PLDT Inc (PHI) 2013 Q3 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 nine months of 2013. As mentioned in the conference call invitation, today's presentation is posted on our website. For those who've not been able to do so, you may download the presentation from www.pldt.com under the Investor Relations section.

For today's presentation, we have with us members of the PLDT group management team namely Mr. Poly Nazareno, President and Chief Executive Officer of both PLDT and Smart; Mr. Chris Young, Chief Financial Advisor of PLDT; Ms. Anabelle Lim-Chua, SVP and Treasurer of PLDT and Chief Financial Officer of Smart; Charles Lim, Head of our Wireless Business; and Attorney Ray Espinosa. Chris Young will do the presentation today as Mr. Nazareno is just covering from a very bad sore throat.

At this point, let me turn the floor over to Mr. Chris Young for the presentation.

Thank you, Melissa. Good afternoon. Allow me to present to you PLDT's financial and operating results for the first nine months of 2013. Starting with the presentation on page 2. Operating conditions in the first nine months of the year have been favorable for the industry as a whole and have been given a lift from the sustained improvement in the overall growth in economy. The competitive environment, which is proactive, has allowed for growth. Our results for the first nine months of 2013 largely reflect these improving conditions. Service revenues for the nine months ended September 2013 grows by PHP2.6 billion or 2% year-on-year to PHP121.6 billion. Our third quarter revenues grew by PHP1.2 billion or 3%. Both our wireless and fixed-line businesses registered year-on-year and quarter-on-quarter revenue increases.

EBITDA was higher by PHP2.3 billion or 4% at PHP59.6 billion and EBITDA margin rose to 49% from 48%. Third quarter EBITDA of PHP19.7 billion was PHP900 million or 5% higher than the same period last year and EBITDA margin for the quarter of 49% was also higher than 48% last year. Reported net income rose by PHP600 or 2% to PHP29 billion. Core net income, excluding exceptional items for the period, increased by PHP1.1 billion or 4% to PHP28.8 billion. For the third quarter, both reported and core net income were higher by 2% at PHP9.2 billion and PHP9.4 billion respectively.

Moving on to page 3. Core net income for the first nine months of 2013 rose by PHP1.1 billion or 4% to PHP28.8 billion and continues to be in line with full-year guidance of PHP38.3 billion. Higher EBITDA as well as lower depreciation and income tax provisions accounted for the increase. Third quarter core income of PHP9.4 billion dipped by PHP400 million quarter-on-quarter due to seasonality, a moderate lift from the May 2013 elections, and a gain for the sale of the third tranche of Philweb shares in the second quarter. Reported net income for nine months was PHP600 million or 2% higher at PHP29 billion mainly due to the higher core net income, a PHP2 billion gain from the sale of our BPO business, offset by higher ForEx and derivative net losses of PHP2.4 billion and a PHP1.3 billion adjustment arising from PAS 19.

Moving on to our subscriber base on page 4. PLDT's combined subscriber base grew to 78 million at the end of September 2013. Our combined cellular base rose by 2.6 million or 4% from the end of 2012. Talk 'N Text now has close to 32 million subscribers, Smart nearly 25 million while Sun has just under 60 million subscribers. Prepaid subscribers, which account for 97% of our total subscriber base, rose by 2.6 million from year-end 2012 to 70.2 million. Our postpaid subscriber base, which now stands at 2.3 million, has shown significant increases reflecting greater efforts to grow this base. Postpaid subscribers are more likely to be data users and therefore are key in jump-starting mobile data usage.

Worth noting are our postpaid net additions of 115,000 for each of the second and third quarters of this year. Overall, we believe that the Philippines is still fundamentally a prepaid market with sustainable mobile data growth to come from the prepaid segment. As such, we continue to direct our attention towards growing our prepaid subscriber base by making available products and services that they find both relevant and affordable. Our combined broadband base rose to 3.3 million, of which 2.4 million are wireless broadband subscribers followed by 950,000 are fixed broadband subscribers. We had 2.1 million fixed line subscribers at the end of 2013.

Moving on to page 5 of the presentation. Consolidated service revenues for the period rose by PHP2.6 billion or 2% to PHP121.6 billion. The structural change in our revenue mix continues to impact consolidated service revenue growth and EBITDA margins. This year, however, the cross-over has occurred. This means that our growing revenue streams are now greater than our declining revenues. Growing revenue streams from non-SMS data services of PHP25.9 billion, which accounted for 21% of total revenues, grew by 15% year-on-year or PHP3.4 billion. This more than offset the PHP1.4 billion decrease in revenues from our legacy businesses namely national long distance, inbound international long distance, and satellite services.

