Business ReviewTelecommunications
Message from the Company President Globe Telecom ended 2010 with a strong fourth quarter performance, which was the highest in the company’s history. This was highlighted by record postpaid revenue and subscriber additions of our core mobile business. Our prepaid brands improved across all key metrics, increasing in top-up and usage levels. Counterbalancing the maturing mobile business was our broadband and corporate data businesses, which continued to grow at an impressive rate.
This strong performance was a result of initiatives that instilled a more service-centric mindset as well as the execution of strategicimperatives and programs throughout 2010.
To recover revenue market share and grow our mobile telephony business, we revitalized the Globe Prepaid brand, and sustainedthe growth of TM and Globe Postpaid. We enhanced the appeal of our product promos such as SuperAllTxt 20, SuperUnli and TM UnliCombo, increased their accessibility, and improved the way our brands’ propositions were communicated to their respective target markets. We intensified product promotions by shortening product development cycles and got products out to marketfaster. We were thus able to grow our active subscr iber base, reduce churn, and gain share of wallet even amidst the challenge of a multi-SIM environment.
For our postpaid subscribers, we launched My Super Plan and My Fully Loaded Plan, the first and only personalized plans inthe market, giving subscribers the power to pick and choose the services that are most relevant to them, and to change their plan choices every month. With the ever-increasing popularity and convenience of mobile internet surfing, we also introduced various mobile surfing promos, and add-on data plans for both personal and corporate Blackberry users to drive usage among our smartphone subscribers. Finally, last September, we introduced the Apple iPhone 4 to the market. This has been our biggest and most successful device launch ever, with ongoing demand outpacing supply.
With our intent to provide a unique customer shopping experience with a differentiated level of custome service, we opened our flagship store in Greenbelt 4 in Makati last June. This full-service outlet is a one-stop-shop for our mobile, broadband, and landline customers. The new format aims to transform our store front from being essentially an after-sales payment center, to one that comprehensively attends to our customers’ needs.
To ensure an end-to-end consistency of our customer service, we also introduced more ways for customers to get real-time support through Talk2Globe via Twitter to complement our 24/7 on-line chat service, Globe Chat Assist. We also recently improved our Hotline Interactive Voice Response system to simplify the call flow. Callers are now greeted by a new set of options that is clearer and allows faster assistance. Moreover, we upgraded our outsourced call center providers to ensure a higher level of service.
In recognition of our subscribers’ loyalty to Globe and also to reduce churn, we launched My Rewards, My Globe, the industry’s first rewards program for loyal prepaid and postpaid customers. Our customers earn points based on tenure, reload, and usage profile, which can then be used to redeem rewards.
To ensure better availability of our products and services, we strengthened our distribution set-up to enhance the focus of our distributors in developing their respective territories, and to improve their profitability. We also modified our sales force structures to ensure that our sales teams are properly sized, trained, and incentivized for performance. Last March, we launched the country’s first loyalty club for telco retailers. The KaGlobe Retailer Club entitles qualified Globe AMAX retailers to various freebies and discounts from top merchants nationwide, in recognition of their outstanding sales performance.
With the proliferation of unlimited and bucket offers and the increase in voice and data traffic, we continued to upgrade and modernize our mobile networks to improve our network quality metrics. Simultaneous to the measurement of our network metrics, we also conducted customer surveys to know and improve our customers’ experience.
On broadband, we continued our coverage builds and quality upgrades, while pursuing various revenue enhancing and costreduction initiatives to maximize utilization of existing capacities. The objective is to improve the profitability of the broadband business across all technologies.
A critical part of our transformation was the reiteration of our vision and mission which we now call as The Globe Way. This is the root of our transformation initiatives because it encompasses everything we want to be as an institution, and how we will remain relevant to our customers now and in the future. The Globe Way serves as our guide in building that unique culture that pushes us forward as one team, and makes us all proud to be in Globe.
Cognizant of our role in nation-building, we continue to be proactive in our corporate social responsibility and sustainability initiatives through Globe BridgeCom in such fields as education, environmental conservation and sustainability, micro-entrepreneurship, healthcare services and democratizing technology.
Related to democratizing technology, the Philippine Government now uses Globe’s GCash Remit mobile money transfer service to disburse funds to families in remote areas under the government’s Conditional Cash Transfer Program, which is a key component of the government’s poverty alleviation agenda. Through GCash Remit, families in remote areas now collect their cash assistance immediately, in line with our vision to provide financial services to the unbanked and underbanked markets.
Through mobile and internet technology-enabled programs, our efforts to leverage our core businesses to advance the social and economic conditions in communities where we operate not only create value for our shareholders but for the broader community.
