PLDT Inc. (PHI) Q1 2015 Earnings Report, Transcript and Summary

Good afternoon, everyone 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 and thank you.

Good afternoon and thank you for joining us today to discuss the company's financial and operating results for the first quarter of 2015. As mentioned in the conference call invitation, today's presentation is posted on our website. For those who have not yet 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. 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 Ray Espinosa. At this point, let me turn the floor over to Mr. Polly Nazareno for the presentation.

Good afternoon. Allow me to share with you PLDT's financial and operating results for the first quarter of 2015. PLDT's financial results for the first three months of 2015 continues to manifest the impact of our growing retail and corporate data and broadband businesses. The results of the group's more aggressive response to competition in the wireless segment, as well as progress in expanding the PLDT Group's participation in the emerging digital economy. Revenues for the period were stable at PHP42.6 billion consolidated service revenues dipped by 2% to PHP40.5 billion. Our fixed line service revenues rose by 1%, PHP15.9 billion while wireless service revenues decline by 4% to PHP27.9 billion. Consolidated EBITDA for the first quarter was lower by 2% year-on-year at PHP19.3 billion, but EBITDA margin remains stable at 48%. Reported net income for the period remained as PHP94 billion similar to the same period last year, while core income dipped by 5% to PHP9.3 billion. On the next slide, let us now go through the financial results in greater detail. Our data and broadband businesses continue to register robust growth with PHP1.1 billion rise to PHP11.2 billion at the end of March, 2015 exceeding revenues from SMS and now accounting for 27% to total service revenues. The increase in broadband and data revenues were fully absorbed by the PHP1.3 billion decrease in international voice and national long distance revenues. Our voice and SMS businesses representing 60% of total service revenues also registered declines. Revenues from these maturing businesses were 2% lower PHP24.2 billion. Consolidated EBITDA dipped by 2% to PHP19.3 billion as lower cash operating expenses and higher net non-service revenues. Partly offset lower service revenues and higher positions. EBITDA margin, of the period was 48% stable year-on-year and higher quarter-on-quarter. On the next slide, core net income for the first quarter of 2015 dipped by PHP500 million or 5% year-on-year to PHP9.3 billion mainly due to lower EBITDA and higher net financing cost offset by lower position for income tax and a decrease in non-cash operating expenses. Reported net income for the period was stable year-on-year at PHP9.4 billion as higher net foreign exchange of derivative gains fully absorb the decline in core income. On the next slide, let me now discuss highlights of the fixed line business which continue to post year-on-year gains. This segment grew by 4% to PHP14.3 billion net of interconnection cost. 88% of fixed line service revenues registered improvements versus last year. The PHP400 million drag from our international and national long distance services were fully absorbed by the combined PHP1 billion increase in data and broadband revenues and in domestic voice and miscellaneous revenues. Adding to the improvement in this segments performance is to rise in non-service revenues from the sales of Telpad, TVolution, FamCam and Cignal on Fibr which were up by 54% year-on-year. Fixed line EBITDA increased by 3% to PHP6.3 billion mainly due to higher service revenue, net non-service revenues and stable cash operating expenses. EBITDA margin for the quarter remains stable at 39% year-on-year and quarter-on-quarter. PLDT's fixed line subscriber base grew by 6% to 2.2 million at the end of March, 2015. On the next slide, wireless service revenues for the quarter decreased by 4% to PHP27.9 billion mainly due to declines in SMS and international long distance revenues which exceeded the rise in broadband revenues. The drag for international voice was noticeably stronger this quarter likely a result of the increasing shift to over-the-top communications. The success of initiatives to grow our postpaid revenues are evident in the robust 11% rise in revenues and 18% increase in subscribers. Postpaid revenues now account for 23% of total cellular revenues. Prepaid revenues remained under pressure from price competition in SMS as well as our more aggressive response to defend market shares starting in the second half of 2014. Wireless EBITDA for the quarter was lower by 5% to PHP12.6 billion with declines in service revenues partly offset by decreases in cash operating expenses and subsidies. EBITDA margin of 45% was lower from 46% in the first quarter of 2014, but stable quarter-on-quarter. Our total wireless subscriber base stood at 73 million at the end of March, 2015 consisting of 69.6 million cellular subscribers and 3.4 million wireless broadband subscribers. On the next slide, data revenues continue their upward trajectory with 11% year-on-year increase to PHP11.2 billion at the end of March, 2015. [Technical difficulty] PHP3.8billion wireless broadband revenues were higher by 2% to PHP2.5 billion and corporate data revenues inclusive of data center revenues rose by 15% to PHP2.6 billion. Mobile internet revenues consistently posted quarter-on-quarter increases from the first quarter of 2014. With first quarter, 2015 revenues higher by 4% compared with the previous quarter and by 19% year-on-year. Our [technical difficulty] December, 2014 until end of February, 2015 was quite successful in stimulating usage. There was 6 million unique users during the promo period of which 70% were first time users. About 30% of our subscriber base all in smartphones of which around one-third pay for data. We have moved over more volume-based pricing. Bundling of SMS and data and greater data monetization by offering free internet with load purchases, sponsored data arrangement and alike. We continue to stimulate data usage by enabling users to access selected sites for free to our partnership with Internet.org of Facebook or through SafeZone. These initiatives will help build subscriber confidence in using from our phones for data and increase appreciation for an always on experience, which should result in more frequent top ups and subsequently higher ARPUs. The PLDT Group's broadband subscriber base grew to 4.5 million at the end of first quarter, 2015. Fixed broadband subscribers rose to 1.1 million where larger subscribers increased to 3.4 million. On the next slide, moving onto the balance sheet, excluding approximately PHP18.8 billion of cash or dividend payments in April, 2015. Net debt and net debt-to-EBITDA at the end of March, 2015 stood at $2.4 billion and 1.4 times respectively. 47% of gross debt in denominated is denominated in US$. Taking into our account US$ cash holdings and hedges only about US$1 billion or 32% of our total debt is unhedged. About $200 million or 18% of service revenues in the first quarter are dollar-linked and provide a natural hedge. After interest rate swaps, 84% of our debt of fixed rate loans. On Page 9, free cash flow for the first quarter of 2015 rose by 36% or PHP3.8 billion to PHP14.6 billion mainly due to PHP5.1 billion in dividends received from Beacon in connection with the sale of the 5% Meralco stake in June, 2014. Partly offset by a PHP700 million increase in CapEx and PHP300 million rise in net interest paid. CapEx guidance for 2015 is PHP39 billion. Included in this year's CapEx are projects in support of the anticipated rise in network utilization from growing data usage. These include expansion of our 3G and 4G coverage and capacity. Further expansion of our fiber assets to nearly 114 kilometers and increasing our data center capacity to 8,000 racks by 2016. On the next slide, let me now shift gears to what we are doing to move the organization into the fast emerging digital world. You will recall that 66% of our fixed line revenues are now from data and broadband services, while 17% of our wireless revenues ARPU [ph] growth. We anticipate, the contribution from data and broadband to continue and grow and replace traditional and legacy revenues. This indicates that there is an ongoing evolution of the Telco subscriber into a digital consumer and therefore a need for the PDLT group to respond by undertaking customer-centric changes in order to identify new ways of serving the customer. With this changes comes new opportunities for the group to enable businesses to gain a deeper understanding of their customers in order to identify new engagement touch points and to provide a unified customer experience. Last quarter, we previewed to you some of our initiatives in the digital space. Even as our strategy prepare for a digital future is a work-in-progress. We would like to share with you some of the building blocks we are working with. These consist of platforms, products, a pathway to execution and of course people. I'll ask some of my colleagues to discuss the next few slides. Nerissa Ramos, our COO for ePLDT will discuss the digital enterprise transformation. Doy Vea, President of Voyager will run us through some of their major innovation launches. Ariel Fermin, Head of our Consumer and HOME Businesses will discuss the focused effort on the digital consumer and Noel Lorenzana, Head of MediaQuest, TV5 and Cignal will provide highlights of their multi-media initiatives. So Nerissa?

