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Edited Transcript of TEL.PS earnings conference call or presentation 9-May-19 7:00am GMT

Q1 2019 PLDT Inc Earnings Call

Makati Metro Manila May 25, 2019 (Thomson StreetEvents) -- Edited Transcript of PLDT Inc earnings conference call or presentation Thursday, May 9, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Juan Victor I. Hernandez

PLDT Inc. - Senior VP & Head of Enterprise Business

* Manuel Velez Pangilinan

PLDT Inc. - Chairman, President & CEO

* Melissa V. Vergel de Dios

PLDT Inc. - First VP & Head of IR

* Oscar Enrico A. Reyes

PLDT Inc. - Senior VP & Head of Consumer Business Market Development

* Ray C. Espinosa

PLDT Inc. - Senior Advisor to President & CEO and Director

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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

* Rachelleen Rodriguez

Corston-Smith Asset Management - Equity Research Analyst

* Ramakrishna Maruvada

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

* 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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Operator [1]

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Good afternoon and welcome to the PLDT Conference Call. As a reminder, this conference call is being recorded. At this point, I would like to turn you over to Melissa Vergel de Dios, Head of Investor Relations of PLDT, for the introduction. Please go ahead. Thank you.

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Melissa V. Vergel de Dios, PLDT Inc. - First VP & Head of IR [2]

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Good afternoon, and thank you for joining us today to discuss the company's financial and operating results for the first quarter of 2019. Mentioned in the conference call invitation, a copy of today's presentation is posted on our website. For those who have not been able to do so, you may download the presentation from www.pldt.com under the Investor Relations section. A podcast of this briefing will be available on our website after the call.

For today's presentation, we have with us Mr. Manny Pangilinan, Chairman and CEO; Attorney Ray Espinosa, Senior Adviser to the President and Chief Executive Officer -- Senior Adviser to the Chief Executive Officer of PLDT; Mr. Al Panlilio, who will be stepping up as our Chief Revenue Officer; and as well as other members of the PLDT management team.

As Ms. Anabelle Chua is indisposed at the moment, let's -- allow me to do the highlights of the presentation.

We are happy to share with you PLDT's financial results for the first quarter of 2019. We recorded revenues of PHP 38 billion, up 7% from the same period last year. Revenues from our Individual Wireless business registered a robust 18% growth to PHP 16.9 billion and accounted for 44% of total revenues. 26% or PHP 9.8 billion of total revenues were from the Enterprise segment, which improved by 9% from last year. Our Home business grew 3% from last year to PHP 9.1 billion, accounting for 24% of total revenues.

Revenues from our International business continued to decline coming in 39% lower for the quarter at PHP 2.1 billion. Excluding International, the combined revenues from our Home, Enterprise and Individual businesses, which represent 94% of total revenues, grew by a healthy 12% from last year.

Total cash OpEx, subsidies and provisions were lower by 2% year-on-year. As a result of higher revenues and lower cost, our EBITDA rose 16% to PHP 20.1 billion for the first quarter of 2019. EBITDA margin stood at 50%.

Telco core income excluding asset sales and the impact of Voyager was higher by 6% at PHP 7.2 billion. Let me now share with you more details.

On Slide 3, this shows our consolidated service revenues, excluding International on a quarterly basis from 2018. You will note that the 12% increase in first quarter revenues is an acceleration on the 3% recorded in the first quarter of 2018 and the 6% for the full year of 2018.

On Slide 4, including International, consolidated revenue growth of 7% was also stronger than the 1% for first quarter '18 and the 2% for the full year.

Moving on to Slide 5. Data and broadband revenues for the quarter rose 21% to PHP 24.4 billion and now accounts for 68% of total service revenues, if we include -- exclude International. About 2/3 of our subscribers now own smartphones and 75% of them are data users. The strong adoption of data resulted in 127% rise in mobile data traffic to 304 petabytes in the first quarter of 2019.

As expected, revenues from legacy SMS domestic and international voice continued to decline.

On Slide 6. Consolidated EBITDA for the quarter stood at PHP 20.1 billion, a 16% rise from last year, largely on the back of higher service revenues and lower cash OpEx. Our EBITDA reflects the adoption of PFRS 16, the new accounting standard of leases. Note that EBITDA margin rose to 50% for the quarter.

Moving on to the next slide which shows our EBITDA on a quarterly basis. Note that the 16% growth for the quarter is also stronger than the 1% decline recorded in the same quarter of 2018.

On Slide 9, telco core income rose to PHP 7.2 billion or 6% higher year-on-year. This puts us on track to meet our guidance of PHP 26 billion for 2019. Reported net income was lower by PHP 200 million at PHP 6.7 billion due to a lower gain on valuation of our PHP 2.6 million Rocket Internet shareholding this quarter compared to the same quarter last year when we still had about 10 million shares.

Moving on to the CapEx slide. For CapEx, you will recall that our guidance for this year is PHP 78.4 billion. The increase from 2018 of PHP 20 billion is largely accounted for by about PHP 14 billion to PHP 16 billion in revenue CapEx to support the installations for our Home Broadband business, including last mile and customer premise equipment. About PHP 3 billion to PHP 4 billion are onetime CapEx for vehicles and fuels for the team that we will deploy -- for the teams that we will deploy to connect more broadband homes.

CapEx for the quarter stood at PHP 12.2 billion. Note that the network leadership of PLDT and Smart continue to be recognized by third-party surveys, including those by OpenSignal, Ookla and Tutela.

On Slide 11, some highlights from our network rollout. We passed 6.7 million homes at the end of March. We have nearly 3 million ports, of which 1.2 million are available at the end of March for sale. Our fiber footprint continues to grow now at 259,000 kilometers. We now have 18,000 LTE base stations and over 12,000 3G base stations.

