Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (TLK) Q3 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Telkom Third Quarter 2013 results. [Operator Instructions] Other 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. I will now hand the conference over to your first speaker today, Mr. Prakoso Imam Santoso, Acting VP, Investor Relations. Please go ahead, Mr. Santoso.

Thank you, Gary. Ladies and gentlemen, welcome to PT Telkom Indonesia 9 Months Results Ending September 30, 2013 Conference Call. There will be an overview from Director of Innovation and Strategic Portfolio. And after that, the question-and-answer question 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 9 months ending September 30 on October 26, 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 questions may contain forward-looking statements within the meaning of Safe Harbor. Actual results could differ materially from projections, estimations or expectations voiced during today's call. These may involve risk and uncertainty and may cause actual results to differ substantially from those discussed in today's call. Telkom Indonesia does not guarantee to any actions, which may have been taken in reliance of the discussion held today. Ladies and gentlemen, it's my pleasure to introduce you to Telkom's Board of Directors, who are joining with us today: Mr. Indra Utoyo, Director of Innovation and Strategic Portfolio; Mr. Honesti Basyir as Director of Finance and Chief Financial Officer. And also present are the Board of Directors of Telkomsel: Mr. Heri Supriadi as Director of Finance; Mr. Alistair Johnston as Director of Marketing; and Mr. Edward Ying Siew Heng, Director of Planning and Transformation. Before finally hearing the executives' remarks, I will take this opportunity to give a brief overview of Telkom Indonesia. Telkom is the single largest integrated telecommunications company and network provider in Indonesia with over 171 million customers at the end of 9 months 2013. Telkom provides a strong business portfolio of TIME: telecommunications, information, media and edutainment, directly or through our subsidiaries. We also deliver service through multi-customer portfolio: retail, enterprise, wholesale and international. As of September 30, 2013, the majority of shareholder of our common stock was government of Indonesia with 53.1% ownership, and the remaining 46.9% was under public ownership. I now hand over the call to Director of Innovation and Strategic Portfolio, Mr. Indra Utoyo, for his overview. Indra, the time is yours.

