Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (TLK) Q2 2014 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Telkom First Half 2014 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. I would now like to hand the conference over to your first speaker for today, Mr. Prakoso Imam Santoso, Assistant Vice President of Investor Relations. Please go ahead, Mr. Santoso.

Thank you, Vivian. Ladies and gentlemen, welcome to PT Telkom Indonesia first half results ended June 30, 2014, conference call. Our CEO will give you the overview, and then we conclude by question-and-answer session for all partakers. The presentation of this earnings call is available on the webcast, and an audio recording will be provided after the call for the next 7 days. We released the report of first half financial results ending June 30 on July 23, 2014, and could be accessed through our website, www.telkom.co.id. Before we continue, let me remind you that this 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 the call. This may involve risks and uncertainties 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 discussions held today. Ladies and gentlemen, we are glad to name you our Board of Directors who are currently joining with us: Mr. Arief Yahya as President, Director and Chief Executive Officer; Mr. Honesti Basyir as Director of Finance and Chief Financial Officer; Mr. Indra Utoyo as Director of Innovation and Strategic Portfolio; Mr. Rizkan Chandra as Director of Network, IT and Solutions; Mr. Ririek Adriansyah as Director of Wholesale and International Services; and Mr. Sukardi Silalahi as Director of Consumer Service. And also present, Board of Directors of Telkomsel, Mr. Heri Supriadi as Director of Finance; Mr. Alistair Johnston as Director of Marketing. Before Pak Arief delivers his remarks, I will take this opportunity to give a brief overview of Telkom Indonesia. Telkom is the single largest integrated telecommunication company and network provider in Indonesia, with over 150 million telephony customers and more than 84 million broadband users at the end of first half 2014. Telkom provides a strong business portfolio of time [ph], telecommunication, information, media and entertainment, directly or through its subsidiaries. Telkom also delivers services through multi-customers portfolio: retail, enterprise, wholesale and international. As of June 30, 2014, the majority 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 Pak Arief Yahya for his overview. Pak Arief, the time is yours.

