PLDT Inc (PHI) 2013 Q4 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 presentation. At this point, I would like to turn you over to Melissa Vergel de Dios, Head of Investor Relations 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 full year 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 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, Treasurer of PLDT and Chief Financial Officer of Smart; and Attorney Ray C. Espinosa of our regulatory group.

At this point, let me turn the floor over to Mr. Poly Nazareno for the presentation.

Good afternoon. Allow me to share with you PLDT's financial and operating results for 2013. In the last two years, PLDT operated within a challenging and competitive environment while working to integrate Digital and Sun into the PLDT Group and at the same time, undertaking a massive network transformation program; all of which impacted our financial results. We are proud to announce that after two years of decline in our profitability, PLDT is firmly back on the growth track. Service revenues for 2013 rose by 3% year-on-year to PHP164 billion. Our wireless and fixed line businesses registered increases over 2012 of 3% and 5% respectively. Consolidated EBITDA for the period grew to PHP77.6 billion or 3% higher versus 2012 while EBITDA margin was steady at 47%.

Reported net income for 2013 was lower by PHP700 million at PHP35.4 billion, mainly due to higher foreign exchange and derivative losses and the adverse impact of Typhoon Yolanda. Excluding the typhoon losses, reported net income would have been stable year-on-year. Core net income rose by PHP1.8 billion, 5% year-on-year to PHP38.7 billion or PHP179 per share. On the next slide, consolidated service revenues rose by PHP4.3 billion or 3% year-on-year to PHP164 billion as the ongoing structural change in PLDT's revenue mix continues to tamper revenue growth. Revenues from cellular voice, cellular SMS, and LEC; which account for 62% of total revenues in 2013; remained stable at PHP101.8 billion. The changing dynamic involves our data broadband and legacy voice businesses.

Growing revenue streams from non-SMS data services of PHP35.4 billion in 2013 now account for 22% of total revenues overtaking the 16% contribution from our declining legacy international inbound voice and national long distance businesses of PHP26.9 billion. In 2013, the revenues from our data and broadband businesses grew faster than the decline in legacy revenues. The revenue growth of data and broadband however accelerates the decline of legacy voice revenues. Despite this structural change in the revenue mix and an increasing handset and device subsidies, EBITDA margin for 2013 was stable at 47% and consolidated EBITDA for 2013 improved by 3% or PHP2.2 billion to PHP77.6 billion. Higher service revenues and lower cash OpEx in 2013 fully offset increases in subsidies.

2012 results included PHP3.8 billion in manpower reduction costs or expenses compared with PHP600 million in 2013. On the next slide, core net income for 2013 grew by PHP1.8 billion or 5% to PHP38.7 billion from PHP36.9 billion in 2012. Higher revenues, EBITDA, and equity share in the earnings of Beacon as well as lower depreciation contributed to the increase although partly offset by higher provisions of income tax. In addition, this year's core income included a PHP2.1 billion gain from the sale of the final two tranches of the Philweb shares. On the other hand, PHP3.8 billion in asset sales were recorded in 2012 consisting of PHP2 billion from the disposal of Beacon preferreds and PHP1.8 billion from the sale of the first two tranches of Philweb shares.

Reported net income for 2013 was PHP700 million or 2% lower year-on-year at PHP35.4 billion. Higher net ForEx losses of PHP3.7 billion, the adjustment arising from the adoption of the revised PAS 19, and PHP900 million in losses from Typhoon Yolanda offset the PHP1.8 billion increase in core income, the PHP2.2 billion gain from the sale of the BPO business, and the lower asset impairment of PHP800 million. Without the losses from Typhoon Yolanda or Typhoon Haiyan, reported income would have been stable year-on-year. This does not yet take into account, however, potential recoveries from insurance. We are happy to report that earlier today, on the next slide, the Company's Board of Directors approved the payment of a final regular dividend of PHP62 per share representing 70% of the core income for the second half of 2013.

In addition, the Board also declared a special dividend of PHP54 equivalent to 30% of 2013 core income. Together with the interim regular dividend of PHP63 per share paid in September last year, total dividends paid on 2013 core income is PHP179 per share or 100% payout. PLDT has thus paid out 100% of its core earnings for seven consecutive years with a total of PHP310 billion paid out as common dividends in the last 10 years. At the closing share price of PHP2,666 at the end of 2013, PLDT's dividend yield is 6.7% and 6.6% based on yesterday's closing share price of PHP2,706 per share. On the next slide are the highlights of the various segments starting with Broadband. Upward momentum in Broadband service revenues was maintained. These revenues represent 16% of total service revenue in 2013 and are higher by 16% year-on-year at PHP26.6 billion.