Note that relative to the industry as a whole, PLDT has a greater proportion of legacy revenues. Revenues from domestic cellular voice, cellular SMS, and LEC; which contributed 60% of total revenues; were stable at PHP73 billion. Despite the structural change in revenue mix and an increase in handset and device subsidies, consolidated EBITDA increased by 4% or PHP2.3 billion to PHP59.6 billion due to higher revenues and lower cash operating expenses as our 2012 results included PHP1.7 billion of MRP expenses. EBITDA margin was higher at 49%.

Now on page 6, highlights of our various businesses starting with broadband. Broadband service revenues, which accounted for 16% of total service revenues, continued to register robust growth with a 16% increase to PHP19.5 billion. This includes mobile Internet revenues of PHP3.4 billion, which rose by 55% and which are already higher than the PHP3.1 billion of revenue recorded for the full-year 2012. Encouragingly, broadband ARPUs for 2013 showed year-on-year increases. We anticipate mobile Internet revenues to continue growing robustly given that lower smartphone prices and recent aggressive marketing initiatives by low-end handset manufacturers should lead to more widespread ownership. In sum, this should expand the online community and should lead to increased usage in terms of frequency and duration.

Smartphone penetration of our total subscriber base is about 11% with that for postpaid higher at 59%. To complement efforts to grow our postpaid base, we are starting to tap the growth potential of the nascent prepaid data market. This includes offering content such as music and games as well as access to popular messaging and social networking sites. In addition, our offers are designed to take into account affordability, utility of an always-on experience, network utilization, as well as margin considerations. Finally, the key to growth of any data business is a reliable network that ensures quality of experience. PLDT's network quality, extensive coverage and capacity remains unparalleled and can more than fully support the requirements of our data customers.

On page 7, focusing on the wireless business. It grew by 2% or PHP1.7 billion to PHP86.4 billion, mainly from the continued rise in non-SMS data. Cellular voice revenues also rose as billed minutes grew by 4% from higher voice traffic of postpaid customers and as we shaped customer behavior away from unlimited plans to bucket plans. Our focus is on stabilizing cellular ARPUs and expanding data revenues. This includes our short-term strategy of ceding smartphone ownership under postpaid plans, which in the first nine months of 2013 helped grow postpaid revenues by 15%. Moving to fixed line revenues, these were higher by PHP1.8 billion or 4% year-on-year at PHP46 billion. Fixed broadband corporate data including data center revenues accounted for most of the increase.

Our home and enterprise businesses are beneficiaries of the Philippines economic growth story. This is evident in the growing demand for DSL, Telpad, fiber-to-the-home, and other triple-play products given improving individual and household incomes and a young and highly literate population who are regular social network users. Improvement in the overall economy has also increased demand for enterprise solutions from SME, the banking industry, BPOs, and large corporates. Our data center and cloud services have registered very strong results and are expected to contribute more significantly in the future.

Moving to page 8. Free cash flow remained robust at PHP32.9 billion, higher than our core income of PHP28.8 billion for the period and PHP3.2 billion higher than last year. Our free cash flow was PHP13 billion of net proceeds from the sale of our BPO business and the third tranche of the Philweb shares sale were used for dividend payments amounting to PHP37.6 billion, subscriptions to MediaQuest PDRs of PHP4 billion, and PHP10.8 billion of debt repayment. PLDT Group CapEx for 2013 is estimated at PHP29 billion or PHP7.4 billion lower than 2012. We continue to fortify PLDT Group's unrivaled network, which is designed to maximize the customers' quality of experience especially in data. Implementation of the full Smart/Sun network integration has been completed in Mindanao and will now be rolled out in the rest of the country.

Network integration not only expands our 2G and 3G coverage, but result in significant cost savings. Our 4G footprint is being expanded as well. To date, we have almost 10,000 active 4G-capable base stations that operate under HSPA, WiMax, LTE, and LTE Advanced standards. Note that PLDT has the widest LTE network in the Philippines today with about 1,200 sites. Recognizing the importance of fiber backhaul and the delivery of data, significant additional CapEx is being incurred to further expand our fiber footprint. Our domestic and international fiber network remains the most robust in the country with almost 75,000 kilometers already in place.

