GLOBE TELECOM, INC. (Company s Full Name)

Transcription

1 SEC Number 1177 File Number GLOBE TELECOM, INC. (Company s Full Name) 5th Floor Globe Telecom Plaza (Pioneer Highlands) Pioneer corner Madison Streets, 1552 Mandaluyong City (Company s Address) (632) (Telephone Numbers) 31 December 2005 (Quarter Ending) SEC FORM 17-Q (Form Type) SEC Form 17Q - 4Q

2 SECURITIES AND EXCHANGE COMMISSION SEC FORM 17-Q QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SRC RULE 17(2)(b) THEREUNDER 1. For the quarterly period ended 31 December Commission identification number: BIR Tax Identification No Exact name of registrant as specified in its charter: GLOBE TELECOM, INC. 5. Province, country or other jurisdiction of incorporation or organization: PHILIPPINES 6. Industry Classification Code: (SEC Use Only) 7. Address of registrant s principal office: 5th Floor, Globe Telecom Plaza (Pioneer Highlands) Pioneer corner Madison Streets 1552 Mandaluyong City 8. Registrant s telephone number, including area code: (632) Former name, former address and former fiscal year, if changed since last report: Not Applicable 10. Securities registered pursuant to Sections in Securities Regula tion Code Number of shares of stock Title of each class outstanding Common Stock, P50.00 par value 131,900,430 Preferred Stock, P5.00 par value 158,515, Are any or all of the Securities listed on the Philippine Stock Exchange? Yes 12. Indicate whether the registrant: a) Has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17 thereunder or Sections 11 of the SRC and SRC Rule 11(a)-1 thereunder, and Sections 26 and 141 of the Corporation Code of the Philippines, during the preceding 12 months (or for such shorter period the registrant was required to file such reports). Yes b) Has been subject to such filing requirements for the past 90 days. Yes SEC Form 17Q - 4Q

3 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Our unaudited consolidated financial statements include the accounts of Globe Telecom, Inc. and its wholly owned subsidiaries, Innove Communications, Inc.( Innove ) and G-Xchange, Inc. ( GXI ), collectively referred to as the Globe Group in this report. The unaudited consolidated financial statements for the full year ended 31 December 2005 have been prepared in accordance with generally accepted accounting principles in the Philippines ( Philippine GAAP ) and are filed as Annex I of this report. ITEM 2. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ( MD&A ) The following is a discussion and analysis of Globe Group s financial performance for the full year ended 31 December The prime objective of this MD&A is to help the readers understand the dynamics of our Company s business and the key factors underlying our financial results. Hence, our MD&A is comprised of a discussion of our core business, and our analysis of the results of operations for each business segment. This section also focuses on key statistics from the consolidated financial statements and pertains to known risks and uncertainties relating to the telecommunications industry in the Philippines where we operate up to the stated reporting period. However, our MD&A should not be considered all inclusive, as it excludes unknown risks, uncertainties and changes that may occur in the general economic, political and environmental condition after the stated reporting period. Our MD&A should be read in conjunction with our unaudited consolidated financial statements and the accompanying notes. All financial information is reported in Philippine Pesos (Php) unless otherwise stated. Any references in this MD&A to we, us, our, Company mean the Globe Group and references to Globe mean Globe Telecom, Inc., not including its wholly owned subsidiaries. Additional information about our Company, including annual and quarterly reports, can be found on our corporate website SEC Form 17Q - 4Q

4 The following is a summary of the key sections of this MD&A: OVERVIEW OF OUR BUSINESS... 5 KEY PERFORMANCE INDICATORS... 9 FINANCIAL AND OPERATIONAL RESULTS GROUP FINANCIAL HIGHLIGHTS GROUP RESULTS OF OPERATIONS GROUP OPERATING REVENUES GROUP OPERATING REVENUES BY SEGMENTS OTHER GLOBE GROUP REVENUES GROUP OPERATING EXPENSES LIQUIDITY AND CAPITAL RESOURCES FOREIGN EXCHANGE AND INTEREST RATE EXPOSURE RECENT DEVELOPMENTS OTHER MATTERS MAJOR STOCKHOLDERS BOARD OF DIRECTORS KEY OFFICERS ANNEX I SEC Form 17Q - 4Q

5 OVERVIEW OF OUR BUSINESS Our company is a leading telecommunications company in the Philippines. We continue to grow and engage our customers through our clear commitment of Making Great Things Possible. The Globe Group is comprised of the following three focused companies: Globe provides our wireless telecommunications services; Innove, a wholly-owned subsidiary, provides our fixed line telecommunications services and information and communications infrastructure and services for internal applications, internet protocol-based solutions and multimedia content delivery. Innove currently offers cellular services under the TM prepaid brand. The TM brand is supported in the integrated cellular networks of Globe and Innove; and As part of its wireless business, Globe also provides mobile commerce services through its whollyowned subsidiary, G-Xchange, Inc. (GXI) which was incorporated in Wireless Business: Products and Services Our Company offers its wireless services including local, national long distance, international long distance, international roaming and other value-added services through three brands: Globe Handyphone, Globe Handyphone Prepaid and TM. Globe Handyphone is the postpaid brand of Globe. This includes all postpaid plans such as G-Plans and consumable G-Flex Plans, Platinum (for the high-end market), and GlobeSolutions (for corporate and business needs). Globe Handyphone Prepaid and TM are the prepaid brands of the Globe Group. Each brand is positioned at different market segments. Globe Handyphone Prepaid is focused on the broad market classes while TM is focused on mass-based market classes. To cater to a wide variety of our prepaid subscribers, we provide various top up facilities at each subscriber s convenience. Our Globe Handyphone Prepaid and TM subscribers can reload airtime value or credits using various reloading channels. They can purchase Globe Prepaid Call and Text cards in P100, P300 and P500 denominations while TM Call and Text cards are available in P50, P100 and P300. They can also utilize Globe AutoloadMAX, our over-theair (OTA) reload channel, which offers the most affordable and flexible load credits in P1 increments from P10 to P150 for our TM subscribers, and P25 to P150 for our Globe Handyphone Prepaid subscribers. Globe AutoLoadMAX is available in over 700 thousand retailers nationwide. Subscribers can also top up using bank channels like ATMs, credit cards, Internet banking and Bank of the Philippine Islands (BPI) 24 Hour Call Center, Express Phone. A consumer to consumer top up facility, Share A Load, is also available whereby our Globe Handyphone Prepaid and TM subscribers can share prepaid load credits among themselves in denominations of P1 to P150 (in P1 increment). In addition, our Globe Handyphone Postpaid subscribers can Share A Load to our prepaid subscribers in P1 to P150, P300 and P500 denominations. The newest reloading channel is G-Cash Load, where Globe Handyphone Prepaid and TM subscribers can top up their own or somebody else s SEC Form 17Q - 4Q

