PLDT Annual Report 2006 | Quarterlytics

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FY2006 Annual Report · PLDT

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C O N T E N T S

Comparative Highlights

Consolidated Financial Performance Highlights

A Message from the Chairman of the Board

A Letter from the President and CEO

Enabling the Nation

Becoming a Global Player

Serving the Global Pinoy

Building Businesses for Micro Entrepreneurs

Corporate Social Responsibility: Enabling Communities

Corporate Governance: A Way of Life

The Board of Directors and Committees

4-6

7-9

10-11

12-13

14-16

17-18

19-21

22-23

24-25

Registrars, Transfer Agents and Depositary

Officers

2006 PLDT Group Significant Events

Financial Review

Audit Committee Report for 2006

Statement of Management’s Responsibility

for Financial Statements

Report of Independent Auditors

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Changes in Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Registrars, Transfer Agents and Depositary

26-27

29-60

64-65

68-69

70-128

PLDTANNUALREPORT2006

PLDT is the leading telecommunications service provider

in the Philippines. Through its three principal business

groups—wireless, fixed line, and information and

communications technology—PLDT offers the largest and

most diversified range of telecommunications services across

the Philippines’ most extensive fiber optic backbone and

wireless, fixed line and satellite networks.

PLDT is listed on the Philippine Stock Exchange (PSE:

TEL) and its American Depositary Shares are listed on the

New York Stock Exchange (NYSE:PHI). PLDT has one of

the largest market capitalizations among Philippine-listed

companies.

SUBSIDIARIES
Wireless
SMART COMMUNICATIONS, INC. AND SUBSIDIARIES
PILIPINO TELEPHONE CORPORATION
TELESAT, INC.
ACeS PHILIPPINES CELLULAR SATELLITE CORPORATION
MABUHAY SATELLITE CORPORATION

Fixed Line
PLDT CLARK TELECOM, INC.
SUBIC TELECOMMUNICATIONS COMPANY, INC.
PLDT GLOBAL CORPORATION AND SUBSIDIARIES
PLDT-MARATEL, INC.
BONIFACIO COMMUNICATIONS CORPORATION
SMART-NTT MULTIMEDIA, INC.

Information and Communications Technology
ePLDT, INC. AND SUBSIDIARIES
ePLDT VENTUS, INC.
SPi TECHNOLOGIES, INC.

MISSION STATEMENT

PLDT will be the preferred full service provider of voice, video and data at
the most attractive levels of price, service quality, content and coverage,
thereby bringing maximum benefit to the Company’s stakeholders.

COMPARATIVE HIGHLIGHTS

2002

2003

2004

2005

2006

P 82,093
12,145
857

P 100,604
10,714
965

P 115,206
6,269
4,729

P 121,062
3,312
1,670

P 124,934
2,967
5,740

95,095

112,283

126,204

126,044

133,641

22,081
11,026
20,876
3,867
17,281
3,648
30,759

23,606
14,740
26,550
4,931
16,094
4,394
21,421

21,405
12,025
19,264
5,671
11,352
5,478
18,077

30,822
14,136
9,133
6,705
6,501
5,093
15,039

31,869
18,359
9,084
6,886
5,522
5,010
14,722

P 109,538

P 111,736

P 93,272

P 87,429

P 91,452

FINANCIAL INFORMATION (in millions, except
cash dividends per share of common stock)

Revenues and Other Income
Service Revenues
Non-service Revenues
Other Income

Expenses

Depreciation and Amortization
Compensation and Benefits
Financing Costs
Maintenance
Costs of Sales
Selling and Promotions
All Others

Net Income (Loss) Attributable to Equity Holders of PLDT

(P 15,613)

P 1,363

P 28,031

P 34,112

P 35,116

Property, Plant and Equipment
Accumulated Depreciation, Amortization and Impairment

P 290,743
87,162

P 306,862
112,072

P 324,991
130,466

P 331,537
154,563

P 347,408
183,218

Net

P 203,581

P 194,790

P 194,525

P 176,974

P 164,190

Capital Expenditures

P 16,904

P 18,019

P 21,162

P 14,990

P 20,674

Debt1

P 183,145

P 178,589

P 149,088

P 103,544

P 79,953

Equity Attributable to Equity Holders of PLDT

P 22,823

P 19,361

P 46,330

P 73,207

P 102,977

Cash Dividends Declared and Paid Per Share

of Common Stock

OPERATING INFORMATION

P 1.20

P –

P 56.00

P 78.00

Number of Cellular Subscribers

8,599,306

12,947,197

19,208,232

20,408,621

24,175,384

Number of Fixed Line Subscribers

1,848,395

1,869,770

1,834,306

1,842,507

1,776,647

Number of Stockholders

2,144,953

2,207,008

2,200,367

2,193,525

2,189,374

Number of Employees
Wireless
Fixed Line
ICT

1 Represents short-term and long-term debt.

18,704
5,008
12,351
1,345

17,653
4,977
10,518
2,158

18,433
5,289
9,692
3,452

18,926
5,137
9,197
4,592

28,219
5,358
8,711
14,150

CONSOLIDATED FINANCIAL PERFORMANCE HIGHLIGHTS

PLDTANNUALREPORT2006

Service Revenues
(in billion pesos)

Subscriber Base
(in millions)

124.9

8
7
7

121.1

9
3
7

115.2

1
8
6

100.6

7
3
5

140

—

120

—

100

—

82.1

7
5
3

—

26.0

2
4
2

22.2

4
0
2

21.0

2
9
1

14.8

9
2
1

—

8
5
4

6
5
4

1
5
4

4
4
4

3
1
4

—

10.4

6
8

—

6
0

3
1

0
2

8
2

8
5

2002

2003 2004 2005

2006

—

8
1

9
1

8
1

2002

2003 2004 2005

2006

ICT Fixed Line Wireless

Fixed Line Cellular

Cash Flows from Operations
(in billion pesos)

Market Capitalization
(Year-end, in billion pesos)

Share Price
(Year-end, in pesos)

67.7

76.2

74.5

56.0

54.6

481

332

232

164

6
0
0
2

5
0
0
2

4
0
0
2

3
0
0
2

2
0
0
2

6
0
0
2

5
0
0
2

4
0
0
2

3
0
0
2

2
0
0
2

6
0
0
2

5
0
0
2

4
0
0
2

3
0
0
2

2
0
0
2

2,550

1,835

1,360

970

270

MESSAGE FROM THE CHAIRMAN OF THE BOARD

My Fellow Shareholders,

Our Company sustained its strong performance across all metrics in the year 2006,
despite increasingly demanding operational and competitive challenges.

Service revenues, net profits and cash flows remained robust in the year. PLDT continued
to pay down debt and raise dividend payments to historically unprecedented levels. Our
Company stepped up its investments in next generation technologies and embarked in new
ventures such as business process outsourcing (BPO) in order to better position our Company
to deliver further growth in the years ahead.

As a result of these initiatives, we have made major strides in transforming PLDT into a
diversified telecoms conglomerate offering next generation services that combine connectivity
with compelling content and innovative applications.

Performance Drivers: Cellular and Data

Our financial performance continued to be driven by our healthy cellular and data revenues
as well as our rapidly-rising information and communications technology (ICT) businesses,
even as we stabilized our fixed line business.

Reported net income reached Php35.1 billion in 2006, up 3% from 2005. Core net profit
– which excludes exceptional gains – rose by 9% to Php31.5 billion. Service revenues and
EBITDA both increased by 3% to Php124.9 billion and Php79.7 billion, respectively.

The Group’s balance sheet further strengthened as consolidated debt balances continued to
decline. As at 31st December 2006, net debt stood at US$1.2 billion. Net debt to EBITDA
and net debt to free cash flow ratios improved to 0.7 times and 1.7 times, respectively.

In this regard, I note with great satisfaction that Pilipino Telephone Corporation (Piltel)
extinguished the balance of its outstanding restructured debt after repaying a total of
US$408.6 million in two installments in 2006. This has left Piltel debt-free and places it
in a position to declare dividends in the near future. Such a prospect was unthinkable eight
years ago when it seemed that Piltel’s financial fortunes were beyond redemption.

As we endeavor to move the PLDT Group ahead in its transformation process to provide
next generation communications, capital expenditures during the year increased to Php20.7
billion. The investments we continue to make in our infrastructure is a key enabler for us
to provide a wider array of products and services to our customers, whose taste for new and
innovative products continues to grow in sophistication and for better value. Notwithstanding
the increase in our capital expenditures, consolidated free cash flow remained healthy at
Php31.6 billion.

As of the date of the release of this Annual Report, we paid out Php100 in total dividends per
share, representing a total payout of 60% of our 2006 core earnings. Total dividend payouts
thus increased by 53% to Php18.8 billion, from Php12.3 billion in 2005. Our Company’s
robust cash flows, coupled with a strong balance sheet, allowed us to enhance the returns we
give to our shareholders, while maintaining significant financial flexibility in the event that
attractive investment opportunities emerge for us to realize.

We ended the year 2006 with our share price at Php2,550, up 39% from the prior year’s
closing. Our market capitalization as at 31st December 2006 thus stood at Php481 billion,
confirming our position as the country’s largest capitalized company. On 10th November,
2006, your confidence in our Company allowed us to establish a new all-time high as the
share price traded as high as Php2,610, and closed at a record of Php2,580.

PLDTANNUALREPORT2006

e are in the
process of moving
from traditional
telco businesses
to what we call
Next Generation
Communications.

