PLDT Inc (PHI) 2015 Q1 法說會逐字稿

Good afternoon, everyone, and welcome to the PLDT conference call. This conference call is being recorded. (Operator Instructions).

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 and 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 2015. As mentioned in the conference call invitation, today's presentation is posted on our website. For those who've not yet been able to do so you may download the presentation from www.PLDT.com 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 for PLDT and Smart; Mr. Chris Young, Chief Financial Adviser of PLDT; Ms. Annabelle Lim-Chua, SVP and Treasurer of PLDT; and Chief Financial Officer of Smart, and Ray Espinosa.

At this point let me turn the call over the Mr. Napoleon Nazareno for the [first speech].

Good afternoon. Allow me to share with you PLDT's financial and operating results for the first quarter of 2015.

PLDT's financial results for the first three months of 2015 continued to manifest the impact of our growing retail and corporate data and broadband businesses, the results of the Group's more aggressive response to competition in the wireless segment, as well as progress in expanding the PLDT Group's participation in the emerging digital economy.

Revenues for the period were stable at PHP42.6b. Consolidated service revenues dipped by 2% to PHP40.5b as fixed line service revenues rose by 1% to PHP15.9b while wireless service revenues declined by 4% to PHP27.9b.

Consolidated EBITDA for the quarter was lower by 2% year on year at PHP19.3b, but EBITDA margin remained stable at 48%.

Reported net income for the period remained at PHP9.4b, similar to the same period last year while core income dipped by 5% to PHP9.3b.

On the next slide let us now go through the financial results in greater detail. Our data and broadband businesses continued to register robust growth with a PHP1.1b rise to PHP11.2b at the end of March 2015, exceeding revenues from SMS and now accounting for 27% of total service revenues.

The increase is broadband and data revenues were fully absorbed by the PHP1.3b decrease in international voice and national long distance revenues.

Our voice and SMS businesses, representing 60% of total service revenues, also registered declines. Revenues from these maturing businesses were 2% lower at PHP24.2b.

Consolidated EBITDA dipped by 2% to PHP19.3b as lower cash operating expenses and higher net non-service revenues partly offset lower service revenues and higher provisions.

EBITDA margin of the period was 48%, stable year on year and higher quarter on quarter.

On the next slide, core net income for the first quarter of 2015 dipped by PHP0.5b or 5% year on year to PHP9.3b, mainly due to lower EBITDA and higher net financing costs, offset by lower provision for income tax and a decrease in non-cash operating expenses.

Reported net income for the period was stable year on year at PHP9.4b as higher net foreign exchange and derivative gains fully absorbed the decline in core income.

On the next slide let me now discuss highlights on the fixed line business which continued to post year-on-year gains. This segment grew by 4% to PHP14.3b net of interconnection costs. 88% of fixed line service revenues registered improvements versus last year.

The PHP400m drag from our international and national long distance services were fully absorbed by the combined PHP1b increase in data and broadband revenues and in domestic voice and miscellaneous revenues.

Adding to the improvement in this segment's performance is the rise in non-service revenues from the sale of Telpad, TVolution, FamCam and Cignal over Fibr which were up by 54% year on year.

Fixed line EBITDA increased by 3% to PHP6.3b, mainly due to higher service revenues, net non-service revenues and stable cash operating expenses. EBITDA margin for the quarter remained stable at 39% year on year and quarter-on-quarter.

PLTD's fixed line subscriber base grew by 6% to 2.2m at the end of March 2015.

On the next slide, wireless service revenues for the quarter decreased by 4% to PHP27.9b, mainly due to declines in SMS and international long distance revenues which exceeded the rise in broadband revenues.

The drag from international voice was noticeably stronger this quarter, likely a result of the increasing shift to over-the-top communications.

The success of the initiatives to grow our post-paid revenues are evident in the robust 11% rise in revenues and 18% in subscribers. Post-paid revenues now account for 23% of total cellular revenues.

Prepaid revenues remained under pressure from price competition in SMS as well as our more aggressive response to defend market share starting in the second half of 2014.

Wireless EBITDA for the quarter was lower by 5% at PHP12.6b with declines in service revenues partly offset by decreases in cash operating expenses and subsidies. EBITDA margin of 45% was lower from 46% in the first quarter of 2014 but stable quarter on quarter.

Our total wireless subscriber base stood at 73m at the end of March 2015, consisting of 69.6m cellular subscribers and 3.4m wireless broadband subscribers.

On the next slide, data revenues continued their upward trajectory with an 11% year-on-year increase to PHP11.2b at the end of March 2015. (technical difficulty) wireless broadband revenues by 2% to PHP2.5b and corporate data revenues inclusive of data center revenues rose by 15% to PHP2.65b.

Mobile internet revenues consistently posted quarter-on-quarter increases from the first quarter of 2014 with first quarter 2015 revenues higher by 4% compared with the previous quarter and by 19% year on year.

Our Free Internet promo which ran from (technical difficulty) September 2014 until the end of February 2015 was quite successful in stimulating new sales. There were 6m unique users during the promo period of which 70% were first-time users.

About 30% of our subscriber base own some smartphones, of which around one-third pay for data. We have moved towards more volume-based pricing, bundling of SMS and data and greater data monetization by offering free internet with load purchases, sponsored data arrangements and the like.

We continue to stimulate data usage by enabling users to access selected sites for free through our partnership with internet.org or Facebook or through SafeZone. These initiatives will help build subscriber confidence in using smartphones for data and increased appreciation for an always-on experience which should result in more frequent top-ups and consequently higher ARPU.

The PLDT Group's broadband subscriber base grew to 4.5m. At the end of first quarter 2015 fixed broadband subscribers rose to 1.1m while wireless subscribers increased to 3.4m.

