PLDT Inc (PHI) 2016 Q3 法說會逐字稿

Thank you for standing by. Good afternoon and welcome to the PLDT conference call. This conference call is being recorded. And the details are indicated in the conference-call invitation posted in the Investor Relations section of the PLDT website.

At this point I would like to turn you over to Melissa Vergel de Dios, Head of Investor Relations of PLDT, for the introduction. Please go ahead. Thank you.

Good afternoon. And thank you for joining us today to discuss the Company's financial and operating results for the nine months 2016. As mentioned in the conference call invitation, a copy of today's presentation is posted on our website. For those who've not been able to do so you may download the presentation from www.pldt.com under the Investor Relations section. A podcast of this meeting will be available from our website after the call.

For today's presentation, we have with us Mr. Manny Pangilinan, Chairman and CEO; Miss Anabelle Lim-Chua, Chief Financial Officer; Executive Vice President, Mr. Eric Alberto; Mr. Joachim Horn, our Chief Technology Officer; Miss Kat Luna-Abelarde, Consumer Wireless Operations Head; Mr. Renren Reyes, Head of Home Operations; Mr. Jovy Hernandez, Head of PLDT ALPHA, as well as other members of the PLDT management team.

At this point I will turn the floor over to Miss Anabelle Chua, to begin the presentation.

Thank you, Melissa. Thank you for joining us today for PLDT's presentation for our nine-months financial and operating highlights.

Our consolidated revenues for the first nine months of 2016 came in at PHP125.4 billion, 2% less than prior year. Service revenues, net of interconnect cost, likewise were 2% lower year on year at PHP111.8 billion. Excluding the effect of international and national long distance revenues, we actually saw stable service revenues versus the same period last year of PHP101 billion.

On this basis, our fixed line revenues grew by 9% to PHP42.2 billion, while wireless revenues declined by 6% to PHP64.7 billion.

Viewed in terms of the contribution for the various business units, revenues for PLDT Home Group registered a 9% increase. Enterprise Group revenues were higher by 10%, while our wireless consumer revenues and international revenues were lower, year on year.

Moving to the next slide, our EBITDA for the period declined 15% to PHP45.7 billion, on account of lower wireless revenues, a rise in product subsidies, content cost and higher provision. EBITDA margin stood at 38%. Our fixed line EBITDA, our performance was up 13% year on year to PHP20.3 billion or 40% EBITDA margin.

Core income for the nine months ended September amounted to PHP21.7 billion or 20% lower year on year due to the lower EBITDA.

We now introduce a normalized core income number, which excludes the gains from asset sales, aggregating about PHP8.8 billion for the period and the impact of exceptional provisions in -- on this basis, our normalized core income would have been PHP16 billion. We'll elaborate some more on this discussion later.

Moving to the next slide, this is our service revenues for the nine months. You see that data and broadband services set the pace for revenue growth for PLDT, boasting a 19% increase to PHP44.6 billion, which contributed 40% of total service revenues. For the fixed-line business of PLDT revenues were up 7% to PHP46.8 billion. The increase was driven by data and broadband revenues, which grew by 12%, and now accounts for 59%, or almost 60%, of total fixed-line revenues.

On the other hand, our wireless service revenues declined by 8%, as the 22% increase in data revenues could not fully compensate for the reduction in SMS and voice revenues. We have significant more -- significantly more higher exposure to legacy voice and SMS revenues in our wireless business, as data made up only 30% of wireless services, from 22% last year.

As mentioned earlier, our consolidated EBITDA declined by 15% year on year, primarily because of pressures in our wireless business. This matched the good performance of our fixed line, where EBITDA rose by 13%, to PHP20.3 billion. Our third-quarter 2016 EBITDA of PHP15 billion improved versus second quarter by PHP0.8 billion or 6%. This as a result of deliberate efforts to manage our OpEx, subsidies, and provisions. EBITDA margin does improve to 39% in the third quarter.

Moving onto the next slide, our nine-month core income of PHP21.7 billion reflected the impact of both lower EBITDA and increased depreciation and financing costs, both arising from higher CapEx. We also benefit from -- benefited from gains from asset sales during this period for a total amount of PHP8.8 billion, which comprised of PHP7.4 billion gain for the sale of Beacon, about PHP1 billion for the sale of our Dansalan property and another PHP400 million from the sale of our CRM business in July.

On the other hand, we saw reduction in equity earnings due to reduced ownership in Meralco, as well as the booking of about PHP0.5 billion of equity losses from the San Miguel Telco businesses.

In terms of the core income also for the period was affected by about PHP3 billion, net of tax, of elevated levels of provisions and subsidies. So, if we exclude the PHP8.8 billion gains from asset sales and the PHP3 billion impact of the elevated provisions and subsidies, our core income on a normalized basis amounted to PHP16 billion for the nine-month period.

Reported net income was PHP15.9 billion at the end of the nine months. And this includes an impairment of our Rocket Internet investment, which was recognized in the first half. There was no further impairment booked in the third quarter because of an increase in the traded price of Rocket during the third quarter.

Turning to our debt profile, our consolidated net debt amounted to $2.8 billion at the end of September, while our net debt to EBITDA ratio was 2.16 times as of the end of September. We have been managing the foreign-currency exposures of our debt such that only 11% of our debt now remains unhedged.

With respect to our debt maturities, which amount to $669 million in 2017, about $470 million has matching refinancing facilities. And we expect to finalize the balance of $199 million by early December. Efforts are focused on managing our leverage given debt levels have increased due to higher CapEx, and the remaining payments for the San Miguel Telco acquisition.

At this point I'll turn you over to Joachim Horn to explain our CapEx and net-worth performance.

Good. Thank you. We are now on page number 8 please. In terms of CapEx, our guidance for this year is PHP48 billion, out of which PHP13.9 billion would be fixed and PHP34.2 billion would be wireless. This includes the PHP5 billion, ex of CapEx, which has been approved in context of the SMC purchase. This PHP48 billion comes in addition to the PHP302 billion CapEx which has been spent over the timeframe of 2006 to 2015.

This year's focus is to improve the customers' overall data experience by providing better quality coverage and higher Internet speed. And on the next pages I want to dive a little bit deeper into our network initiatives.

