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

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

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

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, 2009:

186,797,304 shares of Common Capital Stock, Par Value Five Philippine Pesos Per Share

441,631,062 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o 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			22
Recent Developments			22
Organization			25
Strengths			30
Strategy			30
Business			31
Infrastructure			42
Interconnection Agreements			45
Licenses and Regulation			46
Competition			50
Environmental Matters			52
Intellectual Property Rights			52
Properties			52
Item 4A. Unresolved Staff Comments			53
Item 5. Operating and Financial Review and Prospects			54
Overview			54
Critical Accounting Policies			55
New Accounting Standards and Pronouncements Effective Subsequent to 2009			60
Results of Operations			61
Plans and Prospects			96
Liquidity and Capital Resources			97
Impact of Inflation and Changing Prices			104
Item 6. Directors, Senior Management and Employees			104
Directors, Key Officers and Advisors			104
Terms of Office			112
Family Relationships			112
Compensation of Key Management Personnel of the PLDT Group			113
Long-Term Incentive Plan			114
Share Ownership			114
Board of Directors — Independent Directors			115
Audit, Governance and Nomination, Executive Compensation and Technology Strategy Committees			115
Directors’ and Officers’ Involvement in Certain Legal Proceedings			117
Employees and Labor Relations			119
Pension and Retirement Benefits			120
Item 7. Major Shareholders and Related Party Transactions			121
Related Party Transactions			123
Item 8. Financial Information			123
Consolidated Statements and Other Financial Information			123
Legal Proceedings			123
Dividend Distribution Policy			125
Item 9. The Offer and Listing			126
Common Capital Stock and Amercian Depositary Shares			126
Item 10. Additional Information			126
Articles of Incorporation and By-Laws			126
Material Contracts			131
Exchange Controls and Other Limitations Affecting Securities Holders			131
Taxation			132
Documents on Display			135

Item 11. Quantitative and Qualitative Disclosures About Market Risks			136
Liquidity Risk			136
Foreign Currency Exchange Risk			136
Interest Rate Risk			137
Credit Risk			141
Impairment Assessments			143
Item 12. Description of Securities Other than Equity Securities			145
PART II			146
Item 13. Defaults, Dividend Arrearages and Delinquencies			146
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds			146
Item 15. Controls and Procedures			146
Item 16A. Audit Committee Financial Expert			147
Item 16B. Code of Business Conduct and Ethics			147
Item 16C. Principal Accountant Fees and Services			151
Item 16D. Exemption from the Listing Standards for Audit Committees			151
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchaser			151
Item 16F. Change in Registrant’s Certifying Accountant			152
Item 16G. Corporate Governance			152
PART III			153
Item 17. Financial Statements			153
Item 18. Financial Statements			153
Item 19. Exhibits			156
EXHIBIT INDEX			158
CERTIFICATION
Exhibit 6
Exhibit 7
Exhibit 8
Exhibit 12.1
Exhibit 12.2
Exhibit 13.1
Exhibit 13.2

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 to the accompanying 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 Php46.43 to US$1.00 on December 31, 2009. On May 12, 2010, the volume weighted average exchange rate quoted was Php45.09 to US$1.00.

In this report, each reference to:

•

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

•

ACeS Philippines means ACeS Philippines Cellular Satellite Corporation, a wholly-owned subsidiary of PLDT;

•

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 SBI;

•

ARPU means average revenue per user;

•

BTS means base transceiver station;

•

BayanTrade means BayanTrade, Inc. (formerly BayanTrade Dotcom, Inc.), a 93.5%-owned subsidiary 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;

•

CMTS means cellular mobile telephone system;

•

CPCN means Certificate of Public Convenience and Necessity;

•

CURE means Connectivity Unlimited Resource Enterprise, a wholly-owned subsidiary of FHI;

•

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;

•

Digitel means Digital Telecommunications Philippines, Inc.;

•

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., a wholly-owned subsidiary of Smart;

•

FPHC means First Philippine Holdings Corporation;

•

FPUC means First Philippine Utilities Corporation;

•

GAAP means generally accepted accounting principles;

•

Globe means Globe Telecom, Inc.;

•

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! (Philippines), 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 97.8%-owned subsidiary of PLDT;

•

Meralco means Manila Electric Company;

•

MPRI means Metro Pacific Resources, Inc.;

•

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;

•

PHC means PH Communications Holdings Corporation, a wholly-owned subsidiary of Smart;

•

Philcom means PLDT-Philcom, Inc. (formerly Philcom Corporation), a wholly-owned subsidiary of PLDT;

•

Philippine SEC means the Philippine Securities and Exchange Commission;

•

Piltel means Pilipino Telephone Corporation, a 99.5%-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 SCH;

•

SHI means Smarthub, Inc., a wholly-owned subsidiary of Smart;

•

SIM means subscriber identification module;

•

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

•

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

•

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

•

SMS means short messaging service;

•

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;

•

Springfield means Springfield Service Corp., a wholly-owned subsidiary of SPi;

•

SRC means Securities and Regulation Code;

•

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

•

TSI means Telecoms Solutions, Inc., a wholly-owned subsidiary of SMHC;

•

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, 2009 and 2008 and for the three years ended December 31, 2009, 2008 and 2007, included in this annual report on Form 20-F have been prepared in conformity with 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 Financial 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 year ended December 31, 2005 were prepared in conformity with U.S. GAAP.

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 consolidated financial information below as at December 31, 2009 and 2008 and for the three years ended December 31, 2009, 2008 and 2007, 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, 2009, 2008 and 2007 have been prepared and presented in conformity with IFRS and our consolidated financial statements for the year ended December 31, 2006, which were originally prepared in accordance with U.S. GAAP, have been restated in accordance with IFRS for comparative purposes only.

The selected consolidated financial information below as at and for the year ended December 31, 2005 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 is not comparable with data for 2009, 2008, 2007 and 2006 and are presented separately.

Amounts in conformity with IFRS:

		2009(1)				2009				2008				2007				2006
		(in millions, except earnings per common share amounts, weighted average number of common shares,
		ratio of earnings to fixed charges and dividends declared per common share amounts)
Statements of Operating Data:
Revenues		US$	3,188			Php	147,993			Php	145,837			Php	138,704			Php	127,508
Service revenues			3,137				145,647				142,873				135,478				124,988
Non-service revenues			51				2,346				2,964				3,226				2,520
Expenses			1,941				90,111				85,786				83,587				82,003
Net income(2)			864				40,095				34,976				39,274				32,581
Earnings per common share for the year attributable to equity holders of PLDT
Basic			4.53				210.38				179.96				205.84				173.10
Diluted			4.53				210.36				179.95				204.88				173.01
Balance Sheets Data:
Cash and cash equivalents			825				38,319				33,684				17,447				16,870
Total assets			6,034				280,148				252,558				240,158				241,904
Total long-term debt — net of current portion			1,854				86,066				58,899				53,372				63,769
Total debt(3)			2,127				98,729				73,911				60,640				80,154
Total liabilities(4)			3,899				181,023				145,589				127,813				139,052
Total equity(2)			2,135				99,125				106,969				112,345				102,853
Weighted average number of common shares for the year			186,916				186,916				188,163				188,656				184,456
Other Data:
Depreciation and amortization			552				25,607				24,709				28,613				31,869
Ratio of earnings to fixed charges(5)			7.7	x			7.7	x			8.0	x			8.3	x			4.6	x
Net cash provided by operating activities			1,602				74,386				78,302				77,418				69,211
Net cash used in investing activities			1,058				49,132				17,014				31,319				35,790
Net cash used in financing activities			437				20,293				45,464				44,819				45,900
Dividends declared to common shareholders			835				38,758				36,578				28,299				14,459
Dividends declared per common share			4.46				207.00				194.00				150.00				78.00

