for you guys to provide any targets for the service revenue and EBITDA number for 2013? The would be very helpful.

Second, by the looks of it, (inaudible) revenues are getting, you know, impacted, or if I could use the word slightly cannibalized given by the data update. Any thoughts on how the decline in (inaudible) revenues could be arrested going forward? And lastly, you know, I just wanted to understand from you to get an update on competition. Perhaps, Manuel, could we see the revenues getting rebounded, or to that matter, even competition going down from currently the sort of so-called intense competitive environment? Thank you.

All right, Sanchin, I'll try to answer, I think, the first two and then Poly may comment on the competitive situation. I think in terms of revenues and EBITDA, I think we are speaking to our position, that we're expecting both to grow, but both earned low single digit. We're seeing growth, I think, both on the wireless and actually the fixed line side as well, running at about the same rate.

On the outlook for ILB, I think it's a trend, actually, that we've seen for quite a number of years now. I think the fixed line, the national revenues have been in decline for close to 10 years. I think there's quite a bit that we can do to mitigate the decline and we've been quite active in promoting our services outside the Philippines to beyond the global selling, both a combination of the fixed and the wireless services. But I don't think there's much we can do to arrest it completely. It's really more a case of mitigating the base of decline.

The very fact that broadband is growing at double digits across -- percentages across both the fixed and the wireless business does mean that it tends to eat into the ILB revenues, so it's a side effect of that, or cannibalization, as you mentioned. Poly may comment on the competitive situation.

In regards to the competitive situation let me just state that the market -- the cellular market has, in terms of market -- revenue market share has remained stable in the last four quarters. Our market share was hovering at around 61%, 62%. We are not seeing new offers which are predatory in nature in the prepaid or the (inaudible) or the budget service. So we feel that while competition will still be intense moving forward there will be no predatory initiatives moving forward. So therefore it looks like with reinforced and super-charged network that we have today, we are ready and prepared for any -- we can react to any negative offers if there would be any. But we don't expect that to happen, but nevertheless we're prepared.

Okay, great. This is very clear. Just one follow up question; (inaudible) coming from Cignal. So in two or three years, what could we (inaudible) sort of percentage amount of revenues coming from the media related investments, or any particular target or number which you could give us?

For Cignal we are looking at the -- right now the subscriber base is at 441,000 at the end of the year last year, and we're looking at -- to increase that to roughly about 650,000 per year and this year. And we are expecting Cignal to deliver up -- already, in fact, last month they had delivered a positive EBITDA and we're seeing that in -- by the second half of this year Cignal should start to make money, in terms of core income. And I think the 2014 target for Cignal is about $1 billion in bottom line for next year.

That's very helpful. Thank you.

Any other follow up questions Mr. (inaudible)?

No, thank you.

Thank you. We will now move to our next question from Mr. [Louis Hurado]. Your line is now open. You may go ahead.

Hi, good afternoon, thanks for the call. I just have three questions. The first just I received a notice that for the fourth quarter your SMS users have increased but the voice (inaudible) has come down. Which one (inaudible) strategic move or a seasonal uptake in the (inaudible) SMS use?

The second question is a bit of housekeeping. In the fourth quarter OpEx there seems to be quite a lot of items with significant declines. Is that due to the discontinuation of operations for BPO or is it -- and is it something that (inaudible) to carry forward going to this year, or should we look at full year 2012 at the base? And the last question is also housekeeping. The asset impairments for the fourth quarter, is that for the wireless network or the fixed line network?

Maybe I'll try the easiest question, Louis, which is the last one. The asset impairment is in respect of the wireless side. This is really a year-end assessment of the stage of integration between the Sun and the Spark network. I think as you know the idea is both to consolidate the number of sales sites and share a number of sales sites. So we made a very specific review of that, and that network provided that to us, and we then looked at the impact on items which would no longer be used in the network, and then secondly items where there would be a match of (inaudible), and we took an impairment accordingly. But it's really just reflecting the plant integration of the networks on the Sun and the SMART side going forward. Annabella, I'll let you try SMS yields.