Okay. Thank you, Prakoso. Good afternoon, ladies and gentlemen. A very warm welcome to each one of you to our conference call for the first half results ending June 15, 2014. We sincerely appreciate your participation on this call. Into this call, I will give you an overview of our achievement in the first half 2014. Until the end of June, we could maintain an outstanding performance in operational and financial results. I would like to update you on the progress of our cellular and fixed line business development, as well as our other business portfolio. Ladies and gentlemen, let me start the overview by sharing the highlights of our first half results. The first. Telkom consolidated revenue increased by 8.4% year-on-year, and EBITDA grew by 9.1% year-on-year. This is in line with Telkomsel's performance which recorded 10% year-on-year revenue increase and 8.2% year-on-year EBITDA growth. The second. Telkomsel gained more than 5.8 million net additional customers during the first half, made total customer base to be 157 million. The third. Telkomsel continued to expanding its network, adding almost 9,700 new BTS during the first half, with around 75% of them are 3G BTS. Ladies and gentlemen, our fixed broadband users increased by 15.6% to 3.2 million, and the revenue increased to IDR 2.4 trillion year-on-year in the first half. Our mobile data users also gained increase of 22.3 million from last year to 63 million users. We booked IDR 6.4 trillion revenue from mobile data, a 53% increase year-on-year. Total mobile data and fixed broadband revenues increased by 25% year-on-year to IDR 8.8 trillion. Ladies and gentlemen, revenue contributions for the first half dominated by data, Internet and IT service revenue, which made 40% to total group revenues and 16% growth year-on-year. Cellular voice revenue came second, contributing 37% with 6.4% growth year-on-year. These are followed by fixed line voice, contributing 10.5%; and the remaining 11.7% is contributed by interconnection, network and others. On the expense side, O&M was the biggest contributor, with 36% of total expenses. The second and the third contributor were depreciation and personnel expenses, with 27% and 15.9% of total expenses, respectively. Interconnection, G&A, marketing expenses, products net and others net, altogether contributed 19.8% to the total expenses. Total expenses increased by 11.5% year-on-year, mostly due to the increase of depreciation and amortization, is in line with the acceleration of network deployment in our cellular subsidiary. During the first half of 2014, on average, we built more than 1,600 BTS per month. Ladies and gentlemen, I would like to reiterate that, for 2014, we focus our efforts and resources on the 3 main portfolios, which are: cellular business, broadband infrastructure, and international business development. This is reflected in how we spent our CapEx for the first half of 2014. 71% is allocated for our cellular business. Meanwhile, the rest is for broadband infrastructure development, tower, ICT and international business. To be able to give good experience to the growth data customers, Telkomsel keeps deploying its BTS to improve capacity and expand its coverage. Meanwhile, Telkom is continuously laying out its fiber backbone to the East of Indonesia. We expect, by end, 2015, all our major islands in Indonesia, from the west to the east, will be connected. For the first half, Telkomsel recorded 10% year-on-year revenue growth. We expect that such a good performance would be maintained. As already mentioned in the last quarter, Telkomsel is in the process of growing its digital business. For the first half, data and digital business contributed 22.5% of Telkomsel's total revenue, increased 3.9% compared to the last year. Revenue from data and digital business grew 33.1%, mainly comes from data broadband which grew 33%, and digital services increased by 28% from last year. And for the coming years, this business will continue to be Telkomsel's main engine of growth. The potential to further increase the number of data users is still huge, as current penetration of smartphones is still relatively low at around 23% of Telkomsel customers. Telkomsel will continuously encourage the adoption of smartphones, as this is one of the keys to accelerating data consumption. Telkomsel legacy revenue grew by 4.8% over the last year. Our voice revenue grew 7.2%, while SMS slightly increased by 1.1%. To exploit Telkomsel legacy revenue, we focused on geographic clusters and customer segmentation, where we can provide more services and generate more revenue. On the fixed-line business, let me share our Indonesia Digital Network 2015. On the transport side, we call id-Ring, Indonesia Digital Ring, we have completed 70,000 kilometers of national and regular network, out of the targeted 75,000 kilometers in 2015. On the Id Access, Indonesia Digital Access, we are now focusing the deployment in the area with high-demand consumers on the road of bigger assets and corporate customers. Even though we face a lot of challenges in initiating and developing of this business, but we have to go on as we will have to make ourselves ready for ASEAN Economic Community in 2015. We have a lot of lessons learned from our business establishment in several countries, such as Singapore, Hong Kong, Malaysia, Australia and Timor-Leste. We expect to be able to make footprint in 10 countries by end of 2015. We are optimistic to make it happen. We are committed to have more international business exposure to broaden our market room, diversify our business base and improve the competencies of our human capital. For the first half, international business contributed 5% of consolidated total revenue, increased 1% compared to the last year. Revenue, international business grew 19.8%; and EBITDA margin, around 27%. Ladies and gentlemen, let me now reiterate guidance for the year 2014 as a wrap up. For 2014, we expect both consolidated and Telkomsel revenue will grow in line with or better than market growth. Telkom consolidated revenue is expected to grow between 6% to 7%. Meanwhile, Telkomsel could maintain a revenue growth in line with or slightly above the industry. For EBITDA margin, it will be slightly declined for Telkom consolidated and Telkomsel. Consolidated CapEx spending for 2014, expected to be 20% to 25% of revenue. Allocation for Telkomsel purposes is around 70%. Meanwhile, for broadband business, it's around 20%; and other subsidiaries, it's around 10%. That's ending my remarks. Thank you.

Thank you, Arief. We will now begin the question-and-answer session. [Operator Instructions] Operator, may we have the first question, please?

[Operator Instructions] Your first question comes from the line of Sachin Mittal from DBS.

I have a question on the depreciation, which seems slightly unusual. So could you give us a breakdown of how many tower leasing is treated as OpEx and how much of that is treated as financial lease resulting in higher depreciation? So just a bit of breakdown on that how do you treat a tower as financial lease or as an OpEx, or a simple tower lease? Number one. And number two question I have is, what's happening on the non-Java business? Are you seeing more competition outside Java from the likes of Hutch or Excels?