On the next slide, moving on to the balance sheet, excluding approximately PHP18.8b of cash for dividend payment in April 2015, net debt and net debt to EBITDA at the end of March 2015 stood at $2.4b and 1.4 times respectively.

47% of gross debt is denominated in US dollars. Taking into account our US dollar cash holdings and hedges, only about $1b or 32% of our total debt is unhedged. About $200m or 18% of service revenues in the first quarter are dollar-linked and provide a natural hedge. After interest rate swaps, 84% of our debts are fixed rate loans.

On page 9, free cash flow for the first quarter of 2015 rose by 36%, or PHP3.8b, to PHP14.6b, mainly due to PHP5.1b in dividends received from Beacon in connection with the sales of the 5% Meralco stake in June 2015 partly offset by a PHP700m increase in CapEx and a PHP300m rise in net interest paid.

CapEx guidance for 2015 is PHP39b. Included in this year's CapEx are projects in support of the anticipated rise in network utilization from growing data usage. This includes expansion of our 3G and 4G coverage and capacity, further expansion of our fiber assets to nearly 114 kilometers, (sic - see slide 9 "114,000 kilometers") and increasing our data center capacity to 8,000 racks by 2016.

On the next slide let me now shift gears to what we are doing to move the organization into the fast emerging digital world. You will recall that 56% of our fixed line revenues are now from data and broadband services, while 17% of our wireless revenues are (technical difficulty). We anticipate the contribution from data and broadband to continue to grow and replace traditional and legacy revenues.

This indicates that there is an ongoing evolution of the telco subscriber into a digital consumer and therefore a need for the PLDT Group to respond by undertaking customer-centric changes in order to identify new ways of serving the customer. With these changes come new opportunities for the Group to enable businesses to gain a deeper understanding of their customers in order to identify new engagement touch points and provide a unified customer experience.

Last quarter, we previewed to you some of our initiatives in the digital space. Given that our strategy to prepare for a digital future is work-in-progress. we would like to share with you some of the building blocks we are working with. These consist of platforms, products, a pathway to execution and, of course, people.

I have asked some of my colleagues to discuss the next few slides. Nerissa Ramos, our COO for ePLDT, will discuss the digital enterprise transformation. Doy Vea, President of Voyager will run us through some of their major innovation launches. Ariel Fermin, Head of our Consumer and Home Businesses will discuss the focused effort of the digital consumer, and Noel Lorenzana, Head of Mediaquest, TV5 and Cignal, will provide highlights of the multi-media initiatives.

So Nerissa.

Thank you, Mr. Nazareno. Good afternoon to all. Today I will share with you how PLDT is enabling businesses to accelerate their journey towards digital transformation. To enable businesses to hit their digital sweet spot, PLDT is aggressively embarking on the following business transforming initiatives.

And for fiber I'd like to talk about the initiative on enabling infrastructure. We have observed that the (inaudible) of the enterprises have shifted from building their own data centers to engaging a credible data center provider to host and manage their critical IT assets. PLDT's response to this is through the aggressive expansion of our network of data centers. From our current network of six data centers with rack capacity of about 3,000 racks, we are set to expand this to seven data centers by yearend with 6,700 racks, and further expand this to 8,000 racks by the end of 2016 with the completion of our eighth data center.

And to serve out-of-country data center requirements we are allied very closely with NTT and Acasia, we just, we did a joint venture of incumbent telcos in Southeast Asia.

The second initiative is in the area of Big Data platform and Enterprise Insights and Solutions. This is another approach by which we enable businesses to accelerate their digital transformation. Enterprises have recognized the value, the business value of their data but admitted that they don't know how to site, they don't know how to do it and they do not have the talents to implement. We saw the gap and we recognized this as an opportunity.

Hence, PLDT introduced Big Data Platform as a Service and Enterprise Insight Solutions sometime March this year. Big Data Platform as a Service is a managed analytic service, while Big Data Insight Solutions on the other hand provides enterprises with insights that can help them make decisions such as route planning, site selection, store inventory management just to name a few.

PLDT is also the only Asian founding member of the Open Data Platform which gives us a seat and a voice in the larger Big Data standards developments by the ?- in the world.

Third, we've also launched a number of efficiency-enhancing mobility solutions. We've launched a Smart M2M Workforce which is a mobile application used for salesforce planning and workload management. We've also launched M2M Credit, which is a mobile tool for financial institutions to conduct automated credit investigations.

In the same manner we have launched M2M Health, which is a mobile solution for remote ECG and remote fetal monitoring. We have also launched M2M Pay, a wireless payment solutions using smart devices as point-of-sale terminals. These are just some of our expanding M2M portfolio.

And finally to wrap this all around, we have entered into a number of mutually beneficial partnerships with leaders in the IT industry. This should allow us to share capabilities and best practice to jointly develop and offer new space solutions in the enterprise market.

I would like to call on Doy for the next presentation.

Now let me give everybody an update on how, or what kind of traction our digital launches have achieved so far. Let me start with Smart e-Money. On the domestic front we are looking at PHP250b throughput including payments, transfers and trade money for this year. We are already the biggest domestic remittance platform and we have just signed up with Xoom for international bills payment, meaning Filipinos abroad sending money direct to merchants for the payment of bills.

Also domestically we are already with the Rocket companies enabling them for payments as well as distribution, for example, Easy Taxi drivers are now paid using Smart e-Money by Easy Taxi. Zalora, payments to Zalora on Mastercards are now being processed by Smart e-Money.

Internationally we are launching this year in four Asian countries together with our Rocket partners as well as local partners. I cannot specify the Asian countries now but there are four in our timeline this year.

We are also collaborating with Rocket companies in Europe and Latin-America to complete the payment environment, us acting as acquirers or in some cases as issuers operating under Visa or Mastercard.

