Good afternoon, everyone, and welcome to the PLDT Conference Call to discuss the Company’s Financial and Operating Results for the First Nine Months of 2012. This conference call is being recorded. Replay information will be provided at the end of the call. At this point, I would like to turn you over to Melissa Vergel de Dios, Head of Investor Relations for PLDT, for the introduction. Please go ahead. Thank you.

Good afternoon, and thank you for joining us today to discuss the company’s financial and operating results for the first nine months of 2012. As mentioned in the conference call invitation, today’s presentation is posted on our website. For those who have not been able to do so, you may download the presentation from www.pldt.com.ph, under the Investor Relations section. For today’s presentation, we have with us members of the PLDT Group management team; namely, Mr. Poly Nazareno, President and Chief Executive Officer of both PLDT and Smart; Mr. Chris Young, Chief Financial Advisor of PLDT; Ms. Anabelle Lim-Chua, SVP, Treasurer of PLDT and Chief Financial Officer of Smart; and Atty Ray C Espinosa. At this point, let me turn the floor over to Mr. Poly Nazareno for the presentation.

Good afternoon and thank you for joining us today. For 2012 we anticipated that the challenging operating conditions that arose in the second half of 2011 would carry into the first half of 2012 and would begin to improve in the second semester. Our results for the first nine months of the year are largely in line with this. Consolidated service revenues as of end September 2012 grew by 12% to PHP126.2 billion compared with PHP112.3 billion in the same period last year. EBIT dipped by PHP2.5 billion or 4% year on year to PHP58.6 billion largely due to the PHP1.8 billion of manpower reduction costs booked in the second quarter. Margin was lower at 46%. Reported net income for the first semester declined by 6% year on year to PHP28.7 billion, while core net income, excluding exceptional items, was lower by 8% year on year at PHP28 billion. Worth mentioning is that the results of the third quarter of 2012 are generally better quarter on quarter even without the contribution from digital. In addition, although third quarter metrics were lower than the same period last year, they showed improvement compared with the second quarter year-on-year results.

Operator, can you read the questions for – mechanics for taking the questions?

Thank you. The floor is now open for your question. (Operator Instructions) Our first question is from Mr. Sachin Salgaonkar. Your line is now open. You may go ahead.

Hi. Thank you for the call. I have three questions. The first question is, do you see this tough competitive intensity picking up in 4Q and beyond as Globe has also its capacity concern issue and potentially gets more aggressive? My second question is, if you look at your data and mobile Internet revenue, it’s showing a decent growth. But when we look at your overall ARPU, the sharp decline continues. I mean, I was wondering if this is an indication of any cannibalization. And at what point should we see this trend changing as in the ARPU stabilizes or increases. And lastly, PLDT had an intention of selling your BPO businesses. I was wondering if there are any updates on that or whether that has taken a back seat. Thank you.

With regards to the first question which is the competitive intensity, it – over the last two or three quarters, the competitive intensity has remained – actually, quite tight. And we’re seeing that we’ll continue but what is happening is that the market shares are stabilizing. Our market share, for example, has – in terms of revenue, on outbound cellular revenues, have more or less remained the same. So, we’re seeing that that has stabilized to a certain extent. Our objective, therefore, is to protect our strongholds and to respond to whatever threats would be occurring in the different regions within the country and make sure that we will not lose a single percentage point of market share.

The number two question was...

ARPU. (Inaudible) When do you see ARPU stabilize?

Right now, there is a still a slight of – downgrading from higher bucket price services to the lower bucket price and as long as the competitive intensity remains, I think there will still be a decline in the ARPU, albeit it may not be as high as it has been in the last three to four quarters. We’re optimistically looking at reduction in ARPUs a little bit on a lower range compared to what is happening today.

I think the last question was on SPi. I think the reason that SPi was discussed earlier was within the context of the overall funding for a possible GMA 7 transaction. I think, as you know, that transaction is not now proceeding. So, while we are looking at the overall funding for the media investments that we have at the moment, we have no definitive plan in respect of SPi company.

Okay. Got it. That’s very clear, Chris. And just one follow-up question on competitive intensity. I mean, the one argument out there is maybe the market shares stabilized the last couple of quarters because of the capacity issues at Globe. Now if capacity issues are resolved, if Globe continues to maybe target the increased market share, PLDT is focusing on not trying to lose any market share, there is a risk that competitive intensity might further pick up. So, any thoughts on that?

Well, if that is your assumption, that will continue to be – the competitive situation will continue to intensify. But I think the overall – if market shares are stabilizing to a certain extent quarter on quarter, which has been happening in the last two, three quarters. Then maybe things would be more rational moving forward regardless of whether one has capacity or not because we do have capacity, too, because we have just finished our super-charging of our network.

