PLDT Inc (PHI) 2015 Q2 法說會逐字稿

Welcome, everyone, and thank you for joining the PLDT conference call. This conference call is being recorded. Replay information will be provided at the end of the call.

At this point, I would like to turn you over to Melissa Vergel de Dios, Head of Investor Relations for 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 half of 2015. 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 can 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. Manny Pangilinan, Chairman of the Board; Mr. Polly Nazareno, President and Chief Executive Officer PLDT and Smart; Ms Anabelle Lim Chua, Chief Financial Officer of PLDT; Mr. Ariel Fermin, Head of our Consumer Business; Mr. Winston Damarillo, our Chief Strategy Officer; and Attorney Ray Espinosa.

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

Good afternoon. Let me share with you PLDT's financial and operating results for the first six months of 2015. PLDT's financial results for the period largely reflect the combined effect of our growing retail and corporate data and broadband businesses, the impact of this data growth on our toll and cellular businesses, active competition in cellular voice and SMS, and the manpower reduction program we implemented in the fixed line to further improve operating efficiencies.

Revenues for the period were stable at PHP85.2b, and consolidated service revenues dipped by 2% to PHP81.2b, as fixed line service revenues grew by 2% to PHP32.1b, while wireless service revenues were lower by 4% at PHP55.6b.

Consolidated EBITDA for the first half declined by 7% year on year to PHP35.5b, with EBITDA margin up 44%. Core income for the period was lower by 5%, at PHP18.9b, while reported net income decreased to PHP18.7b. An interim regular dividend of PHP65 per share was declared.

On page 3, let us now go through the financial results in greater detail. Excluding toll revenues of PHP10.2b, service revenues for the first half of 2015 grew by PHP1b or 1% to PHP70.9b. Note that the rise in data and broadband revenues fully absorbed the declines in cellular domestic voice and SMS and VAS revenues.

Our innovations unit, Voyager, contributed revenues of PHP500m, while --mainly from fintech and Smart Money.

Consolidated EBITDA dipped by 7% to PHP2.8b, primarily due to lower service revenues from the wireless business and higher cash operating expenses, mainly manpower reduction and related expenses in the fixed line.

EBITDA margin for the period stood at 44%. Excluding the MRP-related expenses of PHP1.4b, consolidated EBITDA would have declined year on year by 4% instead of 7%, and EBITDA margin would have been 45%.

On page 4, core net income at the end of June 2015 dipped by 5% or PHP900m year on year to PHP18.9b, primarily due to the combined effect of lower EBITDA, mainly from the decline in revenues from the wireless business, the PHP1.4b MRP or manpower reduction program expenses booked in the second quarter, and the higher gain from the sale of Meralco shares by Beacon in 2015.

Reported net income for the period decreased year on year by PHP1.3b to PHP18.7b due to the decline in core income and net foreign exchange and derivatives losses in 2015.

On page 5, we are happy to report the consistent result dividend policy, the PLDT Board of Directors today declared an interim regular dividend of PHP65 per share, representing 75% of core earnings for the first six months of 2015. The record date for the dividend is August 27, while the payment date is September 25.

On the next slide, continuing on the balance sheet, net debt and net debt to EBITDA at the end of June 2015 stood at $2.3b, and 1.4 times respectively. 48% of our gross debt is denominated in US dollars. Taking into account our US dollar cash holdings and hedges, only about 32% of our total debt is unhedged. About $300m or 17% of service revenues in the first half of 2015 are dollar linked, and thus provide a natural hedge. After interest rate swaps, 85% of our debt are fixed rate loans.

Next slide, free cash flow for the first half of 2015 declined by 6% or PHP1.1b to PHP16.9b, largely due to the PHP5.1b in dividends received from Beacon in connection with the sale of the 5% Meralco stake in June 2014 which was fully absorbed by the PHP5.8b increase in CapEx and the PHP300m rise in net interest paid.

We have previously indicated that we will be accelerating a number of important capital expenditure projects to fast track improvement in network quality and customer experience, in view of the sustained growth in data usage. As part of this effort, we anticipate that our CapEx for 2015 could reach PHP43b from the original guidance of PHP39b.

Included in this year's CapEx are the expansion of our 3G and 4G coverage and capacity, further extension of our fiber assets to nearly 114,000 kilometers, and increasing our data center capacity to 8,000 racks by 2016. In addition, we will continue to spend heavily on increasing network resiliency and redundancy in order to ensure the consistent and reliable delivery of collectivity to our customers.

On the next slide, before we share with you updates on the different businesses, let me cite some highlights of the fixed line and wireless businesses.

The fixed line segment registered a 5% year-on-year rise in service revenues to PHP28.8b net of interconnection costs. The increase in data and broadband revenues from both retail and corporate businesses exceeded the decline in legacy call revenues by PHP1b.

Finally, our fixed line EBITDA dipped by PHP1b, or 8%, to PHP11.1b, mainly due to PHP1.4b in manpower reduction program costs booked in the second quarter. EBITDA margin stood at 35%. Excluding the impact of the MRP expense, fixed line EBITDA would have been 3% higher year on year, and EBITDA margin at 39%. Wireless revenues, on the other hand, declined by 4%, or PHP2.5b, to PHP55.6b in the first half of 2015.