Fixed and wireless broadband revenues each rose by 10% while mobile Internet browsing revenues, which have reached the PHP5 billion mark, grew by 59% from last year. The growing popularity of broadband in the Philippines provides a rich source of potential revenues for our fixed and wireless businesses. On the fixed line, we have a suite of offers including triple play services to tap not only about half of our fixed line subscribers who are not yet DSL subscribers, but also new customers. On the wireless side, our subscriber base remains largely untapped as only 15% of our subscribers own smartphones and of whom, only a quarter pay for data. Efforts to grow the postpaid market are ongoing.

In parallel, we are working to unlock the potential of the prepaid market through low denomination prepaid data sachets or sachet apps. For example for PHP5 to PHP10, the subscriber can have access to low network bandwidth apps for a day such as Facebook, Twitter, or other chat applications. These provide improved utility to users over the Internet cafe experience, but ensure that the telco is able to manage both bandwidth and margins. Smartphone ownership is expected to expand as handset prices come down and with more models becoming available including Chinese manufactured handsets, the new Nokia models, and secondhand models from early adopters. Finally, key to the growth of our data business is a reliable network that ensures quality of experience. PLDT's network quality and coverage remains unrivaled and can more than fully support the requirement of our data customers.

On the next slide, our wireless business services revenue registered a 3% or PHP2.9 billion year-on-year increase to PHP116.7 billion in 2013 reflecting continued growth of non-SMS data and cellular voice revenues. The ongoing change in our cellular subscriber mix is expected to impact service revenue growth and EBITDA margins. Prepaid revenues representing 82% of cellular revenues were stable year-on-year. Postpaid revenues registered a 15% year-on-year increase to PHP19 billion and accounted for 18% of service revenues in 2013 from 16% in 2012. Efforts to further increase in wireless revenues are directed towards improving ARPUs by growing non-SMS data revenues. This includes the near-term strategy of ceding smartphone ownership under postpaid plans. We are keeping a close watch on the impact of non-SMS data growth on our SMS revenues, which at the moment have not registered sharp declines.

In addition to bundling data with SMS and voice loads, we are developing a few offers to keep SMS usage steady. As the Philippine market will largely remain a prepaid market, we are focusing on unlocking prepaid data through various means including the bundling of non-SMS data with voice and SMS plans, low denomination data sachets or sachet apps, as well as leveraging content to engage the customer and encourage and expand usage while capitalizing at this time to the PLDT network. On the next slide, moving on to the fixed line, this segment registered a PHP2.2 billion or 4% year-on-year increase in service revenues to PHP53.7 billion in 2013 net of interconnection costs. Growth was underpinned by data revenues, which accounted for 51% of total fixed line revenues. Corporate data revenues recorded a 6% increase to PHP13.1 billion.

Fixed line broadband revenues were higher by 9% at PHP12.3 billion due to an 8% rise in subscribers. In addition, data center revenues grew 61% to PHP1.8 billion highlighting the increasing acceptance of cloud computing and data center services in the country. The continued improvement in economic conditions bodes well for PLDT's HOME and ENTERPRISE businesses creating a growing demand for broadband and data from retail customers, SMEs, and corporates. HOME offers integrated access, content, and various devices to provide a richer multi-media experience through the Internet. ENTERPRISE solutions on the other hand include Ethernet, cloud computing, and datacenter services that help increase customer productivity, efficiencies, and competitiveness.

On the next slide. As the worlds of telecommunications, media, and the Internet continue to converge and consistent with our strategic direction to transform PLDT into a multimedia organization; we are stepping up our efforts to integrate content with our fixed and wireless offers. We have expanded the content available to our DSL and fiber subscribers to include more movies, TV series, music, games, and sports. To further grow broadband take-up, we now offer device bundled DSL plans that allow our customers to fully enjoy a multimedia experience using these devices and their broadband access. Among the devices available are TELPAD, a wired landline phone and android tablet in one; and TVolution, an android device that turns an ordinary TV into an Internet TV. Our wireless customers on the other hand can access music from SPINNR, the biggest online music portal in the country.

