PLDT Inc (PHI) 2017 Q3 法說會逐字稿

Good afternoon, and welcome to the PLDT conference call. This conference is being recorded, and the details are indicated in the conference call indication 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 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 first 9 months of 2017. As mentioned in the conference call invitation, a copy of today's presentation is posted in our website. For those who've not been able to do so, you may download the presentation from www.pldt.com, under the Investor Relations section. A podcast of this briefing will be available from our website after the call.

For today's presentation, we have with us Mr. Manny Pangilinan, Chairman and CEO; Ms. Anabelle Lim Chua, Chief Financial Officer; Mr. Eric Alberto, Chief Revenue Officer; Mr. Joachim Horn, Chief Technology and Information Adviser; and Mr. Doy Vea, CEO of Voyager Innovations as well as other members of the PLDT management team.

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

Good afternoon, everyone. We'd like to start our presentation of our 2017 9-month results. Our consolidated service revenues for the 9-month period stood at PHP 107.3 billion. Though it's 4% lower year-on-year, our service revenues are trending encouragingly. Notably, our third quarter service revenues of those of the same quarter last year at PHP 36.1 billion, and it's actually 1% higher versus second quarter.

PLDT's Home and Enterprise business units continued to lead the way during this 9-month period, posting double-digit revenue increases. Home Service revenue grew 12% to PHP 24.3 billion, while Enterprise Service revenues rose 11% to PHP $25.3 billion. The strong performance of our Home and Enterprise business units underpin the increase in our fixed line service revenues by 11% year-on-year to PHP 51.9 billion.

Consolidated EBITDA in the 9-month 2017, reached PHP 49.1 billion, 7% higher than the same period last year. We managed down the spend levels for subsidies, provisions and cash OpEx by PHP 10.2 billion compared to last year. Considering that we booked PHP 1.6 billion in manpower reduction or MRP costs this year, our normalized EBITDA would be PHP 50.7 billion, which would actually be 11% higher than the same period in 2016; and our EBITDA margin up at 45% versus 38% a year ago.

EBITDA for both Fixed and Wireless businesses are higher year-on-year. EBITDA for our Wireless business is up 5% year-on-year and EBITDA for our Fixed Line business is up 18% ex MRP.

Consolidated core income amounted to PHP 23.2 billion for 9 months 2017, 7% higher than last year's figure. Both periods included gains on asset sales, particularly our shares in the Beacon and Morocco, with the gain being higher last year than this year. Nonetheless, this year, we also reflect a PHP 1.4 billion gain from the sale of SPi. Recurring consolidated core income, excluding the impact of the asset sales, MRP expense and some accelerated depreciation reached PHP 17.4 billion, 5% higher than last year.

Looking at Slide 3, our quarterly financial results over the last 7 quarters. We are pleased to report good trends across the various metrics. Our consolidated service revenues started to show sequential quarterly improvement. And 3Q '17, in particular, reflects stable service revenues versus the same quarter last year and is notably 1% higher than 2Q '17. In fact, if we exclude ILD and NLD, 3Q showed a quarter-on-quarter increase of 2% and a year-on-year increase of 2% as well. The first quarter this year, showing a year-on-year increase. We attribute this to the continued strong growth posted by our Home and Enterprise businesses and the efforts of our Wireless Consumer group.

In terms of our consolidated EBITDA, there has been a consistent sequential improvement in our quarterly EBITDA, rising from PHP 14.2 billion in 2Q 2016 to PHP 17.2 billion this quarter.

Recurring consolidated core income stood at PHP 5.5 billion in Q3 '17 and gives us confidence that our 2017 core income guidance will be met.

Moving onto the next slide, we show you some additional slides of our results over the last 7 quarters. The Fixed Line business, in particular, is very impressive, showing positive quarterly trends over the period consistently for both top line and EBITDA performance. As such, Fixed Line revenues increased 11% over last year for the quarters, while EBITDA is up even higher at 18% over last year for the 3 quarters.

Next slide, for our Wireless segment. We saw the revenue declines arrested, with 3Q now stable versus 2Q. And Wireless EBITDA improvements over the quarters due primarily to lower provisions and lower subsidies that compensated for lower revenues. EBITDA for the Wireless business is up 5% year-on-year, notwithstanding the drop in revenue.

Slide 6 and we show the revenues on a business unit basis, and you can see here that our Home and Enterprise business units posted revenue increases quarter-on-quarter leading to a year-on-year double-digit revenue growth.

For the Wireless Consumer business, we saw an upturn in second quarter revenues over 1Q after 4 quarters of attenuating the revenue decline, while our 3Q results are hobbled by seasonality and other extreme events. Mr. Alberto will talk about these specifics of these business units later.

Looking at our revenues from a service type perspective, you see that Data, Broadband and Digital Platform revenues grew 11% year-on-year to PHP 49.6 billion and comprise now of 46% or the largest portion of our consolidated revenues.

On a segment basis, Data and Broadband accounted for 62% of Fixed service revenues and 36% of Wireless service revenues, respectively. Mobile Internet revenues, in particular, grew 17% year-on-year to PHP 14.7 billion; home broadband revenues grew 16% to PHP 14.9 billion, and the increase represents 71% of the total industry growth. Corporate data and data center revenues increased 16% to PHP 14.5 billion, with the growth accounting for 87% of the total industry growth.

Slide 8. We show here that with the double-digit growth of the revenues of Home and Enterprise groups, their combined revenues account for 47%. Consolidated service revenue is higher than the 41% of the Wireless Consumer business of Smart, ePLDT, and Sun.. Data has underpinned the revenue growth across all the major business units. It represents 62% of Home revenues, 63% of Enterprise revenues and 39% of the revenues of the Wireless Consumer business.

