PLDT - Q1 2023
May 4, 2023
Transcript
Melissa Vergel de Dios (Director of Investor Relations)
Good afternoon, thank you for joining us today to discuss the company's financial and operating results for the Q1 of 2023. 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. Kindly note that this briefing is being recorded. A podcast of this event will be available on our website after the call. QR codes for the presentation, the MD&A, FS, and the podcast are on the screen and the confirmation notices emailed to you. For today's presentation, we have with us our Chairman, Mr. Manny Pangilinan. Al Panlilio, our President and CEO. Sir Danny Yu, our newly appointed Chief Finance Officer. Attorney Marilyn Aquino, our CorSec and Chief Legal Officer.
Shailesh Baidwan, president of Voyager Innovations and PayMaya Philippines, as well as other members of the PLDT management. At this point, let me turn the floor over to Mr. Panlilio to begin the presentation.
Alfredo Panlilio (President and CEO)
Thank you, Melissa. Good afternoon to all, thank you for joining us today. I'm happy to report the first quarter result. As you all know, the Q1 has been very tough for us. Challenges that we had in the first quarter that we were to resolve at the end of the first quarter. Having said that, I think last year we also defined our purpose. I think first time we're able to find our purpose at PLDT and Smart. I just wanted to share that we are a Filipino company inspiring innovation and meaningful connections for each generation. That has been the purpose that we defined as management and working with the entire organization also. We've also refined our vision and mission, as you can read there on the screen. Next page please. Next page.
That purpose drives us in our key business priorities. It is to really shape the market with innovation, with new products, even looking into new areas of business for PLDT. As we continue obviously to grow our core business, we continue to strengthen this very healthy businesses that we have from individual wireless, home to enterprise. EBITDA levels still at a very healthy 52% margin in the first quarter compared to 51 in 2022. Also, of course, last year's part of our strategic 100% EBITDA is to continue to streamline our operations and bringing cost to serve down, having more efficiencies and really being more productive as a company. Next please. We continue to reinforce our core infrastructure, building Smart.
Homes passed by the end of the period is 11% up. We're now hitting 17.2 million homes. Jeremiah, about how many barangays?
Jeremiah De La Cruz (Senior VP)
17,000.
Alfredo Panlilio (President and CEO)
About 17,000 barangays also, out of the 42,000 barangays. We continue to expand obviously our domestic and international fiber footprint. It's now 1.1 million kilometers. The fastest and most extensive network in the country. The next page, please. Happy to share with you. Next page. Happy to share that we are still the undisputed fastest integrated network in the country. In Barcelona, during the Mobile World Congress in February, Smart was awarded the Philippines' fastest and best mobile network. Fastest for five years now. Only two weeks ago, Ookla was in town and awarded PLDT as the Philippines' fastest fixed network for five straight years also.
A lot of hard work and a lot of our capital obviously getting going to the network, making sure that we have the most reliable and fast integrated network. Next page please. Our 2023 Q1 performance holding forth amidst challenges. We continue to strengthen the offerings at home, increasing fixed line subscription despite the installation challenges that we face. The home team is developing new product variations to cater to the varying options. Thank you. I hope that's better. For Smart, really, living more for today. I think the new tagline for Smart is live more today.
Really, able to have stable revenues this past few quarters. The efforts of Francis to really strengthen the Smart brand because TNT is already very strong. Smart strengthen Smart brand and the mobile business. Also again offering more products in the market that also offer live events powered by our fastest mobile network. For enterprise, continue to aspire to be the trusted partner of growth for our enterprise business and our SMEs. Growing core business driven by higher digital adoption and business transformation. Integrating connectivity management to enable for businesses in the Philippines. Again, aspiration to really be a partner in their digital transformation journey.
Next page. Just, this is just one of the solutions that we brought to the market and we continue to push solution services, managed services to the market. This is only like a couple of weeks ago, PLDT Enterprise partnered with Toyota in their myTOYOTA Connect with Smart IoT eSIM solutions that are put in the cars. The Smart platform that will enable Toyota to maximize the benefits of an integrated connectivity management platform, you know, giving more, you know, offering more data to Toyota in terms of how they can manage the cars. It's a similar solution that you could not only use in the automobile industry, but also help revolutionize other industries like logistics and fleet management and the like, you know.
We will continue to push a lot of these kinds of solutions to the market and really making sure that the digital transformation across huge and small to medium enterprises happen, in our country. Next page, please. Of course, sustainability is in our D&A, focusing on business continuity, energy efficiency, and embedding ESG in our D&A. We are ISO certified for security and resilience and focus on to minimize and manage service disruptions. We are also certified in terms of energy management systems, and this is true for example, our ePLDT data centers in Clark, Makati, Pasig, and Cebu, and aim to really improve energy usage and development of an energy management system.
Just yesterday, we signed up a partnership with First Gen Energy Development Corp in terms of a renewable contract for our PLDT Smart facilities. The source will be a geothermal energy that will power up seven facilities in Visayas, amounting to about 3.7 MW. Once Mindanao opens up, it becomes open access, there's another 3.5 or 3.45 MW of renewable power that we can source from EDC. Again, this is part of our commitment to reduce our scope one and scope two greenhouse gas emissions by 40% by 2030. At this point, I'd like to move the mic to Danny. Sorry, last slide. Just to summarize the.
Despite those challenges that we have faced in the Q1, we have shown growth behind all this adversity. We've shown resilience. Telco core is up 5% to PHP 8.6 billion compared to last year's PHP 8.2 billion. Net service revenues are up 2% to PHP 47.1 billion versus last year's PHP 46.1 billion. EBITDA, which is an all-time high quarterly EBITDA of PHP 26 billion or +2% versus same period last year. Again, at a 52% margin for EBITDA. I'll move you to Danny to go to more detail in terms of our financial performance. Danny, please.