On Slide 12, balance sheet continues to be very well managed with net debt-to-EBITDA at 1.92x. Only 12% of total debt is dollar-denominated as we continue to avail of peso facilities. Only 7% of our debt is unhedged. Close to 90% of our loans are fixed rate and our average interest cost for the quarter was 4.7%.

With that, I turn the floor over to Jovy Hernandez who heads up our Enterprise business.

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Juan Victor I. Hernandez, PLDT Inc. - Senior VP & Head of Enterprise Business [3]

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Thank you very much, Mel. Good afternoon to everybody, (inaudible) the first quarter results of the Enterprise business.

On the first slide, the Enterprise business remains (inaudible) continued the robust growth. Net service revenues at the end of the first quarter of 2019 was at 9.5 -- PHP 9.8 billion, up 9% over the same period last year, delivering incremental growth of PHP 800 million.

Fixed Line revenues came in at PHP 7.2 billion, up 6%, delivering incremental growth of PHP 0.5 billion. Our wireless business sustained its double-digit growth rate and ended the quarter with PHP 1.5 billion in revenues, up 12% year-on-year, delivering incremental growth of PHP 160 million. Last but not the least, our ICT business came in at PHP 1.1 billion, delivering breakthrough growth of 26% versus same period last year or incremental growth of PHP 200 million.

The next few slides will provide better context of each of our business pillars. Next slide, please.

Our Fixed Line business continues to be the biggest contributor to absolute peso growth, delivering PHP 0.5 billion of incremental growth in the first quarter. Fixed Line revenue continue to be fueled by the demand for data. Data revenues grew double-digit at 11% growth year-on-year and now accounts for 70% of our Fixed Line revenues. It is worthy to note that, from a technology standpoint, the said growth has been primarily supported by fiber technology as enterprises rely on fiber as the preferred connectivity option as it provides robust, reliable and secure connectivity.

Our International operations continue to be a bright spot as it doubled revenues in the first quarter from same period last year. Moreover, this is a clear differentiator for us versus competition. Our organic presence in the U.S., the U.K., Hong Kong and Singapore allows us to provide enabling options for our customers to be connected to the rest of the world. And we are well-positioned to capitalize on the growth across prospects that these markets have to offer. Next slide, please.

Moving on to our Wireless business, we are pleased to report we've been able to sustain our double-digit growth. First quarter revenues stood at PHP 1.5 billion, up 12% year-on-year, delivering incremental growth of PHP 160 million.

More important to note is that we have been very consistent with our wireless growth strategy, and we are purposively growing our Wireless business beyond just postpaid. Our enterprise wireless solutions category is leading the charge, growing at 37% over the same period last year.

Our messaging and Bizload solutions category is growing at 56%, while our M2M or IoT portfolio continues to grow at an encouraging 36%. As we moved over fulfilling our 5G mission, we expect our solutions in IoT portfolio to continue its aggressive growth trajectories.

Next slide, please. Moving on to our ICT business, we are pleased to note that revenues in the first quarter was at PHP 1.1 billion, up 26% versus same period last year, delivering incremental growth of PHP 200 million. It is critical to note that our growth is almost 3x faster than the pace of the market, which is at 9%.

We continue to capitalize on our leadership in the data center space, both in number of sites and total rack capacity. Our data center revenues was up 12% year-on-year, delivering incremental growth of PHP 62 million.

Revenues from our ICT services that sit on top of our data service assets, namely cloud and cybersecurity, doubled year-on-year. Revenues were up 111%, delivering incremental growth of PHP 130 million.

As we continue to grow in this space, it is worthy to note that ePLDT is the only full spectrum ICT service provider in the country, delivering solutions in data center, cloud, cybersecurity and managed IT services. Next slide, please.

Lastly, we look at corporate data, as this is the only comparative item versus competition, and I'd like to end with the following points. Number one, we are more than 2x the size of competition with corporate data revenues at PHP 6.5 billion compared to competition's PHP 3.1 billion. Number two, we are growing almost double that of competition with PHP 700 million growth year-on-year at 12% versus competition's PHP 400 million. Last but not the least, therefore, PLDT Enterprise has clearly maintained its indisputable market leadership position at 68% market share. As we move towards the succeeding quarters, we are strong in our resolve to improve further this market share position closer to about 70% by year-end.

That's it for Enterprise. And I'll turn over to my colleague, Ren, who will discuss the consumer side of the business. Thank you, and good afternoon to all.

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Oscar Enrico A. Reyes, PLDT Inc. - Senior VP & Head of Consumer Business Market Development [4]

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Thank you, Jovy. Good afternoon, everybody. I am pleased to share the first quarter 2019 performance for the consumer businesses of Wireless and Home.

Next slide, please. Total consumer Q1 2019 revenues are at its highest in 6 years, up PHP 26 billion combined Individual and Home results. This is PHP 3 billion higher than Q1 2018 or 13% growth, while Individual is up PHP 2.7 billion and Home is up PHP 300 million over last year. Next slide, please.

Zooming first into consumer individuals. Next slide, please.

Growth is accelerating for consumer individual. From full year turnaround -- full year 2018 turnaround performance of plus 7%, the Wireless business is now at plus 18% growth, delivering PHP 16.9 billion in net service revenues in Q1 2019. Next slide, please. This is partly driven by our continued increase in subs base. Based on a 90-day churn rule, the Wireless subs base grew from 57.7 million to 63.4 million, an additional 5.7 million subs versus last year or a 10% growth. Next slide, please.

