Capex and unicorns

Globe Telecom declared a new capex record in FY2021, after it spent US$1.81 billion and committed a further $1.73 billion for this year.

The massive spend supports its “aggressive network expansion”, which last year, across the Philippines, saw the deployment of 1,407 new 4G LTE and 5G cell sites; the upgrade of more than 22,300 mobile sites; and the installation of more than 2,000 outdoor 5G sites and in-building solutions. On FTTH more than 1.4 million lines were installed, surpassing a revised target for the year.

“The demand for data by various customers continues to increase and that is the rationale behind our record investment in infrastructure,” says CFO Rosemarie Maniego-Eala.

As the rest of the world saw, too, that demand reached fever pitch during the first wave of Covid-19 lockdowns, pushing CEO Ernest Cu to lobby the Philippines’ government to fast-track tower and installation permits and speed up network build outs. Rules were relaxed from July 2020 reducing the wait from eight months to as little as 16 days.

“In 2022, our capex program is aimed at continuing to serve demand forecasts pointing to further uptrends as mobility increases with lockdown restrictions easing, and with the economy anticipated to start building the foundation towards recovery sometime next year,” says Maniego-Eala.

It paid off in FY21 considering consolidated net income also reached a new high of $462 million – a year-on-year increase of 27%.

“Key components of our overall strategy to manage costs include the use of technology to deliver scale while reducing overall cost to serve,” says Maniego-Eala.

“We have actively pushed data traffic to more efficient technologies, first from 3G to 4G, and moving forward, from 4G to 5G, where the costs to deliver are 60% and 50% cheaper, respectively,” she says adding that Globe has digitalised its internal processes and operations, too.

Carve outs and spin offs

The other major development of late saw Globe enter into a JV with ST Telemedia GDC and Ayala Corporation for the development, construction and operation of data centres across the Philippines.

Operating as KarmanEdge, Inc, the joint venture is the new home for Globe’s data centre business and as such Globe retains the largest shareholding at 50% followed by STT GDC with 40% and Ayala with 10%. Building on the existing portfolio, the three said KarmanEdge has the potential to expand by up to 100MW in the mid- to long-term for a target customer base of hyperscalers and enterprises.

“In today’s climate of increased telecommuting, content consumption and broad digitalisation of society, both hyperscale and enterprise customers are facing a significant demand on their services globally and locally. We believe our JV is well placed to service the needs of these hyperscalers and enterprises as their demand in the country increases,” says Maniego-Eala.

With all three shareholders backing the venture financially, KarmanEdge, Inc launched with a post-money valuation of $350 million. Globe will receive proceeds of $100 million from the transaction with the remaining capital earmarked for future expansion and growth.

There’s appetite for future spin offs, but as demonstrated with Globe’s towerco, not every business unit suits such a future. Global said it would spin its towers in 2018 but U-turned on the plans at the end of the following year.

“For now, we are focusing our efforts on enabling the built-to-suit initiatives of our towerco partners. We will update the market if and when we are ready to spin off any other operation into its own subsidiary,” she adds.

The unicorns

Globe is not stopping at the infrastructure and services. It wants stakes across the Philippines’ entire digital ecosystem and in September, Cu said Globe would pivot its primary business to become a “digital solutions group”. In addition to the usual bells and whistles this would see Globe build on its existing footprint in fintech, healthcare, entertainment, adtech, e-commerce, IT services and venture capital, as it “continues to look for new ventures that are ready to scale”.

“Digitalisation is key to Globe’s future as we shift to become a digital solutions platform,” says Maniego-Eala.

Globe’s fintech service GCash is now the number one finance app in the Philippines and at the end of last year hit the $2 billion valuation milestone, officially achieving double unicorn status. Incidentally, GCash is managed by Mynt, a “fintech start-up partnership” between Globe Telecom, the Ayala Corporation and Ant Financial.

With this success under its belt, Globe is now looking to create more unicorns.

Maniego-Eala says: “By applying the same digitalisation model to our investments in other adjacent businesses – in healthtech, adtech, edutech, e-commerce and business solutions – we believe we have more potential unicorns on the way.”