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Edited Transcript of GLO.PS earnings conference call or presentation 5-Aug-19 5:00am GMT

Q2 2019 Globe Telecom Inc Earnings Call

Taguig Aug 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Globe Telecom Inc earnings conference call or presentation Monday, August 5, 2019 at 5:00:00am 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

* Rosemarie Maniego-Eala

Globe Telecom, Inc. - CFO, Treasurer & Chief Risk Officer

* Vicente Froilan M. Castelo

Globe Telecom, Inc. - General Counsel and Head of the Corporate & Legal Services Group

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Conference Call Participants

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* Giovanni Dela-Rosa

Deutsche Bank AG, Research Division - Research Analyst

* Luis A. Hilado

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

* Ramakrishna Maruvada

Daiwa Securities Co. Ltd., Research Division - Head of Singapore Research

* Varun Ahuja

Crédit Suisse AG, Research Division - Associate

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Presentation

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Operator [1]

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Over to you, Jomari.

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Jose Mari Fajardo, Globe Telecom, Inc. - Director of Investors Relations [2]

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Thank you, Ron. Good afternoon and welcome to the Second 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 who is joining us remotely. Mr. Alberto de Larrazabal, Chief Commercial Officer; Mr. Gil Genio, Chief Technology and Information Officer; Ms. Rizza Maniego-Eala, Chief Finance Officer; Attorney Froilan Castelo, General Counsel.

Mr. Cu will present the highlights of the company's performance, to be followed by Ms. Maniego-Eala 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 [3]

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Thank you, Jomari. Good afternoon to all of you. As usual, allow me to go through our performance for the first half of 2019, and then I'll turn over the floor to our CFO, Lisa to discuss the financial and operating results in more detail.

Gross performance for the first half of 2019 clocked at PHP 72.9 billion, a 13% increase over the same period last year. This is owing to the sustained performance of our data-related services. EBITDA, likewise, grew 18% year-on-year to PHP 38.6 billion, translating to a 53% EBITDA margin. Robust EBITDA gains allowed first half net income to grow 21% to PHP 12 billion. Core net income also posted an improvement, up 18% year-on-year. I'm also pleased to announce that our Board of Directors recently approved the third quarterly dividend distribution of PHP 22.75 per share, details of which will be discussed by Rizza in her portion of the presentation.

As I mentioned, revenue performance was driven by data-related services, which all posted double-digit growth for the period. The mobile business is up 11% year-on-year, with a 45% growth in mobile data services more than making up for the declines in mobile voice and SMS.

Mobile subscribers as of the end of June 2019 is at PHP 92.9 million. As stated in previous quarters, we expect this figure to normalize in the fourth quarter as we complete the first cycle of the new prepaid load expiry rules. The fixed line and home broadband business grew 16% year-on-year, with home broadband and corporate data services up 21% and 15%, respectively, while fixed line voice declined by 8%. We continue to gain traction in the home broadband space through our fixed wireless strategy, with a 21% growth in home broadband subscribers, driven entirely by a 40% increase in fixed wireless subscribers.

As of the end of June 2019, 65% of home broadband subscribers are now on fixed wireless versus 56% a year ago. The Corporate Data business also continues to grow at a healthy pace as we continue to see the business demand for better connectivity, cybersecurity services, data and cloud solutions increase.

As of the end of June, data services accounted for a total of 70% of revenues, with mobile data being the largest contributor at 47% followed by home broadband at 14% and corporate data at 9%. Our mobile data user base now stands at 37.5 million, up 6% year-on-year and comprise of 40% of our mobile subscriber base. Mobile data traffic for the first 6 months of 2019, likewise, posted growth, now standing at 764 petabytes, nearly double last year's figure of 390 petabytes. On a per user basis, we're also seeing much higher average data consumption with monthly ARPU now at roughly 3.8 gigabytes per month versus 2.1 gigabytes per month in 2Q 2018.

Last June, we launched the commercial 5G -- launched our commercial 5G fiber, the Globe At Home Air Fiber 5G postpaid plans, making the Philippines the first country in Southeast Asia to experience commercial 5G fixed wireless broadband. These new postpaid plans offer fiber-like speeds up to 100 mbps and data packages of up to 2 terabytes.

Starting in July, these were made available to eligible customers in select areas in Pasig, Cavite, Cainta, and Bulacan. We are hopeful that Global At Home Air Fiber 5G will further enable us to achieve our goal of connecting 2 million homes by 2020.

