Ladies and gentlemen, thank you for standing by, and welcome to the Telkom First Quarter 2013 Results Conference Call. [Operator Instructions] All the materials for today's conference is available on our website at www.telkom.co.id. Please be advised that this conference is being recorded today, the 1st of May, 2013. I would now like to hand the conference over to your first speaker today, Mr. Albert Tan, SVP of Business Strategy Integration. Thank you sir, please go ahead.

Ladies and gentlemen, welcome to PT Telkom's Indonesia First Quarter Results Ended March 31, 2013 Conference Call. There will be an overview from our CEO, and after that, the question-and-answer session will be conducted for all participants on this call. Today's presentation is available on the webcast, and an audio recording will be provided after the call for the next 7 days. We released our financial results of the first quarter ending March 31 on April 30, and the reports are available on our website, www.telkom.co.id. Before beginning, let me remind you that today's call and the responses to the questions may contain forward-looking statements within the meaning of Safe Harbor. Actual results could differ materially from projections, estimates [Audio Gap] Telkom Indonesia does not guarantee to any actions, which may have been taken in reliance of the discussion -- discussion held today. Ladies and gentlemen, it is my pleasure to introduce you to the Telkom Board of Directors, who are joining us today. Mr. Arief Yahya as Present director and our Chief Executive Officer; Mr. Honesti Basyir, as the Director of Finance and Chief Financial Officer; Mr. Rizkan Chandra as Director of Networks & Solutions; and Mr. Indra Utoyo as Director of Strategic Portfolio. All the present at the Board of Director of Telkomsel, Mr. Heri Supriadi, as Director of Finance; Mr. Alistair Johnston as Director of Marketing, Mr. Edward Ying Siew Heng, Director of Planning & Transformation. Before Arief delivers his remark, I would like to take this opportunity to give a brief overview of Telkom Indonesia. Telkom is the single largest integrated telecommunications company and network provider in Indonesia. We provide a strong business portfolio of T I M E S, Times, telecommunication, information, media and entertainment, directly or through our subsidiaries. We deliver, we also deliver service to multiple customer portfolio, retail, enterprise, wholesale and international. As of March 31, 2013, the majority of stakeholders of our common stock was Government of Indonesia with 51.2% ownership. The accumulated treasury stock was 5% from the total issued shares, and the remaining 43.8% under public ownership. I now hand over the call to our CEO, Mr. Arief Yahya for his overview. Arief, the time is yours.

Okay, thank you, Albert. Good afternoon, ladies and gentlemen. A very warm welcome to all of you to our conference call for 3 months period results, ending March 31, 2013. We appreciate your participation on this call. Into this call, I will give you the overview of our operational and financial results for the first quarter. Secondly, I'd like to update you on what we have done to accelerate these infrastructures and the latest issues. Ladies and gentlemen, let me start the overview by sharing the highlight of our demand result. First, Telkomsel continued to increase its performance by booking 15.3% year-on-year revenue increase and make the total consolidated revenue increase by 9.8% year-on-year. Telkomsel also managed to maintain the acceleration of network deployment by adding 3,367 new BTS during the first quarter, with almost 70% of them is 3G BTS. Fixed line business also maintained the positive revenue growth by 0.1% year-on-year since last quarter. Ladies and gentlemen, it is encouraging that our fixed broadband users increased by 40% year-on-year to 2.7 million, and the revenue increased to IDR 1.1 trillion in this quarter. Our mobile data users increased from time to time. In the first quarter, it increased 12% from last year. We booked IDR 2.3 trillion of revenue from mobile data services, a 37% increase year-on-year. Total mobile data services and fixed broadband revenues increased almost 25% year-on-year to IDR 3.4 trillion. If you may recall, we added more than 18 million customers in 2012, representing a net add share of close to 70%. We started year 2013 by giving more focus on increasing customer work share and sustaining revenue growth by maintaining a good quality of customer. Total cellular subscriber in first quarter is 120 million, a 9.8% increase year-on-year. In the first quarter, we added…

Thank you, Arief. We will now begin the question-and-answer session. When raising your question, we would appreciate if you could speak clearly and state your name and your company. Operator, may we have the first question?

The first question comes from the line of Sachin Mittal from DBS.

