PLDT Inc (PHI) 2016 Q4 法說會逐字稿

Good afternoon and welcome to the PLDT conference call. Please be advised that this call is being recorded.

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

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

For today's presentation, we have on stage members of the PLDT Group management team, namely, Mr. Manny Pangilinan, our Chairman and CEO; Ms. Anabelle Lim-Chua, Chief Financial Officer; Mr. Eric Alberto, Chief Revenue Officer; and Mr. Joachim Horn, our Chief Technology and Information Advisor.

At this point, let me turn over the floor to Ms. Anabelle Chua to start the presentation.

Good afternoon everyone and welcome to PLDT's presentation of our full year 2016 financial and operating results. Let me start with some key highlights for 2016.

Our 2016 consolidated service revenues net of interconnect costs amounted to PHP147.6 billion or 3% less than previous year. Our fixed line service revenues grew by 7% to PHP63.1 billion, while wireless revenues declined by 9% to PHP92.5 billion. Excluding the impact of ILD and NLD revenues, our service revenues were actually down by only 1% year-on-year.

Now, viewed in terms of the various business units, revenues of PLDT home registered a 10% increase, our enterprise group revenues were higher by 9%, while our wireless individual revenues and international revenues were lower year-on-year.

Our EBITDA for the period declined 13% to PHP61.2 billion on account of lower wireless revenues and higher handset subsidies and provisions, moderated by lower cash OpEx. EBITDA margin stood at 39%. Excluding the impact of one-time provisions and subsidies, our recurring EBITDA amounted to PHP65.8 billion, with margin at 42%.

Core income for 2016 reached PHP27.9 billion, 21% lower year-on-year, mainly due to lower EBITDA and costs arising from the higher CapEx to support the ongoing expansion of the fixed and mobile networks of PLDT. Net of asset sales and certain other one-off items, our underlying recurring core income amounted to PHP20.2 billion in 2016.

Here's another picture of our consolidated service revenues which I indicated was at PHP147.6 billion versus PHP152.6 in 2015. Our fixed line service revenues were strong, exhibiting a PHP4.3 billion or 7% growth to reach PHP63.1 billion for 2016 full year. Underpinning the strong performance of our fixed line business is data broadband revenues which already account for 60% of our fixed line service revenues.

This growth in fixed, however, was not enough to cover the 9% decline we saw in our wireless revenues where we are seeing the acceleration of the shift to data and digital services. In terms of data contribution to the revenue pie, the proportion is relatively smaller for wireless, just over 30% of the service revenues.

Now, viewed in terms of the contribution of the major business units, our wireless individual business is our largest business division with PHP66.4 billion of service revenues, though down 9% year-on-year. PLDT home and enterprise units are -- reinforced their leadership position and, taken together, accounted for 40% of our Group revenues and have set the pace growing by 10% in the case of home to PHP29.3 billion and for enterprise by 9% to PHP30.6 billion. Data and broadband services have been the key growth drivers for both business units.

Looking at 2016 consolidated service revenues based on product type, data and broadband accounted for 41% of consolidated service revenues. Data makes up 60% of the fixed line service revenues and 30% of the wireless service revenues. In particular, mobile data grew by 26% year-on-year, underpinned by a 42% improvement in mobile internet revenues. The growth we saw in data revenues, however, did not fully compensate for the reductions in our legacy voice and SMS revenues during 2016, resulting in overall 3% downward shift in our revenues.

Moving on, our consolidated EBITDA came in higher than guidance at PHP61.2 billion or PHP65.8 billion on an adjusted recurring basis. EBITDA declined year-on-year, primarily because of the pressure on our wireless business. This matched the good performance of our fixed line, so EBITDA actually rose by 9% year-on-year.

While we were able to reduce our cash OpEx in 2016, provisions and subsidies were elevated, hence, depressing our EBITDA results. Taking out the one-time provisions and subsidies, our EBITDA would on such basis be PHP65.8 billion, equivalent to a 42% EBITDA margin.

Now, looking at this on a quarterly basis, from a PHP14.2 billion EBITDA in the second quarter, our third quarter EBITDA improved by PHP0.8 billion to PHP15 billion, and then our fourth quarter in turn rose by another PHP0.4 billion. This quarter-on-quarter improvement came as a result of deliberate efforts to manage our subsidies and provisions and cash OpEx. Thus, EBITDA margin improved to 40% by the fourth quarter.

Next slide shows our core income numbers for 2016. Our full year 2016 core income of PHP27.9 billion is in line with guidance and reflected the impact of both lower EBITDA and increased depreciation and financing cost, both arising from higher CapEx.

We also saw -- benefited from the gains from the partial sale of our Beacon shares, which resulted in about PHP7.4 billion additional income in 2016. The 2016 core income also was negatively affected to the extent of about PHP1 billion from the 50% share in losses of Vega Telecom which we acquired from San Miguel Group during the end of May in 2016.

Now, taking out the one-offs in our 2016 results, our underlying recurring core income was PHP20.2 billion in 2016. The adjustments included PHP4.6 billion of EBITDA adjustment, which we discussed earlier, from the elevated levels of provisions and subsidies. We also booked PHP4.1 billion accelerated depreciation for some of our fixed assets in both the wireless and fixed business. We had the benefit of PHP8.8 billion gain from the selloff of our Beacon shareholding and some real properties. And we had lower taxes, which included PHP5.1 billion of deferred tax assets recognized in 2016. Reported net income for 2016 came in at PHP20 billion, which include the PHP5.4 billion impairment of our Rocket Internet investment recognized in the first half of the year.