For our gamers, ePINs are available from our gaming portal GameX. Given how credit card penetration in the country is, payments for these purchases can conveniently be charged through prepaid load. As far as CignalTV, the direct-to-home or DTH business that PLDT has invested in via Philippine depository receipts or PDRs, the growth in its subscriber base continues unabated reaching over 602,000 subscribers at the end of 2013. CignalTV recently won the exclusive rights to air the Winter Olympics held in Sochi and the upcoming Summer Olympics in Brazil. Cignal's long-term portfolio continues to broaden, but which we are able to bundle with our fixed line triple-play service and TV-To-Go mobile offering. We firmly believe that we can create new revenue sources by capitalizing on our network strengths and searching for new ways of providing our customers with engaging and compelling content.

On the next slide, net debt at the end of 2013 was $1.6 billion or $300 million lower than the end of 2012. Net debt to EBITDA was also lower at 0.93 times from over 1 times at the end of last year. 57% of gross debt is denominated in US dollars. Taking into account our US cash holdings and hedges, only $966 million or 41% of our total debt is unhedged. 54% of our debt are fixed-rate loans. PLDT's debt profile remains healthy with maturities well spread out. In January, PLDT 7-year and 10-year peso fixed rate bonds were listed in the Philippine Dealing and Exchange Corporation or PDEx . Proceeds from the PHP15 billion domestic retail bond issue will be used for CapEx and debt refinancing. PLDT's credit ratings with Fitch, Moody's, Standard & Poors remain at investment grade.

On the next slide, free cash flow for 2013 rose by PHP4.4 billion or 12% to PHP42 billion and PHP3.3 billion higher than our core income for the year. Lower CapEx and net movements in working capital offset higher income taxes paid. After having completed our two-year network transformation program in 2012, PLDT growth CapEx for 2013 decreased by PHP7.6 billion to PHP28.8 billion or about 18% of service revenues. CapEx investments in 2013 fortify the Company's unrivaled network advantage in support of the delivery of data and broadband. We expanded further our 2G, 3G, and 4G coverage; grew our fiber footprint to 78,000 kilometers thus obtaining 100% fiber connectivity from base stations to the core; reached 2 million homes passed; and increased international cable capacity.

For 2014, we anticipate CapEx to remain below 20% of service revenues or between PHP31 billion and PHP32 billion. Included in the CapEx buildout for the year are projects to enhance our ability to deliver data in anticipation of its continuous growth. Among these are 100% 3G coverage, supplemental in-building presence, additional LTE sites, expansion of the fiber footprint to 90,000 kilometers, and participation in a new international cable system. Investments in new service delivery platforms and additional network intelligence are also part of the 2014 CapEx. Note that given climate change and severe weather conditions experienced, CapEx for 2014 also includes investment to further strengthen our transport and support facilities.

On the last slide, we believe that PLDT has turned the corner and is back on the growth track. Our goal remains to expand our data business while maintaining the equilibrium of our core businesses and managing the declines in our legacy services. We will continue to invest to ensure our unrivaled network advantage, pursue further growth of our postpaid business, explore ways of unlocking the potential of prepaid data, and enhance our product offers with more content. We expect our 2013 performance to be the springboard for continued improvement as we strive to achieve PHP39.5 billion in core net income for 2014.

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

We'll first take questions from those who have joined us through the conference facility before we take questions from the floor. Operator?

The floor is now open for your questions. (Operator Instructions) Luis Hilado.

Congrats on the results. I have three questions initially, the first two regarding fourth quarter performance and the last on full-year trends. Just firstly in terms of the impact of Yolanda, I was just wondering if that's the impact we're seeing in terms of several OpEx lines seeming to have grown quite substantially QonQ and year-on-year. Is that the Yolanda effect distributed across them? Second question is regarding the asset impairment for the quarter seems to be about PHP3.4 billion. Could you give us some color on what those write-offs were, what are impaired in those write-offs? And last question is for full year you've noted that SMS revenues down PHP1 billion, but non-SMS data growing quite strongly at PHP2.7 billion. In terms of recent trends, are you still seeing that kind of ratio wherein quite the advantage towards non-SMS data more than offsetting the SMS decline?