6 mobile phone by converting their G-Cash to prepaid load credits in P25 increments for P25 to P150 denominations. Moreover, G-Cash Load provides an automatic 5% G-Cash rebate on all G-Cash Load transactions. Additionally, Globe has customized services and benefits to address specific market segments, each with its own unique positioning and service offerings: Globe Gizmo Prepaid to cater to kids, GenTxt for the mainstream youth, Globe Girlfriends for females and Globe Kababayan for the Overseas Filipino Worker(OFW) and their families in the Philippines and Platinum, a service offering for the high-end/users market. Globe also provides our subscribers with mobile payment and remittance services under the G-Cash brand. G-Cash was formally launched last October This service enables our subscribers to perform international and domestic remittance transactions, pay annual business registration fees, income taxes for professionals, and utility bills, avail of micro-finance transactions, donate to charitable institutions, and buy Globe prepaid reloads. Wireline Business: Products and Services Innove, a wholly-owned subsidiary, provides our wireline voice communications services, including local, national long distance, international long distance and other value-added services, through its postpaid, prepaid and payphone lines, under the brand name Globelines. On June 17, 2005, Innove was awarded by the National Telecommunications Commission (NTC) with a nationwide franchise for our wireline business, allowing us to expand our network to bring together the whole nation. Under Globelines, we offer the following products and services to cater to a wide variety of our subscribers: Globelines provides state-of-the-art digital communications technologies to homes and small and medium enterprises. With the availability of postpaid or prepaid options, subscription to Globelines comes with standard features and value-added services such as IDD, NDD, Phone Lock, Caller ID, Call Waiting, Multi- Calling, Call Forwarding, Voice Mail and Duplex Number. Business Plus is a feature packed yet cost-effective telephone system that lets our clients enjoy big business efficiency on a small business overhead. Globelines Broadband is a high speed internet connection that keeps our subscribers online all the time and gets instant access to communication, knowledge and entertainment. Globe1 is our one-card for all communications needs. This prepaid card allows our customers to call using our Globelines landline, Globe Payphone, Globe Handyphone and TM. This versatile and convenient product is offered in denominations of P100 and P300 and is available in our Globelines Payments and Services Centers and prepaid card dealers. SEC Form 17Q - 4Q

7 For our wireline data services, Innove s GlobeQUEST brand offers end-to-end corporate data solutions including international and domestic data services, wholesale and corporate internet access services, data center services and segment-specific solutions customized to the needs of vertical industries. Under GlobeQUEST,we offer the following products and services to cater to a wide variety of our corporate clients: GlobeQUEST Broadband Internet offers our clients a complete range of Internet services that operate at broadband speeds over Innove s Internet backbone which is the largest in the Philippines at more than 2.5 Gbps. These services cater to both wholesale and corporate customers, among them are: Burstable GIX this flexible package allows customers to start with minimum bandwidth required and scale up to high speed level depending on the actual growth of their internet traffic. Primarily used by wholesale customers and large enterprises, this service provides the pricing flexibility that supports the ever-changing business requirements of these companies. Internet Direct offers guaranteed service levels delivered over leased line facilities, especially offered to run mission-critical applications. Corporate DSL services has three main variants: Basic, Pro, and Pro+. These variants differ in service level guarantees, and value-added services packaged with it. Universal Access services These are subscription plans available for corporate users, which enables WiFi and dial up access through a single user account. WIZ (Wireless Internet Zone), powered by GlobeQUEST, is Innove s brand for its WiFi (Wireless Fidelity)- enabled network providing broadband access on b/g in strategic locations called hotspots such as airports, hotels, coffee shops and business lounges. WIZ has more than 200 hotspots to date, including deployment to hotzones such as Ayala Center Greenbelt and Glorietta malls, Ayala Center Cebu, Alabang Town Center, NCCC Mall in Davao, Supercat Terminals in the Visayas, Mactan International Airport and Davao International Airport. WIZ also provides the infrastructure and internet access to Innove s WorldPass, Globe s Handyphone through Wiz On (text to 2333) service, and to GlobeQUEST-owned Universal Access and DSL corporate customers. WIZ also provides international roaming service with its partners, GoRemote, ipass, T-Systems among others. GlobeQUEST Private Networks offers a variety of dedicated communications services that allow customers to run various data applications, access LANs or corporate intranets and extranets with integrated voice services on high speed, efficient and reliable connections. These include domestic and international leased lines, frame relay, IPVPN, and remote access services. International data services are offered in partnership with global network service providers. GlobeQUEST DataCentres optimizes the security of mission-critical information and applications through secure data centers operated and supported by a team of IT experts. In August 2005, GlobeQUEST took over the operations of Global Data Hub in Pasong Tamo, which brought its data centers to six (6) commercially available data centers, namely: MK1 (Valero Data Center), MK2 (Pasong Tamo), MD1 (Sheridan), MD2 (Pioneer), Cebu and Laguna DataCentres. These offer complementary services to GlobeQUEST network services, ensuring that corporate customers are given end-to-end capabilities and solutions. GlobeQUEST Corporate Voice provides a full suite of telephony services, from basic direct lines to ISDN services, 1800-, IDD and NDD access, as well, as managed voice solutions which enables companies to access advanced telecommunications technology, such as managed IP communications. With the advent of SEC Form 17Q - 4Q