Looking forward to 2007, our view is that PLDT’s performance will be influenced by a number
of factors, including efforts at identifying and building new revenue sources for the PLDT
Group, continuing cost controls, the volatility in the Philippine peso to U.S. dollar exchange
rates and rising income tax provisions. For 2007, we estimate our core net income to rise to
the range of Php32 – Php33 billion. Moreover, the gap between core and reported revenues
will begin to close as the declining debt levels of the Group reduce the impact of foreign
exchange movements on our profit position.

Managing Transition

PLDT’s 2006 results are best understood in the context of the ongoing transformation being
undertaken by the Group. We are in the process of moving from traditional telco businesses
to what we call next generation communications.

We are at a critical stage of this transition – a time when a delicate balance must be struck
between the need to capitalize on our existing businesses while building the businesses of
the future.

To successfully manage this transition, the Group is pursuing the following strategies:

•

Maximize the value of existing businesses. This requires taking full advantage of
revenue opportunities presented by the Group’s existing subscriber base and existing
infrastructure – both of which are the largest and most extensive in the industry.

Develop new revenue streams. We are pursuing innovation in various fronts such as
enhancing the utility of cellular phones for the largest possible number of users, growing
aggressively our broadband and other data services, propagating our m-commerce and
remittance services, and expanding our call center and BPO businesses.

Improve operating efficiencies. There is a clear need to control costs even as we deal
with exceptional demands created by the transition process. We are re-engineering
our business and technical processes to align them with the requirements of our Next
Generation Network (NGN) roll out. Moreover, the Group is striving to improve quality
of service even as we offer increasingly more complex products and services.

Deliver growth and enhance shareholder returns. This requires maintaining the proper
balance of free cash flow utilization between investments in new growth areas and
returning cash to shareholders. Depending on how conditions unfold in 2007, we shall
consider alternative measures to enhance further cash returns to shareholders.

Early Results

Some aspects of this transformation have already been evident in PLDT’s performance in
2006.

Significantly, data, broadband and ICT revenues were up by 18% to Php56.1 billion, offsetting
a 6% decline in the combined fixed line and cellular voice revenues – traditionally the bread-
and-butter business of a telco.

Noteworthy is the rapid growth of our broadband business on the back of the Group’s wired
and wireless infrastructures. Internet and broadband revenues grew by 49% to Php5.2 billion
as the number of PLDT myDSL and SmartBro broadband subscribers more than doubled to
265,000 by year end.

ePLDT’s ICT service revenues more than doubled from
Php3.0 billion in 2005 to Php6.3 billion in 2006,
driven by the growth of its call center (ePLDT Ventus)
and the acquisition of SPi Technologies, Inc. (SPi) which
is ranked fourth globally amongst the “Top Best BPO
Providers.”

These results augur well for the Group’s efforts to
develop new revenue sources and to build or acquire
businesses beyond traditional telecommunications.

New Initiatives

In late 2006 and early 2007, MediaQuest Holdings,
Inc. (MediaQuest), a wholly-owned subsidiary of the
PLDT Beneficial Trust Fund, and Smart joined hands
to conduct test broadcasts of a mobile TV service
using the Digital Video Broadcast – Handheld (DVB-H)
standard. This was made possible through MediaQuest’s
subsidiary, Nation Broadcasting Corp., which has a
broadcast franchise and already operates a network of
radio stations.

We expect to launch the commercial service of Mobile
TV in collaboration with the MediaQuest Group
sometime mid-2007, highlighting the Group’s efforts
in combining connectivity with video content for an
entirely new consumer experience.

In February 2007 at the 3GSM Congress in Barcelona,
Spain, Smart Communications, Inc. (Smart) announced
that it would soon launch pilot projects in the Middle
East and Europe which offer low-cost remittance
services using its cellular phone-based financial
services platform. Called the Smart Services Hub, the
platform will enable migrant workers using the services
of Smart’s telco and banking partners abroad to send
remittances to the Philippines via SIM-based services
anytime, anywhere – effectively, money at the speed of
a text message.

Anchored on the Smart Money platform, Smart’s next
generation mobile commerce services will impact on
a wide range of businesses, extending their reach and
enabling them to serve a larger market at lower cost.

If you recall, Smart Money and Smart Load enabled
Smart to broaden the market for cellular phone services
by offering electronic airtime load in small “sachet”
packs. By working with partners to apply mobile
commerce technologies to the financial, transport, retail
and other industries, the Group will build profitable new
businesses while raising the efficiencies and enhancing
the capabilities of key economic infrastructure sectors.

Our unfolding initiatives in next generation mobile
commerce are enabling us to develop platforms and
services that are geographically agnostic. This opens up
new and exciting opportunities for the Group to offer our

services across borders and serve markets previously
beyond the reach of any Philippine telco.

Partner in Development

By moving up the value chain through advanced
services, PLDT is expanding its role as a serious partner
in the country’s overall development. In the past, our
innovations have helped made modern fixed and mobile
communications more affordable and available to
Filipinos throughout the archipelago. The new services
and solutions that we are beginning to roll out will
further enhance consumer welfare.

to building our businesses

is
This approach
complemented by active involvement in a variety of
corporate social responsibility programs. Through the
PLDT-Smart Foundation, the Group is pursuing projects
in the following key areas: (1) enhanced education
by providing broadband access to public schools
nationwide and through the Gabay Guro program;
(2) community development through the continued
support to Gawad Kalinga, military housing and a
national disaster reduction and management program;
(3) youth development efforts with the Department of
Education and the building of a juvenile rehabilitation
center; (4) poverty alleviation through broadband
livelihood projects and microfinance
in
cooperation with the Philippine Business for Social
Progress; and (5) sports development through a
nationwide grassroots campaign with the Samahang
Basketbol ng Pilipinas–Basketball Association of the
Philippines (SBP-BAP).

lending

Conclusion

“eNabling the Nation” – the theme for this year’s Report
– captures the exciting developments that have taken
place within PLDT in 2006 and the possibilities that lie
ahead in 2007 and beyond.

In conclusion, I must underscore that the excellent
condition of our Company today is the result of the
dedicated efforts of our management and staff, the
wise counsel of our Board of Directors and the generous
support of our shareholders.

On behalf of the Board of Directors and our more than
28,000 people, let me assure our Shareholders that
we at PLDT remain committed to excellence in all
our endeavors, as we strive to create a new future for
ourselves and the country.

MANUEL V. PANGILINAN
Chairman of the Board

PLDTANNUALREPORT2006

LETTER FROM THE PRESIDENT AND CEO

Dear Shareholders,

I am pleased to report that our Company continues to perform strongly as we
reported a consolidated net income of Php35.1 billion for 2006. This year’s results
benefited from the reversal of earlier provisions made in connection with an onerous
contract relating to our satellite subsidiary, ACeS, offset by lower foreign exchange
translation gains and lower benefit from the recognition of certain deferred tax assets,
additional depreciation expense as well as higher asset impairment charges. Service
revenues for the PLDT Group increased by 3% to Php124.9 billion, consolidated
EBITDA improved by 3% to Php79.7 billion while EBITDA margin remained at 64%
in 2006. More importantly, our core net income, net of the exceptional items, rose to
Php31.5 billion in 2006, 9% over the core net income of Php29.0 billion in 2005. Core
earnings attributable to each common share reached Php168 per share, an increase of
5% compared to Php160 per share in 2005.

Operating Highlights

Wireless
Consolidated wireless service revenues rose to Php78.4 billion for the full year 2006,
5% higher than the Php74.7 billion realized last year, with cellular subsidiaries, Smart
and Piltel continuing their solid performance. Service revenues of Php20.4 billion in
the fourth quarter were 5% higher than the third quarter revenues due to the increased
usage normally associated with the holiday season despite the negative impact of
natural calamities such as several typhoons which interrupted service in certain local
areas intermittently.

Consolidated wireless EBITDA improved by 5% to Php50.3 billion in 2006 from
Php47.9 billion in 2005 while EBITDA margins stayed at 64%.

The PLDT Group’s total cellular subscriber base for the year grew by 3.8 million to
24.2 million. For the year, Smart recorded net additions of approximately 1.74 million
subscribers while Talk ‘N Text added about 2.0 million subscribers to end 2006 with
17.2 million and 7.0 million subscribers, respectively. In February 2007, the PLDT
Group’s cellular subscriber base surpassed the 25 million mark as Smart and Piltel
added 900,000 new subscribers in the first two months of the year.

For 2006, Smart focused on segmenting its market by offering sector-specific, value-
driven packages such as All Text – a new variety of top-up service providing a fixed
number of messages with prescribed validity periods. Voice offerings included Tipid
Talk and All Talk 20. In January 2007, Smart expanded on the All Text concept and
introduced LAHATxt, a top-up which offers a bundle of text messages applicable to all
networks, with LAHATxt 35 available to all Smart prepaid subscribers and LAHATxt 20
for Talk ‘N Text subscribers. These innovative packages provide better network efficiency
while increasing yield per SMS.

The second half of 2006 also saw a series of marketing initiatives designed to enhance
both consumer product benefits as well as brand equities. Smart launched the “Ang
Saya” thematic campaign, positioning Smart Buddy as an innovative lifestyle brand
which adds excitement, fun and helps you get more “life out of life,” while Talk ‘N Text,
on the other hand, had its “Gumagaan ang Life” thematic campaign affirming Talk ‘N
Text’s superior value proposition aimed at lower-income segments of the market.

