Leveraging Bayantel’s assets to expand operations-

The telecommunications industry in the Philippines was deregulated in 1995, leading to the creation of various operators for mobile, fixed line, internet and other services. Although the Philippine Long Distance Telecom Company (PLDT) continues to be the country’s dominant fixed line and mobile telecom provider, its role has not gone unchallenged. Globe Telecom, in particular, has been working its way up the ladder, giving strong competition to the incumbent. According to GSMA Intelligence, PLDT’s mobile unit, Smart, had a 59 per cent share while Globe had a 40 per cent share in the Philippines’ telecom industry as of July 2015.

Performance so far

Globe reported a 27 per cent increase in its net profit from PhP 6.8 billion in the half-year ended June 2014 to PhP 8.7 billion in the half-year ended June 2015. This can be attributed to a 13 per cent growth in its revenues from PhP 47.7 billion to PhP 53.8 billion during this period. The revenue growth was driven primarily by subscriber additions in both the mobile and broadband segments and the introduction of new products and services.

Globe’s subscriber base grew by 13 per cent from 42.7 million as of June 2014 to 48.4 million as of June 2015. Further, the operator reported an increase of 55 per cent in its broadband subscriber base from 2.25 million to 3.47 million during the same period.

Globe has emerged as the dominant player in the post-paid market in the Philippines, registering a growth of 8 per cent in its post-paid revenues on a year-on-year basis. The main factor behind this has been the innovative plans offered by the operator such as the mylifestyle plan. The mylifestyle post-paid plan starts at PhP 499 per month and provides built-in unlimited calls and texts to Globe customers as well as free access to services and apps like Google Maps. It also provides 1 GB of cloud storage and anti-theft protection.

Apart from innovative product offerings, Globe has also tried to enhance customer experience by launching Generation3 retail outlets. These stores serve as a venue to introduce the latest products, devices and services offered by Globe. In addition, these stores illustrate new mobile and broadband technologies, apps, digital connector gadgets and services that contribute to the total interactive customer experience. The retail stores are the first in Asia to feature the virtual reality headset, Google Cardboard. Globe has opened four such stores in the country as of August 2015.

PLDT, on the other hand, has reported a 6 per cent decline in profits from PhP 20 billion for the half-year ended June 2014 to PhP 18.75 billion for the half-year ended June 2015. This can be attributed to the fact that there were no significant increases in the operator’s revenues, which remained constant at about PhP 85 billion during the period. Even the subscriber base of the operator remained broadly unchanged at about 68.86 million.

Consolidating market share

Globe’s principal shareholders are Ayala Corporation and Singapore Telecommunications Limited (SingTel). The operator has six wholly owned subsidiaries: Innove Communications (fixed line data and voice services provider), G-Xchange (mobile commerce services provider), Yondu (technology solutions provider), GTI Business Holdings (VoIP services provider), Kickstart Ventures (incubator investment firm) and Asticom Technology (IT services provider). Further, Globe has created a new holding company, Globe Capital Venture Holdings (GCVH). GCVH was incorporated in June 2015 and will manage the operator’s non-core business.

In order to further strengthen its position in the market, Globe has increased its ownership in Bayan Telecommunications (Bayantel). Bayantel is the operating arm of the Bayan Telecommunications Holdings Corporation, which is owned by the Lopez group of companies.

Globe took over most of the debt of cash-strapped Bayantel in 2012. In October 2013, it acquired 38 per cent stake in Bayantel after the company’s rehabilitation plan secured regulatory approval, allowing Globe to convert Bayantel’s debt into common shares. Globe later proposed to convert an additional portion of the $423.3 million debt into equity, increasing its share in Bayantel to 56.6 per cent. This proposal, however, was opposed by PLDT on the grounds that a merger would defeat competition in the telecom industry. Further, PLDT was of the view that Globe’s acquisition of more than 50 per cent of Bayantel would give it 95 MHz of 4G spectrum, which would be grossly disproportionate and would violate the country’s telecom laws.

However, in November 2014, the Philippines’ Court of Appeals affirmed the joint use of 1.8 GHz of spectrum by Globe and Bayantel. In July 2015, the Philippines’ telecom regulator, the National Telecommunication Commission, allowed Globe to gain a controlling interest in Bayantel by acquiring 56.87 per cent of the shares through a debt-to-equity conversion scheme. Finally, Globe has decided to purchase all the equity in the capital stock of Bayantel, increasing its ownership to 98.57 per cent from 56.87 per cent. The purchase involves 70.7 million shares of Bayantel for a consideration of PhP 1.83 billion.

The acquisition of Bayantel will have serious implications for the Philippines’ telecom market. Although smaller than Globe and PLDT, Bayantel is a major telecom company in the capital city of Manila. It has around 200,000 fixed line subscribers. The acquisition will help Globe achieve a better financial position and further improve the quality of its network through the use of additional spectrum originally assigned to Bayantel. This would enable the company to address the increasing demand for voice, short message, and mobile data services, thereby consolidating its position in the market.

Future outlook

While the telecom sector in the Philippines has witnessed considerable investment and business activity since deregulation, the market has continued to fall short of its full potential. The number of telephone subscribers in the country is, however, increasing continuously. The mobile sector has been dominant although broadband data services have gathered momentum only in the recent past.

The market which has been a duopoly for many years is now witnessing the entry of a lot of new operators. Local media company ABS-CBN Corporation is aiming to become the third player in the country’s telecom industry. San Miguel Corporation, too, in April 2015 announced that it was preparing to launch a mobile service by January 2016 through its subsidiary, BellTel. BellTel has already concluded agreements with contractors and suppliers covering the roll-out and operation of a mobile network. BellTel has integrated 197 base stations into its mobile network and received radio licences for 191. The increased competition in the otherwise highly concentrated market would increase the choices for customers and would also drive down prices. This would also put pressure on the existing players to initiate measures to hold and increase their market shares.

Globe Telecom has established leadership in the Philippines’ mobile industry on multiple business fronts. The acquisition of Bayantel has given a further boost to its position. However, the operator needs to continuously evolve and innovate, given the changing market dynamics and the fact that PLDT is also preparing to ramp up investments to defend its leading position.