Heri?

Heri speaking here. We address the first question on what is the policy on the financing lease and operating lease of the tower. First, all the tower that will be categorized as deficit [ph] will be coming to the operating lease and [indiscernible] tower will be come to the finance lease. So far, now we have 14,982 towers that we lease in, of which 7,611 will be under operating lease and the balance goes to the finance lease. So the composition is: 51% will be operating lease and 49% will be coming to finance lease. This is the composition. And up to now, we already -- until the first half of this year, around IDR 794 billion tower lease expenses recorded under finance lease, of which 469 is posted in the depreciation and the balance goes to interest expenses.

In terms of the second question, which is about the competition outside Java, I think the answer in short is yes. I think we're seeing Excel, probably, a bit more resurgent than they have been in the last few quarters. And I think we're seeing Hutch being a bit more aggressive as well. I mean, looking across the country, actually in Sumatra, we're doing particularly well at the moment. And I think the main challenging areas are in Area 4 for us, which is Sulawesi, Kalimantan and Papua. And I think, having recently sort of visited myself Sulawesi and Kalimantan, I definitely had the sense that, in particular, Hutch were making efforts to improve the network and to improve their execution. So in short, yes. I mean, the competition remains pretty tough.

Your second question comes from the line of Choong Chen Foong.

Four questions from me. Firstly, could you bring through some of the tariff adjustments that you have made for the mobile side, year-to-date, and whether you think there is room to further tweak up the tariffs in the coming months? Number two. Could you give us an update on the progress at Mitratel, where you're trying to spin it off? Have you already decided on a strategic partner? And what is the cost going forward? And number three. Could you give us some sense of how much you're paying for BlackBerry access fees for the first half? And number four. Is there going to be an early retirement program this year? If so, what is the expected cost for that?

So I should probably start on the first question, which was on tariff adjustment. So I think, just to put it in context -- I mean, I've been saying for the last number of quarters that our intent has been to increase price across all our products. And I think, if you look at our performance, our year-on-year growth on voice is 7%, which is by and large driven by smart pricing, as we call it, which is effectively breaking the country up into a large number of pricing clusters and finding local opportunities to put up price, with a general direction upwards. So that's been successful. I think, with SMS revenue, our growth year-on-year is only about 1%. And actually, in the first part of this year, I've put in place changes to the SMS pricing, which, in the immediate data that I can see, shows that we're starting to make progress in terms of driving revenue through those price changes. So voice and SMS, certainly the direction is up. And I think -- in terms of the competitive environment, I think all the operators now realize that there's no elasticity, there's nothing to be gained by cutting price on voice and SMS. So I expect them to continue to rise. I think the big opportunity is on data, because the market has really focused on driving data adoption and data usage, in particular, driving customers onto a data -- buying data packets, which is a good customer experience and a sustainable customer experience. And the problem with those is, obviously, they're cheaper on a per-megabyte level. And as of June, our price per meg has gone down to IDR 62 per meg. So the opportunity is there to start monetizing data more effectively. And I'm certainly embarking on a series of price increases on data. And following the [indiscernible] holidays, which is next week in Indonesia, from then onwards, I'll be actively looking push the data price up. So hopefully, the market will be responsive to that.

Okay, I will add the information on access fees for BlackBerry. So far, we already spent around IDR 822 billion for the BlackBerry access fees. Barry [ph], you said the price already decreased from IDR 19,000 last year in June, becoming IDR 18,400 by June this year. Right now, we have around 7,279,000 of BlackBerry subscribers. This is still higher compared to last year, which was 6,352,000. But if we see the current situation, the number of subscribers slightly declined from month-to-month starting in the early of this year.

Heri? [indiscernible] Can you please handle it?