Slide 9 please. Our network improvement program is focused around our fixed and mobile network. On the mobile side, we continue to merge the networks in Sun and Smart and we will be finalizing this within the next two quarters. This gives us access to sites and spectrum which helps us to improve the overall user experience. Once we have realized the spectrum we can use the technology of re-farming, which means making spectrum available for technologies like LTE, in the lower bands. This will help us to improve the indoor coverage and also the total capacity.

Very helpful for this year was the addition of the spectrum we got from the SMC purchase. We have already equipped more than 2,000 sites with the SMC spectrum. And we are now focusing on continuing the rollout of 700 megahertz for LTE, which has a superior capability, in particular when it comes to coverage.

In addition to the wireless, we also have focus on rolling out our WiFi, our telco-grade WiFi, program.

Besides the improvements on the mobile side, it is -- was essential to also revamp our transport network, because all the mobile base stations need to be connected to the Internet. And we found that we have to upgrade significantly in terms of capacity, speed, and then also in resiliency. And that's also one of the focus areas.

The third area we focus on is our service delivery platform. We have already progressed far in stabilizing and improving the existing platforms while, in parallel, we were working on developing a new digital stack based on the collaboration we had established with a company called Matrixx. We are about to finalize the first major service and the launch will be happening within the next few months.

Besides this, we had a number a so-called special projects, in particular in context of the first 100 days of the new government which were, besides the WiFi program which I mentioned already, the 911 emergency call and the 888 complaints line.

Coming to page number 10, I want to give you more detail about the scale of improvements we can expect from the network initiatives currently underway. And this we will do on the example of the Metro Davao, where we just finalized the step of re-farming, as of October this year.

What you can see is quite some details in terms of capacities we have in 2G, 3G, and LTE. And before means before our improvement program and now means after we finished that improvement program in October. And you can see across the board significant increase in capacity. And, in particular, if you look to LTE our capacity has increased by 5 times; more than 500% increase in capacity.

That you can also reflect in the traffic. While the voice traffic moves mainly from 2G to 3G that was an intentional move, because the quality and capacity in 3G is higher. You can see that the data volume just after the improvements put in significantly increased. 40% alone in 4G.

All of these improvements have been achieved without adding a single site, just by reusing the sites we have but using the spectrum in a different way and expanding the capacities significantly.

Turning to page 11, the main improvements we see is in particular with regard to coverage. What you see here are pictures for 3G and LTE in terms of before and after. And the darker blue it is the better the indoor coverage. And you can see both for 3G, but also for LTE, the improvements are substantial already from the graphics.

But if you look to the numbers, in 3G we could improve the indoor coverage by a factor of 2 and in 4G or LTE the improvements were 6 times, which is substantial. In terms of outdoor coverage we are now covering practically the whole of the Metro Davao. These are substantial improvements. But all of that, what I showed until now, were our internal measurements. So, the question is -- how does the customer see this? And this we explain on page number 12.

On page number 12 we see on the upper part our customer experience test, which we do with our own people, where we send people out and making them replicate typical use cases like walking around, driving around, using YouTube, using Facebook, uploading pictures, downloading emails and so on and so forth. And you can see the speeds, download and upload, we could see before and after in 3G and LTE. And you will note the significant improvements in download speed, like in 3G more than 5 times, and in LTE more than 4 times. These are realistic speeds. These are not theoretical speeds. This is measured within the network.

Another proof point is the feedback we have seen from OpenSignal, which has been quoted very often in the public media. And what we have here is the data from May to September, not yet from October, where the -- we finalized improvement. But here already you can see our speeds, in here are only the download speeds mentioned for 3G and LTE, have improved over time in comparison to the other competitor. In 3G and in 4G we now have taken a clear lead ahead of Globe and we will continue to establish our lead here.

What you can see and what is proved is that our network initiatives are yielding to significant improvement of customer experience.

The next page is the next steps. Of course, we will not limit it to Davao. In fact, we have started in the Metro Manila much earlier but because of the scale of the network, 10 times more base stations compared to Davao, it has taken a little bit longer. But we are currently just about to install the first improvement as of this week. And within the next three months all the improvements we have seen in Davao will also be established for CEBU and Metro Manila. And we expect significantly better quality outdoor and indoor coverage in Internet speed, as has been shown improvement in Boracay, and in Davao.

But that's not the only area we focus on. Of course, across the whole network we are continuing to tweak and improve quality, capacity and bandwidth and to continue also to improve our fiber resilience, which is our backbone, and the redundancy of our network.

In addition, we continue to roll out the 700 megahertz we obtained from the SMC acquisition. And the target is 300 sites this year. And 700 megahertz will be the basis of rollout for the next years to come as part of our plan to cover 95% of the population with LTE by 2018. That's the commitment we have given to the NTC a few months ago.

In parallel, we continue to aggressively roll out fiber to the home. And we have also selected a technology which will help us to upgrade our existing DSL connections with fiber-like speed of up to 800 megabits per second. And we will start already this quarter to roll this out.

As I mentioned already, on the first digital service, I just want to close my part of the presentation with referring to our telco-grade WiFi rollout. If you have ever the opportunity to test the smart WiFi in the airports I would recommend to do so. It's really a mind-blowing experience; 50 to 60 to 100 megabits per second, depending on where you are. That's really different. And we will equip 22 airports. We will equip four seaports and numerous public buildings and commuting areas.

That's so far an overview of the network initiatives. Cleary, improvements are coming and that we are just half way down. So, a lot more to come during the next year.

And with that I want to hand over to Kat Luna to explain about the home -- no, about the wireless business. Sorry.

Okay. So, we're entering the portion where the business units will start running you through the first nine months. My name is Kat Luna and I will take you through the first nine months of the year, specifically the consumer wireless business.

Typical (technical difficulty) for a year that the overall industry experienced a slowdown of revenues. And this leads you to two things. First, being the proliferation of OTC, and, second, being even tighter and rougher competition. Which tells me, in fact, that our voice and SMS revenues (inaudible) more than competition because of our (inaudible) index on these revenue verticals.

