PLDT Inc (PHI) 2013 Q1 法說會逐字稿

Good afternoon everyone and welcome to the PLDT Conference Call. 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 of PLDT for the introductions. Please go ahead, thank you.

Good afternoon and thank you for joining us today to discuss the Company's financial and operating results for the first quarter of 2013. As mentioned in the conference call invitation, today's presentation is posted on our website. For those who have not been able to do so, you may download the presentation from www.pldt.com.ph under the Investor Relations section.

For today's presentation we have with us members of the PLDT Group management team, namely Mr. Napoleon Nazareno, President and Chief Executive Officer of both PLDT and 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 Napoleon Nazareno for the presentation.

Good afternoon. Let me present to you PLDT's Financial and Operating Results for the First Quarter of 2013. On the first slide, consolidated service revenues for the first quarter of 2013 amounted to PHP40 billion, similar to last year. Net of interconnection costs, service revenues were 1% higher year-on-year. EBITDA for the period remained stable compared with last year at PHP20.4 billion. EBITDA margin of 51% was also similar to last year. Core net income grew by 4% to PHP9.6 billion during the quarter, compared with PHP9.2 billion last year.

Reported net income, including exceptional items, declined by 8% to PHP9.2 billion compared with PHP10 billion in 2012. The results of the BPO business are presented as discontinued operations. Underlying the stable revenue and EBITDA numbers, is the ongoing structural change in the dynamics of our business which I will discuss in further detail in the presentation.

On the next slide, core net income for the first quarter of 2013 rose to PHP9.6 billion compared with PHP9.2 billion in the first quarter of 2012. This is consistent with our view that PLDT would return to modest growth in core profit this year and tracks our core income guidance of PHP38.3 billion for 2013.

The rise in core income is due to the combined effects of stable revenues and EBITDA relative to the previous year as well as lower depreciation expenses and lower provision for income taxes this quarter.

Reported net income at the end of March declined by 8% or PHP800 million year-on-year to PHP9.2 billion. Although core income was higher by PHP400 million, this was offset by lower ForEx and derivative gains of PHP900 million and the impact of the revised Philippine Accounting Standards 19 as a result of MRP costs previously accrued in the fourth quarter of 2012 and were reversed about PHP800 million of which were recognized during the first quarter of 2013.

When we have completed the sale of our BPO businesses, we expect to book a non-core gain of approximately PHP1.6 billion in the second quarter of 2013.

On the next slide, as mentioned earlier, consolidated service revenues for the first quarter were steady year-on-year at PHP40 billion. A look at the underlying businesses however, shows the ongoing change in our revenue mix. We can classify our revenues into three categories, growing, steady and declining. Our non-SMS data revenues are growing, registering a 10% rise to PHP8.2 billion in the first quarter of 2013. These account for about 20% of the total revenue.

Although revenue contributions are still small, strong increases were recorded for mobile internet browsing and data center which grew by 42% to PHP1 billion and 92% to PHP400 million respectively.

Our SMS cellular domestic voice and LEC or local exchange revenues constitutes our steady businesses which remain stable at PHP24.2 billion for the first three months of 2013 and representing about 60% of total revenues.

Gains from our growing businesses were offset by lower revenues from NLD, ILD and cellular international voice, which are expected to continue to decline due the impact of the peso appreciation and the growth of non-SMS data broadband. At the end of March combined NLD, ILD and cellular international voice revenues, accounting for about 17% of total service revenues, were 9% lower at PHP6.6 billion.

Compared with other telcos in the region, PLDT has historically had a bigger amount of ILD and NLD revenues as a percentage to its total revenues. As such, at this stage, the double-digit growth in data and broadband revenues are not yet sufficient to fully offset the declines in legacy revenues.

Due to good cost control, consolidated EBITDA was steady year-on-year at PHP20.4 billion with EBITDA margin of 51% similar to last year. The aforementioned change in revenue mix also impact our EBITDA margins, given that the newer revenue streams have relatively lower margins compared with the legacy revenues. Over time we anticipate margins to gradually trend downwards with the decline to be partially mitigated by initiatives to improve cost efficiencies.

