PSE Circular for Brokers No. 089-00

January 14, 2000 PSE CIRCULAR FOR BROKERS NO. 089-00 PLDT ADOPTS FCC BENCHMARK ACCOUNTING RATE; SEES HIGHER INTERNATIONAL TRAFFIC VOLUMES AND LOWER PRICES TO USERS PLDT today reported that it has decided to adopt an accounting rate of US$ 0.38 per minute, representing a settlement rate of US$ 0.19 per minute, for international long distance services between the Philippines and the United States effective January 1, 2000. cdll Accounting rates are used to determine the pricing by telecommunication companies for completing inbound and outbound international calls and other services. This move accelerates the adoption of the U. S. Federal Communications Commission (FCC) benchmark settlement rate one year ahead of the target date of January 1, 2001, and will give PLDT the ability to compete more effectively in the U.S.-Philippine telecoms market where comparatively low IDD rates are now being offered. Manuel V. Pangilinan, PLDT President and Chief Executive Officer said: "The current sharp decline in international accounting rates continues the trend PLDT and other large international carriers have experienced in recent years. In response to this trend, PLDT has been actively raising inbound traffic and diversifying its revenue mix. We are confident, therefore, that the decline in international revenues due to the falling accounting rates will be more than compensated by an aggressive effort at originating more inbound traffic, higher domestic revenues due to increasing subscriber numbers, greater domestic toll usage, stronger revenues from data and other corporate services and a greater contribution from cellular operations. Indeed, we expect that the contribution from international revenues to PLDT will decline to only about 20 per cent this year after the acquisition of SMART." cdll Last April 1999, the FCC implemented sweeping reforms of its international settlements policy by lifting settlement policy restrictions between U. S. carriers and foreign non-dominant carriers, i.e. those that control less than 50 per cent of their market. Since PLDT is regarded as the Philippine dominant carrier, its operational and pricing flexibility in the U. S.-Philippine IDD market has todate been restricted. However, once PLDT adopts the FCC benchmark settlement note which it is doing as of January 1 this year it can implement lower-cost, innovative arrangements for terminating U. S. traffic into the Philippines. Pangilinan added, "PLDT also sees the immediate need in pursuing this accounting rate reduction to minimize unauthorized traffic termination through International Simple Resale (ISR) operations and to recover the traffic lost due to other uncompensated bypass routings." Still considered illegal in the Philippines, ISR in simple terms refers to the connection of international private leased circuits, which are used solely for point-to-point service, to the public switched telephone network, thus bypassing the international gateway switches of authorized Philippine carriers. "These developments the ability to better compete in the U. S. for long distance traffic and to minimize ISR and uncompensated bypass activities should allow PLDT to increase significantly its inbound international traffic volume starting the year 2000. Furthermore, the decline in accounting rates will give PLDT the flexibility to consider lowering outbound prices, which is currently under study, and will benefit all of PLDT's subscribers." he concluded.