O Last February 12, 2007, at the 3GSM Congress in Barcelona, Spain, Smart announced

that it would soon launch pilot projects in the Middle East and Europe offering low-cost
remittance services using its cellular phone-based financial services platform. Called
the Smart Services Hub, the platform will enable mobile operators and banks to serve
the remittance needs of migrant workers in their respective countries. Through the
platform, these workers will be able to send remittances to their countries via SIM-
based services anytime, anywhere–all at the speed of a text message. Smart’s initiatives
are part of the global mobile money transfer program of the GSM Association, the global
association of GSM operators. Supported by 19 of the world’s leading mobile operators,
this program aims to create a money transfer solution that will take advantage of the
pervasiveness of cellular phone networks worldwide in order to lower the cost and raise
the speed of remittances.

ur core
net income,
net of the
exceptional
items, rose to
Php31.5 billion
in 2006, 9%
over the core
net income of
Php29.0 billion
in 2005.

Smart will launch its cellular-based money transfer pilot in the Gulf state of Bahrain,
under the brand name Smart Remit, in tandem with MTC Vodafone Bahrain of the MTC
Group, one of the leading cellular phone groups in the region. Smart is also firming
up a partnership with a leading regional bank based in Bahrain. In Europe, Smart is
pursuing a similar arrangement with a mobile operator and a bank operating in Italy.

Consistent with its intent to develop new businesses beyond cellular, Smart has grown
its wireless broadband subscriber base to about 122,000 by the end of 2006 under its
SmartBro wireless broadband service. SmartBro added 29,000 new subscribers in the
fourth quarter alone. Smart now has close to 2,500 wireless broadband-enabled base
stations providing high-speed Internet access to about 500 cities and municipalities all
over the Philippines. The increasing network coverage of SmartBro continues to provide
the PLDT Group with a complementary service in areas that are currently not covered
by PLDT’s Fixed Line DSL service.

Fixed Line
Fixed Line service revenues decreased by 1% to Php49.1 billion in 2006 from
Php49.7 billion in 2005 as improvements in data revenues, both from corporate data
and residential DSL services, were offset by the continued decline in revenues from
the local exchange and ILD services. Our dollar-linked revenues arising from the local
exchange and ILD businesses were adversely impacted by the 6.8% appreciation of
the average Philippine peso to U.S. dollar exchange rate in 2006. Fixed Line revenues
would have improved 2% year-on-year if foreign exchange rates had remained stable.

Retail DSL continued to grow as broadband subscribers exceeded 133,000 at the
end of 2006 with approximately 300,000 subscribers using our Vibe dial-up Internet
service. PLDT DSL and Vibe contributed Php3.5 billion in revenues for 2006, up 32%
from Php2.7 billion in 2005. PLDT DSL and Vibe made up 69% of the PLDT Group’s
broadband and Internet revenues for the year.

Fixed Line EBITDA in 2006 declined slightly to Php28.4 billion in line with the
decrease in revenues; EBITDA margin remained stable at 58%.

ICT
ePLDT, the Group’s information and communications technology arm, reported service
revenues of Php6.3 billion for 2006, a 115% increase from Php3.0 billion last year,
driven by the continued growth in the call center business (ePLDT Ventus) and the
consolidation of SPi, after its acquisition in July 2006.

Consolidated call center revenues continued to make significant gains, growing 35% to
Php2.6 billion as a result of increased capacity utilization and billable hours, for new
and existing clients despite the appreciation of the peso. ePLDT Ventus now operates

PLDTANNUALREPORT2006

seven facilities with combined seats of 5,600 and an
employee base of 6,482.

paid to third party creditors with the balance being paid
to parent company, Smart.

SPi, on the other hand, generated revenues of
Php4.8 billion in 2006, of which Php2.4 billion were
consolidated into ePLDT from July 2006 onwards, after
ePLDT completed its acquisition that month. In addition
to the Philippines and the U.S.A., SPi has operations
in India and Vietnam. Consolidated seats total 3,700
of which 80% are located in the Philippines. SPi
was ranked fourth globally among the “Top Best BPO
Providers” and fifth among “Top Leaders in Human
Capital Development” by CMP/Cybermedia. SPi has
also been included in the “Leaders Category” for The
2007 Global Outsourcing 100 by the International
Association of Outsourcing Professionals.

Together, our contact center business—voice and
data—had approximately 9,300 seats and a manpower
complement of close to 12,000. ePLDT’s participation
in these key growth sectors allows the PLDT Group to
diversify its revenue base and tap into markets outside
the domestic economy.

Financial Initiatives

The Group’s consolidated balance sheet continued to
strengthen with the consolidated debt balance down
to US$2.1 billion. The PLDT Group reduced debts by
US$713 million, significantly ahead of the stated target
of US$500 million set at the beginning of the year.

Consolidated free cash flow remained strong at
Php31.6 billion in 2006 despite the increases in
capital expenditures and working capital requirements.
Consolidated capital expenditures increased to Php20.7
billion, or 38% higher than 2005 levels, and were
primarily utilized on the rollout of our 3G network and
150,000 NGN lines, the build-out of 2,300 wireless
broadband-capable base stations and the expansion
of the Company’s nationwide Domestic Fiber Optic
Network. Total capital expenditures for 2006 remained
below annual depreciation costs and represented 17%
of service revenues. Capital expenditures for the Group
are expected to range between Php20 – Php22 billion
in 2007.

Approximately Php21 billion of our cash was utilized
to repay debt with another Php18.8 billion being used
to payout cash dividends and the balance of Php9.5
billion for investments in new businesses. On 4th
December 2006, Piltel made a final prepayment of
US$232.6 million, representing the balance of Piltel’s
total outstanding restructured debt after the initial
amount of US$176 million was prepaid on 5th June
2006. Of the total prepayments, US$127 million was

Dividend Payments

On 6th March 2007, our Company’s Board of Directors
declared a final dividend of Php50 per share. Added
to the previously paid interim dividend of Php50 per
share, total dividends attributable to our 2006 earnings
will amount to Php100 per share, representing a payout
of 60% of 2006 core earnings. Total dividend payments
for 2006 increased by 53% to Php18.8 billion, from
Php12.3 billion in 2005.

Direction for 2007 – Pursuing and Managing
Change

We must remember that the move to NGN is not the goal
in itself but rather a key enabler for the Group’s transformation
to what we call Next Generation Communications. This
transformation goes beyond upgrading our network to an
all-IP NGN. We will need to re-engineer our processes,
integrate our platforms, transform our products and
re-orient our people. In so doing, we will enable the
PLDT Group not only to cope with change but to benefit
from it as well. In 2006, we saw the beginnings of this
transformation as we rolled out NGN, 3G and wireless
broadband. In 2007, we will work on the integration
of our information technology and other convergent
platforms. We will maximize the opportunities provided
by our large subscriber base and our extensive
infrastructure, especially in the rapidly expanding
broadband space where we can harness our fixed and
wireless capabilities to capitalize on its huge potential.
We will continue to drive innovation as exemplified
by our recent initiatives on the m-commerce and
remittance fronts.

To echo the words of our Chairman, Manuel V. Pangilinan,
beyond protecting our base businesses and developing
new revenue streams, we are cognizant of the pivotal
role we play in nation building. Our investments will
equip our country with the requisite infrastructure to
continue its economic progress and, at the same time,
provide Filipinos everywhere with relevant, high-value
and affordable services.

NAPOLEON L. NAZARENO
President and CEO

eNABLING THE
NATION

By the nature of its business, telecommunications
acts as a catalyst for development. In a world that
relies on seamlessly passing around gigabytes
of data for its living and leisure, the industry’s
vital role in the life of countries and communities
everywhere looms larger than ever.

In the Philippines, telecommunications has become a highly visible
economic force. For the past decade, it has become one of the bright
spots in the Philippine economy, contributing significantly to economic
growth, investment, employment and government revenues.

By one count, the sector (which covers fixed and mobile telephony)
accounted for about 4% of total gross domestic product (GDP) and
6%-7% of total investments between 1999 and 2003. Wages and
salaries for direct employment amounted to around US$300 million
in 2005 alone. Total taxes paid by various telecommunications
companies account for 6%-7% of the government’s tax collections.

The indirect economic contribution of the industry is even more
substantial. In a study of the cellular phone industry in India, China
and the Philippines done by McKinsey & Company, it was found that
the total economic impact of mobile telephony in these economies
was several times larger than its direct contribution.

In the case of the Philippines, mobile operators contributed 2% of GDP
in 2005. But with its spill-over effects considered, the contribution
rises to 7.5% of GDP. This spill-over effect can be clearly seen in

employment. While more than 20,000 people were directly employed by mobile
operators, another 40,000 to 60,000 were employed in supporting industries.

The rapid growth of the telecommunications industry has brought considerable
benefits to its customers. First of all, as a result of huge investments,
telecommunications companies have expanded their respective networks.
The cellular phone network of Smart for example now covers 99% of the
population.

Price levels have also fallen across mobile, IDD and local toll calls by 30%, 26%
and 7%, respectively, since 1998. The McKinsey study showed, for example,
that the average mobile service prices in the Philippines declined by 40% from
2002 to 2006 – a larger reduction than in Europe where prices fell by 21% and
the United States, where prices rose by 8%. In fact, price levels in Europe and
the Philippines were about the same in 2002, but by 2006, had fallen further
in the Philippines than in Europe. On the average, prices in the Philippines
have also fallen more than in other countries in the Asia-Pacific region – a sign
perhaps that competitive forces are very much at work in the Philippines.