Thanks for the questions, Luis. I'll try the first one, which is on the expenses. I think Anabelle will probably pitch in on the asset impairment. I think there is a seasonality to the expenses that I think we've seen in the previous year. If you look at I think in 2013, total expenses are running about on regular recurring expenses by PHP29 billion, PHP30 billion a quarter. For the Q4, it's about 10% higher than that. I think there is an element of Yolanda there. If you look at repairs and maintenance are somewhat higher, travel costs, and the like. So of the increase, maybe 25% to 30% is maybe Yolanda related. I think the other important items there would be sales and marketing tends to be back-ended a bit, I think the Q4 is generally when it's highest. So, probably another part of the increase would come from that area. And then the balance I think is just generally the year-end where basically you review again things like provisions for doubtful accounts, taxes and licenses, et cetera, et cetera. So I think in conclusion, it's partly Yolanda affected, but the majority I think is regular seasonality that we normally see in Q4.

One follow up to that was the amount of Yolanda expenses should be all incorporated in OpEx, right. There's nothing below the line in terms of Yolanda.

I think the Yolanda bit that's below the line is those which are related to CapEx expenses. So if there was damage to the network on the wireless site, the cell site itself or on the fixed line the fiber, we've recorded that as a below the line expense. We've estimated that at about PHP900 million, but that would be as a one-off expense related to impact on the network. The recovering effect on things like repairs and maintenance, people traveling there, and the like are in the regular expenses. Now, we've taken a fairly conservative view on the CapEx side in that amount that we provided is PHP900 million is before any insurance recoveries. Insurance recoveries should come through in 2014, but obviously that involves negotiation with the loss adjusters and the insurance companies and the like. So, we should probably recover about maybe 50% of that total, but that will be a recovery we'll see in 2014. As I say, we've taken a fairly conservative view on the CapEx side in the 2013 results.

Luis, on the fourth quarter asset impairment charge. We basically booked a PHP2.1 billion impairment charge that we have classified as non-core in the wireless segment relating to the site consolidation and effort integration of Smart and Sun. So, that's a program that we started in 2013 and still ongoing for 2014. But we've taken the one-time charge in the fourth quarter of approximately PHP2.1 billion to recognize the related losses with respect to the size and the equipment that will be affected by that integration.

With regards to your third question, which relates to SMS versus mobile broadband. As you know, mobile broadband grew by 59% reaching PHP5 billion last year and SMS went down by about 2% in terms of revenues. But as we go deeper in terms of volume actually SMS went up by 1%. So, we are seeing that the broadband growth is not yet affecting the SMS. In other words, we're seeing that it could be still complementary at this time. We're having a close watch however in how SMS would behave moving forward, but we're not seeing it right now, the erosion is not seen right now.

Great. That's very clear. Thank you.

Do you have any other questions?

No, that's all for now.

Arthur Pineda.

Three questions from me. Firstly, can you give us a better picture on the financial implications of Cignal on your books? Where do you see the EBITDA margins and profit margins for the payTV business now, when is it profit positive? Second question I had is with regard to your subs base, it seems to have declined although I do know that it's contrary to the revenue trends. Could you provide a little more color on this, please? And last question I had is with regard to the sachet data plans, you mentioned PHP5 sachet data plans and that seems to be cheaper than your traditional plans for voice and SMS. How do you manage the OTT cannibalization on revenues given this? Thank you.

On Cignal, we are essentially saying that they have turned EBITDA positive last year and should be net income positive this year after having achieved a subscriber base of about 602,000 at the end of last year notwithstanding some lost subscribers due to the impact of the Typhoon Yolanda. So in 2013, the impact on our financials is quite small given that it was only equity accounted towards the fourth quarter, but we should see that continue to be equity accounted going into 2014. And your second question on the subscriber base, aside from the normal activity around the fourth quarter, we did really find our basis for exclusion of subscribers whose minimum balance was derived from the accumulated rewards program. So, there is a write-down if you may of some subscribers as a result of that change in definition.

Okay. So, it's just a change in definition.

I wasn't aware of the third question.

I'll just repeat my third question. You mentioned previously that you started to launch the PHP5 sachet data plans to make it a lot more affordable for mass market consumption, but it does seem to be much cheaper compared to your traditional voice and SMS unlimited plans. How does this --.

We lost you there.

Operator?

Luis Hilado.

