Exhibit EX-99

PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY
________________________________________________
(Company’s Full Name)

Ramon Cojuangco Building
Makati Avenue, Makati City
_________________________________________________
(Company’s Address)

Not Applicable
______________________________________
(Fiscal Year Ending)
(month & day)

Not Applicable
______________________________________
Amendment Designation (if applicable)

Not Applicable
__________________________________________________
(Secondary License Type and File Number)

In accordance with Section 17.1(b) of the Securities Regulation Code and SRC Rule 17.1, we submit herewith two (2) copies of SEC Form 17-Q with Management’s Discussion and Analysis and accompanying unaudited consolidated financial statements for the three (3) months ended March 31, 2011.

QUARTERLY REPORT PURSUANT TO SECTION 17
OF THE SECURITIES REGULATION CODE (“SRC”) AND
SRC 17 (2) (b) THEREUNDER

Former name, former address, and former fiscal year, if changed since last report

(a)

has filed all reports required to be filed by Section 17 of the SRC during the preceding ten months (or for such shorter period that the registrant was required to file such reports):

Our consolidated financial statements as at March 31, 2011 (unaudited) and December 31, 2010 (audited) and for the three months ended March 31, 2011 and 2010 (unaudited) and related notes (pages F-1 to F-107) are filed as part of this report on Form 17-Q.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

In the following discussion and analysis of our financial condition and results of operations, unless the context indicates or otherwise requires, references to “we,” “us,” “our” or “PLDT Group” mean the Philippine Long Distance Telephone Company and its consolidated subsidiaries, and references to “PLDT” mean the Philippine Long Distance Telephone Company, not including its consolidated subsidiaries (please see Note 2 – Summary of Significant Accounting Policies to the accompanying unaudited consolidated financial statements for the list of these subsidiaries, including a description of their respective principal business activities and PLDT’s direct and/or indirect equity interest).

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited consolidated financial statements and the related notes. Our unaudited consolidated financial statements, and the financial information discussed below, have been prepared in accordance with Philippine Financial Reporting Standards, or PFRS, which is virtually converged with International Financial Reporting Standards as issued by the International Accounting Standards Board except for some transitional differences. PFRS differs in certain significant respects from generally accepted accounting principles, or GAAP, in the U.S.

The financial information appearing in this report and in the accompanying unaudited consolidated financial statements is stated in Philippine pesos. All references to “Philippine pesos,” “Php” or “pesos” are to the lawful currency of the Philippines; all references to “U.S. dollars,” “US$” or “dollars” are to the lawful currency of the United States; all references to “Japanese yen,” “JP¥” or “yen” are to the lawful currency of Japan and all references to “Euro” or “€” are to the lawful currency of the European Union. Unless otherwise indicated, translations of Philippine peso amounts into U.S. dollars in this report and in the accompanying unaudited consolidated financial statements were made based on the exchange rate of Php43.41 to US$1.00, the volume weighted average exchange rate as at March 31, 2011 quoted through the Philippine Dealing System.

Some information in this report may contain forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934. We have based these forward-looking statements on our current beliefs, expectations and intentions as to facts, actions and events that will or may occur in the future. Such statements generally are identified by forward-looking words such as “believe,” “plan,” “anticipate,” “continue,” “estimate,” “expect,” “may,” “will” or other similar words.

A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We have chosen these assumptions or bases in good faith, and we believe that they are reasonable in all material respects. However, we caution you that forward-looking statements and assumed facts or bases almost always vary from actual results, and the differences between the results implied by the forward-looking statements and assumed facts or bases and actual results can be material, depending on the circumstances. When considering forward-looking statements, you should keep in mind the description of risks and cautionary statements in this report. You should also keep in mind that any forward-looking statement made by us in this report or elsewhere speaks only as at the date on which we made it. New risks and uncertainties come up from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this report after the date hereof. In light of these risks and uncertainties, actual results may differ materially from any forward-looking statement made in this report or elsewhere might not occur.


	March 31,			December 31,			Increase (Decrease)
	2011			2010			Amount			%
(in millions, except for net debt to equity ratio, EBITDA margin, earnings per common share, operational data and exchange rates)	(Unaudited)			(Audited)
Consolidated Statements of Financial Position
Total assets	Php292,299			Php277,815			Php14,484				5
Property, plant and equipment – net		159,662			163,184			(3,522	)		(2	)
Cash and cash equivalents and short-term investments		56,613			37,347			19,266			52
Total equity attributable to equity holders of PLDT		80,837			97,069			(16,232	)		(17	)
Long-term debt, including current portion		93,841			89,646			4,195			5
Net debt⁽¹⁾to equity ratio		0.46x			0.54x			–			–
	Three Months Ended March 31,						Increase (Decrease)

		2011			2010		Amount				%

	(Unaudited)
Consolidated Income Statements
Revenues	Php35,144			Php36,514			(Php1,370)				(4	)
Expenses		20,868			21,796			(928	)		(4	)
Other income		82			323			(241	)		(75	)
Income before income tax		14,358			15,041			(683	)		(5	)
Net income for the period		10,726			11,374			(648	)		(6	)
Net income attributable to equity holders of PLDT:
Reported net income		10,734			11,421			(687	)		(6	)
Core income		10,556			10,485			71			1
EBITDA		20,954			21,183			(229	)		(1	)
EBITDA margin⁽²⁾		61	%		59	%		–			–
Reported earnings per common share:
Basic		56.87			60.53			(3.66	)		(6	)
Diluted		56.78			60.51			(3.73	)		(6	)
Core earnings per common share⁽³⁾:
Basic		55.91			55.52			0.39			1
Diluted		55.84			55.52			0.32			1
Consolidated Statements of Cash Flows
Net cash provided by operating activities		20,830			19,566			1,264			6
Net cash used in investing activities		2,699			1,657			1,042			63
Capital expenditures		3,112			5,206			(2,094	)		(40	)
Net cash provided by (used in) financing activities		1,224			(5,149	)		6,373			(124	)
Operational Data
Number of cellular subscribers		46,656,685			43,207,323			3,449,362			8
Number of fixed line subscribers		1,842,004			1,859,998			(17,994	)		(1	)
Number of broadband subscribers:		2,100,743			1,833,811			266,932			15
Fixed Line		671,588			589,795			81,793			14
Wireless		1,429,155			1,244,016			185,139			15
Number of employees:		29,463			28,868			595			2
Fixed Line		7,407			8,073			(666	)		(8	)
Wireless		5,053			5,553			(500	)		(9	)
Information and Communications Technology		17,003			15,242			1,761			12

⁽¹⁾ Net debt is derived by deducting cash and cash equivalents and short-term investments from total debt (long-term debt, including current portion).

⁽²⁾ EBITDA margin for the period is derived as a percentage of service revenues.

⁽³⁾ Core earnings per common share is derived by dividing core income with the average outstanding common shares for the period.

We are the largest and most diversified telecommunications company 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 the basis for management’s decision to allocate resources and evaluate operating performance:

•

Wireless ¾ wireless telecommunications services provided by Smart Communications, Inc., or Smart, and Connectivity Unlimited Resource Enterprise, our cellular service providers; Smart Broadband, Inc., or SBI, Blue Ocean Wireless, Airborne Access Corporation, and Primeworld Digital Systems, Inc., or PDSI, our wireless broadband service providers; Wolfpac Mobile, Inc., or Wolfpac, and Chikka Holdings Limited, or Chikka, and Subsidiaries, or Chikka Group, our wireless content operators; and ACeS Philippines Cellular Satellite Corporation, or ACeS Philippines, our satellite operator;

•

Fixed Line ¾ fixed line telecommunications services primarily provided by PLDT. We also provide fixed line services through PLDT’s subsidiaries, namely, PLDT Clark Telecom, Inc., PLDT Subic Telecom, Inc., PLDT-Philcom, Inc. and Subsidiaries, PLDT-Maratel, Inc., SBI, PDSI, Bonifacio Communications Corporation, and PLDT Global Corporation, or PLDT Global, all of which together account for approximately 4% of our consolidated fixed line subscribers; and

•

Information and Communications Technology, or ICT ¾ information and communications infrastructure and services for internet applications, internet protocol, or IP-based solutions and multimedia content delivery provided by ePLDT, Inc., or ePLDT, and BayanTrade, Inc.; knowledge processing solutions provided by SPi Technologies, Inc. and Subsidiaries, or SPi Group; customer relationship management provided by SPi CRM Inc., or SPi CRM; internet access and online gaming services provided by Infocom Technologies, Inc., Digital Paradise, Inc., or Digital Paradise (on April 1, 2011, ePLDT sold its 75% stake in Digital Paradise), netGames, Inc. and Level Up!, Inc.; and e-commerce, and IT-related services provided by other investees of ePLDT, as discussed in Note 10 – Investments in Associates and Joint Ventures to the accompanying consolidated financial statements.

We use a number of non-GAAP performance indicators to monitor financial performance. These are summarized below and discussed later in this report.

EBITDA is measured as net income excluding depreciation and amortization, amortization of intangible assets, asset impairment on noncurrent assets, financing costs, interest income, equity share in net earnings (losses) of associates and joint ventures, foreign exchange gains (losses) – net, gains (losses) on derivative financial instruments – net, provision for (benefit from) income tax and other income. EBITDA is monitored by the management for each business unit separately for purposes of making decisions about resource allocation and performance assessment. EBITDA is presented also a supplemental disclosure because our management believes that it is widely used by investors in their analysis of the performance of PLDT and to assist them in their comparison of PLDT’s performance with that of other companies in the technology, media and telecommunications sector. We also present EBITDA because it is used by some investors as a way to measure a company’s ability to incur and service debt, make capital expenditures and meet working capital requirements. Companies in the technology, media and telecommunications sector have historically reported EBITDA as a supplement to financial measures in accordance with PFRS. EBITDA should not be considered as an alternative to net income as an indicator of our performance, as an alternative to cash flows from operating activities as a measure of liquidity, or as an alternative to any other measure determined in accordance with PFRS. Unlike net income, EBITDA does not include depreciation and amortization or financing costs and, therefore, does not reflect current or future capital expenditures or the cost of capital. We compensate for these limitations by using EBITDA as only one of several comparative tools, together with PFRS-based measurements, to assist in the evaluation of operating performance. Such PFRS-based measurements include income before income tax, net income, cash flows from operations and cash flow data. We have significant uses of cash flows, including capital expenditures, interest payments, debt principal repayments, taxes and other non-recurring charges, which are not reflected in EBITDA. Our calculation of EBITDA may be different from the calculation methods used by other companies and, therefore, comparability may be limited.

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, asset impairment on noncurrent assets, other non-recurring 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. The 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 is used by the management as a basis of determining the level of dividend payouts to shareholders and basis of 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 PFRS as an indicator of our performance. Unlike income before income tax, core income does not include foreign exchange gains and losses, gains and losses on derivative financial instruments, asset impairments and other non-recurring gains and losses. We compensate for these limitations by using core income as only one of several comparative tools, together with PFRS-based measurements, to assist in the evaluation of operating performance. Such PFRS-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.

We use EBITDA and core income to assess our operating performance. The reconciliation of our consolidated EBITDA and our consolidated core income to our consolidated net income for the three months ended March 31, 2011 and 2010 are set forth below.

The following table shows the reconciliation of our consolidated EBITDA to our consolidated net income for the three months ended March 31, 2011 and 2010:

The following table shows the reconciliation of our consolidated core income to our consolidated net income for the three months ended March 31, 2011 and 2010:

The table below shows the contribution by each of our business segments to our consolidated revenues, expenses, other income, income before income tax, provision for (benefit from) income tax, net income, EBITDA, EBITDA margin and core income for the three months ended March 31, 2011 and 2010. The majority of our revenues are derived from our operations within the Philippines.


	Wireless					Fixed Line					ICT						Inter-segment Transactions						Consolidated
												(in millions)
For the three months ended March 31, 2011
Revenues	Php23,038					Php11,775						Php2,771									(Php2,440)					Php35,144
Expenses		11,890					8,915						2,547								(2,484)						20,868
Other income		11					20						95											(44	)		82
Income before income tax		11,159					2,880						319											–			14,358
Provision for income tax		2,778					818						36											–			3,632
Net income for the period/Segment profit for the period		8,381					2,062						283											–			10,726
EBITDA for the period		14,549					5,907						454											44			20,954
EBITDA margin for the period⁽¹⁾		64	%				51	%					17	%										–			61	%
Core income for the period		8,661					1,615						280											–			10,556
For the three months ended March 31, 2010
Revenues		24,068					12,953						2,670								(3,177)						36,514
Expenses		12,927					9,549						2,556								(3,236)						21,796
Other income		257					113						12											(59	)		323
Income before income tax		11,398					3,517						126											–			15,041
Provision for (benefit from) income tax		2,733					943						(9	)										–			3,667
Net income for the period/Segment profit for the period		8,665					2,574						135											–			11,374
EBITDA for the period		14,440					6,314						370											59			21,183
EBITDA margin for the period⁽¹⁾		61	%				49	%					14	%										–			59	%
Core income for the period		8,474					1,853						158											–			10,485
Increase (Decrease)	Amount			%		Amount			%			Amount			%			Amount				%				Amount			%

												(in millions)
Revenues	(Php1,030)			(4	)	(Php1,178)			(9	)		Php101			4			Php737						23		(Php1,370)			(4	)
Expenses		(1,037	)	(8	)		(634	)	(7	)			(9	)	–				752					23			(928	)	(4	)
Other income		(246	)	(96	)		(93	)	(82	)			83		692				15					25			(241	)	(75	)
Income before income tax		(239	)	(2	)		(637	)	(18	)			193		153				–					–			(683	)	(5	)
Provision for (benefit from) income tax		45		2			(125	)	(13	)			45		(500	)			–					–			(35	)	(1	)
Net income for the period/Segment profit for the period		(284	)	(3	)		(512	)	(20	)			148		110				–					–			(648	)	(6	)
EBITDA for the period		109		1			(407	)	(6	)			84		23				(15	)				(25	)		(229	)	(1	)
Core income for the period		187		2			(238	)	(13	)			122		77				–					–			71		1

⁽¹⁾ EBITDA margin for the period is derived as a percentage of service revenues.

We registered consolidated revenues of Php35,144 million in the first quarter of 2011, a decrease of Php1,370 million, or 4%, as compared with Php36,514 million in the same period in 2010, primarily due to a decline in our service revenues by Php1,435 million as a result of decreases in cellular and satellite revenues from our wireless business, as well as lower revenues from across our fixed line business’ services.

The following table shows the breakdown of our consolidated revenues for the three months ended March 31, 2011 and 2010 by business segment:

Consolidated expenses decreased by Php928 million, or 4%, to Php20,868 million in the first quarter of 2011 from Php21,796 million in 2010, largely as a result of decreases in selling and promotions, asset impairment, compensation and employee benefits, rent, communication, training and travel and repairs and maintenance expenses, partly offset by higher depreciation and amortization, cost of sales, and insurance and security services.

The following table shows the breakdown of our consolidated expenses for the three months ended March 31, 2011 and 2010 by business segment:

Consolidated other income in the first quarter of 2011 amounted to Php82 million, a decrease of Php241 million, or 75%, from Php323 million in the same period in 2010 primarily due to the combined effects of the following: (i) lower net foreign exchange gains by Php388 million in the first quarter of 2011 as compared with the same period in 2010 due to the revaluation of foreign-currency denominated liabilities as a result of the effect of the appreciation of the Philippine peso to the U.S. dollar; (ii) net decrease in equity share in net earnings of associates and joint ventures of Php177 million; (iii) lower net gains on derivative financial instruments by Php90 million due to lower mark-to-market valuation as a result of the increase in dollar interest rates in the first quarter of 2011, partially offset by lower hedge costs mainly due to the offsetting effect of overlay transactions in the first quarter of 2011; (iv) lower interest income by Php45 million due to lower average level of money market placements and special deposits, as well as lower average interest rate; (v) a decrease in net financing costs by Php344 million mainly due to lower interest on loans and other related items – net, on account of PLDT’s and Smart’s lower average loan balances, partially offset by higher accretion on amortization of debt issuance cost and debt discount, and ICT business’ higher accretion on contingent consideration for business acquisitions; and (vi) an increase in other income by Php115 million, which was mainly due to pension benefit income recognized by PLDT and higher rental income by our wireless and ICT businesses, partially offset by lower gain on disposal of fixed assets.

The following table shows the breakdown of our consolidated other income for the three months ended March 31, 2011 and 2010 by business segment:

Consolidated net income decreased by Php648 million, or 6%, to Php10,726 million in the first quarter of 2011 from Php11,374 million in the same period in 2010. The decrease was mainly due to the combined effects of the following: (i) a decrease in consolidated revenues by Php1,370 million; (ii) a decrease in consolidated other income by Php241 million; (iii) a decrease in consolidated expenses by Php928 million; and (iv) a decrease in the consolidated provision for income tax by Php35 million, which was mainly due to lower taxable income from our fixed line and wireless businesses.

The following table shows the breakdown of our consolidated net income for the three months ended March 31, 2011 and 2010 by business segment:

Our consolidated EBITDA was Php20,954 million in the first quarter of 2011, a decrease of Php229 million, or 1%, as compared with Php21,183 million in the same period in 2010 primarily due to a decline in service revenues from our fixed line and wireless businesses, partly offset by lower provision for uncollectible receivables and lower cash operating expenses, mainly selling and promotions, compensation and employee benefits, rent, communication, training and travel, and repairs and maintenance expenses.

The following table shows the breakdown of our consolidated EBITDA for the three months ended March 31, 2011 and 2010 by business segment:

Our consolidated core income was Php10,556 million in the first quarter of 2011, an increase of Php71 million, or 1%, as compared with Php10,485 million in the same period in 2010 primarily due to decreases in consolidated expenses and lower consolidated provision for income tax, partially offset by a decrease in consolidated revenues. Our consolidated core basic earnings per common share also increased to Php55.91 in the first quarter of 2011 from Php55.52 in the same period in 2010 and our consolidated core diluted earnings per common share increased to Php55.84 in the first quarter of 2011 from Php55.52 in the same period in 2010. Our weighted average number of outstanding common shares was approximately 186.8 million in each of the three months ended March 31, 2011 and 2010.

The following table shows the breakdown of our consolidated core income for the three months ended March 31, 2011 and 2010 by business segment:

Revenues generated from our wireless business amounted to Php23,038 million in the first quarter of 2011, a decrease of Php1,030 million, or 4%, from Php24,068 million in the same period in 2010.

The following table summarizes our total revenues from our wireless business for the three months ended March 31, 2011 and 2010 by service segment:

Our wireless service revenues decreased by Php926 million, or 4%, to Php22,768 million in the first quarter of 2011 as compared with Php23,694 million in the same period in 2010, mainly as a result of lower revenues from our cellular and satellite and other services. The decrease in our cellular revenues was mainly due to the decline in revenues from domestic and international calls, as well as domestic text messaging services on the back of pervasive multiple SIM card ownership and increasing patronage of social networking sites. This was, however, partially offset by an increase in international short messaging service, or SMS, and value-added services, or VAS, revenues, mainly from Pasaload and internet-based VAS. Our dollar-linked revenues were negatively affected by the appreciation of the Philippine peso relative to the U.S. dollar, which decreased to a weighted average exchange rate of Php43.78 for the three months ended March 31, 2011 from Php46.00 for the three months ended March 31, 2010. With subscriber growth being driven more by multiple SIM card ownership, especially in the lower income segment of the Philippine wireless market, monthly cellular average revenue per unit/s, or ARPUs, for the first quarter of 2011 were lower as compared with the same period in 2010. We expect the decreasing trend in our cellular revenues, particularly our revenues from traditional voice and text messaging services, to continue due to the popularity of unlimited offers, multiple SIM card ownership and the emerging popularity of social media services. As a percentage of our total wireless revenues, service revenues increased to 99% in the first quarter of 2011 from 98% in the same period in 2010.

Our cellular service revenues in the first quarter of 2011 amounted to Php20,997 million, a decrease of Php793 million, or 4%, from Php21,790 million in the same period in 2010. Cellular service revenues accounted for 92% of our wireless service revenues in each of the first quarter of 2011 and 2010.

The following tables show the breakdown of our cellular service revenues and other key measures of our cellular business as at and for the three months ended March 31, 2011 and 2010:

⁽¹⁾

Refers to other non-subscriber-related revenues consisting primarily of inbound international roaming fees, share in revenues from PLDT’s WeRoam and PLDT Landline Plus, or PLP, services, a small number of leased line contracts, and revenues from Chikka, Wolfpac and other Smart subsidiaries.


					Increase (Decrease)
	2011		2010		Amount			%
Cellular subscriber base		46,656,685		43,207,323		3,449,362			8
Prepaid		46,226,125		42,761,910		3,464,215			8
Smart Buddy		25,735,090		25,033,946		701,144			3
Talk ’N Text		19,400,538		17,445,697		1,954,841			11
Red Mobile		1,090,497		282,267		808,230			286
Postpaid		430,560		445,413		(14,853	)		(3	)
Smart		430,410		445,413		(15,003	)		(3	)
Red Mobile		150		–		150			100
Systemwide traffic volumes (in millions)
Calls (in minutes)		5,880		6,523		(643	)		(10	)
Domestic		5,123		5,753		(630	)		(11	)
Inbound		352		363		(11	)		(3	)
Outbound		4,771		5,390		(619	)		(11	)
International		757		770		(13	)		(2	)
Inbound		707		717		(10	)		(1	)
Outbound		50		53		(3	)		(6	)
SMS/Data count (in hits)		80,550		84,235		(3,685	)		(4	)
Text messages		80,133		83,865		(3,732	)		(4	)
Domestic		79,990		83,744		(3,754	)		(4	)
Inbound		2,114		1,976		138			7
Outbound		77,876		81,768		(3,892	)		(5	)
Bucket-Priced		73,402		77,190		(3,788	)		(5	)
Standard		4,474		4,578		(104	)		(2	)
International		143		121		22			18
Inbound		72		44		28			64
Outbound		71		77		(6	)		(8	)
Value-Added Services		409		364		45			12
Financial Services		8		6		2			33

Revenues attributable to our prepaid cellular services amounted to Php18,782 million in the first quarter of 2011, a decrease of Php638 million, or 3%, as compared with Php19,420 million in the same period in 2010. Prepaid cellular service revenues accounted for 92% of cellular voice and data revenues in each of the first quarter of 2011 and 2010. Revenues attributable to Smart’s postpaid cellular service amounted to Php1,548 million in the first quarter of 2011, a decrease of Php141 million, or 8%, as compared with Php1,689 million earned in the same period in 2010, and accounted for 8% of cellular voice and data revenues in each of the first quarter of 2011 and 2010.

Cellular revenues from our voice services, which include all voice traffic and voice VAS, such as voice mail and outbound international roaming, decreased by Php548 million, or 5%, to Php9,999 million in the first quarter of 2011 from Php10,547 million in the same period in 2010 primarily due to a decrease in international and domestic call revenues. Cellular voice services accounted for 48% of our cellular service revenues in each of the first quarter of 2011 and 2010.

The following table shows the breakdown of our cellular voice revenues for the three months ended March 31, 2011 and 2010:

Domestic voice service revenues decreased by Php183 million, or 3%, to Php6,124 million in the first quarter of 2011 from Php6,307 million in the same period in 2010 primarily due to a decrease in domestic outbound call revenues by Php190 million, or 4%, to Php4,831 million in the first quarter of 2011 from Php5,021 million in the same period in 2010 mainly due to lower yield on standard calls and a decrease in domestic call volumes. This was partially offset by an increase in the revenue contribution of our domestic inbound voice service by Php7 million, or 1%, to Php1,293 million in the first quarter of 2011 from Php1,286 million in the same period in 2010 as a result of an increase in revenues from other domestic mobile carriers. Domestic outbound call volumes decreased by 619 million minutes, or 11%, to 4,771 million minutes in the first quarter of 2011 from 5,390 million minutes in the same period in 2010. The increase in domestic inbound call volumes from other domestic carriers was offset by the decrease in call volumes from fixed line operators, which resulted in the overall decrease in our domestic inbound call volumes by 11 million minutes, or 3%, to 352 million minutes in the first quarter of 2011 from 363 million minutes in the same period in 2010.

International voice service revenues decreased by Php365 million, or 9%, to Php3,875 million in the first quarter of 2011 from Php4,240 million in the same period in 2010 primarily due to a decline in international inbound voice service revenues by Php335 million, or 9%, to Php3,477 million in the first quarter of 2011 from Php3,812 million in the same period in 2010 as well as a decline in international outbound voice service revenues by Php30 million, or 7%, to Php398 million in the first quarter of 2011 from Php428 million in the same period in 2010. The decline in international voice service revenues was due to a reduction in inbound termination rates, as well as the effect on our dollar-linked revenues of the appreciation of the Philippine peso relative to the U.S. dollar to a weighted average exchange rate of Php43.78 for the three months ended March 31, 2011 from Php46.00 for the three months ended March 31, 2010. Moreover, international inbound and outbound calls totaled 757 million minutes in the first quarter of 2011, a decrease of 13 million minutes, or 2%, as compared with 770 million minutes in the same period in 2010, mainly due to aggressive pricing offers from competitors and cheaper alternative means of communication.

Smartalk, Smart’s unlimited voice offering, is available to Smart Buddy and Smart Gold subscribers nationwide. The service does not require any change in SIM or cellular phone number and enables Smart Buddy and Smart Gold subscribers to make unlimited calls to any subscriber on the Smart network. Smart subscribers could avail of the service, via registration or via retailer loading, by purchasing loads for unlimited calls which come in two denominations:

•

“Smartalk 100” which offers five days of unlimited calls for Php100; and

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“Smartalk 500” which offers 30 days of unlimited calls for Php500 to any subscriber on the Smart network.

In addition, Smart also offers Smartalk Plus, which includes unlimited calling and on-net texting during off-peak hours and reduced rates during peak hours. Smartalk Plus’ Php100 load denomination is valid for five days and provides on-net unlimited calls and SMS from 10:00 p.m. to 5:00 p.m., and call and SMS rates of Php2.50 per minute and Php0.20 per SMS, respectively, from 5:01 p.m. to 9:59 p.m.

