PLDT Inc (PHI) 2018 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 in the -- printed in the conference call invitation posted in the Investor Relations section of the PLDT website.

At this point, I would like to invite Melissa Vergel de Dios, Head of Investor Relations of PLDT, for instructions. 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 quarter of 2018. As mentioned in the conference call invitation, a copy of today's presentation is posted on our website. For those who've not been able to do so, you may download the presentation from www.pldt.com under the Investor Relations section. A broadcast of this briefing will be available on our website after the call.

For today's presentation we have with us Mr. Manuel Pangilinan, Chairman and CEO; Ms. Anabelle L. Chua, Chief Financial Officer; Mr. Eric Alberto, Chief Revenue Officer and his team; Attorney Ray Espinosa and other members of the PLDT management team.

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

Thank you Melissa. Good afternoon everyone. Let me start off the presentation for our financials by highlighting that this quarter's results reflect the adoption of new accounting standards, in particular PFRS 15, which impacts our revenue recognition. In adopting this new standard, PLDT took the modified retrospective approach beginning January 1, 2018, which means that any cumulative effect arising from the transition recognizes an adjustment to the opening balance of our retained earnings. It also means that the accounting standard used for the comparative periods are not the same. Thus for this presentation, we also present our Q1 2018 on a pre-PFRS 15 pro forma basis in order to make the -- comparable the year-on-year financial information.

With that let me then discuss our Q1 financial highlights. If we present our financials on the same accounting basis as last year's, our consolidated service revenues reached PHP 36.7 billion, up PHP 1.1 billion, or 3% higher than Q1 '17. The 3% increase posted in our Q1 service revenues represent a significant turn if you consider that the same time last year we registered a PHP 2.7 billion decline versus the prior year.

If we exclude our declining international revenues as well as our new businesses in Voyager, total service revenues grew 6% year-on-year, representing an improvement of PHP 1.9 billion year-on-year. Consolidated EBITDA in Q1 reached PHP 16.7 billion on a pre-IFRS 15 basis, up 2% year-on-year. If we exclude results of Voyager, our EBITDA stood at PHP 17.3 billion, with EBITDA margin of 45%.

Our consolidated core income reached PHP 6.1 billion, up 14% from prior year. Excluding Voyager, core income amounted to PHP 6.7 billion, 23% higher than prior year and in line with our full-year core income guidance of PHP 23 billion to PHP 24 billion. With the new accounting standard, there is a PHP 900 million downward adjustment in our service revenues offset by a positive PHP 700 million upward adjustment in our non-service revenues resulting in a PHP 200 million change in the EBITDA number.

Thus our consolidated service revenues amounted to PHP 35.9 billion following the new PFRS. On the same basis, account -- our consolidated EBITDA amounted to PHP 16.5 billion and consolidated core income stood at PHP 6 billion. Our reported income for Q1 2018 is 39% higher at PHP 6.9 billion.

Now looking at our quarterly financial results in the next slide, we're pleased to show that from the top line stabilizing in 2017, the quarterly revenues have started to trend higher. Each quarter's consolidated revenues is -- in 2017 is higher than the prior quarter, and the upward trajectory is sustained in Q1 2018. If we exclude ILD and NLD, our Q1 revenues are 2% higher year -- Q-on-Q, and 5% higher year-on-year.

So we attribute this to the continued strong growth posted by our Home and Enterprise businesses and the positive results now of our wireless consumer group. In terms of our consolidated EBITDA, Q1 EBITDA rose from PHP 16.5 billion last year to PHP 16.7 billion this year. Consolidated core income stood at PHP 6.1 billion in Q1, higher by PHP 0.8 billion over the same quarter in the prior year, and higher by PHP 0.5 billion over the quarterly average core earnings last year.

In the next slide, we show our service revenue results over the last few -- 2 years split between fixed line and wireless businesses. The fixed line business is particularly interested showing quarterly -- positive quarterly trends over the period in a consistent manner. The strong performance of our Home and Enterprise business units has underpinned the increases in our fixed line service revenues.

This quarter's fixed line revenues on an ex-ILD basis are actually higher by 12% year-on-year and 3% Q-on-Q. For our wireless business, we saw the revenue holding steady at a PHP 19 billion level ex-ILD with an uptick in Q1 compared to Q4 revenues. Average daily revenues in Q1 are actually higher by 3% versus that in Q4.

Now next slide, viewing now our service revenues from a business segment, the 3 main business units that account for 89% of our total service revenues grew 6% year-on-year with service revenues of PHP 32.9 billion. The improvement of PHP 1.9 billion in Q1 follows a decline of PHP 1.4 billion in the same period last year.

PLDT's Home and Enterprise business units continued to lead the way. Home service revenues grew 14% to PHP 8.9 billion, while Enterprise service revenues grew 7% to PHP 9.2 billion. The 7% increase for Enterprise is -- actually versus a high base in Q1 last year with one-off revenue items booked then. The 2 groups, Home and Enterprise, together account for 49% of our consolidated revenues.

The wireless consumer business of Smart, TNT and Sun account for the other 40% of our total revenues, and that has turned to a positive 2% rise year-on-year, which represents a sharp contrast versus an 18% decline we were seeing a year ago. Data has underpinned the revenue growth across all the major business units, and now represents 64% of Home revenues, 61% of Enterprise revenues and 44% of the revenues of the wireless consumer business.

Next slide showing the business unit revenues over 9 quarters, our Home and Enterprise business units posted revenue increases quarter-on-quarter achieving the record high quarterly levels this first quarter. For the wireless individual business, we saw relatively stable quarterly revenues in 2017 and now a positive revenue trajectory in the last 2 quarters. Q1 revenues in particular grew by 2% from Q4, and this is in sharp contrast to the quarterly declines we saw in 2016.

Next slide. For this quarter, data, broadband and digital platform revenues grew 13% year-on-year to PHP 18.3 billion and now comprise about 50% of -- for the largest portion of consolidated revenues. On a segment basis, data and broadband accounted for 65% of fixed line revenues and 39% of wireless service revenues. Some of the particulars, mobile Internet revenues grew 29% year-on-year to PHP 5.9 billion. Home broadband rose 18% to PHP 5.6 billion. Corporate data and data center revenues increased 6% to PHP 5.2 billion.

