UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 20-F

o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 –

For the fiscal year ended December 31, 2008

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 –

For the transition period from                      to                     

o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 –

Date of event requiring this shell company report                     

Philippine Long Distance Telephone Company

(Exact name of Registrant as specified in its charter)

Republic of the Philippines
(Jurisdiction of incorporation or organization)

Ramon Cojuangco Building
Makati Avenue
Makati City, Philippines
(Address of principal executive offices)

Atty. Ma. Lourdes C. Rausa-Chan, telephone: +(632) 816-8556; lrchan@pldt.com.ph;
Ramon Cojuangco Bldg., Makati Avenue, Makati City, Philippines
(Name, telephone, e-mail and/or facsimile number and address of Company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class		Name of each exchange on which registered
Common Capital Stock, Par Value Five Philippine Pesos Per Share		New York Stock Exchange*
American Depositary Shares, evidenced by American Depositary Receipts, each representing one share of Common Capital Stock		New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

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

10.500% Notes due 2009

11.375% Notes due 2012

8.350% Notes due 2017

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

As at December 31, 2008:
187,483,837 shares of Common Capital Stock, Par Value Five Philippine Pesos Per Share
441,480,512 shares of Serial Preferred Stock, Par Value Ten Philippine Pesos Per Share

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

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

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

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

Large Accelerated Filer þ		Accelerated Filer o		Non-Accelerated Filer o

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

U.S. GAAP o

International Financial Reporting Standards as issued by the International Accounting Standards Board þ

Other o

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

Item 17 o Item 18 o

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

 

 

TABLE OF CONTENTS

CERTAIN CONVENTIONS AND TERMS USED IN THIS REPORT			3
FORWARD-LOOKING STATEMENTS			5
PRESENTATION OF FINANCIAL INFORMATION			6
PART I			6
Item 1. Identity of Directors, Senior Management and Advisors			6
Item 2. Offer Statistics and Expected Timetable			6
Item 3. Key Information			6
Selected Financial Data			6
Capital Stock			9
Dividends Declared			9
Dividends Paid			10
Exchange Rates			10
Risk Factors			11
Item 4. Information on the Company			21
Overview			21
Historical Background and Development			21
Recent Developments			22
Organization			23
Strengths			26
Strategy			27
Business			27
Infrastructure			37
Interconnection Agreements			40
Licenses and Regulation			40
Competition			43
Environmental Matters			46
Intellectual Property Rights			46
Properties			46
Item 4A. Unresolved Staff Comments			47
Item 5. Operating and Financial Review and Prospects			47
Overview			47
Critical Accounting Policies			48
New Accounting Pronouncements Effective Subsequent to 2008			53
Results of Operations			54
Plans and Prospects			88
Liquidity and Capital Resources			89
Impact of Inflation and Changing Prices			95
Item 6. Directors, Senior Management and Employees			96
Directors, Key Officers and Advisors			96
Terms of Office			103
Family Relationships			103
Compensation of Key Management Personnel of the PLDT Group			103
Long-Term Incentive Plan			104
Executive Stock Option Plan			105
Share Ownership			105
Board of Directors – Independent Directors			106
Audit, Governance and Nomination, Executive Compensation and Technology Strategy Committees			106
Directors’ and Officers’ Involvement in Certain Legal Proceedings			109
Employees and Labor Relations			111
Pension and Retirement Benefits			111
Item 7. Major Shareholders and Related Party Transactions			112
Related Party Transactions			114
Item 8. Financial Information			114
Consolidated Statements and Other Financial Information			114
Legal Proceedings			114
Dividend Distribution Policy			116

Item 9. The Offer and Listing			116
Common Capital Stock and Amercian Depositary Shares			116
Item 10. Additional Information			117
Articles of Incorporation and By-Laws			117
Material Contracts			122
Exchange Controls and Other Limitations Affecting Securities Holders			122
Taxation			123
Documents on Display			126
Item 11. Quantitative and Qualitative Disclosures About Market Risks			127
Liquidity Risk			127
Foreign Currency Exchange Risk			127
Interest Rate Risk			129
Credit Risk			131
Impairment Assessments			133
Item 12. Description of Securities Other than Equity Securities			134
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies			134
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds			134
Item 15. Controls and Procedures			134
Item 16A. Audit Committee Financial Expert			135
Item 16B. Code of Business Conduct and Ethics			135
Item 16C. Principal Accountant Fees and Services			141
Item 16D. Exemption from the Listing Standards for Audit Committees			141
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchaser			141
Item 16F. Change in Registrant’s Certifying Accountant			142
Item 16G. Corporate Governance			142
PART III
Item 17. Financial Statements			143
Item 18. Financial Statements			143
Item 19. Exhibits			144
EXHIBIT INDEX			146
CERTIFICATION			151

 ii 

CERTAIN CONVENTIONS AND TERMS USED IN THIS REPORT

Unless the context indicates or otherwise requires, references to “we,” “us,” “our” or “PLDT Group” mean Philippine Long Distance Telephone Company and its consolidated subsidiaries, and references to “PLDT” mean Philippine Long Distance Telephone Company, not including its consolidated subsidiaries (see Note 2 – Summary of Significant Accounting Policies and Practices to the accompanying audited consolidated financial statements in Item 18 for a list of these subsidiaries, including a description of their respective principal business activities).

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

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

In this report, unless otherwise specified or the context otherwise requires, all references to “pesos,” “Philippine pesos” or “Php” are to the lawful currency of the Philippines, all references to “dollars,” “U.S. dollars” or “US$” are to the lawful currency of the United States, all references to “Japanese yen,” “JP¥” or “¥” 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 peso amounts into U.S. dollars in this report were made based on the volume weighted average exchange rate quoted through the Philippine Dealing System, which was Php47.647 to US$1.00 on December 31, 2008. On March 31, 2009, the volume weighted average exchange rate quoted was Php48.422 to US$1.00.

In this report, each reference to:

•

3rd Brand means 3rd Brand Pte. Ltd., an 85%-owned subsidiary of Smart;

•

ACeS Philippines means ACeS Philippines Cellular Satellite Corporation, our wholly-owned subsidiary;

•

AIL means ACeS International Limited, a 36.99%-owned associate of ACeS Philippines;

•

Airborne Access means Airborne Access Corporation, a 99.4%-owned subsidiary of Smart;

•

BayanTrade means BayanTrade Dotcom, Inc., a 45.11%-owned associate of ePLDT;

•

BCC means Bonifacio Communications Corporation, a 75%-owned subsidiary of PLDT;

•

BSP means Bangko Sentral ng Pilipinas;

•

ClarkTel means PLDT Clark Telecom, Inc., a wholly-owned subsidiary of PLDT;

•

CURE means Connectivity Unlimited Resources Enterprises, a wholly-owned subsidiary of Smart;

•

CyMed means CyMed, Inc., a wholly-owned subsidiary of SPi;

•

DigiPar Thailand means Digital Paradise Thailand, an 87.5%-owned subsidiary of ePLDT;

•

Digital Paradise means Digital Paradise, Inc., a 75%-owned subsidiary of ePLDT;

•

DSL means digital subscriber line;

•

ePLDT means ePLDT, Inc., a wholly-owned subsidiary of PLDT;

•

ePLDT Ventus means the umbrella brand name for ePLDT’s customer interaction solutions, including Ventus, Vocativ and Parlance;

•

First Pacific means First Pacific Company Limited;

•

First Pacific Group means First Pacific and its Philippine and other affiliates;

•

FHI means Francom Holdings, Inc.;

•

FPHC means First Philippine Holdings Corporation;

•

FPUC means First Philippine Utilities Corporation;

•

GAAP means generally accepted accounting principles;

•

GSM means global system for mobile communications;

•

I-Contacts means I-Contacts Corporation, a wholly-owned subsidiary of Smart;

•

IFRS means International Financial Reporting Standards as issued by the International Accounting Standards Board;

•

Infocom means Infocom Technologies, Inc., a 99.6%-owned subsidiary of ePLDT;

•

IP means internet protocol;

•

ISP means internet service providers;

•

Level Up! means Level Up!, Inc., a 60%-owned subsidiary of ePLDT;

•

Mabuhay Satellite means Mabuhay Satellite Corporation, a 67%-owned subsidiary of PLDT;

•

Maratel means PLDT-Maratel, Inc., a 97.5%-owned subsidiary of PLDT;

•

Meralco means Manila Electric Company;

•

netGames means netGames, Inc., an 80%-owned subsidiary of ePLDT;

•

NTC means the National Telecommunications Commission of the Philippines;

•

NTT means Nippon Telegraph and Telephone Corporation;

•

NTT Communications means NTT Communications Corporation, a wholly-owned subsidiary of NTT;

•

NTT DoCoMo means NTT DoCoMo, Inc., a majority-owned and publicly traded subsidiary of NTT;

•

NTTC-UK means NTT Communications Capital (UK) Ltd., a wholly-owned subsidiary of NTT Communications;

•

PAPTELCO means Philippine Association of Private Telephone Companies, Inc.;

•

Parlance means Parlance Systems, Inc., a wholly-owned subsidiary of ePLDT;

•

PFRS means Philippine Financial Reporting Standards;

•

Philcom means Philcom Corporation;

•

PHC means PH Communications Holdings Corporation;

•

Philippine SEC means the Philippine Securities and Exchange Commission;

•

Piltel means Pilipino Telephone Corporation, a 92.5%-owned subsidiary of Smart;

•

PLDT Beneficial Trust Fund means the beneficial trust fund created by PLDT to pay the benefits under the PLDT Employees’ Benefit Plan;

•

PLDT Global means PLDT Global Corporation, a wholly-owned subsidiary of PLDT;

•

PSE means the Philippine Stock Exchange;

•

SBI means Smart Broadband, Inc., a wholly-owned subsidiary of Smart;

•

SCH means SmartConnect Holdings Pte. Ltd., a wholly-owned subsidiary of Smart;

•

SGP means SmartConnect Global Pte., Ltd., a wholly-owned subsidiary of Smart;

•

SHI means SmartHub Incorporated, a wholly-owned subsidiary of Smart;

•

SIM means subscriber identification module;

•

SMHC means Smart Money Holdings, Inc., a wholly-owned subsidiary of Smart;

•

SMI means Smart Money, Inc., a wholly-owned subsidiary of SMHC;

•

SMS means short messaging service;

•

Smart means Smart Communications, Inc., a wholly-owned subsidiary of PLDT;

•

SNMI means Smart-NTT Multimedia, Inc., a wholly-owned subsidiary of PLDT;

•

SPi means SPi Technologies, Inc., a wholly-owned subsidiary of ePLDT;

•

SPi Group means SPi and its subsidiaries;

•

SubicTel means PLDT Subic Telecom, Inc., a wholly-owned subsidiary of PLDT;

•

TSI means Telecommunications Solutions, Inc., a wholly-owned subsidiary of SMI;

•

U.S. SEC means the U.S. Securities and Exchange Commission;

•

VAS means value-added service;

•

VAT means value-added tax;

•

Ventus means ePLDT Ventus, Inc., a wholly-owned subsidiary of ePLDT;

•

Vocativ means Vocativ Systems, Inc., a wholly-owned subsidiary of ePLDT;

•

WAP means wireless application protocol;

•

WCI means Wireless Card, Inc., a wholly-owned subsidiary of Smart;

•

W-CDMA means wireless-code division multiple access; and

•

Wolfpac means Wolfpac Mobile, Inc., a wholly-owned subsidiary of Smart.

FORWARD-LOOKING STATEMENTS

Some information in this report may contain forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. 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 are generally 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. These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control. In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. Actual results may differ materially from information contained in the forward-looking statements as a result of a number of factors, including, without limitation, the risk factors set forth in Item 3. “Key Information –– Risk Factors.” When considering forward-looking statements, you should keep in mind the description of risks and other 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 statements in this report after the date hereof. In light of these risks and uncertainties, you should keep in mind that actual results may differ materially from any forward-looking statement made in this report or elsewhere.

PRESENTATION OF FINANCIAL INFORMATION

Our consolidated financial statements as at December 31, 2008 and 2007 and for each of the three years in the period ended December 31, 2008, included in this Annual Report on Form 20-F have been prepared in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board, or IFRS. We adopted IFRS effective as at and for the fiscal year ended December 31, 2007 by applying IFRS 1: First-Time Adoption of International Reporting Standards. Our consolidated financial statements as at and for the year ended December 31, 2006 were originally prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, and were restated in accordance with IFRS for comparative purposes only.

In accordance with rule amendments adopted by the U.S. SEC, which became effective on March 4, 2008, we do not provide a reconciliation to U.S. GAAP.

The consolidated financial statements included in our Annual Report on Form 20-F filed with the U.S. SEC, in respect of the years ended December 31, 2005 and 2004 were prepared in conformity with U.S. GAAP and, prior to that, in conformity with PFRS.

IFRS differs in certain significant aspects from U.S. GAAP and has some transitional differences with PFRS. As a result, our financial information presented under IFRS is not directly comparable with our historical financial information presented in conformity with U.S. GAAP or PFRS.

PART I

Item 1. Identity of Directors, Senior Management and Advisors

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

Selected Financial Data

The selected audited consolidated financial information below as at December 31, 2008 and 2007 and for each of the three years in the period ended December 31, 2008, should be read in conjunction with, and is qualified in its entirety by reference to, our consolidated financial statements, including the notes, included elsewhere in Item 18 in this Annual Report. As disclosed above under “Presentation of Financial Information”, our consolidated financial statements as at, and for the years ended, December 31, 2008, 2007 and 2006 have been prepared and presented in conformity with IFRS.

The selected consolidated financial information below as at and for the years ended December 31, 2005 and 2004 is based on financial statements prepared and presented in conformity with U.S. GAAP and should be read in conjunction with, and is qualified in its entirety by reference to, such consolidated financial statements, including the notes, included in our previous Annual Report for the fiscal year ended December 31, 2006 filed with the U.S. SEC on June 27, 2007.

Therefore, data for 2005 and 2004 are not comparable with data for 2008, 2007 and 2006 and are presented separately.