Going forward, our key priorities for our consumer business will continue to revolve around unique product offers that will drive usage and increase our share of spend among multi-SIM users, differentiate customer service, and improve network quality experience for our subscribers.
For broadband, our primary goal is to increase the scale of the business, lower churn through an improved network, drive higher ARPUs through more cross-selling, and lower costs through process re-engineering and better operating models. We will be selective in new capacity builds for broadband, putting greater emphasis on maximizing utilization of existing capacities.
Meanwhile, for our corporate data business, we aim to sustain the double-digit growth of that segment through customized, valueadding solutions, competitive pricing, and continued engagement with our enterprise partners.
Though our strong fourth quarter results provide good momentum, we see no let-up in the competitive intensity in 2011. Aggressive unlimited and bucket service pricing will continue to drive yields down and erode margins. Traffic will continue to grow but will not create a significant uplift in revenues, similar to what we see today. Competition remains very formidable, and will be made even more challenging with the expected entry of a fourth player. The broadband industry, meanwhile, will not grow as fast due to increasing market penetration.
Moving forward, count on Globe to keep a customer-centric focus, maintain the challenger mindset as we grow market share, and to consistently deliver attractive returns and value for our stakeholders.
ERNEST L. CU President and CEO OPERATIONS REVIEW
Globe Telecom Inc. ended 2010 with consolidated service revenues of P62.6 billion, slightly higher than last year’s P62.4 billion. This year’s results include the impact of a one-time, upward adjustment of P526 million representing prepaid load credits that have either expired or have already been used up. Excluding this upward adjustment, consolidated service revenues for 2010 would have been P62 billion, just slightly below last year’s level. The company’s fixed line and broadband business continued to show strong growth, with service revenues rising 32% from last year. Mobile revenues, on the other hand, declined 5% from last year given the intense price competition in the market, the market’s shift towards unlimited and value offers, and the impact of the strong peso on US-dollar-linked revenues.
Globe’s broadband business achieved a milestone when it hit 1.1 million subscribers by year-end from only about 715,000 in 2009. This enabled the business to post record high revenues of P5.7 billion during the period, 75% higher than prior year’s level. Meanwhile, revenues from the company’s fixed line data business rose 15% as it continued to benefit from the strong demand from the offshoring and outsourcing industry as well as the trade, retail, and services sectors.
With the growth of operating expenses outpacing the rise in revenues, consolidated EBITDA declined by 8% from P36.5 billion in 2009 to P33.5 billion in 2010. Mobile margins remained healthy at 63%, but the fast-growing albeit lower-margin fixed line and broadband business diluted consolidated EBITDA margin to 54% compared to prior year’s 58%. Coupled with higher depreciation charges arising from the company’s continued expansion of its mobile and broadband networks, full year net income declined by 22% to P9.7 billion from last year’s P12.6 billion. Excluding foreign exchange and mark-to-market gains and losses, as well as non-recurring items, core net income stood at P9.1 billion compared to prior year’s P12.0 billion. Capital spending amounted to P19.5 billion in 2010. This included investments to upgrade and modernize the mobile and broadband networks, increase capacities to meet the surge in traffic as well as improve the company’s customer service capabilities. At the end of the year, Globe had a total of 11,660 base stations and 6,698 cell sites to support its 2G, 3G and WiMAX services. Globe’s balance sheet remains strong. Its leverage profile remains conservative with well spread-out maturities and gearing levels well within debt covenants. Gross debt-to-equity ratio of 1.07 and debt-to-EBITDA ratio of 1.5 were in line with targets.
The strong financial position enabled Globe to support capital and operating investment requirements while sustaining its dividend payout to shareholders. During the year, Globe paid out a total of P10.6 billion in regular cash dividends, equivalent to 84% of 2009’s net income and in line with its regular payout policy of distributing 75% to 90% of prior year’s net income.
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In order to stay competitive, Globe introduced innovative and pioneering services for its postpaid and prepaid customers. The company’s breakthrough offerings, My Super Plan and My Fully Loaded Plan, which allow subscribers to customize their plans, have both contributed to the surge in Globe’s postpaid clients. Full year net additions were at a record high with about 215,000 new subscribers in 2010, bringing total postpaid subscribers to nearly 1.1 million. The company revitalized its prepaid brands by offering a range of bucket and all-you-can voice and data services. Combined with the clean-up of lower-quality subscribers, these efforts translated to net subscriber gains for both Globe Prepaid and TM which closed the year with a SIM base of 13.8 million and 11.6 million, respectively. As a result, Globe’s cumulative mobile subscriber base surpassed last year’s mark of 23.2 million by 14% to end the period with 26.5 million SIMs.