The Ilongga Optimist

On a sequential basis, consolidated EBITDA was steady against second quarter’s level of about P9.0 billion. The 3% growth in consolidated service revenues offset the 5% rise in operating expenses and subsidy. Net income after tax was at around P2.5 billion, with the quarter-on-quarter increase in depreciation expense offsetting the improvement in non-operating charges.

Globe Tattoo also recently upgraded its service offerings with the New Tattoo 4G Postpaid which now comes at faster speeds and better and sleek sticks for the same affordable price. Supported by the continued rollout of its 4G network via HSPA+, Globe now offers Plan999 at an increased speed of 5 mbps, up from its original 3 mbps. Browsing speeds for Plan1299 and Plan2199 are also upgraded from 5 mbps to 7 mbps and from 10 mbps to 12 mbps, respectively. For the on- the-go Tattoo Prepaid service, the mobile broadband kit is now made more affordable at only P995 and comes with a 7-day, all-day, surf-all-you-want access to four most frequented websites such as Yahoo! Mail, Facebook, Twitter, and YouTube for every purchase of the prepaid broadband kit.

Globe also marked another milestone in the third quarter when it launched the newest customizable plans from Globe Tattoo At-Home. Subscribers now have the option of getting a speed boost of up to 1 mbps at a time that best suit their needs. The add-on speed service comes in three denominations: P250 per month for extra speed during the day (10 am - 2 pm), P200 permonth for additional speed at night (10 pm - 2 am), and P150 per month for speed boost from 2 am to 6 am. Aside from adding speed, subscribers who choose the data plus landline service can also customize their plans with landline voice add-ons. Subscribers can choose from useful features such as call forwarding, call waiting, 3-way calling or caller ID which are available for an additional charge of as low as P55 per month.

To complement the country’s first fully functional cloud computing service,Infrastructure as a Service (IaaS), Globe expanded its offering to include Machine-to-Machine (M2M) services for fixed asset management that allow clients to closely track fixed asset location and better manage their operations. In addition, Globe completed its core data network upgrade to ROADM (or Reconfigurable Optical Add-Drop Multiplexer) to support increasing bandwidth demand, thereby making Globe the first carrier in the country to deploy ROADM as well as 40G optical links over its Broadband Access Service Network (BAX).

The third quarter also saw the launch of new mobile phones and tablet devices, with some made exclusive to Globe. This includes CloudFone Ice, the most affordable Android phone in the market today, and the Apple™ iPad 2. The Company continues to enjoy exclusivity on Apple devices, owing to the quality and size of its postpaid subscriber base.

Finally, to further refresh the Globe Prepaid brand, the Company recently launched a campaign that aims to support the Filipino youth as they chase their dreams and live in the moment. Globe Prepaid’s “Go lang nang Go” campaign empowers the young to embrace freedom and seize the day to do things that bring them joy. The campaign encourages them to make their “Today I Will” statements aided by the brand’s suite of products and services. A key focus of the drive is protecting one’s self, best exemplified by Globe’s“LoadWatch” feature that provides timely and automated updates to subscribers on their promo balances. With the regular updates, subscribersare able to keep track of their usage without having to worry about losing or forfeiting load credits.