Amounts in conformity with IFRS:

		2008(1)				2008				2007				2006
		(in millions, except earnings per common share amounts, ratio of earnings
		to fixed charges and dividends declared per common share amounts)
Statements of Operating Data:
Revenues		US$	3,061			Php	145,837			Php	138,704			Php	127,508
Service revenues			2,999				142,873				135,478				124,988
Non-service revenues			62				2,964				3,226				2,520
Expenses			1,800				85,786				83,587				82,003
Net income(2)			734				34,976				39,274				32,581
Earnings per common share for the year attributable to equity holders of PLDT
Basic			3.78				179.96				205.84				173.10
Diluted			3.78				179.95				204.88				173.01
Balance Sheets Data:
Cash and cash equivalents			707				33,684				17,447				16,870
Total assets			5,301				252,558				240,158				241,904
Total long-term debt — net of current portion			1,236				58,899				53,372				63,769
Total debt(3)			1,551				73,911				60,640				80,154
Total liabilities(4)			3,056				145,589				127,813				139,052
Total equity(2)			2,245				106,969				112,345				102,853
Other Data:
Depreciation and amortization			519				24,709				28,613				31,869
Ratio of earnings to fixed charges(5)			8.0	x			8.0	x			8.3	x			4.6	x
Net cash provided by operating activities			1,643				78,302				77,418				69,211
Net cash used in investing activities			357				17,014				31,319				35,790
Net cash used in financing activities			954				45,464				44,819				45,900
Dividends declared to common shareholders			771				36,758				28,299				14,459
Dividends declared per common share			4.07				194.00				150.00				78.00

Amounts in conformity with U.S. GAAP:

		2005				2004
		(in millions, except operating income per
		share amounts, earnings per common
		share amounts, ratio of earnings to
		fixed charges and dividends declared
		per common share amounts)
Statements of Operating Data:
Revenues		Php	123,335			Php	121,173
Service revenues			120,348				114,904
Non-service revenues			2,987				6,269
Expenses			74,821				72,634
Operating income per share
Basic			263.81				266.73
Diluted			255.15				252.20
Net income			40,603				28,101
Earnings per common share
Basic			217.84				146.32
Diluted			211.93				145.30
Balance Sheets Data:
Cash and cash equivalents			30,059				27,321
Total assets			269,709				279,041
Total long-term debt — net of current portion			93,516				131,377
Total debt(3)			112,313				159,455
Total liabilities(4)			176,980				215,145
Total stockholders’ equity			79,595				48,079
Other Data:
Depreciation and amortization			27,855				20,098
Ratio of earnings to fixed charges(5)			5.9	x			4.1	x
Net cash provided by operating activities			66,280				63,107
Net cash used in investing activities			13,080				24,764
Net cash used in financing activities			49,470				30,325
Dividends declared to common shareholders			9,624				—
Dividends declared per common share			56.00				—

Capital Stock

The following table summarizes PLDT’s capital stock outstanding as at December 31, 2008 and 2007:

		December 31,
		2008				2007
		(in millions)
Serial Preferred Stock
10% Cumulative Convertible Preferred Stock
A to HH		Php	4,054.81			Php	4,056.50
Convertible Preferred Stock Subject to Mandatory Redemption
Series V(1)			0.01				0.31
Series VI(1)			0.04				6.80
Cumulative Non-convertible Redeemable Preferred Stock
Series IV			360.00				360.00
		Php	4,414.86			Php	4,423.61
Common Stock		Php	947.28			Php	943.70

Dividends Declared

The following table shows the dividends declared to common shareholders from the earnings for the years ended December 31, 2006, 2007 and 2008:

				Date				Amount
Earnings		Approved		Record		Payable		Per share				Total Declared
												(in millions)
2006		August 8, 2006		August 21, 2006		September 21, 2006		Php	50			Php	9,379
2006		March 6, 2007		March 20, 2007		April 20, 2007			50				9,429
2006		August 7, 2007		August 24, 2007		September 24, 2007			40				7,548
									140				26,356
2007		August 7, 2007		August 24, 2007		September 24, 2007			60				11,322
2007		March 4, 2008		March 19, 2008		April 21, 2008			68				12,853
2007		March 4, 2008		March 19, 2008		April 21, 2008			56				10,585
									184				34,760
2008		August 5, 2008		August 22, 2008		September 22, 2008			70				13,140
2008		March 3, 2009		March 18, 2009		April 21, 2009			70				13,124
2008		March 3, 2009		March 18, 2009		April 21, 2009			60				11,249
								Php	200			Php	37,513

Our current policy is to declare and pay dividends taking into consideration the interests of our shareholders as well as our working capital, capital expenditures and debt servicing requirements, including our ability to meet loan covenant requirements (see Note 17 — Equity and Note 18 — Interest-bearing Financial Liabilities to the accompanying audited consolidated financial statements in Item 18). The retention of earnings is necessary to meet the funding requirements of our business expansion and development programs. Unappropriated retained earnings of PLDT include undistributed earnings representing accumulated equity in the net earnings of our subsidiaries, which are not available for distribution as dividends until received in the form of dividends from such subsidiaries (see Note 17 — Equity to the accompanying audited consolidated financial statements in Item 18). Dividends are generally paid in Philippine pesos. In the case of shareholders residing outside the Philippines, PLDT’s transfer agent in Manila, which acts as the dividend-disbursing agent, converts the peso dividends into U.S. dollars at the prevailing exchange rates and remits the dollar proceeds abroad, net of applicable withholding tax.

Dividends Paid

A summary of dividends paid per share of PLDT’s common stock stated in both Philippine peso and U.S. dollars follows:

		In Philippine Peso				In U.S. Dollars
2006			78.00				1.543
2007			150.00				3.264
2008			194.00				4.474
Regular Dividend — April 21, 2008			68.00				1.624
Regular Dividend — September 22, 2008			70.00				1.513
Special Dividend — April 21, 2008			56.00				1.337
2009			130.00				2.728
Regular Dividend — March 3, 2009			70.00				1.429
Special Dividend — March 3, 2009			60.00				1.226

Exchange Rates

The Philippine government does not administratively fix the exchange rate between the Philippine peso and the U.S. dollar. Since August 1, 1992, a market average rate has been determined daily in inter-bank trading using the Philippine Dealing System, known as the Philippine Dealing System Reference Rate. The Philippine Dealing System is a specialized off-floor direct dealing service for the trading of Philippine pesos-U.S. dollars by member banks of the Bankers Association of the Philippines and BSP, the central bank of the Philippines. All members of the Bankers Association of the Philippines are required to make their Philippine peso-U.S. dollar trades through this system, which was established by Telerate Financial Information Network of Hong Kong.

The following shows the exchange rates between the Philippine peso and the U.S. dollar, expressed in pesos per U.S. dollar, for the periods indicated, based on the volume-weighted average exchange rate for each business day in each of the periods presented:

		Year Ended December 31,
		Period End				Average(1)				High(2)				Low(3)
2004		Php	56.341			Php	56.149			Php	55.142			Php	56.443
2005			53.062				55.006				53.062				56.321
2006			49.045				51.165				49.045				53.587
2007			41.411				45.879				41.142				49.156
2008			47.647				44.706				40.360				49.984
2009 (through March 31, 2009)			48.422				48.141				46.554				49.056

		Month
		Period End				Average(1)				High(2)				Low(3)
2008
September		Php	47.264			Php	46.756				46.253				47.270
October			48.902				48.100				46.980				49.378
November			48.799				49.181				48.078				49.984
December			47.647				48.026				46.708				49.471
2009
January			47.340				47.192				46.554				47.591
February			48.662				47.651				46.993				48.662
March (through March 31, 2009)			48.422				48.447				48.024				49.056

This report contains conversions of Philippine peso amounts into U.S. dollars for your convenience. Unless otherwise specified, these conversions were made at the Philippine Dealing System Reference Rate as at December 31, 2008 of Php47.647 to US$1.00. You should not assume that such peso amounts represent such U.S. dollar amounts or could have been or could be converted into U.S. dollars at the rate indicated, or at any particular rate. As at March 30, 2009, the exchange rate quoted through the Philippine Dealing System was Php48.419 to US$1.00. The weighted average exchange rate of the Philippine peso to the U.S. dollar for a year used in the succeeding discussions in this report was calculated using the average of the daily exchange rates quoted through the Philippine Dealing System during the year.

Risk Factors

Risks Relating to Us

We face competition from well-established telecommunications operators and may face competition from new entrants that may adversely affect our business, results of operations, financial condition and prospects

The Philippine government has liberalized the Philippine telecommunications industry and opened the Philippine telecommunications market to new entrants. Including the PLDT Group, there are eight major local exchange carriers, 11 international gateway facility providers and seven cellular service providers in the country. Many new entrants into the Philippine telecommunications market have entered into strategic alliances with foreign telecommunications companies, which provide them access to technological and funding support as well as service innovations and marketing strategies. Consequently, we are facing increasing competition in major segments of the telecommunications industry, particularly data and other network services segments. There can be no assurance that the number of providers of telecommunication services will not further increase or that competition for telecommunications customers will not lead our cellular and fixed line subscribers to switch to other operators or lead us to increase our marketing expenditures or reduce our rates resulting in a reduction in our profitability.

Competition in the cellular telecommunications industry in the Philippines is based primarily on factors such as network coverage, quality of service and price. Recently, competition has increased as operators sought to develop and maintain market share and to attract new subscribers. Our principal cellular competitors, Globe Telecom, Inc., or Globe, and Digital Telecommunications Philippines, Inc., or Digitel, have introduced aggressive marketing campaigns and promotions. In addition, the government may allocate additional frequencies and award additional cellular telecommunications licenses in the future which could lead to increased competition.

As a result of the competitive environment, Smart has not increased its cellular rates since November 1998. Moreover, the level of competition requires Smart to continuously innovate its products and to conduct promotions, which may affect its cellular revenues and revenue growth. For example, in order to test the market demand for fixed rate or “bucket” plans for voice and text services and in response to similar types of promotions launched by its competitors, Smart launched promotions pursuant to which Smart and Talk ‘N Text prepaid subscribers had the option to avail themselves of unlimited on-network (Smart-to-Smart) voice calls or text messages at a fixed rate.

There can be no assurance that incurring additional marketing expenses for these promotions and responding to rate pressures and the potential loss of customers will not have a material adverse effect on our financial performance.

The cellular telecommunications industry may not continue to grow

The majority of our total revenues is currently derived from cellular services. As a result, we depend on the continued development and growth of the cellular telecommunications industry. The cellular penetration rate in the Philippines is estimated to have reached over 75%. The growth of the cellular communications market depends on many factors beyond our control, including the continued introduction of new and enhanced cellular devices, the price levels of cellular handsets, consumer preferences and amount of disposable income of existing and potential subscribers. Any economic, technological or other developments resulting in a reduction in demand for cellular services may harm our business.

Rapid changes in telecommunications technology may adversely affect the economics of our existing businesses and the value of our assets, increase our required capital expenditures and create new competition

The telecommunications sector has been characterized recently by rapid technological changes. There can be no assurance that these developments will not result in competition from providers of new services or the need to make substantial capital expenditures to upgrade our facilities. Furthermore, the NTC has issued to Smart and our competitors licenses covering 3G cellular services, and we have incurred significant expenses in the roll out of these services. We are also continuing to upgrade to a next generation, all-IP network and rolling out a wireless broadband network in order to expand our capability to provide broadband services. These projects require and will continue to require over the next few years significant capital expenditures.

Our future success will depend, in part, on our ability to anticipate or adapt to such changes and to offer services that meet customer demands on a competitive and timely basis. We may be unable to obtain new technologies on a timely basis or on satisfactory terms or implement them in an appropriate or effective manner. Future development of new technologies, services or standards could require significant changes to our business model, could negatively impact our existing businesses and could necessitate new investments. In addition, new products and services may be expensive to develop and may result in increased competition. Such strategic initiatives and technological developments could require us to incur significant additional capital expenditures. There can be no assurance that we would be able to adopt and successfully implement new technologies. In addition, there can be no assurance on how emerging and future technological changes will affect our operations or the competitiveness of our services.

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

A substantial portion of our indebtedness, related interest expense and our capital expenditures and a portion of our expenses are denominated in U.S. dollars and other foreign currencies, but a significant portion of our revenues is denominated in Philippine pesos. As at December 31, 2008, 78% of our total consolidated indebtedness was foreign currency-denominated of which approximately 45% was unhedged.

A depreciation of the Philippine peso against the U.S. dollar increases the amount of our U.S. dollar-denominated debt obligations and operating and interest expenses in peso terms. In the event that the Philippine peso depreciates against the U.S. dollar, we may be unable to generate enough funds through operations and other means to offset the resulting increase in our obligations in peso terms. Moreover, a depreciation of the Philippine peso against the U.S. dollar may result in our recognition of significant foreign exchange losses, which could materially adversely affect our results of operations. For example, the Philippine peso depreciated against the U.S. dollar from Php41.411 as at December 31, 2007 to Php47.647 as at December 31, 2008, as a result of which, we recognized in 2008 foreign exchange losses in the amount of Php6,170 million, representing a change of Php14,160 million from a foreign exchange gain of Php7,990 million recognized in 2007. A depreciation of the Philippine peso could also cause us not to be in compliance with the financial covenants imposed by our lenders under certain loan agreements and other indebtedness. Further, fluctuations in the Philippine peso value and of interest rates impact the mark-to-market gains/losses of certain of our financial debt instruments which were designated as non-hedged items.

On the other hand, approximately 34.5% of PLDT Group’s consolidated service revenues are either denominated in U.S. dollars or are linked to the U.S. dollar. In this respect, an appreciation of the weighted average exchange rate of the Philippine peso against the U.S. dollar decreases our revenues, and consequently, our cash flow from operations in Philippine peso terms.

The Philippine peso has been subject to significant fluctuations in recent years. From 2003 to 2004, the Philippine peso depreciated from a high of Php49.336 on May 20, 2002 to a low of Php56.443 on October 14, 2004. While the peso appreciated in 2005, 2006 and 2007, it depreciated in 2008 to a low of Php49.984 and closed at Php47.647 as at December 31, 2008, and there can be no assurance that the peso will not further depreciate and be subjected to significant fluctuations going forward due to a range of factors, including:

	•		political and economic developments affecting the Philippines;
	•		global economic and financial trends;
	•		the volatility of regional currencies, particularly the Japanese yen;
	•		any interest rate increases by the Federal Reserve Bank of the United States;
	•		higher demand for U.S. dollars by both banks and domestic businesses to service their maturing U.S. dollar obligations; and
	•		foreign exchange traders including banks covering their short U.S. dollar positions.

Our results of operations have been, and may continue to be, adversely affected by competition in, and the emergence of new services which may put additional pressure on, our traditional international and national long distance services

The international long distance business has historically been one of our major sources of revenue. However, due to competition and the steep decline in international settlement rates that are paid to us by foreign telecommunications carriers for termination of international calls on our network, revenues generated from our international long distance business have declined in recent years.

We anticipate that revenues from international long distance and international data services, including our services, will continue to decline in the future due primarily to:

•

increased competition from other domestic and international telecommunications providers;

•

advances in technology;

•

alternative providers offering internet telephony, also known as Voice over Internet Protocol, or VoIP, and broadband capacity; and

•

unauthorized traffic termination and bypass routings by international simple resale operators.

The continued increase in cellular penetration in the Philippines and the prevalence of SMS has negatively impacted our national long distance business in recent years. There can be no assurance that we will be able to generate new revenue streams that may fully offset the declines in our traditional fixed line long distance businesses or that these declines will not materially and adversely affect our financial performance.

Net settlement payments between PLDT and other foreign telecommunications carriers for origination and termination of international call traffic between the Philippines and other countries have been our predominant source of foreign currency revenues. However, in U.S. dollar terms, these payments have been declining in recent years. A continued decline in our foreign currency revenues could increase our exposure to risks from possible future declines in the value of the Philippine peso against the U.S. dollar. We cannot assure you that we will be able to achieve adequate increases in our other revenues to make up for any adverse impact of a further decline in our net settlement payments.

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

As part of our growth strategy, we may, from time to time, make acquisitions and investments in companies or businesses. The success of our acquisitions and investments depends on a number of factors, including:

•

our ability to identify suitable opportunities for investment or acquisition;

•

our ability to reach an acquisition or investment agreement on terms that are satisfactory to us or at all;

•

the extent to which we are able to exercise control over the acquired company;

•

the economic, business or other strategic objectives and goals of the acquired company compared to those of the PLDT Group; and

•

our ability to successfully integrate the acquired company or business with our existing businesses.