Thank you, Mr. Nazareno. Good afternoon to all. Today I will share with you, how PLDT is enabling businesses to accelerate their journey towards digital transformation. The enabled business hit their digital sweet spot. PLDT is aggressively embarking on the following business transforming initiative and to start off. I would like to talk about our initiative on enabling infrastructure. We have observed that the digital patterns of the enterprises have shifted from building their own data centers to engaging a credible data center provider to host and manage their critical IP assets. PLDT's response to this is toward aggressive expansion of a network of data centers. From our current network of fixed data centers will grab capacity of about 3,000 racks were set expand this to set of data center by year-end with 6,700 racks and further expand this to a 8,000 racks by end of 2016, with the completion of our eighth data center. And to serve out of country data center requirements, we allied very closely with NTT and Acasia, we just did the joint venture of incumbent Telco's in Southeast Asia. The second initiative is in the area of Big Data platform and enterprise insights and solutions. This is another approach by which we enable business accelerate, their digital transformation. Enterprises have recognized the business value of big data, but admitted they don't know how to start, they don't know how to do it and they do not have the talents to implement. We saw the gaps and we recognize this as an opportunity. Hence, PLDT introduced Big Data platform as a service and Enterprise Insight Solutions sometime March, 2015. Big Data platform as a service is a managed analytics service. While Big Data Insight Solutions in the other hand provides enterprises with insights that can help them make decision such as route planning, site selections, store inventory management just naming a few. PLDT is also the only Asian founding member of the Open Data Platform which gives a seat and the voice in the largest Big Data standard development by the end of the year. Third, we've also launched a number of Efficiency Enhancing Mobility Solutions. We've launched a SMART M2M Workforce which is a mobile application used for sales force planning and workload management. We've also launched M2M Credit which is a mobile tool for financial institutions to conduct automated credit investigations. In the same manner, we've launched M2M Health, which is a mobile solution for remote ECG and remote fetal monitoring. We've also launched M2M Pay, a wireless payment solution using smart devices as point of sale terminals. This is just some of our expanding M2M portfolio and finally to wrap this all around. We've entered into a number of mutually beneficial partnerships with leaders in IT industry. This should allow us special capabilities and best practice. To jointly develop and offer a new space solutions in the enterprise market. I'd like call in Doy for the next presentation.