In the next slide, we show how we were able to improve our core consolidated EBITDA by 4% year-on-year. The improvement in top line revenue coupled with the continuing rigorous management of our subsidies, OpEx and provisions drove the improvement in EBITDA. Our consolidated EBITDA margin for Q1 stood at 45%, stable versus the same period last year.

We also show here the impact from Voyager on our EBITDA results. There is a decrease of PHP 0.6 billion in our EBITDA considering the cost of building up the Voyager business pillars. The adoption of PFRS 15, as mentioned earlier, resulted in EBITDA adjustment of PHP 0.2 billion in Q1.

Turning to the next slide, we show our core income on several basis. Our consolidated core income for Q1 amounted to PHP 6.6 billion excluding Voyager, higher by PHP 1.2 billion, or 21% year-on-year. With Voyager, the core income stood at PHP 6 billion in Q1. The impact from the adoption of the PFRS 15 is limited to a change of less than PHP 0.1 billion from the previous basis.

Now with respect to our reported net income, there was a 39% year-on-year increase to PHP 6.9 billion. This reflects 2 significant non-core items. The first one is a reval gain on our Rocket Internet investment amounting to PHP 3.4 billion, recognized in the P&L following our adoption of another new accounting standard, which is PFRS 9. Rocket share price increased from EUR 21.125 at year-end 2017 to EUR 24.92 as of the end of March, giving us a marked-to-market reval gain. There will be further changes in May, following the sale of our 6.8 million shares at EUR 24. We expect to realize a gain of approximately PHP 1.4 billion which will be booked as part of our core income in second quarter.

For the balance of our Rocket shares of 3.3 million shares, we will have to continue to reflect reval gains or losses depending on the share price performance of Rocket. The other significant item that impacted our reported income was PHP 2.4 billion non-core network-accelerated depreciation expense. This amount is in connection with our ongoing network upgrade initiatives which include a swap-up of our network equipment in [NCR].

As of end March 2018, consolidated net debt stood at $2.6 billion while net debt to EBITDA improved to 2.04x. Our gross debt reached $3.3 billion, only 18% of which are actually denominated in U.S. dollars. And after taking into account available cash and hedges, only 8% of our total debt remains unhedged. Well, on interest rate basis, 92% of our debt are fixed rate loans post- the interest rate swap that we have.

Our cash flows this year are being supplemented by 2 significant items, PHP 7 billion proceeds from discounting our MPI receivables and approximately another PHP 10.5 billion from the sale of 6.8 million Rocket shares.

Moving on to the next slide, underpinning our revenue growth and our strategy to provide customers with a superior data experience is our extensive rollout of both wired and wireless networks. Our CapEx for the 3 months came in at PHP 6.9 billion while we anticipate a significant ramp-up in the amount of CapEx to be booked during the year given our expected CapEx investment of PHP 58 billion for full-year 2018.

We continued to step up the expansion of the reach of our fiber to the home broadband network as well as the coverage and capacity of our LTE and 3G networks, to better serve the rising demand for mobile data services. For Q1 '18, we expanded the homes passed to 4.4 million and the number of ports to 1.4 million. We also raised our total fiber footprint to about 187,000 kilometers.

In mobile, the focus has been to roll out more LTE base stations. Smart installed over 1,300 more LTE base stations in Q1. These base stations use various radio frequency bands, specifically 700 band for coverage and indoor penetration and the 1800 and 2100 megahertz bands for additional capacity. The installation of multiple LTE base stations in existing cell sites is laying the ground for the activation of LTE-Advanced which will deliver even significantly faster mobile data services for our customers.

With LTE-Advanced, Smart is utilizing carrier aggregation which provides much higher mobile data speeds by combining the capacity of 2 up to 5 frequency bands. The benefits to our customers to better LTE and 3G network speeds and coverage has been cited by external parties including the recent JPMorgan OpenSignal reports.

Now, at this stage, I'd like to turn over the presentation to Eric Alberto, our Chief Revenue Officer and his team.

Thank you Anabelle. Good afternoon everyone on the call. I'd like to put some granular context to some of the numbers that Anabelle just provided earlier. If you look at the first slide, in quarter 1 2017 versus quarter 1 2016, despite strong double-digit growth from our Enterprise and consumer home lines of businesses, the consumer individual business continuing decline impacted total revenues to the tune of a negative 4% growth rate and a PHP 1.4 billion decline year-on-year from first quarter 2016 to ending first quarter 2017. That gives you a flavor of the kind of negative momentum on an aggregate basis that we were facing same period last year.

Today, as we report our first quarter 2018 revenue numbers, we are pleased to advise that the stabilization and incremental modest revenue growth in the consumer individual business, combined with a continued robust growth in the Enterprise and consumer home businesses shows a clear turnaround performance of a positive 6% growth and a PHP 1.9 billion gain for the group. We -- this is encouraging for us that all our growing lines of businesses now, our major lines of businesses, are now showing stable growth.

This 2-year turnaround effort actually had a swing of about PHP 3.5 billion -- sorry, of about PHP 3.3 billion of which PHP 3.5 billion was accounted for -- by wireless really indicating the big impact that the wireless had over the 2-year performance.

Next slide on Slide 2, combined with our legacy declining international business which are mostly international inbound voice revenues which are continuously affected by smartphone penetration and substitution of voice and messaging by OTT services, our total group revenues will still show a 3% improvement and a PHP 1.2 billion growth year-on-year. Again, in the same token, over the 2-year swing, the swing was actually more of PHP 3.9 billion improvement and this reflected was a slowing down of the decline in our legacy international business, which is now down to PHP 3.5 billion versus PHP 5.5 billion 2 years ago. I must say also that if you look at our first quarter numbers and all our growing business at PHP 32.9 billion, we have not seen this level of revenue, quarter-on-quarter revenues, for the past at least 8 quarters.

Next slide please on the summary. Our 1-year turnaround imperatives revolve around 4 major strategic areas of focus. First, our network improvements in fixed as we roll out fiber extensively and wireless as we fortify our superior 4G LTE network all over the country. Second, our growing reliance on data analytics providing us all relevant and timely insights by which we can run our business, our different lines of business, with better granularity and more with optimal results.

