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Globe Philippines: Over 1m Adds Per Quarter, but Churn Still a Problem
After an increase in annual revenues of just 4% between 2005 and 2006, the Philippines' second placed MNO Globe Telecom has managed to improve its top line by 11% between 2006 and 2007 to Php63.2bn. The main reason for the slow progress between 2005 and 2006 was the fact that annual average customer numbers only rose by 12.6%, due to the turbulence in subscriber additions in 2005 caused by the notorious SIM swap programme.
Between 2006 and 2007, average customer numbers increased by a much more impressive 28.2% from 14m to 18m, as the end-of-year figure rose 29.7% to 20.3m. Not all of the customer growth carried through to the revenue level, however, as it was tempered by a 13.2% decline in ARPU - more than twice the 6.3% fall seen in 2006, in proportionate terms. The Php241 per customer per month seen in Q4 2007 was the lowest ARPU ever recorded by Globe, after eight quarters in which the operator has failed to register an increase in the metric. That said, the fourth quarter decline was kept to Php5 after slides of Php13 and Php18 in the second and third quarters, respectively.
We suspect that the fall in ARPU has more to do with declining pricing than declining usage, but in the absence of usage metrics from the company we are unable to confirm this hypothesis.
The majority of the customer growth in the year came from Globe's "Touch Mobile" prepaid brand, which accounted for 55.7% of the year's 4.66m net additions with annual growth of 52.9% to end the year with a total of 7.49m. However, this growth came at a price, as ARPU dropped 18% from Php181 per month to Php148 between 2006 and 2007. Annual average SACs at Touch Mobile declined slightly year on year, but the 4.4% improvement was not enough to prevent an increase in the payback period - although this was only from 15 days to 17.6 days. The trends were different at Globe's own prepaid brand, as the payback period decreased from 0.32 months to 0.29, with ARPU only off 7% a year compared to a 14.5% reduction in SACs. Nevertheless, customer growth was much weaker here at only 19.8% - equivalent to 42.9% of the year's net additions and equivalent to 2.0m new customers in absolute terms.
However, to focus on these small changes in payback period is to miss the real issue, which is not so much how fast new customers pay for themselves once on board, but rather how long they stay on board once they are there. Churn was running at 5.9% per month at Touch Mobile and 5.0% per month at Globe Prepaid in Q4 2007 - the highest quarterly figures recorded in the year for both brands. Given that prepaid customers make up 97% of the total at Globe, the prepaid churn statistics meant that in Q4 2007 the company had to attract 3.8 new connections just to achieve a net gain of one new connection. In the year the ratio stood at 3.22 meaning that the company had to make more than 15m new connections to achieve its 4.66m net additions during 2007.
Globe lost almost 10.4m connections to churn in the year - equivalent to 57.6% of the average base in the year and more than half of its eventual base at the end of the period.
That the company managed to add more than 1m customers per quarter in each of the four quarters of 2007 is remarkable, considering the level of churn that it still faces.
However, whilst Globe would no doubt dearly love to have held on to a few more of the 15m+ new connections it made last year, it is not clear that there is an obvious way in which it can improve loyalty in a market still primarily driven by simple voice and text services whose attractiveness effectively has just one determinant - price. Thus the company is content for the time being that churn is "controlled" and that net additions are at least consistent. And whilst the numbers may look high to those looking on from more developed markets, so long as the payback period on a newly acquired prepaid connection is just a matter of days, or a couple of weeks, the figures stack up for Globe.
Despite the company's operating cost base increasing by 16% due to increased staff and network lease costs, as well as greater provisioning (but, crucially, not due to subsidy and marketing costs which were only up 5% year on year) the company's EBITDA margin only slid marginally between 2006 and 2007 from 65.3% to 63.6% after earnings of Php40.2bn. Moreover, EBIT increased 15% as depreciation and amortisation charges went unchanged between 2006 and 2007.
The top line growth at Globe may not be dazzling, but the Philippine market is still in the "land-grab" phase of development and the kind of margins the company is producing should keep shareholders happy for the time being. However, the issue of loyalty must weigh on the minds of management, since, as the market becomes increasingly saturated, the ability to achieve raw net additions growth will be more and more limited. In highly-developed markets such as the UK, which is only 65-70% prepaid, the fortunes of the players in the market hang every quarter to a significant extent upon the battle for churning prepaid customers. In the Philippines, where all but a handful of customers prepay for their talk time, the stakes in such a battle, when it comes, will be even higher if the loyalty of the base cannot be improved.
Posted to the site on 12th February 2008
This article was extracted from The Mobile World Briefing, the weekly newsletter from The Mobile World.
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