Atty. Ma. Lourdes C. Rausa-Chan, telephone: +(632) ~~816-8556;~~8816-8556; lrchan@pldt.com.ph;
Ramon Cojuangco Bldg., Makati Avenue, Makati City, Philippines

(Name, telephone, e-mail and/or facsimile number and address of Company contact person)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as at the close of the period covered by the annual report.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes ☒ No ☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934: Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards¹ provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Unless the context indicates or otherwise requires, references to “we,” “us,” “our” or “PLDT Group” mean PLDT Inc. (formerly Philippine Long Distance Telephone Company) and its consolidated subsidiaries, and references to “PLDT” or “the Company” mean PLDT Inc., excluding its consolidated subsidiaries (see Note 2 – Summary of Significant Accounting Policies to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for a list of these subsidiaries, including a description of their respective principal business activities).

Unless the context indicates or otherwise requires, “Board of Directors” or the “Board” refer to the board of directors of PLDT.

Any discrepancies in any table between totals and the sums of the amounts listed are due to rounding.

All references to the “Philippines” contained in this report mean the Republic of the Philippines and all references to the “U.S.” or the “United States” are to the United States of America.

In this report, unless otherwise specified or the context otherwise requires, all references to “pesos,” “Philippine pesos” or “Php” are to the lawful currency of the Philippines, all references to “dollars,” “U.S. dollars” or “US$” are to the lawful currency of the United States and all references to “Japanese yen,” “JP¥” or “¥” are to the lawful currency of Japan. Unless otherwise indicated, conversion of peso amounts into U.S. dollars in this report were made based on the volume weighted average exchange rate quoted through the Bankers Association of the Philippines, or BAP, which was ~~Php52.56~~Php50.80 to US$1.00 on December 31, ~~2018.~~2019. On March ~~20, 2019,~~30, 2020, the volume weighted average exchange rate quoted was ~~Php52.89~~Php51.04 to US$1.00.

The following table summarizes PLDT’s capital stock issued and outstanding as at December 31, ~~2018~~2019 and ~~2017:~~2018:

The following table shows the dividends declared to common shareholders from the earnings for the years ended December 31, ~~2016,~~ 2017, 2018 and ~~2018:~~2019:

The following table shows a summary of dividends paid per share of PLDT's common stock stated in both Philippine peso and U.S. dollars:

Dividends on PLDT’s common stock were declared and paid in Philippine pesos. For the convenience of the reader, the Philippine peso dividends have been converted into U.S. dollars based on the Philippine Dealing System Reference Rate on the respective dates of dividend payments from ~~2014~~2015 to 2017, and based on exchange rates quoted through the BAP for 2018 and 2019 dividend payments. See Note 1920 – Equity to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further information on our dividend payments.

You should carefully consider all of the information in this annual report, including the risks and uncertainties described below. If any of the following risks actually occurs, it could have a material adverse effect on our business, financial condition or results of operations and the trading price of our ADSs could decline and you could lose all or part of your investment.

If we are not able to adapt to changes and disruptions in technology and by over-the-top, or OTT, services and address changing consumer demand on a timely basis, we may experience a decline in the demand for our services, be unable to implement our business strategy and experience a material adverse effect on our business, results of operations, financial condition and prospects.

The rapid change of technology ~~and~~as well as the proliferation of OTT services (such as Facebook, Skype, Viber, WhatsApp and other similar services) and video conferencing applications (such as Zoom and other similar services), and the ensuing change in customer behavior, have disrupted our traditional businesses. As a result, our traditional revenue sources, such as short messaging service, or SMS, voice and international calling services, have declined, and we expect this trend to continue with the rise in data revenue.

The growing use of mobile data in the Philippines, coupled with the prevalence of OTT services and video conferencing applications, have negatively impacted our domestic calling service in recent years. OTT services continue to increasingly compete with us in voice and data services and continue to affect our business model. We are also facing growing competition from providers offering services using alternative wireless technologies and IP-based networks, including efforts by the Philippine government to roll-out its free WiFi services to selected areas within various municipalities in the country. Moreover, net settlement payments between PLDT and other foreign telecommunications carriers for origination and termination of international call traffic between the Philippines and other countries, which have been our predominant source of foreign currency revenues, have been declining in recent years and have diminished in its contribution to total service revenues.

While the trend of increasing mobile data usage has resulted in, and is expected to continue to have, a positive impact on our data revenues, there is no guarantee that such increase will alleviate the decline in the revenue from our traditional businesses in full. We may not be able to maintain and attract customers more effectively than our competitors. We will also need to invest in new infrastructure, systems and personnel to provide high quality services for increasing mobile data usage. As a result, our capital costs could increase as we phase out outdated and unprofitable technologies and invest in new ones. We may not be able to accurately predict technological trends or the success of new services in the market. In addition, there could be legal or regulatory restraints on our introduction of new services. If our services fail to gain acceptance in the marketplace, or if costs associated with implementation and completion of the introduction of these services materially increase, our ability to retain and attract customers could be adversely affected. We can neither assure you that we would be able to adopt or successfully implement new technologies and services nor assure you that future technological changes will not adversely affect our business, results of operations, financial condition and prospects.

Our failure to keep pace with technological changes and evolving industry standards relating to the emergence of the 5G technology could harm our competitive position or negatively impact our results of operations.

Fifth-generation wireless, or 5G, is the latest iteration of cellular technology, engineered to greatly increase the speed and responsiveness of wireless networks. 5G is characterized by significantly higher speeds and low latency which will enable mobile users to download data at a much faster speed than the technology of previous generations. 5G is also expected to anchor the Internet of Things, or IoT, which will allow users to be connected not only to each other but to their homes, vehicles, public infrastructure, and more.

In order to introduce and implement the 5G technology to our customers, we may need to obtain additional licenses or upgrade our networks. If we are unable to acquire such licenses or upgrade such systems, on reasonable terms or at all, we may not be able to implement the 5G technology in a timely manner or at all, which in turn may negatively impact our ability to draw new customers and/or maintain our existing customer base.

Further, we may need to incur significant capital expenditures to acquire licenses or install infrastructure to enable the 5G technology. As new technologies relating to 5G systems are developed, our equipment and infrastructure may need to be replaced or upgraded or we may need to rebuild our network, in whole or in part.

We are currently deploying 5G pilot programs in anticipation of commercial rollouts in the near future. However, we are dependent on the availability of 5G-capable devices such as handsets and modems before we can roll out commercial services and generate revenues. A delay in the release of reasonably-priced 5G handsets could negatively impact the mass acceptance of 5G services ~~amongst~~among our customers and our ability to monetize these investments, which in turn could adversely affect our growth prospects.

The anticipated entry of a third major telecommunications player and/or increased competition from other telecommunications services providers may reduce our market share and decrease our profit margin, and we cannot assure you that any potential change in the competitive and regulatory landscape of the telecommunications industry in the Philippines would not have a material adverse effect on our business, results of operations, financial condition and prospects.

Increasing competition among existing telecommunications services providers, as well as competition from new competitors, could materially and adversely affect our business and prospects by, among other factors, forcing us to lower our tariffs, reducing or reversing the growth of our customer base and reducing usage of our services. Competition in the mobile telecommunications industry is particularly intense, with network coverage, quality of service, product offerings, and price dictating subscriber preference, while competition in the fixed line side is relatively more active as well. Vital capacity and coverage expansion may continue to increase our capital expenditures. Recently, the industry went through a period where both mobile operators have grown more aggressive in maintaining and growing market share, especially in light of a maturing market. Our principal mobile competitor, Globe Telecom, Inc., or Globe, has introduced aggressive marketing campaigns and ~~promotions, such as unlimited voice and SMS offers.~~promotions. It has also begun to compete more actively in the fixed line segment, especially with their introduction of a fixed wireless home broadband service which competes directly with our home broadband business.

In 2017, the Philippine government announced its intentions to encourage competition within the telecommunications industry through the introduction of a third major player. As part of this push, the government is proposing and has introduced certain measures that would facilitate and enable the operations of a new player. Some of these are: tower sharing policy, mobile number portability, removal of the mobile interconnect charges, and the lifting of foreign ownership restrictions for telecommunication companies.

In ~~November~~ 2018, the Philippine government, through the ~~Department of Information and Communications Technology,~~DICT, declared as the third telecom player a consortium consisting of Udenna Corporation, Chelsea Logistics Corporation and China Telecom, or the New Mobile Player, or NMP, Consortium. The NMP Consortium indicated that they had reached an agreement with Mislatel Company, or Mislatel, for the use of Mislatel’s telecommunications franchise. In February 2019, the Senate Committee on Public Services approved the transfer of the controlling interest in Mislatel to the NMP Consortium under certain conditions.On July 8, 2019, Mislatel was renamed as “Dito Telecommunity Corporation”, or Dito. On the same date, Dito was granted its permit to operate after President Rodrigo Duterte awarded the CPCN by the NTC to its chairman Dennis Uy during a ceremony at the Presidential Palace, Malacañang. In October 2019, Dito entered into agreements with Sky Cable Corporation, or Sky Cable, and LCS Group. Under the agreement with LCS Group, Dito will lease the telecommunications towers that LCS has already built across different regions in the Philippines. With Sky Cable, Dito will utilize its unused fiber-optic cables in Metropolitan Manila. Dito is expected to begin its commercial operations by March 2021 with a plan to enable customers to use its telecommunications services by May 2020. Dito plans to set up 1,600 cell towers that will provide 37% coverage of the country, and plans to commence its internet service by July 18, 2020, with pre-commercial trial to be undertaken by September 2020. Dito plans to offer initially 4G LTE before moving to 5G technology in 2021.

A third major player will likely adversely threaten our market share. Furthermore, we believe that the third player, when it enters the market, may put forth aggressive offers to lure customers away from us and Globe. To maintain our competitive posture, we may need to match those offers and offer other incentives to prevent existing customers from switching. Furthermore, we may need to make additional investments in our network to further improve the customer experience in order to effectively compete with the third telecom player and Globe. A loss of market share and increased costs to maintain our competitive posture will adversely affect our business, financial condition and results of operations.

In addition to the entry of a third major player, we cannot assure you that the number of providers of telecommunications services will not increase in the future or that competition for customers will not cause our mobile and fixed line subscribers to switch to other operators, or otherwise cause us to increase our marketing and capital expenditures, lose customers or reduce our rates, resulting in a reduction in our profitability.

In the future, we may lose customers due to development in law, regulations and/or government initiatives. In 2019, Smart, Globe and Dito established a joint venture company, Telecommunications Connectivity Inc., or TCI, to enable number porting services in line with the new mobile number portability, or MNP, initiative of the government. TCI’s function is to enable a customer to retain his mobile number when he moves from one mobile service provider to another, or changes the type of subscription from postpaid to prepaid or vice versa. See Item. 4 “Information on the Company – Recent Developments - Smart, Globe and Dito Joint Venture on Mobile Number Portability”. The ability to retain his mobile number when switching to another telecommunications services provider may be an incentivizing factor for a customer to make a switch away from us. The loss of

customers due to such development would adversely affect our business, financial condition and results of operations. Meanwhile, with customers who switch away from us retaining their mobile numbers, the mobile number prefixes which used to be exclusive to our subscribers will no longer be so. As such, we will lose exclusivity to our mobile number prefixes, and such loss may result in the dilution of any premium nature of our brand.We cannot guarantee you that in the future, there will not be similar changes in law, regulations and/or government initiatives that may incentivize customers to switch away from us.

Our ability to compete effectively will depend on, among other things, network coverage, quality of service, price, our development of new and enhanced products and services, the reach and quality of our sales and distribution channels and our capital resources. It will also depend on how successfully we anticipate and respond to various factors affecting our industry, including new technologies and business models, changes in consumer preferences and demand for existing services, demographic trends and economic conditions. If we are not able to respond successfully to these competitive challenges, it could have a material adverse effect on our business, results of operations, financial condition and prospects.

The success of our business depends on our ability to maintain and enhance our brands.

We believe that our reputation and brands in the industry are crucial to the success of our business. To maintain and enhance our reputation and brands, we need to successfully provide the best customer experience sosuch that we not only maintain our current customer base but attract new subscribers as well. If we are not successful in maintaining and improving our brands, our business, financial position, and/or results of operations may be negatively affected.

Our reliance on outsourcing and strategic sourcing arrangements, technology vendor contracts, and other partnerships and/or joint ventures may prevent us from meeting organizational targets or impact our brand image.

We have entered into a number of outsourcing agreements with technology vendors covering key operations in order to improve efficiencies and maximize knowledge transfer. These arrangements may disrupt existing operations and result in resistance among employees. Furthermore, any delays in implementation or failure to bring about the desired results will hamper our ability to meet our medium-term targets.

In particular, as part of our extensive capital expenditures program to overhaul our fixed and wireless networks infrastructure and our IT systems, we have entered into agreements with Amdocs Philippines, Inc., or Amdocs, and Huawei Technologies Co. Ltd., or Huawei, to upgrade and modernize a significant portion of our IT infrastructure. We cannot guarantee that we will be able to accomplish this transformation in a timely fashion, or at all, or in the manner intended. Furthermore, we cannot guarantee that such transformation will not result in service disruptions, network outages or encounter other issues that may detrimentally affect consumer experience. This may adversely affect our business, financial condition and results of operations.We continue to monitor developments on Huawei's cooperation with other telecommunications service providers worldwide. For example, we note that some countries and telecommunications service providers have banned or limited the use of Huawei’s technologies for different reasons. We have factored in such developments in our decision-making with respect to our operation with Huawei, and plan to continue to do so.

Our business relies heavily as well on third party vendors, some of whom may encounter financial difficulties or consolidate with other vendors. This may result in shrinking the already limited pool of qualified vendors which in turn may materially impact their ability to fulfill their obligations and thereby impact our operations. The limited number of vendors may also result on our dependence on a single vendor to provide critical services.

Our ability to earn revenues could be disrupted if our ~~suppliers are~~supplier(s) is no longer able or willing to provide us with our product or cannot provide us with our products due to extenuating territorial circumstances. In the event that either of our potential suppliers cannot or will not provide us with our products, we may be forced to find alternative supplies. We cannot guarantee that we will be able to obtain our products or products of similar quality from alternate suppliers, in part or at all. Failure to obtain alternative sources will disrupt our operations and hinder our ability to generate revenues.

The mobile telecommunications industry in the Philippines may not continue to grow.

The majority of our total revenues are currently derived from the provision of mobile services to customers in the Philippines. As a result, we depend on the continued development and growth of this industry in the Philippines. The mobile penetration rate in the country, however, has already reached approximately ~~133%~~159% as at December 31, ~~2018,~~2019, and thus the industry may well be considered mature insofar as services such as SMS and domestic voice are concerned.

Data is emerging as the key driver for revenues. However, further growth of the market depends on many factors beyond our control, including the continued introduction of new and enhanced mobile devices, the price levels of mobile handsets, consumer tastes and preferences, and the amount of disposable income of existing and potential subscribers. Any economic, technological or other developments resulting in a reduction in demand for mobile services or otherwise causing the Philippine mobile telecommunications industry to stop growing or reducing the rate of its growth, could materially harm our business, results of operations, financial condition and prospects.

The licenses, franchises and regulatory approvals, upon which PLDT relies, may be subject to revocation or delay, which could result in the suspension of our services or abandonment of any planned expansions and could thereby have a material adverse effect on our business, results of operations, financial condition and prospects.

Section 11, Article XII of the 1987 Philippine Constitution provides that no franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations of associations organized under the laws of the Philippines, at least 60% of whose capital is owned by such citizens. Exceeding the foreign ownership restrictions imposed under the Philippine Constitution may subject the Company to (1) sanctions set out in Section 14 of the Philippine Foreign Investments Act of 1991, as amended, comprising a fine not exceeding (a) the lower of (x) 0.5% of the total paid in capital of the Company and (y) Php5 million, in the case of a corporate entity, (b) Php200,000, in the case of the president of the Company or other responsible officers, and (c) Php100,000, in the case of other natural persons, which we refer to collectively as the Monetary Sanctions, and/or (2) the Philippine government commencing a quo warranto case in the name of the Republic of the Philippines against the Company to revoke the Company’s franchise that permits the Company to engage in telecommunications activities.

We believe that as of the date of this report, PLDT is in compliance with the requirements of the Constitution, and this position was supported by the Supreme Court; however, we cannot assure you that subsequent changes in law or additional litigation would not result in a different conclusion. See Item 8. “Financial Information – Legal Proceedings” and Note 2627 – Provisions and Contingencies – In the Matter of the Wilson Gamboa Case and Jose M. Roy III Petition to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further discussion.

On March 10, 2020, the House of Representative of the Philippine Congress approved the House Bill No. 78, which gives a distinction between how “public service” and “public utility” are defined under Commonwealth Act No. 146 or the Public Service Act. If the Bill is passed and becomes law, it will allow foreigners to fully own public utilities in the Philippines.

We operate our business under franchises, each of which is subject to amendment, termination or repeal by the Philippine Congress, and to various provisional authorities and CPCNs, which have been granted by the NTC and will expire between now and 2028. Some of our CPCNs and provisional authorities have already expired. Although we have filed applications for extension of these CPCNs and provisional authorities, we cannot assure you that the NTC will grant the applications for renewal. Failure to renew CPCNs can materially and adversely affect our ability to conduct the essential functions of our business, and therefore adversely affect our financial condition and results of operations. See Item 4. “Information on the Company – Licenses and Regulations” for more information.

The Philippine Congress may revoke, or the Solicitor General of the Philippines may file a case against Smart and DMPI to revoke, the franchise of Smart and DMPI for their failure to comply with R.A. 7925, which requires making a public offering of at least 30% of the aggregate common shares of a telecommunications entity with regulated types of services. See Item 4. “Information on the Company – Material Effects of Regulation on our Business” for further discussion.

On May 19, 2017, ~~Republic Act~~R.A. No. 10926 took effect which extended the Legislative Franchise of Smart. The law contains a provision which exempts Smart from the requirement of listing of shares if a grantee is wholly owned by a publicly listed company with at least thirty per centum (30%) of whose authorized capital stock is publicly listed. Thus, Smart is in compliance with RAR.A. 7925.

We cannot assure you that any of our franchise, permits or licenses will not be revoked and any such revocation could have a material adverse effect on our business, financial conditions or prospects.

Our business is significantly affected by laws and regulations, including regulations in respect of rates and taxes and laws relating to anti-competitive practices and monopoly.

The NTC regulates the rates we are permitted to charge for services that have not yet been deregulated, such as local exchange services. We cannot assure you that the NTC will not impose additional obligations on us that could lead to the revocation of our licenses if not adhered to and/or to the reduction in our total revenues or profitability. The NTC could adopt changes to the regulations or implement additional guidelines governing our interconnection with other telecommunications companies or the rates and terms upon which we provide services to our customers. The occurrence of any of these changes could materially reduce our revenues and profitability.

The PLDT Group is also subject to a number of national and local taxes. We cannot assure you that the PLDT Group will not be subject to new, increased and/or additional taxes and that the PLDT Group would be able to impose or pass on additional charges or fees on its customers to compensate for the imposition of such taxes or charges, or for the loss of fees and/or charges.

Moreover, we are subject to laws and regulations relating to anti-competitive practices and anti-monopoly. The Philippine Competition Act came into effect on August 8, 2015 and prohibits practices that restrict market competition through anti-competitive agreements and abuse of a dominant position. It also requires parties to provide notification and obtain clearance for certain mergers and acquisitions. The Philippine Competition Act prescribes administrative and criminal penalties for violations of these prohibitions. While our business practices have not in the past been found to have violated any laws and regulations related to anti-competition and anti-monopoly, we cannot assure you that any new or existing governmental regulators will not, in the future, take the position that our business practices to have an anti-competitive effect on the Philippine telecommunications industry, nor can we assure you that such regulators will not take that position that we have violated the relevant laws and regulations relating to anti-competition and anti-monopoly in the future.

In particular, PLDT was engaged in litigation with the Philippine Competition Commission, or the PCC, relating to PLDT’s investments in Vega Telecom Inc., or VTI, Bow Arken Holdings Company, or Bow Arken, and Brightshare Holdings, Inc., or Brightshare, or the SMC Transactions. Although the Court of Appeals, or CA, among other things, compelled the PCC to recognize that the SMC Transactions as deemed approved by operation of law, the CA did clarify that the deemed approved status of the SMC Transactions does not, however, remove the power of PCC to conduct post-acquisition review to ensure that no anti-competitive conduct is committed by the parties. Any future expansion in our services, particularly in our mobile services, could subject us to additional conditions in the granting of our provisional authorities by the NTC and to increased regulatory scrutiny, which could harm our reputation and business, and which could have a material adverse effect on our growth and prospects. In addition, the occurrence of any such event could impose substantial costs or cause interruptions or considerable delays in the provision, development or expansion of our services. See Note 1011 – Investments in Associates and Joint Ventures – Notice of Transaction filed with the Philippine Competition Commission, or PCC to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further discussion.

Changes in regulations or user concerns regarding privacy and protection of user data, or any failure to comply with such laws, could adversely affect our business.

Legislation such as R.A. 10173 (Data Privacy Act of 2012) and its Implementing Rules and Regulations (“Data Privacy Act”) aim to protect individual privacy. The rules apply to the processing of personal data in the public and private sectors, as well as to acts done or practices engaged in and outside of the Philippines under certain conditions. From 2018, the National Privacy Commission, or NPC, has gradually shifted its focus from campaigning for Data Privacy Act awareness to compliance checks on entities engaged in personal data processing. Personal data breaches and other controversies relating to the unauthorized processing of personal data both within the Philippines and abroad have also increased public scrutiny on the activities of entities engaged in personal data processing. Provisions in Data Privacy Act on the Rights of Data Subjects² and the

NTC issuances under MC 05-07-2016 and NTC MC No. 05-06-2007 on the rights of the subscriber on record to their data and Call Data Records highlight PLDT’s statutory obligation to be able to furnish complete and correct data to its users upon their request. These developments lead to increased impetus on PLDT not only to ensure compliance with Data Privacy Act and similar laws, rules and regulations but also to meet industry best practices and customer expectations on data protection.

Any failure, or perceived failure, by us to make effective modifications to our policies, or to comply with any privacy, data-retention or data-protection-related laws, regulations, orders or industry self-regulatory principles, including the Data Privacy Act, could result in proceedings or actions against us by governmental entities or others, a loss of user confidence, damage to the PLDT brands, and a loss of users or advertising partners, any of which could potentially have an adverse effect on our business.

In addition, various federal, state and foreign legislative or regulatory bodies may enact new or additional laws and regulations concerning privacy, data-retention and data-protection issues, including laws or regulations mandating disclosure to domestic or international law enforcement bodies, which could adversely impact our results of operations, businesses, brand or reputation with users. For instance, in May 2018, the General Data Protection Regulation (GDPR) came into force in the European Union and European Economic Area countries. In the United States, there is also increasing clamor for the enactment of a federal privacy law. In the Philippines, proposed amendments to the Data Privacy Act have been filed with the Congress of the Philippines. In general, the amendments focus on a review of the penalties for criminal offenses, as well as the authority of the NPC to levy fines for administrative offences. Since stakeholders, including telecommunications service providers, have significant interest in these amendments, it is likely that the amendments will only be approved by Congress after a lengthy period of solicitation of public opinion and discussion.

The interpretation and application of privacy, data protection and data retention laws and regulations are often uncertain as these are highly dependent on the local context and culture and they can also be impacted by changes in technology. These laws may be interpreted and applied inconsistently from country to country and inconsistently with our current policies and practices, complicating long-range business planning decisions. If privacy, data protection or data retention laws are interpreted and applied in a manner that is inconsistent with our current policies and practices we may be fined or ordered to change our business practices in a manner that adversely impacts our operating results. Complying with these varying international requirements could cause us to incur substantial costs or require us to change our business practices or operating platforms in a manner adverse to our business.

Inadequate handling of confidential information, including personal customer information by our corporate group, contractors and others, may adversely affect our credibility or corporate image.

We possess a substantial amount of personal information of our customers. In the event an information leak occurs, whether at our end or on the part of our contractors and service providers, we might be subjected to penalties under the data privacy law, our credibility and corporate image may be significantly damaged, and we may experience an increase in cancellations of customer contracts and slower increase in additional subscriptions, any of which could have a material adverse effect on our business, results of operations, financial condition and prospects.

In 2019, the PLDT Group had ten personal data breaches that met the Data Privacy Act’s requisites for mandatory reporting to the NPC and notice to affected data subjects. These reported incidents range from the physical, such as unauthorized access to a customer’s call data records and inadvertent disclosure of customer information by a negligent employee, to the technical, such as glitches in the website and mobile applications access IDs that enabled certain customers to view information of other customers. We cannot guarantee that we will not encounter personal data breaches in the future. Such breaches could result in litigation and/or regulatory actions and penalties against us, and adversely impact on our business operations and financial conditions.

Legislation and regulation of online payment systems could create unexpected costs, subject us to enforcement actions for compliance failures, or cause us to change our digital technology platforms or business models.

Regulators have been increasing their focus on online and mobile payment services, and recent regulatory and other developments could reduce the convenience or utility of our payment services for users. Governmental regulation of certain aspects of mobile payments systems under which PLDT operates could result in obligations or restrictions with respect to the types of products that we may offer to consumers, the payment card systems that link to our mobile payments systems, the jurisdictions in which our payment services or apps may be used, and higher costs, such as fees charged by banks to process funds through our mobile payments systems. Such obligations and restrictions could be further increased as more jurisdictions regulate payment systems. ��Moreover,

if this regulation is used to provide resources or preferential treatment or protection to selected payments and processing providers, it could displace us from, or prevent us from entering into, or substantially restrict us from participating in, particular geographies.

Limitations in the amount of frequency spectrum or facilities made available to us could negatively affect our ability to maintain and improve our service quality and level of customer satisfaction, could increase our costs and could reduce our competitiveness.

The available radio frequency spectrum is one of the principal limitations on a wireless network’s capacity, and there are limitations in the spectrum and facilities available to us to provide our services. Our future wireless growth will increasingly depend on our ability to offer innovative video products and data services and a wireless network that has sufficient spectrum and capacity to support these innovations. Improvements in our service depend on many factors, including continued access to and deployment of adequate spectrum.

Our competitiveness may decline if we cannot obtain the necessary or optimal allocation of spectrum from the Philippine government. If the Philippine government does not fairly allocate spectrum to wireless providers in general, revoke spectrum previously granted to us, or if we cannot acquire needed spectrum or deploy the services customers desire on a timely basis without burdensome conditions or at adequate cost while maintaining network quality levels, then our ability to attract and retain customers, and therefore maintain and improve our operating margins, could be materially adversely affected.

Other mobile service providers in the world may not adopt or use the technologies and the frequency bands that are compatible with ours, which could affect our ability to sufficiently offer international services.

If a sufficient number of mobile service providers do not adopt the technologies and the frequency bands that are compatible with ours, if mobile service providers switch to other technologies or frequency bands, or if there is a delay in the introduction and expansion of compatible technologies and frequency bands, we may not be able to offer international roaming or other international services as expected, which may adversely affect our business.

We may not be successful in our acquisitions of, and investments in, other companies and businesses, and may therefore be unable to fully implement our business strategy.

As growth slows or reverses in our traditional fixed line and mobile businesses, and as part of our strategy to grow other business segments, we make acquisitions and investments in companies or businesses to enter new businesses or defend our existing markets. The success of our acquisitions and investments depends on a number of factors, such as:

Any of our contemplated acquisitions and investments may not be consummated due to reasons or factors beyond our control. Even if any contemplated acquisitions and investments are consummated, we may not be able to realize any or all of the anticipated benefits of such acquisitions and investments and we cannot assure you that the consummation of such acquisitions and investments will not result in losses for a prolonged period of time. Moreover, if we are unsuccessful in our contemplated acquisitions and investments, we may not be able to fully implement our business strategy to maintain or grow certain of our businesses and our results of operations and financial position could be materially and adversely affected.

Given the nature of our business and our foray into the digital business, we have made investments in various start-up companies. For example, in 2014, we invested in Rocket Internet SE (formerly Rocket Internet AG), or Rocket, to drive the development of online and mobile payment solutions, the fair value of which has declined

significantly since our investment. Due to the significant decline in fair value of our investment in Rocket Internet, we recognized a series of impairments that amount to, in the aggregate, Php11,045 million, since then. See Note 1112 – Financial Assets at ~~FVPL/Available-for-Sale Financial Investments~~FVPL – Investment of PLDT Online in Rocket Internet to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for more information. Credit ratings and market values of this investment and similar investments can be negatively impacted by liquidity, credit deterioration or losses, financial results, foreign exchange rates, or other factors. As a result, our investments could decline and result in a material impairment, which could have a material adverse effect on our financial condition and operating results.

The headquarters building of Smart, Smart Tower, is currently listed for sale. Our operations and financial conditions may be negatively affected if we fail to secure a permanent office building at the expiration of the lease-back agreement, which will form part of the agreement to sell Smart Tower.

We currently own Smart’s headquarters building, Smart Tower, or the Smart Towers Property, which is located in Makati City, Metropolitan Manila. On January 28, 2020, PLDT was authorized by the Board of Directors to negotiate and enter into a contract for the sale of Smart Towers Property. See Item 4. “Properties”. The sale will be subject to a lease-back agreement with the eventual buyer, in order for us to keep occupying the building until we find a suitable alternative office building. If at the expiration of such lease-back agreement, we fail to find a suitable office building on favorable terms or at all, we may need to negotiate to extend the lease-back, or find an alternative within a short period of time. On the one hand, we cannot guarantee you that we will be able to extend the lease-back agreement, or extend it on terms favorable to us. On the other hand, any relocation could cause disruption to our operations.

If we are unable to install and maintain telecommunications facilities and equipment in a timely manner, we may not be able to maintain our current market share and the quality of our services, which could have a material adverse effect on our results of operations and financial condition.

Our business requires the regular installation of new, and the maintenance of existing, telecommunications transmission and other facilities and equipment, which are being undertaken. The installation and maintenance of these facilities and equipment are subject to a number of risks and uncertainties, such as:

interruptions resulting from man-made events (e.g., sabotage), outbreak of epidemics, pandemics or other public health crises, inclement weather and other natural disasters;

•

~~interruptions resulting from man-made events (e.g., sabotage), inclement weather and other natural disasters;~~

rapid technological obsolescence;

inability of vendors to deliver on commitments;

unforeseen engineering, environmental and geological problems; and

unanticipated cost increases.

Any of these factors could give rise to delays or cost overruns in the installation of new facilities or equipment or could prevent us from deploying our networks and properly maintaining the equipment used in our networks, and hence could affect our ability to maintain existing services and roll-out new services, for example, which could have a material adverse effect on our results of operations and financial condition.

Actual or perceived health risks or other problems relating to mobile handsets or transmission masts could lead to litigation or decreased mobile communications usage.

Our business relies on secure network infrastructure and computer systems, and any cyber-attacks against them, or the perception of such attacks, may materially adversely affect our operations, financial condition and results of operations.

We need to constantly upgrade our cyber capabilities to support our business needs. We depend on information and digital services to run our business and deliver value. Our ~~business operations rely~~Company faces the following challenges in the era of connectivity, digital identity, decentralized decisions, information monetization, transparency, and variable trust:

The increase in the variety of products and services that we provide to our customers (e.g. customer premise equipment, systems, devices, IoT, data and their dynamic relationships) exposes relevance as well as scalability issues in our existing security control solutions;

Our existing deterrence measures against cyber security breaches are becoming less effective. For instance, defensible gates and impermeable walls that are designed to secure our service and information infrastructure have become less effective. While such tools and measures make it difficult to breach into our system, these tools do not stop breaches altogether;

The infrastructure underlying digitalization of consumer and enterprise services, has become more complex. In order to enhance work efficiency, we allow our employees to work away from the office. This means giving employees access to the core parts of our internal network on ~~us securely maintaining~~their mobile devices, such as mobile phones and notebook computers. Given the large number of points of access to our internal network, we need to constantly make improvements to our cyber infrastructure, and ~~computer systems. A cyber-attack on~~utilize more sophisticated tools to protect it from attacks;

The consequences of cyber security breach could be severe. On the one hand, breaches resulting in leakage of our ~~systems could cause service disruptions,~~Company’s confidential commercial and/or personal information may result in irreparable damage to our ~~systems~~reputation and ~~infrastructure, including damage~~brand. Moreover, leakage of sensitive personal information could, in some cases, result in the threat to personal safety;

Perpetrators are adopting more sophisticated technologies in their attempts to breach our ~~physical assets, malfunction~~defensive security measures. We see a growing number of ~~our technology or services, accidental and/or deliberate misuse of~~automated computer programs being used in initiating attacks; and

While encrypted internet traffic protects private information, it inadvertently hampers cyber protection efforts. Perpetrators could abuse encrypted communication tools and use them in their efforts to breach into our systems, ~~and other assets, alteration~~with less risk of our technology, publication of our proprietary technologies, methods, processes, business strategies and other confidential information, as well as unauthorized access to confidential information about our customers, including their financial information, any of which may lead to reputational harm, loss of confidence in our brand, litigation, regulatory actions and loss in customers, each of which, individually or in the aggregate may materially adversely affect our business, financial condition and results of operations.such efforts being discovered by cyber security measures.

~~A key development in 2018 was~~In 2019, the appointment of a Chief Information Security Officer, or CISO, to oversee the implementation and management of information and cyber security processes, especially regarding compliance with the business directions and applicable local and international laws and regulations. PLDT ~~also established the~~Group’s Cyber Security Operations Group detected close to 3,000 cyber security-related incidents. These incidents involve the following: (1) malware attacks; (2) use of unauthorized applications; (3) Distributed Denial of Service, or ~~CSOG, headed by~~DDoS, attacks, (4) network intrusion attempts; (5) unauthorized access (6) failed log in attempts of corporate credentials; and (7) spam emails. On their own and taken as a whole, these incidents did not cause any material financial, legal, or regulatory impact to the ~~CISO,~~Company, neither did they cause any material disruptions to ~~create, implement and operate~~our business operations. Please see Item 4. “Information on the ~~information security management system, or ISMS, framework and~~Company – Recent Developments - PLDT Group’s Cyber Security Strategy” for measures we have implemented to ~~support the review and update the security policy.~~

~~In regard to~~manage cyber security ~~risks, PLDT is vulnerable~~related risks. We continue to cybersecurity threats such as denial of service, ransomware, malware, identity theft, botnets and phishing, among others. While we have invested in protection technologies that can integrate and enhance our capabilities to fight cybersecurity threats, we cannot assure you that any of such defenses will be effective against or neutralize the effects of any cyber incidents resulting from unintentional cyber security breaches or deliberateexpect attacks on our ~~network infrastructure or computer systems. Similarly, we~~cyber system in the future. We cannot ~~assure~~guarantee you that we will be able to protect our cyber system against each and every attack. Any successful attack on our cyber system could result in legal and/or regulatory liability, disruption to our business ~~will not be significantly disrupted in the event of a security breach or attack. If we fail~~operations, damage to ~~timely~~our reputation, and effectively prevent the occurrence of any new or existing cyber security incidents, or fail to promptly rectify any such incidents, our business could be significantly disrupted, our results of operations could be materially and adversely affected, and the confidence of our stakeholders could be lost.financial losses.

In 2018, 223 phishing cases against PLDT employees aimed at obtaining unauthorized access to PLDT’s systems were reported. This is slightly lower than the 232 reported cases in 2017, but significantly higher than the 92 reported cases in 2016. Phishing is a persistent threat to PLDT and we have intensified the education campaign on our employees against phishing. Despite our efforts to battle phishing, if unauthorized access to our systems occur, we may suffer direct financial losses, liabilities to customers and third parties, governmental fines, financial outlay to introduce or upgrade our systems and train employees, and/or reputational damage, any of which may materially and adversely affect our business, financial position and/or results of operations.

Cable and equipment theft, equipment failures, natural disasters, man-made events, terrorist acts and territorial disputes may materially adversely affect our operations.

Theft of telecommunication cables, major equipment failures or natural disasters, including severe weather, terrorist acts or other similar or related contingencies could adversely affect our wireline and wireless networks, including telephone switching offices, microwave links, third-party-owned local and long-distance networks on which we rely, our cell sites or other equipment, our customer account support and information systems, or employee and business records, and could have a material adverse effect on our operations.

Natural disasters, terrorist acts or acts of war could cause damage to our infrastructure ~~and~~and/or result in significant disruptions to our operations.

Our business operations are subject to interruption by natural disasters, power outages, terrorist attacks, cyber-attacks and other events beyond our control. Such events could cause significant damage to our infrastructure upon which our business operations rely, resulting in degradation or disruption of service to our customers. While we maintain insurance coverage for some of these events, the potential liabilities associated with these events could exceed the insurance coverage we maintain. Our system redundancy may be ineffective or inadequate, and our disaster recovery planning may be insufficient for all eventualities. These events could also damage the infrastructure of the suppliers that provide us with the equipment and services that we need to operate our business and provide products to our customers. A natural disaster or other event causing significant physical damage could cause us to experience substantial losses resulting in significant recovery time and expenditures to resume operations. In addition, these occurrences could result in lost revenues from business interruption as well as damage to our reputation.

Our business may be materially and adversely affected by the coronavirus outbreak.

In December 2019, an outbreak of Coronavirus Disease 2019, or COVID-19, virus was first reported to have surfaced in Wuhan, the People’s Republic of China, or PRC, later resulting in tens of thousands of confirmed cases and thousands of fatalities globally, with hundreds of confirmed cases in the Philippines. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. In a move to contain the COVID-19 outbreak, on March 12,2020, the Office of the President of the Philippines issued a Memorandum directive to impose stringent social distancing measures in the National Capital Region effective March 15, 2020. On March 16, 2020, Presidential Proclamation No. 929 was issued, declaring a State of Calamity throughout the Philippines for a period of six months from March 17, 2020 (at midnight) and imposed an enhanced community quarantine, or ECQ, throughout the island of Luzon until April 12, 2020, unless earlier lifted or extended as circumstances may warrant. On March 25, 2020, Republic Act No. 11469, otherwise known as the “Bayanihan to Heal As One Act”, was signed into law declaring a state of national emergency over the entire country, and the President of the Philippines is authorized to exercise certain powers necessary to address the COVID-19 pandemic. On April 7, 2020, the Office of the President of the Philippines released a memorandum extending the ECQ over the entire Luzon island until April 30, 2020. These measures have caused disruption to businesses and economic activities, and their impacts on businesses continue to evolve.

The outbreak of the COVID-19 and other adverse public health developments, such as the outbreak of avian influenza, severe acute respiratory syndrome, or SARS, Zika virus and Ebola virus could materially and adversely affect our business, financial condition and results of operations. These may include, temporary closures of our facilities or premises, hospitalization or quarantine of our employees, delay or suspension of supplies from our suppliers, especially those located in the PRC, disruptions or suspension of our operational activities, labor shortage due to restrictions on our employees’ ability to travel. We have taken certain measures to try and minimize the negative effect that the COVID-19 has on our operations. See Item 4. “Information on the Company – Recent Developments – Measures We Have Taken in Light of the COVID-19 Outbreak”.