Third, innovative and breakthrough partnerships with global technology players for digital solutions and content as well as our attractive converged bundling strategy. And last but not least our growing obsession to focus on improving customer experience across all our customer touch-points, whether in consumer or Enterprise.

All of these underpin our ability to deliver better numbers for the first quarter in 2018. If you look at the slide Enterprise, our Enterprise business grew 7% to PHP 9.2 billion or a PHP 600 million increment over the same period last year. Our home business registered a record-breaking 14% growth, incremental PHP 1.1 billion over the same period last year at PHP 8.9 billion.

It is worth noting that in both lines of business, Enterprise and Home, the biggest revenue growth coming from data actually grew way faster than competition, it's 6% versus 4% in the Enterprise space and 19% versus 11% in the Home space. More importantly it is further worth noting that our revenue base for these lines of business, both Enterprise and Home actually are more than double that of competition.

Let me touch on individual. Here, admittedly it is in this line of business that we have still ways to go and a lot of catching up to do. However, we are extremely delighted that after so many quarters, we can truly say that we've turned around the business with a modest 2% growth, PHP 200 million, to PHP 14.8 billion, a record turnaround that we have never seen in many, many quarters. All told, including our international business, we have grown, as mentioned by Anabelle, 3%, PHP 1.2 billion.

Eliminating international, the performance of the major lines of business of PLDT group have grown for the first quarter 6% and PHP 1.9 billion over same period last year.

For the details of each of the line of businesses I'd like to call my colleagues, start with Jovy, start on the Enterprise business; followed by Renren who will touch on the consumer business beginning with home followed by the wireless individual.

So Jovy.

Thank you. Good afternoon everyone on the call. We go to the first slide of Enterprise. PLDT Enterprise expanded its robust growth trajectory for the first quarter of 2018, growing revenue by 7% from PHP 8.65 billion to PHP 9.22 billion, delivering an incremental growth of PHP 570 million. Our key highlights to our first quarter results, our Enterprise wireless headlines our growth story in the first quarter as it is growing like never before, growing at 22% versus same period last year of close to PHP 300 million incremental new revenues in the first quarter. This is the biggest growth that we've ever achieved in one quarter throughout our history in Enterprise wireless.

This was largely due to a 19% growth in corporate postpaid revenues attributed to wireless closures and deals from competition which delivered net new adds of close to 17,000 new corporate postpaid lines. Our wireless broadband and Enterprise was an increase by 20% as Enterprise has started to leverage on better speed and throughput performance of our LTE network.

Consistent to our strategy of going beyond access which should also be applicable to our wireless business, we have been aggressively rolling out IoT, machine-to-machine and Enterprise wireless solutions which enable enterprise operations to be more efficient, such as asset tracking, bulk messaging applications, store management solutions and mobile workforce solutions just to name a few. This category increased by an encouraging 38%. As the market adopts more IoT solutions connecting people to people, people to machines and more machines to machines, we are confident that we are well-positioned to play a major role in this category.

Next we have our ICT revenues. Our ICT revenues continued to exhibit robust gains, outpacing the growth of the industry by almost 2x. Our data center business, primarily our co-location and hosting business increased double-digit year-on-year as more and more enterprises are seeing the value of uploading their IT assets and data center requirements to a trusted partner.

Our ePLDT virtual data center is 3x bigger in terms of capacity vis-à-vis any other player in the market which fortifies our leadership position in this space allowing us to capitalize on future growth. The data center business is critical as more and more companies leverage the power of the cloud, capitalizing on the elasticity and flexibility of anything-as-a-service offering in the market. This revenue category for us has grown 51% year-on-year.

While we clearly lead in the digital infrastructure asset space, we have been very aggressive in building people expertise and technology, platforms and our practices. This allows us to partner with Enterprise customers in a deeper engagement model moving into managed IT and managed services. This particular category has grown by 23% year-on-year. Last but not the least, our fixed line revenues which is still bulk of our revenues, it continues to grow.

Voice especially is bucking the market trend, delivering 3% growth, while traditional usage revenues of NLD and ILD continues to steadily decline. Moving into the Managed Voice services space has allowed us to grow our Enterprise Voice revenues. For us Voice will remain to be a critical component in the B2B space and we are aggressively pursuing advanced voice technology such as unified communications to remain relevant.

Our fixed line business, while growing, seemed to show muted growth at 2%. This is attributable to a huge one-off revenue in the same period last year.

If you go to the next slide it will show normalized revenue numbers for the first quarter discounting the said one-off revenues and it will show that Enterprise would have increased by 9% or PHP 800 million versus same period last year. What is more critical is if you take a look at the upper right-hand portion of the slide, it shows a line chart where it has shown -- number one, it shows very sharply the one-off revenues in March of 2017 which means there's a growth for this quarter, but more importantly if you take a look at the 3-line graph, it represents the continued growth trajectory of the Enterprise business year-on-year for the past 3 years.

Going on to the next slide, PLDT Enterprise is growing in all the right places. If you take a look at our corporate Voice and SMS, this revenue bucket is again also bucking the general market trend, exhibiting 8% growth. And while Voice revenues remain to be relevant in the B2B space, the more critical revenue component to watch is the corporate data and ICT categories as this will dictate our revenue growth trajectory in the medium term.

Our corporate data and ICT has grown 6% year-on-year and represent 61% of our revenues. On a normalized basis, netting out the one-off revenue gains last year, our corporate data and ICT growth would have been 10%, delivering an increase of PHP 521 million versus same period last year.

Now the key takeaways from this particular slide is number one, if you compare our corporate data and ICT revenues versus the publicly released numbers of competition, it is very clear that PLDT Enterprise is at least 2x bigger than that of competition in terms of revenues.

Number two; on a year-on-year basis PLDT Enterprise gained 76% of the growth of the market, further widening our lead for this competition. And last but not the least, when we take a look at like-for-like comparison versus our competitors' numbers, our estimate show us that our market share increased by 1%, from 68% to 69%, further strengthening our market leadership position.

Next slide, the B2B space is challenging and complicated as there are a lot of many moving parts. Despite the challenges and complexity, we are focused on aggressively expanding our lead in our unparalleled spectrum of core capabilities that we have across both telco and ICT allowing us to serve the full breadth of client needs from simple to complex needs regardless of what industry they are in and regardless of where they are in their own digital transformation during. The recent launch of our cybersecurity portfolio and the upcoming launch of our 10th data center is a testament of our continuing commitment to innovation in order for us to serve our customers better.