What does (inaudible)?

(Inaudible).

Right. Yeah it's like (inaudible) so I guess in the fourth quarter there was a spike in the voice usage typical of, associated with the Christmas period. So we have improved yield because of that.

Okay, thanks.

I think on expanse, it's really just that certain expanses will fall into particular quarters. So I don't think there's any particular issue. I think the main item which we have discussed during the year that there has been quite significant manpower reductions across the business which affected both the fixed line and to a degree the wireless business. And they'd been partly taken in the first half of the year and then the balance in the second half of the year. But other than that I think there's nothing more than just certain expenses falling into certain quarters. If there are particular items maybe we can follow them up with Melissa a bit later.

Trying to look at it like for this year's forecast, I should look at the full year I think rather than the quarter.

I think that's the best way to look at it yes. And then you then need to factor in, take into account the impact of the MRP. That doesn't mean to say that there won't be some EBITDA reductions going into this year as well 2013. But certainly nothing on the scale that we saw in 2012. If any at all, a much smaller impact.

Thanks (inaudible).

Any other follow up question Mr. [Hilato]?

Oh no, that's all.

Thank you, we will next move to our next question from Mr. Arthur [Pineta].

Your line is now open, you may go ahead.

Hi, thanks for the call. Three questions from me as well. Can you talk about the financial position of MediaQuest, particularly TV5 and Cignal. What are your profit expectations on this side and has it changed from your original assumptions? There's very limited clarity on the media businesses and this is sustained with you taking up capital for the Company. The second question I had is with regard to the costs. You've got a total of PHP3.8 billion for MRP at the yearend versus PHP1.7 billion in the first half. How much would this actually reduce labor charges going forward? Third question as regards to the profit guidance for 2013 at PHP38.3 billion how much would be for mobile fixed media and BPO contribution loss? Are there any asset sales included in this PHP38.3 billion? Thank you.

I think on the last point the guidance really as the consolidated guidance. We haven't broken it down by line of business. I don't think at this early stage in the year that that is something that we normally do. The only asset sale that is anticipated there is I think you will recall that the Philweb sale was partly in 2012 and partly in 2013. The Philweb contribution I think in 2012 is about PHP1.65 billion, PHP1.7 billion. But what we are expecting is similar if not slightly higher about in 2013. So that's the only anticipated item there.

On the media side I think in terms of clarity I think we've set out what the investments are. Effectively the PHP6 billion plus the additional PHP3 billion going into Cignal. Cignal as Mr. [Masarenu] said should breakeven on a EBITDA basis in the early part of this year.

And on the second half alone we should be profitable. So really the metrics there are reasonably clear. It's adding subscribers which we expect to get close to 600,000 at the end of the year. And it's really driven by the ARPU that the subscribers generate. So it's a combination of fixed -- a combination of prepaid and postpaid. So the idea in both cases is to see ARPU improvements during the year. A case of the investments into Hastings which is the newspaper investments, they're profitable, they are also cash generated. They will generate probably close to about PHP100 million, so dividends for us in 2013. Now what MediaQuest does with the money that it gets on both the most of the funding for 2012 and the bulk of the funding for 2013 is effectively to fund its investment into TV5. But TV5 at the moment PLDT will not have a direct investment in.

The PDRs that are issued are given economic interest in Cignal and economic interest in Hastings. TV5 will remain an investment of MediaQuest for the moment. It's possible if there's additional funding required by TV5 into 2014 that PLDT will need to invest directly. But we're not doing so at this stage.

With regards to the PHP3.8 billion MRP cost last year, that relates to over 2000 people that built the program. And we don't expect, as what Chris has mentioned earlier, we don't expect the same scale of manpower reduction program this year. It will be much much smaller than that.

Okay, just to clarify but I'm just trying to reconcile the PHP1 billion increase in profit versus the cost savings that you could potentially generate from the various exercises, such as MRP and colocation. I'm just trying to understand, if you are potentially seeing significant cost savings on labor and significant cost savings on network colocation, why is that not filtering down to the bottom line yet?