Danny Yu (CFO)
Okay. Good afternoon. Allow me to share PLDT's financial and operating results for the first quarter of 2023. Next. Consolidated service revenue for the first quarter of 2023 amounted to PHP 47.1 billion or higher by 2% from last year. EBITDA for the quarter also rose 2% to PHP 26 billion, an all-time high quarterly high. EBITDA margin remains strong at 52%, higher than the full year margin of 51% in 2022. Telco core income, excluding the impact of asset sales and Voyager, grew 5% to PHP 8.6 billion from last year's PHP 8.2 billion. Next, please. Looking at the segment performance, our home business continued to be the main driver of growth with a 6% year-on-year increase to PHP 15 billion. Fiber-only revenues rose by 14% to PHP 12.8 billion.
Our enterprise business improved by 5% to PHP 11.8 billion. In the face of industry headwinds, our individual business remains stable year-on-year, registering revenues of PHP 19.8 billion. Let me now go through the segments in greater detail. The home broadband business continued to show growth, albeit at a slower pace post-pandemic. The market remains under-penetrated, however, unserved demand is more at lower segments, thereby more sensitive to inflation. Fiber home revenues now account for 85% of the total home revenues, up from 81% for full year of 2022. Home ARPU grew 3% year-on-year. Fiber net adds of 81,000 in the first quarter are more than three times that in the fourth quarter due to lower churn and higher migrations.
PLDT's competitive advantages remain to be strong brand equity, superior network quality, and having a fixed and wireless portfolio which allows us to offer varied technologies and price points to address different markets. Next, please. We're also seeing strong emerging revenue growth drivers in the enterprise business. Corporate data grew 7% due to higher fiber, managed IT, and iGate revenues. ePLDT rose 14%, mainly from data center and cloud services. In addition, PLDT Global registered a 42% increase in revenues from the enterprise IPLC data center and carrier hubbing. PLDT's eleventh data center expected to be operational in the first quarter of 2024. Next, please. The individual business managed to keep revenue stable compared to the same quarter last year despite industry pressures.
Mobile data revenues grew by 4% to PHP 17 billion as data usage per sub and data traffic continued to register year-on-year increases despite a dip in data users which declined due to impact of SIM registration. Except for the impact of inflation on our low-end brand, TNT, Smart Prepaid and Smart Postpaid revenues were higher year-on-year. Initial impact of SIM registration reduced gross adds but this had minimal impact on revenues. Network superiority in terms of speed, low latency, reliability and nationwide reach remain Smart's competitive differentiator. Next. In the first quarter of 2023, data now accounted for 82% of the consolidated service revenues. By service type, mobile data grew 4% year-on-year while home broadband rose 8% and corporate data by 7%. ICT registered a 20% increase which included a 19% rise in data service revenues.
Consolidated EBITDA in the first quarter amounted to PHP 26 billion or 2% higher versus last year as the PHP 1.11 billion increase in revenues fully absorbed the PHP 500 million rise in costs. Next, please. Telco core registered a strong start for the year at PHP 8.6 billion. This is 5% or PHP 400 million higher than last year as higher EBITDA and lower depreciation fully offset increases in financing costs and tax provision. Next, please. On reported basis, PLDT's income stood at PHP 9 billion or slightly lower than last year mainly due to lower non-recurring gains. Last year, the company recorded a PHP 7.8 billion gain from the prescription of the preferred shares redemption liability and MRP expenses of PHP 4.6 billion. Next, please.
PLDT's balance sheet remains strong with net debt to EBITDA in the Q1 having improved to 2.18 from last year's 2.25 and 2021's 2.38. This resulted from a reduction in net debt and an improvement in EBITDA. Gross debt amounted to PHP 247.7 billion, of which 16% are dollar denominated and 5% unhedged. Interest costs for the quarter stood at 4.17% while average life of debt is 6.6 years. Next, please. Total CapEx for the quarter amounted to PHP 19.3 billion, consisting of network and IT CapEx of PHP 17.7 billion and business CapEx of PHP 1.6 billion.
Included in the CapEx spend are investment in capacity to drive revenue growth and support continuing rise in network traffic and the construction of our 11th data center, among others. To optimize CapEx spend, PLDT is pushing to further improve port utilization and is undertaking a network optimization program which aims to repurpose underutilized 5G base stations for LTE use. The latter is expected to improve CX and achieve OpEx, CapEx and spectrum efficiencies. Note that CapEx is expected to trend downward in accordance with the company's goal to achieve CapEx intensity and achieve positive free cash flow. Next, please. This page shows our usual network highlights. On the fixed network, we passed 17.2 million homes and cover about 17,900 barangays, representing 42% of all barangays in the Philippines. Total fiber ports stood at 6.1 million.
Utilization of these ports remain high at 50-60 level. As I mentioned earlier, we intend to further improve the utilization. PLDT total fiber footprint remains unparalleled with a total of over 1.1 million kilometers. Insofar as wireless network is concerned, our population coverage stands at 97% with a total of 76,500 base stations. We have about 38,800 LTE base stations. About 82% of the total handsets on the network are LTE. You may note that there was a minimal movement in the statistics from the end of 2022. This was natural consequence of the deep dive review of internal processes related to CapEx. Next, please. A few of our 5G stats are found on this page. The number of unique 5G devices and 5G data traffic continued to rise
Our 5G speeds remain faster than that of competition based on Ookla speed test. That ends my report. Let me now turn you over to SB for Maya presentation.
