PLDT Inc (PHI) 2017 Q1 法說會逐字稿

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, and thank you.

Good afternoon, and thank you for joining us today to discuss the Company's financial and operating results for the first quarter of 2017.

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 from our website after the call.

For today's presentation, we have with us Mr. Manuel Pangilinan, Chairman and CEO; Ms. Anabelle Lim-Chua, Chief Financial Officer; Mr. Eric Alberto, Chief Revenue Officer, Mr. Mitch Locsin, Head of SME and Representing Enterprise, and Mr. Renren Reyes, Head of the Consumer Business.

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

Good afternoon, everyone, welcome to our first quarter 2017 results presentation. So for the first quarter of 2017, our consolidated service revenues stood at PHP35.6 billion, that is 7% less than the service revenue year-on-year but only 1% lower than service revenues in the fourth quarter of 2016. PLDT's Home and Enterprise business unit led the way in the first quarter of 2017, posting double-digit revenue increases year-on-year.

Home service revenues reached PHP7.8 billion, up 12% while enterprise service revenues rose to PHP8.5 billion climbing 13% versus Q1 2016. The strong performance of our Home and Enterprise business unit underpinned the increase in our fixed-line service revenues by 10% year-on-year to PHP16.9 billion.

Consolidated EBITDA in Q1 2017 amounted to PHP16.5 billion, 1% less than the Q1 2016 EBITDA.

We managed down the spend levels for subsidies, provisions and cash OpEx compared to last year. With that, our EBITDA margin improved to 44% versus 41% a year ago.

Recurring core income reached PHP5.3 billion, 26% less than a year ago.

Turning to the next slide, which shows a comparison of our results in the first quarter versus the fourth quarter last year, you will see here that on a quarter-on-quarter basis, consolidated service revenues were only 1% lower than the service revenues in the fourth quarter of 2016, thanks to the continued strong growth posted by our Home and Enterprise businesses, as well as the efforts of our wireless consumer group to break the negative momentum and hold the line.

Quarter-on-quarter, fixed service revenues increased by 4% while wireless revenues declined 4%, the wireless consumer business with service revenues of PHP14.7 billion posted a significantly lower rate of decline, down 2%, the difference between the two quarters spanning largely from the first quarter having two days less than the fourth.

Moreover, I would like to highlight that the combined subscriber base of Smart, TNT, and Sun, rose by about 400,000 in the first quarter of 2017.

Consolidated EBITDA was 7% higher than Q4 2016, marking three consecutive quarters of improvement in our EBITDA. This was due primarily to lower provisions and lower subsidies that compensated for the decrease in revenues.

Compared to the previous quarter, recurring core income of PHP5.3 billion in Q1 2017, rose by PHP1.7 billion or 46% because mainly of the higher EBITDA number.

Now, looking at the results of over five quarters, our results in the first quarter are encouraging as this reflects the results of our focus since the latter part of 2016, to stabilize the overall business which involves stemming the decline of revenues and profitability in the wireless consumer segment, while sustaining the upward momentum in the Home and Enterprise segment.

The EBITDA, as we have highlighted, we have seen three quarters of sequential improvement in the EBITDA and our first quarter 2017 is on track with respect to the EBITDA guidance that we are expecting for the year.

Core income of PHP5.3 billion, when you look at it, it's being compared against a relatively high core income of PHP7.2 billion in the same quarter in 2016, but relative to the three other quarters last year, the PHP5.3 billion performance in the first quarter is certainly higher than the core income numbers posted in the second to the fourth quarters last year.

Turning to slide 5, again, this shows a five quarter picture. Home and Enterprise business units posted revenue increases quarter-on-quarter, every quarter for the period that is being shown in this chart, leading to a year-on-year growth of 12% for Home, and 13% for Enterprise.

For wireless consumer, we saw the rate of revenue decline attenuate over the period.

Moving on to the next chart, slide 6. With a double-digit growth of the revenue to the Home and Enterprise Groups, their combined revenues now make up 46% of consolidated service revenues, higher now than the 41% contribution of the wireless individual business of Smart, TNT, and Sun.

Data has underpinned the revenue growth across all the major business units. In terms of the share for business group, data accounted for 66% of enterprise revenues, 61% of home revenues, and 37% of the wireless [individual businesses] respectively.

Now, in the first quarter of 2017, you will see from slide 7, that data, broadband and digital platform revenues grew 11% year-on-year to PHP16.2 billion and comprised 45% of consolidated revenues. On a segment basis, data and broadband accounted for 62% of fixed line revenues and a third of our wireless services revenues respectively.

Mobile internet revenues grew 20% year-on-year to hit PHP4.6 billion, corporate data and data center revenues increased 17% while Home Broadband is up 15% year-on-year.

Now, on slide 8, we show also our revenues by business unit as well as by service type relative to the performance in the fourth quarter and it's worth noting that Home and Enterprise were the ones that showed significant rises quarter-on-quarter over this timeframe.

Looking at slide 9, which is our consolidated EBITDA, while our consolidated EBITDA for the first quarter 2017 was lower by PHP100 million or 1% of PHP16.5 billion vis-a-vis the first quarter 2016, it's actually higher by 7% or PHP1 billion quarter-on-quarter. So as I mentioned earlier, we have seen three quarters of sequential improvements starting from 2Q 2016.

EBITDA margin stood at 44% in the first quarter versus the 41% last year and 40% in 4Q. Fixed line EBITDA margin was 43%, while wireless EBITDA margin was 37%.

With respect to our core income performance shown in slide 10, recurring core income of PHP5.3 billion for the first quarter was higher by PHP1.7 billion or 46% from PHP3.6 billion in 4Q 2016.

Reported income on the other hand, we had to book additional impairment for our Rocket Internet Investment in as of the end of March, reflecting the share price of Rocket then of EUR16. Rocket share price has improved to EUR18.7 per share as of yesterday.

Our first quarter 2017 core income of PHP5.3 billion broadly tracks our full year guidance of PHP21.5 billion.

