PLDT Inc. (PHI) Q4 2014 Earnings Report, Transcript and Summary

Good afternoon and welcome to the PLDT conference call. [Operator Instructions]. At this point, I would like to turn you over to Melissa Vergel de Dios, Head of Investor Relations for PLDT, for the introductions. Please go ahead. Thank you.

Good afternoon and thank you for joining us today to discuss the company's financial and operating results for the full year of 2014. 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, under the investor relations section. For today's presentation, we have with us members of the PLDT Group management, namely, Mr. Manny Pangilinan, Chairman of the Board; Mr. Polly 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 Attorney Ray Espinosa. At this point, let me turn the floor over to Mr. Nazareno for the presentation.

Thank you, Melissa. Good afternoon. Let me share with you PLDT's financial and operating results for 2014. Our financial results for 2014 reflect the impact of the growth momentum enjoyed by our retail and corporate data and broadband businesses, the Group's more aggressive response to competition in the wireless segment, as well as early report - or early efforts to evolve the PLDT Group into a converged digital communications business. Service revenues for 2014 grew by 1% year on year to PHP165.1 billion. Our fixed line business registered a 5% year on year increase, while our wireless business recorded a 1% dip. Consolidated EBITDA for the year was lower by 1% compared with last year. Service revenue increases were overtaken by the higher expenses, particularly those related to operating and expanded network, and in response to competition. EBITDA margin remained stable at 47%. Reported net income for 2014 declined by 4% year on year to PHP34.1 billion, while core net income was lower by 3% at PHP37.4 billion. On the next slide, allow me now to discuss the financial results in greater detail. About a quarter of our service revenues in 2014 were from our growing data and broadband businesses, which together registered an 18% or PHP6.4 billion year-over-year. This increase absorbed the PHP2.3 billion decline in revenues from our legacy international voice and national long distance businesses which amounted to 15% of 2014 service revenues. About 60% of our service revenues are from our voice and SMS businesses, which we believe are maturing. Our cellular voice and domestic fixed line voice businesses registered modest increases of 3% and 2%, respectively, partly cushioning the 11% or PHP5.2 billion decline in our SMS and voice revenues. EBITDA margin for 2014 remained stable at 47%. On the next slide, we are pleased to report that today the Board of Directors declared dividends of PHP87 per share, consisting of a final regular dividend of PHP61 and a special dividend of PHP26. Together with the PHP69 interim dividend, total dividends for 2014 amount to PHP156 per share or a 90% payout of 2014 core earnings. This takes into account the anticipated higher CapEx to support our growing data business, the investment in Rocket Internet, and our plans to complement the traditional access business with investments in new adjacent businesses that will provide future sources of profits and dividends. At the closing share price of 2,906 at the end of 2014, PLDT's dividend yield remains attractive at 5.4% and 5.6% based on yesterday's closing share price of PHP3100 per share. On the next slide, let me now discuss highlights of the various businesses, starting with the fixed line. This segment posted a 6% or PHP3.4 billion year-on-year rise in service revenues. 86% of fixed line service revenues registered year-on-year improvements. The bulk of the increase was from data and broadband, which grew by PHP3 billion from 2013 and which amounted to 53% of total service revenues. Fixed line EBITDA rose by 15% or PHP3.3 billion as service revenue increases and lower provisions fully offset higher cash operating expenses. EBITDA margin of 39% for 2014 was an improvement over the 36% for 2013. At the end of 2014, PLDT had over 2.2 million fixed line subscribers. On the next slide, data and broadband growth remained strong in 2014 as revenues climbed by PHP5.3 billion or 20% year on year and now represent 19% of total service revenues. The