On the next slide our combined cellular service -- our cellular subscriber base rose by 1.8 million from the end of 2012 to nearly 72 million at the end of March 2013. Our Talk 'N Text brand led with nearly 31 million subscribers, followed by Smart with over 25 million subscribers and Sun with close to 16 million subscribers.

Prepaid cellular subscribers accounted for 97% of our total subscriber base and grew by 2 million to 69.6 million at the end of the first quarter. Our postpaid subscriber base dipped by 180,000 to 2.1 million from the end of 2012, following a clean-up of inactive subscribers for Sun. This was offset by an increase in Smart postpaid subscribers by about 84,000. Despite this dip, postpaid revenues grew by 12% year-on-year due to expanded initiatives.

Our broadband subscriber base stood at 3.2 million at the end of March, lower by 100,000 from December 2012 as inactive subscribers were churned from the base. Of our total base, about 2.2 million are prepaid subscribers while over 907,000 are on postpaid.

The number of fixed line subscribers was stable at 2.1 million. During the quarter the migration of the digital fixed line customers to the PLDT network was started. Once completed, these customers would be assured of a continued connectivity and access to a wider range of fixed line services.

Next slide, for the highlights of the various segments, starting with broadband which continued to register double-digit year-on-year growth this quarter. Broadband service revenues now representing about 16% of total service revenues rose to PHP6.4 billion in the first quarter of 2013. Mobile internet browsing revenues for the quarter hit the PHP1 billion mark, a 42% increase from last year.

The outlook for the broadband business remains very attractive given a young Philippine population and an increasing take-up of smartphones. There are now over 14 million data capable handsets on our network, of which about half are 3G handsets. We are beginning to see a greater number of low-priced Chinese handsets in the market today (technical difficulty) by increased advertising support. PLDT is well-positioned to tap the potentials of broadband, given its competitive advantage from its unparalleled network.

On the next slide our wireless business revenues for the quarter were steady year-on-year at PHP28.5 billion, reflecting early signs of a more stable competitive environment and a growing contribution from wireless broadband and mobile internet revenues. The outlook for the wireless business has become more positive. We successfully defended and stabilized our revenue market share in four quarters of 2012. We continue to pursue initiatives to stem ARPU declines and improve yields. There is a greater focus on growing the postpaid business to unlock data potential. However, our efforts are calibrated in order to minimize margin erosion and protect profitability.

Moving to the fixed line, revenues were higher by 1% at PHP15.2 billion at the end of March 2013. This quarter, increases in DSL and corporate data revenues fully offset declines in NLD and LEC revenues. DSL and corporate data will continue to propel fixed line revenues going forward. An increasing suite of services are now available to the home and enterprise markets. We are particularly excited about the potentials of fiber-to-the-home, triple play offers, the video-on-demand, which are all made possible via our supercharged network.

Our enterprise business continues to lead the market in serving the corporate and SME clients. It has recently expanded its offerings to include data and cloud services, which have already begun to show a good take-up.

On the next slide, the free cash flow for the first quarter of 2013 stood at PHP7.1 billion, lower by PHP5 billion compared with previous years, mainly due to net decrease in working capital of PHP3.7 billion, relating primarily to MRP approvals, higher CapEx and net interest expense.

PHP4.2 billion of debt was repaid during the period using free cash flow. PLDT's CapEx for the year is estimated to reach PHP29 billion or PHP7.4 billion lower than the CapEx for 2012. This year's CapEx aims to supplement the just completed two year network transformation program that boosted PLDT's network advantage.

Part of our network investment this year includes further expansion of 3G coverage and capacity. Activation of more LTE sites. Build-out of an -- a build-out of 5000 kilometer of fiber to add to the 54,000 kilometers already in the ground. Roll-out of FTTH with 2 million homes passed by year end. Transformation of our service delivery platform that will enable the handling of IP-based multi-media content.