GCash, on the other hand, continues to establish its presence in the Philippines by constantly expanding its portfolio of products, services and purpose. GCash recently improved upon its existing partnership with Puregold to offer the first mobile payment solution, another first mobile payment solution, Scan to Pay via Barcode. The solution further streamlines the payment process by eliminating the merchants' need for both a QR code and a cellphone to receive the confirmation of the transaction. On the customer side, they no longer need to manually input the amount. The system automatically deducts once their barcode is found.

We've always shared the government's goal of improving accessibility and experience in the country and have been very vocal about our support for the DICT's common tower initiative. To that end, we have recently entered into an MOU with ISOC Infrastructure Inc. and Malaysia-based edotco Group to fast track the building and deployment of cellular towers, the first Philippine operator to do so. ISOC and edotco will build an initial 150 sites in the provinces of Cavite, Laguna, Batangas, Rizal, and Quezon.

In addition, we recently signed another MOU with Aboitiz InfraCapital and Frontier Tower Associates Philippines to roll out power to the region of Cebu, Davao, and Olongapo.

These partnerships are just the first of many, and we remain committed to improving ICT infrastructure in the Philippines.

In this ever-changing digital landscape, we have always maintained that Globe is no longer just a telco, but a digital one. Over the years, we have built and acquired valuable assets such as customer data, distribution channels, strong brands and more, placing us in a unique position to unlock new value and scale businesses.

As such, we have created 917 Ventures, our new corporate [integrator] tasked at creating and scaling digital companies aimed at solving problems for customers beyond telco. We believe that 917 Ventures will play a critical role in driving Globe's future growth, so it is for this reason that we have appointed one of our key talents to lead this new endeavor. 917 Ventures will be led by Issa Cabreira -- Guevarra-Cabreira, whose previous role as Head of the Consumer Mobile Business, led Globe to its leadership position in the mobile business today. I have no doubt that Issa will lead this new organization with the same passion and dedication with which she has led the mobile business in the past.

This now ends my portion of the presentation, and I will now hand over the floor to Rizza for more details

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Rosemarie Maniego-Eala, Globe Telecom, Inc. - CFO, Treasurer & Chief Risk Officer [4]

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Everyone here in the call -- here and on the call, let me go through the details of our financial results for the first half of 2019.

Gross Service revenues for the first 6 months of 2019 is at PHP 72.9 billion, a 13% increase from last year's PHP 64.7 billion. Operating expenses and subsidies also increased by 7% year-on-year but still enough room for EBITDA to grow 18% to PHP 38.6 billion. Below EBITDA, depreciation and nonoperating charges likewise increased year-on-year but was not enough to offset the EBITDA gains leading to a 21% increase in net income year-on-year. On a sequential basis, the second quarter of 2019 still posted a slight revenue increase of 2% versus the unusually strong first quarter. And this was not enough to offset the 13% increase in operating expenses and subsidies. This led to a 6% decline in EBITDA and a 21% decline in net income quarter-on-quarter.

On our adoption of PFRS 16, the impact on our P&L for the first half of 2019 is PHP 561 million upside in EBITDA. This is in line with our estimated full year impact of PHP 1.2 billion to PHP 1.5 billion. Its impact on NIAT remains the same, a reduction of around PHP 30 million per quarter. Net of IFRS, depreciation grew 9.4% year-on-year.

Let me now go through our operating expenses in more detail. Interconnect costs declined by 50% due to the impact of the change in interconnection rates for both SMS and voice and lower overall internetwork traffic. Staff costs, on the other hand, posted a 24% increase year-on-year from increased headcount and additional corporate incentives. Marketing and subsidy costs likewise grew 25%, mainly from higher ads and promo spend and increased commissions on higher home and broadband acquisitions.

Network costs also posted a slight increase of 3%, mainly from higher electricity consumption as well as higher average electricity rates. Repairs and maintenance also contributed to the increase, rising 10% versus last year on higher preventive maintenance cost for higher hardware, subscriber lines and support facilities as well as increased licensing costs for various software. These increases were tempered by a 13% decline in lease expenses, following the adoption of PFRS 16.

Provisions, services, and other operating expenses were up 14% year-on-year, mostly due to increased costs from cloud services, contracted services and IT managed services. This was slightly offset by a 7% decline in provisions for the period. These rising operating expenses reflect our efforts to support the growing business, as evidenced by our revenue performance in recent quarters.