Although data/broadband and digital revenues grew by PHP1.1b compared with the same period last year, this was not enough to cover the PHP1.8b decline in SMS and domestic voice revenues.

In addition, wireless international call revenues were lower by PHP1.7b. Wireless EBITDA reduced by PHP1.9b, or 7% to PHP23.8b following a PHP2.5b year-on-year decline in service revenues, partly offset by a PHP600m decrease in cash operating expenses. Wireless EBITDA margin stood at 43%.

And now let me turn over the floor to Ariel Fermin, our Head of Consumer Business, after which Mr. Winston Damarillo, our Chief Strategy Officer, will be presenting the corporate -- the enterprise and the digital business units. From there, we will proceed with page -- an outlook and guidance for the rest of the year from our Chairman, Mr. Manny V Pangilinan.

Thank you, sir, Polly. Good afternoon, everyone. I'm Ariel. I'm with a newly formed consumer group of PLDT and Smart. We now have a great opportunity to look at the consumer in a more holistic, integrated way and therefore serve his or her needs both in and out of home. Strategically, what this means to us, is that our end game for at home or for PLDT Home, which is highly connected home, finally meets up with the end game for mobile, which is to lead them to a Smart life.

So how this manifests from a consumer-led standpoint would be we are offering the consumers entertainment everywhere, connectivity everywhere, peace of mind everywhere. So for connectivity everywhere, you'd expect a lot of data bundles, value bundles coming from both fixed and mobile in this case. Not only that, the digital services that we have for fixed, like the (inaudible), the devolution in FamCam to expect that we bundled with mobile too. So that it adds value to that one consumer.

In fact, for this month -- sorry, for last month, we already launched our first quad-play service, where you have landline, fixed broadband, signal running on broadband and mobile in one build. That is convenience for the consumer, and that also spells simplicity from an after-sales standpoint for this consumer. That's the kind of magic, that's the kind of proposition, that's the kind of convergence, very practical convergence, that the consumer group can offer the consumer, and you'd expect more of that in the upcoming months.

Entertainment Everywhere. Not too long ago we launched our partnership with Fox, and we quickly followed it up with iflix. I'm going to be having a separate sheet on that one. And that obviously puts a lot of value to our core broadband.

How about peace of mind everywhere? Peace of mind everywhere is a very good example of convergence as well, because our product in PLDT Home, FamCam, gets to be, well, united with mobile, so that people like us working could actually know what's happening in our homes as we speak. Because that's something -- that is something that only PLDT and Smart can do. So these are just very, very simple examples of what types of convergence we've done in the past month or so.

Now these are the same business -- consumer business concepts that we've started communicating in our new campaign for Smart, Live the Smart Life, you can see on screen, when we continue to communicate and connect with a more digitally inclined consumer. And our proposition is anchored on brand innovation and brand leadership.

Now as we continue to bring Smart to this digital space as a brand, this gives us a little bit more space to complement it with a brand like Sun. Because there will always be mainstream consumers who will look for value, choose that from the original proposition of the good choice, now it's choose better.

We've launched the two campaigns almost simultaneously. We started in June up to end July. And I'm pleased to inform the forum that this has given us a lot of growth, particularly in postpaid. Further net gains for our mobile are four times as much, four times as much as the near -- as the competitor. That was something that we were so pleased with and we encouraged, because we're just getting started.

Lastly for today from me would be just an overview of Entertainment Everywhere. I did mention that we had a great partnership with iflix, and equally great partnership with Fox. Together, what it does to the Group, the consumer group, is that it allows us to participate in all of the window, in the contents, all of the content windows, from live broadcast all the way to catch up, to subscription video on demand. I don't think any other consumer telco can offer that set.

So you have here iflix and Fox. We offer it at a value that's just so acceptable to the consumer. I'm sure you will remember, just PHP99 a month, all right, unlimited access to all these great movies and TV series. And that will be good for five devices. And we're just getting started.

As we move PLDT and Smart consumer group from a dominant telephone telco company to a dominant multimedia digital company, video would just be one of the contents that we are working on. There are a lot of opportunities happening in other forms of content as well. There's music. We have Spinnr, of course, there's (inaudible). I hope you've heard our tie-up recently with Apple Music as well. First in the world.

Aside from music, there's games. On games, we've got Game X, and we continue to establish partnerships with all the other gamers in all the other game institutions that we offer the youth, the kids, something to enjoy over broadband.

Of course, not last but not the least would be social apps. Smart was the first to partner with Instagram, offered it for free over prepaid and postpaid plans so that we continue to educate our consumers in how to use these social media apps over broadband. So it helps the brand, because it keeps us young. It's very strategic, and of course, it helps us add value to our core broadband propositions.

So that's just a brief play for the consumer group. We expect a lot more in the coming months and quarters. Thank you so much.

Now it's Winston to tell us a bit more on the digital developments that are happening.

Good afternoon, everyone. My name is Winston Amarillo. It's my pleasure to give you the updates for the Digital Enterprise Group as well as our digital innovations group Voyager. Let me start with Enterprise. I will speak on behalf of Eric Alberto, our Revenue Head for the Enterprise Group.