Next slide. All these are fueled by our obsession in focusing in our customers, understanding their business better so that we can truly deliver value and become their true trusted partner. Our pervasive customer engagement activities in the first quarter is a testament of this passion of trying to be more intimate with the markets that we serve.

Next slide, and lastly, as we bring the capabilities of PLDT, Smart, ePLDT and its subsidiaries, Voyager Innovations and our global partners together, we at PLDT Enterprise commit ourselves to delivering value-laden innovations to the markets that we serve from the large global and domestic enterprises via PLDT Alpha to the small and medium enterprises and budding entrepreneurs in the country via PLDT SME Nation. All these will deliver a multi-dimensional competitive differentiation for us ensuring our continued leadership in the B2B space for the long haul.

At this point I'll turn you over to my colleague Renren Reyes to discuss the consumer side of the business. Thank you.

Good afternoon. I'm excited to share with you in the next few slides Q1 results for consumer home and wireless. Kicking off with Home, here are the highlights. PLDT home revenues are at the record PHP 8.9 billion for the quarter, its strongest growth ever at plus 14% year-on-year and adding PHP 1.1 billion of value in Q1.

Data revenues are leading the acceleration with plus 19%, clearly outpacing that of industry. Further, data now comprises 64% of total home revenues. Also growing and bucking the industry trend is Voice with revenues up plus 6% to PHP 3.2 billion.

Next slide please. Behind the growth is continued uptick in subscriptions at plus 11%; total PLDT home subs now near 4.2 million, showing continued strong demand for PLDT's fixed broadband services.

Next slide. PLDT FIBR Nation initiative has further accelerated this Q1. PLDT Home rolled out 202,000 fiber broadband lines in Q1 alone. In doing so, fiber homes passed has increased from 4 million year-end 2017 to 4.4 million in the end of the quarter. Further to this and consistent to our commitment to extend high-speed, high-quality connectivity across the country, growth reaches unmatched levels across all areas or regions. [GME] growth in coverage is at plus 197%; North Luzon at plus 400%; South Luzon at 223%; Visayas at 224%; and Mindanao at plus 58%; all totaling to 230% growth in year-on-year growth coverage for fiber.

Next slide, keeping at pace with the rollout, we see in this chart the port utilization has also been accelerating from 30% in Q1 of 2015 to 30% (sic - see slide 28, "36%")_in Q1 of 2016, 45% that of 2017, and 46% as it stands in Q1 2018. This increased utilization in the context of an accelerating rollout clearly demonstrates the effectivity of number one, our analytics modeling and selecting the areas for expansion; number two, our on-ground campaigning and fulfillment; and number three, the strength of the PLDT Home brand and consumer demand specifically for PLDT Home fiber as the preferred broadband service for the country. Furthermore, given this utilization rate we are now breaking even in our build within 1 year, strengthening our result to pursue our FIBR Nation campaign even more aggressively.

Next slide. Apart from new fiber rollouts, PLDT Home has begun its 2-year program to modernize its existing DSL facilities with Fibr. By bringing the Fibr backbone closer to the home, upgrading network facilities in the curb and using hybrid fiber technologies, we will be able to deliver a Fibr fast plan to all our existing subs by end-2019. Q1 progress in this [fiberization] initiative is on track with our targets achieving 19% completion as end of March. As we modernize facilities, we actively engage our subs, educating them about the program and upgrading them to newer and faster speeds of up to 50 to 100 mbps, which is fast becoming the norm of our subscribers. In this slide we see some examples of these on-ground fiberization initiatives from north to south Luzon.

Next slide. Lastly we are now ramping up our fixed wireless expansion efforts in partnership with Smart Broadband. As we roll out our superior LTE network we are now able to serve previously un-served homes with LTE network now up to -- now covering up to 72% of the population. And there are 2 types of un-served homes we are catering to, the first being homes in areas with no quality fixed wired facility; and the second, homes that are predisposed to a prepaid payment option. With our Smart Bro home WiFi plans coupled with increased LTE coverage, we are able to serve more and more of these homes in the coming months. We see some pictures of some on-ground implementations that are well-received.

And that concludes my summary for Q1 -- for PLDT Home highlights for Q1.

Next slide, moving on consumer individual business, I am equally pleased to share with you the highlights from Q1.

Next slide. First after stabilizing the business in 2017, we start 2018 showing a modest but clear turnaround for consumer individual business delivering a 2% growth year-on-year and a 2% growth quarter-on-quarter to PHP 14.8 billion. This is a PHP 3.4 billion swing over the momentum 2 years ago.

Next slide. Subs base are staying fairly stable quarter-on-quarter with a modest loss of only 200,000 subs in Q1 as continued efforts on retention and acquisition of quality subs take effect.

Next slide, the growth drivers for the business is data revenue increasing PHP 1.1 billion or plus 21% year-on-year. So this provides us and puts us in the right direction. And as we go to the next slide, we see that total data contribution to wireless revenue is at a new high of 44%, driving more stability for the business and a larger base for future growth, bringing us even closer to our pivot to a data-led business.

Next slide please. A key driver has been smart LTEs migration efforts with aggressive campaigns to shift subs into LTE devices, LTE SIMs and get them to use data on our mobile network. Compared to the same period last year, consumer individuals LTE data user-base has increased by 3x or 211% year-on-year, a significant take-up from the market and an indicator that our efforts in building our LTE business is gaining momentum.

Next slide. Of course this effort needs to be supported by a quality network and we are proud to share with you that Smart has recently won 4 out of the 6 awards that OpenSignal, an independent third-party analytics agency, gives out including fastest network in the Philippines, fastest LTE network in the Philippines, lowest latency in LTE in the Philippines and lowest latency in 3G in the Philippines.

Next slide please. The question surely you have in mind is as we roll out the LTE network, what is the impact to the business? To answer that, allow me to share with you a sample use case. Focusing on the Luzon region, particularly north, central and south Luzon excluding NCR, in the past 6 months this is where we prioritized the rollout of our LTE network. In specific, 1,154 new LTE sites were built in Luzon over this period which accounts for 51% of the total LTE sites rolled out nationally. And in Q1 total Luzon posted a 5% growth into consumer individual revenue. This demonstrates our ability to monetize investments we are putting in. And the bright spot for the year, we expect even more LTE sites to come online in 2018 as we target to cover 90% of the populations with high-speed Internet.

