Earnings Call Transcript - PHI Q1 2020

Operator, Operator

Good afternoon, and thank you for joining us today to discuss the company's financial and operating results for the first quarter of 2020. A copy of today's presentation is available on our website. If you haven't done so yet, you can download a copy of the presentation from www.pldt.com in the Investor Relations section. Joining us for today's presentation are Mr. Manny Pangilinan, Chairman and CEO; Mr. Al Panlilio, Chief Revenue Officer; Ms. Anabelle Lim Chua, Chief Finance Officer; Ray Espinosa, Special Assistant to the CEO; along with members of the PLDT management team. Before we begin the presentation, we'd like to remind everyone that during the Q&A session, you will need to type in your questions, which we will read out loud. Now, I will hand the presentation over to Ms. Anabelle Chua to start the presentation.

Anabelle Lim Chua, CFO

Good afternoon everyone. Welcome today to PLDT's first quarter 2020 results briefing via Microsoft Teams. I hope everybody can see the slides that are being flashed on the screen. Let me start by saying that we saw the continued growth momentum from 2019 in the first quarter of 2020, with limited impact from the enhanced community quarantine or ECQ which took effect only towards the tail end of the first quarter. Our service revenues rose by 9% to PHP 41.5 billion in the first quarter, a new high in quarterly revenues. This increase was primarily driven by data and broadband services. The consumer individual business group once more set the pace for growth, posting PHP 20.2 billion in revenues, 20% up from the first quarter of 2019. PLDT Enterprise generated PHP 10.1 billion in revenues, 3% higher than the previous year, while PLDT Home increased its revenues by 5% to PHP 9.6 billion. The consumer and enterprise business groups combined grew by 11% to generate PHP 39.9 billion of service revenues, 96% of the total. To make up the balance, the international and carrier business group posted PHP 1.6 billion of service revenues, which are 25% lower than the prior year. Next slide. With the 9% increase in our service revenues, our EBITDA increased 8% to PHP 21.6 billion in Q1 2020, as the increase in our revenues more than compensated for the increases in our operating expenses. EBITDA margin remained at a healthy 52%. Our first quarter telco core income is PHP 6.9 billion, lower by 5% year-on-year as the rise in EBITDA was offset by higher depreciation and financing costs, resulting from higher capital expenditures, the offshoot of the PLDT group's sustained network rollout program. Next slide. Viewed from the vantage point of the last three years, we've seen our service revenues climb each year and at an accelerated rate of growth. Notwithstanding the onset of COVID-19 and the government imposition of the ECQ starting in the second half of March, the first quarter 2020 service revenues surpassed our fourth quarter revenues and represented a historic high for the company. Next slide please. The achievement of such record high of PHP 41.5 billion in service revenues in the first quarter was underpinned mainly by the rise in data revenues, which now account for 71% of our revenues versus a 45% contribution back in the first quarter of 2017. Moving on to the next slide please. The 9% revenue growth in the first quarter of 2020 reflects the continued importance of data revenues which have become the key driver of top-line growth, offsetting the impact of declining legacy revenues from voice and SMS. In Q1, data services maintained its upward momentum with a year-on-year growth of 19%. The share of data revenues out of total revenues has risen to 71%. In particular, mobile Internet revenues jumped nearly 40% versus the level a year ago. Mobile data usage continued to be driven by customer demand for video services, social media, mobile games, and other services delivered to subscribers through our various GIGA load packages. About 71% of the handsets being used by mobile phone customers today are smartphones. Home broadband posted a 9% increase in revenues, with improved installations of fixed and fixed wireless broadband connections. Corporate data is up 2% and data center revenues are up by 6%. Moving on to the next slide. We show how our EBITDA and telco core income has changed from the prior year. Our EBITDA increased 8% or PHP 1.6 billion from PHP 20.1 billion in 2019 to PHP 21.6 billion in the first quarter of 2020 as the increase in our service revenues of PHP 3.5 billion fully absorbed the rise in cash OpEx and subsidies of about PHP 2 billion. EBITDA margin remained at 52%. Looking at the bottom half of the chart, our first quarter telco core income is lower by PHP 0.3 billion year-on-year because higher depreciation and financing costs resulting from higher CapEx offset the PHP 1.6 billion increase in EBITDA. Next slide please. When viewed against the quarterly EBITDA results over the last two years, our PHP 21.6 billion EBITDA in the first quarter is the highest for a quarter, other than the EBITDA in the fourth quarter of last year. It's also higher than the average quarterly EBITDA of PHP 20.8 billion