On SafeZone, SafeZone is the platform that allows mobile consumers to access sites without having to pay for data access, in other words it is sponsored data. Good traction on this as well, big companies in the Philippines are now on board and experience among enterprises is that their visits increase in multiples, some as high as 7-times, 12-times, with the use of SafeZone. This is a play that enables both consumers to have free access as well as enterprises to have more visits from their online customers.

PowerApp is the platform that allows mobile consumers to get data caches, five minutes -- five hours of Facebook, one hour of Twitter and the like. We now have 70% of our mobile internet users downloading the site, downloading the app, so they now have the app.

There is an international play of PowerApp, PowerApp is now embedded in the equipment of Sandvine, Sandvine is one of the major telco equipment vendors. We are being integrated into two other major vendors' equipment so hopefully by this year we'll have three. But this is a way of getting our innovation across to the rest of the world on a licensing agreement.

On retail eCommerce, Tack This is the online storefront that helps SMEs create their own online shop within minutes, it's like a Shopify. So we have 20,000 merchants registered now on Tack This.

Takatack is the online aggregated marketplace. We have 100,000 products featured in Takatack.

LockbyMobile is our security solution for credit cards, debit cards or ATM fraud by, it's using, it's a platform that allows a mobile user to lock his account, credit card, debit card or ATM if he is not doing any transactions and unlock it while he's doing the transaction and lock it again afterwards. We are looking at an addressable card base here of 13b cards, we're already in discussions with almost all the major card companies in the world. We expect to have some developments on this is the next several weeks.

G2P is our platform for distribution of cash from government to people, we're speaking here of the mobile cash transfer as well as the conditional cash transfers which are big money flows in the emerging markets. Just for a perspective we did PHP1.6b in the first quarter representing 38% of all conditional cash transfers the Philippine Government pays out.

So these are just some developments and we can entertain questions later. Ariel.

Good afternoon, I'm Ariel Fermin and I'd like to give you a perspective on the consumer business. Let me start by saying that we are very much committed to serving the consumer and the digital program that we have allows us to view the consumer in a more holistic way and hence puts us in a position to deliver a unified customer experience.

So with the interface of PLDT Home and Mobile to a consumer group we have an opportunity to leverage on our capabilities in both parts, fixed and wireless, first to a deliver a seamless digital experience in this case.

Now the marketplace has evolved and the same consumers we have at home, the families, assume different roles, various roles in life when they step out of their respective homes. Our task then is for them to remain connected with their family members and loved ones and enable for them to be (inaudible).

So the possibilities for this group are endless as we have shown in previous periods, quarters, that when we harness the strength of the PLDT Group we create beautiful things, products, services, that make a difference in consumers' lives. So you'll see a sheet and in that sheet you will have some examples of what the Group has done over the past quarters, just to let you in on the possibilities as well.

For one, the mobile group, we have made broadband accessible to everyone and stimulated usage amongst, particularly amongst new subscribers, new users.

We launched the first, and still the only, IPTV service with Cignal running on both our fiber and DSL platforms.

With the Telpad we have transformed the landline legacy business for fixed and have entered the TV space as we put signal on TelPad. And thus it has evolved from a landline to a Telpad to now one of kids? favorite TVs.

And recently, the FamCam which is a home monitoring service and it has given families, parents, peace of mind, particularly when they're not at home, because it is a home monitoring service that runs on broadband.

So I just want to close by saying that we are proud of our past, the legacy business we have, it still remains to be part of our core, excited of what we have right now and very much thrilled because of the digital possibilities we have for the future. As a Group, as a company, we will continue to be at the forefront and leading the Filipino consumer to a digital life.

So the next speaker will be Noel Lorenzana, Head of the Mediaquest groups.

Hello, good afternoon. Here is all about how the Group is shaping the multimedia landscape in the digital space. Let's start off with the very successful Cignal TV, now the Philippine's premier and largest pay TV provider in the country.

As you know, since last year it's actually overtaken the 20-year incumbent in terms of subscribers. In quarter one we ended with almost 870,000 subscribers, a growth of 28% from the same period last year and we expect this to continue this year given the initiatives we're actually taking.

Revenue continued to grow strongly at 41% in quarter one this year compared to last year and Cignal remains to be a profitable business.

So what did we do apart from increasing subscribers? Allow me to get into specific channels specific to Cignal, basically female channels, male channels, sports channels.

And we recently signed up with Bloomberg TV international to create Bloomberg Philippines and establish the premier pay TV business channel and that's going to be exclusive to Cignal that's on air on 24 hours, and we expect this to be a boost for Cignal in terms of attracting the right people in the business sector.

Other projects also we're doing is with Fox, where Cignal player will actually offer, together with PLDT Home and Smart content from Fox. As you know, Fox offers the very popular Walking Dead, Da Vinci's Demons, also it's known for sports, various Grand Slam events in Tennis, in Golf, Formula 1 and even the NBA. And this will be enjoyed, as I said, by Cignal, PLDT Home and Smart's mobile.

What did we do to further increase subscriber growth? We've recently launched Cignal over DSL and we expect a couple of hundred thousand more to actually sign up, further increasing the potential of subscriber growth for Cignal.

Speaking of digital, we launched News5 Everywhere two years ago, it's now the number-one dedicated online news video service in the country, nearing 300m unique view since last year and this year expect it to grow further and stronger.

We also, in the digital space we launched the Digital5 unit, the content -- digital content creation, curation unit of Mediaquest, which offers full service digital content designed to deliver a full 360-degree services to advertisers. It will deliver digital content ideation, creation, curation across genres, target consumers and different screens, that's TV, laptops, tablets and mobile phones.

We aim to be the leading entertainment, sports and information digital content site in the country, which delivers online eyeballs using our content for advertising opportunities, in fact only last month we delivered 2.5m unique views and 11 minutes average time spend on the site. To give you an idea, average time spent for YouTube in 10 minutes, 11 minutes is actually quite good.