One key driver of these results is our superior LTE network as validated by more and more independent firms, such as Ookla, OpenSignal and Tutela. Further, we are stepping up our campaigns to our subs to accelerate their migration into LTE. Our latest campaign talks about breaking free from lag, which takes our communication to a level that is closer to the consumer benefit of better CX. And as our subscriber numbers show, when consumers try our LTE network, they end up staying, which is the truest test of network performance. Next slide, please.

Another key driver has been the increased data usage and digital video usage. In November 2018, we launched our Video Every Day promo that gives an hour of free video with a purchase of data load and expands usage from beyond YouTube to include our other partners, namely NBA, iWant TV, iflix and Cignal Play.

After 5 months in the market, we see significant take-up in monthly active users for all these partners. YouTube grows further by 35%, NBA by 90%, iWant TV by 153% and iflix by 170%. This further solidifies our content play on video. Next slide, please.

Beyond video, we are also going big into mobile gaming, under the giga play platform. We are going to market with on-ground activities to boost subs acquisition and usage. As an example, I'm happy to share the exponential progress from our Mobile Legends push and our foray into esports with TV5 and Cignal with the launch of the Nationals tournament on March 17. Next slide, please.

Our subs base, using Mobile Legends, as an example has grown 5x in 9 months, and data traffic has grown 18x over the same period. And we have new products and campaigns in store for the rest of the year. This is a very strong start for Wireless in building another pillar of growth, which is mobile gaming. Next slide, please.

Moving on to Consumer Home. Next slide, please.

PLDT Home business grew modestly in Q1 2019 to PHP 9.1 billion, a PHP 300 million incremental or 3% growth. As we work on transforming the CX for subs and our ability to increase our capability to serve and install. Next slide, please.

As of year-to-date Q1 2019, together with our facility modernization efforts, we successfully upgraded the minimum speeds of 920,000 subscribers from 3 mbps to 5 mbps for Plan 1299, 10 mbps for Plan 1699 and 25 mbps for 1899. And we are happy to announce that by week 3 of May, we will be doing another program to further increase the minimum speeds to 10 mbps for Plan 1299, 20 mbps for Plan 1699 and 30 mbps for Plan 1899. All these fixed wired plans give unlimited amounts of data and is at no extra cost for our subscribers. This is in line with our thrust to deliver the best CX on home broadband and these combinations of higher speeds and unlimited data is an offer that only the fixed wired technology cannot match. Next slide, please.

As we improve the CX of our products, we have also been working on scaling up our ability to install fixed wired facilities within 24 hours. We are rolling out our Bilis Kabit program to more and more areas nationwide to allow us to serve consumer demand for quick and easy PLDT fiber connection and enjoy these amazing products that only we can deliver. Next slide, please.

On top of these, we are also stepping up our content marketing efforts. In the past quarter, we have worked with Netflix to push usage using their new content, such as Umbrella Academy. Next slide, please.

Lastly, to further PLDT home's differentiation and experience superiority, we have launched our campaign to raise the standard in home broadband with branded partnerships with Google to make home WiFi as the new standard offer from PLDT. Our new plans include these new WiFi mesh technologies that allow multiple access points to be deployed to the home and increase coverage inside the home. Clearly, PLDT home is delivering and continues to raise the level of the best in-home experience, which further sets us apart from all other players in the market.

Thank you. I turn the floor back to Chairman, Mr. Manny Pangilinan.

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Manuel Velez Pangilinan, PLDT Inc. - Chairman, President & CEO [5]

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Thank you, Renren. Good afternoon to all of you, and thank you for joining us for this afternoon's briefing.

My job is to address the guidance numbers for the full year 2019. Basically, we are maintaining the guidance numbers as have been disclosed to all of you in the early part of the year, I believe some time in March of 2019. In terms of the telco core income, we maintain our guidance of PHP 26 billion. Now having said that, I believe it's appropriate, given the strong start to our revenue profile, particularly Wireless and Enterprise, for the first quarter and continuing through to May so far this year, I think that we may need to revisit what the full year guidance would be assuming we are able to maintain strong momentum particularly for the Wireless and the Enterprise business.

We are, of course, very aware of the requirements about our home business, and we are exerting our very best to ensure that we are able to raise the momentum of growth on the home side. There's been a restoration of the growth momentum in the first quarter. We need to accelerate that because we believe that there's a significant potential for demand for fiber to the home. So I think by August -- I think we'll announce our results some time -- for the first half year -- some time in August, we will let you know how the full year is likely to pan out.

CapEx, we're maintaining at PHP 78.4 billion. There maybe a few -- some minor adjustments in the composition of the CapEx because we will need to start even a modest investment in our 5G some time this year, and we have to find items from within the overall budget to fund that, but we're keeping to the overall CapEx guidance at PHP 78.4 billion.

We are as well mindful of our operating expense. I think we're quite proud that the OpEx levels have dropped by around 2% in the first quarter, considering that the OpEx level last year for the first quarter was at the highest in relation to revenues. And we would have to keep a close eye on our OpEx moving forward.

In terms of dividend payout, no change. We're keeping it at 60% of the core telco plus any exceptional change that might be realized in the course of the year, I think, mainly driven perhaps by the potential sale of our Rocket Internet shares. As you know, the share price of Rocket Internet has been improving steadily because Rocket Internet has shown a -- has turned the corner, has shown a profit last year of EUR 196 million and this year will have significant cash balances to make new investments.

Let's go with Melissa.

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Melissa V. Vergel de Dios, PLDT Inc. - First VP & Head of IR [6]

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At this point, we're ready to take questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions)

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Melissa V. Vergel de Dios, PLDT Inc. - First VP & Head of IR [2]

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Operator, are there any questions in queue?

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Operator [3]

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We have no questions over the phone.

