Good afternoon and welcome to the PLDT Conference Call. This conference call is being recorded and the replay details are indicated in the conference call invitation posted in the Investor Relations section of the PLDT website. At this point I would like to turn you over to Ms. Vergel De Dios, Head of Investor Relations of PLDT, for the introductions. Please go ahead. Thank you.

Good afternoon and thank you for joining us today to discuss the Company’s financial and operating results for the first quarter of 2016. As mentioned in the conference call invitation, a copy of 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. A podcast of this briefing will be available from our website after the call. For today’s presentation, we have with us Mr. Manny Pangilinan, Chairman and CEO; Ms. Anabelle Lim-Chua, Chief Financial Officer; Mr. Ariel Fermin, Head of our Consumer Business; Mr. Eric Alberto, Head of our Enterprise Business; Mr. Doy Vea, President of Voyager; as well as other members of the PLDT management team. At this point, let me turn the floor over to Mr. Pangilinan for the presentation.

Well, thank you, Melissa, and good afternoon to all of you. Thank you for joining us for this first quarter 2016 presentation of our operating and financial results. This afternoon we’d like to take a slightly different approach to our past presentations in the sense that we’d like to highlight, apart from dealing with the traditional presentation, especially of our legacy businesses, we’d like to highlight the various digital initiatives that have been undertaken by PLDT for the past few months or so, particularly in light of the significant growth of our data revenues this quarter, and as well, in terms of the network build out that has been undertaken since late last year, the improvements in the network, and including the ease of onboarding customers through the system, through these wireless systems, and the adoption and propagation of smartphones and the web connected devices at PLDT home, and the content that is developed internally or acquired externally by way of partnerships with the OTT. After this preamble, I will be followed by Ariel Fermin, who heads our Consumer, and he will deal with the initiatives being undertaken by both PLDT home and the wireless side. Then Ariel will be followed by Eric Alberto, who will deal with the enterprise side of the business, and then Doy Vea on the Voyager side, in particular PayMaya, progress being made on the PayMaya side, on the PayMaya vertical, and fin tech vertical, and finally, the financials by Anabelle. So with that, Ariel, can you take over please?

Good afternoon, everyone. I’m Ariel Fermin and I’d like to give you a brief update on the consumer business for PLDT Smart. If I could ask you kindly to look at sheet number one, oh, sheet number 4, sheet number 4. All right. It says there home quarter one headlines. I did want to provide some context before going to the sheet per se, that nine months into forming the consumer business, pleased to inform you that we continue to deliver stellar performance in the home front, as we transform our business from just being landline broadband business into what’s called a smart home business, with digital services running on data, running on broadband. And these would include services and products like the Telpad, the Fam Cam, TVolution, which cover areas like home monitoring systems, entertainment, OTT boxes, and all that, leading to connected home. So we could see we delivered stellar growth for home and we are getting traction on the mobile as we put initiatives that will help it as well in this digital. And three quarters of managing the business, overseeing both home and mobile, I reckoned that PLDT home has a slight headway in terms of getting into the digital transformation a bit earlier, and as we’ve again evolved from being a landline company to a smartphone company, and we felt that we could do the same for mobile, because obviously mobile was the more dynamic business between the two. So, having learned this, now to do it from home gives us quite an advantage as we now try to move into the digital space for mobile. So let’s head on to the sheet which says home quarter one headlines. You’ll see there that the total revenue, the total revenue for home is at 10% for…

All right. So, Mr. Eric Alberto who heads the Enterprise Business will present.

Good afternoon. Just to do a sound check, to make sure that you’re still there. I don’t want to repeat this. Are they still there?

They are.

