Globe Announces Network Modernization and IT Transformation Program

Globe Telecom, Inc. is pleased to announce that it will undertake a landmark mobile network modernization program ( http://www.youtube.com/watch?v=6LBYKWGdi3M ) over the next two to three years. The massive network upgrade is aimed at significantly improving network quality and customer experience, increase capacity, drive down costs, as well as prepare the network to meet the needs of customers today and in the future. Given the growing demand for bandwidth-heavy services, the modernization program will bring significant improvements to network capacity leading to improved reliability, ease of access and pervasive coverage. For the Company, this transformation effort will enable improved revenue growth prospects, savings in capital spend and operating expenses, as well as efficiencies resulting from synergies with a dedicated vendor partner. By adopting the latest technologies available today, Globe will be in a better position to provide the needs of its customers, secure and enhance its position in this highly competitive market. The Company is at the same time initiating an IT transformation project to create a streamlined and integrated information environment, in response to changing market and business demands. The system transformation effort is a comprehensive re-engineering of Globe Telecom's IT systems over the next two years. This will result in convergent billings and more innovative product development, faster response to customer queries and service requests by our stores and call centers. The endeavor will result in quicker time-to-market for new products that adapt to changing customer needs, and timely customer loyalty offers enabled by enhancements in customer segmentation and usage monitoring. The Company is tapping external partners to help manage the modernization efforts. After thorough evaluation and extensive deliberations of vendor proposals, the Company has awarded the network modernization to Huawei given its technical expertise and strong track record of success. Globe Telecom expects to realize additional synergies with Huawei in establishing a Joint Innovation Center (JIC) that would bring the latest technological developments and help address the Company's customization needs. Through the JIC, Globe will be able to learn network best practices and tap into the latest developments of the 17 research and development centers that Huawei has around the world. The Company expects to sign the definitive agreements with Huawei in the coming days. For the IT systems upgrade, Globe has selected Amdocs as technology partner, given its extensive experience in business process transformation and access to leading edge technology. Globe expects to complete the definitive agreement with Amdocs by the first quarter of 2012. "Amdocs has delivered some of the industry's most complex transformation projects to some of the largest players in the world, and we are excited to be able to draw on this experience for Globe," said Eli Gelman, Amdocs' chief executive officer. "This strategic transformation project significantly expands Amdocs and Globe Telecom's relationship to support the mission critical operations of Globe. Our ability to deliver innovative and partner technology will be key to enable Globe to deliver service innovation to their nearly 30 million customers and establish operations that can support rapid growth." Globe will invest around US$700 million in the next five years to support the network modernization project, and another US$90 million to complete the IT transformation initiative. This will be the biggest and most significant investment that the Company has undertaken in the past two decades. The Company targets completion of the two projects over a period of 24 - 36 months. The Company also announced that it will change its dividend pay-out policy to be at 75% to 90% of prior year's core net income instead of reported net income. This will ensure that dividends will remain sustainable and yields competitive. The dividend policy change will take effect with the 2012 dividends, based on 2011 core net income. The network and IT transformation programs are expected to generate savings in operating expenses and capital expenditures totaling to US$180 million and US$210 million respectively over the next five years, in addition to the revenue uplift driven by the network quality improvements and increased capacity. Since it will involve replacing network equipment and IT systems, the Company expects that assets with net book values estimated at US$388 million will need to be decommissioned after modernization. This estimate is before any possible proceeds from resale and is still subject to actual site validation. All efforts will be taken to maximize the re-use of the existing equipment. The net book values of these non-useable assets will impact Globe's profitability through an acceleration of depreciation over its remaining useful life until such time when the new, replacement capex is ready for service. Owing to its exceptional and non-recurring nature, this accelerated depreciation will not be considered in the determination of core net income. It will likewise not compromise cash flows nor the Company's ability to declare dividends. Network Modernization Program The main objectives and benefits of the modernization program are: Significantly improve network quality, reliability, and customer experience - The network transformation will result in dramatic improvements in network performance, translating to enhanced voice connection and quality, quicker delivery for SMS, better 3G coverage, and increased network resiliency to reduce network outages. Increase voice and data capacity - Upgrading the network will also prepare the Company for the expected growth in voice and data traffic. Over the next five years, the Company is expecting a three- to ten-fold increase in voice and data throughput. This modernization program will provide the capabilities to accommodate higher volumes of voice, SMS, and data traffic resulting from a growing subscriber base and shifting user preferences. Reduce total cost of ownership - The project will also help lower the overall cost of delivering wireless services to Globe customers with the introduction of newer and more power-efficient equipment. Globe will also increase the use of 'green' solutions to be more environmentally responsible. The Company expects to generate opex savings of about US$170 million over the next five years from reduced power usage, efficiencies from increased fiber optic use, and lower maintenance costs. Finally, the Company expects to save approximately US$200 million in capital expenditures when compared to an incremental build effort, stemming from the economies of scale of this modernization initiative with a single vendor. Future-proof network - The network modernization will give Globe the capability to upgrade to more advanced technologies such as LTE (long-term evolution), and shift to more flexible radio systems and an all-IP architecture. The use of fiber optics will be raised by 50% which will significantly increase capacity. IT Transformation Program The IT transformation program, on the other hand, is centered on enhancing business support systems to improve customer experience, strengthen Globe's product design & development capabilities, and reduce total cost of ownership. The envisioned standards-based IT architecture is robust, scalable, and flexible, allowing Globe to quickly respond to future business requirements. Over the next five years, Globe expects to generate opex savings of about US$10 million from lower hardware and software maintenance costs, and another US$10 million from lower capital expenditures as a result of this initiative. Significant improvements in customer experience are expected once the new system is implemented. Some of the envisioned results are faster response time to customer queries and service requests by Globe Stores and call centers through integrated front-end applications, quicker time-to-market for new products, timely customer loyalty offers enabled by enhancements in customer segmentation and usage monitoring. "Our network and IT modernization programs are key initiatives in transforming Globe into a customer-centric company, differentiated by superior customer experience" Ernest L. Cu, President and CEO of Globe Telecom, Inc. said. "As we execute our programs, we will aim for a seamless transition in order to extend our gains and strengthen our position in this intensely competitive market," added Cu.