Good. That’s very clear. Thank you.

Our next question is from Mr. Luis Hilado. Your line is now open. You may go ahead and ask your question.

Hi. Good afternoon. Thanks for the call. I have three questions, one on revenues, one on OpEx and one on other income. On the revenue side, we noticed that the average revenue per minute for voice has improved quite substantially quarter-on-quarter, just wondering if there’s any particular reason for that. But as Mr. Nazareno mentioned, the yield on bucket pricing and even standard SMS was under pressure, just wondering if there’s, again, a seasonal or structural reasons for that. The second question was on OpEx for a few items like professional and contracted services, rent and insurance, Q-on-Q they seem to be up double digit, any one-off factors for that or should we use those numbers going forward? And last question, if you could tell us what the other income number was for in this quarter. It seems to be about over a PHP1 billion based on what we estimate for the quarter – PHP1.6 billion?

Yield on voice.

Well, we’ll compare notes, Luis, but the yield per minute Q-on-Q did not increased significantly as per your observation. But maybe you should just take it offline in terms of how we’re kind of looking at it.

Yes. I’m getting about PH1.04 versus PHP0.92 the previous quarter, but, yes, I’ll take it offline.

Okay. And the last question on the other income in the third quarter, that includes the gain and sale of the Philweb shares with respect to the first tranche that was closed in July of this year.

Okay. There’s another tranche coming in fourth quarter, I believe, or...

Yes. Yes. We’ve closed the second tranche this October.

Okay.

I think on the expense side, the reason for most of the increases is this year we’re consolidating the Sun and Digitel P&L whereas last year it’s not in there yet. We didn’t consolidate the results.

I’ll take it, the Q-on-Q – it’s quarter-on-quarter actually.

2Q to 3Q, it’s 2Q.

Okay. All right.

Our next question is from Rajesh Raman. Your line is now open. You may go ahead.

Yes. Hi. This is Rajesh from HSBC. Thanks for the call. I have two questions. Firstly, on media, could you guide us if there are any revisions for the media budgets for ABC 5 with the GMA acquisition now called off? Second, could you please remind us on the timing for auction and what is the minimum bid price? And lastly, your effective tax rate during the quarter was 19%. So, could you please guide us on your full-year tax rate please? Thank you.

What was the question again?

All the investments will be given (inaudible).

What is the question? What is the question on the media?

Sorry. Media, I was just wondering if there are any revisions for your media budget given that the GMA transaction has been called off. So, I was just wondering if there was anything that you have to revise in terms of the media budget, anything that you can guide on.

On the – well, the broad approach, I guess, is it was – the GMA’s sudden transaction that, was either a buy or build through TV5 and Cignal, I think we are currently reviewing with the management that TV5 and Cignal how the businesses are developing this year as yet we don’t have any updates at numbers for 2013, 2014 yet. It think on balance, it would appear that Cignal which is the direct-to-home satellite TV businesses doing quite well and should make it not exceed its numbers, initial output for next year. I think for TV5 it’s probably a little bit behind of where we expected it to be but again, the numbers have been looked at for this year – for next year and 2014. At this stage, as yet, there’s no impact on the PLDT’s financial statements. I’m sure this will come up later, we’re still reviewing how that investment should best be made into MediaQuest given the current discussions that are going on following the Supreme Court ruling, on the definition of capital. So, as yet, there’s no direct impact, but it will certainly begin to affect us going into 2013 and 2014.

Okay.

On your second question with regards to cure auction, the prescribed time table based on the original ruling was to have the auction process happen I guess no later than sometime in January next year. Now, we have submitted what we call our cost recovery amount but it is up to the NTC to determine what the minimum bid price will be, whether it will be a cost recovery amount or something higher than the cost recovery amount.

(Inaudible).

Well, the tax rate for PLDT group, we need to take into account the items that are I guess not taxable from our perspective or – so, for example, the gain on the Philweb sales, the equity share in our Meralco become earnings, previously, that gain on the disposal of (inaudible). So, all of those things have to sort of be netted out to arrive at a more what will be the operating sort of tax rate for the business. So, those things sometimes distorted if you just do a straightforward mathematical calculation.

Okay. Thank you.

Our question is from Mr. Arthur Pineda. Your line is now open. Please go ahead.