Well, let me give everybody an update on how, what kind of traction our digital launches have achieved so. Let me start with Smart e-Money. On the domestic front, we are looking at PHP250 billion throughput including payments, transfers and trade money for this year. We are already the biggest domestic remittance platform and we have just signed up with Xoom for international bills payment. Meaning Filipinos abroad sending money direct to merchants for the payment of deal. Also domestically we are already with the Rocket companies enabling them for payments as well as distribution. For example, Easy Taxi drivers are now paid using Smart e-Money by Easy Taxi. Payments to Zalora on Mastercard are now being processed by Smart e-Money. Internationally, we have launching this year in four Asian countries together with our Rocket partners as well as local partners. I cannot specify the Asian countries now, but there are four in our fine line this year. We are also collaborating with Rocket companies in Europe and Latin America to complete their payment environment as acting as providers or in some cases are issuers operating under Visa or Mastercard. On SafeZone, SafeZone is the platform that allows mobile consumers to access sites without having to pay for data access. In other words, it's a sponsored data. A good traction on this as well. Big companies in the Philippines are now onboard. Experience among enterprises is that their visits increasing multiples some as high as 7 times, 12 times with the use of SafeZone. This is a play that enables both consumers that we assist, as well as enterprises to have more visits from their online customers. PowerApp is the platform that allows mobile consumers to get data sachets 5 minutes, 5 hours of Facebook, 1 hour of Twitter and alike. We now have 70% of our mobile internet users downloading the app. So they now have the app. There is an international play on for PowerApp. PowerApp is now embedded in the equipment Sandvine. Sandvine is one of the major Telco equipment vendors. We are being integrated into two other major vendors' equipment. So hopefully by this year, we'll have three. But this is a way of getting our innovation across to rest of the world on a licensing agreement. On retail commerce, TackThis is the online store front that helps SMEs create their own online shop within minutes. It's like a Shopify. So we have 20,000 merchants registered now under TackThis. Takatak is the online aggregated marketplace. We have 100,000 products featured in Takatak. LockByMobile is our security solution for credit card, debit card or ATM fraud. It's using, it's a platform that allows a mobile user to lock his account credit card, debit or ATM. If he is not doing any transaction and unlock it, when he's doing the transaction and lock it again afterwards. We are looking at an addressable card base here on 13 billion cards. We are already in discussion with almost all the major card companies in the world. We expect to have some developments on this in the next several weeks. G2P is our platform for distribution of cash from government to people. We are speaking here of the mobile cash transfer as well as a conditional cash transfer which are big money flows in the emerging markets. Just for a perspective, we did PHP1.6 billion in the first quarter representing 38% of all conditional cash transfers, the Philippines Government paid out. So this are just some developments. We can entertain questions later.

Good afternoon, I'm Ariel Fermin and I'd like to give you a perspective on the consumer business. Let me start by saying that, we are very much committed to serving the consumer and the digital program that we have allows us to view the consumer in a more holistic way. Enhance put us in a position to deliver a unified customer experience. So with interface of building the home and mobile to a consumer group. We have an opportunity to leverage on our capabilities in both fronts fixed and wireless. First to deliver a seamless, digital experience in this case. Now the marketplace has evolved and the same consumer we have at home. The families assume different roles, various roles in life when they step out of their respective homes. Our pack then is for them to remain connected with their family members and loved ones and enable them for them to be successful in life. So the possibilities for this group are endless as we have shown in previous experiences quarter. That when we harness expense of the PLDT group, we create beautiful things, product, services that make a difference in consumer's life. So you will see a sheet and in that sheet you'll have some examples of what the group has done over the past quarters. Just to let you in, and the possibilities as well. For one, the mobile group. We have made broadband accessible to everyone and stimulated usage particularly amongst new users. We launched the first and still the only IPTV service with Cignal running on both Fibr and DSL platforms. With the Telpad, we have transformed the landline, a legacy business for fixed and have entered the TV space, as we put Cignal on Telpad and thus it has a evolved from a landline to Telpad to now, one of kids favorite TV. And recently the FAMCAM, which is a home-monitoring service and it has given families, parent's piece of mind. Particularly when they're not at home because it home-monitoring service that runs in broadband. So as what close, by saying that we're proud of our past, the legacy business we have as still remains part of our core. Excited opportunity we have right now and very much thrilled because of the digital possibilities we have for the future. As a group, as a company we will continue to be at the forefront in leading the Filipino consumer to a digital life. So the next speaker will be Noel Lorenzana, Heads the MediaQuest.

Here's to how the group is shaping the multi-media landscape in a digital play. Let me start off with, the very successful Cignal TV. Now the Philippines premier and largest pay TV provider in the country. As you know since last year, we've actually overtaken the 20-year incumbent in terms of subscribers. Quarter one, we ended with almost 870,000 subscribers to 28% same period last year. And we expect this continue this year given the initiatives we're actually taking. Revenue continues to grow strongly at 21% quarter one this year compared to last year and Cignal remains to be, a profitable business. So what do we do apart from increasing subscribers. So now we need to get into specific channels, specific to Cignal. Basically, female channel, male channel, sports channel and we recently find out that Bloomberg TV international created Bloomberg Philippines. It's now listed at the premier pay TV business channel and there's going to be exclusive through Cignal that's aired for 24 hours and we expect this to get boost for Cignal in terms of attracting the right people in the business sector. Other partnerships also we're doing is with FOX, where Cignal player will actually offer together with building the Home and Smart content from FOX. As you know FOX offers a very popular The Walking Dead, Da Vinci's Demons also it's known for sports various Grand Slam events in tennis and golf, formula one and even the NBA. And this will be enjoyed that is head by Cignal PLDT Home and Smart mobile. What do we do with the further increase subscriber growth? We've recently launched Cignal over DSL and we expect a couple of hundred thousand more to actually sign up further increasing the potential of subscriber growth for Cignal. Speaking of digital, we launched News5 Everywhere three years ago, it's now the number one dedicated one online news video service in the country. Nearing 300 million unique views since last year and this year expected to growth further and stronger. We also from a digital, we launched the Digital5 unit, the digital content creation, curation unit of MediaQuest. It offers its full service digital content designed to deliver a full 360 degree service as to advertisers. It will deliver digital content ideation, creation, curation across genres, target consumers and different screens as it said TV, laptops, tablets and mobile phones. We aim to be the leading entertainment sport information digital content site in the country. Which delivers online eyeballs using our content for advertising opportunities? In fact, only last month. We delivered 2.5 million unique views and 11 minutes average time spent on the site. To give you an idea, average time spent for YouTube is 10 minutes. 11 minutes is actually quite good. And speaking of partnerships, we had an partnership with an Australian group called Brand new media, which is basically end-to-end content marketing multinational outfit. Which aims to deliver online channels for interest group? It delivers channels on cooking, on health, on sports, on dressing, on fashion. Which really offer a specific targeted advertising opportunities for our advertisers? I forgot to mention earlier going back to Cignal, what do we after increasing a applying subscribers, we're now go into content creation and we're inking a number of partnership, the first one being partnership with VIVA the leading film production company in the Philippines which will then will create original content for Cignal only available in Cignal. There is a lot going on, I just can't mention it now. And be happy to mention it as soon as we're ready to action all this. So that's what's happening for multi-media and its gain to actually a push to digital space. Thank you.

