Globe Telecom, Inc. (GLO) Earnings Call Transcript & Summary

Good morning, and welcome to the virtual first quarter 2020 analyst briefing of Globe Telecom. Allow me to introduce our management panel for today's briefing. We have Mr. Ernest Cu, President and Chief Executive Officer; Mr. Alberto de Larrazabal, Chief Commercial Officer; Mr. Gil Genio, Chief Technology and Information Officer; Ms. Rizza Maniego-Eala, Chief Finance Officer; and Atty. Froilan Castelo, General Counsel. Mr. Cu will present the highlights of the company's performance for the first quarter of 2020, to be followed by Ms. Maniego-Eala, who will present the financial results. Afterwards, we will open the Q&A session, beginning with the questions sent via e-mail to [ [email protected] ], prior to the start of the briefing, to be followed by additional questions also sent via e-mail during the course of the presentation. May we now request Mr. Cu for his presentation.

Thank you, Carlo. Good morning, and thank you, everyone, for joining us today in our virtual analyst briefing. As usual, I will go through the performance for the first quarter of 2020, and then I'll turn over the floor to our CFO, Rizza Eala, to discuss our financial and operating results in greater detail. Before I begin, let me preface that these results are -- only include 2 weeks' worth of enhanced community quarantine, or ECQ as it's called in the Philippines, our version of the lockdown to flatten the curve of the COVID-19 pandemic. As such, these results are not reflective of what we're seeing on the ground today, and we will be discussing this as part of the preliminary second quarter 2020 guidance. Service revenues for the first quarter of 2020 stand at PHP 36.9 billion, 2% above last year and 4% the seasonally strong fourth quarter revenue of 2019. EBITDA for the quarter is at PHP 20.5 billion, up 3% year-on-year, and translates to a 56% EBITDA margin. Against the prior quarter, EBITDA rose a healthy -- by a healthy 13%. Net income for the period posted a slight 2% decline against last year, but is up 43% on a quarterly basis. Core net income likewise declined by about 3% year-on-year. Lastly, our Board of Directors recently approved the second quarterly dividend distribution of PHP 24.83 per share, details of which will be discussed in the gearing and dividends portion of the presentation. As in the past quarters, data is still the main driver of revenue growth. Mobile data revenue for the period is at PHP 18.5 billion, up 12% year-on-year, while mobile voice and SMS declined against last year by 15% and 28%, respectively. Fixed line voice, likewise, dropped by 2% year-on-year as customers continued to shift to Internet-based communication. Making up for the decline, home broadband and corporate data revenues grew 11% and 4%, respectively. Mobile subscribers now stand at 89.3 million, 7% higher than a year ago, though on a quarter-on-quarter basis, subscribers have declined by 5%. As expected, we are now starting to see some normalization in the churn rates of our Prepaid business as the impact of the 1-year prepaid load validity regulations on our reported subscriber base begin to ease. Globe postpaid subscribers, on the other hand, grew 3% year-on-year and 1% quarter-on-quarter. Home broadband subscribers grew a robust 32% against the first quarter of last year and 12% against the prior quarter to 2.3 million subscribers. Growth was still mostly driven by the fixed wireless segment, which now comprises 71% of total broadband subscribers. As of the first quarter of 2020, data-related revenues now make up 75% of total service revenues. Mobile data remains a top contributor at 50%, while home broadband and corporate data contribute 16% and 9%, respectively. Driving the increase in mobile data revenue is the continued increase of mobile -- of data traffic, which grew 41% year-on-year to 522 petabytes. On a quarterly basis, mobile data traffic also grew by 5% despite a decline in mobile data users for the period. As of March 31, 2020, mobile data users stood at 36.9 million, a 1% year-on-year decline and 7% decline quarter-on-quarter. This is mostly an effect of the ECQ as mobile customers who also have home broadband connections opted to use broadband while they stayed at home. Furthermore, per capita usage has gone up bringing mobile data monthly average transactions per unit to 4.8 gigabytes, a 36% increase versus 3.5 gigabytes a year ago. This increase in consumption only goes to show the relevancy of our data products and services and suggests the continued shift of the Filipino to the digital life. I would now like to address the reason we're holding this quarterly briefing virtually. Due to the COVID-19 pandemic, we are currently under ECQ for an extended period of time, and this has necessitated a change in the way we do business. Let me go through some of our responses and initiatives to this ongoing pandemic. The initial focus was to protect our workforce while also ensuring continued network and supply chain operations to serve our customers. Beginning March 16, Globe implemented full work from home operations with critical skeletal force or CSF, as we call it, of 1,200 employees nationwide or about 15% of our total employee complement on a rotating shift basis. To ensure that our CSF is well protected and supported, we have provided them with PPEs, hazard pay allowances, insurance, among others. We also earmarked PHP 270 million in financial support for vendor partners and retail store support staff salaries as part of the Ayala Group's PHP 2.4 billion emergency aid package. With the ECQ in place, Internet connectivity even becomes more vital for the country, and our priority is to ensure our network keeps up with the increasing demand. To this end, we are also working closely with the government to ensure continued network access at the LGU level for expansion and repairs. To support the country through this difficult time, Globe is also extending a free GoWiFi Internet access across major hospitals and select supermarkets in Metro Manila as well as key cities nationwide and at NAIA Terminals 1, 2, 3. We have also partnered with the government to provide a toll-free COVID-19 hotline across various government agencies and LGUs. Through the efforts of our employees and customers, we have been able to provide monetary and in-kind donations to hospitals and frontliners ranging from medical supplies to 1,500 mobile phones preloaded with 45 days of unlimited call and text. For customers, Globe has offered in total a 60-day payment extension for all of its postpaid customers across mobile, broadband and enterprise. For prepaid consumers, Globe is giving additional data allowances for certain mobile and broadband prepaid promos. I'm also very proud to share that our employees have raised over PHP 27.5 million from an internal fundraising initiative, primarily aimed at providing much-needed PPEs, face shields and face masks to health care workers in 50 hospitals across the country. The #OneGlobeVsCOVID project of the company's over 8,000 workforce realized employee donations of PHP 13.79 million, which was 100% matched by Singtel and Globe. These are just some of the initiatives that Globe has employed over the course of this extended quarantine period. I would also like to take some time to commend our frontliners, who are braving our sites despite this pandemic knowing that telco services are of paramount importance in this challenging time. While we remain committed to constantly expanding and improving our network, the ECQ has posed a few challenges that affected our ability to roll out. One such challenge is the availability of subcontractors as our vending partners are rightfully concerned about the safety of their own people. Survey and build-out operations have also been affected as local governments shift their focus to their respective quarantine measures. These challenges notwithstanding, our network team remains dedicated to delivering their commitments and providing much-needed connectivity and coverage during this time of crisis. Aside from our frontliners, our work-from-home employee force has also adapted relatively well to the changing working conditions, and this allowed the company to operate business as usual with minimal disruptions in our day-to-day operations. As a testament to the robustness of our business continuity plans, we are able to perform effectively despite working remotely. In fact, we even recently closed the deal to acquire the assets of U.S.-based cloud consulting companies, Cascadeo Corporation and Cascadeo Partners. The deal forms part of the strategy of Globe business to become an Amazon Web Services or AWS Premier Consulting Partner, a much-coveted status among ICT companies and used to aid enterprise customers in their digital and cloud transformation journey as well as accelerate their development of ICT capabilities and solutions to provide their customers with a complete suite of cloud-native products and services. On the back end, we were also able to seamlessly roll out a major update to our billing system, all done via remote. In the first 2 months of 2020 before the ECQ, we were also able to provide internet services to various municipalities and cities across GoWiFi, the most pervasive public WiFi service in the country today; and through KapitWifi, the most affordable community Wi-Fi service. To date, GoWiFi is available in over 2,500 locations around the country with multiple hotspots across provinces, cities and municipalities. Lastly, I am pleased to announce the appointment of Martha Sazon as the new CEO of Mynt, succeeding Anthony Thomas, who has led the company for the past 3 years. We believe Martha's 12 years of leadership experience across various businesses in Globe, which covers a wide spectrum encompassing B2C and B2B, will help Mynt maintain its momentum and achieve its purpose of a digital and financially inclusive, cashless nation. This ends the portion of my presentation, and I will now hand over the floor to Rizza.