Now, today we did announce the declaration of the final regular dividend for PLDT at PHP28 per share, and, combined with the interim dividend, aggregated PHP77 per share in terms of a dividend payout of 60% of our core EPS of PHP129.

Now, turning to our debt profile, our consolidated net debt stood at $2.9 billion as of the end of 2016, while net debt to EBITDA ratio was 2.36% (sic - see presentation "2.36 times"). The higher net debt balances reflected the impact of the acquisition of Vega Tel, which raised gearing by 0.14 times, as well as the impact of higher CapEx spending which came in at PHP42.8 billion for 2016.

In terms of currency exposure, only 9% of our debt remained unhedged vis-a-vis the US dollar. In terms of average interest cost, our average cost of debt is 4.5%.

With respect to our debt maturities for 2017 of $673 million, refinancing facilities have been put in place and in fact we paid off the 2017 US dollar bond yesterday.

Efforts are focused on managing our leverage given debt levels have increased due to higher CapEx and the acquisition of Vega Tel from the SMC Group. So we would want to see our net debt to EBITDA ratio move towards the 2 times threshold that we would want to see in the medium term.

Now I'd like to turn over the presentation now to Jorn who will talk about the CapEx programs we had achieved in 2016, and for 2017.

Thank you, Anabelle. Good afternoon.

Yes. Good afternoon. For the achievements in 2016. The focus was clearly on transforming our networks to higher performance, faster internet speeds, and better quality and coverage. That was true for fixed and in particular for our mobile network. And I can say we have made some very good progress in achieving that.

And particularly what we call the spectrum re-farming, meaning using the spectrum in a more efficient way, namely putting LTE also in the low bands in order to improve coverage and better indoor coverage and higher capacity and higher speeds, that made significant progress. Boracay, I think we did, middle of last year already. We finished Davao in October. Rizal was almost finished by end of last year.

We are in the midst of getting done in Metro Manila and Cebu. And more and more you can feel the improvement actually happening per day. And I can only encourage you to try here, if you test our LTE speeds. You can get speeds above 30 megabits per second, if you have a Smart subscription. If you have not, I'm sure we can help you.

We completed, and it was probably one of the most important milestones, the Sun and Smart network consolidation. This helps us to clear up significant resources in terms of size and spectrum which we are now using in order to put all the improvement into Cebu and Metro Manila on a daily basis. It also helps us to reduce the number of sites and we'll retire about 1,000 sites where we just have the sites next to each other. This will help us on our OpEx management in the current year.

In order to get all these achievements done, we also needed to upgrade our transport and backhaul network. More than 5,000 projects have been completed last year and we will do another 5,000 this year. You cannot have a good LTE experience if you have not -- do not have a good backhaul and transport network.

So for that, for example, we added another 1.5 terabits per second. 1 terabit is 1000 gigabit. 1.5 terabits per second in capacity into our backhaul. We have also pushed our rollout for FTTH. We are now reaching more than 2.5 million homes. And for next year we have even a higher target.

It's important for us to also make use of the SMC spectrum we acquired mid of last year, and we are already more than 2,000 sites where we made use of the spectrum. And as we go forward on all the re-farming and improvement work we are doing, we are building on base of that spectrum, which we acquired mainly the 700 megahertz frequency.

One other highlight last year was the rollout of carrier-grade Wi-Fi. Not any Wi-Fi carrier-grade, in 3G, very good coverage, very good speed. If you have not been testing it, airports, we have 20 airports, we've already implemented 4 seaports, and on the LRT2. It's really an amazing experience, I can only encourage you to try.

And as we did all the work, we closed the gap to Globe in 3G already last year and we are about to close the gap on LTE this year, and our ambition is to overtake Globe as we go along this year. And we already got confirmation that we are quite good in LTE speed download. Actually we were measured to be better than Globe throughout the nation.

For next year, the focus of our CapEx spend will be moving a little bit from mobile. We continue to push on mobile, but we will push much harder on fixed, because the business opportunities are very big, as Eric Alberto later will explain. We will push the number of homes passed from more than 2.5 million today to 4.4 million by end of next year. At the same time, we'll push for LTE superiority by rolling out LTE to more countries -- to more cities, and we will pursue our 5G readiness.

In order to support all of that, we continue to upgrade and transform our IT platforms and our service delivery in order to support the digital [platform].

Now, here are the CapEx numbers. End of last year we spent cash out PHP42.8 billion in CapEx. This is less than the PHP48 billion which we have guided. The reason for that is that we have actually contracted all PHP46 billion, but in order to cash it out, we actually need to implement the work and accept it and then you pay the bills.

That has not been completed. Most of that work will happen in the first quarter of this year. So there is a rollover of almost PHP5 billion into this year's CapEx.

This year's CapEx is planned to be PHP46 billion. Whether at the end of the year it's really PHP46 billion, we will see. It's probably a little bit less. But that's the current plan and it is what we base on.

In the CapEx distribution, you see that in particular for the fixed, we move from PHP10.7 billion spent last year to a PHP17 billion plan for this year. So, a significant increase. And only a small decrease on mobile because in mobile we did the bulk of the work already last year so this year we continue at the same speed but on lower spend.

The total CapEx investments from -- for the last ten years have been at $7.6 billion.

