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Edited Transcript of GLO.PS earnings conference call or presentation 7-Nov-19 1:30am GMT

Q3 2019 Globe Telecom Inc Earnings Call

Taguig Nov 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Globe Telecom Inc earnings conference call or presentation Thursday, November 7, 2019 at 1:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Alberto M. de Larrazabal

Globe Telecom, Inc. - Chief Commercial Officer

* Ernest Lawrence L. Cu

Globe Telecom, Inc. - President, CEO & Executive Director

* Gil B. Genio

Globe Telecom, Inc. - Chief Technology & Information Officer and Chief Strategy Officer

* Jose Mari Fajardo

Globe Telecom, Inc. - Director of Investors Relations

* Juan Carlo Puno

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Conference Call Participants

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* Arthur Pineda

Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research

* John Te

BofA Merrill Lynch, Research Division - Analyst

* Luis A. Hilado

Maybank Kim Eng Holdings Limited, Research Division - Senior Research Analyst

* Ranjan Sharma

JP Morgan Chase & Co, Research Division - Analyst

* Varun Ahuja

Crédit Suisse AG, Research Division - Associate

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Presentation

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Jose Mari Fajardo, Globe Telecom, Inc. - Director of Investors Relations [1]

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Good morning, and welcome to the Third Quarter 2019 Analyst Briefing of Globe Telecom. Allow me to introduce our management panel for today's briefing. We have Mr. Ernest Cu, President and Chief Executive Officer; Mr. Alberto de Larrazabal, Chief Commercial Officer; Mr. Gil Genio, Chief Technology and Information Officer; Attorney Froilan Castelo, our General Counsel; and Mr. Carlo Puno, Vice President of Financial Planning. Ms. Rizza Maniego-Eala, our Chief Financial Officer, will not be joining us this morning. Let's ask Mr. Puno to read her presentation.

As usual, Mr. Cu will present the highlights of the company's performance, followed by Mr. Puno, who will present the financial results. Afterwards, we will open the floor for the Q&A portion, beginning with our conference call participants and then our audience.

May we now request Mr. Cu for his presentation?

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [2]

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Thank you, Jomari. Good morning to everyone, and thanks for joining us today as we announce our 9-month performance as well as third quarter numbers. I'll go through the highlights and turn over to Carlo for the results in greater detail.

Gross revenue performance for the year-to-date September 2019 came in at PHP 110.6 billion, a 13% increase from last year's PHP 97.9 billion and was driven entirely by the performance of our data-related products and services.

EBITDA clocked in 17% higher than last year -- than last year to the end -- to end the period at PHP 57.9 billion from PHP 49.3 billion. This translates to an EBITDA margin of 52%.

Net income for the period is PHP 17.7 billion, up a healthy 20% year-on-year, with net -- with core net income similarly up by 20% to PHP 17.9 billion.

Though seasonally one of the weaker quarters of the year, 2019 saw the third quarter sustaining top line growth and ending the period at PHP 37.7 billion. Another record level for the company.

On a sequential basis, revenue grew 14% against third quarter of 2018, with EBITDA and net income following suit by growing 17%.

I'm also pleased to announce that the Board of Directors recently approved the fourth quarterly dividend distribution of PHP 22.75 per share. Details of which will be discussed by Carlo after my portion of the presentation.

Consistent with the trend of the past few quarters, data continues to drive growth while traditional services taper off.

Year-on-year, mobile voice and SMS are down by 15% and 22%, respectively, while fixed line voice is down 9%. These declines, however, were fully offset by the robust growth in data-related services.

Mobile data is up 44% year-on-year, bringing total mobile revenues up 13% to PHP 83 billion for the first 9 months of 2019.

Our home broadband and corporate data segments likewise exhibited double-digit growth of 19% and 12%, respectively, bringing the broadband and fixed line business to PHP 37.6 billion, a 14% increase year-on-year.

On subscriber count, mobile subscribers came in at 97.4 million as of the end of September, a 5% increase versus 2Q '19, with growth across all brands.

Home broadband subscribers also grew by 5% quarter-on-quarter, while year-on-year subscriber count rose 24% to 1.9 million subscribers. This was again driven by the fixed wireless segment, which is now growing at about 40% year-on-year.

Allow me now to dive deeper into the performance of our data-related products, which now accounts for 70% of total revenues.

Mobile data continues to be the largest contributor, making up 47% of total service revenues. It's followed by home broadband and corporate data, contributing 14% and 19%, respectively. Mobile data revenue growth was driven by the sustained increase in data usage among our subscribers.