Through the Talk ‘N Text UnliTalk Plus 100 package, existing Talk ‘N Text subscribers can avail of unlimited off-peak calls from 10:00 p.m. to 5:00 p.m. and special peak hour rates of Php2.50 per minute from 5:01 p.m. to 9:59 p.m. to any Smart Buddy, Smart Postpaid and Talk ‘N Text subscriber. The package also includes all day unlimited texting to any Smart Buddy, Smart Postpaid and Talk ‘N Text subscriber. Each registration to this promo is valid for five days. Talk ‘N Text also has UnliTalk 100 which offers five days of unlimited calls to Talk ‘N Text and Smart subscribers.

Red Mobile introduced its unlimited voice and SMS offering which utilizes a secondary network powered by Smart. Red Mobile Unlimited offers unlimited Red-to-Red call and text, and unlimited Red-to-Red text packages, as well as unlimited calling and texting to all Smart subscribers.

Cellular revenues from our data services, which include all text messaging-related services, as well as VAS, decreased by Php231 million, or 2%, to Php10,331 million in the first quarter of 2011 from Php10,562 million in the same period in 2010. Cellular data services accounted for 49% and 48% of our cellular service revenues in the first quarter of 2011 and 2010, respectively.

The following table shows the breakdown of our cellular data revenues for the three months ended March 31, 2011 and 2010:

⁽¹⁾ Includes revenues from web-based services such as mobile internet browsing, video streaming and Uzzap, net of allocated discounts and content provider costs. Uzzap is an IP-based messaging service that allows instant messaging, email, SMS, group messages, chatting, etc.

⁽²⁾ Includes revenues from point-to-point multimedia messaging system, or MMS, and content download services, such as ringtone, logo or music downloads, net of allocated discounts and content-provider costs.

⁽³⁾ Includes revenues from info-on-demand and voice text services, net of allocated discounts and content-provider costs.

⁽⁴⁾ Includes revenues from Pasaload and Dial*SOS, net of allocated discounts. Pasaload is a service which allows prepaid and postpaid subscribers to transfer small denominations of air time credits to other prepaid subscribers. Dial*SOS allows Smart prepaid subscribers to borrow Php4 of load (Php3 on-net SMS plus Php1 air time) from Smart which will be deducted upon their next top-up.

Text messaging-related services contributed revenues of Php9,559 million in the first quarter of 2011, a decrease of Php380 million, or 4%, as compared with Php9,939 million in the same period in 2010, and accounted for 93% and 94% of our total cellular data revenues in the first quarter of 2011 and 2010, respectively. The decrease in revenues from text messaging-related services resulted mainly from declining SMS traffic although SMS yields have stabilized. Another factor that contributed to this decline in revenues is the availability of alternative means of communication through social media sites. Text messaging revenues from the various bucket-priced plans totaled Php5,594 million in the first quarter of 2011, a decrease of Php455 million, or 8%, as compared with Php6,049 million in the same period in 2010. Standard text messaging revenues decreased by Php85 million, or 2%, to Php3,479 million in the first quarter of 2011 from Php3,564 million in the same period in 2010. On the other hand, the increase in international text messaging revenues was mainly due to the growth in international inbound SMS traffic and a higher average yield per international inbound SMS.

Bucket-priced text messages decreased by 3,788 million, or 5%, to 73,402 million in the first quarter of 2011 from 77,190 million in the same period in 2010. Standard text messages also declined by 104 million, or 2%, to 4,474 million in the first quarter of 2011 from 4,578 million in the same period in 2010. Lower usage of these services was due to the increasing popularity of social networking sites.

VAS contributed revenues of Php762 million in the first quarter of 2011, an increase of Php148 million, or 24%, as compared with Php614 million in the same period in 2010, primarily due to an increase in revenues from Pasa Load by Php69 million, or 70%, to Php168 million in the first quarter of 2011 from Php99 million in the same period in 2010, and internet-based VAS, which increased by Php67 million, or 40%, to Php236 million in the first quarter of 2011 from Php169 million in the same period in 2010.

As at March 31, 2011, Smart, including Talk ‘N Text and Red Mobile subscribers totaled 46,656,685, an increase of 3,449,362, or 8%, over their combined cellular subscriber base of 43,207,323 as at March 31, 2010. Our cellular prepaid subscriber base grew by 3,464,215, or 8%, to 46,226,125 as at March 31, 2011 from 42,761,910 as at March 31, 2010, while our cellular postpaid subscriber base decreased by 14,853, or 3%, to 430,560 as at March 31, 2011 from 445,413 as at March 31, 2010. Prepaid subscribers accounted for 99% each of our total subscriber base as at March 31, 2011 and 2010.

Our net subscriber activations for the three months ended March 31, 2011 and 2010 were as follows:

Prepaid and postpaid subscribers reflected net activations of 1,011,692 and 8,985, respectively, in the first quarter of 2011 as compared with net activations of 1,868,812 and 9,870, respectively, in the same period in 2010.

For Smart Buddy subscribers, the average monthly churn rate in the first quarter of 2011 and 2010 were 4.7% and 4.2%, respectively, while the average monthly churn rate for Talk ’N Text subscribers was 5.2% in each of the first quarter of 2011 and 2010. The average monthly churn rate for Red Mobile prepaid subscribers were 19.5% and 5.1% in the first quarter of 2011 and 2010, respectively.

The average monthly churn rate for Smart’s postpaid subscribers were 1.8% and 1.1% for the first quarter of 2011 and 2010, respectively. Smart’s policy is to redirect outgoing calls to an interactive voice response system if the postpaid subscriber’s account is either 45 days overdue or if the subscriber has exceeded the prescribed credit limit. If the subscriber does not make a payment within 44 days of redirection, the account is temporarily disconnected. If the account is not settled within 30 days from temporary disconnection, the account is then considered as churned. From the time that temporary disconnection is initiated, a series of collection activities is implemented, involving the sending of a collection letter, call-out reminders and collection messages via text messaging.

The following table summarizes our average monthly cellular ARPUs for the three months ended March 31, 2011 and 2010:

⁽¹⁾ Gross monthly ARPU is calculated by dividing gross cellular service revenues for the month, gross of discounts, allocated content-provider costs and interconnection income but excluding inbound roaming revenues, by the average number of subscribers in the month.

⁽²⁾ Net monthly ARPU is calculated by dividing gross cellular service revenues for the month, including interconnection income net of interconnection expense, but net of discounts and content-provider costs, by the average number of subscribers in the month.

⁽³⁾ The average monthly ARPU of Smart Buddy, Talk ’N Text and Red Mobile.

⁽⁴⁾ The average monthly ARPU of all prepaid and postpaid cellular subscribers.

Prepaid service revenues consist mainly of charges for the subscribers’ actual usage of their loads. Prepaid blended gross average monthly ARPU in the first quarter of 2011 was Php169, a decrease of 12%, as compared with Php193 in the same period in 2010. The decrease was primarily due to a decline in the average domestic outbound call and text messaging revenue per subscriber, as well as a drop in the average international inbound voice revenue per subscriber in the first quarter of 2011 as compared with the same period in 2010. On a net basis, prepaid blended average monthly ARPU in the first quarter of 2011 was Php136, a decrease of 12%, as compared with Php155 in the same period in 2010.

Gross average monthly ARPU for postpaid subscribers decreased by 5% to Php1,610 and net average monthly ARPU decreased by 6% to Php1,205 in the first quarter of 2011 as compared with Php1,686 and Php1,286 in the same period in 2010, respectively. Prepaid and postpaid gross average monthly blended ARPU was Php182 in the first quarter of 2011, a decrease of 13%, as compared with Php209 in the same period in 2010. Likewise, the net average monthly prepaid and postpaid blended ARPU decreased by 13% to Php146 in the first quarter of 2011 from Php167 in the same period in 2010.

Our average monthly prepaid and postpaid ARPUs for the first quarter of 2011 and for each of the four quarters of 2010 were as follows:

⁽¹⁾ Gross monthly ARPU is calculated based on the average of the gross monthly ARPUs for the quarter.

⁽²⁾ Net monthly ARPU is calculated based on the average of the net monthly ARPUs for the quarter.

Our revenues from wireless broadband, satellite and other services consist mainly of wireless broadband service revenues from SBI, charges for ACeS Philippines’ satellite information and messaging services and service revenues generated by the mobile virtual network operations of PLDT Global’s subsidiary.

Revenues from our wireless broadband services decreased by Php7 million to Php1,582 million in the first quarter of 2011 from Php1,589 million in the same period in 2010, primarily due to a lower postpaid subscriber base.

SBI offers a number of wireless broadband services and had a total of 1,407,219 subscribers as at March 31, 2011, an increase of 181,024 subscribers, or 15%, as compared with 1,226,195 subscribers as at March 31, 2010. Our postpaid wireless broadband subscriber base decreased by 23,430 subscribers, or 5%, to 434,030 subscribers as at March 31, 2011 from 457,460 subscribers as at March 31, 2010, while our prepaid wireless broadband subscriber base increased by 204,454 subscribers, or 27%, to 973,189 subscribers as at March 31, 2011 from 768,735 subscribers as at March 31, 2010.

SmartBro, SBI’s wireless broadband service linked to Smart’s wireless broadband-enabled base stations, allows subscribers to connect to the internet using an outdoor aerial antenna installed in a subscriber’s home.

SBI offers mobile internet access through SmartBro Plug-It, a wireless modem and SmartBro Pocket Wifi, a portable wireless router which can be shared by up to five users at a time. Both provide instant connectivity in places where there is Smart network coverage. SmartBro Plug-It and SmartBro Pocket Wifi are available in both postpaid and prepaid variants, with prepaid offering 30-minute internet access for every Php10 worth of load. SBI also offers unlimited internet surfing with Unli Surf200, Unli Surf100 and Unli Surf50 for SmartBro Plug-It and Pocket Wifi Prepaid subscribers with specific internet usage needs. We also have an additional array of load packages that offer per minute-based charging and longer validity periods.

SmartBro WiMAX service is available in Metro Manila and selected key cities in Visayas and Mindanao. WiMAX, which stands for Worldwide Interoperability for Microwave Access, is a wide area network technology that allows for a more efficient radio-band usage, an improved interference avoidance and higher data rates over a longer distance. WiMAX was initially offered at Plan 999 for unlimited broadband usage with a burst speed of up to 1 Mbps. Additional unlimited broadband packages are also available under Plan 799 and Plan 1,995 with speeds of up to 512 kbps and up to 2 Mbps, respectively.

Revenues from our satellite and other services decreased by Php126 million, or 40%, to Php189 million in the first quarter of 2011 from Php315 million in the same period in 2010, primarily due to the sale of Mabuhay Satellite’s transponders and the effect of the appreciation of the Philippine peso relative to the U.S. dollar to a weighted average exchange rate of Php43.78 for the three months ended March 31, 2011 from Php46.00 for the three months ended March 31, 2010 on our U.S. dollar and U.S. dollar-linked satellite and other service revenues.

Our wireless non-service revenues consist of proceeds from sales of cellular handsets, cellular SIM-packs and broadband data modems. Our wireless non-service revenues decreased by Php104 million, or 28%, to Php270 million in the first quarter of 2011 as compared with Php374 million in the same period in 2010 primarily due to the lower quantity of broadband data modems sold.

Expenses associated with our wireless business in the first quarter of 2011 amounted to Php11,890 million, a decrease of Php1,037 million, or 8%, from Php12,927 million in the same period in 2010. A significant portion of this decrease was attributable to lower expenses related to rent, selling and promotions, cost of sales, compensation and employee benefits, and professional and other contracted services, partially offset by higher expenses related to depreciation and amortization, repairs and maintenance, and insurance and security services. As a percentage of our total wireless revenues, expenses associated with our wireless business accounted for 52% and 54% in the first quarter of 2011 and 2010, respectively.

Cellular business expenses accounted for 82% of our wireless business expenses, while wireless broadband, satellite and other business expenses accounted for the remaining 18% of our wireless business expenses in the first quarter of 2011 as compared with 85% and 15%, respectively, in the same period in 2010.

The following table summarizes the breakdown of our total wireless-related expenses for the three months ended March 31, 2011 and 2010 and the percentage of each expense item to the total:

⁽¹⁾ Includes salaries and employee benefits, long-term incentive plan, or LTIP, pension and manpower rightsizing program, or MRP, costs.

Depreciation and amortization charges increased by Php111 million, or 3%, to Php3,374 million in the first quarter of 2011 principally due to an increase in depreciation on the growing asset base of Smart’s 2G and 3G networks, service delivery platforms, business support systems and WiMAX network.

Rent expenses decreased by Php743 million, or 27%, to Php1,985 million primarily due to lower domestic fiber optic network, or DFON, charges as a result of lower rental rates and a decrease in domestic leased circuits, partially offset by the increase in cell site rental charges. In the first quarter of 2011, we had 6,037 cell sites, 10,736 cellular/mobile broadband base stations and 2,519 fixed wireless broadband-enabled base stations, as compared with 5,595 cell sites, 9,727 cellular/mobile broadband base stations and 2,012 fixed wireless broadband-enabled base stations in the same period in 2010.

Compensation and employee benefits expenses decreased by Php86 million, or 5%, to Php1,499 million primarily due to lower salaries and employee benefits as a result of lower headcount, partially offset by the higher provision for LTIP, pension benefits and MRP costs. Employee headcount decreased to 5,053 in the first quarter of 2011 as compared with 5,553 in the same period in 2010.

Repairs and maintenance expenses increased by Php73 million, or 6%, to Php1,283 million mainly due to higher electricity and fuel costs for power generation and an increase in computer hardware and building maintenance expenses, partly offset by lower maintenance charges for cellular network facilities and computer software.

Selling and promotion expenses decreased by Php158 million, or 15%, to Php895 million primarily due to lower spending on advertising and promotional campaigns, partly offset by increased commissions and public relations expenses.

Cost of sales decreased by Php151 million, or 15%, to Php862 million primarily due to lower quantity of broadband modems sold, partly offset by higher broadband and cellular retention costs.

Professional and other contracted service fees decreased by Php63 million, or 8%, to Php708 million primarily due to lower management fees, contracted service fees, customer relationship management service fees and technical service fees, partly offset by the increase in consultancy fees, corporate membership fees and outsourced service fees.

Taxes and licenses decreased by Php51 million, or 11%, to Php411 million primarily due to lower non-creditable input taxes and business-related taxes and license fees.

Communication, training and travel expenses decreased by Php6 million, or 3%, to Php221 million primarily due to lower communication, hauling and training expenses, partially offset by higher travel expenses, courier charges and fuel consumption for vehicles.

Insurance and security services increased by Php34 million, or 20%, to Php204 million primarily due to higher site security expense and insurance premiums.

Asset impairment decreased by Php5 million, or 3%, to Php167 million primarily due to lower provision for obsolescence of slow-moving commercial inventory.

Amortization of intangible assets increased by Php4 million, or 17%, to Php27 million primarily due to the amortization of intangible assets relating to the acquisition of Chikka and PDSI.

Other expenses increased by Php4 million, or 2%, to Php254 million primarily due to higher various business and operational-related expenses.

The following table summarizes the breakdown of our total wireless-related other income – net for the three months ended March 31, 2011 and 2010:

Our wireless business’ other income amounted to Php11 million in the first quarter of 2011, a decrease of Php246 million, or 96%, from Php257 million in the same period in 2010 primarily due to the combined effects of the following: (i) decrease in equity share in net earnings of associates by Php261 million in the first quarter of 2011 mainly due to PCEV’s share in expenses of Beacon and fair value adjustment related to the acquisition of Meralco offset against the increase in PCEV’s direct and indirect share in the net earnings of Meralco; (ii) net decrease in foreign exchange gains by Php147 million on account of revaluation of foreign currency-denominated assets and liabilities due to the effect of the appreciation of the Philippine peso to the U.S. dollar; (iii) decrease in interest income by Php13 million mainly due to Smart’s gain on the mark-to-market valuation of short-term investments in the first quarter of 2010; (iv) lower net financing costs by Php112 million primarily due to lower financing charges and interest on loans and other related items on account of Smart’s lower average level of loan balances and interest rate, partly offset by higher accretion on financial liabilities and a decrease in capitalized interest; and (v) increase in other income by Php62 million mainly due to higher rental income and recovery of costs.

For the three months ended March 31, 2011, Meralco’s reported and core income amounted to Php2,132 million and Php3,252 million, respectively, as compared with Php2,010 million and Php1,980 million, respectively, in the same period in 2010. These results were due to the increase in billed customers, as well as the implementation of the distribution rate adjustments approved by the Energy Regulatory Commission as compared with the first quarter of 2010. The results of PCEV’s share in the reported and core income of Meralco (PCEV acquired 223 million Meralco shares on July 14, 2009, of which 154.2 million shares were transferred to Beacon, where PCEV acquired a 50% equity interest effective March 31, 2010), including share in Beacon’s results of operations, amounted to Php140 million and Php452 million, respectively, in the first quarter of 2011 and Php393 million and Php387 million, respectively, in the same period in 2010.

Provision for income tax increased by Php45 million, or 2%, to Php2,778 million in the first quarter of 2011 from Php2,733 million in the same period in 2010 due to higher taxable income. In the first quarter of 2011, the effective tax rate for our wireless business was 25% as compared with 24% in the same period in 2010.

Our wireless business recorded a net income of Php8,381 million in the first quarter of 2011, a decrease of Php284 million, or 3%, from Php8,665 million recorded in the same period in 2010 on account of a decrease in wireless revenues by Php1,030 million, a decrease in other income by Php246 million and higher provision for income tax by Php45 million, partially offset by the decrease in wireless-related expenses by Php1,037 million.

Our wireless business’ EBITDA increased by Php109 million, or 1%, to Php14,549 million in the first quarter of 2011 from Php14,440 million in the same period in 2010 primarily due to lower operating expenses particularly rent, selling and promotions, and cost of sales, partly offset by a decline in our wireless revenues.

Our wireless business’ core income increased by Php187 million, or 2%, to Php8,661 million in the first quarter of 2011 from Php8,474 million in the same period in 2010 on account of a decrease in wireless-related expenses and financing costs, as well as higher core income of Meralco, partially offset by a decrease in wireless revenues and higher provision for income tax.

Revenues generated from our fixed line business amounted to Php11,775 million in the first quarter of 2011, a decrease of Php1,178 million, or 9%, from Php12,953 million in the same period in 2010.

The following table summarizes our total revenues from our fixed line business for the three months ended March 31, 2011 and 2010 by service segment:

Our fixed line business provides local exchange service, national and international long distance services, data and other network services, and miscellaneous services. Our fixed line service revenues decreased by Php1,329 million, or 10%, to Php11,532 million in the first quarter of 2011 from Php12,861 million in the same period in 2010 due to a decrease across our fixed line service revenues.

The following table summarizes the key measures of our local exchange service business as at and for the three months ended March 31, 2011 and 2010:

Revenues from our local exchange service decreased by Php204 million, or 5%, to Php3,726 million in the first quarter of 2011 from Php3,930 million in the same period in 2010 primarily due to a decrease in ARPU on account of lower fixed charges due to the increase in demand for bundled voice and data services and the decrease in installation and service connection charges, partially offset by an increase in the average number of postpaid billed lines as a result of the launching of PLDT Call All service promotions related to PLP. PLP offers both postpaid and prepaid wireless services, which allows subscribers to bring the telephone set anywhere within the home zone area. The percentage contribution of local exchange revenues to our total fixed line service revenues accounted for 33% and 31% in the first quarter of 2011 and 2010, respectively.

The following table shows our international long distance service revenues and call volumes for the three months ended March 31, 2011 and 2010:

Our total international long distance service revenues decreased by Php335 million, or 22%, to Php1,184 million in the first quarter of 2011 from Php1,519 million in the same period in 2010 primarily due to the decrease in the average settlement and collection rates, the unfavorable effect of the appreciation of the weighted average exchange rate of the Philippine peso to the U.S. dollar to Php43.78 for the three months ended March 31, 2011 from Php46.00 for the three months ended March 31, 2010 and the decrease in call volumes. The percentage contribution of international long distance service revenues to our total fixed line service revenues accounted for 10% and 12% in the first quarter of 2011 and 2010, respectively.

Our revenues from inbound international long distance service decreased by Php265 million, or 21%, to Php1,015 million in the first quarter of 2011 from Php1,280 million in the same period in 2010 due to the decrease in the average settlement rate, decline in inbound call volumes and the effect of the appreciation of the weighted average exchange rate of the Philippine peso to the U.S. dollar, since settlement charges for inbound calls are primarily billed in U.S. dollars.

Our revenues from outbound international long distance service decreased by Php70 million, or 29%, to Php169 million in the first quarter of 2011 from Php239 million in the same period in 2010 primarily due to the decrease in average collection rate in dollar terms, the effect of the appreciation of the weighted average exchange rate of the Philippine peso to the U.S. dollar to Php43.78 for the three months ended March 31, 2011 from Php46.00 for the three months ended March 31, 2010, resulting in a decrease in the average billing rates to Php43.94 in the first quarter of 2011 from Php46.25 in the same period in 2010, and the decline in outbound call volumes.

The following table shows our national long distance service revenues and call volumes for the three months ended March 31, 2011 and 2010:

Our national long distance service revenues decreased by Php107 million, or 9%, to Php1,054 million in the first quarter of 2011 from Php1,161 million in the same period in 2010 primarily due to a decrease in call volumes, partially offset by an increase in the average revenue per minute of our national long distance services due to cessation of certain promotions on our national long distance calling rates. The percentage contribution of national long distance revenues to our fixed line service revenues accounted for 9% in each of the first quarter of 2011 and 2010.

The following table shows information of our data and other network service revenues for the three months ended March 31, 2011 and 2010:

In the first quarter of 2011, our data and other network services posted revenues of Php5,207 million, a decrease of Php638 million, or 11%, from Php5,845 million in the same period in 2010 primarily due to a decrease in domestic leased line revenues resulting from the lower revenue contribution of Diginet, our domestic leased private line service, and the decrease in international data revenues, particularly from i-Gate, partially offset by an increase in domestic broadband services, owing to higher revenues from PLDT DSL. The percentage contribution of this service segment to our fixed line service revenues accounted for 45% in each of the first quarter of 2011 and 2010.

Domestic data services contributed Php3,957 million in the first quarter of 2011, a decrease of Php430 million, or 10%, as compared with Php4,387 million in the same period in 2010 mainly due to lower Diginet revenues, partially offset by the continued growth in DSL, Shops.Work Unplugged, or SWUP, and internet protocol-virtual private network, or IP-VPN subscribers as customer locations and bandwidth requirements continued to expand and demand for offshoring and outsourcing services increased. The percentage contribution of domestic data service revenues to total data and other network services increased to 76% in the first quarter of 2011 from 75% in the same period in 2010.

Broadband data services include PLDT DSL broadband internet service, which is intended for individual internet users, small and medium enterprises, and large corporate with multiple branches, and PLDT WeRoam, our mobile broadband service, running on the PLDT Group’s nationwide wireless network (using GPRS, EDGE, 3G/HSDPA/HSPA and WiFi technologies). Broadband data revenues amounted to Php2,299 million in the first quarter of 2011, an increase of Php252 million, or 12%, from Php2,047 million in the same period in 2010 primarily due to the higher revenue contribution of DSL which contributed revenues of Php2,234 million in the first quarter of 2011 from Php1,990 million in the same period in 2010 as a result of the increase in the number of subscribers, partially offset by the lower ARPU as a result of the launching of lower-priced promotional plans. DSL revenues accounted for 43% and 34% of total data and other network service revenues in the first quarter of 2011 and 2010, respectively. DSL subscribers increased by 14% to 671,588 subscribers as at March 31, 2011 from 589,795 subscribers in the same period in 2010. WeRoam revenues amounted to Php65 million in the first quarter of 2011 from Php57 million in the same period in 2010 as subscribers increased by 23% to 21,936 subscribers in first quarter of 2011 from 17,821 subscribers in the same period in 2010.

Leased lines and other data services include: (1) Diginet, our domestic private leased line service providing Smart’s fiber optic and leased line data requirements; (2) IP-VPN, a managed corporate IP network that offers a secure means to access corporate network resources; (3) Metro Ethernet, our high-speed wide area networking services that enable mission-critical data transfers;

(4) Shops.Work, our connectivity solution for retailers and franchisers that links company branches to their head office; and (5) SWUP, our 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. As at March 31, 2011, SWUP has a total subscriber base of 16,743 up by 29% from 13,015 subscribers in the same period in 2010. Leased lines and other data revenues amounted to Php1,658 million in the first quarter of 2011, a decrease of Php682 million, or 29%, from Php2,340 million in the same period in 2010 primarily due to a decrease in Diginet revenues, partially offset by the higher revenues from IP-VPN. The percentage contribution of leased lines and other data service revenues to the total data and other network services accounted for 32% and 40% in the first quarter of 2011 and 2010, respectively.

International leased lines and other data services consist mainly of: (1) i-Gate, our premium dedicated internet access service that provides high speed, reliable and managed connectivity to the global internet, and is intended for enterprises and VAS providers; (2) Fibernet, which provides cost-effective and reliable bilateral point-to-point private networking connectivity, through the use of our extensive international alliances to offshore and outsourcing, banking and finance, and semiconductor industries; and (3) other international managed data services in partnership with other global service providers, such as AT&T, BT-Infonet, NTT Arcstar, Orange Business, SingTel, Tata, Telstra, Verizon Business, among others, which provide data networking services to multinational companies. International data service revenues decreased by Php208 million, or 14%, to Php1,250 million in the first quarter of 2011 from Php1,458 million in the same period in 2010 primarily due to absence of sub-lease transponder revenues resulting from the termination of sub-lease agreement with customers, a decrease in leased lines from Fibernet and various global service providers, and the unfavorable effect of the appreciation of the Philippine peso relative to the U.S. dollar. The percentage contribution of international data service revenues to total data and other network service revenues accounted for 24% and 25% in the first quarter of 2011 and 2010, respectively.

Miscellaneous service revenues are derived mostly from directory advertising, facilities management and rental fees. In the first quarter of 2011, these service revenues decreased by Php45 million, or 11%, to Php361 million from Php406 million in the same period in 2010 mainly due to a decrease in directory advertising and facilities management fees, partially offset by higher rental income owing to higher co-location charges. The percentage contribution of miscellaneous service revenues to our total fixed line service revenues was 3% in each of the first quarter of 2011 and 2010.

Non-service revenues increased by Php151 million, or 164%, to Php243 million in the first quarter of 2011 from Php92 million in the same period in 2010 primarily due to higher sales of PABX On Call equipment in the first quarter of 2011, partially offset by lower sales of PLP units and SIM cards.

