Why Converge thinks it’s the next big thing in telco

Shares of Converge ICT Solutions slipped following its stock market debut this week, as investors speculated that the company valued itself too much.

But for its executives and founders, the price is just right, as Converge targets immense growth under the so-called new normal.

History

Dennis Anthony Uy, Converge founder and chief executive officer, emphasized the company’s track record:

• Its subscriber base has grown 10 times since 2016.
• It has 730,000 residential subscribers as of June 30, which was double compared to 2019, and it serves more than 10,000 businesses in the Philippines.
• It has captured 55% market share of new residential subscriptions since 2018.

“I moved to the Philippines from China when I was 11 years old. From an early age, I was passionate about business and technology, turned this passion into a reality, and built several businesses. In 2012, I took everything I had and put it all into Converge. Since then, Converge has been capturing this huge market opportunity,” Uy said.

Services

Uy said Converge is built upon an end-to-end fiber network which can deliver speeds up to 25 times faster than the more prevalent copper. Globe and PLDT-Smart have existing fiber networks as well.

The network also has excess capacity that makes it scalable and future-proof.

Converge chief operating officer Boboy Romero said “it is built with 1.6 times backbone capacity relative to the industry, allowing us to address future demand and inject greater speeds without needing to incur additional capex (capital expenditure).”

Romero added that the network has greater proximity to households, allowing the company to complete installations faster at a lower cost and with higher reliability.

The money

Converge chief financial adviser Matthias Vukovich said the company has an average revenue per user (ARPU) of P1,300 from residential subscribers and P25,000 from business subscribers.

In the 1st half of 2020 alone, revenues reached P6.5 billion, a 65% growth compared to the same period last year.

In 2019, revenues stood at P9.1 billion.

The market

Uy noted that there is only 9% subscriber fiber penetration in the Philippines, making it one of the most underpenetrated markets in Asia.

“Our internet connectivity is also among the slowest speeds and least reliable in the region,” Vukovich said.

According to Uy, Converge dominates a market that is severely underserved, which presents a “blue ocean opportunity” for the company.

He sees massive growth ahead, as the young Philippine population is the biggest internet consumer in the world.

Projections, plans

Converge president Grace Uy expects the company to sustain the current 65% growth, 50% margin, and 20% return on invested capital (ROIC) figures in the long run.

Vukovich said they aim to expand their network to tens of thousands of communities in the Philippines.

They plan to do so by spending P29 billion in the next 18 months, which was raised from the initial public offering, to accelerate growth and get closer to their goal of reaching 55% of total Filipino households by 2025.

Most of their subscribers are in Metro Manila, but executives noted that the infrastructure for the Visayas and Mindanao will be rolled out in 2021.

Converge will not venture into the mobile space, but aims to dominate the market preferring stable internet in their homes or offices. – Jacob Reyes/Rappler.com