In addition, the continued spread of COVID-19 has led to disruption and volatility in the global capital markets. It is possible that the continued spread of COVID-19 could cause a global economic slowdown or recession. The deterioration of the regional economy and financial markets in general will have a material adverse effect on our business, financial condition and results of operations. Furthermore, there is significant uncertainty relating to future developments of the outbreak of the COVID-19 and what actions the Philippine government will take. The impacts of the outbreak of the COVID-19 on our results of operations are highly uncertain.

Climate change could increase the impact of natural disasters and environmental legislation and regulations on our operations.

Climate change poses a number of potential risks for telecommunications operators like us, from both a physical and regulatory perspective. The ongoing global climate change may exacerbate the severity and frequency of natural disasters. The rising intensity and frequency of occurrence of storms, heatwaves and earthquakes could increase the damage to our infrastructure and failures of our wireline and wireless networks caused by such natural disasters. Should severe natural disasters occur in quick succession, we may not have sufficient resources to repair and restore our infrastructure in a timely and cost-effective manner. The increase in likelihood of our infrastructure being damaged by natural disasters could have a material adverse impact on our operations.

In light of the heightened awareness seen across the globe on climate change, the Philippine government could introduce further and more stringent environmental legislation and regulations. If such legislation or regulations are enacted, we could incur increased energy, environmental and other costs and capital expenditures to comply with the limitations. We cannot guarantee that we will at all times be in compliance with any new environmental legislation and regulations. The failure to comply with new environmental legislation and regulations could have a material adverse impact on our operations and financial conditions.

Our businesses require substantial capital investment, which we may not be able to finance.

Our projects under development and the continued maintenance and improvement of our networks and services, including Smart’s projects, networks, platforms and services, require substantial ongoing capital investment. Our consolidated capital expenditures totaled Php72,871 million, Php58,490 million ~~Php40,299 million~~ and ~~Php42,825~~Php40,299 million for the years ended December 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, respectively. We currently estimate that our consolidated capital expenditures in ~~2019~~2020 will be approximately ~~Php78~~Php83 billion.

Future strategic initiatives could require us to incur significant additional capital expenditures. For example, as part of our environmental protection initiative, we plan to conduct inspection of our submarine cables in the next few years. Depending on the results of inspection, we may need to undertake maintenance work for our submarine cables, which may involve a significant sum of capital expenditures. We may be required to finance a portion of our future capital expenditures from external financing sources, some of which have not yet been fully arranged. There can be no assurance that financing for new projects will be available on terms acceptable to us, or at all. If we cannot complete our development programs or other capital projects on time due to our failure to obtain the required financing, our growth, results of operations, financial condition and prospects could be materially and adversely affected. Furthermore, if we are unable to monetize our investments and generate the expected revenues, our ~~cashflows~~cash flows and gearing may be negatively impacted.

Our results of operations and our financial position could be materially and adversely affected if the Philippine peso significantly fluctuates against the U.S. dollar.

A substantial portion of our capital expenditures, a portion of our indebtedness and related interest expense and a portion of our operating expenses are denominated in U.S. dollars and other foreign currencies, whereas most of our revenues are denominated in Philippine pesos. See Note 2021 – Interest-bearing Financial Liabilities to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

A depreciation of the Philippine peso against the U.S. dollar would increase the amount of our U.S. dollar-denominated debt obligations, capital expenditures, and operating and interest expenses in Philippine peso terms. In the event that the Philippine peso depreciates against the U.S. dollar, we may be unable to generate enough funds through operations and other means to offset the resulting increase in our obligations in Philippine peso terms. Moreover, a depreciation of the Philippine peso against the U.S. dollar may result in our recognition of significant foreign exchange losses, which could materially and adversely affect our results of operations. A depreciation of the Philippine peso could also cause us not to be in compliance with the financial covenants imposed on us by our lenders under certain loan agreements and other indebtedness. Further, fluctuations in the Philippine peso value and of interest rates impact the mark-to-market gains/losses of certain of our financial debt instruments, which were designated as non-hedged items.

The Philippine peso has been subject to significant depreciation in recent years with the Philippine peso depreciated by approximately ~~28%~~24% from a high of Php41.08 for year end 2012 to ~~Php52.56~~Php50.80 as at December 31, ~~2018~~2019 and further depreciated to Php51.04~~52.89~~ as at March 2030, ~~2019.~~2020. We cannot assure you that the Philippine peso will not depreciate further and be subject to significant fluctuations going forward, due to a range of factors, including:

political and economic developments affecting the Philippines, including the level of remittances from overseas Filipino ~~workers;~~workers, or OFWs;

global economic and financial trends;

the volatility of emerging market currencies;

any interest rate increases by the Federal Reserve Bank of the United States and/or the BSP; and

higher demand for U.S. dollars by both banks and domestic businesses to service their maturing U.S. dollar obligations or foreign exchange traders including banks covering their short U.S. dollar positions, among others.

Our debt instruments contain restrictive covenants which require us to maintain certain financial tests and our indebtedness could impair our ability to fulfill our financial obligations and service our other debt.

Our existing debt instruments contain covenants which, among other things, require PLDT to maintain certain financial ratios and other financial tests, calculated on the basis of IFRS at relevant measurement dates, principally at the end of each quarter period. For a description of some of these covenants, see Note 2021 – Interest-bearing Financial Liabilities to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Our indebtedness and the requirements and limitations imposed by our debt covenants could have important consequences. For example, we may be required to dedicate a substantial portion of our cash flow to payments on our indebtedness, which could reduce the availability of our cash flow to fund working capital, capital expenditures and other general corporate requirements.

The principal factors that could negatively affect our ability to comply with these financial ratio covenants and other financial tests are depreciation of the Philippine peso relative to the U.S. dollar, poor operating performance of PLDT and its subsidiaries, impairment or similar charges in respect of investments or other long-lived assets that may be recognized by PLDT and its subsidiaries, and increases in our interest expense. Interest expense may increase as a result of various factors including issuance of new debt, the refinancing of lower cost indebtedness by higher cost indebtedness, depreciation of the Philippine peso relative to the U.S. dollar, the lowering of PLDT’s credit ratings or the credit ratings of the Philippines, increase in reference interest rates, and general market conditions. Of our total consolidated debts, approximately ~~13%~~9% and ~~20%~~13% were denominated in U.S. dollars as at December 31, ~~2018~~2019 and ~~2017,~~2018, respectively. Considering our consolidated hedges and U.S. dollar cash balances allocated for debt, the unhedged portion of our consolidated debt amounts ~~was~~were approximately 8% and 12% as at December 31, 2019 and 2018, ~~and 2017,~~respectively, therefore, the financial ratio and other tests are expected to be negatively affected by any weakening of the Philippine peso relative to the U.S. dollar.

If we are unable to meet our debt service obligations or comply with our debt covenants, we may need to restructure or refinance our indebtedness, seek additional equity capital or sell assets. An inability to effect these measures successfully could result in a declaration of default and an acceleration of maturities of some or all of our indebtedness, which could have a material adverse effect on our business, results of operations and financial condition.

Our subsidiaries could be limited in their ability to pay dividends to us due to internal cash requirements and their creditors having superior claims over their assets and cash flows, which could materially and adversely affect our financial condition.

A significant part of our total revenues and cash flows from operating activities are derived from our subsidiaries, particularly Smart. Smart has significant internal cash requirements for debt service, capital expenditures and operating expenses and as a result, may be financially unable to pay any dividends to PLDT. Although Smart has been making dividend payments to PLDT regularly since December 2002, there can be no assurance that PLDT will continue to receive these dividends or other distributions, or otherwise be able to derive liquidity from Smart or any other subsidiary or investee in the future.

Creditors of our subsidiaries generally have priority claims over our subsidiaries’ assets and cash flows. We and our creditors will effectively be subordinated to the existing and future indebtedness and other liabilities, including trade payables, of our subsidiaries, except that we may be recognized as a creditor with respect to loans we have made to subsidiaries. If we are recognized as a creditor of a subsidiary, our claim will still be subordinated to any indebtedness secured by assets of the subsidiary and any indebtedness of the subsidiary otherwise deemed superior to the indebtedness we hold.

We may have difficulty meeting our debt payment obligations if we do not continue to receive cash dividends from our subsidiaries and our financial condition could be materially and adversely affected as a result.

A significant number of shares of PLDT’s voting stock are held by four shareholders, which may not act in the interests of other shareholders or stakeholders in PLDT.

As at ~~January 31, 2019,~~February 29, 2020, the First Pacific Group and its Philippine affiliates, NTT Communications and NTT DOCOMO, and JG Summit Holdings, Inc. and its affiliates, or JG Summit Group, collectively, beneficially own approximately ~~53.9%~~57.2% in PLDT’s outstanding common stock (representing ~~31.8%~~33.8% of our overall voting stock). See Item 7. “Major Shareholders and Related Party Transactions” for further details regarding the shareholdings of NTT Communications and NTT DOCOMO in PLDT, and the rights granted pursuant to the Cooperation Agreement, Strategic Agreement and the Shareholders Agreement.

Additionally, all of PLDT’s shares of voting preferred stock, which represent approximately 41% of PLDT’s total outstanding shares of voting stock are owned by a single stockholder, BTF Holdings, Inc., or BTFHI.

The FP Parties and/or NTT Communications and/or NTT DOCOMO and/or JG Summit Group and/or BTFHI may exercise their respective voting rights over certain decisions and transactions in a manner that could be contrary to the interests of other shareholders or stakeholders in PLDT.

Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could adversely impact investor confidence and the market price of our common shares and ADSs, and have a material adverse effect on our business, our reputation, financial condition and results of operations.

We are required to comply with various Philippine and U.S. laws and regulations on internal control. However, internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal control over financial reporting can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal control over financial reporting, including our failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed, we could fail to meet our reporting obligations and there could be a material adverse effect on our business, our reputation, financial condition and results of operations, and the market prices of our common shares and ADSs could decline significantly.

We are unionized and are vulnerable to work stoppages, slowdowns or increased labor costs.

As at December 31, ~~2018,~~2019, PLDT has three employee unions, representing in the aggregate ~~5,572,~~9,099, or ~~32%~~48%, of the employees of the PLDT Group. This unionized workforce could result in demands that may increase our operating expenses and adversely affect our profitability. For instance, PLDT experienced significant charges from its manpower rightsizing program in 2019, 2018 and 2017, mainly incurred in the fixed-line business. See Note 5 – Income and Expenses – Compensation and Employee Benefits to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”. Each of our different employee groups require separate collective bargaining agreements. If PLDT and any of its unions are unable to reach an agreement on the terms of their collective bargaining agreement or if we were to experience widespread employee dissatisfaction, we could be subject to work slowdowns or stoppages. Any of these events would be disruptive to our operations and could harm our business.

Additionally, on July 3, 2017, PLDT received a Compliance Order from the Department of Labor and Employment of the Philippines, or DOLE, in connection with the non-payment of statutorily required monetary benefits, including the 13^th month pay, to certain contractor employees. On July 31, 2018, the Court of Appeals promulgated a decision granting PLDT’s prayer for an injunction against the Compliance Order and remanded back to the DOLE for further proceedings the computation of the monetary awards, which in the regularization orders amounted to Php51.8 million.We cannot guarantee that PLDT or its subsidiaries will not be subject to similar proceedings or other labor-related regulatory activities, the results of which may have an adverse reputational and/or financial impact. See Note 2627 – Provisions and Contingencies to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

The loss of key personnel or the failure to attract and retain highly qualified personnel could compromise our ability to effectively manage our business and pursue our growth strategy.

Our future performance depends on our ability to attract and retain highly qualified key technical, development, sales, services and management personnel. The loss of key employees could result in significant disruptions to our business, and the integration of replacement personnel could be costly and time consuming, could cause

additional disruptions to our business, and could be unsuccessful. We cannot guarantee the continued employment of any of the members of our senior leadership team, who may depart our Company for any number of reasons, such as other business opportunities, differing views on our strategic direction or other personal reasons. Any inability to attract, retain or motivate our personnel could have a material adverse effect on our results of operations and prospects.

Adverse results of any pending or future litigation, internal or external investigations and/or disputes may impact PLDT’s cash flows, results of operations and financial condition.

We are currently involved in various legal proceedings. Our estimate of the probable costs for the resolution of these claims have been developed in consultation with our counsel handling the defense in these matters and is based upon our analysis of potential results. Our future financial performance could be materially affected by an adverse outcome or by changes in our estimates or effectiveness of our strategies relating to these proceedings and assessments.

For more information on PLDT’s legal proceedings, see Item 8. “Legal Proceedings” and Note 2627 – Provisions and Contingencies to the accompanying consolidated financial statements in Item 18. “Financial Statements.” While PLDT believes the positions it has taken in these cases are legally valid, the final results of these cases may prove to be different from its expectations. In addition, there is no assurance that PLDT will not be involved in future litigation or other disputes, the results of which may materially and adversely impact its business and financial conditions.

Our financial condition and operating results will be impaired if we experience high fraud rates related to device financing, credit cards, dealers, or subscriptions.

Our operating costs could increase substantially as a result of fraud, including device financing, customer credit card, subscription, or dealer fraud. If our fraud detection strategies and processes are not successful in detecting and controlling fraud, whether directly or by way of the systems, processes, and operations of third parties such as customers, national retailers, dealers, and others, the resulting loss of revenue or increased expenses could have a material adverse effect on our financial condition and operating results.

Risks Relating to the Philippines

PLDT’s business may be adversely affected by political or social or economic instability in the Philippines.

The Philippines is subject to political, social and economic volatility that, directly or indirectly, could have a material adverse impact on our ability to sustain our business and growth.

The Philippines, China and several Southeast Asian nations have been engaged in a series of long-standing territorial disputes over certain islands in the West Philippine Sea, also known as the South China Sea. Should these territorial disputes continue or escalate further, the Philippines and its economy may be disrupted and our operations could be adversely affected as a result. In particular, further disputes between the Philippines and China may lead both countries to impose trade restrictions on the other’s imports. Any such impact from these disputes could adversely affect the Philippine economy, and materially and adversely affect our business, financial position and financial performance.

We cannot assure you that the political environment in the Philippines will be stable or that the current or any future government will adopt economic policies that are conducive to sustained economic growth or which do not materially and adversely impact the current regulatory environment for the telecommunications and other companies.

If foreign exchange controls were to be imposed, our ability to meet our foreign currency payment obligations could be adversely affected.

The Philippine government has, in the past, instituted restrictions on the conversion of the Philippine peso into foreign currencies and the use of foreign exchange received by Philippine companies to pay foreign currency-denominated obligations. The Monetary Board of the BSP has statutory authority, with the approval of the President of the Philippines, during a foreign exchange crisis or in times of national emergency, to:

suspend temporarily or restrict sales of foreign exchange;

require licensing of foreign exchange transactions; or

require the delivery of foreign exchange to the BSP or its designee banks.

We cannot assure you that foreign exchange controls will not be imposed in the future. If imposed, these restrictions could materially and adversely affect our ability to obtain foreign currency to service our foreign currency obligations.

As a foreign private issuer, we follow certain home country corporate governance practices which may afford less protection to holders of our ADSs.

As a foreign private issuer incorporated in the Philippines and listed on the PSE, we are permitted under applicable NYSE rules to follow certain home country corporate governance practices. The corporate governance practice and requirements in the Philippines do not require us to have a majority of the members of our board of directors to be independent, and do not require regularly scheduled executive sessions of non-management directors or regularly scheduled executive sessions where only independent directors are present. Further, the criteria for independence of directors and audit committee members applicable in the Philippines differ from those applicable under the NYSE rules. These Philippine home country corporate governance practices may afford less protection to holders of our ADSs.

The credit ratings of the Philippines may restrict the access to capital of Philippine companies, including PLDT.

Historically, the Philippines’ sovereign debt has been rated non-investment grade by international credit rating agencies. In ~~December 2018,~~2019, the Philippines’ long-term foreign currency-denominated debt was ~~affirmed~~upgraded by S&P Global, or S&P, to BBB+ with stable outlook, while Fitch Ratings, or Fitch, ~~as investment-grade with a rating of BBB with a stable outlook, and Standard and Poor’s, or S&P,~~ and Moody’s ~~Investor~~Investors Service, or Moody’s, affirmed the Philippines’ long-term foreign currency-denominated debt to the investment-grade rating of ~~BBB+~~BBB and Baa2, respectively, with a stable outlook. ~~Though investment grade, the relatively low sovereign rating of the~~The Philippine ~~Government~~Government’s credit ratings will directly ~~and adversely~~ affect companies domiciled in the Philippines as international credit rating agencies issue credit ratings by reference to that of the sovereign. No assurance can be given that Fitch, Moody’s, S&P, or any other international credit rating agency will not downgrade the credit ratings of the Philippine Government in the future and, therefore, Philippine companies, including PLDT. Any such downgrade could have a material adverse impact on the liquidity in the Philippine financial markets, the ability of the Philippine Government and Philippine companies, including PLDT, to raise additional financing, and the interest rates and other commercial terms at which such additional financing is available.

Item 4.

Information on the Company

Overview

We are one of the leading telecommunications service providers in the fixed line, wireless and broadband markets in the Philippines, in terms of both subscribers and revenues. Through our three principal business segments (Wireless, Fixed Line and Others), we offer a large and diverse range of telecommunications services across the Philippines’ most extensive fiber optic backbone and wireless and fixed line networks.

Our common shares are listed and traded on the PSE and our ADSs are listed and traded on the NYSE in the United States.

We had a market capitalization of approximately ~~Php291,675~~Php213,463 million, or US$~~5,399~~4,202 million, as at December 31, ~~2018,~~2019, representing one of the largest market capitalizations among Philippine-listed companies. We had total revenues of ~~Php164,752~~Php169,187 million, or US$~~3,135~~3,330 million, and net income attributable to equity holders of PLDT of ~~Php18,916~~Php22,521 million, or US$~~360~~443 million, for the year ended December 31, ~~2018.~~2019.

Historical Background and Development

PLDT was incorporated under the old Corporation Law of the Philippines (Act 1459, as amended) on November 28, 1928 as Philippine Long Distance Telephone Company, following the merger of four telephone companies under common U.S. ownership. Under its Amended Articles of Incorporation, PLDT’s corporate term is currently limited through 2028.

PLDT’s original franchise was granted in 1928 and was last amended in 1991, extending its effectiveness until 2028 and broadening PLDT’s franchise to permit PLDT to provide virtually every type of telecommunications service. PLDT’s franchise covers the business of providing basic and enhanced telecommunications services in and between the provinces, cities and municipalities in the Philippines and between the Philippines and other countries and territories including mobile, wired or wireless telecommunications systems; fiber optics; multi-channel transmission distribution systems and their VAS (including but not limited to transmission of voice, data,

facsimile, control signals, audio and video); information services bureau and all other telecommunications systems technologies presently available or that can be made available through technical advances or innovations in the future. Our subsidiaries, including Smart and DMPI, also maintain their own franchises with a different range of services and periods of legal effectiveness for their licenses.

Our principal executive offices are located at the Ramon Cojuangco Building, Makati Avenue, Makati City, Philippines and our telephone number is +(632) ~~816-8556.~~8816-8534. Our website address is www.pldt.com. The contents of our website are not a part of this annual report. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at https://www.sec.gov.

Recent Developments

~~Investment~~Measures We Have Taken in Light of ~~PGIH in Multisys~~the COVID-19 Outbreak

In light of the ongoing outbreak of the COVID-19 pandemic, we have conducted an analysis of PLDT’s risks, and have implemented the following measures to protect our employees, customers and trade partners.

People

On ~~November 8, 2018,~~March 9, 2020, we instituted a travel ban to high risk countries on our employees and executed a partial lockdown with access to our corporate premises limited only to employees. On March 12, 2020, we imposed a ban on all foreign travel.

To minimize exposure of our employees to the COVID-19 virus as well as to prevent its further spreading, we have implemented a Work from Home policy, which came into effect on March 11, 2020. Certain of our employees are allowed to work from home until the spread of the virus is brought under control in the Philippines. To ensure minimal disruption to our operations, we have taken steps to ensure that employees working from home are properly equipped with the appropriate digital equipment, including internet connection. For the employees that continue to work on-site, we have taken steps to try and minimize their risk of exposure to the COVID-19 virus.

We have issued instructions and guidelines to our trade partners on how to best deal with the COVID-19 outbreak.

Network and IT

As more and more people in the Philippines choose to work from home, we have been experiencing a significant increase in the usage of our internet services. Since the beginning of the COVID-19 outbreak in the Philippines, we have been closely monitoring our network traffic for usage spikes and possible congestion. As of the date of this annual report, we have sufficient capacity to serve the increased needs of all our subscribers. We are equipped with the technology to manage our network infrastructure remotely, which helps us respond to changes in internet traffic more efficiently. We have taken steps to enhance security for premises in which our critical network and IT systems are kept. We have also moved essential spare parts and supplies from our remote warehouses to Metropolitan Manila to help us undertake maintenance and repairs more efficiently.

Customer Service

To provide customers with connectivity when they need it the most, we are providing zero-rated access to certain government agencies and emergency hotlines, boosting minimum speeds for our Home subscribers, increasing data allocations for prepaid and Enterprise customers, equipping our Enterprise customers with telecommuting solutions, granting a 30-day payment extension period to our postpaid customers, and for our OFWs extending duration of free calls through our Free Bee app. On May 1, 2020, we will start implementing a six-month installment payment program for the outstanding monthly bills of our postpaid subscribers. Under this payment program, PLDT Home, Smart and Sun consumer postpaid subscribers can settle their unpaid balances as of April 30, 2020 in six equal monthly payments with 0% interest and no penalties.

In cases where our service teams need to enter customers’ homes or business premises, we have equipped them with protective gear such as face masks and gloves. Members of our service teams have also been trained in the proper health protocols for before, during, and after site visits, including maintaining proper social distances with customers at all times.

We have taken the following precautionary measures at our stores:

provided 70% alcohol at all counters for employees and customers;

provided Lysol wipes and alcohol pads to sanitize work area after each transaction;

provided Lysol spray to sanitize the air and incoming deliveries;

provided handheld infrared thermometers for employees to take temperatures of all visitors to our stores, including customers and third-party personnel; and

provided facial masks for customer-facing employees.

PLDT Group’s Cyber Security Strategy

In 2019, the PLDT Group significantly increased investments in cyber security measures. The PLDT Group’s cyber security strategy was to focus efforts and resources in protecting our most crucial digital information and cyber assets. We achieved the following in our continued efforts to optimize our cyber security operations framework:

We have deployed an endpoint security to all corporate workstations to detect, prevent, and respond to attacks. This capability helped to detect more than 1,500 malware and unauthorized software on endpoints. The endpoint security solution also enables our operations team to quickly respond to and clean-up endpoints by blocking, remotely deleting and/or putting into quarantine malicious file detections. These clean-up efforts were executed as part of the Company’s response and remediation process;

We now have a fully operational 24x7 Cyber Security Incident and Response Team, or CSIRT, which enabled the detection and response to security incidents within less than one minute, on average. The group has also recently secured membership of the Forum of Incident Response and Security Teams, or FIRST. FIRST is a globally recognized leader in cyber security incident response. Having secured membership of FIRST provides the Company access to best practices and tools, and trusted communication with other member incident response teams;

We continue to prevent attacks on our corporate web sites through the use of our web application firewall;

We automated the review of cyber security protection for applications, databases and operating system access and entitlements. This capability supports both internal and external annual SOX-audit activities;

We have deployed a secure DNS solution that blocked billions of attempts to access phishing, scamming and malware-distribution sites. This solution continues to benefit both our corporate employees as well as our customers;

We have established 150 million indicators of compromise in our threat intelligent database, which is now being used for real-time threat correlation;

We continued to improve our anti-DDoS strategy to cover all layers of defenses (e.g. external, edge, internal, and people/process) in response to a significant increase in the number and frequency of DDoS attacks in the second half of 2019, as compared to the first half of the year;

We continued our efforts to expand our security visibility by enrolling active IP-based assets to our Security Operations Center;

We have established corporate governance processes around the procurement and deployment of IoT and customer-premises equipment; and

We also conduct weekly awareness campaigns for our employees. We continue to see persistent phishing campaigns targeting our customers, the majority of which are attempts to gain Microsoft Office 365 credentials. We perform periodic phishing simulations to assess the awareness of our employees on social engineering schemes. Employees who fall victim to the phishing test were given cyber security awareness training. These periodic exercises resulted in a heightened awareness among employees of phishing and scamming tactics. Bottom-up engagement of our employees is one of our key success factors for an effective cyber security program execution.

Expiration of SubicTel’s Franchise

Effective January 23, 2020, PLDT Subic Telecom, Inc., or SubicTel ceased to operate as a telecommunications service provider, pursuant to the expiration of its franchise issued by the Subic Bay Metropolitan Authority, or SBMA. In order to facilitate continued customer service, arrangements have been made between SubicTel and PLDT where PLDT would make its services available to the affected SubicTel subscribers on voluntary basis. The NTC interposed no objection to the transfer of SubicTel’s subscribers to PLDT, subject to certain conditions. Likewise, the SBMA Board approved the issuance of Certificate of Registration to PLDT to operate within SBMA. On September 24, 2019, the PLDT Board of Directors approved the ~~investment~~acquisition of ~~Php2,150 million in Multisys~~the assets and subscribers of SubicTel for a ~~45.73% equity interest through~~total consideration of Php675 million. PLDT has committed to provide financial support to discharge SubicTel’s liabilities as the need arises. This transaction was eliminated in our consolidated financial statements.

Expiration of Maratel’s Legislative Franchise

Effective April 2020, PLDT-Maratel, Inc., or Maratel, will cease to operate as a telecommunications service provider, following the expiration of its ~~wholly-owned subsidiary, PGIH. Multisys is a Philippine software development~~legislative franchise, R.A. 7970. In order to ensure continued customer service, Maratel will assign its assets and ~~IT solutions provider engaged in designing, developing, implementing business system solutions and~~subscribers, or the “Maratel Subscribers”, to PLDT who undertakes to offer its services ~~covering courseware, webpage development and designing user-defined system programming. PGIH’s investment involves~~to Maratel Subscribers subject to conditions as may be imposed by the NTC. The NTC, has yet to respond to Maratel’s notice to transfer its subscribers to PLDT. On November 7, 2019, the PLDT Board of Directors approved the acquisition of the assets and Maratel Subscribers for a total consideration of Php442 million. PLDT has committed to provide financial support to discharge Maratel’s liabilities as the need arises. This transaction was eliminated in our consolidated financial statements.

Smart, Globe and Dito Joint Venture on Mobile Number Portability

In 2019, Smart, along with Globe and Dito entered into an agreement to form a joint venture that will address the requirements of Republic Act No. 11202, or the MNP Act. The newly enacted law allows mobile phone users to switch networks or change their subscription from prepaid to postpaid or vice versa, without changing their mobile numbers.

The joint venture company, TCI was incorporated in the Philippines on December 26, 2019 and registered with the Philippine SEC on January 17, 2020. The primary purpose of the joint venture is to serve as a clearing house for MNP. TCI will ensure smooth implementation of mobile number porting services. Smart subscribed to Php10 million representing 33.3% equity interest in TCI, which is equivalent to 10 million shares at a subscription price of Php1.00 per share.

Consent Solicitation Exercise of PLDT

On October 11, 2019, PLDT announced its undertaking of a consent solicitation exercise relating to the 5.2250%
7-Year Fixed Rate Bonds due 2021 and 5.2813% 10-Year Fixed Rate Bonds due 2024, to amend PLDT’s maximum stand-alone Total Debt to EBITDA Ratio stipulated in the Trust Indenture from 3.0:1 to 4.0:1. The proposed amendment seeks to provide the Company with greater flexibility to support, if necessary, higher levels of capital expenditures and general corporate requirements. Moreover, it will align the covenant ratio of PLDT’s outstanding debt capital market issuances with that of the existing bilateral facilities of both PLDT and Smart.

On October 30, 2019, PLDT announced the early closing of the consent solicitation exercise from its original schedule of November 15, 2019 when the Company received the required consents to effect the proposed amendment. The new debt covenant is effective as at December 31, 2019.

Issuance of Smart Perpetual Notes

On September 19, 2019, Smart issued Php4,700 million perpetual notes to DMPI under the Notes Facility Agreement dated September 16, 2019.

Proceeds from the issuance of these notes are intended to finance capital expenditures. The notes have no fixed redemption dates, however, Smart may, at its sole option, redeem the notes. The notes are subordinated to and ~~existing shares.~~rank junior to all senior loans of Smart. This transaction was eliminated in our consolidated financial statements.

Expiration of Philcom’s Legislative Franchise

Effective September 15, 2019, PLDT-Philcom, Inc., or Philcom, ceased to operate as a telecommunications service provider, pursuant to the expiration of its legislative franchise, R.A. 7783. In order to facilitate continued customer service, arrangements have been made between Philcom and PLDT where PLDT would make its

services available to the affected Philcom subscribers on voluntary basis. The NTC interposed no objection to the transfer of Philcom’s subscribers to PLDT, subject to certain conditions. Consequently, Philcom and PLDT executed a Deed of Assignment on August 15, 2019 and September 13, 2019 wherein all property and equipment of Philcom, accounts receivable, inventories and subscribers were transferred to PLDT for a total consideration of Php1,760 million and Php319 million, respectively, after complying with the conditions imposed by NTC. PLDT has committed to provide financial support to discharge its liabilities as the need arises. This transaction was eliminated in our consolidated financial statements.

Decrease in PCEV’s Par Value of Common Stock and Authorized Common Capital Stock

On ~~December 3, 2018, PGIH completed~~May 10, 2019 and June 25, 2019, PCEV’s Board of Directors and stockholders approved the ~~closing~~decrease in PCEV’s par value of ~~its investment in Multisys. PGIH paid Php523~~common stock, from Php21,000 to Php8,700, and authorized common capital stock, from Php12,060 million to ~~the owner~~Php4,996 million.

The decrease in PCEV’s par value of ~~Multisys for the acquisition of existing shares~~common stock and ~~invested Php800 million into Multisys as a deposit for future subscription pending the approval~~authorized capital stock was approved by the Philippine SEC on December 19, 2019. Consequently, the partial return of capital representing their proportionate share in the ~~capital increase of Multisys.~~

~~On February 1, 2019, the Philippine SEC approved the capital increase of Multisys.~~

~~Loss of Control of PCEV over VIH~~

On October 4, 2018, PLDT, as the ultimate Parent Company of PCEV, VIH, Vision Investment Holdings Pte. Ltd., or Vision, an entity indirectly controlled by KKR & Co., Inc., or KKR, and Cerulean Investment Limited, or Cerulean, an entity indirectly owned and controlled by Tencent Holdings Limited, or Tencent, entered into subscription agreements under which Vision and Cerulean, or the Lead Investors, will separately subscribe to and VIH will allot and issue to the Lead Investors a total of up to US$175 million Convertible Class A Preferred Shares of VIH, with an option for VIH to allot and issue up to US$50 million Convertible Class A Preferred Shares to such follower investors as may be agreed among VIH, PLDT and the Lead Investors, or the upsize option.

On November 26, 2018, PLDT, the International Finance Corporation, or IFC, and IFC Emerging Asia Fund, or IFC EAF, a fund managed by IFC Asset Management Company, entered into subscription agreements under which IFC and IFC EAF, the follower investors, will separately subscribe to and VIH will allot and issue to the follower investors a total of up to US$40 million Convertible Class A Preferred Shares of VIH pursuant to the upsize option.

~~The foregoing investment~~decrease in VIH is not subject to the compulsory merger notification regime under the Philippine Competition Act and its implementing rules and regulations. In addition, the Bangko Sentral ng Pilipinas confirmed that it interposes no objection to the investment.

On November 28, 2018, VIH received the US$175 million funding from KKR and Tencent. Subsequently, VIH received the US$40 million funding from IFC and IFC EAF. As a result, PCEV’s ownership was reduced to 48.74% and retained only two out of the five board seats in VIH, which resulted to a loss of control.

~~ePLDT’s Additional Investment in ePDS~~

~~On March 5, 2018 and August 7, 2018, the Board of Directors of ePLDT approved the additional investment in ePDS~~par value amounting to ~~Php134~~Php6,825 million and ~~Php66~~Php4 million ~~respectively, thereby increasing its equity interest in ePDS from 67%~~were paid to ~~95%.~~Smart and PCEV’s minority shareholders, respectively.

Sale of Rocket Internet Shares

On April 16, 2018, Rocket Internet announced the buyback of up to 15 million Rocket Internet shares through a public share purchase offer, or the Offer, against payment of an offer price in the amount of €24 per share. PLDT Online Investments Pte. Ltd., or PLDT Online, committed to accept the Offer of Rocket Internet for at least 76.8 million shares, or approximately 67.4% of the total number of shares directly held by PLDT Online.

On May 4, 2018, Rocket Internet accepted the tender of PLDT Online of 7 million shares and paid the total consideration of €163 million, or Php10,059 million, which was settled on May 9, 2018, reducing the equity ownership in Rocket Internet from 6.1% to 2.0%.

On May 23, 2018, Rocket Internet redeemed 10.8 million shares, reducing its share capital ~~of the company~~ to €154 million. As a result of the redemption of shares, PLDT Online’s equity ownership in Rocket Internet increased from 2.0% to 2.1%.

On various dates in the third quarter of 2018, PLDT Online sold 0.7 million Rocket Internet shares for an aggregate amount of €22 million, or Php1,346 million, reducing the equity ownership in Rocket Internet from 2.1% to 1.7%.

~~Conversion of PLDT Online’s iflix Convertible Note~~

On August 4, 2017, PLDT Online subscribed to a convertible note of iflix for US$1.5 million, or Php75 million, in a new funding round led by Hearst Entertainment. The convertible note was paid on August 8, 2017. The note is zero coupon, senior and unsubordinated, non-redeemable, transferable and convertible into Series B Preferred Shares subject to occurrence of a conversion event. iflix will use the funds to invest in its local content strategy and for its regional and international expansion.

On December ~~15,~~6, 2018, ~~the US$1.5~~Rocket Internet redeemed 1.9 million convertible note held by PLDT Online was converted into 1.0 million Series B Preferred Shares of iflix upon the occurrence of the cut-off date. After the conversion of all outstanding convertible notes,shares reducing its share capital to €153 million. PLDT Online’s equity ownership in ~~iflix~~Rocket Internet remained at 1.7%.

On various dates in 2019, PLDT Online sold 0.7 million Rocket Internet shares for an aggregate amount of €18 million, or Php1,021 million, reducing equity ownership in Rocket Internet from 1.7% to 1.3%.

On October 9, 2019, Rocket Internet redeemed 1.7 million shares reducing its share capital to €151 million. PLDT Online’s equity ownership in Rocket Internet remained at 1.3%.

On January 30, 2020, Rocket Internet redeemed 13.5 million shares, reducing its share capital to €137 million. As a result of the redemption of shares, PLDT Online’s equity ownership in Rocket Internet increased from 1.3% to 1.4%.

Expiration of Digitel’s Legislative Franchise

On February 17, 1994, the Philippine Congress granted a legislative franchise to Digitel under R.A. No. 7678 to install, operate and maintain telecommunications systems throughout the Philippines for public domestic and international telecommunications, and for other purposes. R.A. No. 7678 expired on February 17, 2019 and was ~~reduced from 7.3%~~not renewed due to ~~5.3%.~~the migration of all of its subscribers to PLDT in January 2019. Our management is currently assessing the business direction of Digitel moving forward. PLDT has committed to provide financial support to discharge its liabilities and as the need arises.

Investment of PGIH in Multisys

On November 8, 2018, the PLDT Board of Directors approved the investment of Php2,150 million in Multisys Technologies Corporation, or Multisys, for a 45.73% equity interest through its wholly-owned subsidiary, PGIH. Multisys is a Philippine software development and IT solutions provider engaged in designing, developing, implementing business system solutions and services covering courseware, webpage development and designing user-defined system programming. PGIH’s investment involves the acquisition of new and existing shares.

On December 3, 2018, PGIH completed the closing of its investment in Multisys. Out of the Php550 million total consideration for the acquisition of existing shares, PGIH paid Php523 million to the owners of Multisys. On June 3, 2019, the balance of the acquisition consideration amounting to Php27 million was fully paid. Further, PGIH invested Php800 million into Multisys as a deposit for future stock subscription pending the approval by the Philippine SEC of the capital increase of Multisys. On February 1, 2019, the Philippine SEC approved the capital increase of Multisys.

The carrying value of the investment in Multisys amounted to Php2,538 million and Php2,388 million, including subscription payable of Php800 million and contingent consideration of Php230 million as at December 31, 2019 and 2018, respectively.

Investment of PLDT Capital in Phunware

On September 3, 2015, PLDT Capital subscribed to an 8% US$5 million Convertible Promissory Note, or Note, issued by Phunware, a Delaware corporation. Phunware provides an expansive mobile delivery platform that creates, markets, and monetizes mobile application experiences across multiple screens. The US$5 million Note was issued to and paid for by PLDT Capital on September 4, 2015.

On December 18, 2015, PLDT Capital subscribed to Series F Preferred Shares of Phunware for a total consideration of US$3 million. On the same date, the Note and its related interest were converted to additional Phunware Series F Preferred Shares.

On February 27, 2018, Phunware entered into a definitive Agreement and Plan of Merger, or Merger Agreement, with Stellar Acquisition III, Inc., or Stellar, relating to a business combination transaction for an enterprise value of US$301 million, on a cash-free, debt-free basis. Pursuant to the Merger Agreement, the holders of Phunware common stock will be entitled to the right to receive the applicable portion of the merger consideration in the form of Stellar common shares, which are listed on the Nasdaq Stock Market. As a result, the holders of Phunware preferred stock have requested the automatic conversion of all outstanding preferred shares into common shares effective as of immediately prior to the closing of the transaction on a conversion ratio of one common share per one preferred share. In addition to the right to receive Stellar common shares, each holder of Phunware stock is entitled to elect to receive its pro rata share of warrants to purchase Stellar common shares that are held by the affiliate companies of Stellar’s co-Chief Executive Officers, or Stellar’s Sponsors.

On November 28, 2018, PLDT Capital elected to receive its full pro rata share of the warrants to purchase Stellar common shares held by Stellar’s Sponsors.

On December 26, 2018, Phunware announced the consummation of its business combination with Stellar. Stellar, the new Phunware holding company, changed its corporate name to “Phunware, Inc.,” or PHUN, and Phunware changed its corporate name to “Phunware OpCo, Inc.” Upon closing, PLDT Capital received the PHUN common shares equivalent to its portion of the merger consideration and its full pro rata share of warrants to purchase PHUN common shares.

~~Investment of~~On March 15, 2019, PLDT Capital ~~in Matrixx~~

~~On December 18, 2015, PLDT Capital entered into a Stock and Warrant Purchase Agreement with Matrixx, a Delaware corporation. Matrixx provides the IT foundation~~exercised its warrants to move to an all-digital service environment with a new real-time technology platform designed to handle the surge in interactions without forcing the compromises of conventional technology. Under the terms of the agreement, PLDT Capital subscribed to convertible Series B Preferred Stock of Matrixxpurchase PHUN common shares for a total consideration of US$~~5 million,~~1.6 million.