Moving to our debt profile on page 9. Net debt at the end of September 2013 was $1.8 billion or $100 million lower than at the end of 2012. Net debt to EBITDA was also lower at 1.02 times from 1.05 times at the end of last year. 55% of gross debt is denominated in US dollars. Taking into account our US dollar cash holdings and hedges, only 39% or $972 million of our total debt is unhedged. 58% of our debts are fixed rate loans while our average pre-tax interest cost for the period is about 4.5%. PLDT's debt profile remains healthy with maturities well spread out. $80 million of debt maturing in 2014 was prepaid in this quarter with a balance of $200 million refinanced ahead of the maturity date. PLDT's credit ratings with Fitch, Moody's, and Standard and Poor's remain at investment grade.

On page 10, we give some updates on our multimedia initiatives. Our strategic direction remains to transform PLDT into a multimedia organization and set with the convergence of the worlds of telecommunications, media, and the Internet. In line with this, we continue to pursue various initiatives across the Group. Aside from PLDT's fiber, the country's first triple-play offer which includes landline, fiber-to-the-homes, high-speed broadband, and content; the PLDT Home website and Telpad are now offering multimedia services. These give our DSL subscribers access to entertainment including movies on demand, music, information, and games. In addition to the recently launched online music portal called Smart Music, Smart has introduced several content bundles which aim to build usage habits and influence the purchase of music and other items.

As for CignalTV, the direct-to-home or DTH business that PLDT is investing in via PDRs, its subscriber base has grown by nearly 100,000 from the end of 2012 to over 540,000 subscribers. Aside from 13 free-to-air channels, CignalTV offers 66 standard definition and 25 high definition channels. CignalTV's content forms part of a triple-play offer on the fixed line and it can also be viewed by Smart and Sun subscribers on smartphones and tablets via Cignal TV-To-Go. You can expect to hear more of our multimedia initiatives in the months to come as we continue to explore new ways of providing our customers with engaging and compelling content, which in turn will create new revenue sources that capitalize on our networks and content strength.

The final page 11 covers our guidance for 2013. Mr. Nazareno, I think wants to say a few words on that.

Thank you, Chris. With the favorable momentum that we have seen in the past three quarters and given the early trends in the fourth quarter, we are confident of meeting our core income guidance of PHP38.3 billion for this year. CapEx will also be within the guidance figure of PHP29 billion. That captures the highlights of our results for the first nine months of this year. Thank you for joining us today and we are now ready to take your questions.

(Operator Instructions) Mr. Luis Hilado.

I have three questions. The first two operational and the third just housekeeping. In terms of the ARPU trends you've seen in the third quarter, it seems like Talk 'N Text as well as Sun Cellular prepaid and Smart postpaid were down QonQ, just wondering if that's a function of seasonality, competition, or a change in the economy for the quarter? Do you expect this to rebound in the fourth quarter? Second question is regarding the strategy in terms of monetizing data. You've highlighted a trend in the presentation that SMS volumes were up, but revenues down because people are going towards buckets and unli plans. How do you intend to shape the mentality of the subscriber base to pay up for data? And last question is just housekeeping on the tax rate, third quarter it was 16% and 19% for the nine months. For the full year, any guidance in terms of the tax rate?

Luis, thank you for the questions. For the first question, the decline in the ARPU quarter-over-quarter for Talk 'N Text should be due to seasonality really. That's what we mentioned earlier. And for the second one --.

This is Charles Lim. I'll be addressing your second question. Monetizing data, there are several ways that we are heading forwards monetizing data. First is it has been just reported that we have acquired considerable content for us to be able to sell to our subscribers basically music where we have this deal with MCA Universal and Sony Music, which allows 75% of the music available in the country distributed and co-marketed with MCA and together with Sony. So, that has started already in quarter three. We are also moving towards making data available for older subscribers and we believe that once we are able to review further our initiative for data that allows the more affordable services and more customized services for data, then we believe that we'll also likely see some more revenue growth for data.

Luis, on the tax rate, the actual corporate tax rate is a bit higher than you mentioned. The thing that we are looking at for the full year is there are some deferred tax assets relating to the Digitel Sun acquisition which may be adjusted, but that's a year-end review that we take. I think we would expect the net tax rate to be close to maybe what it is year-to-date, maybe a little bit higher about 19%, 20% I hope, but we won't know that until we complete the assessment as part of the year-end review, but in that sort of place 19%, 20%.