Thank you, Ernest, and welcome again to everyone, on the call. Let me now go through the details of our financial results for the first 3 months of 2020. As mentioned, we ended the quarter with PHP 36.9 billion in service revenues, up a modest 2% year-on-year. Operating expenses also exhibited a similar 2% increase against last year, resulting in EBITDA of PHP 20.5 billion, a 3% increase. This EBITDA gain, however, was not enough to offset higher depreciation charges for the period. Coupled with a slight increase in nonoperating expenses, net income came in at PHP 6.6 billion, a slight 2% decline against the same period last year. Again, please note that these 1Q 2020 results were mostly unaffected by the ECQ, which took effect 2 weeks before the quarter ended and as such, is not an indication of our performance in succeeding quarters. Let me now go through our operating expenses in more detail. Interconnection charges declined by PHP 503 million year-on-year due to the implementation of the non-imposition of interconnect charges on mobile domestic voice and SMS transactions. This was implemented by mobile operators beginning January 2020 in accordance with the Mobile Number Portability Act. Staff costs increased by PHP 771 million on the back of the increased headcount versus last year. Marketing and subsidy costs grew slightly, mostly due to higher subsidy and recontracting costs but was tempered by lower spend on ads and promos. In terms of network costs, majority of the increase was due to higher repairs and maintenance for our facilities, followed by higher lease expenses from additional cell sites acquired in the period. Administrative costs also posted an increase mostly from higher electricity consumption in line with the expanded network. The decline in services and other expenses was mostly driven by lower traffic and inventory provisions as well as lower advisory fees and other customer contact services. The decline was partly offset by higher cloud services and other license costs. Altogether, EBITDA grew 3% year-on-year to PHP 20.5 billion. Below EBITDA, depreciation charges increased by PHP 643 million due to our sustained CapEx investments for network expansion. In addition, nonoperating expenses also posted a slight increase of PHP 73 million, mostly from higher share in equity losses from affiliates. These rising costs offset the EBITDA gain and led to a 2% decline in NIAT year-on-year. CapEx spend for the quarter is at PHP 10.7 billion or around $210 million. Bulk of the spend at 68% was for data-related requirements. I'm happy to report that through the efforts of our network team on the ground, we were on track with our target builds for the first quarter, which included some of the spillover spending from last year. On to gearing. Our balance sheet remains healthy with debt levels at a manageable level and still within our covenant ratios. Our cash balance as of March 31 is at PHP 14.5 billion, a sharp increase against end 2019 as we prioritize liquidity in the near term, considering the current situation. Likewise, gross debt also rose, now at PHP 145 billion versus PHP 136 billion in 2019. Higher debt, notwithstanding, we are still comfortable with our ratios with gross debt-to-equity at 1.7x while net debt-to-equity is at 1.5x. Gross debt-to-EBITDA is at 1.97x, while net debt-to-EBITDA is at 1.77x. Debt service coverage ratio is at 4.6x. As Ernest earlier mentioned, our Board of Directors recently approved the second quarterly cash dividends of PHP 24.83 per share. This is payable on June 3 to stockholders on record as of May 18. Assuming the same amount for the succeeding dividend declarations for the balance of the year, plus the PHP 27 per share declared in February, total dividend payout would come up to 60% of 2019 core net income. The decision to change the dividend payout for the quarter was an effort to conserve cash as a healthy balance sheet and strong cash flows are key to managing the challenges brought about by this extended quarantine period. That being said, we do declare dividends on a quarterly basis, giving the company additional flexibility moving forward. Finally, I would like to provide some guidance on the effects of the COVID-19 pandemic on our performance. Note that we are only providing guidance for the second quarter of this year, and these are preliminary views based on information we have had at present and, therefore, may change depending on how the situation will progress in the future. On revenues, we might be seeing low double-digit decline versus the first quarter as we are witnessing softening top-ups consistent with our expectations that customers are conserving their disposable incomes during this period. On the corporate side, we are also seeing clients requesting to cut some of their lease line subscriptions as they begin scaling down operations. Given the projected slowdown in the global economy, we do also foresee an increase in the churn rates across the different business lines as well as deterioration in the quality of our receivables. On the upside, we are seeing increased sales for our Home Prepaid Wi-Fi product, though we don't foresee this offsetting the declines in mobile top-ups. On EBITDA, we expect to keep to the low 50s margin guidance as we are also seeing declines in OpEx due to the work from home setup. On Capex, our network rollout activities have also been affected by the ECQ as we are seeing sustainable reduction in vendor and subcontractor personnel. Site acquisitions have likewise been hampered given LGU focus has rightfully shifted to their COVID-19 response. We might be seeing a PHP 2 billion drop relative to the first quarter spend. And this CapEx level of about PHP 10 billion for the quarter is what we're seeing based on invoices that we are estimating for the second quarter. Before I end, I would just like to say that although there is near-term impact to our results, Globe is in a good position to not only weather the storm, but more importantly, come out stronger after this crisis with connectivity and greater adoption of digital lifestyle, undoubtedly ingrained to the new reality. This concludes my report. We now open the floor for questions, beginning with the initial questions sent prior to the start of the briefing, to be followed by additional questions sent during the course of this call. Thank you.

