INTERVIEW: Globe Telecom president and CEO Ernest Cu talked to Mobile World Live about its move to restrain debt after a capex binge, why he is not sold on the benefits of 5G in the Philippines and how to encourage customers to use more data.
Cu believes the competitive environment in the country, despite the entrance of Dito Telecommunity as the third player, “is quite benign and the signalling we [Globe and Smart] are giving each other has been quite effective”, with each content with respective market share.
The two incumbents are more interested in fixing their balance sheets and improving margins, and that has been showing, he argued.
While ARPU edged up marginally recently, Cu argues tariff growth will remain tepid due to global conflicts and high inflation. “If it grows a few percentage points, we’d be very happy.”
The operator’s ARPU challenges are the same faced by most operators around the world. What are the new use cases that will drive ARPU?
“When 4G was introduced, we had so many use cases customers could latch on to that drove up usage of data. Now with 5G, which is a fantastic piece of technology, there is no use case that needs 5G, particularly in developing markets.”
The CEO insists its biggest challenge is to find ways for users to consume more data. While the market is moving up in terms of the average number of gigabytes used per month, he said “I don’t think it’s moving fast enough. We’ve got to be able to find something that people need that will push them, first to move to 5G handsets.”
Looking back, he noted the industry was trying to get the data rates up to be able to satisfy the use case. “Now it’s the other way around.”
Capex surge
He explained the catalyst behind a sharp jump in capex in 2021 and 2022, when the outlay hit $1.7 billion and $1.9 billion, respectively. The splurge was driven by the government’s move to simplify the process for securing permits to building base stations, which had slowed deployments in the past.
“We really did spike capex on purpose. We took the chance to build out the network given the executive order was for a two-year period,” he stated. Fortunately, the order has been extended by the current president.
The result was it built significant 4G capacity and 5G coverage in major urban areas, with user penetration of the new technology in the low- to mid-teens, at the cost of driving up debt, which impacted its share price.
In late 2022, the operator “recalibrated that spend” and set a plan to become free cash flow positive on an overall basis by 2025.
With network capacity at a level where customers are happy with the experience, and no pressure to scale up 5G at this time, he said the objective is to bring down capex sharply. It earmarked $1 billion in capex in 2024, down from $1.2 billion the previous years, and $600 million in 2025.
Open Gateway
Globe has always been a strong believer in APIs, Cu declared. “Standardisation is the way to go, and that’s why we’re well behind” the GSMA Open Gateway initiative. The operator formally joined the group this week.
The initiative will be critical and make the implementation of various digital services a lot easier than doing bilateral deals or integrating to various APIs, he added.
Cu is excited about prospects of its fintech business, noting he spends quite a bit of time working on that.
Last month, he outlined plans to diversify revenue streams, using its fintech experience to move into new sectors. He believes its distribution and marketing assets combined with the digital skills it has built up over the past few years can be redeployed into new areas to support Filipino consumers, with health services being an obvious choice.
Another promising area is data centres, with the central location of the Philippines making it an attractive option. Due to geopolitical concerns, Cu said Hong Kong has been ruled out as a hub for hyperscalers as well as new international cable landings, which has been a boon for Globe.
It is partnering with ST Telemedia Global Data Centres to build a 124MW data centre in the Philippines after forming a joint venture with the Singapore-based company in 2021. The first 30MW facility is scheduled to come online in the first half of 2025.
He pointed out while Globe is not a developer of technology, “we’re great at using technology and applying it to everyday problems”.
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