Amounts in conformity with U.S. GAAP:

(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)		2005
Statements of Operating Data:
Revenues		Php	123,335
Service revenues			120,348
Non-service revenues			2,987
Expenses			74,821
Operating income per share
Basic			263.81
Diluted			255.15
Net income			40,603
Earnings per common share
Basic			217.84
Diluted			211.93
Balance Sheets Data:
Cash and cash equivalents			30,059
Total assets			269,709
Total long-term debt — net of current portion			93,516
Total debt(3)			112,313
Total liabilities(4)			176,980
Total stockholders’ equity			79,595
Other Data:
Depreciation and amortization			27,855
Ratio of earnings to fixed charges(5)			5.9	x
Net cash provided by operating activities			66,280
Net cash used in investing activities			13,080
Net cash used in financing activities			49,470
Dividends declared to common shareholders			9,624
Dividends declared per common share			56.00

Capital Stock

The following table summarizes PLDT’s capital stock issued as at December 31, 2009 and 2008:

		December 31,
		2009				2008
		(in millions)
Serial Preferred Stock
10% Cumulative Convertible Preferred Stock
A to EE		Php	4,056.31			Php	4,054.81
Convertible Preferred Stock Subject to Mandatory Redemption
Series V(1)			—				0.01
Series VI(1)			—				0.04
Cumulative Non-convertible Redeemable Preferred Stock
Series IV			360.00				360.00
		Php	4,416.31			Php	4,414.86
Common Stock		Php	947.40			Php	947.28

Dividends Declared

The following table shows the dividends declared to common shareholders from the earnings for the years ended December 31, 2007, 2008 and 2009:

		Date						Amount
Earnings		Approved		Record		Payable		Per share				Total Declared
												(in millions)
2007		August 7, 2007		August 24, 2007		September 24, 2007		Php	60			Php	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				11,250
									200				37,514
2009		August 4, 2009		August 20, 2009		September 22, 2009			77				14,384
2009		March 2, 2010		March 17, 2010		April 20, 2010			76				14,197
2009		March 2, 2010		March 17, 2010		April 20, 2010			65				12,142
								Php	218			Php	40,723

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. Also taken into consideration are our ability to meet loan covenant requirements in the declaration and payment of dividends as discussed in Note 19 — Equity and Note 20 — Interest-bearing Financial Liabilities to the accompanying 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 19 — Equity to the accompanying 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, Philippines 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				1.54
2007			150.00				3.26
2008			194.00				4.47
Regular Dividend — April 21, 2008			68.00				1.62
Regular Dividend — September 22, 2008			70.00				1.51
Special Dividend — April 21, 2008			56.00				1.34
2009			207.00				4.30
Regular Dividend — April 21, 2009			70.00				1.45
Regular Dividend — September 22, 2009			77.00				1.62
Special Dividend — April 21, 2009			60.00				1.24
2010			141.00				3.06
Regular Dividend — April 20, 2010			76.00				1.71
Special Dividend — April 20, 2010			65.00				1.46

Dividends on PLDT’s common stock were declared and paid in Philippine pesos. For the convenience of the reader, the peso dividends are translated into U.S. dollars based on the Philippine Dealing System Reference Rate on the respective dates of dividend payments.

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, or BAP, and BSP, the central bank of the Philippines. All members of the BAP 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)
2005		Php	53.06			Php	55.01			Php	53.06			Php	56.32
2006			49.05				51.17				49.05				53.59
2007			41.41				45.88				41.14				49.16
2008			47.65				44.71				40.36				49.98
2009			46.43				47.82				45.95				49.06
2010 (through May 12, 2010)			45.09				45.63				44.18				46.74

Source: Philippine Dealing System Reference Rate

		Month
		Period End				Average(1)				High(2)				Low(3)
2009
November		Php	47.13			Php	47.01			Php	46.52			Php	47.69
December			46.43				46.38				45.95				46.99
2010
January			46.65				46.04				45.54				46.74
February			46.16				46.29				45.97				46.61
March			45.29				45.71				45.22				46.10
April			44.51				44.59				44.18				45.04
May (through May 12, 2010)			45.09				45.11				44.54				45.72

Source: Philippine Dealing System Reference Rate

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, 2009 of Php46.43 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 May 12, 2010, the exchange rate quoted through the Philippine Dealing System was Php45.09 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

In 1993, the Philippine government liberalized the Philippine telecommunications industry and opened the Philippine telecommunications market to new entrants. Including the PLDT Group, there are nine major local exchange carriers, or LECs, 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 segment. 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 revenue market share and to attract new subscribers. Our principal cellular competitors, Globe Telecom, Inc., or Globe, and Digital Telecommunications Philippines, Inc., or Digitel, with its Sun Cellular brand, have introduced aggressive marketing campaigns and promotions, such as unlimited voice offers. 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 Buddy and Talk ‘N Text prepaid subscribers had the option to avail themselves of unlimited on-network (Smart-to-Smart) voice calls or unlimited on-network (Smart-to-Smart) 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 or the increase in capital expenditures required for our continued capacity expansion necessary to accommodate expected continued increases in call and text volumes as a result of unlimited voice/text offers 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 about 83%, counting multiple SIM card ownership. 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 made significant investments in the roll out of these services. We are also continuing to upgrade our fixed line network 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 expenses, our capital expenditures and a portion of our expenses are denominated in U.S. dollars and other foreign currencies, while a significant portion of our revenues is denominated in Philippine pesos. As at December 31, 2009, 46% of our total consolidated indebtedness was foreign currency-denominated of which approximately 28% 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, while the Philippine peso appreciated against the U.S. dollar to Php46.43 as at December 31, 2009 from Php47.65 as at December 31, 2008, the Philippine peso depreciated against the U.S. dollar to Php47.65 as at December 31, 2008 from Php41.41 as at December 31, 2007, as a result of which, we recognized foreign exchange losses of Php6,170 million in 2008. 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% of PLDT Group’s consolidated service revenues are either denominated in U.S. dollars and/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 Php52.02 on May 8, 2003 to a low of Php56.44 on October 14, 2004. While the peso appreciated in 2005, 2006 and 2007, it depreciated in 2008 to a low of Php49.98 and closed at Php47.65 as at December 31, 2008. In 2009, the peso again appreciated to a high of Php45.95 and closed at Php46.43 as at December 31, 2009. There can be no assurance that the peso will not depreciate and be subjected to significant fluctuations going forward due to a range of factors, including:

•

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

•

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; and

•

changes in the value of the U.S. dollar relative to the Philippine peso resulting from either 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, among others.