Total CapEx for the first quarter amounted to PHP3.1 billion.

On the next slide, PLDT completed the sale of its BPO businesses under SPi Global Holdings to Asia Gamma Outsourcing Limited or AOGL, a company controlled by CVC Partners. Subsequently, PLDT reinvested about $40 million for a 19.7% stake in AOGL, allowing it to continue to participate in the growth of the BPO industry as a partner of CVC. PLDT received net proceeds of about $316 million. A non-core gain in the vicinity of PHP1.6 billion will be booked in the second quarter.

The sale of the BPO businesses is part of a rebalancing of PLDT's portfolio, generating funds to partially repay debt for investment in media and content as part of PLDT's strategy of transforming itself into a multi-media group.

Now for a few updates on CignalTV, the direct-to-home pay-TV business. CignalTV had over 457,000 customers at the end of March 2013, up from 279,000 in March last year and 441,000 at the end of 2012. EBITDA is expected to be positive in the second half of the year.

On the next slide, the first quarter core profitability provides a good start towards our achieving core profit guidance of PHP38.3 billion for 2013. Given lower CapEx of PHP29 billion and based on market conditions, we are optimistic about the prospect of another 100% dividend pay-out this year. Thank you for joining us today. We are now ready to take your questions.

The floor is now open for your questions. (Operator Instructions). Our first question is from Mr. Luis Hilado. Your line is now open, you may go ahead.

Hi, good afternoon. Thanks for the call. I have three questions. The first is on the cellular service side of the business. We saw in the first quarter that voice revenues were down 2% while data was up 2%, so offsetting each other. Is this going to be a trend wherein data is going to continue to cannibalize voice, in your opinion?

Second question is just looking at the Talk 'N Text, ARPU numbers down 15% year-on-year and 12% q-on-q. Any particular factor behind that? Is that because you're migrating those subscribers to postpaid?

And the last question is regarding the tax rate. The 23% tax rate, should we use that for the full year?

With regards to the -- if you look at page 3, Luis, the growing part of the business is roughly totaling about PHP8.2 billion by the end of last quarter, and the declining part is totaling about PHP6.6 billion. We are looking at a similar decline of about PHP700 million on both ends. And as you can see -- I'm not saying that the voice is being cannibalized by the -- by data, but certainly when it comes to international inbound, this is beginning to be so on top of the fact that the peso is getting stronger.

Stronger, okay.

The next question was on --

Talk 'N Text and ARPU, down 15% year-on-year and 12% on the quarter.

Well the Talk 'N Text subscriber base has increased tremendously over the -- you know, the last quarter and over the period cited, and so there is a diluted effect from adding I guess incremental subscribers at lower ARPU levels.

Okay.

(Inaudible). I think on the tax rate though you can assume that sort of level for the full year. If you look at it year-on-year I'd say the tax rate was relatively higher in the first quarter of 2012. The tax rate for this year is closer to -- for the first quarter is what we expect for the full year.

Okay, great. Thanks a lot.

Any follow up questions, Sir?

That's all for now.

All right, thank you. Our next question is from Mr. Arthur Pineda. Your line is now open. You may go ahead.

Hi, thank you for the opportunity. I have four questions. Firstly, historically you've seen election years as a [boom] for telco revenues in the Philippines, and so far revenues have actually been flat year-on-year, especially on the mobile side. Was there any uplift at all related to elections in the first quarter or would this have been even softer if this had not happened?

Second question I had is with regard to the comment that the market seems to be turning more rational. What are you seeing differently in terms of offers done by yourself and competitors this quarter versus the previous quarters?

Third question I had is with regard to pension. You mentioned there were some changes with regard to the accounting here and you retroactively changed the bookings [for] 2012. But given the likely losses of MediaQuest in 2013, does this mean additional pension expenses being booked in this year? Any guidance on the MediaQuest side would be useful.

