SEC Number 145111 File Number

8/14/2019 SEC Number 145111 File Number

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SEC Number 145111File Number ________

______________________________________________________________________________

DIGITAL TELECOMMUNICATIONS PHILS., INC.(D I G I T E L)

______________________________________________________________________________(Companys Full Name)

110 Eulogio Rodriguez Jr. Avenue, Bagumbayan 1110 Quezon City, Metro Manila_____________________________________________________________________________

(Companys Address)

(63-2) 397- 8888_________________________________________

(Telephone Number)

December 31_________________________________________

(Fiscal Year Ending)(month & day)

SEC FORM 17-Q

_________________________________________Form Type

_________________________________________Amendment Designation (If applicable)

30 September 2007_________________________________________

Period Ended Date

N.A.________________________________________________________

(Secondary License Type and file Number)


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PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Our unaudited consolidated financial statements include the accounts of Digital TelecommunicationsPhils., Inc. (Parent Company), and its wholly-owned subsidiaries, Digitel Mobile Phils., Inc., DigitelCapital Philippines Ltd., and Digitel Information Technology Services, Inc. collectively referred to asDIGITEL in this report.

Our financial statements, and financial information discussed herein, have been prepared on ahistorical cost basis, except for certain derivative financial instruments that have been measured atfair value.

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS (MD&A)

The following discussion and analysis of our financial condition and results of operations should beread in conjunction with the accompanying unaudited consolidated financial statements and theaccompanying notes.

Our MD&A should not be considered as all inclusive, as it excludes unknown risks, uncertainties andchanges that may occur in the general economic, political and environmental condition after thestated reporting period.

The financial information appearing in this report and in the accompanying unaudited consolidated financial statements are presented in Philippine peso, the Companys functional currency, and allvalues are rounded to the nearest thousands, except when otherwise indicated.

OVERVIEW OF THE BUSINESS

Established on August 31, 1987, Digital Telecommunications Phils., Inc., the Parent Company,is majorityowned by JG Summit Holdings Inc. or JGSHI, one of the largest and most diversifiedconglomerates in the Philippines.

DIGITEL comprised of the following business segments:

Wireline Services Primarily provided through the Parent Company, it continues torank as second largest provider of fixed lines in the country with over 650,000 linesinstalled throughout Luzon of which almost 450,000 are lines in service;

Wireless Services Provided through its wholly-owned subsidiary, Digitel Mobile

Phils., Inc., under the Sun Cellular brand using the latest in GSM technology in wirelessservices;

Data Services A division under the Parent Company, DigitelOne offers access tohigh-speed data transmission and internet services through domestic and internationalleased lines, frame relay and dedicated internet service.


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DIGITELs voice products and services include the provisioning of local call, national andinternational toll services, enhanced through DIGITELs suite of value added services, payphones andprepaid phone cards via Digikard and DGMax brands. Existing foreign and domestic carrierinterconnection agreements enable sufficient transmission capacities for efficient and cost-effectiverouting. Interconnection with Philippine-based and some international carriers involves the use of

Internet Protocol (IP).

In addition to wireline voice services, DIGITELs data division, DigitelOne, offers corporatecustomers and consumers access to high-speed data transmission and internet services throughdomestic and international leased line services, frame relay and dedicated internet service. In responseto future requirements for convergent technologies enabling simultaneous voice and data servicetransmissions, the ongoing expansion of the highly successful Asymmetric Digital Subscriber Line(ADSL) project addresses the growing demand for broadband access in both business and high-endresidential markets in Luzon.

DIGITEL Crossing, a joint venture between DIGITEL, East Asia Netcom Philippines, Inc. (awholly owned company of Asia Netcom) and Asia Netcom Philippines, Inc. (formerly Philippine

Crossing Land Corporation) was granted its franchise last November 2003 by Congress under RepublicAct No. 9235 to construct, install, establish, operate and maintain telecommunications systemsthroughout the Philippines. It brings competitive and high speed capacities to the local telecomsenvironment, thus enabling the growth of new businesses such as call centers, software design, and otherIT services that leverage the Philippines competitive advantage in the world economy. Together withDigitelOnes Luzon-wide broadband backbone, this joint venture will help spur wide-spread internet andhigh-speed data usage familiarity around the country.

DIGITEL commercially launched its wireless service SUN Cellular on March 29, 2003,which offers the latest in GSM technology. In October 2004, SUN Cellular pioneered theunprecedented 24/7 Call and Text Unlimited (CTU) and made a huge impact on the market by virtueof an innovative and better value service offering that spawned a phenomenal growth in its subscriber

base. With the subsequent launches of its product variants like Daylight Call and Text Unlimited,Text Unlimited and Call Unlimited, it presented consumers with more choices to suit their variouslifestyle needs.

On December 28, 2005, the NTC awarded a third generation (3G) frequency allocation of 10MHz to SUN Cellular after finding it legally, financially and technically qualified to undertake 3Gservices. On January 31, 2006, SUN Cellular confirmed its choice of 3G bandwidth with the NationalTelecommunications Commission (NTC).

On December 14, 2006, DIGITEL and SUN Cellular were registered with Board ofInvestments (BOI) and are entitled to incentives on pioneer status as new operators of 3Ginfrastructure and telecommunications facilities.


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Products and Services

Wireline Communications Voice Services

DIGITEL offers a wide range of products and services to its customers which includes

DIGITEL Choice Plans, DGtxt Plus landline texting service, IDD and NDD Services, 108 and 109OperatorAssisted Services, Domestic 1-800 Toll Free Services, Domestic 1-900 Premium Services,Netdirect Dial-up Internet Service, Payphone Services, and Internet Data and Broadband Services.Other products and services include the following.

NETVantage DSL provides subscribers uninterrupted high-speed internet connection forvarious Internet applications such as on-line gaming, e-learning, instant messaging, e-mailand web surfing among others. It also serves as a transport for the VoIP service, whichgives customers lower IDD and NDD toll rates.

MANGO or Mobility Access Network for the Man on the Go is a wireless internet-ready

landline service using the latest in Code Division Multiple Access (CDMA) fixed wirelesssystem technology. It is more than a landline because not only does it offer the perks of alandline service but it also offers high speed internet service and the freedom to make callsand access internet while on the move within one to five kilometers from the base station.

DIGIKARD is DIGITELs hassle-free pre-paid phone card that gives subscriber convenientaccess to phone, fax, and internet from any DIGITEL postpaid and prepaid landline phone,including payphones.

DGMAX IDD Prepaid Card is another prepaid service of DIGITEL that allowsinternational call either through DIGITELs postpaid lines, prepaid lines or payphones.With as low as P3/minute to top international destinations, callers, especially families of

Overseas Filipino Workers, can now make frequent voice calls and engage in longer talktime, breaking all affordability barriers.

IP-VPN or Virtual Private Network is DIGITELs most reliable, flexible, scalable,manageable, and cost effective wide-area multi-service network based on Multi-ProtocolLabel Switching (MPLS) technology. This provides customers with the technology tosecurely access private information on their corporate network over DIGITELs InternetProtocol-enabled network or over a shared public infrastructure, such as the Internet. IP-VPN can carry any type of IP Traffic with differentiated classes of service (CoS), thus, it iswell-suited for converged voice, data and video applications.


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DIA or Dedicated Internet Access is DIGITELs service that continues to provide themuch-needed internet bandwidth requirements of large corporations and Business ProcessOutsourcing (BPO) companies, particularly the Call Center industry. DIA keeps ourcustomers businesses on track, with reliable internet connectivity, allowing them tocommunicate with their various offices and partners anywhere in the country and across the

world. Customers are able to complete purchase/selling or any other business transactions,and even go on-line and check how their business is doing, through a real video-streamingrunning over their internet facility.

Wireline Communications Data

DIGITEL provides the following wireline data communications services to its subscribersthrough its data services arm DigitelOne and through a joint venture, DIGITEL Crossing.

Data Services

Leased Line provides point-to-point telecommunication line with a 24-hour link to the

business. It is an ideal tool for exchanging information in the form of data, voice, video or acombination of the three, through terrestrial microwave copper cable or fiber optictechnology.

Frame Relay Service is a Wide Area Network (WAN) communications technology thatprovides the subscriber with a point-to-point or point-to-multi point dedicated connection.

International Private Leased Circuit provides an international connectivity using adedicated circuit. Through the partnership with Asia Netcom, DIGITEL can connectcompanies to major cities around the world.

International Frame Relay Working together with Asia Netcom, DIGITEL offers theresources and expertise to meet the subscribers global telecommunication needs under a

single contract with exceptional services.

Internet Services

Internet Access is a dedicated connection to the internet with the flexibility to grow withsubscribers business. This may either be:

Premium Internet Service designed for Internet Service Provider (ISP) clients whodemand the fastest connection to the internet backbone at a 1:1 bandwidth ratio

The Corporate Internet Service for corporate clients that have lower utilizationcompared to ISPs, which may choose to avail of shared bandwidth for CorporateInternet Service available at 2:1 and 4:1 bandwidth ratio.