Commitment of New Investments in Voyager Innovations Holdings, Pte. Ltd., or Php237 million, and was entitled to purchase additional Series B Preferred Stock upon occurrence of certain conditions on or before March 15, 2016. PLDT Capital did not exercise its right to purchase additional Series B Preferred Stock of Matrixx. VIH

On ~~December 20, 2018, Matrixx~~April 16, 2020, PLDT entered into ~~a Repurchase Agreement~~agreements with ~~PLDT Capital~~KRR, Tencent, IFC and IFC Emerging Asia Fund to ~~repurchase~~commit up to US$120 million of new funding towards expansion efforts of VIH. This follows KKR’s, Tencent’s, IFC’s and IFC Emerging Asia Fund’s initial investment totaling US$215 million made to VIH in 2018. VIH plans to apply some or all of the US$120 million investment in developing its ~~capital stock held~~financial technology arm, PayMaya Philippines, or PayMaya.

Attys. Baquiran and Tecson vs. NTC, et al.

~~Investment of iCommerce in Philippines Internet Holding S.à.r.l., or PHIH~~

~~On January 20, 2015,~~one hand, and PLDT and ~~Rocket Internet entered into a joint venture agreement designed to foster~~Smart, on the development of internet-based businesses in the Philippines. PLDT, through its subsidiary, Voyager, and Asia Internet Holding S.à r.l., or AIH, which is 50%-owned by Rocket Internet, were the initial shareholders of the joint venture company PHIH. iCommerce, former subsidiary of Voyager, replaced the latter as shareholder of PHIH on October 14, 2015 and held a 33.33% equity interest in PHIH.other.

The objective of PHIH was the creation and development of online businesses in the Philippines, the leveraging of local market and business model insights, the facilitation of commercial, strategic and investment partnerships, and the acceleration of the rollout of online startups in the Philippines. In accordance with the underlying agreements, iCommerce paid approximately €7.4 million to PHIH as contribution to capital. Payment of another contribution by iCommerce

For updates relating to the ~~PHIH capital of approximately €2.6 million was requested in 2016~~above discussion, please see Note 27 – Provisions and ~~remained outstanding.~~

On September 15, 2017, AIH initiated arbitral proceedings via the German Arbitration Institute (DIS) against iCommerce for not settling the €2.6 million contribution. AIH required the payment of €2.6 million plus interest and all costs of the arbitral proceedings.

On December 14, 2017, the management and operations of iCommerce was transferred from VIH to PLDT Online. As a result, VIH ceased to have any direct interest in iCommerce and any indirect interest in PHIH. See ~~Note 2 – Summary of Significant Accounting Policies – Transfer of iCommerce to PLDT Online~~Contingencies to the accompanying audited consolidated financial statements in Item 18.

On April 19, 2018, iCommerce, together with PLDT and Voyager, executed a Settlement Agreement with AIH to terminate the arbitral proceedings and to settle disputes over rights and obligations in connection with the PHIH agreements. On the same date, iCommerce executed a Share Transfer Agreement with AIH to transfer its PHIH shares to AIH. As a result, iCommerce gave up its 33.33% equity interest for zero value and its claims over the remaining cash of PHIH. ~~iCommerce, AIH and PHIH waived all other claims in connection with PHIH, including any claims against iCommerce.~~

In separate letters dated April 26, 2018, iCommerce and AIH informed the DIS that both parties have concluded an out-of-court settlement with AIH requesting for the termination of the arbitral proceedings.

On May 7, 2018, iCommerce received the order of the DIS for the termination of the arbitral proceedings and the administrative fees to be paid in relation to the arbitral proceedings. With the foregoing, iCommerce has completed the exit from the joint venture.

~~Consolidation of the Digital Investments of Smart under PCEV~~

~~On February 27, 2018, the Board of Directors of PCEV approved the consolidation of the various digital investments under PCEV.~~

On March 14, 2018, PCEV entered into a Share Purchase Agreement with Voyager to purchase 53 million ordinary shares of VIH, representing 100% of the issued and outstanding ordinary shares of VIH, for a total consideration of Php465 million. The total consideration was settled on March 15, 2018, while the transfer of shares to PCEV was completed on April 6, 2018.

On March 14, 2018, VIH entered into Share Purchase Agreement with Smart to purchase all of its 170 million common shares of Voyager for a total consideration of Php3,527 million. The total consideration was settled on April 16, 2018.

On April 12, 2018, PCEV entered into a Subscription Agreement with VIH to subscribe to additional 96 million ordinary shares of VIH with a par value of SG$1.00 per ordinary shares, for a total subscription price of SG$96 million, or Php3,806 million, which was settled on April 13, 2018.

~~Sale of PCEV’s Receivables from MPIC~~

On March 2, 2018, PCEV entered into a Receivables Purchase Agreement, or RPA, with various financial institutions, or the Purchasers, to sell a portion of its receivables from MPIC due in 2019 to 2021 amounting to Php5,550 million for a total consideration of Php4,852 million, which was settled on March 5, 2018. Under the terms of the RPA, the Purchasers will have exclusive ownership of the purchased receivables and all of its rights, title, and interest.

On March 23, 2018, PCEV entered into another RPA with a financial institution to sell a portion of its receivables from MPIC due in 2019 amounting to Php2,230 million for a total consideration of Php2,124 million, which was settled on April 2, 2018.

~~Agreement between PLDT, Smart and Amdocs~~

On January 24, 2018, PLDT and Smart entered into a seven-year, US$300 million Managed Transformation Agreement with Amdocs, a leading provider of software and services to communications and media companies, to upgrade PLDT’s business IT systems and improve its business processes and services, aimed at enhancing consumer satisfaction, reducing costs and generating increased revenues.

On September 28, 2018, PLDT and Amdocs expanded their strategic partnership under a new six-year service agreement to consolidate, modernize and manage PLDT and Smart’s IT Infrastructure, to further enhance customer experience and engagement. “Financial Statements”.

~~Transfer of Hastings PDRs to PLDT Beneficial Trust Fund~~

On January 22, 2018, ePLDT’s Board of Directors approved the assignment of the Hastings PDRs, representing 70% economic interest in Hastings Holdings, Inc., to the PLDT Beneficial Trust Fund for a total consideration of Php1,664 million. The assignment was completedFor updates on ~~February 15, 2018 and ePLDT subsequently ceased to have any economic interest in Hastings.~~

~~Divestment of CURE~~

On October 26, 2011, PLDT received the Order issued by the NTC approving the application jointly filed by PLDT and Digitel for the sale and transfer of approximately 51.6% of the outstanding common stock of Digitel to PLDT. The approval of the application was subject to conditions which included the divestment by PLDT of CURE, in accordance with the Divestment Plan.

In a letter dated July 26, 2012, Smart informed the NTC that it has complied with the terms and conditions of the divestment plan as CURE had rearranged its assets, such that, except for assets necessary to pay off obligations due after June 30, 2012 and certain tax assets, CURE’s only remaining assets as at June 30, 2012 were its congressional franchise, the 10MHz of 3G frequency in the 2100 band and related permits.

In a letter dated September 10, 2012, Smart informed the NTC that the minimum Cost Recovery Amount, or CRA, to enable PLDT to recover its investment in CURE includes, among others, the total cost of equity investments in CURE, advances from Smart for operating requirements, advances from stockholders and associated funding costs. In a letter dated January 21, 2013, the NTC referred the computation of the CRA to the Commissioners of the NTC.

In a letter dated March 5, 2018, PLDT informed the NTC that it is waiving its right to recover any and all costs related to the 10MHz of 3G radio frequency previously assigned to CURE. Accordingly, CURE will not claim any cost associated with it in the event of subsequent assignment by the NTC to another qualified telecommunications company. With the foregoing, PLDT is deemed to have fully complied with its obligation to divest from CURE as a condition to the sale and transfer of DTPI shares to PLDT.

~~For more information~~matters relating to the (1) the DOLE Compliance Order to PLDT, see Note 2627 – Provisions and Contingencies; (2) the Petition against the ~~Philippine Competition Commission,~~PCC, see Note 1011 – Investment in Associates and Joint Ventures; and (3) Wilson Gamboa and Jose M. Roy III Petition, see Note 2627 – Provisions and Contingencies, to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Business Overview

As at December 31, ~~2018,~~2019, our business activities were categorized into three business units: Wireless, Fixed Line and Others.

We monitor the operating results of each business unit separately for purposes of making decisions about resource allocation and performance assessment. See Note 4 – Operating Segment Information to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Wireless

Our wireless business focuses on driving the growth in our data services while managing our legacy business of voice and SMS. We generate data revenues from across all segments of our wireless business, whether mobile internet using smartphones or mobile broadband using pocket ~~wifi~~WiFi and other similar devices.

We provide (a) mobile services, (b) home broadband services, and (c) MVNO and other services, through our wireless business, which contributed approximately 98% and (collectively for home broadband, and MVNO and other services) 2%, respectively, of our wireless service revenues in ~~2018.~~2019. Mobile data usage has surged in the past several years while voice and SMS usage has slowed down. Wireless revenues contributed ~~54%~~57% of our consolidated revenues in ~~2018~~2019 as compared to ~~58%~~55% and ~~63%~~58% for the years ended December 31, ~~2017~~2018 and ~~2016,~~2017, respectively. Our mobile service revenues, were ~~90%~~92%, ~~91%~~90% and ~~93%~~91% of our total wireless revenues infor the years ended December 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, respectively.

Our mobile services, which accounted for approximately 98% of our wireless service revenues for the year ended December 31, ~~2018,~~2019, are provided through Smart and DMPI with 73,118,155 total subscribers as at December 31, 2019 as compared to 60,499,017 total subscribers as at December 31, 2018, ~~as compared to~~and 58,293,908 total subscribers as at December 31, 2017, ~~and 62,763,209 total subscribers as at December 31, 2016,~~ representing a combined market share of approximately ~~45%~~44%, ~~49%~~45% and ~~50%~~49% as at December 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, respectively. Our mobile revenue market share has been eroding due to the combined impact of aggressive price competition and the consequent loss of subscriber market share. This was exacerbated by a larger proportion of legacy revenues from SMS and international voice relative to competition, ~~that~~which offset growth in our mobile data revenues. However, mobile penetration in the Philippines increased to approximately 159% in 2019 from 133% in 2018, ~~from 118% in 2017,~~ although the existence of subscribers owning multiple SIM cards results in this penetration rate being inflated to a certain extent.

As at December 31, ~~2018,~~2019, approximately ~~96%~~97% of our mobile subscribers were prepaid service subscribers. The predominance of prepaid service reflects one of the distinguishing characteristics of the Philippine mobile market, allowing us to reduce billing and administrative costs on a per-subscriber basis, as well as to control credit risk.

LTE SIMs and smartphone ownership among our subscribers grew significantly this year, resulting in a substantial increase in our mobile data revenues. As a result, our mobile internet revenues, which are part of our mobile data service revenues, increased by ~~Php13,121~~Php15,192 million, or ~~65%~~46%, to Php48,399 million in 2019 from Php33,207 million in ~~2018 from Php20,086 million in 2017.~~2018. Our mobile internet revenues contributed ~~87%~~91% and ~~76%~~87% of our mobile data service revenues in ~~2018~~2019 and ~~2017,~~2018, respectively. Conversely, mobile broadband revenues, which are derived from the use of pocket ~~wifi~~WiFi and other similar mobile broadband devices, decreased by ~~Php1,441~~Php1,042 million, or ~~24%~~23%, to Php3,547 million from Php4,589 ~~million.~~million in 2018.

Smart’s and DMPI’s wireless networks provide extensive voice and broadband coverage in the Philippines, covering substantially all of major metropolitan areas and most of the other population centers in the Philippines. Our low spectrum band resources (700MHz, 850MHz and 900MHz) are primarily used to provide coverage whilst higher spectrum bands (1800MHz, 2100MHz, 2300MHz and 2600MHz) provide extended coverage and additional capacity. Our communications network supports HSPA+ (for 3G) and LTE-Advanced to provide improved broadband experience for our customers.

Fixed Line

We are the leading provider of fixed line telecommunications services throughout the Philippines, servicing retail, corporate and SME clients. Our fixed line business group offers voice, data and miscellaneous services. We had 2,765,209 fixed line subscribers as at December 31, 2019, an increase of 54,237, or 2%, from 2,710,972 fixed line subscribers as at December 31, 2018, ~~an increase of 47,762, or 2%, from 2,663,210~~while our fixed line and fixed wireless broadband subscribers increased by 135,921, or 7%, to 2,161,484 as at December 31, ~~2017, mainly due to higher net additions in 2018 compared with 2017.~~2019 from 2,025,563 as at December 31, 2018. Revenues from our fixed line business were ~~52%~~53%, ~~49%~~52% and ~~44%~~49% of our consolidated revenues for the years ended December 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, respectively. International voice revenues have been declining largely due to a drop in call volumes as a result of the availability of alternative calling options and OTT services. An increase in our data service revenues in recent years has mitigated such decline to a certain extent. Recognizing the growth potential of data services, we have put considerable emphasis on the development of new data-capable and IP-based networks.

Our ~~14,584-kilometer~~16,700-kilometer long DFON is complemented by an extensive digital microwave backbone network operated by Smart. This microwave network complements the higher capacity fiber optic networks and is vital in delivering reliable services to areas not covered by fixed terrestrial transport network. Our fixed line network reaches all of the major cities and municipalities in the Philippines, with a concentration in the Metropolitan Manila area. Our network offers the country’s most extensive connections to international networks through two international gateway switching exchanges and various regional submarine cable systems in which we have economic interests.

See Item 4. “Information on the Company – Infrastructure – Fixed Line Network Infrastructure” for further information on our fixed line infrastructure.

Others

Our other business in ~~2018~~2019 consisted primarily of ~~VIH and certain subsidiaries, the digital innovations arm of PLDT and Smart, which was deconsolidated from PCEV effective November 30, 2018;~~ PCEV, an investment holding company, which owns ~~an 8.74% effective interest in Meralco as at December 31, 2016 through its 25%~~48.74% equity interest in ~~Beacon, until the full divestment of Beacon shares to MPIC on June 13, 2017.~~VIH; PLDT Global Investments Corporation, or PGIC, which owns an 18.32% economic interest in ~~Beta, an investment holding company of SPi Technologies, Inc. and its subsidiaries, or SPi Group, where we reinvested approximately US$40~~

~~million of the proceeds from the sale of BPO in 2013;~~Beta; PLDT Digital Investments Pte. Ltd., or PLDT Digital, an investment holding company, which owns a ~~1.7%~~1.3% equity interest in Rocket Internet, through its wholly-owned subsidiary, PLDT Online; and PLDT Global Holdings, Inc., or PGIH, an investment holding company, which ~~completed the closing of its investment~~owns 45.73% equity interest in ~~Multisys in December 3, 2018.~~Multisys.

Capital Expenditures and Divestitures

See Item 5. “Operating and Financial Review and Prospects – Plans” for capital expenditures planned for ~~2019~~2020 and Item 5. “Operating and Financial Review and Prospects – Liquidity and Capital Resources” for information concerning our principal capital expenditures for the years ended December 31, ~~2016,~~ 2017, 2018 and ~~2018.~~

On May 30, 2016, the PLDT Board approved the Company’s acquisition of 50% equity interest, including outstanding advances and assumed liabilities, in the entities that own the telecommunications business of SMC with Globe acquiring the remaining 50% interest. See Item 10. “Additional Information – Material Contracts” for further information.

~~On May 30, 2016, PCEV sold common and preferred stock of Beacon, representing approximately 25% equity interest in Beacon to MPIC for a total consideration of Php26,200 million.~~2019.

On May 19, 2017, AOGL entered into a Share Purchase Agreement with Partners Group, relating to the acquisition of SPi Global for an enterprise value of US$330 million. The transaction was completed on August 25, 2017.

On June 13, 2017, PCEV entered into a Share Purchase Agreement with MPIC to sell its remaining 25% equity interest in Beacon, consisting of 646 million shares of common stock and 458 million shares of preferred stock, for a total consideration of Php21,800 million.

On March 2, 2018, PCEV entered into a RPA with various financial institutions to sell a portion of its receivables from MPIC amounting to Php5,550 million for a total consideration of Php4,852 million. On March 23, 2018, PCEV entered into another RPA with a financial institution to sell a portion of its receivables from MPIC amounting to Php2,230 million for a total consideration of Php2,124 million.

On May 4, 2018, Rocket Internet accepted the tender offer of PLDT Online of 6.8 million shares for a total consideration of €163.2 million, or Php10,059 million, which was settled on May 9, 2018.

On November 28, 2018 and December 10, 2018, VIH received the US$175 million funding from KKR and Tencent, and the US$40 million funding from IFC and IFC EAF, respectively.

On December 19, 2019, the decrease in PCEV’s par value of common stock and authorized capital stock was approved by the Philippine SEC resulting to a partial return of capital representing their proportionate share in the decrease in par value of Php6,825 million and Php4 million to Smart and PCEV’s minority shareholders.

See Item 4. “Recent Developments” for further information.

Organization

See Exhibit 8. “List of Subsidiaries” for a listing of PLDT’s significant subsidiaries, including name, country of incorporation, proportion of ownership interests and, where different, proportion of voting power held.

Strengths

We believe our business is characterized by the following competitive strengths:

Recognized Brands. PLDT, Smart, TNT and Sun are widely recognized brand names in the Philippines. We have built the PLDT brand name for more than 90 years as the leading telecommunications provider in the Philippines. Smart is recognized in the Philippines as an innovative provider of high-quality mobile services. The TNT brand, which is provided using Smart’s network, has also gained significant recognition as a price-competitive brand. Since its launch in 2003, Sun has built considerable brand equity as a provider of ~~“unlimited”~~“unlimited, no frills, value-for-money” services. Having a range of strong and recognizable brands allows us to offer to various market segments differentiated products and services that suit customers’ budgets and usage preferences.

Leading Market Shares. We have maintained our position as a market leader in fixed line and broadband markets in the Philippines in terms of both subscribers and revenues.

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Diversified Revenue Sources. We derive our revenues from two of our business segments, namely, Wireless and Fixed Line. Revenue sources of our wireless business include mobile ~~(voice,~~(mobile data, voice, SMS, ~~mobile data,~~ and inbound roaming and other mobile services), home broadband, and MVNO and other services. The revenues from data services, particularly mobile internet services, have ~~been increasing~~increased over the past several years ~~but were~~and are now able to offset by the ~~continued~~ decline ofin mobile voice and SMS revenues. Our fixed line business derives service revenues from data/broadband, voice (local exchange, international and domestic services), ~~data~~ and miscellaneous services. The revenue contributions from our home broadband, corporate data and leased lines, and ICT services ~~compensated~~now account for the ~~declining~~bulk of the fixed line revenues, while revenues from international and domestic fixed line services now account for only 29% of the total fixed line revenues and continue to register declines due to pressures on traditional fixed line voice revenues as a result of the popularity of OTT service providers.

Superior Integrated Network. With the most extensive telecommunications networks in the Philippines, we are able to offer a wide array of communications services. Part of our network transformation program included the continued upgrade of our fixed line network to an all IP-based NGN, the build-out of our transmission and FTTH network, the investment in increased international bandwidth capacity, and the expansion of our 3G, 4G LTE and wireless broadband networks in order to enhance our data and broadband ~~capabilities.~~reach and capacities. Our network investments include the upgrade of our IT ~~capabilities~~platforms which are essential in enabling us to offer more relevant services to our customers. We have also started to invest in making our network 5G-ready.

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Innovative Products and Services. Powered by the fastest mobile network in the Philippines (as named by Ookla), our wireless business has launched the Gigafy Your Passion offers, which currently comes in three variants – Giga videos, Giga games and Giga stories. Further,VIH, (through its subsidiaries Voyager and PayMaya) ~~is the digital innovations arm of PLDT and Smart. VIH~~ creates and launches platforms, services and solutions for emerging markets in the areas of digital financial services, access including sponsored data, data-in-sachets, digital marketing solutions, and the incubation of other new technologies. Through Voyager and PayMaya, VIH offers various digital financial services and financial technology solutions. VIH was deconsolidated from PCEV effective November 30, 2018.

Strong Strategic Relationships. We have important strategic relationships with First Pacific, NTT DOCOMO and NTT Communications. We believe the technological support, international experience and management expertise made available to us through these strategic relationships will enable us to enhance our market leadership and provide/cross-sell a wider range of products and services.

~~Strategy~~Strategy

The key elements of our business strategy are:

Build on our strong positions in the fixed line and wireless businesses. We plan to capitalize on our strong integrated fixed and wireless network in the Philippines which will allow us to continue building on our position as one of the leading fixed line and wireless service providers in the Philippines by continuing to focus on providing superior customer experience, especially in data related services, which include thelaunch of new products and services to increase subscriber value and utilization of our existing facilities and equipment at reduced cost, and to increase our subscribers’ use of our network for both voice and data, as well as their reliance on our services.

Capitalize on our strength as an integrated provider of telecommunications services. We offer the broadest range of telecommunications services among all operators in the Philippines. We plan to capitalize on this position to maximize revenue opportunities by cross-selling our products and services, and by developing convergent products that feature the combined benefits of voice and data, fixed line, wireless, and other products and services, including media content, utilizing our network and business platforms.

Strengthen our leading position in the data and broadband market. Leveraging on the strengths of our fixed line and wireless businesses, we are committed to further develop our fastest growing business, particularly mobile internet. Consistent with our strategy of introducing innovative products and services using advanced technology, we continue to launch various products and services in the data and broadband market that deliver quality of experience according to different market needs, including data centers and cloud-related services. We will also accelerate the deployment of new base stations to boost network quality and coverage, and accommodate technology bands under the co-use arrangements we entered into with BellTel, one of VTI’s subsidiaries.

Provide the customer a superior data experience. We are in the process of executing our digital transformation strategy through our wireless business focusing on: (i) investing in network infrastructure to improve 3G and 4G coverage and capacity, as well as network resilience; (ii) upgrading service development platforms to improve customers’ ease-of-use, billing systems, customer interface; and (iii) expanding our content portfolio to include video/streaming/entertainment, music, shopping, and games, among others.

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~~Provide the customer a superior data experience.~~ We are in the process of executing our digital transformation strategy through our wireless business focusing on: (i) investing in network infrastructure to improve 3G and 4G coverage and capacity, as well as network resilience;
(ii) upgrading service development platforms to improve customers’ ease-of-use, billing systems, customer interface; and (iii) expanding our content portfolio to include entertainment, peace-of-mind/convenience, and games, among others.

Maintain a strong financial position and improve shareholder returns. In ~~2018,~~2019, we paid out dividends approximately 60% of our telco core ~~earnings.~~income. We plan to continue utilizing our free cash flows to invest in our networkand for the payment of cash dividends to common ~~shareholders and investments in new growth areas.~~shareholders. As part of our growth strategy, we have made and may continue to make acquisitions and investments in companies or businesses. We will continue to consider value-accretive investments in telecommunications as well as ~~telco-related~~telecommunications-related businesses.

Business

Wireless

We provide mobile, home broadband, and MVNO and other services, through our Wireless business segment.

The following table summarizes key measures of our wireless business as at and for the years ended December 31, 2019, 2018 ~~2017~~ and ~~2016:~~2017:

	December 31,									December 31,
	2018			2017			2016			2019			2018			2017
Systemwide mobile subscriber base		60,499,017			58,293,908			62,763,209			73,118,155			60,499,017			58,293,908
Prepaid		58,178,978			55,776,646			59,952,941			70,721,789			58,178,978			55,776,646
Postpaid		2,320,039			2,517,262			2,810,268			2,396,366			2,320,039			2,517,262
Home Broadband subscriber base⁽¹⁾		11,553			237,354			270,203
Fixed Wireless Broadband subscriber base⁽¹⁾											6,098			11,533			237,354
Growth rate of mobile subscribers
Prepaid		4	%		(7	%)		(8	%)		22	%		4	%		(7	%)
Postpaid		(8	%)		(10	%)		(21	%)		3	%		(8	%)		(10	%)
Growth rate of Home Broadband subscribers		(95	%)		(12	%)		4	%
Growth rate of Fixed Wireless Broadband subscribers											(47	%)		(95	%)		(12	%)

⁽¹⁾

Home Ultera and ~~WiMax~~WiMAX businesses were transferred to PLDT beginning 2018.

Mobile Services

We offer mobile communications services all over the country under the brand names Smart, TNT and Sun to focus on the needs of specific segments of the market. With a continuous and in-depth consumer understanding program, each of our brands ~~strive~~commits to provide relevant products ~~and~~that will cater to the communications, entertainment and services requirements of our target market segments.

~~In 2018, we clustered programs consistent~~We consider the following as the key metrics for our growth in 2019: (i) providing customers with ~~our key objectives: (i) reinforcing~~the nation’s fastest mobile network and 4G mobile network with the widest coverage; (ii) promoting data and content-led products under the Giga brand (iii) promoting E-Sports events; (iv) making value-added services easier to access through the USSD Menu Browser, or UMB, platform; and (v) continuous promotion of our LTE ~~network; (ii) migrating subscribers to LTE; and (iii) driving mobile data usage and monetization.~~services.

~~Reinforcing our LTE~~Providing Customers with the Nation’s Fastest Mobile Network

~~We strive to provide our customers across~~ and 4G Mobile Network with the ~~country with a world-class mobile data experience through a superior LTE network in terms of coverage, capacity, quality and internet speeds.~~ Widest Coverage

Smart ~~marked~~continued its network transformation program in 2019 by further expanding and improving its LTE network. The improved Smart LTE network was named by Ookla, a ~~milestone~~leading internet testing and analysis company, to be the Philippines’ fastest mobile network for the 2^nd consecutive year. Meanwhile, Open Signal, another international network testing company, also awarded Smart with the “Most Widely Available Urban 4G Coverage” and “Most Widely Available Rural 4G Coverage” awards.

Promoting Data and Content-led Products under the Giga Brand

In 2019, Smart expanded the Giga brand products to new areas such as music, stories and games, and launched new data and content-led products. Products under the Giga brand made a significant contribution to our prepaid revenues and now account for over 40% of prepaid top-ups. In order to promote data usage, products under the Giga brand are offered under all of Smart’s brands.

Promoting E-Sports Events

Smart promoted several e-sports events in ~~2018~~2019. Smart launched a grass-root e-sports promotion program, the SiklabSaya program, which features the popular online mobile game Mobile Legends Bang Bang to promote data usage. Smart sponsored the gaming competition Mobile Legends Bang Bang Professional League and sponsored teams to participate in the Philippines’ first and only franchise-based e-sports league, The Nationals. Last but not least, Smart partnered with TV5 and Cignal to cover e-sports events such as ~~we fulfilled our commitment~~the e-sports competition in the recently held Southeast Asian Games in Manila. This was the first time that e-sports was a competitive event in an international inter-country sporting event recognized by the International Olympic Committee.

Making Value-added Services Easier to Access through the ~~NTC~~USSD Menu Browser, or UMB, Platform

Smart promoted its UMB platform to provide ~~broadband coverage~~customers an easy-to-use and product discovery platform. Smart’s prepaid customers no longer needed to ~~at least 90 percent~~memorize passwords or access codes to enjoy Smart’s improved data services. Through the UMB platform, customers can access the wide range of ~~cities~~Giga products. This resulted in Smart’s number of subscribers grew by approximately 23% compared with the year ended December 31, 2018. For 2020, Smart will further improve customers’ product discovery experiences with its forthcoming app-based discovery service.

Continuous Promotion of Our LTE Services

Smart continued to promote the adoption of LTE-capable devices and ~~municipalities~~LTE sim cards. During the year ended December 31, 2019, Smart launched its LTE Sim Upgrade program which allowed Smart subscribers to upgrade their sim cards to LTE/5G-capable ones without having to change their mobile numbers. As of December 31, 2019, approximately 80% of our wireless subscriber base is LTE ready. With its improved LTE network, Smart has also increased its efforts in ~~the Philippines. Smart made the three-year commitment when the NTC granted~~promoting products that encourage the use of ~~frequencies back in 2016.~~ content and data-led products, such as online video viewing, e-games and social media.

Smart also continued the roll-out of LTE-Advanced (LTE-A) and carrier aggregation technology, which allows the combination of two or more radio frequency bands in order to deliver much faster data speeds to mobile phone users.

Smart also activated 4x4 Multiple Input, Multiple Output (MIMO) and 256 Quadrature Amplitude Modulation (QAM) technologies in very high data traffic locations within Metro Manila to further boost speeds.

In November 2018, Smart launched the country’s first 5G cell sites in the Makati Central Business District with technology partner Huawei, and at the Clark Freeport Zone (CFZ) in Pampanga with technology partner Ericsson. Smart also made the country’s first successful video call on a 5G connection between the newly launched Smart 5G cities Makati City and Pampanga.

~~Migrating Customers to LTE~~

~~Leveraging our improved network, we increased efforts to migrate our subscribers to LTE.~~

~~In 2018, Smart rolled out an LTE education campaign for Smart, Sun and TNT customers, and urged them to conveniently upgrade to LTE using the Smart LTE-Ready Self-Service Upgrade SIM.~~

~~Smart also continued its strategic partnerships with vendors of LTE-capable smartphones, and distribution partners that bundled LTE SIMs with LTE-capable smartphones.~~

~~Driving Mobile Data Usage and Monetization~~Prepaid

~~To suit the demands of our varying consumer segments, we introduced new data offers aimed at introducing customers to the many benefits of mobile internet, and stimulating their data usage.~~

~~Smart Prepaid~~

~~In April 2018, Smart Prepaid partnered with YouTube to launch Free YouTube Every Day promo.~~

~~Aimed at introducing more customers to video streaming, Free YouTube Every Day gave~~Smart’s prepaid users of Smart, TNT and Sun up to 1 hour of free YouTube streaming daily when they register to select prepaid promos. The promo, which ended in October 2018, ran for six months and grew YouTube traffic in the Smart Network by nearly 15 times among subscribers compared to the start of the promo.

Following the success of Free YouTube Every Day, Smart Prepaid introduced Video Every Day promo in November 2018, this time to give prepaid subscribers of Smart, TNT and Sun an additional 1 hour of streaming on YouTube, iflix, NBA League Pass, iWant, and Cignal Play when they register to select GigaSurf packages.

~~In December, to mark Smart’s 25~~^th ~~anniversary, Smart Prepaid spearheaded the Smart Amazing 25 promo. The company’s biggest promo to date, Smart Amazing 25 gave all Smart, TNT and Sun customers~~brands adopted a ~~chance to win smartphones, data, MVP Rewards points, and the grand prize of Php25 million cash – every time they registered to select promos or paid their bill in full and on time.~~

~~TNT~~

TNT, Smart’s value brand, reinforced its efforts to reposition itself as a data brand. In April 2018, TNT kicked off its Tropa Trip Summer Fest, which gathered subscribers to a day of games and entertainment that highlighted the brand’s data offers.

In July 2018, TNT launched a campaign to promote Free YouTube Every Day. The campaign was reinforced by TNT YouTube Breaktime, a series of mall activations held in Manila, Cavite, Pampanga, Nueva Ecija, Bacolod, and Davao. The YouTube promo for TNT subscribers ended last October 31, 2018.

In November 2018, TNT sought to introduce more subscribers to mobile internet with the launch of SurfSaya, of which one variant offers 300MB open access data plus 100MB per day for Facebook and Messenger; unlimited calls to TNT, Smart and Sun; and unlimited texts to all networks, valid for three days for only Php30. The promotion will run until May 2019.

~~Smart Postpaid~~

~~In line with our Wireless business segment’s~~three-stage usage strategy to drive ~~mobile~~data usage. To promote data usage among customers, the prepaid brands adopted free trial campaigns such as “Free YouTube for All” and “Free IG+FB For all” in 2019. Meanwhile, Smart ~~Postpaid~~ launched ~~GigaX Plans in February 2018.~~

campaigns to promote products such as Giga Video, Giga Games and

~~The data-packed plans offer generous open access~~Giga Stories to monetize data ~~a separate~~usage. Giga Mania raffle was launched in November 2019, which increased both top-up frequency and drove the upsell of products with higher denomination under the Giga brand. These key initiatives contributed to the significant increase in data ~~allocation~~users and data revenues for ~~video streaming, and a data rollover feature that allowed subscribers of Plan 999 and above to enjoy their unused data from the previous month.~~Smart Prepaid.

As part of the launch of GigaX Plans, Smart partnered with leading phone manufacturers Samsung, Huawei and Oppo to highlight advanced devices. The new GigaX plans also provided new subscribers as much as two times more data during the first six months.

~~Moreover, Smart~~ Postpaid sustained its device amortization model, which gave subscribers the flexibility to choose and bundle any device with their line-only plans for a fixed cost each month. With this, Smart Postpaid continued to bring in the latest and highly-anticipated flagship devices from Samsung, Huawei, and Apple with aggressive acquisition and re-contracting campaigns.

As additional perk to subscribers, Smart expanded its Free YouTube Every Day promo to include postpaid customers, giving them additional 1 hour of free YouTube streaming daily on top of their monthly plan inclusions from June to July 2018.

Smart ~~Postpaid also partnered with content providers so customers may charge their monthly subscriptions~~launched its Signature product line. Signature makes it easier for subscribers to get on a postpaid plan and have prioritized network coverage. The high quality telecommunication and data services available that the ~~NBA League Pass and Netflix to their postpaid bill.~~

~~Launched in May 2018, Smart Postpaid’s partnership with NBA allows~~Signature product line delivers has encouraged more customers to ~~watch live and on-demand NBA games online and via their mobile devices, and access NBA highlights, game recaps, and daily top plays, among other content via the NBA League Pass.~~

~~Additionally, Smart and Netflix launched their partnership in December 2018 to give subscribers convenient way to stream Netflix.~~

~~Smart Bro~~

As Smart’s mobile broadband brand, Smart Bro continued its initiatives to encourage more subscribers to adopt LTE-capable devices so they may benefit from faster and more reliable mobile internet connectivity.

~~Smart Bro drove LTE penetration by providing competitively-priced LTE Pocket WiFi Prepaid Kits as well as Smart Bro Postpaid Plans throughout the year.~~

~~In June 2018, Smart Bro offered the iPad 6~~^th ~~Gen (32GB) bundled~~subscribe for plans with ~~an LTE Pocket WiFi with 6GB monthly~~higher data ~~allocation.~~

~~Smart Bro also pushed its swap program that sought to replace 3G mobile broadband devices with LTE Pocket WiFi units.~~

~~Sun~~

~~Sun strengthened its efforts to stimulate data usage among subscribers through its best-value mobile internet offers with Sun-to-Sun calls and texts.~~

In April 2018, Sun promoted the Free YouTube Every Day promo in a campaign that positioned YouTube as a platform for users to develop knowledge and skills. Under the promo, Sun subscribers enjoyed up to one hour of Free YouTube streaming with every registration to select prepaid promos.

In June 2018, Sun Postpaid launched Non-Stop LTE Plans, which feature non-stop access to Facebook, Facebook Messenger, and Google Search; open access data to access other apps, websites, and games; unlimited Sun-to-Sun calls and texts; and inclusions for texts to other networks.

~~To increase customer access to video content, Sun Postpaid partnered with iflix and iWant to give subscribers free one month access to the streaming services.~~

In November 2018, following LTE network upgrades across Cebu, Sun introduced the program ‘Para Nimo Cebu’. The program encouraged customers to swap their old Sun 3G SIMs with the new Sun LTE SIMs, and to take advantage of Sulit Surf Plus promos, which come with a complete combination of open access data, unlimited tri-net calls, and unlimited all-net texts.usage.

Rates

Our current policy is to recognize a prepaid subscriber as active only when the subscriber activates and uses the SIM card. Beginning the second quarter of 2017, we consider a prepaid mobile subscriber ~~is considered~~ inactive if the subscriber does not reload within 90 days after the full usage or expiry of the last reload, revised from the previous 120 days.

Smart Prepaid call and text cards are sold in denominations of Php100, Php300 and Php500, while TNT prepaid cards are sold in ~~three different tiers, while~~ denominations of Php50, Php100 and Php300. We have updated Smart eLoad’s over-the-air reloads, which are now available in ~~multiple~~various denominations ~~as well.~~ranging from Php15 to Php1,000. The stored value of a prepaid card and eLoads remain valid for 365 days regardless of the denomination, pursuant to the MC No. 05-12-2017 issued by the NTC and ~~DITC.~~DICT.

Smart also offers fixed rate or “bucket” packages as a means of driving subscriber activations and stimulating usage. These bucket packages, which offer data packages with fixed amount of text messages and call minutes for a limited validity period, have proven to be popular with subscribers.

The updated Smart ~~also offers unlimited text with voice and data allocation under its various brands in order to be competitive. These~~Postpaid plans include high data allocation, unlimited ~~text~~texts to all networks, and ~~call minutes~~unlimited on-net calls with monthly service ~~fees.~~fees ranging from Php999 to Php2,999 for Smart Signature subscribers and from Php3,500 to Php8,000 for Smart Infinity subscribers. Additional charges apply at different rates for usage in excess of the allocated amounts ~~depending on~~under the applicable monthly plan.

Smart subscribers pay an international direct dialing rate ~~which~~of US$0.40 per minute. This rate applies to calls to most destinations, including the United States, Hong Kong, Japan, Singapore, United Kingdom and United Arab Emirates. Smart charges ~~different rates~~US$0.98 per minute for 2920 other destinations and US$2.18 per minute for nine other destinations. Smart subscribers also have the option of calling at more affordable rates, ~~through~~ ~~Smart Sulit IDD~~ ~~load.~~which are as low as Php2.00 per minute, under the One International Call & Text package.

International web browsing was also made more affordable and convenient with Roam Surf, whereby subscribers automatically enjoy web browsing abroad for a fixed rate of Php550 per day, open to both Smart Postpaid and Prepaid subscribers and covering over ~~120~~135 countries within the Americas, Asia, Africa, Europe, and Oceania. Data allocation may vary depending on country of destination. Subscribers can also use Giga Roam for Php999 with 1GB of open access data when roaming abroad in over 105 countries worldwide. We also offer Smart Travel WiFi, a broadband device that provides high-speed internet service in over 100 countries, which is powered by virtual SIM technology that enables local connectivity for up to five devices to local networks for as low as Php290 per day in Asia and Php450 per day elsewhere in the world.

~~Another data roaming service of Smart is~~ ~~Roam Chat, which offers~~ ~~Smart Prepaid~~ ~~and~~ ~~Smart Postpaid~~ ~~to use five popular chat messaging apps, Viber, WeChat, Line, Telegram and WhatsApp, while roaming abroad in over 120 countries.~~

In compliance with Memorandum Circular No. 05-07-2018 issued by the National Telecommunications Commission, or NTC, the interconnection rate for our voice calls was reduced to Php0.50 per minute from Php2.50 per minute, and the rate for SMS was down to Php0.05 per message from Php0.15 per message effective September 1, 2018.