Expenses related to our fixed line business totaled Php8,915 million in the first quarter of 2011, a decrease of Php634 million, or 7%, as compared with Php9,549 million in the same period in 2010. The decrease was primarily due to lower expenses related to asset impairment, selling and promotions, repairs and maintenance, rent, and compensation and employee benefits, partly offset by higher expenses related to cost of sales, depreciation and amortization, and professional and other contracted services. As a percentage of our total fixed line revenues, expenses associated with our fixed line business accounted for 76% and 74% in the first quarter of 2011 and 2010, respectively.

The following table shows the breakdown of our total fixed line-related expenses for the three months ended March 31, 2011 and 2010 and the percentage of each expense item to the total:

⁽¹⁾ Includes salaries and employee benefits, LTIP, pension and MRP costs.

Depreciation and amortization charges increased by Php130 million, or 4%, to Php3,040 million due to a higher depreciable asset base in the first quarter of 2011 as compared with the same period in 2010.

Compensation and employee benefits expenses decreased by Php110 million, or 4%, to Php2,343 million primarily due to lower salaries and employee benefits as a result of a lower headcount, as well as lower provisions for pension costs, partially offset by higher MRP and LTIP costs. See Note 3 – Management’s Use of Judgments, Estimates and Assumptions and Note 24 – Employee Benefits to the accompanying consolidated financial statements for further discussion.

Repairs and maintenance expenses decreased by Php157 million, or 13%, to Php1,031 million primarily due to lower IT software and hardware and buildings repairs and maintenance costs.

Professional and other contracted services increased by Php130 million, or 19%, to Php820 million primarily due to higher legal fees and contracted services and technical service fees for customer relationship management outsourcing project services, partially offset by lower management fees.

Rent expenses decreased by Php112 million, or 16%, to Php610 million due to a decrease in international leased circuit rental charges, partially offset by an increase in site and domestic leased circuit rental charges.

Cost of sales increased by Php169 million, or 217%, to Php247 million due to higher cost of SIM and PLP units sold for PLP prepaid subscribers partially offset by lower computer-bundled sales in relation to our DSL promotion.

Selling and promotion expenses decreased by Php237 million, or 50%, to Php240 million primarily due to lower spending on advertising and promotions, and commission expenses, partially offset by higher public relations expenses.

Taxes and licenses increased by Php17 million, or 9%, to Php198 million as a result of higher business-related taxes.

Communication, training and travel expenses decreased by Php66 million, or 34%, to Php129 million mainly due to lower foreign travel expenses, and mailing and courier charges, partially offset by higher foreign training expenses, fuel consumption and local travel expenses.

Insurance and security services increased by Php2 million, or 2%, to Php109 million primarily due to higher security services, partly offset by lower insurance and bond premiums.

Asset impairment decreased by Php371 million, or 97%, to Php11 million mainly due to lower provision for uncollectible receivables.

Amortization of intangible assets amounted to Php7 million in the first quarter of 2011 primarily due to amortization of intangible assets related to the acquisition of customer list from PDSI.

Other expenses decreased by Php36 million, or 22%, to Php130 million due to increases in various business and fixed line operational-related expenses.

The following table summarizes the breakdown of our total fixed line-related other income – net for the three months ended March 31, 2011 and 2010:

Our fixed line business’ other income amounted to Php20 million in the first quarter of 2011, a decrease of Php93 million, or 82%, from Php113 million in the same period in 2010. The change was due to the combined effects of the following: (i) net decrease in foreign exchange gains by Php272 million on account of lower gains on net foreign exchange revaluation of foreign currency-denominated liabilities due to the effect of the appreciation of the Philippine peso to the U.S. dollar; (ii) lower net gains on derivative financial instruments by Php89 million in the first quarter of 2011 due to lower mark-to-market valuation as a result of the increase in dollar interest rates, partially offset by lower hedge costs mainly due to the offsetting effect of overlay transactions in the first quarter of 2011; (iii) a decrease in interest income by Php37 million due to a lower average level of cash balances and the impact of the appreciation of the Philippine peso on dollar placements; (iv) increase in other income by Php32 million mainly due to the pension benefit income recognized by PLDT, partially offset by the loss on disposal of fixed assets; (v) share in net losses of joint ventures of Php64 million in the first quarter of 2010; and (vi) a decrease in net financing costs by Php209 million due to a decrease in interest expense on loans and related items – net on account of a lower average level of loan balances, higher capitalized interest and lower level of average interest rate.

Provision for income tax amounted to Php818 million in the first quarter of 2011, a decrease of Php125 million, or 13%, as compared with Php943 million in the same period in 2010 primarily due to lower taxable income. The effective tax rate of our fixed line business was 28% in the first quarter of 2011 from 27% in the same period in 2010.

Our fixed line business contributed a net income of Php2,062 million in the first quarter of 2011, a decrease of Php512 million, or 20%, as compared with Php2,574 million in the same period in 2010 primarily as a result of decreases in fixed line revenues by Php1,178 million and other income by Php93 million, partially offset by lower fixed line-related expenses by Php634 million and lower provision for income tax by Php125 million.

Our fixed line business’ EBITDA decreased by Php407 million, or 6%, to Php5,907 million in the first quarter of 2011 from Php6,314 million in the same period in 2010 primarily due to a decline in revenues from all our fixed line services, partly offset by lower provision for uncollectible receivables and lower cash operating expenses, mainly selling and promotions, repairs and maintenance, rent and compensation and employee benefits.

Our fixed line business’ core income decreased by Php238 million, or 13%, to Php1,615 million in the first quarter of 2011 from Php1,853 million in the same period in 2010 primarily as a result of the decrease in fixed line revenues, partially offset by a decrease in fixed line operating expenses and lower other expenses – net.

Our ICT business provides knowledge processing solutions, customer relationship management, internet and online gaming, and data center services.

Our ICT business generated revenues of Php2,771 million in the first quarter of 2011, an increase of Php101 million, or 4%, as compared with Php2,670 million in the same period in 2010. This increase was primarily due to higher revenue contributions of our knowledge processing solutions, internet and online gaming, and data center and other businesses, as well as higher point-product sales, partially offset by a decline in the revenue contribution of our customer relationship management business.

The following table summarizes our total revenues from our ICT business for the three months ended March 31, 2011 and 2010 by service segment:

Service revenues generated by our ICT business amounted to Php2,697 million in the first quarter of 2011, an increase of Php78 million, or 3%, as compared with Php2,619 million in the same period in 2010 primarily as a result of the continued growth in our knowledge processing solutions, data center and others, and internet and online gaming businesses, partially offset by a decline in our customer relationship management business. As a percentage of our total ICT business revenues, service revenues accounted for 97% and 98% in the first quarter of 2011 and 2010, respectively.

We provide our knowledge processing solutions business primarily through the SPi Group. The knowledge processing solutions business contributed revenues of Php1,340 million in the first quarter of 2011, an increase of Php98 million, or 8%, from Php1,242 million in the same period in 2010. Dollar revenues increased by 13% offset by the appreciation of the Philippine peso to the U.S. dollar by 5%. Knowledge processing solutions business revenues accounted for 50% and 47% of total service revenues of our ICT business in the first quarter of 2011 and 2010, respectively.

We provide our customer relationship management business primarily through SPi CRM. Revenues relating to our customer relationship management business decreased by Php104 million, or 13%, to Php670 million in the first quarter of 2011 from Php774 million in the same period in 2010 primarily due to lower dollar-denominated revenues by 16% and the effect of the appreciation of the Philippine peso to the U.S. dollar, partially offset by higher domestic sales by 11%. In total, we own and operate 5,945 seats with an average of 3,409 customer service representatives, or CSRs, in the first quarter of 2011, as compared with 7,181 seats with an average of 4,605 CSRs in the same period in 2010. SPi CRM had six and seven customer relationship management sites as at March 31, 2011 and 2010, respectively. Customer relationship management business revenues accounted for 25% and 30% of total service revenues of our ICT business in the first quarter of 2011 and 2010, respectively.

Revenues from our internet and online gaming business increased by Php12 million, or 5%, to Php275 million in the first quarter of 2011 from Php263 million in the same period in 2010 primarily due to the introduction of a new game and the strong performance of existing major games, higher sales from retail and desk printing transactions, as well as the addition of new clients. Our internet and online gaming business revenues accounted for 10% of total service revenues of our ICT business in each of the first quarter of 2011 and 2010.

ePLDT operates an internet data center under the brand name Vitroä, which provides

co-location or rental services, server hosting, disaster recovery and business continuity services, intrusion detection, security services, such as firewalls and managed firewalls, and other data services. In the first quarter of 2011, our data center contributed revenues of Php412 million, an increase of Php72 million, or 21%, from Php340 million in the same period in 2010 primarily due to an increase in co-location or rental, managed service revenues, and regional sales of a branded software. Our data center revenues accounted for 15% and 13% of total service revenues of our ICT business in the first quarter of 2011 and 2010, respectively.

Non-service revenues consist of sales generated from reselling certain software licenses, server solutions, networking products, storage products and data security products. In the first quarter of 2011, non-service revenues generated by our ICT business increased by Php23 million, or 45%, to Php74 million from Php51 million in the same period in 2010 primarily due to the higher revenues from sales of software licenses.

Expenses associated with our ICT business totaled Php2,547 million in the first quarter of 2011, a decrease of Php9 million as compared with Php2,556 million in the same period in 2010, primarily due to lower expenses related to amortization of intangible assets, professional and other contracted services, taxes and licenses, selling and promotions, and asset impairment, partially offset by higher expenses related to cost of sales, repairs and maintenance, rent, and insurance and security services. As a percentage of our total ICT revenues, expenses related to our ICT business accounted for 92% and 96% in the first quarter of 2011 and 2010, respectively.

The following table shows the breakdown of our total ICT-related expenses for the three months ended March 31, 2011 and 2010 and the percentage of each expense item to the total:

⁽¹⁾ Includes salaries and employee benefits, LTIP, pension and MRP costs.

Compensation and employee benefits decreased by Php3 million to Php1,504 million mainly due to a decline in MRP costs, partially offset by higher salaries and benefits, pension benefits and LTIP. ePLDT and its subsidiaries’ employee headcount increased by 1,761, or 12%, to 17,003 in the first quarter of 2011 as compared with 15,242 in the same period in 2010.

Depreciation and amortization increased by Php1 million, or 1%, to Php189 million primarily due to higher depreciation in relation to our data center expansion partially offset by a decrease in the depreciable asset base of our knowledge processing solutions and internet and online gaming businesses on account of higher fully depreciated assets.

Repairs and maintenance expenses increased by Php25 million, or 16%, to Php177 million primarily due to the higher office and site electricity charges, and higher IT software repairs and maintenance costs particularly from our data center business, partially offset by a decrease in buildings repairs and maintenance costs.

Rent expenses increased by Php7 million, or 4%, to Php174 million primarily due to higher office building and site rental charges by our customer relationship management and data center businesses.

Professional and other contracted services decreased by Php25 million, or 16%, to Php131 million primarily due to lower contracted service fees, management fees, legal fees and other professional fees.

Cost of sales increased by Php41 million, or 52%, to Php120 million primarily due to the higher volume of sales of software licenses and hardware products.

Communication, training and travel expenses decreased by Php4 million, or 4%, to Php105 million primarily due to lower local and foreign training and travel expenses, courier charges and fuel consumption, partially offset by higher communication charges incurred by our customer relationship management and knowledge processing solutions businesses. Moreover, our data center business incurred lower trunk line charges in the first quarter of 2011.

Amortization of intangible assets decreased by Php27 million, or 40%, to Php41 million due to the full impairment of intangible assets related to CyMed and SPi Global in December 2010.

Taxes and licenses decreased by Php11 million, or 35%, to Php20 million primarily due to lower business-related taxes.

Selling and promotion expenses decreased by Php6 million, or 23%, to Php20 million mainly due to our gaming business’ lower promotional expenses due to prioritization of spending to profitable games and decrease in commission expense of our knowledge processing solutions business, partially offset by higher advertisements by our customer relationship management business.

Insurance and security services increased by Php3 million, or 18%, to Php20 million primarily due to higher security services and insurance premiums.

Asset impairment decreased by Php5 million, or 63%, to Php3 million primarily due to lower provision for uncollectible receivables.

Other expenses decreased by Php5 million, or 10%, to Php43 million mainly due to lower various business and ICT operational-related costs.

The following table summarizes the breakdown of our total ICT-related other income – net for the three months ended March 31, 2011 and 2010:

Our ICT business’ other income amounted to Php95 million in the first quarter of 2011, an increase of Php83 million, or 692%, from Php12 million in the same period in 2010 primarily due to the combined effects of the following: (i) net decrease in foreign exchange losses by Php31 million due to the revaluation of net foreign currency-denominated assets as a result of the effect of the appreciation of the Philippine peso to the U.S. dollar in the first quarter of 2011; (ii) a decrease in financing costs – net by Php27 million due to lower accretion on contingent liabilities from our knowledge processing solutions business; (iii) an increase in equity share in net earnings of associates by Php20 million;

(iv) an increase in other income by Php6 million mainly due to the reversal of prior year’s provision by our data center business, partially offset by the lower gain on the disposal of fixed assets in the first quarter of 2011; (v) an increase in interest income of Php1 million due to increase in short-term placements and bank deposits; and (vi) gain on derivative financial instruments by Php2 million in the first quarter of 2010.

Provision for income tax amounted to Php36 million in the first quarter of 2011 as against a benefit from income tax of Php9 million in the same period in 2010 primarily due to higher taxable income.

Our ICT business registered a net income of Php283 million in the first quarter of 2011 from Php135 million in the same period in 2010 mainly as a result of an increase in ICT revenues by Php101 million, an increase in other income by Php83 million and a decrease in ICT-related expenses by Php9 million, partially offset by a net provision for income tax by Php45 million.

Our ICT business’ EBITDA increased by Php84 million, or 23%, to Php454 million in the first quarter of 2011 from Php370 million in the same period in 2010 primarily due to higher service revenues, partially offset by higher operating expenses particularly cost of sales and repairs and maintenance.

Our ICT business’ core income amounted to Php280 million in the first quarter of 2011, an increase of Php122 million, or 77%, as compared with Php158 million in the same period in 2010 mainly as a result of increases in ICT revenues and other income, partially offset by an increase in net provision for income tax.

The following table shows our consolidated cash flows for the three months ended March 31, 2011 and 2010, as well as our consolidated capitalization and other consolidated selected financial data as at March 31, 2011 and December 31, 2010:


	Three Months Ended March 31,
	2011		2010
(in millions)	(Unaudited)
Cash Flows
Net cash provided by operating activities	Php20,830			19,566
Net cash used in investing activities		2,699		1,657
Capital expenditures		3,112		5,206
Net cash provided by (used in) financing activities		1,224		(5,149	)
Net increase in cash and cash equivalents		19,291		12,614
	March 31,		December 31,

		2011		2010

(in millions)	(Unaudited)		(Audited)
Capitalization
Long-term portion of interest-bearing financial liabilities – net of current portion:
Long-term debt	Php79,681		Php75,879
Obligations under finance lease		8		9
		79,689		75,888

Current portion of interest-bearing financial liabilities:
Long-term debt maturing within one year		14,160		13,767
Obligations under finance lease maturing within one year		7		34
		14,167		13,801

Total interest-bearing financial liabilities		93,856		89,689
Total equity attributable to equity holders of PLDT		80,837		97,069

	Php174,693		Php186,758

Other Selected Financial Data
Total assets	Php292,299		Php277,815
Property, plant and equipment		159,662		163,184
Cash and cash equivalents		55,969		36,678
Short-term investments		644		669

As at March 31, 2011, our consolidated cash and cash equivalents and short-term investments totaled Php56,613 million. Principal sources of consolidated cash and cash equivalents in the first quarter of 2011 were cash flows from operating activities amounting to Php20,830 million, net proceeds from availment of long-term debt of Php9,750 million, interest received of Php288 million and dividends received of Php182 million. These funds were used principally for: (1) capital outlays of Php3,112 million; (2) total debt principal and interest payments of Php5,451 million and Php1,230 million, respectively; (3) settlements of derivative financial instruments of Php165 million; and

As at March 31, 2010, our consolidated cash and cash equivalents and short-term investments totaled Php51,636 million. Principal sources of consolidated cash and cash equivalents in the first quarter of 2010 were cash flows from operating activities amounting to Php19,566 million, net proceeds from maturity of short-term investments of Php3,113 million and interest received of Php383 million. These funds were used principally for: (1) capital outlays of Php5,206 million; (2) total debt principal and interest payments of Php3,284 million and Php1,443 million, respectively; (3) settlements of derivative financial instruments of Php229 million; and (4) dividend payments of Php108 million.

Our consolidated net cash flows from operating activities in the first quarter of 2011 increased by Php1,264 million, or 6%, to Php20,830 million from Php19,566 million in the same period in 2010 primarily due to the lower level of outstanding receivables partially offset by higher settlement of various payables.

Cash flows provided by operating activities of our fixed line business amounted to Php6,395 million in the first quarter of 2011, an increase of Php545 million, or 9%, as compared with Php5,850 million in the same period in 2010 primarily due to an increase in collection of accounts receivables, partially offset by higher level of settlement of accounts payable and other current liabilities in the first quarter of 2011. Cash flows from operating activities of our ICT business also increased by Php522 million, or 137%, to Php904 million in the first quarter of 2011 from Php382 million in the same period in 2010 mainly due to a lower level of settlement of accounts payable and higher level of collection of outstanding receivables in the first quarter of 2011. Cash flows from operating activities of our wireless business amounted to Php13,533 million in the first quarter of 2011, an increase of Php194 million, or 1%, as compared with Php13,339 million in the same period in 2010. The increase in our wireless business segment’s cash flows from operating activities was a result of an increase in collection of receivables mainly from dealers and carriers, partially offset by a higher level of settlement of accounts payable.

Consolidated net cash used in investing activities amounted to Php2,699 million in the first quarter of 2011, an increase of Php1,042 million, or 63%, as compared with Php1,657 million in the same period in 2010 primarily due to the combined effects of the following: (1) the lower net proceeds from the maturity of short-term investments by Php3,139 million; (2) the lower interest received by Php95 million; (3) the decrease in capital expenditures by Php2,094 million in the first quarter of 2011; and (4) the higher dividends received in the first quarter of 2011 by Php178 million.

Our consolidated capital expenditures in the first quarter of 2011 totaled Php3,112 million, a decrease of Php2,094 million, or 40%, as compared with Php5,206 million in the same period in 2010 primarily due to the decrease in Smart’s and PLDT’s capital spending. PLDT’s capital spending of Php1,698 million in the first quarter of 2011 was principally used to finance the expansion and upgrade of its submarine cable facilities, DFON facilities, NGN roll-out, fixed line data and IP-based network services and outside plant rehabilitation. Smart’s capital spending of Php1,235 million in the first quarter of 2011 was used primarily to modernize and expand its 2G, 3G and fixed wireless broadband networks. ePLDT and its subsidiaries’ capital spending of Php165 million in the first quarter of 2011 was primarily used to fund the continued expansion of its customer relationship management and knowledge processing solutions facilities. The balance of Php14 million represented other subsidiaries’ capital spending.

As part of our growth strategy, we may from time to time, continue to make acquisitions and investments in companies or businesses.

Dividends received in the first quarter of 2011 amounted to Php182 million, an increase of Php178 million, as compared with Php4 million in the same period in 2010. The dividends received in the first quarter of 2011 were from Meralco, while the dividends received in the same period in 2010 were from ePDS, Inc.

On a consolidated basis, net cash provided by financing activities amounted to Php1,224 million in the first quarter of 2011 as against net cash used in financing activities of Php5,149 million in the same period in 2010, resulting largely from the combined effects of the following: (1) higher proceeds from the issuance of long-term debt by Php9,750 million; (2) lower interest payments by Php213 million; (3) lower settlements of derivative financial instruments by Php64 million; (4) lower cash dividend payments by Php55 million; (5) higher availment of capital expenditures under long-term financing by Php1,529 million; and (6) lower repayments of long-term debt by Php2,167 million.

Additions to our consolidated debt for the three months ended March 31, 2011 totaled Php9,750 million, mainly from PLDT’s and Smart’s drawings related to the financing of our capital expenditure requirements and maturing loan obligations. Payments of principal and interest on our total debt amounted to Php5,451 million and Php1,230 million, respectively, in the first quarter of 2011.

Our consolidated long-term debt increased by Php4,195 million, or 5%, to Php93,841 million in the first quarter of 2011 from Php89,646 million on December 31, 2010, largely due to drawings from our term loan facilities, partially offset by debt amortizations and prepayments and the appreciation of the Philippine peso relative to the U.S. dollar to Php43.41 as at March 31, 2011 from Php43.81 as at December 31, 2010. The long-term debt levels of PLDT and Smart increased by 8% and 1% to Php52,882 million and Php40,851 million, respectively, as at March 31, 2011 as compared with December 31, 2010.

On March 9, 2011, Smart signed a Notes Facility Agreement with BDO Private Bank, Inc. amounting to Php2,000 million to finance capital expenditures. Tranche A amounting to Php1,000 million was issued on March 16, 2011 and Tranche B amounting to Php1,000 million was issued in multiple drawdowns of Php250 million each, the first of which was on March 24, 2011. The aggregate amount of Php1,250 million remained outstanding as at March 31, 2011. On various dates in April 2011, the remaining Php750 million of Tranche B was fully drawn. The facility is payable in full five years from the respective issue dates.

On March 15, 2011, Smart signed a Philippine Peso term loan facility with Metropolitan Bank and Trust Company to finance capital expenditures for an amount of Php1,500 million, which was drawn in full on March 22, 2011 and remained outstanding as at March 31, 2011. The facility is a five-year loan, payable in full upon maturity on March 22, 2016.

On March 24, 2011, PLDT issued Php5,000 million fixed rate corporate notes under a Notes Facility Agreement dated March 22, 2011, comprised of Series A five-year notes amounting to Php3,435 million, Series B seven-year notes amounting to Php700 million and Series C ten-year notes amounting to Php865 million. Proceeds from the facilities were used to finance capital expenditures for network expansion and improvement and/or to refinance existing debt obligations which were also used to finance service improvements and expansion programs. The amount of Php5,000 million remained outstanding as at March 31, 2011.

On March 24, 2011, Smart signed a Philippine Peso term loan facility with Philippine National Bank to finance capital expenditures for an amount of Php2,000 million, which was drawn in full on March 29, 2011 and remained outstanding as at March 31, 2011. The facility is a five-year loan, payable in full upon maturity on March 29, 2016.

On April 4, 2011, PLDT signed a loan agreement with The Manufacturers Life Insurance Co. (Phils.), Inc. amounting to Php300 million to finance capital expenditures and/or refinance its existing loan obligations which were utilized for service improvements and expansion programs. The amount of Php300 million was fully drawn on April 28, 2011. The loan is payable in full upon maturity on April 29, 2016.

On April 4, 2011, PLDT signed a loan agreement with The Manufacturers Life Insurance Co. (Phils.), Inc. amounting to Php500 million to finance capital expenditures and/or refinance its existing loan obligations which were utilized for service improvements and expansion programs, and remains undrawn to date. The loan is payable in full at the end of five years and one day after the drawdown date.

Approximately Php58,408 million principal amount of our consolidated outstanding long-term debt as at March 31, 2011 is scheduled to mature over the period from 2011 to 2014. Of this amount, Php34,767 million is attributable to Smart, Php23,533 million to PLDT, and the remainder to ePLDT’s subsidiaries.

For a complete discussion of our long-term debt, see Note 19 – Interest-bearing Financial Liabilities – Long-term Debt to the accompanying consolidated financial statements.

Our consolidated debt instruments contain restrictive covenants, including covenants that require us to comply with specified financial ratios and other financial tests, calculated in conformity with PFRS, at relevant measurement dates, principally at the end of each quarterly period. We have complied with all of our maintenance financial ratios as required under our loan covenants and other debt instruments. Furthermore, certain of PLDT’s debt instruments contain provisions wherein PLDT may be required to repurchase or prepay certain indebtedness in case of a change in control of PLDT.

Please see Note 19 – Interest-bearing Financial Liabilities – Debt Covenants to the accompanying consolidated financial statements for a detailed discussion of our debt covenants.

We believe that our available cash, including cash flow from operations, will provide sufficient liquidity to fund our projected operating, investment, capital expenditures and debt service requirements for the next 12 months.

Consolidated cash dividend payments in the first quarter of 2011 amounted to Php53 million as compared with Php108 million paid to shareholders in the same period in 2010. On March 1, 2011, we declared regular and special cash dividends of Php78 per share and Php66 per share, respectively, in addition to the Php78 per share regular cash dividend declared last August 3, 2010, altogether representing approximately 100% payout of our 2010 core earnings per share. On August 4, 2009, we declared a regular cash dividend of Php77 per share and on March 2, 2010, we declared regular and special cash dividends of Php76 and Php65 per share, respectively, representing in aggregate approximately a 100% payout of our 2009 core earnings per share.

There are no off-statement financial position arrangements that have or are reasonably likely to have any current or future effect on our financial position, results of operations, cash flows, changes in stockholders’ equity, liquidity, capital expenditures or capital resources that are material to investors.

Through our subscriber investment plan, which provides postpaid fixed line subscribers the opportunity to buy shares of our 10% Cumulative Convertible Preferred Stock as part of the upfront payments collected from subscribers, PLDT was able to raise approximately Php1 million each in the first quarter of 2011 and 2010 from this source.

As part of our goal to maximize returns to our shareholders, we obtained Board of Directors’ approval for a share buyback program of up to five million shares of PLDT’s common stock, representing approximately 3% of PLDT’s total outstanding shares of common stock. We had acquired a total of approximately 2.72 million shares of PLDT’s common stock, representing approximately 1% of PLDT’s outstanding shares of common stock, at a weighted average price of Php2,388 per share for a total consideration of Php6,505 million in accordance with the share buyback program as at March 31, 2011 and December 31, 2010. The effect of the acquisition of shares of PLDT’s common stock pursuant to the share buyback program was considered in the computation of our basic and diluted earnings per common share for the three months ended March 31, 2011 and 2010. Please see to Note 8 – Earnings Per Common Share, Note 18 – Equity and Note 26 – Financial Assets and Liabilities to the accompanying consolidated financial statements for further details.

For a discussion of our consolidated contractual undiscounted obligations as at March 31, 2011 and 2010, see Note 26 – Financial Assets and Liabilities to the accompanying consolidated financial statements.

