Despite challenges brought about by the Covid-19 pandemic, wired high-speed fixed broadband operator Converge Information and Communications Technology Solutions, Inc. (Converge), continued to post improvements in its operations – profitability, subscriber base, and services – in 2020.
Revenues
Converge reported growth in both residential and enterprise businesses as a result of the hike in subscription base. The company’s consolidated revenues rose by 71.23% to reach PhP15.65-billion in 2020, from PhP9.14-billion in 2019. Of the total revenues, 80.7% represented earnings from residential business which totaled PhP12.63-billion in 2020, an increase of 98.9% over the PhP6.35-billion generated in 2019. The growth in residential business revenues was attributed to the 96% year-on-year growth in the company’s subscriber base coupled with an increase in residential average revenue per user (ARPU), which reached PhP1,298 in 2020 from 2019’s PhP1,293. The enterprise revenues, on the other hand, comprised 19.3% of the total revenues or PhP3.02-billion in 2020, representing a growth of 8.24% from PhP2.79-billion in 2019.
Subscription Base
Residential subscriber base doubled last year, reaching approximately 1.038-million, from 530,000 in 2019 due to the rising demand for internet services. In the last quarter, a total of 176,944 new residential subscribers were added, representing a 120% increase compared with the total gross subscriber additions in the fourth quarter of 2019. In the fourth quarter of 2020, over 95% of these newly connected subscribers continue to be first time fixed broadband users, highlighting the unserved and underserved state of the broadband market in the Philippines.
“As the home became both office and classroom amid the global pandemic, we further accelerated our fiber network rollout to deliver high-speed broadband connectivity to more Filipinos, reaching underserved and unserved areas in the country,” Converge chief executive officer Dennis Anthony Uy noted.
Converge’s monthly residential churn rate or the company’s ability to meet or exceed its customers’ expectations on product quality, value for money and customer service, stood at approximately 1.35% in the last quarter of 2020, which was better compared with the 1.63% in the third quarter of the same year.
The firm’s enterprise business keeps on growing despite challenges encountered by the country’s enterprise connectivity market due to the Covid-19 pandemic. While enterprise revenues dip in the second quarter of 2020, it stabilized in the third and fourth quarters as demand from SME clients picked up, and new wholesale contracts with government clients and large international global carriers were reported.
A net addition of 1,007 customers in 2020, which represents a 10% hike over 2019’s number of customers, was reported by the enterprise business, consisting mainly of multi-site branches (e.g., retail clients with multiple nationwide branches) that require less bandwidth than its traditional large enterprise clients (e.g., financial institutions, BPOs). The rise in the number of customers resulted in the drop in monthly enterprise ARPU to PhP23,002 in the fourth quarter of 2020 from PhP27,259 in the same quarter in 2019.
Converge’s enterprise business benefited from new contract wins, which include a government contract to enhance connectivity in underserved low-income regions and a corporate wholesale project with a large global carrier for the use of its domestic backbone in the last quarter of 2020. The company also soft launched four new products, one of which was the “Dedicated Internet Access Time-of-Day” which was launched in February 2021 to offer more capacity at certain pre-set periods of the day.
Growth in EBITDA
For 2020, Converge achieved an EBITDA of PhP8.22-billion, reflecting an increase of 76% from 2019, and exceeded the year-on-year 71.22% growth in revenues in 2020. The company’s growth in EBITDA reflects the industry leading revenue growth as well as prudent management of direct costs, including international bandwidth and leased line costs, and indirect costs such as general and administrative expenses. The rise in EBITDA was also due to the company’s investments in establishing a sustainable and scalable operating cost structure which resulted in a reduction of bandwidth and leased line cost from 9.1% of total revenues in 2019 to 6% in 2020.
Net profit after tax, which grew to PhP3.39-billion in 2020 from PhP1.94-billion in 2019, resulted in a 21.6% expansion in net income margins in 2020 from 21.3% in 2019, despite the hike in finance costs brought about by drawdowns in loan facilities.