Thank you, Prakoso. Good afternoon, ladies and gentlemen. A very warm welcome to each one of you to our conference call for 9-month period results ending September 30, 2013. We sincerely appreciate your participation on this call. Into this call, I will give you the overview of our operational and financial results for the 9 months. Secondly, I'd like to update you on the progress of our cellular and fixed-line business development as well as other business portfolio. Ladies and gentlemen, let me start the overview by sharing the highlights of our 9-month results. First, Telkom consolidated revenue increased 8.2% year-on-year. This is in line with Telkomsel's performance which recorded 10.4% year-on-year revenue increase. Second, our broadband users grew by 41.8% year-on-year to be 32.6 million, consisted of fixed and mobile broadband. While Telkomsel gained 6.43 million net additional customers year-on-year, net total customer base is 128 million. Third, Telkomsel continues to expanding in its network coverage and capacity by adding more than 11,000 new BTS during the 9 months of 2013, with almost 70% of them are 3G BTS. Ladies and gentlemen, our fixed broadband users increased 55.8% year-on-year to 2.9 million, and the revenue increased to IDR 3.4 trillion in the 9 months of 2013. Our mobile data users also increased. In the 9 months of 2013, this increased 9.4% from last year to 55.3 million users. We booked IDR 7.6 trillion of revenue from mobile data services, a 36.5% increase year-on-year. Total mobile data services and fixed broadband revenues increased around 26% year-on-year to IDR $11.1 trillion. During the first quarter, Telkomsel recorded 2.6 million net additional customers that made total customer base to be almost 128 million. In the 9 months 2013, we added 11,266 units new BTS and around 70.5% or around 8,010 units of them are 3G Node B BTS. At the end of 9-month, Telkomsel owned 65,663 BTS, and 23,443 of it are 3G Node B. Ladies and gentlemen, consolidated revenue growth remained strong with 8.2% year-on-year with Telkomsel's revenue growth maintained at double-digit 10.4% year-on-year. Revenue contribution for customers [indiscernible] 2013 was still dominated by cellular voice revenue, which makes 38.5% in our total operating revenue. Data, Internet and IT services came second, contributing 37.9%, followed by fixed-line voice that contributed 12%. The remaining 11.6% was contributed by interconnection, network and others. Cellular voice revenue, the biggest contributor, is increasing 4.7% year-on-year. And data, Internet and IT services, as the second contributor, showed a real good increase at the level of 16.1% year-on-year. In the meantime, on the expense side, O&M was the biggest contributor with 35.1% of total expenses. The second and the third contributors were depreciation and customer expenses with 27.5% and 23% of total expenses, respectively. Interconnection, G&A, marketing and [indiscernible] all together contributed 20% of total expenses. Total expenses increased by 7% year-on-year, mostly due to the increase of O&M, which is in line with the acquisition of Network Ipalmanish [ph] with our [indiscernible] subsidiary. During the 9 months of 2013, we've built more than 1,000 BTS per month. Ladies and gentlemen, during the 9 months of 2013, Telkomsel Group maintained double-digit growth year-on-year for its revenue, EBITDA and net income. Mobile broadband is still being the growth driver with almost 56.5% revenue growth. This is backed by the increase of flat revenue and [indiscernible] customers as well our focus on increasing customer value [ph] share and sustaining revenue growth by maintaining a good quality of customers. During these 9 months, we've deployed more than 1,000 new BTSs per month, and almost 70% of them are 3G Node B. We are positively increasing our 3G coverage and capacity to service the growing demand of data exit [indiscernible]. Telkomsel data and digital business grew 55.6% year-on-year for the 9 months 2013, contributing 19.1% from total revenue. This is higher than contribution both in the first half 2013 and in the 9 months last year, which were 18.6% and 17.6%. We expect Telkomsel to maintain its performance by positively exploiting its legacy business, voice, SMS and network [indiscernible]; strengthening its core business, mobile, Internet and mobile per se; and [indiscernible] the digital Telkomsel core systems, improving digital services and platform. By that, in line with the revenue market growth for 2013 could be attained. On the fixed-line business, let me share our Indonesia Digital Network 2013 progress for the 9 months of 2013. On the IDSX, until the end of September, we had 6.6 million broadband home customers, rendering of Fiber To The Home, fiber to the curb and ADSL. On top of that, we have installed 68,000 WiFi access points in public areas. These WiFi access points have been accessible for Telkom and Telkomsel customers and expected to offload Telkomsel's wireless broadband traffic. Meanwhile, on the transport side, we call it id-Ring, we have completed 63,500 kilometers of national and regional backbone network out of targeted 75,000 kilometers in 2015. We keep working on our opposite business. We have [indiscernible] in managed share on Ogon [ph]. It defined a form partition with our partner as part of [indiscernible] business in the country where we have around 3 million to 4 million Indonesian workers. We hope this could be started soon. In Hong Kong, our MVNO subscribers has reached more than 56,000. Meanwhile, in Timor Leste, we have 99,000 subscribers as of September 2013. Meanwhile, an IT transfer [ph] surface contract in Myanmar and we look forward to get contracts for other telecommunication services. We are [indiscernible] efforts on expanding MVNO certificates in countries where they have significant numbers of Indonesian immigrant workers, such as Middle East, Saudi Arabia, Macau and Taiwan. On October 12, 2013, we have signed trade [ph] and purchase agreement with CT Corp for 50% of telecommunication ownership. Telkom will keep 30% ownership. We expect the partition could grow much faster with the involvement of CT Corp, owner of the renowned server [indiscernible] transceiver. By partnering with Telkom Group, CT Corp will integrate [indiscernible]. The partnership is focused on providing more value to our subscribers and create and strengthen further alliance, empowering the partition to expand into the increasingly competitive media market. In the partnership mentioned above, the partition will become the main source of good vertical [indiscernible], Telkom's media business [indiscernible] to further develop the media business, including our current online TV services and planned more-for-less TV service. We mentioned earlier it's in line with our overall strategy [indiscernible] to further strengthen the media business portfolio through cooperative or partnership strategy. We are still in the process of unlocking the value of our tower business. Our team is now analyzing the strategic part of this scheme, and we expect to able to decide by end of first quarter 2014. Next step after that is getting the tower company to be listed in the Indonesia Stock Exchange. We believe this corporate action will be enough to unlock the value of our tower [indiscernible] at the right time with the best value for Telekom. After success, with the [indiscernible] of making tower business unlocked by going public, we'll follow it with greater [indiscernible] and greater value [indiscernible] investing in the tower [indiscernible] company. Ladies and gentlemen, let me now reiterate guidance for 2014 [indiscernible] up. For 2014, we expect Telkomsel's revenue to grow in line with market growth. Meanwhile, for fixed-line business, positive revenue growth recorded in 2012 is to be maintained. With that, we expect our consolidated revenue growth between 8% to 9% year-on-year. For EBITDA margin, it will be a slightly decline for Telkom and [indiscernible] and stable for Telkomsel. By forming partnerships and looking opportunities to [indiscernible] grow and continued sharing scheme, we expect CapEx spending for 2014 to be around 30% to 35% of revenue. That's ending my remarks. Thank you.