Peering Service is the arrangement of traffic exchange between ISPs. Larger ISPs withtheir backbone networks agree to allow traffic from other large ISPs to pass through their

backbones so that local internet traffic does not need to pass through expensive bandwidth.

Virtual Internet Presence allows the internet connection to become a secure data pipebetween regional sites. This service will offer ISP business establishments a Local Presencewithout investing on expensive equipment, thus lowering total cost of operations comparedto opening up and maintaining their own internet equipment.


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Wireless Communications

SUN Cellular offers the latest in GSM technology, providing voice services (local, national,international calling), messaging services (short text or multimedia messaging), outbound and inboundinternational roaming (currently available in selected countries in Asia, Africa, Europe, and North and

South America), and value-added services available through SUN Cellulars navigational menu calledThe Mall.

Postpaid Service

The postpaid subscription plans of SUN Cellular offer fully consumable monthly service feesfor voice usage (including IDD calls). The range of plans has also proven to be an advantage asconsumers have a choice among the basic postpaid plans: Plan 350, Plan 600, Plan 1000, Plan 2000,and Plan 3500, with the option for personalizing profiles, namely, I-Speak and I-Text:

I-Speak This profile best describes people who frequently make voice calls. Subscribersselecting this profile enjoy voice call rates of as low as PhP4.00 per minute on SUN-to-

SUN calls

I-Text This profile is best suited to people who frequently send text messages. Subscribersselecting this profile enjoy rates as low as PhP0.50 per SUN-to-SUN text message andmore free text allowance compared to the other plans.

In its commitment to provide subscribers innovative services at affordable prices, SUNCellular offers subscribers the following:

Group Plans Another innovation introduced by SUN in 2006 to further revolutionize theaffordable communicating lifestyle of its subscribers. Group Plan 699, Group Plan 899 andGroup Plan 999. Each plan allows the subscriber to get two to three postpaid lines with freemobile phones and unlimited services for all lines for a shared monthly credit limit.

Fixed Load Plan This offering is basically an extension that allows postpaid subscribersto avail of additional line subscription with free new phones and assign fixed monthly loadto the new prepaid line. This service offering aims to address the needs of families or smallbusinesses for convenience and budget control.

SUN Bond Subscription This is for students and customers who do not have thenecessary document requirements for a postpaid plan line application. Instead, a subscriberpays the pre-determined deposit to get a post paid line with a free phone. The consumabledeposit would then be credited to the subscribers account in 24 equal monthly installments.

IDD Service - Top 10 IDD service extends to the subscribers a reduced rate of $0.10 per

minute for IDD calls to selected countries.

Call & Text Unlimited Service (CTU) This is available to both Postpaid and Prepaidsubscribers which allows them to call and text Sun-to-Sun for unlimited number of times fora certain number of days.


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Prepaid Service

SUN Cellulars prepaid service is aimed at providing subscribers with the best-value choicestailored to fit each users specific needs and wants. SUN Cellular prepaid reloads are available inPhP50, PhP150, PhP300 and PhP500 denominations, in call cards and as low as PhP10 for electronic

reloads. Prepaid subscribers also have an option to choose between the I-Speak and I-Text profiles.

In support of SUN Cellulars subscriber acquisition efforts, various products and serviceswere introduced such as the Call & Text Unlimited for 1-day, Text Unlimited for 1-day, P10 RegularLoad and P30 Top 10 IDD, all of which are available via Sun Xpress Load. These new productsfurther reinforced SUN Cellulars position as an innovative mobile network service provider.

Currently in the market are various prepaid SIM card variants designed to address the needs ofits target market. These consist of: the Supreme SIM pre-loaded with Free 7 days Call & TextUnlimited and 30 free texts to other networks; the Text Unlimited SIM pre-loaded with 4 days 24/7Text Unlimited and free 30 minutes local intra-network voice calls per month for 3 months; the PowerSim, pre-loaded with 24/7 Call & Text Unlimited valid for 4 days and 15 free texts to other networks;

and the Super Value SIM, pre-loaded with 24/7 Call & Text Unlimited valid for 2 days and 10 freetexts to other networks. All types of SIMs likewise come with free 20 inter-SMS on the 2nd to 12thmonth provided that the subscriber topped-up at least P100 the previous month.

Value-Added Services

Aside from the unique menu-driven navigational tool called The Mall, SUN Cellularintroduced several other value-added services in 2006, such as:

iMessenger - This is the first mobile instant messaging (IM) service that lets cellular phonesubscribers communicate with their online buddies on the four largest IM services - Yahoo!Messenger, MSN Messenger, AOL Instant Messenger and ICQ. Just like SUN's other value-

packed products, iMessenger is offered on unlimited, time-based subscriptions that allowsubscribers to enjoy sending and receiving IMs without fear of exorbitant per-messagecharges. Moreover, subscribers get their first day IM services for free!

DialTunes This is a service that allows subscribers to download "ringback tones" thattheir callers hear before the call is connected. DialTunes make the voice-calling experiencefun and interesting as subscribers download songs, jokes and sound effects to their accounts.This makes calling them an entertaining treat for their friends and associates.

TxtBlitz - SUN also commenced a venture into corporate solutions with the introduction ofTxtBlitz, an easy-to-use and cost-effective way for businesses to send and receive textmessages to and from their local and international audiences, via a simple Internet-protocol

connection.


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Results of Operations

Provided below is a table summarizing revenue and expense contribution for the nine-month periodsSeptember 30, 2007 and 2006, by each business segment:

For the nine months ended Wireless Wireline Voice Wireline Data

September 30, 2007 (in PhP 000s) Communication Communication Communication

Services Services Services Eliminations Total

Service and nonservice revenues 2,820,840 3,018,957 346,509 (117,782) 6,068,524

Operating expenses 3,020,843 1,518,468 144,684 (117,782) 4,566,213

Network-related and General expenses 2,398,712 1,354,450 137,181 (117,782) 3,772,561

Cost of sales 547,417 67,010 - - 614,427

Impairment losses and others 74,714 97,008 7,503 - 179,225

EBITDA (200,003) 1,500,489 201,825 - 1,502,311

Depreciation and amortization 521,853 1,572,550 92,022 - 2,186,425

EBIT (721,856) (72,061) 109,803 - (684,114)

Foreign exchange gain 570,499 2,081,109 9,562 - 2,661,170

Financing cost and other charges - net (290,974) (1,379,040) (2,157) - (1,672,171)

Earnings (loss) before tax (442,331) 630,008 117,208 - 304,885

Provision for (benefit from) income tax 510 536,525 (3,159) - 533,876Net income (loss) (442,841) 93,483 120,367 - (228,991)

Segment assets * 30,445,336 57,849,151 2,194,972 (30,195,229) 60,294,230

Segment liabilities * 22,737,604 48,646,028 1,676,740 (17,332,255) 55,728,117

For the nine months ended Wireless Wireline Voice Wireline Data

September 30, 2006 (in PhP 000s) Communication Communication Communication

Services Services Services Eliminations Total

Service and nonservice revenues 2,192,553 3,478,602 281,766 (113,865) 5,839,056

Operating expenses 2,822,871 1,442,014 105,117 (113,865) 4,256,138

Network-related and General expenses 2,281,581 1,351,613 100,299 (113,865) 3,619,628

Cost of sales 488,771 26,670 - - 515,441

Impairment losses and others 52,520 63,731 4,819 - 121,070

EBITDA (630,318) 2,036,588 176,648 - 1,582,918

Depreciation and amortization 473,838 1,652,407 92,463 - 2,218,708EBIT (1,104,156) 384,180 84,185 - (635,791)

Foreign exchange gain 173,129 1,530,345 17,811 - 1,721,285

Financing cost and other charges - net (184,659) (1,221,442) (4,259) - (1,410,359)

Earnings (loss) before tax (1,115,685) 693,083 97,737 - (324,864)

Provision for (benefit from) income tax (16,190) 573,717 (1,892) - 555,635Net income (loss) (1,099,495) 119,366 99,629 - (880,500)

Segment assets * 22,140,994 59,092,596 2,230,936 (29,303,706) 54,160,820

Segment liabilities * 17,059,900 51,119,621 1,820,134 (19,040,732) 50,958,923

* Segment assets of the Digitel Group do not include net deferred tax assets while segment liabilities do not include income tax payable

and net deferred tax liabilities.

Digitel generated combined service and non-service revenues of P6,068.5 million during theperiod or 3.9% higher than same period last year of P5,839.1 million.

Consolidated operating expenses for the nine-month ended September 30, 2007 reported atP4,566.2 million, was 7.3% higher than the consolidated figure of P4,256.1 million for the sameperiod in 2006.

Network-related expenses increased by 21.9% or P369.1 million due largely to the aggressiveroll out activities undertaken in the wireless business during the period. General and administrativeexpenses, however, were lower by 11.2% or P216.1 million on account of decreased utilities, outsideservices and professional fees.


