Jeremiah F. de Guzman
Globe Telecom Inc. will invest $790 million to upgrade its network and technology systems to expand coverage and cut costs as market leader Philippine Long Distance Telephone Co. turns to acquisitions for growth.
“We want to be an even stronger challenger to a larger competitor,” Globe president and chief executive Ernest Cu said in a press briefing Wednesday. “We will be second for a while but we will be a strong second worthy of competition.”
The venture of Singapore Telecommunications Ltd. and Ayala Corp. will spend $700 million in the next five years on its network and $90 million on information technology systems over a two-year period, Globe said. The investment will generate savings of about $390 million in operating expenses and capital spending in the next five years, it said.
“After the program, there will be minimal dropped calls, delayed SMS and overall, a more pervasive 3G coverage,” Cu said.
The company is making its “biggest and most significant investment” in two decades to meet an expected increase in voice and data demand and to counter competition from PLDT, which bought Digital Telecommunications Philippines Inc. last month. Globe will also increase capital spending by about 60 percent to almost $800 million in 2012, chief financial officer Alberto de Larrazabal said.
“Globe will have to expand aggressively given increased competition from PLDT, which is substantially adding subscribers after the Digital purchase,” First Grade Holdings Inc. managing director Astro del Castillo said in a phone interview. Phone companies are expanding their data networks as Filipinos increasingly use social-networking Web sites, he said.
Globe rose 0.85 percent to P950 at the close of trading, its highest level since Aug. 5. PLDT fell 0.3 percent to P2,380 and the benchmark Philippine Stock Exchange Index gained 0.7 percent.
Globe will sell $550 million to $600 million of bonds in the next six to eight months to fund the network upgrade, De Larrazabal said in an interview.
“We are already soliciting offers from domestic and international financial institutions,” he said.
The company said its dividend payout starting 2012 will be 75 percent to 90 percent of the prior year’s core net income instead of reported net income, to exclude non-recurring charges related to the upgrade.
Globe will retire assets with a net book value of $388 million as a result of the upgrade, with almost half the amount to be written off next year, De Larrazabal said. While the move will affect net income in the next two to three years, it won’t result in a loss, he said.