Globe Telecom - Payback Period Down to Less Than a Week

Net additions at Globe Telecom were 1.26m in Q1 2007 - the company's second best ever performance, and only the fourth time it has managed to clear the 1m mark in its history. Despite net additions being in excess of Q4 2006's 1.19m, the proportionate growth rate dropped slightly, from 8.2% to 8.1%, although the rolling annual average increase improved from 26.3% to 28.2% since both the absolute and proportionate improvements in Q1 2007 bettered those in Q1 2006. The company was helped by an improvement in the churn rate between Q1 2006 and Q1 2007 from 5.0% to 3.9% per month - the best recorded since 2003 - although at Islacom, Globe's wholly-owned prepaid-only subsidiary, the disconnection rate was up slightly year on year at 4.7%.

The net additions performance must have been especially pleasing for Globe given that its SACs fell to just P52 per new prepaid customer within its own base, and P58 per new customer at Touch Mobile, the Islacom prepaid brand - the lowest ever recorded levels in both departments.

The chart below shows the progression of net additions over the last 10 years at Globe. For those unfamiliar with the mobile market in the Philippines, the atrophy of customers in 2005 is explained by a marketing initiative called "SIM Swap" which allowed customers to return a recently purchased prepaid SIM card and exchange it for that of another of a different provider, complete with pre-charged calling credit. So many customers took advantage of the opportunity for free airtime - time and time again in some cases - that the offer was soon terminated, but the fallout was considerable, particularly for Globe, as the chart shows.

With over 96% of its customers opting for prepaid services at the end of Q1 2007 the trends in Globe's KPIs closely followed those for the prepaid base. The average monthly prepaid customer spend at Globe actually rose for the first time in a year, quarter on quarter, but this improvement was reversed when interconnect revenues were included, the gross ARPU falling from P362 per month in Q4 2006 to P353 per month in Q1 2007. At Islacom, both net and gross ARPU metrics fell quarter on quarter. Year on year, the decline in prepaid ARPU amounted to 10% and 11% in the gross and net metrics respectively at Globe and a more worrying 26% and 25% in the two measures at Islacom. However, Islacom customers make up only just over one third of the total base so the trend at Globe itself is the predominant one - and given the 28% increase in customers, a 10% decline is not a bad result at all, yielding as it did an 11% increase in wireless service revenues.

What is more, the corresponding trend in SACs mentioned above shows that the average payback period for a new Globe prepaid customer is now just 4.5 days - yes days. In Q1 2007 the prepaid customers Globe signed up on a Monday morning had paid for themselves by Friday afternoon! Admittedly for Touch Mobile customers it takes slightly longer - until the following Tuesday - but the economics don't look at all bad.

That conclusion is backed up by Globe's financials. Whilst the EBITDA margin declined slightly by 1pp between Q1 2006 and Q1 2007 as a result of an overall increase in marketing and subsidy costs, this year's figure was still a hugely impressive 67%. The margin at the EBIT level in Q1 2007 was 40%, down from 41% last year. Overall, year on year, Globe's EBITDA was up 7%, its EBIT by 10% and its net income by 12%. Quarter on quarter the increases were stronger, standing at 15%, 58% and 80% for EBITDA, EBIT and Net Income respectively, on the back of lower Opex and, more particularly, a significantly lower depreciation and amortisation charge, due to a change in accounting method and one off charges lumped into the final quarter of last year.

This article was extracted from The Mobile World Briefing, the weekly newsletter from The Mobile World. To download a sample issue of the Briefing in PDF format, please click here. For more information including full subscription pricing, please visit The Mobile World"

Posted to the site on 16th May 2007