I just had two follow-ups. Now one, if you could give us the amount of deferred tax assets that you have for the fixed line business that have not yet been utilized? And second is with the other income for the fourth quarter at PHP2.1 billion, is that largely Philweb or any other business?

In the fourth quarter, largely the Philweb of about PHP1.1 billion because the other tranche of Philweb was booked in June.

What's the deferred tax question, Luis? How much?

How much you have unutilized? How much can you still -- will be a loss I guess going forward?

The amount utilized for the fixed line was about PHP2 billion for 2013. But since the fixed line business was already effectively sold or transferred to PLDT, it's unlikely that there will be much of tax utilization any more on the fixed line side. But on the mobile side, there are also some accumulated tax losses; but because that was not yet reporting, was still in a net loss position from a tax standpoint, we have not recognized that. So, that's something that we will assess in 2014 towards the end of 2014 depending on the reported profits of Sun this year in terms of how much we could utilize of that in deferred assets. It relates to the fact that there was a significant impairment book with respect to their fixed assets of Sun.

In terms of the maximum amount you could book over the next several years, what amount would that be?

It's a bit difficult to say. It could be in the order of PHP2 billion, PHP3 billion depending on I guess the timing and everything (inaudible).

Alright. Thanks a lot.

Operator, do we have Arthur back on the line? If not, we'll go to the next question, please.

Arthur is not yet back so should we proceed to the next question?

Yes, please. Thanks.

Chate Ben.

The first one is regarding a little bit more details on the subscriber in the fourth quarter. I noticed the prepaid subscriber has actually declined by 2.5 million. I understand that part of this is due to the redefine in definition, but can you actually help break down how much is actually the effect of the change in definition of subscribers? And whereas if we exclude that, the subscriber actually grow or decline and some more colors on why that happened? The second question is related to that as well. The revenue seems to be growing in the fourth quarter despite the subscriber decline so should we expect that in the subsequent quarters will actually see there is no impact from that? The third one is regarding your core income guidance. Would you actually help discuss what kind of service revenue growth or EBITDA growth you expect to drive that core income growth you expect in FY14? The fourth one is regarding your content, you mentioned that content is now part of your important strategy. Is there any update or guidance and tell us how much or what kind of contents are you looking for in the market right now? I'll ask for now. Thank you.

I think Annabelle will answer the subscriber numbers. I think in terms of the revenue growth, I think we are looking at something in the region of about 3% to 4% revenue growth, which would then translate to the core net income number of about PHP39.5 billion. And again as I think based on Poly's presentation, really reflecting that we are expecting fairly robust growth in data both across the wireless and the fixed platforms. But obviously there is likely to be a dampening effect of the impact on both the international and particularly the inbound international business and the [ILB]. But yes, overall, something in the region of 3% to 4%.

On the subscriber restatement, that largely impacted the top-end subscriber number so you can see the deduction in the top-end subscriber numbers. That's the one that had the effect of the redefinition of the policies whereas the other brands in terms of the Smart brands and the Sun brands for fourth quarter, that's really more reflective of the normal patterns.

Second question was revenue growth in the fourth quarter despite the Sun procurement.

The sub decline was not per se revenue impacting. It was really a question of what we counted active subscribers versus what you don't count. It's not an effect on the revenues in the quarter. In fact if you kind of look at it going forward, the ARPUs will not surely increase because of that change in comps.

The last question was what you were looking for in terms of content, rolling out content?

In terms of content, we are exploring many pillars, one of which is music. Music, which is our portal which is SPINNR and that is exclusive agreement with MCA and Sony Music accounting for I think roughly between 75% to 80% of all the soundtracks worldwide and which can be accessed through our portal. So, we are really pursuing giving rich and compelling content to our subscribers. We are also pursuing content in the gaming side, which is games. Our portal there is GameX where you can purchase ePINs and therefore you can in fact use your prepaid credits to do so. In terms of the fixed line and fiber-to-home, we are offering right now triple-play which is CignalTV via fiber and also we are offering movies and TV serials, video on demand, etcetera and trying to enrich the experience at the home by offering various devices. Our TELPAD, which is the wired line phone and Android tablet in one and the TVolution, which is a device that will allow you to convert your ordinary TV into an Internet TV, it's actually a wireless Wi-Fi modem. In terms of e-commerce, we are very active there. In fact, we just won an award during the GSMA Conference last week and we are pursuing many alternatives there to enhance the experience of our consumers.

