#TalkThursday with Ernest Cu: the future of mobile

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MANILA, Philippines – Maria Ressa talks to Ernest Cu, CEO and President of Globe Telecom on the future of telecommunications and the role mobile communications plays in development in this edition of #TalkThursday. It was streamed live at 2:00PM (Manila time) on December 20, 2012.

#TalkThursday is Rappler’s weekly forum for discussing timely ideas with today’s relevant thought leaders. – Rappler.com

Raw transcript

December 20, 2012

Maria Ressa: Today we’re joined by Globe’s CEO and president, Ernest Cu to talk about exciting developments ahead. Ernest, thank you for joining us for TalkThursday.

Ernest Cu: My pleasure Maria, it’s great to see you.

Ressa: It’s good to have you here. Because everyone is talking about telcos, can you tell us where are we today in the country in terms of telecommunications – how do we fare?

Cu: We fare very well in terms of technology. We are not falling behind at all. AS a matter of fact, the sophistication of our networks here, and I’m taking about both companies, is nearly at par with most countries. We are one of the first countries to roll out LTE; and, again, both networks are arguing that what’s lagging behind if there is any is the adoption of smartphones. We are at about… Globe, with the bigger postpaid based is probably leading, at around 20 percent, you would say adoption in terms of our total base. And that is also expected to accelerate in the next year given that the pricing for smartphones are down now with android phones as low as USD60 now in the market. As a matter of act, in Globe, you can usually an actually decent android phone and a decent android experience at plan299. Which at that point I think becomes really fit for the mass market. So really in terms of infrastructure, once everything is done for Globe and I believe our competitors are doing the same thing, we should have a really decent technology that’s out there.

Ressa: So when you say that we are behind in Android, you are talking about the infrastructure?

Cu: No, we were behind in the adoption of the phones people have in their hands.

Ressa: And yet, we were number 1, 326 percent adoption rate for androids this year, that’s right?

Cu: That’s the growth rate, probably. And it’s continuing to accelerate. As I said, as the handset is becoming more affordable, people do, because of our nature as Filipinos –leading facebook country, very active on twitter and the like, there is no question in my mind that they’d prefer to be always connected via an android rather than the normal 2G.

Ressa: Globe has been around far longer time than your competitor, but now we are going through lots of complaints of services. What are you doing?

Cu: Well, first of all, what we are doing is a major transformation in our network. I think you’ve heard many… released stories in the press about that. It is a USD700 transformation in the network. We are replacing our whole network. We made a decision over a year ago that the current network is not going to make it in terms of handling the traffic that’s going to come from what you’ve mentioned, the acceleration of smartphones. Because the networks in the country were built to handle mostly SMS traffic because that was what the traffic was. So we are creating a new network that is going to be much more fit to handle data traffic. And data traffic is accelerating at the fastest phase among the three types of services we do, which are voice, SMS and mobile data. And it’s growing almost exponentially almost quarterly basis.

Ressa: And what is the difference in the strategy of the two telcos?

Cu: I’m not going to speak about others. But will speak about our strategy. Our strategy is to be more holistic to the infrastructure rather than go and catch up the network to try and adopt it to the current usage. WE would rather replace brand new next generation into the country and that way we are future-proof for the next so many years. We’re ready for LTE for instance as we build it. On top of that, we are also modernizing our IT systems. A part of maybe the customer concern is the difficulty we are having in tracking histories, the length of time it takes an agent or a scoreliner to provide service because they have to go through multiple systems. By first quarter of next year, we are implementing a brand new bidding system with a brand new CRM system that shall allow the agent to be much more efficient. So if you are maybe handling much more calls resolving more calls in one session, first time resolution and so on, because the capability of the new system will be able to track more of what the user is doing. Today, it is more difficult with the older system, 15-year old system.

Ressa: so today, you really are revamping from the ground level.

Cu: It is basically almost like going to be brand new telco. With fresh infrastructure on the network site, leading edge IT in the back end. The other thing that is also going to be important is the real time concept for postpaid users, where, in real time, your bills are going to be viewed on the screen. You make a phone call, and within minutes you go and look at the web and it is already posted. And it does several things. Today, most of the bills in the Philippines are usually batch mode in terms of posting. In that method, there will be a danger of overreaching your credit limit, you go beyond it. Because the bills, the record comes after the file. In this one, we can truly honor, warn you that you are approaching it. WE could warn you how much data you’ve used, if you are exceeding it, and that sort of thing.

