Globe Telecoms cuts capex; sees lower profits

Expecting lower profits this year, a cautious Globe Telecom Inc. has cut its capital expenditure (capex) for 2010 to keep costs down and avoid making the wrong investments. In a briefing on Wednesday, Globe president and Chief Executive Officer Ernest Cu said the company will likely post lower profits this year compared to 2009, mainly because of its competitor's cut-throat pricing, which has changed the dynamics of the local mobile phone industry. The company earlier announced that its plan to spend $500 million this year to expand its network and to develop new products. However, Cu said, “We’re going to temper our capex… it will be below $500 million." He said the spending cut will allow the company to observe how their previous efforts have borne fruit and map out future investments better. Lower income for 2010 “We’re not even talking about net income growth for this year," Cu said, adding that it will be “really hard" to even sustain last year’s P12-billion profit. Earlier this week, Globe reported that its net income for the second quarter of 2010 had dipped by almost 30 percent to P5.1 billion. Meanwhile, the profits of its rival, Philippine Long Distance Telephone Co., grew by a marginal 1 percent to P10.3 billion in the same period—the company’s lowest profit growth in over a year. Cu said this reflected the decline in industry profit margins because of the “bucket-priced" or unlimited service offers for both text messaging and voice calls. These promos, pioneered by Gokongwei-led mobile brand Sun Cellular, allow users to send an unlimited number of text messages within certain periods of time for a fixed fee. The same model applies to voice services, wherein subscribers can make as many calls as they want for a fixed fee. Cu said as much as 90 percent of all messages sent within the Globe network are covered by these promos. About 84 percent of voice calls are also on bucket-priced or unlimited services. “It’s never going to be as profitable for telcos as before, when calls cost P6.50 per minute and text messages were P1 each," Cu said. –VVP, GMANews.TV