Moving on, below EBITDA, depreciation charges are up 13% year-on-year, due in part to the impact of PFRS 16 adjustments, as I mentioned earlier, as well as the sustained level of CapEx investments for our network. Nonoperating charges also posted an increase coming from higher interest expense, share and equity losses from affiliates and losses on derivative instruments. The PHP 5.8 billion in EBITDA gain was enough to fully cover for the higher depreciation and nonop charges, leading to a 21% increase in net income for the first half of the year.

CapEx spend for the first 6 months stood at PHP 19 billion or around PHP 366 million. This brings CapEx to revenue ratio to 26% for the period. Majority of the spend up to 75% continues to be for data-related requirements to support the growing data businesses. Gross debt as of June 30, 2019, is PHP 132 billion, 11% lower than end 2018 levels, leading to further improvement in our debt ratios.

Due to the strong cash flow carrying over from 2018, we did not need to take in new debt in the first half of this year, even with the scheduled debt repayments that we had to fulfill in the first 6 months of this year.

Gross debt-to-equity is registering at 1.7x versus 2x by the end of 2018, while gross debt-to-EBITDA stands at 1.9x versus 2.3%, the same in full year 2018. Debt service coverage is at 2.9x. It's still well above our covenant of 1.3x. As Ernest earlier mentioned, our Board recently approved the third quarterly cash dividend of PHP 22.75 per share, payable this August 30 to stockholders on record as of August '19. In aggregate, this quarterly declaration comes up to a payout of around PHP 3 billion.

This concludes my report, and we now open the floor for any questions. As we did in the past, we shall take questions from the conference facility first, followed by those who are here today. Thank you.

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Questions and Answers

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Operator [1]

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

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

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And congratulations on the healthy revenue numbers. I initially have 3 questions. The first is just to get a confirmation whether the full year guidance you gave in the first quarter still holds. So EBITDA margins close to 50% and high single-digit growth on revenues -- service revenues.

Second question is regarding just a clarification on the sub growth and ARPU trends. Ernest earlier mentioned during his presentation that it's still in flux due to the SIM expiry period changes, but just wondering if you can give us some color. This increased data users that you're seeing, is it from new subscribers or getting existing subscribers to use more data?

And third question is on the OpEx side. Salaries and benefits increased Q-on-Q. Just wondering if that's accrual of bonuses. And therefore, second half, we should expect a lower level or whether part of it is like the staff retention due to the possibility of poaching attempts by new or existing competitors.

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

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Thanks, Luis, for the question. Interesting that almost everything is related to the third telco. On guidance, Rizza, why don't you cover the guidance as well as the OpEx? And Albert and I will cover the subscriber growth and ARPU trends.

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Rosemarie Maniego-Eala, Globe Telecom, Inc. - CFO, Treasurer & Chief Risk Officer [4]

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Okay, Ernest. So first, from the -- first, our guidance remains the same. So our guidance for revenue is up high single digits for this year. And we guided to slightly above 50% for EBITDA margins. So I think that's, first, the movement as close to 50%. Our actual guidance is slightly above 50%.

Now in terms of operating expenses, this is your third question. Yes, we did have a 24% increase year-on-year in staff cost. And in terms of quarter-on-quarter, it was a 39% increase. So that is related to salaries, benefits and bonus related to the performance of the company.

In terms of guidance for the second half, which is the second part of your question #3, staff costs, given that -- the fact that it's 24% year-on-year increase, we'll continue to reduce one of our highest growth items in our OpEx expense for 2019. And I guess in terms of guidance, we need to have the market stick to or at least be close to our guidance of -- on the top line, high single digit and for EBITDA margin closer to or at least slightly above 50%. We'd like to reiterate that in the last quarter, we did mention that the 55% first quarter EBITDA margin was a surprise to us and that we view EBITDA margins over the next few quarters to be on a decline relative to that first quarter, 55%, and net-net, reiterating our guidance of slightly above 50% for the full year EBITDA margin.

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

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Okay. And on sub growth, yes, the counts are indeed reflective of not being able to churn out in subs until likely the fourth quarter or early into the first quarter of 2020. ARPU trends continue to be healthy. I think they're primarily driven, and I think Albert can comment on this, by existing subscribers. We're seeing it across the board, whether it's Globe postpaid, Globe prepaid, TM, existing subs, tenured subs, as they habituate with the data habit, typically show an increase in ARPU on a quarter-on-quarter basis. And Albert, can you -- any more thoughts?

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Alberto M. de Larrazabal, Globe Telecom, Inc. - Chief Commercial Officer [6]

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That's correct. When you think about what we call the ARPU, we've seen that actually slightly increased. The ARPUs are actually much better. The overall level of activity is higher. So, unfortunately, we have this whole situation with the nonexpiry. But underneath all of that, the quality of the active base is actually quite, quite good and so...