Three questions, mainly. First, we have seen, I mean the revenue wise, fixed line is doing okay; but earnings wise, we have seen a huge decline. Could you share with us the reasons behind those -- the decline in profit, and what should we expect going forward on fixed line profitability? And number 2, on the cellular side, I think this one's a fantastic quarter and with more than 20% growth in earnings. Was there some one-off in the result, or why should not the growth be similar in the quarter going forward? Why do you think earnings growth cannot be 20% for the full year? And lastly, on the CapEx, you did say that you will be doing some revenue share -- with some kind of sharing with other operators. Does it mean that 3G CapEx is at its peak in 2013, or do you think that 2014 could be another peak for the CapEx?

Can you -- we have some background noise in there in your questions. Can you please restate your question, first question is succinctly, I think we'd lost quite a lot with the -- there was some background noise.

Sorry about that, okay. My first question is about the profitability of the fixed line business because what I'm seeing is that it did not follow the revenue trend. Profitability, I think, fell to about 13% in the very first quarter year-on-year. So what are the drivers behind it, and what should we expect in terms of profitability?

Can you please restate your second question again?

Second question is on cellular profitability, which was fantastic in the first quarter. Why can't it be sustained in the following quarters? What are the drivers: is it the revenue, is it the cost?

For the first question, I would pass it to Honesti to answer, regards to the fixed line profitability. And the second question later on, I'll pass to Heri Supriadi from Telkomsel.

For first question about the fixed line profitability. I think we tried to manage the growth of -- first, about the fixed line revenue. If you see. Since first quarter 2012, we, in the first time, we booked the positive growth of our revenue on fixed line. And then 2013, we tried to modernize the network, and maybe you can see in our, our O&M . the cost increased because of -- we wanted to tick up the broadband purchases. That's why if you see the profit has slightly decreased, but we believe that because the broadband fixed line is also one, our original driver for the future, I think maybe a little bit decline for them, let's say, 1 or 2 years, but we will monetize in the coming -- after maybe after 2014. And it is -- also, in our first quarter results, we also already stated that we want to increase the network to deploy more WiFi, and so modernize our comfortable to be fiber-to-the-home as our broadband network. So I think broadband fixed line is one driver, and for first or second years, coming years, will be a little bit decline, but we'll be monetized after that.

Okay, next question.

Sachin, Heri here. Thank you for the question. About the net profit margin for the cellular, right now it's 22%. We expect we can maintain the percentage. Yes, we also want to maintain that. But general, guideline is we want to maintain the revenue cost and bottom line in the similar pattern. So basically, we tried to maintain the revenue, we'll do it by double digit. We tried to keep the cost lower than the growth of the revenue, so therefore, we also expect the growth in the bottom line with double digit. We give this a kind of conservative figure. If we can grow by 22%, it's very good, but that's a rough figure of what we're going to expect for the whole year.

Next questions comes from the line of Roshan Raj from Merrill Lynch.

Three questions for me. First going back to your guidance for margins to be slightly lower this year. Could you just help us quantify that, and kind of let us know, or kind of guide us as margins, EBITDA margins for the consolidated business, if that will be on a rising trajectory in the following quarter? The second is a follow-up on the O&M expenses. Could you just again help us understand why it was a significant jump in O&M on a Q-on-Q basis? And the third is on subscriber losses during the quarter. What led to this, and what's the trend that you see in competition in the market?

On the first question, I will actually direct to Honesti.

I think for EBITDA margin, yes, we try to keep the best growth here. But because the expansion of our networks, of course, were broadband increase, maybe the EBITDA margin slightly decreased. But we try to keep the decline of our EBITDA margin more than -- it's around 1% up to 2%. But the best effort for us to continue adding interest growth.

I'm at the information for powerless[ph]. Because some of our networks have of the center also incur in Telkomsel side, which is previously, we build our own tower. Right now, we are public the towers, so the cost becoming operating costs -- for operational and maintenance costs. That's why the EBITDA margin will slightly decline.

To the next question on O&M expenses.

Yes, talking about the O&M expenses, I think already clearly stated by part year-on-year legally for the tradition. I think this is actually related with the increasing of our revenue, because the next [indiscernible] revenue is broadband. Of course, we have to deploy more broadband network, and that's why you see O&M increase. But it is also related, the increasing of revenue, 9.8% year-on-year.

