Ladies and gentlemen, thank you for standing by. Welcome to the Telkom's 9 Months of 2018 Results Conference Call. [Operator Instructions] I must advise this conference is being recorded today, the 30th of October 2018. I would now like to hand the conference over to your first speaker for today, Mr. Andi. Please go ahead.

Thank you, Leslie. Ladies and gentlemen, welcome to PT Telkom Indonesia Conference Call for the 9 Months of 2018 Results. We released our results on 29th of October 2018, and the reports are available on our website, www.telkom.co.id. Today's presentation is available on the webcast, and an audio recording will be provided after the call for the next 7 days. There will be an overview from our CEO, and after that, all participants are given the opportunity to participate in the Q&A session. Before we start, 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, estimations or expectations voiced during today's call. This may involve risks and uncertainties and may cause actual results to differ substantially from what we 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 the Telkom's Board of Directors who are joining us -- who are joining with us today: Mr. Alex Sinaga as President, Director and Chief Executive Officer; Mr. Harry M. Zen as Finance Director; Mr. Abdus Somad Arief as Wholesale & International Service Directors; Mr. Dian Rachmawan as Enterprise & Business Service Director; Ms. Siti Choiriana as Consumer Service Director; Mr. David Bangun as Digital & Strategic Portfolio Director; and Mr. Herdy Harman as Human Capital Management Director. Also present are the Board of Directors of Telkomsel: Mr. Ririek Adriansyah as President Director; Mr. Heri Supriadi as Finance Director; and Mr. Alistair Johnston as Marketing Director. I now hand over the call to our CEO, Mr. Alex Sinaga, for his overview.

Thank you, Andi. Good afternoon, ladies and gentlemen. Welcome to our conference call for the year-to-date September 2018 results. We really appreciate your participation in this call. Ladies and gentlemen, in this very challenging cellular industry, Telkom managed to book a 2.3% year-on-year growth of its revenue to IDR 99.2 trillion, while EBITDA and income still declined, but in slower pace compared to that of second quarter. EBITDA went down by 10.3% year-on-year to IDR 44.9 trillion, and income decreased by 20.8% year-on-year to IDR 14.3 trillion. On a quarterly basis, however, the second quarter bounced back and recorded strong growth of revenue, EBITDA and net income as a result of encouraging rebound in mobile, continuously strong growth in fixed businesses and effective cost management. Consolidated revenue grew by 8.8% quarter-on-quarter, with EBITDA and net income solidly increased by 55.5% and 86.7%, respectively. Ladies and gentlemen, having gone through the difficult second quarter, Telkomsel was able to rebound in the third quarter. Telkomsel posted IDR 23 trillion of revenue, representing a 10.1% growth quarter-on-quarter despite there was Lebaran Festive in the second quarter. This achievement was due to data price increase that we did in July and strong revenue growth from digital service. In terms of cost, Telkomsel performed tight cost control in spite of consistent 4G rollout across the country. Telkomsel's operating expenses slightly declined by 0.1% compared to the previous quarter. Given this, EBITDA and income on quarter-to-quarter basis subtly increased by 20.7% to IDR 12.4 trillion and 24% to IDR 6.6 trillion, respectively. Digital Business continues to become the engine of growth for Telkomsel. The business produced significant growth of 16.2% quarter-on-quarter and 19.8% year-on-year. Digital Business accounted for 51% -- sorry, 51.3% of total Telkomsel revenues, increased significantly from 40.5% a year ago. Demand for data…

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

[Operator Instructions] We have the first question from the line of Miang Chuen Koh.

This is MC from Goldman Sachs. So 3 questions. Firstly, can we maybe have an update on competition both in Java, ex Java and whether you're planning any sort of price increase. Second question would be, we see good cost control, especially around, like, personnel cost, marketing cost. Can you also talk a little bit about potentially are there areas of cost cuts we can expect in coming quarters and how large the quantum could be? And then third question is wondering on the IndiHome ARPU, how much higher do you think we can see that trend up by year-end? And just to understand the recent increases, so how much is due to the upselling? Is it majority of the impact is the upselling to the 700,000 customers? Or is there a big portion coming from all the sorts of mini-packs as well? Those are my 3 questions.