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As a result of the foregoing, DIGITEL registered a consolidated EBITDA of P1,502.3 millionfor the nine-month ended September 30, 2007, lower by 5.1% against P1,582.9 million during thesame period in 2006 mainly due to higher network related expenses incurred this year.

Net loss decreased from P880.5 million in 2006 to P229.0 million in 2007 largely due to net

foreign exchange gain recognized in 2007 of P2,661.2 million against foreign exchange gain ofP1,721.3 million for the same period in 2006.

Wireline Voice

The wireline voice communication services registered service revenues of P3,019.0 million forthe nine months ended September 30, 2007. It posted a 13.2% decrease in revenues over last yearsrevenues of P3,478.6 million. This segment, being the traditional voice services intelecommunication, is being challenged with the advent of new technology in voice communicationservices which is now the preferred mode of communication by the public in general. The shift intechnology that easily connects people regardless of location affected the Companys revenues frominternational and domestic tolls.The international traffic isfurther dampened by the decreasing rates

and continued appreciation of the peso against the dollar. Notwithstanding the challenges, the wirelinevoice communication services managed to curb the decline in revenues with the continued growth ofADSL and wireless telephone with broadband services, known as MANGo. Compared to last year,these services registered an increase of 70.0% over last years revenues.

The challenge in keeping up with the changing preference of the public to mobile phone requirestransformation in the fixed wireline segment. Digitel has endeavored to meet the challenge by movinginto new technologies, and shifting its priority to satisfying the needs of its subscribers for mobility andaccessibility with quality service. The ADSL service provides high speed internet connection for variousinternet applications and serves as a transport for the VoIP service giving subscribers lower IDD andNDD toll rates. The wireless landline service called MANGo provides mobility and internet access inunserved and underserved areas using a wireless landline service and offers an innovative solution to the

growing needs of the public.

Operating expenses amounted to P1,518.5 million for the nine months ended September 30,2007, or a 5.3% increase from last years figure of P1,442.0 million. The increase was mainly due tohigher network related expenses, cost of sales and provision for impairment losses in receivables offsetby lower general and administrative expenses. Cost containment measures are being undertaken toprevent further erosion of EBITDA and adapt to the revenue level.

EBITDA decreased by P536.1 million or 26.3% primarily brought about by the decline inservice revenues by 13.2 %.

Wireline Data Communication

Revenues for wireline data communication services for the nine months ended September 30,2007 amounted to P346.5 million posting an increase of 23.0% over the revenues of same period lastyear of P281.8 million. The increase was driven by the demand of the call centers and BPOs for highbandwidth data services and for high bandwidth transport services in the case of foreign and localcarriers. This was also driven by the offering of IP VPN service in the last quarter of 2006.


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With the continuous upgrade of its data network from the traditional frame relay and

Asynchronous Transfer Mode (ATM) - based network to the Multi-protocol Label Switching (MPLS)technology, the wireline data communication services segment is able to offer IP VPN service to thecorporate market. Further, with the new Metro Ethernet service, the data segment of the business shall

provide cost efficient, truly reliable, high bandwidth communication solution, commonly required bycorporate accounts today.

Operating expenses amounted to P144.7 million for the nine months ended September 30,2007, or a 37.6% increase from last years figure of P105.1 million. The increase was mainly due tohigher network related expenses, general and administrative expenses, and provision for impairmentlosses in receivables.

EBITDA improved by P25.2 million or 14.3%, which is attributable to the rise in servicerevenues by P64.7 million offset by the increase in operating expenses by P39.6 million.

Wireless

The wireless communications business posted an improvement in service and non-servicerevenues of P2,820.8 million during the nine-month period ended September 30, 2007 from P2,192.6million during the same period last year. Revenues from unlimited services which accounted for61.0% of wireless net service revenues, improved significantly by P591.2 million or 51.0% againstrevenues reported during the same period last year as our consumers experienced continuingimprovement in our network coverage as a result of aggressive network roll-outs.

During the period, Sun Cellular launched the following SIM variants which contributed tosignificant growth in subscriber base by as much as 95.0%:

Supreme SIM includes free 7 days of unlimited call and text services and free

limited inter-SMS;* Power SIM includes free 4 days of unlimited call and text services and limited inter-

SMS;*

Super Value SIM includes free 2 days of unlimited call and text services and limitedinter-SMS.*

* Free limited inter-SMS on the 2nd to 12th month provided that the subscriber topped-up at leastP100 the previous month.

Non-service revenues from the wireless communications segment decreased by 94.7% broughtabout by lower phonekit sales and higher discounts.

Operating expenses increased by 7.0% due mainly to increase in general and administrativeexpenses, network-related expenses, cost of sales, and provision for impairment losses on receivables.

Accordingly, negative EBITDA in wireless business segment of P200.0 million during theperiod ended September 30, 2007 decreased by 68.3% from P630.3 million during the same period in2006.


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DIGITAL TELECOMMUNICATIONS PHILS., INC. AND SUBSIDIARIES

Financial Highlights and Key Performance Indicators

September 30, 2007 December 31, 2006

(Unaudited) (Audited) Amount %

(in PhP 000s, except for exchange rates

and earnings (loss) per common share)

Consolidated Balance Sheets

Total assets 61,272,838 56,784,998 4,487,840 8

Property and equipment - net 53,173,096 49,817,166 3,355,930 7

Cash and cash equivalents 414,832 332,212 82,620 25

Total Equity 1,667,956 1,896,947 (228,991) (12)

Interest-bearing financial liabilities 18,280,460 17,870,081 410,379 2

Notes Payable and long-term debt 17,172,686 16,748,310 424,376 3

Net debt to equity ratio(1)

10x 9x - -

10.05 8.65

2007 2006 Amount %

(Unaudited)

Consolidated Statements of Income

Revenues 8,734,857 7,808,490 926,367 12

Cost and Expenses 8,429,972 8,133,354 296,618 4

Income (Loss) before income tax 304,885 (324,864) 629,749 194

Net loss (228,991) (880,500) 651,509 74

Net loss margin -3% -11%

Loss per common share - basic (0.0360) (0.1385) 0.1025 74

Consolidated Statements of Cashflows

Net cash provided by (used in) operating activities (815,544) 1,884,409 (2,699,953) (143)

Net cash used in investing activities 6,299,141 3,803,576 2,495,565 66Capital Expenditures 5,535,447 3,384,169 2,151,278 64

Net cash provided by financing activities 7,197,305 1,899,587 5,297,718 279

Exchange Rates Php per US$

September 30, 2007 45.040

December 31, 2006 49.045

September 30, 2006 50.249

(1) Net debt is derived by deducting cash and cash equivalents from long-term debt.

Increase (Decrease)

Increase (Decrease)Nine Months Ended September 30,

Financial Position

Consolidated total assets increased to P61,272.8 million as at end of third quarter of 2007,from P56,785.0 million at the end of 2006.

Cash and cash equivalents increased by 24.9% from P332.2 million at the end of 2006 toP414.8 million as at end of third quarter 2007 due to cash inflow from bank loans and advances fromaffiliates relative to acquisition of assets and settlement of obligations.


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Net receivables increased by P104.6 million or 7.1% mainly due to increased billings fromsubscribers and advances for network-related purchases during the period, particularly in the wirelessbusiness.

Due from related parties decreased by P47.8 million or 53.0% mainly due to settlements made

by the parties.

Derivative assets comprising mainly of derivatives embedded in foreign currencydenominated bonds and purchase orders significantly from network-related projects amounted toP975.2 million and P939.8 million as of September 30, 2007 and December 31, 2006, respectively.

Prepayments and other current assets increased by P105.2 million or 61.4% due mainly toprepayments for spectrum users fee and insurance on electronic equipments.

Property and equipment, net of accumulated depreciation, amounted to P53,173.1 million asof September 30, 2007. Additions to property and equipment amounted to P5,535.4 million during theperiod, as a result of DIGITELs continuing investments in telecommunications facilities, particularly

in the wireless business segment. These investments were funded through bank financing andadvances from affiliates.

Deferred income tax assets increased by P102.0 million or 11.6% due to tax effect arisingfrom the provision for doubtful accounts, accrual of retirement benefits, NOLCO, unearned revenues,MCIT, and accretion of asset retirement obligation.

Total input value added tax reported at P2,219.7 million showed an increase of P399.5 millionor 22.0% over 2006 figure due mainly to additional network-related acquisitions.

Other noncurrent assets - net increased by P359.4 million or 34.7% due to additional deferredsubsidies on handsets for the wireless telephone, and customer premise equipment for internet services

and to the advance payments made for the purchase of assets.

Accounts payable and accrued expenses decreased by P1,706.9 million or 15.5% mainly dueto settlement of third party obligations offset by the increase in trade accounts and accruals on variousoperating expenses.