And speaking of partnerships, we had a (inaudible) partnership with an Australian group called Brand New Media which is basically an end-to-end content marketing outfit, multinational outfit, which aims to deliver online channels per interest group, so it delivers channels on cooking, on health, on sport, on dressing, on fashion which really offer specific targeted advertising opportunities for our advertisers.

I forgot to mention earlier, going back to Cignal, what we do after increasing our subscribers or, acquiring subscribers, we now go into content creation and we are inking a number of partnerships, the first one being a partnership with Viva, the leading film production company in the Philippines which then well create original content for Cignal, only available on Cignal.

There's a lot going on, I just can't mention it now, and be happy to mention it as soon as we're ready to action all this. So that's what's happening for multimedia and it's aimed to actually push the digital space. Thank you.

On page 15 the execution of our digital strategy will be via in-house developed initiatives as well as investments and partnerships. Doy Vea discussed the innovations initiated in-house by Voyageur and Smart e-Money. Let me provide you a few updates on our recent investments in digital and adjacent spaces.

Our investment in rapid internet has increased in value from EUR333m in August 2014 to EUR443m at the end of March. More importantly it continues to provide new opportunities for our mobile payments platform beyond the Philippine market. We expect to announce more of our initiatives in the coming months.

Recently, we announced a $15m investment in iflix, which plans to be Southeast Asia's leading internet TV service internet TV service which will offer subscription video-on-demand, or SVOD, that can be viewed on multiple screens. We believe this business model has good potential in Southeast Asia given its success in other markets.

At this point let me turn over the floor to our Chairman, Mr. Manny Pangilinan.

Thank you, thank you, Poly. Consistent with the changes that have just been described to you by the earlier speakers, we have had as well to do a bit of reorganization on the map our executive level of the Group starting with the position to unify or combine the Home business vertical PLDT fixed line with the wireless individual segment of Smart. And that will be managed under Ariel Fermin, precisely to provide the kind of unified digital consumer experience under Ariel.

We have, as well, appointed a Chief Strategy Officer whose main task is to help us move to the digital space and that's Winston Damarillo, a technology entrepreneur with a proven track record in Enterprise Software and digital enterprise transformation.

We have, as well, appointed a Chief Technology and Integration Advisor, Mr. Joachim Horn, with over 30 years for global experience in telecoms having worked at Siemens, T-Mobile, Bharti and Tele2 in Sweden. Joachim will join us starting July.

And, of course, Doy will continue to be the steward for our digital efforts under the Voyageur umbrella, but he will be working closely with Noel Lorenzana on the media side because media itself, our media assets both streamed video and other media assets are moving towards the digital space as well.

Then there's the Big Data unit called Talas, recently named, under Winston which will run the Intelligent Data Fabric. At the moment, Talas has a combined talent pool of 100 people with best-in class skills on telco, banking, digital enterprise and talents on data science and insights.

I think this really brings us to the last slide which is the typical guidance numbers. A few comments and by way of summation of what the previous speaker have described to you earlier.

Core income we guided earlier in the year at PHP35b, the first quarter results show that we're on track in respect of this core income number, if not slightly ahead of expectations. In fact, the actual first quarter results are slightly ahead of our budgeted numbers for the first quarter.

Cash flows continued to be strong with free cash flows up by 36% to PHP14.6b for the quarter, helped in great measure by the special dividends from Beacon arising from the sale by PLDT of 5% of the Meralco shares to Metro Pacific.

Net debt to EBITDA as well is down to $2b and 1.16 times respectively. Twould rise slightly in the second quarter as we paid off the full year dividends out of the 2014 core net income.

Our dividend payout policy we're maintaining at 75% of core EPS with a look-back approach. We'll make the final determination towards the end of this particular year.

So taken in the round the first quarter results have panned out as expected, from one perspective if not slightly ahead, but quite encouraging from another actually. It is because first, on the broadband and data businesses, they continue to grow strongly.

And second on the voice side we're managing to hold our ground, the fixed voice have grown revenues by 2% in the quarter and wireless voice revenues are down by only 1% so effectively they cancel each other out. So voice revenues for the Group are flat at PHP8.8b for the first quarter.

And third, as we all, the soft side of our business are toll traffic, both national and international and as expected that has declined for the first quarter. And, of course, the texting which is subject to encroachment by the internet and other forms of data communication.

But I think if you look at the broader picture for each of the fixed and the wireless side, on the fixed side 56% of the fixed revenues are now data driven and therefore given the preponderant position of data revenues on the fixed, the fixed line business has managed to grow its revenues by 4% for the quarter whilst wireless is down because data revenues account for only 17% from 15% of the wireless revenue. So we really have to accelerate the evolution of the wireless business over to the data side and, of course, in the course of that there'll be some pain as we go through that transition.

So our CapEx is likely to, some comment on the CapEx. The guidance number of PHP39b for 2015, but as we accelerate the deployment of our 3G infrastructure and as well continue to build out our 4G LTE infrastructure, I think at that level higher than anticipated, the likely CapEx number will be north of PHP39b. I think we should come out with a slightly more precise number when we announce our first half results for our CapEx. But, as I said, it is likely to be, as a percentage of revenues, likely to be north of 20% which is the guidance number that we've adopted for quite some time.

So, on the whole, I think the Group is determined to undertake this digital pivot in respect of introducing or enriching the digital experience across the board, across individuals, whether that's in the home or on the wireless side, and for enterprise as well, which will require an updated telco infrastructure and digital spine as we call it, and of course with the assistance of Voyager, the digital units and the relevant organization that we need to deploy in order to bring us to where we are from the past to the new digital future.

I guess that finishes our presentation and we are ready for the Q&A. Melissa.

Operator, can you open the lines for questions please.

(Operator Instructions). Luis Hilado.