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 services will continue to decline in the future primarily due 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. Although revenues from data and other services have grown significantly in recent years compensating for declines in our traditional fixed line businesses, 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. There can be no assurance 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, as well as the ability to execute the identified strategies in order to generate fair returns on the investment; 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, 2009, we had consolidated total indebtedness of Php98,729 million (US$2,127 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 1.0x. Our existing debt instruments contain covenants which, among other things, require PLDT to maintain certain financial ratios, and other financial tests, calculated on the basis of 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, 2009, approximately 46% 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 maturities 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 maturities 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 over 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 operating expenses and as a result, may be financially unable to pay any dividends to PLDT. Although Smart has been making dividend payments to PLDT 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 priority claims over our subsidiaries’ assets and cash flows. We and our creditors will effectively be subordinated to the existing and future indebtedness and other liabilities, including trade payables, of our subsidiaries, except that we may be recognized as a creditor with respect to loans we have made to subsidiaries. If we are recognized as a creditor of a subsidiary, our claim will still be subordinated to any indebtedness secured by assets of the subsidiary and any indebtedness of the subsidiary otherwise deemed 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 2009 and 2008 totaled Php28,069 million and Php25,203 million, respectively. Our 2010 budget for consolidated capital expenditures is approximately Php28.6 billion, of which approximately Php10.8 billion is budgeted to be spent by PLDT and approximately Php16.4 billion 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 resulting, among other things, from Smart’s promotions of unlimited calling plans that are also offered by our competitors.

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% in PLDT’s outstanding common stock as at April 12, 2010. 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 April 12, 2010, NTT Communications and NTT DoCoMo together beneficially owned approximately 21% of PLDT’s outstanding 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 Stock Purchase and Strategic Investment 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 Stock Purchase and Strategic Investment 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, under 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, 2009, Php6,768 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 telecommunications 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 Php0.05 tax on text messaging charges. In addition, there is a pending bill which seeks to impose on telecommunications companies a 20% tax on 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/or changes in rates, each of which may have negative implications for our revenues and profitability

The NTC may regulate the rates and manner in which we charge the customers of our business.

For example, on July 3, 2009, NTC issued Memorandum Circular No. 03-07-2009 promulgating an extension of expiration of prepaid loads from two months to various expiration periods ranging from from three days to 120 days. Smart has been implementing the new validity period of prepaid loads since July 19, 2009.

Moreover, on July 7, 2009, the NTC issued another Memorandum Circular No. 04-07-2009 further amending the Memorandum Circular No. 03-03-2005A (Rules and Regulation on Broadcast Messaging) prohibiting content and/or information providers from initiating push messages. The Memorandum Circular No. 04-07-2009 further provides that subscribers must be the party to take the initiative with the public telecommunications entities and/or content providers to initiate any service and requires that a notification be sent to subscribers to give subscribers an option whether to continue with the availed service.

In addition, on July 23, 2009 the NTC issued Memorandum Circular No. 05-07-2009 mandating cellular operators, including Smart, to bill subscribers on a maximum six-second pulse basis instead of the previous per minute basis. The NTC granted Smart the provisional authority to charge new rates for the CMTS service and also directed Smart to implement a six seconds per pulse billing scheme on December 5, 2009. Smart subsequently implemented the six seconds per pulse directive by billing on a six second per pulse basis, if subscribers entered additional dialing numbers as a prefix before the actual number. The NTC opposed Smart’s implementation of the six seconds per pulse directive. As at the date of this annual report, the matter is pending before the Court of Appeals and is the subject of a temporary restraining order preventing the NTC from implementing its six second per pulse billing directive.

Furthermore, from time to time, the NTC issues consultative documents on the development of a competition policy framework for the information communications sector and related matters.

For example, on August 24, 2006, the NTC issued a 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 such consultative paper to the NTC.

In formulating 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 asymmetric regulations on SMP 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.

Furthermore, 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 on October 7, 2008 and became effective on October 23, 2008; and

(b)

guidelines on the interconnection of LECs in local calling areas that eliminate interconnection access charges between LECs within a local calling area, which were issued on May 30, 2008 and became effective on June 17, 2008.

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

There can be no assurance that the NTC will not impose changes to the current regulatory framework which may lead to increased competition or affect the rates we may charge for our services. 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, an 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 a number of 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 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, floods, volcanic eruptions and earthquakes that may materially disrupt and adversely affect our business operations. The frequency and severity of the occurrence of natural catastrophes and challenges may be further exacerbated through effects of the ongoing global climate change. There can be no assurance that we are fully capable to deal with these situations and that the insurance coverage we maintain will fully compensate us for all the damages and economic losses resulting from these catastrophes.

Item 4. Information on the Company

Overview

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

PLDT is the leading fixed line service provider in the Philippines with over 60% of the total reported fixed line subscribers nationwide as at December 31, 2009. Smart is the leading cellular service provider in the country, with approximately 55% of total reported cellular subscribers nationwide as at December 31, 2009, including Piltel’s cellular subscribers transferred to Smart on August 17, 2009. We have interests in the information and communications technology sectors, including the operation of our Vitro^TM data center, customer interaction solutions and knowledge processing solutions business 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 Php452,049 million (US$9,981 million) as at March 31, 2010, representing one of the largest market capitalizations among Philippine-listed companies. For the year ended December 31, 2009, we had total revenues of Php147,993 million (US$3,188 million).

We operate under the jurisdiction of the NTC, which jurisdiction extends, among other things, to approving major services that we offer and rates that we charge.

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 NTTC-UK, became PLDT’s strategic partner with approximately 15% economic and voting interest in the issued and outstanding common stock of PLDT at that time. Simultaneous with NTT Communications’ investment in PLDT, 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 and together with NTT Communications beneficially owned approximately 21% of PLDT’s outstanding common stock as at April 12, 2010. NTT Communications and NTT DoCoMo are subsidiaries of NTT Holding Company. On February 28, 2007, Metro Pacific Asset Holdings, Inc., a Philippine affiliate of First Pacific, completed the acquisition of an approximately 46% interest in Philippine Telecommunications Investment Corporation, or PTIC, a shareholder of PLDT. This investment in PTIC represents an attributable interest of approximately 6% of the then outstanding common shares of PLDT and thereby raised 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% in PLDT’s outstanding common stock as at April 12, 2010. 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 permitting 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. Our subsidiaries, including Smart, also maintain their own franchises with a different range of services and periods of legal effectiveness for their licenses. 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.

Recent Developments

Transfer of Piltel’s Equity Interest in Meralco

On March 1, 2010, Piltel, Metro Pacific Investments Corporation, or MPIC, and Beacon Electric Asset Holdings, Inc., or Beacon, entered into an Omnibus Agreement, or OA. Beacon, formerly known as Rightlight Holdings, Inc., is a newly organized special purpose company with the sole purpose of holding the respective shareholdings in Meralco of Piltel and MPIC. Piltel and MPIC are Philippine affiliates of First Pacific and both hold equity shares in Meralco, see Note 10 — Investments in Associates and Joint Ventures to the accompanying consolidated financial statements for further discussion. Under the OA, Piltel and MPIC have agreed to set out their mutual agreement in respect of, among other matters, the capitalization, organization, conduct of business and the extent of their participation in the management of the affairs of Beacon.

