PLDT Inc. (“PLDT”) (PSE: TEL) (NYSE: PHI) today announced its unaudited financial and operating results for the full year 2017 with Consolidated Service Revenues (net of interconnection costs) totaling P143.5 billion. Though 3% lower than the previous year, service revenues stabilized in 2017, as the decline in quarterly wireless revenues moderated in the course of the year. Unlike 2016, when service revenues declined quarter on quarter, PLDT posted three quarters of modest sequential increases in 2017, starting in the second.

The Home and Enterprise Business Groups led the way, increasing their revenues to P33.0 billion and P34.1 billion, respectively, posting growth rates of 13% and 11%, respectively. Their combined service revenues accounted for 47% of total consolidated service revenues, surpassing the 41% contribution of Wireless Consumer Group. Though revenues of the Wireless Consumer Group went down 11% to P58.9 billion, the decline levelled off and stabilized as the year progressed.

Consolidated EBITDA of P66.2 billion for 2017 was higher by P5.0 billion or 8%, year- on-year, as reduced subsidies and provisions offset lower service revenues, higher cost of services and manpower reduction program (MRP) expenses. Excluding P1.6 billion in MRP expenses, EBITDA rose 11% to P67.8 billion. Except for the first quarter, EBITDA for the remaining quarters of 2017 registered year-on-year increases.

Consolidated EBITDA margin rose to 44% from 39% in 2016, as the fixed line and wireless businesses enhanced their returns.

Driven primarily by higher EBITDA, Recurring Core Income reached P22.3 billion, 11% higher than 2016. Including gain from asset sales, MRP expenses, accelerated depreciation, and EBITDA adjustments, Consolidated Core Income amounted to P27.7 billion, 1% lower year-on-year.

Reported Net Income for 2017 declined by P6.6 billion or 33% to P13.4 billion. This was mainly due to non-core capex-related expenses of P16.7 billion in connection with our transformation initiatives, including accelerated depreciation and loss due to a swap of network elements in certain part of the country, resulting from PLDT’s aggressive network upgrade aimed to achieve dramatic improvements in customer experience.

Subject to the finalization of the Company’s audited financial statements for 2017 expected by 27 March 2018, and in line with PLDT’s dividend policy, 60% of 2017 core earnings of P27.7 billion will be declared as dividends.

PLDT’s Net Debt and Net Debt to EBITDA as of end December 2017 stood at US$2.8 billion and 2.10x, respectively. Gross Debt totaled US$3.5 billion, of which only 8% was unhedged when available US dollar cash and hedges allocated for debt are taken into account. 92% of PLDT’s debt are fixed-rate loans. Maturities remain well spread- out.

PLDT’s credit ratings remain investment-grade.

“Over the past year, we have made significant progress in solidifying our lead in the Home and Enterprise businesses while stabilizing the Individual Consumer business"

This is largely enabled by our heavy investments in our fixed and mobile networks which in turn allows us to strengthen our data and digital businesses, laying the ground for future growth. Though the trends are encouraging, much remains to be done to place PLDT on a sustained growth path,” said Manuel V. Pangilinan, Chairman and CEO of PLDT Inc. and its wireless subsidiary Smart Communications, Inc.

Data and Digital power growth

Revenues from data, broadband and digital platforms continued to power the growth of all business units – Home, Enterprise and Wireless Consumer. Combined, these services grew 11% year-on-year to P67.0 billion, and, their share of consolidated service revenues rose from 41% to 47%.

Mobile Internet revenues increased 17% to P20.0 billion, as ownership of smartphones grew to over 50% of our mobile subscriber base. Home broadband and corporate data and data center revenues, on the other hand, each grew by 16% to P20.4 billion and P19.6 billion, respectively -- much faster than other industry players.

In 2017, data, broadband and digital platforms comprised 63% of Fixed Line revenues and 36% of Wireless revenues, up from 60% and 31%, respectively, in 2016.