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Melissa V. Vergel de Dios, PLDT Inc. - First VP & Head of IR [4]

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Okay. If there are no further questions, we just want to inform everyone that the instant replay for today's call will be available starting today up to May 16. The instant replay details are contained in the conference call invitation.

We now turn the floor back over to Mr. Pangilinan for any closing remarks.

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Manuel Velez Pangilinan, PLDT Inc. - Chairman, President & CEO [5]

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Thank you very much for listening to our briefing this afternoon, and we're quite keen actually to brief you again to report on our first half results for 2019.

I think for the first time, we're quite keen to do that in -- for the past few years. Thank you so much.

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Melissa V. Vergel de Dios, PLDT Inc. - First VP & Head of IR [6]

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We understand from the operator that the questions are just coming in. There are now 4 questions in the queue. So we will take questions on the call facility.

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Operator [7]

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Our first question comes from the line of Ranjan Sharma of JPMorgan.

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Ranjan Sharma, JP Morgan Chase & Co, Research Division - Analyst [8]

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Just one question from me, I mean, you're obviously, making a lot of efforts in your Enterprise fixed line network and mobile network. So kudos to you. But maybe you can also address the elephant in the room on the third telco? If you can share what you see as the progress, when you see the impact start coming in and any potential hurdles for the third player.

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Manuel Velez Pangilinan, PLDT Inc. - Chairman, President & CEO [9]

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Well, in terms of any direct information about the third telco, about Mislatel, we don't have that much information and partly because there's been not much flow of information from them and partly because it's politically not very politically correct to ask too many questions or make any public comments. Now be that as it may, I think clearly there've been significant delays in terms of their actual implementation because as far as we know they have not resolved the franchise issues. So -- and elections are coming. And of course, we know Congress would convene some time after the elections towards the end of May. But we're not sure whether they can actually resolve the franchise issue by the end of June, which is the final tenure of the existing Congress. So you're looking at the next congress for resolution of the franchise issue, which is towards the end of July. Now it would take maybe a few months for the new Congress to resolve, I guess with finality, the franchise issue.

Now the -- we're now getting a bit more familiar with the 5G business. And our sense is that for the third telco to be truly competitive in the market vis-à-vis the 2 existing players, the kind of capital investment is likely to be quite significant -- or very significant. In fact, simply on the wireless side, which appears to be where they're going to be concentrating, I think initially they have to build a 4G network and a viable transport infrastructure to connect the various cell sites throughout the country and at the same time start to prosecute the buildout of their 5G. Now I think we're learning that the cost and the density of cell sites needed to have a viable 5G infrastructure in time -- I'm not saying it will happen in 1 year or even 2, it is quite costly, right? So I -- we have no clue up to what extent China Tel have prepared to invest significant amounts of money in the Philippines because I think that's where the principal form of funding will have to come from.

So we -- I think there have been some speculations, some statements made that they won't be ready until maybe late 2020, maybe middle of 2021. Those statements are likely to be more credible than none, that's our own assessment, if they still proceed with the project. I don't know whether my colleagues will have anything to add.

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Ray C. Espinosa, PLDT Inc. - Senior Advisor to President & CEO and Director [10]

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The latest news that we have, just based on the newspaper reports, is that they've pushed their commercial operation date to some time in 2022 already. Having said that they will be around late 2021 or early 2022, I think that reflects the fact that the franchise has not yet been issued. It will likely be resolved when the Congress reopens for a brief period in time this month before the onset of the new Congress. Having said that, the challenge pointed out by the Chairman is really to get -- to secure as many of the physical sites needed for them to lay out over thousands of dollars to be able to meet their first year commitments. So if they are building out their network then it means that they have secured roughly, what, 2,000 -- I think 2,000 sites.

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Unidentified Company Representative, [11]

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3,000.

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Ray C. Espinosa, PLDT Inc. - Senior Advisor to President & CEO and Director [12]

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3,000 sites. And by our own experience, securing a new site these days have become more and more difficult because property development has changed the landscape of the greater metropolis. And less and less landowners are willing to mete out their properties for cell sites. So that is a major issue that we have faced and certainly they will face that as well.

The permitting requirements remain the same. They are slow and it takes -- you need around 27 permits for each cell site. So by our -- again, by our own experience, it takes about 8 months for us to complete a site and put it up, taking into account the permitting requirements as well as securing the site itself, that is if you have a site. So yes, they have challenges. But if they are into the franchise, they will be required with a performance security, which is a very huge amount as we know.

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Manuel Velez Pangilinan, PLDT Inc. - Chairman, President & CEO [13]

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PHP 87 million.

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Ray C. Espinosa, PLDT Inc. - Senior Advisor to President & CEO and Director [14]

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And the clock starts ticking once that happens.

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Manuel Velez Pangilinan, PLDT Inc. - Chairman, President & CEO [15]

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Then maybe just to round out our observations. I think the -- there is a bit of political dimension to the time frame by which they're able to prosecute their own -- this particular project on the part of Mislatel, which is I think the closer they get to 2022 then the political dimension arises. So that's a question, obviously, not for us to deal with but it's for them to think about.

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Operator [16]

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Our next question coming from the line of Varun Ahuja of Crédit Suisse.