Mobile data traffic for the quarter grew by 73% to 436 petabytes from 252 petabytes last year. This continued growth led to year-to-date September traffic reaching more -- reaching over 1,200 petabytes, an 87% increase against the same period last year, and it's already more than the full year usage in 2018.

On a per capita basis, this translates to mobile data monthly ATPU of 4.1 gig for the month -- per month for the third quarter versus 2.5 gigabytes per month in the previous year.

Notwithstanding the robust increase in mobile data traffic in our network, it is important to note that we have been ramping up our network investments. As of September, we have put up 150% more sites versus the same period last year. This is even surpassing the full year total of 2018 by 25%.

We have also enhanced existing towers with additional 3G and 4G base stations, putting up 50% more than the comparative period last year and also exceeding full year 2018 total.

We now see these investments bearing fruit as evidenced by the latest results of third-party network quality provide -- test providers like Ookla, which shows significant improvement across key performance metrics for the year-to-date.

LTE download speeds have improved by 25% to 15 Mbps, while LTE upload speed have improved 15% to 6 Mbps. Network latency (inaudible) improvement, going down by 7.5% versus the beginning of the year.

Let me brief you now on our recent investment transactions. Recall that Globe previously sold 51% of Yondu to Xurpas in 2015. On September 11, 2019 , we reacquired those shares to allow us to strengthen our position in the enterprise space. We believe in Yondu's expertise in the IT business and are certain that this transaction will promote synergies in our enterprise business and allow us to have a more robust portfolio offering.

In addition, on October 25, Globe also bought a 77% stake in EC Pay, an information technology and e-commerce-related solutions provider. The company is looking at integrating EC Pay with our network of retailers, which bring added value to our distribution channels as well as enabling our retailers to offer a variety of services in a single platform. This will also serve to future-proof our [consolidated] distribution network in line with our vision of a digitally enabled Philippines. Details of these transactions will be discussed further by Carlo in his portion of the presentation.

Finally, let me go through some of the products and initiatives launched these past few months. To further the company's digital transformation, Globe partnered with several local governments to provide fast and free WiFi access via GoWiFi. Of note is a partnership with the cities of Makati and San Juan.

In Makati, Globe is providing GoWiFi services 24/7 Barangay-Health Centers, the Makati City Hall and the University of Makati.

In San Juan, GoWiFi services are now available in 18 areas, including the City Hall, Medical Center, San Juan National High School and selected Barangay halls.

Other GoWiFi partnerships with LGUs include the province of Bataan, the City of Naga and Cainta.

Aside from partnering with LGUs, Globe likewise continues to work with the government with the support of the DICT's common tower initiative.

In September, Globe signed (inaudible) MOU with Transcend Towers Infrastructure, a wholly owned subsidiary of American Tower Corporation.

Through these partnerships, Globe aims to fast-track the rollout of the infrastructure and bring us closer to our dream of providing first-world Internet in the Philippines.

On August 15, Globe joined the United Nations Global Compact, the world's largest corporate sustainability initiative. It's our commitment to implement universal sustainability principles and to take steps to support the UN goals. It is a call to companies to align strategies and operations with universal principles on human rights, labor, environment and anticorruption, committing to implement universal sustainability principles.

This now ends the portion of my presentation. I'd like to hand it over to Carlo for more details.

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Juan Carlo Puno, [3]

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Thank you, Ernest. Welcome, everyone, here and on the call. Let me go through the details of our financial results for the period just ended.

So as Ernest mentioned earlier, service revenues will continue to grow, up 13% year-on-year and 2% quarter-on-quarter. In line with the growing business, operating expenses rose as well, though we have managed (inaudible). As a result, EBITDA margin is at 52%, with absolute EBITDA number up 17% to PHP 57.9 billion.

Similarly, depreciation and nonoperating charges grew as well. This quarter's nonoperating charges also include a net onetime loss for the investment transactions we've made during the past quarter, which I will explain in more detail in the next slide.

Despite these increasing costs and expenses, the EBITDA upside still left room for net income to grow 20% to PHP 17.7 billion. Accounting for nonrecurring charges, ForEx and other mark-to-market items, core net income stood at PHP 17.9 billion or an increase of 20% year-on-year. On our adoption of the PFRS 16, impact to our EBITDA as of September 2019 is at PHP 916 million upside to the EBITDA, in line with our full year estimates. Likewise, estimates for reduction in NIAT remains the same at around PHP 30 million per quarter.