Hi. Thanks. Three questions for me. Firstly, on your OpEx, could you please quantify how much of your OpEx this year was actually linked to the network restructuring? I just wanted to clarify what a clean number for OpEx would be if you were to strip out restructuring activities for the year. Secondly, you mentioned that there were another 850 towers to be consolidated. Just to clarify, the PHP1 billion cost savings from 2013 onwards, is that just on 850 or is that on 1,700 towers. Also, is there a room for more consolidation in the future? Lastly, I wanted to clarify your tower rental expenses seems have risen significantly up by more than 20%. Is there any reason for this? And should we see that reverting in the next quarter?

Arthur, we’re not sure what you mean by network restructuring expenses, so we have not undertaken any item that we have to touch.

Presumably, you were taking expenses on consolidating the Digitel and PLDT network beyond just the labor expenses. Is there any clarity on how much that has actually cost you this year?

What we are seeing from the sites, for example, the consolidation of sites, is that it will cost us about PHP1 million for every two sites that we consolidate. And so far, we have been able to consolidate about 200 sites out of the 1,800 that we are planning to do over the next two to three years. That’s the only type of restructuring cost that you might be referring to. But that’s about it.

Understood. Sorry. On towers, the PHP1 billion, is that referring to just 850 towers, or is that a total of 1,700 towers?

The savings that we refer to is after we complete the process. Then there is a recurring savings of over PHP1 billion. So, the last take two to three years to complete. So, I guess it’s progressive, but that’s after the completion of the program, then we see over PHP1 billion in savings.

And the 1,800 is the maximum that we can expect?

Yes.

Right now that is what we’re seeing based on our evaluation of all the sites physically.

Understood.

And the savings will come from not just tower-rental savings but I guess...

Power...

Electricity, et cetera, et cetera.

Understood. Sorry, just last one on the rentals. It seems to be up a bit quarter on quarter. Is there any reason for this?

I don’t think that tower rentals – that rental expense also includes – if we see a short-term requirement to boost the lease of international capacity, we usually – as you’re aware, we usually build that and we are opening the cable landing station in Daet towards the end of the year. But I think with the pickup in broadband, we have rented a bit of additional capacity to bridge us through to the goal life of the Daet cable landing station. So, that – these are generally 6 or 12-month rentals. But it doesn’t relate to the power business. Yes, it doesn’t relate to the rental of powers.

Understood. Okay. Thank you very much.

Our next question is from Chi Fan. Your line is now open. You may go ahead.

Hi. Good afternoon and thank you for the opportunity to ask questions. I have in total four questions. The first question is regarding your subscriber growth. I see it’s mainly coming from the Talk ‘N Text brand which has lower ARPU compared to the Smart prepaid main brand which seems to continue to report a subscriber decline. Just trying to get a sense from you if there are some kind of internal cannibalization with subscribers migrating from your Smart main brand onto Talk ‘N Text? The second question is regarding the CapEx. You said that it’s going to normalize to pre-2011 level. Is it refer to CapEx to sales or is it the absolute CapEx of PHP28 billion, PHP29 billion? The third is regarding your core net income guidance. In the previous quarter, you seem to also guide that you’ve returned to PHP42 billion by 2014 as well, but this quarter guidance you seem to only talk about 2012. Does that – I just want to ask whether there are anything we should read into that or it’s just you didn’t mention it? The last question is on the foreign ownership. I understand that the SEC has come up with a draft guidance yesterday which comply with basically the Supreme Court’s recent judgment that the share should be considered separately by class and therefore this might impact both you and also some other company as well. What’s your view on that on these SEC new draft regulations? Thank you.

Thank you for your questions, Chif. Let me answer the first one. I think – well, for a certain extent, you are right. There is a certain migration from the Smart subsidies towards, of course, the cheaper bucket offerings on the Talk ‘N Text brand. And to a certain extent, that has resulted to our ARPUs – overall ARPUs or the combined ARPUs going down slightly, so – but what we are doing is we are looking at trying to differentiate the Smart brand versus the Talk ‘N Text No-frills brand, and therefore, adding more value to the Smart brand so that the premium that it commands will justify to a certain extent. But, yes, we’re trying to manage that shift and we are aware of this shift. The number two question...