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Operator [7]

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Our next question, Rama from Daiwa.

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Ramakrishna Maruvada, Daiwa Securities Co. Ltd., Research Division - Head of Singapore Research [8]

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I have a couple of questions, please. Firstly, again, talking on the staff expenses, I hear Rizza your comments that they have to do with salaries and benefits. Could you comment a little bit about the thinking behind the staffing expenses to the extent that do you think given the rebasing that you have done, that should -- would it drive additional revenue growth going forward? Or are these just market adjustments that you are doing to the pay scale given that the staff count is up less than 1% year-on-year.

The second one is, again, on the cost side with subsidies. For this second quarter, it looks like there's a subsidy of closer to around PHP 0.5 billion. Just wondering what the driver here is and what the outlook for subsidies would be going forward.

And on the revenue side, a few questions, please. Firstly, with regards to the wireline data side, the revenue growth seems to be a little bit weak. Could you comment on what's driving this?

And finally, on the losses from the GCash Mynt, what would be the outlook for the rest of the year? Do you expect the losses to accelerate or to reduce or to remain at the current level going forward?

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [9]

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Okay. Rizza, do you want to cover the subsidies and stock expenses? Albert, you cover the wireline data, and I'll speak about GCash.

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Rosemarie Maniego-Eala, Globe Telecom, Inc. - CFO, Treasurer & Chief Risk Officer [10]

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Okay. Thanks for the questions. On the staff expense, there are a couple of things that had contributed to the increase. So If you look at our actual staff count, year-on-year, it only grew by 75 heads. Nevertheless, we know that inflation spiked over the last 2 years. And in our internal process of reviewing pay scales, so there were some adjusted -- adjustments related to that, again, given both inflation and market figures that we're seeing. Secondly, it's really related to variable pay. So Globe's pay is also highly skewed on a variable selection. So while we do have the fixed portion wherein we constantly review it versus inflation and market, there's also a variable portion wherein depending on the performance of the company, then the higher we perform, then the more bonuses we have for the whole employee base. So I hope that this answers the question on staff cost.

Now I'll move to your question on subsidies. So a couple of things. While the subsidies on mobile are at bay, we're seeing a growth in our broadband business. So this is largely where the subsidies are also in place. But given that, I think, if you look at our 2Q, that would be a good benchmark for how subsidies will be for the balance of the year.

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [11]

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And just clarify on subsidies that has to do with modem (inaudible). Rizza?

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Rosemarie Maniego-Eala, Globe Telecom, Inc. - CFO, Treasurer & Chief Risk Officer [12]

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Mobile and we have a little bit around PHP 500 worth for some modems on the high end for postpaid broadband.

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Alberto M. de Larrazabal, Globe Telecom, Inc. - Chief Commercial Officer [13]

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On the questions on wireline data, the underlying drivers are actually moving all over the place. And with the acquisition (inaudible) in terms of number of client subscriptions are increasing. There continues to be some price rationalization that happened as far as the clients are concerned. We expect to mitigate the revenue for this. But generally, as we take up (inaudible) services has been [existing].

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [14]

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Okay. On the GCash, we expect the levels to remain at least at the current levels for the rest of the year. GCash has set out a spending plan for the year. And it seems like they're going to be able to stick to that spending plan.

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Ramakrishna Maruvada, Daiwa Securities Co. Ltd., Research Division - Head of Singapore Research [15]

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Okay. Understand. Just maybe if I can just follow up. So in terms of the revenue growth, do you expect an acceleration from -- given all the adjustments that you're putting through on the cost base? Or do you expect all this investment to sustain the pace that you are seeing in the first and the second quarter on a year-on-year basis?

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [16]

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I think sustaining would be the right description. We believe that the numbers are absolutely on the high side relative to the industry and relative to the region already, so I think anything higher would be quite aggressive. We're seeing consumers, like I said, increasing their data usage, let's say quarter-on-quarter and more and more consumers habituate on their data. A habit, and obviously, that had a lot to sustain whatever we've done for the first 2 quarters.

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Rosemarie Maniego-Eala, Globe Telecom, Inc. - CFO, Treasurer & Chief Risk Officer [17]

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If I may just add to what Ernest said. Again, right, we're showing a 13% growth in the first half, stemming off the very strong first quarter. If you look at our 2Q growth, it was at 2%, and we are guiding to the single digit. However, despite the lower guidance versus the 13%, we are also saying that our guidance is roughly slightly above 50% versus the 50% EBITDA margin.