Okay, perfect. Thanks a lot.

Mr. Arthur Pineda.

Several questions for me. Firstly, if you could talk about the fixed line division, we do see that your margins are up significantly here. Where do you see margins going forward for the fixed line side? Second question I had is with regard to the mobile division. If you could help us better understand the economics of moving to a postpaid model from prepaid. We see that you've got a big push there and you've been able to capitalize revenues, but EBITDA has actually declined with subsidy growth outpacing the revenue growth. When do we start to see this as actually raising EBITDA levels? Third question I had is with regard to your content. You mentioned a while ago it's a bigger push for you on this OTP content. If you could describe what your revenue model is for this? Is this more of a retention tool for you or do you actually recognize incremental revenues with the revenue share model with these providers? Thank you.

Maybe I'll try first on the fixed line. We got as you know a reasonably good result in the third quarter from the fixed line in terms of both revenue growth for the full year up 4% and then quite strong EBITDA performance in the third quarter. I think, however, the third quarter probably is not indicative of the full year. There are one or two things where accruals were made in the first and second quarter, which weren't fully required in the third quarter. But I think the margin that you've seen year-to-date at about 38%, 39% is what we would expect for the balance of the year and in fact as we look out to 2014 as well. So the fixed line is, because of the lower contribution of the ILD and the NLD, now looking like we can see revenue growth and probably maintaining margins in the 38%, 39% level. What's the second one? Postpaid?

I guess I'll start with it and let Charles follow. On the postpaid business for the mobile, I guess the dynamics are largely affected particularly by the subsidies involved in the postpaid slabs, which as you are aware we do book upfront. So in the last two quarters we've seen our subscriber numbers increase by about 115,000 in each of the quarters. So there is a cost to ramping upwards subscriber numbers by way of the subsidies that you book. At some point when you settle into a more steady state I guess situation, then the margins on the postpaid business obviously look a bit different without that kind of a ramp-up cost involved. But clearly postpaid is now part of the whole industry dynamics particularly with the emerging importance of smartphones and its role in the data play. So there is some element of I guess shifting that is going on, which has an effect on the EBITDA margin for the [short term].

To build on what Anabelle just said. Moving forward we believe that postpaid, they are certainly the earlier adapters for smartphones, 11% penetration for the Philippines market is some pick-up is around [15%] that's for whole year. Basically smartphones relatively sell for higher ARPU in the future, especially as we are able to [compromise] data further that we will be more popular to our subscribers. Also smartphones tend to sell for more content purchases. In this stage we have tied it up with our content marketing team. That first we do this to differentiate ourselves in the market from our competitors. Number two, it is also capitalizing on the 72.5 million subscriber base both prepaid and postpaid. And number three, we believe that its revenue-sharing model will also yield a better revenue as we build the habit of purchasing music legitimately in the more affordable way. So we have just launched last week or quite recently a membership program that allows members to really download music, to listen to music practically all the music they want for a fixed rate which we have made to be very affordable either on a weekly, bimonthly, or on a monthly basis.

So PLDT takes the revenue share from this model or is it you make money from the data throughput?

We are bound by a non-disclosure agreement, but basically we believe each aspect of the whole mix so that we extract revenues or better margin from all sides. So I will have to say it's a combination of all these things.

Thank you.

Ms. Neeraja Natarajan.

I have a few questions. I guess my first question is on the wireless margins and I think if you see within 2Q to 3Q, the subsidy costs have actually come lower, but your wireless margins have continued to decline. So what are we seeing there? And I see it's partly because of these network related costs so should we expect this to continue to increase? That's my first question. And secondly in terms of targeting the postpaid segment, in terms of the subscriber additions it still seems to be slower than your peers. How do you see this segment is evolving for you guys, I mean should you further step-up your marketing intensity and how long could this smartphone ceding continue for you to tap into this segment? That's my second question.

And then within wireless revenues, it seems like if I strip out the mobile Internet, SMS revenues actually are declining year-over-year. Any thoughts surrounding this? Are you seeing cannibalization or is this just that the yields on SMS is declining? That's my third question. And lastly, the Sun ARPUs seemed to have been restated lower in this quarter for both prepaid and postpaid, any thoughts on that? Thank you.