“The way forward for us is clear: we shall be the trusted digital partner of individual customers and enterprises alike. We shall deliver world-class internet connectivity and compelling digital services and solutions that can help people and companies improve their lives,” said Ernesto R. Alberto, PLDT and Smart EVP and Chief Revenue Officer.

Fast-tracking network transformation

PLDT accelerated the transformation of its fixed and mobile networks in 2017, further advancing its efforts to build the foundation for its fast emerging digital businesses.

In 2017, PLDT increased the coverage of its fiber-powered fixed broadband network by 1.2 million homes passed to over 4 million homes passed by year-end. In the same period, it doubled its fixed broadband capacity to over one million lines.

In this expansion program, PLDT is deploying both fiber-to-the-home (FTTH) and hybrid fiber technologies such as VVDSL and G.fast that deliver fiber-fast speeds over copper lines.

On mobile, Smart Communications more than doubled the number of LTE base stations on its cellular network to over 8,700 and increased the number of cell sites equipped with LTE base stations by roughly 60% to over 4,300. Smart added more 3Gbase stations (up to about 9,850) and also more cell sites equipped with 3G base stations to about 7,500.

Base stations refer to the cellular radio equipment that run on specific frequencies such as 700 Mhz, 1800 Mhz, or 2100 Mhz while cell sites are the towers or structures that house several of these base stations.

For this fast-tracked LTE and 3G roll-out, Smart is heavily using the radio frequencies acquired from San Miguel Corporation. As of end-2017, over 2,000 base stations were using these frequencies. That figure is expected to jump to nearly 9,000 base stations by end-2018 or early 2019. At this point, these frequencies are estimated to be serving about 24 million Smart, Sun and TNT subscribers in different parts of the country.

As a result of this LTE roll out, Smart has clearly established its leadership in LTE data speeds and latency, according to a series of user-based surveys of the wireless coverage research firm OpenSignal in 2017.

In the latest survey done in the fourth quarter of 2017, which measured the performance of operators in major Asian markets, the average Smart LTE download speed across the Philippines was 12.7 Mbps, up 38.5% from the same period a year ago, and well ahead of its competitor’s 7.5 Mbps. Smart posted faster LTE speeds in all regions of the country. The OpenSignal survey also showed that Smart LTE speeds ranked 28th, while its competitor placed 40th out of 43 Asian operators ranked, including operators from South Korea, Taiwan, Japan and Singapore.

Delivering world-class Internet

In 2018, PLDT is pursuing even more aggressively its network transformation, not only extending the reach of its fiber-powered fixed and mobile networks, but also further raising the capacities and resiliency of these systems.

PLDT will double its FTTH and hybrid fiber capacity to over 2.2 million ports. By 2019, virtually all of PLDT’s 1.2 million copper-based DSL subscribers will be migrated to fiber-fast internet. Meantime, PLDT will expand its fiber broadband coverage to 5.1 million homes passed by end-2018.

On mobile, Smart plans to double the number of LTE base stations to about 17,700 and raise the number of LTE-equipped cell sites to over 6,800. Moreover, Smart is also deploying LTE-Advanced (LTE-A) with carrier aggregation, which combines the capacity of two up to four frequency bands, thus delivering world-class data speeds.

Working with Huawei Technologies, Smart has started deploying four-component (4CC) LTE-A carrier aggregation (which bundles four frequency bands) first in Boracay, then Marikina City and now Quezon City. Internal tests show that download speeds, using 4CC-capable handsets, averaged 64 Mbps while peak speeds reached 240 Mbps.

Smart is also deploying another LTE-A based technology called 4x4 Multiple Input Multiple Output (MIMO) which raises the efficiency of available radio frequencies by using multiple antennas for sending and receiving radio signals.

Designed for use in densely populated areas, MIMO has achieved download speeds of up to 400-500 Mbps on live network tests using MIMO capable handsets like the Samsung Galaxy S8 and S8+. These LTE-A technologies are being initially deployed comprehensively in Metro Manila, where handsets and devices capable of tapping these enhanced services are most widely available. In order to speed up this transformation, equipment and facilities previously installed in Metro Manila were swapped with new ones.