Deferred income tax liabilities amounted to P3,876.8 million as of September 30, 2007,comprising mainly of tax effects arising from unrealized foreign exchange gain and market valuationgain on derivative instruments.

Long term debts (current and non-current) aggregating to P5,588.1 million as of September 30,2007 and P5,151.8 million at the end of 2006 consisted of suppliers credits, bank financing and

minimum capacity purchase agreement. The increase of P436.3 million or 8.5% was due to additionalborrowings to finance DIGITELs continuing investments in telecommunications infrastructure.

DIGITEL obtained financing from foreign and local affiliates to fund its network projects andsettle third party obligations. As of September 30, 2007 and December 31, 2006, outstanding balancewas recorded at P24,049.6 million and P20,813.0 million, respectively.


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Other noncurrent liabilities increased by 109.9% or P2,149.2 million due mainly to higher

accrual of network-related project costs recorded in the wireless business during the period.

Capital stock stood at P8,975.7 million as of September 30, 2007. DIGITEL sustained an

accumulated deficit of P7,307.8 million as of September 30, 2007 and P7,078.8 million as ofDecember 31, 2006.

DIGITELs financing requirements were covered by both internally-generated funds andexternal borrowings. Consolidated net cash flow used for operating activities during the nine-monthperiod ended September 30, 2007 amounted to P815.5 million in contrast to P1,884.4 million net cashflow provided during the same period in 2006. Net cash generated from financing activities amountedto P7,197.3 million for the nine months ended September 30, 2007 against P1,899.6 million during thesame period last year. These finances were used to fund continuing network expansion significantly inthe wireless business with total investing cash flows of P6,299.1 million and P3,803.6 million in 2007and 2006, respectively and to settle third party obligations.


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DIGITAL TELECOMMUNICATIONS PHILS.,INC.AND SUBSIDIARIES

Consolidated Financial StatementsSeptember 30, 2007 and December 31, 2006and Nine-month Periods Ended September 30, 2007 and 2006


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CONSOLIDATED BALANCE SHEETS

September 30 December 31

2007 2006(Unaudited) (Audited)

ASSETS

Current Assets

Cash and cash equivalents (Note 3) P 414,832 P 332,212

Receivables - net (Note 4) 1,572,199 1,467,640

Inventories (Note 5) 225,203 234,229

Input value added tax - net 1,064,490 962,467

Due from related parties 42,352 90,150

Derivative assets 975,187 939,783

Prepayments and other current assets 276,728 171,503

Total Current Assets 4,570,991 4,197,984

Noncurrent Assets

Property and equipment - net (Note 6) 53,173,096 49,817,166

Deferred income tax assets 978,608 876,629

Input value added tax 1,155,173 857,674

Other noncurrent assets - net (Note 7) 1,394,970 1,035,545

Total Noncurrent Assets 56,701,847 52,587,014

P 61,272,838 P 56,784,998

LIABILITIES AND EQUITY

Current Liabilities

Accounts payable and accrued expenses (Note 8) P 9,292,588 P 10,999,530Income tax payable - 2,744

Current portion of long-term debt (Note 10) 1,107,774 1,121,771

Total Current Liabilities 10,400,362 12,124,045

Noncurrent Liabilities

Deferred income tax liabilities 3,876,765 3,246,508

Bonds payable (Note 9) 12,692,319 12,718,295

Long-term debt - net of current portion (Note 10) 4,480,367 4,030,015

Due to related parties 24,049,598 20,812,950

Other noncurrent liabilities (Note 11) 4,105,471 1,956,238

Total Noncurrent Liabilities 49,204,520 42,764,006

Total Liabilities 59,604,882 54,888,051

Equity (Note 12)Paid-up capital 8,975,749 8,975,749

Deficit (7,307,793) (7,078,802)

Total Stockholders' Equity 1,667,956 1,896,947

P 61,272,838 P 56,784,998

Note: Accounting principles and methods of computation used in the annual audited financial statements

as of December 31, 2006 were also applied in the interim financial statements as of September 30, 2007.

(In Thousand Pesos)


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CONSOLIDATED STATEMENTS OF INCOME

September 30

2007 2006 2007 2006

REVENUE

Service revenue P 6,066,502 P 5,800,543 P 2,104,414 P 1,856,346

Foreign exchange gain 2,661,170 1,721,285 955,816 1,973,873

Nonservice revenue 2,022 38,513 (15,859) 11,167

Other income - net (Note 13) 5,163 248,149 2,943 1,172

8,734,857 7,808,490 3,047,314 3,842,558

COSTS AND EXPENSES

Depreciation and amortization 2,186,425 2,218,708 717,335 755,559

Network-related expenses (Note 14) 2,055,413 1,686,384 924,375 611,425

General and administrative expenses (Note 15) 1,717,148 1,933,244 409,932 616,583

Financing cost and other charges (Note 16) 1,677,334 1,658,508 517,095 537,426

Cost of sales 614,427 515,441 218,201 159,813

Impairment losses and others 179,225 121,069 81,371 36,239

8,429,972 8,133,354 2,868,309 2,717,044

INCOME (LOSS) BEFORE TAX 304,885 (324,864) 179,005 1,125,513

PROVISION FOR INCOME TAX 533,876 555,635 110,473 562,934

NET INCOME (LOSS) P (228,991) P (880,500) P 68,532 P 562,579

EARNINGS (LOSS) PER SHARE (Note 18) P (0.0360) P (0.1385) P 0.0108 P 0.0885


as of December 31, 2006 were also applied in the interim financial statements as of September 30, 2007 and 2006.

For the Three Months EndedFor the Nine Months Ended

September 30

( Unaudited ) ( Unaudited )

(In Thousand Pesos, Except Loss Per Share Figures)


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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited) For the Period Ended September 30, 2007

Paid-up Capital

CapitalStock

AdditionalPaid-inCapital Total Deficit

TotalEquity

(In Thousand Pesos)

Balances as of December 31, 2006 P6,356,976 P2,618,773 P8,975,749 (P7,078,802) P1,896,947Net loss during the period (228,991) (228,991)

Balances as of September 30, 2007 P6,356,976 P2,618,773 P8,975,749 (P7,307,793) P1,667,956

(Unaudited) For the Period Ended September 30, 2006

Paid-up Capital

CapitalStock

AdditionalPaid-inCapital Total Deficit

TotalEquity

(In Thousand Pesos)Balances as of December 31, 2005 P6,356,976 P2,618,773 P8,975,749 (P6,421,184) P2,554,565Net loss during the period (880,500) (880,500)

Balances as of September 30, 2006 P6,356,976 P2,618,773 P8,975,749 (P7,301,684) P1,674,065


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CONSOLIDATED STATEMENTS OF CASH FLOWS

2007 2006

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss P (228,991) P (880,500)

Adjustments for:

Depreciation and amortization on property and equipment 2,186,425 2,218,708

Foreign exchange gain - unrealized (2,456,826) (1,747,517)

Interest expense 1,592,941 1,421,459

Amortization on deferred subsidies 457,803 307,849

Impairment losses on trade and other receivables 179,226 68,550

Amortization of debt issuance cost 56,016 65,498

Market valuation gain on derivative instruments (43,000) -

Provision for income tax deferred 528,278 553,122

Interest income (10,017) (249,434)Accretion of asset retirement obligation 19,381 229

Operating income before changes in operating assets and liabilities 2,281,236 1,757,964

Changes in operating assets and liabilities:

Decrease (increase) in:

Receivables (258,549) (109,837)

Inventories 9,715 44,472

Input value-added tax and prepayments (504,746) (286,538)

Increase (decrease) in:

Accounts payable and accrued expenses (2,069,363) 504,116

Net cash generated from(used in) operations (541,707) 1,910,177

Interest received 8,107 11,317

Income taxes paid (2,744) (7,267)

Interest paid (279,200) (29,818)

Net cash provided by (used in) operating activities (815,544) 1,884,409

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property and equipment (5,535,447) (3,384,169)

Increase in:

Due from related parties 53,535 (2,957)

Other noncurrent assets (817,229) (416,450)

Net cash used in investing activities (6,299,141) (3,803,576)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from long-term liabilities 1,774,667 1,061,363

Payment of long-term liabilities (1,050,772) (678,166)

Increase (decrease) in:

Other noncurrent liabilities 2,129,852 (2,797)

Due to related parties 4,343,558 1,519,187

Net cash provided by financing activities 7,197,305 1,899,587

NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS 82,620 (19,580)

CASH AND CASH EQUIVALENTS AT BEGINNING

OF THE PERIOD 332,212 477,842

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD P 414,832 P 458,262


as of December 31, 2006 were also applied in the interim financial statements as of September 30, 2007 and 2006.

(In Thousand Pesos)

For the Nine Months ended

September 30


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information

Digital Telecommunications Phils., Inc. (the Parent Company) is incorporated in the Philippinesand enfranchised to provide domestic and international telecommunications services nationwide.The Companys registered office address is URC Compound, 110 E. Rodriguez, Jr. Avenue,Bagumbayan, Quezon City.