Hard to remember all your questions, but we'll try some of the questions. On the quarter-on-quarter EBITDA margin, I guess they reflect the fact that seasonality impact on the revenue. So the revenue was higher than same quarter last year, it's slightly down this second quarter if that's your comparison. Then subsidies are higher and then the other costs we have in the third quarter are really some MRP manpower reduction charges that we are taking as we integrate some of the functions for the wireless within Smart and Sun.

SMS revenues as you rightly observed are down, but we are operating that with the higher domestic voice revenue than mobile. So we put those together under that middle heavy revenue classification. In terms of volume, SMS volumes remained quite strong; but obviously with a shift of more and more limited towards unlimited packages, there is a yield curve pressure on the SMS revenues on that. I think we don't have I guess a view yet on the third quarter because of the industry. But as far as second quarter, our net adds on postpaid were in fact higher than the industry average.

Neeraja, what was your first question again with respect to network-related costs?

Yes. Actually I guess it was more on the wireless EBITDA margin side. I mean leaving seasonality aside, it seems like your rent and professional services which is I think the reason network seems to be higher this quarter. And then if I just start at the start of the year and then looking into three quarters, I mean there seems to be different cost items in general, but for data segment level view, the margins are declining. So is that what we are supposed to expect for the wireless segment is my question really.

It's not network sort of related. In fact, we will start to see savings on the network cost side. We put together some of the (inaudible) to complete the Smart and Sun consolidation. So some of the things that you mentioned like higher professional fees, et cetera are not so much network related; but some things are in support of growing postpaid business as well.

Okay. Thanks. And on the postpaid side, I guess my question was, I mean you said focus on the segment, but we haven't seen like that pickup in a big way. So is that something that we should expect? That's the first thing. And how much in terms of marketing subsidies, do you see this going into the next three, four quarters or do you think it's normalized is my second question?

The postpaid revenues are actually up 15% year-on-year so we're benefitting already with respect to the increase in subscriber numbers that we have this year relative to last year. So it really depends on what your expectations are because in terms of absolute numbers of course in the context of the Philippine market, the postpaid subscriber numbers will never be at the scale of the prepaid business. So it's really a changing mix, but has not been a shift. The market will not turn into a postpaid market. At the end of the day what we're seeing is that the Philippines will remain largely a prepaid market. Therefore, the initiatives particularly on data penetration for prepaid is quite critical as we highlighted in our presentation.

Okay. Got it. And my last question was on the ARPU restatement for Sun in this quarter.

There was a bit of subscriber base clean-up in the first quarter actually so it's not this quarter. So that naturally sort of increases the ARPU. I'm not sure that you're referring to that or something else, but we can sort of take --.

No, what I mean is I think the ARPU looked a lot lower than we had in the last quarter. And the other thing is I guess I think in 1Q also you'd highlighted that some ARPUs are actually increasing, but it now looks like it's just been flattish. So I mean did the whole introduction of higher value offerings or extending the validity dates and things like that so --?

Maybe we can take that offline because our number is showing that the Sun ARPUs are --.

Yes, sure. That's fine. Thanks very much.

Mr. Chate Ben.

First of all, I wish Mr. Nazareno a speedy recovery. The first one is regarding the smartphone penetration. I understand that you are disclosing 11% penetration, how much of this smartphone subscribers actually are using data and generating non-SMS data revenue for you? The second question is that we are seeing some effort in growing the revenue base obviously in the mobile data side, but that is largely offset by the continued decline in legacy business. Do you think that going forward as we continue to see the mobile data revenue growth, should we also expect that to be associated by accelerating decline in legacy revenues and therefore we enter a routine whereby we should expect some revenue growth, but that would be like low single-digit of sales and we should not expect further acceleration?

The third question is just in terms of the cost picture. Should we expect material cost pressure in the fourth quarter on your EBITDA, things like subsidies would increase and maybe any other cost items that you might worry about into the fourth quarter of this year? And last question, in light of the data growth, should we expect this year CapEx to be considered at a low level and therefore we should expect quite an increase into the next few years? Thank you.

Fourth quarter cost pressure, I think fourth quarter typically we do have a bit of increase in revenues from around Christmas spending, but there are also increases in cost typically towards the year end. About less than half at the moment are actually paying for data so that would represent the opportunity for us going forward.