Ressa: When will that be?

Cu: Sometime in the first quarter, we are going to go online with that system.

Ressa: There are a lot of questions coming in for you, Ernest. I am just going to dump them and ask you in one go. Technical, you mentioned this. Is it true that you’ve made a major change from Cisco routers to Huawei.

Cu: That’s very specific. But Cisco remains a partner of Globe. While Huawei is in the mobile side of our network. But we used multiple brands of routers in the company. We use Erickson.

Ressa: Another technical question, the development Bayantel CDMA network, when is the full rollout of 4G and LTE?

Cu: Well the Bayantel CDMA network is not being developed anymore. We are not doing anything with that at all. Even once we gained control of that company. But for 4g and LTE, right now it is in Makati. We expect to roll out it in full force beginning next year, in January. WE already have a plan to do almost a thousand sites in one year all over. It will be done in stages, as we did in Makati. We opted to go for a full coverage contiguous area type of strategy rather than patchwork like we once did in our 3G roll out. So we are probably going to do the metros first, Cebu, Davao, probably all of the major metros and the huge population of smart calls and the higher propensity for people to buy LTE devices because the LTE devices today are quite expensive to begin with. In terms of handset, iPhone 5, the Galaxy S3LTE, or the leading devices and you all know that they are in the high end and very expensive to purchase on their own.

Ressa: So we have both the customer service and services are the two main questions. Let me throw a few at you and you can answer them in one shot. Been a globe user several years, victims of countless misinformation of representatives of Globe, what are you doing to improve service? A similar question, how do you plan to answer or act on the negative feedback especially on SNS about globe services? And how can you improve Globe customer service? If the signal is crappy, maybe we can improve with how they relate and pacify customers.

Cu: On the customer service side, on the frontline call center side, actually we are working very hard at this. The first part that we are able to solve is people getting able to call in. In the past, it was difficult to call into globe. We solved the issue by fixing some of our IVR systems, by moving people off to different channels like self-serve, and also putting up a social network team that could answer complaints on Twitter or chat with you for service help. We’ve honestly solved it. The queues are largely moving now and there’s really no issues on the queues. So when people get to call in, they get to critique now, the quality of the service, or the interactions.

Ressa: A more demanding market now, isn’t it?

Cu: Exactly. Now what we are doing is we’re training the staff now, because we hae to retrain a lot, bring on new people, right? So getting them familiar with the product, the services, the type of interactions, and now that we’re at the next stage, we’re again reaching to provide more empowerment to those agents, so that’s there’s no more of this, what they call, they always criticize us, we’re robotic type of conversations You know, we’re going to be a bit more interactive, we’re going to give the agents the ability to solve the problem on-the-spot, right? So that’s going to happen, again that’s already on-going in terms of training, so people should start to see the difference. Sometime in the first or second quarter.

Ressa: The perception is that Globe is stable, has been around, trust-worthy, and yet at the same time stodgier than your competition. That Smart is more aggressive. Is this true?

Cu: I think that’s changed over the last 36 months or so. At least that’s what we feel, of course, everyone will have a different opinion. But we feel we’ve been really leading the way in terms of new innovation. I’ll give you a few examples. We led with the product called Duo, right? And Duo International. Which you’re able to put a landline number, a US number, along with your mobile number on the same set. That’s one. We also introduced the revolutionary Superplans which allow people to customize plans to their own lifestyles. If you’re heavy voice, heavy data, but no SMS, you could actually, fine-tune a plan to suit a particular lifestyle and optimize the service, right? And by the way, you could also get any handset with any plan. So it’s a very flexible plan. I think we also innovated in the area of telco retailing. I think if you see the new store Globe has put forth, they’re very much more attractive, they really entice more people to come into the store, check out the devices, right? So it’s more of a true retailing concept rather than a payment center concept. And all of this has really led to a tremendous growth for us in terms of both in postpaid, intially, where revenues are going 25% a year now.

Ressa: Are you still number 1, you’re number 1 in postaid?

Cu: We’re still number 1 in terms of the revenues, of course when you combine our companies…

Ressa: Smart, and Digitel…

Cu: Yes. Then of course, the total will be over Globe, but…

Ressa: How are you going to deal with that now?