Thank you, Indra. We will now begin the Q&A session. [Operator Instructions] Operator, may we have the first question, please?

[Operator Instructions] Your first question comes from the line of Sachin Salgaonkar from Goldman Sachs.

I have 3 questions. My first question is you know any particular reason which led to O&M expenses declining materially this quarter? And on the contrary, G&A increased materially, so any color you could draw on that would be helpful. Second question is if you look at your number of base station additions on 3G it is much higher than both of your peers. So any target in terms of BTS numbers of population coverage you have in mind for Telkomsel? And third, wanted an update on both Mitratel potential spin-off and your EGSM rollout.

Yes. Well, I think for the first question it will be answered by Arief, and second question is for Telkomsel. And question number 3 will be answered again by Indra. Let me give it to Arief.

Okay. I think the [indiscernible] our -- and we thought we've given the [indiscernible] for our tower. Comparatively, as we know that these operating lease and now are terms of the -- our financial lease for our tower. That's why the O&M decreased, but depreciation increased because the [indiscernible] and revenue actually transacted most of the depreciation.

Arief, I may have some explanation on your previous explanation. I am Heri Supriadi, speaking here. Yes, Arief has already mentioned to you about the change in accounting treatment of tower lease. This is based on the requirement of SEC. There are -- have the conduct to make the tower lease becoming a financing lease instead of operating lease. [indiscernible] fund about 90% of the rent target we pay can -- [indiscernible] the value of the tower. So some of the expenses on the tower lease then becoming our depreciation based on that. So that's why the [indiscernible] we require [ph] basically from operating lease in the operation and maintenance becoming the depreciation in our cost. I think that there is an -- why we do it right now? We did it in the third quarter. It is only for Dayamitra. Dayamitra presently they still fully operating lease. And then we need to also speak with our auditor what is we going to do in our accounting treatment. So upon that discussion, so we do the classification. And question number 2, Alistair is going to answer your question.

Yes. So I think the continued investment in BTS is really in line with our strategy of leading supply and daily capacity. I think we certainly, as we look forward, we anticipate a high growth in the demand for data. Mostly given our scale and our ability to invest, we think that it's important to leverage our strategic vantage of scale and our ability to roll out network. Having said that, I mean as I said, our strategy is we're only anticipating supply [ph]. But we are seeing pretty hefty growth in our payload, so our payload went up by 25.8% in quarter 3 from quarter 2. So we're seeing significant ramp-up in demand. In terms of setting a target, I think our guidance for next year will be roll out at a similar rate, which is approximately 1 size Node B BTS per month. This year, 70% with 3G. And next year, we anticipate about 80% will be in 3G. In terms of where we picked up, our coverage is now pretty extensive. We have coverage in -- or presence in around 300 cities. But our real focus is in our top 100 cities in Indonesia, where we're really focusing on building high-speed, high-capacity, high-quality network.