The ultimate parent of Digital Telecommunications Phils., Inc. and Subsidiaries (the Group) is JGSummit Holdings, Inc. (JGSHI).

The Parent Company owns 100% of the following companies:

Digitel Mobile Phils., Inc. (DMPI) which is incorporated in the Philippines and enfranchised

under Republic Act (RA) 9180 to construct, install, establish, operate and maintain wireand/or wireless telecommunications systems throughout the Philippines.

Digitel Capital Philippines Ltd. (DCPL) which is incorporated in the British Virgin Islands toengage in any activity allowed under any law of the British Virgin Islands.

Digitel Information Technology Services (DITSI), Inc. which is incorporated in thePhilippines to provide internet access and high-speed data transmission to corporate andindividual customers. DITSI, however, became dormant following the decision of the Boardof Directors (BOD) to integrate the operations of DITSI into the Parent Company.

The Parent Company is a grantee of various authorizations from the National Telecommunications

Commission (NTC) as follows: (1) Certificate of Public Convenience and Necessity (CPCN) foran international gateway facility (IGF) in Binalonan, Pangasinan and Quezon City; (2) provisionalauthority (PA) to install, operate, maintain and develop telecommunications facilities in Regions Ito V, including the facilities leased from the Department of Transportation and Communication(DOTC), and to provide at least 925,000 additional lines within 10 years; (3) PA to construct,install, operate and maintain a nationwide Cellular Mobile Telephone System (CMTS) usingGlobal System for Mobile (GSM) and/or Code Division Multiple Access (CDMA) technology;and (4) CPCN for local exchange carrier services in Valenzuela, Malabon and Quezon City.

The Parent Company was awarded a 30-year exclusive contract by DOTC to manage, operate,develop and rehabilitate certain telecommunications facilities owned by DOTC.

The Parent Company is registered with the Board of Investments (BOI) and is entitled to (a)incentives on a pioneer and nonpioneer status as a new operator of telecommunication systems onnationwide CMTS-GSM communication and as an expanding operator of publictelecommunications services and IGF-2, respectively and (b) incentives on a pioneer status as anew operator of infrastructure and telecommunications facilities [i.e. third generation (3G)telecommunications system].


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On August 28, 2003, the NTC approved the assignment to DMPI of the PA to construct, install,operate and maintain a nationwide CMTS using GSM and/or CDMA technology.

On December 28, 2005, the NTC awarded a 3G frequency assignment to DMPI after finding itlegally, financially and technically qualified to undertake 3G services. On January 3, 2006, DMPI

confirmed its choice of 3G bandwidth with the NTC.

2. Summary of Significant Accounting Policies

Basis of Financial Statement PreparationThe accompanying consolidated financial statements of the Group have been prepared on ahistorical cost basis, except for certain derivative financial instruments that have been measured atfair value.

The consolidated financial statements of the Group are presented in Philippine peso, the Groupsfunctional currency, and all values are rounded to the nearest thousands, except when otherwise

indicated.

Statement of ComplianceThe consolidated financial statements of the Group have been prepared in accordance withPhilippine Financial Reporting Standards (PFRS).

Basis of ConsolidationThe accompanying consolidated financial statements include the accounts of the Parent Company,DMPI, DCPL and DITSI.

The consolidated financial statements are prepared using uniform accounting policies for liketransactions and other events in similar circumstances. All significant intercompany transactions

and balances, including intercompany profits and unrealized profits and losses, are eliminated inthe consolidation.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group, andcontinue to be consolidated until the date that such control ceases.

Significant Accounting Policies

Revenue RecognitionThe Group provides wireless services and wireline voice and data communication services.Revenue is recognized at the time of delivery of the products or services, and the collectibility isreasonably assured.

Service revenue includes the value of all telecommunications services provided, net of free usageallocations and discounts. Revenue is recognized when earned, and are net of the share of otherforeign and local carriers and content providers, if any, under existing correspondence andinterconnection and settlement agreements.


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Revenue is stated at amounts billed or invoiced and accrued to subscribers or other carriers andcontent providers, taking into consideration the bill cycle cut-off (for postpaid subscribers), andcharged against preloaded airtime value (for prepaid subscribers), and excludes value-added tax(VAT) and overseas communication tax.

Service revenueThe Groups service revenue includes the following:

Subscribers

Revenue principally consists of: (1) per minute airtime and toll fees for local, domestic andinternational long distance calls in excess of free call allocation, less prepaid reload discountsand interconnection fees; (2) revenue from value added services such as short messagingservices (SMS) in excess of free SMS and multimedia messaging services (MMS), contentdownloading and infotext services, net of payout to other foreign and local carriers andcontent providers; (3) inbound revenue from other carriers which terminate their calls to theGroups network; (4) revenue from international roaming services; (5) fixed monthly service

fees (for postpaid wireless subscribers) and prepaid subscription fees for discountedpromotional calls and SMS; and (6) proceeds from sale of phone kits, subrscribersidentification module (SIM) packs and other phone accessories.

Postpaid service arrangements include fixed monthly charges which are recognized over thesubscription period on a pro-rata basis. Telecommunications services provided to postpaidsubscribers are billed throughout the month according to the billing cycles of subscribers. Asa result of billing cycle cut-off, service revenue earned but not yet billed at end of month areestimated and accrued based on actual usage.

Proceeds from sale of prepaid cards are initially recognized as unearned revenue shown underAccounts Payable and Accrued Expenses account in the consolidated balance sheet. Revenue

is realized upon actual usage of the airtime value of the card, net of free service allocation.The unused value of prepaid cards is likewise recognized as revenue upon expiration.Interconnection fees and charges arising from the actual usage of prepaid cards are recorded asincurred.


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Traffic

Inbound revenue and outbound charges are based on agreed transit and termination rates withother foreign and local carriers and content providers. Inbound revenue represents settlements

received for traffic originating from telecommunications providers that are sent through theGroups network, while outbound charges represent settlements to telecommunicationsproviders for traffic originating from the Groups network and settlements to providers forcontents downloaded by subscribers. Both the inbound revenue and outbound charges areaccrued based on actual volume of traffic monitored by the Group from the switch.Adjustments are made to the accrued amount for discrepancies between the traffic volume perthe Groups records and per records of other carriers. The adjustments are recognized as theseare determined and are mutually agreed-upon by the parties. Uncollected inbound revenue arerecorded as receivables from connecting carriers under Receivables - net account in theconsolidated balance sheet, while unpaid outbound charges are recorded as payables toconnecting carriers under Accounts Payable and Accrued Expenses account in theconsolidated balance sheet.

Nonservice revenueProceeds from sale of phone kits and SIM cards/packs received from certain mobile subscribersare recognized upon receipt and are included under Nonservice Revenue account in theconsolidated statement of income.

Other revenueInterest is recognized as it accrues (using the effective interest method that is the rate that exactlydiscounts estimated future cash receipts through the expected life of the financial instrument to thenet carrying amount of the financial asset).

Deferred Subsidies

Subscriber acquisition costs pertaining to postpaid subscription, which primarily include handsetand phone kit subsidies, are deferred and amortized over the base contract period, which rangesfrom 18 to 24 months from the date in which they are incurred. Deferred subsidies are shownunder Other Noncurrent Assets account in the consolidated balance sheet. The relatedamortizations of subscriber acquisition costs are charged against current operations.

The Group performs an overall realizability test, in order to support the deferral of the subscriberacquisition costs. An overall realizability test is done by determining the minimum contractualrevenue after deduction of direct costs associated with the service contract over the base contractperiod. Costs are deferred and amortized, if there is a nonrefundable contract or a reliable basisfor estimating net cash inflows under a revenue-producing contract which exists to provide a basisfor recovery of incremental direct costs.

Cash and Cash EquivalentsCash includes cash on hand and in banks. Cash equivalents are short-term, highly liquidinvestments that are readily convertible to known amounts of cash with original maturities of threemonths or less from dates of placement and that are subject to an insignificant risk of changes invalue.


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Loans and receivablesLoans and receivables are nonderivative financial assets with fixed or determinable payments andfixed maturities that are not quoted in an active market. They are not entered into with theintention of immediate or short-term resale, and are not classified as other financial assets held fortrading, designated as available-for-sale (AFS investments or financial assets designated at fair

value through profit and loss (FVPL).

This accounting policy applies primarily to the Groups trade and other receivables.

Trade receivables are recognized initially at fair value, which normally pertains to the billableamount. After initial measurement, receivables are subsequently measured at amortized cost usingthe effective interest rate method, less any allowance for impairment losses. Amortized cost iscalculated by taking into account any discount or premium on the issue and fees that are anintegral part of the effective interest rate. Penalties, termination fees and surcharges on past dueaccounts of postpaid subscribers are recognized as revenue upon collection. The losses arisingfrom impairment of trade and other receivables are recognized under the Impairment Losses and

Others account in the consolidated statement of income. The level of allowance for impairmentlosses is evaluated by management on the basis of factors that affect the collectibility of accounts.