Sales and Distribution

Distributors and Dealers

We sell our mobile services primarily through our regional and key account partners that generally have their own direct sales forces and retail networks. We currently have 19 exclusive regional and ~~105~~107 exclusive provincial distributors, and ~~107~~113 key account partners, 25 of which are exclusive. A number of our trade partners are likewise major distributors of smartphones and devices that are retailed in their owned telecommunications outlets. Account managers from our sales force manage the distribution network and regularly update these

business partners on upcoming marketing strategies, promotional campaigns and new products. Smart’s over-the-air reloads called Smart eLoad, moved Smart into a new realm of distribution that approximates those of fast-moving consumer good companies. These over-the-air reloads, which were based on the “sachet” marketing concept of consumer goods, required a distribution network that approximates those of fast-moving consumer goods companies. Sun also offers over-the-air reloads through Sun’s Xpress Load. ~~Starting with just 50,000 outlets when it was launched, our~~Our distribution network ~~now~~ encompasses approximately ~~1.4~~1.5 million retailers with

Smart and Sun combined. These retailers must be affiliated with one of Smart’s and Sun’s authorized regional and provincial distributors. With the prepaid reloading distribution network ~~now~~ extended to corner store and individual ~~retailers,~~retailer levels and minimum reloading denominations as low as Php10, Smart’s prepaid service became more affordable and accessible to subscribers.

Retail Stores

Retail Stores are company owned Smart Stores with ~~115~~117 branches and Sun Shops with 9185 branches that showcase our Company’s products and services to customers nationwide. Our frontlines enable unique digital experiences through daily customer interaction. We offer enticing products and services based on the customer needs. We also cater for customer aftersales request and inquiries. Our ~~Stores~~stores also ~~accepts~~accept payment for bills, postpaid and prepaid sales.

Satellite Branches which has a total of 4632 stores nationwide are partner-owned Smart and Sun branded stores operating as auxiliary touchpoints for converged wired and wireless sales, aftersales and bills payment.

In ~~November~~ 2018, we unveiled our PLDT-Smart converged store in Makati CBD. ~~The~~This flagship store is a one-stop digital hub and store ~~for~~that showcases PLDT, Smart, and Cignal products. The store also has a digital self-service counters which allow subscribers to view and print their bills, check account details, request for repairs and other services. The store also features interactive booths that allow guests to browse the internet, play games, watch videos or listen to music inside the store.

Enterprise Business

Enterprise Business is the group responsible in marketing and selling Smart and Sun products and services to Corporate clients. Services offered include Smart and Sun Postpaid and Broadband services with bundled phones, tablets and other routers, Smart Infinity, M2M and IOT solutions and platform solutions such as Messaging Suite and Bizload. Our Enterprise Business Group also partners with software and application vendors in various ~~industry-specific~~industry specific solutions and mobile security.

These services are being sold primarily through PLDT Enterprise team and it’s two major groups, Alpha and SME. Alpha is the relationship arm of PLDT Enterprise for the top three thousand corporate clients while SME handles the relationships for the small and medium enterprises. New channels include the Micro SME segment, which sells through the brick and mortar stores and online, and the Enterprise Extension which handles sales to employees of existing Enterprise clients.

Emerging Channels

The Emerging Channels Group leads in identifying and growing new and non-traditional channels. The team aims to ensure that we are equipped to maximize opportunities presented by industry trends and new technologies. We enable the customer to avail of a new service or upgrade their existing subscription. Emerging Channels is composed of Telesales, Online, and Postpaid Field Sales.

Telesales

We reach out to our subscribers to offer the latest promos and services. Our Telesales agents, in partnership with different contact center providers, enable existing subscribers to upgrade and migrate their ~~mobile and broadband experience at~~accounts, as well as recontract their expiring accounts over the ~~comfort of their own home.~~phone.

Online

Consumers can also enjoy the convenience of availing our service through the Smart Online Store, an end to end portal, where they can transact online to choose phones and apply for new postpaid plans, renew an existing plan, buy prepaid SIM and devices, or subscribe for e-load and various add-on promos. ~~We also have~~All orders are delivered directly to the customers’ addresses. Other online channels include My Smart App and Paywall that allows add-on promo availment via load conversion or bill on top.

Postpaid Field Sales

In ~~October~~ 2018, we launched a new channel called Postpaid Field Sales (PFS). PFS is a new group which was built for an outbound sales attack for Postpaid targeting the corporate individual and capable communities. Through the development and growth of this new channel, we would be able to regain the wireless postpaid stronghold. Starting with 52 territories, complemented by distributor partners, PFS has been on the road towards exponentially growing the mobile postpaid business.

Home Broadband Service

HOME Ultera is a fixed wireless broadband service being offered under PLDT’s HOME brand. HOME Ultera, powered by LTE technology, is specifically designed for the home and offers customized packages.

HOME Ultera and ~~WiMax~~WiMAX businesses were transferred to PLDT effective January 1, 2018.

Fixed Line

We provide data, voice services, including LEC, international and domestic services, ~~data~~ and miscellaneous services under our fixed line business.

The following table summarizes key measures of our fixed line services as at and for the years ended December 31, 2019, 2018 ~~2017~~ and ~~2016:~~2017:

	December 31,									December 31,
	2018			2017			2016			2019			2018			2017
Systemwide fixed line subscriber base		2,710,972			2,663,210			2,438,473			2,765,209			2,710,972			2,663,210
Postpaid		2,683,037			2,634,157			2,406,881			2,739,367			2,683,037			2,634,157
Prepaid		27,935			29,053			31,592			25,842			27,935			29,053
Growth rate of fixed line subscribers											2	%		2	%		9	%
Postpaid		2	%		9	%		6	%		2	%		2	%		9	%
Prepaid		(4	%)		(8	%)		(6	%)		(7	%)		(4	%)		(8	%)
Number of fixed line employees		8,772			6,832			7,205			10,878			8,772			6,832
Number of local exchange line subscribers per employee		309			390			338			254			309			390

Systemwide broadband subscriber base											2,155,386			2,014,030			1,713,527
Fixed Line broadband											1,931,333			1,812,037			1,713,527
Fixed Wireless broadband⁽¹⁾											224,053			201,993			—
Growth rate of broadband subscribers											7	%		18	%		18	%
Fixed Line broadband											7	%		6	%		18	%
Fixed Wireless broadband											11	%		100	%		—

Our data service revenues include charges for broadband, leased lines, Ethernet-based and IP-based services. These services are used for broadband internet, and domestic and international private data networking communications.

Recognizing the growth potential of data services, and in light of their importance to our business strategy, we have been putting considerable emphasis on these service segments. These segments registered the highest percentage growth in revenues among our fixed line services from 2017 to 2019.

PLDT HOME remains the nation’s leading home broadband service provider, now serving 2.0 million subscribers nationwide as of December 31, 2019 from 1.9 million subscribers as at December 31, 2018. PLDT HOME is the Philippines’ fastest fixed network with broadband data services including fixed wired (PLDT Home Fibr) and fixed wireless (PLDT Home WiFi). PLDT Home provides broadband services through its nationwide roll-out of its FTTH network that has reached approximately 7.2 million homes passed as at December 31, 2019.

In 2019, PLDT expanded its FTTH network to over 100 new cities, municipalities, and provinces including Camiguin, Occidental Mindoro, Oriental Mindoro and Samar. As of December 31, 2019, PLDT Home has over 620 “Fibr-powered PLDT SmartCities” such as Toledo City, Cebu, General Santos City, Naga City, South and East Metropolitan Manila, Rockwell Center, Norzagaray in Bulacan, Arayat in Pampanga, Surallah in South Cotabato, Bayombong in Nueva Vizcaya, Nabunturan in Compostella Valley and Mati City in Davao Oriental, Bangued in Abra; and Cavite as the first “PLDT Fibr-powered SmartProvince”.

PLDT HOME also started to roll out its biggest free speed upgrades for its Home Fibr subscribers. These special upgrades boosted the Internet speeds of subscribers up to twice the speed of their existing plan and enabled them to enjoy unlimited, uninterrupted video streaming, lag-free gaming, and seamless browsing at home.

To complement the build-out of its fiber network, PLDT HOME is also modernizing and upgrading its current copper network and the roll-out of FTTH. PLDT has the country’s most extensive transmission and distribution network infrastructure which now has about 322,400 kilometers of fiber optic cables that transport the growing data traffic of its fixed line and mobile networks.

PLDT Home also addresses the growing demand for affordable home broadband in the Philippines which has been brought about by the increase in ownership of internet-capable devices and smartphones among households. PLDT Home introduced PLDT Home WiFi Prepaid, an affordable wireless Internet service priced at Php995. It is powered by Smart’s LTE network, the Philippines’ fastest mobile data network with the widest coverage in the country.

A plug and play device, PLDT Home WiFi Prepaid, can simultaneously connect up to five WiFi-capable devices, such as smartphone, tablet, and laptop, to high-speed Internet. Each PLDT Home WiFi Prepaid unit comes with 10GB of data valid up to seven days from the date of sim activation. Families can also enjoy affordable load packages. In 2019, the PLDT Home WiFi Prepaid line has doubled the data allocation of its FamLoad packages. For instance, FamLoad 199 increased data allocation from 12GB to 24GB, FamLoad 599 from 40GB to 80GB, FamLoad 999 from 65GB to 130GB, and FamLoad 1499 from 100GB to 200GB.

For the year ended December 31, 2019, PLDT Home WiFi’s revenues had a six-fold increase and doubled its subscriber base, as compared against the year ended December 31, 2018.

PLDT HOME is strongly committed to fulfilling its subscribers’ digital home lifestyle needs through plans that bundle high-speed internet with compelling digital services. PLDT HOME was first to market such services under the Smart Home banner. This digital ecosystem is built on the following pillars: entertainment, peace of mind, and automation.

PLDT Home started to offer Whole Home WiFi, the Philippines’ first Smart Home WiFi technology designed to blanket the entire home with wireless connectivity making homes SmartHome-ready. The Whole Home WiFi system improves WiFi coverage at home and can eliminate signal blockers and dead spots. The Whole Home WiFi Plan for PLDT Home comes with unlimited Fibr connection, “Whole Home” technology and free assisted installation service by our technicians, the Home Geek Squad. The Home Geek Squad, a group of “technical architects” pioneered by PLDT Home, helps subscribers set up the Whole Home WiFi system at home.

To strengthen its suite of connectivity services, PLDT Home launched an exclusive partnership with Google to bring Google WiFi to the Philippines. Google WiFi is a mesh networking system that aims to eliminate dead zones and provide strong and fast signals for all connected devices at home. PLDT Home has enabled the Philippines to become one of the first countries in Asia to introduce Google WiFi, after Singapore, Hong Kong, and Japan.

The Peace of Mind suite of services of PLDT Home features security-enhancing products like the home monitoring system Fam Cam, launched in partnership with network solutions giant D-Link.

For Entertainment, PLDT HOME has been providing subscribers with a diverse range of bundled content through its partnerships with global content providers. PLDT introduced PLDT Home TVolution Lite powered by Roku®, an all-in-one, plug-and-play device that brings HD TV channels and Video-on-Demand services into one. Designed with sleek, thin and light features, this powerful device allows subscribers to conveniently access a wide range of entertainment content from global entertainment partners including Southeast Asia’s internet TV service provider iflix, U.S.-based internet TV pioneer Netflix, Philippines’ pay TV service provider Cignal Digital TV, YouTube, and over 100 free streaming channels.

The experience that PLDT Home provides for all Filipino e-sports athletes, fans, and enthusiasts is an important part of the Entertainment pillar. PLDT launched the PLDT-Smart Omega, our first ever professional e-sports team that competed at The Nationals, the Philippines’ first franchise-based e-sports league. Continuing its support for world-class sporting events, PLDT Home sponsored major international e-sports competitions and conventions held in the Philippines, such as the e-sports competitions in the Southeast Asian Games and the Esports and Gaming Summit.

PLDT Home also partnered with the National Basketball Association, or NBA, for a multiyear venture that made select offerings of NBA League Pass, NBA’s premium live game subscription service, available to more than 62 million PLDT Home and Smart subscribers in the Philippines. The NBA League Pass includes a Day Pass worth Php50 which provides fans access to live and on-demand NBA games online for 24 hours.

Leased lines and other data services include: (i) Diginet, a domestic private leased line service, specifically supporting Smart’s fiber optic and enterprises’ leased line network requirements; (ii) IP-VPN, an end-to-end managed IP-based or Layer 3 data networking service that offers secure means to access corporate network resources; (iii) Metro Ethernet, a high-speed, Layer 2, wide area networking service that enables mission-critical data transfers; (iv) Shops.Work, a connectivity solution designed for retailers and franchisers, linking company branches to the head office; and (v) Shops.Work UnPlugged, or SWUP, a wireless VPN service that powers mobile point-of-sale terminals and off-site bank ATMs, as well as other retail outlets located in remote areas.

International leased lines and other data services consist mainly of: (i) iGate, our dedicated internet access service, which provides businesses with a high-speed, diverse, reliable and managed connectivity to the global internet; (ii) Fibernet, which provides cost-effective, managed and resilient international high bandwidth point-to-point private data networking connectivity, through our global points of presence and extensive international alliances, to offshore and outsourcing, banking and finance, and semiconductor industries; and (iii) other international managed data services in partnership with other global service providers, which provide web acceleration, network security, content delivery and other data networking services to multinational companies.

ICT services include Data Center services, Cyber Security services, Cloud services, Managed IT services and various other IT solutions. In July 2016, ePLDT opened VITRO Makati 2, ePLDT’s first TIA-942 Rated 3 Facility certified data center and a Nexcenter certified facility. VITRO Makati 2 is the Philippines’ biggest data center with 3,600 racks capacity, located in one of Philippines’ premiere business districts. In February 2017, ePLDT opened the first data center in Mindanao to address the growing enterprise demand in that region. Four days after the opening of the Mindanao data center, ePLDT opened VITRO Clark, the first TIA-942 Rated 3 Facility certified data center outside of Metropolitan Manila, which is the first purpose-built data center in the North Philippines. VITRO Clark primarily serves back-up requirements of Manila-based enterprises. The following year, ePLDT opened its second VITRO Data Center in Cebu, which uses up-to-date and globally competitive technologies and features. With this latest addition, the ePLDT Group now has a capacity of more than 9,100 racks in 10 locations covering Metropolitan Manila, Subic, Clark, Cebu and Davao.

PLDT Group commercially launched the Philippines’ first carrier-grade cloud infrastructure in 2012 and has consistently built partnerships with global Cloud brands and invested in expertise for professional services. The Group offers a full-suite of Cloud Solutions to clients such as Infrastructure-as-a-Service, Software-as-a-Service, Unified Communications-as-a-Service, Contact-Center-as-a-Service, and Disaster Recovery-as-a-Service.

Complementing these capabilities are ePLDT Group’s partnerships with Cisco, Google, Microsoft, Salesforce, and SAP among others, through which ePLDT offers professional services beyond infrastructure and license-selling. Among the ePLDT Group’s credentials and achievements are Cisco Tier-2 Partner of the Year, Cisco

Tier-2 Services Partner of the Year, Cisco Commercial Sales Champion, Cisco Partner Plus Winner’s Circle, Dell EMC Tier-2 Partner of the Year, and Top Tier-2 Enterprise Storage Partner. Other awards include Microsoft Productivity Competency Gold Partner, Microsoft Cloud Productivity Competency Gold Partner, Microsoft Collaboration and Content Competency Gold Partner, Microsoft Small and Midmarket Cloud Solutions Competency Gold Partner, Microsoft Cloud Platform Competency Gold Partner, Microsoft Datacenter Competency Gold Partner, Microsoft Country Partner of the Year, Microsoft Cloud Solutions Provider Direct Partner of the Year, Ranked #1 Microsoft Cloud Solutions Provider, Google for Work Partner, Google Cloud Partner, Top value-added reseller for SAP Business 1, SAP All-in-One Gold Partner, SAP Partner of the Year, SAP S4 Partner of the Year and Salesforce Gold Consulting Partner.

Our local exchange service, which consists of our basic voice telephony business, is provided primarily through PLDT. We also provide local exchange services through our subsidiaries – ~~PLDT-Philcom, Inc. and subsidiaries, or~~ Philcom Group, Bonifacio Communications Corporation, ~~PLDT Clark Telecom, Inc., or~~ ClarkTel, ~~PLDT Subic Telecom, Inc., or~~ SubicTel ~~PLDT-Maratel, Inc., or PLDT Maratel~~ and ~~Digitel.~~Maratel. Together, these subsidiaries account for approximately 4%1% of our consolidated fixed line subscribers.

Basic monthly charges for our local exchange service vary according to the type of customer (business or residential) and location, with charges for urban customers generally being higher than those for rural/provincial customers.

PLDT offers both prepaid and postpaid PLP, where subscribers to the services benefit from a text-capable home phone which allows subscribers to bring the telephone set anywhere within the home zone area.

~~Currently, the~~ ~~PLP~~ ~~postpaid regular service offers the following two plans: (i)~~ ~~Plan 600~~ ~~and (ii)~~ ~~Plan 1,000, both of which include unlimited local outgoing calls. Another postpaid service currently offered is the~~ ~~Call All~~ ~~plan wherein~~ ~~PLP~~ ~~is bundled with PLDT fixed line service.~~ ~~Call All~~ ~~can also be availed as an~~ ~~add-on service~~ ~~to a fixed main line.~~

~~We also provide three levels of PLP prepaid service, each of which offers a different number of minutes and duration of validity.~~

Recognizing the growth potential of ~~packet-based voice~~data services, and ~~data~~in light of their importance to our business strategy, we have been putting considerable emphasis on these service segments. These segments registered the highest percentage growth in revenues among our fixed line services ~~that go through our IGFs.~~from 2017 to 2019.

PLDT’s superior FTTH network enables subscribers to enjoy up to 1 Gbps of symmetrical internet speeds or equal upload and download speeds. Ookla, the company behind Speedtest® and the global leader in fixed broadband and mobile network testing applications and data analysis, recognized PLDT as the Philippines’ fastest fixed network in its Q3-Q4 2019 reports. Based on 29,505,821 nationwide customer-initiated Speedtest during Q3-Q4 2019, PLDT achieved a ~~number~~Speed Score of ~~initiatives to sustain our international service business, including: (i) adjusting slightly our inbound termination rates; (ii) identifying~~25.03, with top download speeds of 62.87 Mbps and ~~containing unauthorized traffic termination on our network; (iii) interconnecting popular communication service providers (like~~ ~~Skype~~ ~~and~~ ~~Viber); (iv) introducing a number~~top upload speeds of marketing initiatives, including implementation of voicemail service and establishment of new voice services (Bucket IDD and Local Number Service); and (v) grow international data sales leveraging on PLDT’s sub-sea cable ownership and reach. 80.07 Mbps.

In ~~addition,~~2019, PLDT ~~Global~~expanded its FTTH network to over 100 new cities, municipalities, and provinces including Camiguin, Occidental Mindoro, Oriental Mindoro and Samar. As of December 31, 2019, PLDT Home has over 620 “Fibr-powered PLDT SmartCities” such as Toledo City, Cebu, General Santos City, Naga City, South and East Metropolitan Manila, Rockwell Center, Norzagaray in Bulacan, Arayat in Pampanga, Surallah in South Cotabato, Bayombong in Nueva Vizcaya, Nabunturan in Compostella Valley and Mati City in Davao Oriental, Bangued in Abra; and Cavite as the first “PLDT Fibr-powered SmartProvince”.

To complement the build-out of its fiber network, PLDT HOME is also ~~working~~modernizing and upgrading its current copper network and the roll-out of FTTH. PLDT has the country’s most extensive transmission and distribution network infrastructure which now has about 322,400 kilometers of fiber optic cables that transport the growing data traffic of its fixed line and mobile networks.

For the year ended December 31, 2019, PLDT Home WiFi’s revenues had a six-fold increase and doubled its subscriber base, as compared against the ~~presence~~year ended December 31, 2018.

The Peace of Mind suite of services of PLDT Home features security-enhancing products like the home monitoring system Fam Cam, launched in ~~other international markets~~partnership with network solutions giant D-Link.

For Entertainment, PLDT HOME has been providing subscribers with a diverse range of bundled content through its partnerships with global content providers. PLDT introduced PLDT Home TVolution Lite powered by ~~offering products~~Roku®, an all-in-one, plug-and-play device that brings HD TV channels and Video-on-Demand services ~~such as international prepaid calling cards, virtual mobile services, SMS transit~~into one. Designed with sleek, thin and ~~other~~light features, this powerful device allows subscribers to conveniently access a wide range of entertainment content from global ~~bandwidth services. These strategies are intended to help us maximize the use of our existing international facilities,~~entertainment partners including Southeast Asia’s internet TV service provider iflix, U.S.-based internet TV pioneer Netflix, Philippines’ pay TV service provider Cignal Digital TV, YouTube, and ~~develop alternative sources of revenue.~~over 100 free streaming channels.

The ~~table below sets forth~~experience that PLDT Home provides for all Filipino e-sports athletes, fans, and enthusiasts is an important part of the ~~net settlement amounts~~Entertainment pillar. PLDT launched the PLDT-Smart Omega, our first ever professional e-sports team that competed at The Nationals, the Philippines’ first franchise-based e-sports league. Continuing its support for world-class sporting events, PLDT Home sponsored major international ~~calls handled by PLDT, by country, for~~e-sports competitions and conventions held in the ~~years ended December 31, 2018, 2017~~Philippines, such as the e-sports competitions in the Southeast Asian Games and ~~2016:~~the Esports and Gaming Summit.

Rates for outbound international calls are based on type of service, whether operator-assisted or direct-dialed. Our rates are quoted in U.S. dollars and are billed in Philippine pesos. We charge a flat rate per minute to retail customers for direct-dialed calls, applicable to all call destinations at any time on any day Tier-2 Services Partner of the ~~week.~~Year, Cisco Commercial Sales Champion, Cisco Partner Plus Winner’s Circle, Dell EMC Tier-2 Partner of the Year, and Top Tier-2 Enterprise Storage Partner. Other awards include Microsoft Productivity Competency Gold Partner, Microsoft Cloud Productivity Competency Gold Partner, Microsoft Collaboration and Content Competency Gold Partner, Microsoft Small and Midmarket Cloud Solutions Competency Gold Partner, Microsoft Cloud Platform Competency Gold Partner, Microsoft Datacenter Competency Gold Partner, Microsoft Country Partner of the Year, Microsoft Cloud Solutions Provider Direct Partner of the Year, Ranked #1 Microsoft Cloud Solutions Provider, Google for Work Partner, Google Cloud Partner, Top value-added reseller for SAP Business 1, SAP All-in-One Gold Partner, SAP Partner of the Year, SAP S4 Partner of the Year and Salesforce Gold Consulting Partner.

~~We also offer international service through PLDT~~ ~~Budget Card,~~ ~~a prepaid call card, which offers low-priced international calling services to 101 calling destinations/countries. The PLDT~~ ~~Budget Card~~ ~~can now be used by Smart, Sun &~~ ~~TNT~~ ~~prepaid and postpaid subscribers in making international calls.~~Voice Services

Our ~~domestic services are~~local exchange service, which consists of our basic voice telephony business, is provided primarily through PLDT. ~~This service consists~~We also provide local exchange services through our subsidiaries – Philcom Group, Bonifacio Communications Corporation, ClarkTel, SubicTel and Maratel. Together, these subsidiaries account for approximately 1% of ~~voice services for calls made by~~ our consolidated fixed line customers outside of their local service areas within the Philippines and access charges paid to us by other telecommunications carriers for wireless and fixed line calls carried through our backbone network and/or terminating to our fixed line customers.

Mobile substitution, OTT voice call alternatives and the widespread availability and growing popularity of alternative, more economical to free non-voice means of communications, such as e-mails, SMS and social networking sites, have negatively affected our domestic call volumes.

Basic monthly charges for ~~domestic calls traditionally were based on~~our local exchange service vary according to the type of ~~service, such as whether the call is operator-assisted~~customer (business or ~~direct-dialed. However, PLDT simplified these rates in recent years~~residential) and location, with charges for ~~calls originating from and terminating to the PLDT fixed line network and~~urban customers generally being higher than those for ~~calls terminating to fixed line networks of other LECs. PLDT also simplified its rates for calls terminating to mobile subscribers.~~rural/provincial customers.

~~In addition, PLDT bundles the free PLDT-to-PLDT calls in some promotions and product/service launchings in order to stimulate fixed line usage.~~

~~The following table summarizes key measures of our data services as at and for the years ended December 31, 2018, 2017 and 2016:~~

PLDT HOME remains the nation’s leading home broadband service provider, now serving ~~1.9~~2.0 million subscribers nationwide as of December 31, ~~2018, up~~2019 from ~~1.6~~1.9 million subscribers as at December 31, ~~2017.~~2018. PLDT ~~HOME’s~~HOME is the Philippines’ fastest fixed network with broadband data services ~~include~~ including fixed wired (PLDT Home ~~DSL~~, ~~Prepaid~~Fibr) and fixed wireless (PLDT Home ~~Wifi, and~~ WiFi). PLDT Home ~~Fibr.PLDT HOME~~ provides broadband services through its ~~existing copper network and a~~ nationwide roll-out of its FTTH ~~network. PLDT’s FTTH nationwide~~ network ~~rollout~~that has reached ~~over six~~approximately 7.2 million homes passed as at December 31, 2019.

In ~~2017,~~2019, PLDT ~~HOME launched~~expanded its ~~initial set~~FTTH network to over 100 new cities, municipalities, and provinces including Camiguin, Occidental Mindoro, Oriental Mindoro and Samar. As of ~~fiber-powered “PLDT SmartCities~~,~~” in~~December 31, 2019, PLDT Home has over 620 “Fibr-powered PLDT SmartCities” such as Toledo City, Cebu, General Santos City, Naga City, South and East ~~Metro~~Metropolitan Manila, Rockwell Center, Norzagaray in Bulacan, Arayat in Pampanga, Surallah in South Cotabato, Bayombong in Nueva Vizcaya, Nabunturan in Compostella Valley and Mati City in Davao Oriental, Bangued in Abra; and Cavite as the first “PLDT Fibr-powered ~~SmartProvince.”~~SmartProvince”. ~~In 2018, we installed fiber optic cables in over 190 new cities~~

PLDT HOME also started to roll out its biggest free speed upgrades for its Home Fibr subscribers. These special upgrades boosted the Internet speeds of subscribers up to twice the speed of their existing plan and ~~municipalities from Luzon, Visayas~~enabled them to enjoy unlimited, uninterrupted video streaming, lag-free gaming, and ~~Mindanao.~~seamless browsing at home.

To complement the build-out of its fiber network, PLDT HOME is also modernizing and upgrading its current copper network and the roll-out of FTTH. ~~In 2017, PLDT also started the deployment of~~ ~~V-fiber~~ ~~using hybrid fiber technologies, such as vectored~~ ~~very-high-speed DSL orVVDSL, that can deliver fiber speeds through copper lines in residences and offices.~~ PLDT has the country’s most extensive transmission and distribution network infrastructure which now has about ~~244,000~~322,400 kilometers of fiber optic cables that transport the growing data traffic of its fixed line and mobile networks.

For the year ended December 31, 2019, PLDT Home WiFi’s revenues had a six-fold increase and doubled its subscriber base, as compared against the year ended December 31, 2018.

PLDT HOME is strongly committed to ~~providing~~fulfilling its subscribers’ digital home lifestyle ~~service packages~~needs through plans that bundle high-speed internet with compelling digital services. PLDT HOME ~~has almost half a million existing subscriptions nationwide.~~was first to market such services under the Smart Home banner. This digital ecosystem is built on the following pillars: entertainment, peace of mind, and automation.

~~For improved~~ ~~Smart Home~~ ~~connectivity,~~ PLDT Home started to offer Whole Home ~~Wifi~~WiFi, the Philippines’ first ~~intelligent~~Smart Home ~~Wifi~~WiFi technology designed to blanket the entire home with wireless ~~connectivity.~~ connectivity making homes SmartHome-ready. The Whole Home WiFi system improves WiFi coverage at home and can eliminate signal blockers and dead spots. The Whole Home WiFi Plan for PLDT Home comes with unlimited Fibr connection, “Whole Home” technology and free assisted installation service by our technicians, the Home Geek Squad. The Home Geek Squad, a group of “technical architects” pioneered by PLDT Home, helps subscribers set up the Whole Home WiFi system at home.

To strengthen its~~Smart Home~~ suite of connectivity services, PLDT Home launched an exclusive partnership with Google to bring ~~the~~ Google ~~Wifi~~WiFi to the Philippines. Google ~~Wifi~~WiFi is a mesh networking system that aims to eliminate dead zones and provide strong and fast signals for all connected devices at home. PLDT Home has enabled the Philippines to become one of the first countries in Asia to introduce Google WiFi, after Singapore, Hong Kong, and Japan.

~~PLDT Home also introduced~~The ~~Telpad~~, the world’s first landline, broadband and tablet service in one. It is a device package that combines a telephone with a tablet that lets user to take and make calls, and browse the internet at the same time.

~~The~~ Peace of Mind suite of services of PLDT Home features security-enhancing products like the home monitoring system Fam Cam, launched in partnership with network solutions giant ~~D-Link, and the online safety solution~~ ~~Fam Zone~~D-Link. ~~which is Australia’s leading online parental control platform.~~

For Entertainment, PLDT HOME has been providing subscribers with a diverse range of bundled content through its partnerships with global content providers. PLDT introduced ~~Roku-Powered~~^TMPLDT Home TVolution Lite powered by Roku®, an all-in-one, plug-and-play device that brings HD TV channels and ~~Subscription~~ Video-on-Demand ~~services.~~services into one. Designed with sleek, thin and light features, this powerful device allows subscribers to conveniently access a wide range of entertainment content from global entertainment partners including Southeast Asia’s internet TV service provider iflix, U.S.-based internet TV pioneer Netflix, Philippines’ pay TV service provider Cignal Digital TV, YouTube, and over 100 free streaming channels.

~~In 2018, PLDT further strengthened its partnership with these content partners and released the new~~The experience that PLDT Home ~~TVolution Lite powered by Roku®, a streaming device.~~

provides for all Filipino e-sports athletes, fans, and enthusiasts is an important part of the Entertainment pillar. PLDT launched the PLDT-Smart Omega, our first ever professional e-sports team that competed at The Nationals, the Philippines’ first franchise-based e-sports league. Continuing its support for world-class sporting events, PLDT Home ~~also teamed up with global technology leader Samsung to offer new~~sponsored major international e-sports competitions and ~~current PLDT Home Fibr subscribers an exclusive offer that allows them to upgrade their plans with Samsung Smart TV~~conventions held in the Philippines, such as the e-sports competitions in the Southeast Asian Games and ~~get free one year iflix subscription.~~the Esports and Gaming Summit.

PLDT Home also partnered with the National Basketball Association, or NBA, for a multiyear venture that made select offerings of ~~the~~NBA League Pass, NBA’s premium live game subscription service, available to more than 62 million PLDT Home and Smart subscribers in the Philippines.

~~PLDT Home also offered the Best Buy Bundle - product bundles that enable subscribers~~ The NBA League Pass includes a Day Pass worth Php50 which provides fans access to ~~mix~~live and ~~match their unlimited PLDT Home Fibr, Smart mobile, and Cignal Pay TV plans from the brands PLDT Home, Smart, and Cignal TV.~~

Internet usage at home in the Philippines has been steadily increasing over the past five years. This has been brought about by the increase in internet-capable gadget penetration, driven largely by growing smartphone ownership.

~~In response, PLDT launched its first ever~~ ~~PLDT Home Prepaid WiFi, an affordable wireless Internet service.~~ ~~PLDT Home Prepaid WiFi~~ ~~is powered by Smart’s LTE network.~~

Leased lines and other data services include: (i) Diginet, a domestic private leased line service, specifically supporting Smart’s fiber optic and enterprises’ leased line network requirements; (ii) IP-VPN, an end-to-end managed IP-based or Layer 3 data networking service that offers secure means to access corporate network resources; (iii) Metro Ethernet, a high-speed, Layer 2, wide area networking service that enables mission-critical data transfers; (iv) Shops.Work,, a connectivity solution designed for retailers and franchisers, linking company branches to the head office; and (v) Shops.Work UnPlugged,, or SWUP,, a wireless VPN service that powers mobile point-of-sale terminals and off-site bank ATMs, as well as other retail outlets located in remote areas.

ICT services include ~~data centers, which provide colocation and related connectivity~~Data Center services, ~~managed server hosting, disaster recovery and business continuity~~Cyber Security services, ~~managed security~~Cloud services, ~~cloud services, big data~~Managed IT services and various ~~managed~~other IT solutions. In July 2016, ePLDT opened VITRO Makati 2, ePLDT’s first TIA-942 Rated 3 Facility certified data center and a Nexcenter certified facility. VITRO Makati 2 is the Philippines’ biggest data center with 3,600 racks capacity, located in one of Philippines’ premiere business districts. In February 2017, ePLDT opened the first data center in Mindanao to address the growing enterprise demand in that region. Four days after the opening of the Mindanao data center, ePLDT opened VITRO Clark, the first TIA-942 Rated 3 Facility certified data center outside of Metropolitan Manila, which is the first purpose-built data center in the North Philippines. VITRO Clark primarily serves back-up requirements of Manila-based enterprises. The following year, ePLDT opened its second VITRO Data Center in Cebu, which uses up-to-date and globally competitive technologies and features. With this latest addition, the ePLDT Group now has a capacity of more than 9,100 racks in 10 locations covering Metropolitan Manila, Subic, Clark, Cebu and Davao.

PLDT Group ~~completed and~~ commercially launched the Philippines’ first carrier-grade cloud infrastructure in 2012 and has consistently built partnerships with global Cloud brands and invested in expertise for professional services. The Group offers a full-suite of Cloud Solutions to clients such as Infrastructure-as-a-Service, Software-as-a-Service, Unified Communications-as-a-Service, Contact-Center-as-a-Service, and Disaster ~~Recovery-as-a-Service, Coupa Spend Management and the Oracle Cloud Suite.~~Recovery-as-a-Service.

Complementing these capabilities are ePLDT Group’s partnerships with Cisco, Google, ~~IBM-Softlayer, Salesforce.com,~~Microsoft, Salesforce, and SAP ~~and Microsoft,~~ among others, ~~where~~through which ePLDT offers professional services beyond infrastructure and license-selling. Among the ePLDT Group’s credentials and achievements are Cisco Tier-2 Partner of the Year, Cisco

Our local exchange service, which consists of our basic voice telephony business, is provided primarily through PLDT. We also provide local exchange services through our subsidiaries – Philcom Group, Bonifacio Communications Corporation, ClarkTel, SubicTel and Maratel. Together, these subsidiaries account for approximately 1% of our consolidated fixed line subscribers.

Our international service consists of packet-based voice services and data services that go through our IGFs.

We have been pursuing a number of initiatives to sustain our international service business, including:
(i) adjusting slightly our inbound termination rates; (ii) identifying and containing unauthorized traffic termination on our network; (iii) interconnecting popular communication service providers (like Skype and Viber); (iv) introducing a number of marketing initiatives, including implementation of voicemail service and establishment of new voice services (Bucket IDD and Local Number Service); and (v) grow international data sales leveraging on PLDT’s sub-sea cable ownership and reach.

In addition, PLDT Global is also enhancing the presence of PLDT in other international markets by offering products and services such as international prepaid calling cards, virtual mobile services, SMS transit and other global bandwidth services. These strategies are intended to help us maximize the use of our existing international facilities, and develop alternative sources of revenue.

The table below sets forth the net settlement amounts for international calls handled by PLDT, by country, for the years ended December 31, 2019, 2018 and 2017:

Rates for outbound international calls are based on type of service, whether operator-assisted or direct-dialed. Our rates are quoted in U.S. dollars and are billed in Philippine pesos. The Philippine peso amounts are determined at the time of billing. We charge a flat rate of US$0.40 per minute to retail customers for direct-dialed calls, applicable to all call destinations at any time on any day of the week.

Our domestic services are provided primarily through PLDT. This service consists of voice services for calls made by our fixed line customers outside of their local service areas within the Philippines and access charges paid to us by other telecommunications carriers for wireless and fixed line calls carried through our backbone network and/or terminating to our fixed line customers.

Rates for domestic calls traditionally were based on type of service, such as whether the call is operator-assisted or direct-dialed. However, PLDT simplified these rates in recent years for calls originating from and terminating to the PLDT fixed line network and for calls terminating to fixed line networks of other LECs. PLDT also simplified its rates for calls terminating to mobile subscribers.

In addition, PLDT bundles the free PLDT-to-PLDT calls in some promotions and product/service launchings in order to stimulate fixed line usage.

Miscellaneous services provide facilities management, rental fees, and other services which are conducted through our wholly-owned subsidiary, ePLDT, which, together with its subsidiaries, is a broad-based integrated information and communications technology company.

Voyager Innovations, Inc., or Voyager, focuses on developing customer-centric digital platforms, services and solutions for emerging markets in the areas of financial services. Its payments platforms support thousands of small, medium and big enterprises to accept cashless payments.

PayMaya Philippines, Inc., or PayMaya, the digital payments arm of Voyager, is the leading digital financial services company in the country. It is an e-money issuer, licensed and regulated by the BSP.

~~PayMaya app and wallet~~ is the leading e-wallet app in the Philippine market, recognized by over 36% of the country’s adult population, based on the BSP 2017 National Financial Inclusion Survey. It enables Filipinos to have a financial account in a matter of minutes. ~~PayMaya~~ ~~also powers Smart MasterCard and MVP Rewards.~~

~~PayMaya Business~~ ~~provides a suite of digital payments solutions, which allow businesses to receive payments from all cards anytime, anywhere, and on any device.~~ ~~PayMaya Enterprise, meanwhile, offers communities, local government units, and companies with easy disbursement and payment solutions.~~

~~Smart Padala~~ ~~is the leading local remittance network in the market with over 26,000 outlets nationwide as of end-December 2018, allowing anyone to remit funds to any mobile number in the Philippines.~~

Through Smart and DMPI, we operate a digital GSM network. To meet the growing demand for mobile services, Smart and DMPI have implemented an extensive deployment program for their GSM network covering substantially all of Metropolitan Manila and most of the other population centers in the Philippines.

Smart has been continually extending its 3G ~~footprint.~~footprint, and now has over 13,000 3G base stations in the Philippines. The 3G network provides more capacity, faster data rates and richer data and video applications from a 2G network.

Smart launched its 4G LTE network in August 2012. As at December 31, ~~2018,~~2019, Smart has ~~deployed LTE to~~established more than ~~3,100 sites outside~~24,000 4G/LTE base stations throughout the Philippines, and serves over 90% of the ~~key metropolitan areas and our mobile broadband services have covered 90% of all~~country’s cities and municipalities ~~as committed to the NTC.~~ with its combined 2G, 3G, and 4G LTE network.

In November 2018, ~~Smart Communications and PLDT~~PLDT-Smart launched the Philippines’ first Smart 5G Cities in Pampanga and ~~Makati, which provide a more flexible and powerful platform for more compelling and relevant services.~~Makati. In the same month, they also successfully made the country’s first 5G-to-5G non-standalone, or NSA, video call between the two 5G Smart cities.