The voice side, in particular, contracted at three times the rate versus same period last year by 15%, as you can see (technical difficulty). That being said, data remains to be a bright star, growing at double-digit 27% for the first nine months. And now this already constitutes 30% of our total revenue pie, a hike of 7% versus the same period last year, thus making the whole Group more vulnerable to the mainstream business revenue vertical.

Specific to our data revenues on the wireless consumer side, we can split this into two sides, first, being mobile Internet and while, second, being wireless broadband. We are enthused because our mobile Internet is now leading the growth at close to PHP3 billion or 37%. Wireless broadband, which continues to be a good entry-level Internet device to emerging markets, is still growing healthily at 13%. As we move into the next years the rate of data, the rate of the growth of data, can only get better.

Now, specific to our subscriber base, over the past few months, while we have been undergoing our transformation, we have tried to hold onto the position of preserving our price points across brands and steering the focus on improved service.

The 3 million reduction in subscriber base was now largely driven by competitive pressures summarized in two points. First, very aggressive low ARPU voice and SMS offers from our competition. And, second, a very extensive SIM push also by competition, again, at the expense of industry ARPU. Third, it can -- you can also attribute some customer decay due to clean up, as we've had, again in light of our really cleaning up our subscriber base.

Now, the chart on the right side demonstrates the movement of prepaid ARPU over the past seven quarters, as represented by the gray line. Overall, we saw reduction of 18% or PHP17 over these seven quarters. Clearly, this is heavily pulled down by competition, who went down from PHP99 to PHP75, or a change of 24%.

We try to remain competitive, but not to the detriment of yield, hence the gradual softening of our ARPU, but only by 11%; less than half that of competition. Now, over the past seven quarters we have seen a relative switch in ARPU, with competition now at 12% lower than PLDT.

Our approach, moving forward, will really to be focusing again on building quality service across (technical difficulty). And, in line with the world shifting into a data-driven and digitally empowered one, we remain steadfast in coming up with the most appropriate data products to our wide range of customer segments from the Internet newbie, the casual user, the heavy user, and the data addict.

And because the digital life or the smart life, as we call it, starts with a smartphone, we have partnered with the best foreign and local brands in an effort to put a smartphone in the hand of every Filipino. With a smart SIM inside, of course.

On the matter of our mainstream services, again, this will constitute 70% of our total revenue pie, we are trying to hold the line through very targeted combo offerings. We have, likewise, invested in tools which will allow us to understand the behaviors of our customers and deliver value offerings to them in a more granular manner.

Now, the next page, to drive more value to our brands specific to Smart particularly and more focus into Smart, we have continued to invest in building for the future. We have launched MySmart which allows all postpaid and prepaid customers to manage their account, purchase load or hit -- wherever they hit a pay wall and whenever they need load. And to get perks while at it because the Filipinos, as you very well know, are all lovers of perks and loyalty.

Content is another focus point of the Group. So, we have continued to partner and even enhance our partnerships with the likes of iFlix, Fox, YouTube, Amazon. We're still number one in gaming, which is why we have kept our relationship with Clash of Clans and the like very warm. But the biggest news for this year is our tie-up with the local giant ABS-CBN's IWant TV.

A few weeks ago, along with Voyager and PayMaya, we launched Smart MasterCard, easily addressing the online and digital e-commerce needs of 70% of the Filipinos who today still remain un-carded and [unbound]. And we feel that we are launching this in a good time because it is the Christmas season. And when you're talking about Christmas you're really talking about two things; shopping and traffic. So, it should allow them to buy, to purchase, online a gift for their loved ones regardless of where they are. And, secondly, even a chance to ride an Uber car.

Finally, we have taken the smart-life vision into something that is experiential and tactile, by way of our flagship stores. We have opened two thus far in SM Megamall and North EDSA. And so far the customer indices, as you see, across sales and service have been quite encouraging.

So, that's it for the wireless consumer space. Now while the business is going through changes with the production and transformation the team remains focused and steadfast in their vision of providing the best smart life to every Filipino.

So, with that, may I turn you over to Renren Reyes, who handles PLDT Home.

Hi and good afternoon. This is Renren Reyes. I'm here to take you through the nine months of 2016 for Home. So, Home is accelerating at plus 9% growth for the first nine months of 2016 with all segments growing, primarily driven by aggressive efforts to enable connectivity in more households. This brings total year-to-date Home revenue to PHP24.5 billion or an incremental growth of PHP2.1 billion.

Going into the performance of each category, first, bucking the trend in the industry, voice continues to grow in revenue at plus 3%, with more homes now having telephony. Second, data, which is now contributing 65% of total revenue continues to grow strongly at double-digit rate of 11%. And, third, we see a promising growth in digital services at plus 25%, enabling subscribers to enjoy a more digital lifestyle around connectivity, entertainment and security for the home.

The growth across the categories was driven by a healthy increase in service subscriptions, where home's world-class offers and campaigns spurred interest among consumers, and drove further value for the categories.

Service subscriptions grew at plus 16% year on year with ARPU also increasing at plus 4%. Fibr and DSL go-to-market initiatives have attracted more subs, with plus 15% increase in wired subscriptions, while renewed efforts on fixed wireless grew subscriptions by 14%. We have delivered this despite the encouraging pressure -- despite the pressure on pricing by competition.

So, if you go to the next slide, what we will see here is that, similar to wireless circumstances, we in the consumer home business are also experiencing price pressures. Over the seven-quarter period much of the industry decline was brought by competition in terms of pricing, vis-a-vis their bandwidth speed, where price per MPBS for high-speed plans declined from PHP350 in January 2015 down to PHP24 or PHP24.99 or PHP25 today, executed through three downward-price adjustments.

In this challenging environment, PLDT had to remain competitive, but has driven value from subscription upgrade to fiber, and increasing adoption to digital services for the home.

If you go to the next slide, subscriptions to our digital services we see increased by a promising plus 69%, year on year. Instrumental to this were the various service offerings, part of our smartphone pillars, where connectivity continues to grow at 51% with telpads and tablets, entertainment at 74% with the TVolution, Cignal, iFlix and Fox, security 128% with FamCams and smart watches, and convergence at 1,362% with home-and-away pocket WiFi bundles and Triple Play.