8 VOIP technology, GlobeQUEST is introducing new functionalities on their Corporate Voice portfolio which will drive the voice business. GlobeQUEST BroadBand Access is a network access solution that provides our customers ultra-high speed fiber optic network connectivity, over a fully redundant and diverse DWDM-based fiber backbone, designed for wholesale and corporate customers with huge bandwidth requirements, mission-critical applications and rapidly growing needs, which demand uninterrupted access for their business operations. This service offering ranges from high speed leased lines to Ethernet services and even Escon or fibre channel connections for disaster-recovery service connectivity. Today, these services are heavily used by service providers, call centers and BPO (Business Process Outsourcing) companies, as well, as banking and manufacturing institutions. SEC Form 17Q - 4Q

9 KEY PERFORMANCE INDICATORS Our Company acknowledges the importance of our shareholders and is dedicated to optimize profitability and efficiently manage our use of capital resources with a view to increasing shareholder value. We constantly review and monitor our activities and key performance indicators which we believe are important to measuring whether the implementation of our operating and financial strategies, plans and programs are successful. Some of our key performance indicators are set out below. Except for Net Income, these key performance indicators are not measurements in accordance with Philippine GAAP and should not be considered as an alternative to net income or any other measure of performance which are in accordance with Philippine GAAP. GROSS AVERAGE REVENUE PER UNIT (GROSS ARPU) Gross ARPU measures the average monthly gross revenue generated for each subscriber. This is computed by dividing recurring gross service revenues for a business segment for the period by the average number of the segment s subscribers and then dividing the quotient by the number of months in the period. NET AVERAGE REVENUE PER UNIT (NET ARPU) Net ARPU measures the average monthly net revenue generated for each subscriber. This is computed by dividing recurring net operating service revenues of the segment for the period (net of discounts and interconnection charges to external carriers) by the average number of the segment s subscribers and then dividing the quotient by the number of months in the period. SUBSCRIBER ACQUISITION COST (SAC) SAC is computed by totaling marketing costs (including commissions and handset/sim subsidies) for the segment divided by the gross incremental subscribers and then divided by the number of months in the period. AVERAGE MONTHLY CHURN The average monthly churn rate is computed by total disconnections (net of reconnections) for the segment divided by the average number of the segment s subscribers, and then divided by the number of months in the period. This is a measure of the average number of customers who leave/switch/change to another type of service or to another service provider and is usually stated as a percentage. EBITDA EBITDA is defined as earnings before interest, taxes, depreciation and amortization and other income/expense. The Globe Group uses EBITDA as an operating performance benchmark and defines it as Net Operating Revenues less Cost of Sales and Operating Expenses. Globe Group s method of calculating EBITDA may differ from other companies, hence, may not be comparable to similar measures presented by other companies. EBITDA MARGIN EBITDA margin is calculated as EBITDA divided by total net service revenues. Total net service revenues is equal to total net operating revenues less non-service revenues. This is useful in measuring the extent to which cash operating expenses use up revenue. SEC Form 17Q - 4Q

10 EBIT EBIT is defined as earnings before interest, other expenses and income taxes. This measure is calculated by deducting depreciation and amortization from EBITDA. Globe Group s method of calculating EBIT may differ from other companies, hence, may not be comparable to similar measures presented by other companies. NET INCOME As presented in the unaudited consolidated financial statements for the full years ended 31 December 2005 and 2004, net income provides an indication of how well our Company is performing after all costs of the business have been factored in. See Financial and Operational Results below. SEC Form 17Q - 4Q

11 FINANCIAL AND OPERATIONAL RESULTS GROUP FINANCIAL HIGHLIGHTS For the Full Year ended 31 December 2005 Net income for 2005 declined by 9% year-on-year. Key driving forces were soft revenues in the first half of the year offset by stronger performance in the latter half of the year, increased operating and network-related expenses, as well, as higher consolidated income tax rate of 27% for 2005, compared to 10% for 2004, due to adjustments in Innove s deferred tax assets and after Innove s shift into a taxable income position subject to the regular corporate tax rates in The tax holiday granted to Globe ended last March Capital expenditures decreased by 30% year-on-year as Globe is close to completing its aggressive network expansion, finishing the year with 5,159 cell sites increasing coverage to 92% of all municipalities and 97% of the Philippine population. Free cash flow remains strong at P19.4 billion by year end from P12.1 billion in 2004 due to lower capital investments during the year. Basic EPS reached P76.74 in 2005 from P80.92 in 2004 while diluted EPS was P76.60 and P80.78 for 2005 and 2004, respectively. For the Quarter ended 31 December 2005 Strong top line performance for the quarter with 8% quarter-on-quarter growth in consolidated service revenues to P14.6 billion. Normalized revenue growth from the previous quarter was 4%. Consolidated EBITDA margins sustained at third quarter level of 60%. Quarterly net income, including foreign exchange and MTM gains, improved quarter-on-quarter by 74% to P3.9 billion. SEC Form 17Q - 4Q