On the next slide, we show how we were able to improve our consolidated EBITDA for the 9-month period up to PHP 50.7 billion, which is 7% higher than 9 months '16. The improvement in EBITDA was largely due to more rigorous management of our spend for subsidy OpEx provisions. For the third quarter standalone, our EBITDA came in at PHP 17.2 billion, which is 15% over the EBITDA in the same quarter last year.

Turning on to the next slide. Our consolidated core income for the 9-month period on recurring basis stood at PHP 17.4 billion, higher by 5% year-on-year due to higher EBITDA and higher equity earnings. With the benefit of the gain on our Beacon and SPi sales, net of the nonrecurring MRP costs in 2Q and accelerated depreciation in 3Q, our 9-month core income came in at PHP 23.2 billion. This represents a 7% improvement over the same period last year and also accounts for 54% of total industry growth.

As of the end of 2017, last September period, our consolidated net debt stood at USD 2.8 billion, while net debt-to-EBITDA improved to 2.19x. Gross debt, which are USD 3.5 billion, only 21% of which are denominated in US dollars. And after taking into account our cash and hedges, only 9% of total debt is unhedged. 92% of our debt are fixed-rate loans post our interest rate swaps.

The receipt of our PHP 14 billion proceeds from the Beacon share sales during this period helped cover the final payments to SMC for the VegaTel acquisition as well as part of our dividend payment.

At this point, I'll turn over the presentation to Joachim, to talk about some of our network initiatives.

Good afternoon. The year 2017 is characterized by a significant increase in rollout activities. On the fixed network site, in support of the tremendous growth our business is able to realize, we have pushed the envelope in terms of rollout of homes passed and fiber ports. We are on a good way to achieve 4 million homes passed by end of this year. Just to remind everybody, by end of last year, it was 2.8 million homes passed, so we add this year 1.2 million. In ports, this means we will probably achieve, by end of this year, 1 million ports. Currently, we are already at 880,000 cumulative ports. And that's a threefold increase of rollout of ports compared to last year. This year, we rolled out almost 500,000 ports.

This also means that the total number -- kilometer of fibers rolled out will be about 38,000 by the end of the year. Currently, we're at 165,000 fiber kilometer already. By the end of the year, we will be at 177,000. The network projects are all over the country. Some focus areas are East and South Metro Manila. We added a couple of fiber cities like Naga. We added Kavita as what we call the Smart Province. And we were active in both Bonifacio Global City, Rockwell and in Mindanao.

Another focus area for this year is to make sure that our copper customers enjoy fiber-like speeds. For that, we have already started, a while ago, our V-fiber technology push, which means that we will upgrade, over the next 2 years, all of DSL ports with fiber-like speeds, which means speeds of 100 megabit and above, technically possible up to 400, by using technologies like VVDSL and G.fast.

On the Wireless side, we also significantly increased the rollout this year. We doubled the number of sites which have LTE. And we are on a good track to achieve the commitment given to NTC of 90% mobile broadband coverage of cities and municipalities in the Philippines. We are today already at 89%. And by doing so, we also utilize significantly the spectrum we have taken over from SMC and VegaTel, the 700 megahertz. We also use 1,800 and also the TBD spectrum is significantly being used.

As we do that, we just have started to roll out another technology push on top of our LTE efforts. And this is a new technology which is good for carrier application. That's a world-class technology we had already tried for a while in Boracay and just have completed the rollout in a part of Metro Manila called Marikina where we have upgraded all the sites there with this technology. And we can already, in a few weeks, see that the data consumption has increased by 15% in just a few weeks. And overall, the KPIs, which users enjoy, have been significantly stepped up.

This technology will provide not only substantial more capacity for more customers using LTE and high-speed technologies, it will also provide higher speeds. The typical speed will be triple digit, 100, 200 megabit per second, technically possible is up to 350 if you have the right device. And that will be all over in Marikina, not only on single sites.

Marikina's the start. The next city in Metro Manila we are targeting is Quezon City, which will start next year and the rollout will take about 2 quarters.

We will also continue to use other technologies to provide better speed and better throughput, for example, 256QAM and 4x4 MIMO.

On the next page, you can see our CapEx. CapEx, we have guided already last time for about PHP 38 billion this year. There were questions about why don't we reduce CapEx. As a matter of fact, the number of projects underway is much higher, about PHP 15 billion higher. And that's also documented by the performance on ground. As I said before, we have tripled the number of ports we will distribute compared to last year. We've doubled the number of fiber kilometers we've built compared to last year. And we doubled the number of sites which contain LTE compared to last year. So a significant increase in performance. The fact that it is not necessarily visible today in the CapEx is just a timing issue.

All our efforts are also being confirmed by external benchmarks. And I want to relate here, in particular, to the OpenSignal benchmark, which, again, published its report. And for a number of times in a row now, they have confirmed that we've built an excellent LTE technology. We are significantly better in throughput compared to our competitor here in the market by a large margin. But it's not only for LTE. If you also look to 3G, also there, we are now on a lead nationwide, and we will continue our efforts to push the envelope here, and not only in the areas where we have built LTE today, but to make sure that LTE becomes available all over the place.

And I hand over to Eric for the business unit updates.