I think the other item you need to take into account is also as well as the Philweb sale in 2012 there was also the Beacon transaction during the first half, which would I think you recall generated again for us a cost to PHP2 billion. So I think if you take that into account then the numbers will broadly work.

Understood. Thank you very much.

Yeah and it's also been pointed out that (inaudible) will be included in the core number for 2012, but not for 2013. I think if you take these factors into account you'll broadly get to the guidance number of PHP38.3 billion.

Understood, thank you.

Any follow up question Mr. [Pineta]?

That's all, thank you.

Thank you. We will now move to our next question from Mr. (Inaudible). Your line is now open, you may go ahead.

Hi, thank you very much for the opportunity to ask some questions. The first question again is on Cignal and Chris mentioned that the improvement in profitability in 2014 and 2013 would be driven by ARPU increases. I'm just wondering where those ARPU increases you think they're coming from. That is from better content, or that is from a better mix of prepaid versus postpaid, where is that rise coming from? I think that you also mentioned PHP1 billion in income in 2014. I'm just wondering what level of subscribers that assumes by the end of 2014?

Excuse me. We can't seem to get you clearly here. Can you please speak a little slower and more clearly.

Sure.

And a little bit louder, sorry.

Sure, I might have been -- I was using a headset. Is that better? I'm now using a handset rather than a headset. My first questions are on Cignal. I think Chris mentioned that you're figuring on ARPUs improving in 2013 and 2014. I'm just wondering where those ARPU improvements are going to be coming from? Is that you are just selling better content to these guys, or this is a change in the prepaid postpaid mix? Where's that ARPU improvement going to come from? I think you also mentioned PHP1 billion of net income in 2014.

I'm just wondering what level of subscribers that assumes by the end of 2014, versus the 600,000 you mentioned in 2013? The second question is on CapEx of PHP29 billion. The population coverage for 3G and for 4G that PHP29 billion gives you and how fast would you see that increasing in 2014?

And the third question is just on prepaid and migrating these guys up to postpaid. I think that looks like the key battleground for both you and for Globe. Both of you seem to be concentrating on that area. So the level of competition specifically in that area, have you seen (inaudible) plans, what's the level of competition at the moment within that specific area? Thank you.

Just on the Cignal ARPUs, there is a plan to move the Cignal ARPUs higher over this year and next year. It will be a combination of pushing postpaid. We have seen very good traction of postpaid sales starting in the last quarter of last year.

And in fact the first two months of this year. So we're changing the mix, increasing the postpaid mix over the prepaid mix. We are also marketing moving some of our prepaid to the higher plans, prepaid plans and the highest prepaid plan to the lowest postpaid plan. So it's a combination of up-selling to our existing customer base and pushing for increased sales in our postpaid.

All right.

Let me answer the question which I understood, which was the 3G and 4G coverage. The CapEx for this year includes an expansion of both the 3G and the LTE coverage. And as we speak we already have 1000 base stations of LTE on two bandwidths, namely 2.1 gigahertz and the 1800 (inaudible).

So the coverage is basically limited to the urban areas, Metro Manila to -- we're focused on Metro Manila for LTE and both Cebu and Davao. For the 3G, the coverage that we are targeting for this year will be in the neighborhood of about 85% to 90%.

All right, okay. Yes, that's fine. And then the final question on the key battleground of higher end prepaid and trying to migrate them to postpaid? The level of competition there?

Postpaid, if you look at the market last year, grew overall in terms of revenues by 20%. And our market share on postpaid is roughly at about 40% to 43% -- on revenue terms. But on subscriber base we are about 56%, 57%. So with the increase with our subscriber base we feel that this is a good platform for us to increase our revenues.

In terms of being able to migrate them to higher plans and giving them more value to their subscription and that is the strategy that we are looking at for next year. Postpaid is very crucial to us because most of the subscribers who are early adults to teenager are in the postpaid service. This is very crucial at this point because the smart phone penetration is now increasing.