Cu: We’re dealing with it as we dealt with it in the past. I mean we feel that Globe has a very sound strategy, evidenced by the fact that we continue to gain market share, quarter on quarter. Even in the third quarter where we felt that the advertising of our competition was at its peak and Globe’s network was at its lowest in terms of right before a major swa was going to happen. We still did very well, we had record revenues, we had really good acquisitions from the postpaid side, because the postpaid people are more discerning if you think about it, right? The guys who are really going to tell you what the service is like, the guy is going to post on Twitter and Facebook what their complaints are, and so on. So we didn’t add the very significant number of subscribers in that quarter as well. We were kinda worried, to be honest, we did well.

Ressa: Fantastic. Let’s move away from consumer issues and let’s talk a little bit more, in many ways the US telcos had to go through this as demand surged also, right? So this is painful regardless of where you go, what role, you head a telecommunication company in a developing nation, what role do you see that playing for development in the Philippines?

Cu: I think, being an emerging market, the mobile telco plays a much bigger role because there is no landline in far-flung parts of this country, the only means of communication is the mobile phone. And so our role is very critical. There are people who don’t have an option but for us to serve them. And that’s why we continue even if we’ve covered maybe 97% of the population, we still continue and strive the last 2%.

Ressa: Is there any growth in landlines anymore?

Cu: No there isn’t. There’s a global decline in landline revenues. Because people don’t call landlines. Because if you call landline, you still have to find the person and if the person’s not there people just call straight to the mobile.

Ressa: So if mobile is the future, how do you see it changing lives now?

Cu: It’s definitely changing lives in a very significant manner. I think it’s quite transformative when people communicate to each other. But even more is the advent of mobile broadband. Because right now, people in a community are no longer limited to information within their community. Once you open up the web to everybody, then their world completely opens up. It also enables things that we’re involved with, like mobile banking. Access to financial services, right? Through our G-Cash, or our BPI-Globe Banko product, people who are far from banks, who are not wanted by banks as customers because of the tier that they’re in in society, 80% of our population remains unbanked, having mobile access provides them financial services, right? And if you collect the levels of transformation, you have communication, basic, right? That helps. Then the Internet, that provides access and opens up their world of information and then now, financial inclusion. So if you give them all those three things, I think it does transforms people’s lives.

Ressa: And then if you take that further out, everything that’s done in the real world can actually now be done on your mobile phone.

Cu: That’s right. Through our applications, and so on.

Ressa: So how far away do you think, through banking services, how far can that rular banking is happening. We know that in some parts of the Philippines, in areas where law and order is weak, some payroll is sent out on GCash. But the adoption rate is still very low.

Cu: It is.

Ressa: How far away do you see until this becomes a reality?

Cu: I think as more people get into it, where people have that tender in their wallets, as more outlets accept the GCash, or the E-money product, the easier it is to use the product, the more they’ll keep it in that wallet. So thw way we view it is actually we’re not competing with anything but cash. What demand we’ve given our people who manage the GCash product is be more convenient than cash. Cash with all of its attendant difficulties like access, security, and so on. Where as GCash, our e-money product would be safe in a server. You can transact anywhere eventually. You don’t have to pull your wallet, you don’t have to go to the ATM machine as all is with you.

Ressa: If you’re talking like this, I mean, you can even do things like microfinancing on cellphones.

Cu: We do. We do with the BPI…

Ressa: How much? How much of this do you have right now?

Cu: It’s still very small. There’s about a million customers already…

Ressa: On GCASH?

Cu: On BPI-Globe Banko. But they’re all very small balances. We first went to the wholesale market where we provided other microfinance lenders with wholesale money to lend, right? Now BPI-Globe is now moving into retail microfinance, because it’s really easy. You apply via cellphone, you receive the money in GCash, and you pay it back by GCash. You don’t have to go to the bank, I mean a microloan of 500,000 pesos or even 5,000 pesos, if you have to make a payment of 200 pesos and walk 2 hours to get there just to make a payment is really inconvenient. But now we allow the consumer to just pay through text or pay through an app on GCash platform.

Ressa: Again you’re talking only of about a million, but this is potentially revolutionary to do something like this now. How long do you think it’ll take before you hit a tipping point?

Cu: I think it’s going to be a while. I do think probably two or three more years I would imagine.