Next slide. From a product and marketing side, what is the focus? It is actually very simple. We have to increase data adoption and we have to increase data usage. So for prepaid we have done this by continuing to build on relevant promo offers targeted to specific segments. All Out Surf is to get non-data subs to use data, GigaSurf is to get light data users to use more data which -- and together these 2 promos have actually driven growth for smart prepaid. And these 2 promos were only originally available in Smart, but in Q1 we launched this in TNT and Sun Brands and the take-up has been very encouraging and a key driver of our Q1 growth.

For postpaid we launched Smart and new GigaX plans. We enhanced Sun's Big Time plans with better phones and we launched new flagship phones such as iPhone X, Samsung S9, Huawei P20 and OPPO F5. The construction of these new plans is designed to attract high-quality subs in the Smart and Sun franchises which is now resulting to increase data usage and ARPU for both postpaid brands.

Next slide please. Q1 was also the launch of MVP rewards where in the first 3 months we have already 300,000 accounts of which 87% are earning points already and we have set up over 100 merchants nationwide. If you go to the next slide we see these rewards experiences ranging from dining to travel to shopping to beauty. Further, it is powered by PayMaya which allows other functionalities beyond rewards.

That actually ends my Q1 highlights, but allow me to share a couple of more slides as a preview for our April activities. In the next slide, you will see that Smart has actually launched the first and only LTE network in Batanes which is the northernmost part of the country, and the take-up has been very encouraging. And even the local government officials have been very happy with now a superior data network in Batanes and they are saying that they are now watching videos like Netflix all the way in that island.

Next slide. I'm also very excited to share with you that in mid-April we launched our strategic partnership with YouTube and this was done with 3 very simple objectives. First we wanted to increase data user adoption. And what better way to do that than driving them into the number one video platform in the world and in the Philippines? But number two, it is also meant to drive mobile video viewing and make that a habit amongst our subscribers. And by doing so, then we move to the third objective, which is to drive ARPU increase with increased data usage.

If you go to the next slide, we will actually do this by giving 1 hour of free YouTube every day for Smart, TNT and Sun subs if you avail of certain promos. This addresses the insight that consumers fear watching videos on mobile, hence relegating viewing only when connected to WiFi. By putting this 1 hour of power in the hands of every Filipino every day, we are confident that consumers will change their behavior and start enjoying mobile video viewing on Smart's superior LTE network.

That actually ends my presentation. Thank you and good afternoon. Now I would like to turn you over to Duane Williams to discuss Voyager.

Thank you, and good afternoon. With Voyager, we believe that we continue to lead the growth of the digital ecosystem in the Philippines which is a huge and untapped and virgin market for digital services. I'll just state some numbers which illustrate the potential. In financial services of PHP 371 trillion of payments today, only 1% of that is electronic. The goal of the BSP, the central bank of the Philippines is to have that number at 20% by 2020.

In addition, only 16% of households are banked today. In e-commerce, this market is expected to reach PHP 200 billion by 2020 and today less than 10% of businesses have any online presence at all. This is despite a relatively high Internet penetration of 63%, which also makes the Philippines a great market for digital marketing technology, particularly given that Filipinos spend 5 hours per day on their mobile device. These numbers illustrate a market which is very ripe for opportunity. Voyager, with millions of active users and thousands of businesses is driving grassroots economic activity and of course this also drives future mobile data traffic.

Next slide please. Specifically in digital financial services, we continue to accelerate the adoption with both PayMaya and FINTQ. With PayMaya, we are building the digital cash ecosystem and driving adoption by being one of the first electronic money issuers to launch and enable the central bank's National Retail Payment System and enabling instant money transfer via the InstaPay service. We also continue to roll out PayMaya QR and PayMaya business solutions to our Enterprise customers such as McDonald's, Mercury Drug and Megaworld.

On Lendr, we have the most extensive digital lending footprint with loan volume hitting over PHP 1 billion per month and over PHP 34 billion of volume passing over the system since its launch in 2015. We've enabled over 100 banking partners and non-banks and continue to trailblaze new digital lending services.

Next slide please. Finally in Q1 with our leading digital platforms, we have a number of recent wins with such customers as Jollibee, Procter & Gamble, Unilever, SM, Google and many others that we show on the slide and continue to enable the Enterprise ecosystems with Voyager DigiHub and the FINTQ-DTI partnership for micro, small and medium enterprises. To date, we have over 100 partner banks and financial institutions signed up.

That concludes my presentation for Voyager. Thank you. We will now pass it over to our Chairman, MVP.

Yes, thanks Duane. Good afternoon to all of you. In terms of our guidance for 2018, we're maintaining the guidance we put out sometime in March which is for recurring income for ex-Voyager of between PHP 23 billion to PHP 24 billion for the year on account of higher revenues anticipated (technical difficulty) and higher EBITDA. We expect the higher cost OpEx for -- from more expensive network in the course of the year and lower earnings -- equity earnings from companies like Beacon. And this number excludes the effect of Voyager. I think by the time the announcer made the results sometime in August, we would give you a better idea of the full-year guidance and the impact of Voyager for the year 2018 CapEx. It's being maintained at PHP 58 billion; and a dividend payout at 60% of core income for the year.

We're now ready to take your questions. Operator?

(Operator Instructions) Now for our first question coming from the line of Luis Hilado.

I had 3 questions. First is regarding the YouTube promotion. Relative to the pre-Facebook, this is a sign of confidence I guess on your part that you're doing a video promotion and the quality of the network to sustain 1 hour YouTube viewing. Any feedback yet on the initial user experience? Related to that wondering when the monetization or the ARPU increase for this promotion is expected to come in? Is it this year or more of 2019 event?

Second question is regarding the launch of the bundled service packages yesterday. Just wanted to get the sense of whether it's more for retention or it's for market share growth? And also whether there will be -- still be handset subsidies tied to the mobile of that package?

Last question is regarding the retained earnings, the change due to the accounting standards, there's a PHP 7 billion increase, will that be taxable and what would be amount of tax that you'll be booking?

Eric Alberto here, I'll try to take the first question and Ren will address also the -- a bit of the first and second and then ask Anabelle to do the third.