Regarding the first question, the Mitratel scheme. I think currently we are focusing on making Mitratel to be focused on tower business. And regarding also that we are also liking to increase the [indiscernible] impact of the business. We will separate the [indiscernible] coverage with [indiscernible] infrastructure company. So in terms of unlocking the tower business in Mitratel, yes, we will have the time line, hopefully, on Q -- first quarter 2014, next year, this will happen. And we will come to start the embracing of [indiscernible] partners. And then after that, we hope we can move into unlocking the value. So by having this strategic partner that's coming from [indiscernible] the company. Hopefully, this will improve the story [ph] and the character of our management and, hopefully, [indiscernible] our financial ratios. And then we'll [indiscernible] and go do also to unlock the tower of the Telkomsel asset.

Your next question comes from the line of Luis Hilado from HSBC.

I also have 3 questions. The first one is sort of a follow-up to the tower IPO update. When you unlock the value, the next phase after getting the strategic partner, how do you intend to transfer the Telkomsel's towers to Dayamitra? Second question is regarding the accounting treatment changes that you mentioned, is that only for Dayamitra -- sorry, Mitratel? Or does it also apply to Telkomsel? Will they also be going to the tower lease accounting? And last question is regarding competition and consolidation. Now that Excel it seems to be moving to take over Axis, just wondering if you would be interested in also helping to consolidate the mobile sector and do an acquisition or merger.

Okay. Thank you, Luis. The first question, regarding tower business and IPO it's going to be discussed by Indra. And our second question about the accounting treatment, maybe perhaps Heri could reference more about this. And then for the third question, regarding competition and consolidation, regarding taking over Axis, maybe Edward could discuss about this. Please, Indra.

Okay. Regarding the unlocking tower of Telkomsel, schedule, actually [indiscernible] the unlocking of Telkomsel. Of course, the first phase would be Mitratel first, and Mitratel will be preparing actually the [indiscernible] by embracing the strategic partner. Then we are ready to list a good growth story [ph], and we'd like to go for listing or IPO. Then on that IPO, we commence the [indiscernible] the final [indiscernible] of Telkomsel's tower to be unlocked because we also would like protect the interest of SingTel. And hopefully we already talked with SingTel about this plan. The timing, actually we'd like to activate this call -- we see this context of the industry is on the second quarter of next year. There will be important regulation from government that all towers should share. It's no longer can be exclusive. So that's why we have to accept [ph] the unlocking of Telkomsel's tower. Hopefully, at least starting from this year was the planning. But hopefully, these [indiscernible] happen on quarter 2 of next year.

On the -- regarding the accounting treatment on the tower lease, yes, this year, we do -- we did for the Mitratel. But for Q3, we've only done for other network providers such as the BIT and also Frater [ph] Indo. So now everything already in the same accounting treatment.

How about Telkomsel's part? Is that also going to follow the same accounting treatment?

Could you repeat your question, please?

How about Telkomsel, will it also follow the same accounting treatment?

Yes, yes. Yes, we will follow the same.

That's not yet done, right, it's still to happen?

Already done. Already done.

So to answer the third question about the intent of the consolidation in the market. So firstly, I think most of you, if not everyone of you, is aware that I think Excel as per their intention to acquire Axis, has filed their report to the regulator plus the government. While pending the approval with the government or the regulator, there's no news as of yet. So I think the announcement probably come in the first quarter of next year. As for Telkomsel, I think, as you know, we are the major or the lion's share -- the dominant player in this country, I think at this point in time we have no intention to acquire. We just look at how the market will consolidates, and we'll probably see how it progressed, and then we can decide on when to speak.

Your next question comes from the line of Roshan Raj from Merrill Lynch.

First on interim dividends. Just wondering if you have any updates on providing any interim dividend. Second is on planned sale of land assets. I believe you were trying to explore opportunity to unlock value from land. How is that progressing? And could you share the book value and estimated market value of your land bank? And in the event you unlock some of these assets, including the recent Pay TV tower and land, what is the preferred or intended use of the fund that you'll receive from such one-off event?