Hi, good afternoon, thanks for the call. I just I had three questions about the quarter results and one about e-Money. On the results, just you were noticing that SMS seems to not be declining as much this quarter, whether it is year on year or q-on-q. I'm just wondering what's driving that. But meanwhile wireless voice seems to be 7% down and it seems to be pricing issue. Is there any promotion that is causing that or is that just market forces?

The second question is regarding the depreciation and amortization in the quarter, it dropped quite sharply q-on-q and even down year on year. Should we expect this for the remaining quarters and annualize this number?

Third question is the post-paid growth you're seeing which is quite healthy, if it?s primarily internal migration or if it?s market share growth as well?

And the last question is on e-Money, the throughput is quite impressive at PHP250b, I'm just wondering what actions you'll be taking to increase the monetization of that throughput for yourselves.

Luis, thank you for the questions. Let me handle the SMS portion. The 5% reduction on SMS on a year-to-year basis in the first quarter of this year is more or less the level of normal decrease. What has happened in the past was when our competitor launched the free Facebook and we did not respond right away, this has caused the subscribers from our end to get the second SIMs and that is why the SMS went down. But at this point, since we launched the free Internet promo which happened sometime end of September up to end of February, maximum 30MB plus free Facebook, and this promo has been continued now but with the minimum promo load of PHP10 before you can avail of the free internet 30MB.

So that is the reason why the SMS has been consumed in terms of decrease. Let me also point out that the free Internet promo has generated quite a good following, 6m Internet users and out of which, 70% were new users.

So I hope that answers the question, and number two -- what is number two?

I think the issue on the depreciation is not so much, the comp quarter's depreciation, I think, it is -- the comparative number.

It was somewhat of an accelerated depreciation in Q1 last year. So I think if you look -- trying to get a feel on what the whole year depreciation might look like, I think you can use the current or the first quarter and annualize that and it will probably be a little bit higher as we go into the year, because as Manny indicated in his comments, it is likely that the CapEx level may actually grow somewhat above the PHP39b that we had originally guided for.

And (technical difficulty) you want to comment on the voice --

On the (technical difficulty) I think we look at it in two buckets, the domestic voice component is actually only slightly down by less than 1% where the bigger decrease that has happened is under international inbound voice which is down by about 22%. So that is the kind of the composite of that is the 7%. In our charts, we look at the two different drivers for each of this.

Okay, on the question about Smart Money, the nature of the mobile money business is you earn small -- a small percentage which you recommit against the gross transaction value or the throughput. Having said that, we are making a decent return on this throughput.

But the more important thing is rather than monetization at this point, it is building the ecosystem and that includes the consumers, the merchants, and the sources of money. So in terms of that, the throughput of PHP250b is a good accomplishment for us to prepare the way for a full ecosystem for Smart Money.

On your question regarding the postpaid world, certainly the interest in data plans spurred by higher smartphone ownership has driven the increase in postpaid subscribers and revenues so quite a bit of that comes from the fact that prepaid subscribers are upgrading to postpaid to enjoy the full benefit of data plan.

There is also an element of subscribers continue to acquire second lines, which could be a tandem with that of the competitor.

Okay, just one follow up. Regarding the international inbound voice decline, is that your initiative to cut the price essentially or what is the factor driving that?

Luis, it is not the pricing result of the -- the international inbound basically has decreased at the same -- we are offering at the same rates internationally and the inbound rates have remained more or less at the same level. It is really the substitution of OTT alternatives for that like Skype and Viber.

Okay, thanks. That is very clear.

Thank you. Do you have any other questions, Luis?

No, that is all. Thank you.

Arthur Pineda, Citigroup.

Hi, thanks for the opportunity and I have got four questions. Firstly, can you talk about your mobile initiatives? Is the focus now more on data monetization or are you still looking to catalyze data usage and include the subspace?

The second question related to that, when you look at the Philippines compared to other emerging markets such as Thailand and Indonesia, data usage seems to be relatively low, still at around just 10% of your base. Extrapolating on your earlier comments even with the various stimulation activities in place. Why do you think this is the case in the Philippines and what needs to be done to address this?

Third question I had is with regard to your digital investment table, can you give any guidance in terms of what you expect to see from thi slide? Basically, the telcos in Asia that have gone through this have been seeing losses from this, or should we see the same for PLDT and what are the aspirations here?

The last question I had is with regard to your expenses, cost containment has been quite impressive in the first quarter, should we view 1Q as the benchmark for the year or should we see accelerating costs linked to CapEx increase in the subsequent quarters. Thank you.

Arthur, with respect to the mobile initiative, when it comes to data, the free Internet promo, as I said, was quite successful with 6m user base. And -- first user base and roughly about 70% of them are new users so we are seeing that based on our partnerships with internet.org and the rest of the other initiatives in this space, we are really seeing the growth of data consumption as in line with the smartphone penetration which is roughly still at 30% at this time. What we are focusing on with the promos now is how to get more participation on paid data, mobile data usage, which is right now, only one-third of our smartphone users.

And that?s the reason why we continued the free Internet promo, but with the caveat that you have to have a PHP10 promo load first before you can avail of the free 30MB free Internet promo.

Well, the data usage average is below 30MB that we are seeing. Mostly as we look at our statistics, these are namely on social networking sites and YouTube and others. But I think it is really more on the apps that will be available and that will be coming out and at the same time the critical mass that should be reached by the smartphone penetration.

You can see the inflection point once it reaches about 40% penetration which is coming sometime, if not towards the end of this year, the beginning of next year.

The third question which is -- Manny, do you want to try that?

I think actually, the -- sorry, not (inaudible) your budgeting of profit for your -- for your digital voice unit using this traditional metric of revenues and profit for digital voice.

But the biggest investment, of course, is Rocket Internet, which is, at the moment, losing money. But since we ?- it is what, 5% or 6% so it is an investment, so we don?t project any losses from that for the moment. But the -- both on the revenue and the profit side of Voyager digital unit taken as a whole, it will reflect some profitability for 2015.