So, a little bit more insight on what we're actually doing as we transform our network, and I want to focus on Metro Manila. Metro Manila, we are working on 2,500 sites. We touch each site we replaced antennas, we put new equipment, and we improved the backhaul. As we do that, every site we fix will bring an improvement, and as I said before, more and more people come to me and say, oh, it's much better than it used to be. Actually it's been significantly more people give positive feedbacks than negative. So there's clearly a trend change.

And we will finish most of the work in the course of April. So in these weeks you will see in most areas, you will see an improvement in terms of indoor coverage, outdoor coverage, anyway, throughput, speed and cost [stability].

In order to give you a flavor of what we are talking about, a few pictures with some more details. First of all, I think we shared this last time, but this is a feedback from the Open Signal report, for example JPMorgan is using that, showing the download speeds in the NCR region, Globe compared to Smart, over the last couple of quarters. And you see the same on 3G.

On 4G, we have been leading actually all the time and we are improving our situation. But I'm very proud also that we not only could close the gap on 3G but now we have a small lead here. And that's exactly in line with our plan. Our plan is to close the gap on 3G at a comparable performance, but we will push LTE to become really superior, not only in performance but also in coverage. That's the current technology and that's what we are investing in.

In order to give a flavor of what improvements you will get as we do the LTE rollout, you can see here three pictures. On the left is somewhere October last year. In the middle, this is as of January 30. And on the right side is as of April this year. And the darker the blue, the better the indoor coverage. We can see on the left side there is only 17% of indoor coverage. In the middle it's already 45%. At the end of the work, we will have almost 80% good indoor coverage in the Metro Manila or the NCR region this year.

Now, a similar picture for voice. Voice coverage already is not so bad, 78%, but we will continue to push it higher to 93%. So in that range, we will see significant improvements for all our customers, whether it's Sun or Smart.

We are also doing a lot of customer experience testing, not by ourselves but we have a team which is in (inaudible) which is actually looking into what recent technology people claim to be good. They go there and behave like customers too, with YouTube and Facebook and so on, and give us a feedback. And these are the example of results. For example, you can see, before and after in 4G, we went from 4.2 Mbps to 19.3 Mbps. It's almost five times more performance. And also the 3G performance is good.

So we do it on a granular basis every time something is ready from a technical perspective, customer experience looks into, to make sure it's really good, before we then decide to say, yes, we can really promote it and launch it.

On this side, I just give you a flavor of the quantity of deployments we are doing. The left column is about number of sites being upgraded or built. And on the right side it's about capacity being built. And the left side -- the very left is basically based on October last year, and in the middle is January. And on the right side it's end of April.

So we can see, regardless of which technology, there is a significant addition of sites with that technology, and at least a 50% improvement in capacity in 2G and 3G. But if you look to LTE, we really go from below 1,000 to more than 4,000 nodes upgraded. And we will go, in terms of capacity, more than five times the capacity. This will really guarantee indoor coverage and high speed for everybody. And that's the work which is currently underway and we are about to be completing maybe in April.

But it's of course work in progress. And while you will find many areas now which are performing well and maybe some areas where you still don't get that speed or you have some coverage gaps. Bear with us, we are on top of all this and we will fix it as soon as we can.

But as we do that, we put also a lot of investment into our network. And what we already started last year was that all the investments we do, we look into 5G compliance. So, note that in three years from now, that's only three years down the road actually, when it's about to -- we talk about 5G, we have to reinvest everything again.

If we look to the objectives for this year, I want to start with the wireline side of the story. As we said before, it's more focused on investment in wireline business because opportunities are higher, the growth is much stronger than in the wireless market. So we will increase our fixed network to really bring the gigabit society to every Filipino. We will add 560,000 additional FTTH lines, and the total capacity installed will be 1.1 million, which equals 4.4 million households passed.

But not enough, we will also modernize our old copper equipment. And we will upgrade 1.7 million of the copper ports to at least 100 megabits per second of VDSL. We can bring fiber speeds with copper. So, whoever says copper is not fiber doesn't know what the technology is actually out there.

We will actually even bring 400 megabits per second and we have already installed it in some of our buildings. In more than 100 buildings, the total plan is 400. We will start with 100, using a technology called G.fast.

By end of next year, 2018, we will have 5 million ports equipped with fiber or fiber-like speed. That's (inaudible).

If we look to wireless, we gave a commitment to NTC early last year about bringing LTE to the whole country. And in line with that commitment, in the second year of implementation, we will add 785 municipalities, of a total 1551. And this equals 70% of the population in the Philippines will have LTE by end of this year.

And in order to achieve that, we will roll out 2,165 sites in the low bands, which care for coverage, 700 and 850 megahertz, and 3,568 sites in the high bands, 1800 and 2100, which care for speed, capacity. Altogether, more than 5,000 sites and there's a significant uplift in LTE and we will be probably at the end of second quarter we are still have (inaudible) in terms of coverage (inaudible).

We will continue to invest in 2G and 3G, but as much as required, to make sure there is no gap to competition and there is a good customer point. But please remember 3G is already more than 15 years old technology. LTE is the way forward and that is what we are pushing forward, and we are preparing for 5G.

And our plan for end of next year is, according to the commitment we have given to the NTC, we'll need to bring 95% of the municipalities to LTE, which equals a 97% population coverage. We are on track to achieve this target.