Investment in Beacon

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

On April 29, 2010, the Philippine SEC approved Beacon’s application to increase its authorized capital stock to Php5 billion consisting of 3 billion common shares with par value of Php1 per share and 2 billion preferred shares with par value of Php1 per share. The preferred shares of Beacon are non-voting, not convertible to common shares or any shares of any class of Beacon, have no pre-emptive rights to subscribe to any share or convertible debt securities or warrants issued or sold by Beacon. The preference shareholder is entitled to liquidation preference and yearly cumulative dividends at the rate of 7% of the issue value subject to: (a) availability of unrestricted retained earnings; and (b) dividend payment restrictions imposed by Beacon’s bank creditors.

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

MPIC has additionally agreed to subscribe to 801 million shares of Beacon’s preferred stock for a subscription price of Php10 per share or a total of Php8,010 million.

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

The completion of the subscription of Piltel to 1,156.5 million common shares of Beacon was subject to the following conditions, all of which have been satisfied: (a) Piltel Board of Directors’ approval, which was obtained on March 1, 2010; (b) the approval of the shareholders of First Pacific, which was obtained on March 30, 2010; (c) the approval of the shareholders of Piltel, which was obtained on May 7, 2010; and (d) the full payment of the subscription price, which was made on May 12, 2010.

Although Piltel has secured the approval of its shareholders only on May 7, 2010, such approval was deemed to be a formality as Smart owns 99.5% of Piltel’s capital stock. Consequently, upon receipt of all other required approvals under the OA on March 30, 2010, including that of the shareholders of First Pacific, Piltel recognized as an asset the deposit for future stock subscription of Php23,130 million for its subscription to 1,156.5 million common shares of Beacon.

The subscription price of Piltel’s and MPIC’s subscription to Beacon shares was offset in full (in the case of Piltel) and in part (in the case of MPIC) against the consideration for the transfer of Meralco shares held by Piltel and MPIC as described below in “Transfer of Meralco Shares to Beacon” section below. In addition, MPIC settled its remaining balance in cash.

Transfer of Meralco Shares to Beacon

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

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

The completion of the sale of the Piltel Meralco shares to Beacon was subject to the following conditions, all of which have been satisfied: (a) Piltel Board of Directors’ approval, which was obtained on March 1, 2010; (b) the approval of the Board of Directors of First Pacific, which was obtained on March 1, 2010; (c) the approval of the shareholders of First Pacific, which was obtained on March 30, 2010; and (d) the approval of the shareholders of Piltel, which was obtained on May 7, 2010. Consequently, on May 12, 2010, Piltel transferred 154.2 million Meralco shares to Beacon at a price of Php150 per share for a total consideration of Php23,130 million. The transfer of legal title to the Meralco shares was implemented through a special block sale/cross sale in the PSE.

Although Piltel has secured the approval of its shareholders only on May 7, 2010, such approval was deemed to be a formality as Smart owns 99.5% of Piltel’s capital stock. Consequently, upon receipt of all other required approvals under the OA on March 30, 2010, including that of the shareholders of First Pacific, PLDT recognized a Php15,084 million investment in Beacon representing the proportionate carrying cost of the 154.2 million Meralco shares transferred to Beacon under the OA.

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

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

Call Option

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

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

Subject to rights over certain property dividends that may be declared or payable in respect of the 74.7 million shares of Meralco common stock, which are retained by FPHC following the Call Option exercise, the rights, title and interest transferred to Beacon by FPHC in respect of the Option Shares includes: (a) all shares issued by Meralco by way of stock dividends on the Option Shares from March 1, 2010; (b) all property or cash dividends declared or paid on the Transferred Shares from March 1, 2010; (c) all other rights hereafter accruing on the Transferred Shares from March 1, 2010; and (d) the proceeds of any sale or disposition of any of the foregoing.

Property Dividends

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

Governance Arrangements

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

On March 30, 2010, Beacon also entered into an Php18 billion ten-year corporate notes facility with First Metro Investment Corporation and PNB Capital and Investment Corporation as joint lead arrangers and various local financial institutions as noteholders. The proceeds of the notes facility partially financed the acquisition of Meralco shares by Beacon pursuant to its exercise of the Call Option. As at March 31, 2010, the amount drawn under this facility amounted to Php16,200 million (Php16,014 million, net of debt issuance cost of Php186 million); the remaining undrawn balance amounted to Php1,800 million.

As at March 31, 2010, Beacon held 392.5 million Meralco common shares representing approximately 34.8% equity interest in Meralco. The market value of Beacon’s investment in Meralco as at March 31, 2010, based on a quoted price of Php176 per share amounted to Php69,081 million.

Corporate Merger of Vocativ, Parlance and Ventus

On June 26, 2009, ePLDT’s Board of Directors approved the plan for merger of its wholly-owned subsidiaries, Vocativ and Parlance, as the absorbed companies, and Ventus, as the surviving entity. The Articles and Plan of Merger was approved by the Philippine SEC on April 8, 2010.

Organization

PLDT Group includes the following significant subsidiaries as at March 31, 2010:

						2009								2008
		Place of				Percentage of Ownership
Name of Subsidiary		Incorporation		Principal Business Activity		Direct				Indirect				Direct				Indirect
Wireless
Smart:		Philippines		Cellular mobile services			100.0				—				100.0				—
Smart Broadband, Inc., or SBI, and Subsidiaries, or SBI Group		Philippines		Internet broadband distribution			—				100.0				—				100.0
Primeworld Digital System, Inc., or PDSI		Philippines		Cellular and internet broadband distribution services			—				100.0				—				—
I-Contacts Corporation, or I-Contacts		Philippines		Customer interaction solutions			—				100.0				—				100.0
Wolfpac Mobile, Inc., or Wolfpac		Philippines		Mobile applications development and services			—				100.0				—				100.0
Wireless Card, Inc., or WCI		Philippines		Promotion of the sale and/or patronage of debit and/or charge cards			—				100.0				—				100.0
Smarthub, Inc., or SHI		Philippines		Development and sale of software, maintenance and support services			—				100.0				—				100.0
Smart Money Holdings Corporation, or SMHC:		Cayman Islands		Investment company			—				100.0				—				100.0
Smart Money, Inc., or SMI		Cayman Islands		Mobile commerce solutions marketing			—				100.0				—				100.0
Telecoms Solutions, Inc., or TSI		Mauritius		Mobile commerce platforms			—				100.0				—				100.0
Far East Capital Limited and Subsidiary		Cayman Islands		Cost effective offshore financing and risk management activities for Smart			—				100.0				—				100.0
PH Communications Holdings Corporation, or PHC		Philippines		Investment company			—				100.0				—				100.0
Francom Holdings, Inc., or FHI:		Philippines		Investment company			—				100.0				—				100.0
Connectivity Unlimited Resource Enterprise, Inc., or CURE		Philippines		Cellular mobile services			—				100.0				—				100.0
Chikka Holdings Limited, or Chikka, and Subsidiaries, or Chikka Group		British Virgin Islands		Mobile applications development and services			—				100.0				—				—
Pilipino Telephone Corporation, or Piltel,* and Subsidiaries, or Piltel Group		Philippines		Investment company			—				99.5				—				92.5
SmartConnect Holdings Pte. Ltd., or SCH:		Singapore		Investment company			—				100.0				—				100.0
SmartConnect Global Pte. Ltd., or SGP		Singapore		International trade of satellites and Global System for Mobile Communication, or GSM, enabled global telecommunications			—				100.0				—				100.0
3rd Brand Pte. Ltd., or 3rd Brand		Singapore		Solutions and systems integration services			—				85.0				—				85.0
Blue Ocean Wireless, or BOW		Isle of Man		Delivery of GSM communication capability for the maritime sector			—				51.0				—				28.3
Telesat, Inc., or Telesat		Philippines		Satellite communications services			100.0				—				100.0				—
ACeS Philippines Cellular Satellite Corporation, or ACeS Philippines		Philippines		Satellite information and messaging services			88.5				11.5				88.5				11.5
Mabuhay Satellite Corporation, or Mabuhay Satellite		Philippines		Satellite communications services			67.0				—				67.0				—

