Globe Telecom moves to recover lost ground

MANILA, Philippines – Globe Telecom is moving to recover last ground as it aims to stabilize revenue share in its mobile telephony business, which was adversely affected by the unlimited/bucket pricing promos phenomenon.

Globe president and CEO Ernest Cu noted that the first half of 2010 results were reflective of a maturing mobile industry, continued competitive intensity, and challenges in monetizing usage growth given aggressive pricing.

The company suffered a 30-percent decline in its net income during the six-month period as against the same period last year, while its core net income was also down 25 percent. Consolidated service revenues went down three percent year-on-year, with mobile service revenues nine percent lower compared to last year. Broadband service revenues were up 89 percent, while those of fixed line voice and fixed line data were also up by eight percent and 18 percent, respectively.

Increased volumes of text message sent and voice calls made have not translated into higher volumes for Globe, and the mobile telephony industry in general due to the generally damaging effects which the unlimited and bucket pricing promos have on telcos.

While Globe generated a 50 percent and 100 percent increase in text messaging volume and mobile voice minutes in the first half, respectively, service revenues for both went down, due to the unlimited and bucket pricing promos that have resulted in the price of SMS and voice calls nearing the cost of offering these services, especially on prepaid.

Cu noted that almost all mobile telephone service companies in the world are now experiencing less gains in their traditional mobile telephony business, and more prospects for their broadband business. “The only difference is that the Philippines is the only one that offers unlimited voice/text promos,” he emphasized.

During the first half of 2010, postpaid and TM average revenue per user (ARPU) were up, but blended ARPUs was down due to Globe prepaid.

But he pointed out recovering lost ground will entail additional marketing and subsidy investments in the second half.

He also said there is a need to tighten rein on discretionary costs and capital expenditure to mitigate the softness in revenues. “We also do not expect a significant turnaround in earnings in the second half of 2010,” Cu added.

Globe is spending not more than $500 million for this year’s capital expenditure, of which between 45 – 48 percent will be for upgrading and expansion of its broadband network.

Cu said that while he expects the company to post some gains in terms of market share in the mobile telephony business during the second half of the year, he also anticipates revenues from this part of the business to still remain lower compared to the same period last year.

Globe plans to borrow around $100 million more this year for capex and working capital requirements from local sources. This will be on top of the $130 million which it earlier borrowed. Of the total capex spend this year, about 33 percent will be devoted to Globe’s core mobile telephony business.

He pointed out that during the first six months of 2010, usage of both mobile voice and text messaging were up, but service revenues were down due to the unlimited and bucket pricing promos.

About 90 percent of text messages sent via the Globe network are on unlimited and bucket pricing promos and only 10 percent on the regular service. In the case of voice calls, around 80 percent is now made via these promos.

“We have to continue offering these promos. Everybody is doing it so if we stop, we will be eased out of the market. But inspite of these promos, we’ve held our own. We’ve reported gains in our TM side and Globe postpaid. Our Globe prepaid remains a challenge. But that challenge has always been there for Globe because we have been identified with the high-end and postpaid market. We are continually reinventing our brands and we will have a few more things going in the second half,” Cu said.

But he also noted that the rate of revenue decline has slowed down. While mobile service revenues were down nine percent in the January to June 2010 period as against the same period last year, first half 2010 revenues compared with the second half of last year was only three percent down. Also, second quarter 2010 mobile service revenues were stable quarter-on-quarter.

The mobile business accounts for about 80 percent of Globe’s total service revenues. And of total mobile revenues, voice accounts for half and data/SMS, the other half.

Cu, however, expressed confidence that the growing broadband business will further boost Globe’s revenues in the second half.

“Our other businesses will continue to be there. The content play is always there. We also have our mobile ads, our machine-to-machine communication, GPS tracking. Our mobile microfinancing banking facility just finished its pilot and we are increasing the branch network to add five more in the next six months,” he said.

Globe expects its subscriber base to rebound in the second half of 2010 as the company’s various campaigns aimed at acquiring new subscribers, stimulating usage and rewarding loyal customers bear fruit.

As of end-June 2010, the company’s subscriber base reached 24.6 million, up three percent from the previous quarter’s 23.9 million, on the back of 732,000 net additions in the second quarter. As early as last year, Globe deliberately churned out marginal subscribers and focused acquisition efforts to high-value subscribers.

The postpaid segment, comprising about four percent of Globe’s total subscriber base, capped the first half of the year with 909,466 subscribers, up 3.29 percent from the previous quarter, and eight percent more year-on-year. Meanwhile, the prepaid segment closed the first half with 23.7 million subscribers. TM led the increase in this segment with 10.55 million subscribers, up 5.8 percent quarter-on-quarter and two percent year-on-year.

Globe is also focusing its efforts, not only to further boost its prepaid cellular business, but also to capitalize on the gains being experienced by the broadband side of its business.

While broadband (nomadic, fixed and Tattoo) accounts for only eight percent of revenues, Cu said this can go up to about 10 percent by the end of the year.

Globe’s total broadband subscriber base is now at 930,000 and is expected to reach 1.2 million by yearend.

Globe’s top executive also sees bright prospects for mobile data. “This is why we are recalibrating our device roll-out to respond to the changing habits and usage of mobile phone users. We will be helping the public get into using smartphones, which they can now get for as low as $100 or less than P5,000 per unit. This will encourage them to try out mobile data,” he explained.

Meanwhile, Cu pointed out that Globe’s new , customizable postpaid plans and all-you-can offers are designed to empower subscribers to tailor-fit their plans based on phone usage and lifestyle preferences. “These offers have shown promise in stimulating usage where multi-SIMs are common, and in strengthening brand loyalty. Globe has successful introduced game-changing offers that entice the prepaid market to take a second look at postpaid service today,” he said.

He added that the company’s acquisition strategy has yielded some gains and that they have increased their number of activations and mobile usage this quarter.

Also yesterday, Globe announced that its WiMAX (worldwide interoperability for microwave access) service subscriber base has now reached over 100,000 , making the country’s first WiMAX network now the biggest and fastest-growing network of its kind in the Philippines.

The company expects its WiMAX subscriber base to double by the end of the year.

Globe also has the largest WiMAX deployment in Southeast Asia, where other providers are just starting to rollout their services for the at-home broadband market, company officials noted.

The service is also on track to best Malaysia’s PacketOne, the world’s biggest fixed wireless WiMAX deployment to date.

Globe Broadband marketing head Manny Escosa said they are bullish about WiMAX and its prospects in the country.

“There is a strong demand for a fast, reliable, and stable at-home broadband service, and WiMAX is the service to answer that need. We are continuing to expand our network and also upgrade in areas where we see growth potential,” he added.

WiMAX is a next-generation fixed wireless broadband technology that provides affordable and reliable high-speed in-home Internet service in areas not covered by traditional wired Internet solutions and at speeds much faster than other in-home broadband services.