A Conversation with the President and CEO

Regulations were at the forefront of the telecommunications industry in 2018. There were many changes driven by the government, including new regulatory policies with the intent of improving services to the public and lowering barriers for the entry of a third player. Some policy changes required Globe to spend money on network and platform updates, such as the new prepaid load validity, which had the highest impact in terms of operations, and product offers.

Even though new regulations have been put in place, there is one fundamental issue that derails good intentions and hinders the delivery of services to consumers: The lack of ICT infrastructure. This affects the quality of internet services in the country, and is largely due to the debilitating permitting process—the single biggest hurdle in building cell sites and rolling out last mile fiber to homes. Currently, an average of 25 permits are needed for a new cell site, a process that takes about eight months to complete. If we are to make consumer benefits inclusive for all, the longest and most critical path of issuing permits must be addressed soon.

With low cell site density and exploding data demand, the industry as a whole is pressed to do massive capital spending. In 2018, Globe spent a record ₱43.3 billion or $821 million in cash capital expenditures (CAPEX), and 77% of which was spent for data-related services. This translates to a CAPEX to revenue ratio of 33%, a record high among operators in the Asia Pacific region. In line with the company’s continued expansion and enhancement of its data network, cash CAPEX is expected to reach ₱63 billion or approximately $1.2 billion in 2019.

Against this landscape, Globe delivered a remarkable year of transformational growth while posting another record financial performance. Globe also received two major international recognitions as Employer of the Year by the International Business Stevie Awards and Asia’s Best Workplace of the Year by the Asia Corporate Excellence and Sustainability (ACES) Awards.

In this interview, Globe President and CEO Ernest L. Cu talks about the company’s relentless drive to push consumers and businesses towards a digital nation.

What made 2018 a record year for Globe?

We are proud of what we achieved in 2018, growing in all aspects of the business—mobile, home broadband, SMEs, and enterprise—ably supported by a robust, intelligent network.

Our strategy remained the same, anchored on providing the best digital experience to our customers. This year, we focused on bringing internet services to more Filipino households through wireless home broadband, creating value through relevant content, improving how we talk to our customers through digital sales and care channels, and constantly improving overall network experience.

Our consolidated service revenues (post-Philippine Financial Reporting Standards or PFRS) hit a new record high of ₱132.9 billion. Excluding the impact of the PFRS 15 adjustments, total consolidated service revenues posted ₱140.2 billion, up 10% year-on-year. Our net income grew by 37% to ₱18.6 billion. We were also able to bring our EBITDA margin to 49% or ₱65.1 billion due to higher revenue and managed cost.

Driving this strong revenue performance once again were our data-related services which now account for 61% of our total service revenues. Mobile Data services, at ₱55.3 billion, contributed 65% of our data-related services. Fixed wireless and wireline broadband services, stood at ₱18.5 billion, accounted for 21%. Corporate data, amounted to ₱11.8 billion, comprised 14%.

As the country’s number one mobile network provider, Globe continued to benefit from the shift towards mobile data, which remained the top contributor to our mobile business, and now accounts for 52% of gross mobile service revenues from 44% a year ago. Heightened consumer spending, leading to higher prepaid top-ups, fueled mobile data traffic from 600 petabytes in 2017 to 956 petabytes in 2018. In comparison, our revenues from mobile voice and mobile SMS were down 6% and 8%, respectively, versus 2017.

Mobile revenues reached ₱99.5 billion on a post-PFRS basis, while pre-PFRS revenues registered at ₱106.9 billion, up 9% from a year ago. From a product perspective, mobile data revenues reached ₱50.8 billion in 2018 on a post-PFRS basis, while pre-PFRS mobile data revenues were higher by 28% versus the ₱43.1 billion reported in 2017.

Our mobile subscriber base totaled 74.1 million as of end-December 2018. While our total home broadband subscriber base reached over 1.6 million, an increase of 24% from 2017, of which around 61% are home wireless subscribers.

Supporting this strong performance are our pervasive 4G/LTE network, and the wide array of content offers, thanks to our partnerships with industry leaders and global content brands.