The Enterprise business continues to be a most consistent driver of growth and profitability at 14% year-over-year growth from last year. A very important component of that revenue, which is about PHP5.3b, is the growth of our data center business, which is currently at about $0.9b, which is growing about 26%. It's a good indicator that the country is going to the digital space as consumers driving digital transition, the businesses are reacting at the same pace.

And for that particular segment, PLDT leads the way. And leading the way starts with connectivity, which we are in a dominant position, expanding there the data centers, where we have 6,800 this year, growing rapidly to 8,000 next year, and into more content within that data center.

Earlier this year, we've also announced the partnership with Vmware and with IBM Softlayer to introduce enterprise scale out capability within our data centers. And beyond that, we are scaling it up further into big data and analytics with the initiatives we started on [Palace], which is delivered through PLDT as a product code base. This allows us to not only continue to dominate the market, but look at continuous growth, more accelerated pace compared to the rest of the market segment.

We are also looking at the opportunity within the Enterprise Group to introduce innovations in mobility. Within our mobility space, we looking at the mobile workforce and arming them not just with mobile phones, but applications that are built for mobile, as well as looking at the devices that are no longer in one facility and intelligent devices that are connected on the back end in our end-to-end initiatives. And then further scaling that up in the lower base of the pyramid within our SME initiatives, where we are bringing to market Wi-Fi.

And this is a very important development for us, because we are in emerging countries where Internet access is still very sparse. And businesses that are going digital needs to provide the ability and the capability of individual consumers to be able to transact and engage them online. Our Wi-Fi business is intending to do that by subsidizing free access, Internet access, as a business. It's a form of advertising; it's a form of transaction influence. These new businesses that we are seeing now, we are in the best position to capitalize. We look at this as great drivers for growth within the enterprise space.

Switching over to our Voyager initiative, Voyager was built as the digital innovations group for the PLDT Corporation. I'll speak on behalf of Doy Vea. What's going on in Voyager is it's becoming a much more concrete provider of capabilities that deliver digital economy to the mass Philippines and our neighboring countries. Voyager's business was anchored by Smart e-money. As you may recall, this is a business we started a long time ago as a consequence of being in the prepaid business. So very mature technology in Voyager in terms of payments.

Now what's happening is the digital economy's growth, as more and more people prefer to transact online, prefer to acquire services online, payments become a very significant factor to make it happen, and so Voyager was able to take advantage of our anchoring technology, Smart e-money. To date, Smart e-money processes about PHP83.7b in throughput, and has become the largest domestic remittance platform here in the country at PHP41b.

We're expanding the reach of Smart e-money [BM] payments and remittances, we partnered with Rocket Internet. Rocket Internet and Smart e-money, the combination of which is now the parent of a JV called PayMaya, allows us to take what we've built here in the Philippines, with the innovation from the Smart group, into a number one e-commerce in the Philippines, but also beyond the Philippines and into the markets where Rocket exists.

So the partnership with PayMaya is expected to expand the reach of our payments capabilities beyond the Philippines and into five countries this year. We would continue to expand that capability and be a dominant regional player for payments within the next year.

Over to the next slide, our fintech segment doesn't end in payments. We've also taken innovation we have to protect ourselves in trade with our prepaid system, and expanded that to a much more broader functionality to secure credit cards using mobile phones. And with that, we've built a product called LockbyMobile. LockbyMobile allows you to use your mobile phone to allow access to your financial instruments, like your credit card, your savings, your banking account, by just pressing your mobile phone. And it's become a security ingredient alongside a credit card. This particular business has won multiple awards in terms of innovation. And more importantly, it's now the anchor with our partnerships with the largest creditor companies, like Visa. Now we expect to continue to grow our business opportunities there.

It's a very broad subscriber market where we have access to potentially billions of users that could use the service for their financial instruments.

Continuing on down the lower right-hand quadrant, our fintech play extends to enabling the masses. G2P and LockbyMobile or Mobile Loan Saver allows us to basically bring financial inclusion down to the lower segments of the market. G2P is an anchoring technology that allows us to deliver conditional cash transfers to the poorest of the poor. And the Mobile Loan Saver allows us to provide loans in a very autonomic format.

So the financial technology capabilities of Voyager will continue to lead the way, and has since then brought synergies synergistic businesses that complement payments very well. If you look at the lower left corner, Voyager is also -- the initiative has now gone to market with our commerce segment. And within commerce, there are two very important trends.

Number one, e-commerce stores have now become distributed and peer-to-peer. And with the advent of the boutique dealers or the boutique e-commerce players going online, even at Facebook with products as little as 5 to 10 SKUs, capabilities to bring the momentum and important requirements of that. And Voyager through its partnership with payware and now going to market where it has 23,000 merchants that have gone online. And we've since extended that Voyager 2 then aggregate all these individual players into a virtual mall. And the virtual mall technology is called Takatack. Within Voyager commerce, 23,000 merchants have now been aggregated into a universal mall that represents 295,000 products to the market.

So we've grown significantly in this space. What drives this space is more and more ability for individuals to pay online, and that synergy with PayMaya.

And then the final leg of the Voyager strategy for digital economy systems is enabling more and more access to online. Our smart phone penetration is still at 35%. But more importantly, Internet penetration is still about 10% for those smart phones.