Last question I had is with regard to Sun. It was mentioned that the postpaid subscriptions have been eliminated, especially for those inactive subs. Aren't there any guaranteed revenues attached to these postpaid subscriptions, and is there any provisions attached to this deactivation? Thank you.

Arthur, with regards to the election year, we're not seeing that much of an uplift at this point. However, normally a lot of cash will start flowing towards the -- as the election day nears, and hopefully this would serve to give us an update on the [load], but other than that, we're not seeing a big uplift [cycle]. This is almost the same as in the last election and in fact this one would be -- we're expecting a little bit less because it's not a presidential election.

In terms of offers, we're -- it is -- more -- we're looking forward to a more rational situation because there are really no predatory offers at this point, and when we look at regional [attacks], this is much less [at this] point compared to other quarters. So that is an indication for a more stable situation moving forward.

I think, Arthur, maybe on the changes (inaudible), this relates to Philippine Accounting Standards 19. There are two elements of it. One relates to the situation where there is an MRP, a reduction program. In the past, if there was a formal plan in place which details the terms of the retirement and it could not be realistically withdrawn, then an approval was made on that basis. The revision to the accounting standard tightens that a little bit with a requirement that you should only account for that when the individual can no longer withdraw. So effectively you require an acceptance of the offer letter by the employee.

So the impact is that some of the provisions that we've made at the end of 2012 in the fourth quarter will actually flow through the P&L during the current year, so the provision pre tax is about PHP1.3 billion that we've recorded in the fourth quarter 2012. That will be reversed, and the actual amount based on the acceptance of the offer letter by the employee will flow through quarter by quarter. So in the first quarter of 2013, that was about -- almost -- about PHP791 million before tax. So it's more by way of a timing difference rather than --

(Inaudible).

Yes, so from our perspective we reported that within the report that it's a change of accounting practice, but as I say, it just moves it really from the fourth quarter, partly into the first quarter of this year, and some of it may flow through into the second quarter.

There are some other adjustments in respect of what's called PAS 19, which will affect the pension accounting. None of that will be related to the specifics of MediaQuest. Now having said that, it's fair to say that -- and I think we've discussed this before -- that the BTF pension accrual will be somewhat higher in 2013/'14 than it has been in recent years. I think broadly we're expecting that the expense of the PLDT level will be about PHP1 billion this year, which is a bit higher than we've seen in 2011 and 2012. The last point was on postpaid --?

Sorry, just to clarify, that's included in the core profit guidance, is it?

Yes. The additional -- the higher provisions --

Pension expense.

Yes, the pension expense is part of the PHP38.3 billion guidance.

With regards to the Sun postpaid subscriber base, this is a one time clean up which has really no impact on the revenues. In fact, in spite of the dip in the base, the revenues of the postpaid totally registered 12% growth.

There was no guaranteed monthly ARPU from these subscribers?

Oh it's a purely accounting sort of type of clean up.

Understood, okay. So if I can just follow-up, just one last question from me, you mentioned that you're seeing competition [moderate] and just going back, are you actually seeing price points going up at this stage, or are you just seeing no further worsening in terms of the competition [bottoming out]?

What we're seeing is no further worsening, Arthur, but in -- from our end, we are slowly de emphasizing (inaudible), moving towards longer duration buckets and higher denoms in terms of buckets.

You're very clear. Thank you very much.

Thank you.

Any other questions, Mr. Pineda?

No, I'm fine. Thank you.

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

Good afternoon and thank you very much for the opportunity to ask questions. I have four questions. The first one is regarding the cellular [internet] revenue. I understand that in the charts you break things down, the cellular domestic voice actually is stabilizing or growing and SMS revenues and what really caused decline in cellular voice is on the international side. Can you just talk us through what's the driver behind such decline and what's the trend in that?

And the second question is regarding the subscriber growth, when you break down by brand it's obvious there is subscriber growth coming from the Talk 'N Text plan, which has much lower ARPUs and subscribers on the main Smart prepaid plans continued to decline. I just suspect that there is some internal cannibalization there. Can you just talk us through what's happening there, and is there any particular initiatives you are working on right now to grow the Smart prepaid plan again?