On Page 15, the execution of our digital strategy will be via in house developed initiatives as well as investment and partnerships. Doy Vea discussed the innovations initiated in house by Voyager and Smart e-Money. Let me provide you a few updates and our recent investments in digital adjacent spaces. Our investment in Rocket internet has increased in value from €333 million in August, 2014 to €443 million at the end of March. More importantly, it continues to provide new opportunities for our mobile payments platform beyond the Philippines market. We expect to announce more of our initiatives in the coming months. Recently, we announced $15 million in iflix. Which plans to be Southeast Asia's leading internet TV service, which will offer subscription video-on-demand or SVOD that can be viewed on multiple screens? We believe, this business model has good potential in Southeast Asia given its success in other markets. At this point, let me turn over the floor to our Chairman, Mr. Manny V Pangilinan.

Well, thank you Polly. Consistent with the changes that have just been described to you by the earlier speakers. We've had the swell to do a bit of reorganization under my current executive level of the group. Starting with, the decision to unify or combined the HOME Business vertical of PLDT Fixed line with the wireless individual segment of Smart and that will be managed under Ariel Fermin, precisely to provide the kind of unified digital consumer experience, under Ariel. We have as well appointed a Chief Strategy Officer, whose main task is to help us move to the digital space and that's Winston Damarillo, a technology entrepreneur with a proven track record in enterprise software and digital enterprise transformation. We have as well, appointed the Chief Technology and Integration Advisor, Mr. Joachim Horn with over 30 years of global experience in telecom. Having worked at Siemens, T-Mobile, Bharti Airtel and Tele2 in Sweden. Joachim will join us start in July. And of course Doy will continue to ensure be restored for our digital effort under the Voyager umbrella. But he will be working closely Noel Lorenzana on the media side because media itself our assets both print, video and other media assets are moving towards the digital space as well. Then there is a big data unit called Talas recently named under Winston, which will run the Intelligent Data Fabric. At the moment, Talas is a combined talent pool 100 people with best-in-class on Telco banking, digital enterprise and talents on data science and insights. I think this brings us to the last slide. Which is the typical guidance numbers? A few comments and by way of summation of what the previous speakers have described to you earlier. Core income, we've guided earlier in the year PHP35 billion. The first quarter results show that we're on track in respect of this core income number is now slightly ahead of expectations. In fact, the actual first quarter results are slightly ahead of our budgeted numbers for the first quarter. Cash flows continue to be strong with free cash flows up by 36% to PHP14.6 billion for the quarter. Help in great measure by the special dividends from Beacon arising from the sale by PLDT of 5% of the Meralco shares to Metro Pacific. Net debt-to-EBITDA as well is down to $2 billion at 1.16 times respectively. This will arise slightly in the second quarter, as we paid out the full year dividends out of the 2014 core net income. Dividend Pay-out policy we are maintaining it to 75% of core EPS was a look back approach will make the final determination towards the end of this particular year. So taking in around first quarter results have planned out as expected from one perspective. It's not slightly ahead, but quite encouraging from another. Actually this because first, on the broadband and data businesses. They continue to grow strongly and second on the voice side, we're managing to hold our ground, the fix voice have grown to revenues by 2% in the quarter and wireless voice revenues are down by only 1%. So effectively they'd cancel each other out. So voice revenues for the group are flat at PHP8.8 billion for the first quarter. And third as well know, the soft side of our business are toll traffic both national and international and as expected that is declined for the first quarter and of course the tax-paying which is subject to encroachment by the internet and other forms of data communication. But I think if you look at the broader picture for each of the fixed and the wireless side and the fixed side 56% of the fixed revenues are now data driven and for given the preponderant position of data revenues and the fixed side. The fixed line business has managed to grow its revenues by 4% for the quarter, whilst wireless is down because their data revenues are comped [ph] for only 17% from 15% of the wireless revenue. So we really have to accelerate the evolution of the wireless business over to the data side and of course in the course of that transformation there will be some pain as we go through that transition. So it is our CapEx is likely to some comment on CapEx. The guidance number of PHP39 billion for 2015. But as we accelerate the deployment of our 3G infrastructure and as well continue to be allowed our 4G LTE infrastructure. I think at that level higher than anticipated. The likely CapEx number will be north of PHP39 billion. I think, we should come out with a slightly more precise number when we announce our first half results for our CapEx. But as I said, it will slightly be as a percentage of revenues likely to be north of 20%, which is that guidance number that we adopted for quite some time. So on the whole, I think the group is determined to undertake this digital pivot in respect of introducing or enriching the digital experience across the broad, across the individuals. Whether that's in the HOME or in the wireless side and for enterprise as well, which will require, an updated Telco infrastructure at digital spin as we call it? And of course, with the assistance of Voyager, the digital units and the relevant organization that we need to deploy in order to bring us to where we are from the past to the new digital future. I guess, that finishes our presentation. We're ready for the Q&A.