registered last year. Next slide please. Our telco core income of PHP 6.9 billion, while lower than last year's first quarter earnings is still ahead of the average quarterly telco core income of PHP 6.8 billion last year. In light of uncertainties surrounding the impact of COVID-19, we have not provided earnings guidance for the year. Next slide. The next slide shows our statutory reported income results. Reported income was PHP 5.9 billion, 12% lower than last year after taking into account our equity share in the results of Voyager Innovations and the reval losses on our investment in Rocket Internet shares. We're also pleased to note that Voyager has received strong support from its current shareholders to the tune of US$120 million in new investments that will meet their funding requirements. Current shareholders continue to believe in the prospects of Voyager, particularly with the good traction that's been seen during this period for digital financial services. Now moving on to the next slide, we show some balance sheet metrics. PLDT's net debt as of the end of March amounted to about US$3.4 billion, while net debt-to-EBITDA stood at 2.03 times. The gross debt of the company was US$4.05 billion with maturities well spread out and only 6.7% of which were unhedged. Fixed-rate loans accounted for 84% of our total debt, and our average interest cost of debt is 4.8%. Of our PHP46 billion planned borrowings for the year PHP30 billion has been signed and we are currently in the final documentation stage for another PHP10 billion of local-backed long-term loan facilities. We availed the PHP4 billion of short-term loans in March as during the lockdown period we have allowed an extension of payment periods of the monthly bills of our postpaid subscribers. Unpaid subscriber balances are being amortized over a six-month period. Next slide please. Our CapEx in the first quarter came in at PHP19.6 billion. While PLDT's original CapEx guidance for 2020 was PHP83 billion, we now anticipate that 20% to 25% of our CapEx budget will be deferred due to the impact of the ECQ restrictions on movement and on supply chain. Our network rollout activities have been constrained by the reduced mobility of our network teams since the ECQ was imposed. While the lifting of the restrictions is expected to be a prolonged process, we also expect that the pace for restarting our network rollout activities to be drawn out. So we do continue to prioritize projects that uphold our service quality in order to support our customers and the public for their business and social activities under these new conditions. The imposition of ECQ also compelled people at home to turn to Internet and online collaboration tools in order to work and study from home. Our network has held up pretty well with a surge in data traffic of about 20% and the shift of data traffic from offices to homes with the rapid move to work from home. In April 2020, we reallocated 2G assigned frequencies and 1800 megahertz from 2G to 4G thus further increasing the mobile data capacity of Smart's network. Now the next slide, we show here some selected highlights of our network. So in the first quarter of 2020 PLDT and Smart continued our efforts to expand and modernize our fixed and mobile network. As of the end of March PLDT increased, the coverage of our fixed network to pass 7.5 million homes, 4% more than what we had at the end of 2019. We have a build capacity of 3.6 million fixed broadband ports available to serve those working or studying at home. In the same period, the total footprint of PLDT's fiber optic network expanded by 5% to about 338,500 kilometers of fiber cables. We also are pleased to note that PLDT had undertaken an upgrade and modernization of our transport network and we had just completed the first phase of that transformation program in time to serve the increased requirements of data traffic during this period. For Smart, we further enhanced our mobile data coverage by adding about 1,400 new 4G-powered base stations raising the total to about 26,000. We also added about 700 base stations to get to about 14,400 3G base stations. So together, we are able to serve more than 94% of our country's population with mobile. Next slide please. We saw Smart's mobile data traffic explode compared to previous periods. Our mobile data payload grows to 634 petabytes in the first quarter of 2020, double the traffic in the first quarter of 2019 and 25% higher than the traffic at the end of last year. We continue to see a surge in traffic and we expect the demand for data services to remain high with the growing dependence on online and expected more extensive adoption of digital solutions by our customers under the new normal. As traffic grows, our network has remained resilient. The superiority of our network was validated by the latest mobile network experience report released in April by OpenSignal, which found that Smart remains ahead of competition in terms of video experience, upload and download speed experience, voice experience, games experience, and 4G availability. Now at this point, I turn over the presentation to Al Panlilio, our Chief Revenue Officer.