With respect to our CapEx numbers that is shown in slide 12, we actually booked PHP1.8 billion CapEx or cash CapEx in the first quarter but our guidance for the year remains at PHP46 billion. Underpinning, of course, the revenue growth with PLDT's extensive rollout both on the wired and wireless networks.

So Smart, in particular, has been stepping up the expansion of the coverage and capacity of our LTE and 3G networks to better serve the rising demand for mobile data services. After completing the initial deployment in Metro Davao late last year, Smart brought LTE and LTE Advanced rollout to Metro Cebu and Metro Manila and surrounding provinces.

Under the three-year plan submitted to the NTC, Smart will provide LTE coverage to 95% of the country's cities and municipalities by 2018, using low and high bandwidth radio frequencies, including those obtained through the acquisition of the San Miguel telco business.

Already, Smart's LTE service is posting improved average data speeds according to internal tests particularly where LTE Advanced cell sites are available, and third party [crowd-sourced tests] are also bearing out that Smart is offering the fastest LTE service in the country.

Now, in the fixed line side, the first quarter of 2017, PLDT expanded the reach of its fiber optic network to cover over 3 million homes passed and tracking well towards the 4.4 million homes passed target by the end of this year.

This is supporting the more extensive delivery of fiber to the home services in key urban centers in various parts of the country such as Toledo City, General Santos, and Naga City.

Complementing our stepped up FTTH roll out, PLDT also deployed hybrid finer technologies like G SAT that can deliver fiber like data speeds through the copper wires in homes and buildings under a three-year program.

Now, slide 13 shows our debt profile as of end of March 2017, consolidated net debt stood at $2.7 billion, while net debt to EBITDA ratio was 2.2 times. Our gross debt was $3.5 billion, only 25% of which was denominated in US dollars, compared to 32% as of the end of 2016 following the refinancing of our US dollar bond which matured in March with pesos.

Taking into account our dollar cash and hedges, only 9% of total debt is unhedged. Our overall cost of debt remains low at 4.3%.

Okay? At this point, I will turn over the presentation to Eric and Renren and Mitch, to explain further the business unit performance.

Thank you, Anabelle, as Anabelle alluded to, our 2017 business highlights, the business generated a total of PHP35.2 billion in revenues, cut according to the following, individual, PHP14.75 billion, Home, PHP7.8 billion, Enterprise PHP8.5 billion, International PHP4.2 billion.

The contribution of Home and Enterprise as mentioned by Anabelle, our fastest growing segment, now comprise 52% of revenues having breached the 50% mark late last year, if you exclude our international business. And this is forecasted to grow approximately to 56% of our revenue share by 2019 and shall close in to 60% by 2020.

The combined revenues of home and enterprise at PHP16.3 billion, have again, surpassed individual wireless. Why is this critical? It's critical because of two things, we are looking -- if you look at the wireless business, our outlook for the wireless business, it will remain challenged because of the following factors, the business is way over 100% saturation and penetration -- subscriber penetration level, the disruption of OTT particularly as it impacts the mainstream text and voice revenues shall continue, and the fact that our data pricing moving forward had suffered actually, the impact of highly competitive pricing environment for the last two years.

However, on the other hand, on the fixed business side, there are enormous opportunities and upside for both the home and enterprise business. In the home, there are about 21 million to 22 million homes of which 10 million homes, per our studies, will be wanting of a broadband connection in the home. As it stands today, less than 4 million homes are being serviced, of which nearly 2 million are PLDT broadband connections. Certainly, there is an upside of about 6 million in this space.

In the enterprise space, the many talks about IT offloading and the concept of the cloud where enterprises whether large or SME are actually moving away from CapEx expenditures for their IT elements but rather entrusting these IT activities to a trusted expert partner on OpEx models of the cloud are starting to take faster traction both in terms of cloud adoption for enterprise enabling solutions in terms of data center co-location, hosting and security, and in managed services.

Next slide, the next are just -- itemizes the performance of each business segment, the individual business, wireless business, actual revenues at PHP18 million in the first quarter of 2016 -- sorry, has seen a drop by 18% quarter-on-quarter, the wireless business only dropped by PHP400 million or a minus two decline.

It should be noted that the first quarter is missing two calendar days as against the fourth quarter, and if we factor in these two days, you would see that we have narrowed down the PHP400 million gap to a nearly flat performance indicating that we have held the line.

In the Home business, the home business year-on-year grew by PHP800 million or 12% and quarter-on-quarter by PHP200 million or 2%. Enterprise year-on-year grew by PHP1 billion to PHP8.5 billion or 13% growth, PHP600 million quarter-on-quarter, or 7% growth. Also if you net out our international business, actually, the major business pillars in the first quarter grew by PHP400 million or a 1% growth.

Our international business as expected, actually declined 24% year-on-year on the back of continued disruption for substitution on voice particularly on the IPV, and the 12% or PHP600 million quarter-on-quarter. We shall elaborate on each of the business segments starting with home and I would like to pass the discussion of home to Renren, followed by Mitch, and I will take over to discuss briefly the international and the wireless consumer business.

Thank you, Eric.

I am pleased to report that -- if you go to the next slide, I am pleased to report that Home delivered the strongest ever quarter this Q1, reaching new levels of growth of plus 12% year-on-year with net service revenues now standing at PHP7.79 billion. We continue to buck the industry trend with regards to voice as it continues to grow at plus 6% on the back of bundled services with data, which consequently, is growing at a robust plus 16%, nearly double that of our competitor.

This Q1 growth is on the back of the highest ever quarter growth in subs or subscriptions with 340,000 net additions. A 10% year-on-year growth now standing at 3.77 million subscriptions. Now, if you noticed, there is 12% growth while subscriptions grew at 10% so this also indicates that ARPU has contributed to plus 2% of the growth of the first quarter indicating improved yield with regards to our services.

Now, this is on the back of -- if you go to the next slide, it's on the back of strong demand for fiber, and which is driving wired broadband revenue to plus 20% year-on-year.