And on the fourth question, Arthur, (background noise) just to clarify, the question referred to the non-service revenues and the cost of sales.

Yes, when we look at your margins, when I look at your margins, when I look at your individual cost lines, it's actually been quite impressive in the first quarter, you have seen a lot of your cost go down. Should we view the first quarter as a benchmark for the balance of the year or should we actually see changing cost trends for the next few quarter.

I do not think it will be quite as impressive as the first quarter. But what is driving part of that in the first quarter is that we have had strong non-service revenue growth from the home business. I think a number of the non-service revenue growth from the home business. I think a number of the products that they are selling which are Telpad, the FamCam, and the like, they actually are able to sell them without a subsidy, so what you have seen is very, in fact, very good growth, the usual term impressive growth in the revenue there without a similar increase in the cost of sales. And I think the home business would anticipate continued strong sales of these non-service line products for the full year.

So it may not be as strong as the first quarter, but certainly, we would expect there that trend to continue to some extent in the balance of the year, yes.

So that was actually very much part of the strategy for PLDT Home, where we are seeing a very saturated penetration for broadband amongst homes who can provide -- can pay for monthly service fees. So the strategy really, was to go for homes who already had broadband. And then there you have the TelPad and the FamCam and all sorts of (inaudible) evolution that we sold to the same household.

It also brings us into another level of discussion versus the competitor because the competitor focuses on (inaudible) which is broadband penetration, this we are -- we have gone beyond broadband, we have gone beyond broadband and we have offered significant value added services on broadband. So that is pretty much within our strategy.

Very clear. Thank you very much.

Thank you. Do you have any other questions, Mr. Pineda?

Thank you.

Neeraja Natarajan, Nomura

Hi, guys. Thanks for the opportunity. My first question is on the data internet revenue trend. QoQ has picked up but I d imagine the pickup would have been stronger since you started to monetize so I just want to understand what are the usage trends that you are seeing once you started to insist on a minimum balance and how do we see this sequential trend panning out in data internet? That is my first question.

Secondly on the Voice versus SMS, I think it's going back to some of the previous questions is -- I'm just wondering if it is just a -- I mean are you using some sort of fair value accounting, so therefore, this growth trend of voice versus SMS really may not make sense and you should just look at ARPU as a whole or does it still make sense to look at these individual revenue line trends?

That is my second question. Thirdly, on the iflix, you had previously partnered with like [ClickPlay] and I'm just trying to understand how is this different and in terms of just content strength, since you have talked about -- I mean this is going to be like a cross market sort of offering, how do you intend to approach this? That is the third question.

And lastly on Voyager, did you say ex-Rocket, it is already profitable?

And if so, is it getting reflected in revenue EBITDA or is it just below EBITDA how is it accounted currently?

I think I can answer the last question first, because it is probably the easiest of the four. And I always like to choose the easy question.

I think voice -- Rocket is not yet profitable and in fact, we don?t equity account the results of Rocket, I think what was referred to by I think, Polly, was the market value of comparing what we invested at to the comp market value and we don?t reflect that through the profit and loss account. I think we were just indicating that it had seen a significant increase in value since we have made the original investment.

But I think that --(multiple Speakers)

My question is on Voyager ex Rocket -- (multiple Speakers)

Go ahead.

Voyager ex Rocket.

Yes, sorry. Voyager ex Rocket. Yes. I misunderstand, I think the Voyager business should be profitable, yes.

And does it show in revenue EBITDA line or is it like post-EBITDA as a (multiple speakers).

It is fully consolidated into our results, yes.

Okay, great.

On the question of ClickPlay and iflix, both are content aggregators of movies particularly in the window of SVOD, Subscription Video on Demand. Since last year, end of last year, ended our deal with ClickPlay which is a local aggregator, and we look forward to this partnership that we have with iflix and with the corresponding business model that allows us to enter mainstream market. Again, this is part of the strategy where we put value added services running on broadband. So it should be good.

I guess we go back to the first question on the data revenue, there are a number of objectives we are trying to hit here and one is really to simulate data usage given that we have seen that smartphones have been on the rise and the data usage has not sort followed instead. So a lot of the initiatives in the last couple of months have been to stimulate the adoption and usage of data. But we try to move towards a partial monetization model in some of these initiatives.

So what we have seen on an overall basis, we have seen that Internet -- mobile Internet revenues held -- actually grow notwithstanding the various free offers in terms of the monetization strategy that we have taken on board with respect to tying their free Internet now to load purchases, it has still just been one month, but early indications are we are seeing actually some uplift in ARPU in terms of those people who are actually trying on this freebie together with their load purchases.

On your question on voice versus SMS, whether we should look at it that way or whether we should look at ARPU, I guess the recent element of allocation that happens when one got that bundle which typically now could include a component of voice, SMS and data. But at the same time, we do track other metrics like for example, volumes -- traffic volumes, so that is - is that an indication of for example, SMS, is that actually - a resource of a different allocation methodology, or does it actually change in terms of how people are -- behavior and habits are -- and we do see some decrease in SMS volumes as an example.

So, but you are right. There is also at the same time, the concept that at the end of the day, you want to see the total ARPU of the subscriber, how that is behaving over time.

Just a last question, because it is surprising because you had indicated that in the market, the SMS bundle pricing has come down, right? It was coming down to PHP10. And so I assume that there should be some impact on the revenues in the last quarter and you were matching some of your competitors? offer on the SMS side. But on the -- then when I look at both 4Q and 1Q numbers, this doesn?t seem to be reflected. So I'm a bit confused as to what actually went on there.

I think as Mr. Nazareno indicated earlier, I think the difference is that in the prior quarters before that, where certain offers like free Facebook of the competitor was not matched, what effectively -- a shift in terms of subscriber engagement and therefore, it was not just to enjoy free Internet but along with that, some of the SMS usage moved away.