12 GROUP RESULTS OF OPERATIONS The following table details the consolidated results of operations for the Globe Group for the fourth and third quarter of 2005, and the full year ended 31 December 2005 and KEY DRIVERS (In millions of pesos) Q Q QoQ Change (%) 31 Dec Dec 2004 (Audited) YoY Change (%) Profit & Loss Data (As restated) 1 Net Operating Revenues 15,381 14,805 4% 58,748 55,609 6% Service Revenues 14,629 13,540 8% 54,897 52,741 4% Non-Service Revenues ,265-41% 3,851 2,868 34% Costs and Expenses 9,898 11,523-14% 44,566 42,886 4% Cost of Sales 991 1,717-42% 6,025 6,675-10% Operating Expenses 5,574 5,013 11% 20,751 16,039 29% Depreciation and Amortization.. 4,148 4,020 3% 15,734 14,706 7% Financing. (370) 1, % 3,141 6,327-50% Interest Income (155) (137) 13% (520) (454) 15% Others - net. (291) (92) 216% (578) (407) 42% Equity-Net Losses of An Associate & JV.. 100% % EBITDA 8,816 8,075 9% 31,972 32,895-3% EBITDA Margin.. 60% 60% 58% 62% EBIT. 4,668 4,054 15% 16,238 18,189-11% Provision for Income Tax... (1,609) (1,055) 53% (3,867) (1,327) 191% Net Income... 3,874 2,227 74% 10,315 11,396-9% 1 Prior period figures have been restated due to the adoption of various Philippine Accounting Standards (PAS) and Philippine Financial Reporting Standards (PFRS) on 1 January (See related discussion in the attached financial statements) GROUP OPERATING REVENUES Service Revenues For the full year 2005, the Globe Group s total net operating revenues improved by 6% to P58,748 million from P55,609 million in 2004 while total net service revenues increased by 4% to P54,897 million in 2005 from P52,741 million in Wireless service revenues, which accounted for 88% of net service revenues in 2005, grew by 3% year-onyear to P48,481 million. Meanwhile, wireline service revenues, which accounted for the remaining 12% of net service revenues in 2005, grew by 13% year-on-year to P6,416 million. Non-Service Revenues We also registered non-service revenues of P3,851 million for the full year 2005, a 34% increase from last year s P2,868 million due mostly to higher year-on-year handset sales contributed by subscriber acquisitions. Non-service revenues are reported net of discounts on phonekits and SIM (Subscriber Identification Module) packs. The cost related to the sale of handsets and SIM packs are shown under cost of sales. The difference between non-service revenues and cost of sales is referred to as subsidy. For the full year 2005, subsidies dropped by 43% to P2,174 million from P3,807 million in This is in line with the decline in gross subscriber additions following the end of the SIM swap activities last May 2005, and as part of an overall thrust to reduce subsidies in favor of more cost-effective subscriber acquisition and loyalty programs. SEC Form 17Q - 4Q

13 GROUP OPERATING REVENUES BY SEGMENTS For the full year ended (in millions of pesos) 31 December 2005 Globe Group 31 December 2004 YoY change (%) Wireless 52,229 49,903 5% Service Revenues.. 48,481 47,054 3% Non-Service Revenues. 3,748 2,849 32% Wireline 6,519 5,706 14% Service Revenues 6,416 5,687 13% Non-Service Revenues % Net Operating Revenues. 58,748 55,609 6% A. Wireless Business Globe For the full year ended (in millions of pesos) 31 December December 2004 YoY change (%) Service 48,481 47,054 3% Voice ,945 27,630 5% Data ,536 19,424 1% Non-Service ,748 2,849 32% Wireless Net Operating Revenues.. 52,229 49,903 5% 1 Wireless voice net service revenues include the following: a) Monthly service fees on postpaid plans & subscription fees on prepaid services; b) Charges for intra-network and outbound calls in excess of the free minutes for various Globe Handyphone postpaid plans, including currency exchange rate adjustments, or CERA net of marketing promotions credited to subscriber billings; c) Airtime fees from prepaid reload denominations (for Globe Handyphone Prepaid and TM) for intra network and outbound calls recognized upon the earlier of actual usage of the airtime value or expiration of the unused value of the prepaid reload denomination which occurs between 1 and 60 days after activation depending on the prepaid value reloaded by the subscriber net of (i) bonus credits* ii) prepaid reload discounts; and d) Revenues generated from inbound international and national long distance calls and international roaming calls; and Revenues from (a) to (d) are net of any interconnection or settlement payouts to international and local carriers. * Included airtime on SIM cards provided under Globe s SIM swap program which was concluded last May Wireless data net service revenues consist of revenues from value-added services such as inbound and outbound SMS and MMS, content downloadin g and infotext net of any interconnection or settlement payouts to international and local carriers and content providers. 3 Wireless non-service revenues consist principally of sales of handsets, phonekits, accessories and SIM packs. Overall, the wireless business recorded a 5% year-on-year increase on its net operating revenues to reach P52,229 million for the full year ended 31 December This is mainly attributable to growth experienced in both our voice and data sectors, as well, as in our non-service revenues. These results are further driven by the following key drivers set out in the table below: SEC Form 17Q - 4Q