Can you please open the line for questions, please?

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

I just three questions about the quarter result and one about e-Money. On the results just, we were noticing that the SMS seems to not declining as much this quarter well its year-on-year or quarter-on-quarter just wondering what's driving that between wireless, voice seems to be 7% down. And it seems to be a pricing issue, is there any promotion that is causing that or is that just market forces? Second question is regarding the depreciation and amortization in the quarter. It dropped quite sharply quarter-on-quarter and even down year-on-year. Should we expect this for the remaining quarter and analyze this number? Third question is the postpaid growth that you're seeing which is quite healthy, if it's primarily internal migration or is it market share growth as well? And last question was on e-Money, the throughput is quite impressive at PHP250 billion just wondering what actions you'll be taking to increase the monetization of that throughput for yourself?

Luis, thank you for the questions. Let me handle the SMS portion, the 5% reduction on SMS on the year-to-year basis in the first quarter of this year is more or less the level of normal decrease, what has happened in the past was when our competitor launched the free Facebook and we did not respond right away. This has cost the subscribers from our end to get the second sims and that is why the SMS went down. But at this point, since we launched the free internet which promo happened sometime in end September up to end of February. Maximum 30MB plus prepaid booked and this promo has been continued now. But with a minimum promo load of PHP10 before you can avail of the free internet 30MB. So that is the reason why, the SMS has been push in terms of decrease. Let me also point out, that the free internet promo has generated quite a good following. 6 million internet users and out of which 70% were new users. So I hope that answers the question and number two.

I think, Luis the issue on the depreciation is not so much the current quarter's depreciation. I think it's the comparative number. It was somewhat of an accelerated depreciation in Q1 last year. So I think if you're trying to get a steer on what the two-year depreciation might look like, I think you can use the current or the first quarter and annualize that and it'll probably be a little bit higher as we go into the year because as Manny indicated in his comments. It's likely that the CapEx level may actually go somewhat above the PHP39 billion that we'd originally guided for. I think, Annabelle you want to comment on the voice.

Voyager being down at 7%, I think we kind of have looked at this in two buckets. The domestic voice component is actually only slightly down by less than 1%. Where the bigger decrease has happened is under international inbound voice which is down by about 22%. So that's kind of the composite of that is the 7%. In our charge we've kind of look at them as two different drivers for each of this.

On the question about Smart Money. The nature of the mobile money business is, you earned a small percentage if you record it against the gross transaction value or the throughput. Having said that, we are making depend on this throughput. But the more important thing is, rather than monetization at this point is building the ecosystem and that includes the consumers, the merchants and the sources of funds. So in terms of that, the throughput of PHP250 billion is a good accomplishment for us to prepare the way for a full ecosystem for Smart Money.

And your question regarding the postpaid growth. Certainly the interest in data plans spurred by higher smartphone ownership has driven the increase in postpaid subscribers and revenues. So quite a bit of that come from the fact that prepaid subscribers are upgrading to postpaid, enjoy the full benefits of data plan. There is also an element of subscribers continue to acquire second line, which could be at tandem with that of the competitor.

Okay, just one follow-up and dragging the international inbound voice decline that's I think your initiative at the price essentially or that what's the factor driving that?

No, Luis it is not the.

It's not the pricing.

It is not a pricing result of cost down. The international inbound basically has decreased at the same, we're offering as the same rates internationally and the inbound rates have remained more or less at the same level. It is really the substitution of OTT alternatives for that like Skype and Viber.

Thanks, that's helpful.

Thank you. Do you have any other questions, Luis?

No, that's all. Thank you.

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

I've got four questions. Firstly, can you talk about your mobile initiatives. If the focus now more on Visa monetization or are you still looking to catalyze data usage and grow the subspace? Second question as related to that, when you look at the Philippines compared to other emerging markets such as Thailand and Indonesia. Data usage seems to be relatively low, still at around just 10% over your base extrapolating on your earlier comments. Even with the various stimulation activities in place. Why do you think this is the case in the Philippines and what needs to be done to aggress this? Third question I had this with regard to your digital investment pivot, can you give any guidance in terms of what you expect to see from this side. Basically the Telco's in Asia have gone through this have been seeing losses from this or should we see the same for PLDT and what are the aspirations here? Last question I had is with regard to your expenses. Cost containing has been quite impressive in the first quarter. Should we view 1Q as the benchmark for the year or should we see accelerating cost linked to CapEx increased in the subsequent quarters? Thank you.

Arthur, with respect to the mobile initiative. When it comes to data, the free internet promos I said was quite successful with 6 million user base and first user base and roughly about 70% of them are new users. So we're seeing that based on our partnerships with Internet.org and rest of the other initiatives in this space. We are really seeing the growth of data consumption as in line with the smartphone penetration which is roughly still at 30% at this time. What we are focusing on with the promos now, is how to get more participation on paid mobile data usage, which is right now only one-third of our smartphone users. And that's the reason why, we continue to free internet promo, but with a caveat that you have to have a PHP10 promo load first, before you can avail of the free 30MB, free internet promo. Well the data usage average is below 30MB that we're seeing. Mostly as we look at our statistics, this are mainly on social networking sites and YouTube and others. I think it is really more around the apps that will be available and that will be coming out and at the same time. The critical mass that should be reached by the smartphone penetration. You can see the inflection point once it reaches about 40% penetration which is coming sometime, if not for to the end of this year beginning of next year.