Shailesh Baidwan (President)
Thank you, Danny. Good afternoon, everyone. We are coming to our first year anniversary of the launch of Maya Bank. Last year in May is when we launched Maya Bank, and we're very pleased with the recognition that we've seen from customers, in particular on the consumer bank side as we rolled that out. For us to be also recognized by external forums like the Forbes as part of the world's best banks, the only digital bank from the Philippines to make that list, has been extremely rewarding. Just to remind, while we have the bank which we put at the heart of our, of our fintech ecosystem, we have two other large pieces of the business where the bank is now powering additional financial services. One of those is where we service enterprises large, medium, small, by providing the payment processing facilities.
We are the number one merchant acquirer, whether it is Visa, Mastercard, domestic debit or QR, we process all transactions. That is a large part of our business where we are by far the leader in transaction processing. On the other side of the house, from the consumer side of the house, we have the Maya app, which was erstwhile PayMaya, where we completely revamped the facility, the customer experience, and have been again, very richly rewarded by the ratings that we have got on whether it is on the Android or on the Apple Play stores with very high ratings. We put the bank at the heart of our ecosystem, which was payments, and now expanded that beyond payments into a fuller suite of services.
On the next slide, if you look at our business or on the merchant acquiring, which is what I spoke about, where we have a very, very large market share, where we are the market leaders, we have gone beyond now the large enterprises and providing them with omni-channel payment solution to really expanding in a big way into the micro and SME. By putting the bank at the heart of it, we will be now providing not just payment solutions, but really helping MSMEs with a full banking solve by providing them with short-term working capital loans, enabling them to use that as their deposit settlement account, helping them with disbursements and payments that they need to make as part of their business processes.
On the consumer side of the house, that is where the bank is already deeply entrenched and integrated in its first year of operation, where the customers now are able to use their balances, save their balances through our high engagement banking product, through our personal goals and other innovations that we have. On the back of the rich transaction data that we have for millions and millions of customers, we launched our first lending product, Maya Credit, and now we'll be rolling out the subsequent next set of products with things like Maya Pay in full and others to follow through the course of the next six to eight weeks. To give you some statistics on the performance of the bank in its first year, this is data as of March this year.
In the first year of operation we hit 1.8 million customers. We're pretty confident that before we complete the full year of operation, which is end of this month, we should be at over 2 million customers, which is a big milestone for us. These customers as of March, deposited over PHP 21 billion with us. This has become a primary account for these customers, where they're using us not just to save the money, but also to do all their transactions, whether it is paying their Smart PLDT bill or whether it is buying goods online or any other transaction that they need to do. On the back of our in-house proprietary credit scoring algorithms, we have been able to start dispensing loans to our customers.
Our key product over there is a short-term credit product called Maya Credit, which we launched for the consumers, an instant in-app product. We have already dispensed disbursed more than PHP 6 billion worth of loan through the course of its launch in the April-May timeframe through to the first quarter, ending of first quarter. These were some just early statistics to show you the progress that we have made by integrating the bank into the heart of the rest of our ecosystem, which spans both consumers and on the enterprise side. As we go forward over the coming weeks and months, newer and new products both for the consumer side of the house and of course for the micro SME segment, which is an area again which is deeply underserved in the Philippines. This was a quick update on Maya.
Hand it over to Al.
Alfredo Panlilio (President and CEO)
Yeah. Thank you, SB. Just as a few updates. First, SIM registration, as you know, has been extended till July 25, 2023. As of May 3, Smart has registered 44.7 million of its subscribers, which is roughly 67% of our base, declared base before. Over 80% of our revenues are actually coming from this 44.7. We'll continue to work on this balance and hopefully looking for another 9-10 million subscribers till July. On the class suit developments, just to update, there have been two individuals, each represented by different law firms. They submitted separate motions to serve as lead plaintiffs for the class suit.
Total numbers of shares owned by the two is 37 shares, the total losses claimed is only $26 billion. Plaintiff and lead counsel appointed by the court. PLDT will have the opportunity to file a motion to dismiss the U.S. class action after it is served a copy of the amended complaint filed by the newly appointed lead plaintiff. For the purchase of SkyCable Corporation broadband business, we've already filed a notice with the Philippine Competition Commission on 30 March 2023, just awaiting to start phase one of the phase one review. Ongoing technical, legal, and labor, finance, and tax due diligence review is happening as we speak.
We're hoping, I think we will be also sending some more documents for their review and hoping for an approval soon after. Just as on the sale and lease back of the first set at Stratosphere 1, 5,907 towers that was closed April of last year. As of after a year, as of 30 April, a total number of towers sold and leased back at 5,182 or 88% for a total consideration of close to PHP 68 billion. We will include those additional 135 towers closing in this April, close to PHP 1.9 billion, and the balance of the 725 towers expect to be transferred on or before August 2023.
For Stratosphere 2 sale and lease back of 650 towers in December and 1,112 towers in March, PCC cleared. We've already gotten PCC clearance with the transaction of Unity Digital Infrastructure, which is the 650 towers closed in December last year. We expect a closing of about 925 towers amounting to about $1.7 billion on May 2023. Sorry for the typo. I think that's it, Melissa. Thank you very much.
Melissa Vergel de Dios (Director of Investor Relations)
We're now ready to take your questions. You may type your questions in the Q&A box in the upper right side of the screen. You may also click the Raise Hand button and wait for the moderator to call your name before you unmute your microphone. You may also send your questions via email to [email protected]. Please indicate your name and company name so that we can get back for any additional information needed. We have a hand raised from Arthur Pineda, Citi. Arthur, you may unmute your mic.