Ressa: That’s fast still. That’s good

Cu: It’s accelerating. GCash has been around for, I think, 5 or 6 years, right? As a product for Globe, and it’s only now you’re seeing sort of take-up accelerating. We’ve done pilots with Starbucks where people can now pay through either barcode or contact, most of the Starbucks in the country and in Manila, maybe there’s a hundred and twenty outlets where we’re doing that. There’s always the transport, the DOTC has released a tender and I think e-money is going to become a key player in all that. Imagine you don’t have to get any tickets or cards, you just use your phone to make a payment. That would be extraordinary.

Ressa: Do you mean to tell me, at some point in the future I can just take my cellphone and go to the grocery, go to the MRT, and I can just do it on my cellphone?

Cu: Absolutely, there’s actually things in South Korea where they’ve actually put a large poster with all of the pictures and barcodes of grocery items, and people as they’re waiting for the train in the train station are actually going shopping, scanning barcodes, and paying with their e-money and get them delivered at home. So they’re shopping by pictures, if you would. I think we’re still quite away from that, given the penetration of smartphones in the country. But as smartphones come in, the opportunities to do much more with the phones, using the apps, are going to increase exponentially.

Ressa: Can you do this, can you be a leader, when your competition has 70% of the market? How do you deal with that? With new products like this?

Cu: I believe we can, given that we’re not actually a small company. We have a lot of resources at our disposal. And we have the backing of very large groups which is Ayala and the SingTel group. So we’re able to do a lot of our own development towards more leading edge applications and products. We’re also very much involved in scouting around for new technology. Very involved start-ups. We funded a subsidiary called Kick Start ventures, which is an incubator that really tries to help the budding technology entrepreneur in the country. Because previously, there were no way of financing their dreams so Kick Start is an incubator-accelerator concept that helps these guys not only here in the Philippines, but also with possible eventually, because we hook-up with a lot of US-venture firms. That alongside SingTel which has huge digital life effort right now with outposts in the valley, where they’re able to look out with many leading edge applications that are mobile, and then they can share with the group. Knowing that the trend is shifting from traditional, above-the-line, to much more targeted mobile campaigns and very personal campaigns using apps on your phones, so they’ve done that. It has a very good recommendation engine technology where it recommends your most favorite photos of the day across your multiple social networking sites, Instagram, Twitter, Facebook, and will recommend them to you. They’ve also acquired a restaurant reservations company called Hungry Go Where that now allows you to reserve a table in your favorite restaurant. So all of these things are going to come eventually to the Philippines through Globe. We’ve actually started already. We recently introduced an app called GMovies where you can actually reserve movie seats in Ayala and SM theaters and pay for it by GCash and actually is ticketless. We would send you back a barcode, you would go to the theater you just go out the door and scan it and go in, no lines.

Ressa: What about media? Everyone has been talking about a convergence. Is Globe looking at media companies? Are you looking at a convergence plan?

Cu: We are definitely looking at a convergence plan, we do think media is key. We look at media as part of what people do on their smartphones. But our view of media is quite different. In that, we want to do media for multiple screens. Not the traditional form of media where you watch it on TV. So we are looking at formats that suit the viewing habits on mobile, viewing habits on a tablet, viewing habits from a PC, or all three of them combined. And our strategy has been more of a partnership mode. We’re talking to different media companies, acquiring their content or partnering with them in delivering content rather than doing our own production, because unlike you, you know how difficult it is to make content and make it in huge quantities. Supply an insatiable thirst for it. We’re very pragmatic about that, because there already are companies out there willing to partner with us and just talk about ABS-CBN and Globe coming together. That’s always been discussions and that’s how the Bayan discussion and Bayan transaction came about. It’s all of this constant talks between the two companies. That is part of the strategy that we’re trying to put forward.

Ressa: So you’re now looking at acquiring ABS-CBN, or GMA-7, or any of these TV stations?

Cu: Not necessarily.

Ressa: Tactical, strategic?

Cu: Just partnerships. Because I think eventually, those types of companies, the traditional TV stations will need a partnership with a telco. Because they cannot stay at single-screen. Like you yourselves, would also need a partnership with a telco.

Ressa: We rely on telcos. Absolutely, yeah. In terms of the future, what excites you most when you look forward here in the Philippines?

Cu: What’s most exciting actually for one, is actually the economy is doing great.