On the YouTube, we realize that first of all the -- as Ren mentioned earlier, the offer is really to stimulate usage of data for our subscribers that are rarely using data and we've seen that video is the best way by which data usage can be achieved. Now having said that, certainly we'd like to clarify that it's not the price reduction activity for us. Free YouTube can only be available with a current live load on our prepaid platforms. What it does though, it does create a comfortable environment by which we can remove the stigma that is attendant to video use that it actually detriments heavily on the load.

In analogy, this is not different from 3 years ago when people go roaming abroad. People are fearsome of bills up. In analogy, that's what we're trying to avoid. The pricing of data has been one of the lowest in the world, if not the lowest in this environment. And certainly we'd like through our partnership with the very prestigious and relevant partner as YouTube, we would like to take this vehicle to be our means by which to get higher data usage.

On the point that you mentioned that how will our network take this, we are pleased to note that we are in close coordination with our network colleagues on the ground and really measuring the impact of this 1 hour free usage as in respect to its possible risk that it degrades the customer experience for our users. We're glad to note that the rollout of our 4G network all over the country has actually allowed that such capacity that we have absorbed the capacity despite of this program, the services that we give, particularly on the (inaudible) areas on our 4G continued to be superior and robust.

Would you like to add?

Allow me to add to -- yes. Allow me to add to what Eric has mentioned. I think first in terms of the customer experience, I think this partnership is not just a promo partnership, it's a through partnership to build user-ship on mobile video and as such the type of partnership we have with YouTube is actually -- there is a full integration at the back end. So we are actually working with the network team and the YouTube team to ensure that we constantly monitor the quality of the video going through our network. And we actually have put in process such that our network teams are very agile and are able to react if there's any congestion in any part of the network. So far we haven't seen any issues with regards to CX [and INSAT]. There seems to be very good take-up in usage of the promo. So that's on the CX.

Second with regards to monetization, let's -- actually this particular partnership is not necessary -- it's the first of its kind in terms of the specificity of the promo, but they have been similar promos that YouTube or partnerships that YouTube has entered in the past in India, Indonesia and in Thailand. And if we look at the ability to monetize that we're able to do so in the latter part of the year, so I think we expect that we will be able to monetize this towards the latter part once the promo period has lapsed. Because by that time we expect that consumers will have actually taken out the fear, that together we have taken out the fear to a good number of subscribers of using YouTube on their mobile service.

And in terms of initial take-up, we actually see -- well, it's still very early days -- it's still very early days, but maybe just as a reference, the initial take-up shows much higher viewing than we have in the past 1.5 years. So that's kind of maybe pointing to the success of the initial success of the partnership. So that's on the YouTube promo.

The second question was on the launch of the bundled service. I think first and foremost we -- one thing that we have done is really understand that we have the same consumer across fixed and mobile and even in media for that matter. So in that respect we want to make and add value to the lives of our existing subscribers. And that we do so by offering them a bundled service across our different lines of business and make it more convenient by actually having the consumer who go in contact with just one of the providers, we bundle the service together and actually by doing so we create increased stickiness as well across the various services.

So the first priority is to delight our customers, give them a much better experience by bundling the service together; and then number two, actually reward them for putting all their services with us through the -- through some savings on their end. And secondly of course we do have -- another thing that we want to do is leverage on the strengths of the group of the different lines of business, one of which is Home. So we have a very strong home footprint, in particular a fixed wired footprint brings us the 73% of the total market and we know that we have a good number of mobile subscribers in the homes that are not with our mobile business. So by doing this we hope to actually gain this good quality subs and we know they're good quality because they have been good payers of PLDT.

Again, just to add to that I'd like to dispel that again this is not a means by which to lower pricing on our part, but rather leveraging on, as Ren said, playing to our strengths and the ancillary benefits that this comes that actually accrued the cost savings to us: simple marketing, reduction in marketing costs, reduction in back-end office. And with this, this really forms part of the economics by which we share to our customers the lower cost of delivery of such bundled services.

Number 3?

Yes, and your last question, Luis, the details of the retained earnings adjustment is actually in the appendix section of our slides. There is a deferred tax component to that adjustment. Now, with respect to cash taxes, there's really no impact because the BIR has not issued any new guidelines that track this change in accounting standard, so there is no impact in terms of what your current tax payable would be. But because the accounting standard basically breaks up the recognition of the revenues between multiple or several performance obligations that you are delivering, i.e., the handset versus the telco service, there is a timing difference that is created in terms of the revenue recognition, i.e., the handset sale is recognized on day one, the telco service is recognized over time. It doesn't track exactly what the customer bill amount is, so there is in that whole timing there's a deferred tax asset or liability that would track that timing difference, but in practice there's no difference to what the customer pays, there's no difference in what we pay the tax authorities from a cash standpoint.

Our next question coming from the line of Arthur Pineda.

Several questions. Firstly going back to the YouTube offer, are you actually seeing consumers raise their purchasing frequency for the packages? Just wondering what the risk is that they actually reduce the top-up given that they can now get effectively 30% to 80% more data over the life of the plan. I'm just wondering if that's being compensated?

Second question I had is with regard to the partnership model as well, is there any financial element to the YouTube deal in terms of the partnership? Do they provide you anything like a share in the revenues on the ads for instance?

The next question I had is regard to the towers. Obviously your competitor has announced that they're looking to divest that. Is that something you would consider as well or do you think keeping it would be easy for you?

Last question I had is with regard to CapEx. Just wanted to understand in terms of the spending patterns, will the -- I understand that you're keeping the PHP 58 billion guidance for the year. Will this spending be more balanced throughout the subsequent quarters or would it more back-ended like 2017?

I'll try to tackle number one and hand over to Ren for other inputs. On the YouTube offer, our analytics as we track data use indicate that YouTube is one of the most -- if not the most preferred application whenever people go on video and data. Now, having said so, the idea really is for us by giving this offer as I said earlier removing the stigma of usage of this very, very relevant application to the wider base of our consumers. The -- obviously the idea is they have to top up to be able to enjoy this 1-year free -- sorry, 1 hour free, but the idea is for -- also for them to be able to shorten the latency of that loading period. And it's early days, as Ren mentioned, the take-up is very, very encouraging.