Okay. First question for interim dividends, Honesti, will discuss. And also the second one, that land asset and also estimated -- and regarding Pay TV will be for Indra as he already talked about it [indiscernible] the second. Talking about the interim dividend, actually, we have discussed with our -- the government and discussed with Ministry of SOE. Nothing's [indiscernible] -- we didn't get an agreement on the interim dividend. Plus even our plans for next year [indiscernible]. And then about the property, while we have about 22 million meters square of our land bank nationwide in our assets. Talking about the value, we don't have any calculation yet about the value. But approximately, if we assume that's [indiscernible] meters square now the price is around $1.5 million [indiscernible] 22 million meters square, will be [indiscernible] million rupiah. I think it's around 30 million something.

And just to go back to the interim dividend, it was a bit unclear. So the SOE Ministry has not gotten back to you? Or the SOE ministry has kind of not approved an interim dividend? I was not able to catch that.

[indiscernible] you have the discussion of what we began because we have to get -- we can't [indiscernible]. Because we have get [indiscernible] agreement between parliament and Ministry of SOE. Now they understand the [indiscernible] still under progress. And we think that an agreement among the parliament with the Ministry of SOE and the subject between the [indiscernible] may be [indiscernible] as to pay more[indiscernible] the agreement between parliament and Ministry of SOE.

And just one question on the tower. Just to clarify, the partner that you're talking about it's going to be a strategy? And hence any plans to [indiscernible] your tower into a listed tower company that's kind of root out?

It's not really clear. Roshan, could you please repeat it, the question again?

We are talking about partnering and listing tower company, something like [indiscernible] or something of or [indiscernible]. So something of that sort is not being explored anymore?

Oh. [indiscernible].

Okay. Now for -- is it -- okay, regarding the unlocking the tower. Yes, currently we are in the process of getting the amount [indiscernible] -- 2 largest tower company between [indiscernible] and EIG [ph]. So hopefully -- we are in the process of reviewing that document and hopefully we are [indiscernible] in a [indiscernible in the process of reviewing that document. And hopefully, interviewing them [indiscernible] a few days -- a few weeks from [indiscernible] in time for you to have the result of evaluation of their proposal.

Your next question comes from the line of Colin McCallum from Crédit Suisse. Colin McCallum - Crédit Suisse AG, Research Division: Three questions for me, if I may. First of all, just on the broadband project. Can -- Honesti, can you give us a little update on how that's going in terms of resolving the issues there? And can you give us any comments on when you expect broadband take-up to accelerate a bit? Can I also ask on a unrelated point? Are you a bit disappointed on the pace or rather the ARPU that you're currently generating on broadband? What needs to be done to try and get more out of your fixed line asset in revenue terms? That was the second question. If I can also just follow-up...

Sorry, Colin. Colin, sorry. Your voice is not really clear. Could you please repeat the question again? Your voice is somewhat broken. Colin McCallum - Crédit Suisse AG, Research Division: Okay. Let me try again. The first question is on the broadband project. Can you tell us how the broadband project, the fiber upgrade, is going and if any of the bottlenecks have been removed yet to improve that? Secondly, on the broadband ARPU level, what can you do to improve the revenue generation on broadband? That's the second question. Hopefully, you heard that. The third question I have is actually related to the previous question that was asked. What would be the intended funds -- use of funds that you generate, if you do sell towers? What would you do with the receipt? Would you look at, for example, a special dividend?

Regarding the broadband project progress, our fiber optic and -- the second is the broadband network regeneration. Could you put it -- is that [indiscernible] broadband project next generation? Colin McCallum - Crédit Suisse AG, Research Division: No, broadband revenue generation. The ARPU. The ARPU of broadband. How can you improve it?