Any of our contemplated acquisitions and investments may not be consummated due to reasons or factors beyond our control. Even if any contemplated acquisitions and investments are consummated, we may not be able to realize any or all of the anticipated benefits of such acquisitions and investments. Moreover, if we are unsuccessful in our contemplated acquisitions and investments, we may not be able to implement fully our business strategy to maintain or grow certain of our businesses.

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

As at December 31, 2008, we had consolidated total indebtedness of Php73,911 million (US$1,551 million), and a consolidated ratio of debt to equity (total debt on a consolidated basis divided by total equity attributable to equity holders of PLDT) of 0.70x. Our existing debt instruments contain covenants which, among other things, require PLDT to maintain certain financial ratios calculated on the basis of PFRS on a consolidated and non-consolidated basis and limit our ability to incur indebtedness. For a description of some of these covenants, see Item 5. “Operating and Financial Review and Prospects — Liquidity and Capital Resources — Financing Activities — Debt Covenants.”

Our indebtedness and the requirements and limitations imposed by our debt covenants could have important consequences. For example, they could require us to dedicate a substantial portion of our cash flow to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate requirements.

The principal factors that can negatively affect our ability to comply with the financial ratios and other financial tests under our debt instruments are depreciation of the Philippine peso relative to the U.S. dollar, poor operating performance of PLDT and our consolidated subsidiaries, impairment or similar charges in respect of investments or other long-lived assets that may be recognized by PLDT and its consolidated subsidiaries and increases in our interest expenses. Since as at December 31, 2008, approximately 78% of our total consolidated debts was denominated in foreign currencies, principally in U.S. dollars, many of these financial ratios and other tests are expected to be negatively affected by any weakening of the peso.

We have maintained compliance with all of our financial ratios and covenants, as measured under PFRS, under our loan agreements and other debt instruments. However, if negative factors adversely affect our financial ratios, we may be unable to maintain compliance with these ratios and covenants or be unable to incur new debt. Inability to comply with the financial ratios and covenants or raise new financing could result in a declaration of default and acceleration of some or all of our indebtedness. The terms of some of our debt instruments have no minimum amount for cross-default.

If we are unable to meet our debt service obligations or comply with our debt covenants, we could be forced to restructure or refinance our indebtedness, seek additional equity capital or sell assets. An inability to effect these measures successfully could result in a declaration of default and an acceleration of some or all of our indebtedness.

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

A growing portion of our total revenues and cash flow from operations is derived from our subsidiaries, particularly Smart. Smart and some of our other subsidiaries have significant internal cash requirements for debt service, capital expenditures and expenses and so may be financially unable to pay any dividends to PLDT. Although Smart has been making dividend payments to PLDT since December 2002, there can be no assurance that PLDT will continue to receive dividends or other distributions, or otherwise be able to derive liquidity from Smart or any other subsidiary or investee in the future.

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

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

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

Our projects under development and the continued maintenance and improvement of our networks and services, including Smart’s projects, networks and services, require substantial ongoing capital investment. Our consolidated capital expenditures in 2008 and 2007 totaled Php25,203 million and Php24,824 million, respectively. Our 2009 budget for consolidated capital expenditures is approximately Php27,000 million, of which approximately Php10,000 million is budgeted to be spent by PLDT and approximately Php15,000 million is budgeted to be spent by Smart; the balance represents the budgeted capital spending of our other subsidiaries. PLDT’s capital spending is intended principally to finance the continued build-out and upgrade of its data and IP infrastructures and for its fixed line data services and the maintenance of its network. Smart’s capital spending is focused on expanding and upgrading its transmission network facilities to meet increased demand for cellular and broadband services.

Future strategic initiatives could require us to incur significant additional capital expenditures. We may be required to finance a portion of our future capital expenditures from external financing sources, which have not yet been fully arranged. There can be no assurance that financing for new projects will be available on terms acceptable to us or at all. If we cannot complete our development programs and other capital projects, our growth, results of operations and financial condition could be materially and adversely affected.

Our businesses depend on the reliability of our network infrastructure which is subject to physical, technological and other risks

We depend to a significant degree on an uninterrupted operation of our network to provide our services. We also depend on robust information technology systems to enable us to conduct our operations. The development and operation of telecommunications networks are subject to physical, technological and other risks, which may cause interruptions in service or reduced capacity for customers. These risks include:

•

physical damage;

•

power loss;

•

capacity limitation;

•

cable theft;

•

software defects; and

•

breaches of security by computer viruses, break-ins or otherwise.

The occurrence of any of these risks could have a material and adverse effect on our ability to provide services to customers. While we are undertaking initiatives to prevent and/or mitigate the occurrence of said risks, including the preparation of a disaster recovery plan that aims to allow restoration of service at the soonest possible time from occurrence of an incident, there can be no assurance that these risks will not occur or that our initiatives will be effective should such risks occur.

A significant number of PLDT’s shares are held by three shareholders which may not act in the interests of other shareholders or stakeholders in PLDT

The First Pacific Group has beneficial ownership of approximately 26.37% in PLDT’s outstanding common stock as at February 28, 2009. This is the largest block of PLDT’s common stock that is directly or indirectly under common ownership.

Pursuant to publicly available filings made with the PSE, as at February 28, 2009, NTT Communications and NTT DoCoMo together beneficially owned approximately 21% of the outstanding shares of PLDT’s common stock. First Pacific and certain of its affiliates, or the FP Parties, NTT Communications, NTT DoCoMo and PLDT entered into a Cooperation Agreement, dated January 31, 2006, pursuant to which, among other things, certain rights of NTT Communications under the Stock Purchase and Strategic Investment Agreement dated September 28, 1999, or the Strategic Agreement, and the Shareholders Agreement dated March 24, 2000, or the Shareholders Agreement, were extended to NTT DoCoMo. See Item 7. “Major Shareholders and Related Party Transactions” for further details regarding the shareholdings of NTT Communications and NTT DoCoMo in PLDT. As a result of the Cooperation Agreement, NTT Communications and NTT DoCoMo, in coordination with each other, have contractual veto rights over a number of major decisions and transactions that PLDT could make or enter into, including:

•

capital expenditures in excess of US$50 million;

•

any investments, if the aggregate amount of all investments for the previous 12 months is greater than US$25 million in the case of all investments to any existing investees and US$100 million in the case of all investments to any new or existing investees, determined on a rolling monthly basis;

•

any investments in a specific investee, if the cumulative value of all investments made by us in that investee is greater than US$10 million in the case of an existing investee and US$50 million in the case of a new investee;

•

issuance of common stock or stock that is convertible into common stock;

•

new business activities other than those we currently engage in; and

•

merger or consolidation.

Moreover, as a result of the Shareholders Agreement, the Cooperation Agreement and their respective stockholdings, the FP Parties, NTT Communications and/or NTT DoCoMo are able to influence our actions and corporate governance, including:

•

elections of PLDT’s directors; and

•

approval of major corporate actions, which require the vote of common stockholders.

Additionally, pursuant to amendments effected by the Cooperation Agreement to the Strategic Agreement and the Shareholders Agreement, upon NTT Communications and NTT DoCoMo and their respective subsidiaries owning in the aggregate 20% or more of PLDT’s shares of common stock and for as long as they continue to own in the aggregate at least 17.5% of PLDT’s shares of common stock then outstanding, NTT DoCoMo has additional rights under the Strategic Agreement and Shareholders Agreement, including that:

•

NTT DoCoMo is entitled to nominate one additional NTT DoCoMo nominee to the board of directors of each of PLDT and Smart;

•

PLDT must consult NTT DoCoMo no later than 30 days prior to the first submission to the board of PLDT or certain of its committees of any proposal of investment in an entity that would primarily engage in a business that would be in direct competition or substantially the same business opportunities, customer base, products or services with business carried on by NTT DoCoMo, or which NTT DoCoMo has announced publicly an intention to carry on;

•

PLDT must procure that Smart does not cease to carry on its business, dispose of all of its assets, issue common shares, merge or consolidate, or effect winding up or liquidation without PLDT first consulting with NTT DoCoMo no later than 30 days prior to the first submission to the board of PLDT or Smart, or certain of its committees; and

•

PLDT must first consult with NTT DoCoMo no later than 30 days prior to the first submission to the board of PLDT or certain of its committees for the approval of any transfer by any member of the PLDT Group of Smart common capital stock to any person who is not a member of the PLDT Group.

The FP Parties and/or NTT Communications and/or NTT DoCoMo may exercise their respective influence over these decisions and transactions in a manner that could be contrary to the interests of other shareholders or stakeholders in PLDT.

If a major shareholder sells its interest in PLDT, the transaction may result in an event of default under certain circumstances

If First Pacific Group or NTT Communications sell all or a portion of their equity interest in PLDT, in certain circumstances, such sale may give rise to an obligation for PLDT to make an offer to purchase its outstanding debt under its US$250 million 11.375% notes due 2012. As at December 31, 2008, Php7,584 million in principal amount of PLDT’s indebtedness is directly subject to a redemption upon any change in the major shareholding of PLDT or to an offer to purchase requirement. In such event, if PLDT fails to complete an offer to purchase the affected debts, all of its debt could become immediately due and payable as a result of various cross-default and acceleration provisions.

The franchise of Smart may be revoked due to its failure to conduct a public offering of its shares

In order to diversify the ownership base of public utilities, the Philippine Public Telecommunications Policy Act, Republic Act, or R.A., 7925, requires a telecommunications entity with regulated types of services to make a public offering through the stock exchanges representing at least 30% of its aggregate common shares within a period of five years from (a) the date the law became effective or (b) the entity’s first start of commercial operations, whichever date is later. As the timeframe has lapsed without Smart having conducted a public offering of its shares, the Philippine Congress may revoke the franchise of Smart for its failure to comply with the requirement under R.A. 7925 on the public offering of its shares. A quo warranto case may also be filed against Smart by the Office of the Solicitor General of the Philippines for the revocation of the franchise of Smart on the ground of violation of R.A. 7925.

Smart maintains the position that it has not violated the provision in its franchise to make a public offering of its shares within a certain period, since it believes such provision is merely directory. Further, Smart believes that the policy underlying the requirement for telecommunications entities to conduct a public offering should be deemed to have been achieved when PLDT acquired a 100% equity interest in Smart in 2000, since PLDT was then and continues to be a publicly listed company. In September 2004, Senate Bill No. 1675 was filed seeking to declare that a telecommunication entity shall be deemed to have complied with the requirement of making a public offering of its shares if two-thirds of its outstanding voting stock are owned and controlled directly or indirectly, by a listed company. However, there can be no assurance that such bill will be enacted or that Philippine Congress will not revoke the franchise of Smart or the Office of Solicitor General of the Philippines will not initiate a quo warranto proceeding against Smart for the revocation of its franchise for failure to comply with the provision under R.A. 7925 on the public offering of shares.

Our business is significantly affected by governmental laws and regulations, including regulations in respect of our franchises, rates and taxes

We operate our business under franchises, each of which is subject to amendment, termination or repeal by the Philippine Congress. Additionally, PLDT operates pursuant to various provisional authorities and certificates of public convenience and necessity, or CPCNs, which were granted by the NTC and will expire between now and 2028. For a description of our licenses, see Item 4. “Information on the Company — Licenses and Regulation.” Some of PLDT’s CPCNs and provisional authorities have already expired. However, PLDT filed applications for extension of these CPCNs and provisional authorities prior to their respective expiration dates and is therefore entitled to continue to conduct its business under its existing CPCNs and provisional authorities pending the NTC’s decisions on these extensions. Because PLDT filed the applications for extension on a timely basis, we expect that these extensions will be granted. However, there can be no assurance that the NTC will grant these extensions. Smart also operates its cellular, international long distance, national long distance and global mobile personal communications via satellite services as well as international private leased circuits pursuant to CPCNs, which will expire upon the expiration of its franchise. Smart’s franchise is due to expire on March 27, 2017, 25 years after the date on which its current franchise was granted.

The NTC also regulates the rates we are permitted to charge for services that have not yet been deregulated, such as local exchange services. There can be no assurance that the NTC will not impose additional obligations on us that could lead to the revocation of our licenses if not adhered to and/or reduction in our total revenues or profitability. In addition, the NTC could adopt changes to the regulations governing our interconnection with other telecommunications companies or the rates and terms upon which we provide services to our customers that could have a material and adverse effect on our results of operations.

The PLDT Group is also subject to a number of national and local taxes. There can be no assurance that PLDT Group will not be subject to new and/or additional taxes and that PLDT Group would be able to impose additional charges or fees to compensate for the imposition of such taxes.

There are also various bills pending in the Philippine Congress which propose to impose a franchise tax on telecommunication companies and to tax telecommunications services, among them, the imposition of a tax on mobile phone companies on all text entries to text games; the imposition of a Php0.50 specific tax on each SMS to be borne by the cellular phone companies; imposition of a 10% ad valorem tax on all cellular phone calls using 3G; the prohibition on telecommunications companies from imposing fees and/or charges on text messages between subscribers of the same telecommunications company and providing for free text messages until the prepaid amount has been fully used up; and the imposition of an additional Php0.10 tax on text messaging charges. In addition, there is a pending bill which seeks to impose on telecommunications companies a 20% tax on the gross receipts from text messaging services for a period of five years, where the proceeds of such tax will be used to fund educational projects. See Item 4. “Information on the Company—Licenses and Regulations—Material effects of regulation on our business”. If any of these bills are enacted into law, such legislation would have a material and adverse impact on our results of operations and financial condition. There can be no assurance that we would be able to impose additional charges or fees to compensate for the imposition of such taxes or charges, or for the loss of fees and/or charges.

The NTC may implement proposed changes in existing regulations and introduce new regulations which may result in increased competition and may have negative implications for our revenues and profitability

On June 16, 2000, the NTC issued Memorandum Circular No. 13-6-2000 proposing that cellular operators, including Smart and Piltel, be required, among other things:

•

to bill their subscribers for cellular calls on a six-second pulse basis instead of the current per minute basis;

•

not to bill calls directed to recorded voice messages; and

•

to extend the expiration date of prepaid cards from the current two months to two years.

Along with the other Philippine cellular operators, Smart filed a complaint for the nullification of this memorandum circular before the regional trial court, or RTC, of Quezon City and sought for the issuance of a preliminary injunction while proceedings are ongoing. The RTC issued the preliminary injunction, which restrained the implementation of the memorandum circular. The complaint of the Philippine cellular operators is being heard by the RTC of Quezon City.

In December 2005, the NTC issued a consultative document on the development of competition policy framework for the information communications sector. The consultative paper contains questions which cover the following key areas:

•

a review of market trends deemed to impinge on current and future state of competition in the sector;

•

an exploration of major policies that may change the balance of market power, hence the nature and degree of competition;

•

an assessment of the quality of current regulation, identifying major handicaps of the NTC; and

•

a discussion of the urgent tasks for the NTC to effectively govern a dynamic and complex industry.

The NTC invited public comment from industry stakeholders and other interested parties in relation to the issues raised in the paper. On January 31, 2006, we submitted a comprehensive response to the consultative paper. On August 24, 2006, the NTC issued another consultative document specifically focusing on its proposal to impose asymmetric regulations on carriers with significant market power, or SMP, including a discussion on its proposed roadmap for implementing such SMP obligations. On October 23, 2006, we submitted our response to the second consultative paper to the NTC.