AsIn August 2019, PLDT and Smart successfully made the first 5G standalone, or SA, video call in Southeast Asia, using Nokia’s 5G SA equipment at ~~December 31,~~the PLDT-Smart 5G Technolab in Makati City. The 5G Technolab which was launched in 2018, ~~Smart has established 15,784 LTE base stations,~~is the Company’s flagship facility for the research and development, standardization, and testing of ~~which 14,382 are~~5G. It is designed to be a sustainable environment for ~~mobile LTE and 1,402 are for fixed wireless LTE, throughout the Philippines for its LTE network coverage.~~innovative services.

Also in 2019, Smart provided the technology for “Araneta 5G City” to become the country’s first Smart 5G Lifestyle Hub and 5G-enabled shopping mall, which hosted the country’s first 5G indoor deployment. PLDT and Smart have also launched 5G at the Ateneo de Manila University, transforming it into the first Smart 5G campus and enabling the university’s students and tech experts to co-develop practical and relevant 5G solutions.

Smart, along with PLDT, also became the official telecom partners of the 30th Southeast Asian Games and staged a special 5G showcase at the county’s first Smart 5G Stadium City in New Clark City to demonstrate to Filipino sports fans the exciting new applications made possible by 5G mobile technology.

Moreover, with its ongoing LTE and LTE-Advanced roll-out, Smart is also deploying 5G-capable equipment, and upgrading its network’s Core and Transport elements, including upgrading the backhaul connecting the network’s cell sites nationwide to fiber.

Home Broadband offers fixed wireless broadband internet connectivity to both residential and corporate clients. ~~It also maintains and operates~~ ~~WiFi~~ hotspots installations that serve mobile internet users. Smart also upgraded its 3G network to High-Speed Downlink Packet Access to provide users with high download data rates and an improved broadband experience. Roughly 2,500Over 2,000 of Smart’s base stations are now fixed wireless broadband-capable, covering most of the key cities and the other populated centers in the country. These are strategically ~~colocated~~collocated in Smart’s mobile base stations that allow it to efficiently reach many subscribers. For its backbone, it uses the nationwide PLDT and Smart fiber optic and IP backbone that provide substantial bandwidth capacity to utilize and to grow on demand.

Our domestic telephone network includes installed telephones and other equipment, such as modems on customers’ premises, copper and fiber access lines referred to as “outside plant connecting customers to our exchanges,” inter-exchange fiber optics connecting exchanges, and long distance transmission equipment with unmatched capacity and reach. As at December 31, ~~2018,~~2019, we have managed to modernize NGN soft switches including international gateways, and are expanding the wireline infrastructure in areas we believe are unserved and underserved areas.

In early 2016, we completed the upgrade of our fixed line facilities to fully IP-based platforms that can deliver voice and data services using a copper or fiber line to the customer with improved quality of service. This migration initiative enables us to fully replace the aging Public Switched Telephone Network, or PSTN, and transfer existing customers to these newer platforms, in an effort to ensure the best service for new customers of voice and data services for their present and future needs with a diversified range of telecommunication services using IP technology.

One of these platforms, FTTH, is an advanced access technology that employs fiber optics all the way up to customer premises. To realize this, we are building a fiber distribution network that will connect homes and other premises to further ensure good internet quality even kilometers away from the serving exchange. This new optical fiber distribution network will eventually replace conventional copper cable. At present, FTTH is potentially capable of delivering up to 2.5 Gigabits per second, or Gbps, download speed and ~~1Gbps~~1.25 Gbps upload speed. Its huge bandwidth enables us to deliver high-bandwidth content and services to our subscribers. These include high definition broadcast television, video-on-demand, and other new services being offered by leading telecommunications companies outside the Philippines. We have been testing FTTH since 2006 and in 2012 began deploying FTTH in high-end and selected upper middle villages in Metropolitan Manila. Initially, we are deploying FTTH in greenfield areas. In the last quarter of 2015, we started deploying it in existing service areas to support the growing demand for higher DSL speed. With the intention to maximize the existing copper cable to deliver high speed broadband, PLDT adopted vectored VDSL technology in vertical (buildings) and horizontal deployments to provide data rates up to 100Mbps. In 2018, we have accelerated the replacement of old ADSL technology with vectored VDSL to further improve the experience of internet users. PLDT has also recently adopted the new capabilities such as ~~G.Fast~~ ~~to deliver even higher speed on copper.~~

Along with PLDT’s pole infrastructures, we have been using the poles of Manila Electric Company, or Meralco, to deploy the FTTH FOC Network in Metropolitan Manila and in the rest of Meralco’s service areas for PLDT’s outside plant aerial cable pursuant to lease agreements with Meralco. PLDT is also using the pole infrastructure of other electric utility companies outside Meralco’s service area.

Our network includes an internet gateway that is composed of high capacity and high performance routers that serve as our IP network gateway connecting the Philippines to the rest of the world. It provides premium and differentiated internet service to all types of customers ranging from ordinary ~~broadband~~internet to high bandwidth ~~internet~~broadband requirements of corporate customers, knowledge processing solution providers, internet service providers, or ISPs, and even other service providers. Additionally, transparent caching service that is hosted in our domestic data centers provides a faster internet experience for customers. The caching facility includes well known websites such as Netflix, iflix, Google, Facebook and Amazon, among others.

Furthermore, we have several networks that provide domestic and international connectivity for corporate customers and other carriers. These include the Multi-Service Access Platform, or MSAP, based on Synchronous Digital Hierarchy, or SDH, technology and ~~legacy~~ data networks that provide wide range of bandwidth from low speed to high speed capacity up to 1Gbps. These MSAP networks are deployed in strategic areas nationwide. Starting 2015, we employed demarcation CPE that provides a purely IP-based access last mile with speed of up to 10 Gbps to single enterprise customer.

In 2018, we completed Phase 8 deployment of our Carrier Ethernet Network, or CEN, covering more exchanges to serve the growing demand for high bandwidth or up to 10Gbps Ethernet services from the corporate segment and prepare the network for efficient delivery of multimedia services. Carrier Ethernet service is a global standard for secure, scalable, resilient, cost effective, and high bandwidth point-to-point or multi-point connectivity using the simple and ubiquitous Ethernet technology delivered through PLDT’s MEF-certified CEN. It supports enterprise requirements such as data storage, headquarter to branch connectivity, headquarter to disaster recovery site connectivity, cloud services and backhaul for mobile/LTE services. PLDT’s CEN also serves as aggregation point for NGN and FTTH access nodes.

We likewise have an IP backbone network, or IPBB, composed of high-capacity, high-performance core and edge routers, now with capacities of up to 100Gbps in key exchanges that provide IP connectivity to the different network elements built for PLDT, Smart, subsidiaries and affiliates and corporate customers. It serves as the common and highly resilient IP transport platform for all IP-based services of the PLDT Group.

The PLDT DFON is a nationwide backbone network. It is the first fiber optic backbone network in the country and is used to deliver voice, video, data, and other broadband and multimedia services nationwide. It is comprised of nodes connected by terrestrial and submarine cable links configured in 11 loops and two appendages extending to Palawan and Iligan. The DFON loops provide self-healing and alternative segment route protection for added resiliency against single and multiple fiber breaks along the different segments. The DFON uses the ROADM and 10/40/100G technology which give it greater flexibility for capacity and expansion. The network also includes interconnectivity among the three international cable landing stations of PLDT with its own backhaul capacity and resiliency under the same DFON platform. To date, the network has an aggregated loop capacity of nearly 15.3 Terabits per second. The DFON is complemented by a terrestrial microwave backbone network to deliver services to remote areas unreachable by the fixed terrestrial transport network. Both the DFON and IPBB serve as the common high bandwidth Fiber Optic Cable-based backbone for the PLDT Group. DFON is part of the ~~243,684 kilometer backbone and intermediate~~322,400 total fiber ~~optic cable~~kilometers of the PLDT Group.

Aside from the DFON and IPBB, the PLDT Group has embarked on further synergy initiatives to rationalize and integrate its networks which include, among others, the outside plant, the DSL network, the IP backbone, the transmission systems, the internet gateway, international voice gateway, the PSTN, and NGN. These initiatives are expected to complement and enhance coverage and capacity for all networks in the PLDT Group.

PLDT ~~has also began~~is undergoing a transport ~~system~~network transformation program, which includes the transformation of DFON, IP Backbone and Carrier Ethernet network into a new architecture and technology in preparation for the provision of 5G services.

PLDT’s international network was designed and built to support IP-based international services, including IDD, messaging, international enterprise solutions, and the biggest use of international network resources today, the Internet services of the PLDT Group. The international network also supports in part requirements of the international retail business run by PLDT Global in various locations in Asia, Europe and the United States.

For voice services, PLDT operates two IP voice gateways. As at December 31, ~~2018,~~2019, PLDT’s international long distance facilities allow direct voice correspondence with 8972 foreign carriers from 4439 countries and can reach almost a thousand foreign destinations (including fixed and wireless network destination “breakouts”, or specific areas within a country) worldwide.

The Company has five international internet gateways to fortify PLDT Group’s infrastructure for internet and IP-based services, as well as connections of our fixed and wireless networks to content and internet services available from, and businesses connected to, the global internet. All these gateways employ high capacity, high performance routers, and together with ancillary facilities (such as security against network/service attacks), they provide premium and differentiated internet and/or IP services to all types of customers ranging from ordinary broadband to high bandwidth internet requirements of corporate customers, knowledge processing solution

providers, ISPs and even other service providers. PLDT also operates three offshore/forward gateway routers in Hong Kong, Singapore and the United States to support optimized and direct access to content providers and businesses connected to the internet in Asia as well as the continental U.S which we expect to result in faster internet speed. Offshore Gateway routers in Hong Kong and Los Angeles were replaced in the second quarter of 2018 to support 100 Gbps high capacity interface bandwidth and equipped with security module to help prevent cyberattacks originating through such gateways.

To localize international internet content, PLDT employs local transparent caching network, additional content provider partnering and continuous capacity expansion with various popular internet content providers. High demand contents from popular content and CDN providers are available locally and are delivered to PLDT customers.

To provide the international transport backbone for the voice and internet gateways as well as other international data services, PLDT operates the Philippines’ most extensive international submarine cable network. To date, PLDT maintains and operates three international cable landing stations in La Union and Batangas for international cables coming from the West Philippine Sea, and in Daet in the east for international cables coming from the Pacific Ocean. These international cable stations are connected by an advance terrestrial fiber mesh network (North, South and East Luzon systems) to our three International Transmission Maintenance ~~Centers.~~Centers, including direct cable station to cable station interconnection.

Connecting the country to the rest of the world via PLDT’s international cable stations are submarine cable systems in which PLDT had invested in and/or acquired capacities. The table below shows submarine cable systems, in which PLDT has interests, that terminate in the Philippines or connect onward to other submarine cable systems from the Philippines, and the countries or territories they link:

PLDT continues to work with major Asian carriers and OTT players for the implementation of the new Jupiter cable system to support the expected new fixed and mobile services requirements in 2020. Jupiter is expected to be ready for service by the fourth quarter of 2020. Furthermore, PLDT signed MOUs with strategic partners for the planning of two new regional cable systems. The Construction and Maintenance Agreement and Supply Contract for the first new system were entered into in February 2020, while those for the second new system are expected to be entered into in the second half of 2020.

The AAG, APCN2 and ASE upgrade projects were completed in 2018. These equipment upgrades provided PLDT with additional capacities using 100 Gbps and 150 Gbps technologies.

PLDT’s international automatic optical transport switching system continues to provide effective redundancy and continuity of service to Hong Kong, Japan, Singapore and the U.S. Mainland for premium enterprise clients. Additional dedicated submarine cable circuits were provisioned, and capacity of nodes upgraded, to support the growing business requirements.

With regard to service enabling platforms, the Company’s ARCHER platform supports voice and data services that are being offered in various parts of the world to serve mainly overseas Filipinos. The platform provides convergent charging, self-care, dealer portal, voucher management, call control, campaign and loyalty capabilities, and facilitates the time to market for new international mainstream products and new digital products.

Since the issuance of Executive Order, or E.O., No. 59 in 1993, which requires non-discriminatory interconnection of Philippine carriers’ networks, we have entered into bilateral interconnection arrangements with other Philippine fixed line and mobile carriers. See Item 4. “Information on the Company – Licenses and Regulations – Regulatory Tariffs” for further discussion.

As at December 31, ~~2018,~~2019, PLDT has direct interconnection agreements with 8994 foreign carriers from 44 countries.

The average international termination rate for calls to PLDT was approximately US$0.084 per minute in ~~2018.~~2019. Also, PLDT carries international calls terminating at Smart and Sun networks where they have no direct interconnections.

Through NTC MC 05-07-2018, the NTC has mandated the reduction of the interconnection access charge for SMS services from Php0.15 per SMS to Php0.05 per SMS and the voice service from Php2.50 per minute to Php0.50 per minute, effective August 24, 2018.

However, Public Telecommunications Entities, or PTEs, have bilaterally agreed to implement the revised interconnection access charge effective September 1, 2018, to align with the existing billing and settlement systems cut-off date cycle, which is at the end of the month.

The table below shows the expiry dates of franchises for each company indicated:

A franchise holder is required to obtain operating authority from the NTC to provide specific telecommunications services authorized under its franchise. These approvals may take the form of a CPCN, or, while an application for a CPCN is pending, a provisional authority to operate. Provisional authorities are typically granted for a period of 18 months. The Philippine Revised Administrative Code of 1987 provides that if the grantee of a license or permit, such as a CPCN or provisional authority, has made timely and sufficient application for the extension thereof, the existing CPCN or provisional authority will not expire until the application is finally decided upon by the administrative agency concerned.

The following table sets forth the spectrum system service/technology, licensed frequency bands and bandwidth assignments used by Smart, DMPI, SBI and PDSI:

As a condition of our acquisition of a controlling interest in Digitel, we have agreed with the NTC that we will divest the congressional franchise, spectrum and related permits held by CURE following the migration of CURE’s Red Mobile subscriber base to Smart. See Note 2 – Summary of Significant Accounting Policies – Divestment of CURE to the accompanying audited consolidated financial statements in Item 18 “Financial Statements” for further discussion.

Operators of IGFs and mobile telephone operators, pursuant to E.O. No. 109, are required to install a minimum number of local exchange lines. Of these new lines, operators are required to install one rural exchange line for every ten urban exchange lines installed. Smart and PCEV were required to install 700,000 and 400,000 rural lines, respectively, and each received a certificate of compliance from the NTC in 1999.

PLDT, ~~SubicTel,~~ ClarkTel, ~~Philcom,~~ Smart ~~Digitel, PCEV,~~and SBI ~~and CURE~~ are required to pay various permits, regulation and supervision fees to the NTC. PLDT was previously engaged in disputes with the NTC over some of the assessed fees.

The NTC has issued a number of directives that regulate the manner in which we conduct our business:

In order to diversify the ownership base of public utilities, the Public Telecommunications Policy Act R.A. 7925, requires a telecommunications entity with regulated types of services to make a public offering through the stock exchange of its shares representing at least 30% of its aggregate common shares within five years from: (a) the date the law became effective; or (b) the entity’s commencement of commercial operations, whichever date is later. PLDT and PCEV have complied with this requirement. On May 19, 2017, R.A. No. 10926 took effect which extended the Legislative Franchise of Smart. The law contains a provision which exempts Smart from the requirement of listing of shares if a grantee is wholly-owned by a publicly-listed company with at least 30% of whose authorized capital stock is publicly listed.

If DMPI is found to be in violation of R.A. 7925, this could result in the revocation of the franchise of DMPI and possible filing of a quo warranto case against DMPI by the Office of the Solicitor General of the Philippines. DMPI takes the position that the provisions of R.A. 7925 are merely directory and the policy underlying the requirement of telecommunications entities to conduct a public offering should be deemed to have been achieved when PLDT acquired a 100% equity interest in DMPI in 2011, since PLDT continues to be a publicly-listed company. However, there can be no assurance that for DMPI, the Philippine Congress will agree with such position.

See Item 3. “Key Information – Risk Factors – Risks Relating to Us – Our business is significantly affected by governmental laws and regulations, including regulations in respect of our franchises, rates and taxes, and laws relating to anti-competitive practices and monopoly” for further discussion.

On April 14, 2009, the NTC released the implementing guidelines on developing reference access offers, which are statements of the prices, terms and conditions under which a telecommunications carrier proposes to provide access to its network or facilities to another such carrier or value-added service provider.

In January 2009, the access charge for domestic calls from one fixed line to a fixed line in another network was updated to the range of Php1.00 per minute to Php3.00 per minute while the access charge for calls from fixed line to CMTS was updated to Php4.00 per minute. The access charge for CMTS calls to fixed line network remained at Php3.00 per minute.

PLDT is an Inter-Exchange Carrier providing transit service among CMTS, LEC operators including the PAPTELCO and non-PAPTELCO. Transit is a service being provided by PLDT to connect calls from one carrier to other carriers most of which have no direct interconnection. Since January 2009, PLDT’s transit fee remains at Php0.50 per minute for short haul (intra-island), Php1.25 per minute for long-haul (inter-island) and Php1.14 per minute for CMTS calls.

On November 24, 2016, the NTC issued MC No. 09-11-2016 entitled Interconnection Charge for Voice Services mandating that interconnection charge for voice calls between two separate networks shall not be higher than Php2.50 per minute. The MC likewise directed that existing interconnection agreements shall be amended to comply with this MC within 10 days from the effectivity of this MC. The new agreed reduced interconnection charges shall be effective not later than January 1, 2017 to give sufficient time for the necessary adjustment in the operators’ respective billing systems.

On July 19, 2018, the NTC issued MC No. 05-07-2018 entitled Interconnection Charge for Short Messaging Services and Voice Service mandating that interconnection access charge for voice service and SMS shall be Php0.50 per minute and Php0.05 per SMS, respectively. Consequently, the NTC issued a Memorandum dated August 6, 2018 directing all PTEs to amend the PTEs interconnection agreements by August 14, 2018 and impose the new interconnection charges not later than August 24, 2018. The PTEs have agreed to implement the new interconnection access charge for SMS services and voice service effective September 1, 2018 to align with the PTEs existing billing and settlement systems cut-off date cycle.

On February 8, 2019, R.A. 11202, otherwise known as the MNP Act, was enacted. Among other things, the MNP Act provides that a customer can retain his mobile number when he moves from one mobile service provider to another, or changes the type of subscription from postpaid to prepaid or vice versa. It also contains provisions regulating certain tariffs that mobile service providers charge. One pertinent provision of the MNP Act states that no interconnection fee or charge shall be imposed by any mobile service provider for domestic calls and SMS made by a subscriber. This provision excludes interconnection fees charged by fixed-line operators.

On June 11, 2019, the NTC issued MC No. 03-06-2019 or the IRR of RA No. 11202 otherwise known as the MNP Law, once fully implemented, will materially affect Smart’s business operations. Preparations to implement MNP are ongoing. Under the MNP Law, among other things, Smart is required to (i) make technical configurations in its systems; and (ii) update its business rules to reflect requirements under provisions relating to cyber security, data privacy, customer experience in the MNP Law. The MNP Law also requires mobile service providers to provide MNP services free-of-charge.

PLDT has continually and actively negotiated with other legitimate Philippine fixed and CMTS carriers for interconnection based on the guidelines being issued by the NTC or any authorized government agency. These carriers include the major fixed and mobile players in the industry with nationwide operations, PAPTELCO and other non-PAPTELCO players, both of which usually operate in selected towns in the countryside. As at December 31, ~~2018,~~2019, PAPTELCO has 3234 member companies, of which 1931 are active, operating 5261 main telephone exchanges in the countryside.

Including us, there are ~~four~~five major LECs, eight major IGF providers and two major mobile operators in the Philippines. Some new entrants into the Philippine telecommunications market have entered into strategic alliances with foreign telecommunications companies, which provide them access to technological and funding support as well as service innovations and marketing strategies.

Core income is measured as net income attributable to equity holders of PLDT (net income less net income attributable to non-controlling interests), excluding foreign exchange gains (losses) – net, gains (losses) on derivative financial instruments – net (excluding hedge costs), asset impairment on noncurrent assets, nonrecurring gains (losses), net of tax effect of aforementioned adjustments, as applicable, and similar adjustments to equity share in net earnings (losses) of associates and joint ventures. Core income results are monitored by the management for each business unit separately for purposes of making decisions about resource allocation and performance assessment. Also, core income as adjusted for the effect of accelerated depreciation, asset sales and share in Voyager losses, or telco core income, is used by the management as a basis for determining the level of dividend payouts to shareholders and a basis for granting incentives to employees. Core income should not be considered as an alternative to income before income tax or net income determined in accordance with IFRS as an indicator of our performance. Unlike net income, core income does not include foreign exchange gains and losses, gains and losses on derivative financial instruments, asset impairments and nonrecurring gains and losses. We compensate for these limitations by using core income as only one of several comparative tools, together with IFRS-based measurements, to assist in the evaluation of operating performance. Such IFRS-based measurements include income before income tax and net income. Our calculation of core income may be different from the calculation methods used by other companies and, therefore, comparability

may be limited. A reconciliation of our consolidated net income to our consolidated core income for the years ended December 31, 2019, 2018 and 2017 is presented in Item 5. “Operating and Financial Review and Prospects – Management’s Financial Review” and Note 4 – Operating Segment Information to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

The selected consolidated financial information below as at December 31, 2019, 2018 and 2017 and for the financial years ended December 31, 2019, 2018 and 2017, should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements, and the accompanying notes, included elsewhere in Item 18. “Financial Statements” of this annual report on Form 20-F. As disclosed under “Presentation of Financial Information,” our consolidated financial statements as at and for the years ended December 31, 2019, 2018 and 2017 have been prepared and presented in conformity with IFRS. The selected consolidated financial information as at December 31, 2016 and 2015 have been derived from our audited financial statements not included in this annual report.

~~Currently, there~~In 2019, we adopted IFRS 16, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all the leases under single on-balance sheet model similar to the accounting for finance leases under IAS 17, Leases. We applied the modified retrospective approach upon adoption of IFRS 16 on January 1, 2019 and applied the standard to contracts that were previously identified as leases applying IAS 17 and IFRIC 4, Determining whether an Arrangement contains a Lease. Under this approach, the cumulative effect arising from the transition was recognized as an adjustment to the opening balance of retained earnings. Accordingly, comparative information for prior periods were not restated.

In 2018, we have adopted IFRS 9, Financial Instruments, and IFRS 15, Revenues from Contracts with Customers. IFRS 9 replaces IAS 39, Financial Instruments: Recognition and Measurement, and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. IFRS 15 supersedes IAS 11, Construction Contracts, IAS 18, Revenue, and related interpretations and it applies to all revenue arising from contracts with customers, unless those contracts are ~~only two major~~in the scope of other standards. We applied the modified retrospective method upon adoption of IFRS 9 and IFRS 15 with the date of initial application of January 1, 2018. Under this method, the cumulative effect arising from the transition was recognized as an adjustment to the opening balance of retained earnings. Accordingly, comparative information for prior periods were not restated.

See Note 2 – Summary of Significant Accounting Policies and Note 3 - Management’s Use of Accounting Judgments, Estimates and Assumptions to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further discussion.

The following table summarizes PLDT’s capital stock issued and outstanding as at December 31, 2019 and 2018:

The following table shows the dividends declared to common shareholders from the earnings for the years ended December 31, 2017, 2018 and 2019:

The following table shows a summary of dividends paid per share of PLDT's common stock stated in both Philippine peso and U.S. dollars:

Dividends on PLDT’s common stock were declared and paid in Philippine pesos. For the convenience of the reader, the Philippine peso dividends have been converted into U.S. dollars based on the Philippine Dealing System Reference Rate on the respective dates of dividend payments from 2015 to 2017, and based on exchange rates quoted through the BAP for 2018 and 2019 dividend payments. See Note 20 – Equity to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further information on our dividend payments.

The rapid change of technology as well as the proliferation of OTT services (such as Facebook, Skype, Viber, WhatsApp and other similar services) and video conferencing applications (such as Zoom and other similar services), and the ensuing change in customer behavior, have disrupted our traditional businesses. As a result, our traditional revenue sources, such as short messaging service, or SMS, voice and international calling services, have declined, and we expect this trend to continue with the rise in data revenue.

The growing use of mobile ~~operators, namely us and Globe. Mobile market penetration~~data in the Philippines, ~~is in excess of 100% based on SIM ownership.~~

~~Competition in the mobile telecommunications industry has intensified starting the middle of 2010~~coupled with greater availability of unlimited offers from the telecommunications operators resulting in increased volumes of calls and texts but declining yields. Even after PLDT’s acquisition of the Digitel Group in the last quarter of 2011, Globe continued to compete aggressively to gain revenue market share, albeit on a more regional/localized basis. Competition also increased in the postpaid space with more aggressive promotions involving greater handset subsidies. The principal bases of competition are price, including handset prices in the case of postpaid plans, quality of service, network reliability, geographic coverage and attractiveness of packaged services, including video content.

~~In recent years,~~ the prevalence of OTT services ~~such as social media, instant messaging~~ and ~~internet telephone, also known as VoIP~~video conferencing applications, have negatively impacted our domestic calling service in recent years. OTT services ~~has greatly affected our legacy revenues namely~~continue to increasingly compete with us in voice and ~~SMS.~~data services and continue to affect our business model. We are also facing growing competition from providers offering services using alternative wireless technologies and IP-based networks, including efforts by the Philippine government to roll-out its free WiFi services to selected areas within various municipalities in the country. Moreover, net settlement payments between PLDT and other foreign telecommunications carriers for origination and termination of international call traffic between the Philippines and other countries, which have been our predominant source of foreign currency revenues, have been declining in recent years and have diminished in its contribution to total service revenues.

We are currently deploying 5G pilot programs in anticipation of commercial rollouts in the near future. However, we are dependent on the availability of 5G-capable devices such as handsets and modems before we can roll out commercial services and generate revenues. A delay in the release of reasonably-priced 5G handsets could negatively impact the mass acceptance of 5G services among our customers and our ability to monetize these investments, which in turn could adversely affect our growth prospects.

Increasing competition among existing telecommunications services providers, as well as competition from new competitors, could materially and adversely affect our business and prospects by, among other factors, forcing us to lower our tariffs, reducing or reversing the growth of our customer base and reducing usage of our services. Competition in the mobile telecommunications industry is particularly intense, with network coverage, quality of service, product offerings, and price dictating subscriber preference, while competition in the fixed line side is relatively more active as well. Vital capacity and coverage expansion may continue to increase our capital expenditures. Recently, the industry went through a period where both mobile operators have grown more aggressive in maintaining and growing market share, especially in light of a maturing market. Our principal mobile competitor, Globe Telecom, Inc., or Globe, has introduced aggressive marketing campaigns and promotions. It has also begun to compete more actively in the fixed line segment, especially with their introduction of a fixed wireless home broadband service which competes directly with our home broadband business.

In 2018, the Philippine government, through the DICT, declared as the third telecom player a consortium consisting of Udenna Corporation, Chelsea Logistics Corporation and China Telecom, or the New Mobile Player, or NMP, Consortium. The NMP Consortium indicated that they had reached an agreement with Mislatel Company, or Mislatel, for the use of Mislatel’s telecommunications franchise. In February 2019, the Senate Committee on Public Services approved the transfer of the controlling interest in Mislatel to the NMP Consortium under certain conditions. On July 8, 2019, Mislatel was renamed as “Dito Telecommunity Corporation”, or Dito. On the same date, Dito was granted its permit to operate after President Rodrigo Duterte awarded the CPCN by the NTC to its chairman Dennis Uy during a ceremony at the Presidential Palace, Malacañang. In October 2019, Dito entered into agreements with Sky Cable Corporation, or Sky Cable, and LCS Group. Under the agreement with LCS Group, Dito will lease the telecommunications towers that LCS has already built across different regions in the Philippines. With Sky Cable, Dito will utilize its unused fiber-optic cables in Metropolitan Manila. Dito is expected to begin its commercial operations by March 2021 with a plan to enable customers to use its telecommunications services by May 2020. Dito plans to set up 1,600 cell towers that will provide 37% coverage of the country, and plans to commence its internet service by July 18, 2020, with pre-commercial trial to be undertaken by September 2020. Dito plans to offer initially 4G LTE before moving to 5G technology in 2021.

The success of our business depends on our ability to maintain and enhance our brands.

We believe that our reputation and brands in the industry are crucial to the success of our business. To maintain and enhance our reputation and brands, we need to successfully provide the best customer experience such that we not only maintain our current customer base but attract new subscribers as well. If we are not successful in maintaining and improving our brands, our business, financial position, and/or results of operations may be negatively affected.

In particular, as part of our extensive capital expenditures program to overhaul our fixed and wireless networks infrastructure and our IT systems, we have entered into agreements with Amdocs Philippines, Inc., or Amdocs, and Huawei Technologies Co. Ltd., or Huawei, to upgrade and modernize a significant portion of our IT infrastructure. We cannot guarantee that we will be able to accomplish this transformation in a timely fashion, or at all, or in the manner intended. Furthermore, we cannot guarantee that such transformation will not result in service disruptions, network outages or encounter other issues that may detrimentally affect consumer experience. This may adversely affect our business, financial condition and results of operations. We continue to monitor developments on Huawei's cooperation with other telecommunications service providers worldwide. For example, we note that some countries and telecommunications service providers have banned or limited the use of Huawei’s technologies for different reasons. We have factored in such developments in our decision-making with respect to our operation with Huawei, and plan to continue to do so.

Our ability to earn revenues could be disrupted if our supplier(s) is no longer able or willing to provide us with our product or cannot provide us with our products due to extenuating territorial circumstances. In the event that either of our potential suppliers cannot or will not provide us with our products, we may be forced to find alternative supplies. We cannot guarantee that we will be able to obtain our products or products of similar quality from alternate suppliers, in part or at all. Failure to obtain alternative sources will disrupt our operations and hinder our ability to generate revenues.

The mobile telecommunications industry in the Philippines may not continue to grow.

The majority of our total revenues are currently derived from the provision of mobile services to customers in the Philippines. As a result, we depend on the continued development and growth of this industry in the Philippines. The mobile penetration rate in the country, however, has already reached approximately 159% as at December 31, 2019, and thus the industry may well be considered mature insofar as services such as SMS and domestic voice are concerned.

We believe that as of the date of this report, PLDT is in compliance with the requirements of the Constitution, and this position was supported by the Supreme Court; however, we cannot assure you that subsequent changes in law or additional litigation would not result in a different conclusion. See Item 8. “Financial Information – Legal Proceedings” and Note 27 – Provisions and Contingencies – In the Matter of the Wilson Gamboa Case and Jose M. Roy III Petition to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further discussion.

On May 19, 2017, R.A. No. 10926 took effect which extended the Legislative Franchise of Smart. The law contains a provision which exempts Smart from the requirement of listing of shares if a grantee is wholly owned by a publicly listed company with at least thirty per centum (30%) of whose authorized capital stock is publicly listed. Thus, Smart is in compliance with R.A. 7925.

~~Voice~~We cannot assure you that any of our franchise, permits or licenses will not be revoked and any such revocation could have a material adverse effect on our business, financial conditions or prospects.

~~Although the growth~~Our business is significantly affected by laws and regulations, including regulations in respect of the fixed line voice market has been impacted by higher demand for mobile services, we have sustained our leading position in the fixed line market on account of PLDT's extensive network in key cities nationwide. In most areas, we face one or two competitors. Our principal competitors in the local exchange market, Globerates and ~~Bayan Telecommunications, Inc., or Bayan, provide local exchange service through both fixed~~taxes and ~~fixed wireless landline services. In July 2015, Globe increased its shareholdings in Bayan~~laws relating to ~~98.57% from 56.87%.~~

Fixed wireless landline services resemble a mobile phone service but provide the same tariff structure as a fixed line service such as the charging of monthly service fees. Our major competitors, Globeanti-competitive practices and ~~Bayan, offer services in limited areas of Metropolitan Manila such as Makati, Las Piñas, the Visayas region and selected areas of Southern Luzon such as Cavite and Batangas.~~

There are 10 licensed IGF operators in the country, including us. While we still maintain a leadership position in this highly competitive service segment of the industry, our market share in recent years has declined as a result of: (1) competition from other IGF operators; (2) migration from fixed to direct mobile calling; and (3) the popularity of alternative and cheaper modes of communication such as e-mail, instant messaging, social-networking (such as ~~Facebook, Twitter~~ ~~and~~ ~~Instagram), including “free services” over the internet (such as~~ ~~Skype, Viber, Line, Facebook Messenger, GoogleTalk~~ ~~and~~ ~~WhatsApp, and similar services), and the establishment of virtual private networks for several corporate entities, which have further heightened competition.~~

With respect to outbound calls from the Philippines, we compete for market share through our local exchange and mobile businesses, which are the origination points of outbound international calls. We also have introduced a number of marketing initiatives to stimulate growth of outbound call volumes, including tariff reductions and volume discounts for large corporate subscribers. monopoly.

The PLDT Group is also subject to a number of ~~inbound calls~~national and local taxes. We cannot assure you that the PLDT Group will not be subject to new, increased and/or additional taxes and that the PLDT Group would be able to impose or pass on additional charges or fees on its customers to compensate for the imposition of such taxes or charges, or for the loss of fees and/or charges.

In particular, PLDT was engaged in litigation with the Philippine Competition Commission, or the PCC, relating to PLDT’s investments in Vega Telecom Inc., or VTI, Bow Arken Holdings Company, or Bow Arken, and Brightshare Holdings, Inc., or Brightshare, or the SMC Transactions. Although the Court of Appeals, or CA, among other things, compelled the PCC to recognize that the SMC Transactions as deemed approved by operation of law, the CA did clarify that the deemed approved status of the SMC Transactions does not, however, remove the power of PCC to conduct post-acquisition review to ensure that no anti-competitive conduct is committed by the parties. Any future expansion in our services, particularly in our mobile services, could subject us to additional conditions in the granting of our provisional authorities by the NTC and to increased regulatory scrutiny, which could harm our reputation and business, and which could have a material adverse effect on our growth and prospects. In addition, the occurrence of any such event could impose substantial costs or cause interruptions or considerable delays in the provision, development or expansion of our services. See Note 11 – Investments in Associates and Joint Ventures – Notice of Transaction filed with the Philippine Competition Commission, or PCC to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further discussion.

Changes in regulations or user concerns regarding privacy and protection of user data, or any failure to comply with such laws, could adversely affect our business.

Any failure, or perceived failure, by us to make effective modifications to our policies, or to comply with any privacy, data-retention or data-protection-related laws, regulations, orders or industry self-regulatory principles, including the Data Privacy Act, could result in proceedings or actions against us by governmental entities or others, a loss of user confidence, damage to the PLDT brands, and loss of users or advertising partners, any of which could potentially have an adverse effect on our business.

Inadequate handling of confidential information, including personal customer information by our corporate group, contractors and others, may adversely affect our credibility or corporate image.

We may not be successful in our acquisitions of, and investments in, other companies and businesses, and may therefore be unable to fully implement our business strategy.

Given the nature of our business and our foray into the ~~Philippines~~digital business, we have made investments in various start-up companies. For example, in 2014, we invested in Rocket Internet SE (formerly Rocket Internet AG), or Rocket, to drive the development of online and mobile payment solutions, the fair value of which has ~~been~~declined

significantly since our investment. Due to the significant decline in fair value of our investment in Rocket Internet, we recognized a series of impairments that amount to, in the aggregate, Php11,045 million, since then. See Note 12 – Financial Assets at FVPL – Investment of PLDT Online in Rocket Internet to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for more information. Credit ratings and market values of this investment and similar investments can be negatively impacted by liquidity, credit deterioration or losses, financial results, foreign exchange rates, or other factors. As a result, our investments could decline and result in a material impairment, which could have a material adverse effect on our financial condition and operating results.

The headquarters building of Smart, Smart Tower, is currently listed for sale. Our operations and financial conditions may be negatively affected if we fail to secure a permanent office building at the ~~popularity~~expiration of ~~OTT~~the lease-back agreement, which will form part of the agreement to sell Smart Tower.

If we are unable to install and maintain telecommunications facilities and equipment in a timely manner, we may not be able to maintain our current market share and the quality of our services, ~~due~~which could have a material adverse effect on our results of operations and financial condition.

Actual or perceived health risks or other problems relating to mobile handsets or transmission masts could lead to litigation or decreased mobile communications usage.

The effects of, and any damage caused by, exposure to an electromagnetic field remain the subject of careful evaluations by the international scientific community. We cannot rule out that exposure to electromagnetic fields or other emissions originating from mobile handsets will not be identified as a health risk in the future. Our mobile business may be harmed as a result of ~~intense local competition. We have been pursuing~~any future alleged, or actual, health risk or the perception of any health risk, which could result in a lower number of initiatives to mitigate the decline in our inbound telecommunications traffic, including a modest reduction of our termination rates, marketing and promotions to call Philippines, interconnecting with OTT providers like ~~Skype~~ ~~and~~ ~~Viber~~ in order to directly capture their organic traffic to the Philippines and continuously identifying and limiting unauthorized traffic termination. In addition, we have also established presence, through our wholly-owned subsidiary PLDT Global, in key cities overseas to identify and capture Philippine terminating traffic at its source, and develop alternative sources of revenue (e.g. ad-based calling service).

Our domestic service business has been negatively affected by the growing number of mobile subscribers in the Philippines, and the widespread availability and growing popularity of alternative economical to free non-voice methods of communication, particularly SMS, e-mail and social media, coupled with the mandate of the government regulatory body. In addition, various ISPs have launched voice services via the internet to their subscribers nationwide.

While domestic call volumes have been declining, we have remained the leading provider of domestic service in the Philippines due to our significant subscriber base and ownership of the Philippines’ most extensive transmission network.

~~From time to time, PLDT launches promotions bundled with our other products to attract new subscribers including free PLDT-to-PLDT NDD service.~~customers, reduced usage per customer or even potential consumer liability.

~~Data Services~~Our business relies on secure network infrastructure and computer systems, and any cyber-attacks against them, or the perception of such attacks, may materially adversely affect our operations, financial condition and results of operations.

We need to constantly upgrade our cyber capabilities to support our business needs. We depend on information and digital services to run our business and deliver value. Our Company faces the following challenges in the era of connectivity, digital identity, decentralized decisions, information monetization, transparency, and variable trust:

In 2019, the PLDT Group’s Cyber Security Operations Group detected close to 3,000 cyber security-related incidents. These incidents involve the following: (1) malware attacks; (2) use of unauthorized applications; (3) Distributed Denial of Service, or DDoS, attacks, (4) network intrusion attempts; (5) unauthorized access (6) failed log in attempts of corporate credentials; and (7) spam emails. On their own and taken as a whole, these incidents did not cause any material financial, legal, or regulatory impact to the Company, neither did they cause any material disruptions to our business operations. Please see Item 4. “Information on the Company – Recent Developments - PLDT Group’s Cyber Security Strategy” for measures we have implemented to manage cyber security related risks. We continue to expect attacks on our cyber system in the future. We cannot guarantee you that we will be able to protect our cyber system against each and every attack. Any successful attack on our cyber system could result in legal and/or regulatory liability, disruption to our business operations, damage to our reputation, and financial losses.

