Globe cuts 2009 capex in line with prudent investment stance

Ayala-owned Globe Telecom is reducing its capital expenditure budget next year from this year’s $420 million budget as the company takes on a more prudent view towards investments until such time the market stabilizes.

Globe president and CEO Gerardo Ablaza said in prioritizing the 2009 capex, the spend will be calibrated to developments in both the consumer and credit markets.

Part of Globe’s capex for next year will still be financed via internally generated funds. A portion will also come from the proceeds of the P4 billion to P5 billion retail bond issue in the first quarter of 2009.

In anticipation of tougher times ahead, Ablaza said Globe is undertaking defensive moves to protect its financial position.

These include accelerating the borrowing program for 2009 in order to lock away financing for the year, tightening the monitoring of receivables and working capital, reviewing counterparty risks for money market placements and short-term investments, and prioritizing next year’s capex.

But while next year’s capex will be lower than this year’s, the profile will relatively be the same. Ablaza said there will still be a significant commitment for broadband, mostly in the wireless arena. Globe will likewise continue to spend for WiMax and 3G HSDPA.

Globe is, however, extra cautious about spending for mobile, especially since a large part of its market is vulnerable to the current economic condition. “At the least, we are bringing up capacity to accommodate the growth. It would be imprudent for us to just continue spending when the market is softening,” the Globe CEO said.

Ablaza noted that growth is still expected in the fourth quarter with the holiday spend. However, market uncertainties make even short-term forecasting very challenging, he said. While OFW remittances are still growing, there is a weakness in both consumer and business confidence, requiring a more prudent strategy for next year.

He also revealed that Globe is undertaking several initiatives this year and next year, including increasing the company’s share of mobile spend, significantly growing their broadband subscriber base, tapping new business opportunities, and managing financial risks to include defending Globe’s financial position, managing liquidity and foreign exchange risks.

Globe’s top official likewise disclosed that the company is building broadband momentum.

“Our WiMax is now on air. The rollout is on track and the system is being fine tuned for commercial launch very soon,” Ablaza said. Globe is launching its WiMax service in the first quarter of next year.

He noted that the company’s fixed and wireless broadband business had its highest quarterly net additions during the third quarter of 2008 at 29,000. Total broadband subscriber base for Globe is at 175,000 as of end-September 2008, a 51 percent increase from 116,000 in the same period last year.

As for the mobile phone service business, Globe chief financial officer Delfin Gonzalez noted that churn rates are up year-on-year reflecting a more challenging market environment.

He said those in the lower income bracket are more predisposed to disposing off their SIMs and then buying new ones when their incomes allow. “Thus, we have to drive brand loyalty to hold churn rate to more manageable levels,” he added.

Average revenue per unit (ARPU), meanwhile, has shown a declining trend, driven by increasing multi-SIM usage, lower subscriber activity levels, and continued expansion by Globe into lower income mass markets.

Compared with the third quarter of 2008, however, the first two months of the last quarter are showing signs of improvement. Ablaza revealed that average top-ups for October and November are firming up compared with the third quarter levels. “We are optimistic that we will see some uplift in the fourth quarter,” he said.

From a 70 percent SIM penetration rate to date, Ablaza expects the number to increase to 72 percent by yearend.