The third one, is you mentioned initiatives, things like de emphasizing unlimited and move to a longer -- where -- days in terms of the [load]. Should we expect the impact to come in any time soon in terms of, like, boosting the revenue growth, or it's more [the plateau] things that really might take several quarters to actually see the impact?

And the last question is actually really housekeeping. I see it as quite a restatement in terms of the cellular revenue on an each quarter basis from your [appendix], I just want to understand what caused that restatement in terms of revenue breakdown? Thank you.

On the first question, Chate, with respect to the international portion of cellular voice revenues, that could I guess have been impacted, (1) by the strength of the peso, so there's a 5% appreciation in the exchange rate which would have contributed to the downward trend in the revenues year-on-year, so there's also some promotional activity from some of the Middle East carriers in the early part of 2012 that contributed to a boost in traffic volumes in first quarter of 2012, which has not been repeated subsequently. So that's also one of the elements that differs year-on-year.

Now, if you project into the second quarter -- the second quarter last year, there was some dip in the cellular international voice revenues which we don't expect to happen this year, so it kind of will even out a bit when you get into the -- the time you get into the first (inaudible).

(Inaudible) second question?

(Inaudible) Smart (inaudible).

Well the migration from -- apparent migration from Smart into Talk 'N Text is mainly seeking a new level for subscribers who are at the higher end prepaid. And what we're doing is we're trying to get them to convert to postpaid instead rather than them going down to Talk 'N Text prepaid. This is essentially -- we're looking at several initiatives on that end to enhance our postpaid business that would hopefully make them use more data, and also for them to be able to get hold of smartphones [instead]. As the smartphone penetration increases, I think that would lessen the migration from Smart to Talk 'N Text.

The restatement of the revenue breakdowns --

Oh and the restatement of the cellular revenues, it relates to how we eliminate inter company transactions within the Group. So we took a slightly different approach now in that intra segment transactions will be eliminated within the segment rather than at the total consolidated level, so specifically transactions or inter company revenues and expenses as between Smart and Sun mobile will be eliminated within the wireless segment rather than at the total Company level, which we used to do before. So we made that restatement in the first quarter this year and of course we have re-stated the comparative period last year.

Okay, so such re-statement does not have an impact on the re statement of the EBITDA coming throughout the year, so it's just like revenue, revenue?

Within the segment EBITDA there is some effect on the segment EBITDA. But for the Company EBITDA of course there's no effect. So I think on the IR side we will provide the analysts with the details for the quarterly results of 2012.

I think the reason for that is that with Smart and Sun, one of the initiatives that we've had is more to look at the things like the Trinet plan. There was more activity between the respective companies. So if we didn't take this new approach it would tend to heighten the revenues on both sides. And also there would be higher effectively interconnect expenses between the two. So I think if we're looking on -- [at a more] cellular, wireless segment bases, this gives a better view of how the business is performing as a whole. And then you know rather than just doing it at the overall consolidation level.

Right, thank you. Just one last follow-up question. I ask about your initiatives on the prepaid side, things like longer validation and also the de-emphasizing of unlimited services. When should we expect that to start impacting revenue positively or it's more like a gradual several quarters' improvement?

That is already impacting, in fact Sun's -- if you look at the margins of Sun it is steadily increasing. When as of last year when Sun was acquired, their EBITDA margin was at 28%/29% level. It went up at the end of last year to about 35%. And in the first quarter of this year, we're doing about 37%. So we are slowly increasing the profitability of Sun where, you know, there is so much unlimited revenues in their bucket.

All right, thank you very much.

Thank you.

Any other questions, Mr. Ben?

No, that's good for me, thank you.

All right, thank you. Our next question is from Ms. Neeraja Natarajan. Your line is now open, you may go ahead.