So with that, Voyager also brought forth innovation to make access more easier to people that don't have Internet using Safe Zone. What Safe Zone does is move the cost of online Internet from the consumer to the businesses that would like to deliver it to them. And so we're able to do that and bring more businesses online at the same time more consumers online. And after we started enabling these capabilities, we opened more of the Filipino consumers not just to e-commerce, but also to sharing economy capabilities like Uber or AirBnB into the country. And as they get trade, they use more and more online.

We want to continue their experience in using it online, using a technology, another innovation Voyager called PowerApp, which allows us to sell online capabilities in a very Sachet fashion at the (inaudible) level to access a limited time access for limited application access.

So our strategy in Voyager is to continue to become the anchor for the digital economy. The revenue derived from mobile phone as it slowly switches away from voice, dial tone and connectivity, we wanted that we placed with revenues still derived from the phone but now more anchored into transactions and digital economy. So that's kind of the transition mechanism that we are looking at as we venture more deeply into the digital transition.

Those are the updates for both the enterprise and our digital innovation unit. And with that, it's my pleasure to turn you over to our Chairman, who will provide the outlook and the guidance of the PLDT group.

Good afternoon to everybody. With respect to the guidance numbers for the full-year 2015, we are maintaining our core net income guidance at PHP35b, which was the number I believe that we gave to you in the early part of this year. You will notice that the second-half number is lower quite significantly from the first half, mainly because of the absence of I think what Polly alluded to earlier, the absence of one-off expenses with the MRP, the downsizing program, the absence of one-time exceptional gain arising from the sale of -- when we sold Meralco shares to Metro Pacific. And typically third quarter is the softest part of the year for us.

CapEx is being guided to a higher number, approximately 10% over the PHP39b we guided earlier in the year. I think we're getting a better view of the CapEx spend for the full year. So it's up to PHP43b, which is approximately 27% of the service revenues. So it's the highest historic high number in terms of the actual quantum of CapEx for the PLDT Group as a whole, and the highest percentage of CapEx to service revenues. We'll get into that a bit later as to why CapEx is elevated for 2015, maybe even beyond.

Dividend payout policy is being maintained at 75% regular, and then you just have to look back early part of 2016 to see how 2015 performed in terms of both income and cash flow. I think a caveat we would like to put out now is that what could attenuate the high dividend payout policy which we've had in the past would be, number one, the elevated CapEx, which is PHP43b, up to PHP43b in the course of 2015.

And we have budgeted $100m for new investments in the digital space. I don't think it will exhaust it, but that's been budgeted for Voyager and the actual quantum per investment is not going to be precise that you saw in the case of Rocket Internet, where it was about EUR330m, for Rocket Internet. So it could be much smaller that investment. There is a steady flow of deep pipeline for digital.

The second part, I'll just sum up the -- I think what the previous speakers have told you, and look ahead at the outlook for 2015/2016, maybe even beyond and focus on the challenges that confront the Group. At the outset then, we talk about where we are most vulnerable, which is toll traffic revenues of PLDT. As you can see, we've seen a significant decline in toll revenue for the first half to the extent of PHP2.5b.

So we anticipate that the full year might be in the neighborhood of PHP5b. And the not-so-good news is that we anticipate that the decline in toll traffic revenues, ILD and NLD will continue for the next two or three years. But you know the reason, the impact of the Internet on traditional means of communication is being [suffered] first.

So we believe that at some point, the decline in toll traffic will attenuate, will plateau. As you can see, the decline in ILD for the fixed traffic has been reducing. And at some point, it will plateau on a certain level. Quite what that level is, we don't know yet. But the toll traffic revenue for last year was around PHP25b. So this year, it will be about PHP20b for us, and it will continue to decline, that's what we are saying.

Of course, on the wireless side, where we are vulnerable, you've seen the numbers. We've been on the prepaid wireless side of the wireless business, not so much on voice -- well, not so much on texting, because competition revenues on texting is also declined for the period. But our issue would be on voice revenues for prepaid wireless.

We have made some gains on the postpaid wireless side of the business, both in terms as regards subscriber growth and revenue growth in relation to competition. And of course, on the fixed line side, we have maintained our market share of approximately 80% of revenues on the fixed line side. So we managed to hold our grounds on the fixed line side of the business. So those are the two quite strong points of the group.

Now, what we need to do in the course of the next year or two, and we've started already, is to improve the network, expand it, etc., and the build out has started in earnest -- no pun intended -- the 3G cell sites as we speak, as of July is around 6,500 cell sites. We started at about 4,000 till the end of 2014. And that will continue until the end of the year to more than 7,000 cell sites that are 3G enabled.

We also, on a parallel basis, we continue to build out on an accelerated basis the LTE cell sites. We are close to 3,000 cell sites as we speak, and it will grow to more than 4,000 by year end.

Now concurrent with that, we have to do other things. We need to increase the capacity of the connection between the base stations or cell sites and the core network. Our fiber has got to be increased in terms of the ability to transmit up to 100 megabits of data from the cell sites to the core network. And I think where we're weakest now is the platform, that that's being addressed as well.

Now because of all this spend, CapEx will remain elevated for this year and through 2016 at the least. Ariel went through his presentation on brand repositioning. I think it's a much crisper brand repositioning for Smart, talk and text and (technical difficulty).