I think that CapEx, it will more be focused on a number at the moment for 2013-2014 we indicated we think it would come down to about the PHP30 billion to PHP31 billion range which, I guess, is a little bit above the number that you were mentioning. But I think we are reasonably optimistic about the growth and data going into 2013-2014, both in text and mobile, as well as continued profit growth. So, I think we’re targeting that number. On the guidance, I think the reason we’ve not put that in is, one, that we are in the middle of the budgeting updates at the moment. And we need to reassess what the outlook for 2013-2014 will be. I think that we – it would be probably be fair to say at the moment, if we looked out to that 2014 number of PHP42 billion, that that’s maybe quite challenging as we sit here now. Two principle reasons for that, one is that in terms of the competitive situation, so-called market repair, given where we find ourselves today, I think it’s going to take – it looks like it’s going to be – take longer than we initially anticipated. So, I think that will affect the numbers as we go into 2013, 2014. So, we still think that, as Poly said in his presentation, that we’re seeing the situation stabilize in the current year. But certainly, the outlook is it’s going to take a little bit longer to get back to that PHP42 billion number. We also indicated we’ll get some firmer guidance numbers when we come out with the full-year results.

On the last question regarding the SEC exposure draft pertaining to the Gamboa decision, just as a first point, insofar as PLDT is concerned, we have taken the view that by issuing the voting preferred shares, PLDT has effectively complied with the Gamboa decision, in particular the vast portion of the June 28, 2011, Gamboa decision. This actually limits itself to the definition of capital as referring only to shares entitled to vote in the election of directors for the purposes of determining the allowable for investment, for foreign ownership limit in PLDT or in public utility companies. Insofar as the draft NTC rule is concerned, yes, we have noticed that the SEC in its rule making, policy making function has actually adopted the two statements of the Court found in the Gamboa opinions, and the one that you dealt with refers to into the application of the 60/40 rule to each class of share. Now, we have sounded off the SEC and local business communities that we find this particular rule to be very concerning. It does bring in to question and doubt, the validity of a significant amount of foreign investment particularly in listed companies like PLDT, Globe, ICTSI, Manila Water, CEDC, where if you were just to apply the 60/40 rule on the common stock only, the level of court ownership in each of these companies exceed in varying degrees to 40% allowable limit. The voting preferred shares were created by all of these companies and belatedly by us actually to address up the foreign ownership limit and to create in fact more headroom for additional foreign investment which these companies would need for their expansion. So, all of these bountiful effects of a structure that improves the voting preferred shares seems to be put a lot…

Okay. Thank you very much. Just a bit of a follow-up, is there any definite timeframe on when the SEC needs to rule on this?

Well, we have no indication yet when the SEC intends to finally promulgate the rule. What we know, so far, is they will hold the first public consultation of that on November 9, after which they actually will allow participating parties to submit their position papers. I think our interest is to attend November 9, voice out our views, submit our position paper shortly thereafter and encourage the SEC to hold a second consultative meeting so that the issues can be more intelligent to discuss in an open forum between the regulator and all of the affected parties.

Our next question is from...

Thank you very much. Yes.

Our next question is from (inaudible). Your line is now open. You may go ahead.

Yes. Thanks. Yes, just a question on nonrecurring items which is included in the core earnings, computation one is under manpower reduction. I do understand you have booked already manpower reduction expenses for the first nine months. Just want to know how much is your – the balance to be booked for the fourth quarter. Same goes for the gain on sale of the Philweb. I do understand the first tranche has already been booked in the first nine months and again, what amount it will be for the balance of the full year? That’s all. Thanks.

On the Philweb, first tranche indicated closed in the third quarter, and then the second tranche will close in the first quarter. So, there will be a similar amount of gain booked in the fourth quarter of approximately about PHP800 billion.

I think on the MRP, the number is not definite. Yes, I think there are still discussions going on. It could be a higher number. I think what we think it may be something in the region of about PHP500 million, maybe a little bit higher than that. It’s difficult to know these things in advance because we’re not entirely sure what the take-up might be. But PHP500 million, maybe a little bit higher.

Thanks. For the first nine months, how much was the manpower reduction? Is that available?

PHP1.8 billion.

Okay. First nine months. Thank you.

Our next question is from Surabhi Chandna. Your line is now open. You may go ahead.

Hi. Thanks for the opportunity. I just wanted to clarify one thing on the competition cost. Is there anything in the third quarter which was part of the MRP as well?

Did you say MRP, manpower reduction?

Yes. Because the reason I asked this is, last time, it was PHP7.8 billion, and you had suggested PHP1.8 billion of excess are one-time. And currently, compensation costs are again up. So, I’m just wondering if there are some one-off elements there for the third quarter alone.

The manpower reduction program was booked in the second quarter.

Second quarter.

So, not in the third quarter.

PHP6.5 billion for the current quarter would be, like, the recurring going rate in the future as well?

Say that again? The compensation cost for the third quarter is about PHP6.6 billion.

And should we look at this as the recurring rate?

Well, as Chris indicated earlier, there could be another expense related to manpower expense in the fourth quarter.

Manpower-reduction expense.