This increase in our wired broadband footprint also provided Home with a base from which to increase value or ARPU by offering Beyond Access digital services. Our new premiere content partnerships with Netflix, I Want TV, FOX+, and iFlix have contributed to the growth of video consumption of up to four times year-on-year which will eventually lead to an increase in bandwidth demand for continuous upsell of our subs to higher and higher plans.

We have prepared for this increase in usage and bandwidth demand at home by launching better Wi-Fi modems with the launch of the D-Link gigabit router and this will improve data CX usage in homes, particularly for those with high bandwidth needs and wider reach needs in the homes.

If you go to the next slide, this shows that we are further looking to fuel the growth by successful rollout of PLDT in terms of high speed broadband lines, amounting to 70,000 in the first quarter and up to 110,000 as of this April. And this is significantly higher than that of our competitor at 24,000.

If you look at the impact of that, we started the year at 2.8 million homes passed, and we are now at this time, at 3 million homes passed, well on our way to reach our 4 million homes passed target by year end of 2017.

Q1 also saw the launch of our fiber powered PLDT Smart City program, starting with Toledo City in Cebu, we have gone to General Santos City in Mindanao to Naga City in Luzon, to BF Homes, Merville, Mahogany Place in NCR. As you see, we are actually rolling out whole program aggressively across the different key cities in the nation, which is the start of bringing the best broadband experience all over the country.

So at this point, I would like to turn over to Mitch.

Thank you, Ren.

Good afternoon, ladies and gentlemen, this is Mitch Locsin, I will be presenting our first quarter highlights of the enterprise business. So basically, as mentioned by Eric and by Anabelle, we have sustained our momentum growth, we have had our highest growth ever, 13% year-on-year, and 7% quarter-on-quarter. If you look in the right side of the business, what is important to note is that not only did we grow 13% on the fixed side of the business, but also growing double digit in our wireless business at 15% and 11% in our ICT business.

Next slide please.

So the enterprise business is growing also in the right area, if you can see there, we have a slight dip in our voice and SMS but what is important to note is our data and ICT revenues which has grown by 24%. It also is true to our call as we continue to push our customers to be more data and digital driven enterprises which is 66% representation of our revenues.

On the right side, we are even growing faster than industry. If you take a look -- and naming a few industry verticals that we handle, on the banking and financial institutions, we are growing by 14% compared to the 6% growth of the industry in our outsourcing and BPO group, we are growing by 17% compared to industry percentage at 15%.

In IT games and gaming, we are growing at 20% compared to the 9% industry growth and lastly, our SME Nation Group growing by 10% compared to the GDP of 7%.

Moving on to the next slide, I just wanted to do a quick highlight on our ICT capabilities, as you can see, we currently have already nine data centers across the country, and that gives us almost 9,000 rack capacity in the Philippines. We did our studies with external partners and we are confirming that we have 70% market share of all outsourced data center services and not only that, but we are times three the capacity to the nearest competitor.

As you can see below, we are just happy to announce that we now have an extensive cyber security practice with certified professionals in our group in e-PLDT.

To name a few of the portfolios that we offer, there is risk assessment, this is our cyber security consulting services, there is management and monitoring, this is our managed security services, and incident reporting which is litigation and resolution services on an ad hoc basis with our enterprise customers.

On the right side, we are continuing our pervasive marketing events and branding and partnerships, which to name a few, with Cisco, with Microsoft, with our Voyager company in pushing more e-commerce to the market and this is basically how we have continued to have the momentum of our growth levels that you are seeing today.

So thank you very much, and I would like now to turn it back over to Eric Alberto.

Before I touch on consumer wireless business, I would like to -- maybe it's not in your slide, I would like to touch on the international and carrier business, the mandate there is to manage and squeeze the long tail of such business, but keeping our profitability at its highest, beyond 90% margin.

And we will do so in two ways, we will manage termination rates and optimize unused capacity by cushioning the decline in call volumes to optimal termination rates and good quality voice service such as conference and teleconferencing and calls like that that terminates on the circuit switch.

Second, we are seizing every opportunity to generate roaming revenues by capturing the need to stay connected for outbound travelers through data offers. Three years ago, we launched Surf Abroad 550 a day, eliminating the fear of bill shock by capping the daily charge to PHP550 a day for unlimited roaming.

We supplemented that early this year by two offers, first the Chat Abroad, at only PHP150 a day which is really targeting the younger market, as we limit such data use through very popular applications, Facebook Messenger, Viber, and WhatsApp which is very popular to the younger market.

Lastly, we have also launched in the first quarter, our Travel Wi-Fi which is being well-received in the market, it's actually a Wi-Fi, a pocket Wi-Fi device charged at PHP390 a day within Asia and PHP490 a day the rest of the world, a pocket Wi-Fi particularly suited for people traveling in groups or in families as you can share the data experience with five other devices.

And to page 10, which brings us to the discussion on the wireless individual business, which is still our most challenged business, as everybody knows. As alluded to earlier, the decline in net service revenues last year, down 18% from 17.9% to 14.6%, we know the reasons why. I would like to summarize the contributors of such loss.

Our sub base actually went down from 68.2 million first quarter of last year, to finish at 63.1 million first quarter of 2017. ARPU on the back of severe stiff pricing competition actually slipped from PHP110 to PHP97 in the first quarter of 2017 versus a year ago.

Next page please, however, we are delighted and encouraged that we are seeing evidence that we are holding the line in net service revenues on a day to day basis. Our daily net service revenues are actually, we are seeing a flat performance from a quarter ago levels at PHP164 carried through in the first quarter of 2017.

As we enter the start of the second quarter, our current latest analytics indicate that we are improving and increasing our daily net service revenues by as much as PHP3 million per day, already this May, and from here on, we have 48 more days until the middle of the year or the end of the second quarter to be able to get promos working in our favor.

As such, the green shoots of progress are now starting to take root and we are encouraged by it. In terms of sub count, we actually saw a 400,000 increase in sub count from 62.8 million at the end the fourth quarter 2016 to 63.1 million actually in -- at the end of the first quarter 2017. And in terms of ARPU, we are holding the line in ARPU from PHP100 down to PHP97, but it includes the two calendar days that we are missing in the first part of 2017 brings the ARPU flat at PHP100.