Impairment of Financial AssetsThe Group assesses at each consolidated balance sheet date whether there is objective evidence that afinancial asset or group of financial assets is impaired.

Assets carried at amortized cost

If there is objective evidence that an impairment loss on financial assets carried at amortizedcost (i.e. receivables) has been incurred, the amount of the loss is measured as the differencebetween the assets carrying amount and the present value of estimated future cash flowsdiscounted at the assets original effective interest rate. Time value is generally notconsidered when the effect of discounting is not material. The carrying amount of the asset isreduced through the use of an allowance account. The amount of the loss shall be recognizedin the consolidated statement of income.

The Group first assesses whether objective evidence of impairment exists individually forfinancial assets that are individually significant, and individually or collectively for financialassets that are not individually significant. If it is determined that no objective evidence ofimpairment exists for an individually assessed financial asset, whether significant or not, theasset is included in a group of financial assets with similar credit risk characteristics and thatgroup of financial assets is collectively assessed for impairment. Assets that are individuallyassessed for impairment and for which an impairment loss is or continues to be recognized arenot included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease canbe related objectively to an event occurring after the impairment was recognized, thepreviously recognized impairment loss is reversed. Any subsequent reversal of an impairmentloss is recognized in the consolidated statement of income to the extent that the carrying valueof the asset does not exceed its amortized cost at the reversal date.


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The Group performs a regular review of the age and status of these accounts, designed toidentify accounts with objective evidence of impairment and provide the appropriateallowance for impairment losses. The review is accomplished using a combination of specificand collective assessment approaches, with the impairment losses being determined for each

risk grouping identified by the Group.

(a) Subscribers

Full allowance is provided for trade receivables from permanently disconnected wirelessand wireline subscribers. Permanent disconnections are made after a series of collectionsteps following nonpayment by postpaid subscribers. Such permanent disconnectionsgenerally occur within a predetermined period from statement date.

Effective January 1, 2005, the allowance for impairment losses is determined based on theresults of the net flow to write-off methodology. Net flow tables are derived from

account-level monitoring of subscriber accounts between different age brackets, fromcurrent to 1 day past due to 120 days past due. The net flow to write-off methodologyrelies on the historical data of net flow tables to establish a percentage (net flow rate) ofsubscriber receivables that are current or in any state of delinquency as of reporting datethat will eventually result in write-off. The allowance for impairment losses is thencomputed based on the outstanding balances of the receivables as of consolidated balancesheet date and the net flow rates determined for the current and each delinquency bracket.

For active residential and business wireline voice subscribers, full allowance is generallyprovided for outstanding receivables that are past due by 90 and 120 days, respectively.Full allowance is likewise provided for receivables from wireline data corporate accountsthat are past due by 120 days.

Regardless of the age of the account, additional impairment losses are also made forwireless and wireline accounts specifically identified to be doubtful of collection whenthere is information on financial incapacity after considering the other contractualobligations between the Group and the subscriber.

Prior to January 1, 2005, the Group made use of percentages as set up by management tobe applied on the trade receivables. A review of the aging and status of trade receivables,designed to identify accounts to be provided with allowance, is performed regularly.

(b) Traffic

Provisions for impairment losses are made for accounts specifically identified to bedoubtful of collection regardless of the age of the account.


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InventoriesInventories are valued at the lower of cost and net realizable value (NRV). NRV is the estimatedselling price in the ordinary course of business less the estimated costs necessary to make the sale.NRV for handsets and accessories, and wireline telephone sets is the selling price in the ordinarycourse of business less direct costs to sell, while NRV for SIM packs, call cards, spare parts and

supplies consists of the related replacement cost. In determining the NRV, the Group deductsfrom cost 100% of the carrying value of slow-moving items and nonmoving items for more thanone year. Cost is determined using the moving average method.

Property and EquipmentProperty and equipment are carried at cost less accumulated depreciation, amortization andimpairment losses, if any.

The initial cost of an item of property and equipment comprises of its purchase price and any costattributable in bringing the asset to its intended location and working condition. Cost alsoincludes: (a) interest and other financing charges on borrowed funds used to finance theacquisition of property and equipment to the extent incurred during the period of installation and

construction; and (b) asset retirement obligations (ARO) specifically for property and equipmentinstalled/constructed on leased properties.

Subsequent costs are capitalized as part of property and equipment only when it is probable thatfuture economic benefits associated with the item will flow to the Group and the cost of the itemcan be measured reliably. All other repairs and maintenance are charged against currentoperations as incurred.

Projects under construction are transferred to the related Property and Equipment account whenthe construction or installation and related activities necessary to prepare the property andequipment for their intended use are completed, and the property and equipment are ready forservice.

Depreciation and amortization of property and equipment commence, once the property andequipment are available for use and are computed using the straight-line method over theestimated useful lives (EUL) of the assets regardless of utilization.

The EUL of property and equipment of the Group follows:

Telecommunications equipment:Tower 15 yearsSwitch 10 to 15 yearsOutside plant facilities 10 to 20 yearsDistribution dropwires 5 yearsCellular facilities and others 3 to 10 years

Buildings 25 yearsLeasehold improvements 5 years or lease term whichever is shorterInvestment in cable systems 15 yearsFacilities under finance lease 15 yearsVehicle and work equipment 5 to 15 years


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The EUL of property and equipment are reviewed annually based on expected asset utilization asanchored on business plans and strategies that also consider expected future technologicaldevelopments and market behavior to ensure that the period of depreciation and amortization isconsistent with the expected pattern of economic benefits from items of property and equipment.

When an item or property and equipment is retired or otherwise disposed of, the cost and therelated accumulated depreciation, amortization and impairment losses, if any, are removed fromthe accounts and any resulting gain or loss is credited to or charged against current operations.

Asset Retirement Obligation

The Group is legally required under various lease contracts to restore leased property to itsoriginal condition and to bear the cost of dismantling and deinstallation at the end of the contractperiod. The Group estimates the costs of the obligations and capitalizes the present value of suchcosts as part of the balance of the related Property and Equipment accounts which are depreciatedon a straight-line basis over the EUL of the related property and equipment or the contract period,whichever is shorter.

Debt Issuance CostsDebt issuance costs were amortized using the effective interest method and unamortized debtissuance costs are offset against the related carrying value of the loan in the consolidated balancesheet. When a loan is paid, the related unamortized debt issuance costs at the date of repaymentare charged against current operations (see accounting policy on Financial Instruments).

Prior to January 1, 2005, upfront fees and other related expenses incurred in connection with loandrawings are capitalized by the Group, as part of the cost of the related projects and are amortizedusing the straight-line method over the term of the loan following the settlement of said projects.

Income TaxesCurrent taxCurrent tax assets and liabilities for the current and prior periods are measured at the amountexpected to be recovered from or paid to the taxation authorities. The tax rates and tax laws usedto compute the amount are those that are enacted or substantially enacted as of the consolidatedbalance sheet date.

Deferred income taxDeferred income tax is provided using the balance sheet liability method on all temporarydifferences, with certain exceptions, at the consolidated balance sheet date between the tax basesof assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences, with certainexceptions. Deferred income tax assets are recognized for all deductible temporary differenceswith certain exceptions, and carryforward benefits of unused tax credits from excess minimumcorporate income tax (MCIT) over regular corporate income tax and unused net operating losscarryover (NOLCO), to the extent that it is probable that taxable income will be available againstwhich the deductible temporary differences and carryforward benefits of unused tax credits fromexcess MCIT and unused NOLCO can be utilized.


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Deferred income tax assets are not recognized, when it arises from the initial recognition of anasset or liability in a transaction that is not a business combination, and at the time of transaction,affects neither the accounting income nor taxable income or loss. Deferred income tax liabilitiesare not provided on nontaxable temporary differences associated with investments in domestic

subsidiaries and interests in joint ventures. With respect to investments in foreign subsidiaries,deferred income tax liabilities are recognized except where the timing of the reversal of thetemporary differences can be controlled and it is probable that the temporary difference will notreverse in the foreseeable future.

The carrying amounts of deferred income tax assets are reviewed at each consolidated balancesheet date and reduced to the extent that it is no longer probable that sufficient taxable income willbe available to allow all or part of the deferred income tax assets to be utilized. Unrecognizeddeferred income tax assets are reassessed at each consolidated balance sheet date, and arerecognized to the extent that it has become probable that future taxable income will allow thedeferred income tax asset to be recognized.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply tothe period when the asset is realized or the liability is settled, based on tax rates (and tax laws) thathave been enacted or substantively enacted as of consolidated balance sheet date.