As you know our smart phone growth for the total industry for the net (inaudible) of smart phones last year was about PHP3.5 billion, which is one of the highest in South East Asia.

Okay. And just a final question on the Cignal again. The sub-base that you would hope to have by the end of 2014 to enable you to earn that PHP1 billion core net income figure?

We are looking at -- last year we ended up with 441,000. We are looking at about 650,000 by the end of this year.

Yes and then by the end of 2014?

Maybe close to 900,000 by the end of 2014.

Okay, thank you.

900 or 800. I was trying to increase the targets for Cignal.

Any follow up question Mr. [Tao]?

No, that's absolutely fine, thank you.

Thank you. We will now move to our next question from Mr. (inaudible). Your line is now open, you may go ahead.

Hi, good afternoon and thank you for the opportunity to ask a question. I have four questions. The first one is again related to the media investment. On the bigger picture would you be able to share with us the bigger picture around the media business? Should we expect you to continue to develop it as a separate service and really grow the pay TV business, or how would that be synergy with your existing business?

And would we expect like more material investment from here in what area that you see? The other three questions are more housekeeping questions.

Just regarding the sale of the BPO business again on sales. Is that, expect that to be booked into FY in the (inaudible) as well and how much? The next on is on tax. I understand that in the fourth quarter actually there's a lot of tax benefits.

If my calculation is correct there's no tax expense at all. What's that from and what should we expect from tax in terms of, in FY13? The last question is regarding the media business. I understand it is being recorded in PLDT business right now. I just wonder whether that's part of the big plan business, or would there be a separate disclosure on that going forward? Thank you.

Maybe in terms of the last question first. I think the idea would be that when we come through the segment reporting it will be initially under others. But over time if it becomes a more substantial part of the business then it may have its own segment. But initially we will put it under the others. In terms of the tax, yes you're correct, the tax is a low percentage for the year. That's partly that certain of the transactions during the year, particularly the Philweb and Beacon are not subject to income tax. They are subject to certain capital gains taxes and other taxes as stock exchange transactions. But not direct capital gains tax.

So the third quarter effectively just looks at the full year and comes up with the required tax charge to the year. But it is low because certain of the gains this year are not subject to income tax.

In terms of the SPi transaction, there will be a one off gain. We will probably record that in the second quarter. I would expect that to be a few PHP100 million. It depends a bit on how the exchange rate moves. It may be closer to PHP1 billion. That sort of range. But we will treat that as a one off item given that's the sale of all a segment of the business.

In terms of Cignal, there is -- there remains to be very strong demand for the Cignal service, both postpaid and prepaid. I said earlier we have seen more increased demand for postpaid given that the TV market in the Philippines has recently moved from a CRT market to a flats screen HD market. So that is driving up with the sales, so Cignal. We have the most number of HD channels available in the country of around 22 HD channels. The top most plan. So in terms of our growth diversity will come from increased activations as we gain more subscribers nationwide. Then we see a number of funding opportunities, with our (inaudible) affiliates. Particularly with PLDT and even with our mobile affiliates, SMART and Sun.

Thirdly we are looking very closely, together with our (inaudible) affiliates on the mobile screen, connected screen services and we will make an announcement perhaps sometime in the middle of this year on one development project that we will be able to launch about that time.

Thank you. Just two follow up questions from me. The first question is regarding the sales of SPi. Though again it could potentially reach a few hundred and PHP1 billion I understand. So that is included or excluded from the core income guidance? The second one is on the media investment again. I understand that your effective interest right now in Cignal is beyond 50%. You still continue to -- you could account for that again in terms of how it works again in terms of contribution? Thank you.

The Cignal gain is excluded from the guidance. Sorry, the SPi gain is excluded from the guidance number PHP38.3 billion. The Cignal we will at least, as far as 2013 is concerned, we will probably equity account the Cignal investment. Even if it does go above 40%.

Okay, thank you very much.

Our next question is from Mr. Rama Maruvada -- your line is now open. You may go ahead.

Hi, good afternoon. Two questions for me please. Firstly with regards to the overall cash OpEx, it's about PHP84 billion for 2012. You said about PHP3.8 billion are the MRP charges.