Competition has certainly made the Philippine telecommunications industry one
of the most innovative in the world. Both PLDT and Smart, for example, have
won international and local awards for pace-setting innovations in fields such as
mobile commerce (for Smart Money and Smart Load) and data solutions (PLDT’s
Shops.work, SWUP, F.A.S.Track and PLDT WeRoam).

Filipinos have taken advantage of the wide availability of fixed and wireless
services to raise their productivity and enhance their leisure. Farmers and
fishermen now routinely exchange price and supply information regarding their
produce. Families keep in touch daily with their relatives working overseas
through text messaging.

The catalytic role of telecommunications has become even more pronounced
in the data-driven world of the 21st century. The sunrise industries of today,
where the Philippines has a competitive edge, rely heavily on broadband
communications.

A case in point are call centers and BPO firms. There are about 200 call
centers and BPO firms operating in the country with roughly 200,000 agents.
The government is banking on this industry to keep on growing, generating
and bringing in more well-paying jobs and more substantial foreign exchange
income.

For this to happen – and other growth sectors of the economy to prosper –
the telecommunications industry must provide the enabling infrastructure and
supporting services.

The articles that follow provide examples of how the PLDT Group is enabling the
nation.

PLDTANNUALREPORT2006

ilipinos have
taken advantage
of the wide
availability of
fixed and
wireless services
to raise their
productivity
and enhance
their leisure.

OUTSOURCING INDUSTRY

Becoming a

GLOBAL PLAYER

Back in 2002, Rodella “Deng” Perez shifted careers from being a nurse at one of
the country’s leading hospitals to working at one of the country’s pioneer BPO companies.

She started as a supervisor for SPi’s newly established Healthcare business unit and worked
in medical transcription, transcribing at least 500 lines a day. Today, she is a Quality
Manager, overseeing quality assurance for all Healthcare projects. “I see myself growing
here,” Deng says. Indeed, she and several hundred thousand other Filipinos.

Deng is one of the fast growing number of Filipinos working in the country’s outsourcing
sector. Recognized as the “sunshine industry” in the Philippines, the BPO industry generated
US$2.1 billion in offshore revenues in 2006, a huge leap from the start of the decade when
the outsourcing industry had revenues of just US$24 million and employed 2,400 people.

Today, about 200,000 people work in approximately 200 call centers and BPO companies.
According to some forecasts, by the year 2010, outsourcing in the Philippines will be earning
US$11 billion annually and employing 900,000 people.

The recent surge in growth in the outsourcing industry in the Philippines has been powered
by BPO covering legal services, web design, medical transcription, software development,
animation and shared services.

PLDTANNUALREPORT2006

ePLDT Ventus had over 5,130 employees providing
customer care, billing, technical support and sales
and collections services to U.S. companies operating
in fields such as satellite TV, consumer electronics,
financial services and pharmaceuticals.

ePLDT Ventus has enjoyed rapid organic growth and has
thus been expanding its facilities to cope with rising
demand for its services. Its latest call center site in
Libertad, Mandaluyong City, was completed in record
time in 2006. The 600-seat facility complements the
existing ePLDT Ventus facilities in 6 other locations—two
in Fort Bonifacio, Taguig; and one each in Jupiter, Makati
City; Garnet, Pasig City; East Avenue, Quezon City; PLDT’s
MGO Building, Makati City; and Molo, Iloilo City.

With the combined workforce of ePLDT Ventus and SPi,
ePLDT now employs over 15,000 agents, and utilizes
8,500 seats, in its combined outsourcing operations.

Its outsourcing
revenues are growing briskly.
Consolidated call center revenues of ePLDT Ventus
rose from Php1.9 billion in 2005 to Php2.6 billion
to 2006. SPi on the other hand, generated revenues
amounting to Php4.8 billion in 2006, of which Php2.4
billion were consolidated into ePLDT from July 2006
onwards, upon the completion of ePLDT’s acquisition
of SPi. The combined revenues of ePLDT Ventus and
SPi, of approximately Php5.0 billion, account for 79%
of the ePLDT’s total service revenues.

ePLDT is now in a strong position to contribute to the
growth of the outsourcing industry in the country. It can
offer both voice and non-voice services to international
clients depending on their requirements. Through its
international operations, it has access to important
markets such as the United States.

“We are in a position to help the outsourcing industry
in the Philippines attain its full potential,” said Ray C.
Espinosa, ePLDT President and CEO.

To establish its presence in this sector of the market,
ePLDT acquired 100% of SPi in July 2006. With
its nearly 30 years of BPO experience, and 6,900
specialists worldwide, SPi is ranked fourth in the
world’s Top 10 BPO companies. Aside from the
Philippines, it has operations in the United States,
India and Vietnam. Its services include publishing
(such as content conversion, composition, editorial
and delivery), medical
legal
documentation.

transcription and

SPi is itself on an acquisition mode. In 2006, it
purchased CyMed, Inc. (CyMed), a leading provider of
medical transcription services to more than 400 clients
across the United States. Today, SPi is considered as
the third largest medical transcription services provider
in the U.S. market.

In April 2007, SPi also acquired Springfield Service
Corp., the 10th largest player in the medical billing
and revenue cycle management market in the United
States.

By acquiring SPi through ePLDT, PLDT has in one
move fortified its position as one of the world’s leading
BPO services providers.

A World Leader

In outsourcing, the Philippines is a world leader,
ranked third behind India and China. The country is
a preferred location for outsourcing because of its
pool of low-cost yet English- and IT-proficient workers,
especially those with medical, business, accounting,
HRM and engineering backgrounds.

Offshore call centers currently account for the bulk of
the outsourcing business in terms of jobs and revenues.
Major global companies such as AIG, AOL, Citigroup,
Dell, Hewlett Packard, IBM, HSBC, JP Morgan Chase
have put up their own call centers in the Philippines
to handle their internal requirements. Leading BPO
vendors such as Accenture, Convergys and Unisys have
also set up shop here to service their U.S. clients.

PLDT has become a leading call center operator
through ePLDT Ventus, a wholly-owned subsidiary of
ePLDT which is the ICT arm of PLDT. As of end-2006,

OvERSEAS FILIPINO wORkERS

Serving the global
PINOY

As a project accountant for an international engineering and construction management
firm in Abu Dhabi, Jorge Tabilin, a Filipino working overseas, faces a tough grind everyday.

Tabilin puts in ten hours of work daily, resting only on Fridays, so he can send money back
home to feed and clothe his family, get his three growing boys through school, and, hopefully,
still have some money left for his retirement.

Remitting funds back home has always been a chore for Tabilin given his hectic schedule,
and rather expensive, too. But soon, like other Filipinos working overseas, he will find it as
easy as tapping out a text message on his cell phone. This will be made possible by the next
generation of cellular phone-based remittance services Smart is poised to roll out.

Next Generation Remittances

In early 2007, Smart introduced its Smart Services Hub at the 3GSM World Conference in
Barcelona. This new mobile commerce platform will enable Filipinos in the Middle East,
Europe and elsewhere to remit funds using their cell phones. Employing an innovative mix
of advanced mobile commerce technologies and a collaborative business model, Smart will
accomplish this through partnerships with cell phone operators and commercial banks in
countries hosting large Filipino communities.

Using the cell phone service of a telco that has
partnered with Smart, Filipinos overseas can draw
funds from their deposit account in a partner bank in
their host country and send these monies to a deposit
account of their family in a Philippine bank or to their
Smart Money account. It is as easy as following a
simple menu embedded in his cell phone SIM. The
transaction takes place at the speed of a text message,
after which both sender and recipient will receive an
SMS confirming the remittance.

With this service, Filipinos will be able to send home
funds whenever they want, in the amounts they wish,
as frequently as they require at a cost markedly lower
than traditional remittance methods.

The Smart Services Hub applies the lessons learned by
Smart since it introduced in 2004 Smart Padala, the
world’s first SMS-based remittance service. Through
this service, Filipinos abroad can send money via
remittance companies that utilize the Smart Money
platform to transfer funds directly to the cell phones of
their beneficiaries. The beneficiary can then withdraw
the cash via ATMs of partner banks or Smart Money
centers in the Philippines.

Smart’s continuing innovation in the area of remittances
highlights the growing importance that the PLDT Group
attaches to addressing the needs of the huge overseas
Filipino community.

There are millions of Filipinos like Jorge Tabilin spread
around the world, sacrificing peace of mind and, at
times, even their own safety just to secure a better
future for their families. And the ranks of “Global
Pinoys” keep growing.

In 2006, around 1.08 million Filipinos crossed the
seas to work as contract workers in over 190 countries
and territories. They joined other 8 million Filipinos
– hailed as heroes for helping the local economy afloat
– who remitted US$12.8 billion last year – exceeding
government forecasts of US$10 – US$11 billion.

Responding to their needs, PLDT has initiated
innovative programs and services offering increasingly
more affordable and convenient communications
services, remittance services and, more recently,
entrepreneurship opportunities.