So from our perspective, these are the numbers that we're looking at for full year, irregardless of the noise in between quarters. A line statement that it is again coming from higher growth rates into the first few quarters versus the P&L of this year.

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Operator [18]

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Our next follow-up question, Luis from Maybank.

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Luis A. Hilado, Maybank Kim Eng Holdings Limited, Research Division - Senior Research Analyst [19]

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Just one follow-up question for me on update on the tower business. You've mentioned that the 3 tie-ups have been signed. Do you anticipate that at some stage, you might be selling some of your existing towers to the independent operators? And if you could give us an update on the spinoff plan previously, whether that's off the table.

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [20]

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I wouldn't quite call it off the table. I think it's just of late that we're seeing some stability in terms of the rules. I think Froi is in the audience or part of the panel, so he can probably give you some color on that. However, we're waiting for that to kind of finalize itself and see what the final rules are. I believe they're still (inaudible) once that is [k], then we will actually evaluate and see if it's still worth progressing our plans to divest the towers. Just to make it clear, it is our preference to divest, given the fact that we can liquefy those assets that are sitting on our books and deploy them back into the network as more active radio equipment. So Froi, really if you can give us some color on where these rules are as of today.

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Vicente Froilan M. Castelo, Globe Telecom, Inc. - General Counsel and Head of the Corporate & Legal Services Group [21]

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Well, the current rule right now on our tower share for the independent tower companies is that it's still the DICT will accredit tower costs. But the incumbents, the [MNPs] -- or the MNOs like us are still allowed to put up their own towers. And we are not stopped from working our own tower company. So this announcement of Undersecretary Rio still stands. And there's a pronouncement also from Secretary Honasan that he will continue the policies set forth by Undersecretary Rio.

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Operator [22]

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Our next question, Varun from Crédit Suisse.

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Varun Ahuja, Crédit Suisse AG, Research Division - Associate [23]

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And congrats on a good set of numbers. First, I want to understand how is the third operator progressing in the market. I believe they've got the license now. So what are you seeing in terms of their planned rollout plan? Anything that you've been hitting on the ground, that will be helpful. Number two, on the tower agreement that you signed with the independent tower companies, have you started -- is there any timeline to when they will deliver any of the towers or just a formal agreement wherein you kind of show an intent to work with them on the ground? Is there any tower delivery which is happening?

And number three, on the fixed broadband side, it looks like your focus is a lot more on fixed wireless. What's your view on the fixed fiber side of the broadband view for the next 2 to 3 years, not going to focus much on that, fixed wireless, you're seeing a lot of growth so that is what your focus is? And lastly, on the voice side, fixed voice, it seems to be declining a lot. And there is no stability in the revenue on that front. Is this more an allocation issue? Or is it -- or are you seeing a decline in fixed-only voice customer?

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

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Why don't I cover the first 3 and give Albert and Rizza a chance on whether fixed voice is going to be an allocation issue or just normalizing on demand? On the third operator, I mean we hear probably mostly what you hear in the press. Of course, there's talk of them starting to do some site surveys and so on and starting discussions with data centers on sites to locate their equipment. But other than that, it's been actually very quiet. The most news we've heard was the time they were awarded a license, the frequencies. And the bond was put up by foreign banks from China. And that's really -- that's all that we've heard. I'm sure there's activities going on in the background.

With regard to the towers, yes, there's these 2 companies or 2 JVs that we signed with, they've been provided the search rings, the areas that we need our facilities in. We still have to see the result of that. We have not yet seen any builds ongoing. I believe maybe Gil can provide me with some updates. But I have not heard anything from my team as far as any substantial progress forward on that. So anything on towers that you may hear from the 2 JVs?

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Gil B. Genio, Globe Telecom, Inc. - Chief Technology & Information Officer and Chief Strategy Officer [25]

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Other than what you said, no development so far.

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

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Yes. Okay. And then fixed versus wireless, obviously given the difference in footprint between us and the competitors. And our strategic choice to focus on wireless is a lot of our attention is being put on wireless, whether it's 4G or 5G. However, as we've said in the past, we have not abandoned the fixed side. We are selectively rolling out because our intent is to have high utilization where we roll out. And the focus on this would be the very high-end horizontal communities as well as the verticals.