For the 3 questions you have on subscriber losses, I'm going to direct to Alistair.

Yes, we did go backward somewhat in the first quarter by 3.6%. I think really that it's really a cleansing process on our customer basis. If you look at our performance last year, we grew the business by about IDR 17 million. And it's a kind of unchanged rule of the prepaid business that when you grow aggressively, you not only pick up due to high-value customers, but you pick up your share of lower-value customers, perhaps, bargain seekers or perhaps, using the phone as a calling card. So effectively in Q1, we have managed to cleanse the base of those customers. As you can see from the revenue, it hasn't in any way, damaged our revenue. And I think looking forward, we can look forward to growth returning again in Q2.

Next question comes from the line of Anand Ramachandran from Barclays Capital.

I had a couple of questions. One, could you just, could I just request you to repeat the CapEx guidance? I missed that at the beginning of the call. Second, can I also request giving out -- whether you planned anything at all in terms of timeline on how to execute on the treasury shares?

Honesti, [indiscernible].

For CapEx guidance, as stated also by Arief Yahya, the guidance CapEx for this year is around 20%, up to 20% of our revenue. We give this guidance to all our investor. For treasury stocks, our IDMS held on April 19 last week, we only get decision from the IDMS to use the stock that's on our Bapepam rules. Bapepam is our Board of Finance Services Indonesia. There is a -- statement action for first off. One, we can use our source of financing. Second, we can use for ESOP employees the option or maybe for manager managed stock option plan. And the third being, maybe also, we can use as instrument to get financing like municipal bond or maybe comfortable bond. For every single plan that we went to execute, we have just on the agenda of decision, we have to get permission from that ministry first. But now we are in the process, because if you know that for survive the stage 1 will be -- the digit will be on August 2013 this year. Now, we are in the process to get a profile from our ministry, what kind instrument that we can execute. And I'm seeing maybe on June or July, you can see that what happened. But depending maybe we want to place on the BBD [ph] we can cancel the debt of the stock, but all decision will depend on our ministry's decision.

And if I may just follow-up, if you look at the business x Telkomsel, there was no one-off costs in the first quarter. Whatever comes through this kind of business is usual in terms of the cost structure for the non-Telkomsel business.

Okay. For the non-Telkomsel, I mean the fixed line, yes. If you seen our report for first quarter, the growth is 0.1% year-on-year, and I think we continue the growth since first quarter 2012. For...

Sorry about that, could you -- looking at the cost side, right, obviously the cost. The EBITDA was down 13% year-on-year, so there's no one-off cost in there. And it's basically the investments that you were talking -- that you were discussing earlier, that's just what I wanted to confirm on.

Yes. I think it's difficult to compare, yes, year-on-year growth for cost. Because if you see that our report in 2012, because something happened about our growth, we tend to control the cost first, rather than to select the smart cost to increase the revenue. That's why, if you see the first quarter 2012, the cost is slightly decreased. And when the new margin, when appoint by the department, we try to improve the business. That's why some costs will be increased.

Next questions comes from the line of Arthur Pineda from Citigroup.

A number of questions from me. Firstly, on CapEx. Is it possible for us to get a breakdown in terms of CapEx across various specifics on -- which would be on Telkomsel side versus on the fixed line side? Second question I had is with regard to the balance sheet, it's still looking excessively underutilized, and we see no change in payout levels or aggressive treasury share deployment. Is there any reason for the conservative approach to this? Third question I had is with regard to the fiber rollout and WiFi initiative on the fixed business. Can you elaborate on how much this project will cost, and how it will actually be funded? What are the economics of this versus the DSL rollout, for example? And lastly, you mentioned as well that you were pushing out an IPTV platform. Any guidance with regard to the revenue implications as well as the content cost implications of engaging in this kind of a business?