And lastly then, all the investments we are doing have been checked on 5G. In fact, we have started last year on a big transformation of our transport and core network, which many people don't know. But 5G is not only about high-speed on the radio. It's about much higher flexibility to enable many more applications from real-time to virtual reality, to a decision intelligence.

We need a complete re-architecture of the network. We have started this last year. We already contracted for a virtualized packet [for], we are currently underway and continue refurbishing our transport network to much [flatter] all-IT end-to-end, high-capacity, highly-scalable network.

So I'm happy to say that we are on track also where this is concerned. This does mean we have already to decide to implement 5G, but we use all investments we do today in order to bring us a step further towards 5G.

That concludes my part of the presentation. I will turn it over to Eric Alberto.

Thank you, Jorn. My portion will tackle the -- and give you a flavor of the enterprise and home, as well as the wireless consumer business as it performed in 2016 and also provide you a context of how it will move in the short and medium term.

As Anabelle mentioned, the total service revenues of the Group settled at PHP146.7 billion, but noteworthy our home and enterprise revenue business, our fastest-growing segments which grew double digits last year, now comprise 47% of business as of yearend 2016, net of our international business which we're managing the long tail-off and has become less vulnerable -- will become less vulnerable to the disruption on that business.

Both the home and enterprise business to cross over to 51% of our revenues in 2017. And we forecast that these two businesses to become ever more significant contributors to our business by 2019 as it forecast to contribute up to 56% of our revenues in two or three years' time.

Closer to more discussion on the home. Our sustained double-digit growth in the home, and we forecast 27% contribution to total Group by 2019, is on the back of high demand for home broadband, opening up vast opportunities for us to upsell and cross-sell digital content and services.

Our strong demand for a more robust, higher bandwidth internet in the home grew by 15% in 2016 in wired subscription, led of course by our highest form of connectivity which is fiber.

The (inaudible) market is estimated to have over 20 million households and, per our internal and external research, there are 10 million households today that are ready, willing, able and capable to pay for home internet services on more robust, higher bandwidth speed service deliveries.

As of the end of the year, only about 3 million of those homes are being served. Therefore, there's about over 3x opportunity, upsell opportunity, to cover these unserved homes for internet high-speed bandwidth, internet connectivity in the near and medium term.

Our ability to maintain our leadership in the home also allows us to [concentrate] up the content and digital services with the supplemental data growth on our access to the [pipes]. This should allow us to create stickiness and improving our yields both in revenue and margin.

Such bundles include hardware hybrid bundles, Telpad, Fam Cam, security solutions, as well as very -- soon to offer, we will have wearables, that has to be a relevant inclusion to those hardware bundles. And in terms of content, we have started to bundle iFlix, Netflix, iWantTV with our partnership with ABS-CBN too. Today we are signing up with Fox+, one of the world's biggest inventory of latest content in terms of TV series, movies, and our very own Cignal.

Our strong market leadership in the home is supported by leading-edge technologies, and Jorn has alluded to a number of them earlier. I'd just like to re-focus on some of the areas. We're in 3,500 areas nationwide now on sites. We have the nationwidest fiber optic network, spanning over 150,000 kilometers. We are in 2.8 million homes passed as of year-end 2016. And the ambition and target is to be at 6 million homes passed by year 2020.

All our fixed broadband subscribers shall enjoy Fibr or Fibr-fast speeds in two years' time, by the time we end 2018, which can deliver speeds of up to 400 megabits per second on Fibr-fast technology, and certainly up to 1 gigabit per second on pure fiber.

Onto our enterprise business, which we forecast to contribute 39% to our total Group revenues by 2019. As early as five years ago, we have actually taken on a transformational position in the enterprise to put ourselves in the position as a trusted ICT expert partner and enterprise solution provider for our corporate markets, with a large local, multinational customers or [SMEs], as against just being a mere telco provider participant.

We have upscaled our capability in terms of our people resources. We have the biggest number of ICT and technology certified personnel and engineers, numbering to over 800, the biggest in the country.

And in 2016, both IDC and McKinsey have actually indicated that the adoption of information/communication technology and digital enterprise solution has grown 8% to 9%, while the PLDT enterprise group had actually grown our ICT revenues by 16%, thereby really indicating how pervasive we are in the way we enable business solutions to the enterprise market.

So dominant and clearly this is a position that we have achieved as a tier 1 enterprise solutions provider in the world, such as Google, Amazon, Microsoft, IBM, Akamai and so on and so forth, have actually taken our partnership and looked at PLDT Enterprise as their preferred partner, as we bundle their respective solutions across many different enterprise managed end-to-end solution in terms of business enhancing solutions, security, storage, et cetra. And they do partner and look at PLDT as their preferred partner.

Our indisputable market leadership in the enterprise space is enabled by unparalleled investments in ICT and digital infrastructure. We need to -- the enablement of the PLDT enterprise group gives it very strong alliance and digital enablement by ICT arm ePLDT.

ePLDT actually runs this session, already nine datacenters, with capacity of over 9,000 racks, outrunning any other player by as much as over three times, not only in capacity but in terms of quality of such datacenters. As you may know, datacenters are the very bedrock of enabling business solutions as enterprises optimize and leverage on such solutions that can allow them to exploit social mobility solutions on M2M and Internet of Things, big data and analytics, cloud solutions, and cybersecurity.

Our -- on the network side, our data connectivity solutions and network architecture go beyond the Philippine shores, which enable global data connectivity in four continents, via our point of presence in the United States, United Kingdom, Singapore, Hong Kong, and most recently in Australia.