Our outstanding consolidated commercial commitments, in the form of letters of credit, amounted to Php955 million and Php1,145 million as at March 31, 2011 and December 31, 2010, respectively. These commitments will expire within one year.

Our operations are exposed to various risks, including liquidity risk, foreign currency exchange risk, interest rate risk, credit risk and capital management risk. The importance of managing these risks has significantly increased in light of considerable change and continuing volatility in both the Philippine and international financial markets. With a view to managing these risks, we have incorporated financial risk management functions in our organization, particularly in our treasury operations, equity issues and sales of certain assets.

For further discussions of these risks, see Note 26 – Financial Assets and Liabilities to the accompanying consolidated financial statements.

The following table sets forth the estimated consolidated fair values of our financial assets and liabilities recognized as at March 31, 2011 and December 31, 2010:


	Fair Values
	2011		2010
(in millions)	(Unaudited)		(Audited)
Noncurrent Financial Assets
Available-for-sale financial assets
Listed equity securities	Php79		Php78
Unlisted equity securities		69		69
Investments in debt securities		496		502
Derivative financial assets		238		178
Advances and refundable deposits – net of current portion		917		915

Total noncurrent financial assets		1,799		1,742

Current Financial Assets
Cash and cash equivalents		55,969		36,678
Short-term investments		644		669
Trade and other receivables – net		15,031		16,428
Derivative financial assets		24		5
Current portion of advances and refundable deposits		14		16

Total current financial assets		71,682		53,796

Total Financial Assets	Php73,481		Php55,538

Noncurrent Financial Liabilities
Interest-bearing financial liabilities	Php80,820		Php82,252
Derivative financial liabilities		3,154		3,604
Customers’ deposits		1,599		1,701
Deferred credits and other noncurrent liabilities		9,767		11,457

Total noncurrent financial liabilities		95,340		99,014

Current Financial Liabilities
Accounts payable		21,915		23,673
Accrued expenses and other current liabilities		29,579		28,822
Interest-bearing financial liabilities		14,167		13,801
Dividends payable		28,958		2,086

Total current financial liabilities		94,619		68,382

Total Financial Liabilities	Php189,959		Php167,396

The following table sets forth the amount of consolidated gains (losses) recognized for the financial assets and liabilities for the three months ended March 31, 2011 and for the year ended December 31, 2010:

Inflation can be a significant factor in the Philippine economy, and we are continually seeking ways to minimize its impact. The average inflation rate in the Philippines in the first quarter of 2011 was 3.9% as compared with 4.2% in the same period in 2010. Moving forward, we expect inflation to increase, which may have an impact on our operations.

PLDT’s Acquisition of Digital Telecommunications Philippines, Inc., or Digitel

On March 29, 2011, the Board of Directors of PLDT and JG Summit Holdings, Inc., or JGS, approved the acquisition by PLDT of JGS’s and certain other seller-parties’ ownership interest in Digitel comprising of: (i) 3,277,135,882 common shares in Digitel, representing approximately 51.55% of the issued common stock; (ii) zero-coupon convertible bonds issued by Digitel and its subsidiary to JGS and its subsidiary, which are convertible at June 2011, into approximately 18.6 billion common shares of Digitel; and (iii) intercompany advances of Php34.1 billion made by JGS to Digitel (the “Assets”). Digitel operates a fixed line business in certain parts of the country and is the 100% owner of Digitel Mobile Philippines, Inc., or DMPI, which is engaged in the mobile telecommunications business and owns the brand Sun Cellular.

PLDT agreed to pay JGS and certain other seller-parties Php69.2 billion, which will be settled by the issuance of one new PLDT common share for every Php2,500 consideration payable for the Assets. In order to aid the board of PLDT in discharging their fiduciary duties, PLDT engaged an independent financial advisor to review the transaction and render a fairness opinion on the transaction and the consideration payable by PLDT. The independent financial advisor has completed its review and concluded that the acquisition of the Assets is fair and reasonable and in the interest of PLDT shareholders as a whole.

PLDT further expects to announce its intention to conduct a tender offer for all the remaining Digitel shares, approximately 48.45% of the issued common stock of Digitel, held by the other shareholders of Digitel. Under the contemplated tender offer, it is anticipated that PLDT will offer to purchase the remaining Digitel shares at the price of Php1.6033 per Digitel share, which will be paid in the form of either PLDT shares issued at Php2,500 per share or cash, at the option of Digitel shareholders. The contemplated tender offer price will be equivalent to the fully diluted price per share of Digitel, assuming full conversion of the convertible bonds. Should all remaining shareholders of Digitel accept the tender offer by PLDT, PLDT will issue a total of 29.65 million new PLDT common shares for the acquisition of the Assets and for the remaining Digitel shares held by the other shareholders of Digitel. The 29.65 million new PLDT common shares will represent up to approximately 13.7% of the enlarged issued and outstanding common stock of PLDT.

Assuming full acceptance by the minorities of Digitel, the total transaction consideration would be approximately Php74.1 billion.

The completion of the acquisition will be subject to the procurement of certain regulatory and other approvals, including: (i) the approval by the NTC of the sale or transfer of JGS and the other seller-parties’ Digitel shares representing more than 40% of Digitel’s issued and outstanding common stock; (ii) the approval by the Philippine SEC of the valuation of the Assets; (iii) the approval by the PSE of the block sale of the Digitel shares; (iv) the confirmation by the Philippine SEC that the issuance of the PLDT common shares to JGS and the other seller-parties is exempt from the registration requirement of the SRC; and (v) all other necessary approvals under applicable laws and regulations; and the approval by the common stockholders of PLDT for the issuance of the PLDT common shares as payment for the purchase price of the Assets and the Digitel shares which shall have been tendered pursuant to the tender offer. In addition, the sale of the Digitel shares owned by the seller-parties is subject to the consent of certain creditors of Digitel and DMPI.

This transaction is intended to be completed by the end of the second quarter of 2011.

On April 1, 2011, ePLDT entered into a share purchase agreement for the sale of its 75% interest in Digital Paradise to IP E-Game Ventures, Inc., or E-Games, a subsidiary of technology conglomerate IPVG Corp.

For a detailed discussion of the related party transactions, see Note 23 –Related Party Transactions to the accompanying consolidated financial statements.

The following table shows the aging of our consolidated receivables as at March 31, 2011:

Pursuant to the requirements of the Securities Regulation Code, the registrant has duly caused this report for the first quarter of 2011 to be signed on its behalf by the undersigned thereunto duly authorized.

AS AT MARCH 31, 2011 (UNAUDITED) AND DECEMBER 31, 2010 (AUDITED)
AND FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010 (UNAUDITED)

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at March 31, 2011 and December 31, 2010
(in million pesos, except par value per share amounts and number of shares)

2011

2010

(Unaudited)

(Audited)

ASSETS

Noncurrent Assets

Property, plant and equipment (Notes 3, 5, 9, 12, 19 and 26)

159,662

163,184

Investments in associates and joint ventures (Notes 3, 4, 5, 10, 23 and 26)

23,212

23,203

Available-for-sale financial assets (Notes 6 and 26)

148

147

Investment in debt securities (Notes 11 and 26)

490

484

Investment properties (Notes 3, 6, 9, 12 and 26)

1,560

1,560

Goodwill and intangible assets (Notes 3, 4, 5, 13, 20 and 26)

11,387

11,485

Deferred income tax assets – net (Notes 3, 4, 7 and 26)

5,385

6,110

Derivative financial assets (Note 26)

238

178

Prepayments – net of current portion (Notes 3, 5, 17, 24 and 26)

8,999

8,679

Advances and refundable deposits – net of current portion (Note 26)

1,200

1,187

Total Noncurrent Assets

212,281

216,217

Current Assets

Cash and cash equivalents (Notes 14 and 26)

55,969

36,678

Short-term investments (Note 26)

644

669

Trade and other receivables (Notes 3, 5, 15, 17, 23 and 26)

15,031

16,428

Inventories and supplies (Notes 3, 4, 5, 16 and 26)

2,417

2,219

Derivative financial assets (Note 26)

Current portion of prepayments (Notes 17 and 26)

5,831

5,418

Current portion of advances and refundable deposits (Note 26)

102

181

Total Current Assets

80,018

61,598

TOTAL ASSETS

292,299

277,815

EQUITY AND LIABILITIES

Equity

Preferred stock, Php10 par value per share, authorized - 822,500,000 shares; issued and outstanding - 441,935,177 shares as at March 31, 2011 and 441,887,387 shares as at December 31, 2010 (Notes 8, 18 and 26)

4,419

4,419

Common stock, Php5 par value per share, authorized - 234,000,000 shares; issued - 189,480,560 shares and outstanding - 186,756,449 shares as at March 31, 2011; and issued - 189,480,549 shares and outstanding - 186,756,438 shares as at December 31, 2010 (Notes 8, 18 and 26)

947

947

Treasury stock - 2,724,111 shares as at March 31, 2011 and December 31, 2010 (Notes 8, 18 and 26)

(6,505

)

(6,505

)

Capital in excess of par value

62,890

62,890

Retained earnings (Note 18)

20,403

36,594

Other comprehensive income (Note 6)

(1,317

)

(1,276

)

Total Equity Attributable to Equity Holders of PLDT

80,837

97,069

Non-controlling interests (Note 6)

306

316

TOTAL EQUITY

81,143

97,385

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)
As at March 31, 2011 and December 31, 2010
(in million pesos, except par value per share amounts and number of shares)


	2011		2010
	(Unaudited)		(Audited)
Noncurrent Liabilities
Interest-bearing financial liabilities – net of current portion (Notes 3, 4, 5, 9, 19, 22 and 26)		79,689		75,888
Deferred income tax liabilities – net (Notes 3, 4, 7 and 26)		1,015		1,099
Derivative financial liabilities (Note 26)		3,154		3,604
Pension and other employee benefits (Notes 3, 5, 22, 24 and 26)		2,186		1,834
Customers’ deposits (Note 26)		2,236		2,223
Deferred credits and other noncurrent liabilities (Notes 3, 5, 9, 13, 20, 22, 26 and 27)		12,036		13,567

Total Noncurrent Liabilities		100,316		98,215

Current Liabilities
Accounts payable (Notes 21, 23, 25 and 26)		23,719		25,804
Accrued expenses and other current liabilities (Notes 3, 10, 13, 19, 20, 22, 23, 24, 25 and 26)		36,601		35,959
Provision for assessments (Notes 3, 25 and 26)		1,555		1,555
Current portion of interest-bearing financial liabilities (Notes 3, 4, 5, 9, 19, 22 and 26)		14,167		13,801
Dividends payable (Notes 18 and 26)		28,958		2,086
Income tax payable (Notes 7 and 26)		5,840		3,010

Total Current Liabilities		110,840		82,215

TOTAL LIABILITIES		211,156		180,430

TOTAL EQUITY AND LIABILITIES		292,299		277,815

CONSOLIDATED INCOME STATEMENTS
For the Three Months Ended March 31, 2011 and 2010
(in million pesos, except earnings per common share amounts)


	2011			2010
	(Unaudited)
REVENUES
Service revenues (Notes 3 and 4)		34,571			36,006
Non-service revenues (Notes 3, 4 and 5)		573			508

		35,144			36,514

EXPENSES
Depreciation and amortization (Notes 3, 4 and 9)		6,603			6,361
Compensation and employee benefits (Notes 3, 5 and 24)		5,341			5,542
Repairs and maintenance (Notes 12, 16 and 23)		2,307			2,369
Cost of sales (Notes 5, 16 and 23)		1,229			1,170
Professional and other contracted services (Note 23)		1,190			1,175
Selling and promotions (Note 8)		1,155			1,554
Rent (Notes 3 and 26)		1,014			1,092
Taxes and licenses (Note 25)		629			674
Communication, training and travel		413			480
Insurance and security services (Note 23)		309			270
Asset impairment (Notes 3, 4, 5, 9, 10, 13, 15, 16, 17 and 26)		181			562
Amortization of intangible assets (Notes 3, 4 and 13)		75			91
Other expenses (Note 23)		422			456

		20,868			21,796

		14,276			14,718

OTHER INCOME (EXPENSES)
Gains on derivative financial instruments – net (Notes 4 and 26)		422			512
Interest income (Notes 4, 5, 11 and 14)		321			366
Foreign exchange gains – net (Notes 4, 9 and 26)		320			708
Equity share in net earnings of associates and joint ventures (Notes 4 and 10)		192			369
Financing costs – net (Notes 4, 5, 9, 19 and 26)		(1,530	)		(1,874	)
Other income (Notes 4 and 17)		357			242

		82			323

INCOME BEFORE INCOME TAX (Note 4)		14,358			15,041
PROVISION FOR INCOME TAX (Notes 3, 4 and 7)		3,632			3,667

NET INCOME FOR THE PERIOD (Note 4)		10,726			11,374

ATTRIBUTABLE TO:
Equity holders of PLDT (Notes 4 and 8)		10,734			11,421
Non-controlling interests (Note 4)		(8	)		(47	)

		10,726			11,374

Earnings Per Share For The Period Attributable to Common Equity Holders of PLDT (Note 8)
Basic		56.87			60.53
Diluted		56.78			60.51

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2011 and 2010
(in million pesos)

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Three Months Ended March 31, 2011 and 2010
(in million pesos)

Total

Equity

Attributable to

Capital in Excess of

Other Comprehensive

Equity Holders

Non-controlling

Total

(Unaudited)

Preferred Stock

Common Stock

Treasury Stock

Par Value

Retained Earnings

Loss

of PLDT

Interests

Equity

Balances as at January 1, 2010

4,416

947

(6,405

)

62,890

37,744

(1,017

)

98,575

550

99,125

Total comprehensive income for the period:

–

11,421

(131

)

11,290

(51

)

11,239

Net income for the period (Notes 4 and 8)

–

11,421

–

11,421

(47

)

11,374

Other comprehensive income
(Note 6)

–

(131

)

(131

)

(135

)

Cash dividends (Note 18)

–

(26,370

)

–

(26,370

)

(50

)

(26,420

)

Issuance of capital stock – net of conversion (Note 18)

–

Acquisition of treasury stocks (Notes 2, 8, 18 and 24)

–

)

Non-controlling interests

–

Balances as at March 31, 2010

4,417

947

(6,405

)

62,890

22,795

(1,148

)

83,496

452

83,948

Balances as at January 1, 2011

4,419

947

(6,505

)

62,890

36,594

(1,276

)

97,069

316

97,385

Total comprehensive income for the period:

–

10,734

(41

)

10,693

(10

)

10,683

Net income for the period (Notes 4 and 8)

–

10,734

–

10,734

)

10,726

Other comprehensive income
(Note 6)

–

(41

)

(41

)

(43

)

Cash dividends (Note 18)

–

(26,925

)

–

(26,925

)

–

(26,925

)

Balances as at March 31, 2011

4,419

947

(6,505

)

62,890

20,403

(1,317

)

80,837

306

81,143

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2011 and 2010
(in million pesos)


	2011			2010
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax (Note 4)		14,358			15,041
Adjustments for:
Depreciation and amortization (Notes 3, 4 and 9)		6,603			6,361
Interest on loans and other related items – net (Notes 4, 5, 9, 19 and 26)		1,202			1,419
Incentive plans (Notes 3, 5 and 24)		342			264
Accretion on financial liabilities – net (Notes 5, 19 and 26)		291			288
Asset impairment (Notes 3, 4, 5, 9, 10, 13, 15, 16 and 26)		181			562
Amortization of intangible assets (Notes 3 and 13)		75			91
Losses (gains) on disposal of property, plant and equipment (Note 9)		12			(33	)
Pension benefit costs (Notes 3, 5 and 24)		(10	)		59
Equity share in net earnings of associates and joint ventures (Notes 4 and 10)		(192	)		(369	)
Foreign exchange gains – net (Notes 4, 9 and 26)		(320	)		(708	)
Interest income (Notes 4, 5 and 14)		(321	)		(366	)
Gains on derivative financial instruments – net (Notes 4 and 26)		(422	)		(512	)
Others		(3	)		(39	)

Operating income before changes in assets and liabilities		21,796			22,058
Decrease (increase) in:
Trade and other receivables		1,595			(1,323	)
Inventories and supplies		(214	)		(338	)
Prepayments		(328	)		(237	)
Advances and refundable deposits		78			1
Increase (decrease) in:
Accounts payable		(2,383	)		(1,370	)
Accrued expenses and other current liabilities		792			1,111
Pension and other employee benefits		(68	)		(39	)
Customers’ deposits		13			37
Other noncurrent liabilities		30			43

Net cash generated from operations		21,311			19,943
Income taxes paid		(481	)		(377	)

Net cash provided by operating activities		20,830			19,566

CASH FLOWS FROM INVESTING ACTIVITIES
Interest received		288			383
Dividends received		182			4
Proceeds from:
Maturity of short-term investments		57			3,222
Disposal of property, plant and equipment (Note 9)		22			34
Disposal of investment properties (Note 12)		–			38
Disposal of available-for-sale financial assets		–			7
Payments for:
Acquisition of intangibles (Note 13)		(9	)		(10	)
Contingent consideration for business acquisition		(33	)		–
Purchase of short-term investments		(83	)		(109	)
Interest paid – capitalized to property, plant and equipment (Notes 4, 5, 9, 19 and 26)		(156	)		(150	)
Additions to property, plant and equipment (Notes 4 and 9)		(2,956	)		(5,056	)
Increase in advances and refundable deposits		(11	)		(20	)
Net cash used in investing activities		(2,699	)		(1,657	)

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the Three Months Ended March 31, 2011 and 2010
(in million pesos)


	2011			2010
	(Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from availment of long-term debt (Note 19)		9,750			–
Availment of long-term financing for capital expenditures		743			1,804
Proceeds from issuance of capital stock		1			1
Payments of obligations under finance lease		(27	)		(5	)
Cash dividends paid (Note 18)		(53	)		(108	)
Settlements of derivative financial instruments (Note 26)		(165	)		(229	)
Interest paid – net of capitalized portion (Notes 5, 19 and 26)		(1,230	)		(1,443	)
Settlement of long-term financing for capital expenditures		(2,344	)		(1,876	)
Payments of long-term debt (Note 19)		(5,451	)		(3,284	)
Payments of debt issuance costs (Note 19)		–			(3	)
Payments for acquisition of treasury shares (Notes 8, 18 and 26)		–			(6	)
Net cash provided by (used in) financing activities		1,224			(5,149	)

EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(64	)		(146	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		19,291			12,614
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		36,678			38,319

CASH AND CASH EQUIVALENTS AT END OF PERIOD		55,969			50,933

The Philippine Long Distance Telephone Company, or PLDT, or Parent Company, was incorporated under the old Corporation Law of the Philippines (Act 1459, as amended) on November 28, 1928, 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. In 1967, effective control of PLDT was sold by the General Telephone and Electronics Corporation, then a major shareholder since PLDT’s incorporation, to a group of Filipino businessmen. In 1981, in furtherance of the then existing policy of the Philippine government to integrate the Philippine telecommunications industry, PLDT purchased substantially all of the assets and liabilities of the Republic Telephone Company, which at that time was the second largest telephone company in the Philippines. In 1998, the First Pacific Company Limited, or First Pacific, through its Philippine and other affiliates, collectively the First Pacific Group, acquired a significant interest in PLDT. On March 24, 2000, NTT Communications Corporation, or NTT Communications, through its wholly-owned subsidiary NTT Communications Capital (UK) Ltd., or NTTC-UK, became PLDT’s strategic partner with approximately 15% economic and voting interest in the issued and outstanding common stock of PLDT at that time. Simultaneous with NTT Communications’ investment in PLDT, the latter acquired 100% of Smart Communications, Inc., or Smart. On March 14, 2006, NTT DoCoMo, Inc., or NTT DoCoMo, acquired from NTT Communications approximately 7% of PLDT’s then outstanding common shares held by NTT Communications with NTT Communications retaining ownership of approximately 7% of PLDT’s common shares. Since March 14, 2006, NTT DoCoMo has made additional purchases of shares of PLDT and together with NTT Communications beneficially owned approximately 21% of PLDT’s outstanding common stock as at March 31, 2011. NTT Communications and NTT DoCoMo are subsidiaries of NTT Holding Company. On February 28, 2007, Metro Pacific Asset Holdings, Inc., a Philippine affiliate of First Pacific, completed the acquisition of an approximately 46% interest in Philippine Telecommunications Investment Corporation, or PTIC, a shareholder of PLDT. This investment in PTIC represents an attributable interest of approximately 6% of the then outstanding common shares of PLDT and thereby raised First Pacific Group’s beneficial ownership to approximately 28% of PLDT’s outstanding common stock as at that date. First Pacific Group had beneficial ownership of approximately 26% in PLDT’s outstanding common stock as at
March 31, 2011.

The common shares of PLDT are listed and traded on the Philippine Stock Exchange, Inc., or PSE. On
October 19, 1994, an American Depositary Receipt, or ADR, facility was established, pursuant to which Citibank N.A., as the depositary, issued ADRs evidencing American Depositary Shares, or ADSs, with each ADS representing one PLDT common share with a par value of Php5 per share. Effective February 10, 2003, PLDT appointed JP Morgan Chase Bank as successor depositary for PLDT’s ADR facility. The ADSs are listed on the New York Stock Exchange, or NYSE, in the United States and are traded on the NYSE under the symbol “PHI”. There were approximately 54 million ADSs outstanding as at March 31, 2011.

PLDT and our Philippine-based fixed line and wireless subsidiaries operate under the jurisdiction of the Philippine National Telecommunications Commission, or NTC, which jurisdiction extends, among other things, to approving major services offered and certain rates charged to customers.

We are the leading telecommunications service provider in the Philippines. Through our three principal business segments, wireless, fixed line and information and communications technology, we offer the largest and most diversified range of telecommunications services across the Philippines’ most extensive fiber optic backbone and wireless, fixed line and satellite networks.

Our registered office address is Ramon Cojuangco Building, Makati Avenue, Makati City, Philippines.

Our consolidated financial statements have been prepared under the historical cost basis except for derivative financial instruments, available-for-sale financial assets and investment properties that have been measured at fair value.

Our consolidated financial statements include adjustments consisting only of normal recurring adjustments, necessary to present fairly the results of operations for the interim periods. The results of operations for the three months ended March 31, 2011 are not necessarily indicative of the results of operations that may be expected for the full year.

Our consolidated financial statements are presented in Philippine peso, PLDT’s functional and presentation currency, and all values are rounded to the nearest million except when otherwise indicated.

Our unaudited consolidated financial statements include the financial statements of PLDT and the following subsidiaries (collectively, the “PLDT Group”) as at March 31, 2011:

Place of

Percentage of Ownership

Name of Subsidiary

Incorporation

Principal Business Activity

Direct

Indirect

Wireless

Smart:

Philippines

Cellular mobile services

100.0

–

Smart Broadband, Inc., or SBI, and Subsidiaries,
or SBI Group

Philippines

Internet broadband distribution services

–

100.0

Primeworld Digital Systems, Inc., or PDSI

Philippines

Internet broadband distribution services

–

100.0

I-Contacts Corporation, or I-Contacts

Philippines

Call center services

–

100.0

Wolfpac Mobile, Inc., or Wolfpac

Philippines

Mobile applications development and services

–

100.0

Wireless Card, Inc., or WCI

Philippines

Promotion of the sale and/or patronage of
debit and/or charge cards

–

100.0

Smarthub, Inc., or SHI

Philippines

Software development and sale of
maintenance and support services

–

100.0

Smart Money Holdings Corporation, or SMHC:

Cayman Islands

Investment company

–

100.0

Smart Money, Inc., or SMI

Cayman Islands

Mobile commerce solutions marketing

–

100.0

Telecoms Solutions, Inc., or TSI

Mauritius

Mobile commerce platforms

–

100.0

Far East Capital Limited and Subsidiary

Cayman Islands

Cost effective offshore financing and risk
management activities for Smart

–

100.0

PH Communications Holdings Corporation, or PHC

Philippines

Investment company

–

100.0

Francom Holdings, Inc., or FHI:

Philippines

Investment company

–

100.0

Connectivity Unlimited Resource Enterprise,
Inc., or CURE

Philippines

Cellular mobile services

–

100.0

Chikka Holdings Limited, or Chikka, and
Subsidiaries, or Chikka Group

British Virgin Islands

Mobile applications development and
services; Content provider

–

100.0

PLDT Communications and Energy Ventures, Inc.,
or PCEV

Philippines

Investment company

–

99.5

SmartConnect Holdings Pte. Ltd., or SCH:

Singapore

Investment company

–

100.0

SmartConnect Global Pte. Ltd., or SGP

Singapore

International trade of satellites and
Global System for Mobile Communication, or
GSM, enabled global telecommunications

–

100.0

3rd Brand Pte. Ltd., or 3rd Brand

Singapore

Solutions and systems integration services

–

85.0

Blue Ocean Wireless, or BOW

Isle of Man

Delivery of GSM communication capability
for the maritime sector

–

51.0

Telesat, Inc., or Telesat*

Philippines

Satellite communications services

100.0

–

ACeS Philippines Cellular Satellite Corporation,
or ACeS Philippines

Philippines

Satellite information and messaging services

88.5

11.5

Mabuhay Satellite Corporation, or Mabuhay Satellite*

Philippines

Satellite communications services

67.0

–

Fixed Line

PLDT Clark Telecom, Inc., or ClarkTel

Philippines

Telecommunications services

100.0

–

PLDT Subic Telecom, Inc., or SubicTel

Philippines

Telecommunications services

100.0

–

PLDT Global Corporation, or PLDT Global, and
Subsidiaries, or PLDT Global Group

British Virgin Islands

Telecommunications services

100.0

–

Smart-NTT Multimedia, Inc., or SNMI*

Philippines

Data and network services

100.0

–

PLDT-Philcom, Inc., or Philcom, and Subsidiaries,
or Philcom Group

Philippines

Telecommunications services

100.0

–

PLDT-Maratel, Inc., or Maratel

Philippines

Telecommunications services

96.9

–

Bonifacio Communications Corporation, or BCC

Philippines

Telecommunications, infrastructure and
related value-added services, or VAS

75.0

–

Information and Communications Technology, or ICT

ePLDT, Inc., or ePLDT:

Philippines

Information and communications
infrastructure for Internet-based services,
e-commerce, customer relationship
management and information technology, or
IT, related services

100.0

–

SPi Technologies, Inc., or SPi, and Subsidiaries,
or SPi Group

Philippines

Knowledge processing solutions

–

100.0

SPi CRM Inc., or SPi CRM

Philippines

Customer relationship management

–

100.0

Infocom Technologies, Inc., or Infocom

Philippines

Internet services

–

99.6

BayanTrade, Inc., or BayanTrade, and Subsidiaries,
or BayanTrade Group

Philippines

Internet-based purchasing, IT consulting
and professional services

–

93.5

Digital Paradise, Inc., or Digital Paradise

Philippines

Internet services

–

75.0

Level Up!, Inc., or Level Up!