14 KEY DRIVERS Q Q QoQ Change (%) 31 Dec Dec 2004 YoY Change (%) Cumulative Subscribers (or SIMs*) Net (End of period) 12,403,575 12,409,238-12,403,575 12,513,973-1% Postpaid. 594, ,929-3% 594, ,495-6% Prepaid. 11,809,433 11,795,309-11,809,433 11,883,478-1% Globe Handyphone Prepaid 8,699,687 9,227,769-6% 8,699,687 10,185,154-15% TM 3,109,746 2,567,540 21% 3,109,746 1,698,324 83% Average Revenue Per Subscriber (ARPU) Gross ARPU Postpaid. 2,349 2,199 7% 2,246 2,138 5% Prepaid 1 Globe Handyphone Prepaid % % TM % % Net ARPU Postpaid. 1,722 1,588 8% 1,635 1,605 2% Prepaid Globe Handyphone Prepaid % % TM % % Subscriber Acquisition Cost (SAC) Postpaid. 4,303 5,462-21% 7,026 9,886-29% Prepaid Globe Handyphone Prepaid % % TM % % Average Monthly Churn Rate (%) Postpaid. 2.6% 4.4% 3.1% 2.6% Prepaid Globe Handyphone Prepaid. 8.2% 8.3% 7.8% 5.5% TM % 10.2% 9.5% 12.7% Wireless Data Net Service Revenues (in millions of pesos)... 4,918 4,661 6% 19,536 19,424 1% Wireless Data as a % of Wireless Net Service Revenues. 38% 41% 40% 41% Wireless Data Net Service Revenues includes.. Regular SMS. 82% 83% 83% 81% International SMS. 8% 8% 8% 9% Value-Added Services 10% 9% 9% 9% *The word subscriber may be used interchangeably with the term SIM. 1 Revenue from a prepaid subscriber is realized upon actual usage of the airtime value (pre-loaded airtime value of SIM cards and subsequent top-ups) for voice, SMS, MMS, content downloading and infotext services net of free SMS allocation, bonus credits (included airtime on SIM cards provided under Globe s SIM swap program which was concluded last May 2005) or the expiration of the unused value, whichever comes earlier. Proceeds from the sale of prepaid cards, airtime value through electronic load services such as ATM and airtime value through over-the-air (OTA) reloading are treated as deferred or unearned revenues are shown under the liabilities section of the balance sheet since the service has not yet been rendered. SEC Form 17Q - 4Q

15 Wireless net service revenues registered a 3% year-on-year growth from P47,054 million to P48,481 million for the full year 2004 and 2005, respectively. This 3% growth was driven by a 5% increase in voice service revenues, particularly in international voice and roaming services, despite a 1% drop in wireless subscribers. Total gross subscriber additions for the full year 2005 decreased by 2% year-on-year to 11.6 million compared to 11.9 million in On the other hand, net additions contracted by 103% to a net reduction of 110,000 subscribers for the full year 2005 against 3.7 millio n net additions in 2004, hence, a higher churn rate of 7.9% at the consolidated level from 6.4% in The higher year-on-year consolidated churn was driven by higher terminations of non-revenue generating subscribers in the Globe Handyphone Prepaid segment. Non-revenue generating subscribers for Globe Handyphone Prepaid relates to subscribers acquired during the SIM-swapping activities that were subsequently churned out after their second expiry. In addition, there were also non-revenue generating subscribers related to trade scooping, where large volumes of SIMs are purchased in order to take advantage of SIM-swap activities in the market. The free SIM-swap program, which was launched in February 2004 allowed subscribers of another mobile network to switch to Globe by exchanging their active SIM cards for Globe Handyphone Prepaid or TM SIMs. This elevated level of churn involving non-revenue generating subscribers is not expected to recur as the SIM-swap program was discontinued in May Wireless data net service revenues increased by 1% to P19,536 million in 2005 from P19,424 million in To encourage brand loyalty and stimulate usage of wireless data services, Globe launched its CelebRATE! promotion last June 2005 that offered discounted call and text rates for intra-network calls and text messages. This promotion included the Globe Text NonStop offer that allows heavy SMS users the option to send unlimited intra-network text messages for P15 for 1 day, P25 for 2 days and P50 for 5 days. This offer was later supplemented with a P100 option for 10 days of unlimited text messaging. TM also launched its own Todo Text promotion which had P10 for 1 day, P25 for 3 days and P50 for 7 days denominations which has been extended to February To encourage subscribers to try the promotion, TM came up with its TM Todo Text Sampler that allows subscribers free unlimited text for 5 days for a minimum P25 load. TM subscribers were also offered a low text messaging rate of P0.75 per message sent and this promotion has been extended to 14 February Other promos launched to drive usage of wireless data services include Visibility service, which provides data access via GPRS, EDGE, WiFi and dial-up transport channels on a pay-per-use arrangement or four universal access plans, and GPRS Discounted Off-Peak Rate promotion which allows subscribers to avail of a 33% discount (P0.10 per kilobyte) on Globe s GPRS (General Packet Radio Service) rates when used from 12 midnight to 8 am (launched in the fourth quarter of 2005). Postpaid For the full year ended 2005, our postpaid sector comprised approximately 5% of our total subscriber base. The postpaid subscriber base reached 594,142 in 2005 which is 6% lower than the previous year. This is mainly due to the increased incidence of Globe-initiated credit-related terminations resulting in a slight increase in average monthly churn of 3.1% in 2005 from 2.6% in Based on the Company s policy on postpaid subscribers, permanent disconnections are made after a series of collection steps following non-payment. Such permanent disconnections generally occur within a predetermined number of days from statement date. However, despite the slightly higher monthly churn rate in 2005, we posted a 30% increase in gross additions registering 191,732 subscribers from 148,015 generated in 2004 due to our aggressive subscriber acquisition campaigns and promotions. The net reductions in our postpaid sector were also 33% lesser at 36,353 compared to 54,531 subscribers in SEC Form 17Q - 4Q