The longer term, just wondering how you expect the cash OpEx to trend maybe two years out. Do you expect any significant direction in the cost base, or do you expect stability here? Any comment there would be good. Secondly with regards to the media business you said you are going to equity account it. But about a year ago, I think you said that you will be fully consolidating the investment. Just wondering what has changed?

No, I don't think we ever said we would fully consolidate the media business. While it's below 50%, it's clear that it is equity accounted. In fact even if we go above 64%, if we go above 50% to the 64% that is anticipated for Cignal, it will probably still be equity accounted.

Because we're investing through the PDR. And the PDR structure allows us to take an economic interest. However the voting rights remain with MediaQuest. So at least as far as our discussions with our auditors are concerned it will be equity accounted for the moment. And whether it's 40% or whether it's 64%. That could change if the accounting guidelines change going forward. But as it is at the moment it is equity accounted. In terms of the costs again we would expect some stability now out of the headcount reductions which Mr. [Masarenu] referred to earlier.

That's not to say there won't be some. But in a much lower level in 2013. But I think you can factor in the cost increases. Probably in the 4% to 5% level going forward.

Okay, thank you very much.

Any follow up question Mr. Maruvada?

No, thank you.

Thank you. Our next question is from (inaudible). Your line is now open, you may go ahead.

Hi, thanks for the opportunity. Actually I'm still confused about the EBITDA outlook for next year. You did mention there's some more MRP that's going to be, that could be there. But I'm surprised that you're not sounding a lot more optimistic. Adjusted for the sale of the discontinued business.

If you could throw some color over there that should be very helpful. And secondly more on the wireless EBITDA margins, even if you for example just quality adjust for the MRP that you've highlighted. It looks like margins are still moving on the downtrend. So are you more comfortable that this could be descended, probably improved from here on? My last question is once again on competition. It seems that between quarters to quarters, I mean the message that's coming from the Company seem to be very different.

And also based on what your competitors are saying versus what you're saying. And they've also upped the sales and promotion expenses in this quarter. So any thoughts around that would be very helpful. Thank you.

Well first of all the EBITDA margin appears to be low mainly because of the entry of digital into the group you know. There are margin prior to the entry was -- the EBITDA margin was about 39%. Let me just point out that it is already increasing. And towards of the end of this year it was hovering at around 35%. And we're looking at the margins improving.

And therefore that is why we mentioned that if we take out the MRP expenses, the average of 46% EBITDA margin would improve to 48%. But that is the level that we are in now given the acquisition of digital into the group. Moving forward we can look at increases in our average EBITDA margin based on the improvement at the digital level and hopefully if the market would move towards higher denoms and longer duration that would improve further the margin on prepaid.

I think maybe the other thing you need to take into account is the changing revenue mix. I think this is something that we've been communicating for quite a number of years now.

That as the revenue makes changes we see strong growth across the Group in broadband, be it fixed or wireless, but offsetting that -- and again it's a trend we've seen for many years now - are declines in things like the international inbound revenues and to an extent on the fixed the national long distance revenues. These are some of the higher margin businesses in the Group and while the margins on data are improving it's unlikely that in the long term they can replace what we are seeing eroded in ILD and NLD.

So I think that's another factor that when you're projecting you need to take into account. So yes there are good cost savings from lower level MRPs going forward, there are all the good things as Poli has indicated that are happening at Sun and Digitel which are improving ARPU. But you also have to look at how the revenue mix has been changing in recent years and in fact it's probably going to - at least on the wireless side that change is going to accelerate over the next two to three years as we see more smartphones out there. So I think that's maybe why we're a little cautious on the outlook for the EBITDA margins looking into 2013, 2014.

Any follow-up question Miss (Inaudible)?

Yes, sorry, I just had one more on (inaudible) competition. I just meant to say that Globe saw a big spike in promotion expenses in the last quarter but from -- I guess PLDT is indicating to a more moderating environment. Just wanted to get your thoughts around that?