Thank you, Rizza. Before we start the Q&A session, I would like to remind everyone, to ask a question, please send your questions to [ [email protected] ]. The first question comes from Diane Go from BDO Nomura. She has 3 questions. First question, how has the lockdown affected infrastructure rollout so far? And has this affected the company's targets in terms of number of towers it intends to put up this year and number of homes to be covered by broadband? Second question is, what is the estimated impact on cash flow generation of relaxing payment terms for the customers' bills? And will this impact the company's dividend payout policy? And final question is, has the company seen any notable changes in terms of subscriber behavior since ECQ? And how does the company view this in a post-COVID setting? Specifically, are consumers subscribing to more premium packages that offer higher data allocation? And are we seeing lower churn rates and/or lesser gross additions?

Carlo, thanks for the question. Let me cover the first question on rollout and its effect and then turn over to Rizza for the cash flow/payment terms and its effect on overall. And then to Albert for the customer behavior and what they're subscribing to in the near term and then maybe come back and do an overall view. With respect to the rollout, it definitely hasn't been affected, and it will have a, I think, significant effect on our ability to meet our targets for the year in terms of number of sites built as well as homes reached in terms of fixed-line coverage. As I mentioned in my discussion, there are several things that have affected this: One and -- first and foremost has been initially, obviously, the IATF passes were not released until -- mainly completely into the field about a month after the announcement of ECQ. The second would be the availability of personnel and manpower to handle construction and deployment owing to 2 factors: One, of course, their own employers, which are our contractors, were reluctant to bring people out in order to protect them and for their own safety. And as this kind of fears abated through provision of PPEs, provision of vehicles, provision of permits and easier pass-throughs at the checkpoints, it became a personal decision on the part of the employees themselves to come out and work. We saw quite a bit of improvement as well, but we're still nowhere near our full capacity of deployment as we went around. As the weeks went by, there were also some isolated shortage in terms of raw material with regard to some supplies of steel, construction materials, in particular, since the factories were not actually working and batching plants for concrete were also not in operation. So that gave us some difficulty sourcing these. We've since actually sourced alternatives to the materials that we need, and now I think we've sort of normalized the situation. That being said, I think this is something that we have to see what happens once we move from enhanced community quarantine into general community quarantine, which has more relaxed rules. We'll have to see how this all affects it. Rizza, maybe you can answer the question about payment terms and how it may affect cash flow.