Let me now go through the impact of the investment transactions mentioned earlier. In July this year, we sold 20% interest in AFPI for PHP 240 million to Mynt. As of the transfer date, the carrying value in Globe's books was zero resulting in a pretax gain of PHP 240 million recognized in the third quarter of 2019. Last September 2019, as Ernest mentioned, Globe reacquired 51% of Yondu from Xurpas for a total consideration of PHP 501 million.

Prior to the acquisition, Globe had a 49% stake in Yondu with a carrying value of around PHP 973 million. Given the shift in Yondu's business model from a VAS provider to an IT software solutions provider as well as the revised valuation for the company, Globe had to recognize PHP 471 million remeasurement loss on its 49% retained earnings -- retained interest prior to full consolidation. Combined with the AFPI transaction, Globe recognized a total onetime pretax net loss for the period of PHP 231 million. Additionally, last October 25, Globe also acquired 77% of EC Pay for PHP 1.54 billion. As this constitutes a majority stake, we will be consolidating EC Pay into our full year 2019 financial statements.

Let me now go through our operating expenses in more detail. On a year-on-year basis, most expenses -- most expense items rose with the exception of interconnect costs, which went down by PHP 2 billion, mostly due to the decrease in interconnect rates for both the voice and -- for both voice and SMS. Quarter-on-quarter, interconnect charges went up due to higher Internet traffic on voice, SMS and roaming.

Staff costs grew PHP 2 billion year-on-year from an increase in headcount as well as higher considerations for variable pay. On a quarterly basis, staff costs declined due to lower incentives both in the period relative to the second quarter.

Marketing expenses went up by PHP 845 million year-on-year from increased spending on ads and promos as well as higher commissions. But on a quarter-on-quarter, this declined due to actual spending.

For network costs, most of the PHP 1.2 billion increase is attributable to higher utility costs and repairs and maintenance charges related to our ongoing network expansion. This was slightly offset by lower rent expenses following the adoption of PFRS 16.

Versus the second quarter, rent expenses, repairs and maintenance charges both increased consistently with a growing network.

In other OpEx items, services contributed the most to the PHP 2 billion year-on-year increase due to higher cloud services, contracted services and other managed service for our IT. This is all to support the growing customer base in our network. This was tempered by lower provisions versus last year.

Coupled with the PHP 12.7 billion increase in revenue, 9-month EBITDA declined 17% to PHP 57.9 billion versus last year. On a quarter-on-quarter basis, EBITDA also grew by 3% to PHP 19.3 billion.

Below EBITDA, depreciation expenses went up by PHP 2 billion, consistent with our commitment to continuously grow and expand our network. This also includes the impact of PFRS 16 adjustments. While nonoperating expenses also grew by PHP 1.6 billion, mostly due to the increased share in equity losses from affiliates and the nonrecurring loss from the recent investment transactions. Despite these increases, EBITDA gains of PHP 8.6 billion allowed 20% and reached PHP 17.7 billion this period. Compared to the previous quarter, 3Q '19 net income also grew 6% to PHP 5.6 billion.

Moving on to CapEx. Cash capital expenditures for the year-to-date September reached PHP 32 billion or $650 million, with 75% of the spend still used for data-related investments. Recall earlier in the year, we provided a guidance of PHP 1.2 billion by the end of 2019. And while we are still committed to spending this amount and do expect a larger flow of disbursements in the fourth quarter of 2019, given the nature of these CapEx commitments, we estimate full year CapEx to end at around $900 million. As some payment milestones are expected to spill over to early 2020.

On our gearing ratios, gross debt as of September 2019 is at PHP 132 billion, 11% lower versus the PHP 148 billion level as of end 2018, resulting in improvement in our gearing ratios for the period. Gross debt-to-equity is at 1.62x versus 2.03x, while our gross debt-to-EBITDA is at 1.85x versus 2.33x last year. Debt service coverage ratio is at 2.88x versus 4.0 -- 4.30x.

As Ernest earlier mentioned, our Board of Directors recently approved the fourth quarterly cash dividend of PHP 22.75 per share, payable on December 6 to stockholders on record as of November 20. This brings full year dividend per share to PHP 91, consistent with the payout in the past few years. In aggregate, this quarterly declaration comes up to a payment of PHP 3 billion.