Yes I think the postpaid arena what has happened was in terms of the marketing costs and the subsidies combined our competition spent more per subs per net add, much larger than ours, almost double compared to ours, and that is where the competition is as far as the postpaid arena is concerned.

We're looking at that continuing this year and it is - really our strength there is the network and with the 54,000 kilometers of fiber that we have connecting most of our base stations we feel that as far as customer service and satisfaction is concerned we are prepared to deliver more value to our customers.

Thanks very much.

Our next question is from Mr. [Ronald Sonko]. Your line is now open. You may go ahead.

Good afternoon. I just have a couple of questions. The first one is for the past few years the revenues for wireless and fixed line as you know have been declining whereas revenues from broadband have been growing but essentially the growth in broadband has not been enough to compensate for the decline in the wireless and fixed line. Do you foresee that changing? Do you foresee the growth in broadband revenues exceeding the decline in the wireless and the fixed line and how soon would that be?

My second question is about essentially the OpEx savings for this year. Given the benefits of the integration with Digitel, can you give us a ballpark figure on the savings in operational expenses which may include general administrative and network expenses as a result of that integration?

Next question would be, can you give us an idea on the EBITDA margin for the Cignal business? That's it for now.

Yes I think the first point is really where we think we've got to, particularly in terms of the fixed line if you look at what's happening on the broadband and data.

If you went back several years, the [toll] parts of the business, the ILD and NLD, were more than 50 per cent of the total and were really declining. Now what's happened is that if you look at these now I think they're only about 25 per cent of the total and even though the decline is still in the region of about 10% the other parts of the business, in particular the growth in the consumer DSL, is up by about 12% year on year.

If we look at data, the data business, the data centers, the other investments we have there in the corporate side, it's even somewhat higher, up to about 90 per cent year on year.

So I think that's why we're looking at the turnaround happening from one where you've got relatively flat actually declining revenues to one where we're beginning to see a bit of increase as we go into 2013, 2014.

Again I would stress that it's maybe relevant also to that earlier point on the EBITDA trend, is that that change in revenue mix, while it's encouraging to see that we're now moving towards growth, there has to be an appreciation that the DSL, the corporate data and the data center business is a somewhat lower margin business than historical ILD and NLD businesses.

In terms of the cost savings, I think what we're seeing is that the cost reductions would allow us to cap the increases as we go into 2013 and 2014 to again a relatively low single-digit level. I don't think we'll see costs declines but we should see cost increases of similar or maybe a little lower than the increases in revenue going forward.

But it's more to cap the increases that we're looking at rather than see significant declines year on year.

The EBITDA margin for Cignal, if you look to 2014, 2015 would be --

-- for this year the EBITDA margin for Cignal is forecasted at 20% growing to 28% in 2014.

Alright, thank you. Can I just have some follow-up questions. Like for the EBITDA margin, I just recall that it was mentioned earlier that the EBITDA margin now is 48%. Do you foresee that -- assuming that there's full integration of (inaudible) with Digitel and you get the full benefits of the integration, do you foresee that increasing or how do you project that could be in the future, let's say under equilibrium conditions?

Another question would be, right now - the other question is do you foresee the LTE could be a major contributor to wireless revenues because right now it's really on the high end users postpaid so do you have plans to democratize that, to broaden the subscriber base?

Maybe I'll try the first one again because I think it's a similar answer. Certainly there are a lot of initiatives in terms of cost savings that again Mr. Nazareno mentioned, the headcount reduction last year, somewhat more anticipated this year but a much lower level, the integration on the network side in terms of cell site consolidation, cell site sharing and the like.

However I think you do have to factor in what was raised I think in the very first question is that there are reductions in ILD, NLD happening, to some extent because the broadband business is growing. It's broadband that effectively facilitates VoIP calling, services like Skype and the like exist and can exist when there's a broadband connection in the originating country and terminating in the Philippines.