16 Our postpaid segment contributed an average net ARPU of P1,635, an increase of 2% from last year s average of P1,605 while gross ARPU increased by 5% to P2,246 from P2,138. The slight increase in both gross and net ARPU was due to a richer subscriber mix, as well, as higher voice usage resulting from usage and tariff promotions launched in the second half of Given the intense price competition, Globe started a number of value promotions during the second and third quarters of 2005 which addressed key segments and specific consumer needs. For heavy voice users within our network, we offered Globe CelebRATE! Call (P10 for a 3-minute call). For IDD users, we introduced Budget IDD rates at US$0.20, starting on the first minute, for IDD calls to selected destinations. (See related discussion in Other Globe Group Revenues International Long Distance Services section) Additionally, on 17 December 2005, Globe led the market with its launch of the 10 centavos/second call promo, which allowed intra-network calls on a per-second charging basis aimed at increasing voice usage among its subscribers. Due to the positive response from our subscribers, this promo has been extended through 14 February As a result of our deliberate shift to a more focused approach in targeting consumer segments, acquisition subsidies were reduced, resulting in a 29% drop in SAC to P7,026 in 2005 from P9,886 in Handset subsidies merely comprised 86% of total SAC compared to 95% in Prepaid For the full year 2005, our prepaid segment made up 95% of our total subscriber base. Prior to the third quarter of 2004, a prepaid subscriber was recognized upon the activation and use of a new SIM card. The subscriber was provided with 60 days (first expiry) to utilize the preloaded airtime value. If the subscriber did not reload prepaid credits within the first expiry period, the subscriber retained the use of the wireless number, but was entitled only to receive incoming voice calls and text messages for another 120 days (second expiry), except for the first reload of SIM-swappers that was required within only 30 days from the first expiry. However, if the subscriber did not reload prepaid credits within the second expiry period, the account would be permanently disconnected and considered part of churn. The first expiry periods of reloads vary depending on the denominations, ranging from 1 day for P10 to 60 days for P300 to P1,000 reloads. The second expiry is 120 days from the date of the first expiry. The first expiry is reset based on the longest expiry period among current and previous reloads. Under this policy, subscribers are included in the subscriber count until churned. Acknowledging the changing dynamics of the industry and the introduction of the SIM-swap program, Globe updated its policy in recognizing a subscriber in its total count based on the subscriber intent to use the service. Starting the third quarter of 2004, a SIM-swapper was only considered a subscriber upon making the first reload. Non-SIM swap subscribers or regular subscribers are recognized upon activation and use of a new SIM. Accordingly, subscribers not considered in the subscriber count were not considered as part of churn. However, the nationwide SIM-swap program has since been discontinued beginning May Overall, our consolidated prepaid subscribers decreased by 1% to 11.8 million in 2005 from 11.9 million in 2004, as Globe culled out the non-revenue generating subscribers related to its SIM swap program starting May Net incremental prepaid subscriber base fell by 74,075 in 2005 compared to the 3,708,621 incremental prepaid subscribers generated in However, gross prepaid additions remained strong driven mostly by 57% year-on-year growth in gross additions from the TM brand from 2.6 million in 2004 to 4.1 million in Globe Handyphone Prepaid likewise added 7.3 million subscribers in 2005 but registered a 19% decrease compared to the 9.1 million new subscribers in The current subscriber counts and churn rates for our prepaid segment have been heavily influenced by the SIM-swap program. The succeeding sections discuss Globe Handyphone Prepaid and TM in more detail. SEC Form 17Q - 4Q

17 Globe Handyphone Prepaid The Globe Handyphone Prepaid subscriber base totaled 8.7 million by the end of 2005 which is 15% lower than the 10.2 million subscribers in Due to stiff competition and the termination of the free SIM-swap program, gross additions for 2005 decreased by 19% to 7.3 million subscribers from 9.1 million in 2004 The average monthly churn rate also reached 7.8% in 2005 compared to 5.5% for the previous year mainly due to the termination of non-revenue generating subscribers, which were mainly SIM-swappers and trade scoopers who were subsequently churned out after their second expiry. Of the total full year disconnections of 8.8 million, approximately 58% or 5.1 million of the terminated subscribers were related to SIM swap activities or non-revenue generating subscribers. During the fourth quarter, 51% of Globe Handyphone Prepaid churn was contributed by the expiry of these non-revenue generating SIMs. Of the 51%, 31% came from disconnections related to previous SIM-swap offers while the remaining 69% came from trade scooping activities. Another 4% was related to the immediate disconnection of ISR SIMs captured in our fraud monitoring system. As such, only 45% of the total churn for the quarter related to normal churn. Normal monthly churn rate for Globe Handyphone Prepaid was at 3.7%. Based on the Company s churn policy, the last of the non-revenue SIMs were churned during the fourth quarter of 2005, after the lapse of their second expiry period. Gross and net ARPUs for Globe Handyphone Prepaid decreased by 10% and 12% respectively, despite higher voice and data usage during the last quarter of 2005, due to flat revenues in the earlier quarters as a result of competition and price-discounting promotions launched during the year. The increased traffic volume during the fourth quarter can be attributed to the Text NonStop offer, P10 for a 3 minute call, Budget IDD Rates and the 10 centavos/second call promotions, as well as traditional heavy usage with the year-end holidays. SAC dropped by 7% to P248 in 2005 from P267 the previous year due to lower gross subscriber acquisitions and SIM pack subsidies. In 2005, handset subsidies comprised 40% of total SAC while advertising and promotions contributed 57% and commissions made up the balance of 3% compared to 63%, 35% and 2%, respectively, in TM 2005 was a banner year for TM as it posted gains on all key operating metrics gross and net acquisitions, churn rates, ARPUs, and SACs. Cumulative TM subscribers reached 3.1 million by the end of 2005 after a 57% increase in gross additions and an outstanding 618% improvement in net additions compared to The relaunch of TM in January 2005, supported by competitive value promotions resulted in significant acquisitions for the brand. The average monthly churn rate for TM registered at an improved rate of 9.5% for the full year 2005 against the 12.7% in TM s churn in 2005 was affected by Globe-initiated terminations of TM SIMs found engaging in International Simple Resale (ISR) activities which are illegal in the Philippines. For the full year 2005, terminations due to ISR activities accounted for 29% of total year-to-date churn. Excluding terminations due to ISR activities, the average monthly churn rate for the full year 2005 would only be at 6.7%. Because of early detection of this illegal usage and the immediate SIM disconnection, SEC Form 17Q - 4Q

