PLDT (PHI) Risk Analysis

Our business is subject to extensive laws and regulations, including regulations in respect of our public ownership, service rates and taxes, in addition to antitrust laws. Republic Act No. 7925, otherwise known as the "Public Telecommunications Policy of the Philippines" (R.A. 7925), requires a telecommunications entity with regulated types of services to make a bona fide public offering through the stock exchange of its shares representing at least 30% of its aggregate common shares within five years from: (a) the date the law became effective; or (b) the entity's commencement of commercial operations, whichever date is later. Republic Act No. 10926 provides an exemption from the public listing requirement if the grantee is wholly-owned by a company that has publicly listed at least 30% of its authorized capital stock. PLDT is a publicly listed company and therefore in compliance with this requirement. Smart, as a wholly-owned subsidiary of PLDT, a publicly listed company, is not required to offer any of its shares to the public. Meanwhile, DMPI takes the position that it has satisfied the public offering requirement under R.A. 7925 and Republic Act No. 9180 (R.A. 9180), or the legislative franchise of DMPI (DMPI's Franchise), by virtue of the fact that PLDT, a publicly listed company, holds a 99.6% equity interest in DMPI's parent company, Digitel Telecommunications Philippines, Inc. (DTPI), which in turn, holds a 100% equity interest in DMPI. The NTC regulates the rates we are permitted to charge for services that have not been deregulated, such as local exchange services. We are subject to various national and local taxes, and regulatory fees imposed by LGUs through their respective ordinances. We cannot assure you that we will not be subject to new, increased and/or additional taxes or that we will be able to pass on such additional expenses to our customers. See Note 26 – Provisions and Contingencies to the accompanying audited consolidated financial statements in Item 18. "Financial Statements" for further discussion. Moreover, we are subject to antitrust laws and regulations. Republic Act No. 10667, otherwise known as the Philippine Competition Act (Philippine Competition Act), came into effect on August 8, 2015, and prohibits practices that restrict market competition through anti-competitive agreements or the abuse of dominant position. The Philippine Competition Act also requires parties to provide notification and obtain clearance for certain mergers and acquisitions. Violators may be subject to administrative and criminal penalties. While our business practices have not in the past been found to have violated any antitrust laws and regulations, we cannot assure you that any new or existing governmental regulators will not, in the future, take the position that our current or past business practices have an anti-competitive effect on the Philippine telecommunications industry. Smart is currently subject to an ongoing inquiry by the Philippine Competition Commission (PCC) involving multiple subpoenas, hearings, and continuing requests for information in relation to its operations as a public telecommunications entity (PTE), interconnection arrangements with other carriers, and International Simple Resale (ISR)-related matters involving DITO. As of this writing, no final ruling has been issued. See Note 26 – Provisions and Contingencies to the accompanying audited consolidated financial statements in Item 18. "Financial Statements" for further discussion. In 2025, House Bill 178, otherwise known as the Automatic Refund for Internet and Telecommunications Services Outages and Disruptions Act, was transmitted by Congress to the Senate, where it remained pending. The bill would require PTEs, including ISPs, to automatically refund or adjust a customer's bill when they experience a cumulative internet service outage or interruption lasting twenty-four (24) hours or more within a month. However, the bill provides exemptions in the case of scheduled maintenance (with a 48-hour advance notice and not exceeding 48 hours per month), fortuitous events, or acts of third parties or subscribers. The implementation of House Bill 178 would require PLDT Group to implement granular, per-customer service-quality monitoring and undertake substantial adjustments to operations, processes, and network infrastructure, which could entail significant capital expenditure and operating expenditure, and may present challenges in meeting regulatory transition timelines. The KP Act lapsed into law on August 24, 2025. The IRR, published on December 1, 2025, establishes a comprehensive and liberalized regulatory framework that removes the requirement for a legislative franchise and Certificate of Public Convenience and Necessity (CPCN) for data transmission industry participants, and opens all segments of the data transmission network to competition. Under the IRR, entities classified as Data Transmission Industry Participants must comply with new eligibility, registration, reporting, and performance standards, including mandatory annual submissions, adherence to minimum quality-of-service