GLOBE Telecom, Inc. has committed to invest a total of $790 million for the planned network modernization program, its biggest and most significant investment yet.
For its 29.1 million subscribers as of September this year, the ambitious project means they get to experience very soon a “dramatic improvement” in terms of network quality.
“We will build a modernized, scalable and future-proof network that is responsible to the future needs of our customers,” said President Ernest Cu in a press briefing yesterday.
When asked to provide details on improvements that are expected to happen, Cu said, “There will be minimal dropped calls, customers will experience first-time success rate, minimal delay in the delivery of SMS [short message service] delays, and overall more pervasive 3G coverage as well as faster coverage performance.”
The network modernization program will immediately start rollout next month starting in Davao and progressively toward 2012, said Cu, who added that in other areas the improvement will be felt “by May or June next year.
Other improvements include increased speed in mobile browsing, with minimal to no buffering of multimedia content streaming on mobile phones; consistent quality of experience even during extreme weather disturbances; and substantial network capacity in the next five years for both voice and data traffic.
The massive replanning of Globe’s entire network will position the cellular firm as “a very strong second worthy of competition. We want to be an even stronger challenger to a larger competitor,” stressed Cu.
Of the entire investment, Globe is investing around $700 million in the next five years to support the network modernization project, and another $90 million to complete the IT transformation initiative. The company targets completion of the two projects over a period of 24 to 36 months.
Globe chief financial officer Albert de Larrazabal said about 80 percent of the $790 million will be spent in the first two years: $530 million in 2012 and $110 million in 2013.
The cellular firm is looking to borrow $590 million between 2012 and 2013 to support this ambitious modernization project. De Larrazabal said Globe will raise $200 million to $250 million from offshore market in the first up to the second quarter of next year. The remaining $340 million will be from local market.
There are ongoing discussions with banks and financial institutions. Also, vendor-arranged financing is also being explored. “We are blanketing the financial sector to see what offers are out there. We will close a few bilateral peso loan first then start with the retail and dollar bonds,” said de Larrazabal.
The network and IT transformation programs are expected to generate savings in operating expenses and capital expenditures, totaling to $180 million and $210 million respectively over the next five years.
De Larrazabal said that since the project will involve replacing network equipment and IT systems, Globe will decommission some assets worth $388 million after modernization, with rising depreciation charges over the remaining life of the assets likely to impact its profitability.
“The effect would be up to 40 percent of the $388-million cost of decommissioning which would be booked next year. That’s close to $170 million that will be provisioned,” he said.
This capital intensive program is going to weigh down Globe’s profit. Cu said some of the financial implications of the company’s transformation initiatives include lower near-term profits from non-cash, accelerated depreciation of non-usable assets.
Cu said the cellular firm’s income will definitely be affected at the onset of the second quarter of 2012 until the next two to three years. “We are not envisioning to incur a loss but there will be a reduction. The potential impact will be felt most likely in the first year,” Cu added.
At end-September, Globe’s net income stood at P7.994 billion, up 7 percent from P7.4 billion in the same period last year. It’s core profit also increased to P8.176 billion or 15 percent higher than the P7.1 billion it posted in September 2010.
On a sequential basis, net income in the third quarter declined by 1 percent to P2.495 billion as top-line growth was weighed down by the increase in marketing and depreciation charges.
Globe is tapping external partners to help manage modernization efforts. It has awarded the network modernization to Huawei. For the IT systems upgrade, Globe has selected Amdocs as technology partner.
The company also announced that it will change its dividend payout policy to be at 75 percent to 90 percent of prior year’s core net income instead of reported net income. This will ensure that dividends will remain sustainable and yields competitive, said de Larrazabal.
The dividend policy change will take effect with the 2012 dividends, based on 2011 core net income.
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By: Lenie Lectura
Source: Business Mirror, Nov. 9, 2011
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