Moving in on our most challenged business, which is our wireless consumer business. The 2017 imperative, as you all know, in 2016, we lost 9% on this business on the back of over eight quarters, over two years of radical shift in consumer habits, thereby disrupting our mainstream business of Talk n Text to OTT application, and what you've been very familiar with, the very steep if not ruinous pricing competition that we've seen in the market.

The advantage for 2017 for this particular pillar of our business is to stabilize and arrest negative momentum and for us to be able to quickly establish a base by which to build a new growth foundation. We may not be able to do that in 2017 on the back of the fact that the first two quarters of 2016 are quarters which are relatively high number and there have been high revenues still, before the disruption, particularly in price and competitive price pressures actually have moved in and settled in the third and fourth quarters. But we're certainly looking at our performance and benchmarking it quarter-on-quarter.

Since our reorganization in December of 2016, we have done -- we have created a pivotal strategy. We have harnessed people resources not only within Smart, and reorganized it, but also tapped into people talent within the internal organization of PLDT, of MediaQuest and Voyager, and outside resources, by which to create a team that can better address the complex challenges that we face in the business.

We've also revisited our challenges on brand constitution and positioning. We are not a simple business in the wireless, we have three brands. And we have clearly identified the positioning of such brands. We have streamlined our business operations that allow us to achieve revenue maximization and cost savings.

Jorn alluded to network improvements, particularly in LTE and our Wi-Fi network infrastructure. We are working ever more closely with our network and optimizing such close coordination via two ways. Number one, we are rolling out relevant service bundles where our network enhancements are being made, particularly on LTE. And number two, we are helping push the right messaging for our customers of such enhancements by heightened marketing and sales activities on the ground.

Given that the wireless consumer market is already a very saturated and much competition had befallen this particular sector of the business, we must -- it is critical that we must now grow our capability and leverage on big data analytics and business insights and digital marketing, by which we could have a more intimate understanding and proposition better to our customers, based on their granular -- in a granular way.

There are no more above-the-line, nationwide campaigns which are very costly but not quite effective in this very challenged business. And we shall -- we are endeavoring to really create more relevant bundles that addresses the very need of our distinct customers based on their ability to pay, their geographic location, and their particular affinity to any of our brands, so whether it be Smart, Sun or TNT.

Our first two months, January and in February, are actually very encouraging on two counts. First, on the revenue side, we seem to be holding the revenue line by generating a small uptick in terms of average revenue generated per day. And in terms of subscriber accounts, we're actually beginning to see some green shoots of reversal of the decline in subscriber accounts. We've had some net addition subscriber accounts that correspond to the two months of 2017.

Again, in summary, just key points, home and enterprise very robust growth will be more significant contributor to our revenues. Wireless consumer business, the [legal] management to arrest the decline is already in place. We're looking towards the first and second quarter of this year to hold the line and looking to the third and fourth quarter to establish green shoots of new life by which to grow and put us on a growth path in 2018 and onwards.

This ends my presentation at this point. I'd like to hand over the floor to our Chairman and President, Manuel Pangilinan for his guidance and closing remarks. Thank you.

I don't have the slides, so I'll (inaudible) particular one four items. Well, first of all, good afternoon to all of you and thank you for joining us this afternoon. Finally, we're relieved that finally 2016 is over, and we look forward to doing something positive in the year 2017 and onwards.

First item on this slide is the EBITDA, where we forecast or we expect EBITDA to grow by PHP8.8 billion from the PHP61.2 billion core EBITDA we disclosed to you today. So, from PHP61.2 billion to PHP70.6 billion. And that's a factor of several things.

Number one, the first major one is the quantum of subsidies and provisions both in 2016, to the extent of PHP4.6 billion, which we -- the bulk of which will not get repeated in 2017. So that's the first item.

The second item relates to the revenues expected in 2017. Basically on a net basis, we expect consolidated revenues to rise to something in the order of PHP4 billion. That's in round numbers for both home and enterprise. We expect home and enterprise, or the fixed line business, to show a growth in revenues of approximately [PHP8 billion]. That will get reduced in the first instance by the decline, continued decline, of ILD and by a slight decline in -- on the wireless side sub-PHP2 billion for 2017.

So, net-net, the increase in consolidated revenues will be approximately PHP4 billion for the full year 2017. I think it will be the first time in three years that PLDT Group would show an increase in our consolidated revenues net of interconnect costs.

Now, the other factors that will bring the EBITDA to PHP70.6 billion, which is the level it was in 2015, is that we are undertaking a significant cost-cutting exercise, principally related in the first instance to non-personnel related expenses, travel expenses, [plane] expenses and the like, and that gets effected in the EBITDA number, in the increase of PHP8.8 billion. That's part of it.

Now, there could be further cuts in cash OpEx that could happen if we're able to meet the headcount reduction we anticipate both in relation to our intended or planned manpower reduction program and in relation as well to the outsourcing of our -- certain of our IT functions to IBM. In both cases that would translate into a significant headcount reduction of more than 10%. The current full-time equivalent headcount of the PLDT Group is in the order of 14,000. So we will reduce that headcount to more than 10% in the course of the year.

In terms of the recurring core, we -- our guidance for 2017 is being pitched at PHP21.5 billion, and that is with reference to the PHP20.2 billion reported in 2016. That will result from the rise in EBITDA, offset by the increase in depreciation, which is obvious because of the higher CapEx and the increase in financing expenses in the course of the year due to higher CapEx as well, and the acquisition of the San Miguel telco.