Thank you for sharing. Just a little bit more on contents. Is it fair to say that you are in an expansion mode in terms of contents and therefore would there be any like kind of larger scale acquisitions or any certain buckets that you're looking to spend in terms of expanding your content portfolio next year or over the next few years?

There is none right now, but well, we will be opportunistic and the key really is to pursue to enrich the content that will go through the pipes.

Right. Just one last question from me is regarding your CapEx. I understand that you emphasized a couple of times regarding your network advantage, but we can see that your industry peers is also stepping up or at least keep the CapEx at quite high level. Would you think your network advantage is actually very sustainable and your peers will have a difficult time catching up?

The CapEx projection or guidance is about not more than 20% of our service revenues, which would be in the neighborhood of about PHP31 billion to PHP32 billion for this year. It has slightly increased versus our estimate last quarter for this year mainly because we are looking at increasing our coverage on 3G. For example, we have right now about 76% population coverage on 3G, we're moving to 100% 3G coverage. We will be more aggressive on the LTE rollout. We had 1,200 base stations in LTE, we are projecting to increase this to roughly about 2,500 base stations within the year. We also will increase our fiber footprint from 78,000 kilometers to 90,000 kilometers so that we would be ready to deal with any mobile data explosion. And we are also entering into an international cable agreement or expansion moving forward and also, we are putting in some more service delivery platforms and expanding our datacenter businesses. We are putting up two new datacenters. As you know, our data center business has grown by 61% last year and the demand is there and our capacity is almost fully utilized so we're building two new datacenters. One is going to be completed mid this year and other will be end next year, which would be nearly doubling our rack capacity as far as ICT is concerned.

This is great. Thank you very much.

Do we have Arthur back on the line?

Yes, we do. Arthur Pineda.

Sorry, my line got cut. Do you need me to repeat the question?

Yes, please, Arthur. Thanks.

I actually put in another question as well. Firstly, you mentioned that you've introduced a PHP5 sachet data plan. It does seem to be cheaper than your traditional voice and unlimited SMS plans. How do you manage the OTT cannibalization effect on revenues given this? I'm just wondering if this is replacement revenue or incremental revenues we should actually be excited about? If I can also throw in another question. Are there any plans for any asset acquisitions in 2014, which would require capital? Thank you.

Well, let me answer the first question, which is a lot easier. On the power application, what we are doing here really is pursuing alternatives to unlock the potential of the data adoption. As you know on a prepaid environment, it's always hard to be always on. So what we're doing is we're sacheting so to speak the service on a per app basis or in a cluster of applications. For example related to social networking, we can cluster these and ring-fence it so that when you use it, you cannot go outside of what has been ring-fenced. And by doing this, we are able to manage the bandwidth that is being used and at the same time be able to bring down the costs and bring down the denomination of outlay plus give the customer the user experience that he deserves for Internet access. And what happens is that you can press a button that will enhance your speed for example, we have a speed booster. If you want to go outside of what has been ring-fenced, which means if you want to download a picture or a video, you can request a booster and then you will have higher speed, but you will have to pay for this. So in a way, what we're doing is trying to align our cost curve with our revenue curve. Now, what was the other question?

Whether it's replacement or incremental revenues and then any acquisition plan for 2014?

Right now, there are no acquisitions in sight. But just as I said earlier, we will be opportunistic as far this is concerned.

Thank you very much.

Mr. Pineda, do you have any other questions?

No, that's all. Thank you.

Kunal Vora.

My first question is on the competition. Can you talk about the competitor who entered here in the market recently on the prepaid as well as postpaid side and some steps taken by the operators, if any, to attract customers like any new schemes which have been coming off on the competitive side? That's one. Second is on your outlook for subscriber growth in the market. Do you believe that the market is close to its saturation level or what according to you is the real penetration and where do you expect the mobile penetration to settle? And last question is on 4G. The data growth in the market seems to be slightly slow, do you think it's the right time to invest in LTE right now or like what are the plans? How are you seeing the data account utilization levels? That's it.