Keeping Families in Touch

The first task is to keep Filipinos abroad in touch with
their families and loved ones back home affordably and
conveniently. As Tabilin recounts, of all the challenges
that he faces daily, nothing compares to homesickness
and boredom. “I was weeping the first time I talked to

PLDTANNUALREPORT2006

my wife over the telephone after arriving in Saudi Arabia
in the early 90s,” said Tabilin, who at 44, continues to
bear the pain of being separated from his family.

addresses

PLDT
various
this need
communication platforms ranging from landlines to
broadband Internet to cellular phones.

through

The PLDT Budget Card and the Pwede! Card, for
example, have made international calls much easier
and less costly. These two products are both prepaid
cards that can be used for international and local calls.
A reloadable card, the Pwede! Card offers an added
feature that can be used for accessing the Internet.
With either card, calling overseas can be done using
any PLDT landline. With this development, owning a
phone is no longer necessary to do all these.

Using a PLDT Budget Card, calls abroad are also much
more affordable. Calls to the United States, Canada
and Hong Kong cost only Php3 per minute; while calls
made to China, Malaysia, Singapore, South Korea
and Taiwan cost only Php5 per minute. Calls to other
destinations are pegged at Php8 pesos per minute.
Aside form these, there are other special promos that
offer even better rates.

PLDT is also using its broadband Internet services
to provide the families of Filipinos overseas low-cost
alternatives for communicating with their relatives.
For instance, PLDT myDSL offers ID-DSL and Voice
Pad services which allow DSL subscribers to use their
broadband connection to make overseas calls using
Voice over Internet Protocol (VoIP). This is on top of
other services such as chatting and e-mail that are
widely available through various portals. The popularity
of such services has helped power the growth of PLDT’s
broadband subscriber base.

Going Mobile

Given the immense popularity of cellular phones, large
volumes of overseas calls flow through these devices.
Smart offers innovative services that enhance the value
of cell phones for overseas Filipinos and their families.
One such service is International Voice Text which rides
on the ubiquitous usage of text messaging. For the
same price of an international SMS, a person located
in the Philippines can send a 30-second voice message
to relatives abroad. If the receiving party does not have
a cell phone, the voice message can alternatively be
sent via SMS to the recepient’s e-mail address. This is
called the VoiceTXT to e-mail.

These voice text services combine the emotional
impact of the human voice with the convenience and
affordability of text messaging. Because SMS is quite
affordable, many Filipinos abroad frequently exchange
text messages with their families at home. With voice
text services, the sense of connection is even stronger.
Imagine the difference between a text message saying
“Happy Birthday!” and a voice message containing
the voices of your entire family sending their warm
greetings.

Nurturing Entrepreneurship

To complement its innovations in remittance services,
the PLDT Group is participating in various programs
aimed at helping overseas Filipinos and their families
make smarter use of their monies being sent back to
the country.

In 2006, Smart launched a program encouraging
Filipinos working abroad to set up small businesses
at home. The company jumpstarted this program by
cooperating with a Philippine government campaign
promoting entrepreneurship among Filipinos overseas.

In a business forum in Taiwan where about 130,000
Filipinos reside, officials of the labor department and
Smart met for two days with Filipinos there to discuss
investment opportunities in agribusiness, aquaculture,
franchising, and telecom services. Smart in particular
showed how returning Filipinos can set up small
businesses by selling airtime load as Smart Load
agents, setting up SmartBro Internet Cafés or serving
as Smart Padala encashment centers.

The entrepreneurship program is part of a general
campaign of Smart dubbed “Smart Pinoy.” Under this
umbrella, Smart has gathered its services and programs
that address the various needs of overseas Filipinos.
These include Smart IDD, international text and MMS,
International Roaming Service, Smart Padala and
Smart Load. It’s the Smart way of serving the Global
Pinoy.

ENTREPRENEURShIP

PLDTANNUALREPORT2006

Building businesses for

mICRO

ENTREPRENEuRS

RJ Villena was only 17 years old and an engineering sophomore at a state university in Metro
Manila when he started his “business.” Armed with Php300 and a Nokia 3210 given by his
father, he started selling Smart Load.

Like most of the 50,000 students at the Polytechnic University of the Philippines (PUP),
RJ came from a family with humble means. Despite the subsidized tuition fee of Php500 per
semester, it was still difficult to make ends meet. With his Smart Load business, he was able to
support himself and help his parents financially. “I also had extra to buy clothes,” he added.

When she returned home after several years of working abroad, Elisa Sumaylo of Pasig City wanted
to invest her savings in a small business. For a start, she set up a “mami” (noodle) stall.

Then she learned about PLDT myDSL’s ICafé Plus through which one can put up an Internet
café as a small business. She started out with five PCs and now has 12 units for rent. Her
Internet café sits side by side her “mami” stall, separated only by a sliding door.

Alternative Income

Both PLDT and Smart have not only made a difference in the way Filipinos communicate. Through
its various packages designed for micro-entrepreneurs—students, OFW families and aspiring
entrepreneurs—PLDT and Smart are also offering Filipinos alternative sources of income.

These packages range in scale from micro-enterprise to
small business to franchise medium-scale enterprise.

In the mountains of Cordillera…

The PLDT myDSL ICafé Plus, for example, addresses
the needs of those who want to set up a small business.
It is the first low-cost Internet café franchise in the
country. Packages start at a low of Php200,000 for a
minimum of five desktop computers, which are already
networked for online gaming and Internet surfing. The
package includes a Microsoft OS, software and online
games, a billing system, merchandising materials,
franchise training, after sales support and maintenance,
as well as additional sources of revenue such as Smart
Load and e-learning.

“Through PLDT myDSL ICafé Plus, many Filipinos may
not need to seek jobs in other countries because they
can become entrepreneurs here,” said PLDT Retail
Business Group Head Menardo G. Jimenez, Jr.

Smaller in scale but far more numerous are the
micro-entrepreneurs selling Smart Load. Launched in
May 2003, Smart Load enables prepaid subscribers
to purchase top ups electronically, over-the-air, in
“sachets” or micro-denominations of Php30, Php60,
and Php115. The retailers use special SIMs on their
cell phones to transfer loads to buyers.

There are currently over 800,000 Smart Load retailers
nationwide.

Smart has complemented the Smart Load business
package with its own Internet café package using its
wireless broadband service, SmartBro. Compared to the
PLDT myDSL version, the SmartBro offer is a smaller
package consisting of one to three PCs.

initiatives, PLDT and Smart,

in
Through these
partnership with small and micro- entrepreneurs, are
performing a vital service by providing more Filipinos,
even those in remote towns and barangays, affordable
Internet access.

Up north in Sagada, Mountain Province, a tourist haven
on Cordillera mountain known for its remote caves, a
10-year-old roadside carinderia (eatery) prominently
displays Smart Load posters along with its delicacies.
Its owner, Cordilleran Harbeth Dapuyan, is not only
famous for her native specialty pinikpikan, but also for
her thriving Smart Load business.

Harbeth recently set up her own SmartBro Computer
Station. A greenhorn in the use of Internet and the
computer, she started learning from her sister and from
customers who were using her SmartBro Computer
Station.

… to the Bondoc Peninsula

The Bondoc Peninsula in Quezon province got its first
taste of the Internet when Smart opened a mobile
Internet café in the town of Catanauan. A third-class
municipality in the southernmost part of Quezon
province, the nearest Internet café in Catanuan is three
hours away, in Lucena City.

Called Smart Click, the mobile Internet café is housed
in a 40-foot air-conditioned container van, equipped
with 15 rentable computers. (It can also be installed in
a small commercial space.)

Town Mayor Sebastian Serrano said that with high-
speed Internet connection, they will be able to update
the town’s website more often. “I hope we can really
develop our homepage and eventually make Catanauan
known to more people all over the Philippines and the
world.”

Smart Click serves as a one-stop digital shop in places
with limited or no provisions for high-speed Internet and
other related computer and desktop publishing services
that include sending, printing and scanning of documents
and photos, saving documents in CDs, among others.
Internet connectivity is provided via SmartBro.

Under this scheme, entrepreneurs in the provinces
have an opportunity to set up a medium-sized business
through a franchise. Though the total equipment
costs can reach up to Php2.0 million, the intial outlay
of a Smart Click franchise holder is in the range of
Php200,000 to Php300,000 only.

Smart started the roll out of Smart Click branches
in April 2006 in Ayala, Zamboanga. It now has 25
branches mostly located in the countryside and
operated by franchisees nationwide.

-csrcorporate social responsibility

PLDTANNUALREPORT2006

Enabling Communities

Whether it was bringing the Internet to a public high school in the remote
island of Bantayan, Cebu, or completing a Gawad Kalinga village in the former
rebel enclave in Camp Abubakar, Maguindanao, PLDT, Smart and the PLDT-
Smart Foundation have taken the innovative path in “giving back” to the
communities that the Group serves.

Broadbanding Education

In 2006, Smart expanded its Smart Schools Program
to cover 100 public high schools nationwide—from
as far as Basco, Batanes, in the north to Bongao,
Tawi-Tawi in the south. Through this program, Smart
provides broadband Internet connections for these
schools and trains teachers on how to use computers
and the Internet as learning resources. So far, over
5,000 teachers have received basic computer literacy
training.

Meantime, PLDT revved up its Infoteach Outreach
Program, which gives free basic computer training
to students and teachers. PLDT partnered with the
Asian College of Science and Technology (ACSAT) and
ePLDT subsidiary, Digital Paradise, Inc., so that ACSAT
instructors could hold training sessions in Netopia
Internet Cafés near the participating schools. In 2006,
814 students and teachers from 33 schools nationwide
attended the free seminars.

The Smart Wireless Engineering Education Program
(SWEEP), meanwhile, has set up wireless laboratories
for electronics and communications engineering (ECE)
students in 40 colleges and universities nationwide.
Over 4,000 faculty and students have gone through
various training programs of SWEEP since its launch
in March 2003.