This concludes my report. We will now open the floor to questions. And as we did in the past, we shall take questions from the conference facility first, followed by those who are in the floor today.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question, Luis Hilado from Maybank.

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Luis A. Hilado, Maybank Kim Eng Holdings Limited, Research Division - Senior Research Analyst [2]

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Congrats on the results and thanks for hosting the call. I have a bunch of questions, but I'll start with 3 and then we'll queue. The first question is given the healthy set of numbers revenue growth-wise as well as margin-wise, are you upgrading your guidance for the full year?

Second question is regarding -- I guess related to that is, since it's a good performance, should we expect that compensation and benefits in the fourth quarter will go up again Q-on-Q?

And the third question is regarding EC Pay. If you could give us sort of a snapshot since you're consolidating it next year. Is it profitable or EBITDA positive? And is it (inaudible) a material difference to your consolidated P&L?

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [3]

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Carlo, (inaudible) questions.

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Juan Carlo Puno, [4]

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Yes. Luis, on the official guidance, I think we're keeping to our EBITDA guidance as of the fourth quarter. Typically, the fourth quarter is a low-margin quarter, so we do expect to end the year consistent with our guidance of around 51%, 52% EBITDA margin.

On the service revenue side, though, the fourth quarter is usually a strong quarter. So we'll likely end keeping our guidance. But I think comfort and prudence would -- it will be more prudent to stick to our guidance of high single-digit growth.

On your question on competition, because...

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [5]

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Compensation.

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Juan Carlo Puno, [6]

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On your question on -- compensation, not -- okay. On compensation, I think this will be dependent on the performance of the company in the fourth quarter. Although, we do expect a better performance in the fourth quarter, these are provisions in our accruals over the past few quarters. So although we can't say in absolute that we will be growing the compensation for the fourth quarter, I think it's safe to say that we will be growing roughly around the same level quarter-on-quarter and year-on-year for the fourth quarter.

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [7]

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So maybe just add some more color to that. Luis, (inaudible). There are some KPIs where the (inaudible) comp of Globe is dependent on relative measures, relative competition. So we probably would not (inaudible). Until maybe later this afternoon how we did that. So we're eagerly awaiting those results, to say the least.

As far as EC Pay is concerned, the company is quite a profitable company. While we don't disclose the actual net income of the company for the year, it is well into the (inaudible) should be accretive to Globe's annual profits but not on a material basis.

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Juan Carlo Puno, [8]

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To add color to that, Luis, on a purely asset perspective, I believe the assets would be around PHP 1 billion. So it's not significantly -- it won't significantly impact the numbers of Globe on the balance sheet. Luis, do you have any follow-up?

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Luis A. Hilado, Maybank Kim Eng Holdings Limited, Research Division - Senior Research Analyst [9]

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I think one thing we also noticed -- for the quarter in particular is that your nonservice revenues, less cost of sales is actually positive, so a positive margin. Is this sort of -- is there an exceptional reason for this or an accounting reason for this? Or should we start to look at this as the new normal?

And the other question I have was regarding depreciation and amortization. Quarter-on-quarter was a bit flattish and provisions were down. We did see the disclosure of the provisions in the prior quarters are unusually high. But even year-on-year is down. So is this again the new normal that we should be looking at?

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Juan Carlo Puno, [10]

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Luis, I'll take those questions on. On the nonservice revenues, I think this is still a function of some adjustments for the quarter. We are transitioning fully to a -- to the system-generated numbers, and we are doing some onetime adjustments for the third quarter. So the third quarter is not really reflective of the level moving forward. I think it would be more prudent to look at the year-to-date figures.

In terms of depreciation and provision, so on depreciation, we are expanding the network, and we do expect our asset base to increase. I think the way to look at it, Luis, would be we are likely tracking the year-on-year growth rates from a year-to-date perspective. So on quarter-on-quarter, if that translates to a minor growth, I think you're safe to assume that.

On the provision side, there were onetime provisions that we booked in the second quarter as well as in 2018. But by and large, the story around provisions is really a function of our implementation of IFRS 9, where the cleanup that we went through to be able to adopt the standard allowed us to end up with a receivable base that's relatively more healthy and therefore would require less provisions moving forward. So that's really the story there.

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Operator [11]

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Our next question, Ranjan Sharma from JPMorgan.

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Ranjan Sharma, JP Morgan Chase & Co, Research Division - Analyst [12]

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My question is more on EC Pay. You also have a separate payment business which you've been growing and you're also (inaudible) investors for it. So if you can just share your thoughts around why you've decided to acquire this company as well rather than to grow organically.