Hi, thanks for the opportunity. I had a couple of questions, firstly on this mobile internet growth. If I see the last three, four quarters, I'm not sure there's been some re-statement on these numbers. But the trend last couple of quarters particularly seems a bit flattish. So any thoughts around that and you know data take up?

And the second question is actually on the cost structure for, you know, looking ahead into this year. I mean particularly when people talk about data being less profitable, it's usually on account of I mean subsidies to some extent and also network cost. But given that we are past the high CapEx space, I mean I do understand there is a mixed change. But I mean I still don't get a sense of why you're not a bit more optimistic on margins probably in the next at least 12 to 24 months especially if competition is rationalizing. So if you can sort of give some color on which are the cost items where you directionally see pressure continuing? That would be very helpful, thanks.

With regards to the mobile internet, you can see that the growth in the first quarter of this year compared to this same quarter of 2012 is about 42% from PHP700 million around that number to about PHP1 billion. So this is something that is really growing for us --

No I was actually -- sorry, looking at more sequential trends, not year-over-year. I mean the last three or four quarters incrementally has been much -- it seems to be a bit slower, is that right?

On mobile internet not so, but maybe on wireless broadband, which is the dongle revenues, it's a little bit slower. In fact in the previous year mobile internet grew much more, almost double. Although it's a very small figure, I mean it's --

I think maybe on the second point in terms of why our view on the margins. It really goes I think to the issue of the revenue mix. I think as [Napoleon] was explaining in one of the earlier charts of the presentation there is growth on the mobile and the fixed on terms of the data side. But you know as we -- I think, we discussed before that there is (inaudible) in other parts of the revenue mix and particularly -- in particular the ILD and the NLD businesses. So these historically have been part of the higher EBITDA parts of our revenue mix.

So I think in terms of the comments that you make about improvements in EBITDA going forward, I think that would be accurate if there was no underlying change in the revenue mix. But I think given we anticipate that ILD inbound international and NLD will continue to decline over the next few years, that is something which does have a downward impact on the EBITDA when we look at it consolidated across the Group.

Okay thanks, actually if I may follow-up with one more question? In terms of the first quarter trends, I understand you'd said that there was some pressure on the international voice in wireless. But even if I look at like SMS and just you know domestic voice, it seems to have been a bit of a decline year-over-year. I mean we would have expected like an improvement given that you know -- you are -- I mean voice is still not that high usage and you know we're still not seeing cannibalization. Should we see this momentum pick up in the back -- through the back half of this year?

Domestic voice is up year-on-year. It's international voice that is down. Now the -- I guess in the -- just [generally] speaking what we have been doing on the voice side for the mobile is really also to try to calibrate or reign back the unlimited component of it by limiting you know the number of registrants onto unlimited et cetera. To better manage the overall traffic volume. So that's really just that part of the business that we just have to manage between you know the revenue as well as the quality of service and the impact it has on the network performance. But generally speaking there is still I guess growing voice usage both on the Smart and the Sun brands.

All right, thanks very much.

Any other questions Ms. Natarajan?

I'm good, thank you.

All right, thank you. Our next question is from Luis Hilado. Your line is now open, you may go ahead.

Hi, thanks, just two follow-up questions from me. One is just housekeeping. If you could tell us what the smartphone penetration is right now in your network as well as the 3G feature phone penetrations?

And the second question is regarding the proceeds from the BPO sale. It's mentioned -- disclosed that it'll be used for investments in media and content. Could you elaborate whether this will be for existing investments or new investments?

Well with regards to smartphones, Luis, what we are seeing in the network today is approximately about 5.6 million smartphones active in the [VLR] at a given time. Sorry, in the network at the given time. And the penetration of which therefore should be around I would guess about 9% [to] 10% already [at] the market. But this is now growing tremendously and I think in a recent study we are -- labeled us the fastest growing in smartphones take-up in South East Asia.

How about in terms of 3G feature phones, is it similar or I suppose a much larger number?

The 3G feature phones --

Yes, about [9] million.

There are about -- how much?

14.

There are 14 million data-capable phones --

9 million of the 3G phones.