PLDT Group's broadband service - broadband subscriber base crossed the 4m mark, registering a 19% rise or over 659,000 net adds from the end of 2013. Fixed broadband revenues grew by 13% to PHP13.9 billion, following a 13% increase in subscribers to 1.1 million, while wireless broadband revenues improved by 6% to PHP9.9 billion. Mobile Internet continued to record the strongest growth, with revenues up by 63% year on year at PHP8.1 billion, as smartphone ownership among our subscriber base grew to nearly 30% with user - with usage higher by 167% from 2013. Wireless service revenues for 2014 dipped by 1% or PHP1.6 billion year on year to PHP115 billion, as increases in wireless broadband and mobile Internet as well as domestic voice revenues were overtaken by declines in inbound international and SMS revenues. Thank you. Our postpaid subscriber base at the end of 2014 grew to over 2.7m, which generated postpaid revenues representing 21% of total cellular revenues or PHP21.7 billion. The PHP2.6 billion improvement in postpaid revenues over 2013 fully absorbed the PHP300 million rise in subsidies. Prepaid revenues declined by PHP5.5 billion or 6% to PHP79.1 billion as a result of price competition as well as our more aggressive response to defend market share in the second half of 2014. Wireless EBITDA for 2014 was lower by PHP3.8 billion or 7% and EBITDA margin of 44%, reflecting the pressure on revenues, as well as the impact of the change into wireless revenue mix and the greater proportion of postpaid revenues to total revenues. Encouragingly, the margin for the second half of 2014 of 44% was stable versus the first half of 2014. On the next slide, moving on to the balance sheet. Net debt at the end of 2014 rose to $2.3 billion, with net debt to EBITDA of 1.34 times, which reflects PLDT's investment in Rocket Internet. The full-year effect of the higher debt level will manifest in 2015. 47% of gross debt is denominated in U.S. dollars. Taking into account our U.S. dollar cash holdings and hedges, only about $1 billion or 34% of our total debt is unhedged. Our dollar-linked revenues, which amount to $700 million, or about 20% of our 2014 service revenues, provide a natural hedge. Post-interest rate swaps, 78% of our debt are fixed rate loans. PLDT's debt profile remains healthy, with maturities well spread out over 50% of total debt is due to mature beyond 2018. PLDT's credit ratings with Fitch, Moody's and Standard & Poor's remain at investment grade. On the next slide, free cash flow 2014 was lower at PHP27.7 billion, mainly due to the higher CapEx and income taxes paid. In anticipation of the expected rise in data traffic as a result of greater smartphone ownership and our initiatives to stimulate usage, PLDT has decided to increase its investment in capital expenditures in order to provide more than sufficient network capacity, greater coverage and better quality of service. CapEx for 2014 amounted to PHP34.8 billion or 21% of service revenues. This covered, among others, the expansion of our 3G and 4G networks, the extension of our fiber footprint to 98,000 kilometers, the modernization and fortification of the fixed line network, as well as projects to improve network efficiency. CapEx is anticipated to remain elevated in 2015 at PHP39 billion as we continue to expand the PLDT network to support the growing requirements of our customer base. On the next slide, as part of our plan to reshape PLDT from a telco access business to a converged digital communications one, we have expanded our existing pillars of growth, mainly individual, home, enterprise and multimedia, to now include digital. Let me highlight some of our initiatives in these spaces. Under the individual segment, our focus is on growing our mobile data business through our digital inclusion campaign, "Internet for All." We recognize that access to the Internet is changing consumer behavior and lifestyles, including how people are turning to the Internet for communication, information, entertainment and even shopping for goods and services. We also recognize that a big number of our subscribers may still be hesitant to access data using their smartphones because they are worried of the cost. Thus, we are designing our efforts to address this concern. We have