In formulating both our responses, we took into account both industry interests and the broader context of our nation’s economic development, drawing on the experience in other countries. We believe that the basis for the need for regulatory reform is unclear and the envisioned SMP regime is inappropriate for the Philippines, as the market is highly competitive and well-functioning. In addition, the imposition of SMP and its attendant obligations would discourage capital investments in a sector on which the Philippine economy is highly dependent. We have therefore proposed that the NTC explore its full range of options available on a cost-benefit basis, taking into consideration the specific local context of the Philippine marketplace.

In 2008, in connection with the NTC’s efforts to enhance competition within the telecommunications industry in the Philippines, the NTC issued Memorandum Circulars on the following:

(a)

guidelines on the mandatory interconnection of backhaul networks to the cable landing station, which were issued and became effective on October 7, 2008; and

(b)

guidelines on the interconnection of local exchange carriers, or LECs, in local calling areas that eliminate interconnection access charges between LECs within a local calling area, which were issued and became effective on May 30, 2008.

In addition, in 2008, the NTC proposed implementing guidelines on developing reference access offers, which are statements of the prices, terms and conditions under which a telecommunications carrier proposes to provide access to its network or facilities to another such carrier of value-added service provider.

There can be no assurance that the NTC will not impose changes to the current regulatory framework which may lead to increased competition. Any such changes may have an adverse effect on our business, results of operations and prospects.

If we are unable to install and maintain telecommunications facilities and equipment in a timely manner, we may not be able to maintain our current market share and the quality of our services, which may have negative implications for our revenue and profitability

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

•

shortages of equipment, materials and labor;

•

work stoppages and labor disputes;

•

interruptions resulting from inclement weather and other natural disasters;

•

unforeseen engineering, environmental and geological problems; and

•

unanticipated cost increases.

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

Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could adversely impact investor confidence and the market price of our common shares and ADSs

Effective internal controls over financial reporting are necessary for us to provide reasonable assurance with respect to our financial reports and to effectively prevent fraud. If we are unable to provide reasonable assurance with respect to our financial reports and effectively prevent fraud, our reputation and results of operations could be harmed.

We are required to comply with various Philippine and U.S. laws and regulations on internal controls. For example, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with the Annual Report on Form 20-F for the fiscal year ended December 31, 2006, we have been required to include a report by our management on our internal control over financial reporting in our Annual Reports on Form 20-F that contains an assessment by our management of the effectiveness of our internal control over financial reporting. In addition, our independent registered public accounting firm must express an opinion on our internal control over financial reporting based on their audits.

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

Risks Relating to the Philippines

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

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

For example, the Philippines have experienced various street protests and violent civil unrest, including coup d’etat attempts against the administration of President Arroyo.

Furthermore, the Philippine economy has experienced periods of slow growth, high inflation and significant depreciation of the peso. The Philippine government is also facing a fiscal deficit that the government is aiming to eliminate in the near future by implementing a number of economic reforms.

The fiscal deficit position of the Philippine government and the ongoing political uncertainty have resulted in increased concerns about the political and economic stability of the country. There can be no assurance that the political environment in the Philippines will be stable or that the current or any future government will adopt economic policies conducive to sustained economic growth or which do not impact adversely on the current regulatory environment for telecommunications or other companies.

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

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

•

suspend temporarily or restrict sales of foreign exchange;

•

require licensing of foreign exchange transactions; or

•

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

There can be no assurance that foreign exchange controls will not be imposed in the future. If imposed, these restrictions could materially and adversely affect our ability to obtain foreign currency to service our foreign currency obligations.

The occurrence of natural catastrophes may materially disrupt our operations

The Philippines has experienced a number of major natural catastrophes over the years including typhoons, volcanic eruptions and earthquakes that may materially disrupt and adversely affect our business operations. The earthquake that hit Taiwan on December 26, 2006 severed cable systems linking the Philippines to other Asian and American countries, causing major slowdown of voice and non-voice data traffic exchange. There can be no assurance that the insurance coverage PLDT maintains for these risks will adequately compensate it for all damages and economic losses resulting from natural catastrophes.

Item 4. Information on the Company

We are the leading national telecommunications service provider in the Philippines. Through our three principal business groups — wireless, fixed line, and information and communications technology — we offer a wide range of telecommunications services to approximately 37 million subscribers in the Philippines across the nation’s most extensive fiber optic backbone and fixed line, cellular and satellite networks.

We are the leading fixed line service provider in the Philippines with over 60% of the total reported fixed line subscribers nationwide as at December 31, 2008. Smart, our wholly-owned subsidiary, is the leading cellular service provider in the country, with approximately 31% of total reported cellular subscribers as at December 31, 2008. In addition, Piltel, Smart’s 92.5%-owned subsidiary, had approximately 21% of total reported cellular subscribers as at December 31, 2008. We have interests in the information and communications technology sectors, including the operation of our Vitro^TM data center, customer interaction solutions, formerly referred to as call center business, and knowledge processing solutions business, formerly referred to as business process outsourcing and internet and online gaming services.

Our common shares are listed and traded on the PSE and our American Depositary Shares, or ADSs, evidenced by American Depositary Receipts, or ADRs, are listed and traded on the New York Stock Exchange, or NYSE, in the United States.

We had a market capitalization of approximately Php405,903 million (US$8,341 million) as at February 28, 2009, representing one of the largest market capitalizations among Philippine-listed companies. For the year ended December 31, 2008, we had total revenues of Php145,837 million (US$3,061 million).

Our principal executive offices are located at the Ramon Cojuangco Building, Makati Avenue, Makati City, Philippines and our telephone number is +(632) 816-8534. Our website address is www.pldt.com.ph. The contents of our website are not a part of this annual report.

Historical Background and Development

PLDT 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. 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 Group acquired a significant interest in PLDT. On March 24, 2000, NTT Communications, through its wholly-owned subsidiary NTT Communications Capital (U.K.) Limited, or NTTC-UK, became PLDT’s strategic partner with approximately 15% economic and voting interest in the issued and outstanding common stock of PLDT. Simultaneous with NTT Communications’ investment in PLDT, we acquired 100% of Smart. On March 14, 2006, 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’s common stock and together with NTT Communications beneficially owned approximately 21% of the outstanding shares of PLDT’s common stock as at February 28, 2009. 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. This investment in PTIC, a shareholder of PLDT, represents an attributable interest of approximately 6.4% of the then issued common shares of PLDT and thereby raised the First Pacific Group’s beneficial ownership to approximately 28% of PLDT’s shares of common stock as at that date. First Pacific Group had beneficial ownership of approximately 26.37% in PLDT’s outstanding common stock as at February 28, 2009. See Item 7. “Major Shareholders and Related Party Transactions” for further discussion.

PLDT’s original franchise was granted in 1928 and was last amended in 1991, extending its effectiveness until 2028 and broadening PLDT’s franchise to permit PLDT to provide virtually every type of telecommunications service. PLDT’s franchise covers the business of providing basic and enhanced telecommunications services in and between the provinces, cities and municipalities in the Philippines and between the Philippines and other countries and territories including mobile, cellular, wired or wireless telecommunications system, fiber optics, multi-channel transmission distribution systems and their VAS such as but not limited to transmission of voice, data, facsimile, control signals, audio and video, information services bureau and all other telecommunications systems technologies, as are at present available or can be made available through technical advances or innovations in the future. See Item 8. “Financial Information — Legal Proceedings — Quo Warranto Action” for information regarding legal proceedings initiated by the Solicitor General with respect to PLDT’s franchise.

Our consolidated capital expenditures amounted to Php25,203 million and Php24,824 million in 2008 and 2007, respectively. Of these amounts, Php7,209 million and Php9,912 million were attributable to PLDT in 2008 and 2007, respectively, while Php17,091 million and Php14,179 million were spent by Smart in 2008 and 2007, respectively. The remaining balances were spent by our other subsidiaries, principally ePLDT and its subsidiaries. See “Item 5 — Operating and Financial Review and Prospects — Liquidity and Capital Resources — Investing Activities.

Recent Developments

Acquisition of Debt and Equity of Philcom Corporation, or Philcom

On January 2, 2009, PLDT and Premier Global Resources, or PGR, executed a Debt Assignment Agreement wherein PGR sold to PLDT for Php340 million, the outstanding obligations of Philcom to suppliers, banks and other financial institutions, or the Philcom Lenders, that PGR acquired from such Philcom Lenders with a nominal amount of Php3,540 million. Following the execution of the Debt Assignment Agreement, PLDT and Philcom executed a Restructuring Agreement wherein PLDT agreed to the restructuring of the Philcom obligations from the nominal amount of Php3,540 million to Php340 million. The restructured principal of Php340 million is payable by Philcom in ten equal annual installments starting on January 2, 2010. Interest on the restructured principal is payable on each payment date based on the floating rate of one year PDST-F plus a margin of 250 bps.

On January 3, 2009, PLDT, PGR and Philippine Global Communications, Inc., or PGCI, executed a Share Assignment Agreement wherein PGCI sold to PLDT all of the outstanding common shares of Philcom for a total consideration of Php75 million. PGR controls 55% of the shares of PGCI through a voting trust agreement. Both parties have filed the necessary application/petition for the approval of this transaction by the NTC. See Note 11 — Goodwill and Intangible Assets to the accompanying audited consolidated financial statements in Item 18.

The acquisition of Philcom is expected to allow the PLDT Group to broaden its presence in Mindanao, where it has operations carried out under Maratel and SBI. This expanded presence is expected to benefit not only the existing subscribers in the area, but will also provide the communities in the area with an opportunity to access improved telecommunications facilities.

Investment by Piltel in Meralco

On March 12, 2009, FPHC, FPUC, and Lopez, Inc., together the Lopez Group, and PLDT entered into an investment and cooperation agreement pursuant to which: (a) PLDT agreed to acquire, through Piltel 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 Php20.07 billion, or Php90 per share, and (b) PLDT and the Lopez Group agreed on certain governance matters, including the right of PLDT or its designee to nominate certain senior management officers and members of the Board of Directors and Board Committees of Meralco. As part of the transaction, Piltel and the Lopez Group also entered into an exchangeable note agreement pursuant to which Piltel will purchase an exchangeable note to be issued by FPUC, with a face value of Php2 billion, exchangeable at Piltel’s option into 22,222,222 shares of common stock of Meralco, which will constitute part of the approximately 20% of Meralco’s shares of common stock to be acquired by Piltel in this transaction. The exchange option is exercisable simultaneously with the acquisition of such shares by Piltel.

Meralco is the largest distributor of electricity in the Philippines with a service area spanning 9,337 square kilometers, where approximately a quarter of the total Philippine population resides. It has a customer base of about 4.5 million, comprising commercial, industrial, and residential customers. In addition to electrical distribution, Meralco undertakes several related businesses, including e-Meralco Ventures, Inc., which operates a fiber optic network of over 1,000 kilometers and provides leased line connections, metro ethernet connections and disaster recovery transport services.

The PLDT Group and Meralco have a number of compatible network and business infrastructure elements, such as fiber optic backbones, power pole network, and business offices. For many years, we have been using the power pole network of Meralco in Metropolitan Manila for PLDT’s fixed line aerial cables in this area pursuant to short-term lease agreements with Meralco with typically a five-year term. The contemplated investment in Meralco thus constitutes a strategic investment for us that could lead to opportunities for operational and business synergies and may result in new revenue streams and cost savings for us as well as Meralco.

Contemplated Consolidation of Cellular Business under Smart

Subject to the approval of Piltel shareholders and regulatory agencies, we contemplate to consolidate our cellular business under Smart through a series of transactions, which would include: (a) the licensing for use of Piltel’s “Talk ‘N Text” brand to Smart for a lump sum royalty fee based on a percentage of projected net service revenues; (b) the transfer of Piltel’s existing Talk ‘N Text subscriber base to Smart in consideration of a one-time payment equivalent to the subscriber acquisition cost which Smart would have incurred for the acquisition of its own subscribers; and (c) the sale of Piltel’s GSM fixed assets to Smart at net book value. In addition, Smart is currently evaluating a possible tender offer for shares of common stock of Piltel held by minority shareholders.

Organization

PLDT Group includes the following significant subsidiaries as at February 28, 2009:

Percentage of Ownership

Name of Subsidiary

Place of Incorporation

Principal Activity

Direct

Indirect

Wireless

Smart

Philippines

Cellular mobile services

100.0

—

Smart Broadband, Inc.

Philippines

Internet broadband distribution

—

100.0

SmartConnect Holdings Pte. Ltd.

Singapore

Investment company

—

100.0

I-Contacts Corporation

Philippines

Customer interaction solutions

—

100.0

Wolfpac Mobile, Inc.

Philippines

Mobile applications development and services

—

100.0

SmartConnect Global Pte. Ltd.

Singapore

International trade of satellites and GSM enabled global telecommunications

—

100.0

Wireless Card, Inc.

Philippines

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

—

100.0

Smarthub, Incorporated

Philippines

Development and sale of software, maintenance and support services

—

100.0

Smart Money Holdings Corporation

Cayman Islands

Investment Company

—

100.0

Smart Money, Inc.

Cayman Islands

Mobile commerce solutions marketing

—

100.0

Telecoms Solutions, Inc.

Mauritius

Mobile commerce platforms

—

100.0

Far East Capital Limited

Cayman Islands

Cost effective offshore financing and risk management activities for Smart

—

100.0

PH Communications Holdings Corporation

Philippines

Investment company

—

100.0

Francom Holdings, Inc.

Philippines

Investment company

—

100.0

Connectivity Unlimited Resource Enterprise

Philippines

Cellular mobile services

—

100.0

Airborne Access Corporation

Philippines

Wireless Internet services

—

99.4

Pilipino Telephone Corporation

Philippines

Cellular mobile services

—

92.5

3rd Brand Pte. Ltd.

Singapore

Solutions and systems integration services

—

85.0

Telesat, Inc.

Philippines

Satellite communications services

100.0

—

ACeS Philippines Cellular Satellite Corporation

Philippines

Satellite information and messaging services

88.5

11.5

Mabuhay Satellite Corporation

Philippines

Satellite communications services

67.0

—

Fixed Line

PLDT Clark Telecom, Inc.

Philippines

Telecommunications services

100.0

—

PLDT Subic Telecom, Inc.

Philippines

Telecommunications services

100.0

—

Philcom Corporation

Philippines

Telecommunications services

100.0

—

PLDT Global Corporation

British Virgin Islands

Telecommunications services

100.0

—

Smart-NTT Multimedia, Inc.

Philippines

Data and network services

100.0

—

PLDT-Maratel, Inc.

Philippines

Telecommunications services

97.5

—

Bonifacio Communications Corporation

Philippines

Telecommunications, infrastructure and related value-added services

75.0

—

Percentage of Ownership

Name of Subsidiary

Place of Incorporation

Principal Activity

Direct

Indirect

Information and Communications Technology, or ICT

ePLDT, Inc., or ePLDT

Philippines

Information and communications infrastructure for Internet-based services, e-commerce, customer interaction solutions and IT-related services

100.0

—

SPi Technologies, Inc. and Subsidiaries

Philippines

Knowledge processing solutions

—

100.0

ePLDT Ventus, Inc.

Philippines

Customer interaction solutions

—

100.0

Vocativ Systems, Inc.