Good afternoon, I'd like to put some details about (inaudible). I'll start with our Q3 earnings (inaudible). We finished the quarter with turnover of PHP 35.7 billion. Contribution of Home and Enterprise, PHP 8.5 billion each, total of PHP 17 billion; our Wireless Individual business, PHP 14.6 billion; and our International business, PHP 4.1 billion. It is important for me to highlight that the contribution of our Home and Enterprise of PHP 17 billion now comprise 54% of our revenues, from 52% per last reported in the second quarter. It excludes our international and Voyager revenues.

Sorry? Oh there's the mic. Sorry about that. Sorry about that. We had some passing of the mic, here.

Moving to the next slide. Our service revenue net of interconnection cost quarter-on-quarter, over the 7 quarters, I think this is a relevant slide by which it depicts that we're moving in the right direction towards stabilizing the overall business.

In Q3, we registered PHP 35.7 billion, which is nearly PHP 0.5 billion more than Q2 of PHP 35.2 billion and matching that for same period last year. Again, as mentioned earlier, at the forefront of that increase is Enterprise and Home, delivering double-digit growth while we're trying to keep our -- both our Wireless and International business under management.

More specifics on the Enterprise business. Right? Double-digit growth in Enterprise, PHP 2.6 billion increment, 11%, driven by Fixed Line business and the Enterprise growing 10%, or contributing PHP 1.75 billion. Our Wireless Enterprise business growing at 11%, delivering an incremental PHP 350 million in the revenue picture. And our ICT business growing at a healthy 23%, delivering PHP 440 million increment in third quarter of 2017 versus same period last year.

We are growing where it matters the most and in the right places. Data -- our data -- Corporate Data business has grown to PHP 16 billion, reflecting 15% growth or over PHP 2 billion increment over the period of third quarter '17 vis-à-vis the same period in 2016. Noteworthy, I think our competitor reported less than half of our base, at 7.6 and their growth -- our growth rate is nearly 4x theirs.

Our voice and SMS, very stable, finishing at nearly PHP 9.3 billion in the third quarter, reflecting a 6% growth over last year or about PHP 520 million increase.

Next slide. Some of our highlighted activities in Enterprise Business in the third quarter actually hallmarks our continued efforts to be able to lead in the market and Mindshare and Mindshape in the enterprise market, particularly covering our key active markets and the BPO transport public sector, banking and retail industry sectors as well as our continued alliances in partnership with such global leaders as Cisco and BT. In this particular slide, we launch high-definition video con and high-definition voice teleconferencing solutions, respectively.

Moving onto our Home business. Again, double-digit growth, 12%. In the third quarter of 2017, it settled at PHP 24.3 billion versus same period last year of PHP 21.7 billion, driven by Data. And our Home Broadband Data growth at PHP 15.1 billion is a 16% improvement over last year, reflecting a PHP 2 billion increment in revenues. Comparatively to the competition, we are nearly 30% bigger in base in terms of Home Broadband business of PHP 15.1 billion, and growth rate of 16%, certainly, doubled than the reported 8% of the competition.

We added 408,000 subscriptions over the comparable year-on-year third quarter period, by about 408,000, resulting in 11% year-to-date growth.

Critical to our continued leadership in the Home business space is that we lead in the fiber infrastructure Joachim mentioned and I just want to repeat some of the -- highlight some of the things that he mentioned, as it pertains to our Home business.

We now have -- we are moving -- closing in on 400,000 fiber subscribers towards year-end. Leveraging on 1 million ports that are already installed. Over -- that's 3.7 million homes passed, leveraging on our 165,000 kilometer fiber optic network nationwide.

We are vigorously pursuing beyond access strategy, being a -- the legacy provider of broadband through DSL in this country. We have 1.3 million subscribers on legacy copper DSL, which we are aggressively migrating towards fiber service over the next 2 years. And we have earmarked PHP 11 billion to do this activity. By doing so, it improves our ability to up-sell beyond access services, particularly our signaled over fiber service. That will allow us to double or even triple our ARPU opportunities as we bundle Cignal over fiber broadband speed environment.

The plans over our Cignal bundled broadband over fiber services (inaudible) the vicinity of anywhere from 1 8 to 3 5, departing from the base ARPU of about 1 2 9 9. Add to that there is a growing and expanding demand for security home solutions with FAMCAM PLUS where our PLDT Home have collaborated in convergence with our PLDT Enterprise, leveraging on our host of managed services and data center and cloud storage capabilities.

Next slide. Addressing the aggressive strategy to provide home with broadband services in areas where our fibers do not reach, we are introducing Smart Bro prepaid LTE home WiFi leveraging off our LTE network. This allows us to actually reach the underserved markets and the home opportunities outside of the peripherals of our fixed fiber footprint as we roll out fiber -- continue to roll out fiber, as Joachim alluded to, in an expanding fashion all over the country.

Moving to our Wireless business, which is our challenged business. Our net service revenues slipped by 2%, down by about PHP 250 million from PHP 14.8 billion to PHP 14.6 billion between the period second quarter to the third quarter of this year. The business over the period of the third quarter suffered impact of one-time deflators, namely 3 long weekend holidays in the third quarter, some force majeure events, earthquake in (inaudible) as well as the war in Marawi as well as our heavy one-off network and back-end platform downtimes.

Next slide. Joachim made mention for incremental new 4,000 base station rollout (inaudible) which translates to improving customer experience. The latest third-party OpenSignal report of September 2017 indicates that for our new rollout of 3G and 4G capabilities, that we have to deliver better experience over such networks and which will trend it down to the 4G LTE network capability that leads up to the wireless where our banded throughputs actually are recorded to be far better than competition.