ProvisionsProvisions are recognized when: (a) the Group has a present obligation (legal or constructive) as aresult of a past event; (b) it is probable (i.e. more likely than not) that an outflow of resourcesembodying economic benefits will be required to settle the obligation; and (c) a reliable estimatecan be made of the amount of the obligation. Provisions are reviewed at each consolidatedbalance sheet date and adjusted to reflect the current best estimate. If the effect of the time valueof money is material, provisions are determined by discounting the expected future cash flows at apre-tax rate that reflects current market assessment of the time value of money and, where

appropriate, the risks specific to the liability. Where discounting is used, the increase in theprovision due to the passage of time is recognized as an interest expense in the consolidatedstatement of income. Where the Group expects a provision to be reimbursed, the reimbursement isrecognized as a separate asset but only when the reimbursement is virtually certain.

Borrowing CostsBorrowing costs are recognized as expense when incurred.

Borrowing costs are capitalized if these are directly attributable to the acquisition, construction orproduction of a qualifying asset. Capitalization of borrowing costs commences when the activitiesfor the assets intended use are in progress and expenditures and borrowing costs are beingincurred. Borrowing costs are capitalized until the assets are ready for their intended use. These

costs are amortized using the straight-line method over the EUL of the related property andequipment. If the resulting carrying amount of the asset exceeds its recoverable amount, animpairment loss is recognized. Borrowing costs include interest charges and other relatedfinancing charges incurred in connection with the borrowing of funds. Premiums on long-termdebt are included under the Long-term Debt account in the consolidated balance sheet and areamortized using the effective interest rate method.


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LeasesThe determination of whether an arrangement is, or contains a lease, is based on the substance ofthe arrangement at inception date, and requires an assessment of whether the fulfillment of thearrangement is dependent on the use of a specific asset or assets and the arrangement conveys a

right to use the asset. A reassessment is made after inception of the lease only if one of thefollowing applies:

(a) there is a change in contractual terms, other than a renewal or extension of the arrangement;

(b) a renewal option is exercised or an extension granted, unless that term of the renewal orextension was initially included in the lease term;

(c) there is a change in the determination of whether fulfillment is dependent on a specified asset;or

(d) there is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date when thechange in circumstances gave rise to the reassessment for any of the scenarios above, and at thedate of renewal or extension period for the second scenario.

Group as lesseeFinance leases, which transfer to the Group substantially all the risks and benefits incidental toownership of the leased item, are capitalized at the inception of the lease at the fair value of theleased property or, if lower, at the present value of the minimum lease payments and includedunder Property and Equipment account in the consolidated balance sheet, with the correspondingliability to the lessor included under Long-term Debt account in the consolidated balance sheet.Lease payments are apportioned between the finance charges and reduction of the lease liability so

as to achieve a constant rate of interest on the remaining balance of the liability. Finance chargesare charged directly as interest expense.

Capitalized leased assets are depreciated over the shorter of the EUL of the assets and therespective lease terms.

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset areclassified as operating leases. Operating lease payments are recognized as an expense in theconsolidated statement of income on a straight-line basis over the lease term.

Selling, Advertising and Promotions ExpensesSelling, advertising and promotions expenses are charged against current operations as incurred.

Foreign Currency TransactionsThe functional and presentation currency of the Group is the Philippine Peso. Transactionsdenominated in foreign currencies are recorded in Philippine Peso based on the exchange ratesprevailing at the transaction dates. Foreign currency-denominated monetary assets and liabilitiesare translated to Philippine Peso at exchange rate prevailing at the consolidated balance sheet date.


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Foreign exchange differentials between rate at transaction date, and rate at settlement date orbalance sheet date of foreign currency-denominated monetary assets or liabilities are credited to orcharged against current operations.

Loss Per ShareLoss per share is computed by dividing net loss applicable to common stock by the weightedaverage number of common shares issued and outstanding during the year.

Segment ReportingThe Groups major operating business units are the basis upon which the Group reports its primarysegment information. The Groups business segments consist of: (1) wireless communicationservices, (2) wireline voice communication services, and (3) wireline data communicationservices. The Group generally accounts for inter-segment revenue and expenses at agreed transferprices.

Contingencies

Contingent liabilities are not recognized in the consolidated financial statements. They aredisclosed unless the possibility of an outflow of resources embodying economic benefits isremote. Contingent assets are not recognized in the consolidated financial statements butdisclosed when an inflow of economic benefits is probable.

3. Cash and Cash Equivalents

This account consists of:


(In Thousand Pesos)

Cash on hand and in banks P97,473 P=233,247Money market placements 317,359 98,965

P414,832 P=332,212

Cash in banks earns interest at the respective bank deposit rates. Money market placements aremade for varying periods depending on the immediate cash requirements of the Group, and earnan average interest of 4.34% in 2007.


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4. Receivables



(In Thousand Pesos)Trade receivables:

Subscribers P3,373,977 P=3,277,371Connecting carriers 372,307 392,675Agents and others 121,558 194,905

Other receivables 427,320 146,426

4,295,162 4,011,377

Less allowance for impairment losses:Trade receivables:

Subscribers 2,652,925 2,473,699Connecting carriers 56,887 56,887

Other receivables 13,151 13,151

2,722,963 2,543,737

P1,572,199 P=1,467,640

Changes in allowance for impairment losses on trade and other receivables follow:


(In Thousand Pesos)Balance at beginning of year P2,543,737 P=2,302,735

Provision for impairment losses 179,226 241,002Write-off - Balance at end of period P2,722,963 P=2,543,737

5. Inventories



(In Thousand Pesos)At NRV:

Handsets, phone kits and accessories P38,971 P=56,566Spare parts and supplies 151,655 143,484

190,626 200,050At cost

SIM cards and call cards 34,577 34,179

P225,203 P=234,229


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6. Property and Equipment

Property and equipment are classified as follows:

For the Period Ended September 30, 2007 (Unaudited)

Tele-communication

Equipment LandBuildings and

Improvements

Investmentin CableSystems

FacilitiesUnder

Finance Lease

Vehiand Wo

Equipm

Cost (In Thousand Pesos)Balance at beginning of year P=32,327,473 P=475,805 P=3,628,413 P=758,847 P=4,419,920 P=4,753,6Additions 24,119 - 10,722 - 109,566 226,7Others (51,329) - - - -

Balance at end of period 32,300,263 475,805 3,639,135 758,847 4,529,486 4,980,3

Accumulated Depreciationand Amortization

Balance at beginning of year 13,839,579 1,162,856 69,771 3,395,262 3,442,3Depreciation and amortization 1,550,143 118,225 26,330 236,628 254,Others (51,329)

Balance at end of period 15,338,393 1,281,081 96,101 3,631,890 3,696,4

Net Book Value P=16,961,870 P=475,805 P=2,358,054 P=662,746 P=897,596 P=1,283,9

For the Year Ended December 31, 2006 (Audited)

Tele-communication

Equipment LandBuildings and

Improvements

Investmentin CableSystems

FacilitiesUnder

Finance Lease

Vehiand Wo

Equipm

Cost (In Thousand Pesos)Balance at beginning of year P=32,143,128 P=475,670 P=3,567,271 P=758,847 P=4,419,920 P=4,612,2Additions 184,345 135 61,142 141,2Others

Balance at end of year 32,327,473 475,805 3,628,413 758,847 4,419,920 4,753,6

Accumulated Depreciation

and AmortizationBalance at beginning of year 11,757,916 1,002,173 44,033 3,079,758 3,071,5Depreciation and amortization 2,060,646 160,683 315,504 370,8Others 21,017 25,738

Balance at end of year 13,839,579 1,162,856 69,771 3,395,262 3,442,3

Net Book Value P=18,487,894 P=475,805 P=2,465,557 P=689,076 P=1,024,658 P=1,311,2


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Facilities under Finance LeaseThe Parent Company previously leased certain telecommunications facilities covering localexchange facilities under Financial Lease Agreements (FLA) for a period of 30 years, at theend of which the ownership of the facilities automatically transfer to the Parent Company. In2003, the Parent Company availed of its option under the FLA to purchase the leasedfacilities. Following the decision of the arbitration body, the facilities were acquired.

7. Other Noncurrent Assets



(In Thousand Pesos)Deferred subsidies P=691,296 P=530,287Security deposits 121,454 99,650Others 582,220 405,608

P=1,394,970 P=1,035,545

Changes in deferred subsidies follow:


(In Thousand Pesos)Balance at beginning of year P=530,287 P=398,594Deferral of subsidies 618,812 563,141Amortization (457,803) (431,448)

Balance at end of period P=691,296 P=530,287

Security deposits relate to the Groups leased buildings, cellsite lots and commercial spaces.These will be collected in full at the end of the lease terms subject to adjustments by thelessor to cover damages incurred on the properties.


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8. Accounts Payable and Accrued Expenses



(In Thousand Pesos)

Accrued expenses P=5,173,329 P=4,915,605

Trade payables 2,595,368 2,652,213Unearned revenue 453,202 332,519Payables to connecting carriers 147,793 182,354

Obligations under finance lease 0 2,475,540

Others 922,896 441,299

P=9,292,588 P=10,999,530

Accrued expenses and other payables include accruals for interest and various expenses.