Good afternoon. Eric Alberto, I head Enterprise Business for the PLDT Group, both PLDT and Smart. I would like to start my presentation by referring to sheet number 7. I just have one slide, to articulate the developments and progress at the enterprise space in the Group. I’d like to start the presentation by saying that our enterprise mission is to be the premier digital enabler and trusted business partner for all enterprises in our markets, whether large or small and medium enterprise. Our reinvestments in people, in datacenters, brick and mortar datacenters, our cloud and analytics platform investment, as well as our transformative efforts over the last four to five years, is now bearing fruit, as we see large companies offloading their IT and technology requirements to a trusted technology partner. And we’re seeing SMEs also rapidly adopting technology at a means by which they could expand their market geographic reach as well as to be able to be competitive both locally and internationally, against other players in the enterprise space. In view of that, please refer to our performance in the first quarter. The enterprise business grew at an encouraging over 10%, PHP710 million more from same period last year, at PHP7.55 billion from PHP6.85 billion. Driving that growth is 10% growth in both the fixed and ICT business, from PHP5.8 billion to PHP6.44 billion. The fixed revenues were driven principally by our data business, which grew 15%, to offset our anticipated decline in our traditional voice services, which marginally declined by 3% over the period. Our IT services, which include datacenter, collocation, disaster recovery, business continuity, as well as other enterprise solutions in hardware and software resellership, and implementation, as well as professional managed ICT services, surged by a whopping 30%, due to a pervasive mind-shaping and…

This is Doy Vea of Voyager. As you are probably aware, Voyager is the digital innovations unit of the PLDT Group. We build platforms and solutions for emerging markets, catering to consumers, enterprise, Internet companies, banks, telcos, and other entities. We market in the Philippines as well as globally. In the Philippines, our solutions find their way into PLDT Smart offerings. But we also have OTT play in the Philippines and outside. Just to put a dimension to our operations. We had revenues last year of PHP1.3 billion and are targeting PHP1.8 billion this year. As a factory, we built innovations from ideation to incubation, acceleration, go-to market, eventually spinning off companies. What I’d like to do today is highlight two companies that we have spun off, PayMaya and FINTQ, and some of the products under their respective [technical difficulty]. First of all, on the PayMaya side, we have three businesses here. We have the PayMaya [technical difficulty] PayMaya business, which is about online and mobile payments processing. First, on the on the PayMaya issuing, the prepaid mobile wallet, we can see a lot of traction on this product, not only in terms of volume and other metrics but as well as acceptance in the market. First of all, acceptance is high in social media. We are, from the time we launched, we have been the number one financial app in terms of download on Google Play. We are also, in Facebook, we also score a high 3.5 points versus the normal 1.0 benchmark. So, high engagement in social media. As a result, user growth has grown 79% Q on Quarter and we have very active users. Our users use the card or the account 35%, 35% of them are active, versus the normal 15% by credit card standards. So,…

Thank you, Doy. Shall we proceed with the financials?

Thank you, sir. If you look at page 10 in your presentation slides, that slide recaps the key highlights for our first quarter 2016 results, with revenues increasing by 1% year-on-year , EBITDA at PHP16.6 billion or 41% margin, and core income at PHP7.2 billion, which is in line with our guidance for the year of PHP28 billion. The slide following that will give you more details on the composition of this number. So, turning to the next slide. Our service revenues, if you take out the ILD and NLD, grew at a step-up of 3% year on year, some PHP35.3 billion a year ago to PHP36.2 billion in the first quarter. If you look at how the data composition of these revenues, our data mix has increased in the light of an increasing revenue base so, from 32% to 38% of the higher number. At the bottom-right side of the chart, the fixed line, quarter-on-quarter performance has been quite impressive, with consistent sequential growth per quarter of 2% to 3% per quarter, leading to a 10% year-on-year increase. In the case of our wireless business, the revenues have pretty much stayed around the PHP25b level per quarter, with a bit of step down in the first quarter from a seasonal which will be the fourth quarter. In the case of the fixed line, you see also that the data composition of the revenues is already about two thirds of the total, whereas in the wireless case only about 25% of our revenues are attributed to data and the bigger proportion coming from SMS and voice. Now if you look at the next slide, this represents our revenues, together with the impact of ILD and NLD. So, taken together, the total revenues increased by about PHP100 million year on year.…

Thank you, Anabelle. This is really the last chart it involves the guidance for 2016. We affirm the core income guidance at PHP28 billion. As Anabelle mentioned, the first quarter results indicate that we would be able to meet the core income guidance of at least PHP28 billion for the full year 2016. CapEx we are keeping at a global number of PHP43 billion for 2016 despite higher CapEx spend for the first quarter of PHP14.6 billion. Dividend is likely to be at 75% of core EPS. On the EBITDA slightly concerning because it was PHP16.6 billion for the first quarter, we should be at PHP17 billion or slightly above PHP17 billion per quarter. That’s mainly on account of the subsidies realized for the first quarter, certain provisions on the Sun postpaid. So we will have to, if we are able, if we are going to keep to the subsidy level of about PHP1.2 billion on the wireless side for the balance of the year we will have to look at other areas in our OpEx lines to reduce in order to be able to meet our EBITDA target of PHP70 billion for the full year 2016.