Next slide. We have actually have invigorated our Sun brand with the project, Sunrise, by putting our Sun brand and positioning Sun LTE SIMs over areas where we have rolled out robust LTE network and have to be -- we're moving towards aggressive campaigning of data offers and new campaigns -- on ground campaigns for this brand. 3 weeks ago, we launched a strong campaign led by credible endorsers, led by Vic Sotto for Sun brand and giving prepaid offers but are actually ARPU-enhancing for data service.

As a last point, as our network colleagues roll out and switch out higher capacity LTE -- 3G and LTE facilities in various parts of the geographies in the country, we are matching that with aggressive air coverage through advertising and as well as on-ground campaigning to push enhanced offers and allow us to up-sell beyond access services and offer (inaudible) device. I alluded to the Sun activity, but we're also doing it as well to our Smart and TNT over data -- aggressive Data propositions and advertising and on-ground campaigning.

Going beyond the access by bundling this with Iflix, Netflix, iWant TV, YouTube programs and soon the (inaudible) as well as bundling our data services with games, notably, the very popular EverWing for the youth. And last but not least, we are actually leveraging our offers and spicing up our offers with new devices, but they'll be coming from such desirable and much highly aspirational new devices coming out from Samsung on the S8 and Note 8 smart devices, Huawei's Mate10, and towards the end of the year, the new launches of Apple for Apple 8 and Apple X.

May I turn over the floor to Doy to discuss our Voyager business?

Thank you, Eric. Good afternoon. Allow me to give you an update on Voyager's businesses, primarily focusing on our leading platforms, which are PayMaya and FINTQ.

First of all, on PayMaya. PayMaya continued its leadership as the leading nonbank payments company in the Philippines, offering the widest range of payment services, from issuance of e-wallet accounts to consumers, payment solutions to our merchants and remittance services. To elaborate, we are now at the level of 8 million accounts, combined PayMaya and Smart Money as of end of the third quarter 2017. PayMaya is the most pervasive and available wallet across channels, that includes mobile, social, virtual and physical, and covering form factors such as QR and NFC.

We continue to be the prepaid payment app and wallet of choice for the millennial market. We are the preferred disbursement platform and part of choice for local government units, enterprises and schools. We call this the C4 program, cashless, cities, company and compasses. We're also the largest mobile payments acquirer in the Philippines (inaudible) chance to accept card payments online and offline, not only PayMaya cards but Visa, Mastercard, JCB cards as well.

Our customers in this business includes companies such as Lazada, Zalora, Philippine Airlines, Cebu Pacific, McDonald's, Meralco, Domino's, Smart, MPTC and other large corporations. Also the leading mobile money remittance network in the Philippines with 15,000 Smart Padala money-in, money-out agent centers. For the year, we'll be processing around PHP 80 billion to PHP 90 billion in this business.

For FINTQ, the other half of our financial services business. FINTQ is now focused primarily on lending, but we are, as well, starting to develop and offer other platforms, such as micro savings, micro investments and micro insurance. More details later.

First on lending, just to give you some ideas of the magnitudes. We have processed around PHP 25.2 billion in our lending platform. We don't take credit risk. We are a platform that allows borrowers and lenders to meet and transact. We have around 176,000 loan accounts. And we now service 15% of all salary loans in the Philippines through our platform. More on profile -- on the profile of this business, we cover 100% of all the provinces, 91% of all the cities, and 7 out of 10 borrowers are from the provinces.

We have other loan variants about to be launched. That includes loans for overseas Filipinos, loans for agriculture, truck loans, SMEs and other personal loans aside from salary loans.

We're also leading in development of pioneering -- other pioneering platforms aside from lending. And this includes the following: first, we have our micro investment platform that's called INVSTR. Under INVSTR, you can buy UITFs and bonds at the level of PHP 50 a week.

In -- The next one is Saver. It is a microsaving platform where you can deposit PHP 10 -- as low as PHP 10 to your savings account. Sure-Lite is our insurance -- micro insurance product, wherein you can obtain insurance coverage of as low as PHP 10,000 for accidental death, and for premium as low as PHP 5.

Now to distribute all of these micro financial products, we have started a movement called Kasama Ka, which is supported by the Bangko Sentral ng Pilipinas, the SEC and the league of barangays in the Philippines. This enables Filipinos to be themselves, our agents to sell our micro financial products. That's FINTQ.

Aside from FINTQ and PayMaya, Voyager operates other platforms that completes the ecosystem, allowing digital commerce payments and things to operate seamlessly. So in terms of marketing technologies, we operate platforms for sponsored data, insights, rewards, loyalty and APIs. These services are used now by around 300 enterprises, including Unilever, Ford, Shell, Meralco, Transcom, Security Bank and other big corporations.

We also have a digital commerce platform, not a stand-alone one, but part of our digital economy ecosystem building. And what we have here is our SMEs, out of the 1 million SMEs that operate in the Philippines, only 1% are online. So we make it easy for all these SMEs to be onboarded and do digital business.

Other than SMEs, we also allow our platform to be used under a Platform-as-a-Service model by large corporations like Robinsons Mall, ShopTV, MyPhone and Philippine Airlines.

So that sums up the Voyager presentation.

This is the final part, the guidance for the full year 2017. I think the numbers have been announced earlier. But just as a recap, on the EBITDA side, we're guiding our latest estimate for full year EBITDA at PHP 68 billion, an increase of PHP 6.8 billion from the PHP 61.2 realized in 2016.

We've met our targets on the Home and Enterprise revenues and in terms of the reduction of costs, both cash OpEx and provisioning for the year. But I think we are likely to undershoot a bit revenues on the sales side of our business, hence it's PHP 68 billion, instead of the originally guided PHP 70 billion for the full year.