Page 2, we have -- after we had reorganized our team, we had redefined our brand constitution, put in place -- and leveraged on analytics to put in place more granular below the line campaigns across our three brands, Smart, Sun, and TNT, we launched in a national sales convention last April 19, a new anchor messaging to our -- to the market and to our subscribers, a new tagline, Smart, Be There Like Never Before.

This exactly depicts our -- or embodied our commitment and aspirations to deliver the best customer experience like never before with Smart's newest and fastest LTE network.

Our ambition to really lead and deliver to our customers to experience the Philippine's fastest LTE has been validated by Open Signal, that in their most recent report, they indicated that when Smart rolled out its LTE commissions and opens up its LTE services, it is the fastest LTE any subscriber can experience.

While our network, next slide, while our network actually continues its endeavors to roll out -- massively rollout LTE to cover as much as 70% of the population by end of 2017, moving to cover as much as 95% of the population by end of 2018 next year, we are actually supplementing and complementing our ability to showcase our ambition to provide through high-quality network services to our customers by actually engaging various watering holes and food courts all over the archipelago in every town and city by making them Smart spots.

Smart spots furthers our commitment to improve the experience in these public areas as we provide the best Wi-Fi offload experience as well as fortifying our signal, our mobile signal in these watering holes and food courts which are visited by thousands upon thousands of diners and patrons day by day.

We have now rolled out seven Smart spots as we speak which involve 112 establishments, and our commitment is to roll out 70 to 75 of these Smart spots involving over 1,000 bars and restaurants by the end of the year. Our engagement for Smart spots carries a template of partnership over a 24 month period. Next slide, please.

We are also committed to bring our business to Beyond Access, Ren and Mitch had given you their presentations on how the strategy of providing both the home and the enterprise market services that worked off beyond our assets and price, have done wonders for our baseline business and we intend to replicate such strategy in the mobile space which sadly, over the years, have been relegated to just pure price.

We are doing so by -- in order for us to, number one, increase velocity of data usage, and number two, to increase our yields. So we are upselling content and digital services to create more value and demand for data by bundling content -- market relevant content across different market segments in our content inventory with iFlix, Netflix, FOX+, I Want TV, our Cignal, and our TV5 subsidiary affiliations and partnerships as well as the relevant games such as Clash of Clans over to our mobile data service.

And this will allow us to deliver to our millions of subscribers to experience content over improving mobile network capabilities.

That ends my presentation. Back to -- I would like to turn the mic to our Chairman for his closing remarks.

Okay, just a few minutes on the Smart franchise. As you may be aware, the Smart franchise has already been extended for another 25 years under Republic Act No 10926.

The law -- the franchise was signed into law by the president of the Republic of the Philippines on April 21, 2017, it was published in the Philippine Star on May 4, 2017 and will take effect 15 days after such publication on May 20, 2017. Once the franchise is effective, we have to submit our file with Congress, an acceptance of the franchise within 60 days.

Just to go through a few of the salient terms of the amended franchise, the tax provisions of our -- of the Smart franchise has been amended to place Smart at par with the tax benefits granted to Globe under its franchise.

On the listing of shares, Smart is no longer required to list its shares for as long as it is wholly owned by a publicly listed company with at least 30% of whose offered capital stock is publicly owned. As we know, Smart is 100% owned by PLDT and PLDT is a listed company with at least 50% of its outstanding stock held by public shareholders.

There is a requirement for Smart to implement number portability, mobile number portability, but this is conditioned on the issuance by the NTC of the applicable rules and regulations and will take effect only upon the imposition of the same obligations on all other telecommunication franchise grantees.

An equality clause has been introduced into the Smart franchise for the first time, this merely mirrors the equality clause found in the Public Telecommunications Policy Act of 1995. And there is an increase in penalty for the non-submission of the annual report to Congress from PHP500 to PHP1000 per working day of delay but that increase will take effect only if only one or the same increase in penalty has been applied to all franchises.

Thank you.

On the -- just on another matter, on the case of Roy versus the SEC and PLDT, as you may be aware, the petitioner Roy have filed a motion for reconsideration with the Supreme Court seeking the Court to reconsider its decision upholding the SEC rule that governs the determination of compliance with the nationality requirements of stock ownership. This motion for reconsideration has been denied with finality by the Supreme Court by a vote of 8 affirmative votes for denial, 5 against and 2 abstention. So the issue on the SEC rule has been finally determined and as far as PLDT is concerned, PLDT's capital stock complies with the SEC rule.

Thank you.

Okay, this is the last piece of our presentation this afternoon, which is the guidance for 2017, nothing really new since we disclosed the guidance numbers for the full year 2017, EBITDA growing from PHP61.2 billion last year to PHP70 billion this year, CapEx being PHP46 billion this year up from about PHP43 billion in 2016.

Our recurring core income is guided at PHP21.5 billion in 2017 versus PHP20.2 billion in 2016 and we are keeping our dividend payout ratio at 60% of core but we could include calculation of the dividend base any exceptional gains realized in the course of 2017 which has -- that's been our past practice anyway.

So that ends our presentation and we are open to questions.

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

Our first question is from Gopakumar with Nomura. Please go ahead.

Thanks for the opportunity, two questions from me. Firstly, what is the strategy on mobile? So you have cut down the subsidies and this has led to a sharper revenue decline, at the same time, your EBITDA model and overall EBITDA has been slightly better, I mean the decline is lower, so has the focus now shifted to EBITDA and not really much on the revenue market share? That's question number one.

Question number two is can you remind me what is the daily run rate you mentioned on your mobile revenues now? I'm wondering given the voice/SMS revenue decline that you see and also given the fact that this a big chunk of your overall mobile revenue (inaudible), how do you plan to hold the overall mobile revenue stable at current levels without increasing costs?