We are now ready to take your questions, operator.

Our first question comes from Rama. Your line is now open.

Hi, good afternoon. Three questions from me please. Firstly with regards to the wireless division, could you provide some color on the asset impairment charges you have booked here PHP1.3 billion in provisions and this seems to be rising. Is this related to postpaid segment, or what is actually driving these provision levels, some color there would be good. Associated with this is the peso 888 plan, your subsidies have obviously increased in the first quarter so would like some guidance on how you expect this to trend going forward. And more importantly whether or not you think the 888 plan is actually working in the way you think it should be. Final one has to do with your fixed line revenues the legacy revenues. You saw a pretty healthy revenue growth there of about 5%. Wondering what is driving that. Thank you.

Let me respond first for the 888 plan, it’s doing very well we launched in January 3. It’s an $18 phone. And so far we have 320,000 active subscribers with more to come in the next. in balance of the quarter. Based on analytics I mentioned earlier there’s a high engagement rate amongst the subscribers as 91% of them are using the data which was part of the package that goes with the phone. That’s 100mb of data. And then, which wasn’t enough to begin with. And then after using 100mb of data we see that 70% of them were buying data top up. So it’s a healthy model for us because we’ve been able to achieve what we set ourselves to do. Number one, get a phone in the hands of the Filipino; number two, get him into the Internet with an inclusion, reasonable inclusion of 100mb per month; and umber three, have him top up because he’s just into the Internet at that point already. What we are seeing is that again based on analytics, a good part of the ones who subscribe to the 888 plan were students, were students who may not have the financial capability prior to our offering the 888 to getting a Smartphone so most of them were in feature phones. So I think strategically, operationally and commercially this plan is doing what it had set itself to do. So those are the highlights of the 888 plan.

In terms of the asset impairment for the wireless business, that’s a combination of provisions for bad debt and inventory provision. As I explained a bit earlier there’s a bit of catch up provision for the Sun postpaid business as we had migrated from a previous billing system to a new billing system. So there’s about PHP0.5 billion of catch up provision in the first quarter number for bad debt and inventory provision, which is the, yes, which is a one-time not likely to.

That’s a one off phenomenon for the first quarter. In terms of the subsidies I think the way it’s looking like considering the growth in data revenues -- on both sides of the business, on fixed and wireless, it’s likely that we will maintain the level of subsidy at around PHP1.2 billion per quarter. So succeeding quarters will not see these provisions that we saw in the first quarter this year, but we might still fall short a bit, we’ll probably have to look -- we are likely to look at other areas of our OpEx to be able to achieve the PHP70 billion EBITDA target for the full year 2016.

I think your third question, Rama, related to the growth in the fixed line revenues. It’s at actually 8% increase year-on-year and that is driven principally by data growing by 13%, so PHP1.1 billion of the PHP1.2 billion increase is really coming from our data and broadband revenue stream. In the case of the fixed line business the impact of ILD and NLD is down to only about PHP100 million in terms of a decline, so it’s really the data growth feeding through the overall fixed line revenue movement.

Actually, Anabelle, my question is with regards to local exchange revenue on fixed line side where the revenue growth rate is 4%, your fixed line customer base has upped by 5% so I’m just wondering what exactly is going on in the segment?

We’ve been able to maintain our -- and slightly increase upward our fixed line subsidy --. Okay, Ariel can take this.

Yes. Okay for the consumer -- okay, the total fixed line revenue grew by 4% local exchange, yes, for the quarter. And this is really a function of the increasing subscriber base for the two units, consumer and enterprise in this case. Eric can speak for the enterprise piece. For the consumer space business what we have continuously done was to bundle landline with data, so as data grows is expected to grow, it carries along landline as well.