Cable and equipment theft, equipment failures, natural disasters, man-made events, terrorist acts and territorial disputes may materially adversely affect our operations.

Natural disasters, terrorist acts or acts of war could cause damage to our infrastructure and/or result in significant disruptions to our operations.

Our business may be materially and adversely affected by the coronavirus outbreak.

The ~~market for data services is a growing segment~~outbreak of the COVID-19 and other adverse public health developments, such as the outbreak of avian influenza, severe acute respiratory syndrome, or SARS, Zika virus and Ebola virus could materially and adversely affect our business, financial condition and results of operations. These may include, temporary closures of our facilities or premises, hospitalization or quarantine of our employees, delay or suspension of supplies from our suppliers, especially those located in the PRC, disruptions or suspension of our operational activities, labor shortage due to restrictions on our employees’ ability to travel. We have taken certain measures to try and minimize the negative effect that the COVID-19 has on our operations. See Item 4. “Information on the Company – Recent Developments – Measures We Have Taken in Light of the COVID-19 Outbreak”.

Climate change could increase the impact of natural disasters and environmental legislation and regulations on our operations.

Climate change poses a number of potential risks for telecommunications ~~industry. This development has been spurred~~operators like us, from both a physical and regulatory perspective. The ongoing global climate change may exacerbate the severity and frequency of natural disasters. The rising intensity and frequency of occurrence of storms, heatwaves and earthquakes could increase the damage to our infrastructure and failures of our wireline and wireless networks caused by such natural disasters. Should severe natural disasters occur in quick succession, we may not have sufficient resources to repair and restore our infrastructure in a timely and cost-effective manner. The increase in likelihood of our infrastructure being damaged by natural disasters could have a material adverse impact on our operations.

In light of the ~~significant growth in consumer~~heightened awareness seen across the globe on climate change, the Philippine government could introduce further and ~~retail broadband internet access, enterprise resource planning applications, customer relationship management, knowledge processing solutions, online gaming~~more stringent environmental legislation and regulations. If such legislation or regulations are enacted, we could incur increased energy, environmental and other ~~e-services~~costs and capital expenditures to comply with the limitations. We cannot guarantee that ~~drive the need for broadband~~we will at all times be in compliance with any new environmental legislation and ~~internet-protocol based solutions both in the Philippines~~regulations. The failure to comply with new environmental legislation and ~~abroad.~~ regulations could have a material adverse impact on our operations and financial conditions.

Our major competitors in this area are Globe and Bayan. The principal bases of competition in the data services market are coverage, price, content, value for money, bundles or free gifts, customer service and quality of service. PLDT intendsbusinesses require substantial capital investment, which we may not be able to ~~compete in this segment, consistent with its overall strategy to broaden its distribution platform and increase its ability to deliver multimedia content.~~finance.

~~Environmental Matters~~Our projects under development and the continued maintenance and improvement of our networks and services, including Smart’s projects, networks, platforms and services, require substantial ongoing capital investment. Our consolidated capital expenditures totaled Php72,871 million, Php58,490 million and Php40,299 million for the years ended December 31, 2019, 2018 and 2017, respectively. We currently estimate that our consolidated capital expenditures in 2020 will be approximately Php83 billion.

~~PLDT reaffirms its commitment~~Future strategic initiatives could require us to ~~ensuring compliance with environmental regulations~~incur significant additional capital expenditures. For example, as part of ~~its business operation. PLDT appointed, deployed and trained Pollution Control Officers who report~~our environmental protection initiative, we plan to conduct inspection of our submarine cables in the next few years. Depending on ~~quarterly basis~~the results of inspection, we may need to ~~the Department~~undertake maintenance work for our submarine cables, which may involve a significant sum of ~~Environment and Natural Resources Regional Offices~~capital expenditures. We may be required to finance a portion of our future capital expenditures from external financing sources, some of which have not yet been fully arranged. There can be no assurance that financing for new projects will be available on ~~compliance matters involving~~terms acceptable to us, or at all. If we cannot complete our facilities and operations with reference to relevant environmental laws such as the Philippine Clean Air Act, Toxic Substances and Hazardous and Nuclear Waste Control Act, Philippine Clean Water Act, Ecological Solid Waste Management Act and Pollution Control Law, among others. We maintain partnership with contractors to operationalize our regular air emission monitoring of generator sets, waste water quality monitoring, and hazardous wastes collection, hauling, treatment and reporting. Aside from existing facilities with sewage treatment plants, more facilities have undergone assessment and lined up in 2019 for construction of sewage treatment plant to provide permanent and guaranteed measure in sustaining effluent quality conformance to acceptable standards.

~~The Company has not been subjected to any significant fines or regulatory action involving non-compliance with environmental regulations of the Philippines.~~

~~We do not own any material intellectual property rights apart from our brand names and logos. We are not dependent on patents, licenses~~development programs or other ~~intellectual property which are material~~capital projects on time due to our ~~business or~~failure to obtain the required financing, our growth, results of operations, financial condition and prospects could be materially and adversely affected. Furthermore, if we are unable to monetize our investments and generate the expected revenues, our cash flows and gearing may be negatively impacted.

Our results of operations and our financial position could be materially and adversely affected if the Philippine peso significantly fluctuates against the U.S. dollar.

A substantial portion of our capital expenditures, a portion of our indebtedness and related interest expense and a portion of our operating expenses are denominated in U.S. dollars and other ~~than licenses to use the software that accompany~~foreign currencies, whereas most of our ~~equipment purchases and licenses for certain contents used~~revenues are denominated in ~~VAS of our wireless business.~~Philippine pesos. See Note 1421 – ~~Goodwill and Intangible Assets~~Interest-bearing Financial Liabilities to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

PLDT owns three office buildings located in Makati City and owns and operates 291 fixed line exchanges nationwide, of which 48 are located in the Metropolitan Manila area, including Digital Telecommunications Philippines Inc.’s, or DTPI’s, three exchanges. The remaining 243 exchanges, including DTPI’s 32 exchanges, are located in cities and small municipalities outside the Metropolitan Manila area. We also own radio transmitting and receiving equipment used for international and domestic communications.

~~As at December 31, 2018, our principal properties, excluding property under construction, consisted of the following, based on net book values:~~

~~For more information on these properties, see~~ ~~Note 9 – Property and Equipment~~ ~~to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.~~

~~These properties are located in areas where our subscribers are being served. In our opinion, these properties are in good condition, except for ordinary wear and tear, and are adequately insured.~~

The majority of our connecting lines are above or under public streets and properties owned by others. For example, for many years, the PLDT Group has been using the power pole network of Meralco in Metropolitan Manila for PLDT’s fixed line aerial cables in this area pursuant to short-term lease agreements with Meralco with typically five-year and more recently one-year terms.

The PLDT Group has various lease contracts for periods ranging from one to ten years covering certain offices, warehouses, cell sites, telecommunications equipment locations and various office equipment. For more information on the obligations relating to these properties and long-term obligations, see ~~Note 20 – Interest-Bearing Financial Liabilities~~ ~~and~~ ~~Note 27 – Financial Assets and Liabilities~~ ~~to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.~~

We expect that in 2019, cash from operating activities should enable us to increase the level of our capital expenditures for the continued expansion and upgrading of our network infrastructure. We expect to make additional investments in our core facilities to leverage existing technologies and increase capacity. Our current estimate for consolidated capital expenditures in 2019 is approximately Php78 billion. See Item 5. “Operating and Financial Review and Prospects – Plans” for further discussion on our capital expenditures.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements (and the related notes) as at December 31, 2018 and 2017 and for each of the three years ended December 31, 2018, 2017 and 2016 included elsewhere in this report. This discussion contains forward-looking statements that reflect our current views with respect to future events and our future financial performance. These statements involve risks and uncertainties, and our actual results may differ materially from those anticipated in these forward-looking statements as a result of particular factors such as those set forth under "Forward-Looking Statements" and Item 3. "Key Information – Risk Factors" and elsewhere in this report. Our consolidated financial statements, and the financial information discussed below, have been prepared in accordance with IFRS. For convenience, certain Philippine peso financial information in the following discussions have been converted to U.S. dollars at the exchange rate at December 31, 2018 of Php52.56 to US$1.00, as quoted through the BAP.

We are the largest and most diversified telecommunications company delivering data and multimedia services in the Philippines. We have organized our business into business units based on our products and services and have three reportable operating segments which serve as bases for management’s decision to allocate resources and evaluate operating performance: Wireless, Fixed Line and Others. See ~~Note 4 – Operating Segment Information~~ ~~to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further information on each of these segments.~~

Key performance indicators and drivers that our management uses to monitor and direct the operation of our businesses include, among others, the general economic conditions in the Philippines; market trends such as customer demands, behavior and satisfaction parameters; technological developments; network performance (in terms of speed, coverage and capacity); market share and profitability.

~~In addition, our results of operations and financial position are increasingly affected by fluctuations~~A depreciation of the Philippine peso against the U.S. ~~dollar.~~

~~As discussed in Item 3. “Key Information – Performance Indicators”, we use our Adjusted EBITDA and core income to assess our operating performance; a reconciliation~~dollar would increase the amount of our ~~consolidated net income~~U.S. dollar-denominated debt obligations, capital expenditures, and operating and interest expenses in Philippine peso terms. In the event that the Philippine peso depreciates against the U.S. dollar, we may be unable to generate enough funds through operations and other means to offset the resulting increase in our ~~consolidated Adjusted EBITDA~~obligations in Philippine peso terms. Moreover, a depreciation of the Philippine peso against the U.S. dollar may result in our recognition of significant foreign exchange losses, which could materially and adversely affect our ~~consolidated core income for~~results of operations. A depreciation of the ~~years ended December 31, 2018, 2017~~Philippine peso could also cause us not to be in compliance with the financial covenants imposed on us by our lenders under certain loan agreements and ~~2016 is set forth below.~~

~~The following table shows~~other indebtedness. Further, fluctuations in the ~~reconciliation~~Philippine peso value and of interest rates impact the mark-to-market gains/losses of certain of our ~~consolidated net income to our consolidated Adjusted EBITDA for the years ended December 31, 2018, 2017 and 2016:~~

~~The following table shows the reconciliation of our consolidated net income to our consolidated core income for the years ended December 31, 2018, 2017 and 2016:~~

The following table shows the reconciliation of consolidated basic and diluted earnings per share, or EPS, attributable to common equity holders of PLDT to our consolidated basic and diluted core EPS for the years ended December 31, 2018, 2017 and 2016:

~~Critical Accounting Policies~~financial debt instruments, which were designated as non-hedged items.

The ~~preparation~~Philippine peso has been subject to significant depreciation in recent years with the Philippine peso depreciated by approximately 24% from a high of ~~our consolidated~~Php41.08 for year end 2012 to Php50.80 as at December 31, 2019 and further depreciated to Php51.04 as at March 30, 2020. We cannot assure you that the Philippine peso will not depreciate further and be subject to significant fluctuations going forward, due to a range of factors, including:

Our debt instruments contain restrictive covenants which require us to ~~make judgments, estimates~~maintain certain financial tests and ~~assumptions that affect~~our indebtedness could impair our ability to fulfill our financial obligations and service our other debt.

Our existing debt instruments contain covenants which, among other things, require PLDT to maintain certain financial ratios and other financial tests, calculated on the ~~reported amounts~~basis of ~~our revenues, expenses, assets and liabilities and disclosure of contingent liabilities~~IFRS at relevant measurement dates, principally at the end of each ~~reporting~~quarter period. ~~The uncertainties inherent in these assumptions and estimates could result in outcomes that could require~~For a ~~material adjustment to the carrying amount~~description of ~~the assets or liabilities affected in the future years.~~

Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Judgments, key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next reporting period are consistent with those applied in the most recent annual financial statements, except for those that relate to the adoption of IFRS 9 and IFRS 15. Selected critical judgments and estimates applied in the preparation of the annual consolidated financial statements as discussed below:

In the process of applying our accounting policies, management has made judgments, apart from those involving estimations which have the most significant effect on the amounts recognized in our financial statements.

We identify performance obligations by considering whether the promised goods or services in the contract are distinct goods or services. A good or service is distinct when the customer can benefit from the good or service on its own or together with other resources that are readily available to the customer and our promise to transfer the good or service to the customer is separately identifiable from the other promises in the contract.

Revenues earned from multiple element arrangements offered by our fixed line and wireless businesses are split into separately identifiable performance obligations based on their relative stand-alone selling price in order to reflect the substance of the transaction. The transaction price represents the best evidence of stand-alone selling price for the services we offer since this is the observable price we charge if our services are sold separately. We account for customer contracts in accordance with IFRS 15 and have concluded that the service (telecommunication service) and non-service components (handset or equipment) may be accounted for as separate performance obligations. The handset or equipment is delivered first, followed by the telecommunication service (which is provided over the contract/lock-in period, generally two years). Revenue attributable to the separate performance obligations are based on the allocation of the transaction price relative to the stand-alone selling price.

Installation fees for voice services are considered as a single performance obligation together with monthly service fees, recognized over the customer subscription period since the subscriber cannot benefit from the installation services on its own or together with other resources that are readily available to the subscriber. Installation fees for data services are also not capable of being distinct from the sale of modem since the subscriber obtains benefit from the combined output of the installation services and the device, and is recognized upon delivery of the modem and performance of modem installation.

We enter into contracts with its customers involving multiple deliverable arrangements. We determined that we control the goods before they are transferred to customers, and we have the ability to direct the use of the inventory. The following factors indicate that we control the goods before they are being transferred to customers. Therefore, we determined that it is a principal in these contracts.

Based on the foregoing, we are considered the principal in our contracts with other service providers except for certain VAS arrangements. We have the primary obligation to provide the services to the subscriber.

We recognize revenue from contracts with customers over time or at a point in time depending on our evaluation of when the customer obtains control of the promised goods or services and based on the extent of progress towards completion of the performance obligation. For the telecommunication service which is generally provided over the contract period of two years, because control is transferred over time, revenue is recognized monthly as we provide the service. For the handset which is provided at the inception of the contract, because control is transferred at a point in time, revenue is recognized at the time of delivery.

We determine the appropriate method of measuring progress which is either through the use of input or output methods. Input method recognizes revenue on the basis of the entity’s efforts or inputs to the satisfaction of a performance obligation while output method recognizes revenue on the basis of direct measurements of the value to the customer of the goods or services transferred to date.

Revenue from telecommunication services is recognized through the use of input method wherein recognition is over time based on the customer subscription period since the customer simultaneously receives and consumes the benefits as the seller renders the services.

~~We concluded~~ that the handset component included in contracts with customers has a significant financing component considering the period between the customer’s payment of the price of the handset and time of the transfer of control over the handset, which is more than one year.

In determining the interest to be applied to the amount of consideration, we concluded that the interest rate is the market interest rate adjusted with credit spread to reflect the customer credit risk that is commensurate with the rate that would be reflected in a separate financing transaction between us and our customer at contract inception.

~~We assessed that the service and the handset represent separate performance obligations and thus, the amount~~ of revenues should be recognized based on the allocation of the transaction price to the different performance obligations based on their stand-alone selling prices. The stand-alone selling price is the price at which we sell the good or service separately to a customer. However, if goods or services are not currently offered separately, we use the adjusted market or cost-plus margin method to determine the stand-alone selling price to be used in the revenue allocation.

In terms of allocation of transaction price between performance obligations, we assessed that allocating the transaction price using the stand-alone selling prices of the services and handset will result in more revenue allocated to non-service component as compared to our old practice. The stand-alone selling price is based on the price at which we regularly sell the non-service and service component in a separate transaction.

We determine our business model at the level that best reflects how we manage groups of financial assets to achieve our business objective. Our business model is not assessed on an instrument-by-instrument basis, but a higher level of aggregated portfolios and is based on observable factors such as:

The business model assessment is based on reasonably expected scenarios without taking 'worst case' or 'stress case’ scenarios into account. If cash flows after initial recognition are realized in a way that is different from our original expectations, we do not change the classification of the remaining financial assets held in that business model, but incorporates such information when assessing newly originated or newly purchased financial assets going forward.

~~We have determined that for cash and cash equivalents, investment in debt securities and other long-term investments (Note 12 – Debt Instruments at Amortized Cost/Investment in Debt Securities and Other Long-term~~ Investments), and trade receivables, the business model is to collect the contractual cash flows until maturity. For receivables from MPIC, we have determined that its business model is to both collect contractual cash flows and sale of financial assets.

IFRS 9, however, emphasizes that if more than an infrequent number of sales are made out of a portfolio of financial assets carried at amortized cost, the entity should assess whether and how such sales are consistent with the objective of collecting contractual cash flows.

~~We define a financial instrument as in default, which is fully aligned with the definition of credit-impaired, when it meets one or more of the following criteria:~~

For trade receivables and all other financial assets subject to impairment, default occurs when the receivable becomes 90 days past due, except for trade receivables from Corporate subscribers, which are determined to be in default when the receivables become 120 days past due.

~~The counterparty meets unlikeliness to pay criteria, which indicates the counterparty is in significant financial difficulty. These are instances where:~~

The criteria above have been applied to all financial instruments, except FVPL, held by the Group and are consistent with the definition of default used for internal credit risk management purposes. The default definition has been applied consistently to the ECL models throughout our expected loss calculation.

At each reporting date, the Group assesses whether there has been a significant increase in credit risk for financial assets since initial recognition by comparing the risk of default occurring over the expected life between the reporting date and the date of initial recognition. The Group considers reasonable and supportable information that is relevant and available without undue cost or effort for this purpose. This includes quantitative and qualitative information and forward-looking analysis.

An exposure will migrate through the ECL stages as asset quality deteriorates. If, in a subsequent period, asset quality improves and also reverses any previously assessed significant increase in credit risk since origination, then the loss allowance measurement reverts from lifetime ECL to 12-months ECL.

Using our judgment and, where possible, relevant historical experience, we may determine that an exposure has undergone a significant increase in credit risk based on particular qualitative indicators that we consider are indicative of such and whose effect may not otherwise be fully reflected in its quantitative analysis on a timely basis.

As a backstop, we consider that a significant increase in credit risk occurs no later than when an asset is more than 30 days past due. Days past due are determined by counting the number of days since the earliest elapsed due date in respect of which full payment has not been received. Due dates are determined without considering any grace period that might be available to the counterparty.

Exposures that have not deteriorated significantly since origination, or where the deterioration remains within our investment grade criteria, or which are less than 30 days past due, are considered to have a low credit risk. The provision for credit losses for these financial assets is based on a 12-month ECL. The low credit risk exemption has been applied on debt investments that meet the investment grade criteria of the PLDT Group.

~~Impairment of available-for-sale equity investments – Prior to January 1, 2018~~

~~For available-for-sale financial investments, we assess at each reporting date whether there is objective evidence that an investment or a group of investments is impaired.~~

Based on our judgment, the decline in fair value of our investment in Rocket Internet SE, or Rocket Internet, was considered significant as the cumulative net losses from changes in fair value represented more than 20% decline in value below cost. As a result, total cumulative impairment losses recognized on our investment in Rocket Internet amounted to Php11,045 million as at December 31, 2017. Impairment losses charged in our consolidated income statements amounted to Php540 million and Php5,381 million for the years ended December 31, 2017 and 2016, respectively. See related discussion on ~~Note 11 – Financial Assets at FVPL/Available-for-Sale Financial Investments – Investment of PLDT Online in Rocket Internet~~ ~~to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.~~

The functional currencies of the entities under the PLDT Group are the currency of the primary economic environment in which each entity operates. It is the currency that mainly influences the revenue from and cost of rendering products and services.

The presentation currency of the PLDT Group is the Philippine peso. Based on the economic substance of the underlying circumstances relevant to the PLDT Group, the functional currency of all entities under PLDT Group is the Philippine peso, except for (a) SMHC, FECL Group, PLDT Global and certain of its subsidiaries, DCPL, PGNL and certain of its subsidiaries, Chikka and certain of its subsidiaries and PGIC, which uses the U.S. dollar; (b) VIP, VIH, VII, VIS, iCommerce, Fintech Ventures, 3^rd Brand, CPL and AGSPL, which uses the Singaporean dollar; (c) CCCBL, which uses the Chinese renminbi; (d) AGS Malaysia and Takatack Malaysia, which uses the Malaysian ringgit; (e) AGS Indonesia, which uses the Indonesian rupiah; and (f) ePay Myanmar, which uses the Myanmar kyat.

~~Reclassification of certain land and building from investment property to property and equipment~~

In 2018, ePLDT reclassified certain land and building amounting to Php1,236 million from investment property to property and equipment because of the change in use of the assets. Prior to reclassification, these land and building were previously held for rental to third party lessees up to the end of the lease arrangement in 2018. Then Management decided not to renew the lease contracts but instead use the land and building for business operations. As such, Management believes that the reclassification to property and equipment is appropriate given the change in usesome of these ~~assets.~~

As a lessee, we have various lease agreements in respect of certain equipment and properties. We evaluate whether significant risks and rewards of ownership of the leased properties are transferred to us (finance lease) or retained by the lessor (operating lease) based on IAS 17. Total lease expense amounted to Php7,321 million, Php7,016 million and Php6,632 million for the years ended December 31, 2018, 2017 and 2016, respectively. Total finance lease obligations amounted to Php514 thousand and Php679 thousand as at December 31, 2018 and 2017, respectively. Seecovenants, see Note ~~2 – Summary of Significant Accounting Policies, Note 5 – Income and Expenses – Selling, General and Administrative Expenses, Note 20~~21 – Interest-bearing Financial Liabilities ~~– Obligations under Finance Leases~~ ~~and~~ ~~Note 27 – Financial Assets and Liabilities – Liquidity Risk~~ to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

The principal factors that could negatively affect our ability to comply with these financial ratio covenants and other financial tests are depreciation of the Philippine peso relative to the U.S. dollar, poor operating performance of PLDT and its subsidiaries, impairment or similar charges in respect of investments or other long-lived assets that may be recognized by PLDT and its subsidiaries, and increases in our interest expense. Interest expense may increase as a result of various factors including issuance of new debt, the refinancing of lower cost indebtedness by higher cost indebtedness, depreciation of the Philippine peso relative to the U.S. dollar, the lowering of PLDT’s credit ratings or the credit ratings of the Philippines, increase in reference interest rates, and general market conditions. Of our total consolidated debts, approximately 9% and 13% were denominated in U.S. dollars as at December 31, 2019 and 2018, respectively. Considering our consolidated hedges and U.S. dollar cash balances allocated for debt, the unhedged portion of our consolidated debt amounts were approximately 8% and 12% as at December 31, 2019 and 2018, respectively, therefore, the financial ratio and other tests are expected to be negatively affected by any weakening of the Philippine peso relative to the U.S. dollar.

A significant number of shares of PLDT’s voting stock are held by four shareholders, which may not act in the interests of other shareholders or stakeholders in PLDT.

As at February 29, 2020, the First Pacific Group and its Philippine affiliates, NTT Communications and NTT DOCOMO, and JG Summit Holdings, Inc. and its affiliates, or JG Summit Group, collectively, beneficially own approximately 57.2% in PLDT’s outstanding common stock (representing 33.8% of our overall voting stock). See Item 7. “Major Shareholders and Related Party Transactions” for further details regarding the shareholdings of NTT Communications and NTT DOCOMO in PLDT, and the rights granted pursuant to the Cooperation Agreement, Strategic Agreement and the Shareholders Agreement.

We are unionized and are vulnerable to work stoppages, slowdowns or increased labor costs.

As at December 31, 2019, PLDT has three employee unions, representing in the aggregate 9,099, or 48%, of the employees of the PLDT Group. This unionized workforce could result in demands that may increase our operating expenses and adversely affect our profitability. For instance, PLDT experienced significant charges from its manpower rightsizing program in 2019, 2018 and 2017, mainly incurred in the fixed-line business. See Note 5 – Income and Expenses – Compensation and Employee Benefits to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”. Each of our different employee groups require separate collective bargaining agreements. If PLDT and any of its unions are unable to reach an agreement on the terms of their collective bargaining agreement or if we were to experience widespread employee dissatisfaction, we could be subject to work slowdowns or stoppages. Any of these events would be disruptive to our operations and could harm our business.

Additionally, on July 3, 2017, PLDT received a Compliance Order from the Department of Labor and Employment of the Philippines, or DOLE, in connection with the non-payment of statutorily required monetary benefits, including the 13^th month pay, to certain contractor employees. On July 31, 2018, the Court of Appeals promulgated a decision granting PLDT’s prayer for an injunction against the Compliance Order and remanded back to the DOLE for further proceedings the computation of the monetary awards, which in the regularization orders amounted to Php51.8 million. We cannot guarantee that PLDT or its subsidiaries will not be subject to similar proceedings or other labor-related regulatory activities, the results of which may have an adverse reputational and/or financial impact. See Note 27 – Provisions and Contingencies to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

The loss of key personnel or the failure to attract and retain highly qualified personnel could compromise our ability to effectively manage our business and pursue our growth strategy.

Adverse results of any pending or future litigation, internal or external investigations and/or disputes may impact PLDT’s cash flows, results of operations and financial condition.

For more information on PLDT’s legal proceedings, see Item 8. “Legal Proceedings” and Note 27 – Provisions and Contingencies to the accompanying consolidated financial statements in Item 18. “Financial Statements.” While PLDT believes the positions it has taken in these cases are legally valid, the final results of these cases may prove to be different from its expectations. In addition, there is no assurance that PLDT will not be involved in future litigation or other disputes, the results of which may materially and adversely impact its business and financial conditions.

Our financial condition and operating results will be impaired if we experience high fraud rates related to device financing, credit cards, dealers, or subscriptions.

PLDT’s business may be adversely affected by political or social or economic instability in the Philippines.

The Philippines is subject to political, social and economic volatility that, directly or indirectly, could have a material adverse impact on our ability to sustain our business and growth.

If foreign exchange controls were to be imposed, our ability to meet our foreign currency payment obligations could be adversely affected.

As a foreign private issuer, we follow certain home country corporate governance practices which may afford less protection to holders of our ADSs.

The credit ratings of the Philippines may restrict the access to capital of Philippine companies, including PLDT.

Historically, the Philippines’ sovereign debt has been rated non-investment grade by international credit rating agencies. In 2019, the Philippines’ long-term foreign currency-denominated debt was upgraded by S&P Global, or S&P, to BBB+ with stable outlook, while Fitch Ratings, or Fitch, and Moody’s Investors Service, or Moody’s, affirmed the Philippines’ long-term foreign currency-denominated debt to the investment-grade rating of BBB and Baa2, respectively, with a stable outlook. The Philippine Government’s credit ratings will directly affect companies domiciled in the Philippines as international credit rating agencies issue credit ratings by reference to that of the sovereign. No assurance can be given that Fitch, Moody’s, S&P, or any other international credit rating agency will not downgrade the credit ratings of the Philippine Government in the future and, therefore, Philippine companies, including PLDT. Any such downgrade could have a material adverse impact on the liquidity in the Philippine financial markets, the ability of the Philippine Government and Philippine companies, including PLDT, to raise additional financing, and the interest rates and other commercial terms at which such additional financing is available.

Our common shares are listed and traded on the PSE and our ADSs are listed and traded on the NYSE in the United States.

We had a market capitalization of approximately Php213,463 million, or US$4,202 million, as at December 31, 2019, representing one of the largest market capitalizations among Philippine-listed companies. We had total revenues of Php169,187 million, or US$3,330 million, and net income attributable to equity holders of PLDT of Php22,521 million, or US$443 million, for the year ended December 31, 2019.

Our principal executive offices are located at the Ramon Cojuangco Building, Makati Avenue, Makati City, Philippines and our telephone number is +(632) 8816-8534. Our website address is www.pldt.com. The contents of our website are not a part of this annual report. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at https://www.sec.gov.

On March 9, 2020, we instituted a travel ban to high risk countries on our employees and executed a partial lockdown with access to our corporate premises limited only to employees. On March 12, 2020, we imposed a ban on all foreign travel.

We have issued instructions and guidelines to our trade partners on how to best deal with the COVID-19 outbreak.

Effective January 23, 2020, PLDT Subic Telecom, Inc., or SubicTel ceased to operate as a telecommunications service provider, pursuant to the expiration of its franchise issued by the Subic Bay Metropolitan Authority, or SBMA. In order to facilitate continued customer service, arrangements have been made between SubicTel and PLDT where PLDT would make its services available to the affected SubicTel subscribers on voluntary basis. The NTC interposed no objection to the transfer of SubicTel’s subscribers to PLDT, subject to certain conditions. Likewise, the SBMA Board approved the issuance of Certificate of Registration to PLDT to operate within SBMA. On September 24, 2019, the PLDT Board of Directors approved the acquisition of the assets and subscribers of SubicTel for a total consideration of Php675 million. PLDT has committed to provide financial support to discharge SubicTel’s liabilities as the need arises. This transaction was eliminated in our consolidated financial statements.

Effective April 2020, PLDT-Maratel, Inc., or Maratel, will cease to operate as a telecommunications service provider, following the expiration of its legislative franchise, R.A. 7970. In order to ensure continued customer service, Maratel will assign its assets and subscribers, or the “Maratel Subscribers”, to PLDT who undertakes to offer its services to Maratel Subscribers subject to conditions as may be imposed by the NTC. The NTC, has yet to respond to Maratel’s notice to transfer its subscribers to PLDT. On November 7, 2019, the PLDT Board of Directors approved the acquisition of the assets and Maratel Subscribers for a total consideration of Php442 million. PLDT has committed to provide financial support to discharge Maratel’s liabilities as the need arises. This transaction was eliminated in our consolidated financial statements.

On September 19, 2019, Smart issued Php4,700 million perpetual notes to DMPI under the Notes Facility Agreement dated September 16, 2019.

Proceeds from the issuance of these notes are intended to finance capital expenditures. The notes have no fixed redemption dates, however, Smart may, at its sole option, redeem the notes. The notes are subordinated to and rank junior to all senior loans of Smart. This transaction was eliminated in our consolidated financial statements.

Decrease in PCEV’s Par Value of Common Stock and Authorized Common Capital Stock

On May 10, 2019 and June 25, 2019, PCEV’s Board of Directors and stockholders approved the decrease in PCEV’s par value of common stock, from Php21,000 to Php8,700, and authorized common capital stock, from Php12,060 million to Php4,996 million.

The decrease in PCEV’s par value of common stock and authorized capital stock was approved by the Philippine SEC on December 19, 2019. Consequently, the partial return of capital representing their proportionate share in the decrease in par value amounting to Php6,825 million and Php4 million were paid to Smart and PCEV’s minority shareholders, respectively.

On April 16, 2018, Rocket Internet announced the buyback of up to 15 million Rocket Internet shares through a public share purchase offer, or the Offer, against payment of an offer price in the amount of €24 per share. PLDT Online Investments Pte. Ltd., or PLDT Online, committed to accept the Offer of Rocket Internet for at least 6.8 million shares, or approximately 67.4% of the total number of shares directly held by PLDT Online.

On May 23, 2018, Rocket Internet redeemed 10.8 million shares, reducing its share capital to €154 million. As a result of the redemption of shares, PLDT Online’s equity ownership in Rocket Internet increased from 2.0% to 2.1%.

On December 6, 2018, Rocket Internet redeemed 1.9 million shares reducing its share capital to €153 million. PLDT Online’s equity ownership in Rocket Internet remained at 1.7%.

On October 9, 2019, Rocket Internet redeemed 1.7 million shares reducing its share capital to €151 million. PLDT Online’s equity ownership in Rocket Internet remained at 1.3%.

On February 17, 1994, the Philippine Congress granted a legislative franchise to Digitel under R.A. No. 7678 to install, operate and maintain telecommunications systems throughout the Philippines for public domestic and international telecommunications, and for other purposes. R.A. No. 7678 expired on February 17, 2019 and was not renewed due to the migration of all of its subscribers to PLDT in January 2019. Our management is currently assessing the business direction of Digitel moving forward. PLDT has committed to provide financial support to discharge its liabilities and as the need arises.

On December 3, 2018, PGIH completed the closing of its investment in Multisys. Out of the Php550 million total consideration for the acquisition of existing shares, PGIH paid Php523 million to the ~~owner~~owners of ~~Multisys for~~Multisys. On June 3, 2019, the balance of the acquisition ~~of existing shares and~~consideration amounting to Php27 million was fully paid. Further, PGIH invested Php800 million into Multisys as a deposit for future stock subscription pending the approval by the Philippine SEC of the capital increase of Multisys. On February 1, 2019, the Philippine SEC approved the capital increase of Multisys.

The carrying value of the ~~PLDT Group level, PGIH’s investments~~investment in Multisys ~~gives PGIH a joint control~~amounted to Php2,538 million and Php2,388 million, including subscription payable of Php800 million and contingent consideration of Php230 million as at December 31, 2019 and 2018, respectively.

Investment of PLDT Capital in ~~Multisys and thus are accounted for as investments in joint ventures using the equity method.~~

~~Accounting for investments in MediaQuest Holdings, Inc., or MediaQuest, through Philippine Depositary Receipts, or PDRs~~

ePLDT made various investments in PDRs issued by MediaQuest in relation to its direct interest in Satventures, Inc., or Satventures, and Hastings Holdings, Inc., or Hastings, and indirect interest in Cignal TV, Inc., or Cignal TV.

Based on our judgment, at the PLDT Group level, ePLDT’s investments in PDRs gives ePLDT a significant influence over Satventures, Hastings and Cignal TV as evidenced by provision of essential technical information and material transactions among PLDT, Smart, Satventures, Hastings and Cignal TV, and thus are accounted for as investments in associates using the equity method.Phunware

On February ~~15,~~27, 2018, ~~ePLDT ceased~~Phunware entered into a definitive Agreement and Plan of Merger, or Merger Agreement, with Stellar Acquisition III, Inc., or Stellar, relating to ~~have any economic interest in Hastings as~~ a ~~result~~business combination transaction for an enterprise value of US$301 million, on a cash-free, debt-free basis. Pursuant to the Merger Agreement, the holders of Phunware common stock will be entitled to the right to receive the applicable portion of the ~~assignment of the Hastings PDRs to PLDT Beneficial Trust Fund.~~

~~See related discussion on~~ ~~Note 10 – Investments in Associates and Joint Ventures – Investments in Associates – Investment in MediaQuest PDRs~~ ~~to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.~~

~~PLDT assesses the consequences of changes~~merger consideration in the ~~ownership interest in a subsidiary that may result in a loss~~form of ~~control as well as~~Stellar common shares, which are listed on the consequence of losing control of a subsidiary during the reporting period. Whether or not PLDT retains control over the subsidiary depends on an evaluation of a number of factors that indicate if there are changes to one or more of the three elements of control. When PLDT has less than majority of the voting rights or similar rights to an investee, PLDT considers all relevant facts and circumstances in assessing whether it has power over an investee, including, among others, representation on its board of directors, voting rights, and other rights of other investors, including their participation in significant decisions made in the ordinary course of business.

Nasdaq Stock Market. As a result, the holders of Phunware preferred stock have requested the automatic conversion of all outstanding preferred shares into common shares effective as of immediately prior to the closing of the ~~subscriptions~~transaction on a conversion ratio of one common share per one preferred share. In addition to the ~~new investors in VIH, see~~ ~~Note 2 – Summary~~right to receive Stellar common shares, each holder of ~~Significant Accounting Policies – Loss~~Phunware stock is entitled to elect to receive its pro rata share of ~~Control over VIH, PCEV’s ownership interest was diluted~~warrants to ~~48.5% as such and retained only two out~~purchase Stellar common shares that are held by the affiliate companies of ~~the five Board of Director seats in the investee. Consequently, as at~~Stellar’s co-Chief Executive Officers, or Stellar’s Sponsors.

On November 28, 2018, PLDT ~~lost~~Capital elected to receive its ~~control on VIH and accounted for its remaining interest as investment in associate. See~~ ~~Note 10 – Investments in Associates and Joint Ventures – Investment of PCEV in VIH~~ ~~to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.~~

~~Accounting for investments in Vega Telecom Inc., or VTI, Bow Arken Holdings Company, or Bow Arken, and Brightshare Holdings, Inc., or Brightshare~~

~~On May 30, 2016, PLDT acquired a 50% equity interest in each of VTI, Bow Arken and Brightshare. See related discussion on~~ ~~Note 10 – Investments in Associates and Joint Ventures – Investments in Joint Ventures~~ to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”. Based on the Memorandum of Agreement, PLDT and Globe Telecom, Inc., or Globe, each have the right to appoint half the members of the Board of Directors of each of VTI, Bow Arken and Brightshare, as well as the (i) co-Chairman of the Board; (ii) co-Chief Executive Officer and President; and (iii) co-Controller where any matter requiring their approval shall be deemed passed or approved if the consents of both co-officers holding the same position are obtained. All decisions of each Board of Directors may only be approved if at least one director nominated by each of PLDT and Globe votes in favor of it.

~~Based on these rights, PLDT and Globe have joint control over VTI, Bow Arken and Brightshare, which is defined in IFRS 11, Joint Arrangements,~~ as a contractually agreed sharing of control of an arrangement and exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Consequently, PLDT and Globe classified the joint arrangement as a joint venture in accordance with IFRS 11 given that PLDT and Globe each have the right to 50% of the net assets of VTI, Bow Arken and Brightshare and their respective subsidiaries.

Accordingly, PLDT accounted for the investment in VTI, Bow Arken and Brightshare using the equity method of accounting in accordance with IAS 28. Under the equity method of accounting, the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the investor’sfull pro rata share of the ~~investee’s net assets.~~ warrants to purchase Stellar common shares held by Stellar’s Sponsors.

~~Accounting for investment in Beacon Electric Asset Holdings,~~On December 26, 2018, Phunware announced the consummation of its business combination with Stellar. Stellar, the new Phunware holding company, changed its corporate name to “Phunware, Inc.,” or ~~Beacon, under equity method~~

~~IAS 28 provides that where an entity holds 50% or more~~PHUN, and Phunware changed its corporate name to “Phunware OpCo, Inc.” Upon closing, PLDT Capital received the PHUN common shares equivalent to its portion of the voting power (directly or through subsidiaries) on an investee, it will be presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not the case. If the ownership interest is less than 20%, the entity will be presumed notmerger consideration and its full pro rata share of warrants to have significant influence unless such influence can be clearly demonstrated. A substantial or majority ownership by another investor does not necessarily preclude an entity from having significant influence.purchase PHUN common shares.

~~The existence of significant influence by an entity is usually evidenced in one or more of the following ways:~~

On ~~May 30, 2016, PCEV’s Board of Directors approved the sale of 646 million~~March 15, 2019, PLDT Capital exercised its warrants to purchase PHUN common shares of common stock and 458 million shares of preferred stock of Beacon, representing 25% equity interest in Beacon to MPIC. After the sale, PCEV’s equity ownership in Beacon was reduced from 50% to 25% and PCEV’s effective interest in Meralco through Beacon was reduced to 8.74% (i.e., 25% x 34.96%). MPIC agreed that for as long as:
(a) PCEV owns at least 20% of the outstanding capital stock of Beacon; or (b) the purchase price has not been fully paid by MPIC, PCEV shall retain the right to vote 50% of the outstanding capital stock of Beacon.