benchmarks, separate accounting per network segment, and compliance with cybersecurity certification requirements. The IRR also requires access providers, including incumbent operators such as us, to publish Reference Access Offers on open, fair, reasonable, and non-discriminatory terms, while granting regulators the authority to impose ex-ante obligations on entities designated as having significant market power. Further, the forthcoming SMPF contemplates periodic spectrum audits and potential recall of unutilized or underutilized spectrum, which may affect network planning and asset utilization. These changes substantially increase compliance obligations and lower barriers for new entrants, thereby intensifying competitive pressures. The KP Act and its IRR may introduce operational, financial, and strategic challenges for incumbent players that may materially affect our business, results of operations, or financial condition. House Bill 87, approved by the House of Representatives in December 2025 and pending Senate action, proposes to mandate a roll-over data allocation scheme requiring ISPs to carry over unused data to the next billing cycle and impose penalties for non-compliance. The roll-over regime outlined under the bill, if enacted, would require extensive changes to data-management frameworks, billing systems, and related operational processes to ensure accurate tracking, accumulation, and application of unused data entitlements. These requirements may result in significant capital expenditure and operating expenditure for the PLDT Group, and any failure to meet the prescribed standards or timelines may subject us to penalties or sanctions. On September 29, 2025, the NTC issued Memorandum Order No. ###-##-####. The memorandum requires internet intermediaries under the supervision of the NTC, including us, to submit quarterly compliance reports on the implementation of R.A. No. 11930 or the Anti-Online Sexual Abuse or Exploitation of Children and Anti-Child Sexual Abuse or Exploitation Materials Act, including blocking and preservation of data traffic and any measures adopted to strengthen safeguards. As part of its advocacy on online safety, PLDT has invested in a child protection platform to detect and access malicious sites and URLs, and continually monitors and submits reports as required. It also undertakes regular awareness campaigns on internet safety. However, there is no assurance that our users are fully protected against the dangers of the internet. On January 26, 2026, the SEC issued SEC Memorandum Circular No. 7, Series of 2026 (effective February 1, 2026 after publication in two newspapers of general and national circulation), which covers PSE-listed companies and limits an individual's ability to serve as an independent director in the same company to a maximum cumulative term of nine years, with the maximum term for incumbent independent directors generally reckoned from calendar year 2012. An independent director who has served the maximum cumulative term is perpetually barred from re-election as an independent director of the same company, subject to a transitory provision allowing incumbents who have already reached the maximum term upon effectivity to continue until the 2026 annual stockholders' meeting (or another date approved by the SEC). Covered companies that breach the maximum cumulative term limit are subject to a basic penalty of Php1,000,000.00 per independent director per year and a continuing penalty of Php30,000.00 for every month that the independent director holds the seat, and a third or succeeding offense for the same violation may result in the suspension or revocation of the company's secondary or primary license. While the Company is taking steps to comply with the SEC Memorandum Circular and update relevant corporate policies to align with the amended guidelines, nonetheless, if not timely implemented, the Company may be exposed to penalties. Regulators have been increasingly focused on online and mobile payment services, and other developments could reduce the convenience or utility of our payment services for users. Governmental regulation of certain aspects of mobile payment systems which PLDT utilizes could result in obligations or restrictions with respect to the types of products that we may offer to consumers, the payment card systems that link to our mobile payments systems, the jurisdictions in which our payment services or apps may be used, and higher costs, such as fees charged by banks to process funds through our mobile payments systems. We may be subject to more obligations and restrictions as more jurisdictions regulate payment systems. Moreover, if new regulations provide resources, preferential treatment or protection to selected payments and processing providers, we could be displaced, prevented or substantially restricted from participating in the relevant geographies. Any adverse changes in applicable laws and regulations can have an adverse impact on our business, results of operations, financial condition and prospects. For additional details of the impact of regulations on our business, see "Franchises, Licenses and Regulations."