18 the impact to the Company s financial performance has been minimized. (See related discussion in ILD section) Gross and net TM ARPU in 2005 improved by 16% and 17% year-on-year compared to The increased ARPU was driven by higher voice and data usage by TM subscribers on account of the Todo Tawag 15/15 (P15 for a 15 minute call), 10 centavos/second call and Todo Text promotions. SAC dropped by 40% to P90 in 2005 from P151 the previous year due to higher gross subscriber acquisitions despite increased SIM pack subsidies. In 2005, handset subsidies comprised 38% of total SAC while advertising and promotions contributed 60% and commissions made up the balance of 2% compared to 77%, 20% and 3%, respectively, in G-Cash With G-Cash celebrating its first year anniversary, it continues to grow and establish presence in the mobile commerce industry. From G-Cash s initial thrust towards money-transfers, purchase of goods and services from retail outlets, and sending and receiving domestic and international remittances, the service, over a span of one year, created a whole new series of creative possibilities in the field of mobile commerce. Today, G-Cash allows Globe and TM subscribers to pay for the following using their mobile phone s text messaging service: utility bills interest and amortization of loans insurance premiums donations to various institutions and organizations sales commissions school tuition fees micro tax payments (for annual business registration) As of 31 December 2005, there were over 1.2 million registered users of G-Cash generating an average of almost P3 million in total daily transactions from over 500 partner establishments with over 4,500 outlets nationwide including more than 200 international partner outlets in 14 countries. SEC Form 17Q - 4Q

19 B. Wireline Business In order to meet focused customer demands and grow specific market segment opportunities, Innove organized its businesses into two main groups Residential & Business and Corporate. The Residential & Business group, which operates under the Globelines brand, handles the consumer and the small and medium business (SME) segments. On the other hand, the Corporate group, which operates under the GlobeQUEST brand, is in charge of enterprises, wholesalers, resellers and our channel partners. As Innove is adopting customer-centric market approach, which allows it to develop products based on specific business requirements and to better serve the varied needs of its customers, it reorganized itself into four (4) focused groups to cover the fixed line and wireless business segments Residential, SME Business group and two (2) new segments under the Enterprise Business Group or EBG. The EBG was developed in response to the corporate customers changing needs and preferences for integrated mobile and fixed line communications solutions. The EBG will consist of EBG Globe Solutions, which is the corporate wireless business group of Globe, and EBG GlobeQUEST, the corporate wireline group of Innove. For the full year 2005, our wireline business recorded a double -digit growth of 14% in total wireline net operating revenues. As shown in the table below, the overall 14% growth is attributable to growth experienced in both our voice and data segments, as well, as in our non-service revenues. Our voice segment grew by 11% year-on-year to register P4.4 billion in net service revenues in 2005 while our data segment posted a 16% year-on-year growth in net service revenues to reach P2.0 billion at the end of the year. Innove 31 December 31 December YoY change For the full year ended (in millions of pesos) (%) Service 6,416 5,687 13% Voice 1. 4,396 3,945 11% Data 2.. 2,020 1,742 16% Non-Service Revenues % Wireline Net Operating Revenues... 6,519 5,706 14% 1 Wireline voice net service revenues consist of the following: a) Monthly service fees including CERA; b) Revenues from local, international and national long distance calls made by postpaid, prepaid wireline subscribers and payphone customers, net of (i) prepaid and payphone call card discounts (ii) bonus credits and (iii) marketing promotions credited to subscriber billings; c) Revenues from inbound local, international and national long distance calls from other carriers terminating on our network; and d) Installation charges and other one-time fees associated with the establishment of the service. Revenues from (a) and (b) are net of any interconnection or settlement payments to domestic and international carriers. 2 Wireline data net service revenues consist of revenues from: a) International and domestic leased lines; b) Internet services c) Other wholesale transport services and d) Revenues from value-added services. 3 Wireline non-service revenues consist principally of sales of handsets and accessories. SEC Form 17Q - 4Q