And obviously, wireless is not a solution for vertical development. And so we continue to deploy actively in vertical deployments -- in vertical developments. However, given the demand and the skew towards the prepaid demand and the ease of deploying facilities vis-à-vis fixed facilities and also the acquisition ease of the prepaid and wireless base, that is the one that's growing much faster. Albert, any color on fixed voice? And maybe Rizza could speak about whether it's an allocation issue or not.

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Alberto M. de Larrazabal, Globe Telecom, Inc. - Chief Commercial Officer [27]

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Rizza, why don't you start, then I'll talk about the fixed voice?

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Rosemarie Maniego-Eala, Globe Telecom, Inc. - CFO, Treasurer & Chief Risk Officer [28]

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There is no change in allocation (inaudible) or even last quarter.

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Alberto M. de Larrazabal, Globe Telecom, Inc. - Chief Commercial Officer [29]

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Okay. So in terms of the actual number of subs, there's been some shifts coming in from last year into this year. There were some declines, some cleaning-up of the sub base in 2018. What we are seeing on a quarter-on-quarter basis, between the first quarter and the second quarter of 2019 is a slight increase in the number of fixed line subscribers that generally reflects the increases in the fixed broadband deployments that we've been making. So it continues to grow quarter-on-quarter this year.

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

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Just to follow up on the towers, right? So what is the expectation? Is it that they will roll out much faster than you? Or if PLDT comes, then the cost will be much more lower? So I just want to understand, are you seeing on the ground, are the tower companies much more efficient in rolling towers than you guys? So just want to understand the strategic decision.

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Rosemarie Maniego-Eala, Globe Telecom, Inc. - CFO, Treasurer & Chief Risk Officer [31]

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Maybe, Ernest, I can give more color?

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [32]

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Yes, go ahead. Yes.

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Rosemarie Maniego-Eala, Globe Telecom, Inc. - CFO, Treasurer & Chief Risk Officer [33]

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So there are a couple of things, right? So since the tower regulation has not been firmed up, for us, partnering with the tower companies, specifically the 2 entities or the 2 JVs that we've signed in the past few months, means that we now have new vendor partners who will build towers for us in areas where we need more towers. The difference between our current vendor partners and these 2 JVs who are aiming to get licenses with the DICT to be accredited tower companies is that they will use their own money to build the CapEx -- to build the towers. And we will merely lease from them versus current model with our accredited partners, wherein we also shell out the CapEx to build the towers.

Now it also gives us variety by partnering with more of these tower companies. Again as I mentioned, first, it expands the number of entities who will build towers for the likes of ourselves in the country. And secondly, they also have different models. So take, for example, AEV or the Aboitiz tower -- Aboitiz company, they are -- they have poles which we can actually utilize in the areas where they are already present. So that actually gives us a different model on a rental basis and in areas where they are strongly complementing our current vendor pool. So just to give sort of like the rationale behind signing MOUs with these entities and how we are looking at the current landscape, despite not having firm regulations on towers.

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [34]

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Maybe for us, the tower sites, I think we've mentioned in the past, the more people building the better. But we also do not think that there is any other way to build these towers. Obviously, it goes through the process of site acquisition, which involves commercial negotiation, then you have to go through the permitting process. Again, as I've said in the past, nothing has changed. It can still be up to 28 permits per site. Why should they be any different from us when they apply for permits and then go ahead and build the tower, right? So nothing has changed in the law, nothing has changed in the rules, nothing has changed on the ground as far as the critical activities that go on to build a tower. Not simply because you're a different entity other than PLDT or Globe that the process will be different for you. So what it is, is more hands and more feet on the ground, trying to locate sites, trying to look for -- and trying to apply for permits. So again, the more people, the better for us to do these activities.

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Operator [35]

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Our next question, [Bernard] from JPMorgan.

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Unidentified Analyst, [36]

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Just one question from my end. Should we expand the dividend payments to remain stable despite the growth in earnings?

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

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Rizza, do you want to start with that? Yes.

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Rosemarie Maniego-Eala, Globe Telecom, Inc. - CFO, Treasurer & Chief Risk Officer [38]

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So our Board of Directors just approved the current dividend payout of PHP 22.75, which is the same level as in the previous quarters. And despite the strong earnings, this is actually equivalent to 65% payout ratio from last year's earnings. And currently, the Board's policy is still to pay out 60% to 75% of previous year's core net income. And while we constantly say that the Board has the ability to decide to make changes in our dividend policy every quarter, judging from this quarter, we can assume that it's going to be the same clip at that PHP 22.75 per share per quarter.

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Operator [39]

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

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [40]

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Yes, given the absence of questions from the call-in audience, how about we open the floor to the analysts who are in the actual meeting? Jomari?