So I guess the effect of being able to match the initiative of competitor is to arrest that kind of sharp decline.

Okay, all right.

Thank you.

Do you have any other questions, Ms. Neeraja?

No, that is it for me. Thanks.

Chate Benchavitvilai, Credit Suisse

Hi, good afternoon, everyone, and thank you for the presentation and I just have three questions. The first question is a little bit of a follow through from some other guys who already asked about this. I'm just trying to quiz the other way -- you have started trying to monetize the data by now requiring subscribers to also subscribe to some of the promotions on voice and SMS before they can enjoy free internet and that has gone on for one month. Therefore, in the second quarter, if that comes through, we should expect an acceleration in voice and SMS revenue and not mobile internet, is that a correct way of looking at it?

The second question is regarding Cignal. I understand that there is now some initiative on the content production side as well, trying to produce some exclusive content to partnership. Would that be reflected as OpEx on the Cignal side and therefore, I understand that Cignal is profitable now. Would that remain the situation or how should we expect that when you invest for the content right now?

The third one is regarding the digital investment, I appreciate all the presentations about the initiatives you are taking but if you need to pick one for the next two years that you are most excited about or that we expected to contribute the most in terms of revenue to you of this initiative. What would be that one? Thank you.

(Multiple Speakers).

Why don?t you take the third question which is the hardest question.

Well, I think in terms of -- the revenue potential as well as the likelihood of success, Lockby Mobile should be high up in the list, and we will know that soon this year. And that is LOckbo Mobile, and big data as well is a -- big data is a very promising business so we have Mr. Damarillo here to take us through where big data should be and Power Up as well, is already there, it is embedded in equipment vendors and equipment and so it is a matter now of harvesting on the innovation.

The others as well, me pay -- Smart e-Money has been there for quite some time and it is only now that we have been able to really complete the ecosystem that includes both the platform which has been there for a long time and now, we have a very compelling usage occasion and that is the Rocket e-commerce business. So we should see some exciting adoption on the part of smart e-money as well.

Let me answer the Cignal question. For Cignal, basically the plan of action is that Cignal goes in a joint venture with Viva, a leading film production company, and creates a unique Filipino channel exclusive to Cignal. The top three channels in free TV are actually Filipino channel and we believe that it will remain to be so. Therefore, it becomes a major attraction for Pay TV service.

Cignal will remain profitable despite the OpEx, it is well within the capability of the company to actually stay profitable. And we believe that such an initiative is actually not only going to push stickiness but also further increase attractiveness of subscribers coming in.

I think -- if I may add to what Noel said, I think it is entirely appropriate for Cignal to have its own proprietary content so that itis attraction for subscribers to take up the Cignal service because it can be only available on Cignal and apart from Viva, I'm sure we'd talk to other content providers and including the Bloomberg TV which is exclusive to Cignal. So it should contain both the foreign Bloomberg daily content and the local business content that would be available only on Cignal.

On, the first question it is sort of a similar point to the point of Neeraja earlier, actually, by tying the free internet to the load purchase, theoretically, from an accounting standpoint, you should allocate part of that top-up to data which is different from the free mobile internet previously which was not tied up to a top up. But again, similar to Neeraja's point, maybe at the end of the day, you should look at the total ARPU of the subscribers in that regard.

Okay, that is clear. Thank you very much.

Luis Hilado, HSBC

Hi, sorry, just one follow up question from me. Aside from the CapEx guidance this year, is there any amount that you have allocated -- a maximum amount for digital economy investments whether this year or over a certain period of time?

I don?t think we ? (Multiple Speakers)

In a way, it is being opportunistic but I can really -- I don?t envisage any significant investments ala Rocket Internet of that magnitude. So the investment we are making in terms of the native capabilities of Voyager really are mainly OpEx other than CapEx. So that -- I think there is a ---

(Multiple Speakers) just to add Manny said there is a little bit of additional CapEx, I think that based on the various platforms with Voyager and big data, and looking at -- I think the marketing [terms] so far, we have tried to quantify that over the past few days. We came up within about -- amount of about $30m. I think to get where we want to be and there is quite a lot of initiatives underway as you have earlier between now and the end of the year. There was probably another $20m that we were looking at.

So from what we expect in earlier years, the first quarter of this year and through the end of this year, that will probably take us to about $50m and then if we project forward the next couple of years on what we might have to spend on platforms, I think we were looking at about double that if it comes up to -- I think, the total of about $100m? So of which we have incurred about $30m. So that was on the CapEx side but it as Manny said, a fair amount of it relates more to OpEx.

And then any opportunistic investments, but again, the investments that we are looking at I would say are more in the iflix type range of the $10m to $15m and maybe even a little bit smaller. I think the Rocket was kind of a one off and not something that we are likely to see, it is look at the $5m to 150m investment rate.

Neeraja Natarajan, Nomura.

Sorry, I had a follow up. Actually on the iflix, so it seems like a lot of the Pay TV operators, first took one step to make their content available via internet to their own subscribers and a lot of them now are thinking about making this as a proper OTT sort of a service and Singapore and -- I mean SingTel in Singapore is also launching its HOOQ service, so I'm just wondering if -- is this -- this could potentially become a crowded space and so given your investment in this iflix business I expect -- I was trying to come at, I was -- in terms of where you see the opportunity and where do you see the strength in expanding to the other markets within Asia. So that is the first question.

And on the wireless broadband side, your net adds have picked up quite strongly but your ARPUS are under a lot of pressure still, so any color on that would also be helpful. Thank you.

On iflix fees are -- for one, our offers are [internet] versus HOOQ rom a value standpoint so that was something that was very clear on the onset and that we felt was a good hammer in terms of just intercepting on it and of course, eventually having commercial deals with these guys.