Thanks, Ernest. Yes. On the second question, given it is just an extension of credit terms, we see this as a deferral of cash flow for now. However, we do expect some increases in defaults, but that would be dependent on the length of the lockdown and how quickly the economy will recover. Now fortunately, for us, a significant portion of our business is on prepaid. And therefore, we do still have a steady stream of inflows as people are still basically using our services and, in fact, need it more now more than ever. There was a dividend policy question related to that. For now, we've reduced our payout from the estimated 64% declared in February to 60% that was declared by our Board yesterday. And as I mentioned in the presentation, this is really to ensure we conserve cash during this crisis. And we're also fortunate that we declare dividends quarterly, so we would have the ability to adjust depending on the environment. And of course, we will update the investing public on any change.

Ernest, I'll proceed with the third question. We've seen quite a few shifts on consumer behavior. First, most notably, people were in lockdown. And so on that basis, mobile data usage show a decline. But this moved in favor of traffic at home. And so we did see a surge of sales in our HPW devices as well as SKUs for the home. What was very visible was people starting to look at longer validity periods because of the lockdowns as well as higher data allocations because of the increased needs at home. Clearly, this was driven by work from home as well as study from home. One of the insights we saw is that the customers have gotten much more aware on their data allocations and are starting to utilize all of the allocations and freebies much higher and much faster than in previous terms -- previous times, rather. The other very obvious shift that we saw is the increase in digital transactions. Again, given the lockdown, people were resorting much more to buying their load online as well as purchasing and paying for goods online as well. As Ernest said, I guess, as the quarantines are lifted gradually, we will have to see what the implications will be. A lot of it will be driven by how much employment can get generated again for the bulk of the population, although we do believe that work from home, study from home may become an integral part of how people will be operating, and that the digital initiatives will probably continue on its momentum.

Thank you, Albert. The next question comes from Karen Hizon from UBS. She has 3 questions, although we touched on the first around mobile data, so I will just read the first 2 -- the second 2. Mobile data users have declined 1% year-on-year and 7% quarter-on-quarter. Is it primarily related to ECQ? Or is this a market share loss? Number two, how should we think about dividends moving forward? And if we are currently supposed to expect a sustained PHP 24.83 for the remainder of the year?

What we'll do is, I'll take a stab on the decline in users alongside Albert. We've been looking at this together. And then Rizza can discuss the future dividend stream that the company is planning. With regard to the users, I believe a lot of this has to do with multi-SIMers, that's one, wherein people are using a -- their primary SIM. So we may have lost them temporarily as they only need 1 SIM to function from where they are. We do believe that this is ECQ related, and that this will spring back once the use case for mobile data goes back to normal. We've used -- we've lost some significant use cases outside the home. The primary use has been through commutes. When people commute, they use it when they're out of the house to communicate with each other and keep in touch and get information from where they're going and about the activities that they go through day-to-day. I think as general quarantine becomes more prevalent and, hopefully, a further relaxation and people go about their activities as they normalize, I do think that the users will come back. And even existing users will increase the amount of data that they've been using. There's also going to be a shift from the usual hooking up to your Wi-Fi, using broadband at home, going back to mobile data once again. Maybe Albert has a further take on this with respect to the decline in active users.

We do have rotational churners, but that is typically offset by acquisitions that we do. During the last 2 weeks, obviously, we have been unable to go out and continue the acquisitions. So that has impacted beyond what Ernest has already described, some of the ability to acquire new subs. The other point that I just wanted to add on was, generally, when you do a see a shift from mobile to at home, the at-home packages tend to have a lot more data allocated to it. So what the revenue impact, even if the data has grown, the data usage has grown, has been an overall weakening in the average yield or revenues from those data transactions.

Okay. Rizza, on the dividends.

Similar to my response to the related dividend question earlier in this call, for now, we have reduced our payout to the lower end of the range. If you recall, our policy is a payout of 60% to 75% of prior year's core net income, and we just wanted to be more prudent and ensure liquidity during this uncertain period. I also mentioned, we declare dividends quarterly, so the Board and management really have a live discussion on dividends every quarter. And if things turn out to be better in the second half, there would be a look-back option. Again, it's a bit tricky at the moment, but given that the declaration this quarter, even if we assume that would be the same amount for the last 2 quarters and including the PHP 27 we declared in February. That dividend per share would still be much higher than the 2019 EPS level. And as I mentioned, I guess in our next call, during the second quarter results, then we will be able -- we will have more information for the investing public. Thank you.

Thank you, Rizza. Next question comes from Arthur Pineda from Citi. He has 3 questions. First question, why were the provisions lower in the first quarter when most other ASEAN emerging market names have seen material provision increases in the quarter? Second question, what are the assumptions under the second -- the 2Q preliminary guidance on double-digit revenue contraction? And third question, are we seeing any impact on availability of SIM cards and top-ups? If we look at the 2.7 million quarter-on-quarter reduction in subs, was this driven by subs cleanup implemented earlier? Or is this due to product availability being impacted or weaker demand due to consumer incomes?

Rizza, you want to cover the first question on low provisions. And then I could take a stab at the second question and possibly, even the third along with Albert. Go ahead, Rizza.