On the enterprise space we continue to market vigorously to the micro, small and medium enterprise space, and typically the bandwidth -- the broadband and Internet connections that the [indiscernible] carries with it also voice facilities to the extent of the larger SME players even [indiscernible] a new generation of simple ITT ADX. The [indiscernible] business in the enterprise business actually gone up as recorded. Only the first quarter we had a one-time sale last year of hardware equipment relating to [pay ADX] systems to the enterprise space which was not replicated this year, that’s a one-off. But if you take network out and you look at the LEC business voice business, voice is still very much relevant and growing in the enterprise space.

Thank you our next question comes from Arthur Pineda. Your line is now open. You may proceed.

Hi, thanks for the opportunity. Three questions from me, firstly with regard to the subsidies what’s pushing you to engage in such level of subsidies? Is this being borne by competition in the market, didn’t really seem to really push your postpaid net adds in the first quarter. Second question I had is with regard to the backend of the business. Outside of the networks which are -- you’re obviously addressing with your increased CapEx, what else do you think needs to be addressed to stabilize the mobile business on the backend? Third question I have is with regard to the regulations. Are there any updates on the regulatory front with regard to releasing some of the spectrum held by San Miguel? Thank you.

All right, thank you for that question. This is Ariel. Let me respond to your first question on subsidy. Do we start with a strategic intent for the group to grow data? And for us growing data is -- we recognize of course to do that we require an ecosystem that works together, and our Chairman has already outlined this as well in his preamble. We need to have the following factors on the same page. Number one a better network, a device, a device, a smartphone in the hands of every Filipino, content that drives usage and of course the ability to monetize it. Our smartphone campaign 888 follows three models where we’ve put a device in the hands of the consumer who would not have enjoyed the Internet prior to us doing this because it’s just an $18 smartphone, so now he’s in a position to enjoy it. Put 100mb per month and try Facebook, most likely trying Facebook and then after that topping up. So, yes, it starts with the intent to grow data and the numbers would suggest, as Anabelle mentioned earlier that data was just driving so much growth for the group, which is of course the huge amount of smartphone. [Multiple speakers]

Okay, I will answer the second question. This is Joachim Horn. Besides the network so a very holistic approach we have been taking in order to prepare ourselves for the digital keyboard. It starts basically to come up with [indiscernible] processes and it crosses service platforms, the IT environment and the network. And it’s being complemented by a lot of innovations which are coming from different sources. All of that together basically describes the required changes or required notifications we need in order to get this in the digital era of the PLDT Smartphone.

Are there any milestones that we should be looking at in terms of these?

Say again?

Milestones.

I think you should just watch our launches which are coming up pretty soon during this year. We have not done, said we’ll do a three year plan without any intermediate steps. When we started to plan on that we always said we need to have quarter by quarter visible improvements, which we have seen and just keep posted. I think you will see more improvement coming in all these areas.

On the regulatory front, this is Ray Espinosa, there have been no updates from the FTT regarding the future of [indiscernible] growth.

I think he had a question the postpaid, that’s right?

Yes. When you look at the postpaid [indiscernible].

There has been a decline on the postpaid for the quarter of around 31,000 but that’s because there was a cleanup of the Sun postpaid sub base to the extent of 168,000. So if you take that out there’s actually a gain on the postpaid side. In terms of the total subs net adds for the quarter there was a decline of 410,000, but that includes the 168,000 of Sun. So the actual decline in sub base was only about 240,000 which is much less than what was realized last year. For the full year it was around 5m subs that we lost. And I think for April our latest count is that there has been a positive increase in the subsidy cellar and broadband for the wireless division which we haven’t seen for a number of years. So for the, of course one month doesn’t make a full year right, but at least for April we have a positive gain in net adds for the cellular broadband subs. So in a way I think the subsidies are helping out both the subscriber count and the data revenues, which have grown significantly for the first quarter.

I also want to add perspective on the postpaid business of Smart that it really is a strategic intent for us to grow this not only because it is part of our agenda to grow data and postpaid people consume data, but also because it is closer to where our PLDT home subscribers are. The more postpaid subscribers we have for mobile, what we are seeing is that there is greater convergence that we have with PLDT home because they come from the same, generally come from the same pool and there is a whole lot of possibilities if we had them both in postpaid point one. Number two was that generally as we see in home and as we see in mobile also, postpaid subscribers are good subscribers, they’re loyal and they stick with us for a while and they’re higher ARPU. So it’s really a good business to be in. And when you look at what we’ve done, I should go back to 888 and all the things that we do with the other partners, there is a huge part of prepaid, they’re higher value prepaid subscribers who can go to postpaid at this point. So we are very just thorough and granular in the way we do things that are, like as I described higher value, prepaid subscribers going postpaid. that was something that was key for us.