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Varun Ahuja, Crédit Suisse AG, Research Division - Associate [17]

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I got 4 questions with me. Firstly, on the operating cost. If you look at it, it declined this quarter, so I just wanted to check how much more the cost decline can you continue? And is there any way the costs start increasing so -- given the investment that you need to make in the network. So just wanted to understand. Obviously, part of it maybe is because of IFRS 16. But still the cost management is really commendable. Number two, tower sharing, any progress? What is happening on the tower sharing thing? Still -- is the Ministry still considering proposal wherein the telcos will not be allowed to roll out tower or that has gone to the back burner now? So any update what is happening on the tower sharing thing? Number three, any talks that you may have had with Mislatel? Are there any initial feelers? Or there may be -- they may have approached you regarding roaming arrangement with you? Any update on that will be helpful. Number four, depreciation has come off. So if you look at -- you mentioned that IFRS 16 would've led to PHP 1.3 billion increase in depreciation. And your depreciation amount for this quarter is around PHP 9.3 billion. So if I adjust for that, the core depreciation would've declined a lot. So what is happening there that will be helpful? I know you took some accelerated depreciation. But the core has dropped a lot. Is it this is the normal trend or is it's just this number? Or given the investment that you are making, should it rise? So that's what I want to understand what is happening. And lastly, on competition, if you look at Globe had a very good growth, double-digit revenue growth for this quarter. Your revenue grew by around 2%. So you think the industry wireless mobile is now turning towards a more healthier growth? You think the competition is benign as of now and you're seeing lot more customer recharging for data? Any comments on that will be helpful.

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Manuel Velez Pangilinan, PLDT Inc. - Chairman, President & CEO [18]

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I think and I'll just clarify before we answer your questions. Your third question about roaming?

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Melissa V. Vergel de Dios, PLDT Inc. - First VP & Head of IR [19]

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Roaming.

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Unidentified Company Representative, [20]

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Yes. No (inaudible) yet.

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Manuel Velez Pangilinan, PLDT Inc. - Chairman, President & CEO [21]

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(inaudible) It's a person that he mentioned?

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Ray C. Espinosa, PLDT Inc. - Senior Advisor to President & CEO and Director [22]

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Mislatel.

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Manuel Velez Pangilinan, PLDT Inc. - Chairman, President & CEO [23]

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Mislatel.

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Ray C. Espinosa, PLDT Inc. - Senior Advisor to President & CEO and Director [24]

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I'll take the roaming and then (inaudible).

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Manuel Velez Pangilinan, PLDT Inc. - Chairman, President & CEO [25]

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Okay. Who wants to deal with the OpEx? Okay.

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Melissa V. Vergel de Dios, PLDT Inc. - First VP & Head of IR [26]

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In terms of the OpEx on your question with IFRS 16, that's actually P&L neutral for the year, that's what we have done so far. And so far auditors have seen our numbers and are okay with it. In terms of our cash OpEx, we will try to still manage the cost wider and wider, but given our issues and challenges on installation and repair, we are trying to rehabilitate and fix our home business. I think we will have some professional fees increase in the next quarter, maybe in the second half. But again, we will try to manage our cost for the rest of the year.

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Manuel Velez Pangilinan, PLDT Inc. - Chairman, President & CEO [27]

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Yes. I think if I may add to that. We really are engaged now as well in a reduction of headcount for the entire year. We've started that for the first quarter and there's been some around 600 persons in headcount reduction. There is a obviously a bigger number that we have targeted for the year. So that could be a factor in helping attenuate the cost push factors in terms of our cash OpEx. So but -- I think there will be some increase no doubt in the coming quarters mainly because of depreciation and maintenance expenses of our network as it broadens and expands. But we are mindful that it can certainly help if we could keep our cash OpEx within control -- under control.

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Ray C. Espinosa, PLDT Inc. - Senior Advisor to President & CEO and Director [28]

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This is Ray Espinosa. I'll take on the 2 questions of tower sharing and Mislatel. On tower sharing, the government has actually stood down from its original position that the mobile network operators will be prevented from building their own towers.

They have moved to a position where, with respect to future tower requirements, then the independent tower companies should be allowed to come in. We've signed a number of MOUs with these tower sharing companies. They have been conducting meetings between the tower companies and the telcos but so far nothing has progressed. We have been approached and are in discussion with a number of these tower sharing companies and we continue to discuss with them. But having said that, this will not stop us from securing new sites and contracting for the build of new towers. Our network rollout has not been deferred because of these discussions on tower sharing.

On Mislatel, we have not been approached formally or informally by Mislatel on any roaming arrangements or in terms of any capacity arrangement. They have been active in the tower sharing discussions with the DICT. And that's where we see them a lot more.

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Oscar Enrico A. Reyes, PLDT Inc. - Senior VP & Head of Consumer Business Market Development [29]

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Let me take on the question on the industry and competition. So actually, yes, we are seeing that the total industry is growing, and it seems to be growing faster than previous years. So we actually see that for both us and our competitor, for both Wireless and home businesses are up and growing. And this really -- what we see more real in the market is that I think since more and more subs are getting into higher quality data type of activities, their usage is expanding. So in the past, when you're primarily on call and text, there's only so much call and text that you can do in a day. But now with actually consumers becoming more -- building more of a data habit, then the expansion in terms of industry growth is happening due to that particular habit.

So when it comes to the home, we're seeing that the demand for home is also increasing. I think one key driver here that we're seeing is that it's becoming really a necessity for the children, for schoolwork. That's what -- we're seeing it as well as consumers build even their mobile data habits. When they get home, they want to be able to sustain that on an unlimited basis with home broadband solutions.

So actually, we -- this is the first time we see this trend, that this much growth in both Individual and Wireless businesses for consumer. And it will be good to see that this continues over the next succeeding quarters.