Okay. First of all, are the CapEx planned for 2013. It's around 70% of our CapEx go through to Telkomsel, means it's around maybe IDR 13 trillion will go to Telkomsel. IDR 5 trillion maybe will go to Telkom -- on consol, to deploy more broadband services. And the rest is around 5% up to 10%, will go to our subsidiary, also to support Telkom an Telkomsel to deliver a quality -- the better quality for services, for example, maybe if our tower companies, subsidiary Mitratel, they also will spend -- it's around IDR 1 trillion up to IDR 3 trillion to deploy BTS a tower for Telkomsel. I think it is the composition of our CapEx. Talking about balance sheets, yes, maybe you'll see [indiscernible] is best on experienced last year. we realized that. Within the last 5 years, there's now so many execution in Telkom. That's why the CAT is just put in our balance sheet. And now with the so many initiatives that we want to deliver to improve our business, I think we can improve the balance sheet this year. For example, maybe we already informed you that the CapEx will be around 2 -- 20%, up to 25%. I think we see it also can improve our balance sheet, more revenue, control costs and also, hopefully, improve the bottom line of our performance.

Okay. Like what Arief Yahya already mentioned, [indiscernible] 2013 [indiscernible] would consist of access, the ID access, ID ring and ID comps [ph]. In the ID access, we will deploy lots of fiber-to-the-home and also access points. The access points will be used, not only for Telkom, but also for uploading the traffic of Telkomsel Flash. So this fiber-to-the-home, and also access point, will be used not only for the fixed line customer, but also for the deployment of Node B, the 3G Telkomsel BTS, and also, for the offloading of Telkomsel traffic.

Next question on IPTV guidance and content.

For the content cost for IPTV, we tried as much as possible, we are using them. We won't guarantee tariff, but we supply what we call pay as we grow cost of content.

Sorry, just to clarify. My question a while ago on the deployment of capital, maybe I was misunderstood there. I think, clearly, at this stage, Telkom's balance sheet is looking excessively healthy. Now is there any initiative on the part of the company to actually leverage the balance sheet or utilize the shares, at least, over the next year?

Yes. I think there is several at the top line now for how to make it our balance sheet more healthy rather than competitive last year. But actually, I cannot inform now because we have to get some discussion with our ministry first before we can inform the market what our plan actually for treasury stock.

Next question comes from the line of Kelvin Goh from CIMB.

I have 4 questions. Actually, 3 questions. First one is on the, on your fixed line or fixed broadband guidance. Can I get an understanding here? You're looking to roll out to 15 million homes, but is the only way do you think the demand is coming from and as far as I can tell the TV penetration in some way in the mid-single digit level, that's the first question. Second question is also related to that, is your CapEx involved on the fiber-to-the-home? Is it fiber-to-the-home or fiber-to-the-node, that's one sub-question to that. And could you give us a breakdown on your CapEx for this year? I sort of missed that. But on top of that, I'd like to -- can you give us an idea of how much your spending on the total CapEx for the fiber broadband? And third question is on Mitratel. Are your listing plans still on? And what are the targeted dates, and any sort of numbers, towers, share?

For the first question, first and second, I will pass it to Honesti.

Yes. I think if you see the, our first quarter results, the growth of our fixed line broadband is increased double digits. And it seems to us we have to continue this story, because our future opportunity is broadband. That's why now, we -- if you still remember my colleagues information regarding we have a project that we call IDM, Indonesia that's under 2015, where we have a target to have around 15 million compass [ph] for 2015. And it will be combined in terms of the platform. We'll combine between the WiFi and also fiber-to-the-home or fiber to -- maybe Rizkan can explain more.

To add to the explanation, we were going to deploy 15 million home access comprises of FTTH, so it's a fiber-to-the-home and the multiservice access network. And beyond the FTTH and also MSAN, we will also deploy what we call FTTA, fiber-to-the-area, means that the last mile, we'll be utilizing also WiFi. So it will be a combination of FTTH and MSAN and WiFi.

Yes. And the CapEx involved for that?

I think for what we call the project and title that we turned out. We tried to take out all the copper cable, and we repaired it with the fiber-to-the-home. The mechanism is -- will set the CapEx. This costs you know -- to put the fiber cable into our network, the vendor can sell the copper as to balance the cost of CapEx in fiber. So I think we can see this deployment of broadband services to this mechanism. If you see that's -- it's only start at 2011, and we continue this until 2015.

So what would be the net CapEx involved then?

I think the CapEx is around -- totally, to deploy WiFi to deploy FTTH, FTTA. The CapEx is not more than IDR 5 billion this year.

And totally under 2015?

2015?

Yes. I mean the total CapEx for the entire project. I mean not just this year, but the entire one.