Understood. Sorry, if I could just have one follow up question there, are there any specific initiatives for PLDT to actually better capitalize the fixed line business to help drive your mobile arm?

Oh, yes, definitely, definitely. We’ve been doing it already since late last year. For one we’ve done quad-play. We’re I think one of a handful of carriers around the world who are doing quad play. That would be [indiscernible], your broadband, fixed broad, your mobile and of course your video now which are the signal over fiber that we are doing, so that’s one piece. The second piece was that, the second piece is that since as I’ve mentioned earlier, we have a single customer view. So, we [indiscernible] and cross-sell our postpaid mobile services to a good paying, high-value PLDT subscriber. Now we are talking 1.5 million PLDT subscribers that we could potentially put postpaid mobile plans to. And that’s exactly what I’m saying that it’s not a bad thing to have a postpaid momentum because it just opens up a lot of things with PLDT which is double point convergent from Virgin and which is double point I think of having a consumer group that’s why we look at this business and the consumer as one. And therefore we are going to providing him the entire suite of services in this case, so it’s an opportunity for us.

Eric Alberto again, on the enterprise space albeit it usually takes a larger portion of the largest business but we have been pursuing convergence for both the fixed and wireless business for the enterprises for quite some time now. And our value proposition really is not price but really compelling value and contribution relevant to the enterprise business and how we use our -- not only our connectivity but our solutions to enable their businesses. Our postpaid business in the enterprise space has grown steadily. It’s not -- we have actually leveraged our leadership in the fixed space. These relationships that we have on the fixed space that makes sense to our being able to cross and up-sell wireless services, not only in terms of basic POP and messaging capabilities but in a growing way as corporate -- as they adopt more mobile in the way they enable their businesses, we are actually leveraging on enterprise solutions being delivered as well on the mobile platform. Our enterprise partners, as I mentioned earlier, is growing very, very healthily double-digit up 15% on first quarter. And we are optimistic that with further convergence of our offerings mixing across platforms on fixed and wireless that this growth pace should be healthy in the continuing periods.

I think in a way the convergence of fixed and wireless offerings is a unique proposition, value proposition from PLDT. And you see that reflected back to the profit mix of the first quarter. Approximately 65% of our core income was derived from the wireless side and 35% from the fixed. So the value, the contribution of fixed line to the overall business both in revenue terms and profit terms are increasing and I think will do so for the next two or three years until the wireless business is able to gain real traction on the data side of this business.

Our next question comes from Michael Benson. [Ph] Your line is now open.

Thank you for the call. My question was regarding mobile. I think someone already asked the question on the Smart 888 promo. I think the numbers are quite good. Is it fair to say given the traction you’re seeing that you’ll maintain this promo for the foreseeable future? That’s it thank you.

I think it’s fair to say that we will continue with the promo but we will -- and we will have to refresh it with a better phone, with more features, [indiscernible] I think right it’s something that excites us something that markets [indiscernible] and it’s something that adds a lot of value to this market. So, yes, so everyone is good on that one.

Our next question comes from Varun Ahuja. Your line is now open.

Yes, thank you very much. I’ve got three questions. First, can you provide any update on the network modernization that you’ve been doing? What state is it in? How much has been completed? Secondly on depreciation and amortization, can you provide some color on that because I believe you had guided for a flat depreciation and amortization and if you look at first quarter, and if you do analyze that it looks a lower run rate. So it will be helpful if you can provide color. Third on the tax rate, it looks pretty high at 30%. Can you provide more color what should we look at full year tax rate? Thank you.