Ressa: Incredible!

Cu: Incredible growth…

Ressa: Stellar for us, actually.

Cu: So it helps us in terms of sustaining our growth. And it also helps us as people transition and they have the incomes to get higher, to afford data plans that are going to come with those smartphones. But what’s exciting for me is the shift in behavior of consumers. It’s a new problem to solve. People are really moving away from traditional voice and text as their only form of communication. Very heavy to social media, into chatting, and so on. So for me it’s a very exciting time. But it’s also a challenging time for the telco. Because the two products I mentioned, SMS and voice, were our traditional revenue sources and very profitable revenue sources for all the companies involved in it. So as a manager, as an entrepreneur, it’s a very interesting challenge.

Ressa: Alright, now it’s almost the end of one era and another is beginning, right? And you have to mange this transition.

Cu: Well, the mobile space is disrupting everything.

Ressa: Yeah, social media is, sorry I hate to- it is disrupting. Right now, you provide the broadband but everyone else is making money on top of that broadband you provide. How do you deal with that and do you see any changes moving forward?

Cu: Yes we are dealing with it by accepting it. There’s a lot of things you could do. Say blocking a Skype service, blocking a Viber service, but what we intend to do is capture the consumer instead of letting the over-the-top players come in and simply take our customers away from us and turn us what they call a ‘dumb pipe'(?). We’d rather give them the services that those companies are giving for instance, Globe recently released an app called GMessage which is a free messaging app. You could message all you want as long as you have a plan even to customers of the other network as long as you’re on Android or iOS phone. And so, again, is this one of these things or why are we giving away free messaging? But another view of that is if you don’t do, somebody else will. So you might as well do it and be appreciated by the customers. We’re taking that route and figuring out monetization later. So acting a little bit like a start-up, right? Do we sell banner ads in those messages? Like Facebook or like a WhatsApp. Even WhatsApp today has no monetization right? For the first year it’s free then it goes to 99 cents. Maybe we could do that. So it’s sometimes a mentality which you’d rather go to zero and get a bit more rather than say I’d get this much today in terms of revenue, I don’t want to give it up. Then that creates this issue where your company could just disappear, because you’re so myopic in your view. We’ve seen great companies, many of them, just disappear into the ether, right? Kodak for instance. Trying to prevent digital from actually proliferating and protecting the film business. We don’t want to be doing that. We want to move with the times. We want to move with what the customer wants. We want to give them what they’re looking for.

Ressa: Incredible. I have a lot of questions coming in now. And again I’ll bring you back. Some of it is telco but I want to go back to some big picture things before we end. From @jdsalinger, do you have any plans of making it up to your subscribers for the bad things caused by unreliable network, and then from @michaeljosh, full disclosure, @michaeljosh also does TechRap, I’ve been a Globe subscriber all my life and I patiently waited through this transition period, when will it get better, plans on doing carrier building for paid apps and play store/app store.

Cu: As far as the network, it is already getting better. That is not an anecdotal statement. It’s something even if you look at our stats, in terms of our own drive thrus in terms of the different areas in the country, the statistics for dropped calls is already improving. Call set-up is improving What is not going to improve immediately is that if you have no coverage today, you’re not going to get coverage. For instance, in this building. It’s an older building, the antenna systems were not done in a way where the whole building is covered. You’re environment has changed around you. This is an older building when the coverage was designed when there was cell sites that can access from the outside. Today, it completely encased. So we’re going to have to revamp all that. And that’s the next stage of Globe’s transformation. First stage was get the capacity out, so that we get people, and then the next stage is going to be the improvement of the coverage, we’re adding sites to kinda plug the holes, and also to adapt the network to the new terrain. An example is Fort Bonifacio. Fort Bonifacio from a year ago was different from Fort Bonifacio of today. So Globe is adding for example, in that particular locality, around 14 or 16 more sites, four of which went up this week. And more to come in the first quarter. And then we’ll tackle areas in the country as we go. And we won’t stop until the coverage gets continually better. The buildings are refurbishing as well, in terms of the antenna system, because today, people are going to want LTE in the buildings. And all these antennas are sometimes only 2G. Because they’re old. So we’re going to have to spend the money once again, upgrade that particular infrastructure.

Ressa: It’s creative destruction, actually. It’s what you wind up doing.