Thanks, Arthur, for your question on provisions. Our receivable profile has actually been increasingly -- has increasingly becoming healthy -- has become healthy in the past 18 months. And this is the reason why our provisions for the first quarter is lower versus the fourth quarter and even in the same period last year. And it's such a shame that the crisis came about because that means all of the progress we've had in terms of getting our subscribers to pay on time and even much earlier, in many cases, will be offset by the fact that we extended credit terms by 60 days for all our postpaid customers. And as mentioned, I think everyone knows that there will be some economic impact, for sure, flowing through the wallets of customers. And so we had a good run for 18 months in cleaning up or making sure that our receivable profile was becoming healthy over time. But as we mentioned in our forecast for the second quarter, we see a huge increase in provisions related to COVID.

Yes. I think Rizza and her team have been doing a great job in increasing our monthly collections and cash. We've seen that increase almost month-on-month for a long period of time. So opinion is that people that are of a low quality probably would have already left and churned. And what's left here would be truly people who would have -- who had viable businesses going into the COVID situation and may be having difficulties exiting leading to churn and eventually, bad debt for that particular segment. With regard to the 2Q estimates on revenue and the double-digit number that we put out, I mean, there's many factors. We did this estimate probably around 4 weeks ago before we saw any upturn in top-up related to COVID and maybe related to the easing of some of the restrictions and more and more people coming out again into the streets and normalizing their lives, right? We have in NCR, still up to May 15 in ECQ, but a good portion of the provinces around the Philippines are now under a general quarantine regime and, thus, are more free to move around, and that has seen some expansion in the revenue. So the second is our conservative view and pessimistic view as to what's happening with remittances, which we believe is a big consumption driver in this economy. We've seen many varying estimates from single digit up to 30-plus percent decline year-on-year. We believe that this has to be factored in because a lot of the prepaid market, I believe, is dependent on that. Obviously, we did not know at that point in time how long this would last. And so we hoped, of course, it doesn't last that long. But we decided to provide an estimate that would be at least preparing ourselves for the worst and for the long haul. So if you want to characterize it as probably a pessimistic estimate, it probably is, but we would rather be in that position and be ready to come out strong rather than be confident of a very steep recovery and not -- and it not happening. With regard to product availability, Albert, you want to comment on that? I don't believe we had any issues in product availability during ECQ, but go ahead.

Yes. So a couple of things. In terms of product availability and ability to load, the distribution system for prepaid credit was pretty much intact. Initially, there were some difficulties but as we started to roll out digital alternatives for our distributors, then they were able to maintain a healthy level of prepaid credit inventory to sell. Obviously, as people were challenged to be able to go out, then clearly, the frequency of those sales was lower, but the people were buying higher SKUs with longer validities as well. With regards to the question around the subs coming down. So what we've seen is there's been a decline, as Ernest said, to some of the multi-SIMers and who are now more likely starting to transact on their primary SIMs. When we profiled these subscribers that were on our network that churned, essentially, they were infrequent or intermittent loaders or what we call tingi loaders. So they were not really clearly a Globe primary subscriber. On the other hand, when we look at our core base, the numbers have held. And in fact, the ARPUs have been constant despite even during the period of COVID. During the period of COVID, there were some challenges. The stores had to be closed, which principally services our prepaid subscribers. So that, unfortunately, has had to substantially reduce. We've been able to offset some through deliveries and stuff like that. But that particular segment did get impacted more than the rest. That's it.

Thank you, Albert. Before we move to the next question, I would like to remind everyone, if you want to ask a question, please e-mail your questions to [ [email protected] ]. The next question comes from Varun Ahuja from Crédit Suisse. He has 2 questions. The first question, would you be able to give any color beyond 2Q 2020 on any outlook for Globe? Second question, how much of the mobile pressure can be compensated by the increased demand for fixed-line services?

Say the second question again, Carlo?

The second question is how much of the mobile pressure can be compensated by increased demand for fixed-line services?

Okay. Beyond 2020, I think it's still very early to determine what's going to happen with this new reality that's before us. However, if things will normalize and eventually go back to the way they are, which I doubt they will to the 200% extent, I think the momentum that we've had should continue once again because there's going to be fundamentally nothing different within Globe in itself, right? What's changed are probably people's habits now in terms of work and in terms of moving around and doing -- on going about their daily lives. I think I'd like to reserve judgment on what will happen until probably much later in the year, probably in 3Q, once we've had a bit more view on how easing up on all this and opening up the economy, how quickly that happens, whether there's going to be a second wave or not, right? We've had countries that have had a second wave. Then we'll be in a better position to predict what goes on in the future. But what we do know is that demand for mobile data, demand for data overall, is increasing. And the fact that we need to continue to invest is not going away, and that's why we've continued even through this lockdown period to do our best in terms of building up capacity and shoring up the infrastructure that we have for the benefit of the country. For the second question, anyone who want to take that on? Maybe Albert, give it a shot?