~~As at December 31, 2016, Beacon owns 3,894 million shares of stock representing approximately 34.96% equity interest in Meralco. See~~ ~~Note 10 – Investments in Associates and Joint Ventures – Investment of PCEV in Beacon~~ ~~to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.~~

~~On June 13, 2017, PCEV entered into another Share Purchase Agreement with MPIC to sell its remaining 25% equity interest in Beacon~~ for a total consideration of ~~Php21,800~~US$1.6 million. ~~MPIC settled a portion~~

Commitment of ~~the consideration amounting~~New Investments in Voyager Innovations Holdings, Pte. Ltd., or VIH

On April 16, 2020, PLDT entered into agreements with KRR, Tencent, IFC and IFC Emerging Asia Fund to ~~Php12,000~~commit up to US$120 million ~~upon closing~~of new funding towards expansion efforts of VIH. This follows KKR’s, Tencent’s, IFC’s and ~~the balance of Php9,800~~IFC Emerging Asia Fund’s initial investment totaling US$215 million ~~will be paid~~made to VIH in ~~annual installments from June 2018~~2018. VIH plans to ~~June 2021. The unpaid balance from MPIC is measured at fair value using a discounted cash flow valuation method, with interest income to be accreted over the term of the receivable.~~

After the sale of PCEV’s remaining 25% interest in Beacon, PCEV continues to hold its representation in the Board and participate in decision making. As set forth in the Share Purchase Agreement: (a) the Seller shall be entitled to nominate one director to the Board of Directors of PCEV,apply some or ~~Seller’s Director, and MPIC agrees to vote its shares in PCEV in favor of such Seller’s Director; and (b) the Buyer shall cede to the Seller the right to vote~~ all of the ~~Shares,~~US$120 million investment in developing its financial technology arm, PayMaya Philippines, or ~~Proxy Shares. The parties agreed~~PayMaya.

This is a Petition for Mandamus filed on October 23, 2018 by Attys. Joseph Lemuel Baligod Baquiran and Ferdinand C. Tecson against the Respondents NTC, the PCC, Liberty, BellTel, Globe, PLDT and Smart. Briefly, the case involves the 700 MHz frequency, among others, or Subject Frequencies, that ~~with respect~~was originally assigned to ~~decisions or policies affecting dividend payouts to be made by Beacon, the Seller’s Director shall exercise its voting rights,~~Liberty and ~~shall vote, in accordance with the recommendation~~which eventually became subject of the ~~Buyer~~Co-Use Agreement between Globe, on ~~such matter. As a result, PCEV’s previously joint control over Beacon has become significant influence.~~the one hand, and PLDT and Smart, on the other.

~~Our consolidated financial statements include additional information about subsidiaries that have non-controlling interest, or NCI, that are material~~For updates relating to ~~us,~~the above discussion, please see Note 627 – ~~Components of Other Comprehensive Loss~~ to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”. Management determined material partly-owned subsidiaries as those with balance of NCI greater than 5% of the total equity as at December 31, 2018Provisions and ~~2017.~~

~~Our consolidated financial statements include additional information about associates and joint ventures that are material to us. See~~ ~~Note 10 – Investments in Associates and Joint Ventures~~Contingencies to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”. Management determined material associates and joint ventures are those investees where our carrying amount of investments is greater than 5% of the total investments in associates and joint ventures as at December 31, 2018 and 2017.

The key estimates and assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities recognized in our consolidated financial statements within the next financial year are discussed below. We based our estimates and assumptions on parameters available when our consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond our control. Such changes are reflected in the assumptions when they occur.

A deemed disposal occurs where the proportionate interest of PLDT in a subsidiary is reduced other than by an actual disposal, for example, by the issuance of shares to a third party investor by the subsidiary. When PLDT no longer has control, the remaining interest is measured at fair value as at the date the control was lost. When determining the fair value, PLDT takes into account recent transactions and all the facts and circumstances surrounding the transactions such as timing, transaction size, transaction frequency, and motivations of the investors. When valuing the shares in associates and joint ventures, PLDT carefully assesses the accounting implications of the stipulation in the shareholders’ agreements. PLDT considers whether such a transaction has been made at arm’s length.

IFRS requires that an impairment review be performed when certain impairment indicators are present. In the case of goodwill and intangible assets with indefinite useful life, at a minimum, such assets are subject to an impairment test annually and whenever there is an indication that such assets may be impaired. This requires an estimation of the VIU of the CGUs to which these assets are allocated. The VIU calculation requires us to make an estimate of the expected future cash flows from the CGU and to choose a suitable discount rate in order to calculate the present value of those cash flows. See ~~Note 14 – Goodwill and Intangible Assets – Impairment Testing of Goodwill and Intangible Assets with Indefinite Useful Life~~ ~~to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for the key assumptions used to determine the VIU of the relevant CGUs.~~

Determining the recoverable amount of property and equipment, investments in associates and joint ventures, intangible assets, prepayments and other noncurrent assets, requires us to make estimates and assumptions in the determination of future cash flows expected to be generated from the continued use and ultimate disposition of such assets. Future events could cause us to conclude that property and equipment, investments in associates and joint ventures, intangible assets and other noncurrent assets associated with an acquired business are impaired. Any resulting impairment loss could have a material adverse impact on our financial position and financial performance.

The preparation of estimated future cash flows involves significant estimations and assumptions. While we believe that our assumptions are appropriate and reasonable, significant changes in our assumptions may materially affect our assessment of recoverable values and may lead to future impairment charges under IFRS.

~~Total asset impairment recognized on noncurrent assets amounted to Php2,122 million, Php3,913 million and Php1,074 million for the years ended December 31, 2018, 2017 and 2016, respectively. See~~ ~~Note 4 – Operating Segment Information, Note 5 – Income and Expenses – Asset Impairment, Note 9 – Property and Equipment –~~ ~~Impairment~~ ~~of Certain Wireless Network Equipment and Facilities~~ ~~and~~ ~~Note 10 – Investments in Associates and Joint Ventures~~ ~~to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.~~

~~The carrying values of our property and equipment, investments in associates and joint ventures, goodwill and intangible assets, and prepayments are separately disclosed in~~ ~~Note 9 – Property and Equipment, Note 10 – Investments in Associates and Joint Ventures, Note 14 – Goodwill and Intangible Assets~~ ~~and~~ ~~Note 18 – Prepayments,~~ ~~respectively, to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.~~

We estimate the useful lives of each item of our property and equipment based on the periods over which our assets are expected to be available for use. Our estimation of the useful lives of our property and equipment is also based on our collective assessment of industry practice, internal technical evaluation and experience with similar assets. The estimated useful lives of each assets are reviewed every year-end and updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limitations on the use of our assets. It is possible, however, that future results of operations could be materially affected by changes in our estimates brought about by changes in the factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of our property and equipment would increase our recorded depreciation and decrease the carrying amount of our property and equipment.

In 2018 and 2017, we shortened the estimated useful lives of certain data network platform and other technology equipment resulting from the transformation projects to improve and simplify the network and systems applications. As a result, we recognized additional depreciation amounting to Php15,807 million and Php19,481 million for the years ended December 31, 2018 and 2017, respectively. We expect additional depreciation in 2019 arising from the acceleration of the 2018 technology equipment amounting Php540 million.

The total depreciation and amortization of property and equipment amounted to Php47,240 million, Php51,915 million and Php34,455 million for the years ended December 31, 2018, 2017 and 2016, respectively. Total carrying values of property and equipment, net of accumulated depreciation and amortization, amounted to Php195,964 million and Php186,907 million as at December 31, 2018 and 2017, respectively. See ~~Note 2 – Summary of Significant Accounting Policies, Note 4 – Operating Segment Information~~ ~~and~~ ~~Note 9 – Property and Equipment~~ ~~to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.~~

Intangible assets with finite lives are amortized over their expected useful lives using the straight-line method of amortization. At a minimum, the amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in our consolidated income statement.

The total amortization of intangible assets with finite lives amounted to Php892 million, Php835 million and Php929 million for the years ended December 31, 2018, 2017 and 2016, respectively. Total carrying values of intangible assets with finite lives amounted to Php2,699 million and Php3,699 million as at December 31, 2018 and 2017, respectively. See ~~Note 2 – Summary of Significant Accounting Policies, Note 4 – Operating Segment Information, Note 5 – Income and Expenses – Selling, General and Administrative Expenses~~ ~~and~~ ~~Note 14 – Goodwill and Intangible Assets~~ ~~to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.~~

We review the carrying amounts of deferred income tax assets at the end of each reporting period and reduce these to the extent that these are no longer probable that sufficient taxable income will be available to allow all or part of the deferred income tax assets to be utilized. Our assessment on the recognition of deferred income tax assets on deductible temporary differences is based on the level and timing of forecasted taxable income of the subsequent reporting periods. This forecast is based on our past results and future expectations on revenues and expenses as well as future tax planning strategies. Based on this, management expects that we will generate sufficient taxable income to allow all or part of our deferred income tax assets to be utilized.

Based on the above assessment, our consolidated unrecognized deferred income tax assets amounted to Php3,227 million and Php5,561 million as at December 31, 2018 and 2017, respectively. Total consolidated provision from deferred income tax amounted to Php1,375 million for the year ended December 31, 2018, while total consolidated benefit from deferred income tax amounted to Php2,738 million and Php4,134 million for the years ended December 31, 2017 and 2016, respectively. Total consolidated recognized net deferred income tax assets amounted to Php27,697 million and Php30,466 million as at December 31, 2018 and 2017, respectively. See ~~Note 2 – Summary of Significant Accounting Policies, Note 4 – Operating Segment Information~~ ~~and~~ ~~Note 7 – Income Taxes~~ ~~to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.~~

~~Estimating allowance for expected credit losses – Beginning January 1, 2018~~

~~ECLs are derived from unbiased and probability-weighted estimates of expected loss, and are measured as follows:~~

We leverage existing risk management indicators (e.g. internal credit risk classification and restructuring triggers), credit risk rating changes and reasonable and supportable information which allow us to identify whether the credit risk of financial assets has significantly increased.

The ECL is measured on either a 12-month or lifetime basis depending on whether a significant increase in credit risk has occurred since initial recognition or whether an asset is considered to be credit-impaired. We consider the probability of our counterparty to default its obligation and the expected loss at default after considering the effects of collateral, any potential value when realized and time value of money.

~~The assumptions underlying the ECL calculation are monitored and reviewed on a quarterly basis.~~

We use a simplified approach for calculating ECL on trade and other receivables and contract assets. We consider historical days past due for groupings of various customer segments that have similar loss patterns and remaining time to maturities.

We use historical observed default rates and adjust these historical credit loss experience with forward-looking information. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analyzed.

~~There have been no significant changes in estimation techniques or significant assumptions made during the reporting period.~~

~~We incorporate forward-looking information into both our assessment of whether the credit risk of an instrument has increased significantly since its initial recognition and our measurement of ECL.~~

To do this, management considered a range of relevant forward-looking macro-economic assumptions for the determination of unbiased general industry adjustments and any related specific industry adjustments that support the calculation of ECLs.

~~The macroeconoemic factors are aligned with information used by us for other purposes such as strategic planning and budgeting.~~

We have identified and documented key drivers of credit risk and credit losses of each portfolio of financial instruments and, using an analysis of historical data, has estimated relationships between macro-economic variables and credit risk and credit losses.

Predicted relationship between the key indicators and default and loss rates on various portfolios of financial assets have been developed based on analyzing historical data over the past 3 to 8 years. The methodologies and assumptions including any forecasts of future economic conditions are reviewed regularly.

We have not identified any uncertain event that we have assessed to be relevant to the risk of default occurring but where we are not able to estimate the impact on ECL due to lack of reasonable and supportable information.

Total provision for expected credit losses for trade and other receivables and contract assets amounted to Php4,192 million and Php17 million, respectively, for the year ended December 31, 2018. Trade and other receivables and contract assets, net of allowance for expected credit losses, amounted to Php24,056 million and Php3,268 million, respectively, as at December 31, 2018. See ~~Note 5 – Income and Expenses~~ ~~and~~ ~~Note 16 – Trade and Other Receivables – Grouping of instruments for losses measured on collective basis~~to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

A broad range of forward-looking information were considered as economic inputs such as the gross domestic product, inflation rate, unemployment rates and other economic indicators. For expected credit loss provisions modelled on a collective basis, a grouping of exposures is performed on the basis of shared risk characteristics, such that risk exposures within a group are homogeneous. In performing this grouping, there must be sufficient information for the PLDT Group to be statistically credible. Where sufficient information is not available internally, then we have considered benchmarking internal/external supplementary data to use for modelling purposes. The characteristics and any supplementary data used to determine groupings are outlined below.

If we assessed that there was objective evidence that an impairment loss was incurred in our trade and other receivables, we estimate the allowance for doubtful accounts related to our trade and other receivables that are specifically identified as doubtful of collection. The amount of allowance is evaluated by managementFor updates on ~~the basis of factors that affect the collectability of the accounts. In these cases, we use judgment based on all available facts and circumstances, including, but not limited~~matters relating to the ~~length of our relationship with~~(1) the ~~customer~~DOLE Compliance Order to PLDT, see Note 27 – Provisions and Contingencies; (2) the ~~customer’s credit status based on third party credit reports and known market factors, to record specific reserves for customers~~Petition against ~~amounts due in order to reduce our receivables to amounts that we expect to collect. These specific reserves are re-evaluated and adjusted as additional information received affects~~ the ~~amounts estimated.~~

In addition to specific allowance against individually significant receivables, we also assess a collective impairment allowance against credit exposures of our customer which were grouped based on common credit characteristics, which, although not specifically identified as requiring a specific allowance, have a greater risk of default than when the receivables were originally granted to customers. This collective allowance is based on historical loss experience using various factors, such as historical performance of the customers within the collective group, deterioration in the markets in which the customers operate, and identified structural weaknesses or deterioration in the cash flows of customers.

Total provision for doubtful accounts for trade and other receivables amounted to Php3,438 million and Php8,027 million for the years ended December 31, 2017 and 2016, respectively. Trade and other receivables, net of allowance for doubtful accounts, amounted to Php33,761 million as at December 31, 2017. See PCC, see Note 411 – ~~Operating Segment Information, Note 5 – Income~~Investment in Associates and ~~Expenses~~ Joint Ventures; and (3) Wilson Gamboa and Jose M. Roy III Petition, see Note 1627 – ~~Trade~~Provisions and ~~Other Receivables~~Contingencies, to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

As at December 31, 2019, our business activities were categorized into three business units: Wireless, Fixed Line and ~~other employee benefits~~Others.

We monitor the operating results of ~~defined benefit~~each business unit separately for purposes of making decisions about resource allocation and present value of the pension obligation are determined using the projected unit credit method. An actuarial valuation includes making various assumptions which consists, among other things, discount rates, rates of compensation increases and mortality rates. Further, our accrued benefit cost is affected by the fair value of the plan assets. Key assumptions used to estimate fair value of the unlisted equity investments included in the plan assets consist of revenue growth rate, directs costs, capital expenditures, discount rates and terminal growth rates.performance assessment. See Note 254 – ~~Employee Benefits~~ to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”. Due to complexity of valuation, the underlying assumptions and its long-term nature, a defined benefit obligation is highly sensitive to changes in assumptions. While we believe that our assumptions are reasonable and appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our cost for pension and other retirement obligations. All assumptions are reviewed every year-end.

Net consolidated pension benefit costs amounted to Php1,855 million, Php1,610 million and Php1,775 million for the years ended December 31, 2018, 2017 and 2016, respectively. The prepaid benefit costs amounted to Php393 million and Php400 million as at December 31, 2018 and 2017, respectively. The accrued benefit costs amounted to Php7,182 million and Php8,997 million as at December 31, 2018 and 2017, respectively. See ~~Note 5 – Income and Expenses – Compensation and Employee Benefits, Note 18 – Prepayments~~ ~~and~~ ~~Note 25 – Employee Benefits~~ ~~to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.~~

On September 26, 2017, the Board of Directors of PLDT approved the TIP which intends to provide incentive compensation to key officers, executives and other eligible participants who are consistent performers and contributors to the Company’s strategic and financial goals. The incentive compensation will be in the form of Performance Shares, PLDT common shares of stock, which will be released in three annual grants on the condition, among others, that pre-determined consolidated core net income targets are successfully achieved over three annual performance periods from January 1, 2017 to December 31, 2019. On September 26, 2017, the Board of Directors approved the acquisition of 860 thousand Performance Shares to be awarded under the TIP. On March 7, 2018, the ECC of the Board approved the acquisition of additional 54 thousand shares, increasing the total Performance Shares to 914 thousand. Metropolitan Bank and Trust Company, or Metrobank, through its Trust Banking Group, is the appointed Trustee of the trust established for purposes of the TIP. The Trustee is designated to acquire the PLDT common shares in the open market through the facilities of the PSE, and administer their distribution to the eligible participants subject to the terms and conditions of the TIP.

On December 11, 2018, The Executive Compensation Committee, or ECC, approved Management’s recommended modifications to the Plan, and partial equity and cash settled set-up will be implemented for the 2019 TIP Grant. The estimated fair value of remaining unpurchased shares will be given out as cash award. The fair value of the cash award relating to unpurchased shares is determined using the estimate of the fair value of the original award approved in 2017.

As at March 21, 2019, a total of 757 thousand PLDT common shares have been acquired by the Trustee, of which 204 thousand PLDT common shares have been released to the eligible participants on April 5, 2018 for the 2017 annual grant. The TIP is administered by the ECC of the Board. The expense accrued for the TIP amounted to Php208 million and Php827 million for the years ended December 31, 2018 and 2017, respectively, and is presented as equity reserves in our consolidated statement of financial position. See ~~Note 5 – Income and Expenses – Compensation and Employee Benefits~~ ~~and~~ ~~Note 25 – Employee Benefits – Other Long-term Employee Benefits~~ ~~to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.~~

Provision for asset retirement obligations are recognized in the period in which these are incurred if a reasonable estimate can be made. This requires an estimation of the cost to restore or dismantle on a per square meter basis, depending on the location, and is based on the best estimate of the expenditure required to settle the obligation at the future restoration or dismantlement date, discounted using a pre-tax rate that reflects the current market assessment of the time value of money and, where appropriate, the risk specific to the liability. Total provision for asset retirement obligations amounted to Php1,656 million and Php1,630 million as at December 31, 2018 and 2017, respectively. See ~~Note 21 – Deferred Credits and Other Noncurrent Liabilities~~ ~~to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.~~

We are currently involved in various legal proceedings and tax assessments. Our estimates of the probable costs for the resolution of these claims have been developed in consultation with our counsel handling the defense in these matters and are based upon our analysis of potential results. We currently do not believe these proceedings could materially reduce our revenues and profitability. It is possible, however, that future financial position and performance could be materially affected by changes in our estimates or effectiveness of our strategies relating to these proceedings and assessments. See ~~Note 26 – Provisions and Contingencies~~ ~~to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.~~

Based on management’s assessment, appropriate provisions were made; however, management has decided not to disclose further details of these provisions as they may prejudice our position in certain legal proceedings.

~~Our revenue recognition policies require us to make use of estimates and assumptions that may affect the reported amounts of our revenues and receivables.~~

Our agreements with domestic and foreign carriers for inbound and outbound traffic subject to settlements require traffic reconciliations before actual settlement is done, which may not be the actual volume of traffic as measured by us. Initial recognition of revenues is based on our observed traffic adjusted by our normal experience adjustments, which historically are not material to our consolidated financial statements. Differences between the amounts initially recognized and the actual settlements are taken up in the accounts upon reconciliation.

Under certain arrangements with our knowledge processing solutions services, if there is uncertainty regarding the outcome of the transaction for which service was rendered, revenue is recognized only to the extent of expenses incurred for rendering the service and only to such amount as determined to be recoverable.

We recognize our revenues from installation and activation related fees and the corresponding costs over the expected average periods of customer relationship for fixed line and cellular services. We estimate the expected average period of customer relationship based on our most recent churn rate analysis.

Where the fair value of financial assets and financial liabilities recorded in our consolidated statement of financial position cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flows model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.

Other than those whose carrying amounts are reasonable approximations of fair values, total fair values of noncurrent financial assets and noncurrent financial liabilities as at December 31, 2018 amounted to Php2,168 million and Php143,392 million, respectively, while the total fair values of noncurrent financial assets and noncurrent financial liabilities as at December 31, 2017 amounted to Php13,846 million and Php157,711 million, respectively. See ~~Note 27 – Financial Assets and Liabilities~~Operating Segment Information to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Our wireless business focuses on driving the growth in our data services while managing our legacy business of voice and ~~Interpretations to Existing Standards Effective Subsequent to December 31, 2018~~SMS. We generate data revenues from across all segments of our wireless business, whether mobile internet using smartphones or mobile broadband using pocket WiFi and other similar devices.

~~See~~ ~~Note 2 – Summary of Significant Accounting Policies~~ to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for the discussion of new accounting standards that will become effective subsequent to December 31, 2018 and their anticipated impact on our consolidated financial statements for the current and future periods.

The table below shows the contribution by each of our business segments to our consolidated revenues, expenses, other income (expenses), income (loss) before income tax, provision for income tax, net income (loss), segment profit (loss), Adjusted EBITDA, Adjusted EBITDA margin and core income for the years ended December 31, 2018, 2017 and 2016. In each of the years ended December 31, 2018, 2017 and 2016, majority of our revenues are derived from our operations within the Philippines. Our revenues derived from outside the Philippines consist primarily of revenues from incoming international calls to the Philippines.

In 2018, we reclassified the presentation of VIH from wireless to other business resulting from the transfer from Smart to PCEV in April 2018. In 2017, we changed the presentation of our expenses by combining certain line items to simplify our reporting while maintaining the same level of information. In 2016, we changed the classification of our revenue mix toWe provide for a more direct comparison to the current industry presentation in the Philippines by combining or separating certain line items from our service lines, and moving line items from one service line to another. We also changed the classification of our impairment on investments not directly affecting operations (most significantly, the impairment of our investment in Rocket Internet SE, or Rocket Internet), from operating expenses to other expenses. Accordingly, we changed prior years’ financial information to conform with the current years’ presentation in order to provide a clear comparison.

~~We reported consolidated revenues of Php164,752 million in 2018, an increase of Php4,826 million, or 3%, as compared with Php159,926 million in 2017, primarily due to higher revenues from data~~(a) mobile services, ~~in our Fixed Line business segment, as well as higher non-service revenues from our Wireless business segment, partially offset by lower revenues from mobile and~~(b) home broadband services, ~~from~~and (c) MVNO and other services, through our wireless business, which contributed approximately 98% and (collectively for home broadband, and MVNO and other services) 2%, respectively, of our wireless service revenues in 2019. Mobile data usage has surged in the past several years while voice and SMS usage has slowed down. Wireless ~~business segment, and lower voice~~ revenues ~~from our Fixed Line business segment.~~

~~The following table shows the breakdown~~contributed 57% of our consolidated revenues ~~by services for the years ended December 31, 2018 and 2017:~~

~~The following table shows the breakdown of our consolidated revenues by business segment for the years ended December 31, 2018 and 2017:~~

~~Consolidated expenses increased by Php564 million to Php150,979 million~~ in 2018 from Php150,415 million in 2017, primarily due to higher depreciation and amortization, selling, general and administrative expenses, asset impairment and provisions in our Fixed Line business segment, and higher cost of sales and services in our Wireless business segment, partially offset by lower depreciation and amortization, asset impairment and interconnection costs in our Wireless business segment.

~~The following table shows the breakdown of our consolidated expenses by business segment for the years ended December 31, 2018 and 2017:~~

Consolidated other income increased by Php3,984 million, or 79%, to Php9,042 million in 2018 from Php5,058 million in 2017, primarily due to gain on the deconsolidation of VIH and realized gain on fair value of Rocket Internet investment in 2018 from our Other business segment, as well as impairment of investment in Hastings PDRs in 2017 from our Fixed Line business segment, partially offset by gain on sale of Beacon Electric Holdings, Inc., or Beacon, shares in 2017 and equity share in net losses of associates and joint ventures in 2018 from our Other business segment.

~~The following table shows the breakdown of our consolidated other income (expenses) by business segment for the years ended December 31, 2018 and 2017:~~

Consolidated net income increased by Php5,507 million, or 41%, to Php18,973 million in 2018, from Php13,466 million in 2017, primarily due to higher net income from our Wireless business segment, partly offset by lower net income from our Fixed Line and Other business segments. Our consolidated basic and diluted EPS increased to Php87.28 in 2018 from Php61.61 in 2017. Our weighted average number of outstanding common shares was approximately 216.06 million in each of 2018 and 2017.

~~The following table shows the breakdown of our consolidated net income (loss) by business segment for the years ended December 31, 2018 and 2017:~~

~~Our consolidated Adjusted EBITDA amounted to Php64,027 million in 2018, a decrease of Php2,147 million, or 3%,~~2019 as compared ~~with Php66,174 million in 2017, primarily due~~ to ~~lower Adjusted EBITDA in our Wireless~~55% and ~~Other business segments, partially offset by higher Adjusted EBITDA in our Fixed Line business segment.~~

~~The following table shows the breakdown of our consolidated Adjusted EBITDA by business segment for the years ended December 31, 2018 and 2017:~~

Our consolidated core income amounted to Php25,855 million in 2018, a decrease of Php1,813 million, or 7%, as compared with Php27,668 million in 2017, primarily due to lower core income from our Fixed Line business segment, partially offset by higher core income from our Other business segment. Our consolidated basic and diluted core EPS decreased to Php119.39 in 2018 from Php127.79 in 2017.

~~The following table shows the breakdown of our consolidated core income by business segment for the years ended December 31, 2018 and 2017:~~

~~We generated revenues of Php89,929 million from our Wireless business segment in 2018, a decrease of Php2,643 million, or 3%, from Php92,572 million in 2017.~~

~~The following table summarizes our total revenues by service from our Wireless business segment for the years ended December 31, 2018 and 2017:~~

Our wireless service revenues in 2018 decreased by Php4,411 million, or 5%, to Php83,001 million as compared with Php87,412 million in 2017, mainly as a result of lower revenues from mobile, and home broadband, partially offset by higher revenues from other services. As a percentage of our total wireless revenues, service revenues accounted for 92% and 94%58% for the years ended December 31, 2018 and 2017, respectively.

Our mobile service revenues, ~~amounted to Php81,096 million in~~were 92%, 90% and 91% of our total wireless revenues for the years ended December 31, 2019, 2018 ~~a decrease of Php3,343 million, or 4%, from Php84,439 million in 2017. Mobile service revenues~~and 2017, respectively.

Our mobile services, which accounted for approximately 98% ~~and 97%~~ of our wireless service revenues for the year ended December 31, 2019, are provided through Smart and DMPI with 73,118,155 total subscribers as at December 31, 2019 as compared to 60,499,017 total subscribers as at December 31, 2018, and 58,293,908 total subscribers as at December 31, 2017, representing a combined market share of approximately 44%, 45% and 49% as at December 31, 2019, 2018 and 2017, respectively. Our mobile revenue market share has been eroding due to the combined impact of aggressive price competition and the consequent loss of subscriber market share. This was exacerbated by a larger proportion of legacy revenues from SMS and international voice relative to competition, which offset growth in our mobile data revenues. However, mobile penetration in the Philippines increased to approximately 159% in 2019 from 133% in 2018, although the existence of subscribers owning multiple SIM cards results in this penetration rate being inflated to a certain extent.

As at December 31, 2019, approximately 97% of our mobile subscribers were prepaid service subscribers. The predominance of prepaid service reflects one of the distinguishing characteristics of the Philippine mobile market, allowing us to reduce billing and administrative costs on a per-subscriber basis, as well as to control credit risk.

LTE SIMs and smartphone ownership among our subscribers grew significantly this year, resulting in substantial increase in our mobile data revenues. As a result, our mobile internet revenues, which are part of our mobile data service revenues, increased by Php15,192 million, or 46%, to Php48,399 million in 2019 from Php33,207 million in 2018. Our mobile internet revenues contributed 91% and 87% of our mobile data service revenues in 2019 and 2018, respectively. Conversely, mobile broadband revenues, which are derived from the use of pocket WiFi and other similar mobile broadband devices, decreased by Php1,042 million, or 23%, to Php3,547 million from Php4,589 million in 2018.

We are the leading provider of fixed line telecommunications services throughout the Philippines, servicing retail, corporate and SME clients. Our fixed line business group offers voice, data and miscellaneous services. We had 2,765,209 fixed line subscribers as at December 31, 2019, an increase of 54,237, or 2%, from 2,710,972 fixed line subscribers as at December 31, 2018, while our fixed line and fixed wireless broadband subscribers increased by 135,921, or 7%, to 2,161,484 as at December 31, 2019 from 2,025,563 as at December 31, 2018. Revenues from our fixed line business were 53%, 52% and 49% of our consolidated revenues for the years ended December 31, 2019, 2018 and 2017, respectively. InInternational voice revenues have been declining largely due to a drop in call volumes as a result of the ~~third quarter~~availability of alternative calling options and OTT services. An increase in our data service revenues in recent years has mitigated such decline to a certain extent. Recognizing the growth potential of data services, we have put considerable emphasis on the development of new data-capable and IP-based networks.

Our 16,700-kilometer long DFON is complemented by an extensive digital microwave backbone network operated by Smart. This microwave network complements the higher capacity fiber optic networks and is vital in delivering reliable services to areas not covered by fixed terrestrial transport network. Our fixed line network reaches all of the major cities and municipalities in the Philippines, with a concentration in the Metropolitan Manila area. Our network offers the country’s most extensive connections to international networks through two international gateway switching exchanges and various regional submarine cable systems in which we have economic interests.

See Item 4. “Information on the Company – Infrastructure – Fixed Line Network Infrastructure” for further information on our fixed line infrastructure.

Our other business in 2019 consisted primarily of PCEV, an investment holding company, which owns 48.74% equity interest in VIH; PLDT Global Investments Corporation, or PGIC, which owns an 18.32% economic interest in Beta; PLDT Digital Investments Pte. Ltd., or PLDT Digital, an investment holding company, which owns a 1.3% equity interest in Rocket Internet, through its wholly-owned subsidiary, PLDT Online; and PLDT Global Holdings, Inc., or PGIH, an investment holding company, which owns 45.73% equity interest in Multisys.

See Item 5. “Operating and Financial Review and Prospects – Plans” for capital expenditures planned for 2020 and Item 5. “Operating and Financial Review and Prospects – Liquidity and Capital Resources” for information concerning our principal capital expenditures for the years ended December 31, 2017, 2018 and 2019.

On May 19, 2017, AOGL entered into a Share Purchase Agreement with Partners Group, relating to the ~~revenue split allocation among~~acquisition of SPi Global for an enterprise value of US$330 million. The transaction was completed on August 25, 2017.

On May 4, 2018, Rocket Internet accepted the tender offer of PLDT Online of 6.8 million shares for a total consideration of €163.2 million, or Php10,059 million, which was settled on May 9, 2018.

On November 28, 2018 and December 10, 2018, VIH received the US$175 million funding from KKR and Tencent, and the US$40 million funding from IFC and IFC EAF, respectively.

We believe our business is characterized by the following competitive strengths:

We provide mobile, home broadband, and MVNO and other services, through our Wireless business segment.

The following table summarizes key measures of our wireless business as at and for the years ended December 31, 2019, 2018 and 2017:

We offer mobile communications services all over the country under the brand names Smart, TNT and Sun to focus on the needs of specific segments of the market. With a continuous and in-depth consumer understanding program, each of our brands commits to provide relevant products that will cater to the communications, entertainment and services requirements of our target market segments.

We consider the following as the key metrics for our growth in 2019: (i) providing customers with the nation’s fastest mobile network and 4G mobile network with the widest coverage; (ii) promoting data and content-led products under the Giga brand (iii) promoting E-Sports events; (iv) making value-added services easier to access through the USSD Menu Browser, or UMB, platform; and (v) continuous promotion of our LTE services.

Providing Customers with the Nation’s Fastest Mobile Network and 4G Mobile Network with the Widest Coverage

Smart continued its network transformation program in 2019 by further expanding and improving its LTE network. The improved Smart LTE network was named by Ookla, a leading internet testing and analysis company, to be the Philippines’ fastest mobile network for the 2^nd consecutive year. Meanwhile, Open Signal, another international network testing company, also awarded Smart with the “Most Widely Available Urban 4G Coverage” and “Most Widely Available Rural 4G Coverage” awards.

Smart promoted several e-sports events in 2019. Smart launched a grass-root e-sports promotion program, the SiklabSaya program, which features the popular online mobile game Mobile Legends Bang Bang to promote data usage. Smart sponsored the gaming competition Mobile Legends Bang Bang Professional League and sponsored teams to participate in the Philippines’ first and only franchise-based e-sports league, The Nationals. Last but not least, Smart partnered with TV5 and Cignal to cover e-sports events such as the e-sports competition in the recently held Southeast Asian Games in Manila. This was the first time that e-sports was a competitive event in an international inter-country sporting event recognized by the International Olympic Committee.

Making Value-added Services Easier to Access through the USSD Menu Browser, or UMB, Platform

Smart promoted its UMB platform to provide customers an easy-to-use and product discovery platform. Smart’s prepaid customers no longer needed to memorize passwords or access codes to enjoy Smart’s improved data services. Through the UMB platform, customers can access the wide range of Giga products. This resulted in Smart’s number of subscribers grew by approximately 23% compared with the year ended December 31, 2018. For 2020, Smart will further improve customers’ product discovery experiences with its forthcoming app-based discovery service.

~~Mobile revenues from our data services, which include mobile internet, mobile broadband and other data services, increased by Php12,069 million, or 46%,~~Smart continued to ~~Php38,350 million in 2018 from Php26,281 million in 2017 due to increased mobile internet usage driven mainly by enhanced data offers with video access, supported by continuous network improvement~~promote the adoption of LTE-capable devices and LTE ~~migration, as well as~~sim cards. During the impact of the revised revenue split allocation, partially offset by lower revenues from mobile broadband and the impact of adoption of IFRS 15. Data services accounted for 47% and 31% of our mobile service revenues for the yearsyear ended December 31, ~~2018 and 2017, respectively.~~

~~The following table shows the breakdown~~2019, Smart launched its LTE Sim Upgrade program which allowed Smart subscribers to upgrade their sim cards to LTE/5G-capable ones without having to change their mobile numbers. As of ~~our mobile data service revenues for the years ended~~ December 31, ~~2018 and 2017:~~

Mobile internet service revenues increased by Php13,121 million, or 65%, to Php33,207 million in 2018 from Php20,086 million in 2017, primarily due to the following: (i) LTE migration efforts which yielded growth in LTE SIMs and smartphone ownership among our subscriber base; (ii) ~~Youtube~~ promo which built a video-streaming habit among users; (iii) prevalent use of mobile apps, social networking and e-commerce sites, and other OTT services; and (iv) impact of the revised revenue split allocation. Mobile internet services accounted for 41% and 24% of our mobile service revenues for the years ended December 31, 2018 and 2017, respectively.

Mobile broadband revenues amounted to Php4,589 million in 2018, a decrease of Php1,441 million, or 24%, from Php6,030 million in 2017, primarily due to a decrease in the number of subscribers using pocket wifi as they shift to using mobile internet and fixed DSL/Fiber home broadband. Mobile broadband services accounted for 6% and 7% of our mobile service revenues for the years ended December 31, 2018 and 2017, respectively.

Revenues from our other data services, which include VAS, domestic leased lines and share in revenue from PLDT WeRoam, increased by Php389 million, or 236%, to Php554 million in 2018 from Php165 million in 2017.

Mobile revenues from our voice services, which include all voice traffic, decreased by Php2,672 million, or 9%, to Php28,052 million in 2018 from Php30,724 million in 2017, mainly on account of lower traffic due to subscribers’ shift to digital lifestyle with access to alternative calling options and other OTT services, and the impact of reduction in interconnection rates for voice services, as mandated by the NTC, and adoption of IFRS 15, partly offset by the effect of the revised revenue split allocation. Mobile voice services accounted for 35% and 36% of our mobile service revenues for the years ended December 31, 2018 and 2017, respectively.

~~Domestic voice service revenues decreased by Php650 million, or 3%, to Php23,486 million in 2018 from Php24,136 million in 2017, due to lower domestic inbound and outbound voice service revenues.~~

International voice service revenues decreased by Php2,022 million, or 31%, to Php4,566 million in 2018 from Php6,588 million in 2017, primarily due to lower international inbound and outbound voice service revenues as a result of lower international voice traffic, partially offset by the effect of higher weighted average rate of the Philippine peso relative to the U.S. dollar.

Mobile revenues from our SMS services, which include all SMS-related services, decreased by Php12,942 million, or 50%, to Php13,103 million in 2018 from Php26,045 million in 2017 mainly due to declining SMS volumes as a result of alternative text messaging options, such as OTT services and social media, and the impact of the revised revenue split allocation, reduction in interconnection rates for SMS services and adoption of IFRS 15. Mobile SMS services accounted for 16% and 31% of our mobile service revenues for the years ended December 31, 2018 and 2017, respectively.

~~Mobile revenues from inbound roaming and other services increased by Php202 million, or 15%, to Php1,591 million in 2018 from Php1,389 million in 2017.~~

~~The following table shows the breakdown of our mobile service revenues by service type for the years ended December 31, 2018 and 2017:~~

Revenues generated from our mobile prepaid services amounted to Php59,914 million in 2018, an increase of Php52 million as compared with Php59,862 million in 2017. Mobile prepaid service revenues accounted for 74% and 71% of mobile service revenues for the years ended December 31, 2018 and 2017, respectively. The increase in revenues from our mobile prepaid services was primarily driven by a higher mobile prepaid subscriber base combined with the sustained growth in mobile internet revenues.

Revenues generated from mobile postpaid service amounted to Php19,591 million in 2018, a decrease of Php3,597 million, or 16%, as compared with Php23,188 million in 2017, and accounted for 24% and 27% of mobile service revenues for the years ended December 31, 2018 and 2017, respectively. The decrease in our mobile postpaid service revenues was primarily due to a lower postpaid subscriber base and the impact of adoption of IFRS 15.

~~The following table shows~~ our wireless subscriber base is LTE ready. With its improved LTE network, Smart has also increased its efforts in promoting products that encourage the use of content and data-led products, such as ~~at December 31, 2018~~online video viewing, e-games and ~~2017:~~social media.

Smart’s prepaid brands adopted a three-stage usage strategy to drive data usage. To promote data usage among customers, the prepaid brands adopted free trial campaigns such as “Free YouTube for All” and “Free IG+FB For all” in 2019. Meanwhile, Smart launched campaigns to promote products such as Giga Video, Giga Games and

Smart Prepaid call and text cards are sold in denominations of Php100, Php300 and Php500, while TNT prepaid cards are sold in denominations of Php50, Php100 and Php300. We have updated Smart eLoad’s over-the-air reloads, which are now available in various denominations ranging from Php15 to Php1,000. The stored value of a prepaid card and eLoads remain valid for 365 days regardless of the denomination, pursuant to the MC No. 05-12-2017 issued by the NTC and DICT.