It is our desire, as well, to enhance the overall digital experience at home. So, PLDT has locked in new partnerships with local and global leaders in the digital space. We have Disney for limited-edition telpads, Netflix and IWant TV for entertainment, D-Link for hire in routers and camera, Smart Bro for convergence, and Amazon and PayMaya for e-commerce. These will all be launched starting this quarter, proving home subs with more -- with the most comprehensive and diverse set of digital services, further building a highly relevant digital-lifestyle ecosystem for the home.

As a final point, we're -- while delivering these results, Home has also laid the groundwork for long-term growth, by successfully expanding our fiber network and pulling away from competition, now with over 144,000 kilometers of fiber-optic cables, opening up around 1,800 new sites. This enables us to cover]over 3,000 areas nationwide with 2.5 million homes passed.

We also have been upgrading our current technologies in DSL and we are now able to deliver fiber-fast speeds from 100 Mbps to 800 Mbps on DSL. And we will have this initially in 405 buildings by the end of this year.

So, having the fiber -- widest fiber network in continuous rollout of leading-edge technologies allows us to upgrade our subscribers to better speeds with their fiber-fast packages and enables us to better serve our subscribers with superior broadband experience.

So, this has been the delivery of Home for the first nine months. And I now turn you over to Jovy Hernandez to talk about enterprise.

Welcome, ladies and gentlemen, on the call. The enterprise business has sustained its double-digit growth for the first nine months of operation (technical difficulty). Year-to-date September that's the 10% growth versus same period last year, an incremental growth of PHP2.2 billion.

Looking at the business pillars of where the revenues are coming from, voice remains to be challenged, at negative 1%. However, the gains that we have had from corporate data, which stand at 15%, enterprise wireless at 15%, ICT revenues of 12% and global enterprise, which are revenues coming outside of the Philippines, primarily US, UK, Singapore and Hong Kong, these gains have completely offset the declines in voice.

More importantly, voice now only comprises about 29% of total revenues for enterprise, which makes us less to the -- less susceptible to commoditization, moving forward.

The growth that we have delivered for the first nine months is primarily driven by intensified market coverage for large enterprise and small and medium enterprises.

For large enterprise, it is really more intimate understanding of key verticals that we serve as we serve primarily the largest verticals in the Philippines, namely banking, BPO, retail and e-government. And we have always been delivering value propositions for these enterprise rather than selling based on bandwidth and price.

From the SME perspective, we have had, in the first nine months of operation, an intensified coverage of small and medium enterprises across the nation that's outside of Metro Manila. We have identified 11 geographical areas which are considered high growth for entrepreneurs. And we have aggressively covered them by (inaudible) acquisition of new subscribers.

Now, if you take a look at the leadership structure today of PLDT from a fixed-line perspective on the networks, and you augment that with the gains that we have had in terms of coverage or wireless as reported by Jo'im and you put an overlay of our data leadership in terms of our data centers, we now have about nine data centers nationwide. That's about 8,300 rack capacity.

By 2017 it's going to be 10, which is about 9,000. That is a far cry from any competitor in the country. We have leapfrogged, I think, our competitors from a data center perspective. And if you put that together with the enterprise that really lays down the foundation for us to be able to future-proof our business by providing more relevant solutions and managed services to the enterprise market. So, it's not going to be a discussion of bandwidth and price, but really value for the enterprise market.

And that will be driven primarily by ePLDT. If you take a look at the subsidiaries on the right side, we have ABM Global Solutions where we provide ERP solutions already. CuroTeknika is a BPO. ePDS is our outsource bill printing and [locker-bit] management systems. So, if you put that all together, we feel that we are in the best position to continue to lead the enterprise market in this space.

Thank you.

Good afternoon to everyone on the call. I'm Eric Alberto. And I'd like to present a summary of our Group revenue performance and our business directions over the short- and medium-term horizons.

As you can see in slide 23, and as presented by Kat and Ren in the earlier presentations, we have seen some of the most stringent and fiercest competitive environment for both our consumer wireless and home markets.

The price points as presented in terms of consumer wireless business, average prepaid ARPUs, as well as home business average megabit-per-second pricing for broadband delivered in the home, have seen much erosion. And we have to respond to competition.

But we can see that the steeper price erosion had actually come from the competition over the six-quarter point-to-point period.

We are also reaching saturation point, particularly in our wireless consumer business, where we are seeing over 130 million subscribers over a country's population of only 100 million. And we are hearing a lot of investors and analysts report which suggests that there should be less focus by the market on market share and price competition but [ARPU] driver propositions. The word's quality.

In that light, and given this scenario, we focused on two areas. Following Jo'im's presentation on our massive programs to improve our network and service-support platforms, we shall endeavor to meet if not exceed customer expectations for service, quality and experience, across all our revenue segments.

Secondly, we shall posture a position and program of driving value, and not just low price for our services, to strengthen our Group performance.

Allow me please to walk you through some sequenced slides in specifics. These are the summary points on which we undertake for each line of business.

Slide 24 speaks of our wireless consumer business. For the wireless consumer business, we shall hold the line on our mainstream voice and SMS business, which still constitute nearly 70% of our wireless total revenue, as we attempt to actively, aggressively, pitch towards moving more of our data, shifting that more towards data and digital-content business.

Second, in line with our focus as mentioned earlier to improve quality of our network and services, we shall focus on targeting and keeping quality and high ARPU subscribers.

As a last point, we will endeavor to steer our efforts towards accelerating data adoption. And we'll do so by promoting high, enriched, content and relevant digital services via smart life, which will deliver multimedia content, payment and online retail services, as well as loyalty and rewards.

Moving on to slide number 25, I'd like to touch on summary for the home business. We will pull further ahead of our competition by continuously expanding our network to deliver best-in-class technologies, such as, Fibr to the home. We will leverage our fixed and wireless capabilities to provision Internet services to the home, particularly those which are outside of our 2.5 million homes-passed market, to deliver broadband to the home with greater speed and agility.

Last but not least, on top of (technical difficulty) connectivity we commit to innovate to meet growing digital lifestyle demands in the home for rich and relevant content, particularly in areas of multimedia, youth and entertainment, TV, sports, movies, music, games, digital payment and online retail services and security technologies to protect the home.