Arthur Pineda (Head of Asia Pacific Telecoms and Singapore Research)
Hello.
Melissa Vergel de Dios (Director of Investor Relations)
Hi, Arthur.
Arthur Pineda (Head of Asia Pacific Telecoms and Singapore Research)
Hi. Yes, thanks for the opportunity. Just three questions, please. First, in the class action lawsuit, if I may just clarify, am I to understand that this is done and dusted at $263, and that there's no subsequent case related to the CapEx which is pending? The second question I had is with Maya. I do know that you've got PHP 21 billion on your deposit base against a loan disbursement of just around PHP 6 billion. What's holding the company back from more aggressively monetizing on the deposit base? Any guidance on the drive to profitability would be useful. The third question I have is with regard to the SIM registration process. It seems like it's been quite slow in terms of registering the subs.
I'm just wondering, what are the key bottlenecks to this? Is there any risk that we could actually see a revenue drop off by the deadline in July if these are not addressed? Thank you.
Alfredo Panlilio (President and CEO)
Hi, Arthur. Thank you. Let me answer the third question first, and then maybe the first by Attorney Mava and second by SB. I think the process has been quite easy for us. Actually, we've invested in the system to make it happen. That's why we're already at the 67% clip. you know, what's coming out is really maybe your real active base of subscribers. We will obviously continue to push for the balance, but as I said, 67% of our base has been registered, which carries over 80% plus of our revenues, no.
We don't see, on our part, we don't see any risk on the revenues as we're able to we're close to I guess, maintaining the base that are really active for our Smart base. Our job is to be the primary SIM to in the market and make sure that we're able to gain the customers. Unless France wants to add anything else, I think again, I think the process has been very simple on our part.
Danny Yu (CFO)
Yeah. Just to add, I think the challenge that all of us face and all the telcos face is really, we don't have a national ID unlike other countries. Again, we've been working closely with NTC to provide solutions on that one. The other challenge of course would be still going out there for subscribers who are either not on smartphones or are not techie. It's really what have we done in the past few months. We've been very aggressive in really reaching out to them both online and on-site. Like SB said, I think we're quite confident that by the day that we'll be able to secure our business.
Alfredo Panlilio (President and CEO)
Mava, maybe you can answer the last two question.
Marilyn Victorio-Aquino (Corporate Secretary and Chief Legal Officer)
Yeah. The first question is whether they are the only holders of the depositary receipts that filed the filed for a class suit, right? The answer is yes. They are the only ones that filed within the deadline set by the court. No others joined the class suit process. That's it. It's going to be a long process. We expect that the process of filing an amended complaint and motion to dismiss and resolution on the motion to dismiss.
Can will take at least a year. Sometime, next year in June next year, 2024.
Alfredo Panlilio (President and CEO)
Obviously, Arthur, the amount very small.
Danny Yu (CFO)
Yeah. The lawyer fees are probably bigger than the.
Alfredo Panlilio (President and CEO)
Yeah, they've already lost more in the, SB.
Shailesh Baidwan (President)
Yeah.
Marilyn Victorio-Aquino (Corporate Secretary and Chief Legal Officer)
Yeah.
Shailesh Baidwan (President)
Go ahead, Mama. Did you want to add?
Marilyn Victorio-Aquino (Corporate Secretary and Chief Legal Officer)
It's okay.
Shailesh Baidwan (President)
Okay.
Marilyn Victorio-Aquino (Corporate Secretary and Chief Legal Officer)
I have nothing more to add.
Shailesh Baidwan (President)
Great. Thanks, Arthur. On your question on monetization. First of all, you know, a lot of the excess liquidity that we have, we are placing it in things like the BSP overnight deposits, and other short-term, highly liquid and zero, close to zero risk assets. Those are yielding us today close to 5%-6%. That has been extremely helpful to us during this period of heightened interest rates in terms of being able to place that. That has helped us to manage the kind of gap that we have between the loans and the deposit ratio. The second part I would say is that, you know, our deposits, the way we have designed the products, we call it the high engagement banking.
For customers to earn the interest, they have to transact with us, because we know that the transaction data is actually the richest way of us getting a data asset that tells us insights into the customer. If I know the size of the electricity bill that you pay, the kind of transactions you do on a monthly basis, what other purchases you make and what other transactions you do, that then goes into my credit scoring model. Our whole saving proposition is built around high engagement, where in order to enjoy different slabs of interest rate, you have to do and show us more and more transaction and spend with us. That data is feeding into our proprietary in-house AI-driven credit scoring model. That, in turn, is helping to drive the loans disbursement.
You're absolutely right at this stage, you know, at a little over PHP 6 billion, that loan book disbursement is still growing. Just to give you a sense on the back of the transaction data, we have over 1 million customers today who are now eligible for some of these short-term loans. Of course, not everybody's going to take it. Of course, we have a number of new products coming out. Our Pay in 4 product will be launching. we're already testing it actually in the market. we'll be going live with that over the coming weeks. Longer-term, installment loans for consumers will be going live again within the next four to six weeks, which will give longer tenor and larger loan sizes.
On the MSME side of the house, we are already testing again, short-term working capital loans, and those will get expanded out. On your question on profitability, given that the business is made up of different components, for us, one of the key markers is segment EBITDA. For us, two businesses, the merchant acquiring business and the bank are already segment EBITDA positive. That was a big milestone that we hit in the Q1 of this year. Before this year is through, we will be segment EBITDA positive across all our businesses. In the course of, towards the end of 2024, the company aims to be positive on the, on an EBITDA basis. That is our plan on the banking of the bank.