Al Panlilio, CRO

Hi, good afternoon. Thank you for being here today and I hope everybody is keeping safe. Again, just to highlight what Anabelle said, I think we had a very strong performance for the first quarter albeit there was a weakness in the last two weeks of March. But I think we ended the first quarter even higher than our highest quarter last year, which was the fourth quarter. So that's pretty good news for us. Again, we're delivering this to show that the company is very resilient with a lot of collaboration done internally to continue to serve our customers, and that has been our focus. So, if I may go to the next page please. During the first quarter, we continued with our programs. The 18 million full connections. I'll go deep into this in the next few charts but really making sure that we push on our wireless business, being again, as Anabelle said, the consumer side is 77% of our business there on data. Home, we continue to also provide connectivity obviously through fiber and fixed wireless. And really the focus – and Butch is here in the room with us focused on enhancing the customer experience by making sure that we're able to install quicker and repair faster as well. Enterprise has been a focus area also for us pushing fixed-line broadband and data and also wireless broadband, which has been a requirement in the tail end of the first quarter and into April, when the lockdown was in place. And again, enterprise operating solutions that are already becoming the next normal, the BCP, business continuity programs, and I think this will be part of every business's way of working now. Next page please. In the second quarter, we continued to push this. We pushed dependable connectivity when it really matters most to all our customers. For individual, wireless engaging our subscribers making sure that we're able to address their needs; focus again, more on data services, allowing our people to work from home. And solutions as I said earlier that are serving workers who are working from home. For Home, despite our initial focus on the safety of our employees and our customers, we tapered off in our connections early in the lockdown and really focused just on repairs, outside plant repairs so that we can improve service. But after Holy Week, we expect to ramp up installation and repair. With proper personal protective equipment and safety protocols, we are currently making improvements. Additionally, Home has multiple programs to meet stay-at-home needs. As a business partner, we launched a campaign called #OnewithYou to ensure we meet all your requirements, offering a new range of services based on your business type, and enabling virtual sessions like this one for our customers as they continue to operate remotely. Next page please. So, I won't go into detail here, but these are the programs that we had during COVID. As you are aware, we had our payments extended now up to May 31, and our billing that will come out in June is really your current and a balance of payment that will be divided into six equal months, so that we don't have a bill shock as far as customers are concerned. We offer a free speed boost; free data boost; discounted products and services; free access to certain government websites; news; and hotlines like DOH, DPWH, even Red Cross and also DepEd. And again, as I said earlier enhancing and continuing to improve our installation and repair, especially now that our field personnel are well equipped to take care of themselves. And also free calls that we offer to our OFWs by a freebie app that's being offered by PLDT Global. Next page please. So just to run through again these are the programs, updating and engaging customers through data with our Smart LTE fast network, which is a network that's been considered by third parties as the fastest mobile network in the Philippines. We have a program to upgrade the LTE SIMs and devices, so that more customers will be able to use data. And our major push on GIGA and GIGA Stories specifically during this period. Quarter two please forward. Next page please. And these are the things we are doing in the second quarter for Wireless Individual, a productivity made possible through digital solutions. Online has been a platform that we're focused on in this next new normal. This will be a driver of our business and we have focused on delivering a good platform online. Pushing for Smart GIGA Work and GIGA Work+ again work for home. Talk 'N Text is offering a cash-back reward for its Talk 'N Text 20th anniversary TNT Big Bente. And lastly, again, a lot of demand now. So we are relaunching Smart Bro LTE and LTE-Advanced pocket WiFi again to address the connectivity requirements of our customers. For Home, we started the year on a positive note. We are making strong efforts in fixed wireless. Our key advantage remains fiber, and we have significant fiber capacity available for our customers. This will be a primary focus, but we will also provide fixed wireless options and Smart Bro or pocket WiFi, tailoring our offerings to meet the needs of different customer segments. Next page please. Quarter two continued to support everyone working from home. We are shifting towards wireless solutions, online selling, and servicing through our online platforms. We have a stay-at-home campaign featuring fiber speed boost prepaid WiFi, double data offers, and installment payment programs. We will keep enhancing our operations to meet the increased customer demand. Moving on to Enterprise, we aim to ensure businesses can operate efficiently. Our focus is on simplifying productivity through the introduction of packages and new products, particularly in collaborative telecommunications using Meraki and Fibrbiz. As I said we ignited a campaign for SMEs #OnewithYou and making sure that we're able to help them grow, especially in this time of the pandemic. And the use of support of O365 launch that we had in the first quarter. Next page please. We will continue to push this equipping businesses for the new normal, and we are partnering with large medium and small enterprises across to be able to address their needs and requirements and to help them recover during this pandemic after the lockdown will be enhanced or relaxed in the next few weeks. So that's it. Thank you very much.