What major initiatives did you undertake to improve customer experience?

The philosophy of customer first and improving experience as a competitive advantage continues at Globe. Every year, we allocate substantial investments both on IT systems and network. Our quest is to continue to deliver what the Filipinos need in terms of Connectivity.

Some of our major initiatives include the use of artificial intelligence, Big Data, and automation to deliver better customer experience. The use of artificial intelligence and machine learning will further accelerate, delivering real-time and insightful information. Part of the challenge with human-based customer care is variability in the experience. What we are doing is taking all the data we have in our intelligent systems, partnering with a technology provider like Amazon, and infusing more intelligence into the “agent,” which doesn’t always have to be a human being. You could interact via chat with the system and it knows if you have called us up three times, a VIP customer, or have made a dropped call. Based on our algorithms, the system can recommend a product tailor-fitted to your needs. We are also teaching the virtual assistant Alexa to interact in Tagalog-English (Taglish), putting in 1,000 hours of training. We want these things to be as seamless as possible.

How did you extend inclusion in 2018?

At Globe, we look at capacity in terms of bandwidth and speed i.e. more people enjoying higher speeds on the same infrastructure. There are a lot of opportunities to serve households and that’s what we will take advantage of, given the country’s lack of fixed home broadband. Thus, our initial 5G offer will be for home use and this will happen next year.

The second thing that we accelerated this year was the home prepaid WiFi, a first in the Philippine market. Prepaid is still the preferred payment method by a majority of Filipinos. In fact, 96% of our mobile customer base is prepaid, so we don’t see any reason why home broadband would be different.

The advent of financial technology also came through very loudly this year. The GCash proposition finally came into its own and is fast becoming mainstream. GCash now has 15 million registered users and 50,000 merchants accepting QR payments. There are many users who mostly depend on it now. It has a lot of impact because it can transform the Philippines into a cashless society, while exemplifying financial inclusion among the unbanked.

We came out with banking and bank-like products. We made the Know Your Customer (KYC) process much easier through GCash. All new features, such as facial recognition system, make it easy for people to get “banked.” And GCash is broader than banking because with it you’re given a credit score, which you can eventually use when applying for home credit or a new motorcycle loan. The higher your score, the better your risk rating. It also has a record of all your financial transactions—a first in the Philippines for the masses. GCash has the most number of banks you can transfer money to, about 32 banks in total, and is the single biggest place where you can pay your bills. The convenience is unprecedented and it creates real inclusion.

We pursue the creation of quality Filipino content to go global and bring out the best in Filipino artists. Our local film industry is very small, which is unusual for a population of 100 million. We’re trying to support areas of the arts that are under-invested in. We back quality films, taking advantage of our partnerships with global distributors like Netflix, Amazon, and Disney to be able to sell Filipino movies to more audiences. I believe that up until this point, there has been no way to showcase Filipino content in a global manner.

We actually have three platforms for Filipino content going global. There’s Globe Studios, the conduit to reaching Netflix, Amazon Prime, and Disney. It helps fund quality movies that Netflix will buy such as Birdshot, Heneral Luna, and Goyo: Ang Batang Heneral. There’s also music via the Elements Music Camp, a homebase where aspiring singers and Filipino and American professional singer-songwriters/mentors were brought together to create wonderful music that can go global. The Camp produced our first 10 songs. And then there’s fashion through Stylefest PH, mentoring and helping the industry to grow.

What major events or developments do you see emerging in the next 10 years?

One of the most exciting things that telcos all over the world are looking at is 5G technology. This new technology can potentially change the way we live through smart cities and smart homes, and will bring with it a whole new ecosystem of devices, experiences, and innovations. We are launching 5G for the home in the second quarter of 2019. We are on track, and we’ve been ready for some time.