Philippines

Customer interaction solutions

—

100.0

Parlance Systems, Inc.

Philippines

Customer interaction solutions

—

100.0

Infocom Technologies, Inc.

Philippines

Internet access services

—

99.6

Digital Paradise Thailand

Thailand

Internet access services

—

87.5

netGames, Inc.

Philippines

Publisher of online games

—

80.0

Digital Paradise, Inc.

Philippines

Internet access services

—

75.0

Level Up! (Philippines), Inc.

Philippines

Publisher of online games

—

60.0

Level Up!, SPi and CyMed were all acquired in 2006 and their financial results have been included in our consolidated financial statements since February, July and August 2006, respectively. On April 12, 2007, SPi acquired a 100% equity interest in Springfield Service Corporation, or Springfield, a company engaged in the medical billing and revenue cycle management market in the United States.

On March 24, 2008, ePLDT acquired for Php1 million in cash additional shares from the minority stockholders of Airborne Access thereby increasing its 51% ownership interest to 99.4%.

On April 25, 2008, Smart acquired the entire issued and outstanding capital stock of PHC and FHI which collectively own 100% of CURE for a total consideration of Php420 million. PHC and FHI own 97% and 3%, respectively, of CURE. The acquisition follows Smart’s plan to provide expanded and enhanced 3G services nationwide, including higher speed wireless broadband services. CURE is envisioned to provide Smart with a platform to offer and provide differentiated 3G services for niche markets.

On May 1, 2008, SBI acquired from ePLDT a 99.4% equity ownership in Airborne Access for a total consideration of Php25 million to strengthen and complement SBI’s broadband internet service. As a result, Airborne Access’ business was transferred from our ICT segment to the wireless segment. The transaction had no impact on our consolidated financial statements.

On November 3, 2008, the Board of Directors of Piltel approved a share buyback program of up to 58 million shares in Piltel, representing approximately 0.5% of Piltel’s outstanding common shares. As at December 31, 2008, Piltel has already purchased 44,586,000 shares at a cost of Php308 million, resulting in an increase in equity ownership by Smart in Piltel from 92.1% to 92.5%. In January 2009, Piltel completed the repurchase of 58 million shares earmarked for the share buyback program at a total cost of Php403 million. On March 2, 2009, Piltel’s Board of Directors approved an increase in the number of common shares to be repurchased under the share buyback program of up to 25 million shares, through open market purchases, block trades or other modes subject to compliance with laws, rules and regulations.

See Note 2 — Summary of Significant Accounting Policies and Practices and Note 11 — Goodwill and Intangible Assets to the accompanying audited consolidated financial statements in Item 18 for further discussion regarding these and other acquisitions.

Wireless

We provide cellular, and wireless broadband, satellite and other services through our wireless business, which contributed about 98% and 2% of our wireless service revenues, respectively, in 2008. The rapid growth in the cellular market has resulted in a change in our revenue composition and sources of our revenue growth. Starting with 2003, cellular service has become our major revenue source surpassing fixed line revenues. Cellular data services, which include all text messaging and text-related services ranging from ordinary text to VAS, contributed significantly to our revenue increase. Our total wireless service revenues accounted for 64%, 62% and 61% of our total consolidated revenues for the years ended December 31, 2008, 2007 and 2006, respectively. For the years ended December 31, 2008, 2007 and 2006, cellular service revenues accounted for 92%, 92% and 94%, respectively, of our total wireless revenues.

We provide cellular services (including handset sales), through Smart, Piltel and CURE. Smart is the leading cellular service provider in the Philippines, with 20,916,111 subscribers as at December 31, 2008, including 16,358 subscribers of CURE, representing a market share of approximately 31%. In addition, Piltel, primarily a reseller of Smart’s GSM service with its own branding, had 14,308,493 subscribers as at December 31, 2008, representing an estimated market share of 21%, the second largest market share among all cellular brands in the Philippines. In 2008, the combined number of Smart’s, Piltel’s and CURE’s subscribers increased by 5,183,574, or 17%, to 35,224,604 primarily due to our continued expansion in the lower income segment of the Philippine wireless market, which overall resulted in a decrease in our average revenue per user, or ARPU, and the continuous introduction of innovative services. As at December 31, 2008, cellular penetration in the Philippines reached over 75%, or over 19 times the country’s fixed line penetration, although the existence of subscribers owning multiple SIM cards overstates this penetration rate to a certain extent.

Smart’s and Piltel’s cellular subscriber gains were predominantly attributable to their respective prepaid services. Approximately 99% of Smart’s and all of Piltel’s cellular subscribers as at December 31, 2008 were prepaid service subscribers. The predominance of prepaid service reflects one of the distinguishing characteristics of the Philippine cellular market. The growth in our prepaid service has enabled us to increase and broaden our subscriber base rapidly while controlling credit risk and reducing billing and administrative costs on a per-subscriber basis.

Our cellular subscriber growth has also been driven by text messaging. Text messaging is extremely popular in the Philippines, particularly on the prepaid platform, as it provides a convenient and inexpensive alternative to voice and e-mail based communications. Text messaging contributed significantly to Smart’s cellular data service revenue growth in 2008, generating revenues of Php45,207 million, an increase of Php3,942 million, or 10%, over 2007.

Smart’s cellular network is the most extensive in the Philippines, covering substantially all of Metropolitan Manila and most of the other major population centers in the Philippines. Its dual-band GSM network allows it to efficiently deploy high capacity 1800 MHz base transceiver stations, or BTS, in dense urban areas while its 900 MHz BTS can be much more economically deployed in potentially high growth, but less densely populated provincial areas. We have rolled out a 3G network based on a W-CDMA technology as well as expanding our DSL and wireless broadband facilities. With 8,477 GSM base stations as at the end of December 2008, Smart’s cellular network covers approximately 99% of all towns and municipalities in the Philippines, accounting for approximately 99% of the population.

Fixed Line

We are the leading provider in the Philippines of fixed line telecommunications services. Our fixed line business group offers local exchange, international long distance, national long distance, data and other network and miscellaneous services. We had 1,782,356 fixed line subscribers as at December 31, 2008. Total revenues from our fixed line services accounted for 32%, 33% and 41% of our total revenues for the years ended December 31, 2008, 2007 and 2006, respectively. Local exchange, international long distance revenues, and national long distance revenues have been declining largely due to a drop in call volumes as a result of alternative means of communications such as texting, e-mailing and internet telephony. Mitigating these declines has been the steady growth of our data and other network services over the recent years. Recognizing the growth potential of the data and other network services segment, we have put considerable emphasis on the development of new packet-switched, data-capable and IP-based networks.

Our 6,400-kilometer long domestic fiber optic network, or DFON, is supported by an extensive digital microwave backbone. Our fixed line network reaches all of the major cities and municipalities in the Philippines, with a concentration in the Metropolitan Manila area. Our network offers the country’s most extensive connections to international networks through two international gateway switching exchanges, satellite systems and various regional submarine cable systems in which we have interests. We are currently upgrading our fixed line facilities to a next generation network, or NGN.

Information and Communications Technology

Through our wholly-owned subsidiary, ePLDT, we provide broad-based integrated information and communications technology, or ICT, services focusing on infrastructure and solutions for internet applications, IP-based solutions and multimedia content delivery. ePLDT’s principal activities are the operation of an internet data center under the brand name Vitro™, customer interaction solutions (formerly referred to as call center business), knowledge processing solutions (formerly referred to as business process outsourcing), and internet and online gaming business. Total revenues from our ICT services accounted for 7% of our total revenues for each of the years ended December 31, 2008 and 2007 and for 5% of our total revenues for the years ended December 31, 2006.

Strengths

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

•

Recognized Brands. PLDT and Smart are strong and widely recognized brand names in the Philippines. We have built the PLDT brand name for 80 years as the leading telecommunications provider in the Philippines. Smart is recognized in the Philippines as an innovative provider of high-quality cellular services. Piltel’s Talk ‘N Text brand, which is provided using Smart’s network, has also gained significant recognition as a value for money brand.

•

Leading Market Shares. With approximately 37 million fixed line and cellular subscribers as at December 31, 2008, we have the leading market positions in both the fixed line and cellular markets in the Philippines.

•

Diversified Revenue Sources. We derive our revenues from our three business segments, namely, wireless, fixed line and ICT businesses, with wireless contributing 61%, fixed line 32% and ICT 7% to our consolidated revenues in 2008. Revenue sources of our wireless business segment include cellular services, which include voice services and text message-related and VAS, and wireless broadband services. Our fixed line business derives service revenues from local exchange, international long distance, national long distance and data and other network services. In our ICT business, sources of revenue include knowledge processing solutions, customer interaction solutions and internet and online gaming, broadband and data center services. Fixed line revenues, which represented 32%, 33% and 36% of our consolidated revenues in 2008, 2007, and 2006, respectively, have been declining over the past years as a share of our consolidated revenues due to pressures on traditional fixed line voice revenues, resulting from decreases in our local exchange, international long distance and national long distance services, and reduced international interconnection rates. We will continue to identify and develop new revenue sources to further broaden our diversified revenue base for our wireless, fixed line and ICT businesses.

•

Advanced Integrated Network. With one of the most advanced and extensive telecommunications networks in the Philippines, we are able to offer a wide array of communications services. We are enhancing the capabilities of our fixed line and wireless networks to allow us to better exploit this competitive strength and achieve higher levels of network efficiency in providing voice and data services. In addition, we continue our upgrade to NGN and our roll out of 3G and wireless broadband in order to increase broadband subscribers, and expand our data/broadband capabilities.

•

Innovative Products and Services. We have successfully introduced a number of innovative and award-winning cellular products and services, including Smart Load and Pasa Load. Smart Load is an “over-the-air” electronic loading facility designed to make reloading of air time credits more convenient for, and accessible to consumers. Pasa Load (the term “pasa” means “transfer”), is a derivative service of Smart Load that allows load transfers to other Smart Buddy and Talk ‘N Text subscribers.

•

Strong Strategic Relationships. We have important strategic relationships with First Pacific, NTT DoCoMo and NTT Communications. The technological support, international experience and management expertise made available to us through these strategic relationships enhance our market leadership and ability to provide and cross-sell a more complete range of products and services.

Strategy

The key elements of our business strategy are:

•

Build on our leading positions in the fixed line and wireless businesses. We plan to build on our position as the leading provider of fixed line service in the Philippines by continuing to launch new products and services to increase subscriber value and utilization of our existing facilities and equipment at reduced cost. We plan to build on our position as the leading wireless service provider in the Philippines by continuing to introduce new products and services to increase our subscribers’ use of our network for both voice and data, as well as their reliance on our services. We are currently upgrading our fixed line facilities to NGN, and have rolled out a 3G network based on a W-CDMA technology as well as expanding our DSL and wireless broadband facilities. Our operating target is to continue growth in profitability by increasing our revenues while controlling our costs.

•

Capitalize on our strength as an integrated provider of telecommunications services. We offer the broadest range of telecommunications services among all operators in the Philippines. We plan to capitalize on this position to maximize revenue opportunities by bundling and cross-selling our products and services, and by developing convergent products that feature the combined benefits of voice and data, fixed line, wireless and ICT services utilizing our network and business platforms. We are also lowering our costs by integrating the operations of our different businesses.

•

Strengthen our leading position in the data and broadband market. Leveraging on the inherent strength of our fixed line and wireless businesses, we are committed to further develop our fastest growing business segment — broadband, data and other network services. Consistent with our strategy of introducing innovative products and services using advanced technology, we have launched various products and services that address different market needs.

•

Maintain a strong financial position and improve shareholder returns. In recent years, we have significantly improved our financial position by utilizing our cash flows principally for debt reduction. Our debt decreased to US$1.6 billion as at December 31, 2008. As the cash flows generated by our businesses have increased and our leverage ratios have improved, we have been able to restore the payment of cash dividends to our common shareholders beginning 2005 and have increased our cash dividend payout ratio in 2006, 2007 and 2008. We expect that a greater proportion of our free cash flows in succeeding years will be utilized for the payment of cash dividends to common shareholders and investments in new growth areas while continuing to maintain a healthy balance sheet position. As part of our growth strategy, we made and may continue to make acquisitions and investments in companies or businesses. We will continue to consider value-accretive investments in related businesses such as those in the global outsourcing and off-shoring industry.

Business

Wireless

We provide cellular, wireless broadband, satellite and other services through our wireless business segment.

Cellular Service

Overview

Our cellular business, which we provide through Smart, Piltel and CURE to over 35 million subscribers, approximately 99% of whom are prepaid subscribers, is focused on providing wireless voice communications, wireless data communications (primarily through text messaging) and a variety of other VAS, which includes (a) Smart Money; (b) specialized content such as ringtones, logos, caller ringback tunes; (c) Mobile Banking (banking services delivered over the cellular network); (d) international roaming; and (e) games and other VAS developed on Smart’s platform. Smart services approximately 14.3 million subscribers of Piltel on its GSM network through a facilities service agreement with Piltel, under the brand name Talk ‘N Text.

The following table summarizes key measures of Smart’s, Piltel’s and CURE’s cellular business as at and for the years ended December 31, 2008, 2007 and 2006:

		2008				2007				2006
Systemwide cellular subscriber base			35,224,604				30,041,030				24,175,384
Smart			20,899,753				20,339,204				17,201,005
Prepaid			20,501,617				19,997,324				16,882,442
Postpaid			398,136				341,880				318,563
Piltel(1)			14,308,493				9,701,826				6,974,379
CURE			16,358				—				—
Growth rate of cellular subscribers			17	%			24	%			18	%
Smart			3	%			18	%			12	%
Piltel(1)			47	%			39	%			40	%
CURE			100	%			—				—
Cellular revenues (in millions)		Php	87,518			Php	82,334			Php	75,617
Voice			37,287				36,105				35,233
Data			47,792				44,092				38,672
Others(1)			2,439				2,137				1,712
Percentage of cellular revenues to total wireless service revenues			94	%			95	%			96	%
Percentage of cellular revenues to total service revenues			57	%			57	%			56	%

(1)		Represents Talk ‘N Text, a prepaid service provided by Piltel using Smart’s network. Piltel’s revenue is net of service fees payable to Smart for using Smart’s network. Piltel does not offer postpaid service.

 

28

We launch from time to time various promotions to stimulate usage and subscriber growth. Smart launched a series of promotions to test the market demand for fixed rate or “bucket” plans for voice and text. In 2006, Smart introduced low-denomination text packages which were further refined in 2007 and 2008 as Smart focused on further segmenting its market by offering sector-specific, value-driven packages. As a result, Smart continued to successfully defend its market leadership through innovative voice and text packages that drive activations, boost usage and strengthen brand equity.

The success of text messaging is a strong indicator of future data usage potential in this market. In 2008, approximately 55% of Smart’s cellular revenues were derived from data usage, compared to 54% and 51% in 2007 and 2006, respectively.

Smart also offers the following value-added cellular services:

•

Smart Money, launched in conjunction with MasterCard, enables subscribers to pay for their purchases by transferring money from their bank accounts to their Smart Money cards, reload their prepaid cards electronically, as well as download specialized content such as ringtones, logos, caller ringback tunes and games;

•

Mobile Banking, launched in collaboration with various banks, allows subscribers to execute banking transactions such as balance inquiries and transfers over their mobile telephones; and

•

Smart Padala, one of the many innovative initiatives from our Smart Money platform, is the first cash remittance service through text and is faster and cheaper than traditional remittance arrangements. It was launched initially as an international remittance service for overseas Filipino workers but is now available for domestic remittances as well.