Now hand in hand with that is a significant management reorganization. We have combined the consumer business under Ariel, that's home consumer and the wireless side under Aerial. Because it is really addressing the individual, and I think it's been alluded to earlier in the presentation that -- Aerial said we're offering quad play, sometimes with triple play, and it's probably conceptually correct to split the revenues into this business and that revenue stream and so forth. But getting to the point where it is so fungible, when you offer the quad-play, the fixed voice in DSL and signal over fiber run on the same network. So there's an issue internally as to how to allocate revenues. So I think we might have to revisit as to how we classify the revenues generated from the aggregate consumer business.

We have engaged the services of Joachim Horn, who's now our new Chief Technology Officer and Head of Network as well. There's been some significant reorganization on the finance side. Detecon of Deutsche Telekom has been engaged during part of this year to look at the overall network design, what are the issues and what -- how do we move forward? And of course, Winston has been engaged as well as Chief Strategy Officer and assisting Voyager and the network buildup as well. Slightly some more management changes might happen in the course of this year and next year.

Maybe one or two last points. Clearly this is moving to data and broadband. But if you notice, the fixed-line business has grown. But that's mainly because the concentration of data broadband revenues to data revenues is already at 57%. It took us a while to get there, but that inflection point has been reached and surpassed.

Now on the cellular side, we're not there yet. We're far behind the 57%. Cellular is only about 19%. So the idea is to actually commit the corporate suicide by accelerating the pace of data adoption from 19% to that inflection point. We're not quite certain what that inflection point is, 30%, 40% or total wireless revenues, that's something we have to examine. But at some point we will get there. And we will have to get there by converging the network, changing the mindset from telco to digital and doing a lot of the things that need to be done to get there. Not the first time we've fallen off the saddle and not the first time we'll get back on that saddle.

Unfortunately all of these changes does not meet immediate satisfaction. We will have to sweat bullets for the balance of this year while others revel in our misery. But we will get there. So we anticipate that perceptible changes in the revenue mix and in the growth pattern of reality can only be seen by 2016.

I think that's it from me. I'm just, again, I'm asked -- you're required to make some announcements. But you want to pass the hat around.

The 3Q results will be made on November 3. And I think we had proposed an Investor Day briefing for all of you. We'd like to postpone that till after the full-year results are made, so probably March of 2016 we'll have a better view of what happened in 2015, progress we've made through the course of this year. And we'll get it -- we're able to give you better appreciation of our 2016 could possibly shape in 2016 and beyond.

Thank you.

We're now ready to take questions. Additionally we'll take questions from those who joined us through the conference facility before we take questions from the floor. Operator?

(Operator Instructions). Luis Hilado.

Hi. Good afternoon and thanks for the call. I had three questions. First is on the revised CapEx guidance. I just wanted clarification if this is essentially CapEx you're bringing forward and therefore, 2016 onwards, you will see lower levels of at least CapEx-to-sales ratios or it's really a product of just demand?

Related to that is not quite sure if I caught this, but is the increased CapEx going to lead to your payout being closer to your minimum 75% by year end or you can still -- you think you can still sustain the 90%?

And last question is on the mobile payment systems. You've disclosed the PHP500m revenues for Voyager and the PHP84b throughput that you've handled for about 0.6% effective commission. Is there a way for you to actually increase the yield there or is it going to be more -- Voyager going to be more driven by volume rather than pricing?

Thank you, Luis, for those questions. Regarding your first question when it comes to CapEx, as indicated, we estimate for this year we will be maximum or up to PHP43b. And next year it looks like most likely remain elevated. For this year that means roughly about 27% of our revenues estimated this year. And for next year most likely almost at the same level.

In terms of payout -- yes?

No, sorry. Go ahead.

In terms of payout we have granted the 75% -- our Board has granted the 75% dividend, which -- and our policy is to have a look back at the innovation so that we are capable of giving out additional dividends. But that is what we expect at this point.

And the third?

The Voyager revenue on payments is always going to be [particularly] driven by volume, because it's a payment-based product that we're going to have. So in order for us to really sustain that revenue, volume must go up with this. However, because of the Voyager universe in digital enablement, increased throughput on payment will drag along eventual revenue in commerce as well as all the other services that Voyager is offering. But to look at it point for point, the Voyager payments revenue can only go up with volume.

But just to clarify a point, Luis, in terms of the throughput volumes we've got now, there is a trade money component for which there is no internal charging at this point.

Okay. Great. Thanks a lot.

Arthur Pineda.

Hi. Thanks for the opportunity. I actually have four questions. First, just to clarify, you booked PHP1.4b in MRP charges in 2Q. Are there more charges in the second half? And how should percent of expenses go down going forward as a result of this?

Second question I had is with regard to core profit guidance. I'm just curious on the guidance, which has been retained at PHP35b. And I find it surprising given that you actually raised CapEx by PHP4b, which presumably entails increased depreciation as well as financing charges. Should we expect faster revenue growth or asset sales to materialize in the second half to compensate?

Third, if I can post a question to Ariel Fermin after having warmed up the seat. After reviewing the product portfolio, what are the mobile programs do you think that need to be revamped and how quickly do you think these new programs can gain traction to move back to revenue growth? Are you already seeing any pickups following the initiatives that have been made?