Well, I think actually not [indiscernible] you're budgeting a profit for your digital Voyager unit using the traditional metric of revenues and profit for digital Voyager unit using the traditional metric of revenues and profit for digital voyager, well the biggest investment of course is Rocket Internet which is at the moment losing money, but since we own it 5% or 6%. So it's an investment. So we don't reflect any losses from that for the moment, but both on the revenue and the profit side of the Voyager digital unit taken as a whole, yes it will reflect some profitability for 2015.

On the fourth question, Arthur. Chris will answer.

Arthur just to clarify, the question refers to the non-severance revenues and the cost of sales?

No, when we look at your margins. When I look at your individual cost line, it's actually been quite impressive in the first quarter. You've seen a lot of your cost go down, should we view the first quarter at the benchmark for the balance of the year or should we actually see changing cost trends for the next few quarters?

I don't think it will be quite as compressive in the first quarter, but what's driving part of that in the first quarter is that we've had strong non-service revenue growth from the HOME business. I think a number of the products that they're selling, which are Telpad, the FAMCAM and alike. They actually are able to sell them without a subsidy. So what you've seen is fairly, well in fact very good growth the usual type impressive growth in the revenue there. Without this similar increase in the cost of sale. And I think HOME business would anticipate continued strong sales of these non-service line products for the full year. So it may not be as strong as the first quarter, but certainly we would expect that trend to continue to some extent in the balance of the year. Yes.

So I want to add that, that was actually very much quite the strategy for PLDT Home, where we're seeing already saturated temptation broadband amongst HOME, who can pay for one of the service fee. So the strategy really was to go over value. Well, HOME who already had broadband then there you have the Telpad and the FAMCAM and all sorts evolution that we've sold to the same household. It also brings us into another level of discussion versus competitor because the competitor focuses as an asset which is broadband penetration, this we are we've gone beyond broadband and we've operated significant value-added services that are on broadband. So that is pretty much within our strategy.

Very clear, thank you very much.

Thank you. Do you have any other questions, Mr. Pineda?

No, thank you.

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

My first question is on the data internet revenue trends. Quarter-over-quarter has picked up, but I sort of imagined the pickup would have been stronger since you've started to monetize. So I just want to understand what are the usage trends that you're seeing once you started to interest on a minimum balance and how do we see this sequential trend spanning out in data internet, that's my first question. Secondly, on the voice versus SMS. I think it's going back to some of the previous question. I'm just wondering, if it's just I mean are you using some sort of fair value accounting. So therefore, this growth trends of voice versus SMS really may not make sense and we should just look at ARPUs as a whole or does it still make sense to look at these individual revenue line trends, that is my second question. Thirdly on this, iflix. You had previously partnered with like ClickPay, so I'm just trying to understand how is this different? And in terms of just content strengthen, since you've talked about I mean this is going to be a cross market sort of offering, how do you intend to approach this, that's the third question and lastly on Voyager, did you say ex-Rocket its already profitable and if so, is it getting reflected in revenue EBITDA or is it just below EBITDA. How is it accounted currently?

I think I can answer the last question, first because it's probably the easiest of before and I always like to chose the easy question. I think that Rocket is not yet profitable and in fact, we don't equity account results of Rocket. I think what referred to by I think Polly, was the market value comparing what we invested to the current market value. And we don't provide that through the profit and loss account. I think we were just indicating that it had seen a significant increase in value since we've made the original investment.

You see my question was on Voyager, Ex-Rocket. Sorry, my question is Voyager, Ex-Rocket. Yes.

Oh! Sorry, I misunderstood. I think the Voyager business should be profitable yes.

And does it show in revenue, EBITDA lines or is it like post EBITDA's as a?

It's fully consolidated into our results. Yes.

Okay, got it.

On the ClickPay and iflix, both are content aggregators of movies. Particularly in the window of SVOD as subscription video-on-demand. We've since last year end last year ended our deal with ClickPay, which are local aggregators and we look forward to this, partnership that we have with iflix with the corresponding this model that allows us to enter mainstream market. Again as part of strategy, were we put value-added services running on broadband, should it should be good.

On your question, I get to go back in the first question on the data revenues. There are number of objectives we are trying to hit here. One is really stimulate data usage given that we've seen that smartphones have been on the rise and the data usage have not sort of followed instead. So a lot of the initiatives in the last couple of months have been to stimulate the adoption and usage of data. But we've try to move forward a partial monetization model in some of this initiative. So what we've seen on an overall basis, we've seen that, mobile internet revenues have actually grown notwithstanding the various free offers in terms of the monetization strategy that we've taken on board with respect tying the free interest now to load purchases. It's still just in one month, but early indications are we seeing actually some uplift in ARPU in terms of those people who are actually trying on this freebie together with their load purchases. On your question on sort of voice versus SMS, whether we should look at it that way or whether we should look at ARPU. I guess there is an element of allocation that happens when one does buy bundle which typically now could include a company of voice, SMS and data. But at the same time ,we do track other metrics like for example traffic volumes. So that's an indication for example SMS, is that actually I guess a resource of a different allocation methodology or is that actually change in terms of how people behaviour and how - and we do see some decrease in SMS volumes as an example. So but you're right there is also at the same time, the concept that at the end of the day, you want to see that the total ARPU of the subscriber how that is behaving overtime.

Just on that last question because the surprise is because I mean you had indicated that in the market the SMS bundle pricing had come down, right? It was coming down as low as PHP10 and so I assume that there should be some impact on the revenues in the last quarter and you were matching some of your competitor offers on the SMS, but then when I look at both 4Q and 1Q numbers, this doesn't seem to be reflected. So I'm a bit confused as to what actually went on there.