Okay. Regarding the progress of our tower portfolio. So I would start with the review back the plan. The plan that have been reported -- we have reported to the analysts and to the investors that we currently -- that we just maybe pass into the evaluation period -- option to assess that 2 options between the transfer [ph] to the publicly-listed company, and also IPO. We actually would like to bring this into the direction, the strategic intention of Telkom in tower business, that we start from the aim that Telkom as a group would like to be the largest, maybe, tower provider in the market. So that's the intention of Telkom in the tower portfolio. It is in line with the corporate development that we explained in our corporate strategy direction, and the Mitratel is actually is one of the steps into that direction. So to be the largest, I think we are coming to -- at least there is 2 options, is to build and to buy. And to build, it means we can do the IPO or a new -- another investment in Mitratel; and to buy, it means we acquire the largest, maybe, public tower providers in the market than in the past. So in the analysis, I think we already come into recommendation and step in how we enter into unlocking or developing the tower business. And from the analysis that we did, we tend to take -- to buy options. And hopefully, it's more certain, more faster and also have a very clear in terms value, in terms of maximizing the value that we can obtain and also we can grow in the future. So that's the direction we already give the recommendation, actually. But we are, at this moment, in the process of getting support about how we can proceed, what is the direction from our commissioner and also from Department -- Ministry. We still expect that we can move forward with this direction in this quarter, and until maybe this year we will try to finalize the review of the legal aspect, the business process and also the value that we can, if we can see some fair or strong -- it's good and also proper. So if you see from that context, so buy, it means we can go into looking for the best partner that we can be the largest shareholders. And the Mitratel is just one mechanism for the swapping the value or team or buying the company, and apart from other mechanism like trading stock or cash. That's kind of the process we are going to take, maybe just the update of the tower unlocking scenario and style. Maybe that's the response. Prakoso?

The early retirement program.

For the early retirement program, we still have the plan to do this in the last quarter this year. Approximately, the budget is around IDR 500 billion, and we hope that around 700 employees will get in this program. But the decision to execute this is on our [indiscernible] that we now is process by our Human Capital department, and the target is last quarter this year.

Your next question comes from the line of Jimmy Chen from Sanford C. Bernstein.

Two questions. First on the CapEx intensity that we've seen peaking is to last year and it's still at a fairly high level for H1. But given the guidance of the full year CapEx, it seems that the intensity would drop in H2 this year. Can management just give some explanation on what caused that peak CapEx intensity in the last 2 halves? Second question is on the 3G rollout strategy. Can you give more detailed guidance on how -- what the strategy is in terms of, for example, geographical focus, and also how that differentiates from the competitors?

So for the rollout strategy that you have, it's for the mobile side, right?.

Thank you, Jimmy, for the question. Yes, we already have a program to accelerate our CapEx in the first half of this year, because we know some of peaking month is happen in the first half, such as we have [indiscernible] election and so on in the first half of this year. The second, we want to have our network ready to be monetized in the second half of this year. So basically that's our program from the beginning. To the second half of this year, of course, we are becoming more selective in adding new investment to the plate, because our plan is on the basis that all the investment has been made.

Yes. So I think, in terms of the criteria for the 3G rollout, I think it's changed somewhat this year versus the previous years. Obviously, initially we had a bigger focus on coverage and really identifying the areas where we felt the demographics and the handset population, et cetera, were appropriate for 3G. Currently, we cover about 300 cities. So our coverage is very good. Where have we have invested more recently is in quality. So we have 30 cities identified where we set a benchmark, which we call world-class. So we've set the series of KPIs around latency and speed and throughput, et cetera, which we deem to be of a world-class standard. So a lot of investment in those cities tends to be on in increasing the amount of cell sites, cell splitting, increasing capacity but also investing to improve quality. And I think, going forward that, that's really going to be the name of the game. I think it's focusing on delivering a reliable, quality service. It's going to our main criteria for investment.

And just a follow-up on that. In terms of the 3G coverage, how much of the population is actually covered now? And what is the near-term target over the next 2 halves, for example?

So the current population coverage is 60 million, roughly 60. Actually, to be honest, we're not really working off a particular target in terms of population coverage. And when we continue to look at our footprint and we find areas where we think the 3G handset population is rising or where think the demographics are appropriate, and then we'll put 3G out there. But probably, we have a greater focus on within the 3G coverage area and making sure that's really a good quality service.