Last question I had is with regard to Rocket Internet. It seems that your competitor has signed similar partnerships with Lazada and Zalora on the payment services as well. How is PLDT able to leverage on Rocket uniquely in the Philippines? Thank you.

Let me answer your first question, Arthur. Thank you for that. The MRP expense of PHP1.4b was done -- was credited on the second quarter. And we do not expect another of that magnitude in the second half of this year.

In terms of your question on the core profit guidance, as you can see from the CapEx number that we booked in the first half, quite a bit of the CapEx increase will happen towards the back end of the year. So the impact in terms of depreciation and financing cost, it's not as significant yet through this year. So I think that will be more meaningful coming into the 2016.

Got it.

Likewise the revenue. So also the more in 2016 with that.

Well, thank you for your question. As far as consumer business is concerned, for postpaid, as I've mentioned earlier, we've seen great traction and things that we've done for Smart and Sun actually has led us to a growth in subs which is 4 times as much as the competitor. And this was something that was obviously translated to a higher revenue through as well. So if we look at that with the branded -- with the brand repositioning and just being a bit more consistent in our communication, just demonstrates on what -- on who the brand is again to our consumers. I think the consumers got it. And in fact I may share the ARPUs after the -- for the new acquisition's been high, so we're getting there.

It's really in the context of prepaid that we need to get a little bit more traction and that is the reality. And to my mind, prepaid is about simplicity because you're talking to people who, well, live on top-ups. And what that means is that, number one, there has to be some ease of getting in our system so that when they say I want to avail of your promo or your service, they understand that. And number two, it's going to happen. The service will be delivered.

And that's what (inaudible) mentioned a while back. We need to work on our platforms. We need to work on our service delivery systems for that to happen. It's something that we recognize and currently is something that the Group is working on right now.

In terms of the Rocket Internet question, both PLDT and our competitor have relationship with Lazada and Zalora. But I wanted to point out that because of our relationship with Rocket, our relationship and partnership with Lazada and Zalora is deeper. It starts with payments which we both have, but also includes (inaudible), which allows people more access to Lazada and Zalora, and also you can for Rocket Internet and Voyager actually go on stream on the payment platform.

So from that standpoint, I always expect Internet to have multiple plays, just like it's customary in the valley. But where there is a Rocket company involved, our partnerships tend to be deeper. And our co-investment, represented by both a joint venture with PayMaya, as well as our co-investment platform with PHIH will continue to be at the very tight partnership with Rocket in Lazada and Zalora. Yes.

Very clear. Thank you very much.

Rama.

Hi. Good afternoon. My questions basically pertain to the prepaid side, which you have obviously alluded is a problem area. And in particular, looking at the Talk 'N Text brand and the Touch Mobile of Globe, there seems to be significant movements in market share. And also I'm also puzzled why your voice revenues are actually going down while Globe's voice revenues are increasing in the markets. So just trying to get, to the extent that you can, if you could quantify or qualitatively describe what exactly is the problem in this part of the segment that you see. That would be good.

And perhaps more importantly, have we launched any new products or any new promos to add to this issue at the moment, or are you still in analysis phase? Thank you.

Thank you for the question. I just want to give perspective on the brand TNT, right. It is, and you're correct, it's one of the brands that has some quite dips in terms of market share. It is not really talked about a lot in a big forum like this, but in reality it's very regional in nature. So that's where we felt the dip in the market share, in large part because we needed a platform that would allow the consumers to extend the service for a minimum fee of, say, PHP5 a day. We didn't have that for the longest time. The good news is now we do. And as soon as we had it, we launched it. And we launched it in areas that we felt that the TNT brand needed most help. That would be in some parts of Luzon and some parts of Mindanao.

The initial results have been encouraging. Perhaps I'll get in a better position to share with you this new -- the benefit of this new functionality in adding revenue for TNT and of course gaining share back.

And would you be able to comment on the voice revenue side in terms of why your voice revenues are actually going down along with volumes, while your competitor seems to be making strong inroads? Is it just purely a market share shift leading into that or is there something else that is going on? Thank you.

Well, of course, there's the product ecosystem, consumers moving to data. And of course they have other alternatives aside from using linear voice. But there's also -- I do recognize the other piece, where in the functionality I just mentioned, where compared to half who didn't have it, they were able to extend even the voice service for a minimal fee of, say, PHP5 today. And that's what led to their nice growth. And we recognized that. And something that we do have right now and therefore would be able to respond a little bit more appropriately from here on in.

Okay. Thank you very much.

(Operator Instructions). Neeraja.

Hi, guys. Thanks for the opportunity. My question is once again on the operational trends in this particular quarter. I'm quite surprised because last quarter we talked about monetizing some of the data offers, beginning to monetize, right? So I'm surprised that the pickup in the Internet growth is not as -- it's strong Q on Q but then if I look at like year-over-year growth it's actually come off quite a fair bit. And at the same time, what has happened specifically this quarter that voice and SMS has become a lot more weaker, because initially when you launched the free Internet offer, the impact didn't seem as significant or as worrisome as people were expecting it to be. So some sort of -- is there any color you can give on that would be helpful? That's the first question.