No, I think as Mr. Nazareno indicated earlier, I think the difference is that in the prior quarters before that, where certain offers like free Facebook of a competitor was not matched. There was effectively a shift in terms of subscriber engagement and therefore it was not just to enjoy free internet but along with that some of their SMS usage moved away. So I guess the effect of being able to match initiatives of competitor is to arrest that kind of sharp decline.

Okay, all right. Thank you.

Do you have any other questions, Ms. Neeraja?

No, that's it from me. Thanks.

Okay, thank you. Our next question comes from Chate Ben. Your line is now open.

Thank you for the presentation and I just have three questions. The first question is little bit follow to from other guys already asked about this. I just try to pitch the other way. You have start trying to monetize the data by now requiring subscriber who also subscriber to some of the promotions on voice and SMS side before they can enjoy free internet and that has to go on for one month. Therefore in the second quarter, if that come through we should expect an acceleration in voice and SMS revenues and not mobile internet, is that a correct way of looking at it? Second question, it's regarding Cignal, I understand that is now some initiatives on the content production side as well try to produce some exclusives content through partnership would be reflect that as OpEx on Cignal and therefore, I understand that Cignal is perfect to board now, would that remain the situations of how should we expect that when you invest for the content right now. The third one is regarding the digital investment. I appreciate all the presentations about the initiatives you're taking but if you need to pick one over the next two years that you're most excited about or that be expected to contribute the most in term of revenue to you, out of this initiatives what would be that one? Thank you.

Why don't you take this third question, which is the hardest question? Well I think in terms of revenue, for revenue potential as well as the likelihood of success LockByMobile should be high up in the list and we will know soon, this year. That's LockByMobile. Big Data as well, we say Big Data is a very promising business. So we have Mr. Damarillo to take us where Big Data should be and PowerApp as well is already there. It's embedded in equipment vendors, equipments it's a matter now of harvesting on the innovation. The others as well Smart e-Money has been there for quite some time and it's only now that we have been able to really complete the ecosystem that includes both the platform which has been there for a long time and now we have a very compelling usage occasion and that is the Rocket e-Commerce business. So we should see some exciting adoption on the part of Smart e-Money as well.

Let me answer the Cignal question. For Cignal basically the plan of action is that Cignal goes in joint venture with Viva leading same production company and creature a unique Filipino channels exclusive through Cignal. They're the top three channels is Pay TV are actually Filipino channels and we believe that, it remain to be so and therefore, it becomes a major attraction for Pay TV service. Cignal will remain profitable despite the OpEx this is well within the capability of the company to actually stay profitable and we believe that, such an initiative is actually not only going to push stick in us, but also further increase attractiveness of subscribers coming in.

I think, may add to what Noel said. I think it's entirely appropriate for Cignal to have its own proprietary content, so that it's attraction for subscribers to take up the Cignal service because it's only available on Cignal and part-to-part from Viva. I'm sure, we're talking to other content providers and including the Bloomberg TV. It's associated to Cignal. So which will content both foreign Bloomberg TV content and local business content will be available only on Cignal.

On the first question, it's sort similar to the point of Neeraja earlier. Actually by tying the free internet to the load purchase theoretically from a copying standpoint, we should allocate type of that top up to data, which is kind of different from the free mobile internet previously which wasn't tied up to top up. Again similar to Neeraja's point, maybe at the end of the day you should look at the total ARPU of the subscribers in that regard.

Okay, that's clear. Thank you very much.

Thank you. Our next question comes from Luis Hilado. Your line is now open.

Hi, sorry just one follow-up question from me. It's actually the CapEx guidance this year. Is there any amount that you've allocated maximum amount for digital economy investments whether this year or over a certain period of time?

I don't think we actually we have the opportunity. Yes, in a way it's being opportunistic but I frankly within, I don't envisage any significant investments Rocket internet of that magnitude, right? So the investments you're making in terms of the native capabilities of Voyager really mainly OpEx rather than CapEx. Right, Doy?

I think, Luis there's just about what Manny says a little bit of additional CapEx. I think based on the various platforms with Voyager and Big Data looking at, I think the amount in [indiscernible] we try to quantify over the past few days. We came up with an amount of about $30 million. I think to get where we want to be and it's quite a lot of initiatives under way as you have, analyzed between now and the end of the year. There was probably another $20 million that we were looking at, so from what we've spent in earlier years. The first quarter of this year and to the end of this year that will probably take us to about $50 million and then if we project forward the next couple of years on what we might have to spend the platform. I think we were looking about double that, it comes up to I think, when's the total up about $100 million. So of which we've incurred about $30 million. So that was on it on the CapEx, that's Manny side prepared mark of it, relates more to OpEx. And then any opportunistic investments, but again the investments that we're looking at. I would say are more in the iflix type range of the $10 million to $15 million maybe even a little bit smaller. I think the Rocket was kind of one off and not something that we're likely to see. It's a going to be $5 million to $15million investment range.

Okay, thanks.

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

Sorry, I had a follow-up. Actually on iflix, right. So it seems like, lot of Pay TV operators first took one step to make their content available via internet to their own subscribers and a lot of them now are thinking about making this a proper OTT sort of a service. I mean, Cignal in Singapore is also launching its HOOQ service. So I'm just wondering is this, if I mean this could potentially become a crowded space and so given your investment in this iflix business that's what I was trying to come out as in terms of where do you see the opportunity and where do you see your strength in sort of expanding to the other markets, within Asia. So that's the first question and on the wireless broadband side. Your net ads have picked up quite strongly, but your ARPUs are under a lot of pressure still, so any color on that would also be helpful. Thank you.