Arthur Pineda (Head of Asia Pacific Telecoms and Singapore Research)
Understood.
Melissa Vergel de Dios (Director of Investor Relations)
Are there any follow-up questions?
Arthur Pineda (Head of Asia Pacific Telecoms and Singapore Research)
No, great clear. Thank you very much.
Alfredo Panlilio (President and CEO)
Thank you, Arthur
Melissa Vergel de Dios (Director of Investor Relations)
Hussaini, you have your hand raised.
Hussaini Saifee (Director)
Yeah. Hi. Thanks for the opportunity, and good afternoon, everyone. Several questions from me. First is on the fiber adds or net adds of around 81,000. At aggregate level, it was a 33,000 net subscriber additions, broadband subscriber addition. Just wanted to understand, is this the new run rate or we expect this to accelerate potentially going to second and third quarter? That's question number one. Second is on the CapEx. I understand that the CapEx intensity remains high, but just wanted to understand that over the medium term, where it is expected to settle down.
Let's say, is Philippines in a different structure where CapEx intensity over the medium term will be around, say, 20%-25%, or can it go to, say, mid-teens kind of level, which we have seen in markets like Malaysia? Just maybe on, just one housekeeping. Are we done with the tower sale or are there more towers which could potentially be divested? Thank you.
Alfredo Panlilio (President and CEO)
Thank you. I'll have Jeremiah answer the first question, and I'll take on the second and third question. Go ahead, Jeremiah.
Jeremiah De La Cruz (Senior VP)
Thanks. Thank you, Al. Good afternoon, and thank you for the question. I'll start off the question. I think you had kinda two parts to the question. One was around fiber net adds. The second one was you're looking at the total net adds, across the PLDT base and across the technologies that we have. The 81,000 is. What we are seeing is we are seeing a, actually on a couple of fronts, an improvement on a churn perspective. We mentioned it, I think in the last full year results that in Q3, Q4, we were going through a cleanup. We've seen our total churn actually start to recede and actually start to go down. What we have seen is we've actually had an impact in terms of our new customer acquisition.
That's impacted on two fronts. The first one is, as you would note in the in our release, we have actually had a limited greenfield rollout in the first quarter. Part of that is because we have been very focused on CapEx cleanup, and we have actually diverted some of our attention from rolling out to actually ensuring that we've taken stock of all of the CapEx deployment that we have had. The second one is we also work on actually some tighter credit controls, credit control process for new applications. I think it's been pointed out that we have seen a slightly higher default rate for our new customers, and we were looking to make some adjustments to see how we could improve on that to ensure that we maximize profitability.
Both of those fronts are things that we're actively working on. Now that the CapEx crisis is well and truly behind us now, the network team are focused in on accelerating as much of that deployment as much as we can towards the latter part of this year. The second one is we've made adjustments to that credit control process to ensure that we have that fine balance between taking on the right proportion of risk as well as making sure that we continue to get the growth available in the market. That is, quarter one is actually a slight increase from our quarter four performance. Not quite at the same level as quarter three. Our ambition is to actually increase that.
I wouldn't say that we actually wanna be staying at that level. It's our ambition to actually continue to drive that up back towards numbers that you've seen in the past.
Alfredo Panlilio (President and CEO)
Thank you, Jeremiah.
On your second question, I think, I don't think it's possible to have our CapEx ratio is at in the teens. I think, what we're looking at is maybe somewhere in the vicinity of 25-30% maybe in the midterm, and that's the target. Bringing it down to the level maybe of PHP 55 billion in the next few years now, but maybe 25-30% ratio is the more reasonable ratio for us. On the towers, I think, we still have to complete obviously a lot of Stratosphere 1. We have a pending about 750 towers yet to be sold. Stratosphere 2, total of 1,100-
Sorry, 1,012 on portfolio one with Frontier and about 650 for Unity. We're still waiting approval. We got approval for PCC on Unity and still are waiting approval for Frontier. I think for now we'd like to complete Stratosphere 1 and 2 first. Again, based on the chart I showed earlier, Stratosphere 1 will be completed hopefully by August 2023. You expect Stratosphere 2 to follow suit maybe in the Q3, Q4 We'd like to focus on that. The balance of 4,500 or so towers left with us, we have not had any internal discussion to sell more of that. We just wanna complete what we've sold so far.
I hope that we've answered your questions.
Hussaini Saifee (Director)
Yes. This is very clear. Thank you very much.
Alfredo Panlilio (President and CEO)
Thank you.
Melissa Vergel de Dios (Director of Investor Relations)
Next question, VR. You have your hand raised.
Aishwarya VR (Equity Research Analyst)
Hello?
Melissa Vergel de Dios (Director of Investor Relations)
Hi, VR. We can hear you.
Aishwarya VR (Equity Research Analyst)
Okay. Hi, this is Aishwarya from J.P. Morgan. I have two questions. One is on the accelerated depreciation for Q1. What is the recorded accelerated depreciation and also the breakdown for that? The second thing, you mentioned that the CapEx overrun budget issue has been resolved. Could you share more details on what the resolution was?
Alfredo Panlilio (President and CEO)
What was that? What's the latter part?
Melissa Vergel de Dios (Director of Investor Relations)
Accelerated depreciation breakdown.
Alfredo Panlilio (President and CEO)
CapEx.
Melissa Vergel de Dios (Director of Investor Relations)
The second one, CapEx budget issues, what are the details for that?
Alfredo Panlilio (President and CEO)
Can you answer, Christopher?
Christopher Young (Controller)
Hello. For the first one, there's zero accelerated depreciation in the 1st quarter.