20 Wireline Voice For the full year ended (in millions of pesos) 31 December 2005 Innove 31 December 2004 YoY change (%) Voice Net Service Revenues... 4,396 3,945 11% Net Non Service Revenues % Total Voice Operating Revenues.. 4,408 3,964 11% The 11% year-on-year growth in our wireline voice segment is mainly attributable to the 11% growth in net service revenues. The key drivers behind this double-digit growth in our voice segment are as follows: KEY DRIVERS Q Q QoQ Change (%) 31 Dec Dec 2004 YoY Change (%) Cumulative Voice Subscribers - Net (End of period) , , , ,094 12% Consumer Broadband Subscribers Net (End of period) ,479 18,255 23% 22,479 7, % Average Revenue Per Subscriber (ARPU) Gross ARPU. 1,182 1,193-1% 1,233 1,272-3% Net ARPU. 1,048 1,056-1% 1,087 1,112-2% Average Monthly Churn Rate % 1.6% 1.7% 1.5% 1 Broadband subscriptions by existing fixed line subscribers. As of 31 December 2005, Innove increased its total wireline voice subscribers by 12% to 362,143 from 323,094 in For 2005 and 2004, 62% of total subscribers were postpaid while 38% were prepaid while business/residential mix was 18:82 for both years. With our growing broadband business, consumer broadband subscribers registered a remarkable year-on-year increase of 189% to 22,479 by the end of This is attributable to the various marketing promotions and services launched during the third and fourth quarters of 2005 such as the GLBB PC Bundle Promo and the Broadband Sales Blitzes. Traffic volume also increased by 36% year-on-year to 777 million minutes in 2005 from 571 million minutes in 2004 generated from both the postpaid and prepaid segments, due to the increased subscriber base, as well, as the success of promotions launched to increase both domestic and international usage. The increase in subscribers, as well, as the higher traffic volume have contributed to the 11% increase in total net service revenues in However, due to a drop in collection rates, net and gross ARPUs have registered marginal decreases as shown in the table. Churn rates for 2005 have also slightly increased year-on-year to 1.7% from 1.5%, driven mostly by higher disconnections in the postpaid service due to company-initiated clean up of delinquent accounts. SEC Form 17Q - 4Q

21 Wireline Data For the full year ended (in millions of pesos) 31 December 2005 Innove 31 December 2004 YoY change (%) Data International % Domestic % Others % Net Non Service Revenues Total Data Operating Revenues.. 2,112 1,742 21% 1 Includes revenues from value-added services and corporate internet services. On the wireline data front, total operating revenues grew by a remarkable 21% to P2,112 million at year end from P1,742 million in This strong revenue growth was driven mostly by DL (Domestic Lease Lines), IPL (International Private Lease Lines) and corporate internet services in terms of better bandwidth and circuit indicators. SEC Form 17Q - 4Q

22 OTHER GLOBE GROUP REVENUES International Long Distance (ILD) Services Globe Group For the full year ended 31 December 31 December YoY change (%) Total ILD Revenues (in millions of pesos). 13,526 12,622 7% Total ILD Revenues as a percentage of net service revenues.. 25% 24% Total ILD Minutes (in million minutes) 1. 1,469 1,271 16% Inbound 1,251 1,082 16% Outbound % ILD Inbound / Outbound Ratio (x) ILD minutes originating from and terminating to Globe and Innove networks. On a consolidated basis, ILD revenues from the Wireless and Wireline services increased by 7% to P=13,526 million in 2005 compared to P=12,622 million in The increase was mostly driven by higher traffic during the second half of 2005 due to the strong holiday demand and encouraged by various IDD promotions from the wireless (Globe Budget IDD) and wireline (Globelines Lowest IDD Rates) groups. Both Globe and Innove offer ILD services which covers international calls between the Philippines and over 200 countries. This service generates revenues from both inbound and outbound international call traffic with pricing based on agreed international termination rates for inbound traffic revenues and NTC-approved ILD rates for outbound traffic revenues. On 1 June 2005, Globe started its IDD CelebRATE! promo aimed at heavy IDD users among its wireless postpaid subscribers. For selected destinations, the promo offered an IDD rate of US$0.20 per minute after the first 4 minutes, with the first 4 minutes to be charged the prevailing rate of US$0.40 per minute. This promotion subsequently included Globe Handyphone prepaid subscribers and ended on 27 September On 28 September 2005, the Globe Budget IDD promotion was launched to all wireless subscribers, with a flat rate offering of US$0.20 per minute, starting on the first minute, for IDD calls to 10 destinations namely, US, Canada, China, Malaysia, Hong Kong, Singapore, Thailand, South Korea, Taiwan and Australia. Due to the positive response to this promo, this was subsequently extended to the fourth quarter of 2005 up to February 2006 and now include two additional IDD destinations, United Kingdom and Kuwait. On 14 September 2005, Globelines launched its Lowest IDD rates promotion for its Globelines subscribers, Globe1 card users and Globelines Broadband subscribers. Globelines postpaid subscribers were charged US$0.20 per minute for IDD calls to selected countries while, starting November 2005, Globe1 card users could make IDD calls for P4.50 per minute to 10 destinations from Globelines postpaid and prepaid lines including payphones nationwide. To ensure that the company fully benefits from the increased ILD volume, we continue to actively monitor ISR operations passing through our networks. An ISR operation is a method of terminating inbound international calls without passing through the normal International Gateway Facility (IGF). ISR operations involve routing inbound international calls through pr ivate leased lines or IP data lines, and then terminated to the called party through a local cellular or fixed line number. As the ISR operators terminate an inbound IDD call as a local call, they are able to offer lower rates to foreign carriers than current termination rates. If SEC Form 17Q - 4Q