Cu: It’s never ending. Because the technology moves so fast, and I think this is the only industry where you have to be at the leading edge of retailing, of technology, of customer service.

Ressa: Entertainment, communication, news, everything, it’s on you guys.

Cu: And also, it’s very personal.

Ressa: Yes, extremely personal.

Cu: It’s the only thing, I think, people will carry constantly and want to be connected constantly. You’re TV you don’t carry around. Something goes down there, it’s ok.

Ressa: But this is what’s fundamental about the change it’s bringing about in culture so I guess you will get people feeling it’s an extremely personal topic. I have two major questions left. One has to do with ethics. SingTel and Globe, there are certain things that you guys do and I’ve always wanted to ask this. Extortion issues with the cell sites, do you still not pay?

Cu: We’ve never paid.

Ressa: You’ve never paid, you still do not pay?

Cu: We will never do that. We have a philosophy in that particular regard, that if we do succumb and start to pay those kinds of revolutionary tax, it’s what you call it.

Ressa: We’re talking of revolutionary taxes for the NPA, they bombed telcos if they don’t… telco cell sites.

Cu: Actually it has gone down, I hope it won’t start up because we’re talking about it…

Ressa: It’s gone down?

Cu: Oh yeah, almost non-existent. So resisting actually works as well. Our view is to partner with the military and the government, as opposed to the other side. Because we feel that if you support them, all they do is buy arms to shoot our soldiers. We have a very close relationship with the armed forces, a lot of the armed forces actually are supported by Globe in the localities. Sometimes we even give them shelter in our cell sites. And that partnership has really helped us in terms of counteracting this threat. And over the years, it has actually gone down. Today, it’s no longer an issue for us.

Ressa: But we still hear about the bombings of transmission…

Cu: There wasn’t one this year, actually.

Ressa: Wow.

Cu: Yeah, it’s actually very quiet. Because these people are already reliant on the same service, and especially in those parts, let’s say Mindanao.

Ressa: They need it as well.

Cu: Yes, we are the leading telco in that particular market, and so if they hit us, they will not have communication. And I think they have realized that as well. So it’s really been a non-issue for the last two years, I would say.

Ressa: My last question, Ernest, not that many people realize that you’ve actually worked with the largest, I mean you’ve worked with the MVP group of companies, and now you’re heading Globe. Corporate cultures, again, how would you describe the differences and strategies from your eyes?

Cu: It’s very different, I believe. Because my experience is,a nd again it’s very limited, Maria. Because I was only with the group effectively for a year.

Ressa: But tell people what you did. I remember the company you’ve led was one of the first companies I worked for when I was a reporter.

Cu: That company was SPI, if you recall. That was one of the earliest BPOs in the country that also spawned the first commercial call center geared towards serving US clients called E-Telecare. We spawned 2 companies off. One went on a NASDAQ listing, that was the call center. And SPI, eventually in 2006, got sold off to PLDT from its private equity ownership groups.

Ressa: And E-Telecare is now with?

Cu: E-Telecare is now merged with an American company called Stream, and partly owned by the Ayala group. So I stayed for a year and actually that was my eleventh year in BPO. By that time, I felt that change was needed. Contrasting the styles, I think in terms of corporate cultures, at the Ayala group, CEOs are very much empowered. In terms of doing what was needed for the business, we agreed on a strategy with both SingTel and Ayala and we’re pretty much left on our own. There’s much less hierarchy in our culture where we interact with our chairman in a much more casual manner, you would say. With even the CEO of SingTel or our chairman Jaime Agusto Zobel de Ayala. It’s very different in terms of that. It’s not as formal and not as hierarchical, which suits me because I am not your traditional corporate fellow.

Ressa: And you’re seen as kinda the maverick who will disrupt in Globe. Is this correct?

Cu:Yes, actually we’ve changed culture at Globe. Because we needed to. Because we’re no longer in a utility type of market. We are in a highly competitive service industry. And we brought a lot of customers mindset. That’s why the products coming are truly more relevant and more outwardly focused, based on the needs of the people and I think, just the Superplan and the stores alone show, if you do the right thing for the consumer, they will respond, For example, we added 1.1 million post-paid subscribers in a matter of 2 1/2 years. Again, people are responding to that. We’ve been growing from years of maybe being stagnant in terms of our revenue market share, we’ve now grown, and continues to do so.

Ressa: So what’s your strategy? You have about 30% of the market, right?