Yes, yes. And then the other thing, we probably would need to revisit at some point is really pension costs as a function of the change in manpower and also, I guess, some accounting changes next year.

Okay. My second question is on the tax rate. I understand it’s just there are a lot of one-offs for the current year. Do you have any guidance for next year, ex of this Philweb transaction?

Typically, ex the capital gains and Meralco, we are a little under 30%. 30% is the statutory tax rate. So, taking away the effects of all the other things, we come in 2%, 3% sort of below 30%, typically.

And this is not impacted by any changes in the fixed line versus wireless contribution in terms of income because I saw some note in your MDA which suggested something that you have low provisions because of fixed line revenues declining?

It shouldn’t. I think that our – as a result of the Digitel Sun transaction, there were certain tax we call net operating losses...

NOLCOs.

.NOLCOs, which depending on the outlook for the wireless and the fixed end business maybe not be recognized. If it is a NOLCO per se, normally that relates – you create a deferred tax asset. So, when you reverse it, the roundabout sales, you come out with roughly a tax rate 2% to 3% below the 30%. If there is a situation where there is a NOLCO which hasn’t been recognized but because of improving profitability you can begin to recognize it, that can have a positive effect on your tax rate. Otherwise, you’re running at about 27% to 28% level.

Sure. My final question is on the cash inflows that you have so far because of the Beacon and the PLDT transactions. Could you summarize the total amount and plan use of this funds considering now that the GMA talks are terminated? So, any plans on use of this cash?

On the Beacon-related cash flow, we received about PHP3.6 billion from the disposal of the certain – perhaps to MPIC. earlier in the year, we had also infused PHP2.7 billion into Beacon to – at our 50% with respect to certain additional share purchases that were made – Meralco share purchases that were made from the Lopez Group. So, that’s the – then on the Philweb, I guess, we received approximately PHP2 billion this year and then potentially another – a little over PHP2 billion next year. So, I guess, in a way you can look at that PHP2 billion also versus the MRT cost that we have basically also sort of shouldered.

(Inaudible). Thank you so much.

Our next question is from Rama Maruvada. Your line is now open. You may go ahead.

Hi. Good afternoon. Just two questions from me, please. The first one, again, following up on the OpEx trajectory, can I just check with you in terms of where do you see the longer term EBITDA margins for the fixed line division? They are about 10 percentage points below where they were last year because of the consolidation. So, if any clarity there would be helpful. The second one is with regards to digital DSL subscriber base. I noticed that it’s been trending down the past three quarters, just wondering what’s going on here.

May just add to that the second question over here, I think really – this is around the fixed line. That’s really a clean-up exercise, I think on our behalf. We have in place a credit control policy on the PLDT QIK side, the receivables being a perennial problem there over the years. So, as the year has progressed, we have Digitel adapt these more stringent credit management policies. I think as a result, we’ve seen the fallout in the subscriber numbers there. But that should be fully in place by the end of the year and should continue as we go into 2013. In fact, I think in terms of the sales residual base of Digitel performance, given they will have access to improve quality of service on their network because of the full integration – it’s a full integration with PLDT. That improved quality of service, I think, should encourage more people to take up – more of the voice subscribers to take up DSL going forward. On the text line, I think, our guidance on the margins remains the same, as we’ve been giving for the last four or five years, is that broadly the revenues are staying steadily. Plus we’re getting a little bit of growth but we still are seeing the dynamic where the international inbound and the NLD declines offset by the growth in the data business, both the consumer DSL and corporate. And again, as mentioned by Poly in his presentation, the margins on that part of the business, it’s growing and somewhat lower than that which is declining. So, we have been forecasting the EBITDA margin to come up by about 1% per annum until NLD and ILD gets back to a much lower number than it is now. And I think that’s how we see the trend continuing. Obviously, we will consider the PHP1.7 billion to be something – to be added back in terms of how we look at the margins.

Okay. Understood. Thank you very much.

Operator, are there any more questions?

At this time, we don’t have any other questions on queue. Melissa V. Vergel de Dios, Head-Investor Relations If there are no more questions, I’d like to turn the floor over to you for the replay details.

I would like to give everyone the instant replay information for today’s call. This conference will be available on a 24-hour instant replay starting today daily on through November 20, 2012. Replay information for the CPM call, international caller number, country code 852-3018-4300. U.S. toll-free is 1-800-945-6576. Passcode is 4168. Conference leader is Melissa Vergel de Dios. I will now turn the conference back to PLDT for any additional and closing remarks.

On behalf of my colleagues, I want to thank you all for joining us today, and we look forward to the next call, which would be sometime early March about the year-end results for the group. Thank you.

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