And thirdly, a question on the CapEx, I'm not sure if it is a timing thing, can you remind me of why your cash CapEx is only PHP1.8 billion of -- would your network roll out also -- would it be back ended or is it just the payments? Thank you.

Maybe I will start, Eric, and maybe Anabelle can chime in. In respect of the first part of your questions, yes, indeed, year-on-year the mobile revenues have dropped quite a bit, part of the reason is that frankly, we were quite aggressive in pushing revenues for the first quarter and that's why in a sense, we suffered in subsequent quarters in the course of 2016 because of NOPSA and the rather large subsidies which we spent in the course of 2016.

But if you look at the revenues quarter to quarter, the fourth -- the first to the fourth quarter last year, the decline has been in the order of about PHP1 billion.

So we anticipate that the delta of the decline, moving forward, in other words, in subsequent quarters this year, would be lower than the PHP1 billion realized from the fourth quarter to the first quarter this year and of course the goal is to eventually improve the increment in a positive way of the mobile side.

A good indication of that is for the first time in several quarters, we have had the net adds in our cellular sites by about 400,000 subs, and the indications for April and early part of May is that we continue to have positive net adds on the cellular sites.

But what I would like to just add is that the significant growth shown by the fixed line business, right, 12% on home and home has grown by about PHP1.5 billion in revenues for the first quarter compared to last year, and enterprise grew by PHP1 billion which is about 13%.

So in terms of the growth of the fixed line business, that has been significant, even voice has gone up, and our number of subs on the fixed line side has grown significantly as well. And in terms of the incremental share of the growth of the fixed line revenues for the industry as a whole, we feel that our market share on that incremental growth is North of 70%.

So I think what we have to really realize is that the wireless side which we said before, in recent months is that the wireless side is likely to be somewhat muted in terms of growth and it's really the fixed line side of the business of the industry that is likely to show, at least on our side, double-digit growth in the foreseeable future.

If you look at the revenue profile now of PLDT, setting aside the international revenues, you will notice that in the first quarter, the sum of the home and enterprise revenues is now greater than the wireless revenues, it's about 41% for wireless and 46% for the home and enterprise. That, in a way, that also flows through the EBITDA margin on the wireless, we have about 37% to 38% EBITDA margin, but on the enterprise as -- for the fixed line, we are about 43%.

In absolute amounts, fixed line is still slightly below wireless with EBITDA for the first quarter of fixed is about PHP7.8 billion, and for the wireless, it's about PHP8.3 billion. And we anticipate that by the third or fourth quarter this year, it will be at least more or less equal to each other, or in fact fixed, if it grows at the rate of about PHP2.5 billion revenues per quarter, it could -- it's likely that it could overtake the EBITDA of the wireless side.

Of course, our job is to continue improving on the wireless side so that overall the effect on our financial accounts would be that much better.

The other questions.

Chairman, just to add to what you said, to just the second question, I think the Chairman alluded to it already, while market share and subscriber count are important, it is not as important as when we are growing the business.

I think at this point in time, what is critical for us is to mine the next 50% of subscribers that are going to onboard data, improve our network to a point that it will deliver quality experience, particularly as we deliver and bundle content. By doing so, we are actually -- our strategy actually is anchored on the fact that we should be able to increase the velocity of data usage and therefore top-ups, and in the process increase our yield through the content that we bundle with the mobile service.

And therefore, we have reason to believe that, given the attenuated but luminous pricing environment, that the business is set towards a more stable, if not muted, growth over time. As the Chairman has just alluded to, the real story moving forward in the medium term is really the right and robust double-digit growth of the fixed line in both home and enterprise.

Third question is about CapEx I think. She'll get that.

Just to answer the question on CapEx, it does reflect a lower cash payment in the first quarter and we expect the numbers to be more back-ended this year.

Thank you. I have a few further questions but I'll come back later in the queue. Thank you.

Thank you. Our next question is from Ranjan Sharma with JPMC. Please go ahead.

Hi, good afternoon, and thank you for the presentation. A few questions from my side.

Firstly, on the home broadband business. You have pretty impressive target for this year of connecting roughly 4.5 million homes. Can we check like what is the availability of those homes, in the sense of, will they be ready for service or you'll need to have more CapEx to connect the customers which are included within that home passed number?

The second question is on the tax. You mentioned that your tax is now more in line with Globe. Can you please elaborate on what that impact could be?

And the last question is that, in the first quarter you have seen some drops in your repair and maintenance expenses. Is this on timing issue or has there been a structural change in the way you're paying these expenses? I'll stop here, thank you.

Thank you for the question. I'd like to address the first question and then maybe pass it on to Ren for his targets on the conversions.

But in terms of home broadband, the 4.5 -- 4.4 actually, million, homes passed target at the end of the year is not actually the connects. It's actually the preparation for us to deliver ports to the homes.

To the question that we -- let me back up. The other year we were at 2.6 million homes passed, we're now north of 3 million homes passed, and the target is 4.4 million homes passed by yearend. To the question, there is no additional CapEx as this is a programmed CapEx for this year.

Now, of those homes passed, there will be ports that will be rolled out and actually connected to the homes, and I'll pass it off to Ren for his target.

So, of that aggressive homes passed target, of course we aim to utilize that as soon as possible. In fact, in the way that the program has been developed (inaudible) business who identified which areas are most likely to take on all the new ports availability. So we're looking at plus 550,000 quarter-on-quarter to add -- from now until the end of the year to add in terms of new subscribers, and that should significantly improve our position to serve our consumers better and for future growth.

But I think on the CapEx question you posed, maybe just to give you a flavor of, at least, the direction of CapEx spending starting this year, Joachim can give you an idea of where we're headed in terms of, say, broadly allocation between wireless and fixed.

Last year we had a peak on the wireless spend, but as we have now, you know, more focused on the fixed, in particular on the fiber rollout, we almost doubled the spend for fiber this year. And in total for fixed, because we also at the same point in time put a lot of investment in our fiber backbone, which is very important for our fiber-to-the-home business, also have to strategically invest going forward for 5G and IoT business. So therefore, it's more than a third of this year's CapEx will go into fixed. And last year it was I think less than 20%.