SWEEP also successfully staged its 2nd Innovation and
Excellence Awards which is designed to encourage
ECE students and faculty to come up with innovative
wireless applications designed to assist schools and
communities.

Complementing this is PLDT’s Innovation Laboratory
(Innolab) in Manila and Cebu, which provides students
and faculty facilities to conduct research on new
communications technologies. Some universities such
as the Ateneo de Manila have set up research programs
that tap the technical resources of Innolab.

The PLDT-Smart Foundation,
the MVP
Academic Excellence Awards and PLDT Foundation
Employees Educational Grant, also granted scholarships
to deserving children of rank and file and supervisory
employees.

through

It is currently working on five major initiatives: a
program for juvenile delinquents; disaster management;
microfinance for the poor; sports development; and
Gabay Guro (Teacher Guide), a technology skills
development program for teachers together with the
PLDT Managers’ Club, Inc.

Enabling Communities—from Beneficiary to
Benefactor

PLDT, Smart and
the PLDT-Smart Foundation
continued to be active partners of the Gawad Kalinga
(GK) Foundation, a non-government organization with
a grand vision—to help eradicate poverty in the
Philippines by building 700,000 homes in 7,000
communities in seven years or by 2010.

Since the partnership started in 2004, PLDT, Smart
and the PLDT-Smart Foundation have adopted seven
PLDT-Smart Amazing GK Villages nationwide, each
with 100 houses and a community center.

The beneficiaries—mostly farmers and fishermen of
Brgy. Banglos—were trained to become wood sculptors.
Now organized as a cooperative, the Banglos Sculptors
have staged several successful exhibits of their works—
fashioned from logs that destroyed their homes in the
floods of December 2004. Over the past two years, they
have sold well over Php1 million worth of artworks.

The Banglos Sculptors now regularly donate a portion of
their sales to a village fund. They have also contributed
to the livelihood programs of the other PLDT-Smart
Amazing GK Villages such as the one in Bgy. Budlaan,
Cebu City. The group has started to train residents in
the art of woodcarving using driftwood.

Residents of the PLDT-Smart Amazing GK Village in
Cebu, meanwhile, have learned how to make designer
bags using strips of newspaper weaved together,
painted with unique designs and lively colors. The
group who attended the training will then teach their
fellow residents the skill they have acquired.

In the PLDT-Smart Amazing GK Village-Iloilo, the
women have attended dressmaking lessons while the
men have taken carpentry and electrical lessons at the
Western Visayas College of Science and Technology,
a SWEEP partner school. In the Baseco Compound,

Testing donated computers
in Catmon.

Distributing free medicines in Cagayan.

Helping victims of
typhoon Reming.

Providing basic necessities to
typhoon victims in Bicol.

On top of funding the construction of GK villages, the
Group has also mobilized volunteer employees to help
build homes. Since 2004, more than 1,000 PLDT
and Smart employees in Metro Manila, South Luzon,
Iloilo, and Cebu have worked alongside beneficiaries—
pouring cement, shoveling, digging
foundations,
putting up hollow blocks, painting—in the PLDT-Smart
Amazing GK Villages in Baseco, General Nakar, Cebu
and Iloilo.

In 2006, the Group devoted more efforts to helping
GK villages develop alternative sources of livelihood.
The Smart Amazing GK Village in General Nakar, for
example, has been cited by the GK Foundation as a
model GK village chiefly because of its novel livelihood
program.

residents have attended urban gardening lessons.
Cabinet-making lessons using palo tsina are also being
planned.

Grassroots Entrepreneurship

In 2006, PLDT promoted entrepreneurship not only
through its community service programs but also
through its regular sales efforts.

Both PLDT myDSL and SmartBro, the broadband
services of PLDT and Smart, started to offer in 2006
business packages that provide personal computers
and internet connectivity for setting up small Internet
cafés. These packages were initially offered to existing

PLDTANNUALREPORT2006
PLDTANNUALREPORT2006

dealers of Smart and PLDT products and services, who
now number over 800,000 all over the country.

PLDT continued to conduct livelihood seminars through
the PLDT Livelihood Program-Parents Teachers and
Community Association; Pangkabuhayang Likas, Dunong
at Talento; Kaanak at Kaibigan Kabuhayan (KKK)
Program and Smart Entrepreneurship Program (SEP).

PLDT’s Pangkabuhayang Likas, Dunong at Talento,
launched in 2005, provides a five-day training program
on cellular phone repair, the Smart Load business, and
basic cosmetology. The KKK Program, meanwhile,
gives relatives and friends of PLDT employees the
opportunity to earn commissions from selling PLDT’s
products and services.

Launched in July 2004, SEP offers free seminars on
entrepreneurship to college students and alumni of
universities and colleges nationwide. In 2006, it was
reoriented to support the offering of SmartBro Internet
Café packages.

Support in Times of Emergency

PLDT and Smart set up free call and Internet stations
for residents, media organizations, and rescue agencies

batingaws or warning bells made from recycled oxygen
tanks to warn residents in the event of flashfloods,
volcano eruptions or other calamities.

Smart donated over 200 batingaws which were
installed in the municipalities of Real, General Nakar
and Infanta in Quezon province; the towns around
Mt. Bulusan in Sorsogon; and the provinces of Leyte,
Surigao del Norte and Surigao del Sur. These were
done in partnership with the Philippine Institute of
Volcanology and Seismology, provincial governments,
and the Save the Children Foundation.

Medical and Dental Missions

As part of its community service programs, PLDT
continued to conduct medical and dental missions
in remote areas lacking medical and health facilities.
In 2006, such missions brought doctors to seven
barangays, benefiting more than 3,000 individuals.

In 2006, PLDT Medical and Dental Mission teams were
dispatched to Sta. Ana, Cagayan province; Bontoc,
Mountain Province; Baguio City; and Benguet province
in north Luzon; Biñan and Cabuyao towns in Laguna
province in south Luzon; and Catmon Elementary
School in Malabon, Metro Manila.

Tree planting in Gen. Nakar, Quezon.

Making works of art from driftwood.

Earning a living through sculpture in
Gen. Nakar, Quezon.

in the areas battered by typhoons Paeng, Milenyo and
Reming. After a mudslide buried one barangay in
Guinsaugon, Southern Leyte, Smart set up a Libreng
Tawag Station at the municipal hall of St. Bernard,
offering free calls and broadband Internet access. When
Filipinos were repatriated from war-torn Lebanon, PLDT
and Smart also set up free calling stations at the offices
of the Overseas Workers Welfare Administration.

Aside from disaster response activities, the PLDT
Group was also involved in disaster preparedness
programs in partnership with government and private
agencies. Smart set up emergency warning systems
in several calamity-prone municipalities in 2006. The
community-based early warning systems combined
radios and cellular phones with traditional tools such as

Employees also raised funds for cervical cancer
patients, typhoon victims, children with harelip, old
people in nursing homes, persons with disabilities,
street children, among others. In several cases, PLDT
and Smart matched the employees’ donations.

PLDT and Smart continued their involvement in various
tree planting projects. Trees were planted on the slopes
of Mt. Pagturao in Bontoc, Mountain Province in the
north, the banks of Marikina River and the La Mesa
watershed in Metro Manila, and Mt. Abong-Abong
Park in Zamboanga in the south – with over 11,000
seedlings and 31,000 propagules planted in 20 sites.

cgcorporate governance

Take the lead.

Guide others.

Earn trust.

Set the standard.

Corporate Governance: A Way of Life

In 2006, significant progress was made in establishing good corporate
governance policies and practices in the PLDT Group.

Commitment to Good Corporate Governance

It starts

withme. The Chairman of

the
Board proclaimed it, and every employee now repeats
the same line. Good corporate governance in PLDT goes
beyond slogans and certification reports. It is a way of
corporate life to be embedded in all business processes.

Such commitment started with the Board itself. To show
its dedication to corporate governance and its faithfulness
to its fiduciary, legal and ethical duties, the following
amendments to the Board structure were accomplished:

• The post of Chairman was separated from the President/

CEO.

• The Board Committees on Audit, Executive
Compensation, Governance and Nomination (GNC),
Finance, and Advisory were created. Corollary to this
was the adoption of respective Committee Charters for
Audit, Executive Compensation, GNC and Finance.
• The number of Independent Directors was increased to
more than the minimum number required by Philippine
regulators.

These early initiatives were richly advanced in 2006.

Board Self-Assessment of Performance

In the early part of the year, the Board approved an annual
performance evaluation process to determine whether it,
its committees and its members are functioning effectively.
Each member of the Board underwent the process of a Board/
Directors’ Self Assessment Questionnaire Accomplishment.
The recommendations, which included the creation and
operation of an IT Strategy/Technology Committee, are to
be carried out in the 2007 work program.

Adoption of Corporate Governance Policies

Similarly, in the first months of 2006, the Board approved
the adoption of supplementary corporate governance policies

in addition to the fundamental corporate governance rules
implemented in preceding years such as the PLDT Manual
on Corporate Governance1, Code of Business Conduct and
Ethics2, and Conflict of Interest Policy.

The Company now observes the following:

• Policy on Gifts, Entertainment and Sponsored Travel

– approved on January 31, 2006.

• Supplier/Contractor Relations Policy – approved on

January 31, 2006.