Well on the iflix piece, for one our offers are better versus HOOQ from a value standpoint. So that was something that was very clear on the onset and that we said, that we said was a good hammer in terms of just you know in investing on it and of course eventually having a commercial deal with these guys. Now number two is the, our data is so huge. Millions of subscribers. For both fixed and wireless. It was just a big pound, that we could just put content on and they were searching for content. The market is ready, binging is something that we're seeing and they added and all we need to do is just provide content. On the broadband service that works, which of course was the app to begin with.

I think that's part of the increase in subscribers this come as with some decrease in ARPU which is not similar to what we've seen in the way the whole cellular space have proven so far. So we have more aggressive in terms of pushing out some of the devices, gadgets, packet Wi-Fi and in term of penetrating most of the base at the same time. I guess apart from the broadband revenue this is also been the mobile internet push to the smartphone side by PowerApp some of other, more sachet type initiative.

Okay because the revenue growth store seems to have despite the pickup in subscribers and things like that. The revenue growth is still not picking up in this line. So that was why?

That's part of the free internet sort of period and first quarter is part of that too and that was enjoyed both by bundles and Smartphone's.

Okay and just a follow-up. In terms of this digital investment, I mean just like how you've invested in iflix, I understand the Voyager is a more OpEx business. But I'm just wondering do you have like a number for more investments in some of these digital in terms of taking a stake, is there any number that you have for this year or the next two years.

We are actually evaluating some possible investments, but as Chris said this are in the range of, not in the Rocket range, but in fact smaller than the iflix range. So it should not be significant this year.

All right, thanks very much.

Thank you. [Operator Instructions] our next question comes from Arthur Pineda. Your line is now open.

Just a follow-up question. Can you remind us on the revenue model for Smart e-Money what percentage of transaction value can you retain. Are you actually allowed to make money on the float given that you don't really have a banking license? Thank you.

Well, first of all we don't need money in the float. We don't make money on FX. So it's either a transaction fee which is a percentage of the transaction value or a fixed amount. In either case, it's not big numbers. This are very small in terms of percentages 2%, 3%. The normal, in terms of acquiring and issuing business it's around the 3% range. In terms of the transfers remittance business it's more in the range of 1% to 2%. So this are small percentages against the big throughput.

Understood.

But the strategy is to get more involved in other parts of the value chain. So while now we use partners to let's say to both to collect remittance as well as to deliver remittance. Going forward, we will have full capability to source the remittances as well as to deliver the remittances.

Understood, thank you very much.

Yes, we do one more question coming from Kervin. Your line is now open.

Thank you for giving us the opportunity to ask questions. So just two questions from me. Can you give us more color on competition specifically on the cellular segment. Can we say that the environment has improved given that you're started to push to monetize mobile data and secondly can you give us more details on the potential retirement costs to be incurred this year from the manpower structuring program? And consequently the compensations cost savings we can expect from 2016 onwards. Thank you.

Well we do have in the second quarter anticipated higher compensation cost arising from manpower reduction charges that we have incurred. Indicatively, there is over 450 employees our fixed line side that have availed early retirement. This happened to be more tenured employee. So the end market charge that we may take on the books is something over a PHP1 billion in the second quarter and then if you recall, I think Manny had alluded to this. There is also a gain that will come in the second quarter from selling down part of the Beacon investment in Meralco. So affecting the those will be the, two sort of items that will come into the second quarter, a bit of non-recurring in nature.

With regard to compensation, the comparative situation remains to be intense still, but this is more confined on the legacy services like SMS and voice. I also on the regional on what we call the hotspot basis. Where we are responding affectively in each of these areas where we are being attacked. On the broadband side, it is we're moving towards volume pricing and this is driven the regulatory environment where we are being asked to explicitly I think Ray expressed the you're unlimited to really detailed as to what are the surrounding conditions for unlimited. So this has encouraged both operators to move into volumes pricing and which is good for the industry. So that is the current situation. We hope more a more rational behaviour will be happening towards the end of the year, when the market or the dust settles, when it comes to the legacy services.

Thank you, but for the competition cost savings that we can expect from next year. Is there any guidance to that?

Well generally, there is since we're retiring the more I guess the older and more expensive staff. There is a, the ability to get that payback in 1.5 year to 2 years time. Certain positions I guess will be replaced either through outsourcing arrangement or younger less expensive type of talent.

All right, thank you.

Thank you. As of this time, we don't have any more questions in queue.

Could you give the replay information please?

Okay, thank you. Now I would like to give everyone the instant replay information for today's call. This conference will be available on a 24 instant replay starting today daily on through May 19, 2015. The replay information for this 3 PM call is. The international caller number is 852-3018-4126. The US toll free number is 1866-845-9418. The UK toll free number is 0800-376-1419. [Technical difficulty] for toll free number is 800-120-5681. Japan toll free number 00531-1222-47. Australia toll number is 612-8206-0867. Pass code is 8518 and conference leader is Melissa Vergel de Dios. I'll now turn the conference back to PLDT for any additional or closing remarks. Thank you.

Well on behalf of all of us. Thank you for joining us for this first quarter briefing. I think second quarter full first half results will be scheduled on August, 4. And I think quite apart from the briefing review with the analysts and investors on that day. We may suggest maybe a longer session with you in respect of a fuller presentation of the plans for PLDT moving forward. I think we've given you the idea of the various digital initiatives that we're undertaking, but I think there may be a fuller exposition that maybe for example on e-commerce and online payment system, what the ecosystem really look like, some ideas of revenue generation and alike. So we will in due time advice you when that session would - could be maybe around that date or on that date, maybe for two or three hours with all of you. Thank you. Operator

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