3Q 2011 FINANCIAL SUMMARY 

• Consolidated service revenues as of end-September surpassed last year’s level by 9% from P45.8 billion to almost P50.0 billion. The mobile business sustained its growth momentum by delivering a 7% revenue increase year-on-year despite intense competition, peaking penetration levels, and aggressive pricing and value offers. The fixed line and broadband business also posted 16% revenue growth against last year fueled still by the rising demand for internet connectivity. 
• On a sequential basis, the Company registered its best quarter performance yet with consolidated service revenues posting an all-time high of nearly P17.0 billion in the third quarter, 3% better than prior quarter’s record high of P16.6 billion, and going against what is traditionally a lean season. The mobile business continued to pick up, underpinned by the success of the innovative service offerings as well as better subscriber acquisition. Consolidated revenue growth was also supported by the sustained expansion of the broadband business particularly by Tattoo On-The-Go offerings. 
• Operating expenses and subsidy rose 9% as of end-September from P21.0 billion last year to about P23.0 billion. The year-on-year growth in expenses was mainly due to higher marketing and subsidy, provisions, utilities and staff costs. Growth in network-related expenses such as electricity, fuel, contracted services, and maintenance were driven largely by an expanded 2G, 3G and broadband networks. Marketing and subsidy expenses, on the other hand, were 19% higher year-on-year as a result of the aggressive acquisition campaigns, investments in brand-building, higher handset subsidies, and to support the product and service launches in the mobile business. This brought the ratio of marketing and subsidy to service revenues to 9% this period, up against last year’s level of 8%. Compared to last quarter, operating expenses and subsidy also increased by 5% mainly on higher marketing and subsidy expenses. 
• Consolidated EBITDA rose 9% as of end-September to P27.0 billion from P24.8 billion a year ago with revenue growth outpacing the overall rise in costs and expenses. This brought consolidated EBITDA margin to the same level as last year of 54% of service revenues. Higher EBITDA also helped offset the 4% increase in depreciation charges brought about by the sustained investments in the broadband and mobile networks. This resulted to a 15% increase in EBIT from P11.5 billion last year to P13.3 billion this period. Compared to the second quarter, however, the 3% increase in consolidated service revenues was offset by the 5% rise in operating expenses and subsidy. As a result, consolidated EBITDA was steady against second quarter’s level, while EBITDA margin dropped by a percentage point from 54% to 53% in the third quarter. 
• Consolidated net income after tax closed at nearly P8.0 billion as of end-September, 7% higher than last year’s level of P7.4 billion. Excluding foreign exchange and mark-to-market gains and losses as well as non-recurring items, core net income after tax stood close to P8.2 billion, 15% over last year’s P7.1 billion. On a sequential basis, net income in the third quarter declined by 1% as the topline growth was weighed down by the increase in marketing and depreciation charges. 
• Total capital expenditures at the end of the first three quarters reached nearly P13.9 billion, driven by the continued investments in the Company’s broadband and mobile networks, and were lower than last year’s spending of about P15.8 billion. The Company has allotted a significant portion of this year’s US$500Mn projected capex spend towards the expansion and upgrading of the Company’s mobile networks specifically on deploying 4G mobile technology and utilizing the global standard HSPA+ in key areas in nationwide. As of end- September, Globe has a total of 12,062 base stations and 6,580 cell sites to support its 2G, 3G and WiMAX services. 

MOBILE BUSINESS

Mobile data revenues rose in the third quarter to P7.0 billion compared to the previous period’s P6.9 billion with the continued growth in unlimited SMS revenues and the growing popularity of mobile browsing services. Mobile data accounted for 52% of total mobile service revenues and grew by 11% from P18.8 billion last year to P20.8 billion at the end of the first nine months ofthis year following the success of the Company’s bucket and unlimited offers and affordable data plans.

Mobile voice revenues, which comprised 48% of total mobiles service revenues, increased by 4% from P18.2 billion a year ago to P18.9 billion this period. Unlimited and bulk voice subscriptions drove the year-on-year increase in revenues, but growth was partly weighed down by the decline in IDD and roaming services. Compared to last quarter, growth trend was sustained by unlimited voice and VOIP subscriptions.

The Company’s total mobile subscriber base exceeded 29.1 million at the end of the first three quarters, 15% and 2% higher than last year and last quarter, respectively. 

Subscriber acquisitions continued to outpace last year by 5% from 16.2 million to about 17.1 million this period following aggressive campaigns from all brands. With churn rate improving from about 6.4% last year to 5.8% this period, net subscriber additions as of end-September increased by 23% to over 2.6 million from about 2.2 million last year. With peaking penetrationlevels, heightened multi-SIM incidence, and intense competition, subscriber acquisition decelerated this quarter to 5.7 million gross additions, 3% lower than second quarter’s 5.9 million. Blended churn rate went up from 5.7% to 5.8%, bringing net incremental subscribers to around 684,000 in the third quarter, 39% below last quarter’s over 1.1 million. 

FIXED LINE AND BROADBAND BUSINESS 

Globe’s broadband business ended the period with over 1,360,000 subscribers, 35% higher than the prior year’s level when the company breached the 1 million subscriber mark. This was driven by the sustained subscriber gains in Tattoo On-the-Go, the Company’s nomadic broadbandservice, and in Tattoo WiMAX, Globe’s fixed wireless service for at-home use. Wireless broadband subscribers now account for 79% of total broadband customers, up from 76% last year.

The continued subscriber gains translated to an increase in revenues, with broadband service revenues increasing by 35% to close the period at P5.6 billion compared to last year’s P4.1 billion. The broadband business now comprises 11% of consolidated service revenues compared to 9% last year. 