Now on account of a higher EBITDA anticipated for the full year, recurring core income will be at PHP 22 billion. We're guiding that at PHP 22 billion, slightly higher than PHP 22.5 billion -- PHP 21.5 billion rather, we originally said at the start of the year. Including asset sales or exceptional items, like the sale of Beacon shares and the sale of SPi, our core -- reported core income will be broadly similar to the reported core income last year, which leads me to the dividend payout.

We're maintaining our regular dividend payout policy of 60% of the reported core. So that will be 60% of the higher number -- of a number higher than PHP 22 billion recurring core that I recently mentioned.

Now in terms of CapEx, I think Joachim said earlier that the CapEx to be completed within the year 2017 will be in the order of PHP 38 billion. There are about PHP 15 billion of POs issued outstand -- issued and outstanding, which will be mainly completed in 2018. So in terms of the commitment that the group has made for CapEx within the year, it is in the order of PHP 53 billion, PHP 38 billion of which will be completed within the year.

So this now completes our presentation.

We're now ready to take questions, operator.

(Operator Instructions) Our first question comes from Luis Hilado.

I just have 3 questions. The first is regarding, just to get some color, the accelerated depreciation of PHP 2 billion that you've mentioned in normalizing your core income that is all in this quarter. And just want to check if that's all in this quarter and whether the normalized depreciation therefore for the quarter should be about PHP 8.2 billion, so it should drop next quarter? Second question is just a clarification on the guidance. It is PHP 68 million EBITDA, PHP 2 billion lower than the previous guidance, but the core profit is up. Is the difference largely from cost-cutting measures? Or is there any other income that we should be anticipating? And last question is regarding the PHP 70 for 1-gigabit promotion. Just wanted to clarify, it's only on Sun or did I hear correctly that you've also launched that as well for Smart and TNT?

I'll take the -- I guess the first 2 questions. In terms of the accelerated depreciation, we've booked approximately PHP 2 billion of accelerated depreciation during the third quarter only. So we'll also look at probably a bit more in the fourth quarter. So if you're looking at the so-called normalized depreciation, you back out the PHP 2 billion. Now, of course, as we incur higher CapEx, the trends and the depreciation will move it higher. The accelerated depreciation represents as already due of some of the network and IT platform elements that are going to be affected by some of our change out that we are currently undertaking for the network and platform side. Now on the full year guidance, as indicated, the -- first of all, if you look at the recurring core income on a year-to-date basis, it's at PHP 17.4 billion. And if you kind of look at that number, it's been trending over PHP 5 billion a quarter. So when you look at the fourth quarter, if we come in at approximately PHP 5 billion or even slightly under, we should be able to meet the core income guidance of PHP 22 billion. For the fourth quarter, typically, revenues are a bit higher because they are benefited from the Christmas spending. Costs do go up as well during the fourth quarter. Our subsidies, as you noted, is probably -- has been very low in the second and third quarters. There'll be some upward pressure in terms of our subsidy numbers towards the end of the year. So then broadly speaking, we've been able to manage our financing cost, our depreciation for the year.

Just one clarification, fourth quarter, there could be some more accelerated depreciation you mentioned or it's going up...

We're reviewing this as part of our year-end review.

Okay, Luis, on the queries on Sun. Yes, we are launching limiting it to Sun, initially. As really, we are looking at other activations to do a data package. It is actually a big time data certainty for 1-gig plan, with unlimited texts leveraging off our capacities on SMS, but actually, expanding that then on not 3 days but to 7 days. We feel that the product pricing -- innovative product pricing alternatives like this would allow us to test the market and see its adoption and hopefully, will lead to higher and better yields for us. If it works and the adoption for data set improves, actually then we will see how this trickles down and how we can roll it out to our other brands.

Our next question comes from Ramakrishna Maruvada.

Couple of questions for me, please. Firstly, with regards to the mobile business, could you give us some indication of what the utilization levels are on the 4G network? And associated with this is the Mobile Internet revenue growth, 12% in the third quarter, could you talk about what's driving this, and are you happy with this rate given that your competitor, Globe, had a significantly higher pace in the third quarter? The second one has to do with the guidance, again. Could you comment a little bit more in terms of the movement of the EBITDA guidance from PHP 70 billion to PHP 68 billion? How should we be thinking about the EBITDA for various segments, Wireless and Fixed? Final one is on CapEx. The 9-month spend seems to be very low, but you've been talking about significant investments. Number one, should we be expecting a very big uptick in the fourth quarter CapEx, given your full year CapEx is PHP 38 billion? And how should we be thinking about CapEx going into 2018?

I'll take the first one on the utilization. In general, as we expand our network substantially, the utilization of the 4G network, in general is relatively low. But, of course, there will be always about 5% to 10% of the sites, which have utilization which will cross 80%. That's for us areas where we continuously expand by adding carriers or additional frequencies. We have actually set ourselves internally a lower threshold where we're observing the utilization on a daily basis and, when necessary, we will expand before there is congestion. That's our fundamental principle. We do not want to expose congestion to our customer. So by that, we keep the utilization on a reasonable level. And we ensure that the customers have a very consistent user experience when using LTE. What is the second question?