5G technology will push adoption of Internet of Things (IoT), which is seen to become a critical engine for future growth for the telco industry.  Eventually, IoT will be an integral part of life while on the go (wearables, connected cars) and at home (intelligent homes, security, pet monitoring). It will also change the way different industries operate and serve their customers, such as the use of safer and more efficient management of cities, smart grid, and smart metering for power transmission and distribution, asset management, and advanced medicine. Far beyond connecting consumers with the broader universe of connected things, enterprises will also benefit from applications such as connected vehicle fleets, predictive maintenance, factory automation, workforce training, and field support, and countless other examples.

Yet, though a lot are happening at the technology space, Philippine businesses are generally slow to adapt. It’s only now that businesses are considering getting on the cloud, even as Globe has been on it for six years. Some are still wondering if they need cybersecurity. Unfortunately, cybercriminals will always find new ways of intrusion, and early detection is key. We have a six-year program to bring ourselves to global standards in this area, and it’s been a year and a half since we started. This is why I think it’s time for companies to get really serious about cybersecurity, as these threats are not going to stop.

ESports is another area that is poised to be big, and we’re gearing up for the best arena, teams, and promotions to make it happen.

Video is going to be an all-original game. My bet is that more distributors are going to come up with their own. The app is the new channel and the challenge is getting people onto the streaming platform.

What role does Globe play in the Philippines’ digital transformation?

As the leader in mobile, we have a unique ability to lead customers towards digitalization. Beyond using Facebook or social media, we are optimistic that the Philippines can catch up with the rest of the region in terms of ICT adoption especially in areas of great importance like advanced medicine, health and wellness, delivery of basic services, and education. More importantly, digital transformation is relevant not only to consumers and businesses, but to the public sector as well.

Beyond business, how committed is Globe to Environmental, Social, and Governance (ESG) principles?

The Globe purpose, “In everything we do, we treat people right to do a Globe of Good,” speaks a lot about our responsibility to do right by our customers, stakeholders, and environment. As a company, we are actively contributing to the achievement of 10 United Nations Sustainable Development Goals (SDGs). For greater impact, we have aligned our commitments with those of our shareholders—Ayala Corporation and SingTel.

In 2018, we started measuring the impact of our 3 major programs: Global Filipino Schools, Digital Thumbprint Program, and TM Football Para Sa Bayan. We collaborated with the DQ Institute and the Department of Education to measure the digital intelligence quotient of Filipino youth through pilot surveys in public schools around the country. The study will serve as a benchmark of our digital intelligence as a nation.

We invested in a Drug Rehabilitation Facility in Pinamungajan, Cebu City in support of the government’s war against drugs. The facility has a capacity of 106 beds for patients in need of quality treatment and other health-related services. In partnership with Virtualahan, one of  Globe Future Makers Program winners, the facility will provide online training to patients to upgrade their skills, prepare them for employment, and enable them to become productive members of society again.

We continue to reduce our carbon emissions through green energy and efficiency programs. We also conducted sustainable marine biodiversity training to LGUs, students, teachers, and business owners in Boracay, prior to its re-opening, and in Siargao, to increase environmental protection awareness and imbibe island sustainability practices.

We also expanded our support to individuals suffering from depression and assist in suicide prevention through the 24/7 hotlines of KonsultaMD and Hopeline at the National Center for Mental Health.  We also launched the HopeBank facebook community to share messages of hope for encouragement, strength, and inspiration under the campaign #SeeYouTomorrow.

To combat online piracy, Globe became a member of the Asia Video Industry Association (AVIA) and the Coalition Against Piracy (CAP). This strengthened our #PlayItRight advocacy through worldwide sharing of best practices against illicit streaming devices and illegal site blocking.

We ended the year on a high note with recognition from the Guinness World Records for our ka-Globe employees’ active participation in assembling hunger relief packages simultaneously in multiple venues worldwide with Rise Against Hunger.

A Message from
Jaime Augusto Zobel de Ayala

The Chairman reports that 2018 was a milestone year for Globe Telecom despite serious challenges in the regulatory landscape.

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Shifting the focus to sustainable value creation, the 2018 Integrated Report contains information about Globe's strategy, governance, and performance in the context of its external environment and how this creates value.