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [13]

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EC Pay is a very different asset from GCash. GCash is an e-wallet, a full service fintech company. EC Pay, on the other hand, is a bill payment. They have over 400-plus billers that they have acquired over since we started (inaudible). These are utilities, you would say associations, credit card companies and so on, insurance companies and so on and so forth. So 400 different companies wherein you can pay your bills electronically through. As a matter of fact, GCash use our EC Pay as a payment vehicle. GCash is an electronic wallet that the consumers use. The link to the billers would be EC Pay.

So today, there is a very large network that EC Pay has in terms of load distribution. As Globe endeavors to take more control of the channel, we believe that this is essential to our ability to be able to continue our relationship and control of that channel through the web loading facility that EC Pay has. We expect that EC Pay and GCash will be very complementary to each other, with EC Pay adding to the eventual reach that GCash will have in this channel that I was speaking of.

So there is a blending of the 2 capabilities that we expect to add significant value in the near future.

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Operator [14]

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Our next question, John from Philippine Equity Partners.

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John Te, BofA Merrill Lynch, Research Division - Analyst [15]

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My first question is on churn. I would have thought that since it is already a year from the implementation of the 1-year policy, it would have already picked up. But I think it has, but not the 6% number we saw in 2017, '18. So would you sort of try to make sense on how we should look at churn moving forward?

And postactivations, despite the churn was down quarter-on-quarter. So is there anything that -- substantial that happened in the quarter?

Third is perhaps some outlook or your sense on how competition is behaving in the mobile and broadband front at least in 3Q.

Fourth, maybe an update on what is going on with regards to the tower companies and how you sort of approach them. Is it tower companies providing you where you can lease out? Or is it the other way around? And perhaps an update on how you think you will sort of deal with your current towers. Are you still -- are you guys still privy to sell them or have you other plans for them? That would be all.

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Juan Carlo Puno, [16]

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Maybe churn and ATPU.

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [17]

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Yes. I'll cover, I guess, the rest of them.

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Juan Carlo Puno, [18]

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Yes. I think the churn numbers, you're going to have to give it maybe 1 more quarter for it to start normalizing because there was movements in the prior years on month-on-month basis. And it will, I think, start to make itself more evident.

If I may, I think the more important piece of information is when we think about the core subscriber base, what we have seen is that they are a lot more active, and their propensity to stop us continues to grow. So it's a very healthy base. Unfortunately, this whole change in the regulatory regime masks a lot of that. But just a comment on the quality of the base.

As far as acquisitions are concerned, that has -- while it continues to be there, it's slower, and it suggests that the rotational churning is probably slowing down, people are sticking to their carriers a bit more. And I would assume that as we've seen in the last quarter, the habituation of the PLDT-Smart subs has also taken root given their own problems during the period. So I think generally, much healthier subscriber base is how I would characterize the performance for most of the year.

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [19]

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Albert, on ATPU and competition.

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Alberto M. de Larrazabal, Globe Telecom, Inc. - Chief Commercial Officer [20]

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On competition. The third quarter, so, I guess, for all intents and purposes, a continuance of the major moves they made earlier. Clearly, they're much more active in the market today. Beyond the quarter, they did terminate one of the more aggressive promos. And then there are some seasonal moves such as the more recent promo on a raffle-based type of execution that they do every year. So nothing unusual. I think they're holding the course. We don't see any acceleration of their aggressiveness. But clearly, clearly, they are much more active than we've seen them in the past.

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [21]

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(inaudible) highlight competition is probably ending of the promo, it is a sign that they're looking to monetize the traffic that they've built, which is a pretty good strategy after this. You cannot expect to give away something for free forever and keep building network that doesn't really (inaudible). So (inaudible) very, very logical moves on their part.

With regard to the tower goes, the way it normally goes is once they sign an intent, it got an approval from the regulators, it comes to us, we give them search link, and we agree to kind of explore the possibility of working together. The only thing is we've done 3 or 4 of these things, and we haven't seen a tower come up despite the fact of them having a list of places where -- that we should be -- we're interested in building, I guess, they are finally realizing that it's not as easy as they thought it was going to be. I guess those 20 firms doing these things are a high barrier to the entry to the tower business, I guess. So we'll have to see. I mean it's been 6 months since the first one and a month since the last one. And I still have to see our new (inaudible) proposals.