Consistent with Smart’s objective to develop new businesses, Smart introduced in 2006 a “fixed wireless” broadband service under the brand SmartBro to complement PLDT’s DSL in areas that are currently not covered by the fixed line network. SmartBro is rapidly increasing network coverage in order to retain “first mover” advantage in areas with limited or no fixed line or broadband coverage. SmartBro is also pioneering a shared access model in order to propagate broadband and address affordability barriers.

Due to the high level of text messaging service usage, we believe that the Philippine market is well suited for text-based informational and e-commerce services. Our current approach is to continue maximizing our GSM, or 2G, services while upgrading our network to Enhanced Data for GSM Evolution, or EDGE. EDGE is a technology that would further increase the speed and data capability of our GSM network. In addition, on December 29, 2005, Smart was awarded a 3G license by the NTC after being ranked highest by the NTC in garnering a perfect score on a 30-point grading system designed to gauge the capability of telecommunication operators to effectively provide extensive 3G services. As a result of being ranked highest, Smart received the largest radio frequency allocation of 15 MHz as well as first choice of frequency spectrum. Smart chose the 1920-1935 MHz and 2110-2125 MHz spectrum, the range that would best enable it to deploy its 3G network nationwide and at the same time offer the highest quality of 3G service.

Rates and Discounts

Our current policy is to recognize a prepaid subscriber as “active” only when the subscriber activates and uses the SIM card and reloads it at least once during the month of initial activation or in the immediately succeeding month. A prepaid cellular subscriber is disconnected if the subscriber does not reload within four months after the full usage or expiry of the last reload.

Smart Buddy and Talk ‘N Text Call and Text prepaid cards are sold in denominations of Php300, Php500 and Php1,000, which include 33, 83 and 250 free text messages, respectively. While the stored value of a prepaid card remains valid for a period of two months from the time a subscriber activates the card, we launch from time to time promotions with shorter validity periods. The introduction of our “over-the-air” electronic loading facility Smart Load in 2003 made reloading of air time credits more convenient and accessible for consumers. Smart Load’s over-the-air reloads have evolved to respond to market needs and now come in denominations of Php10, Php15, Php20, Php30, Php60 and Php115 with corresponding expiration periods.

Smart Load was followed by Pasa Load, a derivative service, allowing prepaid subscribers to transfer even smaller denominations to other prepaid subscribers.

Smart Buddy subscribers are charged Php6.50 per minute for calls to Smart Buddy and Talk ‘N Text subscribers and Php7.50 per minute terminating to other cellular or fixed line networks. Talk ‘N Text calls to Talk ‘N Text subscribers are charged Php5.50 per minute while calls to Smart Buddy and other cellular fixed line subscribers are charged Php6.50 per minute.

We offer both flat rate, or regular, and consumable postpaid plans with monthly service fees ranging from Php500 to Php3,500. These plans are available with varying amounts of free air time and text messages and different rates beyond the free minutes and text messages, depending on the monthly service fee. Monthly service fees for flat rate, or regular, plans are applicable only to local calls and text messages and for consumable plans to all voice calls, text messages (both local and international) and VAS.

Smart is permitted to adjust its cellular air time and national direct dial rates according to changes in the peso-to-U.S. dollar exchange rate. Under the authorization granted to Smart by the NTC, Smart is permitted to increase and is required to decrease its air time and national direct dial rates by 1% for every Php0.25 change in the exchange rate relative to a base rate of Php24.726 to US$1.00. However, Smart has not implemented any foreign currency adjustments to its rates since November 4, 1998 because of the concern that increased rates may result in decreased usage or switching to other cellular providers by its subscribers.

All Smart subscribers pay an international direct dialing rate of US$0.40 per minute. This rate applies to 201 destinations, including the United States, Hong Kong, Japan, Singapore, the United Kingdom and the United Arab Emirates. Smart charges US$0.98 per minute for 27 other destinations and US$2.18 per minute for another ten destinations.

We sell our cellular services primarily through a network of independent dealers and distributors that generally have their own retail networks, direct sales forces and sub-dealers. We currently have nine major dealers, two of which are exclusive. These dealers include major distributors of cellular handsets whose main focus are telecommunications outlets. Account managers from our sales force manage the distribution network and regularly update these business partners on upcoming marketing strategies, promotional campaigns and new products introductions. With the introduction of Smart Load in 2003, Smart moved into a new realm of distribution. These over-the-air reloads, which were based on the “sachet” marketing concept of consumer goods such as shampoo and ketchup, required a distribution network that approximates those of fast-moving consumer goods companies. Starting with just 50,000 outlets when it was launched, Smart Load‘s distribution network now encompasses approximately one million retail agents, 80% of which are micro businesses (e.g., neighborhood stores, individual entrepreneurs, individual roving agents). These micro-retailers must be affiliated with any of Smart’s authorized dealers, distributors, sub-dealers or agents. With the prepaid reloading distribution network now extended to corner store and individual retailer levels and minimum reloading denominations as low as Php10, Smart’s prepaid service became even more affordable and accessible to subscribers.

For prepaid services, we grant discounts to dealers for prepaid phone kits, air time cards and over-the-air reloads sold. Smart and Piltel compensate dealers with Php800 in cash per prepaid phone kit sold. An additional 1% discount based on the suggested retail price is given on cash purchases. Air time cards and over-the-air reloads are sold to distributors at volume discounts determined by the value of the cards purchased by the distributors. Discounts given for air time cards sold range from 8% to 8.4% while discounts on over-the-air reloads range from 2.5% to 5%. Air time cards cannot be returned or refunded and normally expire within six to 12 months after release from the Smart warehouse.

Wireless Broadband, Satellite and Other Services

Overview

We currently provide wireless broadband, satellite and other services through SBI; our wireless broadband provider, Wolfpac; and our wireless content operators, Mabuhay Satellite and ACeS Philippines.

SBI

Through SBI, we are engaged in providing wireless broadband and data services to residential consumers as well as small and medium-scale enterprises in the Philippines. As at December 31, 2008, SBI had 547,090 wireless broadband subscribers under the brand name Smart Bro. Smart Bro aims to strengthen Smart’s position in the wireless data segment and complements PLDT’s myDSL service in areas where the latter is not available. In 2008, SBI generated total revenues of Php4,751 million and posted a net income of Php1,157 million.

Airborne Access

Through Airborne Access, the country’s leading operator of WiFi hotspots, which provides wireless internet access in hotspots nationwide equipped with Airborne Access WiFi access points.

Wolfpac

Through Wolfpac, we are engaged in the business of consumer mobile applications software development and consumer mobile content development and other allied services. In 2008, Wolfpac generated total revenues of Php124 million and posted a net income of Php60 million.

PLDT WeRoam

We also offer PLDT WeRoam, or WeRoam, a wireless prepaid or postpaid broadband service, running on the PLDT Group’s nationwide wireless network (using 2G, 3G/HSDPA and WiFi technologies). In 2008, PLDT WeRoam contributed Php203 million to our data revenues.

Mabuhay Satellite

Mabuhay Satellite is engaged in the control and operation of the Agila 2 satellite. Commercial operations commenced in January 1998 and Agila 2 was the Philippines’ first communication satellite. Mabuhay Satellite leases satellite space segments in both the C and Ku-Bands on the Agila 2 satellite. Through the Agila 2 satellite, Mabuhay Satellite also caters to providers of internet backbone access, and video and data broadcasting, and also provides bandwidth-on-demand, facilitating communication links between telecommunications, broadcast and other public utility companies operating in the Asia-Pacific region. In 2008, Mabuhay Satellite generated revenues of Php934 million and posted a net loss of Php30 million.

ACeS Philippines

ACeS Philippines currently owns approximately 36.99% of AIL. AIL provides satellite-based communications to users in the Asia-Pacific region through the Garuda I satellite, or ACeS System and ACeS Service. AIL has entered into interconnection agreements and roaming service agreements with PLDT and other major telecommunications operators that allow ACeS service subscribers to access GSM terrestrial cellular systems in addition to the ACeS System. Further, AIL has an amended Air Time Purchase Agreement, or ATPA, with National Service Providers in Asia, including PLDT. In 2008, ACeS Philippines generated revenues of Php451 million and posted a net income of Php272 million. For further discussion regarding the ATPA, please see Note 22 — Related Party Transactions and Note 24 — Contractual Obligations and Commercial Commitments to the accompanying audited consolidated financial statements in Item 18.

As part of the consolidation process of the PLDT Group’s wireless business, ACeS Philippines’ operations have been integrated into Smart. This operational integration effectively gives Smart the widest service coverage in the Philippines through the combination of the coverage of ACeS Philippines with Smart’s cellular service.

Revenues

Our revenues from wireless broadband, satellite and other services consist of wireless broadband service revenues for SBI, rental payments received for the lease of Mabuhay Satellite’s transponders and charges for ACeS Philippines’ satellite information and messaging services, service revenues generated from PLDT Global’s subsidiaries and revenues generated from Wolfpac for wireless data content.

Rates

SBI offers its wireless broadband and data services to residential consumers as well as small and medium-scale enterprises. The wireless broadband service for residential consumers is branded as Smart Bro and offers a maximum speed of 384 kbps for Php999 per month. Monthly service fees for corporate data services range from Php999 to Php180,000 depending on connection speed. The monthly service fee for users of Smart Bro Plug-It, a new service introduced in November 2007, is Php799 which includes 40 hours per month of free internet usage. Users also incur a one-time charge for Smart Bro Plug-It modem of Php1,200.

Wolfpac generates revenues from SMS subscriptions, institutional services and downloadable contents. The subscription price for the SMS subscription and institutional services is pegged at Php2.50 per SMS, while for downloadable content ranges from Php10.00 to Php30.00.

WeRoam postpaid offers several packages for its wireless broadband service that include unlimited Internet or VPN access with speeds ranging from 40 kbps to 1.8 Mbps with monthly recurring fees of Php1,000, Php1,300 or Php1,700 depending on the type of plan selected.

WeRoam prepaid offers several packages that include the Mobile Data Card and an air time value for three, six and 12 months with monthly subscription fees based on an initial air time value ranging from Php6,170 to Php18,930. Once the initial air time value expires, continued use of the service requires WeLoad or reloading of additional air time value with different denominations and expiration periods.

Mabuhay Satellite leases its transponders to third parties at average annual rates of approximately US$0.9 million and approximately US$0.7 million for its C-band and Ku-band transponders, respectively. ACeS mobile service subscribers are charged Php13.84 per minute for local and cell-to-cell calls and for national direct dial services, while residential subscribers are charged peak-hour rates of Php13.00 per minute and off-peak hour rates of Php8.00 per minute for domestic calls regardless of destination. For ACeS System public calling offices, callers are charged Php4.50 and Php7.00 per minute for calls terminating to fixed line and cellular networks, respectively. Rates for international long distance calls depend on the country of termination and range from US$0.35 per minute for frequently called countries to US$0.85 per minute for less frequently called countries.

Fixed Line

We provide local exchange, international long distance, national long distance, data and other network and miscellaneous services under our fixed line business segment.

We offer postpaid and prepaid fixed line services. Initially intended as an affordable alternative telephone service for consumers under difficult economic conditions, our prepaid fixed line services now form an important part of our overall churn and credit risk exposure management strategy. In March 2007, PLDT launched PLDT Landline Plus, a postpaid fixed wireless service where subscribers to the service benefit from a text-capable home phone. This service is primarily intended for subscribers in areas where PLDT has no facilities and is expected to increase our fixed line subscriber base. In March 2008, we introduced the prepaid counterpart of PLDT Landline Plus.

Local Exchange Service

Our local exchange service, which consists of our basic voice telephony business, is provided primarily through PLDT. We also provide local exchange services through our subsidiaries ClarkTel, SubicTel, Maratel and Piltel, prior to PLDT’s acquisition of Piltel’s fixed line assets on June 4, 2008. Together, these subsidiaries account for approximately 2% of our consolidated fixed line subscribers.

The following table summarizes key measures of our local exchange service as at and for the years ended December 31, 2008, 2007 and 2006:

		2008				2007				2006
Number of local exchange line subscribers			1,782,356				1,724,702				1,776,647
Number of fixed line employees			7,813				8,080				8,711
Number of local exchange line subscribers per employee			228				213				204
Total local exchange service revenues (in millions)		Php	15,923			Php	16,205			Php	16,965
Local exchange service revenues as a percentage of total fixed line service revenues			32	%			33	%			34	%
Local exchange service revenues as a percentage of total service revenues			10	%			11	%			13	%

Rates

As at December 31, 2008, basic monthly charges for our local exchange service in the Metropolitan Manila area were Php592.63 for a single-party residential line and Php1,234.02 for a single business line. Monthly charges vary according to the type of customer (business or residential) and location, with charges for urban customers generally being higher than those for rural/provincial customers. Regular installation charges amount to Php1,200 for residential customers and Php1,500 for business customers. New products launched on promotion or products bundled on existing services usually waive the installation fee or allow for a minimal installation fee of Php500. Aside from the basic monthly charges, we charge subscribers separately for NDD, IDD and calls to mobile phones. Calls to PLDT and other landlines within a local area code are free.

Our prepaid fixed line customers generally do not pay a basic monthly charge and are charged based on usage. Subscribers of TelePwede, our upgraded prepaid fixed line service, are charged a monthly fee of Php115 per month to receive unlimited incoming calls and are charged per usage for outgoing calls. The TelePwede installation fee is Php1,500, including Php127 of preloaded value. Our prepaid PLDT Landline Plus subscribers can choose from two monthly service fee options or plans and are charged for outgoing local, NDD and IDD calls depending on the amount of plan they subscribe to. For a detailed description of these rates, see “— International Long Distance Service — Rates” and “— National Long Distance Service — Rates.”

The monthly service fee for our PLDT Landline Plus service is available in load denominations of Php300, Php600 and Php1,000 for residential and business subscribers and includes 150, 600 and 1,000 free local minutes, respectively.

Pursuant to a currency exchange rate adjustment, or CERA, mechanism authorized by the NTC, we are required to adjust our postpaid monthly local service rates upward or downward by 1% for every Php0.10 change in the peso-to-dollar exchange rate relative to a base rate of Php11.00 to US$1.00. In 2008, we have not made any adjustment in our monthly local service rates, while there were five downward adjustments and one upward adjustment in 2007. The average Philippine peso to U.S. dollar rate factored in our monthly local service rates in 2008 was Php49.76 to US$1.00, compared to an average of Php48.67 to US$1.00 in 2007. This change in the average peso-to-dollar rate translated to a peso depreciation of 2%, which resulted in a net increase of approximately 2% in our average monthly local service rates in 2008. In its letter dated July 16, 2007, the NTC has approved our request to use annual average exchange rates as our basis in CERA computation instead of the currently used monthly averages.

In the first quarter of 2005, House Bill, or HB, No. 926 was filed and is pending in the House of Representatives of the Philippines. The proposed bill provides for the cancellation of the currency exchange rate mechanism currently in place. If this bill is passed into law or if the NTC issues guidelines to change the basis of the currency exchange rate mechanism, our ability to generate U.S. dollar linked revenues from our local exchange business could be adversely affected.