made available load denomination data and load bundles that even the low-end market can afford. A free Internet promo which we launched in September last year is one way to help our subscribers appreciate the always-on data experience on their smartphones and effectively stimulate data usage. Notwithstanding the promo, mobile Internet revenues in the fourth quarter of 2014 remained stable. The successful promo has generated a significant number of new data users for us and higher top-ups and ARPUs for those who availed the free Internet. More usage-stimulating initiatives will be announced in the coming months. On the next slide, our home segment provides a compelling suite of digital services ranging from communication, entertainment and home monitoring, all running on a formidable integrated network and with the end-goal of delivering to the customer a connected home. Our home broadband plans are available at different price points depending on speed or volume. Complementing these plans are a variety of value-added services such as device bundles and home monitoring services, further making possible a connected home. For PLDT, there are opportunities to bill above. Finally, access to content such as music, games, movies, sports and the like are made available to further enhance the customer experience and home's value proposition. As a result of all these, our home segment continues to push ahead in expanding its footprint and presence in homes nationwide. Next slide, in the enterprise segment, the PLDT Group continues to have most extensive presence in Philippine business. Our wide range of enterprise solutions and telco services, backed by the unparalleled breadth of the PLDT Group network, have made the PLDT the preferred provider to corporates, SMEs and the BPO industry. Our data center business is a new source of growth for the Group with our rack capacity being the largest in the Philippines. With the outlook of the Philippine economy remaining robust, we believe that the growth momentum in the enterprise segment will carry through 2015. On the next slide, in line with transforming the company into a multimedia services organization, we have several initiatives integrating various forms of content into our products and services service offerings. For example, we recently announced a multiyear, multi-platform partnership with Walt Disney Company Southeast Asia through its digital arm Disney Interactive. Subscribers of Smart and PLDT Home Telpad will be able to access the growing portfolio of Disney's online games and e-books using their smartphones, tablets, laptops and computers. On the pay TV business, Cignal TV now leads the industry with over 844,000 subscribers at the end of 2014, surpassing the 20-year incumbent. This slide is a snapshot of our digital unit which is structured along the innovation cycle. The setup is similar to a Silicon Valley or Rocket Internet factory where ideas are translated to prototypes and proofs of concept. Then if successful, they're gradually spun off. Two of our subsidiaries, Voyager and Smart eMoney, are at the forefront of these initiatives. We are also prepared to partner with other entities such as we have done with Rocket Internet. On the next slide, one area in the digital space which we believe has extensive potential is in big data. The data pond from our combined subscriber base of over 76m is a rich source of insights that can be used to connect businesses and consumers and ultimately influence transactions. We will share more of our efforts in this space in the coming months. Let me now give you an update regarding our investment in Rocket Internet. Based on Rocket's closing share price on March 2, 2015 of €51.12 per share, its market cap is €8.4 billion of which our 6.1% share is worth €515 million. This is a 55% increase over our original investment of €333 million infused in August of 2014. We recently announced agreements with Rocket and there are more of joint initiatives in the pipeline which we expect to announce in the coming months. We are very excited about these as we see how a local vertical has potential to be a global horizontal business. And now let me turn over the floor to our Chairman, Mr. Manny Pangilinan, for the highlights of the Group guidance for 2015.