On the CapEx number, actually still in the middle of the budgeting process at the moment. But the initial cut of it looks like it's coming out at similar level this year, it would be in about this PHP29 billion level which would run at about (technical difficulty) consolidated service revenue. So we are not seeing a sharp spike going into 2014, 2015. Well, I think there's no doubt that there is an interplay between the two, particularly I think if you look at what happened historically on fixed line. The fixed line as you're aware at one stage, very large part of its revenues coming from inbound international. But as broadband grew both in the corporate and the consumer segment, that effectively led to cannibalization on that revenue source.

If you look at the chart on Page 5 now, you can see that the actual amount of inbound on the fixed is getting to be a relatively small percentage of the total. Wireless probably still has to go through that process so to the extent that we see growth on the mobile data side, mobile Internet access side, wireless broadband; yes, that will be one of the factors which will eat into the inbound international revenues of the wireless business. Quite what the relationship is between the two, it's difficult to know at this stage.

I think the encouraging thing that we are seeing is that if you look at the overall revenues which are growing, which is a combination of the fixed, wireless, broadband, mobile Internet access, and the corporate data; it's growing at double-digit rate. I think we're up to about 15% in the first nine months. On the decline, it's declining down by about 6%. So that will result in overall growth. It will probably mean as you said that we are probably constrained to something in the 4% or 5% growth level for the next couple of years anyway and feel that declining part of the revenue mix gets to a smaller percentage. It's down already as you can see, it's down to 90%, but it's still a meaningful contributor at this stage.

Understood. Thank you very much.

Mr. Tien Doe.

The first is on your LTE side. I'm just wondering how fast you think those ramp up from the current 1,200? And of the current 1,200, how many are located in Metro Manila and how many located outside of Metro Manila? And second question, at a guess what do you think is the split of your data traffic being carried by your 2G versus your 3G versus your LTE networks? Thank you.

Thank you for the question, Tien. For the LTE, roughly it should be about 2,500 sites by next year. As far as coverage is concerned, we now have coverage for major urban areas and municipalities a total of 174, but only concentrated on the dense areas.

I think in the quarter is not really Metro Manila, but urban area. It's Metro Manila plus other centers of the country so that's where our LTE rollout will be. Outside of that, we have also a healthy increase in HSPA+ outside of the LTE areas to provide a comprehensive broadband coverage.

Okay. Great.

The bigger traffic on data for the fixed wireless side is on the dongles actually as of now at this point.

Right. And at the moment, overall including your fixed wireless traffic and your cellular traffic from smartphones, et cetera; the split of all of that data traffic being carried by the 4G network versus the 3G network and the 2G network, what do you think that roughly is? Is the LTE network only doing about 10% versus 90% on the other two currently or is the split now more than that?

I don't have the figures right now in front of me, but as far as I can recall, something like 23% to 25% of the traffic is in Metro Manila.

Okay, alright. Thank you.

[Kunal Vohra].

First question is on the SMS. The SMS revenue has held up fairly well till now while data revenue is picking up at like 50% kind of growth rate. How do you see it going forward over the next two, three years? Do you see revenue on SMS absolute contribution to remain flattish or do you expect it to decline meaningfully and when do you see that decline coming? That's question number one. Also can you throw some light on the competitive intensity in the market between the two players as well as any light on the potential new competition which is San Miguel? And lastly on the international long distance revenue, there has been some uptick, some increase in revenue. Is it because of currency or is there more to it? Thanks.

First question. As you are aware in terms of the way SMS is being consumed in the Philippines, it's largely by way of buckets or unlimited so we price SMS cheaply such that I guess there's less financial incentive for one to feel that one could switch to some kind of a chat application. Secondly, it also achieved for us basically a position where we become neutral whether people are sending messages by SMS or through some kind of data application. So that's kind of the way we've positioned our business. So certainly, there will be shift of behavior in the community; whenever the community moves, there will be shift. But we have achieved a situation where we would be essentially neutral from a revenue and EBITDA standpoint.

Regarding the competitive intensity, at this point it has improved a bit. The rivalry is still there, but there are no creditworthy pricing that you can find anymore outside except for maybe targeted areas regionally. On San Miguel, we do not see any expansion going on or rollouts going on on the ground. However, they have made some announcements that they are going to roll out certain base stations I think within Metro Manila. Up to this point, we don't see (technical difficulty). They do need to put in their own backbone and transport, which would take time and money.