On the current towers -- but we're building. As we said, we've built the equivalent already. It's more than what we've built last year. So there is indeed maybe a skill that's required in building these towers up.

The current towers, they are status quo. We haven't really moved to where -- from where we were. The intent is still there in terms of trying to free up assets to be reused as network CapEx. You've seen the network CapEx go up, and it will go up and it will stay up. And so any amount of funding we can source that, support that effort, I think, will be necessary. So we're continuing to keep an eye on the deal and seeing once everything is settled down on a regulatory basis, the rules have been set permanently, I think investors will be willing to come in.

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Operator [22]

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Our next question, Arthur from Citigroup.

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Arthur Pineda, Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research [23]

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Several questions. Firstly, on the CapEx side, how should you interpret the new PHP 45 billion, PHP 46 billion CapEx for 2019 versus the PHP 63 billion initial target? Is this merely deferment of CapEx through 2020 and we should see that go up by around PHP 80 billion? And what's holding back the spend?

Second question is with regard to the towers. I'm just wondering, for the deals that you've signed up, what would the terms be in terms of asset rentals and durations? How much will it cost per month per tower?

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [24]

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Arthur, on the CapEx side, I think what you can see is these are not deferred. These are all in progress. But we project that completion date to move. There's a lot of variability when you're building infrastructure, as you know. Again, going back to permit negotiations, issues as you're building throughout. So expect that this will being spent. These are committed actually. And so the spend should happen anywhere in the first 6 months of 2020 on top of what we're going to commit to in 2020. There's always a carryover from previous year in terms of process.

With regard to the tower rate, I think that's what you -- we have seen some proposals, and we're still evaluating them. We wish that they were more interesting, to be honest. But obviously, they have to make sense to us. And what makes sense to us is it's got to be financially better than us building our own tower. Obviously, if it isn't, then why would we wait for someone to take that long to build a tower if we can do it ourselves and carry it in our books, right?

So I guess that's what we're waiting for is a truly viable financial proposal from these guys for us to -- and location and an actual physical tower, actually, to make it all happen.

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Arthur Pineda, Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research [25]

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Understood. Sorry, just to look back on the earlier question on the tower sales. Is there actually any big push for you to (inaudible) these towers? Because when I look at your balance sheet, it's actually looking pretty good. So there's no urgent need for monetization. And it seems like it's cheaper for you to operate them than to rent based on the feedback I'm getting. And given IFRS 16 is coming, it does not need any light on the balance sheet. So is there any incentive to actually monetize them?

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [26]

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Well, again, I mean, lighting the balance sheet because structures (inaudible) that makes them move into the P&L versus the balance sheet. Urgency, really, if we can get more money into the network rather than having them sit as idle towers, right, I mean, that's (inaudible) to active type of a move. That's what I am looking for. But you're right, there is no urgency. I have to commend the finance team led by Rizza and Carlo and the treasurer, actually, on how they actually reshaped the balance sheet over the past 2 years. I think a guy should be appreciative of the fact that there was significant strain in the balance sheet after the San Miguel acquisition back in 2016, '17 where we spent PHP 750 million of cash and debt to acquire the asset of San Miguel alongside PLDT. And that put a significant strain on our balance sheet because that was an unexpected, unbudgeted purchase in that year. Ratios did move up. We had to renegotiate some covenants with bondholders. But the end result is great because we're now having a very, very strong balance sheet once again to move forward.

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Operator [27]

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Our next question is Varun from Credit Suisse.

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Varun Ahuja, Crédit Suisse AG, Research Division - Associate [28]

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I'll just ask the question which hasn't been asked about the third operator. How do you see -- what kind of progress are you seeing from them? And what's your expectation, on the ground, what you're reading when they will be able to launch? Obviously, they will have time to cover the commitment that they've made to the regulator. So any color on the ground that you see will be helpful. Secondly on -- go ahead.

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [29]

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No, no. Go ahead.

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Varun Ahuja, Crédit Suisse AG, Research Division - Associate [30]

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Secondly on home broadband. Is still fixed wireless the focus area? Because -- are you still not trying to put more fiber on the ground? It seems like the fixed subscriber continues to remain flattish and the growth is largely driven by fixed wireless. And given the higher cost of 5G equipment, so how are you seeing that to play out over the medium term?

And on that note, fixed voice still continues to be on the declining trajectory. Is there any -- is this because of the usage pattern, more mobile usage? Or is it more issue that people are disconnecting their fixed line numbers?