Thank you. Thank you, Polly. Good afternoon to all of you. In terms of the numbers for 2015, regarding core net income which is at the level of PHP35 billion, about 6% lower, PHP2.4 billion lower than core of 2014. And CapEx at PHP39 billion, up by about PHP4.2 billion from the CapEx spend last year. The lower guided profit for 2015 is brought mainly by especially continued competitive pressure, OTT players make their dent in this of PLDT and Smart [Technical Difficulty] long distance. And the CapEx represents accelerated 3G/4G rollout which Polly cited earlier which subsequently leads to higher depreciation costs and higher financial expenses. In terms of dividends, we're maintaining our policy of 5% payout on core for regular dividends and a look-back for any special dividends. So it's [Technical Difficulty].

We're now ready to take your questions. We'll first take questions from those who joined us through the conference facility, before we take questions from the floor. Operator?

[Operator Instructions]. Our first question comes from Luis Hilado. Your line is now open.

I had three questions, apologies. But the first one is sort of housekeeping. But was there a restatement of prior quarters operating expenses and such? Because when we tried to look at the implied fourth quarter, we were coming up with quite big swings in terms of compensation and benefits, as well as professional and contracted services, and quite a number of lines are up or down substantially. Just wondering if there's any restatement there. And if not, if you could give us some color on why there are these big swings. Second question is regarding the lower special dividend for this year. In the past you've mentioned that the threshold you have for net debt to EBITDA is about 2 times maximum. Just wondering if this lower special is indicative that the investments, aside from CapEx, but the investments you will make in the next few quarters or next - or longer than that, will put you close to the 2 times net debt to EBITDA? And last question is a bit of housekeeping as well. The effective tax rate in the quarter seems to be around 17%. Any color for that? And whether this year we're going to see a lower effective tax rate as well?

So I'll try all three. On the effective tax rate, I think it changes Q to Q. So I think in terms of the floor, we are still guiding for about 27%, 28% looking forward to 2015 and beyond. So that's the way it comes in the quarters. In terms of the net debt to EBITDA, we are currently forecasting that it will go above the 1.5 times. But I think what we are projecting is that we'd be going to actually something close to about 1.7, 1.75 by the end of 2015, probably staying around about that level for 2016. And then thereafter, as we see some pickup in both the revenue, the EBITDA level, plus CapEx coming off a bit from that PHP79 billion level, come down to somewhat below that as we go into 2017. The main adjustments that you see in the fourth quarter relate, somewhat unfortunately, to our variable pay, because obviously, given the results as a whole, these were being accrued in the financial statements up to the end of the third quarter and obviously the results came in lower than originally expected at the beginning of the year. So there were some reversals in the fourth quarter, which I think - our next step is the Q-on-Q analysis.

But there seems to be like other items, like asset impairment seems to be quite substantial in the quarter, and taxes and licenses seem to be up almost 300%. Is that--

I think we've also taken some there, but on - yes. I think part of the CapEx plan going into 2015-2016 is a fairly robust build-out on the LTE network. So that will have an impact on both our existing fixed wireless canopy and Wi-Max network. So there is an impairment included in the numbers for Q4 for the Wi-Max and the canopy. Again on the taxes and licenses, they do change Q-on-Q, because generally there's an element of negotiating and settling these as we go along. So again these don't necessarily fall in - comfortably and evenly, sorry, on a Q-on-Q basis.

Okay. So we should take the annual number, I guess, as sort of the guideline for this 2015%?

I think that's the best way to do it, if you're looking forward to 2015-2016.

Thank you. Our next question comes from Princy Singh. Your line is now open.

This is Princy from JPMorgan. I had a couple of questions. First is on the CapEx guidance for 2015. Could you give us some indication how much of it is for your fixed line and how much of it would be to enhance capacity on the wireless network? Second question is on your data strategy, clearly, very sharp growth in mobile data. But just wanted to understand, if you had not launched the free Internet campaign, how much will this growth would have been lower by? And just from a medium-term perspective, what kind of growth rates on usage are you expecting over the next two to three years? Are there any adoption or data usage targets that you have internally put in place that can be shared? And how do we think about CapEx trends directionally over the next three years on the back of this?

What we can say on the free Internet offer is that, on the frequent users of the free Internet, in the past, this is from August to December of last year, there was over 30% increase in frequent users on the free Internet. And what we have experienced within these free Internet users, an increased ARPU occurred. So we consider the experience quite positive, plus the fact that our mobile Internet revenues remained the same. The growth rate overall for the year has been 63% and has not been really affected or negatively affected by the free Internet.