The additional factor that will bring down, that will attenuate the increase in EBITDA are the lower equity earnings arising from a lower stake in Beacon, and eventually the sale of Beacon in the course of the year, there'll be lower equity earnings from Beacon, and the losses arising from the San Miguel acquisition.

Now, if we are able to divest Beacon, which we hope to do by the middle of the year, and I think the discussions have reached a fairly serious point at this stage, so we are quite confident that it will be put away at a significant gain. It is likely that the underlying core of PHP21.5 plus the potential gain from the sale of Beacon could approximate in aggregate the reported core for 2016 of approximately PHP28 billion. So if we manage to do that, and I'm quite confident we can do that, the aggregate core for 2017 will be about PHP28 billion as well.

On the CapEx side, I think Jorn has explained what this PHP46 billion means. Let me just say, on the network side, just to echo what he said, on the fixed line network, we're devoting I think a percentage of the CapEx starting 2017 onwards to the fixed line business to ensure that our lead over the competitor would not only be maintained but will widen in the course of the coming years. At the moment, as of yearend 2016, our homes passed on FTTH and copper is about 2.6 million homes, and that would rise to at least 6 million homes by 2020.

And on the wireless side, as Jorn indicated, we will continue our superiority in 2G, we will be at -- we are at parity with Globe on 3G, and we will overtake them towards the end of the year in 4G.

On dividend policy, that policy of 60% remains, 60% of the regular core, which is PHP21.5 billion. If there are any gains on sale of Beacon or any other assets, we will as well declare 60% of that gain arising from that divestment.

So there it is. I think we continue to see some -- we're starting to see some positive signs of life within the organization and I think -- my thanks go to the management team who have labored long and hard to bring us to where we are today. We are not out of the woods yet, so much work remains ahead of us. But it does look like it is looking better this year than it was last year.

Now, a word of caution on the profit for the full year. If I may just say this, so it's not to disappoint both investors and the analysts, in the course of reporting our quarterly numbers, the profile of our revenues was that we had significant revenues in the first quarter, which was about PHP38 billion for the quarter, around PHP37 billion for the second quarter, and down to about PHP36 billion for the third and fourth.

I think the way this court is looking at life is that we are able to hold the line at around PHP36 billion, PHP37 billion in revenue terms. So it's likely that our profitability for the first quarter will undershoot the first quarter profitability reported last year, which was pretty high at more than PHP7 billion.

But I think starting in the second quarter, when we reported PHP4 billion plus only last year, it is likely that we can match that at least if not exceed that part in the second quarter. And in Group the target has been Group profitability beginning in the second, onwards in the third and the fourth quarter in the course of the year. That's why our guidance number for the full year is PHP21.5 billion, plus asset sales, around PHP28 billion.

Thank you.

We are now ready to take questions. We'll take questions from those who have joined us on the conference (inaudible) before we take questions on the floor.

Operator?

Thank you. The floor is now open for your questions. (Operator Instructions).

Our first question comes from Gopal Kumar. Your line is now open.

Hi. This is Gopal from Nomura. Thanks for the opportunity. A few questions.

Firstly, you've said that in the first two months of this year you had some revenue stability and uptick in subscriber additions in mobile. So, can we presume that the competition has sort of bottomed out, so this year it should be better than 2016?

Secondly, overall, based on this, how do you expect your mobile segment to perform in 2017, whether in terms of subscriber losses or moderation of subscriber losses, or in terms of your revenue trends?

Thirdly, on the EBITDA outlook. Just trying to understand, what's the risk to your guidance? You mentioned that EBITDA would improve to PHP70 billion. Out of this, around PHP4.7 billion, exclude subsidies and provisions which you think is one-off. But if I have to go back to your mobile again, you had sub losses in 4Q. So I'm just wondering why would you have lower cost in subsidies if you have to stabilize your mobile business in 2017. Thank you.

Just on the first two questions, one on the competition and pricing (inaudible). I think the third-party reports indicating that the third part of 2016 the total industry pie, revenue (inaudible) of the wireless consumer space has actually shrunk. And I think that's reflective of the kind of pricing environment that we have operated in the last -- particularly in the last eight quarters.

Actually, over the last three years, it has been reported to be one of the highest pricing in terms of wireless growth and we're one of the lowest companies to report (inaudible).

To the extent that we see pricing already bottoming out (inaudible) and we take the position that I think the [written] activity that's driving this really is for us to be able to get usage for our data higher. That would also be of (inaudible) and for us (inaudible) bundle our access with (inaudible) other services, so we may be able to manage to gain some loyalty and stickiness to our subscribers and consequently also allow us to achieve revenue if not margin upsell on proposition.

On the second one, the subscriber trends. I guess it's no longer a matter, I think the Chairman and the others have expressed it's no longer a matter of the quantity of the subscriber accounts given the market conditions, the quality of subscribers, and the way we proposition and how we can generate across (inaudible) subscriber base.

On the two-year guidance, Anabelle, you'd like to take?

(technical difficulty) looking at the bridge, you start with PHP61.2 billion, right, which is the (technical difficulty) PHP61.2 billion, right? So if I may repeat myself, home and enterprise would show an increase of approximately PHP8 billion for the year. That's the total bridge of increase.