For my last summary slide, please turn to page 26, where I will try and discuss and articulate the summary for enterprise. For the enterprise space, we shall intensify coverage in the large enterprise market through a very intimate and granular understanding of the industry active market verticals in the banks, financial institutions, space, the BPO and outsourcing industry, the retail industry and public sector/government, all of which are the largest active market industry portfolio for our large corporate markets.

In the SME space, we will embark on massive street-level selling and marketing campaigns in 13 key, identified, regional and provincial areas, particularly in Visayas and Mindanao area.

Lastly, we will fortify our market and thought-leadership position as the premier ICT trusted expert partner and enabler, certainly moving very much away from just being a telco for the enterprise market. We will do so by strongly building our key capacities and capabilities, for this is enabling managed services through improvement in capacities and capabilities over [ICP] digital platforms. And more, equally if not more importantly, our people.

That ends my presentation. I'd like to pass on to (technical difficulty) our Chairman MVP for the closing remarks and summary.

So, just dealing with the final page of this presentation, the updated guidance for the year 2016. The chart is fairly obvious to all of you. In terms of the EBITDA we're guiding full-year EBITDA lower by PHP4 billion from the previous guidance of PHP64 billion, down to PHP60 billion.

The total year service revenues consolidated voice will be similar to the third quarter, which slightly down for the first nine months. So, we sense that for the full year we'll be slightly down, owing to similar causes. Growth in data will be in double digit. But it will be attenuated by the anticipated declines in toll traffic, voice and SMS revenues.

Then we have been affected by higher provisions in the course of the first half this year and higher subsidies, as well, in a similar period, the first half of this year.

CapEx we maintain our guidance of PHP48 billion, which is about $100 million more than we had originally guided at PHP43 billion, arising principally from the acquired frequencies from San Miguel Telco.

In terms of core income guidance, we're guiding lower from the original PHP30 billion we made in the first quarter this year to PHP28 billion, because of the decline in EBITDA. Certain -- net of any gain from the sale of our Beacon shares or Meralco shares, an increase in financing costs, and depreciation costs from higher CapEx.

Dividend payouts at 60% of, well, from one perspective of the full PHP28 billion which we're leaning towards, or 60% of both in normalized profit that you're seeing below PHP20 billion, if you strip out all of the exceptionals, exceptional positions, exceptional subsidies realized in the first half of this year, with the exceptional gains on Beacon and SPi, the normalized core income and the underlying EBITDA is similar to what we had guided at PHP60 billion. So we either take 60% of PHP28 billion or 60% of both the PHP20 billion and the PHP8 billion exceptionals.

Melissa, do we talk about the -- well, this chart is not before you, but maybe as a final word, we've looked at, together with McKinsey, looked at the behavior of revenues of the industry. If you classify the total industry into four categories, namely international revenues, enterprise, home, at least from our perspective, home, and wireless, you could see that the growth patterns for the past four years embracing 2013 through to 2016.

Dealing with international first, four years, revenues internationally have dropped from PHP52 billion in 2013 to PHP35 billion, which is, as everybody knows and everybody has expected, has been happening. So that's a decline of PHP17 billion for the industry as a whole or a minus 12% CAGR for the four-year period.

Now, on the wireless side, the wireless sector has grown by PHP151 billion in 2013 total but excluding international, up to PHP164 billion in 2016. That's a growth of PHP13 billion over four years or 3% CAGR for the relevant period.

For the home as we see it, the home fixed, both voice and data, in 2013, the industry home revenues were estimated to be about PHP28 billion, and this year to about PHP41 billion. That's a CAGR, the highest amongst the four categories, of 12% and a growth in revenue of PHP13 billion.

The highest in terms of absolute number is the enterprise side, growing from PHP76 billion in 2013 to PHP97 billion, PHP100 billion estimated for 2016. That's a growth, as I indicated, PHP21 billion or 9% per annum.

Industry, therefore, on a weighted average basis, excluding international, has grown by 6%. Just as a note of caution, on the enterprise numbers I described to you, this includes the revenues generated by certain IT companies, principally multinationals, that sell their services, their products and their solutions locally. So it does include the local telcos and includes certain IT companies, principally foreign. So as you can see, this is an indication of where we think the market might go in the next three to four years, principally driven by the fixed line side of the business, the enterprise side and the home side, and wireless possibly continuing to be somewhat muted in growth because we're still in that process of replacing legacy revenues with data revenues and of course there is that pricing point that I think both Ren and Eric earlier made to you.

So I think in fact if you look at the Credit Suisse, I think it's a Credit Suisse analysis, summary of their growth forecast, that is for 2015 to 2018, for cellular they predicted, I think they're forecasting 0.8% growth for those four years, 2015 to 2018; for SMS and international long distance, down by 10% for those years; data up 21%; fixed line is approximately, from what I could gather around, anywhere between 6.3% to 14.4% in their numbers; and then enterprise is 6.4%. So, basically, broadly along the same track as what we've done internally based on publicly available numbers, internally, together with McKinsey.

That wraps up our presentation. So we're now ready for your questions. Thank you.

(Operator Instructions). Our first question comes from Gopal Kumar. Your line is now open.

Hi. Thanks for the opportunity. Three questions from me. Firstly, how do you evaluate your strategies so far in mobile? What are the areas where you think you would have to put more work into to further adjust the prices to stop your subscriber losses? Do you think that your networks would have some catch-up to do versus Globe? Going forward, what could be the near-term target for the Company in mobile? Would it be to stop the subscriber loss and then look at revenue decline? So, some color on this would be great.

Secondly, if we look at the mobile internet revenue growth, it has grown but the rate of growth has slowed down. And given the aggressive data pricing in the market, would you expect the data growth to slow down from here onwards? And when do you think -- is there any particular threshold beyond which you would look to stabilize prices or maybe increase in prices even? I'm just trying to understand when the industry pricing would stabilize or turn around.

Lastly, you increased your CapEx guidance. Is there any particular target rollout or coverage that you can share? Sorry if I missed it earlier. Thank you.

What was the first question? I didn't get the first question.

It was actually mobile, which focus areas we (technical difficulty).

Why don't you do the network question?