Okay. And then the third one is use of profit for our business IPO? Okay? Yes. You know that now we already have 2.9 million subscribers in our fixed broadband. Now the ARPU is around IDR 141,000. It's around USD 14. That's the ARPU now. We continue to deploy more fixed broadband because we believe that it can balance declining of our fixed points. That's why the program that I brought back in the adamantium [ph] to deploy the IDN accept and so IDN ring, IDN ring, just to improve our quality and also our capacity in fixed broadband services. This is only for [indiscernible] in 3D. Bottleneck? Yes, I think there's a problems [indiscernible], but we deployed only because we know that Macau review is for final year. For example, in Jakarta, maybe [indiscernible] about the -- how we can deploy our bidding the land to deploy the fiber -- to fiber [indiscernible] our network. Plus, in the other areas like East Indonesia, Bali, Sumatra, there is no standard yet. That's why we get some difficulties when we try to get a permit from the local government. But we already have set up with [indiscernible] to communicate with the government supporting our process next year. And the question about the process of our IPO. I think, first, we continue to use this profit to expand our network, and also if -- I think if we can approach the government in case that we can get a little bit, but finally, [indiscernible] our government and also discuss it with parliament.

Your next question comes from the line of Suresh Mahadevan from UBS.

I have a couple of quick questions. The first one, I wanted to hear your thoughts on the competitive environment in Indonesian mobile sector, particularly in light of 2 things: one is clearly this whole little consolidation that may play out. And secondly, obviously, Indosat does not seem to be expanding capacity. So it's certainly probably Telkomsel versus XL and maybe Hutch [ph] trying to do some stuff. So I just want to hear your thoughts on how competitive intensity is. Has it reduced? Will it translate into better pricing, et cetera? That is question number one. The second question relates to interconnect in Indonesia. I mean, clearly, you have a cost base interconnect on the mobile side as well on SMS. I just wanted to hear your views. Do you see any changes to this in the coming quarters or so, especially from a regulatory perspective?

Okay. These 2 questions belong to Telkomsel. Please pass to Edward?

This is actually Alistair here. I'll go ahead and answer those. So I think by and large we don't see the competitive situation as having changed from the guidance given at previous quarters, which is the market remains more competitive than it has been historically and really consolidating around 3 to 4 sort of large players. Obviously, from a competitive standpoint, leaving aside any spectrum issues, we obviously welcome the merger between XL and Axis because it removes one more player from the market. In terms of your comments about Indosat, obviously, they haven't been expanding their network at the same level as ourselves or XL. But they do have the advantage of having a lot of 900 megahertz spectrum, which they can deploy for 3G. And in the past, we found them a strong competitor, so we wouldn't want to write them off just yet. I think -- maybe the way I look at the market is I think stability is everything for us. Obviously, we're more than 50% of the revenue. So really the health of the market will dictate to a large extent the health of Telkomsel. I would definitely foresee XL and Indosat strengthen somewhat, which is probably a good thing for the market. In terms of interconnect on the voice and SMS side, no, we don't foresee any big change.

Yes. One quick follow-up, if I may, on the spectrum. Clearly, I think, okay, Indosat has slightly more, 900 I believe. But potentially, the Axis acquisition going through, XL will almost triple its 1800 spectrum from 7.5 to 22.5. Do you foresee that? And how do you foresee that playing out in the market?

I'll hand over to Edward actually to take that one.

Okay. So this is Edward, so I can probably share a little bit. Yes, that is true. If the merger push through and if the government agree to allow XL to keep the frequency, then I think they have 22.5 on 1800. And they have about 25 meg on 2100 as well. But clearly, the rules in this country says that the frequency must be returned to the government. And subsequent, the government can decide to auction it out or tender it out to a relevant party. So at this point in time, the government is not making a decision on it and also not making its position clearly to all of us. So I think we could not speculate at this point in time.

Your next question comes from the line of Choong Chen from BNP Paribas.

Three questions from me. Firstly, the total volume of SMS and the MoUs was actually fairly weak on a Q-on-Q basis in the third quarter despite the Lebaran festive season. So what is the reason for that? Are there any signs of subscribers shifting their traffic to other operators' networks? My second question with regards to the pace of base station rollout as mentioned by Alistair earlier on. As you alluded to the fact that the pace will be likely similar in 2014, can we assume that the CapEx as well will be about the same as in 2013? Or would there be reductions in CapEx because you have done quite a bit on the transmission and on the core network? And then thirdly, back to the question on the property side. Ba Honesti, you mentioned 22 million square meters. Can I know what does this consist of? Is this consisting of exchange buildings? Or is this vacant land? And how soon do you think you can try to monetize this?