• Administrative Order on the Handling of Employee
Disclosures and Complaints Regarding Violations of the
Corporate Governance Rules, Questionable Accounting or
Auditing Matters, and Offenses covered by the Company’s
Table of Penalties (Expanded Whistleblowing Policy)
– approved on May 9, 2006.

In addition, the structures and rules on Officer Discipline
were created by virtue of an Administrative Order on May
9, 2006.

Compliance and Regulation

Due to its ownership structure and its simultaneous listing
in the New York Stock Exchange (NYSE), the Company
is governed by several corporate governance regulations
including that of the Philippine Securities and Exchange
Commission (PSEC)/Philippine Stock Exchange (PSE)
and the New York Stock Exchange.

Philippine Code of Corporate Governance. In the Philippines,
the Company submitted the Annual Evaluation by the
President/CEO, Treasurer and Chief Financial Officer
and SVP-Chief Governance Officer of the Company’s
compliance with the Manual on Corporate Governance
(for 2005), and the Certification by the Chief Governance
Officer to the PSEC and PSE on January 27 and 30,
2006, respectively.

This can be viewed at http://www.pldt.com.ph/download/pldt-
corpgov_manual.pdf or http://www.pldt.com.ph/cgov/downloads/pldt-
corpgov_manual.pdf.
This can be viewed at http://www.pldt.com.ph/download/pldt-
code_ethics.pdf or http://www.pldt.com.ph/cgov/downloads/
Code%20of%20Ethics(BD_APPRVD)-03.30.04.pdf.

Upon conducting the aforementioned Annual Evaluation
for 2006, the Certification by the Chief Governance
Officer of the Company’s compliance with the Manual on
Corporate Governance was filed with the PSEC and PSE
on January 24 and 26, 2007, respectively.

U.S. Sarbanes-Oxley Act (SOX). The Company has an ongoing
Sarbanes-Oxley Act Compliance Project. Under this Project,
the following has been accomplished in 2006:

Development and implementation of the Corporate
Governance (CG) Communication Plan, which aimed to
inform all employees on the CG rules and policies, and
enable their deepened understanding of such through the
following:

• Company-wide orientation training was conducted;
• Corporate governance content on the corporate
website and intranet has been made available
and accessible through the corporate governance
sub-site: www.pldt.com.ph/cgov;

• CG Posters for 2006 carried the theme “Tread the
Right Path (Tahakin)” featuring the four CG principles:
Accountability, Integrity, Fairness and Transparency; and
• The CG e-newsletter, “Ripples,” has been distributed
monthly through e-mail broadcast since August. All
issues are also available on the website.

Accomplishment of the Management’s Self-Assessment
and Sub-Certification as support to the annual internal
control report that must be certified by the CEO and CFO
starting 2006.

Installation and operation of the Expanded Whistle
Blowing (EWB) Hotline and other reporting facilities,
such as dedicated electronic mail box, post office box,
and facsimile transmission.

Hongkong Stock Exchange (HKEx). First Pacific Company
Limited (FPC) is listed under the HKEx. The Company,
being a material affiliate of FPC also complies with HK
governance requirements. In 2006, the evaluation of the
effectiveness of the Company’s internal control and risk
management system was done and reported to FPC in
compliance with HKEx requirements.

Moving Beyond Compliance

Adoption of CG among significant PLDT Subsidiaries.
PLDT Subsidiaries Smart, ePLDT and PLDT Global
Corporation have each adopted their Code of Business
Conduct and Ethics, and CG rules, and appointed their
respective Corporate Governance Officers. Details of Related
Party Transactions within the PLDT Group are contained in
the Financial Report section.

Membership
the Ethics and Compliance Officer
Association (ECOA). PLDT is the first Philippine company
to be a member of the largest international association of
corporate ethics and compliance officers. The Company’s
Chief Governance Officer has been elected as one of the
Directors of the Association, with his term starting in
2007.

PLDTANNUALREPORT2006
PLDTANNUALREPORT2006

Enterprise Risk Management

Our group-wide enterprise risk management framework,
which became effective on April 1, 2006, has enhanced
our existing risk management approach by establishing an
Enterprise Risk Management Committee (ERMC). Under
the framework, risks are identified, measured and responded
to in a manner consistent with the best interests of the PLDT
Group. The degree of response to risks shall be based on
the likelihood of occurrence and the potential financial and
operational impact as compared to the cost and potential
consequences of the planned response. Every company or
unit and every officer and executive are responsible for the
identification and management of risks pertaining to their
respective areas of responsibility.

The ERMC acts as the monitoring body for the individual risk
management activities of the different units within the PLDT
Group. As the strategic body responsible for developing and
managing a comprehensive integrated risk management
plan, the ERMC has the responsibility of responding to
externally imposed regulatory guidelines concerning risk
identification, disclosure, management, and monitoring. The
ERMC is also mandated to advise the appropriate authorities
of the PLDT Group on risk concerns pertaining to any of the
companies within the PLDT Group.

In 2006, the ERMC conducted its annual internal and
external risk assessment and validation activity involving the
business and support units within the PLDT Group. Major
risk concerns and appropriate mitigating measures were
accordingly presented to the Executive Committee and to the
Audit Committee, and eventually to the PLDT Board during
the annual budget presentation.

Towards Embedding

The CG framework of PLDT involves three development
phases: Compliance, Competency, and Character/Culture.
Now that compliance structures and facilities are in place,
the Company is focused on building competencies and
commitment among its personnel so that ethical values
and practices become embedded and ingrained within
the Company. The end-view is the emergence of a strong
ethical corporate character distinctly PLDT.

For 2007, the battle cry of corporate governance in PLDT
is “embedding.”

The CG posters that are being periodically released
in 2007 take on ethical leadership as a theme – also
annotating the movement from learning the CG principles
in 2006 to translating these into action by 2007.
Approved by a series of focus group discussions with the
executives and staff in 2006, the 2007 posters are also
known as the “fish series” following an observed behavior
of schools of fish. True to the words first pronounced by
the Chairman, PLDT corporate governance starts with any
personnel who by his own right can be the leader in doing
business ethically and legally well.

theboard

OF DIRECTORS

ESPINOSA

DEE

KONO

PANGILINAN

NAZARENO

BOARD OF DIRECTORS
Manuel V. Pangilinan, Chairman of the Board
Napoleon L. Nazareno, President and CEO
Helen Y. Dee
Ray C. Espinosa
Tsuyoshi Kawashima
Tatsu Kono
Rev. Fr. Bienvenido F. Nebres, S.J.*
Corazon S. de la Paz
Ma. Lourdes C. Rausa-Chan1
Oscar S. Reyes*
Albert F. Del Rosario
Pedro E. Roxas*
Alfred V. Ty*

1 Elected March 6, 2007
* Independent Director

KAWASHIMA

NEBRES

ROXAS

REYES

PLDTANNUALREPORT2006

SANTOSO

BAGATSING

DE LA PAZ

RAUSA-CHAN

YOUNG

ROMULO

Executive Compensation
Committee
Albert F. del Rosario, Chairman
Oscar S. Reyes, Member
Pedro E. Roxas, Member
Alfred V. Ty, Member
Tsuyoshi Kawashima, Member
Victorico P. Vargas, Non-voting Member

ZARATE

Finance Committee
Corazon S. de la Paz, Chairman
Alfred V. Ty, Member
Amado S. Bagatsing, Member
Christopher H. Young, Member
Tsuyoshi Kawashima, Advisor
Tatsu Kono, Advisor

DEL ROSARIO

Advisory Board/Committee
Amado S. Bagatsing
Roberto R. Romulo
Benny S. Santoso
Christopher H. Young
Ricardo R. Zarate

Audit Committee
Rev. Fr. Bienvenido F. Nebres, S.J., Chairman
Oscar S. Reyes, Member
Pedro E. Roxas, Member
Corazon S. de la Paz, Advisor
Roberto R. Romulo, Advisor
Tsuyoshi Kawashima, Advisor
Tatsu Kono, Advisor

Governance and Nomination
Committee
Manuel V. Pangilinan, Chairman
Tatsu Kono, Member
Rev. Fr. Bienvenido F. Nebres, S.J., Member
Oscar S. Reyes, Member
Alfred V. Ty, Member
Rene G. Bañez, Non-voting Member
Victorico P. Vargas, Non-voting Member

officers

Napoleon L. Nazareno
President and CEO

Ernesto R. Alberto
Senior Vice President

René G. Bañez
Senior Vice President

Anabelle L. Chua
Senior Vice President

Jun R. Florencio
Senior Vice President

Menardo G. Jimenez Jr.
Senior Vice President

George N. Lim
Senior Vice President

Rosalie R. Montenegro
Senior Vice President

Alfredo S. Panlilio
Senior Vice President

Claro Carmelo P. Ramirez
Senior Vice President

Ma. Lourdes C. Rausa-Chan
Senior Vice President

Victorico P. Vargas
Senior Vice President

Alfredo B. Carrera
First Vice President

Celso T. Dimarucut
First Vice President

Cesar M. Enriquez
First Vice President

Richard N. Ferrer
First Vice President

Eriberto B. Gesalta
First Vice President

Ramon Alger P. Obias
First Vice President

Leo I. Posadas1
First Vice President

Nerissa S. Ramos
First Vice President

Raymond S. Relucio
First Vice President

Ramon B. Rivera, Jr.
First Vice President

Ricardo M. Sison
First Vice President

Emiliano R. Tanchico
First Vice President

Miguela F. Villanueva
First Vice President

Florentino D. Mabasa, Jr.
First Vice President

Jose A. Apelo
Vice President

PLDT Senior Executives (from left): Eriberto B. Gesalta, Miguela F. Villanueva, Victorico P. Vargas, Florentino D. Mabasa, Jr., Christopher H. Young,
Ma. Lourdes C. Rausa-Chan, René G. Bañez, Anabelle L. Chua, Jun R. Florencio, George N. Lim, Nerissa S. Ramos, Ramon Alger P. Obias