Yes. So the challenge, I guess, is unlike disruptions in the past, the circumstances that are impacting us are more global and pervasive in nature. If we look at the financial crisis that we went through in the past, remittances held up because there were just a few areas that were impacted. Today, the economic challenges are pervasive and are impacting many parts of the world. So its impact on remittances is something we will have to see. Even -- so depending on that, it's really very difficult at this stage to be able to predict. Even as ECQ is lifted gradually, how much income will be in people's hands? So we obviously do anticipate an improvement in mobile. We will -- we do anticipate the demand for at home will continue to increase. The question is whether the rebound on mobile will be strong enough. And that, I think, to be honest, we're in a discontinuity, and that is something we will have to see, as Ernest said, closer to maybe the third quarter this year.

With regard to the question, I think there was another question on the preference for fixed line. How has it offset some of the mobile data declines? I think it's -- I think for us, we're quite fortunate that 71% of our subscribers are on fixed wireless, and a good proportion of that is on the prepaid side. And what we have seen is a quite a bit of increase -- a significant increase in the number of subscribers that have signed on to our prepaid broadband program on fixed wireless. Top-ups have increased, I think, to more than double what we've seen in the beginning of ECQ, and it's just continuing on because as we know, there is no unlimited program when it comes to fixed wireless for Globe. And that is something that's really, I think, helped us offset some of the loss in the mobile data usage. And we just see that continuing to grow. That particular segment, product segment for us, has been growing almost week-on-week since the beginning of the lockdown.

Thank you, Ernest. There are a couple of follow-up questions from Varun. First, what would be the ranking in terms of the cost for the low -- for the expected decline in revenues? Would it be lower customer spending, market share loss, lower load recharges on account of off-line store closures? What would be the ranking of these reasons? Second follow-up question. The decline in mobile data usage is counterintuitive. It has slightly been considered that mobile broadband will be the key medium for Internet usage in the PH. But if during the period, if that is not happening, then there is a disconnect. If you can provide a little bit more color.

Yes. I mean, let me answer the first question and invite Albert to chime in if he would like. For me, the main ranking of reasons, in my opinion, would be income is the #1. How quickly these people that have lost their jobs -- and a good proportion of the Philippine economy is on no-work, no-pay basis, can come back to work. Because as they say, I think in terms of statistics, a small business in the Philippines only accounts for 10% of bank lending but is responsible for 60% of all employment. So you can see how, while it looks insignificant in terms of total business size for these small businesses, they represent quite a bit in terms of employment. And majority of small business is on a no-work, no-pay basis. And majority of them will still remain closed during general quarantine. So I would say, income would be the first one. The second for me would be, again, freedom of movement because movement generates mobile data use outside of the home. Inside the home, they gravitate towards broadband, whether it's fixed wireless broadband or fixed-line broadband. Fixed wireless broadband is known, that the gigs are cheaper on a per-unit basis compared to mobile data. And so people have -- they have no need for mobility, will gravitate towards our product of fixed wireless at home and use that when they are in their homes most of the time. So use case is the second. And I reiterate again my concern about overall remittance decline, which has been fueling this economy. In the past crisis, globally, we've always seen this particular flow -- inflow, stabilize the economy. But this time, majority of the countries from where these remittances come have been hit very badly, including the United States, where the majority of these remittances come from. United States is now -- I think the number is 30 million unemployed, right? And the states are now even borrowing from the federal government just to pay unemployment benefits. We've got the Middle East that's affected, and we've got a huge segment in seafarers also quite affected. So those are the top 3 in my mind, at least, from my own perspective, at Globe. On the mobile data switch, Albert, you may have some insights on why the counterintuition, high mobile data usage versus lower top-up and lower revenue.

Yes. Just a couple of things, just to make sure we're understanding definitions and terms. When we talk mobile, it's different from wireless. So what we've seen is a shift from people using data on the go to people using data at home. So there's been a very significant increase in total wireless traffic. But we have seen a shift moving from the mobile, the mobile business, to that which is at home. Now in our case, a significant number of our subs, as Ernest said, is on a wireless platform as far as broadband services for the home are. So we've been able to take advantage of that very quickly as the infrastructure is already currently built, and so aggregate traffic has increased. The reasons why you've not seen it impacting revenues in the same way is, one, as Ernest said, the price points on data for at home are more affordable than that of mobile or cheaper than that of mobile. And the second one is, I guess, generally, as far as the mobile subscribers part is concerned, remember, we did issue certain promos in the latter part of the fourth quarter in 2019. And that's carried over into the first quarter of 2020. We did provide some COVID-related support as well on data allowances towards the end of March. So all of this combined to reduce the revenue impact of the higher consumption during that period.

Thank you, Albert. There are 3 more set of questions in the queue. Next question come from Rama Maruvada from Daiwa. She has 3 questions. First question is, what is the status of new entrant, Dito, in terms of rollout? Second question is if you can provide a competitive outlook since ECQ. And finally, with regards to the subscriber trends, to what extent is the decline a reflection of COVID-19 versus regulatory changes?

And the last question again. I'm sorry.

In terms of subscriber trend, to what extent is the decline in subscribers a reflection of COVID-19 versus regulatory changes?