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Jose Mari Fajardo, Globe Telecom, Inc. - Director of Investors Relations [41]

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Yes. Thank you, Ernest. We have mics here in 2 places (inaudible). If you want to ask questions, please just approach the mic and (inaudible)

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Unidentified Analyst, [42]

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I'm [Joshua] from (inaudible) Securities. My first question is related to GCash. Could you share your strategy and outlook how this GCash figure into the bigger picture for the telco core business? And then second question, I have noticed that in the second quarter, the net losses for GFI slightly increased by PHP 200 million. So could you share the nature of the -- why the loss went bigger this quarter? And how long do we expect GFI and Mynt to incur said loses?

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [43]

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Okay. GCash and Mynt is very similar to what we're trying to do with 917 Ventures. There is a gap in the market, a need in the market. And that need is for financial inclusion. There is 65% of people in the Philippines today with no access to financial services or bank accounts. And they're not likely to have any access if we just rely on the traditional banking entities that are already in the business. So that's the first -- that's the problem we're trying to solve. So we leverage the brand. We leverage the data we have of our consumers. In this case, it would be credit scoring and so on and so forth, and our distribution capabilities.

And then of course, our ability to partner with the best in the business, such as Ant Financial, in seeking to solve a problem that is massive and I think presents a very significant opportunity for hopefully the winner in the space, 65% represents over 65 million people that we can actually provide banking services to today. We've gone through both banked and unbanked, around in excess of 20 million people have signed up for the service, which is a very good, healthy base of monthly active users. We don't want to disclose that at this stage. As far as the increase in -- when you say increased, increased over what period?

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Rosemarie Maniego-Eala, Globe Telecom, Inc. - CFO, Treasurer & Chief Risk Officer [44]

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Maybe I can take it.

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [45]

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Yes, go ahead. Sure.

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Rosemarie Maniego-Eala, Globe Telecom, Inc. - CFO, Treasurer & Chief Risk Officer [46]

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Our share of the net loss increased by PHP 200 million quarter-on-quarter. So I think you're asking for guidance with respect to how you can see that contributing to full year financials. So we don't give out projections for Mynt. But I guess you can use the first half as a basis for your full year estimate. Now you had a second question with respect to when do we see it turning into sort of like a positive contribution versus the drag that we are experiencing now? So the answer remains to be that we are unable to give guidance. But suffice it to say, despite the drag on the bottom line, we view this investment for this venture as very important to us, as mentioned by Ernest. And in fact, while from a P&L perspective, it has negative contribution, we view the value of this to be understated at the moment.

So if you recall, when we sold to Ant Financial, the valuation for (inaudible) was $100 million. Now the current clip of MAU for fintech companies is around $250 per pop. And with our MAUs for fintech, definitely, the valuation is beyond the $100 million post (inaudible) just 2 years ago. And we're hoping that the investment community sees the value in this and actually sort of looks at it beyond what the impact to our P&L is. Because we will continue to invest in this business, together with our partner, Ant Financial and Ayala Corporation, remains to be shareholder as well, to really take on the opportunity, which is still huge for the Philippines with respect to the enabling or making sure financial inclusion is sort of like powered by both Globe or Mynt, for this matter, given our assets. So I hope it sort of like addresses your several prompt questions.

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Unidentified Analyst, [47]

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Maybe just -- if you could share more on the -- because if it's a net loss on the quarter, these expenses would have been bigger. So could you share more of the nature of these expenses?

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Rosemarie Maniego-Eala, Globe Telecom, Inc. - CFO, Treasurer & Chief Risk Officer [48]

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It's really marketing expenses.

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Unidentified Analyst, [49]

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Marketing expenses.

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Rosemarie Maniego-Eala, Globe Telecom, Inc. - CFO, Treasurer & Chief Risk Officer [50]

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Yes, marketing.

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Jose Mari Fajardo, Globe Telecom, Inc. - Director of Investors Relations [51]

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I'm going to need the mic to ask if there are any more questions on the floor before we turn it over again to the conference call.

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Giovanni Dela-Rosa, Deutsche Bank AG, Research Division - Research Analyst [52]

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This is Gio from Deutsche. I just wanted to ask, first, 917 Ventures, how much are you putting into 917 Ventures? I don't know if I missed that. And the other is on the mobile interconnect, which I understand is going to be removed. Can you give us an indication when do you expect the mobile interconnect to be taken out?