Manny Pangilinan, Chairman and CEO

I think I'm the last speaker here. So, good afternoon to all of you and thank you for joining us in this briefing. I only have three points to make in terms of conclusion. First is, on the full-year prospects, we think it is a little early for us to give you a clear view on how the full-year core income would pan out. We have indeed run scenarios internally, but we're finding out there are many variables to deal with in this context and environment some of which are unknown at this point, such as for example the quarantine period whether it will be extended and to what extent; if it's going to get lifted; the government stimulus package; credit availability from financial institutions; and overall economic conditions. I believe the government has reported out that the first quarter the economy has contracted by 0.2%. So that's where we stand regarding guidance on our telco core. The momentum observed in 2019 is continuing into 2020. For the first quarter, the combined revenues of Home Wireless and Enterprise increased by 11%, or 9% when including the international business. We anticipate that the revenue growth rate in the second quarter will slow to low single-digit percentages primarily due to the impact of the ECQ, although it will still be higher compared to last year. Therefore, looking at both the first quarter growth and the second quarter revenue forecasts, first-half revenues will surpass those of the previous year. Regarding capital expenditure, we expect it to decrease by 20% to 25% from the PHP83 billion we disclosed previously, bringing it down to approximately PHP60 billion. This reduction is not a choice on our part; it reflects current conditions, including difficulties with supply chains overseas regarding equipment shipments, local supply chain challenges, and the capacity of our workforce to perform installations and repairs in the relevant areas. We are maintaining a dividend payout policy of 60% of telco core earnings, subject to any significant changes in the economy or financial position of the company, which we do not foresee at this time.

Operator, Operator

We're now ready to take your questions. So, the first question. Would you like to clarify how much the decrease is from the planned PHP83 billion CapEx in 2020 and which business segment is affected by this decrease in CapEx and why?

Manny Pangilinan, Chairman and CEO

Can you answer the question?

Al Panlilio, CRO

On the decline in capital expenditures, could you explain which areas will be impacted by this decrease?

Manny Pangilinan, Chairman and CEO

I think Joachim.

Anabelle Lim Chua, CFO

Maybe he can get this one.

Joachim Horn, Management

Yes. Good afternoon. As mentioned, the decline in CapEx is about 20%, primarily due to our inability to spend, which is not a choice. The regular process of connecting our customers will not be significantly affected by the CapEx reduction, but is currently impacted by restricted access to certain locations due to ECQ and general quarantine. While the effects of this delay may not be felt as much this year, they could be more apparent next year. However, we also have considerable time to recuperate in the second half of this year. It is still too early to determine the exact impact on specific businesses. From a client perspective, I believe that regular operations will continue with only a minor impact. Some new projects, like 5G, may experience a few months of delays due to spending constraints.

Operator, Operator

The second question is can we get some insights on current subscriber behavior? What kind of plans are consumers subscribing?

Manny Pangilinan, Chairman and CEO

The view on subscriber base. What kind of plans are subscribers picking up?

Al Panlilio, CRO

Okay.

Anabelle Lim Chua, CFO

Well, insights on behavior.

Al Panlilio, CRO

Yes. For mobile, it's really your GIGA offers that are picking up and I think 50% to 55% of our top-ups are now coming from the GIGA traffic. Jane is also on the line so if you can also add for Home. It's fiber and fixed wireless that are growing. Both are growing and obviously connectivity at home.

Manny Pangilinan, Chairman and CEO

Yes, if I can share for Home the biggest product that exploded post-lockdown was really fixed wireless and it was good that we were able to start launching our fixed wireless product towards the end of the year. So, we were able to capitalize on that demand and that explosion. On the fiber, definitely our programs and our plans at the PHP 1,299, PHP 1,500 level is also gaining a lot of traction. But what we are foreseeing is that in post-COVID, now that we have been able to do a speed boost where our subscribers at PHP 1,299 are able to feel the impact of a 25 Mbps minimum speed, we feel that with the new normal, they are going to require this kind of speed as well and not be content with the original speed of about 10 Mbps. So, for Home these are the plans and products that are actually gaining a lot of traction. We hope to launch postpaid fixed wireless very soon. So, we feel that will be another product that is going to hit the market and have strong demand.