GLOBE ANNOUNCES NETWORK MODERNIZATION AND
IT TRANSFORMATION PROGRAM;
COMPANY TO INVEST US$790 MILLION;
SELECTS HUAWEI AS TECHNOLOGY PARTNER AND AMENDS DIVIDEND POLICY TO BE AT 75% TO 90% OF CORE NET INCOME TO EXCLUDE NON-RECURRING CHARGES RELATED TO TRANSFORMATION INITIATIVES

Globe Telecom, Inc. is pleased to announce that it will undertake a landmark mobile network modernization program over the next two to three years.  The massive network upgrade is aimed at significantly improving network quality and customer experience, increase capacity, drive down costs, as well as prepare the network to meet the needs of customers today and in the future.  Given the growing demand for bandwidth-heavy services, the modernization program will bring significant improvements to network capacity leading to improved reliability, ease of access and pervasive coverage.  For the Company, this transformation effort will enable improved revenue growth prospects, savings in capital spend and operating expenses, as well as efficiencies resulting from synergies with a dedicated vendor partner.  By adopting the latest technologies available today, Globe will be in a better position to provide the needs of its customers, secure and enhance its position in this highly competitive market.

The Company is at the same time initiating an IT transformation project to create a streamlined and integrated information environment, in response to changing market and business demands.  The system transformation effort is a comprehensive re-engineering of Globe Telecom’s IT systems over the next two years.  This will result in convergent billings and more innovative product development, faster response to customer queries and service requests by our stores and call centers.  The endeavor will result in quicker time-to-market for new products that adapt to changing customer needs, and timely customer loyalty offers enabled by enhancements in customer segmentation and usage monitoring.

The Company is tapping external partners to help manage the modernization efforts.  After thorough evaluation and extensive deliberations of vendor proposals, the Company has awarded the network modernization to Huawei given its technical expertise and strong track record of success.  Globe Telecom expects to realize additional synergies with Huawei in establishing a Joint Innovation Center (JIC) that would bring the latest technological developments and help address the Company’s customization needs.  Through the JIC, Globe will be able to learn network best practices and tap into the latest developments of the 17 research and development centers that Huawei has around the world. The Company expects to sign the definitive agreements with Huawei in the coming days.

For the IT systems upgrade, Globe has selected Amdocs as technology partner, given its extensive experience in business process transformation and access to leading edge technology.  Globe expects to complete the definitive agreement with Amdocs by the first quarter of 2012. “Amdocs has delivered some of the industry’s most complex transformation projects to some of the largest players in the world, and we are excited to be able to draw on this experience for Globe,” said Eli Gelman, Amdocs’ chief executive officer.  “This strategic transformation project significantly expands Amdocs and Globe Telecom’s relationship to support the mission critical operations of Globe.  Our ability to deliver innovative and partner technology will be key to enable Globe to deliver service innovation to their nearly 30 million customers and establish operations that can support rapid growth.”

Globe will invest around US$700 million in the next five years to support the network modernization project, and another US$90 million to complete the IT transformation initiative.  This will be the biggest and most significant investment that the Company has undertaken in the past two decades.  The Company targets completion of the two projects over a period of 24 – 36 months.

The Company also announced that it will change its dividend pay-out policy to be at 75% to 90% of prior year’s core net income instead of reported net income.  This will ensure that dividends will remain sustainable and yields competitive. The dividend policy change will take effect with the 2012 dividends, based on 2011 core net income.

The network and IT transformation programs are expected to generate savings in operating expenses and capital expenditures totaling to US$180 million and US$210 million respectively over the next five years, in addition to the revenue uplift driven by the network quality improvements and increased capacity.  Since it will involve replacing network equipment and IT systems, the Company expects that assets with net book values estimated at US$388 million will need to be decommissioned after modernization.  This estimate is before any possible proceeds from resale and is still subject to actual site validation.  All efforts will be taken to maximize the re-use of the existing equipment.

The net book values of these non-useable assets will impact Globe’s profitability through an acceleration of depreciation over its remaining useful life until such time when the new, replacement capex is ready for service.  Owing to its exceptional and non-recurring nature, this accelerated depreciation will not be considered in the determination of core net income.  It will likewise not compromise cash flows nor the Company’s ability to declare dividends.