First of all, maybe I'll come to the last part of your question. We did not change our CapEx guidance. In fact, we've reiterated our guidance for this year at PHP48 billion, after we increased -- when we acquired SMC, we increased our guidance from PHP43 billion to PHP48 billion, and since then we are stable on PHP48 billion. We have not given any guidance for next year.

I also think on the network build-out, we have made great strides I think in the course of the past months, certainly the past year, in terms of the network build-out and the efficiency and the, how do you call that, the convenience of using the network. It's still an ongoing process, definitely. You've seen the re-farming done, started in Boracay, then moved to Davao and now it's -- it's now in Cebu and NCR. And as the work gets done in the early part of next year, we will proceed to the other key areas of the country.

So, but I believe as of now, we've made great strides in terms of network -- of the network quality and delivery of the service to the customers on a nationwide basis. I mean it's a whole plethora of network improvements that are being undertaken on the fixed side, on the wireless, on the transmission side, and even on our IT and SDP, service delivery platform. So it's not quite visible to the public as such.

So, yes, about the ARPU.

Well, I think part of it is clearly, it's a whole, on the mobile side, it's a whole slew of things that we actually need to do. It's not just network. Network obviously is the key variable to us for the past year. So, and in that regard we have fallen behind where the market has been in terms of network efficiency and such. But there are many areas that we need to address on the mobile side of the business.

One thing we don't like to see is getting into the pricing aspect of it. Our strategy there on the pricing side, across the Group, be it enterprise and so forth, is to simply [re-out] the competition. If they bring the price down, we have no choice but to do that and to stay competitive. At least, well, on the wireless prepaid side, we have to indeed arrest the erosion of our wireless subscribers, which have happened for so many years to the point where I think for the past four to five years we've lost more than 17 million subs. And that, I mean, we cannot exist for long if we allow that to happen.

Are we expecting data growth to slow?

No, the data growth will continue to rise. I think we see clear increments year on year in terms of data consumption. In fact, as we have shown with our network improvement in Davao, it actually encouraged customers to use stepwise more data. And as customers adopt more LTE phones, our experience is when customers move from 3G to 4G, that the data consumption increases up to 50% immediately because of the better technology, the better user experience, and the other applications they are starting to use.

Yes, I don't think we see an evidence on our network that indeed the data traffic has slowed down. In fact, it has grown, based on the [evidence] we've seen after the re-farming in Boracay and Davao, we've seen the data traffic on our network going up at least in those two areas. And we're seeing it in most parts of the network, data traffic is increasing. I think the issue has always been the matter of monetizing the data and the pricing of the data which are related to each other. So that will be a challenge moving forward.

If I may add, we see data moving up across all margin segments. For enterprise, as they offload more of their IT requirements to a partner like us, there certainly would be more data take-up, both to the consumer side of individual as well as the home, the growing digital demands of both individual and consumer side, driven by digital multimedia and relevant digital services by the individual and the home, particularly on digi format will certainly drive use of data way, way higher than what we are seeing today.

Okay. Thank you.

Thank you. Our next question comes from Arthur Pineda. Your line is now open.

Hi. Thanks for the opportunity. Several questions for me. Firstly, on the mobile side, what's driving the subscriber reductions on mobile? And we're seeing such divergent trends with your peers, even though you pointed out that your network quality is actually significantly improved now. Where are the gaps now on the mobile side?

Second question I had is, with the network, your competitor recently announced a $200 million increase in network CapEx, and that of course would improve their quality. Given this, would you need to reconsider your CapEx outlook this year or next year to match the gains that you've already made?

Third question I had is with regard to the home pricing for broadband. You've noted that it's actually collapsed (technical difficulty) on a price per Mbps basis. Do you see this as declining even further given there's still a significant gap between yourselves and peers? When you look at the other markets in the region like Thailand, Philippine pricing seems to be still high.

Last question I had is with regard to the balance sheet and the dividends. How comfortable are you with 60% payout over the long run now that you're touching 2.2 times debt to EBITDA? Is there any target ratio that you're looking at in terms of gearing? Thank you.

Kat, you want to deal with the wireless --

Yes, on the mobile -- hello, Arthur? Yes. So, on the mobile side of the business, as MVP pointed out, the erosion that we're seeing is not only specific to this year, in fact it's been happening over the past few years. But specific to this year, what we're really seeing is a pull-down in terms of ARPU. As mentioned earlier, we're seeing total industry down by 18%, and this is really driven by competition, it's down now by around 24%. We had to somehow remain competitive. Again it was alluded to earlier that really we are starting to get into a reactionary type of market, and this is what we feel really drove down our subscriber base. This is for the subscriber base portion.

So in terms of CapEx, I think Globe followed our example to increase CapEx as a consequence of the SMC deal. They actually did not do that. I think over time they saw that this is an additional effort, you cannot just absorb within your base. Of course, we continue to observe but we don't see any necessity to follow.

On the home pricing, we do see that pressure of access going down in terms of price per Mbps. But I think the way that we see this moving forward is bundling of multimedia services and digital services along with access, is actually what will drive value for the category, and that's our way to kind of stem whatever trend there is in the market now.

I don't think we're (technical difficulty) highly priced than one or two other countries. At least the information we have is that we're probably one of the lowest-priced broadband data points, either wireless side or for the fixed line side. So I don't think that what you're saying is true.

Now in respect of the dividends and our debt service, clearly, I think for 2016, by the end of 2016, we'll be well within our covenant limits of, say, 3.3 times net debt to EBITDA, so, and other covenant ratios. I think the question's really moving forward, whether indeed we could maintain a CapEx that would be higher than PHP48 billion, or indeed, even if we are able to maintain a CapEx level at PHP48 billion, and of course there'll still be continuing need to cater for the interest expense and income tax which has come ahead of any other expenditure, cash expenditures.

So as I indicated earlier, if you look at the normalized core profitability of PLDT for 2016, it really boils down to, when you strip the exceptionals down to PHP20 billion and PHP60 billion. And I firmly believe that, moving forward, starting 2017, you should see an improvement in both areas, in both our core profitability and in our core EBITDA, setting aside any exceptional gains or losses as the case may be for 2017 onwards. I think there will be some of those exceptional gains that I could foresee. For example, there's still the balance Meralco shares that are available for sale and indeed are in the process of being divested.