Cu: About close to 40.

Ressa: 40? You have 40% of the market.

Cu: In revenue.

Ressa: Of revenue. But in terms of cellphones, 70% is roughly going into your competition when you put Smart and Digitel together. How are you going to beat them? Because I’m assuming you want to beat them.

Cu: I think what we’re doing is to continue focusing on the consumer. I think with the comments we’ve heard today, there’s a lot more room for improvement. The good thing is, there’s no one, not one telco has a clear advantage over the other today. In terms of, who’s the better in terms of customer service. Globe was thriving to create different shared customer experience. Which means you want to be discernibly better than the other telcos out there. And that is a mantra that we’re imposing on our people. Better in terms of the products we create. Easier to use, easier to talk to. Not necessarily the cheapest all the time, hopefully, because we need to keep margins in business. But overall, an experience package. And that’s why we’d invest in the network so heavily, invested in the IT so heavily. We want to be able to understand our consumer better. We want to be able to serve the consumer better.

Ressa: Last question, and this is, so you come into Globe, how do you change a culture of stability in the former leader and I’ve had little bit of experience with this. Most of the times, when you were, when you are big, and you were number 1, or the only one there, it’s tough to change an idea, a feeling of entitlement. What culture are you creating now to give the customers the experience that you’re talking about.

Cu: Well, we actually listen to our people at all levels, it’s very important. Maybe a good example to give you is a program with Globe called Customer First circles. This is where people at all levels with the organization from a store front-liner up to the CIO can sponsor projects that all are geared towards improving the customer experience, in my answer to the front-liner to the store being able to propose a change in the overall company.

Ressa: Is that really…

Cu: It’s really happening, and it’s very powerful. Because people feel very involved with what’s going on. So that’s the first thing to do, to empower all the people involved. The other one is continuous engagement with the employees. I travel around the country to talk to people. I go around with them to the sari-sari stores and to the tiangges and the palengkes, to see merchandise, to visit, to check, to show that it’s important to be with the consumers and understand the consumers. As a matter of fact we were just in Davao, just the last week, this weekend, doing the same things. And also, reaching out to our people in regular town meetings. And talking to them. As difficult as it is, having a full schedule in Metro Manila, you still have to go north, go south, sometimes we do it all in one day, but it really makes a whole lot of difference. The result is very gratifying, because this year, Globe, in its recent employee survey, we broke an all-time high in terms of our employee engagement. It’s never been higher. And it’s something I truly believe in because given the amount of challenges that we’re asking our people to solve from a normal business-as-usual standpoint, and then on top of that, we’re carrying along the transformation efforts, you want people to do it. But the good thing in Globe is that the engagement level is so high, that you don’t really need to push people that much for them to get it done. Let me give you an example. The iPhone 5 launch, which was phenomenal success for us were at 10 o’clock at night, we still have a thousand people waiting. Because the demand was so high. And our people stayed until every person in our distribution area got served. And they did not go home until 4am. And again we did not even have to say, “Everybody stay.” They stayed, they just stayed. Because they love the company, they want to make sure the customers are served before they actually go home. And they’ve been there since 4am. So it’s almost 24 hours as well. Around the clock, they were there. Amazing group of people we work with.

Ressa: It’s a thankless job in the consumer industry. Actually if you look at it. My last question for you is moving forward, you’ve talked about 700 million dollar expansion plan. When does it end? When are we looking at it, and your challenges ahead.

Cu: Well, the full completion would be sometime towards the 3rd quarter of 2013, because there are multiple phases as I mentioned. The transmission, which is the fibrization, the new sites, and then we’re also greening the sites. Because we want to save a lot of power. We’re removing air-conditioning in a lot of sites that don’t need any more. We’re minimizing through the use of free cooling. That’s all going to happen in complete towards 3rd or 4th quarter of 2013. So the challenge will be keeping up with the demand. We do think that while this network is good. It’s good for maybe 2 or 3 years. And then we’re going to have to continually upgrade. The challenge with upgrading is keeping our profitability up, so you can continue to upgrade. However, as we all know, the broadband revenue stream is not as profitable as the old voice and SMS. So we’ll have to do a lot more broadband revenue to deliver that kind of service. Moving forward and keep evolving the net worth moving forward.