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Manuel Velez Pangilinan, PLDT Inc. - Chairman, President & CEO [30]

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And I think we -- just to amplify what Ren just said. We're seeing a very robust growth of the Wireless segment. I think if you look at the numbers for the past few years, Globe has taken the majority or the bulk or most -- or all of -- in fact, all of the growth in the Wireless segment of this industry. But now you've seen the growth, significant growth, in the revenues of the wireless segment of Smart -- or Smart and Sun and TNT, so without attenuating the growth of Globe in revenues for this quarter. So it looks like the industry has room to expand. And frankly, we were the culprit in terms of the inability of the industry to grow in the past -- to grow significantly in the past few years. And to -- of course, the Enterprise market will grow and we would grow anyway in double-digit this year. And (inaudible) that's available. Now in the case of home, we grew moderately in the first quarter because that's a hangover of the impact of DOLE on outsourcing. But the good thing about home is that we feel the potential for both fiber, VVDSL and even fixed wireless is there. So I think we believe that there is a big potential for demand and for revenues that we should learn how to exploit more efficiently. Was there a question on corporate data? Is that it? (inaudible)

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Varun Ahuja, Crédit Suisse AG, Research Division - Associate [31]

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Last one, depreciation, I think if you adjust for IFRS 16, it has come off. Any specific reason for the same?

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Melissa V. Vergel de Dios, PLDT Inc. - First VP & Head of IR [32]

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Without accelerated depreciation. Our -- and net of the IFRS 16 impact, for first quarter, our depreciation will actually increase by PHP 500 million.

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Varun Ahuja, Crédit Suisse AG, Research Division - Associate [33]

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Sorry, it's not audible.

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Manuel Velez Pangilinan, PLDT Inc. - Chairman, President & CEO [34]

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You have to speak louder.

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Melissa V. Vergel de Dios, PLDT Inc. - First VP & Head of IR [35]

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So for depreciation, without the accelerated depreciation from last year and the impact of IFRS 16, the regular depreciation would have increased by PHP 500 million on a consolidated basis.

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

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Okay. Okay. But if I look at the reported depreciation is PHP 9.346 billion and last year, it was PHP 9.373. And I believe this PHP 9.346 billion includes PHP 1.3 billion of -- from IFRS 16. So the -- mathematically it has come down, right?

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Melissa V. Vergel de Dios, PLDT Inc. - First VP & Head of IR [37]

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Yes. For the accelerated depreciation, we had PHP 2.4 billion with respect to the Nokia swap and some other PHP 200 million depreciation, yes, last year. Yes. The bigger part of the accelerated depreciation actually happened last year.

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Operator [38]

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Our next question comes from the line of Rachelleen Rodriguez of Corston-Smith Asset Management.

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Rachelleen Rodriguez, Corston-Smith Asset Management - Equity Research Analyst [39]

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Just one question for me regarding the PLDT home, notice that it's quite slowed down to 3% in first quarter and you said it's more because of the DOLE. But just to clarify, I think the DOLE issue was already okay last -- by last 2018 December. So what do you think is the cause for this slowdown? Is it more on capacity building for the -- since you're still training your personnel, is it that -- is it why it is kind of low in the first quarter?

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Oscar Enrico A. Reyes, PLDT Inc. - Senior VP & Head of Consumer Business Market Development [40]

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Well, allow me to answer that. I think firstly we need to understand that any increase in subscribers in the previous year actually impacts the revenues this year because there's an on -- on an ongoing basis, that actually kind of increases the -- it builds on top of -- or compounds the impact with same quarter performance in subs. So what happened due to the DOLE overhang is that we had lower capacity in terms of ability to serve our customers. And because of that, we actually had to clean up -- we had have some consumers who actually left our service admittedly and we had to clean that up in the end of the year. So the cleanup in November and December roughly totaled something around 68,000 subscribers. And that actually has material impact in the Q1 result.

So we actually feel that in the Q1 result now and that's why it's a little bit deflated.

Now in terms of -- the silver lining is that since January, February, March and even this so far in Q2, we're actually adding and adding more and more subscribers. If you look at our capacity and capability to install, we're actually at the levels prior to DOLE -- and on an average to average comparison, prior to the DOLE impact, we're actually at a higher level now. And we're not finished. We're actually trying to build further capacity to be able to sell out all the ports that we actually have.

So actually, we see really that there is an impact of the DOLE to this year. But that's something that we aim to overcome with increased installs for the rest of the year.

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Manuel Velez Pangilinan, PLDT Inc. - Chairman, President & CEO [41]

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But I think that just to round out to what Ren just said, the practical impact of the DOLE measure in July, right, in July of 2018. Pre-DOLE, PLDT home relied substantially on outsourced services. So the practical impact of the DOLE orders, we were left naked. We could not access the outsourced services provided by the outsourcing companies. So we have had to do immediately resort to hiring of people that can supplement both the repairs and the installs capability that Ren mentioned. So that took 2 to 3 months to hire and train. In the meantime, that impacted as well our ability to extend our repairs for those facilities that by nature there will be problems in terms of decrease in service. So our inability to do our installs -- sorry, to do our repairs as we've done before has resulted in churn that has happened in the -- basically in the third quarter -- sorry, took the bulk of the quarter to really get around to getting properly organized. And therefore, it has impacted the subscriber numbers certainly in the third and to a degree on the fourth. And as Ren mentioned, the lower take-up and the, in fact, the churn in the third quarter has impacted the fourth quarter revenues and the fourth quarter take-up of subscribers has been affected at the lower level and therefore it impacted the first quarter revenues of 2019.

I think we're looking at the -- that negative impact to slowly fade in the coming quarters for this year and as the momentum is slowly being restored, the growth momentum is slowly being restored in terms of subscriber take-up, we anticipate the second half revenues should start to pick up for PLDT home.

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Rachelleen Rodriguez, Corston-Smith Asset Management - Equity Research Analyst [42]

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Okay. Just to clarify, what do you mean by the cleanup of 68,000 subscribers, does that mean they have the...