Philippines

Publisher of online games

–

57.5

netGames, Inc., or netGames

Philippines

Customer relationship management

–

57.5

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the PLDT Group obtains control, and continue to be consolidated until the date that such control ceases.

The financial statements of our subsidiaries are prepared for the same reporting period as PLDT. We prepare our consolidated financial statements using uniform accounting policies for like transactions and other events with similar circumstances. All intra-group balances, income and expenses, unrealized gains and losses and dividends resulting from intra-group transactions are eliminated in full.

Non-controlling interest shares in losses even if the losses exceed the non-controlling equity interest in the subsidiary.

A change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction.

If the PLDT Group loses control over a subsidiary, it: (a) derecognizes the assets (including goodwill) and liabilities of the subsidiary; (b) derecognizes the carrying amount of any non-controlling interest; (c) derecognizes the cumulative translation differences recorded in equity; (d) recognizes the fair value of the consideration received; (e) recognizes the fair value of any investment retained; (f) recognizes any surplus or deficit in profit or loss; and (g) reclassifies the parent’s share of components previously recognized in other comprehensive income to profit or loss.

PCEV’s Board of Directors approved three share buyback programs during its meetings on November 3, 2008, March 2, 2009 and August 3, 2009. For all three programs, the buyback was done through the trading facilities of the PSE via open market purchases, block trades or other modes, subject to compliance with applicable laws, rules and regulations. The number of shares approved for repurchase under the buyback programs were 58 million,
25 million and 61.5 million for the programs approved on November 3, 2008, March 2, 2009 and August 3, 2009, respectively. The program approved on November 3, 2008 was completed in January 2009 at a total cost of Php403 million, while the program approved on March 2, 2009 was completed in March 2009 at a total cost of Php188 million. The program approved on August 3, 2009 is still ongoing and will continue until the number of shares earmarked for the program has been fully repurchased or until such time as PCEV’s Board of Directors determines otherwise. The most recent share buyback program was undertaken to accommodate non-controlling shareholders who may not have had the opportunity to participate in the tender offer of Smart due to various constraints. The maximum price under this program is Php8.50 per share. As at March 31, 2011, approximately 3.6 million shares at a cost of Php30 million have been repurchased under the third buyback program.

As at March 31, 2011 and December 31, 2010, cumulative shares repurchased under the share buyback programs totaled approximately 86.6 million at an aggregate cost of Php621 million, which reduced the amount of non-controlling interest by the same amount.

Our consolidated financial statements have been prepared in conformity with Philippine Financial Reporting Standards, or PFRS.

Our accounting policies are consistent with those of the previous financial year except for the adoption of the following amendments and improvements to existing PFRSs and new interpretation as at January 1, 2011:

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Revised Philippine Accounting Standard, or PAS, 24, Related Party Disclosures;

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Amendment to PAS 32, Financial Instruments: Presentation — Classification of Rights Issues;

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Amendment to Philippine Interpretation IFRIC 14, Prepayments of a Minimum Funding Requirement;

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Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity Instrument; and

The changes introduced by such amendments, improvements and new interpretation are as follows:

Revised PAS 24, Related Party Disclosures. The standard has been revised to simplify the identification of related party relationship and re-balance the extent of disclosures of transactions between related parties based on the costs to preparers and the benefits to users in having this information available in consolidated financial statements. Also, the revised standard provides a partial exemption from the disclosure requirements for government-related entities. The adoption of this revised standard did not have any impact on our financial position or performance.

Amendment to PAS 32, Financial Instruments: Presentation — Classification of Rights Issues. The definition of a financial liability in the standard has been amended to classify right issues (and certain options or warrants) as equity instruments if: (a) the rights are given pro rata to all of the existing owners of the same class of an entity’s non-derivative equity instruments; and (b) the instruments are used to acquire fixed number of the entity’s own equity instruments for a fixed amount in any currency. The adoption of this amendment did not have any impact on our financial position or performance.

Amendment to Philippine Interpretation IFRIC 14, Prepayments of a Minimum Funding Requirement. The interpretation has been amended to permit an entity to treat the prepayment of a minimum funding requirement as an asset. The amendment should be applied to the beginning of the earliest period presented in the first financial statements in which the entity applied the original interpretation. The adoption of this amendment did not have any impact on our financial position or performance.

Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity Instrument. The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability are consideration paid. As a result, the financial liability is derecognized and the equity instruments issued are treated as consideration paid to extinguish that financial liability. The interpretation states that equity instruments issued in a debt for equity swap should be measured at the fair value of the equity instruments issued, if this can be determined reliably. If the fair value of the equity instruments issued is not reliably determinable, the equity instruments should be measured by reference to the fair value of the financial liability extinguished as of the date of extinguishment. Any difference between the carrying amount of the financial liability that is extinguished and the fair value of the equity instruments issued is recognized immediately in profit or loss. The interpretation had no effect on either our financial position or performance.

The Financial Reporting Standards Council, or FRSC, approved during its meeting in May 2010 the adoption of
Improvements to PFRSs, which were issued by the International Accounting Standards Board in May 2010. Improvements to PFRS is an omnibus of amendments to standards that deal primarily with a view to remove inconsistencies and clarify wording. There are separate transitional provisions for each standard which are all effective beginning January 1, 2011. The adoption of the following amendments resulted in changes to our accounting policies but had no impact on our financial position or performance.

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PFRS 3, Business Combinations. The improvements include: (a) clarification that the amendments to PFRS 7, Financial Instruments: Disclosures, PAS 32, Financial Instruments: Presentation, and PAS 39, Financial Instruments: Recognition and Measurement, that eliminate the exemption for contingent consideration, do not apply to contingent consideration that arose from business combinations whose acquisition dates precede the application of PFRS 3 (as revised in 2008); (b) guidance that the choice of measuring non-controlling interests at fair value or at the proportionate share of the acquiree’s net assets applies only to instruments that represent present ownership interests and entitle their holders to a proportionate share of the net assets in the event of liquidation. All other components of non-controlling interest are measured at fair value unless another measurement basis is required by PFRS; and

(c) clarification that the application guidance in PFRS 3 applies to all share-based payment transactions that are part of a business combination, including un-replaced and voluntarily replaced share-based payment awards.

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PFRS 7, Financial Instruments. The amendment emphasizes the interaction between quantitative and qualitative disclosures about the nature and extent of risks associated with financial instruments.

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PAS 1, Presentation of Financial Statements. The amendment clarifies that an entity will present an analysis of other comprehensive income for each component of equity, either in the statement of changes in equity or in the notes to the financial statements.

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PAS 27, Consolidated and Separate Financial Statements. The improvement clarifies that the consequential amendments from PAS 27 made to PAS 21, The Effect of Changes in Foreign Exchange Rates, PAS 28, Investments in Associates, and PAS 31, Interests in Joint Ventures, apply prospectively for annual periods beginning on or after July 1, 2009, or earlier when PAS 27 is applied earlier.

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PAS 34, Interim Financial Reporting. The amendment provides guidance on how to apply disclosure principles in PAS 34 and add disclosure requirements around: (a) the circumstances likely to affect fair values of financial instruments and their classification; (b) transfers of financial instruments between different levels of the fair value hierarchy; (c) changes in classification of financial assets; and (d) changes in contingent liabilities and assets.

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Philippine Interpretation IFRIC 13, Customer Loyalty Programmes. The amendment clarifies the meaning of fair value in the context of measuring award credits under customer loyalty programmes.

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value, and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer has the option to measure the components of the non-controlling interest in the acquiree that are present ownership interest and entitle their holders to a proportionate share of the net assets in the event of liquidation either at fair value or at the proportionate share of the acquiree’s identifiable net assets. All other components of non-controlling interest are measured at acquisition date fair values unless other measurement basis is required. Acquisition-related costs are expensed as incurred.

When we acquire a business, we assess the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the acquirer’s previously held equity interest in the acquiree is remeasured to fair value as at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognized in accordance with PAS 39 either in profit or loss or a charge to other comprehensive income. If the contingent consideration is classified as equity, it shall not be remeasured until it is finally settled within equity.

Goodwill is initially measured at cost being the excess of the consideration transferred over the fair values of net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of our cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Investments in associates are accounted for using the equity method of accounting and are initially recognized at cost. An associate is an entity in which we have significant influence and which is neither a subsidiary nor a joint venture.

Under the equity method, an investment in an associate is carried in our consolidated statement of financial position at cost plus post acquisition changes in our share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortized nor individually tested for impairment. Our consolidated income statement reflects our share in the financial performance of our associates. Where there has been a change recognized directly in the equity of the associate, we recognize our share in such change and disclose this, when applicable, in our consolidated statement of comprehensive income and changes in equity. Unrealized gains and losses resulting from our transactions with and among our associates are eliminated to the extent of our interest in those associates.

Our share in the profit or losses of our associates is shown on the face of our consolidated income statement. This is the profit or losses attributable to equity holders of the associate and therefore is profit or losses after tax and net of non-controlling interest in the subsidiaries of the associates.

Our reporting dates and that of our associates are identical and our associates’ accounting policies conform to those used by us for like transactions and events in similar circumstances. Where necessary, adjustments are made to bring such accounting policies in line with those of PLDT Group.

After application of the equity method, we determine whether it is necessary to recognize an additional impairment loss on our investments in associates. We determine at the end of each reporting period whether there is any objective evidence that our investment in associate is impaired. If this is the case, we calculate the amount of impairment as the difference between the recoverable amount of our investment in the associate and its carrying value and recognize the amount in our consolidated income statement.

Upon loss of significant influence over the associate, we measure and recognize any retained investment at its fair value. Any difference between the carrying amounts of our investment in the associate upon loss of significant influence, and the fair value of the remaining investment and proceeds from disposal, is recognized in profit or loss.

Investments in a joint venture that is a jointly controlled entity is accounted for using the equity method of accounting. The financial statements of the joint venture are prepared for the same reporting period as our consolidated financial statements. Where necessary, adjustments are made to bring the accounting policies in line with those of PLDT Group.

Adjustments are made in our consolidated financial statements to eliminate our share of unrealized gains and losses on transactions between PLDT and our jointly controlled entity. The joint venture is carried at equity method until the date on which we cease to have joint control over the jointly controlled entity.

Upon loss of joint control and provided the former jointly controlled entity does not become a subsidiary or associate, we measure and recognize our remaining investment at fair value. Any difference between the carrying amount of the former jointly controlled entity upon loss of joint control, and the fair value of the remaining investment and proceeds from disposal, is recognized in profit or loss. When the remaining investment constitutes significant influence, it is accounted for as investment in an associate.

Our consolidated financial statements are presented in Philippine peso, which is also the Parent Company’s functional currency. The Philippine peso is the currency of the primary economic environment in which we operate. This is also the currency that mainly influences the revenue from and cost of rendering products and services. Each entity in the PLDT Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

The functional and presentation currency of the entities under PLDT Group (except for SCH, SGP, 3rd Brand, BOW, SMHC, SMI, TSI, Mabuhay Satellite, PLDT Global, SPi and certain of its subsidiaries, certain subsidiaries of Chikka, and certain subsidiaries of BayanTrade) is the Philippine peso.

Transactions in foreign currencies are initially recorded in the functional currency rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency closing rate of exchange prevailing at the end of the reporting period. All differences are recognized in our consolidated income statement except for foreign exchange differences that qualify as capitalizable borrowing costs for qualifying assets. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.

The functional currency of SMHC, SMI, TSI, Mabuhay Satellite, PLDT Global, SPi and certain of its subsidiaries, and certain subsidiaries of Chikka is the U.S. dollar; and Singapore dollar for SCH, SGP, 3rd Brand, BOW, and certain subsidiaries of BayanTrade. As at the reporting date, the assets and liabilities of these subsidiaries are translated into Philippine peso at the rate of exchange prevailing at the end of the reporting period, and income and expenses of these subsidiaries are translated monthly using the weighted average exchange rate for the month. The exchange differences arising on translation are recognized as a separate component of other comprehensive income as cumulative translation adjustments. On disposal of these subsidiaries, the amount of deferred cumulative translation adjustments recognized in other comprehensive income relating to subsidiaries are recognized in our consolidated income statement.

Foreign exchange gains or losses of PLDT and our Philippine-based subsidiaries are treated as taxable income or deductible expenses in the year such exchange gains or losses are realized.

Financial assets are classified as financial assets at fair value through profit or loss, or FVPL, loans and receivables, held-to-maturity, or HTM, investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. We determine the classification of financial assets at initial recognition and, where allowed and appropriate, re-evaluate the designation of such assets at each financial year-end.

Financial assets are recognized initially at fair value plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way purchases or sales) are recognized on the trade date, i.e., the date that we commit to purchase or sell the asset.

Our financial assets include cash and cash equivalents, short-term investments, trade and other receivables, quoted and unquoted equity and debt securities, advances and refundable deposits, and derivative financial assets.

The subsequent measurement of financial assets depends on the classification as follows:

Financial assets at fair value through profit or loss include financial assets held-for-trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as at fair value through profit or loss if they are acquired for the purpose of selling in the near term. Derivative assets, including separated embedded derivatives are also classified as at fair value through profit or loss unless they are designated as effective hedging instruments. Financial assets at fair value through profit or loss are carried in our consolidated statement of financial position at fair value with gains or losses recognized in our consolidated income statement under “Gains (losses) on derivative financial instruments – net” for derivative instruments and “Other income” for non-derivative financial assets. Interest earned and dividends received from financial assets at fair value through profit or loss are recognized in our consolidated income statement under “Interest income” and “Other income”, respectively.

Financial assets may be designated at initial recognition as at fair value through profit or loss if any of the following criteria are met: (i) the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on them on a different bases; (ii) the assets are part of a group of financial assets which are managed and their performance are evaluated on a fair value basis, in accordance with a documented risk management strategy and information about the company is provided internally on that basis to the entity’s key management personnel; or (iii) the financial assets contain one or more embedded derivatives that would need to be separately recorded.

Derivatives embedded in host contracts are accounted for as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not carried at fair value. These embedded derivatives are measured at fair value with gains or losses arising from changes in fair value recognized in our consolidated income statement. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.

Loans and receivables are non-derivative financial assets with fixed or determinable payments and are not quoted in an active market. Such financial assets are carried at amortized cost using the effective interest rate, or EIR, method. This method uses an EIR that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Gains and losses are recognized in our consolidated income statement when the loans and receivables are derecognized or impaired, as well as through the amortization process. Interest earned or incurred is recorded in “Interest income” in our consolidated income statement. Assets in this category are included in the current assets except for those with maturities greater than 12 months after the end of the reporting period, which are classified as noncurrent assets.

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when we have the positive intention and ability to hold it to maturity. After initial measurement, held-to-maturity investments are measured at amortized cost using the EIR method. Gains or losses are recognized in our consolidated income statement when the investments are derecognized or impaired, as well as through the amortization process. Interest earned or incurred is recorded in “Interest income” in our consolidated income statement. Assets in this category are included in the current assets except for those with maturities greater than 12 months after the end of the reporting period, which are classified as noncurrent assets.

Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not classified in any of the three preceding categories. They are purchased and held indefinitely and may be sold in response to liquidity requirements or changes in market conditions. After initial measurement, available-for-sale financial assets are measured at fair value with unrealized gains or losses recognized in other comprehensive income account until the investment is derecognized, at which time the cumulative gain or loss recorded in other comprehensive income reserve account is recognized in our consolidated income statement; or determined to be impaired, at which time the cumulative loss recorded in other comprehensive income reserve account is recognized in our consolidated income statement. Interest earned on holding available-for-sale debt securities are included under “Interest income” using the EIR method in our consolidated income statement. Dividends earned on holding available-for-sale equity investments are recognized in our consolidated income statement under “Other income” when the right of the payment has been established. These financial assets are included under noncurrent assets unless we intend to dispose of the investment within 12 months of the end of the reporting period.

Financial liabilities are classified as financial liabilities at fair value through profit or loss, other financial liabilities, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. We determine the classification of our financial liabilities at initial recognition.

Financial liabilities are recognized initially at fair value and in the case of other financial liabilities, inclusive of directly attributable transaction costs.

Our financial liabilities include accounts payable, accrued expenses and other current liabilities, interest-bearing financial liabilities, customers’ deposits, derivative financial liabilities, dividends payable, and accrual for long-term capital expenditures included under “Deferred credits and other noncurrent liabilities” account.

The subsequent measurement of financial liabilities depends on their classification as follows:

Financial liabilities at fair value through profit or loss include financial liabilities held-for-trading and financial liabilities designated upon initial recognition at fair value through profit or loss. Financial liabilities are classified as at fair value through profit or loss if they are acquired for the purpose of repurchasing in the near term. Derivative liabilities, including separated embedded derivatives are also classified as at fair value through profit or loss unless they are designated as effective hedging instruments. Financial liabilities at fair value through profit or loss are carried in our consolidated statement of financial position at fair value with gains or losses recognized in our consolidated income statement under “Gains (losses) on derivative financial instruments – net” for derivative instruments and “Other income” for non-derivative financial liabilities.

Financial liabilities may be designated at initial recognition as at fair value through profit or loss if any of the following criteria are met: (i) the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the liabilities or recognizing gains or losses on them on a different bases;
(ii) the liabilities are part of a group of financial liabilities which are managed and their performance are evaluated on a fair value basis, in accordance with a documented risk management strategy and information about the company is provided internally on that basis to the entity’s key management personnel; or (iii) the financial liabilities contain one or more embedded derivatives that would need to be separately recorded.

After initial recognition, other financial liabilities are subsequently measured at amortized cost using the EIR method.

Gains and losses are recognized in our consolidated income statement when the liabilities are derecognized as well as through the EIR amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are integral part of the EIR. The EIR amortization is included under “Financing costs – net” in our consolidated income statement.

Financial assets and financial liabilities are offset and the net amount is reported in our consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

The fair value of financial instruments that are actively traded in organized financial markets is determined by reference to quoted market prices at the close of business at the end of the reporting period. For financial instruments where there is no active market, fair value is determined using valuation techniques. Such techniques may include using recent arm’s length market transactions; reference to the current fair value of another instrument that is substantially the same; discounted cash flow analysis or other valuation models.

Amortized cost is computed using the EIR method less any allowance for impairment and principal repayment or reduction. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of EIR.

Where the transaction price in a non-active market is different from the fair value of other observable current market transactions in the same instrument or based on a valuation technique which variables include only data from observable market, we recognize the difference between the transaction price and fair value (a “Day 1” difference) in our consolidated income statement unless it qualifies for recognition as some other type of asset or liability. In cases where data used are not observable, the difference between the transaction price and model value is only recognized in our consolidated income statement when the inputs become observable or when the instrument is derecognized. For each transaction, we determine the appropriate method of recognizing the “Day 1” difference amount.

We assess at the end of each reporting period whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that the debtor will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original EIR. If a financial asset has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR.

For financial assets carried at amortized cost, we first assess whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If we determine that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, we include the asset in a group of financial assets with similar credit risk characteristics and collectively assess them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment.

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized under “Asset impairment” in our consolidated income statement. Interest income continues to be accrued on the reduced carrying amount based on the original EIR of the asset. The financial asset together with the associated allowance are written-off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to us. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. Any subsequent reversal of an impairment loss is recognized in our consolidated income statement, to the extent that the carrying value of the asset does not exceed its original amortized cost at the reversal date. If a future write-off is later recovered, the recovery is recognized in profit or loss.

In the case of equity investments classified as available-for-sale financial assets, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income reserve account and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income reserve account is reclassified from other comprehensive income reserve account to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. The amount of the cumulative loss that is reclassified from other comprehensive income account to profit or loss is the difference between the acquisition cost (net of any principal repayment and amortization) and current fair value, less any impairment loss on that financial asset previously recognized in profit or loss. Impairment losses recognized in profit or loss for an investment in an equity instrument are not reversed in profit or loss. Subsequent increases in the fair value after impairment are recognized directly in other comprehensive income reserve account.

In the case of debt instruments classified as available-for-sale financial assets, impairment is assessed based on the same criteria as financial assets carried at amortized cost. Future interest income is based on the reduced carrying amount and is accrued based on the rate of interest used to discount future cash flows for the purpose of measuring impairment loss. Such accrual is recorded as part of “Interest income” in our consolidated income statement. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in our consolidated income statement, the impairment loss is reversed in profit or loss.

A financial asset (or where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when: (1) the rights to receive cash flows from the asset have expired; or (2) we have transferred its rights to receive cash flows from the asset or have assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either: (a) we have transferred substantially all the risks and rewards of the asset; or (b) we have neither transferred nor retained substantially all the risks and rewards of the asset, but have transferred control of the asset.

When we have transferred the rights to receive cash flows from an asset or have entered into a “pass-through” arrangement, and have neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, a new asset is recognized to the extent of our continuing involvement in the asset.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of the consideration that we could be required to repay.

When continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of our continuing involvement is the amount of the transferred asset that we may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, the extent of our continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the carrying amount of a financial liability extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

The financial liability is also derecognized with equity instruments are issued to extinguish all or part of the financial liability. The equity instruments issued are recognized at fair value if it can be reliably measured, otherwise, it is recognized at the fair value of the financial liability extinguished. Any difference between the fair value of the equity instruments issued and the carrying value of the financial liability extinguished is recognized in the profit or loss.

We use derivative financial instruments, such as long-term currency swaps, foreign currency options, forward currency contracts and interest rate swaps, to hedge our risks associated with interest rate and foreign currency fluctuations. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value on derivatives during the period that do not qualify for hedge accounting are taken directly to the “Gains (losses) on derivative financial instruments – net” in our consolidated income statement.

The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of long-term currency swaps, foreign currency options and interest rate swap contracts is determined using applicable valuation techniques. See Note 26 – Financial Assets and Liabilities.

For the purpose of hedge accounting, hedges are classified as: (1) fair value hedges when hedging the exposure to changes in the fair value of a recognized financial asset or liability or an unrecognized firm commitment (except for foreign-currency risk); or (2) cash flow hedges when hedging exposure to variability in cash flows that is neither attributable to a particular risk associated with a recognized financial asset or liability or a highly probable forecast transaction or the foreign-currency risk in an unrecognized firm commitment; or (3) hedges of a net investment in a foreign operation.

At the inception of a hedge relationship, we formally designate and document the hedge relationship to which we wish to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how we will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an on-going basis to determine that they actually have been highly effective throughout the financial reporting periods for which they are designated. In a situation when that hedged item is a forecast transaction, we assess whether the transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect our consolidated income statement.

Hedges which meet the strict criteria for hedge accounting are accounted for as follows:

The change in the fair value of a hedging derivative is recognized in our consolidated income statement. The change in the fair value of the hedged item attributable to the risk being hedged is recorded as part of the carrying value of the hedged item and is also recognized in our consolidated income statement.

The fair value for financial instruments traded in active markets at the end of the reporting period is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid and asking prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction. For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, option pricing models, and other relevant valuation models.

When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as financial asset or liability with a corresponding gain or loss recognized in our consolidated income statement. The changes in the fair value of the hedging instrument are also recognized in our consolidated income statement.

The effective portion of the gain or loss on the hedging instrument is recognized in our statement of comprehensive income, while any ineffective portion is recognized immediately in our consolidated income statement.

Amounts taken to comprehensive income are transferred to our consolidated income statement when the hedged transaction affects our consolidated income statement, such as when the hedged financial income or financial expense is recognized or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken to other comprehensive income are transferred to the initial carrying amount of the non-financial asset or liability.

If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognized in other comprehensive income are transferred to our consolidated income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognized in other comprehensive income remain in other comprehensive income until the forecast transaction or firm commitment occurs.

Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a way similar to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognized in other comprehensive income while any gains or losses relating to the ineffective portion are recognized in our consolidated income statement. On disposal of the foreign operation, the cumulative value of any such gains or losses recognized in other comprehensive income is transferred to our consolidated income statement.

Derivative instruments that are not designated as effective hedging instruments are classified as current or noncurrent or separated into a current and noncurrent portion based on an assessment of the facts and circumstances (i.e., the underlying contracted cash flows).

Where the group will hold a derivative as an economic hedge (and does not apply hedge accounting) for a period beyond 12 months after the reporting date, the derivative is classified as noncurrent (or separated into current and noncurrent portions) consistent with the classification of the underlying item.

Embedded derivatives that are not closely related to the host contract are classified consistent with the cash flows of the host contract.

Derivative instruments that are designated as effective hedging instruments, are classified consistently with the classification of the underlying hedged item. The derivative instrument is separated into a current portion and a noncurrent portion only if a reliable allocation can be made.

Property, plant and equipment, except for land, is stated at cost less accumulated depreciation and amortization and any accumulated impairment losses. Cost includes the cost of replacing part of the property, plant and equipment when the cost is incurred, if the recognition criteria are met. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the property, plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in our consolidated income statement as incurred. The present value of the expected cost of the decommissioning of the asset after use is included in the cost of the respective assets if the recognition criteria for a provision are met. Land is stated at cost less any impairment in value.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognized.

Depreciation and amortization are calculated on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives used in depreciating our property, plant and equipment are disclosed in
Note 9 – Property, Plant and Equipment.

The asset’s residual value, estimated useful life and depreciation and amortization method are reviewed at least at each financial year-end to ensure that the period and method of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property, plant and equipment.

Property under construction is stated at cost. This includes cost of construction, plant and equipment, capitalizable borrowing costs and other direct costs. Property under construction is not depreciated until such time that the relevant assets are completed and available for its intended use.

Construction-in-progress is transferred to the related property, plant and equipment when the construction or installation and related activities necessary to prepare the property and equipment for their intended use have been completed, and the property and equipment are ready for service.

Borrowing costs are capitalized if they are directly attributable to the acquisition, construction or production of a qualifying asset. Qualifying assets are assets that necessarily takes a substantial period of time to get ready for its intended use or sale. Capitalization of borrowing costs commences when the activities necessary to prepare the asset for intended use are in progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the asset is available for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognized. Borrowing costs include interest charges and other costs incurred in connection with the borrowing of funds, as well as exchange differences arising from foreign currency borrowings used to finance these projects, to the extent that they are regarded as an adjustment to interest costs.