So on competition update on cellular, I mean, this quarter, we've begun the quarter by pricing up on our data products, particularly on our acquisition-orientated products. And the benefit we've seen from that this quarter is healthy data growth, but also a migration away from acquisition products to renewal products and you can see from our data yield that it's actually increased slightly quarter-on-quarter. In terms of the looking ahead, I think, overall, we've been a bit disappointed that there hasn't been more price up activity from our competitors. I think IndoSat have a little bit, Excel haven't. And Excel has been quite aggressive in the market for the last quarter in a number of cities with quite aggressive acquisition plans. We would have hoped that they would have taken the opportunity to price up, but unfortunately not. So I think that somewhat limits our scope for the next quarter to continue pricing up. And obviously, we'll have to continue balancing price optimization just making sure that we protect our market share. In terms of Java, ex Java, I think, really, that's just business as usual for us now. Clearly, we have, on average, a higher market share outside Java, and we've seen our competitors attack us in some cities. But actually, at the moment, the healthiest part of our business in terms of growth is actually Java itself. So we see a lot of opportunity on Java to grow our market share where it's typically a bit lower.

I'm Harry here. So let me take the second and third questions on the potential cost savings towards the year-end. Particularly for personnel costs, we target the personnel costs overall would be around flattish because -- mainly driven by the large number of natural retirement at the Telkom level. And then in terms of marketing costs, we expect on a year-on-year basis for full year this year will be decreased by around 9% to 10% for overall group. So the third question in terms of IndiHome ARPU, the target -- or the projection is, by year-end, we're going to have an ARPU of around IDR 260,000. And in terms of the impact of the upselling to the ARPU increase was roughly around 30% of the ARPU increase.

We have the next question from the line of Colin McCallum.

Yes, just 2 questions for me. First of all, I slightly missed the commentary on Enterprise business. I know that's a very lumpy business. Was it a little bit weaker in terms of what was booked in the third quarter? And what is the outlook for fourth quarter and beyond on the Enterprise business? That's the first question. And then second question, just a little bit of follow-up from the previous question. In terms of IndiHome, the average kind of speed that most people are on is currently what? And where do you expect that to be in 2 years' time in terms of the upselling of giving people more and getting a little bit more ARPU out of them? How are you expecting the average usage to move over the next year or so? And is the network already fully provisioned to provide that to the customers?

Okay. For the Enterprise business for full year this year, we project to increase by high teens for full year -- year-on-year growth of revenue. And in terms of the average speed of IndiHome is currently around 10 megabyte per second. Around 50% to 60% of our subscribers still having this kind of speed. And yes, we expect that speed would be increased over the period of couple of years from now. And obviously, we would be disciplined enough to enhance our network to be able to cater enhanced level of services.

Harry, just on the first one, in the third quarter, was the Enterprise revenue year-on-year within that kind of high teens range? Or was it softer in the third quarter and will come back more in the fourth quarter? What's the kind of quarterly...

Yes, third quarter was also 19% -- almost 19% year-on-year growth.

So it's pretty much in line with the overall -- okay. That's great.

We have the next question from the line of Sachin Mittal.

Couple of questions. Firstly, on the minutes of usage, it's quite a happy surprise to see, even on a year-on-year basis, actually, 52.4 or something -- around slightly up -- minutes of usage is up even on a year-on-year basis in this quarter. So trying to understand what is driving the usage up given that since the repricing, still MoU is very healthy. So are we at a point or do we expect to see something which will not continue? And something -- are you expecting some sharp decline at some point later on? That's question number one. Then second question is on the repricing. As you commented that repricing has been -- this quarter benefited from repricing. So are you saying that the benefit of repricing has been captured entirely in this quarter and you don't expect any more repricing in the subsequent quarter? And third question is on the cost side. Well, there are some items like interconnection costs, which have gone up quite significantly on a 9-month basis, right? So 43% up, while some of the items like personnel costs have actually dropped, I think, despite similar number of employees. So trying to understand, are there any exceptional on a 9-month basis or in this quarter in terms of costing? Or this is kind of sustainable kind of costing which you have shown already?