And the profile of our revenue before international is such that 2017 is actually a momentous year for PLDT because it will be a crossover year, for the year, 51% of revenues, net of international, will be driven by the fixed line business, and 49% by the wireless business, because there's particular focus on fixed because we anticipate that that particular segment would show an increase in the next few years of annually 8% to 9%. And our intention, our plan is to grow (inaudible) and to further gain market share on fixed.

Now, on the wireless side, we indicated that there'll be a slight decline in revenues for the entire year of sub-PHP2 billion, and -- on the revenue side. There'll be some growth in revenue of Voyager. Net-net, the increase in revenue is PHP4 billion or roughly 3% growth in revenue in 2017 compared to 2016, for the year, the first time that PLDT will show an increase in revenue since three years ago.

Now, so where do we get the balance of the PHP4.8 billion? Well, the first instance, we will not show the level of provisions and subsidies we experienced in 2016. That's in [OPSA] and subsidies on handsets. So let's say that it's around PHP3.6 billion for 2017. There will be, in addition, there'll be certain cost-cutting initiatives that will translate net of certain cost increases that are necessary, like the increased maintenance of our network, increased fees payable to NTC arising principally from the acquisition of the spectrum from San Miguel. So, net-net of any necessary cost increases, the decline in cash OpEx will be in the order of PHP1 billion to PHP1.2 billion.

Now, are there further areas of cost cutting possible? The answer is definitely yes. We have not launched our manpower reduction program. We will launch that in due course. And that will translate as well into certain amount of cash OpEx on our comp and then line. There'll be certain one-off expenses as we engage in this MRP which will (inaudible) a cushion from the sale of the Beacon stake.

Did I cover it?

Yes.

Yes.

Now in terms of data, on the fixed line side, in 2016 (inaudible) business already 60% data. And by 2017 it will be (inaudible). And the wireless side is already at 71%, and by yearend -- or by year 2017, be around 40%. So it's clearly moving to the data side and so forth and so on (inaudible) I think that's nothing -- that's not news to you. So.

Now, on the competition side, I think (inaudible) said so we will not continue on the [base sell] price. But Globe puts out it's prices (inaudible) so there's no point in competing a price. But there'll be competition, assuming that that goes away, right, there'll be competition on service, on network, on products, I'm sure Globe will compete in that arena as well. So there'll be competition that will remain as is, and it should be, only to demonstrate to government that this is not a cozy duopoly.

Thank you.

Thank you. (Operator Instructions).

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

Hi, thanks for the opportunity. Just three questions please.

Firstly, on the tax rate, it seems to be quite low at just 9%. What's causing this and how should we view this going forward to 2017?

Second question I had is with regard to the competitive landscape. You suggested growth. I mean, what's changing at this stage for you to drive growth and raise optimism? Is it just merely base effect or are you seeing any changes in terms of the product plans in the market?

Third question I had is with regard to your own targets for the revenue market share. Are you willing to cede more revenue market share in favor of profitability at this stage? I'm actually just surprised that the cut in subsidies are quite significant, and I'm wondering what that will mean going forward. Thank you.

Arthur, I'll deal with the first question, in terms of the low effective tax rate. As indicated earlier, we had booked over PHP5 billion of one-time deferred tax assets to the tax line. So the 2016 tax rate is not the benchmark going forward. And when you look at our normalized tax rate, it will be closer to somewhere (inaudible) of the statutory tax rate, so, 27%, 28% effective tax rate (inaudible).

Is that what we should be assuming for 2017? Or are there more tax benefits?

I indicated you can assume something closer to the statutory tax rate, so, use maybe 27%, 28%.

Got it.

On the competitive landscape, I'll just (inaudible) according to (inaudible). The basis of growth for enterprise is really the requirement of -- rather, the propensity of enterprise, also their IT requirements when it comes to (inaudible) which is (inaudible) where you don't have to (inaudible) the IT elements, so that you can transform your investments in IT on CapEx into an OpEx model, and therefore allow you to free up resources (inaudible) trade on your own core business.

That adoption, as I mentioned earlier, is any research companies, IDC, Gartner are already indicating, but (inaudible) is the first Group that has been growing double digits in the past few years. In emerging markets it's certainly coming (inaudible) positioning ourselves to be the preferred when they do offload their IT requirements and managed services, that we present ourselves to be that partner.

For the home, as I mentioned earlier, there are 10 million homes that are ready and able and can afford broadband. In our experience, we've seen that whenever you get entered into greenfield areas (inaudible) fixed wireless subscription has to be terminated and shift into wired (inaudible). And such is the basis of our growth prospects for the home.

The world is certainly moving into data (inaudible) consumer space and ability to deliver high -- stable, high-bandwidth data service through the Internet has to be (inaudible) as well, not only in the fixed but also in the wireless.

Speaking of wireless, the price points there are quite depressed because we -- competition, stiff competition, actually, that is the point that we are saying. And I mentioned the challenge for us is to (inaudible) look at our market propositioning, general IT, leveraging on analytics so that we could present a better proposition of bundles, of content, and services, along with the wireless access, to be able to allow us stickiness with our customers and with -- hopefully continue to improve ideas.

On the last question, are we willing to cede market share in favor of profitability? I would imagine the answer is [neither].

Sorry, if I can just clarify, because when I look at your revenue momentum for mobile, the contraction has actually been accelerating. I'm just wondering, what makes you think that things will turn around and you can actually post growth in 2017?