Underlying this network transformation program is the relentless expansion of PLDT’s fiber optic cable networks. The footprint of these networks, which consist largely of PLDT’s domestic backbone and distribution networks grew 45% from 120,000 kilometers (kms) in end-2015 to 174,000 kms by end-2017. In 2018, another 33,000 kms of fiber cable will be installed, bringing the total to about 210,000 kms by end- 2018.

The total capacity of PLDT’s overseas fiber cable system will jump 80% to 8.9 Terabits per second (Tbps) by end-2019 from 5.0 Tbps by end-2017. Capacity will be further boosted to 11.35 Tbps in 2020 when the new Jupiter Cable Systems which will provide another direct link to Japan and the United States is expected to be completed. This is vital because the bulk of internet content accessed by Filipinos still comes from overseas.

Historic Capex Commitment

PLDT is committing resources at historic levels to support its network transformation program.

In 2017, capital expenditures (capex) amounted to P40.0 billion, or 26% of consolidated service revenues. About 67% of this amount was allotted for the mobile network while 33% went to the fixed line network and business requirements.

For 2018, capex is expected to reach P58.0 billion, with 53% of the total earmarked for the fixed network business requirements. This revised allocation reflects PLDT’s more aggressive roll-out of its fiber broadband service, which also supports the stepped-up deployment of our mobile network. Increasingly, utilizing fiber to provide high-capacity links for cellular base stations. Moreover, capex for 2019-2020 is expected to remain at the same levels as 2018. This would bring total capex for the five-year period since 2016, when PLDT started its network transformation program in the earnest, to nearly P260.0 billion.

This elevated capex will also enable PLDT and Smart to overhaul the IT systems and platforms that support their network management and business operations. Multi-year agreements with leading global technology companies, Huawei Technologies and Amdocs, have been signed to install and manage state-of-the-art IT systems and platforms that will enable PLDT and Smart to deliver more efficient, relevant and personalized services to their customers.

Capex for 2018 will be funded by a combination of internally generated funds, as well as proceeds from the sale of receivables arising from the sale of our Beacon stake to Metro Pacific Investments Corporation (MPI).

Serving the digital customer

PLDT’s massive network roll-out has provided an immediate boost to the performance of the various business units.

For PLDT Home, the 13% growth in its revenues in 2017 was powered in large part by the 12% growth in subscriptions during that period. Given the strong demand for high- speed fiber services, market response to PLDT’s deployment of additional fiber lines was quick and strong – adding about 431,000 new customers to PLDT Home’s subscriber base. This growth was distributed in various parts of the country, following the roll-out of new fiber lines in various regions of the country.

To further improve customer experience of its fiber broadband, PLDT has introduced its Whole Home WiFi service which utilizes signal enhancing devices to provide strong data connections everywhere in the home.

Complementing its fiber deployment, PLDT is also tapping Smart’s expanding LTE network to deliver high speed internet to homes currently beyond the reach of its landline network. It has introduced Smart Bro Prepaid LTE Home WiFi with devices equipped to utilize the 700 Mhz band which provides better indoor coverage. This is designed to serve the roughly 15 million households that are currently underserved.

Banking on its growing fiber network, PLDT has been addressing the rising demand for various digital services. For example, PLDT Home introduced in mid-2017 its Roku- powered TVolution box (which makes video streaming content from various sources much easier) and by bundling Cignal TV subscriptions with PLDT Fibr plans.

In December 2017, PLDT Home stepped up its game by introducing its first set of bundled offers during its Christmas promo. Under these offers, customers can sign up for two to three services – either a PLDT Home Fibr plan, a Smart mobile phone subscription and/or a Cignal TV subscription – with a discount of 10% to 15% off their combined bill.