Perhaps I should answer the last question, which I understood the best. The LTE rollout is timely for us because it really depends on handsets that will be available. And what we're seeing, for example when we were in the GSMA Conference in Barcelona, the handsets that were in the roadmap of several vendors for example like Nokia, which is a popular brand here in the Philippines. As you know, handsets in the Philippines close to 45% are still feature phones and most of them are still Nokia. They are coming out with low entry phones that are smartphones and will be 3G and 4G capable within the year. So, we're seeing that with the consumer experience of LTE at a better experience and higher speeds and low latency, we feel that we should provide for this already now so that the consumers would be able to take advantage of that. Right now what is happening was during the 2G and 3G environment, the vendors were ahead of the devices. Right now the reverse is occurring, the devices are now coming in ahead of the vendors when it comes to network capabilities. So, we're not going to let that push us back so that is why we are rolling out LTE. LTE will be rolled out mostly on the urban areas; basically metro Manila, Cebu, and Davao cities; and will be available on the comprehensive basis on 25 other cities and municipalities in the country. That is the plan for this year.

First question was on competition for prepaid and postpaid and what steps are we undertaking to compete in those markets?

There is no competition between prepaid and postpaid or is it within?

Within.

The industry competition on both --.

Industry competition.

Our growth in postpaid last year was about 15%, prepaid was a bit stagnant or flattish in terms of revenue. And we are seeing that there is still room for postpaid to grow, but we feel that there are limits to postpaid. Essentially, I think the Philippines is a prepaid market. We are looking at postpaid to be in the neighborhood of the total base of about 6 million to 7 million max and beyond that you will have credit problems and you won't be able to subsidize handsets anywhere beyond that. So, we feel that the more important thing really is to unlock that potential for prepaid data adoption.

And the second question was what was the outlook for subscriber growth? What is the real penetration? Is there still room for growth in this?

Right now the penetration is over 100% and if you look at the double simming behavior in the market, roughly in terms of individual users, the penetration should be hovering between 80% to 85%. In terms of addressable market, I think that has still room to grow because mainly if you look at other markets the penetration rate, which includes double simming is about 140% to 150% because of multiple handset ownerships. So, we feel that there is still room to grow in overall penetration. However, the greater potential lies in the smartphone penetration, which is in our base roughly 15% and if you consider that only 25% of that 15% is paying for data usage, then you will see that there is a lot of opportunity for us to enhance data adoption and grow in that sense. That is why our broadband business is growing at roughly 16% and in fact early this year we're seeing that the trend is a growth of about 19% to 20%.

Very helpful, sir. Just one follow-up question. Why do you think the customers are not using data services in Philippines as much as in other markets? Is it that data transfer is expensive compared to other markets, is it because operators are trying to protect their SMS revenue and that's why the data plans are expensive? Is that the reason or what according to you explains the low pickup of data services till now?

Why are data plans not being used by the market? Why there is a very low usage of data by those who own smartphones?

Well, it's predominantly prepaid so most I think of the users, for example we have over 38 million Facebook accounts already in the country, they are going into Internet cafes because it's obvious the smartphone ownership is still much lower than that. So in terms of data usage really, what was the question again?

Why is it very low? For those who own smartphones, why is data usage --?

For those who own smartphones, they are I guess going to where the Wi-Fi hotspots are, am I right? Yes. I have agreement in the audience here. They are going to Wi-Fi hotspots and coffee shops and all that and that's why the offers have to be relevant as far as that is concerned and that is what we are trying to pursue at this point. But the key really is to unlock that experience for the prepaid environment because that is 98% of our base.

Okay, great. Thank you very much, sir.

Mr. Vora, do you have any other questions?

No, I'm done. Thank you.

Thank you. Speakers, we don't have any other questions.

If there are no other questions from the conference facility, we will now take questions from those here on the floor. There is microphones in the aisles. No questions? We'll go back to the conference call facility for any more questions.

Right now, we don't have any other questions.

Okay. If there are no further questions, let me turn the floor over to the operator for the replay information.

I would like to give everyone the replay information for today's call. This conference will be available on a 24-hour instant replay starting today daily on through March 18, 2014. Replay information for CPM call: international caller number, 852-3018-4331; US toll-free 1-800-839-3138, passcode 1799; and conference leader is Melissa Vergel de Dios. I will now turn the conference back to PLDT for any additional or closing remarks.

On behalf of my colleagues who are here, I want to thank you all for joining us today and I look forward to the next conference call, which would be sometime in early May when we would announce our first quarter results. Thank you so much. Bye.

And that concludes today's conference. Thank you for participation, you may now disconnect.