I will start with network modernization. We are making good progress. We have started with increasing the rollout for 3G already last year. We have complemented it now with 4G. We have closed the gap to competition with 3G by and large already last year. And we plan to close the gap this year with a -- we will have 3G LTE coverage -- throughout the metros 3G coverage is almost matching the 2G coverage soon so that’s good progress. At the same, time we have heavily invested in increasing capacity to remove the bottlenecks, which slow down the [indiscernible] starting from the international traffic through the fiber backhaul we have and backhaul to the base station. So, substantially, we can see that the average Internet speed is actually increasing also what external benchmarks are showing. So, there we are full on track. We are not satisfied with what we have achieved. We will continue to push. We will, based on the merge of the two networks done in Smart, we will achieve significant coverage improvements in the two metros in Cebu and [indiscernible]. During this year, we will also get indoor coverage, we have focused area for indoor coverage particularly in the metros. We will push speed higher. We just launched the LTE Advanced very successfully in [indiscernible], we are looking for a further rollout of that technology to make it more meaningful. And at the same time we are pushing also on the fixed side the rollout of fiber to the home which we have done the last years and we continue to do that as the demand is very strong. We also upgrade our DSL areas with higher speeds and more capacity to meet the rising demands of our customers. So all in all I would say we are on track by no means finished but we are quite positive about the next quarters. We will see significant improvements coming in through this year.

If I understood correctly your second question it was around depreciation expense. I think we’ve given guidance that our depreciation expense will be higher. Combined with our higher financing cost it’s about the PHP2 billion sort of downward impact on the core income for the year. And then in terms of the tax rate we expect that the tax rate will be lower than the 30% rate as we review this for the balance of the year. There is still some unrecognized tax benefits that we can take advantage of, and we expect to be able to achieve a lower tax rate which will be coming probably around the 20% level for the year.

Thanks. Just a clarification on depreciation and amortization, so in 2015 you had around PHP32.6 billion of depreciation so you’re saying it should be higher than that in 2016?

Yes, because our CapEx is running at PHP43 billion for last year and this year so that will come through and hit us with higher depreciation as projects are completed.

So it will be more in second half loaded, because the first quarter looks pretty low compared with the full year?

Yes, that’s correct.

Okay. And one more question I just wanted to check, given Globe is trying to be getting much more aggressive on fixed line side, they have big plans for the fiber business. So on the ground are you seeing much more competitive Globe? What’s the situation in fixed line side from Globe in terms of competition?

I’ll take the one on the enterprise side first, well, we have heard news indeed that they’ve become aggressive on the transport and connectivity side and that’s on the laying out of more fiber footprint. What we are trying to do in the enterprise space is really going a step beyond just connectivity and the networks by providing real compelling value in driving technology and digital [indiscernible] solutions that are actually, positions us as a trusted network partner for enterprises that they more and more they’ve got the cloud and they do more offloading of non core business, IT and technology elements in their companies and offload that to a trusted network partner. And that’s how we differentiate ourselves and how we continue to differentiate ourselves from competition both local and foreign

From the consumer standpoint I think we’ve had the benefit of having the fiber optic cables 100,000 kilometers laid down, and obviously we are [indiscernible] that and there’s no let up as Joachim had mentioned earlier. The key strategy for us is to go beyond assets and it’s position about putting a line even assets to data. It was about having [indiscernible] evolution, signal and fiber sold and entering the most number of homes because, and that’s happening already. And what that means is that the proposition is clear and the consumers appreciate the value that we bring in, not only in the context again of just bringing data but really putting in digital services and that makes us more relevant to the consumer. So we will continue to press on and the strategy remains push additional services along with data.

But I think as well in the meantime we are quite aggressive on the rollout of fiber.

Our rollout has increased significantly over the last one and half two years. That’s not because Globe has announced but because we see the market opportunity and we will continue to push there as we will also upgrade the existing connectivity in order to meet the new demand. Just one word to Globe’s investment, I think a big part of that investment will go into fixed in BayanTel, Globe was very vocal about that BayanTel was not in a good shape and I guess that a big part of the investment, years at least will go into that area.

Operator, are there any more questions?

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

Okay, if there are no more questions we would like to advise that the instant replay for today’s call will be available starting today through May 10. The instant replay details are contained in the conference call invitation. We now turn the call back to Mr. Pangilinan for any closing remarks.

Well, on behalf of all of us here we’d like to thank every one of you for joining us for the call this afternoon, and we look forward to engaging you in further conversation when we report our first half results sometime in August. Good afternoon to all of you. Thank you.

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