Now, the real question, as you indicated, is whether an elevated CapEx level is sustainable, and I can only speak for PLDT. And the answer is most likely not. It will have to be tempered starting 2017 onwards until we're able to get into a position either that the market price improves to the point where it is more rational or that we restrain our own cash OpEx, our own CapEx moving forward, and really have to be more deliberate, more parsimonious in the way we spend our CapEx that it derives the right amount of revenues in the spend.

So, yes, we're mindful of the fact that we -- there are continuing debt service that needs to be addressed. There's income taxes to be paid. There's CapEx to be spent that are necessary to keep the business and expand the business. And there are dividends that need to be paid out to shareholders.

I think what will bridge us this year and next year would be the continuing asset sales that could take care of anything over and above what we generate, the cash we generate organically, right? Like for example, this year, the sale of SPi and Meralco would breach us towards meeting our covenants, well within what is stipulated in our loan covenants, and for 2017, in fact, we will be able to do that to meet our dividend requirements 2017 and to some extent 2018 if we're able to divest ourselves at the least of the Meralco shares.

So I think, taken as a whole, I have no problem with meeting our covenant ratios, but I think what we have to look at is whether organically we are able to carry our own weight. Because after a while, the cupboard will be there, of these special assets that could be divested. So we really have to start planning for those -- for the day when don't rely on the special assets to be divested to carry through your cash requirements.

Anabelle, you want to add anything?

Hello? Arthur? Are you still there?

Yes. Thank you very much. Thank you. Very clear.

Thank you. Our next question comes from Rama Maruvada. Your line is now open.

Hi, good afternoon. A couple of questions from me please. Firstly, I'm trying to get a sense of what the normalized levels for the business are. Firstly, with relates to -- with regards to the provisions that you are booking, they're pretty high this quarter as well as the last quarter. Wondering what would be a more normal level and what would drive that.

The second one is, again, with regards to the subscriber base on the wireless side, to what extent is it clean up? What is the -- to what extent is the competitive pressure? In particular, your digital subscriber base has fallen quite significantly over the past few quarters, so, wondering if you could put some color on what is a more normalized customer base and when do you expect this to turn around going forward?

Finally, with regards to -- Anabelle, question, with regards to that, is on the voice side, the domestic voice revenues have been falling but the volumes have been increasing. Again, some color there is appreciated.

Finally, with regards to CapEx, could you provide some thoughts on how 2017 CapEx overall would trend? Thanks.

I'll take the first question, Rama. I think we had, in terms of the normalization of the profit as a baseline, if we look at sort of our -- for analysis going forward, we had effectively indicated that there had been incremental core income benefits from the asset sales, whereas we have on the other hand booked certain provisions and subsidies that we would regard as something that should not repeat itself in future years. So, part of this was related to our migration efforts when we moved the Sun to the common billing system with Smart, there was some cleanups related to that, in terms of quality of activations, we also took some extra positions this year. So all told, we would put that at about a PHP4 billion pretax and PHP3 billion post-tax number from the impact of that.

What about the voice?

Maybe the second question, on subscriber base wireless question around -- I'll try to take a stab at that, Rama. The market subscriber base, competitive base, now is nearly 50/50, and we've articulated the reasons why, principally driven by fierce competition. Given that, we are encouraged by the pronouncement and posturing of competition as well as the industry analysts at least, saying that there should be rationality more towards this space, particularly on the low ARPU segment of the market, and that we move our business towards creation of more value offerings, rather than just fighting over the access at much lower pricing, but delivering more digital content over the access both on the wireless consumer side and the home side.

There was a question on voice side which we did not quite get, the third question.

Voice revenues were lower notwithstanding higher voice because of more unlimited --

More unlimited.

-- pricing.

Yes. Sorry. It boils back again to pricing, what we're seeing now, particularly for competition, voice has already become hygiene quote-unquote wherein all their packs now already come with unlimited voice.

CapEx 2017, as MVP said before, 2017 will probably be lower to a certain extent, but we haven't made the final plans yet.

Yes. I think, consistent to what I said earlier, what Jo'im is reflecting is that at least the headline number for the year, for the relevant year, starting 2017, will probably be an agreed number between the requirements of the Company from a cash standpoint and the requirements of the business and the network moving forward. So that will be a number that is likely to be sub of the current PHP48 billion, because in a way we added PHP5 billion because of the San Miguel telco acquisition, which is unlikely to repeat itself from 2017 onwards given the plethora of frequencies available to the industry generally.

So it will be that number that is lower than PHP48 billion, realizing what the business needs and what the constraints that would be moving forward in terms of our own cash needs.

Understand. If I could follow up on the customer base. Do you think that customer base is all cleaned or is there more to be done in the next few quarters? I mean, the digital customer base is now like 9.7 million. So, just wondering, should we expect further declines here?

Well, not on the data subs. You're talking about more the legacy subs, I think, where it is roughly -- it's about, the prepaid side, about 62 million to 63 million, that we have, and which number is more or less similar to Globe's. So the question is whether our 62 million or 63 million will move over continuously to Globe. Kat.

Yes. So, just on the, again, on the subscriber base, alongside really trying to stem the number, the loss, we're looking at around 10% to 15% due to cleanups. That's something also that we're trying to accelerate as much as possible so that we end the year with a rather quote-unquote clear base.

Now in terms of really keeping our subscribers, we have made significant investments in network because as we very well know, subscribers today, our customers really look to better network, right? That's number one. And number two, more investments also that will allow -- in the platform space this time, that will allow us to target our customers at a more granular level and really offer them real-time [packs], real-time -- yes, real-time and relevant products on the fly.

Okay, understood. Thank you.

Thank you.

Thank you.

Thank you. Our next question comes from Varun Ahuja. Your line is now open.

Yes, hi. Good afternoon. A few questions from me. Firstly, on data, if you look at on a quarter-on-quarter basis, the data revenue is almost 2% increase. So, just want to understand, assumed to be a growth driver, but the growth looks pretty muted on a quarter-on-quarter basis.