It's about IDR 15 trillion.

Sorry?

It's about IDR 15 trillion, around IDR 15 trillion until 2015.

1 5?

Yes, 1 5.

And just your CapEx, could you give us a breakdown again of the CapEx for this year? I missed that.

Yes, 70 -- 60% up to 70% will go to Telkomsel, yes. 30% will go to Telkom, and the rest will go to our subsidiary.

All right. And Mitratel?

Mitratel. Mitratel is the big portion among our subsidiary, the rest of 10%. I think it's around 70% will go to Mitratel.

Okay, sure. But just wondering what -- are you still looking to list Mitratel this year, and what sort of timeline are we, are you looking at?

I think Indra can answer this question.

Okay. I think for Mitratel, we will see the tower business portfolio as a group. So we would like to unlock this as a how to -- at least, we have a 2, underpinned on 2 aspects. First is how to unlock and get maximum value of tower; but second, we also have to maintain the long-term interest of our Telkomsel business. So timing is important. Currently, we are in the process of creating the -- unlocking the Mitratel towers. We put 3 tiers [ph], first whichever the node that's applicable, as long as it's giving the maximum value for us, also speed and also, the certainty of happening, the deal happened. So I think that's in general.

Your next question comes from the line of Sebastian Tobing from UBS.

To the questions of, firstly, on Telkomsel business. Could you just let us know and that how is the most recent data tariff trend? Are we starting to see an inflection of this data tariff and because it has been coming off? And if we haven't seen yet, when do you expect to see this inflection data tariff? And then secondly, if you just -- if you could just give us a little bit more numbers here of the voice ARPU, the non-voice ARPU, and also, the data revenue only? And thirdly, if you can let us know of how many percent of this data traffic actually has already been offloaded into your WiFi network as of now? And I think that's just it for now.

Sebastian, I'm going to direct you to Alistair for the questions.

I think really, the way to look at the market at the moment is one of relative stability. And consequently, I think the tariff situation is fairly stable. I wouldn't -- I think you mentioned a point of inflection. I think by that you meant, perhaps, prices starting to rise again. I don't think that's quite happening yet, but I think the big 3 players are certainly concentrating on building data business in a responsible and intelligent way. We have seen some competition, some more aggressive pricing from the smaller operators, but really, the customers they tend to attract, tend to be the lower value, budget-seeking customers, and from our point of view, have less impact on Telkomsel given the type of customers we have, perhaps, more impact on some of the other competitors. So in summary, I don't think we're seeing upward inflection, but I think we're seeing a healthy growth in data revenue and fairly responsible pricing across the market.

In terms of composition of the ARPU, voice ARPU will be around 20 kilos [ph]; and SMS, around 8 kilos [ph]; and then broadband and digital services, around 7 kilos [ph], that's the composition of our ARPU. And the contribution of voice is around 60% of the revenue.

Question on percentage data being offloaded into [indiscernible].

With our current implementation of 40,000 access points all over Indonesia, we currently have around 2% to 3% of data traffic being offloaded to the access point. However, with the aggressive implementation of access points will be at the end of the year. We have -- we look forward to a more and more percentage of data traffic of Telkomsel will be offloaded to the access points.

What would be the ideal target of this percentage of offload thoroughfare, maybe by 2015 when you've completed the whole network?

The current benchmark will be around 30% to 50% of the data will be offloaded to the WiFi traffic.

The next questions comes from the line of Pankaj Suri from Nomura.

My first question is related to the cash CapEx for this year. Basically, I think the cash CapEx for FY '12 and '13 came out to around IDR 8 trillion. So I'm just wondering, if you're going to have -- cash CapEx is going to be much higher for this year, that's number 1. Secondly, my question is, why are the broadband subscribers and the Flash subscribers down quarter-on-quarter? They're down by around 2 million. So again, was it related to some cleaning? And then what has been the trend for mobile broadband subscribers in the second quarter so far? Then again, sorry to hop on the guidance question once again. Just wanted to confirm what I've got. So you think that CapEx guidance is 20%, 25% of revenues, is that correct? And then secondly, have you given any guidance for revenue as well? These are the questions from me.

The first question, I think, we'll direct it back to Honesti on the cash CapEx itself.

Yes, I think cash CapEx, so this is around IDR 1 trillion, cash CapEx.