International Long Distance Service

Our international long distance service consists of switched voice and packet-based voice and data services that go through our international gateway facilities. We also generate international long distance revenues through access charges paid to us by other Philippine telecommunications carriers for incoming international voice calls that terminate to our local exchange network. Our packet-based voice and data services are transmitted over our existing traditional circuits, VoIP systems and the network of a consortium of dominant carriers in Asia in which PLDT is a member.

The following table shows certain information about our international long distance business for the years ended December 31, 2008, 2007 and 2006:

		2008				2007				2006
Total call volumes (million minutes)			2,024				2,280				2,177
Inbound call volumes (million minutes)			1,786				2,007				1,984
Outbound call volumes (million minutes)			238				273				193
Inbound-outbound call ratio			7.5:1				7.4:1				10.3:1
Total international long distance service revenues (in millions)		Php	7,063			Php	8,674			Php	9,933
International long distance service revenues as a percentage of total fixed line service revenues			14	%			18	%			20	%
International long distance service revenues as a percentage of total service revenues			5	%			6	%			7	%

International long distance service historically has been a major source of our revenue. However, primarily due to the steep decline in inbound termination and collection rates and intense competition, revenues derived from our international long distance service have been declining significantly.

We have been pursuing a number of initiatives to strengthen our international long distance service business, including (a) lowering our inbound termination rates, (b) identifying and containing unauthorized traffic termination on our network, (c) being more selective in accepting incoming traffic from second- and third-tier international carriers, and (d) introducing a number of marketing initiatives, including substantial cuts in international direct dialing rates, innovative pricing packages for large accounts and loyalty programs for some customers. In addition, through PLDT Global, we aggregate inbound call traffic to the Philippines at our points of presence and, using our capacity in submarine cable systems connected to each point of presence, transmit calls to our network. PLDT Global is also enhancing the presence of PLDT in other international markets by offering new products and services such as international prepaid cards, mobile services, SMS transit wholesale termination, and other global bandwidth services. We believe these strategies will help us maximize the use of our existing international facilities, and develop alternative sources of revenue.

The table below sets forth the net settlement amounts for international calls handled by PLDT, by country, for the years ended December 31, 2008, 2007 and 2006:

		Net Settlement
		2008				2007				2006
						(in millions)
United States		US$	46			US$	55			US$	54
Saudi Arabia			30				28				27
United Arab Emirates			20				18				15
Japan			14				12				12
Canada			9				17				18
Taiwan			6				6				4
Ireland			6				5				2
Italy			5				10				11
Singapore			5				3				1
Others			33				42				41
Total		US$	174			US$	196			US$	185

Rates

Since February 1, 2003, a substantial portion of PLDT’s international inbound traffic terminating on its fixed line network is charged approximately US$0.12 per minute.

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

We also offer international long distance service through PLDT Budget Card, a prepaid call card, which offers low-priced international calling services at IDD call rates ranging from Php3.00 per minute to Php15.00 per minute depending on the destination to more than 100 calling destinations (excluding the Middle East). In April 2007, we introduced the Budget Card Middle East Edition which offers reduced IDD call rates of Php10 per minute and Php15 per minute to 14 different destinations in the Middle East. Budget Card and Budget Card Middle East Edition are sold in denominations of Php200, Php100 and Php30 and must be consumed within 30 days from first use.

National Long Distance Service

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

The following table shows certain information about our national long distance business for the years ended December 31, 2008, 2007 and 2006:

		2008				2007				2006
Total call volumes (million minutes)			1,944				2,183				2,251
Total national long distance service revenues (in millions)		Php	6,207			Php	6,338			Php	6,921
National long distance service revenue as a percentage of total fixed line service revenues			13	%			13	%			14	%
National long distance service revenue as a percentage of total service revenues			4	%			4	%			5	%

Cellular substitution and the widespread availability and growing popularity of alternative, more economical non-voice means of communications, particularly e-mailing and cellular text messaging, have negatively affected our national long distance call volumes partially offset by higher ARPU primarily as a result of ceasing certain promotions on our national long distance calling rates. The integration of some of our local exchanges into a single local calling area, as approved by the NTC, has also negatively affected our national long distance call volumes, and consequently, our revenues. Because of this integration, calls between two exchanges located within the same province are no longer considered national long distance calls but are treated as local calls.

Rates

Rates for national long distance calls traditionally were based on type of service, such as whether the call is operator-assisted or direct-dialed. However, in line with its move towards rate simplification, PLDT simplified these rates in recent years to a flat rate of Php5.00 per minute for calls originating and terminating to PLDT fixed line network, and for calls terminating to fixed line networks of other local exchange carriers. Additionally, in recent years, PLDT simplified its rates for calls terminating to cellular subscribers to a uniform rate of Php14.00 per minute.

In addition, PLDT launches from time to time promotions to stimulate fixed line usage.

We continue to evaluate the rate structure of our national long distance services from per minute toll charges to flat rates per call for calls of unlimited duration. This is envisioned to make fixed line rates more competitive with VoIP rates and to revitalize interest in fixed line usage. We continue to study various pricing models in respect of the above new rate plans.

PLDT currently has interconnection arrangements with the majority of other local exchange carriers, pursuant to which the originating carrier pays: (1) a hauling charge of Php0.50 per minute for short-haul traffic or Php1.25 per minute for long-haul traffic to the carrier owning the backbone network; and (2) an access charge of Php1.00 per minute to the terminating carrier. PLDT still maintains revenue-sharing arrangements with a few other local exchange carriers, whereby charges are generally apportioned 30% for the originating entity, 40% for the backbone owner and the remaining 30% for the terminating entity. For more information on these interconnection arrangements, see “— Interconnection Agreements.”

Data and Other Network Services

Our data and other network service revenues include charges for leased lines, IP-based, packet-based and switched-based services. These services are used for domestic and international communications such as private networking, broadband and narrowband internet-based data communications, and packet-based communication.

The following table summarizes key measures of our data and other network services as at and for the years ended December 31, 2008, 2007 and 2006:

		2008				2007				2006
Number of DSL broadband subscribers			432,583				264,291				133,159
Number of PLDT Vibe narrowband subscribers			101,411				230,995				297,250
Total data and other network service revenues (in millions)		Php	18,607			Php	15,921			Php	13,725
Data and other network service revenues as a percentage of total fixed line service revenues			38	%			33	%			28	%
Data and other network service revenues as a percentage of total service revenues			12	%			11	%			10	%

Recognizing the growth potential of data and other networking services, including IP-based services, and in light of their importance to our business strategy, we have been putting considerable emphasis on these service segments. These segments registered the highest percentage growth in revenues among our fixed line services in 2008 and continued to grow in the first quarter of 2009.

The continuous upgrading of our network using next-generation facilities and the completion of our domestic fiber optic backbone has enabled us to offer a growing range of value-added and broadband services. With this and other technological upgrades, our infrastructure has developed from a traditional voice facility to a new packet-switched and IP-based network allowing faster transmission of voice, video and data.

Our IP-based services include PLDT DSL (myDSL and BizDSL), a broadband internet service targeted for heavy individual internet users as well as for small and medium enterprises, PLDT Vibe, a dial-up/narrowband internet service targeted for light to medium residential individual internet users, and I-Gate, our dedicated leased line internet access service targeted for enterprises and VAS providers.

In addition, in 2006, we introduced Shops.work Unplugged, or SWUP, a bundled service using Smart’s GPRS/EDGE network and PLDT’s virtual private network for retailers and banks that offers real-time wireless data communication for retailers’ cashiering point-of sale networks, bank automated teller machines, or ATMs, and merchants’ swipe card terminals.

In 2008, we continued to broaden our service offerings with the launch of new services and expansion or enhancement of some of the existing offerings.

Information and Communications Technology

We conduct our information and communications technology, or ICT, businesses through our wholly-owned subsidiary ePLDT. ePLDT is a broad-based integrated information and communications technology company, focusing on infrastructure and solutions for internet applications, IP-based solutions and multimedia content delivery. ePLDT’s principal businesses are the operation of (1) knowledge processing solutions, through the SPi Group, (2) customer interaction solutions through Vocativ, Parlance and Ventus, (3) an internet data center under the brand name Vitro™, and (4) internet and online gaming through Infocom, netGames, Digital Paradise, DigiPar Thailand and Level Up!. Our ICT business segment registered revenues of Php10,983 million, Php10,322 million and Php6,890 million, accounting for 7%, 7% and 5% of our total revenues for 2008, 2007 and 2006, respectively. The increase in the revenue contribution from our information and communication technology segment was primarily due to the consolidation of SPi, CyMed and Level Up! since their acquisition by ePLDT on July 11, 2006, August 11, 2006 and April 30, 2006, respectively, and has increased with the full-year consolidation of the SPi Group in 2007 and 2008.

Knowledge Processing Solutions

ePLDT provides knowledge processing solutions through the SPi Group. Our knowledge processing solutions business provides services such as: (a) editorial and content production services to the scholarly scientific, technical and medical journal publishing industry; (b) digital content conversion services to information organizations; (c) pre-press project management services to book publishers; (d) litigation support services which involve conventional coding and electronic discovery support services for corporations, international law firms, corporate counsels and government agencies; (e) conversion services of medical records/data from handwritten or speech format to electronic format and patient scheduling, coding and compliance assistance, consulting and specialized reporting services; and (f) revenue cycle management services for U.S. medical facilities.

Customer Interaction Solutions

ePLDT has established one umbrella brand name, ePLDT Ventus, for all of its customer interaction solutions businesses, including Vocativ and Parlance. Ventus provides offshore, cost-effective contact center outsourcing solutions specializing in inbound customer care. Vocativ provides customer and technical support to its clients in the Philippines, U.S. and U.K., while Parlance provides exclusive customer support and billing requirements to one of the largest direct-to-home satellite television providers in the U.S. In total, we owned and operated approximately 6,580 seats with 5,800 customer service representatives, or CSRs, in 2008 compared to approximately 6,400 seats with 5,930 CSRs in 2007. In each of the years 2008 and 2007, ePLDT Ventus had seven customer interaction solution sites.

Internet and Online Gaming

ePLDT owns a 99.6% interest in Infocom, one of the country’s leading internet service providers, or ISPs. Infocom offers consumer prepaid internet access under the name WarpSpeed and Speed Tipid and postpaid internet access; dedicated dial-up and multi-user dial-up corporate leased lines; broadband internet access through DSL and cable; and website consulting, development and hosting. ePLDT also owns a 75% interest in Digital Paradise, an internet café business with over 154 branches which assumed the assets of Netopia Computer Technologies, Inc. and the brand Netopia. ePLDT further holds an 80% interest in netGames, a publisher of Massively Multi-player Online Games in the Philippines; and a 60% equity interest in Level Up!, a leading publisher of online games in the Philippines.

Data Center

ePLDT operates Vitro™, one of the Philippines’ first internet data centers that provides co-location, web and server hosting, hardware and software maintenance services, website development and maintenance services, webcasting and webhosting, shared applications, data disaster recovery and business continuity services, intrusion detection and IP security services, as well as firewall and managed firewall services.

Infrastructure

Wireless Network Infrastructure

Cellular

Through Smart, we operate a digital GSM network. To meet the growing demand for cellular services, Smart has implemented an extensive deployment program for its GSM network covering substantially all of Metropolitan Manila and most of the other population centers in the Philippines. As at December 31, 2008, Smart had 45 mobile switching centers and 78 text messaging service centers and 8,477 base stations in operation after having added 652 base stations to its nationwide cellular network in 2008, while Piltel had six active cell sites.

Smart has an operating spectrum of 7.5 MHz in the 900 band supporting both its GSM and previously its ETACS network and 20 MHz in the 1800 band for GSM and 15 MHz in the 2100 band and 10 MHz in the 850 band assigned for 3G and W-CDMA. Its dual-band GSM network allows it to efficiently deploy high capacity 1800 MHz BTS in dense urban areas while its 900 MHz BTS can be much more economically deployed in potentially high growth, but less densely populated provincial areas. The 3G network revolutionizes mobile technology by providing more capacity, faster data rates and richer data and video applications. Smart has been deploying its 3G network in urban areas where there is a demand for mobile broadband applications and where 3G mobile units are more likely to be available. Spectrum constraints will not affect Smart’s expansion plans for GSM in the foreseeable future.

Due to its access to PLDT’s network assets, Smart has been able to achieve significant capital expenditure savings, which capital expenditures are understood to be significantly less, on a per net addition basis, than its current competitors. This translates into an improved ability to price competitively and target the mass market subscriber base in the Philippines, while retaining profitability. Based on existing equipment purchase contracts, Smart expects incremental capital expenditure per net additional subscriber to amount to less than US$50.

We expect continued increases in coverage (particularly indoor) in the coming years, as well as the introduction of new types of BTS for indoor and commercial offices. Smart has introduced the NanoBTS, a compact and easy-to-deploy solution for indoor coverage and increased efficiencies in underserved offices and buildings. The new base station equipment uses IP for transport and Smart is one of the very first operators to deploy this access solution.

Smart was awarded a 3G license by the NTC in 2005 and received the largest radio frequency allocation of 15 MHz. Smart chose the 1920-1935 MHz and 2110-2125 MHz spectrum, the range that would best enable it to rapidly deploy its 3G network nationwide and at the same time offer the highest quality of 3G service. Smart has commenced its 3G network roll-out and continues to extend the reach of its 3G network in various cities and municipalities nationwide, further improving coverage in major urban centers and selected provincial areas.

Smart and Piltel have been co-locating their cell sites where their base stations are installed. As at December 31, 2008, 27 of Smart’s mobile switching centers and 216 of Smart’s cell sites were housed in PLDT’s fixed line complexes while 248 of Smart’s cell sites were co-located with Piltel. These operational synergies have allowed Smart to reduce switch installation time from three months to five weeks.

Wireless Broadband, Satellite and Other Services

SBI operates a nationwide broadband wireless internet data services. It is operating in the 2.4, 3.5 and 5.7 Ghz spectrum, supporting its WiFi, Canopy and eventually WiMax services, respectively. It offers fixed wireless broadband internet connectivity to both residential and corporate clients. It also maintains and operates WiFi hotspots installations that serve mobile internet users. Almost 2,000 of Smart’s base stations are now wireless broadband-capable, covering most of the key cities and the other populated centers in the country. These are strategically co-located in Smart’s cellular base stations that allow it to efficiently reach many subscribers. For its backbone, it uses the nationwide PLDT and Smart fiber optic and IP backbone that provide substantial bandwidth capacity to utilize and to grow on demand.

Mabuhay Satellite controls and operates the Agila 2 satellite, which has 30 C-band transponders and 24 Ku-band transponders covering the Asia-Pacific region, the Indian subcontinent and Hawaii. Of the 54 transponders, six have restricted usage due to satellite interference. Through the Agila 2 satellite, Mabuhay Satellite caters to providers of internet backbone access, and video and data broadcasting, and also provides bandwidth-on-demand, facilitating communication links between telecommunications, broadcast and other public utility companies operating in the Asia-Pacific region. In December 2000, Agila 2 satellite joined the U.S. FCC’s “Permitted Space Station” list, which permits U.S.-owned and operated earth stations in Hawaii to access Agila 2 for transpacific telecommunications, data, video and internet-over-satellite traffic and vice versa.