						2009								2008
		Place of				Percentage of Ownership
Name of Subsidiary		Incorporation		Principal Business Activity		Direct				Indirect				Direct				Indirect
Fixed Line
PLDT Clark Telecom, Inc., or ClarkTel		Philippines		Telecommunications services			100.0				—				100.0				—
PLDT Subic Telecom, Inc., or SubicTel		Philippines		Telecommunications services			100.0				—				100.0				—
PLDT Global Corporation, or PLDT Global, and Subsidiaries, or PLDT Global Group		British Virgin Islands		Telecommunications services			100.0				—				100.0				—
Smart-NTT Multimedia, Inc., or SNMI		Philippines		Data and network services			100.0				—				100.0				—
PLDT-Philcom, Inc. (formerly known as Philcom Corporation), or Philcom, and Subsidiaries, or Philcom Group		Philippines		Telecommunications services			100.0				—				—				—
PLDT-Maratel, Inc., or Maratel		Philippines		Telecommunications services			97.8				—				97.5				—
Bonifacio Communications Corporation, or BCC		Philippines		Telecommunications, infrastructure and related value-added services			75.0				—				75.0				—
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				—				100.0				—
SPi Technologies, Inc., or SPi, and Subsidiaries, or SPi Group		Philippines		Knowledge processing solutions			—				100.0				—				100.0
ePLDT Ventus, Inc., or Ventus		Philippines		Customer interaction solutions			—				100.0				—				100.0
Vocativ Systems, Inc., or Vocativ		Philippines		Customer interaction solutions			—				100.0				—				100.0
Parlance Systems, Inc., or Parlance		Philippines		Customer interaction solutions			—				100.0				—				100.0
Infocom Technologies, Inc., or Infocom		Philippines		Internet access services			—				99.6				—				99.6
BayanTrade, Inc. (formerly BayanTrade Dotcom, Inc.), or BayanTrade, and Subsidiaries, or BayanTrade Group		Philippines		Internet-based purchasing, IT consulting and professional services			—				93.5				—				10.8
Digital Paradise Thailand, or DigiPar Thailand		Thailand		Internet access services			—				87.5				—				87.5
netGames, Inc., or netGames		Philippines		Publisher of online games			—				80.0				—				80.0
Digital Paradise, Inc., or Digital Paradise		Philippines		Internet access services			—				75.0				—				75.0
Level Up! (Philippines), Inc., or Level Up!		Philippines		Publisher of online games			—				60.0				—				60.0

On April 12, 2007, SPi acquired a 100% equity interest in Springfield, a company engaged in the medical billing and revenue cycle management market in the United States. The financial results of Springfield have been included in our consolidated financial statements since April 2007.

On April 25, 2008, Smart acquired the entire issued and outstanding capital stock of PHC and FHI, which collectively own 100% equity interest of CURE for a total consideration of Php420 million. PHC and FHI own 97% and 3%, respectively, of CURE.

On January 3, 2009, PLDT, Premier Global Resources and Philippine Global Communications, Inc., or PGCI, executed a Share Assignment Agreement wherein PGCI sold to PLDT the rights, title and interest in all of the outstanding common shares of Philcom’s common stock for a cash consideration of Php75 million.

ePLDT’s equity interest in BayanTrade increased from 10.8% as at December 31, 2008 to 93.5% as at December 31, 2009 as a result of 34.3% equity interest acquired by ePLDT under the rights offering that was completed on January 20, 2009 for a cash consideration of Php28 million and acquisition of an additional 48.4% equity interest on April 15, 2009 for cash consideration of Php39 million.

On March 12, 2009, FPHC, FPUC, and Lopez, Inc., (collectively, 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. The transaction was approved at the Annual Stockholder’s Meeting of Piltel on June 30, 2009 and completed on July 14, 2009. Please see Note 10 — Investments in Associates and Joint Ventures of the accompanying consolidated financial statements in Item 18 for further information on the acquisition of Meralco shares.

Smart’s Board of Directors approved on June 19, 2009 a tender offer to acquire approximately 840 million shares from Piltel’s non-controlling shareholders at Php8.50 per share payable entirely in cash on August 12, 2009. These shares represented approximately 7.2% of the outstanding common stock of Piltel at that time. The tender offer commenced on July 1, 2009 and ended on July 29, 2009, with approximately 93% of Piltel’s non-controlling shares tendered, thereby increasing Smart’s ownership to approximately 99.5% of the outstanding common stock of Piltel. The aggregate cost for the tender offer paid by Smart to non-controlling shareholders on August 12, 2009 amounted to Php6,618 million, from which Smart recognized an excess of acquisition cost over the carrying value of non-controlling interests acquired of Php5,479 million presented as part of capital in excess of par value account under “Equity” in our consolidated statements of financial position.

On June 30, 2009, Piltel’s stockholders approved the sale and transfer of Piltel’s cellular mobile telephone business/assets to Smart through a series of transactions, which included: (a) the assignment of Piltel’s Talk ‘N Text trademark to Smart for a consideration of Php8,004 million; (b) the transfer of Piltel’s existing Talk ‘N Text subscriber base to Smart in consideration of the rate of Php73 per subscriber, which is equivalent to Smart’s average acquisition cost per subscriber in 2008 for its Smart Buddy subscribers representing Php1,213 million in the aggregate; and (c) the sale of Piltel’s GSM fixed assets to Smart at net book value. As a result, the cellular mobile telephone business has been consolidated under Smart in order to maximize revenue streams and eliminate any potential regulatory issues relating to the traffic between Piltel and Smart. The NTC approved the request for the sale and transfer of Piltel’s subscribers to Smart submitted on July 8, 2009 and the transfer of Piltel’s cellular mobile telephone business and assets to Smart was completed on August 17, 2009.

In July 2009, Smart (through its subsidiary, SCH) increased its shareholdings in BOW to approximately 1.2 million shares representing 51.0% of the total issued and outstanding shares of BOW from 381 thousand shares or 28.3%. The cost of the additional investment in BOW amounted to US$6 million, or Php301 million, for 782 thousand shares, or US$8 per share, of which US$4 million, or Php182 million, was paid in cash and US$2 million, or Php119 million, was offset against net payables by BOW to Smart.