Your next question comes from the line of Jennifer Gao from Crédit Suisse.

Three questions from me. First of all, if I can just clarify on the ERP number that was mentioned a short time ago, was it IDR 100 billion that was mentioned as the potential number for fourth quarter of this year? That's the first question. Secondly, if I could also just clarify on, when you're determining when to move towers from being on operating leases to being treated as finance leases, what is the criterion that you use in determining when to move those towers over? That's the second question. And if I can just ask another questions on towers as well, I think the question early on the call had been about how you would look to monetize your towers, which obviously you've been looking into now for a couple of years, the idea being -- of effectively being a seller of some towers. But for some reason, the strategy that just outlined sounded like you said you were going to be a buyer of towers and of existing tower companies, which I find a little bit confusing. I just wanted to make sure that what was said there was really what you meant to say. And that would be helpful if you just clarify on that point.

Okay. Let me explain again regarding our early retirement program. So as I said before, the target for this year is for 700 employees, and the budget is around IDR 500 billion.

IDR 500 billion. Okay.

On the policy of the operating lease or finance lease, it is -- we have the formula that are already setting in the accounting policy, I think, U.S. GAAP, which is: if the composition of our expenses on operating lease around 90% of the total rental that they get from our lease, I think it will be coming to finance lease, and the others will go to the operating lease. That's the policy. We follow that policy. And about monetize, I think they have monetized the tower. So maybe the question you would direct to [indiscernible] or also to us. The way Telkomsel monetize tower that we own right now, we ask the Telkom subsidiary, Mitratel, to lease out our tower. They are becoming retailer to our towers to other operators. And for the more strategic level, I think our colleague from Telkom can explain about this.

Okay. I would like to maybe elaborate more about the unlocking tower business maybe hopefully be more clear. And actually, the direction is to unlock the tower portfolio in the group. So one of the portfolio is in Mitratel and, actually, the largest part of the tower is Telkomsel. So the intention of Telkom as a group is how we can leverage this towers and give the maximum value to the group. Of course, the steps to unlock or develop the tower portfolio is starting with Mitratel, and then the next is the maybe largest part of the tower in Telkomsel. So the option, maybe as we have reported before is, maybe come into -- from -- maybe we have 5 options in the beginning. First is sell the tower, but then we don't want to use -- to do that. Second is what we call this merger. That's the complex one. And the third is IPO. The fourth is sector listing or search what we built current public-listed tower company and the [indiscernible] is doing nothing. And the fifth option is coming through -- 2 options, the best option. First is the going to listing through sector listing, and the second is IPO. So then we do the evaluation. And actually we aim or the end goal is still we would like to be the largest shareholders in the tower business. But to do that, it will be 2 in the steps. So Mitratel is the first step and Telkomsel is another step. Maybe you can do it in 2 phases. But the option to be the largest player, which is also seen as also skill in the acceptable level, so we go into public-listed and the best publicly-listed tower company. And Mitratel is one of the options to swap the tower and to focus into one tower portfolio as we would like to rephrase [ph] or unlock our tower portfolio. And next, we will have more towers to be unlocked in this cycle. That's actually one of the steps. So that hopefully can support the idea to be the largest or to be the main player in the tower business.

Got it. So you're saying there is something with Mitratel first and then meet whatever that vehicle becomes then buys towers from Telkomsel. That's what you're saying, is it?

Yes. And I also put into the [indiscernible] -- we are adjusting here.

Your next question comes from the line of Hussaini Saifee from Citigroup.

Three questions from me. Firstly, can you give us an update with regards to this LTE launch which was reported in the press that you would be launching a few service ahead of peers? If you can comment on that? Second question I had is with regards to the revenue movement. You've mentioned price or competition in the second quarter with Excel and Hutch somewhat more aggressive, yet your new revenue growth seems to have accelerated. Was this bump-up in revenues due mainly to election-related activities? Should we see it as normalizing during the second half? Finally, with regards to the margins. We see that your revenue growth has been very healthy, but your profit growth has been somewhat slow, partly due to the rising network cost and [indiscernible] been more aggressive investments. But when should we start to see new better monetizing on the bottom line? If it's to be seen in the second half of this year or 2015? Or should we see more investments coming in because of LTE?