I think Princy, on the CapEx, it's approximately one-third to the fixed and 2/3rds to the wireless business. Now having said that, I think as we discussed before, within the fixed line business, there is also the DFON or the backhaul facilities of the Group, so that's included in the one-third on the fixed line. On the wireless, about 50% of the figure of that 2/3rds really is for increased coverage and improvements to quality of service on 3G and LTE network. The balance really is for various support systems for the wireless network. In terms of the level, I think we're looking at about 23% of revenues in 2015, which translates to a little over PHP39 billion. And we're looking at a similar level in 2016, with it coming off a little bit in terms of percentage of revenue as we go into 2017. In terms of the traffic growth, if I recall the number, I think we're looking at about 75% to 80% growth in total usage in the network in 2015, 2016, 2017, each year, as we see more particularly wireless data consumers.

Thank you. Our next question comes from Neeraja Natarajan. Your line is now open.

Just in terms of costs. The data variable costs you said you've reversed, so is there further room for - just on a year-over-year basis also the professional, the compensation has gone down quite strongly this year. So is this another - is this going to be a year that you will be cutting back, going into next year because it does sound like a bit of a challenging outlook. That's the first question. Secondly, operationally on the pre-paid side, I still see very strong subscriber additions at Globe which somehow does not - I mean I expected the free Internet offer should see a pick-up in net adds for PLDT. And on the postpaid side, the churn still seems to be quite high. This is more on the Smart side. Can you give any color around this please?

I can try on the first one on the expenses side. I think the objective as we look to 2015-2016 again is that to keep the cash OpEx increase to probably no more than about 1% to 2%. And how that actually factors in across the various expense categories, it's difficult to say. But obviously one of the areas that we think we can manage that is on the compensation line. So I think there is a number - quite a number of initiatives across both the fixed and wireless groups at the moment that would allow us to manage the number within that range. But there is a full review of all aspects of the cash OpEx. Across the network side, there's again a number of initiatives there that we're looking at which could help us maintain the cash OpEx in that maybe 2% range. You've seen that the EBITDA margin is relatively stable in 2014 compared to 2015, as that has been - we think it will come off a little bit in 2015. But it will - maybe we'll try to limit that to no more than 1%.

I had another question on just the operational trends.

Well with regards to your question on prepaid subscribers, what happened was that all - on the launch of the prepaid book of the other - by competitors, there was a switching or there was a moving from our subscribers to theirs in terms of double SIM-ing because our subscribers remained flat, but the frequency of net adds actually reduced. And therefore to counter that, we launched the free Internet and it seems that in the fourth quarter, this has been reduced considerably. And therefore that is the reason why there is an increase but on our prepaid subscriber base it remains stable. On top of that we have also done a clean-up in our base on both - on top of this and so that's why the subscriber base has gone up. In terms of organic increase, we have had net additions, but this was offset by the clean-up of the base.

Okay. So just to follow up, given that you did have the free Internet offer and maybe you may have some more offers coming in, the subscriber may stay on, but the ARPU won't - may not increase, I don't know. But how do we measure the fact that your market share defense is improving with some of these initiatives that you've taken?

If you look at the fourth quarter, you will see that the market share had sort of stabilized on the legacy services which is SMS and voice on the mobile side and that is one indication that the steps we are taking are in the right direction.

And sorry, I just had one more question on the postpaid churn which still seems to be on the higher side. This is only for the Smart postpaid numbers. And the net adds run rate, it also seems to be in general lagging. Is there room for this to pick up further?

Neeraja, I think in terms of the postpaid churn, nothing really unusual particular to the fourth quarter, but I think a general churn. As we increase the postpaid subscriber numbers over time, you are going to lower into the market. So there is some anticipation that churn could potentially be higher as we try to pan our postpaid base.

Okay, got it. No, just because if I see like your - because it's a higher churn number. It just seems like the stickiness of your postpaid base is not increasing. But then if you're doing a lot more handset bundling than in the past and it's a lot of high end handsets, shouldn't we start to see this go down, even though the base is higher, I agree, but.

Probably we can take it offline because my - our numbers show relatively the same churn rate Q-on-Q. But we can probably take this offline.

Thank you. Our next question comes from Chate Ben. Your line is now open.