Jane Basas, Management

We initially faced some challenges with usage during the early stages of the ECQ due to mobility and liquidity issues. However, we have managed to overcome some of these obstacles. While top-ups in April decreased by 70%, we expect them to reach levels similar to those seen in the first quarter of 2020 this May. In fact, top-up performance is likely to surpass that of last year. This increase is mainly driven by customers purchasing more data products, which are priced higher than our legacy offerings. We've noticed that they are opting for larger denominations of 200 and above, which offer longer validity. Our focus in May will be on creating more data products that meet customer needs. Even though we saw lower activity because some customers couldn't access load regularly, our next-gen customers are spending more and buying more.

Al Panlilio, CRO

I would like to add that we experienced a strong performance in wireless top-ups during the first quarter. However, as we entered the second half of March, there was a noticeable decline, which aligns with what Jane mentioned. After Easter, specifically from Easter Monday to now, the volume has increased again and has returned to the levels we saw in the first two and a half months of this year.

Manny Pangilinan, Chairman and CEO

Pre-COVID.

Al Panlilio, CRO

So, it's been a good take-up again lately and I think there are more big failures now that have zero balances and are able to sell. It's really more of a supply issue rather than demand. The demand is there.

Operator, Operator

Okay. The next question. Do you have any idea how much PLDT spent on the virus and the nation's supports for the community? And how much was expensed in the first quarter and how much more do you expect in the second quarter?

Manny Pangilinan, Chairman and CEO

We have an understanding of how much PLDT and other group companies like Meralco, the Tollways, and Maynilad have spent so far. However, as a policy, we do not disclose those figures. I recall a particular Governor reaching out for assistance with food, specifically rice, which we agreed to provide. Our involvement is comprehensive. For instance, we are actively participating in COVID-19 testing, as the government aims to ramp up to 30,000 tests per day in our hospitals. Our groups are helping acquire test kits and upgrade laboratories in hotspots, and we plan to deploy mobile laboratories to enhance testing capacity.

Al Panlilio, CRO

I cannot provide a specific number, but we have equipped quarantine facilities with essential services like water, power, and telecommunications due to the situation with the Tollways. We take pride in our response to every tragedy that has affected this country. You will see our Meralco linemen, along with trucks and equipment, being deployed to areas impacted by typhoons, for instance. For example, Batanes and Leyte.

Manny Pangilinan, Chairman and CEO

Yes. We have an understanding of the cost, but it's enough to say that we're present.

Al Panlilio, CRO

Yes.

Operator, Operator

Okay. Here's the next question. With regards to fixed installations, how much of the installation team is out versus pre-COVID levels?

Manny Pangilinan, Chairman and CEO

Jorn, do you want to take that?

Joachim Horn, Management

Yes. Yes. I can take that. So we are probably at 60% to 70% on a daily basis and that's because of the COVID rules we have implemented to protect our customers and also our teams down. But what we did was we moved to a seven-day shift. So we have every day people going out for five days a week and then the teams change. So we have one-third typically doing back-office work and two-thirds are out. Together with our suppliers, which help us on the ground in serving our customers, they are also at the moment at about 60% to 70% of the capacity before ECQ and it's going up every week. We're almost back in terms of total install capacity to where we have been before ECQ. The main constraint we have today is that there are a pretty high number of locations who do not allow us access despite the IATF IDs we have and special letters from DICT who want to encourage the barangays to give us access. But we cannot go everywhere so we are not able to repair everywhere and to serve every customer need. Otherwise, I think our capacity is coming back. And I think by the end of this month, we will be back to normal rollout capacities.

Operator, Operator

The next question, can we get clarification on the guidance of low mid single-digit quarter-on-quarter contraction? How is this split between fixed and mobile? And what assumptions are being brought in? I'm wondering what's driving the material difference in guidance between yourself and your competitors?

Manny Pangilinan, Chairman and CEO

Who wants to take that difficult question?