Now, number two would be our base is so huge, millions of subscribers for both fixed and wireless, so that it was just a big part of -- that we could just put content on and they were thirsty for content and -- the market is ready, bingeing is something that we are seeing as they have it and all we do is just provide content on a broadband service that works, which of course what we have to begin with.

I think that is part of the (background noise) in subscribers has come with some decrease in ARPU and it is not dissimilar to what we?ve seen in the way the whole (inaudible) space has slowed so we have been more aggressive in terms of pushing out some of the devices, gadgets pocket Wi-Fi and in terms of penetrating more [of the base] and at the same time, again, apart from the broadband, there has also been the mobile Internet push to the smartphone side by power updates on (technical difficulty) other more [strategic] price initiatives.

Okay, because seems the revenue growth still seems to have despite a pickup in subscribers and things like that, the revenue growth is still not picking up in this line so that was like --

That is part of the free internet -- the period that is -- the first quarter was part of that period and that was enjoyed both by dongles and smartphones.

Okay, and just a follow up in terms of the digital investment, I mean just like how you have invested in iflix, I just wanted to -- I understand the Voyager is more of OpEx business but I'm just wondering, do you have like a number for more investment and some of the still -- in terms of taking a stake, is there any number that you have for this year or the next few years?

We are actually evaluating some possible investment but as [Chris] said, these are in the range of not in the Rocket range, but in fact, smaller than the iflix, so it should not be significant this year.

All right. Thanks very much.

(Operator Instructions).

Arthur Pineda, Citigroup.

Fine, thanks. Just a follow up question. Can you remind us on the revenue model for Smart E-Money? What percentage of transaction value can you retain, are you actually allowed to make money on the float given that you are going to -- have a banking license? Thank you.

All right, well, first of all, we don?t make money on the float, we don?t make money on FX, so it is either transaction fee which is a percentage of the transaction value or a fixed amount. In either case, it is not big numbers, these are very small -- in terms of percentages, 2%, 3%, the normal -- in terms of the acquiring and issuing business, it is around the 3% range. In terms of the transfers, remittance business, it is more in the range of 1% to 2% and so these are small percentages against a big throughput.

Understood.

But the strategy is to get more involved in other parts of the value chain and so while now, we use partners to let's say, to both to collect remittance as well as to deliver remittance. Going forward, we will have full capability to source the remittances as well as to deliver the remittances.

Understood. Thank you very much.

(Multiple Speakers)

Kervin.

Hi, good afternoon. Thank you for giving us the opportunity to ask questions. So just two questions for me. Can you give us more color on competition on the -- specifically on the cellular segment, can we say that the environment has improved given that you have started to push to monetize mobile data?

And secondly, can you give us more details on the potential retirement costs to be incurred this year from the manpower restructuring program.

And consequently, the compensation sustained cost savings we can expect from 2016 onwards. Thank you.

[In terms of competition].

Well, we do have in the second quarter, anticipated higher compensation costs arising from manpower reduction charges that we have incurred. Indicatively, there is over 450 employees on the fixed line side that have availed of early retirement and this happened to be more tenured employees and so the market charge that we may take on the books is something over PHP1b in the second quarter. And then if you recall, Manny had alluded to this so it also -- a thing that will -- in the second quarter from selling down parts of the different investments in Meralco so the effectively -- those would be the two sort of items that will come with the second quarter that is a bit of non-recurring in nature.

With regards to competition, the competitive situation remains to be intense still but this is more confined on the legacy services like SMS and voice and also on the regional or what we call the hot spot basis, where we are responding effectively in each of these areas where we are being attacked.

And on the broadband side, it is -- we are moving towards volume pricing, and this is driven by the regulatory environment where we are being asked to explicitly -- I think, we expressed the -- if you are unlimited to really be detailed as to what are the surrounding conditions for unlimited. So this has encouraged both operators to move into volume pricing which is good for the industry.

So that is the current situation. We hope that more -- a more rational behavior will be happening towards the end of the year when the markets or the dust settles when it comes to the legacy services.

Thank you. But for the compensation cost savings that we can expect from next year, is there any guidance to that?

(technical difficulty) costs arising from the [MRT] this year so (inaudible) impact on this (inaudible).

We are ju the -- since we are retiring the more -- I guess, the older and more expensive staff, there is the ability to get that payback in one and a half to two year's time. It's not really for certain positions, I guess, will be replaced either to outsourcing arrangements or younger and less expensive type of talent.

All right. Thank you.

Thank you. As of this time, you don?t have any more questions. Thank you.

Could you give the replay information, please?

Okay. Thank you. Now, I would like to give everyone the instant replay information for today's call. This conference will be available on a 24-hour instant replay starting today, daily, on through May 19, 2015.

The replay information for this 3 pm call is, international caller number is 852-3018-4126. The US toll-free number is 1-866-845-9418. The UK toll free number is 0800-376-1419. And the Singapore toll-free number is 800-120-5681. Japan toll-free number is 00531-1222-47. Australia toll-free number, I do apologize, Australia toll number is 612-8206-0867. The pass code is 8518, and conference leader is Melissa Vergel de Dios.

I will now turn the conference back to PLDT for any additional or closing remarks. Thank you.

Well, on behalf of all of us, thank you for joining us for this first quarter briefing. I think the second quarter full first-half results will be scheduled on August 4. And I think quite apart from the briefing review with the analysts and investors, on that day, we may suggest maybe a longer session review in respect of a fuller presentation of the plans for PLDT moving forward.

And so I think we have given you the idea of the various digital initiatives that we are undertaking but I think there may be a fuller exposition that maybe -- for example on e-commerce and online payment system, what the ecosystem really looks like and some ideas of revenue generation and the like. And so we will -- in due time, advise you when that session would be -- could be maybe around that date or on that date, maybe for two or three hours with all of you. Thank you.

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

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