So for FY '13, you're saying group cash CapEx is how much?

For the group, yes, IDR 1 trillion is the mix between Telkom, excluded Telkomsel. Wait a minute -- for full year, the cash CapEx is around 20%, so I think it's still in line with our guidance, the CapEx of 20% up to 25%. The most, the cash CapEx, that's actually go through Telkomsel, is around IDR 9 trillion up to IDR 10 trillion or IDR 11 trillion. The rest will go to Telkom, excluding Telkomsel.

Okay. On the second question on the broadband Flash, I'll direct it to Alistair.

Yes. I think the answered the question yourself, it's really linked to this cleansing process. I mean actually, our key target is really driving digital revenue and year-on-year, that's up about 36%. So the, it's really those lower value customers where our price points aren't really optimized to operate at the bottom of the market who have left.

Okay, fair enough. So how's been the trend in the second quarter, so far?

So the comment I made earlier was that we're fully expecting the second quarter to see us get back to growth, both in data users and overall subscribers. So I think the cleansing process has run its course.

Okay. I just wanted to confirm, can you remind me of the revenue minus the full year for FY '13 for the group?

I think it's already mentioned in the beginning of Arief Yahya. The guidance for the group is around up -- 8% up to 9%.

Next question comes from the line of Dee Senaratne from CLSA.

I'm just following on from the question before. Just on that cleansing, can you just elaborate exactly why that was done? Was it just inactive subs, or they will look very low value subs got rid of. Can you just give me a little more clarity on that just to, I wanted to just, I guess more context on that. And then the second question I had was just on some of your content media strategies. Could you give me sort of the sub-Node, the current sub-numbers for TelkomVision and then U See TV? And then some guidance as to where you see that going in 2013 and '14. And then I guess, on TelkomVision particularly, how do you see that product competing with some of the other Pay TV offerings in the market?

The first question, I'm directing to Alistair.

Yes. So the cleansing really, we have a set of business rules around getting customers on the -- in our customer account on our network. And these business rules are fairly rigorously applied. I think the reason why in quarter 1 this year we had negative net, so it's really related to some of our activities last year, where we grew very aggressively. And on the prepaid business, when you grow very aggressively, you can't help, but pick up some customers, who are perhaps, using their card temporarily, be they visitors to the country or be they at the segment of customers, who are looking for value. So effectively, we -- in quarter 1 this year, we have turned those customers off. It's kind of, I think, part of the natural life cycle of growing a prepaid business. But as I say in Q2 this year, we're looking at the trend reversing and starting to grow the base again.

For the next question, I'm going to direct to Indra.

For the digital media for the group, currently, we have at least 3 products. First, is the pay TV; second is the OTT TV; and then third is the IPTV. For the OTT, currently, we already have around 600,000 registered users, mostly through our Telkomsel. And then for the IPTV, we just -- we start again to offer the IPTV since we improved the bandwidth, and also, the bit rate to a more adaptable to our overall [indiscernible] access. So we currently, we're still around 28,000 customers, and then for the pay TV, it's around 1 million subscribers.

And sorry, what do you mean -- what's the OTC, sorry? OTC, the first product, the 600 -- that's called U See TV, is it?

Yes, you're correct. U See TV is currently, is our OTT services. But we will also use the U See TV as our umbrella brand corp [ph] for all TV-related services.

Okay. So the IPTV business is also branded under U See TV?

That's correct.

Okay. So basically, the OTC is over the DSO network, and then the IPTV is over the fiber. Is that correct?

Yes.

Okay. And sorry, just on the pay TV, so you've got 1 minute subs, that's 1 million subs now. Is there any guidance you see or growth rate you're seeing for that, for this year? And then also, what's the current ARPU you have in that business?

Okay. For the pay TV, I think our strategy is to unlock or to leverage the business by finding the strategic partners to, at least, hopefully, we can leverage the pay TV business better than today.

Okay. And sorry, what's your ARPU in that business?

Let me check. Okay. I think we'll try to find the data for you. Can we send the [indiscernible] to you?

Sure, no worries.

Thank you, everyone, for participating on today's call. We apologize for those questions could not be addressed. Should you have any further questions, please do not hesitate to contact us directly.

Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you for your participating. You [Indiscernible]