Alfredo Panlilio (President and CEO)
Good answer. I guess for the CapEx overrun, I think when you say details, what do you mean by that? We've actually brought down that overrun to about PHP 33 billion. That's what we're working through for the next few years.
Aishwarya VR (Equity Research Analyst)
Okay. That would be the CapEx overrun, PHP 33 billion.
Alfredo Panlilio (President and CEO)
PHP 33 billion, yes.
Aishwarya VR (Equity Research Analyst)
Okay. If there's no accelerated depreciation, what are the adjustments which lead to Telco core income?
Danny Yu (CFO)
Can you show that slide, Al, maybe? Well, the major adjustment on the Telco, are you referring to reported income or is it the Telco core income?
Aishwarya VR (Equity Research Analyst)
Yeah, I'm referring to the Telco core income. Like from the reported income, how do we arrive at that?
Danny Yu (CFO)
Can we show that slide again? Al, can we show that slide? Our Telco core income was PHP 8.6 billion. After taking out the losses of Voyager, it's down to PHP 8 billion. You have non-recurring items there, which include, sale, gain on sale of towers. That's about PHP 2.1 billion. There's also Forex derivatives and others of around PHP 0.5 billion. You have MRP costs around PHP 1.5 billion, plus, gain on sale of Mabalacat property of around PHP 0.3 billion. Including tax effect, your reported net income was PHP 9 billion.
Aishwarya VR (Equity Research Analyst)
Okay. Yeah, that's helpful. Thank you, and congrats on the results.
Alfredo Panlilio (President and CEO)
Thank you very much.
Marilyn Victorio-Aquino (Corporate Secretary and Chief Legal Officer)
Just to clarify, Al. Just to clarify.
Alfredo Panlilio (President and CEO)
Go ahead, ma'am.
Marilyn Victorio-Aquino (Corporate Secretary and Chief Legal Officer)
Yeah.
The PHP 33 billion is the CapEx carryover net of advances to vendors for the four major vendors. We're negotiating with the other, the non-major vendors, this year to bring down also the CapEx carryover from them. The non-major vendors I think constituted at the beginning around 15%-20% of the total CapEx for network.
Aishwarya VR (Equity Research Analyst)
Oh, when you say carryover, the which year does the CapEx pertain to? Is it FY 2023?
Marilyn Victorio-Aquino (Corporate Secretary and Chief Legal Officer)
Oh, yes. The PHP 33 billion from the major vendors will be a carryover CapEx for 2023 and possibly 2024, depending on the completion of the projects. When the projects are delivered, they're booked in the year of the delivery.
Aishwarya VR (Equity Research Analyst)
Okay. Got it. Thank you.
Arthur Pineda (Head of Asia Pacific Telecoms and Singapore Research)
Thank you.
Melissa Vergel de Dios (Director of Investor Relations)
Arthur, you had a follow-up question.
Arthur Pineda (Head of Asia Pacific Telecoms and Singapore Research)
Yeah. Hi, sorry. Yeah, just a follow-up question on the broadband side. You mentioned higher default rates and tighter credit controls for the broadband users now.
Are you looking to launch prepaid broadband as well as per what your competitors have been talking about? I'm just curious because, I know that your focus has been mainly on postpaid broadband, but if it does pick up, how quickly can PLDT launch a similar product?
Alfredo Panlilio (President and CEO)
Jeremiah, yeah, please.
Jeremiah De La Cruz (Senior VP)
I'll pick up with that one if that's okay, Arthur. We constantly evaluate the different product and proposition options that we do have. Prepaid is one of them that we have had a look at. As you're familiar with prepaid, there is a difference in the way that the fixed network actually runs versus mobile. If you look at the fixed network, to be able to connect up a home, you actually still have to do the last mile truck roll as well as the modem CPE, et cetera. When you look at all of those things kind of added together, then it's actually quite a high starter kit you'll be looking at, which kind of defeats the purpose of trying to target a prepaid segment.
Because more often than not, it's that segment that doesn't have the cash to be able to avail of those services. It's one of those things that, you know, we are looking at. We're balancing and evaluating. Rather than just only looking at our fiber option, we are looking a couple of things. Can we look at say for example, a lower price plan but still postpaid, bringing that in with greater value, using our fiber plan. Alternatively, we also have the benefit of also having the fastest mobile network. We're able to offer fixed wireless to customers on a prepaid basis, or a postpaid basis, and targeting customers that perhaps may not be able to afford the PHP 1,400-PHP 1,500 ARPU area.
Arthur Pineda (Head of Asia Pacific Telecoms and Singapore Research)
Okay. Understood. Okay. Thank you.
Alfredo Panlilio (President and CEO)
Thanks, Arthur.
Arthur Pineda (Head of Asia Pacific Telecoms and Singapore Research)
Thank you.
Melissa Vergel de Dios (Director of Investor Relations)
From the question and answer, chat box, we have a question from Ken Gotianse of ATR on Maya. How much of the last fundraising is remaining, and when do you expect to close another round?
Shailesh Baidwan (President)
Yes, as I mentioned, we already have a number of businesses which have moved into a segment a bit positive. As we spoke, the opportunity for us to expand and grow the full footprint of our financial services, especially as we go into the micro SME segment in a big way, which is massively underserved, and also on the consumer side of the house as we continue to add products. We had raised PHP 200 million around this time last year. We do have a large part of that still with us. As we expand and look at the opportunity over here, we are talking across the existing shareholders. We've also had outreach from some of the other potential shareholders.