Unearned revenue represents proceeds from sale of prepaid cards and airtime values throughthe over-the-air reloading services which were initially recognized as unearned revenue bythe Group. Revenue is recognized upon the actual usage of the airtime value of the card, netof free service allocation. The unused value of prepaid card is likewise recognized asrevenue upon expiration.

Payables to connecting carriers represent interconnection fees due to other carriers for thecharges on voice and data transmissions which enable the Groups subscribers to reachsubscribers of other networks.

9. Bonds Payable

Parent Company Zero Coupon Convertible BondsOn December 8, 2003, the Parent Company issued Zero Coupon Convertible Bonds Due2013 (DIGITEL Bonds) with face value of US$31.1 million and issue price of US$10.0million. As of September 30, 2007 and December 31, 2006, the outstanding balance of theDIGITEL Bonds amounted to P=941.6 million (US$20.9 million) and P=976.8 million ($19.9million), respectively.


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The DIGITEL Bonds are redeemable at the option of the Parent Company, in whole or inpart, at the end of each year starting one year after the issue date and every year thereafter atthe following redemption dates and values:

Redemption Date Redemption Value (a)

End of 1st year from issue date US$35.29End of 2nd year from issue date 38.75End of 3rd year from issue date 42.63End of 4th year from issue date 46.97End of 5th year from issue date 51.83End of 6th year from issue date 57.28End of 7th year from issue date 63.38End of 8th year from issue date 70.21End of 9th year from issue date 77.87End of 10th year from issue date 86.44(a) Per US$100 of face value

Alternately, the bondholders will have the right to convert the DIGITEL Bonds into commonshares of the Parent Company at redemption date. The number of conversion shares to bereceived by the bondholders upon exercise of the conversion right is equivalent to the totalredemption value which the bondholders would have received if the DIGITEL Bonds wereredeemed multiplied by the Philippine Peso-US Dollar exchange rate for the relevant datedivided by the P=1 par value. Unless previously converted, purchased and cancelled orredeemed, the DIGITEL Bonds shall be converted into the common shares of the ParentCompany at the end of the tenth year after the issue date. In January 2006, the conversionoptions expired due to an amendment made on the bond agreement.

The DIGITEL Bonds constitute direct, unconditional, unsubordinated and unsecuredobligations of the Parent Company and shall at all times rank pari passu and without

preference among themselves and at least equally with all other present and futureunsubordinated, unsecured obligations of the Parent Company, except as may be preferred byvirtue of mandatory provision of law.

The bondholders have the option, through a resolution approved by 75% of the face value ofthe DIGITEL Bonds then outstanding, to require a lien on unencumbered assets of the ParentCompany not subject to a dispute, valued at approximately US$200.0 million, subject to thelimitations, conditions and restrictions of a Mortgage Trust Indenture (MTI). The MTI willbe administered by a Security Trustee appointed in accordance with the MTI.

Proceeds from the sale of the DIGITEL Bonds were used to partially fund the purchase ofequipment for GSM Project Phases 1 and 2 valued at approximately US$200.0 million with

completion of approximately 681 cellular sites covering key urban cities nationwide pursuantto a PA issued by the NTC.


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DCPL Zero Coupon Convertible BondsIn November 2004, DCPL issued Zero Coupon Convertible Bonds Due 2013 (DCPL Bonds)with face value of US$590.1 million and issue price of US$190.0 million. JG SummitPhilippines, Ltd., a related party, fully subscribed to the DCPL Bonds. As of September 30,2007 and December 31, 2006, the outstanding balance of the DCPL Bonds amounted to

P=11.8 billion (US$242.5 million) and P=11.7 billion ($225.4 million), respectively.

The DCPL Bonds bear a yield-to-maturity of 12%. The DCPL Bonds are exchangeable intoshares of the Parent Company, and are redeemable at the option of DCPL, in whole or in part,starting one year after the issue date and every year thereafter at the following redemptiondates and values:

Redemption Date Redemption Value (a)End of 1st year from issue date US$36.06End of 2nd year from issue date 40.39End of 3rd year from issue date 45.26End of 4th year from issue date 50.66

End of 5th year from issue date 56.74End of 6th year from issue date 63.55End of 7th year from issue date 71.18End of 8th year from issue date 79.72End of 9th year from issue date 89.29End of 10th year from issue date 100.00(a) Per US$100 of face value

Alternately, the bondholder will have the right to convert the DCPL Bonds into commonshares of the Parent Company at redemption date. The number of conversion shares to bereceived by the bondholders upon exercise of the conversion right is equivalent to the totalredemption value which the bondholders would have received if the DCPL Bonds wereredeemed multiplied by the Philippine Peso-USD exchange rate for the relevant date divided

by the P=1 par value.

In order to exercise the conversion or exchange, the holder must submit to DCPL, with acopy to the Parent Company, a duly completed and executed Exchange Notice. DCPL andthe Parent Company shall respectively transmit in writing to the subscriber/holder theirconsent or objection, within three days from their respective receipt of the Exchange Notice.

The DCPL Bonds constitute direct, unconditional, unsubordinated and unsecured obligationsof DCPL and shall at all times rank pari passu and without preference among themselves.

The bondholder has the option to require a lien on certain assets of the Parent Company inwhich case, the Parent Company and bondholder shall, within a reasonable time, execute an

MTI.


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10.Long-term Debt


2007 2006

(Unaudited) (Audited)

USD

PhilippinePeso

Equivalent USDPhilippine Peso

Equivalent(In Thousands)

Loans from foreign banks US$123,110 P=5,511,857 US$100,299 P=4,895,103Liability under minimum capacity purchase

agreement 1,500 67,560 4,500 220,703Suppliers credits 193 8,724 734 35,980

124,803 5,588,141 105,533 5,151,786Less current portion 24,801 1,107,774 22,999 1,121,771

US$100,002 P=4,480,367 US$82,534 P=4,030,015

11.Other Noncurrent Liabilities



(In Thousand Pesos)Accrued project costs P=3,740,252 P=1,637,957ARO 247,556 228,176Pension liabilities 117,663 90,105

P=4,105,471 P=1,956,238

Accrued project costs represent costs of unbilled materials, equipment and labor which arealready eligible for capitalization as of September 30, 2007 and December 31, 2006.Determination of costs to be capitalized is based on the contract price multiplied by thepercentage of shipped materials and/or delivered services.

12.Equity

Details of the Parent Companys common stock follow:


Authorized shares 9,000,000,000 9,000,000,000Par value per share P=1.00 P=1.00Issued shares 6,356,976,300 6,356,976,300


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13.Other Income - net


2007Interest income on: (In Thousand Pesos)

Short-term placements P=7,272Due from related parties 1,910Cash in banks 836

Others (4,855) P=5,163

14.Network-Related Expenses


2007 (In Thousand Pesos)

Rentals P=666,340Repairs and maintenance 409,838Utilities 379,136Staff costs 204,124Taxes and licenses 125,704Outside services 112,333Professional fees 8,736Others 149,202

P=2,055,413

15.General and Administrative Expenses



Staff cost P=582,085Marketing and selling expenses 398,337Outside services 149,782Utilities 100,014Others 486,930

P=1,717,148


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16.Financing Costs and Other Charges


2007

(In Thousand Pesos)Interest expense P=1,648,958Accretion of ARO (Note 11) 19,381Others 8,995

P=1,677,334

Interest expense is incurred from the following:


Long-term debt (Note 10) P=765,008

Others 883,950P=1,648,958

17.Registration with Board of Investments (BOI)

The Parent Company is registered with the BOI as an expanding operator of publictelecommunications services and IGF-2 on a nonpioneer status with a registered capacity of786,000 lines covering the areas of Regions I to V and the Cordillera Autonomous Region.Under the terms of its registration, the Parent Company is entitled to income tax holiday(ITH) for three to six years on income derived from certain areas, additional deduction oflabor expenses for five years but not simultaneous with the ITH, employment of foreignnationals for five years and unrestricted use of consigned equipment. However, the ParentCompany is subject to certain requirements such as: (a) maintaining a base equity of at least25%, (b) filing of specialized financial reports with the BOI, and (c) the need for priorapproval for the (i) issuance of stock convertible into voting stock, (ii) repurchase of its ownstock, (iii) investment in, extension of loans or purchase of bonds in substantial amount fromany enterprise other than those bonds issued by the Philippine government, (iv) expansion ofits capacity, with or without incentives, and (v) transfer of ownership or control of the ParentCompany.

The Parent Company is registered with the BOI as a new operator of telecommunicationssystems on nationwide CMTS-GSM communication network on a pioneer status with aregistered capacity of 553,451 lines. Consequently, the Parent Company became entitled to

the following incentives: (1) ITH for six years which is reckoned from January 2003 or fromthe actual start of commercial operations, whichever comes first, but in no case earlier thanthe date of

SEC Number 145111 File Number

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Transcript of SEC Number 145111 File Number