Fiber Network Expansion
Converge continued to step up the nationwide rollout of its leading fiber network throughout 2020, where more than 28,300-kilometer of fiber optic cables were added during the year, expanding its backbone and distribution network by 106%, from about 26,700-kiometer laid down at the end of 2019 to approximately 55,000-kilometer at the end of 2020. The company covered 167 cities and municipalities at the start of 2020 and was able to extend its coverage to additional 149 cities and municipalities in Rizal, La Union, San Juan, Pangasinan, Nueva Ecija, and many more, by end of the year
In 2020, Converge has installed almost 1.5-million ports, bringing to 3.5-million the ports inventory it has deployed which corresponds to its network coverage that reached 25% of nationwide households. The firm continues to be on track to achieve its target of reaching approximately 55% of total households in the country by 2025.
Expansions in the Visayas and Mindanao regions have been progressing as planned. Backbone in these regions is planned to substantially complete in first half of 2021, allowing full commercial launch by second half of 2021. As of March 2021, Converge was able to secure about 80% of the necessary Environmental Compliance Certificates (ECCs) for the landing stations of its planned nationwide submarine cable network that will connect the main islands of the Philippines.
Apart from the regional expansion of its network, Converge is committed to improve the quality of services it provides to the existing coverage areas. The company has invested in hardening the network to increase redundancy and network quality. Previously, the main network backbone of Converge was connected to two core nodes located in Metro Manila and Pampanga. With the completion of a third core network backbone node last December, the Converge end-to-end pure fiber network became stronger and more resilient with a more efficient network traffic distribution and better ability to address outages.
For 2021, Converge expects to spend approximately PhP20-billion of the total Capex for the expansion of the backbone and the deployment of additional FTTH ports. According to Converge CFO-Adviser Matthias Vukovich, the budget for the backbone is approximately 30% of the PhP20-billion, primarily for the hardening of the remaining backbone in Luzon, 50% are access networks, a lot of these will be in Luzon, and they have 20% of other Capex to include, for example, IT initiatives for digitalization to enhance customer experience. Converge expects that strong demand for reliable high-speed broadband will result in continuous growth of its residential subscriber base to approximately 1.6-million to 1.7-million by the end of 2021.
Converge also plans to further penetrate the enterprise segment where demand from enterprise customers is projected to accelerate in 2021, notably driven by an expected recovery of SMEs. This is expected to result to consolidated year-on-year revenue growth of about 10% in 2021, subject to market recovery from Covid pandemic impact.
Driven by strategic cost initiatives and increased economies of scale, Converge will be able to continue expanding its EBITDA margins in 2021. The company will continue to be highly focused on capital efficiency when rolling out its end-to-end fiber network.
Consumer Experience Initiatives
Converge also strives to ensure that subscribers enjoy the benefits of quality internet services, including video streaming. The company again ranked first in Netflix’s ISP Speed Index for the Philippines in December 2020. This index ranks ISPs Netflix performance.
The company commits to provide quality customer experience for both existing and potential new subscribers. It continues to be highly focused on enhancing the overall customer experience by strengthening its customer care functions and digitizing the journey of its customers.
Converge enhanced its digital channels through improvement in its self-service portal and the launch of its Converge Xperience mobile app, which offers a convenient channel for its customers to review and pay their bills, as well as allowing them to log tickets online. A third of its subscribers had already downloaded the app by the end of last year, allowing Converge to communicate with these subscribers. The firm also doubled its contact center workforce in 2020 to respond to customer queries, leading to reduced drop call rates for both its customer care and service desk teams.
Converge more than doubled the number of installation teams to be able to serve the surge in demand for its products throughout 2020. This enabled the company to reduce the installation backlog in the fourth quarter of 2020. In December 2020, Converge installed 86% of new NCR subscribers within seven days and 64% within one day of application.