In terms of the question on our EBITDA guidance. As you can -- it implies effectively that the fourth quarter will broadly be along the lines of what performance in the third quarter, Fixed having benefited from the significant top line improvements coming from Home and Enterprise. Mobile, we're starting to see stability in our revenues, albeit I think there may be a bit of higher subsidies in the fourth quarter. So as you noted, it's a PHP 68 billion guidance. If you look at the 9 months, that's at PHP 50.7 billion, so it does imply that the fourth quarter EBITDA is broadly similar to the third quarter. I think in terms of the CapEx numbers, yes, it does imply that there will be a lot of CapEx bookings in the fourth quarter, particularly, as we finish up a lot of the network build projects that we have ongoing.

In terms of your question of what's driving mobile data, mobile Internet growth, a number of things. As we roll out more 3G/LTE in networks, we're leveraging heavily on analytics to determine where our customers base on (inaudible) are, a network data, where are the smartphone users, in the different geographies of the country, where are they? And we do run massive data stimulations on base, which includes also bundling of content, as I mentioned earlier, major content over Iflix, Netflix, YouTube, iWant TV and soon, Sports, eSports as well as games that are actually attractive to the youth. All of this take into context actually drive mobile data usage. And we intend to continue that as we continue to roll out and commit ourselves towards delivering or rolling out a robust network both in Fixed and Wireless.

And could you comment about how you are thinking about CapEx for 2018? I mean are -- is the CapEx investment cycle largely over or are the investments going to continue at the same pace going into 2018?

I think that's reflected in CapEx, it's...

As you know we're doing our budgets now. And I think the indicated budget level will be something in the order of PHP 46 billion for 2018. Now that could change in the course of further discussions with the business units as they indicate to networks their own requirements in terms of coverage, the kind of capacities needed in particular parts of the country and so forth and so on. So it could be slightly higher than PHP 46 billion for 2018. But until, of course, we -- internally, that has been determined and decided, and until we've submitted the budget to the board sometime in December, I can only give you those indicative numbers, yes.

Our next question comes from Arthur Pineda.

Three questions, please. Firstly, on the network, as Joachim pointed out, the network performance seems to be definitively better, at least on the Mobile side. What other elements do you think needs to be addressed to grow at parity? It's a challenge with [stickier] consumer perception or distribution or IT? I'm just trying to figure out when that turns. Second question I had is with regards to the Fixed Line segment. It's been quite impressive on the Home and Enterprise. What do you think differentiates PLDT, which allows it to drive sustainably faster growth? Last question I had is with regards to Enterprise, again. How long do you think we can see double-digit growth levels on the Enterprise segment? How big can this market be in maybe 3 to 5 years?

Yes, I've got it. Thanks for the question. I will take the first one regarding what's required, network parity. First of all, of course, we have to fix our kitchen and get the network on the comparative level. We are getting there. On mobile, we are better than the competition when it comes to speed. In 3G and 4G, we are not quite yet on the same coverage level. But in Metro Manila, for example, we are very close. Already 90% of our base stations carry LTE. But there are other areas where we have a little bit bigger gap, but it's narrowing down, as you also can see out of the OpenSignal reports. And that remains a focus area. We must have a network which is not as good but it must be better. This is also the reason why we have started to put out technology like for carrier aggregation, which is really on a different level from an experience perspective. So that's the fundamentals. You have to have this done with. We're also fixing our platforms to enable better products, more flexibility and agility in order to drive the products. But once the -- as the network is getting there, I think then it will take a while to turn the perception for the customers. This is just the time -- a question of time. And I know that business is very intensively underway using big data in order to figure out where are the customers, which customers do have LTE. One big focus areas is also to make sure that customers have LTE-enabled SIMs. We have started a major SIM swap program already middle of this year. We have now extended it to Sun customers because we know out of our data that there are more LTE devices than SIM cards out there. So that will add every day, basically, when a customer switches to LTE, will immediately enjoy LTE throughput. And by that, we see also the consumption going up and the chance of getting more revenues. So it's fixing our kitchen first and then work on our perception.

Also, on your 2 questions, part of the second and third. First on the why is the PLDT differentiated particularly on the Fixed Line, and we're getting more of the growth? A number of factors. First, to the start with the network. I think we mentioned a number of these stats earlier. We've invested in 165,000 kilometers fiber -- domestic fiber core. Fiber optic network all over the country that is unparalleled until today, and this has been built up over the years. After that, we have invested in 3 landing stations, catering to multiple international cable circuits that will allow Internet to flow whether in consumer or corporate along latest international cable systems, but that will deliver lowest latency. Third, we have rolled out the fiber service, rolled out -- beyond the leveraging of 165,000-kilometer network, we have rolled out finishing the year, as Joachim alluded to earlier, we'll be in 4 million homes passed with about 1 million ports. And more important than the homes passed are the ports because these are actually the capacity that will actually allow us to monetize and connect homes and turn it into revenues. And we have 1 million of that. We have actually filled out -- or we're filling out 400,000. By next year, we're committed to add about another 500,000, 600,000 of those ports that will allow us to continue our momentum. On the Enterprise side, you know that we have gone through a business transformation that actually puts our business away from just being a telco, but into a preferred, trusted and leading, not telco, but technology provider for the enterprise market and who serve well a large or SME. And this is really a partnership of enabling our corporate constituencies the necessary technologies by which they can compete and participate in the growing ecosystem of e-commerce and connecting themselves to the world. And actually off-taking their technology requirements, we're stepping in and posing to them an OpEx model rather than they would have to build their technical-enabling infrastructures on their own on CapEx and taking that on, on a partnership model. To that end, we have invested over the last 5, 6 years in the state-of-the-art best quality, most secure data centers. Then of that, we've got capacities exceeding 9,000 racks, which actually is over 3x than any competitor in terms of capacity and quality of security. We've invested in cloud in security platforms. Security is a key solution suite for us, and we're looking at fiber security solutions thereby protecting enterprises the most vital of their assets, which is now data. Why do we feel -- on your third question, why do you feel that the growth is sustainable? The adoption of technology and offloading of technology to a trusted partner over a cloud model or a manager of this model is in its nascent stages. I think different third-party data and studies indicate that the adoption is only nascent at 20% and there's still about 80% of the Enterprise market that are seriously looking at improving their technical enablement and improving their cost structure and scale at the same time. Our server indicates as well as these companies, who are not yet tech-enabled, as they move into the cloud and managers of space, that we figure out very well as a preferred candidate to be the partner.