And secondly, in terms of the network investment as well, I'd like to understand what you're provisioning. I know you've taken the CapEx up, but what are you provisioning because if you go back to three quarters before, initially you didn't seem to think higher CapEx was the answer. So it's -- how do we know this is a good number? It would be good if you can sort of talk about any coverage target or what sort of capacity growth you're looking at. That's the second thing. Yes, so we can start with that first.

I think in terms of monetizing the effect, it still goes back to what we have discussed earlier. Part of it is an element where we continue to try to stimulate the adoption of data in the market. So there are still some elements of three types of promos that have been offered to us in the period. So that's part of our overall strategy in terms of trying to get the market to adopt in a greater way Internet usage.

Then those also go back to this point about for data to be enjoyed, you do need to have 3G networks in place with the right coverage and the right capacity. You do need the ability for customers to experience ease of use that goes back to this is the point that Ariel spoke about earlier. And then tied it back to the fact that there's an element of investment that is needed by the business when you grow the data. And in fact the -- probably part of the discussion is that what has been programmed for the next two, three years, we are effectively front-loading it because of the speed at which data growth gets or is happening.

Okay. And just in terms of the voice and SMS trends that seem to have weakened in this quarter, any color that you can give around that?

I think the SMS trends are largely what they are in terms of people trying to shift their usage and their behavior as -- particularly as smartphone adoption happens.

Okay. So this is not anything from competition, but more like what you're seeing within your subscriber base basically?

Yes.

Hello?

It's an industry-wide phenomenon now for the texting revenues have dropped for the industry as a whole. So I don't think you should be surprised with that happening with consumers shifting data.

Okay. And on a question on CapEx, any other measures that we can think about when you're making these investments?

Well, it's slightly more complex. I think the answer is slightly more complex than just giving you a number, like number of cell sites, 3G cell sites is 6,500. We'll grow to more than 7,000 a year and so forth and so on. I think that's essential because the infrastructure has got to be laid out. Because we had more cell sites at the end of last year, it turned out the number was not as we had anticipated. So that's why in a way that accelerates the plan through the different cell sites.

But that's not the end of the network issues. There is still a need to optimize the network so within a given area or cluster. And we're currently engaged as you build a network, the optimization program is ongoing as well. So it's lik fitting a new tire when the car is moving. So that is ongoing because it's not just a question of building so many cell sites and then you're optimized.

For one, you can have too many cell sites in the same cluster, so to speak. And for another, the landscape, particularly for Manila, is changing every so often. When a new building is built or when an old building is torn down, it changes the cellular landscape. So that optimization has got to be adopted. It's got to be a coherent program, so it starts from A to Z and back to A again. It's got to be an ongoing program.

And then the data, we lag behind. I must say we lag behind in the adoption of the digital experience of subscribers. And whilst we have, I think, the past few months we have seen the significant digital initiatives on the part of the consumer cycle, and Voyager site. And I think the Voyager site, we are likely to be the leading digital developer in the country today. And I think we have not really given it a fuller view of what's happening at Voyager.

So for that reason and for the reason that even if we're able to build the cell sites required, as we see it, the consumer subscriber has got to be different, the ability to access the service and be flexible about the service that he or she requires and which means the platform has got to be (inaudible). So that's also ongoing. Right. And that whole thing is a whole ball of wax when that happens. So as Anabelle said, you have to spend the money upfront. You won't see the revenues immediately. It will only happy by 2016.

Okay. So I guess I was just trying to see if this was all just catch-up CapEx, but you're also -- some of this is to cater to the future demand as well as any --?

Absolutely. And I think if I were to venture a guess, the voice traffic has dropped for the prepaid wireless mainly because we've got subscribers to grow.

Okay. Got it.

Partly because we by the end of it (multiple speakers).

Sorry? All right. Thanks very much.

Are there any other questions from the queue?

As of the moment, we don't have any questions on queue. I'll hand the call and floor back to you.

Any questions from the floor? There are microphones in the (technical difficulty).

Hi, (inaudible). I recognize the (inaudible) growth by broadband revenues. So my question is how much has the data usage of your consumers, really for [cell] of 10 or 15 and the growth of -- from last year.

For mobile, Internet usage increased by about more than double, [170%]. More I think in terms of about 30% traffic.

In one way, I think when we think of cellular, it is your position measure of voice minutes and texting volume. Now the world is now clearly digital. So what is that measure]? Of course, the end part of it is your revenues. And what Ana was saying, (technical difficulty). Okay. Now we -- it looks like on the mobile Internet, we have more terabytes than competition. But we lag behind on revenues. The question is why. So we're not able yet to monetize the data traffic on mobile Internet as the others have done. So we need to understand why that is.

Now when you look at the total cellular system, total terabytes throughput for the first half was 643 terabytes per day. So the question to us, we don't know the answer yet, is that how can we monetize that huge volume of terabytes. Now we're getting the data from the fixed-line side. What is the volume of data throughput that goes through the fixed-line system on that side of the basis? There I think we've been more successful, partly because the shift has started many years ago and the concentration of revenue on data is much, much bigger, three times bigger than it is on the cellular side.