I guess a follow-up on that like do you believe some network sharing or tower infrastructure sharing something, is that possible? Can that help them expedite or you don't think any network or infrastructure sharing will happen in the market?

As of now, there is no such thing mandated by the regulator or are we willing to do that ourselves.

Okay. And the last question on the ILD side?

The mobile ILD side, absolutely we're holding up quite well in terms of both the traffic and the [service] revenues helped a bit by effort on (inaudible) as well as some boost in the international inbound for Sun. The impact of currency depreciation favored it a bit in the third quarter given that the peso weakened during the third quarter although it probably will strengthen in the fourth quarter than in the third quarter.

But I don't think there's anything connected to that in the longer-term trend. I think the longer-term trend for both wireless and fixed will be that the international will continue to decline though not to say that the pace of decline does not seem to be quite as high as it has been over the past few years.

Okay, great. Thank you. My questions are answered.

Rama Maruvada.

Firstly with regards to your CapEx, the nine-month seems to be tracking at around 50% of your full-year guidance so just wondering if your guidance is too conservative or are there any timing issues here? The second one is with regards to the prepaid subscriber additions in particular for the Smart brand, there seem to be net losses. Wondering whether this is driven by the postpaid migration trend and in particular what should we expect for this going forward? The third one is on the cost side. As you know, most of your cost items are in a flux on a quarterly basis so just wondering if you could provide some color on whether we should expect any additional MRP costs going forward. And on the wireless side, just to clarify Neeraja's question, your wireless margins went from 50% last year to 45%. Any comments on where the wireless EBITDA margins will settle over the next couple of years? Thank you.

Maybe on the first question, which is probably the easier one to answer. Yes, the CapEx guidance we are sticking at PHP29 billion and yes, it really is a timing issue. A number of items will be grouped in the fourth quarter of the year and that will bring it up to close to the PHP29 billion guidance number.

I will address your second question on the Smart net adds for prepaid. That is only unique to the third quarter and I mean unique because the preceding quarter was an election quarter where during elections what normally happens is that a lot of prepaid SIMs are being used by watchers in the elections so you have two, three parties fielding their own. There are thousands of watchers in the (inaudible) and election booths. And of course after the elections, they don't have need for it anymore and they churn and that is characteristic of the industry. So you see there was an unusual spike in second quarter, but you see that correcting in the third quarter. We don't see that happening in the fourth quarter.

As per MRP cost for the mobile sites, I guess there are some ongoing initiatives with respect to the integration efforts. So there are some additional costs that we would be booking in the fourth quarter, but the amounts are not as significant as they were last year. Rama, is that okay?

Yes. And maybe on the wireless EBITDA margins, I mean I understand the change in business model to postpaid, but they seem to be down significantly on a year-on-year basis. So any comments on what do you expect the sustainable level to be, is it 45% or should we expect it to go down or pick up from here on?

The most significant change if you look at the quarter versus last year would be in the subsidies. So actually it indicates that there is an upfront cost in the ramp-up in that business. Now taken altogether in terms of our expectation is that the shift in the revenue mix, the shift in prepaid, postpaid mix; we kind of think that the margins of the business will sort of come off 1% kind of every year. That's kind of been our guidance in terms of the EBITDA outlook for the business. In the context of single-digit revenue growth, the absolute will still increase, but the [first step] marginally may be declining.

Okay. Thank you very much.

Mr. Luis Hilado.

Just one follow-up question from me. With the push towards postpaid, are we going to see PLDT's quadruple-play when you put postpaid mobile along with the bundle for the fixed line as well as the PayTV?

Luis, right now we're on triple-play and it does not include mobile services at this point. But that is something we might consider in the future.

Great. Thanks.

Thank you. That concludes the question-and-answer portion. Before I turn the conference back over to PLDT, I would like to give everyone the instant replay information for today's call. This conference will be available on a 24-hour instant replay starting today leading on through November 19, 2013. Replay information for the 3 PM call; international caller number is 852-3018-4377. US toll-free is 1-888-566-0351. Passcode is 3525. Conference leader is Melissa Vergel de Dios. I will now turn the conference back to PLDT for any additional or closing remarks.

Thank you. Thank you very much for joining us today. We look forward to talk to you again sometime in March when we would be announcing our full-year results. Thank you.

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