I have four questions in total. The first thing is regarding your initiatives to protect the market share. As you say we have seen some stabilization. Do you think what you have done so far is quite enough already and that the competition should remain a bit level? Or do you think that there are some areas and things that you would like to improve, perhaps like trying to gain back some market share or to make sure that you stabilize at this level? The second question is regarding your payout, 90% payout for this year. Should we use that as the basic guidance for the payout into FY ‘15 - 2016, as you continue to invest in your business? The third question is regarding your investment in the so-called adjacent business. We have seen some of this effort in your, for example in your Rocket Internet investment and some other JVs. What - do you actually have set any kind of budget aside for the investment that we could see over the next few years and if you can give us some figure that would be very nice. And the last thing is among all the digital areas that you mentioned, what is the area that you see there is the strongest potential for the Philippines that you would focus on. Thank you.

Regarding the market share, one was, the indication for the fourth quarter seems to be that we are taking the steps in the right direction. As you know, the initiatives are never enough, so there will be more initiatives from our part moving forward.

On the payout ratio, Chate, we'll basically retain the same approach but that we've had for many years now that there is a basic recurring of the dividend of 75% and we are retaining that going into 2015-2016. On the special dividend again, that's anything between 0% and 25%. This year or in respect of 2015 it is 15%. We really just have to calibrate that. I think given the CapEx level that we're looking at in 2015, 2016 I think we could pay some special dividend. But I think we really need to get through towards the end of 2015, the early part of 2016 before we can give a clearer indication at what level that that will settle.

I think in terms of the new businesses, the target is - I think we've given a target at about 20 - which is a long way out, 2020, that they would then contribute about 10% of the revenues of the Group. I think it's [indiscernible] that in these businesses, the EBITDA margin would be somewhat below that of the more traditional businesses. But in terms of revenue I think the target is about 10% and the most promising.

The most promising part of the business that we can see at the moment are what really is the MePay which we are - which is a part of the JV with Rocket Internet which would make the Philippines as the first market to launch it. It's an online payment platform that is geared for the unbanked, the uncarded and the unconnected. So it is really targeting the emerging markets because as you know in our part of the world, the - 80% of the population is unbanked. And that is the reason why our platform would serve as a solution to e-commerce companies in the Internet or online payments in order to avoid the cash on delivery type of transaction which would result to a dip of rejection rates upon delivery of the goods. The other is an organic development of [indiscernible] which is called Lock by Mobile. It is a capability by which we are able to link in with the bank. It's an added security where your account or your credit card can be locked or unlocked, auto locked or you can even lock it by yourself or by - the extension card of your wife you can lock it if you want and unlock it if you want and lock it as you please. Today, we have already four or five banks that has signed up with us and this is basically a B2B business. We are being paid an annual fee for the Lock by Mobile and we intend to explore exporting this to other markets from here on. Already there are some interest coming from our digital guys who came from the U.S. recently and signed up with Visa, who has been keen for this particular development and also a few banks in the UK. We've had initial exploratory meetings in London a few weeks ago. These are the two main potential that we see. There are others in the pipeline, but perhaps we can discuss that later.

I just have two follow up questions if I may. The first question is regarding your - again the investment into the so-called adjacent business. I appreciate the 10% revenue contribution by 2020. But what kind of investment budget are you setting aside for this? For example in the case of SingTel, they announced their budget is like SGD2b over two years. Do you have any kind of a budget set aside? And the second thing is regarding your guidance for 6% decline in FY ‘15's earnings. If you can share with us a little bit more on what kind of service revenue growth or EBITDA growth could be driving that, that would be very helpful. Thank you.