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [53]

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Let me tackle the 917 Ventures question. At this stage, I guess it's still unclear. It depends on how quickly the businesses there will be scaling. It's an incubator. So the numbers are going to be small at the beginning. But the hope is certainly to be like very similar to the GCash business that we have, where we uncover an opportunity that can actually scale, and given our size, that we'll be able to give it the unfair advantage of (inaudible) capital infusion without the need for fundraising, which usually hobbles down sort of start-up companies like this.

Obviously, we don't also expect to take that many years to incubate something, similar to what was happening in GCash, given the fact that technology and smartphone penetration is already where it's at today. So the aspiration though is to create billions of dollars in value, very similar to what the trajectory of Mynt and GCash has been over the past couple of years. And I think what we'll probably do is just give you regular quarterly updates of what we've been doing as far as the progress and the type of ideas that we intend to pursue with this endeavor.

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Gil B. Genio, Globe Telecom, Inc. - Chief Technology & Information Officer and Chief Strategy Officer [54]

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For mobile interconnect, well, as you know, this is just an arrangement between carriers with respect to access that rules by the NTC were actually designed for the third player, even though the third player is not yet operational, so there's not much compulsion really to have the mobile interconnect (inaudible) to be affected. Anyway, almost basically the same size of the network, between Globe and Smart, there's not really much (inaudible) on the operation.

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Jose Mari Fajardo, Globe Telecom, Inc. - Director of Investors Relations [55]

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Are there any other questions from the floor? Ron, are there other questions right now that are in queue?

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Operator [56]

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There is currently one question in queue. (inaudible) from Citigroup.

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Unidentified Analyst, [57]

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There's just a couple of questions from me. Firstly, on the data subscribers, it has been quite stable for the last few quarters. So I just want to understand what is the reason for that? Second question is on your CapEx guidance, the 1H CapEx is trending quite behind the full year run rate, so what we should expect. And given the JVs which you signed on the tower side, should we expect the CapEx to be slightly lower, given that the CapEx on the tower side will be borne by the tower operators?

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [58]

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Okay. Maybe, Albert, on the data numbers, data subscriber numbers and then Rizza can cover the CapEx question.

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Alberto M. de Larrazabal, Globe Telecom, Inc. - Chief Commercial Officer [59]

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Okay. As far as the mobile data users are concerned, the aggregate numbers have shown some slight increase quarter-on-quarter, about a 6% increase in mobile data users. So what we have actually seen, and it's a blend, it's actually growing slightly faster on the prepaid side and we've seen some moderation on the mobile side but not by much on the postpaid side. Now what's happening is the -- as I said, it's -- what's really starting to be noticeable is the amount of data difference in the absolute peso value of what they're consuming. So both the ARPUs are increasing. And so we're seeing quite healthy movement. On the lower-end brand, the premium brand, we are seeing a much higher level -- increasing levels of penetration. Our handset affordabilities are (inaudible) enabling a lot more of the lower segments of the market to engage in the service. It's actually quite a healthy trajectory.

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Rosemarie Maniego-Eala, Globe Telecom, Inc. - CFO, Treasurer & Chief Risk Officer [60]

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I'll take on the question for CapEx. If you look at our actual cash CapEx in the first half of this year at PHP 19 billion. So that's about 30% of our guidance of PHP 63 billion this year. Now in terms of the commitments that the company will make for 2019, it is aligned with the PHP 63 billion. Now whether there will be timing issues between what we actually pay out or what is cash CapEx, that is what you see in our financials, then that will actually vary depending on the completion of certain milestones of the vendor partners. So today, we are still sticking to both the cash CapEx of PHP 63 billion. But if there is a delay in the payment, we want the market to know that the PHP 63 billion will be actually committed and it will just be a spillover from a cash perspective to next year. So by and large, it will be conservative to still assume (inaudible) to PHP 63 billion cash CapEx for 2019.

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Operator [61]

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There are currently no questions in queue. (Operator Instructions) As there are no further questions, I will now hand the floor back to Jomari, over to you.

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Jose Mari Fajardo, Globe Telecom, Inc. - Director of Investors Relations [62]

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Thanks, Ron. Are there any additional questions from the floor before we conclude? Okay. So this concludes the Second Quarter 2019 Analysts' Briefing of Globe Telecom. We should thank again those who joined us on the call and here today. We hope you'll join us again for the third quarter analysts' briefing in early November 2019. Again, we wish everyone a pleasant good afternoon.

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Ernest Lawrence L. Cu, Globe Telecom, Inc. - President, CEO & Executive Director [63]

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Thanks, everyone.