We are legally required under various lease agreements to dismantle the installation in leased sites and restore such sites to their original condition at the end of the lease contract term. We recognize the liability measured at the present value of the estimated costs of these obligations and capitalize such costs as part of the balance of the related item of property, plant and equipment. The amount of asset retirement obligations are accreted and such accretion is recognized as interest expense.

Investment properties are initially measured at cost, including transaction costs. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met and excludes the cost of day-to-day servicing of an investment property. Subsequent to initial recognition, investment properties are stated at fair values, which have been determined annually based on the latest appraisal performed by an independent firm of appraisers, an industry specialist in valuing these types of investment properties. Gains or losses arising from changes in the fair values of investment properties are included in our consolidated income statement in the period in which they arise. Where an entity is unable to determine the fair value of an investment property under construction, but expects to be able to determine its fair value on completion, the investment under construction will be measured at cost until such time that fair value can be determined or construction is completed.

Investment properties are derecognized when they have been disposed of or when the investment property is permanently withdrawn from use and no future benefit is expected from its disposal.

Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If an owner occupied property becomes an investment property, we account for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use. The difference between the carrying amount of the occupied property and its fair value at the date of change is accounted for as revaluation increment recognized in other comprehensive income.

No assets held under operating lease have been classified as investment properties.

Intangible assets acquired separately are measured at cost on initial recognition. The cost of intangible assets acquired from business combinations is initially recognized at fair value on the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment loss. The useful lives of intangible assets are assessed at the individual asset level as having either a finite or indefinite useful life.

Intangible assets with finite lives are amortized over the useful economic life using the straight-line method of accounting and assessed for impairment whenever there is an indication that the intangible assets may be impaired. 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.

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangible assets are not amortized. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognized in our consolidated income statement when the asset is derecognized.

Intangible assets created within the business are not capitalized and expenditures are charged against operations in the year in which the expenditures are incurred.

Inventories and supplies, which include cellular phone units, materials, spare parts, terminal units and accessories, are valued at the lower of cost and net realizable value.

Cost incurred in bringing each items of inventories and supplies to its present location are accounted using the weighted average method. Net realizable value is determined by either estimating the selling price in the ordinary course of the business less the estimated cost to sell or determining the prevailing replacement costs.

We assess at each reporting period whether there is an indication that an asset may be impaired. If any such indication exists, or when the annual impairment testing for an asset is required, we make an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell or its value in use, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent from those of other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining the fair value less costs to sell, an appropriate valuation model is used. Impairment losses are recognized in our consolidated income statement.

For assets, excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, we make an estimate of the recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If this is the case, the carrying amount of the asset is increased to its recoverable amount. The increased amount cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in our consolidated income statement. After such reversal, the depreciation and amortization charges are adjusted in future years to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining economic useful life.

The following criteria are also applied in assessing impairment of specific assets:

Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of the cash-generating unit, or group of cash-generating units, to which the goodwill relates. Where the recoverable amount of the cash-generating unit, or group of cash-generating units, is less than the carrying amount of the cash-generating unit, or group of cash-generating units, to which goodwill has been allocated, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.

If there is incomplete allocation of goodwill acquired in a business combination to cash generating units, or group of cash generating units, an impairment testing of goodwill is only carried out when impairment indicators exist. Where impairment indicators exist, impairment testing of goodwill is performed at a level at which the acquirer can reliably test for impairment.

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level, as appropriate. We calculate the amount of impairment as being the difference between the recoverable amount of the intangible asset and its carrying amount and recognize the amount of impairment in our consolidated income statement. Impairment losses relating to intangible assets can be reversed in future periods.

We determine at the end of each reporting period whether there is any objective evidence that our investments in associates and joint ventures are impaired. If this is the case, the amount of impairment is calculated as the difference between the recoverable amount of the investments in associates and joint ventures, and its carrying amount. The amount of impairment loss is recognized in our consolidated income statement.

Investment in debt securities are government securities which are carried at amortized cost using the EIR method. Interest earned from these securities is recognized as “Interest income” in our consolidated income statement.

Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less from the date of acquisition, and for which there is an insignificant risk of change in value.

Short-term investments are money market placements, which are highly liquid with maturities of more than three months but less than one year from the date of acquisition.

Trade and other receivables, categorized as loans and receivables, are recognized initially at fair value and subsequently measured at amortized cost using the EIR method, less provision for impairment.

A provision for impairment of trade and other receivables is established when there is objective evidence that we will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original EIR. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in our consolidated income statement.

When a trade and other receivable is uncollectible, it is written-off against the allowance account for trade and other receivables. Subsequent recoveries of amounts previously written-off are recognized as income in our consolidated income statement.

Revenues for services are stated at amounts invoiced to customers, net of value-added tax, or VAT, and overseas communication tax where applicable. We provide wireless communication, fixed line communication, and ICT services to our subscribers and customers. We provide such services to mobile, business, residential and payphone customers. Revenues represent the value of fixed consideration that have been received or are receivable. Revenues are recognized when there is evidence of an arrangement, collectibility is reasonably assured, and the delivery of the product or rendering of service has occurred. In certain circumstances, revenue is split into separately identifiable components based on their relative fair value to reflect the substance of the transactions. Where fair value is not directly observable, the total consideration is allocated using an appropriate allocation method. Under certain arrangements where the above criteria are met, but 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 such amount is determined to be recoverable. We do not provide our customers with the right to a refund. The following specific recognition criteria must also be met before revenue is recognized:

We provide telephone and data communication services under prepaid and postpaid payment arrangements. Installation and activation related fees and the corresponding costs, not exceeding the activation revenue, are deferred and recognized over the expected average periods of customer relationship for fixed line and cellular services. Postpaid service arrangements include subscription fees, typically fixed monthly fees, which are recognized over the subscription period on a pro-rata basis.

Prepaid service revenues collected in advance are deferred and recognized as revenue based on the earlier of actual usage or upon expiration of the usage period. Interconnection revenues for call termination, call transit and network usage are recognized in the year the traffic occurs. Revenues related to local, long distance, network-to-network and international call connection services are recognized when the call is placed or connection is provided, net of amounts payable to other telecommunication carriers for calls terminating in their territories. Revenues related to, products and VAS are recognized upon delivery of the product or service, net of content providers share in revenue.

Revenue is recognized when it is probable that the economic benefits associated with the transaction will flow to us and the amount of revenue can be measured reliably. Advance customer receipts that have not been recognized as revenue are recorded as advances from customers and presented as a liability in our consolidated statement of financial position. If the fee is not measurable, revenue is not recognized on those arrangements until the customer payment is received. For arrangements requiring specific customer acceptance, revenue recognition is deferred until the earlier of the end of the deemed acceptance period or until a written notice of acceptance is received from the customer. Revenue on services rendered to customers whose ability to pay is in doubt at the time of performance of services is also not recorded. Rather, revenue is recognized from these customers as payment is received.

We record insignificant commission expenses based on the number of new subscriber connections initiated by certain dealers. All other cash incentives provided to dealers and customers are recorded as a reduction to revenues. Product-based incentives provided to dealers and customers as part of a transaction are accounted for as multiple element arrangements and recognized when earned.

Our wireless segment operates two loyalty points programmes, one for Smart Money cardholders and another for subscribers of Smart Gold, Smart Buddy and SmartBro. The loyalty programme for Smart Money allows cardholders, upon enrollment, to accumulate points when they use their card for purchases, Smart Load payments, and reloads for Smart’s prepaid cards, SmartBro prepaid Airtime and Smart Money Cash Load. The points for the programme can then be redeemed for airtime or load wallet. On the other hand, the loyalty programme for Smart’s cellular and broadband subscribers allows postpaid subscribers to accumulate points for billed transactions and prepaid subscribers for reloads or top-ups and VAS, and international direct dialing usage and tenure in the network for both postpaid and prepaid subscribers. The points for the loyalty programme for the subscribers can then be redeemed, upon registration, for bill rebates, discounts on cellular phonekit purchases, on-network short messaging services or internet surf time. Redemption for both programmes are subject to a minimum number of points being required. Consideration received is allocated between the services sold and the points issued, with the consideration allocated to the points equal to their fair value. Fair value of the points is determined by applying statistical analysis. The fair value of the points issued are deferred and recognized as revenue when the points are redeemed.

Sale of cellular handsets and communication equipment are recognized upon delivery to the customer.

Interest income is recognized as it accrues on a time proportion basis taking into account the principal amount outstanding and the EIR.

We recognize provision when we have present obligation, legal or constructive, as a result of past event, and when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where we expect some or all of a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in our consolidated income statement, net of any reimbursements. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as interest expense.

We have separate and distinct retirement plans for PLDT and majority of our Philippine-based operating subsidiaries, administered by the respective Fund’s Trustees, covering permanent employees. Retirement costs are separately determined using the projected unit credit method. This method reflects services rendered by employees to the date of valuation and incorporates assumptions concerning employees’ projected salaries. Retirement costs include current service cost plus amortization of past service cost, experience adjustments, changes in actuarial assumptions and the effect of any curtailments or settlements. Past service cost is recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits vest immediately following the introduction of, or changes to, a pension plan, past service cost is recognized immediately. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses for each individual plan at the end of the previous reporting period exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains and losses are recognized over the expected average remaining working lives of the employees participating in the plan.

The defined benefit asset or liability comprises the present value of the defined benefit obligation (using a discount rate based on government bonds), net of past service cost and actuarial gains and losses not yet recognized, and less the fair value of plan assets out of which the obligations are to be settled directly. Plan assets are assets held by long-term employee benefit fund and are not available to our creditors nor can they be paid directly to us. Fair value is based on market price information and in the case of quoted securities, the published bid price. The value of any defined benefit asset recognized is restricted to the sum of any past service cost and actuarial gains and losses not yet recognized, and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan.

Smart and I-Contacts record expenses for their contribution to the defined contribution plans when the employee renders service to Smart and I-Contacts, respectively, essentially coinciding with their cash contributions to the plans.

Our liability arising from 2010 to 2012 Long-term Incentive Plan, or 2010 to 2012 LTIP, are determined using the projected unit credit method. Employee benefit costs include current service cost, interest cost, actuarial gains and losses and past service costs. Past service costs and actuarial gains and losses are recognized immediately.

The long-term employee benefit liability comprises the present value of the defined benefit obligation (using a discount rate based on government bonds) at the end of the reporting period.

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. A reassessment is made after the inception of the lease only if one of the following applies: (a) there is a change in contractual terms, other than a renewal or extension of the agreement; (b) a renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term; (c) there is a change in the determination of whether the fulfillment is dependent on a specified asset; or (d) there is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) and the date of renewal or extension period for scenario (b).

As a Lessor. Leases where we retain substantially all the risks and benefits of ownership of the asset are classified as operating leases. Any initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same bases as rental income. Rental income is recognized in our consolidated income statement on a straight-line basis over the lease term.

All other leases are classified as finance leases. At the inception of the finance lease, the asset subject to lease agreement is derecognized and lease receivable is recognized. Interest income is accrued over the lease term and lease amortization is accounted for as reduction of lease receivable.

As a Lessee. Leases where the lessor retains substantially all the risks and benefits of ownership of the assets are classified as operating leases. Operating lease payments are recognized as expense in our consolidated income statement on a straight-line basis over the lease term.

All other leases are classified as finance leases. A finance lease gives rise to the recognition of a leased asset and finance lease liability. Capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term, if there is no reasonable certainty that we will obtain ownership of the leased asset at the end of the lease term. Interest expense is recognized over the lease term.

Current income tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted as at the end of the reporting period.

Deferred income tax is provided using the balance sheet liability method on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences except: (1) when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and (2) with respect to taxable temporary differences associated with investments in subsidiaries, associates and interest in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is possible that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognized for all deductible temporary differences, carryforward benefits of unused tax credits from excess minimum corporate income tax, or MCIT, over regular corporate income tax, or RCIT, and unused net operating loss carry over, or NOLCO, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and carryforward benefits of unused tax credits and unused tax losses can be utilized except: (1) when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and (2) with respect to deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred income tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax assets to be utilized. Unrecognized deferred income tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that future taxable profit will allow the deferred income tax assets to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted as at the end of the reporting period.

Deferred income tax relating to items recognized in other comprehensive income account is included in the statement of comprehensive income and not in our consolidated income statement.

Deferred income tax assets and liabilities are offset, if a legally enforceable right exists to offset deferred income tax assets against deferred income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

Contingent liabilities are not recognized in our consolidated financial statements. They are disclosed in the notes to our consolidated financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the consolidated financial statements but are disclosed in the notes to the consolidated financial statements when an inflow of economic benefits is probable.

Post quarter-end events that provide additional information about our financial position at the end of the reporting period (adjusting events) are reflected in the unaudited consolidated financial statements. Post quarter-end events that are not adjusting events are disclosed in the notes to the unaudited consolidated financial statements when material.

Preferred and common stocks are measured at par value for all shares issued. Incremental costs incurred directly attributable to the issuance of new shares are shown in equity as a deduction from proceeds, net of tax. Proceeds and/or fair value of considerations received in excess of par value are recognized as capital in excess of par value.

Treasury stocks are our own equity instruments which are reacquired and recognized at cost and presented as reduction in equity. No gain or loss is recognized in our consolidated income statement on the purchase, sale, reissuance or cancellation of our own equity instruments. Any difference between the carrying amount and the consideration upon reissuance or cancellation of shares is recognized as capital in excess of par value.

Change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction and any impact is presented as part of capital in excess of par value.

Retained earnings represent our net accumulated earnings less cumulative dividends declared.

Other comprehensive income comprise items of income and expense, including reclassification adjustments, that are not recognized in profit or loss as required or permitted by other PFRSs.

Non-controlling interests represent the equity interests in Metro Kidapawan Telephone Corporation, or MKTC, Datelco Global Communications, Inc., or DGCI, BOW, PCEV, Level Up!, Mabuhay Satellite, 3rd Brand, Maratel, BCC, Digital Paradise, netGames, Chikka, BayanTrade and Infocom not held directly by PLDT or indirectly through one of our subsidiaries. MKTC and DGCI are subsidiaries of Philcom.

New Accounting Standards and Interpretations to Existing Standards Effective Subsequent to
March 31, 2011

We will adopt the following revised standards and interpretations enumerated below which are relevant to us when these become effective. Except as otherwise indicated, we do not expect the adoption of these revised standards and amendments to PFRS to have a significant impact on our consolidated financial statements.

Amendments to PFRS 7, Disclosures – Transfers of Financial Assets. The amendments will allow users of financial statements to improve their understanding of transfer transactions of financial assets including understanding the possible effects of any risks that may remain with the entity that transferred the assets. The amendments also require additional disclosures if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period. These amendments are applied prospectively and are applicable for annual periods beginning on or after July 1, 2011.

Amendment to PAS 12, Income Taxes – Deferred Income Tax: Recovery of Underlying Assets. The amendment provides a practical solution to the problem of assessing whether recovery of an asset will be through use or sale. It introduces a presumption that recovery of the carrying amount of an asset will normally be through sale. This amendment is effective for annual periods beginning on or after January 1, 2012.

PFRS 9, Financial Instruments: Classification and Measurement. PFRS 9, as issued in 2010, reflects the first phase of the work on the replacement of PAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in PAS 39. The standard is effective for annual periods beginning on or after January 1, 2013. In subsequent phases, hedge accounting and derecognition will be addressed. The completion of this project is expected in 2011. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of our financial assets. We will quantify the effect to our consolidated financial statements in conjunction with the other phases, when issued, to present a comprehensive picture.

The preparation of our consolidated financial statements in conformity with PFRS requires us to make judgments, estimates and assumptions that affect the reported amounts of our revenues, expenses, assets and liabilities and disclosure of contingent liabilities at the reporting date. The uncertainties inherent in these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the assets or liabilities affected in the future years.

In the process of applying the PLDT Group’s accounting policies, management has made the following judgments, apart from those including estimations and assumptions, which have the most significant effect on the amounts recognized in our consolidated 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 SMHC, SMI, TSI, BOW, Mabuhay Satellite, PLDT Global, SPi and certain of its subsidiaries, and certain subsidiaries of Chikka, which is the U.S. dollar; and Singapore dollar for SCH, SGP, 3rd Brand, and certain subsidiaries of BayanTrade.

As a lessee, we have various lease agreements in respect of our 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 PAS 17, Leases, which requires us to make judgments and estimates of transfer of risk and rewards of ownership of the leased properties. Total lease expense arising from operating leases amounted to Php1,014 million and Php1,092 million for the three months ended March 31, 2011 and 2010, respectively. Total finance lease obligations amounted to Php15 million and Php43 million as at March 31, 2011 and December 31, 2010, respectively. See Note 19 – Interest-bearing Financial Liabilities and Note 26 – Financial Assets and Liabilities.

Significant influence in Manila Electric Company, or Meralco, on which PCEV has less than 20% ownership

Under PAS 28, significant influence must be present and currently exercisable over an investee to account for any interest in that investee as investment in an associate and carried at equity method of accounting. If an investor holds, directly or indirectly, less than 20% of the voting power of the investee, it is presumed that the investor does not have significant influence, unless such influence can be clearly demonstrated.

On March 30, 2010, following the transfer of PCEV’s Meralco shares to Beacon Electric Asset Holdings, Inc., or Beacon, PCEV’s direct ownership in Meralco was reduced to approximately 6% from approximately 20%. Beacon is a jointly controlled entity of PCEV and Metro Pacific Investments Corporation, or MPIC, for the purpose of consolidating the ownership interest of PCEV and MPIC in Meralco. The decrease in PCEV’s direct ownership in Meralco, however, did not result in a change in PCEV’s representation on the Meralco Board of Directors. Prior to the transfer of approximately 14% interest in Meralco to Beacon, PCEV had three out of the 11 Board of Directors seats in Meralco. Based on the Omnibus Agreement, or OA, among PCEV, MPIC and Beacon, both PCEV and MPIC agreed that an equal number of Meralco nominee directors shall be chosen from each list of nominees provided by PCEV and MPIC. If the number of Meralco Nominee Directors for Beacon is an odd number, the remaining one Meralco Nominee Director shall be chosen alternatively first from the list of nominees provided by MPIC and then from the list provided by PCEV. The total Beacon ownership in Meralco entitles it to nominate three Board of Directors seats, two of whom are the Chairman of the Board and the President of PCEV. For Meralco Board of Directors, committees and officers, these are jointly nominated from a list of nominees mutually agreed to by MPIC and PCEV. The Board of Directors members, committees and Meralco officers, which are the operating decision makers of Meralco, are represented by MPIC and PCEV through nominations. On this basis, PCEV has retained significant influence over Meralco, despite having less than 20% ownership interest, by virtue of PCEV’s 6% direct ownership interest together with its indirect interest of about 17.4% through PCEV’s investment in Beacon. See Note 10 – Investments in Associates and Joint Ventures.

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 the consolidated financial statements within the next financial year are discussed as follows:

PFRS requires that an impairment review be performed when certain impairment indicators are present. In the case of goodwill, at a minimum, such asset is subject to an annual impairment test and more frequently whenever there is an indication that such asset may be impaired. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires us to make an estimate of the expected future cash flows from the cash-generating unit and to choose a suitable discount rate in order to calculate the present value of those cash flows.

Determining the recoverable amount of property, plant and equipment, investments in associates and joint ventures, intangible assets 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, plant 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 condition 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 additional impairment charges under PFRS. Total impairment charges (including provision for doubtful account receivables and write-down of inventories and supplies) amounted to Php181 million and Php562 million for the three months ended March 31, 2011 and 2010, respectively. See Note 4 – Operating Segment Information, Note 5 – Income and Expenses and Note 9 – Property, Plant and Equipment.

The carrying values of our property, plant and equipment, investments in associates and joint ventures, goodwill and intangible assets, trade and other receivables, inventories and supplies and prepayments are separately disclosed in Notes 9, 10, 13, 15, 16 and 17, respectively.

We estimate the useful lives of our property, plant and equipment based on the periods over which our assets are expected to be available for use. Our estimate of the useful lives of our property, plant and equipment is based on our collective assessment of industry practice, internal technical evaluation and experience with similar assets. The estimated useful lives of our property, plant and equipment are reviewed at least at each financial year-end and are 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, plant and equipment would increase our recorded expenses and decrease our noncurrent assets.

The total depreciation and amortization of property, plant and equipment amounted to Php6,603 million and Php6,361 million for the three months ended March 31, 2011 and 2010, respectively. Total carrying values of property, plant and equipment, net of accumulated depreciation and amortization, amounted to Php159,662 million and Php163,184 million as at March 31, 2011 and December 31, 2010, respectively. See Note 4 – Operating Segment Information and Note 9 – Property, Plant and Equipment.

We have adopted the fair value approach in determining the carrying value of our investment properties. We opted to rely on independent appraisers in determining the fair values of our investment properties, and such fair values were determined based on recent prices of similar properties, with adjustments to reflect any changes in economic conditions since the date of those transactions. The amounts and timing of recorded changes in fair value for any period would differ if we made different judgments and estimates or utilized a different basis for determining fair value. Appraisal of investment properties is annually performed every December 31.

There were no gains from fair value adjustments charged to profit or loss for the three months ended March 31, 2011 and 2010. Total carrying values of our investment properties amounted to Php1,560 million each as at March 31, 2011 and December 31, 2010. See Note 12 – Investment Properties.

Our consolidated financial statements and financial performance reflect acquired businesses after the completion of the respective acquisition. We account for the acquired businesses using the acquisition method, which require extensive use of accounting judgments and estimates to allocate the purchase price to the fair market values of the acquiree’s identifiable assets and liabilities and contingent liabilities, if any, at the acquisition date. Thus, the numerous judgments made in estimating the fair market value to be assigned to the acquiree’s assets and liabilities can materially affect our financial performance.

Intangible assets acquired from business combination with finite lives are amortized over the useful economic life using the straight-line method of accounting. 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 amounted to Php75 million and Php91 million for the three months ended March 31, 2011 and 2010, respectively. Total carrying values of goodwill and intangible assets amounted to Php11,387 million and Php11,485 million as at March 31, 2011 and December 31, 2010, respectively. See Note 13 – Goodwill and Intangible Assets.

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. However, there is no assurance that we will generate sufficient taxable income to allow all or part of our deferred income tax assets to be utilized. We also review the level of projected gross margin for the use of Optional Standard Deduction, or OSD, and assess the future tax consequences for the recognition of deferred income tax assets and deferred income tax liabilities. Based on Smart’s and Wolfpac’s projected gross margin, they expect to continue using the OSD method in the foreseeable future.

Based on the above assessment, our consolidated unrecognized deferred income tax assets amounted to
Php1,647 million and Php1,477 million as at March 31, 2011 and December 31, 2010, respectively. In addition, our unrecognized net deferred income tax assets for items which would not result in future tax benefits when using the OSD method amounted to Php2,795 million and Php2,803 million as at March 31, 2011 and December 31, 2010, respectively. Total consolidated provision for deferred income tax amounted to Php213 million and Php109 million for the three months ended March 31, 2011 and 2010, respectively. Total consolidated net deferred income tax assets amounted to Php5,385 million and Php6,110 million as at March 31, 2011 and December 31, 2010, respectively, while total consolidated net deferred income tax liabilities amounted to Php1,015 million and Php1,099 million as at March 31, 2011 and December 31, 2010, respectively. See Note 4 – Operating Segment Information and Note 7 – Income Taxes.

If we assessed that there is an objective evidence that an impairment loss has been 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 management on the basis of factors that affect the collectibility of the accounts. In these cases, we use judgment based on the best available facts and circumstances, including, but not limited to, the length of our relationship with the customer and the customer’s credit status based on third party credit reports and known market factors, to record specific reserves for customers 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 affect 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 characteristic, 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 asset impairment provision for trade and other receivables recognized in our consolidated income statements amounted to Php159 million and Php522 million for the three months ended March 31, 2011 and 2010, respectively. Trade and other receivables, net of asset impairment, amounted to Php15,031 million and Php16,428 million as at March 31, 2011 and December 31, 2010, respectively. See Note 4 – Operating Segment Information, Note 5 – Income and Expenses, Note 15 – Trade and Other Receivables and Note 26 – Financial Assets and Liabilities.

We write down the cost of inventories whenever the net realizable value of inventories becomes lower than cost due to damage, physical deterioration, obsolescence, change in price levels or other causes. The lower of cost and net realizable value of inventories is reviewed on a periodic basis. Inventory items identified to be obsolete or unusable are written-off and charged as expense in our consolidated income statement.

Total write-down of inventories and supplies amounted to Php22 million and Php27 million for the three months ended March 31, 2011 and 2010, respectively. The carrying values of inventories and supplies amounted to Php2,417 million and Php2,219 million as at March 31, 2011 and December 31, 2010, respectively. See
Note 4 – Operating Segment Information, Note 5 – Income and Expenses and Note 16 – Inventories and Supplies.

The cost of defined benefit plans and present value of the pension obligation are determined using projected unit credit method. Actuarial valuation includes making various assumptions which consists, among other things, discount rates, expected rates of return on plan assets, rates of compensation increases and mortality rates. See Note 24 – Employee Benefits. Actual results that differ from our assumptions are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses at the end of the previous reporting period exceed 10% of the higher of the present value of the defined benefit obligation and the fair value of plan assets at that date. These excess actuarial gains and losses are recognized over the expected average remaining working lives of the employees participating in the plan. 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 at year-end.

Total consolidated pension benefit costs amounted to income of Php10 million and expense of Php59 million for the three months ended March 31, 2011 and 2010, respectively. Unrecognized net actuarial gains amounted to Php482 million and Php479 million as at March 31, 2011 and December 31, 2010, respectively. The prepaid benefit costs amounted to Php5,413 million and Php5,333 million as at March 31, 2011 and December 31, 2010, respectively. The accrued benefit costs amounted to Php438 million and Php415 million as at March 31, 2011 and December 31, 2010, respectively. See Note 5 – Income and Expenses, Note 17 – Prepayments and
Note 24 – Employee Benefits.

The new LTIP, or 2010 to 2012 LTIP, has been presented to and approved by the Executive Compensation Committee, or ECC, and the Board of Directors, and is based on profit targets for the covered Performance Cycle. The cost of 2010 to 2012 LTIP is determined using the projected unit credit method based on prevailing discount rates and profit targets. 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 other employee benefits. All assumptions are reviewed on a monthly basis. LTIP cost recognized for the three months ended March 31, 2011 and 2010 amounted to Php342 million and Php264 million, respectively. Total outstanding liability and fair value of 2010 to 2012 LTIP cost amounted to Php1,734 million and Php1,392 million as at March 31, 2011 and December 31, 2010, respectively. See Note 5 – Income and Expenses and
Note 24 – Employee Benefits.