It is early at this stage for us to discuss what our plans are and the progress on that front. We'll come back when we have more details. As I mentioned, you know, we have the existing shareholders, as you're well aware, KKR, Tencent, IFC, and of course, Smart PLDT, are all very much supportive of our growth plans, and the support we need to deliver on the numbers.
Melissa Vergel de Dios (Director of Investor Relations)
It's a question from Stephen Gabriel Oliveros of China Bank. I just wanted to ask, what is the reason behind the lower depreciation charges in the first quarter of 2023?
Alfredo Panlilio (President and CEO)
It's basically savings from accelerated depreciation booked in 2022.
Melissa Vergel de Dios (Director of Investor Relations)
From Jorge Gonzalez of BAML PeP, should we expect special dividends from pending tower sales in the same proportion as the previous tower sales? How would the proceeds of the future tower sales be used? Thank you.
Alfredo Panlilio (President and CEO)
Maybe not. I guess the proceeds will obviously be used for the CapEx and requirements. Yes.
Melissa Vergel de Dios (Director of Investor Relations)
A question from Zorin Philip Musni. Is there an updated guidance for full year 2023 Telco core income? Is the growth rate for the 1st quarter Telco core income expected to be sustained?
Alfredo Panlilio (President and CEO)
Well, it's a tough question. At this point we're also still settling down on all the settlements and pursue, you know. Basically, I think it will be north of PHP 33.1 billion. It will be north of that. We're working very hard and we're seeing some of the, you know, we're looking at the fabric spends which are still very high, like electricity and the like. We're trying to manage some of the cost elements of the business. A lot of initiatives to really control cost. I guess for now, we'll just say it's north of PHP 33.1 billion.
Melissa Vergel de Dios (Director of Investor Relations)
Question from Francis Chua. On internet service with workers and students returning to work and school, has there been a decline in connections or downgrade in plans? Do you see this as a challenging move forward in terms of growth?
Jeremiah De La Cruz (Senior VP)
I'll jump in with that one, Al, if that's okay.
Alfredo Panlilio (President and CEO)
Go ahead.
Jeremiah De La Cruz (Senior VP)
I think there's a couple of things in play that are actually still playing itself out in the marketplace. I'll start with number one. As to your point, the pandemic is over, fortunately, and everybody is out and about. The burning platform or the need to get broadband in the home is perhaps not as critical as it has been in the past. Secondly, it is quite well documented that we, you know, have quite a lot, quite high inflation and the pressure on the wallet is starting to affect a lot of households. The third element that I'll talk about is really the fact that if you look at the number of broadband households on a post-paid plan, that equates to about 6 million households.
When you look at the total penetration in the market, that's actually very, very high in terms of post-paid. Probably, you know, beyond, say, for example, the total price, total pool of, say, credit cards or other sort of post-paid services. What that means is we are actually starting to push deeper and deeper into the households in the market, on, not only in terms of their affordability, but secondly also with regards to their comfort level with regards to post-paid plans. All of these things are coming together, and it actually, we are starting to see some pressure on that front.
And that's why we had, as I had mentioned, there was some pressure for us to have a look at our credit policy to see what changes and tweaks we can make to ensure that we maximize any of the capacity we have available to us to make sure that they are going to paying subscribers that are gonna stay with us, right? There is some of those elements in place in the marketplace. We are still seeing demand in the market, especially in areas where they're still underserved. We are still seeing quite a bit of demand in the marketplace.
I think the challenge now is for us to get out there in, say, for example, the greenfield environment, or being able to share competitive customers to show them that actually our network is far superior than their current service provider.
Melissa Vergel de Dios (Director of Investor Relations)
A follow-up question from Zorin Musni on home broadband. Can you give more color on the installation challenges cited in the fixed line, which was mentioned in the earlier part of the presentation?
Jeremiah De La Cruz (Senior VP)
From a color point of view, I think there's, as I mentioned, there were two things. You'll take note that in the Q2 of 2023, we deployed out 12,000 new ports, right. That was 12,000 new ports. When you compare that to previous first quarters in the last two years, that's actually significantly down. We have mentioned in the past that actually we have seen a high take-up rate, an extremely fast take-up rate, whenever we go greenfield. That has been our strategy for the last two years. When we don't have the greenfield deployments, you can see that whilst we're selling in the brownfield and there is still a market there, it is actually much harder.
Not only because some, a lot of these customers have existing services, but also because it means we are going deeper into the pyramid, actually lower into the different socioeconomic sectors on that front. The second thing I mentioned was really in working with and trying to improve the level of defaults for new customers, we actually tightened up our credit policies. This is actually quite. We were out in the market, and we asked all customers to have one AMSF. We actually asked all customers, irrespective of which area you're in, to be able to provide a one AMSF. What we saw quite frankly was, we saw quite a big hit in terms of our new connections.
That's simply because of the readiness for customers to be able to pay that AMSF. As a consequence, we actually made a tweak to that policy, right. We've actually made a change to that policy where we focused in on collecting that one AMSF in areas that we have seen higher default rates, whereas other areas which we haven't seen those sort of default rates were actually working back in terms of our original policy. We've seen our install volumes improve since then, so we'll continue to work on that front to ensure that we have the right balance between growth as well as managing any bad debt or customers that are actually not gonna be long-term customers for PLDT.
Melissa Vergel de Dios (Director of Investor Relations)
Hussaini, you have your hand raised again.
Hussaini Saifee (Director)
Yeah. Hi. Thanks again. Just going back to the previous question on fixed wireless as a potential option, I just wanted to understand, will it be on 4G or will it be on 5G? Just looking at your fixed wireless subscribers, which had been coming down to an extent, something similar is happening with one of your competitors as well. Wanted to understand that, does that proposition need a bit of reset before we see growth coming into that base once again? That's question number one. Second question is on the mobile side. I just wanted to understand how is the competitive dynamics in the market. Is macro a bigger factor or competition leading to a softer growth? Just a bit of clarification, which is on figure 20...