We're also seeing that while the latency has lengthened in the very short term, we're seeing that latency to be moving in the right direction, shrinking now that people are willing to pay for -- what do you call that, loading more -- and loading more frequently to continue to avail of that very attractive package and that very attractive promo.

On the second point, revenues -- on the arrangements with YouTube, Ren, could you take it then?

Maybe before that, let me just add a little bit more on the first question. So with regards to raising the purchasing frequency, first, this is a very specific load to YouTube, so there is actually an extra hour, but you can't use that for anything else, right? So it's actually very specifically just using it on YouTube. So unless that's the only thing you do on data, then there's no reason to top up anymore. But we know that's not really the reason that they top up data. They want to use it for messaging; they want to use the social media and so forth. In fact the whole reason of the whole premise of the partnership is to actually add video to their mobile data behavior.

And this actually talks to 2 kind of parts or segments within our business or subscriber-base, those who are not using data, for them to encourage using data because now they can do so without the fear, right? And number two for the light data users to build the habit because now they actually know that, oh, mobile data video isn't actually so bad right, so -- and after continuous use we feel that they will actually be enjoying the service and therefore later on they will actually end up paying for it. So that's -- and then -- so that's on the first -- the addition on the first question.

Now on the second question in terms of the partnership, if there's any financial part, there's actually no financial transaction between YouTube and Smart. This is really purely -- we have a joint and similar goals of getting more and more of non-mobile video users into mobile video. And we feel that with the best LTE network together with the best video platform in the world we can actually make a huge impact in the Philippine market. And by doing so, we then change behavior that will actually be mutually beneficial to both YouTube and to the Smart business.

I think that was asked during the media briefing. I think the -- I think to sum up our own thinking on that, on the question of tower sharing, at this time we see no need or benefit to share actually any of our existing network elements, in particular in towers, no? We certainly are open to -- if somebody builds towers, that perspective, and we are open to using them, buying them if we require those towers in any part of the Philippines. So we -- I'm just talking about the existing network elements that comprise our system. That's basically the position at least at this time.

There was a question on the impact.

Just on the question of the spend pattern for CapEx this year, we think it will not be -- as last year which is very back-ended for the simple provision that a lot of the CapEx programs have started in terms of planning and execution as early as last year. So last year we started later. So this year we had the benefit of early start and a lot of these initiatives. So the recognition of the CapEx a bit better spread out this year in the quarters.

Now our next question coming from the line of Ranjan Sharma.

It's Ranjan Sharma from JP Morgan. Three questions for (inaudible), firstly again on the free YouTube promotion, appreciate that you're trying to fill capacity on the network and still use it. But isn't there risk of this triggering a more elevated operation compared to what you've seen over the last 4-5 quarters because that's what you've seen in some of the markets as well and effectively you're giving away free video usage which your competitors then respond to. So that's the first thing. Second thing is you shared a case study in Luzon where you saw 5% growth in revenues in the first quarter. If you can also share what was the increase in OpEx from the growth in sites? Lastly you talked about -- sorry, there has been discussions about utilities bill which could declassify telcos as a utility. Can you just share where that legislation is right now?

On your first question on YouTube, let me address again that this is in no way a price reduction objective on our part that will stimulate a heavier and more pressure on pricing. You have to consider that the PLDT group's wireless subscriber portfolio still have ways to go in terms of shepherding our non-data users, non-smartphone users onto a smartphone to use LTE and therefore to use data. And this is one of the ways by which we would actually shepherd them and attract them to be using data. Of course our Smart, TNT and Sun brands. Secondly for our existing data users we have noticed that ARPU have been limited to our hero product which is the PHP 0.50 usage. The objective for us is to really get that -- the latency of freeholding because that's available for 3 days, short terms in the 3-day period because they're enjoying a superior experience over a platform and that's the objective. Having said that, the -- as mentioned earlier, 30 days, launch it less than a month, the signs of take-up is very encouraging. The loading take-up is also pointing in the right direction. We are going to close the mobile (inaudible). The agreement that we have with YouTube is that we will launch this promo for 3 months and then we will review it, that we achieve mutual benefits that is for us and benefit for them.

On the third question, the amendment of the public service talk is now in the Senate and we expect that actually to become law some time this year. That was again (inaudible), so one...

Sorry to interrupt, but can you speak closer to the mic? We can barely hear you.

The amendment of the public service talk you alluded to is now in the senate after having passed the house version. It is expected that the Senate will approve its version on third reading some time this year and the consolidated bills will become law and they get back some time in the year as well. So that will then remove the communication service from the definition of public utilities. And while lift more restriction and allow mobile owners of telcos up to 100%.

On the second question on the growth in OpEx you have seen in the same slides in Luzon.

I'll take that one. It's marginal because what is happening in terms of our LTE rollout, it's largely additional base stations are assisting sites, so not too much that's built out for new sites, but they are putting in that existing site, so the incremental OpEx is not significant in that scenario.

Our next question coming from the line of Varun Ahuja.

Got 3 questions from me. First one, the basic one, wanted to understand why do you need partner with Google on this YouTube promotion because as I believe there is no financial contribution, nothing, everything is done from your end? Do you need their permission to launch this as a individual case, do you have not to offer free 1 hour of YouTube? That's one. Or does it stop Globe also to offer us any kind of a promotion? So just wanted to understand the dynamics, basically why do you need a -- call it as a Google partnership with Google then there is hardly any contribution besides them branding as I can understand? That's number one. Number two on the mobile, if you look at the market share loss, it keeps on widening. Is there any particular line in this spend beyond which you will get uncomfortable because if you look at your competitor, the market shares, they grew by around 8%-9% and yours is flattish on a Y-o-Y basis. So appreciate your thought on the mobile market share loss which continues to widen. Thirdly on the fixed broadband, this quarter also grow by the decent growth in the fixed broadband segment while they're pursuing this prepaid fixed wireless kind for strategy. Is there any difference in the consumers that they are acquiring versus what you are aspiring in the fixed broadband segment given you're more focused on the fixed -- on the fixed wireless side. So just wanted to understand your thought process on how do you want to approach this segment of the market?