We missed the second question.

Anyway, there's a greater proportion starting this year being spent on fixed. And actually also an increasing proportion is spent on transport, on the backbone, because we envisage that broadband will become nationwide. The FTTH development will also become nationwide, as Ren starts to propagate this PLDT-Smart cities. So we want to make broadband to the homes available on a nationwide basis in the next three to four years.

Right. Thank you for that. Do you want me to repeat my second question?

The second question?

The second question, just on the tax provision, the immediate effect on the amended tax provision of Smart's franchise is to really make it clear to local government units that we enjoy the same tax benefits as Globe, which is being recognized already by these local government units. So this will help us basically in clarifying now with the authority to the LGUs that we should not be assessed taxes that are exempted under the Globe franchise.

The lower repairs and maintenance cost in the first quarter is principally driven by lower utilities expense, power in particular, but it reflects more efficient consumption as well as lower rates.

All right. Thank you.

Thank you. Our next question is from Rama from Daiwa. Please go ahead.

Hi, good afternoon. Just a quick follow-up, another question earlier asked basically. Could you comment a little bit about the competitive environment on the wireless side? In particular, your churn rate seemed to be going down, while that of your rival's, Globe, seemed to be going up. So, just could you put that into a proper context in terms of what you're seeing on promotions as well as the customer relations? Thanks.

Well, we mentioned earlier that the name of the game isn't so much focused on subscriber speed and acquisition and market share. At the beginning of the year, we actually did a thorough review of our brand constitution across Smart, Sun and TNT, and actually made a clear delineation and differentiation on these brands and what kinds of target markets we would like these brands to have affinity to.

Having said that, we feel that, a couple of things. Number one, the base of -- given the depressed margins and state of the business on the wireless side, the days of massive subsidies are over. That's not sustainable.

And second, the days of above-the-line, non-targeted nationwide campaigns are actually over, which is why we are, in a growing way, resorting to more and more dependency on data and analytics that will allow us a more intimate engagement to the respective different target market demographics as it actually has affinity to our brands, whether it's Smart or the younger market TNT or the entrepreneurial market Sun. And we go through in each of these strategies in a granular way from town to town, city to city.

Maybe just to add a little bit to that, so my take on the competitive environment is actually I think we see more rationality in the market right now. I think we're moving more towards improved services and [CX], and which actually bodes well in terms of being able to deliver better services for the subscriber as we're able to invest in better and better propositioning to our consumers.

Okay. Maybe if I could just rephrase my question. You lost a lot of customers about one to two years ago. So my question is, are any of these customers coming back to your network, from Globe back in?

Certainly. That's our end-objective. As we put more CapEx against the competition, we've put we are spending more, and there's a really serious commitment to improve all our networks. Joachim mentioned the fixed, but also on the mobility side, particularly as we massively roll out LTE, as the next 50% of the market will certainly adopt more data as smart devices fall in prices, and our network actually improves to allow for greater and higher bandwidth use over these wireless networks.

And therefore, it's really a quality game moving forward and a propositioning game. That actually involves beyond access services of not simply just pushing to the market unli voice, unli text and gigabytes.

I think the flow-back is to a degree evidenced by the fact that we grew our net adds for the first quarter by 400,000. As I said earlier, that's the first time in so many quarters where we've had some net adds, for quite a while. And then I think the indications are April and May, is that there is likely to be some net -- some more net adds. So of course, one quarter, two quarters do not make a full year, at least it's positive, and as Eric said, it's clearly the intention to start adding more subscribers to our business, not only in wireless but certainly there's a big push on the fixed line as well on enterprise and home.

Okay. Thank you very much.

Thank you. Thank you.

Thank you. (Operator Instructions).

Our next question is from Arthur Pineda with Citigroup. Please go ahead.

Hi, thanks for the opportunity. Three questions.

Firstly, on the depreciation and amortization expenses, I noticed down quarter-on-quarter, even if you strip out the accelerated depreciation in 4Q last year. I'm wondering why this is the case and where it should trend for the year?

Second question I had is with regard to the business mix between mobile and fixed. How do you see this as changing over the next three to five years? Now it's at a 60-to-40 split in favor of mobile. Would we actually see fixed as bigger? And how will this change your margin composition down the road?

Third question I had is with regard to the tax equalization with Globe based on the new franchise. Any estimate on how much this will actually impact your tax booking, if you were to make it like for like? Thank you.

Arthur, let me deal with the second question. Based on the first quarter results and abstracting from the international revenues, for the first quarter, we -- the sum of the revenues attributable to enterprise and to home are already above the wireless revenues for the quarter, to the tune of 41% for wireless and 46% for fixed, effectively. That percentage has actually been there since the fourth quarter last year.

Now as to the second part of that question which is the margin, on a pure margin basis, Smart's EBITDA margin is below the fixed, which is in a way it's not surprising because the data part of the business of Smart (inaudible) at the moment, lower margins, than it did in terms of in relation to texting and voice. So the EBITDA margin for Smart in the first quarter was about 37%. And for the fixed it was 43%.

In absolute numbers, the fixed side is slightly lower than the wireless side, PHP7.8 billion for the fixed and about PHP8.3 billion for the wireless. But I think as the -- we anticipate that the revenue growth of fixed is likely to be more robust than the revenue growth of wireless, for us and for the industry as a whole. So it is possible, say, by the fourth quarter of this year, that the EBITDA of fixed in absolute numbers would be more or less equal if not slightly above the EBITDA of wireless in absolute terms.

First question.

Depreciation and amortization.

On the depreciation question, Arthur, I guess we did have a booking of over PHP4 billion of accelerated depreciation in the last quarter 2016 and there are also assets, as a result of that, that effectively ended their life. So I think given also the low, relatively low CapEx booking in the first quarter, there's a bit of, I guess, if you may, short term it may look lower but it will actually trend higher as the quarters go on, as the CapEx commitments and payments get captured, eventually [this is the depreciation we expect].