Al Panlilio, CRO

I believe all three segments, as MVP highlighted, will show growth compared to 2019. It has been a collaborative effort across the company to achieve this, even during the lockdown. It wasn't just the CRO team involved; the entire network and legal teams worked to secure our IATF cards, allowing us to respond quickly. Finance also played a critical role in regulatory matters. Everyone contributed, and our main focus has been to serve our customers well. The efforts and investments made in the past two years have started to pay off, even amidst a 20% to 25% increase in traffic across both Home and Wireless segments, while maintaining a strong customer experience. We need to keep that momentum going. Our enterprise customers are facing challenges, and we will support them as they recover. We are committed to providing whatever solutions and connectivity they need. For instance, at the onset of the lockdown, the BPO sector had to transition to remote work, resulting in a significant demand for work-from-home devices, leading us to reallocate 40,000 to 50,000 fixed wireless solutions from residential use to enterprises. There is still a strong push for fiber, and we have plenty of ports available for sale, which remains our competitive edge.

Manny Pangilinan, Chairman and CEO

Fiber, I think is still a more solid service, a dedicated service to you and guaranteed speeds that we can offer you vis-à-vis fixed wireless. But we are offering both. And a third offering we have is the pocket Wi-Fis. So it's just really focusing on what we can do best for our customers and that's our main objective to serve the customers. Yes. And maybe just a comment on competition. So of course, we do compare our performance with the performance of our competitors on a periodic basis because that's a reference point. And whilst it is an important consideration for us, I reminded our management team that the standards we should set for ourselves are related to the potential of our business, right? So if we have a superior network now and we think there's latent demand still for the wireless side, the home side, and the enterprise side, we should push the business to the standards we're setting for ourselves. So that for me is the main criteria by which we should plan, especially at this inflection point where whether by choice or not behavior and practices are pivoting towards the digital type of things. And that should give us opportunities, opportunities to emerge, for the group to really take advantage of the potential that lies ahead for us.

Operator, Operator

There's a similar question here. It seems like more resilient with regard to the ECQ than the competitor, especially on the mobile side. In fact, there were higher mobile data subscribers quarter-on-quarter and good growth in overall data stack. Some loss in ARPU, but not significant. Do you think there is some element of market share gains in the second quarter numbers? Other factors behind the relative stability in mobile spend in particular?

Al Panlilio, CRO

Jane, do you want to pick that up?

Jane Basas, Management

Yes. We've actually seen significant growth in our data users. On a year-on-year basis, we gained around close to five million fresh data users and there's a lot more in our base that are still on legacy or basic call and text. So we're actually quite confident that our usage for data and therefore our revenues for data will grow in the coming months. And, certainly, we've gained some shares on revenues from competition. I think for the period, the growth in the industry for mobile, in particular, was largely due to our performance in Smart.

Operator, Operator

The next question is for our outlook. For Enterprise, are we seeing customers scaling down operations?

Manny Pangilinan, Chairman and CEO

Is that the question?

Al Panlilio, CRO

Well, yes, I'll ask Jovy also to chime in. But just to answer that quickly, I think, of course, customers are very impacted by it and thinking also how they progress post lockdown. But there are also opportunities, as I said, for example, BPOs, there are opportunities where work-from-home solutions are provided for. And there's a major requirement. And this becomes really part of the new way of working. It's not anymore just a business continuity program, but it really becomes a way of working moving forward, the combination of office environment with work from home. So there are opportunities in that space. But we're here to obviously help out our challenged enterprise customers where they've been impacted by this pandemic. Jovy, you might want to add a little bit more.

Juan Victor, Management

Thank you, Al. The current state of the enterprise segment is quite mixed. Many small and medium enterprises have been significantly affected, with numerous businesses shutting down. However, we are also witnessing positive developments in certain industries. For instance, the Business Process Outsourcing sector faced challenges at the beginning of the lockdown but has since experienced a resurgence. There is substantial latent demand for connectivity, and we are engaging in discussions tailored to specific industries to prepare for a post-COVID environment. Instead of viewing this situation negatively, the enterprise group at PLDT remains optimistic and is focused on how we can assist these industries in adapting to future business models. Our capabilities extend beyond connectivity; on the ePLDT side, we recognize the importance of robust IT systems for a post-COVID reality, as many businesses were not adequately prepared for a pandemic. Companies are now gearing up for future scenarios, anticipating a spike in data center revenue. Cybersecurity has become increasingly important, with hospitals facing cyber threats even during the pandemic. We are actively engaged in addressing these challenges. While some may have a pessimistic view of the enterprise sector, we believe that the ongoing discussions and activities indicate a positive outlook for the second quarter and the latter half of the year.