The first 2 questions are for Telkomsel, and then the last, regarding property, will be discussed by Ba Honesti. Heri?

It's actually it's Alistair. I'll take these 2 questions, if I may. So the first one, I think -- I think it's a correct observation. I think our estimated growth in Q3 this year hasn't been as strong as we had seen in previous years, especially right in Lebaran. Around Lebaran, holiday -- I mean we've seen big growth in the quarter underriding Lebaran holiday in data payloads. So as I said before, more than plus 25% growth. I think inevitably we'll begin to see SMS somewhat -- SMS growth somewhat slowed by the rise in OTT, chat services. So while our revenue on SMS is fairly robust, that's really by a process of smart pricing and hopefully more benign market conditions. But from a volume point of view, we're definitely seeing signs of SMS volume growth slowing down. And I think that's something which we have factored into our plans moving forward. I think really it's always been an inevitability.

I will take the second question on the CapEx. Yes, we are going to spend about the same amount of CapEx for next year. And today, the [indiscernible] contribution of CapEx is around 70% goes to the revenue. And then to core networks, around 7.3%; IT, around 10%; and to transfer, around 7%; and the remaining go to others network. This is the distribution of the CapEx.

Okay, Ba.

Perhaps, before we go to Ba Honesti, maybe just a quick follow-up for Alistair on the MoU trends. That has also been a bit weak. Was that also due to people -- subscribers shifting towards OTT applications as well? Or was that more due to basically consumer spending, et cetera?

I mean, MoU, you're talking about the voice revenue? No. I don't think we are seeing a similar trend in voice revenue to that which we're seeing in SMS, to be honest. And I think that's really a function of voice revenues at the moment is still more secure than messaging revenue, just given the availability and quality of IP services. I mean it's worth bearing in mind that our legacy business, which we class as voice and MS -- sorry, voice and SMS, still grew quarter-on-quarter by 5%. So I think there is still growth to be had in our voice and SMS business. I'm slightly more confident about voice actually in terms of being more resilient than perhaps I am about SMS. A lot of what we're focusing on, on voice and SMS is really -- certainly on SMS it's more defensive tactics of the various tactics we can deal on pricing to defend SMS. On voice also, we've been able to increase our voice prices. We actually have quite a sophisticated voice system, which divides the country of Indonesia into more than 200 clusters. And on each of these clusters, we look at local market conditions, network conditions, and we price accordingly. And in some areas, we've been able to price up. And by and large, the trend is up, which we hope to be able to continue to do, obviously, depends somewhat on the market conditions and competitor reaction, but our strong desire would be to manage the pricing on voice and SMS in an upward direction.

Okay. Thanks very much for that. And Ba Honesti, on the question on the property side?

It's a little out there, but mostly about [indiscernible] on top of the lands. We have property that's using as our office in southern Indonesia. But as to the decision concerning our [indiscernible], but we have a lot of land down in [indiscernible. Now the plan how to unlock the asset. But I think that the strategy -- I think that the final operation is not too different with our lock-in strategy . How to invest the partners, I mean the[indiscernible] Finance Indonesia could be our partner. Hopefully, we can execute this starting next year, 2014. And after, this property [indiscernible] present value, we then do -- we then going to do the IPO company.

Next question comes from the line of Arthur Pineda from Citi.

Three questions for me. Firstly, with regard to your O&M expenses and your EBITDA, if we actually normalize for the change in accounting treatment for O&M [Audio Gap] Second question I had is [indiscernible]...

Hello?

Can you hear me?

Yes, but we missed the last part of your question. Could you please repeat it again, Arthur?