Provision for asset retirement obligations are recognized in the period in which they are incurred if a reasonable estimate of fair value can be made. This requires an estimation of the cost to restore/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/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 Php1,375 million and Php1,344 million as at March 31, 2011 and December 31, 2010, respectively. See Note 20 – Deferred Credits and Other Noncurrent Liabilities.

We are currently involved in various legal proceedings and tax assessments. Our estimate of the probable costs for the resolution of these claims has been developed in consultation with our counsel handling the defense in these matters and is based upon our analysis of potential results. We currently do not believe these proceedings will have a material adverse effect on our consolidated financial statements. It is possible, however, that future financial performance could be materially affected by changes in our estimates or effectiveness of our strategies relating to these proceedings and assessments. See Note 25 – Provisions and Contingencies.

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. However, we cannot assure you that the use of such estimates will not result in material adjustments in future periods.

Revenues under a multiple element arrangement specifically applicable to our fixed line and wireless businesses are split into separately identifiable components based on their relative fair value to reflect the substance of the transaction. Where fair value is not directly observable, the total consideration is allocated using an appropriate allocation method.

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 such amount is 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 the 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.

Total fair values of financial assets and liabilities amounted to Php73,481 million and Php189,959 million, respectively, as at March 31, 2011, while the total fair values of financial assets and liabilities amounted to Php55,538 million and Php167,396 million, respectively, as at December 31, 2010. See Note 26 – Financial Assets and Liabilities.

Operating segments are components of the PLDT Group that engage in business activities from which they may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of PLDT Group), which operating results are regularly reviewed by the chief operating decision maker to make decisions about how resources are to be allocated to each of the segments and to assess their performances, and for which discrete financial information is available.

For management purposes, we are organized into business units based on our products and services and have three reportable operating segments as follows:

•

Wireless – wireless telecommunications services provided through our cellular service providers namely, Smart, and CURE; SBI, BOW, Airborne Access Corporation and PDSI, our wireless broadband service providers; Wolfpac and Chikka Group, our wireless content operators; and ACeS Philippines, our satellite operator;

•

Fixed Line – fixed line telecommunications services primarily provided by PLDT. We also provide fixed line services through PLDT’s subsidiaries ClarkTel, SubicTel, Philcom, Maratel, SBI, PDSI, BCC and PLDT Global, all of which together account for approximately 4% of our consolidated fixed line subscribers; and

•

ICT – information and communications infrastructure and services for internet applications, internet protocol-based solutions and multimedia content delivery provided by ePLDT and BayanTrade Group; knowledge processing solutions provided by the SPi Group; customer relationship management provided by SPi CRM; internet and online gaming services provided by Infocom, Digital Paradise (on April 1, 2011, ePLDT sold its 75% stake in Digital Paradise), netGames and Level Up!; and e-commerce, and IT-related services provided by other investees of ePLDT, as discussed in Note 10 – Investments in Associates and Joint Ventures.

On July 7, 2010, our Board of Directors approved the reorganization of the ePLDT Group into two business groups: (i) the ICT business group, which provides data center services, internet and online gaming services and business solutions and applications; and (ii) the BPO business group, which covers customer relationship management or call center operations under SPi CRM; and content solutions, medical billing and coding and medical transcription services under SPi. The BPO business group will be eventually transferred to PLDT, subject to the finalization of the terms and conditions thereof and the execution of relevant agreements.

Although our Board of Directors already approved the reorganization of ePLDT into two business groups — ICT business group and BPO business group, the actual reorganization has not yet been consummated as at May 10, 2011 and therefore, as at March 31, 2011, the chief operating decision maker continues to view our business activities using the three business units: Wireless, Fixed Line and ICT.

The chief operating decision maker and management monitor the operating results of each business unit separately for purposes of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on net income (loss) for the period; earnings before interest, taxes and depreciation and amortization, or EBITDA; EBITDA margin; and core income. Net income (loss) for the period is measured consistent with net income in the consolidated financial statements.

Core income for the period 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, asset impairment on noncurrent assets, other 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.

Transfer prices between operating segments are determined on an arm’s length basis similar to transactions with third parties. Segment revenues, segment expenses and segment results include transfers between business segments. These transfers are eliminated upon full consolidation.

The segment revenues, net income for the period, assets, liabilities, and other segment information of our reportable operating segments for the three months ended March 31, 2011 and 2010 and as at March 31, 2011 and December 31, 2010 are as follows:


										Inter-segment
		Wireless				Fixed Line		ICT		Transactions		Consolidated
		(in million pesos)
*March 31, 2011 (Unaudited)*
Revenues
External customer:	22,798				9,963		2,383		–		35,144
Service revenues (Note 3)	22,528				9,720		2,323		–		34,571
Non-service revenues (Notes 3 and 5)	270				243		60		–		573
Inter-segment transactions:	240				1,812		388		(2,440	)	–
Service revenues (Note 3)	240				1,812		374		(2,426	)	–
Non-service revenues (Notes 3 and 5)	–				–		14		(14	)	–

Total revenues	23,038				11,775		2,771		(2,440	)	35,144


Results
Depreciation and amortization (Notes 3 and 9)	3,374				3,040		189		–		6,603
Asset impairment (Notes 3, 5, 9, 10, 13, 15, 16, 17 and 26)	167				11		3		–		181
Interest income (Note 5)	199				115		9		(2	)	321
Equity share in net earnings of associates and joint ventures (Note 10)				132	–		60		–		192
Financing costs – net (Notes 5, 9, 19 and 26)	667				848		17		(2	)	1,530
Provision for income tax (Notes 3 and 7)	2,776				820		36		–		3,632
Net income for the period / Segment profit for the period	8,381				2,062		283		–		10,726
EBITDA for the period	14,549				5,907		454		44		20,954
EBITDA margin for the period	64%				51	%	17	%	–		61	%
Core income for the period	8,661				1,615		280		–		10,556


Assets and liabilities
Operating assets	121,708				210,770		15,088		(83,864	)	263,702
Investments in associates and joint ventures (Notes 3, 5, 10 and 26)	22,224				–		988		–		23,212
Deferred income tax assets – net (Notes 3, 7 and 26)	40				5,202		143		–		5,385
Consolidated total assets	143,972				215,972		16,219		(83,864	)	292,299


Operating liabilities	106,245				134,436		4,443		(34,983	)	210,141
Deferred income tax liabilities – net (Notes 3, 7 and 26)	530				22		168		295		1,015

Consolidated total liabilities	106,775				134,458		4,611		(34,688	)	211,156


Other segment information
Capital expenditures, including capitalized interest (Notes 5, 9, 19 and 20)	1,233				1,714		165		–		3,112

*March 31, 2010 (Unaudited)*
Revenues
External customer:	23,891				10,255		2,368		–		36,514
Service revenues (Note 3)	23,517				10,163		2,326		–		36,006
Non-service revenues (Notes 3 and 5)	374				92		42		–		508
Inter-segment transactions:	177				2,698		302		(3,177	)	–
Service revenues (Note 3)	177				2,698		294		(3,169	)	–
Non-service revenues (Notes 3 and 5)	–				–		8		(8	)	–
Total revenues	24,068				12,953		2,670		(3,177	)	36,514


Results
Depreciation and amortization (Notes 3 and 9)	3,263				2,910		188		–		6,361
Asset impairment (Notes 3, 5, 9, 10, 13, 15, 16, 17 and 26)	172				382		8		–		562
Interest income (Note 5)	212				152		8		(6	)	366
Equity share in net earnings (losses) of associates and joint ventures (Note 10)	393				(64	)	40		–		369
Financing costs – net (Notes 5, 9, 19 and 26)	779				1,057		44		(6	)	1,874
Provision for (benefit from) income tax (Notes 3 and 7)	2,733				943		(9	)	–		3,667
Net income for the period / Segment profit for the period	8,665				2,574		135		–		11,374
EBITDA for the period	14,440				6,314		370		59		21,183
EBITDA margin for the period	61%				49	%	14	%	–		59	%
Core income for the period	8,474				1,853		158		–		10,485


*December 31, 2010 (Audited)*
Assets and liabilities
Operating assets	111,852				197,318		15,095		(75,763	)	248,502
Investments in associates and joint ventures (Notes 3, 5, 10 and 26)			22,275		–		928		–		23,203
Deferred income tax assets – net (Notes 3, 7 and 26)	41				5,908		161		–		6,110
Consolidated total assets	134,168				203,226		16,184		(75,763	)	277,815


Operating liabilities	96,895				104,944		4,435		(26,943	)	179,331
Deferred income tax liabilities – net (Notes 3, 7 and 26)	596				22		178		303		1,099

Consolidated total liabilities	97,491				104,966		4,613		(26,640	)	180,430


*March 31, 2010 (Unaudited)*
Other segment information
Capital expenditures, including capitalized interest (Notes 5, 9, 19 and 20)	2,412				2,681		113		–		5,206

The following table shows the reconciliation of our consolidated EBITDA to our consolidated net income for the three months ended March 31, 2011 and 2010:

The following table shows the reconciliation of our consolidated core income to our consolidated net income for the three months ended March 31, 2011 and 2010:

The following table presents our revenues from external customers by category of products and services for the three months ended March 31, 2011 and 2010:

Disclosure of the geographical distribution of our revenues from external customers and the geographical location of our total assets are not provided since the majority of our consolidated revenues are derived from our operations within the Philippines.

In each of the three months ended March 31, 2011 and 2010, no revenue transactions with a single external customer accounted for 10% or more of our consolidated revenues from external customers.

Non-service revenues for the three months ended March 31, 2011 and 2010 consists of the following:

Compensation and employee benefits for the three months ended March 31, 2011 and 2010 consists of the following:

Over the past years, we have been implementing MRP in line with our continuing effort to reduce the cost base of our businesses. The total MRP cost charged to operations amounted to Php87 million and Php81 million for the three months ended March 31, 2011 and 2010, respectively. The decision to implement the MRP was anchored on the challenges faced by our businesses as significant changes in technology, increasing competition, and shifting market preferences have reshaped the future of our businesses. The MRP is being implemented in compliance with the Labor Code of the Philippines and all other relevant labor laws and regulations in the Philippines.

Cost of sales for the three months ended March 31, 2011 and 2010 consists of the following:

Asset impairment for the three months ended March 31, 2011 and 2010 consists of the following:

Interest income for the three months ended March 31, 2011 and 2010 consists of the following:

Financing costs – net for the three months ended March 31, 2011 and 2010 consists of the following:

Interest expense for short-term borrowings amounted to Php1 million and Php5 million for the three months ended March 31, 2011 and 2010, respectively.

The movements of other comprehensive income under equity of our consolidated statements of financial position for the three months ended March 31, 2011 and 2010 are as follows:

Revaluation increment on investment properties pertains to the difference between the carrying value and fair value of property, plant and equipment reclassified to investment property at the time of change in classification.

The components of consolidated net deferred income tax assets (liabilities) recognized in our consolidated statements of financial position as at March 31, 2011 and December 31, 2010 are as follows:

The components of our consolidated net deferred income tax assets (liabilities) as at March 31, 2011 and December 31, 2010 are as follows:


	2011			2010
	(Unaudited)			(Audited)
	(in million pesos)
Net deferred income tax assets:
Accumulated provision for doubtful accounts		2,485			2,488
Unearned revenues		2,470			2,586
Unamortized past service pension costs		2,442			2,548
Derivative financial instruments		875			1,028
Unrealized foreign exchange losses		870			924
Provision for impaired assets		379			379
Accumulated write-down of inventories to net realizable values		289			289
NOLCO		109			119
Asset impairment		27			27
MCIT		13			446
Capitalized taxes and duties – net of amortization		(170	)		(186	)
Capitalized foreign exchange differential – net of depreciation		(330	)		(363	)
Pension and other employee benefits		(1,338	)		(1,361	)
Undepreciated capitalized interest charges		(2,612	)		(2,685	)
Others		(124	)		(129	)

		5,385			6,110

Net deferred income tax liabilities:
Unearned revenues		632			668
Pension and other employee benefits		47			35
Undepreciated capitalized interest charges		(294	)		(304	)
Fair value adjustment on fixed assets from business combination		(296	)		(303	)
Intangible assets and fair value adjustments on assets acquired – net of amortization		(399	)		(423	)
Unrealized foreign exchange gains		(726	)		(707	)
Others		21			(65	)

		(1,015	)		(1,099	)

Movements of our consolidated net deferred income tax assets (liabilities) as at March 31, 2011 and December 31, 2010 are as follows:

The analysis of our consolidated net deferred income tax assets as at March 31, 2011 and December 31, 2010 are as follows:

The analysis of our consolidated net deferred income tax liabilities as at March 31, 2011 and December 31, 2010 are as follows:

Provision for corporate income tax for the three months ended March 31, 2011 and 2010 consists of:

The reconciliation between the provision for income tax at the applicable statutory tax rates and the actual provision for corporate income tax for the three months ended March 31, 2011 and 2010 are as follows:

On December 18, 2008, the Bureau of Internal Revenue, or BIR, issued Revenue Regulations No. 16-2008 which implemented the provisions of Republic Act 9504, or R.A. 9504 on OSD. Under the OSD method of computing taxable income, corporations may elect a standard deduction in an amount equivalent to 40% of gross income, as provided by law, in lieu of the itemized allowed deductions.

Smart and Wolfpac opted to use and availed of the OSD in computing their taxable income for the three months ended March 31, 2011 and 2010, respectively.

Smart and Wolfpac expect to continue to use the OSD method for the foreseeable future. The availment of OSD method affected their recognition of deferred income tax assets and liabilities. Deferred income tax assets and liabilities of Smart and Wolfpac, for which the related income and expense are not considered in determining gross income for income tax purposes, are not recognized as deferred income tax assets and liabilities on the consolidated statements of financial position. This is because the manner by which they will expect to recover or settle the underlying assets and liabilities would not result in any future tax consequence assuming OSD were applied. Deferred income tax assets and liabilities, for which the related income and expense are considered in determining gross income for income tax purposes, are recognized only to the extent of their future tax consequence assuming OSD were applied, which results in such deferred income tax assets and liabilities being reduced by the 40% allowable deduction provided for under the OSD method. Accordingly, the deferred income tax assets and liabilities that were not recognized due to OSD amounted to Php2,795 million and Php2,803 million as at March 31, 2011 and December 31, 2010, respectively. See Note 3 – Management’s Use of Judgments, Estimates and Assumptions.

The breakdown of our consolidated deductible temporary differences, carry forward benefits of unused tax credits from excess of MCIT over RCIT, and NOLCO (excluding those not recognized due to the adoption of OSD) for which no deferred income tax assets were recognized and the equivalent amount of unrecognized deferred income tax assets as at March 31, 2011 and December 31, 2010 are as follows:

Our consolidated deferred income tax assets have been recorded to the extent that such consolidated deferred income tax assets are expected to be utilized against sufficient future taxable profit. Deferred income tax assets related to the preceding table were not recognized as we believe that future taxable profit will not be sufficient to realize these deductible temporary differences and carry forward benefits of unused tax credits from excess of MCIT over RCIT, and NOLCO in the future.

The breakdown of our consolidated excess MCIT and NOLCO as at March 31, 2011 are as follows:

The excess MCIT totaling Php51 million as at March 31, 2011 can be deducted against future RCIT due. The excess MCIT that was deducted against RCIT due amounted to Php436 million and Php156 million for the three months ended March 31, 2011 and 2010, respectively.

NOLCO totaling Php3,178 million as at March 31, 2011 can be claimed as deduction against future taxable income. The NOLCO that was claimed as deduction against taxable income amounted to Php147 million and Php377 million for the three months ended March 31, 2011 and 2010, respectively.

Mabuhay Satellite and SubicTel are registered as Subic Bay Freeport Enterprises, while ClarkTel is registered as a Clark Special Economic Zone Enterprise under Republic Act No. 7227, or R.A. 7227, otherwise known as the Bases Conversion and Development Act of 1992. As registrants, Mabuhay Satellite, SubicTel and ClarkTel are entitled to all the rights, privileges and benefits established thereunder including tax and duty-free importation of capital equipment and a special income tax rate of 5% of gross income, as defined in R.A. 7227.

SPi is registered as an Ecozone information technology enterprise to provide IT enabled services with emphasis on the presentation of content in electronic information formats, data analysis, capture, abstracting and data processing, design, development and implementation of healthcare documentation solutions.

SPi CRM is registered as an Ecozone export enterprise to develop and operate a customer relationship management that serves local and overseas clients by providing customer relationship management services.

As registered PEZA enterprises, SPi and SPi CRM are entitled to certain tax and non-tax incentives which include, among other things, tax and duty-free importations, exemption from local tax and is liable for a final tax, in lieu of all taxes, of 5% gross income less allowable deductions as defined under R.A. 7916. The 5% final tax must be paid and remitted in accordance with the amendments contained in R.A. 8748, as follows: (a) 3% to the National Government; and (b) 2% which will be directly remitted by the business establishments to the Treasurer’s Office of the Municipality or City where the enterprise is located.

Two of its facilities (SPi CRM Iloilo and SPi CRM Pasig) will continue to enjoy income tax holiday, or ITH, incentive as a BOI registered entity in PEZA registered locations. ITH incentive commenced in March 2005 up to February 2011 for SPi CRM Iloilo. Upon expiration of the ITH, SPi CRM Iloilo is now subject to a special income tax rate of 5% of gross income as a PEZA registered location. ITH incentive commenced in August 2006 up to July 2012 for SPi CRM Pasig. In relation to this, they are required to comply with specific terms and conditions stated in their PEZA Supplemental Agreement.

The registration with PEZA for the operations of SPi CRM in Dumaguete is still in progress and therefore it is subject to the regular corporate income tax. However, the Local Investment Board of Dumaguete City had issued a Certificate of Registration and Eligibility which granted SPi CRM the exemption to pay local business taxes and basic real property taxes on improvements for the period from November 2010 to October 2013.

SHI was registered with the PEZA as an Ecozone information technology enterprise on a non-pioneer status last July 31, 2009. Under the terms of registration, SHI is entitled to certain tax and non-tax incentives which include, among other things, an ITH for four years starting June 2009.

Chikka Philippines, Inc., or CPI, a subsidiary of Chikka, was registered with the PEZA as an Ecozone information technology enterprise on a non-pioneer status last July 28, 2005. Under the terms of registration, CPI was entitled to certain tax and non-tax incentives which include, among other things, an ITH for four years from July 2005 to July 2009. Upon expiration of the ITH, CPI is now subject to 5% special tax on gross revenue, net of certain deductions specifically provided for by the Act, in lieu of all national and local taxes, except real property taxes imposed by the local government. Income derived from non-registered activities is subject to 30% RCIT on taxable income or 2% MCIT on total gross income, whichever is higher.

On January 3, 2007, the BOI approved ePLDT’s application for pioneer status as a new IT service firm in the field of services related to Internet Data Center for its new data center facility. ePLDT was granted a six-year ITH for its new data center facility from January 2007.

SBI is registered with the BOI on a pioneer status, namely as: (i) a new operator of telecommunications systems (inter-exchange carrier for data services); (ii) new information technology service firm in the field of providing internet services; and (iii) a new operator of telecommunications facilities (nationwide broadband wireless access). Under the terms of registration, SBI is entitled to certain tax and non-tax incentives which include, among other things, an ITH for six years. As at March 31, 2011, only the BOI registration for nationwide broadband wireless access continues to enjoy the ITH incentive, which will expire in July 2011.

Consolidated income derived from non-registered activities with Economic Zone and BOI is subject to the RCIT rate enacted as at the end of the reporting period.

Consolidated tax incentives that were availed from registration with Economic Zone and BOI amounted to
Php11 million and Php381 million for the three months ended March 31, 2011 and 2010, respectively.

The following table presents information necessary to calculate the earnings per common share, or EPS, for the three months ended March 31, 2011 and 2010:

Basic EPS is calculated by dividing our consolidated net income for the period attributable to common equity holders of PLDT (consolidated net income adjusted for dividends on all series of preferred shares except for dividends on preferred stock subject to mandatory redemption) by the weighted average number of common shares outstanding during the period.

Diluted EPS is calculated in the same manner assuming that, at the beginning of the year or at the time of issuance during the period, all outstanding options are exercised and convertible preferred shares are converted to common shares, and appropriate adjustments to consolidated net income are effected for the related income and expenses on preferred shares. Outstanding stock options will have a dilutive effect only when the average market price of the underlying common share during the period exceeds the exercise price of the stock option.

Convertible preferred shares are deemed dilutive when required dividends declared on each series of convertible preferred shares divided by the number of equivalent common shares, assuming such convertible preferred shares are converted to common shares, decrease the basic EPS. As such, the diluted EPS is calculated by dividing our consolidated net income attributable to common shareholders (consolidated net income, adding back any dividends and/or other charges recognized for the period related to the dilutive convertible preferred shares classified as liability, less dividends on non-dilutive preferred shares except for dividends on preferred stock subject to mandatory redemption) by the weighted average number of common shares excluding the weighted average number of common shares held as treasury shares, and including the common share equivalent arising from the conversion of the dilutive convertible preferred shares.

Series A to HH in 2011 and Series A to EE in 2010 were deemed dilutive based on a calculation of the required dividends on these preferred shares divided by the number of equivalent common shares assuming such preferred shares are converted into common shares, including the effect of the treasury shares, and compared against the basic EPS.

Where the effect of the assumed conversion of the preferred shares and the exercise of all outstanding options have an anti-dilutive effect, basic and diluted EPS are stated at the same amount.

In 2008, the Board of Directors approved a share buyback program of up to five million shares of PLDT’s common stock, representing approximately 3% of PLDT’s total outstanding shares of common stock. We had acquired a total of approximately 2.72 million shares of PLDT’s common stock, representing approximately 1% of PLDT’s outstanding shares of common stock at a weighted average price of Php2,388 per share for a total consideration of Php6,505 million in accordance with the share buyback program as at March 31, 2011 and December 31, 2010. The effect of the acquisition of shares of PLDT’s common stock pursuant to the share buyback program was considered in the computation of our basic and diluted earnings per common share for the three months ended March 31, 2011 and 2010. See Note 18 – Equity and Note 26 – Financial Assets and Liabilities for further discussion.

Movements in property, plant and equipment account for the three months ended March 31, 2011 and for the year ended December 31, 2010 are as follows:


																			Information
													Vehicles, furniture						origination
	Cable and wire			Central office						Buildings			and other network			Communications			and termination			Land and			Property under
	facilities			equipment			Cellular facilities			and improvements			equipment			satellite			equipment			land improvements			construction			Total
	(in million pesos)
As at December 31, 2009 (Audited)
Cost		126,327			87,517			83,451			21,693			35,282			966			8,940			2,458			24,058			390,692
Accumulated depreciation, impairment and amortization		(67,916	)		(66,505	)		(48,008	)		(9,219	)		(29,061	)		(966	)		(7,485	)		(276	)		–			(229,436	)

Net book value		58,411			21,012			35,443			12,474			6,221			–			1,455			2,182			24,058			161,256

Year Ended December 31, 2010 (Audited)
Net book value at beginning of year		58,411			21,012			35,443			12,474			6,221			–			1,455			2,182			24,058			161,256
Additions		1,494			245			2,336			228			2,045			–			184			–			22,284			28,816
Disposals/Retirements		(10	)		(60	)		(59	)		(286	)		(67	)		–			–			–			(2	)		(484	)
Translation differences charged directly to cumulative translation adjustments		23			7			–			(5	)		(59	)		–			–			–			(4	)		(38	)
Acquisition through business combinations		–			–			–			–			73			–			–			–			–			73
Impairment losses recognized during the year		–			(11	)		–			(13	)		(5	)		–			(91	)		–			–			(120	)
Reclassifications/Transfers (Note 12)		4,578			2,440			5,653			823			1,740			–			104			(54	)		(15,326	)		(42	)
Depreciation and amortization		(7,851	)		(3,705	)		(9,418	)		(2,004	)		(2,792	)		–			(506	)		(1	)		–			(26,277	)

Net book value at end of year (Note 3)		56,645			19,928			33,955			11,217			7,156			–			1,146			2,127			31,010			163,184

As at December 31, 2010 (Audited)
Cost		132,356			89,992			90,574			21,873			38,078			966			9,136			2,405			31,010			416,390
Accumulated depreciation, impairment and amortization		(75,711	)		(70,064	)		(56,619	)		(10,656	)		(30,922	)		(966	)		(7,990	)		(278	)		–			(253,206	)

Net book value (Note 3)		56,645			19,928			33,955			11,217			7,156			–			1,146			2,127			31,010			163,184

Period Ended March 31, 2011 (Unaudited)
Net book value at beginning of period (Note 3)		56,645			19,928			33,955			11,217			7,156			–			1,146			2,127			31,010			163,184
Additions		391			90			538			70			458			–			46			5			1,522			3,120
Disposals/Retirements		(1	)		(1	)		(10	)		–			(19	)		–			–			(1	)		(2	)		(34	)
Translation differences charged directly to cumulative translation adjustments		11			–			–			(8	)		(7	)		–			–			–			(1	)		(5	)
Reclassifications/Transfers (Note 12)		817			552			1,447			113			272			–			70			–			(3,271	)		–
Depreciation and amortization (Notes 3 and 4)		(2,038	)		(856	)		(2,365	)		(410	)		(815	)		–			(119	)		–			–			(6,603	)

Net book value at end of period (Note 3)		55,825			19,713			33,565			10,982			7,045			–			1,143			2,131			29,258			159,662

As at March 31, 2011 (Unaudited)
Cost		133,495			90,620			91,439			21,980			38,651			966			9,226			2,409			29,258			418,044
Accumulated depreciation, impairment and amortization		(77,670	)		(70,907	)		(57,874	)		(10,998	)		(31,606	)		(966	)		(8,083	)		(278	)		–			(258,382	)

Net book value (Note 3)		55,825			19,713			33,565			10,982			7,045			–			1,143			2,131			29,258			159,662

Substantially, all our telecommunications equipment are purchased outside the Philippines. Our significant sources of financing for such purchases are foreign loans requiring repayment in currencies other than Philippine pesos, principally in U.S. dollars. See Note 19 – Interest-bearing Financial Liabilities.