Operator, Operator

The next question is about refarming. I'm interested in knowing which bands are currently being refarmed and which are being utilized for LTE. Additionally, could you provide the digital capacity percentage, assuming there are specific refarming targets?

Manny Pangilinan, Chairman and CEO

Jorn?

Joachim Horn, Management

Yes, I'm here. We completed our refarming process two weeks ago. We took 5 megahertz of 1800 megahertz spectrum, currently used for both 2G and 4G, and moved 5 megahertz from 2G to 4G on nearly 4,000 sites in the Philippines. Depending on the prior spectrum usage by LTE at those locations, the capacity increase ranges from 5% to 20%. We are utilizing 700 megahertz, 850, 1800, 2100, 2300, and 2600 for LTE, providing a wide spectrum variety. The refarming process took only 10 days and could be performed entirely remotely due to the modern base stations, which are software-defined. This also allowed for remote optimization afterward, with no adverse effects on GSM quality, ensuring our GSM customers experience the same level of service as before. Additionally, on about 150 to 180 sites, we transferred 2600 megahertz of dedicated 5G spectrum to LTE. This resulted in a significant capacity increase, between 30% and 50%, particularly at sites with high traffic. Do you think that answered the question?

Operator, Operator

Okay. The next question is about zero balance retailers. How prohibitive are the logistical constraints to address the supply side bottlenecks? Is there a way of digitizing the process of replenishing credits of dealers?

Al Panlilio, CRO

Yes, I believe Alex may also be on the line. If we consider frontliners as doctors, as well as installers and network personnel at PLDT and Smart, we should include the sales team as frontliners too. They have had to risk their lives to connect with retailers, totaling about 1.2 million. At one point, many retailers had zero balances. The most recent situation has made it particularly challenging for us to navigate. However, during times like this, there are opportunities as well. Online platforms have become increasingly important, and we are focusing on that. Alex can provide more details, but we are also assisting our regional directors in developing their online platforms. Our websites have been quite active, and we are seeing an increase in volume for both Wireless and Home services. Therefore, technology will continue to advance this shift from traditional methods to a more digital approach.

Operator, Operator

Here's the next question. Can you resume your network rollout during GCQ?

Manny Pangilinan, Chairman and CEO

Yeah, network rollout in GCQ, general quarantine.

Joachim Horn, Management

Yes, we never really stopped. There was just a brief pause in the first week due to a shortage of protective equipment for our staff. Since that supply has been secured, in March, the rollout dropped by 65%, leaving us with only one-third of our original capacity. By April, we had climbed back to about 60%, and I expect further improvement in May. Our rollout, primarily related to the mobile network, should be fully back on track in one to two months. We are still able to expand a significant number of sites, especially those that we can access. Regarding fixed services, we are nearly back on track with our fiber to the home rollout. As long as we receive the necessary permissions to install, we can proceed, although this will be a major constraint moving forward.

Operator, Operator

The next question is about Voyager. Can you provide guidance on the expected profits and losses from Voyager?

Manny Pangilinan, Chairman and CEO

Is Doy on the line?

Anabelle Lim Chua, CFO

Yes. Both Doy and S.B. are on the line.

Manny Pangilinan, Chairman and CEO

Okay.

Shailesh Baidwan, Management

This is S.B. So for us in Voyager when we look at the three lines of business, the wallet, the merchant enterprise, and the remittance network, the Smart Padala, all three businesses are showing strong growth even in the current COVID period. We are seeing pockets of some stress, especially with our travel merchants. But across the wallet, we are seeing more than doubling versus last year. Across merchant acceptance we are seeing strong growth even in e-commerce and in areas like pharmacies and supermarkets. And then on the Smart Padala network, the domestic remittance has been very strong, because that's been the lifeline for a lot of people to send money and receive money, from cities to provinces and the likes of that. So we have an investment plan to grow aggressively in 2020. But we are realizing efficiencies on our growth side. So at this stage, our plan is to hold our losses to the same level as 2019, while delivering significant growth and realizing efficiencies from the growth at this stage across all the businesses.