-- and about 9 million or 8 million are -- whatchamacallit, 3G. But this is through WAP access. This is -- with smartphones it's a better experience because you have the widget and you can download apps.

Okay, great.

Yes.

Luis, on the investment or re-investment of the BPO sales proceeds into media. This is nothing new from what we've announced with respect to the investments into media, which consisted of the PHP6 billion PDR investment in Cignal, 2012 followed by a combined PHP3.6 billion -- another investment of PHP3.6 billion in CignalTV as well as about PHP2 billion in the print side. So PHP5.6 billion for this year.

Okay great, thanks a lot.

Any other questions, Mr. Hilado?

No, that's all.

All right, thank you. Our next question is from [Perez Ometa]. Your line is now open, you may go ahead.

Yes hi, thank you for the call. I just wanted to know your thoughts on competition in the medium term? And when in your view we could see an environment that could lead the room for better pricing?

Already right now by de-emphasizing the (inaudible) and moving towards a longer duration and high denoms, you will see that pricing could move up. And that's what's happening actually at the Sun level where the margins are even improving, as I mentioned earlier. So already now you can see that. So we expect that the competitive environment would be more rational going forward.

Okay and should that lead to upside risks to your growth estimates for the industry and at a Company level as well?

Well I guess it's incorporated by way of our higher core income guidance already for the year. Where we have -- our guidance is at about 3% higher year-on-year in terms of core income. So that presumes an element of you know less competitiveness or more stability on the industry front.

Okay, thank you very much.

Any other questions, Mr. Ometa?

Oh no, that will be all, thank you.

You're welcome. Our next question is from Rama Maruvada. Your line is now open, you may go ahead.

Hi, good afternoon. Three questions from me please. Firstly, with regards to the moment in interconnection costs, they're down substantially year-on-year. I'm just wondering if you could provide a bit more color on what's driving this in terms of lower rates, as well as the traffic patterns and what we should expect going forward, that would be good.

The second one is the -- again, on the overall cash OpEx base, it's up 6% year-on-year. I'm just wondering when we should expect OpEx actually to come down, or to trend down; if you have any thoughts on this, it will be much appreciated?

The final one is with regards to Philweb transactions. I'm just wondering when you're going to book the PHP1.7 billion net gain?

Under [EC1], the Philweb transaction, there are two remaining tranches, one to be completed in June and then the final tranche to be completed in December.

On the cash OpEx, you should adjust the 6% for the impact of the PAS 19 adjustment, which is about PHP800 million, so the increase, I think, as a result, is probably only about 2% after that adjustment and that's sort of the range we would be expecting going forward. So, that's -- you could say that's a sort of one-off effect on the first quarter.

I think on the interconnect, really there is no change in the rates. Interconnect rates are the same as they were in 2012. The only thing that may be changing there is that there is more on-net calling rather than off-net calling, so the volume of interconnect traffic may be decreasing, but there is no change in terms of the interconnect rates themselves.

So, would you be able to provide some data on what is the on-net to off-net ratio at the moment, maybe in the first quarter?

We don't have it offhand, but I guess the market changed in a way, because there was the introduction of the on-net type of offers, but I guess relative to last year, we calibrated that down, so that explains why the interconnect costs have slightly increased from last year.

Okay, thank you very much.

Any other questions Mr. Maruvada?

No, thank you.

You're welcome. Our next question is from Surabhi Chandna. Your line is now open, you may go ahead.

Hi, thanks for the opportunity. I have four questions. First, I wanted to touch upon the accounting changes. So is my understanding correct that the PHP3.8 billion MRP that you had for 2012 will be reversed and factored in 2013 in tranches, and the first of it being PHP790 million, can you kind of just normalize what should be the EBITDA for last year and for the first quarter this year?

Second question is on the media business. Can you recap your expectations for contribution to overall business, either in terms of EBITDA bottom line over the medium term?

The third question is on data usage. You've mentioned about 14 million data capable handsets. Can I check what are the active data users in the system and how they've changed, say, in the last year?