Okay, I can probably take the first 2. So in terms of the press reports of the LTE launch, yes, that's correct. So our plan is to have a very limited-scale LTE launch, hopefully toward the end of this year or at the early part of next year. We actually are spectrum-ing the 900 band. We are able to use different technologies. So we're confident that we can launch at that waveband. And hopefully, like I say, toward the end of this year, but it'll be on a pretty limited scale initially. In terms of competition and in terms of performance, no, I don't think the performance is linked to the election at all, really. I think we have maintained revenue growth, double-digit revenue growth now for about 2, 2.5 years, and I think the underlying reasons for that are twofold. I think, number one, smart pricings are putting the price up on voice and SMS; and number two, the growth in data users, and in particular, that's driven by the penetration of smartphones. And growth in data revenue year-on-year is about 33%, so I think those 2 things really account for the growth. In terms of looking ahead, and difficult to predict, but I think the momentum that's got us here, I think, that remains. So we are hopeful that we can continue with a similar kind of momentum. When I comment on tariff competition, the competition isn't really based around sort of cutthroat price-based competition. It's really based around our competitors building out network in the areas and improving the quality of their execution, in particular their sales and marketing. So yes, it's a challenge, but that's one we'll have to compete against.

Let me address the question on how the margin will be diluted because of the investment that's currently has been made. I think that he already explained that the margin will be slightly diluted because we come to the segment which is the [indiscernible] looks slightly lower margin compared to the legacy voice and SMS. And the second thing also, I think the consumption of data still in the very fast-growing, so we try to [indiscernible] into place. Somehow this will also put us a lot of operation costs additional to the current situation. But over the long term, or maybe the second half that I can see, that we can manage, I think, the margin by around 1% or 1.5% lower compared to previous year, by having more opportunity to monetize the asset that has been deployed. Our first-time cost initiative in which we try to control the cost and make cost-adjusted program, so that basically what we are going to do and how is the impact to the margin. The second on the investment with LTE, we now already have the plans for the LTE. But basically, the guidelines for the investment, total investment could be about the same. We will optimize the existing budget that we already planned, around maximum 20% of our revenue for the total investment. This is the explanation on the LTE investment.

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

Three questions. First, could you share the breakdown of revenue between Java and x Java and how does this compare to a year ago? How would you compare the pricing in these 2 areas as well? The second question is on the fixed broadband target. If I recall correctly, last quarter, you have indicated a target of 5 million. I'm just wondering if that target remains. And if it remains, how do you plan to accelerate towards achieving that target? And third question is: given your focus on international side of the business, could you share how much of your revenue comes from international or outside Indonesia now, and what is the target for 2015 and maybe for over the medium term?

Sorry, we're just going to clarify the figures for the Java, x-Java, revenues. The team here is just getting the latest figures. So can I we suggest that we answer questions 2 and 3 first and then come back to me?

Sure.

Someone please pick the fixed broadband.

Okay, thank you. The fixed broadband, so profit has grown 15.6% from last year. And our revenue share are speedy compared to the competitor. We have still the second after Telkomsel. So that's #2 after Telkomsel. And then revenue, fixed broadband has grown 8.1% compared to previous year. And also the growth of fixed broadband until now is including to the IPTV. Our broadcast rate is around 10% compared to the previous year. And then how about the targets, about 5 million. So the 5 million target, actually -- we want to achieve the 5 million target by the low affordable -- to low-affordable customers. So we already also launched the Speedy Instant since 2020 -- 2012 -- and right now we already has the 229 million users of the Speedy Instant right now. So the -- and then revenue of the Speedy Instant right now already IDR 18 billion per month. So we hope 5 million, we can achieve by this year by penetrating the Speedy Instant itself, which are low cost, more-for-less product from Telkom.

As for the Internet, currently it contribute about 5% of the total group revenue. And our aim is to grow this revenue to be like 10% of net revenue in 2 years. And we will do it with by both organic and inorganic activities. Thank you.