Interest and net foreign exchange losses capitalized to property, plant and equipment that qualified as borrowing costs for the three months ended March 31, 2011 and 2010 are as follows:

The average interest capitalization rates used were approximately 6% in each of the three months ended March 31, 2011 and 2010.

Our undepreciated capitalized net foreign exchange losses which qualified as borrowing costs amounted to Php1,203 million and Php1,325 million as at March 31, 2011 and December 31, 2010, respectively.

Property, plant and equipment includes the net carrying value of capitalized vehicles, furniture and other network equipment under financing leases amounting to Php4 million each as at March 31, 2011 and December 31, 2010. See Note 19 – Interest-bearing Financial Liabilities.

In September 2010, Smart recognized impairment losses on its public telephone equipment in the amount of
Php92 million and engaged a third party contractor to operate and maintain its payphone business. Prior to the engagement of the third party, an impairment test was done to assess net cash flows from the business. The result showed that the future net cash flows were not enough to recover the carrying value of the related assets over the useful life of such assets. The recoverable amount was determined based on value in use, calculated using cash flow projections covering a three-year period from 2011 to the end of the assets’ expected useful lives in 2013. The pre-tax discount rate applied to cash flow projections was 7%.

Movements in the cost of investments for the three months ended March 31, 2011 and for the year ended
December 31, 2010 are as follows:

Movements in the accumulated impairment losses for the three months ended March 31, 2011 and for the year ended December 31, 2010 are as follows:

Movements in the accumulated equity share in net earnings of associates and joint ventures for the three months ended March 31, 2011 and for the year ended December 31, 2010 are as follows:

On March 12, 2009, First Philippine Holdings Corporation, or FPHC, First Philippine Utilities Corporation, or FPUC, and Lopez, Inc., (collectively, the Lopez Group) and PLDT entered into an investment and cooperation agreement under which: (a) PLDT acquired, through PCEV as its designated affiliate, 223 million shares in Meralco representing approximately 20% of Meralco’s outstanding shares of common stock, for a cash consideration of Php20,070 million, or Php90 per share; and (b) PLDT and the Lopez Group agreed on certain governance matters, including the right of PLDT or its assignee to nominate certain senior management officers and members of the board of directors and board committees of Meralco.

As part of the transaction, PCEV and FPUC also entered into an exchangeable note agreement under which PCEV purchased an exchangeable note dated April 20, 2009, issued by FPUC, with a face value of Php2,000 million, exchangeable into approximately 22.2 million shares of common stock of Meralco, which form part of the
223 million shares or approximately 20% of Meralco’s voting common shares to be acquired by PCEV in the transaction. The exchange option was exercised simultaneously with the acquisition of such shares by PCEV. PCEV recognized a derivative asset of Php563 million on April 20, 2009 for the exchange option feature of the agreement. The residual amount of Php1,437 million was allocated as the value of the host contract of the exchangeable note. The derivative asset was subsequently carried at fair value through profit or loss while the host contract was carried at amortized cost using effective interest rate.

On July 14, 2009, PCEV completed its acquisition of 223 million shares in Meralco for a cash consideration of Php18,070 million for the purchase of approximately 200.8 million shares and the conversion into approximately 22.2 million shares of an exchangeable note issued by FPUC with a market value, including its derivative option, of Php3,286 million. Thus, the investment in 223 million shares in Meralco was recorded at Php21,356 million and a gain of Php1,286 million was recognized on the exchangeable note, representing the mark-to-market gains of Php1,170 million from the derivative option and the amortization of the note’s discount of Php116 million. The acquisition of the shares was implemented through a special block sale/cross sale executed at the PSE.

PCEV engaged the services of an independent appraiser to determine the fair value of Meralco’s specific identifiable assets and liabilities and allocate the purchase price of PCEV’s investment in Meralco among the identified assets and liabilities based on fair value. Based on the final purchase price allocation, the difference of Php8,377 million between PCEV’s share on the total fair value of Meralco’s specific identifiable assets and liabilities and the total cost of PCEV’s investments was allocated as follows: (a) Php1,517 million for utility, plant and others; (b) Php320 million for investment properties; (c) Php36 million for investments in associates and joint ventures; (d) Php1,286 million for intangible assets particularly for franchise; (e) Php137 million for contingent liability; (f) Php1,295 million for deferred income tax liability; and (g) Php6,650 million for goodwill.

On March 30, 2010, PCEV reduced its investment in Meralco by Php15,083 million, the proportionate carrying amount of the 154.2 million Meralco shares sold and transferred to Beacon, see discussion under “Investments in Joint-Ventures – Transfer of PCEV’s Equity Interest in Meralco” section. PCEV will continue to use the equity method to account for its remaining investment in 68.8 million of Meralco’s common shares. See Note 3 – Management’s Use of Judgments, Estimates and Assumptions. The carrying value of PCEV’s direct investment in Meralco amounted to Php6,632 million with market value of Php17,750 million as at March 31, 2011 based on quoted share price of Php258 per share, while the carrying value of PCEV’s direct investment in Meralco amounted to Php6,733 million with market value of Php15,686 million as at December 31, 2010 based on quoted share price of Php228 per share.

In May 2006, ePLDT subscribed to newly issued common shares of Philweb, an internet-based online gaming company, equivalent to 20% of the total outstanding capital stock of Philweb at a price of Php0.020 per share or an aggregate amount of Php503 million. Of the total subscription price, Php428 million was paid by ePLDT on the closing date. A portion of the unpaid subscription price amounting to Php25 million will be paid by ePLDT at the same time as the Philweb majority stockholders pay the remaining unpaid portion of the subscription pursuant to a general call on subscription to be made by Philweb’s Board of Directors. The remaining unpaid balance of
Php50 million will be paid upon the lapse of certain post-closing price adjustment periods.

In October 2006, ePLDT acquired an additional 8,038 million shares of Philweb at a price of Php0.026 per share or an aggregate amount of Php209 million. This represents an additional 6.2% of the outstanding shares of Philweb, raising ePLDT’s total equity stake to 26.87%. As at March 31, 2011 and December 31, 2010, ePLDT’s equity interest in Philweb is 26.4%.

Philweb is primarily engaged in internet-based online gaming, through its appointment as Principal Technology Service Provider under the Marketing Consultancy Agreement for Internet Sports Betting and Internet Casino with the Philippine Amusement and Gaming Corporation, or PAGCOR. Philweb offers Internet Sports Betting in over 180 PAGCOR Internet Sports Betting Stations and over 180 Internet Casino Stations nationwide. The market value of ePLDT’s investment in Philweb, based on quoted share price, amounted to Php5,418 million and
Php5,358 million as at March 31, 2011 and December 31, 2010, respectively.

As at March 31, 2011, ACeS Philippines had a 36.99% investment in AIL, a company incorporated under the laws of Bermuda. AIL owns the Garuda I Satellite and the related system control equipment in Batam, Indonesia.

AIL has incurred recurring significant operating losses, negative operating cash flows, and significant levels of debt. The financial condition of AIL was partly due to the National Service Providers’, or NSPs, inability to generate the amount of revenues originally expected as the growth in subscriber numbers has been significantly lower than budgeted. These factors raised substantial doubt about AIL’s ability to continue as a going concern. On this basis, we recognized a full impairment provision of Php1,896 million in respect of our investment in AIL in 2003.

Unrecognized share in net income of AIL amounted to Php15 million for the three months ended March 31, 2011 while the unrecognized share in net losses of AIL amounted to Php9 million for the three months ended March 31, 2010. Share in net cumulative losses amounting to Php2,068 million and Php2,102 million as at March 31, 2011 and December 31, 2010, respectively, were not recognized as we do not have any legal or constructive obligation to pay for such losses and have not made any payments on behalf of AIL.

See Note 23 – Related Party Transactions and Note 26 – Financial Assets and Liabilities for further details as to the contractual relationships with respect to AIL.

The following tables present our share in the summarized financial information of our investments in associates in conformity with PFRS for equity investees in which we have significant influence as at March 31, 2011 and December 31, 2010 and for the three months ended March 31, 2011 and 2010:

The above information includes our share in the financial position and operating results of Meralco based on the following summarized financial information at gross amounts as at March 31, 2011 and December 31, 2010 and for the three months ended March 31, 2011 and 2010 as shown below, which were adjusted to conform with our accounting policy on investment properties:

On March 1, 2010, PCEV, MPIC and Beacon, entered into an Omnibus Agreement, or OA. Beacon, formerly known as Rightlight Holdings, Inc., was organized with the sole purpose of holding the respective shareholdings of PCEV and MPIC in Meralco. PCEV and MPIC are Philippine affiliates of First Pacific and both held equity shares in Meralco. Under the OA, PCEV and MPIC have agreed to set out their mutual agreement in respect of, among other matters, the capitalization, organization, conduct of business and the extent of their participation in the management of the affairs of Beacon.

Prior to the transactions contemplated under the OA, MPIC beneficially owned the entire outstanding capital stock of Beacon, consisting of 25,000 common shares of Beacon, with a total par value of Php25,000.

On April 29, 2010, the Philippine SEC approved Beacon’s application to increase its authorized capital stock to Php5 billion consisting of 3 billion common shares with par value of Php1 per share and

2 billion preferred shares with par value of Php1 per share. The preferred shares of Beacon are non-voting, not convertible to common shares or any shares of any class of Beacon, have no pre-emptive rights to subscribe to any share or convertible debt securities or warrants issued or sold by Beacon. The preference shareholder is entitled to liquidation preference and yearly cumulative dividends at the rate of 7% of the issue value subject to: (a) availability of unrestricted retained earnings; and (b) dividend payment restrictions imposed by Beacon’s bank creditors.

Under the OA, each of PCEV and MPIC agreed to subscribe to 1,156.5 million common shares of Beacon, for a subscription price of Php20 per share or a total of Php23,130 million. PCEV and MPIC also agreed that their resulting equity after such subscriptions and PCEV’s purchase from MPIC of 12,500 Beacon common shares will be 50% each of the outstanding common shares of Beacon.

MPIC additionally agreed to subscribe to 801 million shares of Beacon’s preferred stock entitled to liquidation preference and yearly cumulative dividends at the rate of 7% for a subscription price of Php10 per share or a total of Php8,010 million.

The completion of the subscription of MPIC to 1,156.5 million common shares and 801 million preferred shares of Beacon was subject to the following conditions, all of which have been satisfied:

(a) the approval of MPIC’s Board of Directors, which was obtained on March 1, 2010; (b) the approval of the shareholders of First Pacific, which was obtained on March 30, 2010; and (c) the full payment of the subscription price, which was made on March 30, 2010. Consequently, on March 30, 2010, MPIC completed its subscription to 1,156.5 million common shares of Beacon and approximately 801 million preferred shares of Beacon in consideration of: (1) the transfer of 163.6 million Meralco shares at a price of Php150 per share, or Php24,540, million in the aggregate; and (2) Php6,600 million in cash, as further described below in “Transfer of Meralco Shares to Beacon”.

The completion of the subscription of PCEV to 1,156.5 million common shares of Beacon was subject to the following conditions, all of which have been satisfied: (a) the approval of PCEV’s Board of Directors, which was obtained on March 1, 2010; (b) the approval of the shareholders of First Pacific, which was obtained on March 30, 2010; (c) the approval of the shareholders of PCEV, which was obtained on

May 7, 2010; and (d) the full payment of the subscription price, which was made on May 12, 2010.

Although PCEV secured the approval of its shareholders only on May 7, 2010, such approval was deemed to be a formality as Smart owns 99.5% of PCEV’s capital stock. Consequently, upon receipt of all other required approvals under the OA on March 30, 2010, including that of the shareholders of First Pacific, PCEV recognized as an asset the deposit for future stock subscription of Php23,130 million for its subscription to 1,156.5 million common shares of Beacon. The deposit for future stock subscription was eventually reclassified to investment account when Beacon’s increase in authorized capital stock was approved by the Philippine SEC in April 2010.

The subscription price of PCEV’s and MPIC’s subscription to Beacon shares was offset in full (in the case of PCEV) and in part (in the case of MPIC) against the consideration for the transfer of Meralco shares held by PCEV and MPIC as described in “Transfer of Meralco Shares to Beacon” section below. In addition, MPIC settled its remaining balance in cash. On May 12, 2010, PCEV also completed the purchase from MPIC of 12,500 shares or 50% of the 25,000 Beacon common shares originally owned by MPIC.

Alongside with the subscription to the Beacon shares described above, Beacon agreed to purchase 154.2 million and 163.6 million Meralco shares, or the Transferred Shares, from PCEV and MPIC, respectively, for a consideration of Php150 per share or a total of Php23,130 million for the PCEV Meralco shares and Php24,540 million for the MPIC Meralco shares.

The completion of the sale of the MPIC Meralco shares to Beacon was subject to the following conditions, all of which have been satisfied: (a) the approval of MPIC’s Board of Directors, which was obtained on March 1, 2010; (b) the approval of the Board of Directors of First Pacific, which was obtained on March 1, 2010; (c) the approval of the shareholders of First Pacific, which was obtained on March 30, 2010; and (d) the release of the pledge over the MPIC Meralco shares, which was completed on March 30, 2010. Consequently, on March 30, 2010, MPIC transferred 163.6 million Meralco shares to Beacon at a price of Php150 per share for a total consideration of Php24,540 million.

The completion of the sale of the PCEV Meralco shares to Beacon was subject to the following conditions, all of which have been satisfied: (a) the approval of PCEV’s Board of Directors, which was obtained on March 1, 2010; (b) the approval of the Board of Directors of First Pacific, which was obtained on March 1, 2010; (c) the approval of the shareholders of First Pacific, which was obtained on

March 30, 2010; and (d) the approval of the shareholders of PCEV, which was obtained on May 7, 2010. Consequently, on May 12, 2010, PCEV transferred 154.2 million Meralco shares to Beacon at a price of Php150 per share for a total consideration of Php23,130 million.

The transfer of legal title to the Meralco shares was implemented through a special block sale/cross sale in the PSE.

Although PCEV secured the approval of its shareholders only on May 7, 2010, such approval was deemed to be a formality as Smart owns 99.5% of PCEV’s capital stock. Consequently, upon receipt of all other required approvals under the OA on March 30, 2010, including that of the shareholders of First Pacific, PCEV recognized a Php15,083 million investment (initially recognized as deposit for future stock subscription, see discussion above) in Beacon representing the proportionate carrying cost of the

154.2 million Meralco shares transferred to Beacon under the OA. PCEV recognized a deferred gain of Php8,047 million for the difference between the Php23,130 million transfer price of the Meralco shares to Beacon and the Php15,083 million carrying amount in PCEV’s books of the Meralco shares transferred. The deferred gain, presented as a reduction in PCEV’s investment in Beacon, will only be realized upon the disposal of the investment to a third party.

Subject to rights over certain property dividends that may be declared or distributed in respect of the approximately 317.8 million Transferred Shares, which will be assigned to FPHC if the Call Option (as discussed below), is exercised, the rights, title and interest transferred to Beacon by MPIC and PCEV in respect of the approximately 317.8 million Transferred Shares includes: (a) all shares issued by Meralco by way of stock dividends on the Transferred Shares from March 1, 2010; (b) all property or cash dividends declared or paid on the Transferred Shares from March 1, 2010; (c) all other rights accruing on the Transferred Shares from March 1, 2010; and (d) the proceeds of all of the foregoing.

PCEV may, at some future time and under such terms and conditions as may be agreed by PCEV, MPIC and Beacon, transfer to Beacon its remaining 68.8 million Meralco common shares.

Under the OA, MPIC assigned its right to acquire the call option, or the Call Option, over 74.7 million common shares of Meralco held by FPHC, or the Option Shares, to Beacon. As a result of this assignment, Beacon and FPHC executed an Option Agreement dated March 1, 2010 pursuant to which FPHC granted the Call Option over the Option Shares to Beacon.

The Call Option is exercisable at the option of Beacon during the period from March 15, 2010 until midnight of May 15, 2010. The exercise price for the Option Shares is Php300 per share or an aggregate exercise price of Php22,410 million. Beacon exercised the Call Option on March 30, 2010 and FPHC transferred the 74.7 million shares of Meralco common stock to Beacon in consideration of the payment by Beacon of Php22,410 million in cash on March 30, 2010.

Subject to rights over certain property dividends that may be declared or payable in respect of the

74.7 million shares of Meralco common stock, which are retained by FPHC following the Call Option exercise, the rights, title and interest transferred to Beacon by FPHC in respect of the Option Shares includes: (a) all shares issued by Meralco by way of stock dividends on the Option Shares from

March 1, 2010; (b) all property or cash dividends declared or paid on the Transferred Shares from

March 1, 2010; (c) all other rights accruing on the Transferred Shares from March 1, 2010; and (d) the proceeds of any sale or disposition of any of the foregoing.

With respect to the approximately 317.8 million Transferred Shares, the remaining 68.8 million Meralco common shares held by PCEV and the 74.7 million Option Shares transferred by FPHC to Beacon pursuant to the Call Option, FPHC has the benefit of being assigned, or retaining in the case of the Option Shares, certain property dividends that may be declared on such shares.

Beacon, PCEV and MPIC have also agreed on certain corporate governance matters, including Board composition, election of officers, shareholders’ action, representation to the Meralco Board, nomination of the Meralco Board Committees, and nomination of Meralco officers. The corporate governance agreements and Beacon equity structure resulted in a jointly controlled entity.

On March 30, 2010, Beacon also entered into an Php18,000 million ten-year corporate notes facility with First Metro Investment Corporation and PNB Capital and Investment Corporation as joint lead arrangers and various local financial institutions as noteholders. The proceeds of the notes facility partially financed the acquisition of Meralco shares by Beacon pursuant to its exercise of the Call Option. The amount drawn under this facility amounted to Php16,200 million (Php16,031 million, net of debt issuance cost of Php169 million), and the remaining undrawn balance amounted to Php1,800 million as at March 31, 2011. This facility is not guaranteed by PLDT and is not included in our consolidated debt.

In 2010, Beacon engaged the services of an independent appraiser to provide the fair market values of the operating equity investments, fixed assets and intangible assets of Meralco at the time of Beacon’s acquisition of its Meralco shares and allocate the purchase price of Beacon’s investment in Meralco among the identifiable assets and liabilities based on fair value. Based on the final purchase price allocation, the difference of Php50,595 million between Beacon’s share of the total fair value of Meralco’s specific identifiable assets and liabilities and the total cost of Beacon’s investment was allocated as follows: (a) Php2,521 million for utility, plant and others;
(b) Php341 million for investment properties; (c) Php59 million for investment in associates and joint ventures;
(d) Php1,814 million for intangible assets particularly for franchise; (e) Php26 million for contingent liability;
(f) Php2,018 million for deferred income tax liabilities; and (g) Php47,904 million for goodwill.

Beacon also recognized in March 2010, a liability for contingent consideration amounting to Php2,373 million for certain property dividends that may be declared on its Meralco shares pursuant to the Option Agreement between Beacon and FPHC. The liability for contingent consideration was remeasured based on the fair value of said property dividends as at December 31, 2010, and the resulting re-measurement loss of Php331 million was charged to profit or loss for the year ended December 31, 2010.

As at March 31, 2011, Beacon held 392.5 million Meralco common shares representing approximately 34.8% equity interest in Meralco with a carrying value of Php72,919 million and market value of Php101,266 million based on quoted price of Php258 per share.

In June 2010, SHI and MasterCard Asia/Pacific Pte. Ltd., or MasterCard Asia, entered into a joint venture agreement under which the parties agreed to form MPS. The joint venture will develop, provide and market certain mobile payment services among other activities as stipulated in the agreement. MPS was incorporated in Singapore on June 4, 2010 and is 40% and 60% owned by SHI and MasterCard Asia, respectively. On November 9, 2010, SHI contributed US$2.4 million representing 40% ownership in MPS.

ePLDT entered into a joint venture agreement on June 27, 2003 with DataPost Pte. Ltd., or DataPost, a subsidiary of Singapore Post, or Spring, and G3 Worldwide ASPAC pursuant to which the parties formed ePDS, a bills printing company that performs laser printing and enveloping services for statements, bills and invoices, and other VAS for companies in the Philippines. ePLDT has a 50% equity interest in ePDS, while DataPost has a 30% equity interest. Spring, the largest international mail services provider, owns the remaining 20% equity interest. ePDS has an initial paid-up capital of Php11 million.

PLDT Global holds 100% nominal interest in PLDT Italy, a company incorporated under the laws of Italy, which is intended to carry the joint venture business between PLDT Global and Hutchison Global Communications Limited, or HGC, a company based in Hong Kong. On March 12, 2008, PLDT Global and HGC entered into a Co-operation Agreement wherein the parties agreed to launch their first commercial venture in Italy by offering mobile telecommunications services through PLDT Italy. Under the terms of the agreement, PLDT Global and HGC agreed to share equally the profit or loss from the operations of PLDT Italy. As a condition precedent to the effectiveness of the Co-Operation Agreement, PLDT Global pledged 50% of its shareholdings in PLDT Italy to HGC.

On May 8, 2010, the partners in a special quotaholder’s meeting, resolved to confirm and approve the termination and withdraw of PLDT Italy’s Smart Pinoy services, which rendered PLDT Italy non-operational.

As at March 31, 2011 and December 31, 2010, the aggregate amount of funding contributed by each partner to the joint venture is Euro 3.9 million, or Php238 million, each or a total of Euro 7.8 million, or Php476 million. As at March 31, 2011, PLDT Global has made a full impairment provision on its funding contribution of Euro 3.9 million, or Php238 million, to PLDT Italy.

The following table presents our share in the summarized financial information of our investments in joint ventures as at March 31, 2011 and December 31, 2010 and for the three months ended March 31, 2011 and 2010:

The above information includes our share in the financial position and operating results of Beacon based on the following summarized financial information of Beacon at gross amounts as at March 31, 2011 and December 31, 2010 and for the three months ended March 31, 2011 and 2010 as shown below:

As at March 31, 2011, we have no outstanding capital commitments with our joint ventures.

In 2007, Smart purchased, at a discount, a NAPOCOR Zero Coupon Bond, or NAPOCOR Bond, with a face value of Php380 million, maturing on November 29, 2012 at a net yield to maturity of 6.88%. The NAPOCOR Bond, which is classified as a financial asset held-to-maturity, is carried at amortized cost using the effective interest rate method. Interest income recognized on the NAPOCOR Bond amounted to Php6 million and Php5 million for the three months ended March 31, 2011 and 2010, respectively.

In 2008, Smart purchased at par a ten-year RCBC Tier 2 Note, or RCBC Note, with a face value of Php150 million bearing a fixed rate of 7.00% for the first five years and the step-up interest rate from the fifth year up to maturity date. The RCBC Note may be redeemed at the option of the Issuer at par plus accrued and unpaid interest on February 22, 2013. Smart designated the RCBC Note as held-to-maturity financial asset. Interest income recognized on the RCBC Note amounted to Php2 million in each of the three months ended March 31, 2011 and 2010.

Movements in investment properties account for the three months ended March 31, 2011 and for the year ended December 31, 2010 are as follows:

⁽¹⁾

Presented as part of “Other income” in our consolidated income statement.

Investment properties, which consist of land and building, are stated at fair values, which have been determined annually based on the year-end appraisal performed by an independent firm of appraisers, an industry specialist in valuing these types of investment properties. The valuation was based on an open market value, supported by a market evidence in which such assets could be exchanged between a knowledgeable and willing buyer and seller in an arm’s length transaction at the date of valuation. None of our investment properties are being leased to third parties that earn rental income.

Repairs and maintenance expenses relating to investment properties amounted to Php22 million in each of the three months ended March 31, 2011 and 2010.

Movements in goodwill and intangible assets for the three months ended March 31, 2011 and for the year ended December 31, 2010 are as follows:


	Intangible Assets																			Total Goodwill
									Technology					Total						and Intangible
	Customer List			Spectrum		Licenses			Application			Trademark		Intangible Assets			Goodwill			Assets
	(in million pesos)
March 31, 2011 (Unaudited)
Costs:
Balance at beginning of period		1,632			1,205		554			993			159		4,543			14,733			19,276
Additions		–			–		3			–			–		3			–			3
Translation and other adjustments		(14	)		–		(2	)		3			–		(13	)		(61	)		(74	)

Balance at end of period		1,618			1,205		555			996			159		4,533			14,672			19,205

Accumulated amortization and impairment:
Balance at beginning of period		1,212			509		426			977			41		3,165			4,626			7,791
Amortization during the period (Note 3)		44			20		6			2			3		75			–			75
Translation and other adjustments		(20	)		–		6			(2	)		1		(15	)		(33	)		(48	)

Balance at end of period		1,236			529		438			977			45		3,225			4,593			7,818

Net balance at end of period (Notes 3 and 26)		382			676		117			19			114		1,308			10,079			11,387

Estimated useful lives (in years)		1 – 8			15		2 – 18			3 – 5			1 – 10		–			–			–
Remaining useful lives (in years)		2 – 7			9		1 – 12			2			9		–			–			–

December 31, 2010 (Audited)
Costs:
Balance at beginning of year		1,655			1,205		613			967			27		4,467			15,201			19,668
Additions		19			–		19			4			1		43			–			43
Translation and other adjustments		(42	)		–		(78	)		22			131		33			(468	)		(435	)
Balance at end of year		1,632			1,205		554			993			159		4,543			14,733			19,276

Accumulated amortization and impairment:
Balance at beginning of year		995			428		448			964			–		2,835			3,809			6,644
Impairment during the year		56			–		18			–			–		74			1,169			1,243
Amortization during the year		219			81		36			11			41		388			–			388
Translation and other adjustments		(58	)		–		(76	)		2			–		(132	)		(352	)		(484	)
Balance at end of year		1,212			509		426			977			41		3,165			4,626			7,791

Net balance at end of year (Notes 3 and 26)		420			696		128			16			118		1,378			10,107			11,485

Estimated useful lives (in years)		1 – 8			15		2 – 18			3 – 5			1 – 10		–			–			–
Remaining useful lives (in years)		1 – 7			9		1 – 12			2 – 4			9		–			–			–

Intangible Assets from Acquisition of SPi, Level Up! and CyMed, Inc., or CyMed

In 2010, ePLDT recognized an impairment of its remaining intangible assets from the acquisition of SPi and CyMed amounting to Php19 million and Php38 million, respectively, pertaining to the medical transcription business of SPi, since the carrying amount of the individual assets from SPi and CyMed were deemed unrecoverable.