You talk about the new churn policy, right, that's not -- yes. Okay. I'll answer the first question and then maybe possibly, Albert and I can tackle the second. And maybe, Rizza, you can come up and talk about the numbers coming from -- isolating the churn related to this policy now coming into normalization, right, and we're seeing churn again happen since -- in the first quarter. I would say, Dito rollout, again, I mean, you're asking the wrong company. But I just presume that whatever we see, they see and probably in -- to a much larger degree because their whole ecosystem for construction build-out and deployment is not as mature and built as ours. I don't see why it should be different for anyone trying to build whatever we're building in this particular time. You have challenges with regard to access, challenges with regard to getting workers out there, challenges with regard to contractors, challenges with regard to construction materials supply. I think these are not specific to Globe. I would presume PLDT may have the same issues. They are in the same boat as us, trying to improve and grow their network. They have a mature infrastructure like we do. So I presume that a new start-up like Dito will have the same type of issue, if not even worse, just my own opinion. The competitive outlook during ECQ, I think has been quite benign. I think a lot of the actions that were taken during this time wasn't -- such as increasing the data allocations, wasn't really one meant out of competition, but one meant out of a response to aid the public as they move towards a work-from-home scenario and a laptop scenario where they need data more and more, not only for communicating with each other, but also for entertaining themselves. So it's been quite benign. We've not seen a competitive attack, right, if you would from our competition, at least, not yet, right? Everything has been status quo pretty much from what we've seen. And on the churn, Rizza, do you have -- would you like to comment on that? The question on churn, how much of it was related to the 1 year that we've seen, that we had to let -- get past versus whatever was churn due to ECQ?

For the first quarter, there was very little impact on churn for -- related to ECQ. So the churn rates and the decline in subscribers is related to the normalization of the 1-year prepaid expiry policy. And if you look at our churn rates for our prepaid mobile products or brands, both Globe and TM, the churn rates are already approaching 6%. And if you recall, before the regulation, our churn rates were about 6.5% to close to 7%. So we can see in the next few quarters, the normalization of the churn rates pre the regulation on the 1-year expiry. So again, in summary, for our first quarter results, there's very little churn related to COVID, which is not the situation that we are expecting in the second quarter as reflected in our outlook that we have shared. And most of the churn is related to the normalization of the policy that was implemented last year.

Thank you, Rizza. There's a follow-up question from Rama. Two questions. What would be the CapEx outlook for this year and next year? And would the strategy for investments into wireless broadband versus mobile networks change going forward?

I don't think we'll be able to predict where we will end up. All I can say -- tell you is it's going to be lower than what we said. Because it all depends on how quickly we can ramp up. The number that we put out and the objectives we had were quite aggressive, just as they were last year when we did 1,200, 1,500 cell sites, and -- which means we had to have been operating at peak capacity for most of the year. And right now, we are operating at a fraction of that, and we'll have to build up once again. And again, it depends on how comfortable we can make the contractors and their -- the contractor employees in coming out and feeling safe out there doing the work. How we can convince LGUs, who you know wield a lot of control when it comes to on-the-ground type of policies, to allow us in, landlords to allow us to go into their rooftops as we build -- put antennas and base stations into those rooftops. And also, there's a lot of factors that we still have to see, given that we're still in the same condition we were. We don't get out of this supposed until May 15, and I'd like again to reserve judgment once I know and once we get a feel for how quickly and how fast our production or build capability comes back in the third quarter.

Thank you, Ernest. There are -- there's a follow-up question from Varun Ahuja. And a similar question from [ Jonathan Latuja ] of PNB Securities. Question is, could you also comment on the enterprise-side impact due to COVID-19? And if you can provide color on expected decline given businesses will begin scaling down their operations? And whether or not this will be offset by stronger demand from home?

I'll give it a shot, and maybe Albert can give his own views. I think it's going to be a given that there will be declines in enterprise from 2 fronts -- from 2 negatives: First is bad debt negative. Just as the banks are provisioning for bad debt and loan loss provisions, we have to do the same because a lot of these business are going to have difficulty coming out of this lockdown. A lot of them have not operated for almost 2 months by the time this would abate. And also, the downscaling of operations, from what I'm hearing a lot of landlords are having difficulty. And again, what they see, we will probably see as a secondary effect. If they close their stores, if they close their offices, obviously, demand for connectivity will not be there, right? There -- fortunately, for us, it's not as large a segment as our consumer segment. But I -- my own view is I'm less optimistic about the business segment, the B2B segment and the B2C segment. I believe the rebound in the consumer segment will happen much quicker than in the business segment. We -- there's very few companies that will come out as strong as telco companies or power utilities, even. And you got so much retail, so much consumption-driven type of businesses that are going to be affected that I think it's not going to be pretty when this comes out throughout the end of the year. Albert?

Yes. No, just to add, I think I totally agree with Ernest, that there will be significant challenges for the enterprise. But I think there will be pockets of opportunities within the group. The larger institutions will now start to think about digital alternatives. I think work from home will probably start to become a more permanent part of how many people will operate. And I think a lot of the investments that we've been doing of late in terms of trying to gear up on the IT type of services and products will probably help us in that particular front. And the acquisitions we've done with Cascadeo, Yondu in terms of being able to beef up our ITC type of capabilities will probably enable us to take advantage of the opportunities that will arise from that particular segment. So I think there will be some pockets of opportunities despite the overall difficulties that the segment will face.

Thank you, Albert. Next question comes from Ricardo Puig from Wealth Securities. How will the slowdown and rollout affect your capacities across various services? Are you anticipating any tightness in capacities, especially for data in the event that demand will increase further as customers resort to work-from-home arrangements.