And the final question is on the regulatory side. I just wanted to check if there is any development on the sale of the 3G spectrum from the regulator? Thank you.

On the PAS 19 adjustment, it's actually in one of our slides in [your presentation], but not the whole PHP3.8 billion. So, the only portion that was reversed with respect to 2012 is PHP1.3 billion. So that's the expense that was accrued in the fourth quarter 2012 based on the previous PAS 19 standards, but it was not actually -- it did not materialize yet to an actual acceptance of the offer letter. So it's only with respect to PHP1.3 billion out of what we booked last year. So, the PHP1.3 billion -- PHP791 million has come into the first quarter of 2013, which implies that there is another PHP500 million that will flow through in subsequent quarters of 2013.

On the last question, I'm just going to jump to the regulatory, I presume you are asking about the 3G spectrum with respect to -- which was previously awarded to Cure, which we have to give up, there have been no developments yet on that front. Basically, the last that we have been advised is that the regulators want to create an independent group of auditors to review the cost recovery amounts that we submitted, but they have yet to appoint the independent auditor for that process. The active smartphones, we have indicated earlier is about --

5.6 million.

5.6 million, so if you look at it versus the end of 2012, that's up almost like 8%.

Okay.

Just on the media, the only -- the investment through the PDRs, well, that actually -- I think they (inaudible) this month (inaudible) May, which will be into Cignal. We're expecting that Cignal (inaudible) would break even on an EBITDA basis probably towards the end of the -- probably in the June/July period. So, it will make a modest contribution this year. Obviously, with the significant growth in subscriber numbers, it should become more meaningful as we go into 2014/2015, but we haven't given any official guidance numbers yet for Cignal. At the moment, that's the only PDR investment that PLDT has on the media side.

So no guidance on bottom line for the -- over the next two to three years?

Not for Cignal yet. I think we'll do that when we give the heartier guidance numbers.

Okay, thank you.

Any other questions Ms. Chandna?

No, that's all from my side, thank you.

All right, thank you. Our next question is from Mr. Arthur Pineda. Your line is now open, you may go ahead.

Sorry, if I can just ask two follow-up questions. Firstly, you mentioned that smartphone take-up has been materializing very well. Why are we not seeing revenue growth accelerate on account of this? As if you look at other markets, normally that's accompanied by better momentum. Is the Philippine consumer willing to spend more for data, or are they just reducing the spending on voice and SMS to compensate?

Second question is again on competition. Sorry to [deliberate] the point. I notice that you're -- I note that you are moving towards longer duration and high denomination packages. Is this actually being matched by your competitor as well, or are they so focused on the same programs that they were employing in the past? Thank you.

Well, the smartphone increase is there. We're looking at the penetration of 9%/10%. As you know, the pick-up or the tipping point is much higher than that in other markets and, at this point, we're not seeing yet that translating to revenue. But, in terms of [day load] (inaudible), the load in the network has already gone up, largely -- mainly because of offers which include unlimited type of usage in certain apps, for example, or -- there is still much room for monetizing at this point. But right now, we're focusing on as many as possible to come in to the network and hopefully experience the internet and that's when we will be able to do certain kinds of volume pricing. What was the other question?

With regards to our move towards higher denoms and longer duration, we do not see that being followed at this point yet, but nevertheless, it has been received quite positively by the subscribers, so the competition would see that perhaps within the next coming months, they would be sensible enough to follow.

Thank you very much.

Any other questions Mr. Pineda?

No, thank you.

You're welcome.

Regarding the callers on the line, any other questions?

At this moment we don't have any other questions on queue and that concludes -- I'm sorry, go ahead.

Go ahead [and do the replay]. Thank you.

Thank you. That concludes the question and answer portion. (Operator Instructions). 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 I look forward to -- and we look forward to talk to you again sometime early August, when we would be ready to release our first-half results. Thank you.

That concludes today's conference. Thank you for your participation. You may disconnect.