Eric, just to clarify, the growth that you're seeing at Enterprise, is that mainly from SMEs or it that from large corporates?

That's both, Arthur. I think the investments that we have done, if you look at the history of our Enterprise -- the transformation of Enterprise to grow beyond telcos started as early as 10 years ago. And this is not only an investment of hardware infrastructure but as well as investment in upscaling our people to be able to do managed services, so both.

Our next question comes from Varun Ahuja.

I've got 4 questions. Firstly, more a generic one. So if you look at the investment that you have been making and your competitor has been making on the mobile side and given the spectrum that you acquired from the San Miguel and it's been more than a year, from the presentation that you and your competitors have been making, it seems like the mobile network in the Philippines is improving. But when you read across the media reports or whatever coming across, the general perception still remains that the Internet speed in Philippines is not that great. Hence, those comments that the government is looking to introduce new competition to the market. And recently, there were some comments that we have seen that (inaudible) kind of ask you to take back its approval on the San Miguel acquisition spectrum if the network doesn't improve. So just wanted to hear your view. What is -- where is the disconnect? And how are you communicating with the government on that front? That's the number one. Number two, on the Mobile side. If we look at the mobile market share of this quarter, it seems to have -- Globe seems to have strengthened further with their revenue growing around 10% and around that. So how do you want to kind of look into this? Do you want to gain back market share? What's your -- over the next 2 to 3 years, strategy on that front? I think now you're more focused in terms of preserving the cost while giving up the revenue at the stage. Just wanted to hear your strategy on that front. Third and fourth question are on -- more on dividends. On the dividends first is a clarification. Did I hear it correctly that during the management commentary that the dividends for 2017 are based on the reoccurring core income or the core income? My understanding is it's around 60% of core income; that includes the one-time gains. So a clarification on that, that will be helpful. And lastly, it seems to be that business has, kind of, stabilized right now. What will it take for you to increase your payout ratio from 60%? Can it go back to 100%? What are the management indicators looking at to increase that payout ratio?

I think on the dividend policy, the 60% payout ratio will refer to the reported core. So that includes the recurring core plus the gains realized from asset sales, principally, the sale of the Beacon shares and the sale of SPi Technologies. So it will be at the higher number and not at the lower core -- recurring core number. What will it take for us to increase the dividend payout ratio? I think once we see that we see growth in the cellular business. Because right now, to the question earlier raised by Arthur, Arthur Pineda, I think the -- we're quite secure in terms of our assessment of the growth of the Fixed Line business in the coming years but -- because, I mean, traditionally, the brand equity of PLDT on Fixed is there. And the shift to digital for the Fixed Line business started many years ahead of the -- of our Wireless business. So now it's about 63% of revenues of Fixed is data-driven as opposed to cellular. So I think once we see a return to growth of the cellular revenues, then I think we will consider a higher dividend payout. And I think you -- that's one of your questions earlier as to why we've lost -- we seem to have lost market share -- revenue market share for the quarter to growth.

If I may tackle the question as regards growth/approaches towards our intent to not only start (inaudible), I think we've achieved some level of stability in the Mobile business but how do we do it is really turn it around and bring to growth. Without giving too much of our strategy, I think a lot have been alluded to our CapEx commitment. The rolling out 3G and, more particularly, 4G, high-bandwidth wireless networks to be able to cater to that growing data demands of the corporate customer gets us -- requires more smart devices and to take on staff. Add to that is the beyond access play, leveraging on our investments, not only in terms of (inaudible) in Cignal and our partnership arrangements with the different providers of content, Iflix, Netflix, iWant TV and (inaudible), but also our unique resource strength in the many FINTQ and payment platforms in Voyager and we are working through them. Of course, the others will be (inaudible) just ground and pound -- on the ground campaigning across our multi brands. And last but not least, we will do so given the cash resources and challenged business. I think we will approach the business with more intelligence, leveraging on data and analytics by which will allow us to be more surgical in our spending and making sure that every spending after we hit the target and make -- that we make it count. So by and large, the overall strategy is a lot more involved there, but by and large, we are going to be more surgical and more circumspect in the way we approach the Mobile business.