I think these are two new questions, not follow-up questions Chate. I think in terms of the guidance, broadly what we are looking at is overall revenue growth probably low single digit and then reasonably flat. If we can manage the cash OpEx broadly, as I indicated earlier that we will maintain the EBITDA reasonably flat year on year. I think what will impact us more in 2015 is that with the CapEx level somewhat elevated in 2014 and continuing into 2015, we will be incurring a somewhat higher depreciation charge. Second again, it was referred to earlier, the debt level will be a bit higher as we go into 2015. So the interest charge will also be a bit higher running through the P&L in that year. So I think we're broadly looking at low single digit growth in revenues. We're trying to manage the cash OpEx reflecting that to come out with a relatively flat EBITDA number. And then by the time you get to the bottom line because of the higher interest charge and depreciation, there'll be a bit of a decrease year on year. Obviously, I think as Manny indicated in his guidance and some of the other comments earlier, we would hope to see that improve as we go into 2016 and 2017. In the adjacent businesses I think we don't have the ambitions of SingTel with the SGD2 billion. I think what we are looking at as we invest in adjacent businesses is that the investments would be something in the region of maybe $10 million to $20 million at a time and maybe $3 million to $4 million in any one year. But it has to be an adjacency. It has to be something that assists us either in the wireless or the fixed or the content side of the business. If there is some upside from investing in the business, that's fine, but it really has to be something which is not - it's not a standalone, it's something that works with the existing businesses. So that level of business and maybe - that level of investment and maybe $2 million or $3 million to $4 million within any one year.

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

Three questions from me. Firstly, it was mentioned that 10% of revenues should be coming from digital services over five years. I'm wondering what the bottom line implications are when we look at those regions - in digital services typically it's starts out as loss making. Is there anything like that that we should look at for this for some of your mobile payment solutions? The second question I had is with regard to your cash OpEx. You've mentioned a 1% to 2% target increase. Which areas should we look at outside of maybe employee compensation that can be addressed meaningfully in 2015? The last question I had was with regard to your promotions. You also mentioned that there will be new usage stimulating activities to be launched in the second half to this year, within this year. Will your subscribers be charged on these promotions or is it to try getting people to adopt data initially and raise market share with a view to eventual monetization or is it upfront monetization? Thank you.

Let me answer the third question. The key really is to unlock the data potential on the prepaid side and we will continue to explore all kinds of initiatives to be able to do that. But slowly we will be moving towards being able to charge on the basis of volumes, but looking at how we can sustain the consumer experience. So that, as the lower end of the pyramid experiences the Internet, they would also be able to experience always on - and then we can maybe at that point monetize the data. But it's a continuing experiment on our part.

On the contribution from the digital businesses, we would expect as I said the margin there is somewhat lower than the other businesses in the Group. But it should begin to make a meaningful contribution. Yes, there will be some start-up losses but the businesses which are currently in there which Poly described such as MePay, actually they are already profitable. So they do have the ability to absorb some start-up losses elsewhere. So we are not anticipating that as we go from a relatively small contribution to a 10% contribution that there would be a major drag from start-up losses. We are anticipating that these businesses will be - most of them can get to profitability relatively quickly and begin to contribute. The cash OpEx other than the compensation which I mentioned earlier the other focus really is on what we group together in the analysis as network maintenance costs. As you know when we acquired the Digitel and Sun business, initially a lot of the effort was in putting the fixed line businesses together and rationalizing that, so that was completely done. On the wireless side, we have gone part of the way there to achieve that network rationalization. However, due to some operational matters that full integration will not actually happen until we get into the latter part of this year and actually more into 2016. But there are opportunities as a result of that for us to manage that maintenance cost increase to a relatively low level.

Sorry, if I can just on the follow-up question - actually it could be a different question altogether. With regard to the 90% payout that you've had this year obviously this year has been under pressure since you've acquired the 10% stake in Rocket Internet. So assuming there's no major acquisition going forward, are we bound to - is there room for this to go back up to 100% payout?

