Globe projects flat net income growth this year

MANILA, Philippines - Ayala-led Globe Telecom said it expects flat core net income growth this year compared to last year, even as group revenues are seen registering a low single-digit growth rate.

Globe president and CEO Ernest Cu said while broadband revenue growth will remain robust this year, the mobile business will likely be flat compared to 2009.

Also for this year, the company forecast its earnings before interests, taxes, depreciation and amortization (EBITDA) margins for 2010 to likely be stable, with higher depreciation from sustained roll-out.

For the broadband business, Globe’s subscriber base seen is expected to reach 1.3 million by the end of 2010, compared with 841,000 as of the end of the first quarter this year.

Cu pointed out that it has become a whole new market now, especially in the mobile business, characterized by a whole new level of competition and pricing. “In the prepaid sector, our goal is to become the primary SIM in a multi-SIM environment,” he said.

Globe’s top executive explained that since the mobile market has already reached its saturation point, with the number of SIMs in the market almost the same as the total addressable portion of the population, the industry dynamics have changed such that a mobile service operator has to be able not only to increase usage among its existing subscribers but also get a larger portion of the spend of prepaid subscribers who own more than one SIM.

“The winner in this kind of environment is the one that can provide superior experience to its customers and tailor their products to as many segments as possible. You cannot always win using pricing as a strategy. We have to build value and become the preferred brand. If you look at our emerging strategy, that is what is happening - improving loyalty for prepaid and more personalized plans for postpaid, and of course strong branding,” Cu emphasized.

He revealed that mobile industry SIM base as of end-2009 is at 75.6 million, with net additions for 2009 at just over half of 2008 levels, and that the pace of SIM growth is expected to moderate in the coming quarters following industry trends.

As of the end of the first quarter, Globe registered a mobile SIM base of 23.9 million, sustaining a positive subscriber growth with 645,000 net adds this quarter. About 97 percent of subscribers are prepaid. “We are adding a nice number of postpaid subscribers every month,” Cu added.

He noted that revenues have started to pick up beginning March and is continuing. “We do not know if this is an election-type of thing. But second quarter will be OK compared to the first quarter,” he said.

Cu, however, emphasized that while traffic has been increasing in a market where subscribers are paying less for the services due to more bucket and unlimited price offerings, Globe has no plans of reducing its capital expenditure budget. “It is a matter of competitive pressure. If the market is dictating it, then it is what should be done,” he said.

Capex on core mobile is at 30 to 50 percent of total, which company officials said is just the right level given the maturity of the mobile business, while a larger percentage is going into growth businesses, such as broadband.

Globe chief finance officer Albert de Larrazabal explained that the whole industry shrank in the second quarter of 2009 but has now stabilized and is even going up since March this year.

Meanwhile, Cu pointed out that they expect the broadband business to increase its contribution to total company revenues more and more over the years.

One such application that can push the broadband business further is the cross over between broadband and mobile, which Cu said, has not come to the Philippines yet.

“With the introduction of smartphones, more and more applications are being built to access mobile phones. It can happen today if the devices become more affordable. More users will be using their mobile phones to browse the Internet, for social networking, and for P2P messaging (Internet messaging) just like what is going on in other countries like the US. The price of mobile broadband usage has gone down, but the prices for the devices are still high,” he noted.