So we are encouraged, as I said, to see data revenues growing at double-digit. The ILD and NLD revenues now down to a relatively small percentage 25 percentage, so that we are getting an overall increase. But that does affect the margin going forward. So we do have to continue to work hard on the cost side to attack -- our broad outlook is that that would over the next couple of years allow us to see some stability in margins around about the levels that we're disclosing for 2012.

On the wireless side I think you'll see a similar trend develop. Smartphones facilitate wireless internet access. There's a range of products out there which people, subscribers find useful, but some of these will tend to eat into our legacy networks and our revenues and as a result impact the margins going forward. So it's important I think that we continue to recognize that and to be tight on the cost control going forward.

Alright, thank you very much.

Any follow-up question Mr. Sonko?

That's all.

Thank you. We will move to our next question from Miss [Revi Chatna]. Your line is now open, you may go ahead.

Hi, thank you for the opportunity. I have three questions. First I wanted to touch upon the three-year outlook for the Company that you had earlier provided. Can you share any device outlook considering that the 2013 core income guidance is slightly lower versus the earlier remarks that you had made of around PHP39 billion?

Second question. You mentioned in your opening remarks that the trajectory has improved in the first two months. Can you share a bit more on where you're seeing growth coming from?

Lastly I just wanted to check on the smartphone penetration for the Company now and the data usage per subscriber and how has this changed in the last 12 months. Thank you.

Let me try what I -- because I couldn't understand the question. I couldn't hear clearly. First I think it's got to do with the smartphone penetration. Roughly the number of smartphones within the total market today is about in the neighborhood of six million smartphones and their growth in the past 18 months has been about 3.5 to four million which is one of the largest growth or the highest growth in South East Asia as I mentioned.

It looks like it is nearing the price point that is desired in the market, especially because the Philippine market favors more the branded type of smartphones since we have been used to the Nokia brand on the 2G market before. So it looks like while it is low it is increasing steadily and we hope that once we reach maybe about 15% penetration that should trigger a tipping point by which data traffic would increase tremendously and then hopefully revenues will follow if the business models in place will be the right pricing models.

I think in terms of the guidance, we haven't gone as far as three years. I think what we've done before was to look out two years. If the trends that we see in 2013 play out as we expect, then we would -- which is basically growth on -- more data growth both consumer and corporate on the fixed and increasing smartphone usage and take-up on the postpaid on the wireless, then we would expect a similar growth in the bottom line going into 2014. So that would take us up in terms of guidance (inaudible) PHP39.3 billion, PHP39.5 billion, is an outlook for 2014.

Any follow-up question Miss Chatna?

Yes sorry I had one follow-up question on the smartphone penetration. Can you share the number for PLDT today in terms of handsets?

One other question that I had was your first two months growth trajectory in terms of which segments are you seeing growth? Thank you.

The number of smartphones that we can see in our network that's visible in the switch at any point in time, I think the latest count was about three to 3.5 million in a busy hour. These are unique smartphone numbers.

I think we're seeing growth in both major segments which is across both the traditional fixed and wireless business. I think we're seeing particularly strong growth in the Sun business I think both in prepaid which is seeing increase in subscribers. In fact I think the ARPU also is somewhat higher at the Sun level year on year. Plus there is quite strong growth - continues to be quite strong growth in postpaid business.

On the Smart Talk 'N Text business I think growth across all lines of business but a particularly strong growth I think in the postpaid side but prepaid also increasing.

On the fixed line I think it's been an encouraging start. The DSL consumer broadband revenues are growing and the corporate is also growing I think, particularly on the solutions side of the business which is where a lot of the focus is at the moment and on SME. We've made a strong start with the SME business as well.

Thank you.

There are no more questions on queue over the phone. Let me turn the floor over to Miss Melissa de Dios.

Any questions from people who are here in the hotel, there are microphones in the aisle. If there are no more questions I'll turn over the floor to the operator for the replay details.

(Operators instructions).

Conference leader is Miss Melissa Vergel de Dios. I will now turn the conference back to PLDT for any additional or closing remarks.

Well thank you once again for joining us today and we hope to see you on May the 7th when we report our hopefully improved first quarter results. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may disconnect your line.