On August 3, 2009, Piltel’s Board of Directors approved a share buyback program of up to 61.5 million shares at a maximum price per share of Php8.50 to accommodate non-controlling shareholders who may not have had the opportunity to participate in the previous buyback programs and the tender offer conducted by Smart in July 2009 as described under “Sale/Transfer of Piltel’s Cellular Mobile Phone Business/Assets to Smart and Smart’s Tender Offer to Piltel’s Non-Controlling Interest” in Note 2 — Summary of Significant Accounting Policies of the accompanying consolidated financial statements in Item 18. As with the previous buyback programs, this buyback program will be conducted in the open market through the trading facilities of the PSE and is expected to continue until the number of shares authorized for buyback under the program has been fully repurchased, or until such time as Piltel’s Board of Directors determines otherwise. Under this program, Piltel had already purchased 2.8 million shares at a cost of Php23 million as at December 31, 2009. As at December 31, 2009, cumulative shares repurchased under the share buyback program totaled 85.8 million at an aggregate cost of Php614 million. Shares repurchased under the share buyback program for the years ended December 31, 2009 and 2008 totaling to 41.2 million and 44.6 million treasury shares, respectively, with aggregate costs of Php305 million and Php308 million, respectively, reduced the amount of non-controlling interests for the same amount.

On August 31, 2009, SPi (through SPi-America, a wholly-owned U.S. subsidiary of SPi) signed a Stock Purchase Agreement with Laguna Medical, a California Corporation, and its various sellers, to purchase 80% of the issued and outstanding common shares of Laguna Medical for a cash consideration of US$6.6 million, or Php313 million. Simultaneous with the agreement to acquire the 80% equity interest of Laguna Medical, SPi signed a Put-Call Agreement with Laguna Medical LLC, a Delaware Corporation and parent company of Laguna Medical, in respect of the remaining 20% of the outstanding common stock of Laguna Medical held by Laguna Medical LLC. Under said Put-Call Agreement, commencing on July 1, 2011, Laguna Medical LLC granted SPi the exclusive right to purchase the remaining Laguna Medical shares (call right) while SPi granted Laguna Medical LLC the exclusive right to sell the remaining Laguna Medical shares (put right) to SPi. Based on our evaluation of the mandatory Put-Call option, SPi has present access to the economic benefits associated with the ownership interest in Laguna Medical, hence, control over the 20% interest has already been in the possession of SPi since August 31, 2009. As a result, the effective ownership interest of Laguna Medical acquired by SPi on August 31, 2009 was 100%. The acquisition cost for the remaining 20% of the outstanding common stock of Laguna Medical is equivalent to the base price of US$2 million plus the change in Laguna Medical EBITDA from the date of acquisition to April 30, 2011 multiplied by applicable performance factors specified in the agreement.

In May and October 2009, Smart acquired an aggregate of 84 million shares, representing the total issued and outstanding capital stock of PDSI, for a total consideration of Php1,569 million. PDSI provides a suite of high-value IP-based products servicing corporate clients, such as wired and wireless leased line access with security and high availability option, managed services, VoIP and other VAS such as server co-location and data center services. The acquisition took place on two dates: (a) the first closing took place on May 14, 2009 and involved the acquisition of 34 million shares representing 40% of the issued and outstanding shares of PDSI for a consideration of Php632 million; and (b) the second closing took place on October 2, 2009 and involved the acquisition of the remaining 50 million shares representing 60% of the issued and outstanding shares of PDSI for a consideration of Php937 million.

On December 18, 2009, Smart acquired 120 thousand common shares, representing 100% of the outstanding share capital of Chikka, a mobile applications development and services company, for a total consideration of US$13.5 million, or Php629 million, of which US$12.1 million, or Php564 million, was paid in cash on December 18, 2009 and the balance of US$1.4 million, or Php65 million, will be settled on a date mutually acceptable to both Smart and Chikka, and on which all post-closing deliverables are ready to be delivered by Chikka to Smart.

See Note 2 — Summary of Significant Accounting Policies, Note 13 — Business Combinations and Acquisition of Non-Controlling Interests and Note 14 — Goodwill and Intangible Assets to the accompanying 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 92% and 8% of our wireless service revenues, respectively, in 2009. 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 61%, 61% and 60% of our total revenues for the years ended December 31, 2009, 2008 and 2007, respectively. For the years ended December 31, 2009, 2008 and 2007, cellular service revenues accounted for 91%, 92% and 92%, respectively, of our total wireless revenues.

Our cellular service, which accounted for about 92% of our wireless service revenues for the year ended December 31, 2009, is provided through Smart (including Piltel’s cellular business which was transferred to Smart on August 17, 2009) and CURE. As measured by subscriber base, Smart is the leading cellular service provider in the Philippines, with 41,328,641 subscribers as at December 31, 2009, including 79,571 subscribers of CURE and 17,050,713 Talk ‘N Text subscribers transferred from Piltel to Smart and represents a market share of approximately 55%. In 2009, the combined number of Smart’s and CURE’s subscribers increased by 6,104,037, or 17%, to 41,328,641 mainly due to the increase in multiple SIM card ownership especially in the lower income segment of the Philippine wireless market, which, together with unlimited voice offers, resulted in a decrease in our average revenue per user, or ARPU, and partly due to the continuous introduction of innovative services. Cellular penetration in the Philippines reached approximately 83% as at December 31, 2009, which was more than 25 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 CURE’s cellular subscriber gains were predominantly attributable to their respective prepaid services. Almost 99% of Smart’s and all of CURE’s cellular subscribers as at December 31, 2009 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. Although text messaging contributed significantly to Smart’s and CURE’s cellular data service volume growth in 2009, cellular data service revenues decreased by Php732 million, or 2%, to Php47,072 million in 2009 from Php47,804 million in 2008.

Smart’s cellular network is the most extensive in the Philippines, covering substantially all of Metro 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 and currently upgrading our wireless broadband facilities. With 9,727 cellular/mobile broadband base stations as at the end of December 2009, 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 of fixed line telecommunications services throughout the country. Our fixed line business group offers local exchange, international long distance, national long distance, data and other network and miscellaneous services. We had 1,816,541 fixed line subscribers as at December 31, 2009, an increase by 34,185, or 2%, from the 1,782,356 fixed line subscribers as at December 31, 2008. Total revenues from our fixed line accounted for 32% of our total revenues for the years ended December 31, 2009 and 2008 and 33% in 2007. 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 strong 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 complemented by an extensive digital microwave backbone operated by Smart. These microwave networks complement the higher capacity fiber optic networks and are vital in delivering reliable services to remote areas. 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.

On February 25, 2010, PLDT completed another phase of its DFON expansion program with the recent activation of an additional 320 Gbps across six network loops nationwide to serve the rising demand for bandwidth as more customers increase their usage of broadband internet and multimedia services. This recent expansion project increased the aggregate operating capacity of PLDT’s DFON to about 1.2 Terabits per second at a total cost of about Php600 million.