In yet another indicator of the increasingly converged approach of its major business units, PLDT launched in February 2018 the Most Valuable Partner (MVP) Rewards program which provides rewards points to customers of PLDT, Smart, TNT and Sun for paying their bills on time or putting load into their prepaid mobile phones.

All the points earned are converted to cash and placed in a virtual PayMaya prepaid wallet that customers can use to pay for online purchases. Members can also get their own physical MVP Rewards Visa card that they can link to their PayMaya wallet, and use to pay when they shop or dine in 37 million establishments worldwide.

“By pushing convergence further, we are now moving towards developing a single view of the customer. In that way, we will be able to serve our customers better by offering them the mix of services that best suits their needs,” said Oscar A. Reyes, Jr. PLDT SVP for Consumer Business Market Development.

Meanwhile, though revenues of the Individual Consumer Group declined year-on-year by 11% to P58.9 billion in 2017, quarter on quarter results stabilized in the course of the year at slightly under P15.0 billion per quarter. Similarly, the subscriber count of Smart, TNT and Sun levelled off at around 58 million in the last three quarters of 2017.

With its LTE and 3G services progressively improving, mobile data revenues grew 5% year-on-year to P23.5 billion. Moreover, the contribution of data to total revenue rose quarter on quarter from 35% in the fourth quarter of 2016 to 42% in the fourth of 2017.

Both OpenSignal and internal service quality tests show that as Smart’s network transformation program moves forward area by area, data speeds and latency of its LTE service in those areas clearly and consistently surpass those of the competition. As a result, its subscriber numbers, the number of LTE handsets among its customers and data revenues in those areas all get a boost.

Capitalizing on its superior LTE service, Smart has launched relevant data packages addressing the growing appetite of customer for data services such as video on the go.

In mid-2017, for example, Smart introduced Video Prime 99/Video Time 99, a prepaid data pack which featured a 2Gb data allocation and subscriptions to top streaming sites iFlix and iWant TV. This was followed up in February 2018, when Smart launched its GigaX postpaid plans which offer a 10Gb data allocation for video streaming on top of enhanced open data allotments bundled with LTE mobile phones. As it turned out, Smart’s mobile data traffic nearly doubled in 2017, powered in large part by video usage.

While promoting enhanced data packages, Smart, TNT and Sun also partnered with various smart phone manufacturers such as Oppo, MyPhone, Samsung, Vivo and Starmobile to encourage adoption of LTE handsets and help customers to upgrade their SIMs to LTE-capable SIMs. As a result, the penetration of LTE handsets in customer base of PLDT’s three wireless brands doubled in 2017.

Data is the focus as well of Smart’s new roaming services. In December 2017, Smart launched its RoamFree mobile app which provides customers free access to 21 useful partner apps like Uber, AirBNB, Google Maps and TripAdvisor while travelling in 26 popular overseas destinations. And to provide customers worry-free roaming, Smart launched Data Roaming Manager, a web portal that lets users keep track of their data usage while travelling abroad.

Conclusion

“Moving forward in 2018, we continue to level up even more. We are continuing our aggressive network roll-out to bring world class internet to more parts of the country. We are developing more compelling digital services and solutions for both consumer and enterprise customers. We are overhauling our operations so that we can serve our customers in a more personalized way, and, do this quickly and efficiently.

“This year, PLDT celebrates its 90th anniversary. For this milestone, our tagline is: ‘It’s you that counts.’ It’s all about serving each and every customer better,” Pangilinan explained.

“Doing all this will require a massive, concerted and sustained commitment – not only in terms of capital resources, but also in management efforts to transform the organization and make it more agile, innovative and customer-focused. These efforts are clearly the way forward for PLDT – with or without a new player in the telecoms industry,” he added.

“In this light, we expect to sustain the positive trend set in 2017. For 2018, we expect our Recurring Core Income to rise anywhere between P1.0 to P2.0 billion to about P23.0 to P24.0 billion, on the back of anticipated growth in service revenues in 2018 by around 4%. That will take us another step forward on the path to sustained growth and profitability,” Pangilinan concluded.