So overall, I think we do expect as the CapEx number is relatively high, that the depreciation expense will actually be [decreasing]. So maybe in terms of a full year outlook, around [32% or PHP6 billion of] depreciation expense.

I think in terms of the immediate impact from that provision, I don't think there will be any significant impact at the financial, in respect to that provision, for now.

Understood. Thank you very much.

Thank you. Our next question is from Varun Ahuja with Credit Suisse. Please go ahead.

Yes, hi, good afternoon everyone. I have a few questions.

First, on subscribers. Your competitor has changed their definition of prepaid subs. So can I just take, what's your churn policy, is it 90 days or 120 days? That will be helpful.

Number two, I didn't hear the answer for the decrease in repair and maintenance cost. If you can provide clarity, why is there a decline in repair and maintenance cost?

Thirdly, is there any manpower reduction cost? MRP plan that you were talking about last year, what's the update on that?

And fourth, on the billing system migration, any update on that? That will be helpful. Thank you.

Well, maybe let me address the manpower reduction. Well, we -- are you based here in Manila or in Hong Kong?

I'm based out in Singapore, Sir.

You're based in -- Hong Kong.

Singapore.

Singapore, okay. Well, the climate for labor -- this government is clearly very pro-labor, and therefore, any sort of measures that affect your headcount must be done with a lot of thought and regard to how the government might react to a significant manpower reduction program. So we have held off partly because of that, also partly waiting for Smart's franchise to be renewed. Now that we bedded down the Smart franchise, which as you know is quite critical to us, so we are very conscious of the pro-labor stance of this government.

Now, that said, we did launch yesterday a voluntary manpower reduction program with PLDT, meaning the fixed line side of the business, and I think by the end of June we should get a number, because that's more or less the deadline for them to signify whether they will accept the package we've offered to them. It's purely voluntary. There's a premium to the contractual benefits they will get upon separation, upon retirement. And we anticipate that there will be approximately 600 people who would accept this voluntary, this offer.

Now I think we've said before, the other piece of it on the manpower reduction relates to the ongoing discussions with IBM. And we've indicated that there'd be a fairly substantial reduction in headcount, assuming we proceed, as I think we will proceed, with the outsourcing agreement with IBM. Again we have to choose the timing, we have to choose the method by which we're able to transfer certain of our people, mostly the IT people of PLDT, over to IBM, or some other structure that might be appropriate, given the current climate on labor.

So we -- the issue of headcount reduction is in front of our mind and we will continue to push it, subject to obviously the environment here in the Philippines.

On the question of the lower maintenance cost, one key driver for the reduction of the maintenance cost is the Sun network shutdown which we did last year. As we merged Sun and the Smart network, we freed up about 1,200 sites. These were shut off mainly during December, so the effect of simply the power savings is enormous and we see that already in the first quarter. We expect further savings by now giving up the sites, which involves some negotiations with the lessors, but we expect during this year some significant savings coming from that angle.

So this is one of the main drivers but we have cost reduction measures, we triggered last year our renegotiation of maintenance contracts, and other cost-saving measures, in particular with regard to power. So that was one.

There was a question about the IT charging (inaudible). We have introduced last year a major platform upgrade for our Smart customers and we have seen a lot of benefits coming out of that, not only in stability but also in availability of features. But this is only a first step. We are in the middle of going a second, where we consolidate all charging platforms and going to a very modern end-to-end digital charging (inaudible) which will happen within the next 18 months.

I think the first question relates to the [churn] subscriber (inaudible) policy. So we expect to, the prepaid subscriber numbers, we have the policy where a subscriber from -- who stops topping up, we'll still give the opportunity for the subscriber to, I guess, reinstate themselves within 120-day period after last top-up. And then the churn happens at 120 days.

So that's been the way the industry has (inaudible) prepaid subscribers for so long. But we do recognize that our competitor recently changed their policy to change the 120-day reckoning point to a 90-day period. So we, I guess, we'll review that and see whether we will conform to that change or not. We'll make a decision about that when we announce the second quarter results.

But we've done our own calculations, so that would mean, if we do it on a 90-day basis, that would mean a nominal reduction of our subscribers, from 63.1 million, by 4 million, so, 59.1 million. So we'll still be slightly ahead of Globe in terms of subs count, on a 90-day basis. Not that, frankly, it matters much, but those are the numbers.

I think one last addendum on this company's manpower reduction, I think clearly we are -- there's a big push to reduce cash OpEx in the course of the year, and one big component would be the effect of any manpower reduction program. But there are three or four others that we're looking at. The two major ones are the subsidies, you've seen our subsidy drop by something like PHP2 billion just for the first quarter, so that has helped the EBITDA margin and the EBITDA number as well.

Number three are the so-called [Nocsas] which have declined in the first quarter, and I think will continue for the next two or three quarters some more.

So the various components of the cash OpEx had been examined, examined, and I think we can achieve a fair amount of reduction in our cash OpEx in 2017.

Thanks, this is really helpful. Just two follow-ups. Given the pro-labor stance of the government, once you've taken (inaudible) workers, about 10,000 and something, that PLDT has been [flagged with]? So, wanted to hear, what's your view on that front? Do you have to take it onboard? What -- any more details on that that will be helpful?

And lastly, on tax rate, is it -- this quarter was 30%, I didn't hear the comment. Should we expect the tax rate to increase to 30% for the full year? Thank you.

I think we need to put in better context the earlier statement or pronouncements made by the DOLE Secretary regarding his view that PLDT will -- should be required to absorb 10,000 workers.

The latest statements from the DOLE appears to indicate a more moderate tone insofar as this whole issue about contractualization is concerned. The President of the Philippines as well as the DOLE Secretary made it very clear that, whilst they still remain strong in terms of making sure that contractualization is governed properly, they also recognize that contractualization cannot be eliminated completely because of its significant impact on the national economy.

Having said that, they also indicated that they will review all of the hiring and outsourcing arrangements of many companies, not just PLDT and Philippine Airlines, who were first named. And we'll make sure that the proper laws and regulations are followed.