And lastly, a little bit clarity on Slide 8. So when you say 150% quarter-on-quarter by 9 months improvement, is it the number of cell -- total number of cell sites or net adds during the year? So you're -- like you've added a hundred sites last year until 9 months. Now you added 150. Is it just -- a little bit more clarity will be helpful.

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [31]

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On the third operator, I mean, I said in the past, I only get information that you get from the press. It seems like they built 1 tower, right, in a local store with (inaudible), right?

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Unidentified Company Representative, [32]

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It's not built.

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [33]

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It's not built. I'm sure they'll get permits there knowing who their partner is. And that's it. And they're going to -- they said they're going to get 30% market share in a few years. I'd like to do that, too, because it took me 8, 9 years ago to from 33% to 56%. And that wasn't 30%. That was 20-plus percent. So maybe they can do it better.

On home broadband, we should expect a step-up for us in the fourth quarter onwards. We prioritize spending on our mobile network and mobile infrastructure for the first 9 months of 2019, but we've been showing excellent results. The broadband team of Globe is doing a fantastic job with the limited resources they've been given, and we are going to support them with improved rollout beginning this quarter.

Fixed voice. I think the allocations are a function, really, of traffic. I -- to be honest with you, I don't really look at the fixed voice numbers anymore. So maybe someone can see on the table and give us more color on them. Go ahead.

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Juan Carlo Puno, [34]

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I think fixed line voice is a function of people not opting for fixed line voice connection anymore. So it's not necessarily them cutting it out. It usually comes with the -- when you take on a new broadband, fixed broadband line connection, it comes with a mobile phone. However, since there is also a push for the whole prepaid WiFi, that's purely modem. So they're just opting to get the broadband connection and not getting the fixed line voice connection anymore if they opt to the fixed wire -- the home prepaid WiFi service.

I think your next question was a clarification of the 150%. So it's on the additional sites, so incremental sites. So essentially, the message is we've put up -- we've added more sites for the 9-month 2019 versus how much we put up in the same period of 2018.

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Alberto M. de Larrazabal, Globe Telecom, Inc. - Chief Commercial Officer [35]

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Varun, you had a comment around 5G devices still being expensive. While that is true, there is an expectation that they will continue to drop significantly as rollouts start to scale up globally. If you look at markets like Korea, for instance, it's amazing the amount of work and the level of penetration that they've done on 5G. So there is expectations they will continue to drop, and we will continue to stay committed to progressively roll out 5G for FWA. And as and when the device prices get more affordable, then the ability to scale that up will likewise increase.

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Varun Ahuja, Crédit Suisse AG, Research Division - Associate [36]

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Just 2 follow-ups. So when you say will, in fourth quarter, put more investments in home broadband, is it more on the fixed wireless side, 4G-related or you're looking at -- or on the fiber side? And so if incrementally 150% site EBITDA growth, 50%, what's 50%? That means it shows that there is some improvement in the rollout of towers in the Philippines over the last 9 months. Even if it's your own team which have done it, so it shows some significant improvement in number of sites that have come up in this year. Is it because of procedural improvement or more efficiencies with the new system?

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [37]

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Okay. Great. Great question, by the way. You picked up on something. On the rollout, it is on the fiber side. A lot of fixed infrastructure we're putting on the ground once again.

With regard to the number of sites and you would say the flow-through of sites, there has been a very intensive effort done inside those to actually improve our process and our ability to flow through and bring sites up for service much quicker.

Gil, you want to speak a little about what your efforts have been going through on that particular front?

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Gil B. Genio, Globe Telecom, Inc. - Chief Technology & Information Officer and Chief Strategy Officer [38]

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Yes. Historically, the entire end-to-end process from figuring upward to put sites all the way up to basically putting a site on air has taken a certain amount of time. And what we have done is looked at that end-to-end process and basically tried to do a lot more things in parallel as opposed to sequential. There are some -- of course, there are some trade-offs. Some of the trade-offs have to do with the fact that sometimes you acquire a site and we are unable to build for a variety of reasons. But on the whole, by trying to compress the schedule of putting on-air sites, we've been able to do things faster. So in -- whereas in the past, in any given calendar year, given the same pipeline, we would have been able to put on air a certain number of sites. This particular year, in 2019, as the numbers suggest, and I think what has also commented by Ernest, by 9 months of the year, we've been able to put up more sites than the whole number of sites for a whole of next year.