I think what we've said Arthur is that we will stick with the dividend of 75%, which is actually - that's already quite high. But I think what we're looking at in terms of the financial dynamics is that the CapEx to get that coverage and quality of service on the network side is going to be very elevated in 2015-2016. There may be an opportunity to see that settle at a lower level as we go into 2017/2018. At that stage maybe we could look to that going somewhat higher. I think with the CapEx that we are seeing for 2015-2016, it is difficult to envisage it going back to that 100% level. Maybe if you went beyond that there would be an opportunity to discuss that.

[Operator Instructions]. Our next question comes from Rama Maruvada. Your line is now open.

Two questions from me please. Firstly, with regards to the asset impairment charges that you booked in the fourth quarter, could you provide a bit more color on what this pertains to. And the second one is a broader question on your wireless market share. I'm just wondering whether you're comfortable with your current position or where do you - do you intend to have more promotions in the next three quarters to realign the market share. Thank you.

The asset impairment we booked in the fourth quarter relates to the fixed assets that we have carried with respect to our policy and wireless asset base which as you can appreciate particularly the kind of its reached end of life. And as we’ve seen PTSD [ph] we have been actively migrating our subscribers from this particular technology to the new PTSD offering. So given that the subscribers are increasing and there is some [indiscernible] data, there was the asset impairment was focused in the fourth quarter of 2014.

So what we're looking at in the first instance right now is to stabilize the market share on the legacy services, very aggressively grow broadband and data both corporate and - corporate data and SMEs and ICT and datacenters. And of course try to grow and develop our new pillars which is the multimedia and digital pillars. And that's what we will be focusing on.

Thank you. Our next question comes from Neeraja Natarajan. Your line is now open.

I just had one follow up. In the last quarter call you specifically highlighted that your competitor was unbundling SMS promos. I just want understand if your response has seen this reduced and going ahead, is there more opportunity to, on the prepaid side for bundled offerings to come up. And should we see the usage plan on SMS bottoming out a bit going into next year or not really? Thank you.

I think let me just comment on the SMS. If you look at the fourth quarter, I think the reduction in the SMS, we notice that has been reduced in absolute numbers and also in percentage decline and we’re hoping that this will continue moving forward, based on the initiatives that we have taken in the fourth quarter. Now moving forward of course we are having a pipeline of promos that we will unfold. But this will essentially be data-centric type of promos that would stimulate the usage of data and unlock the prepaid potential of data.

And one more question if I may. Under the Philippines Internet Group that you've formed with Rocket, is this going to be the arm under which you're going to acquire or is this where all the payments and all the other JVs, the collaborative JV falls under?

That is just one core investment with Rocket. The MePay product investment is held separately from the Internet Holdings. Should we do other things with them, on the payment side this might be the under the MePay structure. We are looking at some initiatives with them outside the Philippines, so there could also be a fourth vehicle that we invest on the non-payment side.

And so under the Philippine Internet Holding what are the sort of opportunities you are looking at?

They have several businesses already active here. Carmudi which is in vehicle sales, Lamudi which is in property and a number of other start-up businesses here. So these are businesses which Rocket already operates in other countries and are starting up here. Well, actually in the case of Carmudi and Lamudi I think both of them have been operating for about 18 months or so. But there is a range of start-up businesses that are Rocket businesses operating in other countries which they wish to operate also in the Philippines.

Thank you. As at the moment we have no further questions, I hand the call back to you.

As of the moment we don't have any questions in the queue. And right now I would like to give everyone the instant replay information for today's conference. This conference will be available on a 24 hour instant replay starting today daily on through March 17, 2015. For replay information for the 3 p.m. call, the international caller number is country code 852-301-84397. The U.S. toll-free number is 1-866-845-9394. The UK toll-free number is 0800-376-3203. The Singapore toll-free number is 800-120-5663. The Japan toll-free number is 00531-12-2226. The Australia toll number is country code 612-8030-3097. The passcode for this is 7748 and conference leader is Miss Melissa Vergil de Dios. Now I'll turn the conference back to PLDT for any additional or closing remarks. Thank you.

Thank you to everyone for joining us for today's briefing.