Sorry, on slide 22. If I see the base station count, even from 2021, it is relatively stable. I understand from 2022 going to first quarter of 2023, because of the CapEx overrun issue. Why is this stable even from 2021 levels? Thank you.
Jeremiah De La Cruz (Senior VP)
I might start with fixed wireless, if that's okay, Hussaini. I'll start with the fixed wireless question. We have also, and similar to your observation, fixed wireless numbers in total market has declined. We think that, originally the explosion in fixed wireless subscribers across the board was obviously, I guess exacerbated by the pandemic, so everyone rushing to be able to get connectivity within the home. As we've increased our fiber rollout capacity, and we've actually seen that across, all competitors, we've seen some correction in the marketplace. What we are doing now with fixed wireless is we are actually gonna be using it for two main areas. Number one, we will be using it as a post-paid offering, for our existing fiber customers.
It becomes a backup service to ensure that they have 24/7, 365 days a year connectivity. It helps them support and ensure that they stay online as a family. The second market that we are actually using fixed wireless to target is going to be to reach areas where we currently don't have fiber. As Al had mentioned, we currently have 17,000 barangays that we cover, but as you know, there are still about 42,000, or not additional, but total 42,000 barangays in the market. Still at least another 20,000-25,000 barangays that currently don't have any connectivity options. That's where we're gonna be leveraging fixed wireless to be able to get out there and reach out to those customers and connect those homes.
Your other question that you asked was really is it gonna be around 4G and 5G? At the moment, the current fixed wireless offering is leveraging our 4G network. That's not to say that we haven't had a fixed wireless offering with our 5G historically. We have actually had that, I think it was in 2021, 2022, sorry. What we will be doing is actually revamping the whole portfolio, so you will have an option for different types of 4G devices as well as 5G. That'll offer different levels of quality of service, as you would know, whether it's Rx diversity, on.
Take for example, some slightly lower end, starter kits for fixed wireless, still leveraging the 4G network, but also having, much superior, 4G, devices as well to be able to give them the maximum bandwidth available, as well as a range of 5G devices.
Hussaini Saifee (Director)
I'll give Francis the second question. Francis, please.
Francis Bautista (VP)
Hi, good afternoon. I'll take on your questions for mobile. I think this quarter there are two external factors that affected all the telcos. The first one is SIM registration. I think what we have seen this quarter is there was a significant reduction in new activation because of SIM registration. I guess, I'm sure that all the test telcos were also affected in that same way. The second external factor with inflation. Our inflation in January hit the highest in 14 years to 8.7%. That's more than double compared to the inflation we had same quarter of last year. For the whole for February and March, we saw that the inflation remained elevated with February at 8.6%, around 8% in March.
I guess, and I'm sure that, our competitors are also felt that affecting our subscribers consumer wallets. Especially for our value brands. In our case it's TNT. We really saw that they're more affected by these headwinds or this inflation. To what extent our competitors are affected, we have yet to find out when they release their results in the coming days.
I guess what's the third question?
Melissa Vergel de Dios (Director of Investor Relations)
Actually the competitive dynamics, macro or competition.
Francis Bautista (VP)
No, I think.
Melissa Vergel de Dios (Director of Investor Relations)
It's already answered. Just that.
Francis Bautista (VP)
Just that? Okay. I thought there was a third question. Thank you.
Melissa Vergel de Dios (Director of Investor Relations)
Hussain, any follow-ups?
Hussaini Saifee (Director)
Yes. Sorry. The third question was on slide 22, on the base station.
Melissa Vergel de Dios (Director of Investor Relations)
The base stations.
Alfredo Panlilio (President and CEO)
Which one?
Melissa Vergel de Dios (Director of Investor Relations)
For 4G, 3G and 5G seems to have been relatively flat from 2021 onward. I think that was your question, no, Hussain?
Alfredo Panlilio (President and CEO)
Yeah. I guess.
Hussaini Saifee (Director)
Yes, that's correct.
Alfredo Panlilio (President and CEO)
Yeah. For 2022, I think, there was a focus on building out the fixed network, in 2022, because we did have a lot of towers built, both for 5G and 4G. What we're doing now is looking at. If you compare the first quarter, obviously, not much has happened in the first quarter, for us, no. Moving forward, I think you will now see some new towers for the wireless space. We're also increasing capacity for 4G LTE where the majority of our client base is on.
We're trying to maximize where 5G is, trying to repurpose 5G base stations that are not with very low traffic and use that for 4G. Also use the spectrum for 4G. These are the things that we're doing in terms of making sure that we're able to optimize the network. There was that was intended in 2022 to really focus a lot of the investments on the fixed network.
Hussaini Saifee (Director)
Understood. This is very clear. Thank you very much.
Alfredo Panlilio (President and CEO)
Thank you.
Melissa Vergel de Dios (Director of Investor Relations)
There are no more questions in the queue. Last chance for to ask their questions. There are none. We'll now turn the floor over back to Mr. Panlilio for closing remarks.
Alfredo Panlilio (President and CEO)
Well, again, thank you. Thank you very much for being here today. We look forward to AGM.
Francis Bautista (VP)
That's June.
Alfredo Panlilio (President and CEO)
June. It's been June 13, the AGM. Again, thank you.
Melissa Vergel de Dios (Director of Investor Relations)
Thank you. If you have any questions, please feel free to reach out to investor relations. Thank you very much.