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Operator [39]

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Our next follow-up question, Luis Hilado from Maybank.

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Luis A. Hilado, Maybank Kim Eng Holdings Limited, Research Division - Senior Research Analyst [40]

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I just want to follow up on home broadband. With the inroads you're making (inaudible), has -- how has industry pricing evolved recently? Are you seeing more competition or it's kind of rationale?

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Alberto M. de Larrazabal, Globe Telecom, Inc. - Chief Commercial Officer [41]

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The price points on SKUs have not really moved. It's really more around the level of data that is allocated. So indirectly, yes, there is a bit more aggression on overall yields coming down. But essentially, as people start to progress, in our case, for instance, from 4G into MIMO and, hopefully, as we get more pervasive into 5G, the cost to deploy and the cost to serve also comes down quite significantly. So there is an ability to pass on some of that benefit to help accelerate the development of the market, but nothing unduly aggressive in the marketplace.

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Operator [42]

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There are currently no questions in queue. (Operator Instructions)

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Jose Mari Fajardo, Globe Telecom, Inc. - Director of Investors Relations [43]

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I think we're going to take any questions from the floor if there aren't any questions on the line.

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Unidentified Analyst, [44]

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I'm (inaudible) securities. Recently (inaudible), I noticed those change in prepaid promos (inaudible) 90 and 120. And comparatively, I guess, competitor, it is 10%, 20% lower relatively. So my question is, (inaudible) expect (inaudible) further coming down (inaudible) starting price war against the competitor.

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Gil B. Genio, Globe Telecom, Inc. - Chief Technology & Information Officer and Chief Strategy Officer [45]

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We did that. We've also just recently launched very quietly, and the materials are now going to start to flow around offering free Facebook and Instagram to more our subscribers and free YouTube to at-home usage. It's more aggressive. I think what happened through time is you do spurts of activities to boost and then you remove. And then you'll see that from us in the past. You've seen, in fact, from Smart as well. So I think you will always see periods of more aggressive promos, and they tend to be time-based. And that's meant to continue habituating your subscribers, getting them to use more data, getting them to discover more things. And then it's done its job and then you start to normalize again. So I think it's just part and parcel of a regular set of tools, if you like, that people use. I will acknowledge the fact that in the last quarter, the last couple of months, there has been a heightened level of activity coming from users.

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Unidentified Analyst, [46]

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And what is (inaudible) high-growth (inaudible) do you still expect 70% to 80% growth year-on-year (inaudible)?

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [47]

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If my friend, Mr. [Henry], can build them fast enough, yes.

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Operator [48]

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There is currently 1 question on the line which is Arthur from Citigroup.

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Arthur Pineda, Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research [49]

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Just a follow-up question, please, on 5G fixed wireless access. How does the financial economics compare with fixed line fiber or copper deployment for you? Do you find that the margins are actually better? Or is it a top (inaudible) measure (inaudible) access?

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [50]

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Well, today, you really can't have a normalized number yet because (inaudible) is actually very (inaudible). I think I said this before, (inaudible). What we do believe is if there's any new device out there with a new chipset, you will see dramatic price increases coming over the next year. I mean you see China has started to roll out. That's going to be a big driver of the chipset to come down and to come down in price. It's a huge market out there. So we're very optimistic as this will become (inaudible) to our 4G fixed wireless product. And knowing that it's just (inaudible) specific numbers. Specifically (inaudible) is going to be much lower on the 5G side versus 4G side. In every generation of changes in technology, then it should be variable, right? The 4G, LTE, fixed wireless access is variable today. You can see we're showing that. So we just have to wait for technologies to mature and catch up. We've taken this time to truly understand the technology. The feedback we're getting on the ground is (inaudible) fiber. The customers are using it, again speed of about 50 to 100 Mbps. And of course, (inaudible) as well. But it is a fact that perhaps more people can enjoy a speed of 10 and 20 Mbps than compared with the 4G network when it's (inaudible). So we're very optimistic about the technology.

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Operator [51]

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Thank you. There are currently no questions in queue. (Operator Instructions)

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Jose Mari Fajardo, Globe Telecom, Inc. - Director of Investors Relations [52]

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There are no questions on the floor. So last call on the line?

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Operator [53]

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There are currently no questions on the call.

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Jose Mari Fajardo, Globe Telecom, Inc. - Director of Investors Relations [54]

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Okay. I think we'll call it. Thank you, operator.

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [55]

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Thank you very much.

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Operator [56]

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Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.