The first question is about perception versus network buildout by both Globe and ourselves. But that's a tough question to answer. Because complaints get published both on traditional and social media and I don't know. The best answer I could give is that we can only try our best to -- we can't speak for Globe, but we certainly are doing our best to fix our network, both on the Fixed Line side and the server side because at least on the Fixed Line side, I hear very little complaints about our Fixed Line business. So it's really more on the Wireless side. And I think the -- there are lots of reasons. I'm glad that we finally managed to get access to the frequency of San Miguel. It will take a bit of time to fully deploy it for the benefit of -- I mean to achieve the kind of service level the consumer wants. So there is work that needs to be done. And I guess the best answer to complaints would be real better service. And if I may circle back to the question based earlier, that -- about the CapEx levels for 2018. Actually, there's internal -- there's consideration being internally given to whether we should actually raise our normative CapEx level of, say, PHP 46 billion in 2018 to something slightly or moderately higher than the PHP 46 billion, no? And this is partly to make sure that we really have, if you may, an excellent network and at the same time, partly to address the criticisms lodged against us against -- in terms of poor coverage or poor service. Because then I think we're demonstrating that we're spending money on the network to make it really the best we can do to make it. So we might just do that. And so -- which brings me to the next question. If we can handle -- if our EBITDA next year could handle the level of a PHP 46 billion normative EBITDA, how do we finance any increment beyond the PHP 46 billion and the answer is that this -- to begin with, we don't want to see incremental debt being realized or incurred in the course of 2018. So the only way we can do that is by way of asset sales. So depending on the quantum of the increment beyond PHP 46 billion, we really have to take a look at as to the possibility of monetizing or discounting part of the receivable due to PLDT from Metro Pacific in respect of the sale of the Beacon shares and/or disposing a portion of our active Internet shares whose share price has improved somewhat in the course of the past few months. So if we do announce an increase in our CapEx beyond PHP 46 billion, we do have a plan to cover the additional funding required for a hefty CapEx number next year.

Our next question comes from Gopakumar.

Sorry, I missed some of the comments earlier, so apologies if these questions have been addressed already. I just want to understand your guidance on EBITDA a bit better. You're saying PHP 58 billion EBITDA for this year. So if you look at your 9M numbers, that implies around PHP 19 billion EBITDA in the fourth quarter. Is that understanding correctly? And if that's the case, then are you expecting strong revenue growth to drive this or are you factoring some significant margin improvement further from here? It will be great if you can please help me understand this. Secondly, on the Fixed side, your peer, Globe, has indicated focus here to increase traction. So on the ground, are you seeing competitive intensity picking up on both residential as well as enterprise? And if so, how do you manage to address this and, at the same time, sustaining the revenue growth in your Fixed Line business?

The implied fourth quarter EBITDA based on the guidance is not PHP 19 billion but PHP 17.3 billion. So we're working off the PHP 50.7 billion 9-month number. So that PHP 70.3 billion approximates more or less what we achieved in the third quarter. So it's not the PHP 19 billion that you're citing.

What's your second one?

Whether we're competitive than (inaudible).

Our next question...

I didn't quite (inaudible)

Whether we're competitive in the [base]? What are we doing?

Competitive in the base and how do we address...

Is it increasing.

The competition in the Fixed has always been there and we are ready to face any competition, which is why the investments that we have done in the Fixed earlier on as well as -- it's not only in the network, but also investment in platforms and people. And actually, there, as well as our intent to go into services, that actually plays to our transformation -- transformational aspiration to go beyond telco services into providing our markets where the consumer and corporate technology services. We feel that this is the only way and strategy by which we could (inaudible). And from the traditional intense competition, particularly when price is at play. I guess the competition's also going to be there. As mentioned earlier, we're committed to really establishing ourselves as the superior -- as data is going to be the future as the most superior and best provider of data services over a network, whether in wireless or in fixed. And then we continue to stay with that commitment.

I think if I may add to what Eric just said. Again, setting aside how good we are on the fixed lines, I think I would like to think that the first important element is the fact that the Fixed Line network of PLDT has traditionally been [not surpassed] by any telco in the country for historical reasons and carried on since we invested in PLDT way back in 1998. So since that time and when things have started to move to digital and it was the Fixed Line business that fits within our means that made that move much earlier than Wireless, so you're seeing the benefits of that shift and the corresponding build-out of the digital network of the Fixed Line side, no? And so we've laid down more fiber in most parts of the country, strengthened the fiber optic network. Eric has built more data centers. We have...

International cable systems.

More international cable facilities. More cable landing stations. So the aggregation of all those factors I think contribute to a very good network on the Fixed Line side. And yes, we're seeing competition heightened in the -- both the Home side and the Enterprise side. And in a way, I think the approach we've taken in addressing that competition is somewhat different from what Globe is doing. Our approach has been we will concentrate on fiber in the appropriate markets that we see in this country. And we want to -- on the copper side of our network, we have introduced the latest technology which is G.fast and VVDSL that will provide fiber speeds on our copper. So that will further enhance our ability to deliver Internet services to the home and to the offices. So I think it's purely from a network capability and coverage standpoint, I think PLDT is far superior to any other. And I think -- and given the history of PLDT being actually the oldest network and really identified with being a Fixed Line company, I think the brand equity is very strong. I mean I myself have seen instances where PLDT has been -- is the preferred brand even if somebody is on this particular service provider already or on that service provider because they're just waiting for the PLDT fiber to be installed in particular locality. And once we have done that, they will switch. They will switch because that's proven capability all around because we have a far superior network. It's -- I think it's for that reason, right? And, of course, Eric will say he has the best people.

Our next question comes from [Fraser Smith].

Just one question from me. If I look at your earnings...

[Fraser], could you speak a little louder please?

Can you hear me now?

Much better.

Just one question from me. If I look at your earnings from associates in 3Q '17, it seems to have increased quite significantly q-on-q and year-on-year. Could you just shed some color on what's driving this please?

The earnings?

Earnings from associates.

The -- in terms of the third quarter, the earnings in associates line includes the gain from SPi sell-down of PHP 1.4 billion. So that's in the third quarter. But for purposes of the recurring core income, we backed that out.

Operator, are there any other questions?

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

Since there are no other questions, we can end the call here. The operator will [take us down].

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

Thank you.

Thank you.