The work-from-home arrangements are usually -- have to do with fixed broadband, both a combination of fixed line as well as fixed wireless. And obviously, if we cannot roll out as fast and demand outpaces us, then there will be congestion in the network, right? Right now, what we're seeing is that demand is steady and it peaked for a while. I think up 20-plus percent during the first 2 weeks, then it's leveled off. What has changed actually is the profile of when peak happens and where peak happens. What's changed is that the peak used to happen at certain times of the day in broadband, primarily in the evenings, right? And maybe during the commuter mobile data. Today, the peak is almost level, right? It happens throughout the day. It's a heightened level, but it's happening very even throughout the day. What's also happened is that demand for mobile data has shifted outside of the CBDs. It used to be in the CBD, the CBD, where most of the consumption of mobile data happened. That has been -- that has shifted to the outlying bedroom communities that support the CBD, right, the suburbs in other words. So those are changes that have actually happened. And obviously, if rollout is impeded, as I mentioned, there will be less capacity to support increases in demand. However, we also believe that the increase in demand could be tempered by the income pressures and economic pressures that I spoke about earlier.

Next question comes from Miguel Sevidal from BPI Securities. Are there any indications or updates on the time line of the common tower policy given ECQ? And whether or not the DICT has provided the mobile providers any new guidelines on the rollout of common towers post ECQ?

Froi, do you want to comment and I'll give my views on that, on common towers and DICT?

Yes. Thank you. There's not much discussion right now going on because of the ECQ regarding the common tower policy with the DOTC -- by the DICT. What we have right now is what we had a year before. It's still -- the implementing rules are still being finalized. And we are still left, among us telcos, to come up with our own common tower solutions. But with respect to the government, there's nothing, nothing has changed since last year. Thank you.

Yes. And with respect to actual common towers being built and offered, Carlo, you're been -- you can probably comment. There is not the single tower that's up yet, right? We've signed, again, I think my statement still hold, that we see more memorandum of agreement signed versus towers actually seen, which is 0. Am I correct, Carlo?

Yes, Ernest. Everyday -- all of the conversations with our companies right now are stuck at commercial conversations. And everyone, I think, particularly during this ECQ period, tower operations on the common tower side have been severely impacted in terms of their rollout and site acquisitions. Thank you. We have a follow-up question from Arthur Pineda. Based on the earlier comments, it appears that the ECQ had little bearing so far on 1Q momentum. Given this -- what was driving the minus 4% quarter-on-quarter reduction in revenues and the flat year-on-year trend in mobile? If we look at this on a monthly basis, was Jan-Feb healthy and then a dive in March? I'm just wondering if the softer revenues was driven by competition, if ECQ weren't a material factor in Q1.

Okay. Rizza, you want to -- and I'll comment.

Okay. Thanks for that question, Arthur. So the best way to answer that is we had a strong first 10 weeks of the quarter and a severe decline in the last 2 weeks of the quarter given ECQ. And in the first 10 weeks, we were actually tracking towards our guidance for the year in terms of revenues, which was in the low single digits. But I think what we did not disclose or did not share, obviously, in the guidance, is the mid-single-digit is sort of like a back-ended forecast, wherein revenues will gain strength quarter-on-quarter with further network builds supporting that. But if we look at our targets versus the performance in the first quarter, was actually quite strong, again, in the first 10 weeks, negated by some of the impact in the last 2 weeks.

Yes. I believe we were on track towards another pretty good year, actually, up until the 11th week when we encountered the lockdown. Everything was according to plan and according to expectation, which is first quarter, always very similar to fourth quarter, and which is always typically strong. I mean we build on it from -- for the succeeding quarters. So I don't believe it's competitive pressure at this stage. I believe it's got a lot to do with what we're in today, which is the pandemic and the crisis.

Thank you, Ernest. There are no further questions on the call. If you have any further questions, you can still send it to [ [email protected] ], and the Investor Relations team will answer it directly. Ernest, if you have any closing remarks?

No, just to let everyone know that we are trying our very best to forecast and tell you exactly what we see. However, we don't see very much as well. It's a brand-new reality for us. It's a brand-new set of conditions. We're adjusting to them. But as I said many times to our own employees, we came into this in -- as a very strong company, a strong balance sheet, strong cash flows, strong cash position and strong market position. And I do believe that what we've done to date is preserve the company and make it -- ensure its readiness to come out strong and fast once this pandemic is over and this lockdown is over. And I still believe that the fundamentals are there, the demand for our services not only, by the way, telco, but also of our fintech subsidiary, GCash, has improved in terms of prospects because more people are now aware of digital and what its importance are -- is to everyday things. The moves we've made with respect to acquiring Cascadeo and allowing us to now assist corporations more ably in their cloud and digital transformation I think is going to be key to our future moving forward. So I think as we go through and we see you guys once again at the end -- at the beginning of the third quarter to talk about the end of the second quarter or the second quarter numbers, we'll have a much better view for you on what the rest of the year holds. So until then, I hope everyone stays safe. You can e-mail us your questions, and we'll continue to answer them. Thank you very much.

Thank you, Ernest. For the information of everyone on the call, we will be posting the recorded investors briefing in our website. So thank you for joining us. We will now end this call. Thank you to the panelists.

Thank you.

Thank you very much, and have a good day.

Thank you, everyone. Thank you.