Network Modernization Program

The main objectives and benefits of the modernization program are:

1. Significantly improve network quality, reliability, and customer experience – The network transformation will result in dramatic improvements in network performance, translating to enhanced voice connection and quality, quicker delivery for SMS, better 3G coverage, and increased network resiliency to reduce network outages.

2. Increase voice and data capacity – Upgrading the network will also prepare the Company for the expected growth in voice and data traffic.  Over the next five years, the Company is expecting a three- to ten-fold increase in voice and data throughput. This modernization program will provide the capabilities to accommodate higher volumes of voice, SMS, and data traffic resulting from a growing subscriber base and shifting user preferences.

3. Reduce total cost of ownership – The project will also help lower the overall cost of delivering wireless services to Globe customers with the introduction of newer and more power-efficient equipment.  Globe will also increase the use of ‘green’ solutions to be more environmentally responsible. The Company expects to generate opex savings of about US$170 million over the next five years from reduced power usage, efficiencies from increased fiber optic use, and lower maintenance costs.  Finally, the Company expects to save approximately US$200 million in capital expenditures when compared to an incremental build effort, stemming from the economies of scale of this modernization initiative with a single vendor.

4. Future-proof network – The network modernization will give Globe the capability to upgrade to more advanced technologies such as LTE (long-term evolution), and shift to more flexible radio systems and an all-IP architecture.  The use of fiber optics will be raised by 50% which will significantly increase capacity.

IT Transformation Program

The IT transformation program, on the other hand, is centered on enhancing business support systems to improve customer experience, strengthen Globe’s product design & development capabilities, and reduce total cost of ownership. The envisioned standards-based IT architecture is robust, scalable, and flexible, allowing Globe to quickly respond to future business requirements. Over the next five years, Globe expects to generate opex savings of about US$10 million from lower hardware and software maintenance costs, and another US$10 million from lower capital expenditures as a result of this initiative.

Significant improvements in customer experience are expected once the new system is implemented. Some of the envisioned results are faster response time to customer queries and service requests by Globe Stores and call centers through integrated front-end applications, quicker time-to-market for new products, timely customer loyalty offers enabled by enhancements in customer segmentation and usage monitoring.

“Our network and IT modernization programs are key initiatives in transforming Globe into a customer-centric company, differentiated by superior customer experience” Ernest L. Cu, President and CEO of Globe Telecom, Inc. said.  “As we execute our programs, we will aim for a seamless transition in order to extend our gains and strengthen our position in this intensely competitive market,” added Cu.

About Globe

Globe is a leading full service telecommunications company in the Philippines, serving the needs of consumers and businesses across an entire suite of products and services including mobile, fixed, broadband, data connections, internet and managed services.  Its principals are Ayala Corporation and Singapore Telecom who are acknowledged industry leaders in the country and in the region.  For more information, visit www.globe.com.ph.

About Huawei

Huawei is a leading global information and communications technology (ICT) solutions provider.  Through our dedication to customer-centric innovation and strong partnerships, we have established end-to-end advantages in telecom networks, devices and cloud computing.  We are committed to creating maximum value for telecom operators, enterprises and consumers by providing competitive solutions and services.  Our products and solutions have been deployed in over 140 countries, serving more than one third of the world’s population.

Huawei’s vision is to enrich life through communication.  By leveraging our experience and expertise in the ICT sector, we help bridge the digital divide by providing opportunities to enjoy broadband services, regardless of geographic location.  Contributing to the sustainable development of the society, economy, and the environment, Huawei creates green solutions that enable customers to reduce power consumption, carbon emissions and resource costs.

About Amdocs

Amdocs is the market leader in customer experience systems innovation.  The company combines business and operational support systems, service delivery platforms, proven services and deep industry expertise to enable service providers and their customers to do more in the connected world.  Amdocs’ offerings help service providers explore new business models, differentiate through personalized customer experiences and streamline operations.  A global company with revenue of approximately $3.0 billion in fiscal 2010, Amdocs has over 19,000 employees and serves customers in more than 60 countries worldwide, including AT&T, Sprint, Bell Canada, T-Mobile and Vodafone.  Amdocs has been operating in Asia-Pacific for more than 12 years and has offices in Vietnam, Singapore, India, Australia and New Zealand.  A selection of Amdocs’ Asia-Pacific customers include Globe, VTN (Vietnam), Telstra (Australia), VSNL (India), CSL (Hong Kong), True Corporation (Thailand) and FarEasTone (Taiwan).  For more information, visit Amdocs at www.amdocs.com.

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