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Manuel Velez Pangilinan, PLDT Inc. - Chairman, President & CEO [43]

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That was a cleanup for the December month as part of the regular year-end cleanup that we usually do. Again, that specific event of cleanup impacted the first quarter revenues because there's a lag effect. You clean it up, say in December, but it does not affect the December revenues much. It really impacts the revenues for the next quarter.

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Rachelleen Rodriguez, Corston-Smith Asset Management - Equity Research Analyst [44]

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Just a follow-up question. Do you think home revenues will be back to its 20% increase level by the end of 2019?

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Manuel Velez Pangilinan, PLDT Inc. - Chairman, President & CEO [45]

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Ren should answer that question.

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Oscar Enrico A. Reyes, PLDT Inc. - Senior VP & Head of Consumer Business Market Development [46]

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So I think if we look at it on a quarter-on-quarter performance, I think we will definitely be ramping up. I think we should see by the end of the year that we get back to double-digit space. Of course, the full year effect is a different story because of the ramp-up throughout the next quarters. But definitely as installs go up and actually as the impact of the Q4 fades, then we actually see double-digit back in the end of the year.

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Operator [47]

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Our next question comes from the line of Arthur Pineda of Citigroup.

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Arthur Pineda, Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research [48]

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Just 2 questions, please. You mentioned that you're planning to spend a bit more on 5G this year. I'm just wondering, what are the commercial plans for this? Will this be more for fixed wireless access, IoT or for handsets? What's the revenue model that you're looking to match for the spending? Second question I had is again with 5G. You mentioned earlier that you do see this as requiring heavier spend. Should we then expect sustained heavy CapEx levels for the group over the next few years? I'm just wondering, if this is already the peak CapEx or this will remain as relatively elevated for the next few years?

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Unidentified Company Representative, [49]

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So on the 5G -- at the current situation of 5G, there are many -- 2 use cases. One is fixed wireless and the other is called enhanced mobile broadband, which means the smartphone which MVP yesterday nicely presented in the public. And what we are planning is this year is to roll out some areas where we can try in the pilot version these customers of fixed wireless service to complement our fixed and fixed wireless rollout, which we do with fiber and LTE.

And we will also implement in some areas like Clark City, for example, a continuous coverage of 5G in order to enable smartphone usage. And we will combine both most probably as well.

This is not a large scale rollout, this is a start. It will help us to understand whether our customers would accept it. It would help us also to understand the technology better because it's still quite early. This is the first version of the phone so there will be some teething issues. It's the first version of the technology, still expensive. So it's a good time this year to try it out, work with customers, understand the business case. We're also working with universities with Enterprise customers. So that when we do the budget for next year, we know what we have to do, how much we have to invest and how the CapEx will look like.

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Manuel Velez Pangilinan, PLDT Inc. - Chairman, President & CEO [50]

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On a commercial basis, I think very important to note that the devices are still very expensive. Also -- and when it comes to as [Juan] said, the use case it's -- right now, it's really more fixed wireless access. So we will actually be going to test this use case in market within the year. Having said that, if you actually look at the offer to the consumer, the bigger opportunity, especially this year, still rests on fiber. And because it actually delivers still much better experience and much better speeds and much stabler speeds than 5G, especially at this level where it will actually be more expensive at this time to install a 5G in the home rather than FTTH. So I think that's a very important first point. When it comes to going commercial as well as on mobile, handsets are still very expensive. So it's still a very limited -- how do you say, a limited potential in terms of this and then, of course, you have to roll out a network on a continuous basis for it to actually be viable. So on a commercial basis, that's what we're looking at, definitely something on the fixed wireless access. And where we have few test cases, then you will see some mobile application.

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Arthur Pineda, Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research [51]

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Understood. And on the CapEx side?

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Unidentified Company Representative, [52]

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We will tell you then when we know.

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Manuel Velez Pangilinan, PLDT Inc. - Chairman, President & CEO [53]

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It's too early to speculate so what the CapEx will be next year. I think as we indicated for this year, we would have some buildout of 5G, but it's not going to be massive or significant at all. For next year, of course, we will try to keep within our means, right? The level of CapEx for next year and the succeeding years. We just have to stay within our ability to defray our CapEx levels in the future.

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Unidentified Company Representative, [54]

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What will help is also that, this year, we by and large, will finish our LTE -- our aggressive LTE rollout. So next year, the amount we have to invest will be substantially lower which will create room to then start to invest into 5G. But as I said before, we will know better by the end of the year.

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Manuel Velez Pangilinan, PLDT Inc. - Chairman, President & CEO [55]

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Yes. We're also wary of any -- of a massive rollout of 5G next year because use cases are not established and for a number of reasons that are probably better said privately.

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Arthur Pineda, Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research [56]

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Understood. So if I can just ask one follow-up. In terms of your broadband plans which you do sell, what speed plans would be the most popular?

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Oscar Enrico A. Reyes, PLDT Inc. - Senior VP & Head of Consumer Business Market Development [57]

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So the broadband plans. So there are 2 broadband plans. I'll talk about the price point that's very popular. It's the 1299 price point which right now is at 5 mbps. By next week -- that will -- in 2 weeks' time, that will actually become 10 mbps as the minimum speed. And that's at no additional cost. So it's still 1299.

And the other high demand price plan is actually at 1899. So it's actually much more lucrative in terms of our ARPU and actually delivers a different service. And that will actually go up to 30 mbps by in 2 weeks' time as well. And I think these 2 services are both unlimited in terms of...

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Manuel Velez Pangilinan, PLDT Inc. - Chairman, President & CEO [58]

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Yes. I think that's the point that we want to make and the reason that we are raising the speed for this home broadband fixed. But as well the capacity being given, the subscriber, unlike a fixed wireless, is unlimited. In a fixed wireless solution, the providers got to cap which -- data cap whichever platform you're on, whether you are a 4G or guess what, even on 5G because no matter, what, a wireless network is a shared network, be it an individual using it or a home using it, all right? So that's something that I think you should not lose sight of.