Smart Executive Committee (from left): Rogelio V. Quevedo, Danilo J. Mojica, Don J. Rae,
Anabelle L. Chua, Rolando G. Peña, Ramon S. Fernandez, Claro Carmelo P. Ramirez

Anna Isabel V. Bengzon
Vice President

Arnel S. Crisostomo
Vice President

Emeraldo L. Hernandez
Vice President

Joseph Nelson M. Ladaban
Vice President

Rebecca Jeanine R. De Guzman
Vice President

Ma. Luz Natividad A. Lim
Vice President

Mario C. Encarnacion
Vice President

Alejandro C. Fabian
Vice President

June Cheryl C. Furigay
Vice President

Elisa B. Gesalta
Vice President

Ma. Josefina T. Gorres
Vice President

Ma. Criselda B. Guhit
Vice President

Emmanuel B. Ocumen
Vice President

Oliver Carlos G. Odulio2
Vice President

Roberto G. Pador
Vice President

Lilibeth F. Pasa
Vice President

Enrique S. Pascual, Jr.
Vice President

Jose Lauro G. Pelayo
Vice President

PLDTANNUALREPORT2006

Gerardo C. Peña
Vice President

Ricardo C. Rodriguez
Vice President

Genaro C. Sanchez
Vice President

Ana Maria A. Sotto2
Vice President

Julieta S. Tañeca2
Vice President

Jesus M. Tañedo
Vice President

Jose Antonio T. Valdez
Vice President

Melissa V. Vergel De Dios2
Vice President

1 Promoted to First Vice President
effective March 6, 2007.
2 Promoted to Vice President
effective March 6, 2007.

PLDT Senior Executives (from left): Cesar M. Enriquez, Emiliano R. Tanchico, Raymond S. Relucio, Claro Carmelo P. Ramirez, Alfredo S. Panlilio,
Ernesto R. Alberto, Richard N. Ferrer, Rosalie R. Montenegro, Menardo G. Jimenez, Jr., Ramon B. Rivera, Jr., Ricardo M. Sison, Alfredo B. Carrera

ePLDT Executive Committee (from left): Celso T. Dimarucut, George H. Tan, Helen T. Marquez,
Ray C. Espinosa, Rosalie R. Montenegro, Ernest L. Cu

2006 PLDT

Group Significant Events

OPERATIONAL MILESTONES

FIXED LINE

in setting up five and above computers for
an Internet café, selling load and E-Review
cards to help students review for courses like
college entrance and nursing exams.

PLDT WeRoam introduces a prepaid option
and bundled laptops (Lenovo, HP, Acer,
among others) on easy payment schemes
in partnership with PC vendors across the
country. With this WeRoam prepaid offering,
more and more enterprises can now equip
their road warriors with mobile productivity
tool without worrying about their budget.

PLDT introduces Shops.work Unplugged
(SWUP) the country’s first wireless Virtual
Private Network
for
terminals,
retailers’ Point-of-Sale
banks’ ATM machines for back-up or remote
connections, and merchants’ wireless swipe
card terminals.

(VPN) connection
(POS)

PLDT offers PLDT WeRoam Plus, which now
offers higher speeds through the use of the
unmatched 3G/HSDPA coverage of Smart.
With 3G/HSDPA base stations complementing
PLDT WeRoam’s nationwide GPRS/EDGE
and WiFi network, laptop-carrying individuals
may now enjoy broadband speeds to access
their private LAN or the Internet in more
parts of the archipelago.

The PLDT Domestic Fiber Optic Network
(DFON) Baguio Loop becomes operational,
providing Baguio City its first fiber optic
cable transport connectivity. The DFON
in Baguio has a capacity of 10 gigabit per
second of transmission bandwidth that
can accommodate 120,960 simultaneous
calls at any given time – more than enough
to support the city’s increasing demand
for higher-capacity voice, data, and video
services.

PLDT launches its new world-class fiber optic
network called the PLDT Next Generation
Network (PLDT NxGN). With this new
technology, PLDT NxGN subscribers can now
enjoy unprecedented broadband Internet
speed and allow for faster provisioning,
installation and repairs of voice, wireless and
data networks. PLDT NxGN also paves the
way for future services such as Broadband
TV and Internet Protocol Voice Services,
among others.

Pwede! Card, the country’s first PIN-based
reloadable all-in-one card is launched to
address the ever changing communication
needs of Filipinos. Pwede! Card can do
both voice (i.e., local calls, NDD, IDD and
cellular) and data (dial-up Internet) from any
PLDT or Smart access device, whether it be
PLDT postpaid or prepaid landlines, Smart
or Talk ‘N Text cellular phones or PLDT and
Smart payphones.

PLDT offers PLDT myDSL Biz Internet
Café Plus—the first low cost Internet café
franchise solution in the country, selling
for only Php35,000 per PC. It specializes

WIRELESS

Smart introduces Smart 3G/HSDPA to offer
not only local and international video calling,
but also content that includes real-time
video streaming of TV shows and downloads
of movie trailers, music videos, animé,
vacation spots and real-time traffic videos in
major thoroughfares in key cities.

Smart Click Internet Café and more is
launched in Basco, Batanes. Smart Click
serves as a neighborhood one-stop digital
shop in places with limited or no provisions
for high-speed Internet and other related
computer and desktop publishing services.

Smart unveils SmartBro, the new brand
for Smart’s wireless broadband offering,
marking a move from its earlier Smart WiFi
brand. The launch of SmartBro underscores
the strategy of the PLDT group to provide
its customers with the widest range of
broadband
and
establish its leadership in the broadband
market nationwide.

connectivity

solutions

ICT

ePLDT completes its acquisition of SPi,
a leading business process outsourcing
company, for US$158.8 million inclusive
of debt. The acquisition is considered a
strategic move that will place the PLDT
Group at the forefront of the fast growing
BPO industry.

SPi acquires Cymed for US$35 million.
Acquisition positions SPi as the third largest
company in the US medical transcription
(MT) industry. CyMed provides MT services
for more than 400 healthcare systems
across 49 states (all but Alaska) and has
been recognized by numerous
industry
and community associations for business
operations and profitable growth.

ePLDT announces its majority acquisition of
Level Up! (Philippines), Inc. (Level Up!).
This facilitates the merger of the two leading
online game publishers in the country, Level
Up! and netGames, Inc. thus forging the
dominance of the Philippine online gaming
market.

ePLDT Ventus Libertad commence commercial
operations in Libertad, Mandaluyong City,
thus, bringing total call center site count to
seven and total seat count to 5,600.

CORPORATE AFFAIRS

Total dividend payments for 2006 increased
by 53% to Php18.8 billion from Php12.3
billion in 2005.

AWARDS AND RECOGNITION

FinanceAsia, a leading finance magazine in
Asia, awards PLDT as the “Best-Managed
Company” in the country for the third
straight year. It also awarded PLDT for being
the “Best in Investor Relations” for the fifth
consecutive year.

Telecom Asia, a regional industry publication,
recognizes PLDT as the Best Emerging
Market Carrier for the second straight year.

leading

another

Asiamoney,
finance
magazine, ranks PLDT No. 1 among Asian
telecom companies based on
recently
reported figures on return on equity. PLDT
is the only Filipino company in the list. In
the same issue, PLDT Chairman Manuel
V. Pangilinan was recognized as one of the
most powerful and influential people in the
Asia Pacific for the year 2006. Pangilinan
ranked 86th.

Forbes Asia, the regional arm of Forbes
magazine, lists PLDT in the Forbes Asia’s
Fabulous 50, the magazine’s second annual
list representing Asia-Pacific’s best publicly-
traded companies with revenues and market
capitalization of at least US$5 billion. PLDT
is the only Filipino company in the list.

international

finance
Euromoney,
magazine, cites PLDT as the “Best-Managed
Company in Asia” in its 2006 polls. PLDT
topped a field of 223 major Asian companies
nominated by 49 financial institutions and
analysts worldwide. Aside from that, PLDT
was also recognized with four more best-in
category awards: Best Fixed Line Company
in Asia, Best Cellular Company in Asia,
Most Convincing and Coherent Strategy –
Philippines, and Most Transparent Account
in Asia.

The Wall Street Journal Asia, a respected
regional newspaper, ranks PLDT No. 7 in
the most admired list in its Asia 200 reader
survey of companies in the Philippines.
PLDT was also top 5 for long-term vision and
top 5 for innovation. The Asia 200 is a list of
the 200 most admired companies in Asia.

Netopia is awarded the 2005 Outstanding
Filipino Franchise – Service Category by
Philippine Franchise Association
and
Department of Trade and Industry during the
Franchise Excellence Awards.

Smart Load becomes a finalist in the
the
Stockholm Challenge 2006 under
Economic Development
in
category
Stockholm, Sweden. Smart Load was
recognized for having changed the way
people top up, from the conventional
reload cards to electronic, over-the-air,
and for giving more than 800,000 micro-
entrepreneurs a lucrative business. The
Stockholm Challenge is a pioneer among ICT
awards and networking organizations.