Secondly, just coming back to that voice versus volume. It's also a question of how you are classifying the revenue given, in a bundle plan, it's all just built on management estimate how do you want to classify it as SMS and voice and data. So the domestic voice decline seems pretty high compared to the volume increase. So, just wanted to hear, is it a portion of also the management estimates towards which revenue will go towards voice, data and SMS? That's the second question.

On the -- number three, I think if you look at both PLDT and Globe, are giving the same kinds of commentary on next growth aspects, which is fixed line. Do you think, given both of you are now going to more focus on fixed line, are we going to see much more competition like what has happened in cellular, given cellular both of you accept that it will be a very mild growth going forward? So that's the question on fixed line, with both focus from both of you, is it going to be a much more competitive scenario going forward? That's the number three.

Number four, I just want to hear, I think you mentioned, Anabelle, about provisions, just wanted to hear, what is, again if you can repeat, I didn't get that, why is provisions fluctuating so much on a quarter-on-quarter basis and what is it related to?

And lastly, on SMC losses, can you provide further guidance how much should we expect in 2017? Thank you.

I'll take a number of the questions. In terms of the voice versus volume, I think in terms of -- you're right that, since the offers are in a lot of instances bundled, there is an element of allocation between voice, SMS and data, but maybe the way to answer your question is that this methodology is consistent across the quarters. So what we're just pointing out is that the -- there has been a bit of a ramp-up in volumes, principally from giving, in terms of the TNT brand having more unlimited voice offers, and hence, the increase in the volume and results on the voice revenues were a bit incongruent.

I think in terms of your question on the San Miguel losses, we booked so far about PHP0.5 billion of operating losses for the four months since we have assumed ownership of the company. Now there are discussions ongoing with our partners in terms of how we will deal with the assets and some of the operations. So we're not yet prepared to talk about the guidance for next year but there will be some changes after we have decided how assets in particular will be dealt with that are owned by the San Miguel telco company.

In terms of the provisions, what we had mentioned is that basically in -- there were probably two main items to look at. One was post-migration of our Sun postpaid accounts to the same billing system as Smart, there were some catch-up provisions that we had to book with respect to some receivables and inventory items. So that was booked in the first quarter of the year. But in addition to that, we had been taking a closer look at the quality of our postpaid activations and our sense is that there are some quality issues with respect to our activations, and hence, we put forward higher provisions. These numbers will normalize towards the fourth quarter.

You want to take up the next competitive areas?

To your question on the next competitive area of the fixed line, certainly we would expect that the business -- the competitive play would be towards more of the fixed given the saturation point on the wireless. But having said that, we are committed to compete on three principles. First, we will do competitive but not disruptive pricing. Number two, we will compete on the basis of value and relevancy of our offers in terms of products, services and solutions to our home and enterprise markets. And number three, we are committed to compete on quality of services and customer experience.

Maybe just to add to that, I guess unlike wireless]where there's a very high market saturation already, household penetration of -- in fixed line is still very low at 13%, so there's still a lot of growth in terms of market development to happen. So I think it's going to be a competitive scenario, yes, but it's going to be talking about -- it's going to be all about share of market growth moving forward.

And our CapEx and business plans are aligned towards that direction.

Yes, I think the observation in the question is spot-on in terms of where we think we -- the market will gravitate towards in the next three to four years given the behavior of the market itself, as I described earlier, from 2013 all the way up to 2016, namely, the growth in low single -- double digits rather for both the enterprise and the home sectors are likely to be there available for the next three to four years, maybe beyond. And wireless, if it stays where we are in terms of having replacement revenues happen, and at the same time pricing continues to be rather low, then I think the growth on the cellular space is going to be rather muted.

So, given that, it will certainly be more competitive moving forward, and I'd like to think that PLDT, the fixed line infrastructure PLDT, is extensive, it is robust, and it's being updated as we speak. We have more fiber and copper on the ground than any other telco in the country today. And fiber continuing to be rolled out, we have 2.5 million passed as we speak, and we will grow that to 4.8 million homes passed in the next few years. We're upgrading our DSL capability with this new G.fast technology that increase the previous speed and the capacity of our copper on the ground to something approaching the fiber itself.

And of course, on the content side, we have content partnerships with almost everyone. I suppose that's not a strong barrier to entry, but what's important, particularly in the home side, that we own Cignal TV, which is a door-opener to the home. We have, as we speak, at least 1.5 million subs, and we're the largest video content aggregator provider in the country as we speak today, and Cignal is growing by leaps and bounds in terms of subs and revenue.

So I think we simply have to manage (inaudible) all of these resources on the fixed line side, but I'd like, and as well, I'd like to think that the brand equity of PLDT on the fixed line side is very strong. And we have to make sure that our strong competitive advantage is indeed not only protected but enhanced moving forward, and should not allow what happened to Smart, because Smart was this way many years ago, and we cannot allow that to happen in the coming years in terms of where the fixed line position is currently situated.

Thank you.

Thank you. As of the moment, we don't have any further questions on queue.

Okay. That's all the time we have for questions. The instant replay for today's call will be available starting today daily on through November 21. The instant replay details are contained in the conference call invitation.

Let me now turn the floor back to Mr. Pangilinan for any closing remarks.

Well, I just have two or three. Number one is to thank all of you for joining us this afternoon and bearing with us. I know it's been a tough year for PLDT and the numbers are looking not great compared to previous years, but my second takeaway message is that indeed the battleground has shifted, less more -- less of the wireless space and more into the fixed line space. And in a way, we want the battle to be engaged on that front, right?

The third and final takeaway message is that we -- it's appropriate, entirely appropriate to tell you that the baseline position for PLDT is really the PHP20 billion core. We'd like to strip away all of these exceptionals. Not saying that the exceptionals will not happen, not saying they're not needed. It will be needed again in 2017 and 2018 to carry us through significant, possibly, significant cash expenditures relating principally to CapEx for those two years, but as well to enable to maintain our covenant. But not to take off position from where PLDT should improve, its core profitability from PHP20 billion to more than PHP20 billion starting 2017 and from PHP60 billion EBITDA to more than PHP60 billion EBITDA. We have some numbers in mind in the next three years that we wish to strive for, target for, and it will be much better than the PHP20 billion you're seeing now. That's the goal of management and we aim to achieve that in the coming years.

So again, thank you and we hope to see you again March of 2017.

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