So we have to think digital. We have to throw away our telco metrics. And at some point we have to tell you what the data profile is of the Group and how we're monetizing, because at the end of the day there are billions of terabytes or petabytes on our system, but if revenues continue to track, we're not successful in translating the volume into pesos.

Any questions from the floor?

(Inaudible). And my question relates to the movement of the subscribers. Your subscribers will be some of people lost to competition. Are you able to share how much on a product segment like on the basis of top-up tariffs are, just on the prepaid side of things?

So with the subscriber numbers in our MD&A so that it will be laid out in terms of the like brand. So we'll make that information (technical difficulty).

And how seriously are you concerned over the subscribers being lost to competition? And would your monetization of data traffic depend on the recovery of those subscribers in the prepaid? How do we see functionality of the PHP5, no, the extension of -- which is already by your rival? How do we go faster with this in terms of the recovery of some of the lost subscribers?

Well, there's no -- yes, there's no denying that the lifeblood really of mobile is in sub space because they will have critical mass. We do sell a good number of subs so actually a -- we're selling, we're can achieve, which Anabelle has mentioned and shared with you a few details about. That's one piece.

The other piece would be, well, it was hurting enough that to lose some subs and it was a little bit more damaging that we didn't have the functionality. Where our remaining subs enjoy the benefit of extending that offer for -- again, for an affordable price. But the good news is now we do. Now we do, right. And therefore we'll just move on because we have that functionality already.

And in the process of having it, coupled with other initiatives that we have, we hope to gain back -- we hope to gain back the subs. But it wasn't just about the functionality of platform or network and all those things. It was also about building the brand, getting back the trust, distribution, visibility. As you know, what happened, as you operationalize the business, like we do, but the trick is that, as I said, prepaid is about simplicity. It is just about simplicity, because you just talk to people who really just wanted to get access. And therefore we need to be in a position where, as much as it's a bit complicated in the picture, we face the consumer, it is just so simple.

Just on the margin trend, like you achieved 44%. Your fixed line is about 39% and 43% for the cellular. What's the outlook if you're able to roll out some of your brand positioning, make the distinction clearer between your Talk 'N Text and cellular. Would the 44% (inaudible) 45% that [went]? And that's the EBITDA margin.

One of the more -- if the actual number in terms of EBITDA margin, it's the fact that we have to contend with the decline in the toll revenues which are very, very high margin which actually goes down to the bottom line, versus growing data revenues which are inevitably more complex to deliver and ergo have lower margin. So we suffer a lot from the fact that as we shift our revenue streams, such as the traditional long-distance revenue streams to the data, there is an impact in terms of margin that you have to face that kind of transition.

And that concerns us obviously because we've had better days. Texting volume was growing and margins on texting was very significant. And even the toll traffic, when more than 60% of the revenues for PLDT were driven by international, right, and accounting rules were more than $1 at the time. That was similar to the model of an airline, international business subsidizing the local business. That has disappeared. So that toll traffic has seen a decline and it's been replaced by data. But the margins have been lower.

So from one perspective, from a delivery system perspective, I think you have to anticipate the pressure. But just to be clear that on the margin of the infrastructure itself, but you need data. So we have to look at other collateral businesses, where margins can be created. And that's really the digital content. That's why we invest in significant Voyager and on multimedia, because that will be relatively unaffected. That will be needed by anybody in any way. That's how we're trying to address the margin pressure which will inevitably affect everybody, not just us, but everybody else.

Most particularly on the cellular, on the Sun -- on the Sun brand, so what are your initial expectations, were they met by recent performances, the Sun brand? How must it perform?

The Sun brand, right? Please inform you that ever since we launched Sun under the Choose Better campaign, I mentioned earlier, it has grown, particularly for the postpaid, both subs and ARPU. But then again, we have to give credit to that brand to begin with. Sun organically is strong when it comes to just having that value proposition with consumers. And it has not lost]that that connection, because we took advantage of what is organically Sun. And we spun it, we spun it and the market has -- the consumers have responded favorably. So we're quite happy with the performance.

Any other questions from the floor before we go back to the conference facility? Operator, there's one question. Thanks.

Princy Singh.

Thank you very much for the opportunity. I just had one question. Could you let us know on the wireless side, for the market as a whole, what percentage of calls would be on-net versus off-net. And in all the recent market share shift, which you have seen, would that -- would the interconnect dynamic have any material impact on our margin shift between you and Globe? I'd be grateful if you could provide some color on this.

I think I'll just get back to you on that and take it offline.

Sure. No worries. We can take this offline.

Okay. Thanks.

Any other questions on the floor or -- on the floor?

Over the phone we have no further questions.

If no other questions, if you could read the replay information.

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 August 17, 2015. The replay information for the 3 pm call is for the US toll-free number, that will be 1-800-839-3144. UK toll-free number is 0800-376-5675. The Hong Kong toll is 852-3018-4333. Singapore toll-free is 1-800-120-5775. Japan toll-free is 005-31-122-368. Australia toll is 612-8030-3033. Passcode is 5774. And the conference leader will be Miss Melissa Vergel de Dios. Now I'll turn the conference back to PLDT for any additional or closing remarks. Thank you.

Well, I really have not much to add, so we look forward to -- thank you for attending today, for your patience. And look forward to seeing you again on November 3.

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