Now in this respect, we have to clarify that the main issue that has been raised with respect to PLDT in particular, and also to a certain extent, Smart, is the fact that some of the outsourcing companies that have -- that PLDT and Smart have been using may not have complied with the applicable labor regulations.

In a situation like that, the consequence would actually be to penalize the outsourcing companies and, on our part, require that they comply strictly with the labor requirements and labor standards. The consequence is not -- will not result in essentially making PLDT and Smart absorb the employees or workers of these outsourcing companies who have been assigned to do work for PLDT and Smart.

One must understand that outsourcing contracts by PLDT and Smart do not speak of the assignment of warm bodies on a per head basis. It is actually based on performance against certain key metrics and performance parameters. So it depends really now on the outsourcing company acting as an independent contractor to determine how many people they would deploy in order to meet the set of standards and KPIs that we impose.

Viewed in that light, you can already see that there would be no legal basis or reasonable basis to require PLDT, or any other company for that matter, to absorb 100% all of the companies that may have been assigned by the various outsourcing companies to work for jobs that have been outsourced, or services that have been outsourced by PLDT. So that's the situation right now, and obviously we will keep the public and the investors posted on more recent development. Thank you.

Thank you. Our next question is from Tien Doe with GIC. Please go ahead.

Hi. Good afternoon. I've just got two questions.

First of all, could you comment on competition on fixed line broadband? Your competitor seems to highlight that as rising incrementally in the last quarter.

Could you just speak up please? We can't -- you're coming in very faintly.

Sorry. Yes. Sorry.

First of all, the first question is just on competition on fixed line broadband. Could you comment on that? Your competitor seems to suggest that that has incrementally increased in the first quarter. I'm just wondering whether that's your view as well.

The second question is just on the piece of news flow today that the PCC I think issued a statement saying that it will be unwise for you and Globe to issue the final payment to San Miguel. I'm just wondering whether you would have a comment on that PCC statement as well. Thank you.

Well, Ren can answer the home broadband. I guess you're referring to the home broadband.

So with regards to the home broadband competitive landscape, so what we actually see is there is a lot of activity in terms of getting more subscribers into the home broadband industry. But with regards to the competitiveness or, in a way, what competition you're alluding to, it is actually not true. So if we actually look at what PLDT is responding to, we are just responding to whatever competitive activity has started from their side.

Truth to tell, our margins actually for the period covering the first quarter vastly improved. So there was -- there is certainly no price, how do you call it, price stress, downward stress on that point.

I think if you look at it from a broader picture, we -- the growth of our home business, particularly home broadband, has been double digits, right, at, in totality, 12%, and voice, and more so data, have grown significantly in revenue terms. I don't think that they are close to us in terms of growth. And if I recall correctly, we grew by PHP1.5 billion on the home side and we have taken about a 78% share of market for the incremental growth in revenue on the home side for the first quarter alone, right?

So I think it can be attributable principally obviously to the marketing push we're making on fixed in general, and of course the network of PLDT being traditionally a fixed line company is there, in terms of coverage, efficiency, and availability.

On the enterprise side, we have grown by 13%. It's hard for us to discern what the pure enterprise revenue of Globe is for the first quarter. We tried to drill down and find out what their enterprise revenue was, at least in relation to how we define our enterprise revenue, and we can't seem to quite see it. So, but, you know, our enterprise revenues grew by 13%, which is an historic high for us, and I'm fairly certain that we have taken the lion's share of the market in the first quarter in respect of the incremental revenues arising from the enterprise business.

Mr. Chairman, just to add, as reported by Mitch earlier, our data (inaudible) the first quarter actually grew by 24% on the enterprise side. Lacking a full spectrum of the breakdown of the competition, in their report, their quarter-on-quarter corporate data, only in corporate data, was negative 1%.

On the PCC statement, well, it's unfortunate that PCC made that statement today, because the Court of Appeals has actually issued a preliminary injunction against the PCC that prevented from interfering and impeding the full implementation of the transaction with respect to the San Miguel telco assets. The Court of Appeals has also imposed a gag order on the PCC, which it seems to have violated, that actually prevents them from discussing in public the merits or demerits of the case pending before the Court of Appeals.

But obviously the PCC is using the filing of -- its filing of a petition before the Supreme Court to make this statement. Now the PCC petition before the Supreme Court requests the court to basically enjoin or lift the preliminary injunction issued by the Court of Appeals, and at the same time, to enjoin the PLDT and Globe from making the final payments to San Miguel.

But as of today, no order has been issued by the Supreme Court preventing or prohibiting us Smart and -- PLDT and Globe from making the final payments under the contract with San Miguel. And so, unless and until there is an order from the Supreme Court that prevents us from doing this, we are constrained by the terms of the contract to comply with the payment schedule which is set to fall on May 30 of this month.

Also as a practical matter, there is a Standby Letter of Credit that backs up the final -- final payment already, Anabelle, right? The final payment. So it's there, it's outstanding. And I'm sure San Miguel will draw on that SBLC.

As this thing gets delayed and delayed, the decision, I'm sure both ourselves and Globe continue to use the frequency -- frequencies, and add subscribers to those frequencies. So, again as a practical matter, I cannot see how the government could unwind the use of those frequencies and disenfranchise millions of subscribers out of those frequencies. It's just inconceivable that they would do that.

Okay. Great. Thank you very much.

Thank you. At this time --

Are there any more questions?

There are no more questions on the line.

That's all the time we have. A replay of today's call will be available starting today on through May 19. Instant replay details are contained in the conference call invitation.

I'll now turn the floor back to Mr. Pangilinan for any closing comments.

Thank you for joining us this afternoon. And I'd like to -- I'm quite pleased, taken in the round, about our performance for the first quarter. Obviously there are issues that continue in respect of the wireless business, but clearly the fixed line business is motoring ahead in a significant way. And we want to keep it that way. And when we report our second quarter, first half results, sometime early August, we would hope to report a better number -- better numbers all around.

So we look forward to talking to you again sometime early August. And in the meantime, have a good weekend.

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