Right. And I'd like to take it (inaudible), but answer with -- and ask for him to add anything. On the YouTube partnership, it's very critical that we do partnerships in the revenue considerations. First, it's about the (inaudible) coordination that we do with them. They had a very bandwidth hungry application and platform, and therefore we need to coordinate with them particularly with respect to our network coordination in -- as we roll out the service to make sure that we don't compromise the quality of our services. Secondly YouTube and Google actually has a very sophisticated tracking of usage of YouTube viewership which actually gives us ancillary analytics by which the best whether the objectives that we had set out to do which is to increase data usage and monetize this data over a period of time is actually happening. Third, while very slow revenue share increase and partnership that involves go-to-market, market cost -- marketing cost sharing. I cannot disclose the particulars, but this is part and parcel of our partnership arrangements with YouTube. Last but not least, YouTube is such a very prominent and pervasive brand and we're certainly very, very proud to be in association in dishing out data applications over this very leading global brand. Second, I think it's respect to the -- I'll try to the third question for some fixed broadband. Obviously as smartphone penetration goes higher, there is now less and less propensity for people to use or acquire data services used in bundles. And therefore you can see that smartphone penetration actually with the increased capability of an LTE network would actually satisfy any individual's need for data access, right? And therefore you would see that the wireless data is now more akin to a home application. Having said that, we are repositioning our wireless play, right, which used to be branded under Smart Bro into a PLDT Home play that will actually complement a rollout of broadband into the households. And that's a significant shift in the way we look at the business and how we will market it and how we will position in the market moving forward in light of the developments in industry. Now on the third point, admittedly I will -- we will not skirt the issue, group has the upper hand in gaining that market share over data use of our subscribers in data usage. The numbers show it, their subs group, their performance grew by 9%. Ours grew by a modest 2%. But certainly we have every intent to narrow that gap. And I think we have already pinpointed the pinpoints, the problems that we've encountered the last 3 or 4 years. And we're certainly using new tools such as analytics that will allow us to granularly address the issues that we've seen at the market level, at each geography level as it affects our brands and each of the different geography cheers that we've booked across different markets in some demographic levels. We're certainly in for and we're committed to regain, but regain it not through by project propositions founded on exciting offerings to the market based on data and certainly improvements and superiority in the customer experience.

Can I just add on that, on the whole roadmap piece? I think first let me put context on why we're going -- we're prioritizing fixed wired over fixed wireless and why have a different context from which maybe other players in the market, that I think it starts with PLDT having the most extensive and already existing fiber network in the Philippines. We have over 187,000 kilometers of fiber. Now that is already there. So the build out -- the further build-out of that and using fiber to get to the home, the incremental cost will be much less than that of other competitors. They will have to spend more because they do not have that kind of footprint. But if you look at the technology, what can a fiber -- a fixed fiber line deliver versus a fixed wireless line? A fixed fiber line can deliver you dedicated bandwidth, high-level -- high-capability speeds --

And scalable.

-- and scalable, right? And now why is it very important? As new and new services come through and as new streaming services increase in terms of the bandwidth hungriness, right, so right now the HD, 4K, 8K will come in, virtual reality will come in. So that's just on the entertainment sites. There will be IoT, there will be [Smart Home], there will be AI, there will be cloud services. As these services develop in the future, we feel and believe that having a fixed wired network offers much more sustainability for the business and therefore return on investment will be much better over the medium to long term, but in fact as I said, even in the short term we're able actually to regain ROI within the first year. So on the fixed wired service, there is that context. Now when it comes to the subscriber-base, because of the dedicated bandwidth, because there is superior CX and because we can actually offer unlimited data, we actually are getting a lot of the top-end subscribers. So those who're willing to pay up to PHP 5,000, up to PHP 10,000, they will go to fiber. And actually where we have rolled out and where we did not have a wired footprint, and we actually came in with a wired footprint, we're actually switching and acquiring previously fixed wireless opt because it is the preferred and superior technology. Now, of course we understand that it will take time to roll out -- it will take time to roll out this fixed wired service and that's why we also have a fixed wireless footprint that we're developing and ramping up as we have developed -- as we are actually expanding coverage of our LTE network, then we can actually increase the areas where we can offer more -- offer fixed wireless as well. And we're catching up and we believe that through both a fixed wired and a fixed wireless solution, we actually can grow much faster than what we have shown so far.

Just one follow-up and one new question. There's the partnership with YouTube, is it exclusive? Can Globe also enter into the next 3 months that you're in partnership with them? That's number one. And number two, I remember -- I think the last couple of years you've been mentioning that you look alone or you've abandoned that, just any comment on that will be helpful?

I'll take the YouTube, first booked. So on the YouTube question, technically there is no exclusivity. Having said that I think -- because of the deep integration that we have with YouTube and also we actually work together in the marketing in terms of developing the marketing campaigns. We have integrated the backend, we look at (inaudible) and operate on a day-to-day basis and we actually have a joint goal of increasing data usership among -- or video usership amongst the smartphone and TNT sub base. Then we are -- I think we may not have reason and we're quite confident they have no reason to do another partnership at least while we're in this, together --

At least for short.

At least for short.

And hopefully not in the medium.

No, and -- so that's -- so that I guess is the answer to the first question. Now on the second one, I will turn over to Mr. Chairman.

Well, I think we've been very busy with turning around this business, we haven't had time to really focus on looking for a CEO. That's the short answer.

Now our next question coming from the line of Luis Hilado.

Hi, just one follow-up question from me on -- regarding the question of the public utilities bill. If it's implemented, will -- does it to supersede the current law that if the company owns property in the Philippines it has to be 60-40 local-foreign ownership?

No, it will not supersede that particular nationality requirement. That is a land ownership fashion of the requirement. And the 60-40 rule there is described by the constitutions. So it will not affect or modify the foreign ownership restriction as far as land ownership is concerned.

And if somebody wanted to come in with a 100%, they have to go into a full leasing mode essentially for the property?

No, there are ways of dealing with the land. Yes, they would have to do that. It would not be a difficult exercise to do.

Operator, are there any more questions in the queue?

As of this time, ma'am, we have no further questions over the phone.

No more questions?

No.

Okay, thank you for joining us for this first quarter results review. We look forward to speaking to you again sometime late August when the release goes, August, when we have the first half results. Thank you and a good weekend to everyone.

Happy Mother's Day.

Happy Mother's Day.

Happy Mother's Day. Happy Mother's Day too.