In 2009, PLDT has also embarked on a Php2.6 billion DFON network fortification program through establishment of loops within the loops to enhance network resiliency to protect its existing businesses and attract new businesses nationwide. As at May 13, 2010, PLDT has completed majority of the inland portion and expects to complete the whole project towards the beginning of the third quarter of 2010. See “— Infrastructure — Fixed Line Network Infrastructure” for further information on our fixed line infrastructure.

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, 2009, 2008 and 2007.

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 over 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. The 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 over 44 million fixed line, cellular and broadband subscribers as at December 31, 2009, we have the leading market positions in each of the fixed line, cellular and broadband 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 total revenues in 2009. 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 business, and data center and other services. Fixed line revenues, which represented 32%, 32% and 33% of our consolidated revenues in 2009, 2008, and 2007, respectively, have been declining over the past years as a share of our total 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 fixed line service provider 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. While as at December 31, 2009 our consolidated debt outstanding increased to Php98,729 million (approximately US$2,127 million) in connection with the financing of our acquisition of shares of Meralco and our increased capital expenditures, our consolidated ratio of debt to equity was 1.0x at December 31, 2009. 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 were able to declare dividend payouts of approximately 70% in 2007 and 100% in each of 2008 and 2009 of our earnings per share on an adjusted basis. We expect that our free cash flows will continue to 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 telecommunications as well as telco-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 and CURE to over 41 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 include:

(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.

The following table summarizes key measures of Smart’s and CURE’s cellular business as at and for the years ended December 31, 2009, 2008 and 2007:

		2009				2008				2007
Systemwide cellular subscriber base			41,328,641				35,224,604				30,041,030
Smart			24,198,357				20,899,753				20,339,204
Prepaid			23,762,814				20,501,617				19,997,324
Postpaid			435,543				398,136				341,880
Talk ‘N Text(1)			17,050,713				14,308,493				9,701,826
Red Mobile(2)			79,571				16,358				—
Growth rate of cellular subscribers			17	%			17	%			24	%
Smart			16	%			3	%			18	%
Talk ‘N Text(1)			19	%			47	%			39	%
Red Mobile(2)			386	%			100	%			—
Cellular revenues (in millions)		Php	88,410			Php	87,518			Php	82,334
Voice			38,850				37,275				36,105
Data			47,072				47,804				44,092
Others(3)			2,488				2,439				2,137
Percentage of cellular revenues to total wireless service revenues			92	%			94	%			95	%
Percentage of cellular revenues to total service revenues			61	%			61	%			60	%

Service Plans. Smart markets nationwide cellular communications services under the brand names Smart Buddy, Talk ‘N Text, Smart Gold and Smart Infinity, while CURE offers Red Mobile. Smart Buddy, Talk ‘N Text and Red Mobile are prepaid services while Smart Gold and Smart Infinity are postpaid services, which are all provided through Smart’s digital network.

Smart has focused on segmenting the market by offering sector-specific, value-driven packages for its prepaid subscribers. These include new varieties of our top-up services which provide a fixed number of messages with prescribed validity periods and call packages which allow a fixed number of minutes or calls of preset duration. Starting out as purely on-network packages, Smart’s top-up services now include text message bundles available to all networks.

Smart also has a roster of 3G services which it commercially launched in May 2006. These services include video calling, video streaming, high-speed internet browsing and downloading of special 3G content, offered at rates similar to those of 2G services.

We launch various promotions from time to time to stimulate usage and subscriber growth. In 2005, Smart launched a series of promotions to test the market demand for fixed rate or “bucket” plans for voice and text. On June 26, 2009, Smartalk, Smart’s unlimited voice offering, was made available to all Smart Buddy and Smart Gold subscribers nationwide. The new service does not require any changes in SIM or cellular phone number and enables Smart Buddy and Smart Gold subscribers to make unlimited calls to the over 41 million mobile phone users on the Smart network. Buoyed by the widespread acceptance of the service, Smart launched a variant in October 2009, Smartalk Plus, which offers unlimited calling and on-net texting during off-peak hours and reduced rates during peak hours. As a result, Smart’s 2009 outbound voice traffic more than doubled from 2008 levels. In 2010, Smart expects to expand its roster of unlimited offerings on the back of the planned capacity expansion of its networks. Smart expects to continue to successfully maintain its market leadership through innovative voice and text packages that drive activations, boost usage and strengthen brand equity.

Voice Services. Cellular voice services comprise all voice traffic and voice VAS such as voice mail and international roaming. Voice services remain a significant contributor to wireless revenues, generating a total of Php38,850 million, or 44%, and Php37,275 million, or 43%, of cellular service revenues in 2009 and 2008, respectively. Local calls continue to dominate outbound traffic, constituting 78% of all our cellular minutes. Domestic outbound calls totaled 10,404 million minutes in 2009, an increase of 6,594 million minutes, or 173%, compared to 3,810 million minutes in 2008 due to increased usage resulting from unlimited voice offerings. International inbound and outbound calls totaled 2,923 million minutes in 2009, an increase of 25 million minutes, or 1%, as compared with 2,898 million minutes in 2008, mainly due to an increase in cellular subscriber base. The ratio of inbound-to-outbound international long distance minutes was 14.4:1 for 2009, compared to 12.1:1 in 2008.

Data Services. Cellular revenues from data services include all text messaging-related services and other data VAS. The Philippines cellular market is one of the most text messaging-intensive markets in the world, totaling more than a billion text messages per day. 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 also utilizes less network capacity than voice, thereby increasing network efficiency.

Text messaging has been one of the key drivers for our cellular subscriber growth. Though strong volume growth in text messaging contributed significantly to Smart’s cellular revenue growth in 2009, revenues from this service declined by 2% to Php44,573 million from Php45,285 million in 2008 mainly due to the increased prevalence of unlimited voice and data offers and the increase in the number of subscribers who also hold SIM cards from other cellular operators and who selectively use such SIM cards in their calls and SMS, intense competition, the continued decline in SMS yield as a result of aggressive SMS offers and alternative means of communication. In 2009, Smart’s text messaging system handled over 21,167 million outbound messages on standard SMS services with another 256,391 million messages generated by bucket-priced text services. This compares to 24,378 million outbound messages on standard SMS services in 2008 and 223,373 million outbound messages generated through bucket-priced text service.

The success of text messaging is an indicator of future data usage potential in this market. In 2009, approximately 53% of Smart’s cellular revenues were derived from data usage, compared to 55% and 54% in 2008 and 2007, 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, network 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 Php100, Php300 and Php500, which include zero, 33 and 83 free text messages, respectively. The stored value of a prepaid card remains valid for a period ranging from 30 days to 120 days depending on the denomination of the card, with larger denominations having longer validity periods 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, Php115, Php200, Php300, Php500 and Php1,000 with corresponding expiration periods. The introduction of our “over-the-air” Smart Load was followed by Pasa Load, a derivative service, allowing prepaid subscribers to transfer even smaller denominations to other prepaid subscribers. Since 2005, Smart has offered fixed rate or “bucket” plans as a means of driving subscriber activations and stimulating usage. These bucket plans, which offer a fixed number of text messages or call minutes for a limited validity period, have proven to be extremely popular with subscribers and now account for 28% of our wireless service revenues. In the past years, Smart also began to offer unlimited voice and text plans under its various brands in order to be competitive and maintain industry leadership.

