Capwire in talks with foreign groups for equity infusion

Capwire Wireless Inc. is in the midst of discussions with certain foreign groups for possible equity infusion to finance its bid to ‘redefine its business," amidst declining revenues from international calls and increasing competition.

In an interview with The STAR, Capwire executive vice president and chief operating officer Maureen Santiago disclosed that one of the possibilities that the company is seriously looking at is entering the highly competitive mobile telephone business, a sector currently dominated by Smart Communications and Globe Telecom. "But of course, this will require a lot of money," she said.

The prospective investors, she said, must have both the money and the technology, adding that more and more facilities-based carriers abroad are merging with non-facilities based ones.

The shift to more profitable ventures like broadband, Internet applications, and the cellular phone business, Santiago said, is needed as incomes from international long distance calls are declining. "While the volume of calls have gone up by 20 percent, the revenues have gone down due to the decline in the international accounting rate," she said. For outbound calls, the company is charging around 40 cents a minute as against inbound calls which have dropped from 20 cents to as low as 11 cents.

Among the services currently being offered by the company are international long distance voice services to wholesale and retail customers; reorigination services (hubbing) to more than 200 countries; termination using its own network and its interconnection arrangements with other local carriers; Internet access and value added services like VoIP and web hosting; global frame relay; international leased circuits and private network; international voice and data transmission to Asia; and domestic satellite services.

Capwire’s medium-term strategy focuses on strengthening the data businesses to supplant the decline in revenues of long distance service and is presently testing the provisioning broadband access for data and voice services, being one of the emerging segments of the telecommunications industry.

The company established itself as an international gateway operator in the country sometime in 1994 when the local telecommunications industry was deregulated. It is majority owned by the Santiago family represented by Republic Telecommunications Holdings, Inc. (Retelcom).

It has a close and interdependent relationship with its sister company PT&T which has assumed Capwire’s local exchange (LEC) obligation. However, Capwire still provides the facilities through which PT&T’s international traffic goes through and its satellite operations fills in gaps in PT&T’s terrestrial radio facilities coverage.

Capwire is in the first year of its eight to nine year debt restructuring program involving around P1 billion. Santiago said the first two years will be tight in terms of cash flow but in the next five years ‘internally generated funds’ will be enough. "Thus, if we are going to entertain new investors, it has to be now," she said.

The company has set aside a capital expenditure budget of P150 million this year or even less which will be used to acquire newer generation switches which are cheaper than the traditional ones. However, the amount will increase depending on whether there will be additional funds coming in or not.

"We are expanding based on modules depending on demand and fund availability unlike before when one has to lay down so much capacity only to find out that there no takers," she said.

Santiago also said that they are able to service their debt payments and have also proposed various forms of settlements with other companies to which Capwire is interconnected. "In the case of Smart and Globe, we have already submitted a proposed payment scheme while we are looking at an offsetting arrangement for PLDT," she said.

She likewise considers Capwire a niche player, focusing on corporate customers and offering Internet applicatiions.

As part of the company’s bid to redefine its business, some of the areas that are being looked at are DSL and VOIP (voice over the Internet protocol), as well as specific industries like insurance and small and medium sized businesses.

Santiago also said they are focusing on being a service integrator and offering end-to-end solutions as well as content. Capwire is currently scouting for partners that can provide content for the company.

During fiscal year 2000 ending June 30, Capwire incurred a net loss of P80 million as against P13.89 million in 1999. Its cash flow has, however, increased substantially.