Okay. So going back to question one. So this year, 2014, 49% of revenue from Java, obviously, 51% x-Java. Last year, very similar. It was actually 48% Java, 52% x-Java. So actually the proportion within Java has increased very slightly. In terms of pricing comparisons, I mean, it's difficult actually to make a generalization about Java versus x-Java, because, like I said, our pricing is pretty sophisticated and we have currently about 60 different pricing clusters where we price differently based on network condition and competitive intensity. If I was going to make a generalization, I would say, our pricing is probably higher outside Java, because the competitive intensity is generally less. But it's not black-and-white.

Your next question comes from the line of Jimmy Chen from Sanford C. Bernstein.

Two more questions. On 3G, what is the current 3G service adoption and what has been the recent ramp in that adoption curve? And my second question, also on 3G. In terms of the pricing structure, what is the sort of ARPU uplift, is it -- or if there's any, from the migration from 2G to 3G?

Sorry. I actually missed your second question. Would you mind repeating it, please?

Yes. So the second question is on the potential ARPU lift or observed ARPU lift from migrating from 2G to 3G.

Okay, thank you. So in terms of the first question, I mean 3G adoption, we measure in terms of 3G handsets. The 3G handsets has topped 30 million, I think 31 million, which is roughly a 23% penetration. The real driver of revenue growth, it's not just 3G, in particular it's smartphone, which is a slightly different classification based on the operating system of the phone. And smartphones are now in excess of 29 million. In terms of growth, we are adding 700,000 to 800,000 smartphones per month on average. So the momentum in the market is certainly as positive as we've seen it and has been that way since, probably, October-November last year. So in terms of potential uplift from 2G to 3G, certainly, on average, we see if a customer moves from a -- well, I'll talk about it in terms of feature phone to smartphone. If a customer moves from a feature phone to a smartphone, on average, we see an uplift of about 50% in ARPU.

Got it. So just to clarify. It's not that the 3G services need to be switched on separately and they will have a different tariff plan to the 2G. It's more a sort of a together, sort of plan; it's just that when they have a smartphone, they use more data which drives the ARPU growth. Is that a correct understanding?

Correct. Correct.

Next question comes from the line of for Roshan Raj from Merrill Lynch

Two questions. One, are there any additional updates on Telkom Property? I guess, there were some press report about you looking at investing in that segment. And second on BlackBerry subscribers, I believe the number of subscribers went down this quarter. Anything specific or this is just more subscribers moving out of BlackBerry to other smartphones?

For the Telkom Property, so what we are doing now is how to optimize the assets owned by Telkom, because that [indiscernible] it's not clear yet, actually we can move the assets from Telkom to Telkom Property. So that's why the property now -- Telkom Property, hopefully, all the assets of Telkom on behalf of Telkom. And now the order lease is around 2 million meter square land, Telkom. Also, they operate the buildings, is around -- there is almost all buildings Telkom are operated by Telkom Property. But now they also built the new building for Telkomsel. And also some building in TelkomVision for the hotel, because the location is very appropriate for hotel business. But the target is someday maybe it's around 2015. If the business is growing so much, we think that we can bring the Telkom Property to go to public company. So this is the progress of Telkom Property [ph].

Second question for [indiscernible].

Yes, you're absolutely right. So there has been a decline in BlackBerry users from 7.6 million to 7.3 million. It's a decline of about 4.6%. I mean, the reason for that really is just the winning popularity of BlackBerry handsets. I mean, we are seeing this market pretty much dominated by Android. And earlier this year, Android took over on our network as the #1 smartphone operating system. And really all the growth that I spoke about in terms of smartphone growth has all been driven by Android. I think the nail in the coffin, to some extent, for BlackBerry was, when they opened up the BlackBerry messenger service to iOS and Android platforms, it was the real reason, I think, why lot of people stuck with BlackBerry. I mean, we are anticipating a further decline in BlackBerry subs and a further increase in Android.

There are no further questions at this time, Mr. Prakoso, please continue.

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

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