Operator, Operator

The next question is on bad debt provision levels, trending into the second quarter. Given PLDT's larger exposure to contract revenues, given the sizable fixed line component. Do you see a material rise in defaults? In some other markets, we see this balloon up to two times before the impact of the quarantine.

Manny Pangilinan, Chairman and CEO

Anabelle?

Anabelle Lim Chua, CFO

Yeah. Let me answer that. During this period, of course we have suspended what we call treatment and disconnections at this point in time. And we have given payment relief and extended payment terms effectively for our customers. So as Al mentioned earlier, what we have decided to do as a pragmatic matter is to allow the unpaid balances to be amortized over a six-month period. So clearly the assessment will be done in terms of the appropriate levels of provisioning depending on what we see in terms of collection rates in the next few months. It will hinge largely on how I guess the economic performance will be how people are able to come back and pay. So that's something that we will have to assess in the second quarter and in the third quarter going forward depending on our experience when things come back.

Operator, Operator

There's a question on how the ECQ affected daily operating expenses. And if yes, how much has daily expense burn increased?

Anabelle Lim Chua, CFO

I think there are pluses and minuses. So for example as mentioned earlier, we have had to put certain facilities in what we call a lockdown mode. So we have asked people to stay in. We have provided food and other provisions for those who are in lockdown facilities. So in that sense, there’s extra spending for those. But there are other areas where we are able to see reduced, let's say, overtime reduce utilities used in some of our offices, and reduced on-ground selling activities. So, all told, I guess there are things that are up and things that are down. I think part of the internal management is really to keep a tight watch on our OpEx during this period. I think one of the things just really to highlight in the first quarter numbers, we did advance the 13th month pay for our people. So typically that 13th month is paid in the last quarter of the year. So you typically would accrue the expenses over the year, but because of the advancing of that 13th month pay then from a timing standpoint that all got booked in the first quarter.

Operator, Operator

The next question, I'll weave two questions together. One is asking about, color and how the consumer behavior and competition was in the ECQ, any meaningful change in consumer behavior? And then, is there any shift in behavior on the mobile side. And the outlook on how consumers will adjust going into the second and third quarters of the year?

Al Panlilio, CRO

Jane, you might want to answer the mobile.

Jane Basas, Management

Yeah. So as I actually said earlier, we're seeing higher top-up bucket sizes among our consumers. They're essentially buying higher denomination data packages. Our basket prices actually increased on a Q-on-Q basis at least April comparing it to the first quarter of 2020 by around 10%, right? So people are buying higher top-ups, people are buying longer-validity loads. And the decrease actually was observed among those from the low-value segment, and I think this is really largely because of cash issues on top of the retailer zero load challenges that we had experienced in the early parts of the ECQ. Once the ECQ is lifted, because now they're more exposed to the more sophisticated data packages that we have, we do expect that behavior will continue and they will be using more of our GIGA packages, GIGA videos, GIGA stories, GIGA games. And we just recently introduced GIGA Work actually. So those are higher priced versus our legacy call and text offers.

Operator, Operator

Okay. The last question we have is with respect to the current dividend policy. I think this was mentioned by MVP earlier. Will the 60% payout be sustained?

Manny Pangilinan, Chairman and CEO

What's the question Melissa?

Operator, Operator

Will our dividend policy be sustained?

Manny Pangilinan, Chairman and CEO

The policy remains in place, and we are currently maintaining it without any thoughts of changing it. While I cannot predict if the situation may worsen during this pandemic, the company is performing well so I don’t see any reason to alter that policy.

Operator, Operator

Yes. There are no more questions on the queue. So if there are no further questions, we just want to inform everyone that the podcast of this briefing will be available on our website after the call. We turn the floor back to Mr. Pangilinan for his closing remarks.

Manny Pangilinan, Chairman and CEO

Thank you all for joining us for this briefing. The next public event for PLDT is the Annual Shareholders' Meeting on June 9th. We have received Board approval to conduct it online, but I hope we can hold it in person. We look forward to seeing you on June 9th. In the meantime, please stay safe and healthy. Thank you again to everyone.

Operator, Operator

That concludes today's briefing. As always should you have any further questions please reach out to PLDT Investor Relations. Thank you for your participation.