ACeS Philippines manages, controls and operates its own satellite gateway and other ground infrastructure, including a 13-meter feeder-link C-band earth station, beam congruency antenna and equipment that serve as the primary interface between the ACeS System and other telecommunications networks. It uses the Garuda I satellite to transmit digital voice services to ACeS System, mobile and fixed terminal users within the Asian service area.

Fixed Line Network Infrastructure

Domestic

Our domestic telephone network includes installed telephones and other equipment on customers’ premises, local access lines connecting customers to exchanges, referred to as “outside plant,” inter-office lines connecting exchanges, and long distance transmission equipment. As at December 31, 2008 and 2007, we had 228 central office exchanges compared with 184 as at December 31, 2006.

We are currently upgrading our fixed line facilities to the Next Generation Network, or NGN, an IP-based platform that can deliver voice and data services using the same network. NGN enables us to replace the ageing Public Switched Telephone Network switches and transfer the existing customers to this new platform and acquire new customers for voice and data services. We expect to complete the upgrading of our fixed line facilities to NGN in 2012, providing subscribers with a diversified range of telecommunication services using IP technology.

We also have an Internet Gateway that provides premium service with high-speed, reliable and managed connectivity to the Internet. The gateway is composed of high capacity and high performance routers that serve as our IP network gateway to the rest of the world. It provides premium internet service to all types of customers ranging from ordinary broadband customers to high bandwidth internet requirements of corporate customers, knowledge processing solutions providers, internet service providers and other service providers.

Furthermore, we have several networks that provide domestic and international connectivity for corporate customers and other carriers. These include the Multi-Service Access Platform based on synchronous digital hierarchy, or SDH, technology and legacy data networks that provides wide range of bandwidth from low speed to high speed capacity in Gigabits per seconds. These networks are deployed in strategic areas nationwide comprising of more than a thousand nodes and these networks will eventually be evolved to a converged multi-service Carrier Ethernet Network.

We have our own 6,400-kilometer DFON, the country’s first telecommunications network using fiber optics in delivering voice, video, data, and other broadband and multimedia services nationwide. Our fiber optic network employs SDH and Dense Wavelength Division Multiplexing, or DWDM, technologies to improve network performance and reduce operating costs. Our network is composed of in-land and submarine cable installations and is configured in seven self-healing rings allowing route delivery even in the event of single link failure per ring. To date, the PLDT DFON is equipped with N x 10 gigabits per second capacity and is connected directly to four existing international submarine cable systems. To maintain the 2,400 kilometer submarine portion of the DFON, we use CS Vega, a cable ship that we lease from NTT World Engineering Marine Corporation or NTT-WEM, pursuant to a shared-vessel maintenance agreement until January 31, 2010.

PLDT is upgrading DFON capability to the latest Reconfigurable Optical Add-Drop Multiplexer technology which provides optical branching capability pivotal in the deployment of efficient and reliable optical networks designed to provide advanced services, in addition to the existing DWDM and SDH technology.

We likewise have an IP backbone network composed of high-capacity, high-performance core and edge routers which provides connectivity to all IP-based network elements of PLDT, Smart, other affiliates and subsidiaries, and corporate customers. It serves as the single IP transport platform for all IP-based services of PLDT.

For many years, PLDT has been using the power pole network of Meralco in Metropolitan Manila for PLDT’s fixed line aerial cables in this area pursuant to lease agreements with Meralco with typically a five-year term. While in previous years PLDT has been able to renew these agreements on commercially reasonable terms, there can be no assurance that the power pole network sharing agreements upon their expiration can be renewed on commercially reasonable terms or at all. In case of an expiration of these agreements, PLDT would expect to have to incur significant capital expenditures to ensure continued fixed line coverage in the area of Metropolitan Manila and to experience interruptions in the provision of fixed line services in such area until the necessary fixed line infrastructure has been implemented. PLDT, through Piltel, will acquire an approximately 20% equity interest in Meralco and has in this regard entered into an investment and cooperation agreement with the Lopez Group providing it with certain corporate governance rights in respect of Meralco.

International

We provide international network services using our two international gateway switching exchanges. As at December 31, 2008, our international long distance facilities allow direct correspondence with 44 countries (representing 79 correspondents) and can reach 468 foreign destinations (via direct and transited routes including fix and mobile breakouts) worldwide. We also own interests in submarine and satellite systems, through which we route most of our international traffic.

The table below shows the submarine cable systems in which we have interests and the countries or territories they link:

Cable System		Countries Being Linked
G-P		Guam and the Philippines
Asia-Pacific Cable Network		Korea, Japan, Hong Kong, Taiwan, Australia, Philippines, Singapore, Malaysia, Indonesia and Thailand
Asia-Pacific Cable Network 2		Philippines, Hong Kong, Japan, Korea, Malaysia, Singapore, China and Taiwan
Transpacific Cable No. 5		Guam, Japan, Hawaii and the U.S. Mainland
SEA-ME-WE-3		Japan, Korea, China, Taiwan, Hong Kong, Macau, Philippines, Vietnam, Brunei, Malaysia, Singapore, Indonesia, Australia, Thailand, Myanmar, Sri Lanka, India, Pakistan, United Arab Emirates, Oman, Djibouti, Saudi Arabia, Egypt, Cyprus, Turkey, Greece, Italy, Morocco, Portugal, France, UK, Belgium and Germany
Americas Cable 1		U.S. Mainland, U.S. Virgin Islands, Brazil, Trinidad and Venezuela
China-U.S. Cable		Japan, China, Taiwan, Korea, Guam and U.S. Mainland
Columbus II Cable		U.S. Mainland, Italy, U.S. Virgin Islands, Mexico, Portugal and Spain
FLAG Cable		Japan, Korea, China, Hong Kong, Malaysia, Thailand, India, United Arab Emirates, Saudi Arabia, Egypt, Italy, Spain and UK
RJK Cable		Russia, Japan and Korea
Southern Cross Cable		U.S. Mainland, Hawaii, Fiji, Australia and New Zealand
TVH Cable		Thailand, Vietnam and Hong Kong
EAC Cable		Japan, Hong Kong, Korea, Taiwan, Singapore and the Philippines
PC-1, Japan-U.S. Cable and TGN		Japan and the U.S.

Additionally, on April 27, 2007, a consortium of 19 major international telecommunication operators, including PLDT, signed an agreement to build the first high-bandwidth optical fiber submarine cable system linking Southeast Asia and the U.S. The cable project, known as the Asia-America Gateway, will span 20,000 kilometers and will use the latest Dense Wavelength Division Multiplexing technology to provide upgradeable, future proof transmission facilities that will support bandwidth requirements for new and revolutionary broadband applications. It is expected that the Asia-America Gateway will cost approximately US$500 million (of which US$50 million represents PLDT’s investment) and will be ready for service by the end of the first half of 2009.

Interconnection Agreements

Since the issuance of Executive Order No. 59 in 1993, which requires non-discriminatory interconnection of Philippine carriers’ networks, we have entered into bilateral interconnection arrangements with other Philippine fixed line and cellular carriers.

Since January 1, 2004, domestic calls terminating to cellular subscribers originating from fixed line subscribers were charged a termination rate of Php4.00 per minute.

Effective January 1, 2003, local access for cellular operators, including Smart, that terminate calls to PLDT’s fixed line network increased from Php2.00 per minute to Php2.50 per minute, which further increased to Php3.00 per minute effective January 1, 2004.

Under a separate agreement between PLDT and PAPTELCO, PLDT is the transit facility provider between Smart, Globe, other local exchange carriers, or LEC, operators and PAPTELCO. PAPTELCO is comprised of 43 LEC operating in 129 major telephone exchanges nationwide. Transit traffic is a service by PLDT to Smart, Globe, other LEC operators and PAPTELCO members where PAPTELCO members have no direct interconnection with either Smart, Globe and other LEC operators. PLDT also has similar arrangement with other non-members of PAPTELCO.

Effective February 1, 2003, international calls terminating to PLDT’s fixed line network have been charged a termination rate of approximately US$0.12 per minute, an increase from the previous rate of US$0.08 per minute. In 2008, the average termination rates for PLDT and Smart were approximately US$0.11 and US$0.13 per minute, respectively.

Effective January 1, 2002, Smart charged a termination rate of Php4.00 per minute for domestic calls originating from or terminating to another cellular operator’s network. For SMS originating from Smart and terminating on other operators’ cellular network and for SMS originating from other operators and terminating on Smart’s cellular network, the charge is Php0.35 per message.

Licenses and Regulations

Licenses

PLDT, Smart, Piltel, SBI and CURE provide telecommunications services pursuant to legislative franchises which expire, in the case of PLDT, on November 28, 2028, in the case of Smart, on March 27, 2017, in the case of Piltel, on May 14, 2019, in the case of SBI, on July 14, 2022, and in the case of CURE, on April 24, 2026. A franchise holder is required to obtain operating authority from the NTC to provide specific telecommunications services. These approvals may take the form of a CPCN, or, while an application for a CPCN is pending, a provisional authority to operate. Provisional authorities are typically granted for a period of 18 months. The Philippine Revised Administrative Code of 1987 provides that if the grantee of a license or permit, such as a CPCN or provisional authority, has made timely and sufficient application for the extension thereof, the existing CPCN or provisional authority will not expire until the application is finally decided upon by the administrative agency concerned.

PLDT operates its business pursuant to a number of provisional authorities and CPCNs, the terms of which will expire at various times between now and 2028. The CPCNs pursuant to which PLDT may provide services to most of the Metropolitan Manila area, Davao and other Philippine cities expired in 2003. Although some of PLDT’s CPCNs and provisional authorities have already expired, PLDT filed timely applications for extension of these CPCNs and provisional authorities prior to their respective expiration dates and is therefore entitled to continue to conduct its business under its existing CPCNs and provisional authorities pending the NTC’s decision on these extensions. PLDT expects that the NTC will grant these extensions; however, there can be no assurance that this will occur. The period of validity of some of PLDT’s CPCNs, has been extended further by the NTC to November 28, 2028, coterminous with PLDT’s current franchise under R.A. 7082. Motions to extend the period of validity of the other CPCNs to November 28, 2028 are currently pending with the NTC. See Item 3. “Key Information — Risk Factors — Risk Relating to Us — Our business is significantly affected by governmental laws and regulations, including regulations in respect of our franchises, rates and taxes.”

On August 22, 2008, PLDT was granted authority under NTC Case No. 2007-095 to operate in key cities and municipalities nationwide not yet covered by its existing CPCNs and/or authorizations. This approval extended the coverage of PLDT to all areas nationwide except for the province of Albay for which the CPCN approval covering seven areas in Albay province remains pending. Upon securing the CPCN approval for the areas of Albay Province under NTC Case No. 2006-078, PLDT would have obtained authorizations to operate nationwide.

Smart operates its cellular, international long distance and national long distance services pursuant to CPCNs, the terms of which will expire upon the expiration of its franchise. On July 22, 2002, Smart was granted separate CPCNs to operate a cellular mobile telephone system, or CMTS, and an international gateway facility. On August 26, 2002, Smart was granted a CPCN to install, operate and maintain nationwide global mobile personal communications via satellite which will also expire upon expiration of its franchise. On February 19, 2008, Smart was granted a CPCN to establish, install, maintain, lease and operate an international private leased circuit for a term that is coterminous with the expiration of its franchise. Prior to that, Smart was permitted to engage in these activities pursuant to a provisional authority and a timely filed application for the grant of such CPCN. On the same date, upon application of Smart, the NTC extended Smart’s provisional authority to construct, install, operate and maintain a nationwide public calling office and public payphone service from January 4, 2007 to January 4, 2010.

On December 29, 2005, Smart was awarded a 3G license by the NTC after being ranked highest in garnering a perfect score on a 30-point grading system designed to gauge the capability of telecommunication operators to effectively provide extensive 3G services. As a result, Smart received the largest radio frequency allocation of 15 MHz as well as first choice of frequency spectrum. Smart chose the 1920-1935 MHz and 2110-2125 MHz spectrum. Smart is required to pay annual license fees of Php115 million based on the 15 MHz awarded to Smart.

Piltel CMTS frequency band 825-835/870-880 MHz were reassigned to Smart for additional 3G use on March 6, 2008. Smart is now required to pay to NTC the spectrum user fee, or SUF, of Php150 million based on the additional 10 MHz 3G frequencies.

Under the terms of the 3G license, Smart is required to:

	•		begin installation and rollout of its 3G network no later than 18 months from the date of the award;
	•		start commercial operations no later than 30 months from the date of the award; and
	•		cover at least 80% of provincial capitals and 80% of chartered cities within five years.

Piltel is authorized to provide virtually every type of telecommunications service, including the transmission of voice, data facsimile, audio and video and information services, in and between provinces, cities and municipalities throughout the Philippines. The franchise, which was last amended on May 14, 1992, will expire on May 14, 2019 and may be extended by a legislative act of the Philippine Congress.

SBI is a grantee of a 25-year legislative franchise under R.A. 8337, which expires on July 14, 2022, to construct, install, establish, maintain, lease and operate wire and/or wireless telecommunications system throughout the Philippines.

SBI is a holder of a provisional authority issued by the NTC for the installation, operation, and maintenance of the Data Leased Channel Circuit Network Service that was valid up to September 21, 2007. SBI filed a motion for the extension of its provisional authority which remains pending with the NTC. SBI also has a pending application with the NTC for the issuance of a provisional authority and CPCN for the expansion of its Data Leased Channel Circuit Network Service in several areas in Zamboanga Sibuguey, Sultan Kudarat, Southern Leyte, Biliran, Compostela Valley, Davao Oriental, and Dinagat Island. SBI is also a grantee of a provisional authority for the installation, operation , and maintenance of international leased line service that was valid up to February 2005 and the motion for extension of which remains pending with the NTC.

CURE is a grantee of a 35-year congressional franchise under R.A. 9130, which expires on April 24, 2026, to construct, install, establish, maintain, lease and operate wire and/or wireless telecommunications system throughout the Philippines. The NTC granted CURE a provisional authority to install, operate and maintain a nationwide 3G network on January 3, 2006 valid for 18 months, which was subsequently extended for three years from January 4, 2007 until January 3, 2010.

The following table sets forth the spectrum system, licensed frequency and bandwidth used by Smart, Piltel, SBI and CURE:

Carrier		Spectrum System		Frequency Assignment		Bandwidth
Smart		ETACS/GSM 900		897.5-905/942.5-950 MHz		7.5 MHz
		GSM 1800		1725-1730/1820-1825 MHz		5.0 MHz
				1730-1732.5/1825-1827.5 MHz		2.5 MHz
				1735-1740/1830-1835 MHz		5.0 MHz
				1745-1750/1840-1845 MHz		5.0 MHz
				1780-1782.5/1875-1877.5 MHz		2.5 MHz
		3G (W-CDMA)		1920-1935/2110-2125 MHz		15.0 MHz
				825-835/870-880 MHz		10.0 MHz
Piltel		AMPS/CDMA		824-825/869-870 MHz		1.0 MHz
				845-846.5/890-891.5 MHz		1.5 MHz
SBI		Wireless broadband		2400-2483.5 MHz *		73 MHz
				3400-3590 MHz *		94 MHz
				5470-5850 MHz *		123 MHz
CURE		3G		1955-1965/2145-2155 MHz		10.0 MHz