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. Red Mobile subscriber calls to other Red Mobile subscribers are charged at Php0.50 per minute while calls by Red Mobile subscribers to Smart Buddy, Talk ‘N Text and other networks’ subscribers are charged Php6.50 per minute.

We offer both flat rate, or regular, and consumable postpaid plans with monthly service fees ranging from Php300 to Php3,500 for Smart Gold and Php5,000 to Php8,000 for Smart Infinity. 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 Php24.73 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.

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 20 regional distributors, all exclusive and 39 key account dealers, 22 of which are exclusive. These dealers include major distributors of cellular handsets and broadband modems 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 1.3 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, modems, air time cards and over-the-air reloads sold. Smart compensates dealers with Php100 to Php800 in cash per unit depending on the price of the prepaid phone kit sold. For modem sales, regional distributors receive Php160 in cash per unit from Smart while key account dealers get volume discounts ranging from Php100 to Php160 per unit. Air time cards and over-the-air reloads are sold to distributors at an average discount of approximately 8% and 5%, respectively. 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 and PDSI; our wireless broadband service providers, Wolfpac and Chikka; and our wireless content operators, Mabuhay Satellite and ACeS Philippines.

SBI

Through SBI, we are engaged in providing wireless broadband and data services under the brand name Smart Bro to residential consumers as well as small and medium-scale enterprises in the Philippines. As at December 31, 2009, SBI had 1,037,720 wireless broadband subscribers, an increase of 90% as compared with 547,090 subscribers in 2008. 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.

PDSI

PDSI provides a suite of high-value IP-based products servicing corporate clients, such as wired and wireless leased line access with security and high availability option, managed services, VoIP and other value-added services such as server co-location and data center services.

Airborne Access

Through Airborne Access, we provide 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.

Chikka

Through Chikka, we provide an internet and GSM-based instant messaging facility for mobile users or subscribers. Services include personal computer to mobile instant text messaging and vice versa, text newsletter, text-based promotions, multi-media messaging, subscription-based services, and other mobile VAS.

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.

On October 22, 2009, Mabuhay Satellite entered into Satellite Wholesale Lease and Purchase Agreement, or SWLPA, and Operations Management Agreement, or OMA, with Asia Broadcast Satellite Holdings, Ltd., or ABS, a Bermuda company engaged in the satellite business, involving the wholesale lease by ABS of the Agila 2 satellite from Mabuhay Satellite and, upon the satisfaction of various conditions precedent, the purchase by ABS of the business of Mabuhay Satellite.

As at December 31, 2009, all significant closing conditions had been secured. On January 18, 2010, Mabuhay Satellite, ABS and Asia Broadcast Satellite, Ltd., formally executed a Conditions Precedent Waiver and First Closing Confirmation, confirming that the first closing is deemed to have occurred effective December 31, 2009. First closing means the date when the assignment of customer contracts to ABS became effective and the approval or confirmation of SWLPA by stockholders of Mabuhay Satellite representing at least two-thirds of its outstanding capital stock was obtained. Following the confirmation of first closing, the wholesale lease of transponders by Mabuhay Satellite to ABS was considered as a finance lease and the transaction was recognized as sale of satellite for a total consideration of US$9.9 million, or Php460 million, including the cost of customer contracts as at December 31, 2009. The second closing is expected to occur within the six months after the first closing.

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. For further discussion regarding the ATPA, please see Note 24 — Related Party Transactions and Note 26 — Contractual Obligations and Commercial Commitments to the accompanying consolidated financial statements in Item 18.

As part of the integration 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

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

We offer SmartBro Plug-It, which provides instant internet access, through the use of a wireless modem, in places where there is Smart network coverage. On April 13, 2008, we launched SmartBro Plug-It Prepaid, which offers 30-minute internet access for every Php10 worth of load. In March 2009, we introduced SmartBro Share-It, which allows users to share their broadband access with other computers in a home network via a WiFi router. SmartBro Share-It runs on a High Speed Packet Access, or HSPA, 850 network ready for transfer capacities of up to 2 Mbps. Effective July 11, 2009 for SmartBro Share-It and December 3, 2009 for SmartBro Plug-It, various plans, where monthly fees depend on hours of internet usage, were replaced with Plan 999 which includes unlimited hours of internet usage and speed of up to 2Mbps.

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 variant 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 Philcom, BCC, PLDT Global Group, ClarkTel, SubicTel and Maratel. Together, these subsidiaries account for approximately 4% 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, 2009, 2008 and 2007:

		2009				2008				2007
Number of local exchange line subscribers			1,816,541				1,782,356				1,724,702
Number of fixed line employees			7,947				7,813				8,080
Number of local exchange line subscribers per employee			229				228				213
Total local exchange service revenues (in millions)		Php	15,681			Php	15,923			Php	16,205
Local exchange service revenues as a percentage of total fixed line service revenues			31	%			32	%			33	%
Local exchange service revenues as a percentage of total service revenues			10	%			10	%			11	%

Rates

As at December 31, 2009, 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 our postpaid 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 2009 and 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. In a letter dated July 11, 2008, the NTC had approved our request to implement a rate rationalization program for our local service rates. In effect, there has been no change in the average Philippine peso to U.S. dollar rate of Php49.76 to US$1.00 factored in our monthly local service rates for 2009 and 2008.

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 and for the years ended December 31, 2009, 2008 and 2007:

		2009				2008				2007
Total call volumes (in million minutes)			1,863				2,024				2,280
Inbound call volumes (in million minutes)			1,653				1,786				2,007
Outbound call volumes (in million minutes)			210				238				273
Inbound-outbound call ratio			7.9:1				7.5:1				7.4:1
Total international long distance service revenues (in millions)		Php	6,255			Php	7,063			Php	8,674
International long distance service revenues as a percentage of total fixed line service revenues			12	%			14	%			18	%
International long distance service revenues as a percentage of total service revenues			4	%			5	%			6	%

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 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 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, 2009, 2008 and 2007:

		Net Settlement
		2009				2008				2007
		(in millions)
Saudi Arabia		US$	33			US$	30			US$	28
United States			25				46				55
United Arab Emirates			20				20				18
Japan			17				14				12
Canada			9				9				17
Hongkong			8				4				7
Taiwan			6				6				6
Singapore			5				5				3
Qatar			5				4				3
Others			29				36				47
Total		US$	157			US$	174			US$	196

Rates

The average termination rates for PLDT was approximately US$0.11 in 2007 and 2008 and was reduced to approximately US$0.105 in 2009.

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 Php1.50 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, 2009, 2008 and 2007:

		2009				2008				2007
Total call volumes (in million minutes)			1,822				1,944				2,183
Total national long distance service revenues (in millions)		Php	5,969			Php	6,207			Php	6,338
National long distance service revenue as a percentage of total fixed line service revenues			12	%			13	%			13	%
National long distance service revenue as a percentage of total service revenues			4	%			4	%			4	%