Ressa: And it would be good for the Philippines, right now we’re talking about roughly for Internet penetration is only at 35%. When do you see that moving?

Cu: I think you will start to see that really improve this coming year.

Ressa: This year, because they’ll come in through mobile.

Cu: Yes, because a lot of people are still experiencing Internet through the Internet cafes.

Ressa: 70% percent through the Internet cafes.

Cu: And if you think about that, we all thought they were going to netbooks and PCs, but I think we’re past that. Because the new handsets are now as powerful as your PCs.

Ressa: So do you think we can get 70% penetration, or higher than that within the next year?

Cu: I don’t think we’ll get there in one year. It will take probably, my estimation, 3 or 4 years to get it there. It’s a big number to move from the 20% today on smartphone penetration all the way up to that 70 that you’re looking for. Because even the 20, not all are on data.

Ressa: Can you bring Internet prices lower and access Internet, can you…

Cu: We believe with LTE, the cost of delivering that megabyte of data can be brought lower, but then again the handset is expensive. So it’s a kind of balancing act that we do. Although today, we don’t have, our pricing is not that far-off than most countries. If you look at the US, it’s one of the more expensive countries where an unlimited data plan is about 50 US dollars. In the Philippines, our unlimited data plan is around 25 dollars.

Ressa: In effect, the criticism is that you gave away early, both telcos, gave away early to the part that will actually be changing the future to the access. The US in 2010 moved to access through mobile the Internet and you think for us it’s going to be 3-4 years down the road?

Cu: Yes it’s because of the handset prices. I think for the US, the iPhone changed the way people did things, iPhone and apps. With the apps allowed you to do more on the mobile. Banking, airline, hotel, reservations, for instance, could all be done now in the US. Today, it’s coming in the Philippines. Like I said, we’re doing movies to begin with. And soon we’ll be doing restaurants, and we’ll be doing other things on your mobile.

Ressa: I think life will change, life as we know it will be so different depending on how much, how fast you guys can do what you’re meaning to do. Your last thoughts, Ernest, I know we’ve covered so many things and this is a particular juncture point for telcos in our country. What are you moving forward? Your biggest challenge? Last thoughts.

Cu: Well the bigges challenge, actually is, number 1 expectation, setting the consumer expectation. There are ads that give the impression that dropped calls will never happen, or should never happen. But a function of this technology is that is it radio. There is going to be a concrete wall between you and that cell site, if you’re walking past it, you’re going to drop that call eventually. So maybe setting the consumer expectation that the wireless world is not the same as the wired world for one. A second challenge for us is really, as I said, maintaining a company that delivers as much cash flow as needed, to keep this insatiable need for capacity going. It’s a very interesting industry in a sense that we are the only industry that provides a utility-type service like the Internet but we don’t raise our prices yearly, if you think about it. People expect us to keep bringing it down. I don’t see the price of power down. As a matter of fact, my power bill has gone up, 30-40% in the last 2 years. When you use more power, you pay more. Here people say, use more, pay less. It’s kind of an interesting phenomenon, and actually it’s not just in the Philippines but globally. When we get together as an industry, we talk about this. Why are we like this? We invest in submarine cables, which are as expensive as power plants. Just as expensive, Again as any kind of power generating, whether it’s green or traditional. And yet, we have to bring pricing down every year. Yet, people expect it to be unlimited.

Ressa: So do you have to find a new business model?

Cu: Probably do, as one. And also change the way the public thinks about our services. It’s not free to provide one megabyte of Internet. Just as it’s not free to provide one kilowatt of power, a liter of water through that pipe. There is a cost to it. And that cost while it’s fixed, it is a cost. A submarine cable from here to the US is not cheap. It’s thousands of kilometers of fiber optics under the sea, and the maintenance of that is also quite costly. So those are to me the challenges we face today as an industry globally. We have to make that shift toward people appreciating and valuing what we provide more. That’s why the services on top of that content, like you said, hyper-local type of information, is going to become more important.

Ressa: Fantastic. Thank you so much, Ernest. Thanks for joining us.

Cu: Thanks, Maria.

Ressa: We’ve been speaking with Ernest Cu, he is Globe’s CEO and President, talking about the

future and mobile. This is Maria Ressa.

END OF TRANSCRIPT

(runtime: 45:30)

Previous #TalkThursday Episodes:

#TalkThursday with Ernest Cu: the future of mobile

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