Okay. With regard to the first question, if you were to normalize for the change in accounting treatment because of the leasehold, what would your EBITDA growth actually be year-on-year? Secondly, I just wanted to get your thoughts on the consolidation of Axis and XL. Do you see the market dynamics as changing on XL's side, simply because they now have a lot excess network capacity? Do you think this will lead to more competition? Or is it biased or is trying to improve it? Last question I had is with regard to your property assets again. Do you have any specific targets or disclosable plans on this? Can you sell the assets? Or is it more on the site development and rentals?

Okay. I believe for the first 2 questions are for Telkomsel, right, and the property assets will be discussed by Honesti. Heri, could you please?

For the first 9 months of this year, we already reclassified from operating to finance lease around IDR 570 billion. Based on this condition, actually, if we normalize, the expense is supposed to grow by 12.7% instead of 9.43%. And the EBITDA will grow around 8.9% -- 8.6%. But if you see again this figure, you can also compare in the EBIT situation. Our EBIT is still growing double digits. In the first, I think before -- 2 years before now, we also are doing -- building our own tower. So all the expenses regarding tower will become the depreciation like finance lease now. I think by this matter we can see that although the reclassification and also the EBITDA slightly declined, clearly in terms of efficiency basis, this company already doing better. That's I think the general answer for your question.

Okay. For the second question on the consolidation of XL and Axis. From a purely competitive standpoint, I think we believe it will make the market become healthier. That tends to be the case when the market consolidates, and obviously moving from 5 to 4 players will do that. In terms of what XL's likely behavior will be, I mean I can -- I don't know. I can only speculate, but my view would be that they would not be likely to embark in aggressive pricing techniques for a couple of reasons. I mean, they will be probably 30-plus percent of the market by the time they combine with Axis or around that area. And I think we have seen in our own customer base that market -- pricing elasticity is relatively low in that if you cut price aggressively customers don't use an additional amount of your service sufficient to make up the revenue you lose with the pricing change. We think that's probably due to the fact that Indonesia is not a highly penetrated market, and the absolute voice and SMS costs are low compared to other markets. So I don't really see -- if I was in their shoes, I wouldn't really see a strong case for cutting price in order to grow revenue. I don't think that would work for them. So I think, by and large, we would expect it to be positive, but purely speculation.

As you're on the topic of Axis, if you see the government is actually allowing XL to keep the spectrum with an acquisition, would that change your tactic with regard to acquiring assets?

I think I can answer this question. I can try to answer this question. So firstly, I think if the government give them all the frequency, then clearly I think XL is in a strong position. Like someone earlier said, they have more frequency than 2 of us out of the big 3. So I think the other avenues that we can -- that better would improve the productivity on spectrum, especially with the new introduction of 4G and smaller cell, Pacnet and so forth. So surely, we will redesign. And the other thing that you probably know that we are now clearly working with Telkom to grow our WiFi network to offload data to create better experience for our customer on the Internet. So these are some of the things that we would reexamine and reintroduce to the market. And by then, technology will change as well. For XL to consolidate, it would take them another 6 to 12 months minimum. So in the process, we will look at -- reexamine our position, and we will find another strategy to actually -- to see how we can compete in this new dynamic. That's all.

Okay. Our policy in[indiscernible]. So far, our policy [indiscernible] then because you know that XL needs, it cannot sell-- in fact [indiscernible] from the ministry and maybe we get the second among [indiscernible] could get a proposal from parliament. So until today, we don't have any authority to sell the assets. What we have [indiscernible] was utilize assets [indiscernible] shopping mall or maybe a hotel. And we would be [indiscernible] with that property for Indonesia.

Any targets on your revenues and CapEx, specifically in property?

Now our property because of we increased [indiscernible] for the CapEx. You see, it's not too much. It's just around IDR 200 billion this year, but because we want to utilize our assets and operate by them, what we might still do is get the CapEx from our property title.

And revenue targets? Nothing to disclose?

Now the property CapEx is not too much because we getting processes from them to be our cycle, so it gives a value in our assets. This year, CapEx for the property is around IDR 200 billion. Revenue target for this year is around IDR 800 billion. Operator, can we wrap up the question?

Okay. There are no further questions at this time. Please continue.

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

That does conclude our conference for today. Thank you for participating. You may all disconnect.