The updated Smart Postpaid plans include high data allocation, unlimited texts to all networks, and unlimited on-net calls with monthly service fees ranging from Php999 to Php2,999 for Smart Signature subscribers and from Php3,500 to Php8,000 for Smart Infinity subscribers. Additional charges apply at different rates for usage in excess of the allocated amounts under the applicable monthly plan.

Smart subscribers pay an international direct dialing rate of US$0.40 per minute. This rate applies to calls to most destinations, including the United States, Hong Kong, Japan, Singapore, United Kingdom and United Arab Emirates. Smart charges US$0.98 per minute for 20 other destinations and US$2.18 per minute for nine other destinations. Smart subscribers also have the option of calling at more affordable rates, which are as low as Php2.00 per minute, under the One International Call & Text package.

International web browsing was also made more affordable and convenient with Roam Surf, whereby subscribers automatically enjoy web browsing abroad for a fixed rate of Php550 per day, open to both Smart Postpaid and Prepaid subscribers and covering over 135 countries within the Americas, Asia, Africa, Europe, and Oceania. Data allocation may vary depending on country of destination. Subscribers can also use Giga Roam for Php999 with 1GB of open access data when roaming abroad in over 105 countries worldwide. We also offer Smart Travel WiFi, a broadband device that provides high-speed internet service in over 100 countries, which is powered by virtual SIM technology that enables local connectivity for up to five devices to local networks for as low as Php290 per day in Asia and Php450 per day elsewhere in the world.

In compliance with Memorandum Circular ~~(MC)~~ No. ~~05-12-2017~~05-07-2018 issued ~~jointly~~ by the National Telecommunications Commission, or NTC, ~~Department~~the interconnection rate for our voice calls was reduced to Php0.50 per minute from Php2.50 per minute, and the rate for SMS was down to Php0.05 per message from Php0.15 per message effective September 1, 2018.

We sell our mobile services primarily through our regional and key account partners that generally have their own direct sales forces and retail networks. We currently have 19 exclusive regional and 107 exclusive provincial distributors, and 113 key account partners, 25 of ~~Information~~which are exclusive. A number of our trade partners are likewise major distributors of smartphones and ~~Communications Technology,~~devices that are retailed in their owned telecommunications outlets. Account managers from our sales force manage the distribution network and ~~Department~~regularly update these

business partners on upcoming marketing strategies, promotional campaigns and new products. Smart’s over-the-air reloads called Smart eLoad, required a distribution network that approximates those of ~~Trade~~fast-moving consumer goods companies. Sun also offers over-the-air reloads through Sun’s Xpress Load. Our distribution network encompasses approximately 1.5 million retailers with Smart and ~~Industry,~~ Sun combined. These retailers must be affiliated with one of Smart’s and Sun’s authorized regional and provincial distributors. With the prepaid reloading distribution network extended to corner store and individual retailer levels and minimum reloading denominations as low as Php10, Smart’s prepaid service became more affordable and accessible to subscribers.

Retail Stores are company owned Smart ~~TNT,~~Stores with 117 branches and Sun ~~extended the validity of prepaid loads~~Shops with 85 branches that showcase our Company’s products and services to ~~one year. Beginning January 2018, the one-year validity was implemented particularly on prepaid loads worth Php300~~customers nationwide. Our frontlines enable unique digital experiences through daily customer interaction. We offer enticing products and ~~above. In July 2018, the one-year validity was fully implemented for all prepaid loads, including denominations lower than Php300, regardless of the validity period printed~~services based on the ~~physical cards already out~~customer needs. We also cater for customer aftersales request and inquiries. Our stores also accept payment for bills, postpaid and prepaid sales.

Satellite Branches which has a total of 32 stores nationwide are partner-owned Smart and Sun branded stores operating as auxiliary touchpoints for converged wired and wireless sales, aftersales and bills payment.

In 2018, we unveiled our PLDT-Smart converged store in Makati CBD. This flagship store is a one-stop digital hub and store that showcases PLDT, Smart, and Cignal products. The store also has a digital self-service counters which allow subscribers to view and print their bills, check account details, request for repairs and other services. The store also features interactive booths that allow guests to browse the ~~market.~~internet, play games, watch videos or listen to music inside the store.

These services are being sold primarily through PLDT Enterprise team and it’s two major groups, Alpha and SME. Alpha is the relationship arm of PLDT Enterprise for ~~Smart Prepaid subscribers were 6.5%~~the top three thousand corporate clients while SME handles the relationships for the small and ~~6.7% in 2018~~medium enterprises. New channels include the Micro SME segment, which sells through the brick and ~~2017, respectively, while~~mortar stores and online, and the average monthly churn rates for TNT subscribers were 5.8% and 6.8% in 2018 and 2017, respectively. The average monthly churn rates for Sun Prepaid subscribers were 6.1% and 7.7% in 2018 and 2017, respectively. Enterprise Extension which handles sales to employees of existing Enterprise clients.

The ~~average monthly~~Emerging Channels Group leads in identifying and growing new and non-traditional channels. The team aims to ensure that we are equipped to maximize opportunities presented by industry trends and new technologies. We enable the customer to avail of a new service or upgrade their existing subscription. Emerging Channels is composed of Telesales, Online, and Postpaid Field Sales.

We reach out to our subscribers to offer the latest promos and services. Our Telesales agents, in partnership with different contact center providers, enable existing subscribers to upgrade and migrate their accounts, as well as recontract their expiring accounts over the phone.

Consumers can also enjoy the convenience of availing our service through the Smart Online Store, an end to end portal, where they can transact online to choose phones and apply for new postpaid plans, renew an existing plan, buy prepaid SIM and devices, or subscribe for e-load and various add-on promos. All orders are delivered directly to the customers’ addresses. Other online channels include My Smart App and Paywall that allows add-on promo availment via load conversion or bill on top.

In 2018, we launched a new channel called Postpaid Field Sales (PFS). PFS is a new group which was built for an outbound sales attack for Postpaid targeting the corporate individual and capable communities. Through the development and growth of this new channel, we would be able to regain the wireless postpaid stronghold. Starting with 52 territories, complemented by distributor partners, PFS has been on the road towards exponentially growing the mobile postpaid business.

HOME Ultera and WiMAX businesses were transferred to PLDT effective January 1, 2018.

We provide data, voice services, including LEC, international and domestic services, and miscellaneous services under our fixed line business.

We offer postpaid and prepaid fixed line services. Initially intended to be an affordable alternative telephone service for consumers under difficult economic conditions, our prepaid fixed line services came to form an important part of our overall churn ~~rates for Smart Postpaid subscribers were 2.0%~~ and ~~2.3% in 2018 and 2017, respectively, and 3.5% in each of 2018 and 2017, for Sun Postpaid subscribers.~~credit risk exposure management strategy.

The following table summarizes key measures of our ~~average monthly ARPUs~~fixed line services as at and for the years ended December 31, 2019, 2018 and 2017:

For the year ended December 31, 2019, PLDT Home WiFi’s revenues had a six-fold increase and doubled its subscriber base, as compared against the year ended December 31, 2018.

The Peace of Mind suite of services of PLDT Home features security-enhancing products like the home monitoring system Fam Cam, launched in partnership with network solutions giant D-Link.

Our local exchange service, which consists of our basic voice telephony business, is provided primarily through PLDT. We also provide local exchange services through our subsidiaries – Philcom Group, Bonifacio Communications Corporation, ClarkTel, SubicTel and Maratel. Together, these subsidiaries account for approximately 1% of our consolidated fixed line subscribers.

Our international service consists of packet-based voice services and data services that go through our IGFs.

The table below sets forth the net settlement amounts for international calls handled by PLDT, by country, for the years ended December 31, 2019, 2018 and 2017:

Rates for outbound international calls are based on type of service, whether operator-assisted or direct-dialed. Our rates are quoted in U.S. dollars and are billed in Philippine pesos. The Philippine peso amounts are determined at the time of billing. We charge a flat rate of US$0.40 per minute to retail customers for direct-dialed calls, applicable to all call destinations at any time on any day of the week.

In addition, PLDT bundles the free PLDT-to-PLDT calls in some promotions and product/service launchings in order to stimulate fixed line usage.

Smart has been continually extending its 3G footprint, and now has over 13,000 3G base stations in the Philippines. The 3G network provides more capacity, faster data rates and richer data and video applications from a 2G network.

Smart launched its 4G LTE network in August 2012. As at December 31, 2019, Smart has established more than 24,000 4G/LTE base stations throughout the Philippines, and serves over 90% of the country’s cities and municipalities with its combined 2G, 3G, and 4G LTE network.

In November 2018, PLDT-Smart launched the Philippines’ first Smart 5G Cities in Pampanga and Makati. In the same month, they also successfully made the country’s first 5G-to-5G non-standalone, or NSA, video call between the two 5G Smart cities.

In August 2019, PLDT and Smart successfully made the first 5G standalone, or SA, video call in Southeast Asia, using Nokia’s 5G SA equipment at the PLDT-Smart 5G Technolab in Makati City. The 5G Technolab which was launched in 2018, is the Company’s flagship facility for the research and development, standardization, and testing of 5G. It is designed to be a sustainable environment for innovative services.

Home Broadband offers fixed wireless broadband internet connectivity to both residential and corporate clients. Over 2,000 of Smart’s base stations are now fixed wireless broadband-capable, covering most of the key cities and the other populated centers in the country. These are strategically collocated in Smart’s mobile base stations that allow it to efficiently reach many subscribers. For its backbone, it uses the nationwide PLDT and Smart fiber optic and IP backbone that provide substantial bandwidth capacity to utilize and to grow on demand.

Our domestic telephone network includes installed telephones and other equipment, such as modems on customers’ premises, copper and fiber access lines referred to as “outside plant connecting customers to our exchanges,” inter-exchange fiber optics connecting exchanges, and long distance transmission equipment with unmatched capacity and reach. As at December 31, 2019, we have managed to modernize NGN soft switches including international gateways, and are expanding the wireline infrastructure in areas we believe are unserved and underserved areas.

Our network includes an internet gateway that is composed of high capacity and high performance routers that serve as our IP network gateway connecting the Philippines to the rest of the world. It provides premium and differentiated internet service to all types of customers ranging from ordinary internet to high bandwidth broadband requirements of corporate customers, knowledge processing solution providers, internet service providers, or ISPs, and even other service providers. Additionally, transparent caching service that is hosted in our domestic data centers provides a faster internet experience for customers. The caching facility includes well known websites such as Netflix, iflix, Google, Facebook and Amazon, among others.

Furthermore, we have several networks that provide domestic and international connectivity for corporate customers and other carriers. These include the Multi-Service Access Platform, or MSAP, based on Synchronous Digital Hierarchy, or SDH, technology and data networks that provide wide range of bandwidth from low speed to high speed capacity up to 1Gbps. These MSAP networks are deployed in strategic areas nationwide. Starting 2015, we employed demarcation CPE that provides a purely IP-based access last mile with speed of up to 10 Gbps to single enterprise customer.

PLDT is undergoing a transport network transformation program, which includes the transformation of DFON, IP Backbone and Carrier Ethernet network into a new architecture and technology in preparation for the provision of 5G services.

For voice services, PLDT operates two IP voice gateways. As at December 31, 2019, PLDT’s international long distance facilities allow direct voice correspondence with 72 foreign carriers from 39 countries and can reach almost a thousand foreign destinations (including fixed and wireless network destination “breakouts”, or specific areas within a country) worldwide.

To provide the international transport backbone for the voice and internet gateways as well as other international data services, PLDT operates the Philippines’ most extensive international submarine cable network. To date, PLDT maintains and operates three international cable landing stations in La Union and Batangas for international cables coming from the West Philippine Sea, and in Daet in the east for international cables coming from the Pacific Ocean. These international cable stations are connected by an advance terrestrial fiber mesh network (North, South and East Luzon systems) to our three International Transmission Maintenance Centers, including direct cable station to cable station interconnection.

The AAG, APCN2 and ASE upgrade projects were completed in 2018. These equipment upgrades provided PLDT with additional capacities using 100 Gbps and 150 Gbps technologies.

As at December 31, 2019, PLDT has direct interconnection agreements with 94 foreign carriers from 44 countries.

The average international termination rate for calls to PLDT was approximately US$0.084 per minute in 2019. Also, PLDT carries international calls terminating at Smart and Sun networks where they have no direct interconnections.

The table below shows the expiry dates of franchises for each company indicated:

~~Revenues~~A franchise holder is required to obtain operating authority from ~~our Home Broadband~~the NTC to provide specific telecommunications services ~~decreased~~authorized under its franchise. These approvals may take the form of a CPCN, or, while an application for a CPCN is pending, a provisional authority to operate. Provisional authorities are typically granted for a period of 18 months. The Philippine Revised Administrative Code of 1987 provides that if the grantee of a license or permit, such as a CPCN or provisional authority, has made timely and sufficient application for the extension thereof, the existing CPCN or provisional authority will not expire until the application is finally decided upon by ~~Php2,401 million, or 94%, to Php155 million in 2018 from Php2,556 million in 2017, mainly due to~~ the ~~transfer of~~ ~~Ultera~~ ~~and~~ ~~WiMAX~~ ~~businesses to PLDT~~.

~~Revenues from our MVNO and other services increased by Php1,333 million to Php1,750 million in 2018 from Php417 million in 2017, primarily due to facility service fees relating to~~ ~~Ultera~~, ~~WiMAX~~ ~~and~~ ~~Shops.Work Unplugged, or~~ ~~SWUP,~~ ~~in 2018, partially offset by lower revenue contribution from MVNOs of PLDT Global.~~

Our wireless non-service revenues consist of sale of mobile handsets, mobile broadband data modems, tablets and accessories. Our wireless non-service revenues increased by Php1,768 million, or 34%, to Php6,928 million in 2018 from Php5,160 million in 2017, primarily due to the impact of adoption of IFRS 15.

Expenses associated with our Wireless business segment amounted to Php82,246 million in 2018, a decrease of Php15,405 million, or 16%, from Php97,651 million in 2017. The decrease was mainly attributable to lower depreciation and amortization, asset impairment and interconnection costs, partially offset by higher cost of sales and services, and selling, general and administrative expenses. As a percentage of our total wireless revenues, expenses associated with our Wireless business segment accounted for 91% and 105% in the years ended December 31, 2018 and 2017, respectively.

~~The following table summarizes the breakdown of our total wireless-related expenses for the years ended December 31, 2018 and 2017 and the percentage of each expense item in relation to the total:~~

Selling, general and administrative expenses increased by Php109 million to Php39,693 million, primarily due to higher taxes and licenses, repairs and maintenance, and compensation and employee benefits, partly offset by lower professional and other contracted services, rent, and selling and promotions expenses.

Depreciation and amortization charges decreased by Php11,998 million, or 33%, to Php24,778 million, on account of lower depreciation due to shortened life of certain data network platform and other technology equipment resulting from the ongoing transformation projects which commenced in the previous year, to improve and simplify the network and systems applications.

~~Cost of sales and services increased by Php1,175 million, or 13%, to Php9,989 million, primarily due to higher issuances of mobile handsets and cost of SIM packs.~~

Interconnection costs decreased by Php1,906 million, or 30%, to Php4,467 million, primarily due to lower interconnection cost on domestic voice and SMS services, mainly due to the impact of reduction in interconnection rates for voice and SMS, as well as lower interconnection charges on international SMS and data roaming services.

~~Provisions decreased by Php18 million, or 1%, to Php2,173 million, primarily due to lower provision for inventory obsolescence.~~

Asset impairment decreased by Php2,767 million, or 71%, to Php1,146 million primarily due to the impairment of certain network equipment in 2017 which were rendered obsolete due to technological advancements as a result of continuing network transformation projects.

~~The following table summarizes the breakdown of our total wireless-related other income (expenses) for the years ended December 31, 2018 and 2017:~~

Our Wireless business segment’s other expenses amounted to Php625 million in 2018, a change of Php702 million as against other income of Php77 million in 2017, primarily due to the net effects of the following:
(i) lower other income – net by Php1,788 million mainly due to lower income from consultancy and other miscellaneous income, partly offset by lower impairment on Smart’s investment in AFPI; (ii) higher net foreign exchange losses by Php68 million; (iii) higher net gains on derivative financial instruments by Php167 million; (iv) equity share in net earnings of associates of Php62 million in 2018 as against equity share in net losses of Php129 million in 2017; (v) lower net financing costs by Php382 million mainly due to higher capitalized interest, lower financing charges and lower weighted average loan principal amount, partly offset by higher weighted average interest rates; and (vi) higher interest income by Php414 million mainly due to an increase in principal amount of temporary cash investment, higher weighted average interest rates and higher weighted average rate of the Philippine peso relative to the U.S. dollar.

Provision for income tax amounted to Php1,333 million in 2018, a change of Php4,120 million as against benefit from income tax of Php2,787 million, which includes tax impact of depreciation due to shortened life of property and equipment and noncurrent asset impairment recognized in 2017.

~~As a result of the foregoing, our Wireless business segment’s net income increased by Php7,940 million to Php5,725 million in 2018 as against net losses of Php2,215 million in 2017.~~

Our Wireless business segment’s Adjusted EBITDA decreased by Php2,160 million, or 6%, to Php34,235 million in 2018 from Php36,395 million in 2017. Adjusted EBITDA margin decreased to 41% in 2018 from 42% in 2017.

Our Wireless business segment’s core income decreased by Php52 million to Php9,760 million in 2018 from Php9,812 million in 2017 on account of lower Adjusted EBITDA, higher provision for income tax and lower other miscellaneous income, partially offset by lower depreciation expense and net financing costs.

~~Revenues generated from our Fixed Line business segment amounted to Php85,222 million in 2018, an increase of Php6,881 million, or 9%, from Php78,341 million in 2017.~~

The following table ~~summarizes our total revenues~~sets forth the spectrum system service/technology, licensed frequency bands and bandwidth assignments used by ~~service from our Fixed Line business segment for the years ended December 31, 2018~~Smart, DMPI, SBI and ~~2017:~~PDSI:

~~Service Revenues~~The NTC approved the frequency co-use arrangement between Smart and Globe of various frequencies under LTE 700, GSM/3G 900, GSM/LTE 1800, BWA/LTE 2300, and LTE 2500 assigned to Bell Telecommunications Philippines, Inc.

PLDT, ClarkTel, Smart and SBI are required to pay various permits, regulation and supervision fees to the NTC. PLDT was previously engaged in disputes with the NTC over some of the assessed fees.

~~Our fixed line service revenues increased by Php6,891 million, or 9%, to Php81,648 million~~The NTC has issued a number of directives that regulate the manner in ~~2018 from Php74,757 million in 2017, due to higher revenues from~~which we conduct our data services, partially offset by lower voice and miscellaneous service revenues. In the second quarter of 2018, the revenue split allocation between voice and data for our fixed line bundled plans was revised, in favor of data, to reflect the result of a recent network usage study from our Fixed Line business segment.

Revenues from our voice services decreased by Php3,322 million, or 12%, to Php25,178 million in 2018 from Php28,500 million in 2017, primarily due to lower revenues from local exchange and domestic services. The decline was partly due to the continued popularity of services such as Skype, Viber, Line, Facebook Messenger, Google Talk and WhatsApp, offering free OTT calling services, and other similar services, as well as the impact of the revised revenue split allocation. The percentage contribution of voice service revenues to our fixed line service revenues accounted for 31% and 38% for the years ended December 31, 2018 and 2017, respectively.

~~The following table shows information of our data service revenues for the years ended December 31, 2018 and 2017:~~business:

In order to diversify the ownership base of public utilities, the Public Telecommunications Policy Act R.A. 7925, requires a telecommunications entity with regulated types of services to make a public offering through the stock exchange of its shares representing at least 30% of its aggregate common shares within five years from: (a) the date the law became effective; or (b) the entity’s commencement of commercial operations, whichever date is later. PLDT and ~~ICT~~PCEV have complied with this requirement. On May 19, 2017, R.A. No. 10926 took effect which extended the Legislative Franchise of Smart. The law contains a provision which exempts Smart from the requirement of listing of shares if a grantee is wholly-owned by a publicly-listed company with at least 30% of whose authorized capital stock is publicly listed.

~~Corporate data services amounted~~If DMPI is found to ~~Php23,991 million~~be in ~~2018, an increase~~violation of ~~Php1,102 million, or 5%, as compared with Php22,889 million in 2017, mainly due to sustained market traction of internet services, such as Dedicated Internet Access and FibrBiz, as a~~R.A. 7925, this could result ~~of higher internet connectivity requirements, and key Multiprotocol Label Switching solutions, such as IP-VPN, Metro Ethernet and~~ ~~Shops.Work. Corporate data revenues accounted for 44% and 52% of total data services~~ in the ~~years ended~~revocation of the franchise of DMPI and possible filing of a quo warranto case against DMPI by the Office of the Solicitor General of the Philippines. DMPI takes the position that the provisions of R.A. 7925 are merely directory and the policy underlying the requirement of telecommunications entities to conduct a public offering should be deemed to have been achieved when PLDT acquired a 100% equity interest in DMPI in 2011, since PLDT continues to be a publicly-listed company. However, there can be no assurance that for DMPI, the Philippine Congress will agree with such position.

PLDT has continually and actively negotiated with other legitimate Philippine fixed and CMTS carriers for interconnection based on the guidelines being issued by the NTC or any authorized government agency. These carriers include the major fixed and mobile players in the industry with nationwide operations, PAPTELCO and other non-PAPTELCO players, both of which usually operate in selected towns in the countryside. As at December 31, ~~2018 and 2017, respectively.~~2019, PAPTELCO has 34 member companies, of which 31 are active, operating 61 main telephone exchanges in the countryside.

ICT revenues increased by Php695 million, or 21%, to Php4,046 million in 2018 from Php3,351 million in 2017 mainly due to higher revenues from colocation and managed IT services. The percentage contribution of this service segment to our total data service revenues accounted for 7% in each of the years ended December 31, 2018 and 2017.Competition

~~Miscellaneous service revenues~~Including us, there are ~~derived mostly from rentals~~five major LECs, eight major IGF providers and ~~management fees. These service revenues decreased by Php263 million, or 13%,~~two major mobile operators in the Philippines. Some new entrants into the Philippine telecommunications market have entered into strategic alliances with foreign telecommunications companies, which provide them access to Php1,700 million in 2018 from Php1,963 million in 2017 mainly due to lower management fees. The percentage contribution of miscellaneous service revenues to our total fixed line service revenues accounted for 2%technological and ~~3% for the years ended December 31, 2018 and 2017, respectively.~~

~~Non-service revenues decreased by Php10 million to Php3,574 million in 2018 from Php3,584 million in 2017, primarily due to lower sale of hardware and software, and~~ ~~Fabtab~~ ~~for~~ ~~myDSL~~ ~~retention, partly offset by higher sale of computer bundles, managed ICT equipment, and~~ ~~Ultera~~ ~~devices, combined with the impact of IFRS 15 adjustment.~~

Expenses related to our Fixed Line business segment totaled Php77,782 million in 2018, an increase of Php13,918 million, or 22%, as compared with Php63,864 million in 2017. The increase was primarily due to higher depreciation and amortization, selling, general and administrative expenses, provisions, asset impairment, and interconnection costs. As a percentage of our total fixed line revenues, expenses associated with our Fixed Line business segment accounted for 91% and 82% for the years ended December 31, 2018 and 2017, respectively.

~~The following table shows the breakdown of our total fixed line-related expenses for the years ended December 31, 2018 and 2017 and the percentage of each expense item in relation to the total:~~

Selling, general and administrative expenses increased by Php3,675 million, or 10%, to Php41,065 million primarily due to higher professional and other contracted services, repairs and maintenance, rent, and selling and promotions expenses, partly offset by lower compensation and employee benefits, mainly as a result of lower incentive plan and MRP costs.

Depreciation and amortization charges increased by Php7,302 million, or 49%, to Php22,303 million mainly due to a higher depreciable asset base and depreciation due to shortened life of certain network equipments resulting from the modernization of facilities to adopt more effective technologies, such as VVDSL and FTTH.

Interconnection costs increased by Php558 million, or 12%, to Php5,145 million, primarily due to higher international interconnection costs, as a result of an increase in international inbound calls that terminated to other domestic carriers, partly offset by lower domestic interconnection costs.

~~Cost of sales and services decreased by Php265 million, or 6%, to Php4,523 million, primarily due to lower cost of hardware and software,~~ ~~Fabtab~~ ~~for~~ ~~myDSL~~ ~~retention, and~~ ~~TVolution~~ ~~units, partly offset by higher cost of services.~~

Provisions increased by Php1,449 million, or 69%, to Php3,547 million, primarily due to higher provision for doubtful accounts mainly due to lower collection efficiency by 1% and provision for unbilled receivables relating to devices,funding support as well as service innovations and ~~higher provision for inventory obsolescence due to provision for network materials resulting from the modernization of facilities.~~

~~Asset impairment amounted to Php1,199 million in 2018 primarily due to the impairment provision for property and equipment of Digitel.~~

~~The following table summarizes the breakdown of our total fixed line-related other income (expenses) for the years ended December 31, 2018 and 2017:~~marketing strategies.

Our Fixed Line business segment’s other expenses amounted to Php45 million in 2018, a decrease of Php3,278 million, or 99%, from Php3,323 million in 2017, mainly due to the combined effects of the following: (i) higher other income – net by Php2,979 million, mainly due to the impairment of investment in Hastings PDRs in 2017 while nil in 2018, and higher other miscellaneous income; (ii) higher equity share in net earnings of associates by Php127 million; (iii) higher interest income by Php117 million; (iv) higher net gains on derivative financial instruments by Php104 million; (v) lower foreign exchange losses by Php40 million; and (vi) higher net financing costs by Php89 million.

~~Provision for income tax amounted to Php1,336 million in 2018, a decrease of Php2,344 million, or 64%, from Php3,680 million in 2017, mainly due to lower taxable income.~~

As a result of the foregoing, our Fixed Line business segment’s registered a net income of Php6,059 million in 2018, a decrease of Php1,415 million, or 19%, as compared with Php7,474 million in 2017.

Our Fixed Line business segment’s Adjusted EBITDA increased by Php1,397 million, or 5%, to Php30,875 million in 2018 from Php29,478 million in 2017. Adjusted EBITDA margin decreased to 38% in 2018 from 39% in 2017.

Our Fixed Line business segment’s core income decreased by Php1,921 million, or 22%, to Php6,925 million in 2018 from Php8,846 million in 2017, primarily as a result of higher depreciation expense, partially offset by higher Adjusted EBITDA and lower provision for income tax.

Revenues generated from our Other business segment, which include revenues from digital platforms and mobile financial services, amounted to Php1,138 million in 2018, a decrease of Php141 million, or 11%, from Php1,279 million in the same period in 2017, due mainly to the deconsolidation of VIH.

Expenses related to our Other business segment totaled Php4,093 million in 2018, an increase of Php1,319 million, or 48%, from Php2,774 million in the same period in 2017, due to higher selling, general and administrative expenses of VIH.

~~The following table summarizes the breakdown of our Other business segment’s other income (expenses) for the years ended December 31, 2018 and 2017:~~

Our Other business segment’s other income amounted to Php12,099 million in 2018, an increase of Php1,569 million, or 15%, from Php10,530 million in 2017, primarily due to the combined effects of the following: (i) gain on the deconsolidation of VIH of Php12,054 million in 2018; (ii) net gains on derivative financial instruments of Php282 million in 2018; (iii) lower net financing costs by Php83 million; (iv) lower interest income by Php119 million; (v) higher net foreign exchange losses by Php332 million; and (vi) equity share in net losses of associates and joint ventures of Php320 million in 2018 as against equity share in net earnings of associates and joint ventures of Php2,991 million in 2017 mainly due to sale of Beacon shares and SPi Global in 2017; and (vii) lower other income – net by Php7,088 million mainly due to gain on sale of Beacon shares and gain on conversion of iflix convertible notes in 2017, and unrealized loss on fair value of iflix investment in 2018, partly offset by realized gain on fair value of Rocket Internet investment in 2018.

~~As a result of the foregoing, our Other business segment registered a net income of Php7,971 million in 2018, a decrease of Php854 million, or 10%, from Php8,825 million in 2017.~~

~~Our Other business segment’s Adjusted EBITDA amounted to negative Php2,688 million in 2018, an increase of Php1,381 million, or 106%, from negative Php1,307 million in 2017.~~

In 2019, we adopted IFRS 16, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all the leases under single on-balance sheet model similar to the accounting for finance leases under IAS 17, Leases. We applied the modified retrospective approach upon adoption of IFRS 16 on January 1, 2019 and applied the standard to contracts that were previously identified as leases applying IAS 17 and IFRIC 4, Determining whether an Arrangement contains a Lease. Under this approach, the cumulative effect arising from the transition was recognized as an adjustment to the opening balance of retained earnings. Accordingly, comparative information for prior periods were not restated.

In 2018, we have adopted IFRS 9, Financial Instruments, and IFRS 15, Revenues from Contracts with Customers. IFRS 9 replaces IAS 39, Financial Instruments: Recognition and Measurement, and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. IFRS 15 supersedes IAS 11, Construction Contracts, IAS 18, Revenue, and related interpretations and it applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other standards. We applied the modified retrospective method upon adoption of IFRS 9 and IFRS 15 with the date of initial application of January 1, 2018. Under this method, the cumulative effect arising from the transition was recognized as an adjustment to the opening balance of retained earnings. Accordingly, comparative information for prior periods were not restated.

The following table summarizes PLDT’s capital stock issued and outstanding as at December 31, 2019 and 2018:

The following table shows the dividends declared to common shareholders from the earnings for the years ended December 31, 2017, 2018 and 2019:

The following table shows a summary of dividends paid per share of PLDT's common stock stated in both Philippine peso and U.S. dollars:

Dividends on PLDT’s common stock were declared and paid in Philippine pesos. For the convenience of the reader, the Philippine peso dividends have been converted into U.S. dollars based on the Philippine Dealing System Reference Rate on the respective dates of dividend payments from 2015 to 2017, and based on exchange rates quoted through the BAP for 2018 and 2019 dividend payments. See Note 20 – Equity to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further information on our dividend payments.

Our ~~Other~~failure to keep pace with technological changes and evolving industry standards relating to the emergence of the 5G technology could harm our competitive position or negatively impact our results of operations.

We are currently deploying 5G pilot programs in anticipation of commercial rollouts in the near future. However, we are dependent on the availability of 5G-capable devices such as handsets and modems before we can roll out commercial services and generate revenues. A delay in the release of reasonably-priced 5G handsets could negatively impact the mass acceptance of 5G services among our customers and our ability to monetize these investments, which in turn could adversely affect our growth prospects.

The anticipated entry of a third major telecommunications player and/or increased competition from other telecommunications services providers may reduce our market share and decrease our profit margin, and we cannot assure you that any potential change in the competitive and regulatory landscape of the telecommunications industry in the Philippines would not have a material adverse effect on our business, ~~segment’s core~~results of operations, financial condition and prospects.

Increasing competition among existing telecommunications services providers, as well as competition from new competitors, could materially and adversely affect our business and prospects by, among other factors, forcing us to lower our tariffs, reducing or reversing the growth of our customer base and reducing usage of our services. Competition in the mobile telecommunications industry is particularly intense, with network coverage, quality of service, product offerings, and price dictating subscriber preference, while competition in the fixed line side is relatively more active as well. Vital capacity and coverage expansion may continue to increase our capital expenditures. Recently, the industry went through a period where both mobile operators have grown more aggressive in maintaining and growing market share, especially in light of a maturing market. Our principal mobile competitor, Globe Telecom, Inc., or Globe, has introduced aggressive marketing campaigns and promotions. It has also begun to compete more actively in the fixed line segment, especially with their introduction of a fixed wireless home broadband service which competes directly with our home broadband business.

The success of our business depends on our ability to maintain and enhance our brands.

We believe that our reputation and brands in the industry are crucial to the success of our business. To maintain and enhance our reputation and brands, we need to successfully provide the best customer experience such that we not only maintain our current customer base but attract new subscribers as well. If we are not successful in maintaining and improving our brands, our business, financial position, and/or results of operations may be negatively affected.

In particular, as part of our extensive capital expenditures program to overhaul our fixed and wireless networks infrastructure and our IT systems, we have entered into agreements with Amdocs Philippines, Inc., or Amdocs, and Huawei Technologies Co. Ltd., or Huawei, to upgrade and modernize a significant portion of our IT infrastructure. We cannot guarantee that we will be able to accomplish this transformation in a timely fashion, or at all, or in the manner intended. Furthermore, we cannot guarantee that such transformation will not result in service disruptions, network outages or encounter other issues that may detrimentally affect consumer experience. This may adversely affect our business, financial condition and results of operations. We continue to monitor developments on Huawei's cooperation with other telecommunications service providers worldwide. For example, we note that some countries and telecommunications service providers have banned or limited the use of Huawei’s technologies for different reasons. We have factored in such developments in our decision-making with respect to our operation with Huawei, and plan to continue to do so.

The mobile telecommunications industry in the Philippines may not continue to grow.

The majority of our total revenues are currently derived from the provision of mobile services to customers in the Philippines. As a result, we depend on the continued development and growth of this industry in the Philippines. The mobile penetration rate in the country, however, has already reached approximately 159% as at December 31, 2019, and thus the industry may well be considered mature insofar as services such as SMS and domestic voice are concerned.

Data is emerging as the key driver for revenues. However, further growth of the market depends on many factors beyond our control, including the continued introduction of new and enhanced mobile devices, the price levels of mobile handsets, consumer tastes and preferences, and the amount of disposable income ~~amounted~~of existing and potential subscribers. Any economic, technological or other developments resulting in a reduction in demand for mobile services or otherwise causing the Philippine mobile telecommunications industry to ~~Php9,952~~stop growing or reducing the rate of its growth, could materially harm our business, results of operations, financial condition and prospects.

We believe that as of the date of this report, PLDT is in compliance with the requirements of the Constitution, and this position was supported by the Supreme Court; however, we cannot assure you that subsequent changes in law or additional litigation would not result in a different conclusion. See Item 8. “Financial Information – Legal Proceedings” and Note 27 – Provisions and Contingencies – In the Matter of the Wilson Gamboa Case and Jose M. Roy III Petition to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further discussion.

Our business is significantly affected by laws and regulations, including regulations in respect of rates and taxes and laws relating to anti-competitive practices and monopoly.

In particular, PLDT was engaged in litigation with the Philippine Competition Commission, or the PCC, relating to PLDT’s investments in Vega Telecom Inc., or VTI, Bow Arken Holdings Company, or Bow Arken, and Brightshare Holdings, Inc., or Brightshare, or the SMC Transactions. Although the Court of Appeals, or CA, among other things, compelled the PCC to recognize that the SMC Transactions as deemed approved by operation of law, the CA did clarify that the deemed approved status of the SMC Transactions does not, however, remove the power of PCC to conduct post-acquisition review to ensure that no anti-competitive conduct is committed by the parties. Any future expansion in our services, particularly in our mobile services, could subject us to additional conditions in the granting of our provisional authorities by the NTC and to increased regulatory scrutiny, which could harm our reputation and business, and which could have a material adverse effect on our growth and prospects. In addition, the occurrence of any such event could impose substantial costs or cause interruptions or considerable delays in the provision, development or expansion of our services. See Note 11 – Investments in Associates and Joint Ventures – Notice of Transaction filed with the Philippine Competition Commission, or PCC to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further discussion.

Changes in regulations or user concerns regarding privacy and protection of user data, or any failure to comply with such laws, could adversely affect our business.

Any failure, or perceived failure, by us to make effective modifications to our policies, or to comply with any privacy, data-retention or data-protection-related laws, regulations, orders or industry self-regulatory principles, including the Data Privacy Act, could result in proceedings or actions against us by governmental entities or others, a loss of user confidence, damage to the PLDT brands, and loss of users or advertising partners, any of which could potentially have an adverse effect on our business.

Inadequate handling of confidential information, including personal customer information by our corporate group, contractors and others, may adversely affect our credibility or corporate image.

We possess a substantial amount of personal information of our customers. In the event an information leak occurs, whether at our end or on the part of our contractors and service providers, we might be subjected to penalties under the data privacy law, our credibility and corporate image may be significantly damaged, and we may experience an increase in cancellations of ~~Php324~~customer contracts and slower increase in additional subscriptions, any of which could have a material adverse effect on our business, results of operations, financial condition and prospects.

We may not be successful in our acquisitions of, and investments in, other companies and businesses, and may therefore be unable to fully implement our business strategy.

significantly since our investment. Due to the significant decline in fair value of our investment in Rocket Internet, we recognized a series of impairments that amount to, in the aggregate, Php11,045 million, since then. See Note 12 – Financial Assets at FVPL – Investment of PLDT Online in Rocket Internet to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for more information. Credit ratings and market values of this investment and similar investments can be negatively impacted by liquidity, credit deterioration or 3%losses, financial results, foreign exchange rates, or other factors. As a result, our investments could decline and result in a material impairment, which could have a material adverse effect on our financial condition and operating results.

Actual or perceived health risks or other problems relating to mobile handsets or transmission masts could lead to litigation or decreased mobile communications usage.

Cable and equipment theft, equipment failures, natural disasters, man-made events, terrorist acts and territorial disputes may materially adversely affect our operations.

Natural disasters, terrorist acts or acts of war could cause damage to our infrastructure and/or result in significant disruptions to our operations.

Our business may be materially and adversely affected by the coronavirus outbreak.

Climate change could increase the impact of natural disasters and environmental legislation and regulations on our operations.

Our businesses require substantial capital investment, which we may not be able to finance.

Our projects under development and the continued maintenance and improvement of our networks and services, including Smart’s projects, networks, platforms and services, require substantial ongoing capital investment. Our consolidated capital expenditures totaled Php72,871 million, Php58,490 million and Php40,299 million for the years ended December 31, 2019, 2018 and 2017, respectively. We currently estimate that our consolidated capital expenditures in 2020 will be approximately Php83 billion.

Our results of operations and our financial position could be materially and adversely affected if the Philippine peso significantly fluctuates against the U.S. dollar.

A substantial portion of our capital expenditures, a portion of our indebtedness and related interest expense and a portion of our operating expenses are denominated in U.S. dollars and other foreign currencies, whereas most of our revenues are denominated in Philippine pesos. See Note 21 – Interest-bearing Financial Liabilities to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

The Philippine peso has been subject to significant depreciation in recent years with the Philippine peso depreciated by approximately 24% from a high of Php41.08 for year end 2012 to Php50.80 as at December 31, 2019 and further depreciated to Php51.04 as at March 30, 2020. We cannot assure you that the Philippine peso will not depreciate further and be subject to significant fluctuations going forward, due to a range of factors, including:

Our existing debt instruments contain covenants which, among other things, require PLDT to maintain certain financial ratios and other financial tests, calculated on the basis of IFRS at relevant measurement dates, principally at the end of each quarter period. For a description of some of these covenants, see Note 21 – Interest-bearing Financial Liabilities to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.