Well, it just raised in January and in February, so, I mean there's a host of factors why it's likely that we'll realize a net add, modest as it was, for the first two months. It's a combination of networks, better products and services, the start of data analytics, and a whole host of other factors.

And there's still room for improvement that we need to undertake in the course of the year, maybe even next year, further network improvements, better service delivery platforms, better onboarding experience, better profits and services, et cetra, et cetra. So it's no single factor.

But to say that we cannot do it is something that's really very defeative, right? I mean, why are you saying that we have to give up market share in order to gain profitability? The mandate of management is to gain that market share with better service, without pricing war, and enlarge your market share. That's the mandate. That's what you want to see, right? So is that what you want to see?

No, no, we do. I mean it is quite interesting in terms of development for revenue share. I'm just wondering what changes and trying to figure out --

I just described it to you -- and, you know, on the fixed line side, that has traditionally been seen as a very stale, slow, old man business, isn't it? But in the course of the many months of discussion internally as to how we can improve our fixed line service and network, this is so very evident that people like the products and services that the fixed line network can offer.

It's really quite an eye-opener, even for us. Because the image of PLDT and the seduction that has been built up by the wireless networks is there, you know, persists as a perception of people. But the fixed line business can be a sexy business by itself. And the numbers prove it. The numbers prove it.

Melissa, thank you very much.

Operator, are there any more questions on the conference facility, so we can take questions on the floor?

As of the moment we don't have any questions on queue.

Okay. Any questions from those who are here with us today? There are mics at the center of the aisle.

Good afternoon. My question relates to the trend in the wireless quarterly. Overall, in the full year of 2016 you saw a drop of 9%, but I noticed the quarter figures were on a decline since the first quarter of last year. Can you give a sense of what's happening there? Is it more because of prices going -- is it a matter of prices or is the subscriber base count is still relevant to the dynamic here? Thank you.

I'm sorry (inaudible) the first two quarters was a combination of a lot of things. First, we look at it for number one, the consumer habits changing, moving our traditional business of Talk n Text has been disrupted because over the past three years, providing apps that allow voice and messaging in a different format.

Number two, the availability of -- and affordability of smart devices that will allow such competing applications to be used. And of course, not least, for us the biggest one is really the competitive environment that we have seen.

Now, the first quarter and the second quarter of last year actually still carried with it very aggressive subscriber activity on the postpaid side, to defuse the massive competition on the prepaid. And we might have been aggressive in booking and activating postpaid subscribers on OPSA.

OPSA is the no payment data activation, which we have started to clean up in the beginning -- at the end of the second quarter, beginning third quarter of the year, such that we received a drastic decline in our performance in the third quarter, as much as 7%. Now the 7% decline has moved on to a slower decline of 3% in the fourth quarter.

As I mentioned earlier, the challenge for us is really to hold the line and actually get to the quarter-on-quarter performance that actually -- that does not reflect in holding the line over the past year-on-year quarters, but the most immediate quarter.

And as I mentioned earlier, in our first two months of operations we're seeing some green shoots of encouragement that we're holding line on two counts, both on the revenue side in terms of average throughput of revenues on a daily basis, vis-a-vis average revenue in the fourth quarter, the first two months of 2017, and a slight pickup and as a result of a decline in the subscriber accounts by our (inaudible) you know, small uptick in net gain in subscriber account, albeit small but certainly a step in the third direction.

Sir, clarification. When you mentioned a decline of 7% and then decline of 3%, were you referring to the subscriber base?

No, I was referring to revenue.

To revenue.

Which reflects all the condition, both subscriber and the price.

Sir, are you able to share with us the actual levels of the subscribers?

(technical difficulty) we lost about (inaudible).

And sir, where would this be, Talk n Text or Sun?

Across the board, principally Smart, the Smart prepaid (inaudible).

Sir, is there any specific strategy just to arrest or to hold, as you said, to hold the line?

As I mentioned earlier, we have many strategies. Number one, we have to be organized, get the right skill sets by which to address the complex problems that are facing the market share. That allows us to arrive at (inaudible).

Number two, we have actually refined the brand constitution. Ours is not a simple business. We are managing three brands, the competition is two, by the acquisition of Sun. A simplistic way of looking at this would seem to be to eradicate one of the brands, but that's such not as simple as that. We have taken a long and deep, hard study on the meaning of the brands and we have built a brand constitution from which to grow our business.

Third, the market is saturated, and more and more, we are finding ourselves the necessity of building our capability and leveraging on business data and analytics, business insights by which to approach our core positioning to our market, depending on their ability to pay, the market demographics, their geographies, and which brands they find affinity.

And such is the -- we've hired Ralph Brunner, an analytics expert, which joined us late this year, to join our analytics team. And we are looking at things to meet the market (inaudible) -- late last year, early this year -- the market that's totally saturated and start to employ (inaudible) price competition, we need to be very careful in the way we approach our business proposition.

Thank you, sir.

Thank you.

Any questions?

Questions?

If there are no more questions, we wish to advise that the instant replay of today's call will be available starting today through March 14. Instant replay details are contained in the conference call invitation.

We'll now turn the floor back over to Mr. Pangilinan for closing the [conference].

Thank you for joining us again, and we look forward to seeing you on May 9 -- isn't that Corregidor Day? Bataan is April 9. So Corregidor is May 8. Not a holiday? May 6. You see, I wasn't there. Yes, okay.

Right. Thank you for today and your questions. Thank you.