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Operator [59]

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Now our next question comes from the line of Rama Maruvada of Daiwa.

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Ramakrishna Maruvada, Daiwa Securities Co. Ltd., Research Division - Head of Singapore Research [60]

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I have 2 questions, please. Firstly, would it be possible for you to break down IFRS 16 impact of EBITDA at divisional level, that is Fixed and Wireless? The second one is on the Fixed Line numbers. Wondering, if you could explain the conversion trends and the factors better? For example, you have added nearly 1.9 million to 2 million new additional home spots, capacity was up in a similar way. But when you look at the subscriber additions, there were 45,000 only. So wondering whether if you're happy with this space? Or should we expect a sharp pickup or what the underlying factors here are?

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Melissa V. Vergel de Dios, PLDT Inc. - First VP & Head of IR [61]

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For the impact of IFRS, were you asking about the Fixed Line versus Wireless impact?

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Ramakrishna Maruvada, Daiwa Securities Co. Ltd., Research Division - Head of Singapore Research [62]

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Yes, correct.

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Melissa V. Vergel de Dios, PLDT Inc. - First VP & Head of IR [63]

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Okay. For EBITDA, Wireless impact is an upside of PHP 1 billion and for Fixed Line it's about 450 -- PHP 450 million.

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Oscar Enrico A. Reyes, PLDT Inc. - Senior VP & Head of Consumer Business Market Development [64]

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Let me answer the question on the Fixed Line business. So just to keep it simple, right now we have 1 million available FTTH ports. So that's something that we intend to sell majority of within the year. So there is a catch-up within the year and that's why we want to be able to sell over 70% of that. So that's something that is part of the plan now. If you look at the 45,000, again, that -- you have to take that in context with the -- what we discussed in the second half of last year, where we actually had lower capacity to execute on-ground installations. And as well because of our lack of capacity to repair as well, we're impacted by a never seen before churn or disconnections.

So that's why that number seems very muted. It doesn't really reflect what actually happens on ground at that particular point in time, which is actually something that we would be ramping up for the rest of the year.

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Operator [65]

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Now our last question comes from the line of John Te of Philippine Equity Partners.

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John Te, BofA Merrill Lynch, Research Division - Analyst [66]

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Two questions for me. One is on mobile revenue growth. I think quarter-on-quarter, the growth rate that I've derived is 1%. And I understand there are 3 million subscribers -- 3 million new subscribers into the network. And there was a little -- there was a bit dilution in terms of ARPU. So I'm just trying to understand are these because, one, you've onboarded lower value subscribers? Or are you guys seeing something about dual SIMs? Or is it -- does it something -- does it have to do something with tariffs? My second question is on OpEx, particularly, on rent expense. I understand that a lot of it is IFRS 16-related, but I also understand that short-term leases are still booked under the P&L. So just trying to understand the dynamics of how this account will work moving forward. And also on advertising and promotions, I think it's down 25%. So is there I guess something that you guys are changing in terms of ads and promotions? That will be all.

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Oscar Enrico A. Reyes, PLDT Inc. - Senior VP & Head of Consumer Business Market Development [67]

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So let me take the first question. So on mobile revenue growth, you have to understand that it's coming -- you're comparing quarter-on-quarter before -- as against Q4, which is seasonally a high quarter for mobile because of the December month, particularly high consumption during Christmas and New Year. So actually -- usually, we see a dip in Q1 versus Q4. Actually this year, we're seeing a growth in Q1 versus Q4. So that actually -- and that becomes a new behavior, a new baseline from which we will then move on for the year.

If you look at the additional 3.4 million subscribers, it actually isn't -- there are actually good quality subscribers that we're actually seeing. In fact -- so one thing that we were tracking is high-quality subs or the number of subs with ARPU higher than PHP 200 pesos and, versus last year, that has risen by almost 2 million in terms of count so without entirely -- I cannot disclose the total number, but that's risen by that quantum. So which actually means that we have a better quality subs base now than we did a year ago.

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Melissa V. Vergel de Dios, PLDT Inc. - First VP & Head of IR [68]

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On your question on leases, we don't really have much short-term leases. Included in the scope of IFRS 16 are our sites, which are all long-term, rentals of buildings and stores, international (inaudible) circuits. So most of them are actually covered by IFRS 16.

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Oscar Enrico A. Reyes, PLDT Inc. - Senior VP & Head of Consumer Business Market Development [69]

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And then on A&P. One thing we're doing is that we're actually doing more digital campaigning, which is more targeted as well and actually, campaign that is more one-to-one and personalized. So that's something that actually allows us to be quite efficient in terms of our spend. And that's why, we are able to deliver these results despite more efficient A&P.

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Operator [70]

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We have no further questions.

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Melissa V. Vergel de Dios, PLDT Inc. - First VP & Head of IR [71]

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We will turn the floor back over to MVP to repeat what he said.

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Manuel Velez Pangilinan, PLDT Inc. - Chairman, President & CEO [72]

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Thank you. Thank you, Melissa. And thank you to all of you for your questions. And we look -- all look forward to with keen interest in talking to you again in respect of the first half (inaudible) which will probably be some time in August. So again, thank you. And goodbye, I guess.

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Melissa V. Vergel de Dios, PLDT Inc. - First VP & Head of IR [73]

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Good afternoon.

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Manuel Velez Pangilinan, PLDT Inc. - Chairman, President & CEO [74]

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Good afternoon.

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Operator [75]

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