So on the first one for minutes use, you're quite right, the minutes of use have stayed quite strong versus, obviously, the revenue and decline. And that's really a function of customer behavior, which in large part we're driving. So moving customers from what we call "pay as you use" voice consumption to buying packages. If you buy a voice package, the permanent rate is lower and customers tend to use more. So we're doing that because, obviously, we're seeing a challenge to the Voice business from OTT applications. So we observed that customers who buy packages were more likely to retain their ARPU. It's a mixture of Voice-only packages, but also hybrid packages, so packages that include data and SMS. They're also proving very popular at the moment. So that's sustaining the volume. In terms of the data pricing, repricing, we made quite a big move in July, really, across the board. Since then, we've been making price changes on a city-by-city basis. And in fact, this month, we have a whole raft of price changes that -- I mean, in some cities they're price up and some cities is actually pricing down to maintain our competitiveness. So I think probably the forecast for Q4 is that we'll continue to tweak pricing on a city-by-city basis. But in general, I think the -- unless we see a more significant price up from our competitors, I think the opportunity for a general price-up is fairly limited. But obviously, on a city-by-city basis, prices do change fairly regularly.

Okay. For the interconnection costs, actually, the increase on Q-on-Q basis is pretty much in line with the increase of the revenue. So the costs increased almost 19% Q-on-Q. And in terms of the revenue, it increased by around 20% on the same Q-on-Q basis. So the main driver of this is our Voice Hubbing business, especially in the international traffic.

Okay. So no -- there's no exceptional anything in the 9 months or -- this quarter in terms of costing?

For interconnection, no.

We have the next question from the line of Ranjan Sharma.

It's Ranjan Sharma from JP Morgan. Thank you for the call. Couple of questions from my side. Firstly, in terms of data price increases, can you share views on elasticity of demand, like, what is the level of price increases that you can deliver without impacting demand for data? The second question is on CapEx in terms of the depreciation of the rupiah. Has that been affecting your CapEx plans, if you can share anything?

I think on the first question, I'm not sure I can give you a simple answer. I mean, demand for our product remains very high. Our data growth year-on-year, so I'm just looking for the figure, is about 90% growth year-on-year. So we still see a lot of usage. I think data growth has come down a little bit, but that's really due to the removal of some of the more extreme price points in the acquisition market. So I think we're still pretty confident that data traffic will continue to rise. I mean, we see a big jump from a 3G user to a 4G user, and we know that we have a lot of customers yet to migrate from 3G to 4G. And actually, if we look at international benchmarks or regional benchmarks, for that matter, we see that Indonesian consumption is still -- Indonesian consumption per customer is still relatively lower. So I think we still forecast a lot of growth of data consumption. Obviously, pricing is somewhat due to the competitive dynamics. And again, if you look at the Indonesian pricing benchmarks regionally, I mean the pricing is very low. So I don't really see pricing as being an obstacle at this point to the growth in consumption.

Ranjan, it's Harry here. So for your second question, there has been no changes in our CapEx plan with regards to the depreciation in rupiah because around 85% of our CapEx contracts are in -- denominated in rupiah.

Okay. Just one follow-up. So on the CapEx, if you were to manage your CapEx budget, I guess, you import a lot less next year then. Or would you -- or should we expect a significant increase in CapEx?

No, in the CapEx side because, as mentioned by Harry, and also this is -- or that 85% of the CapEx is spent in rupiah currency. Secondly, actually, from year-on-year, there's also price erosion in the equipment we are buying. So this -- I think depreciation of rupiah can be a small thing, but also I think the erosion of the price. So overall, with the same CapEx that we spent, we're going to, I think, maintain the speed of the network expansion to get a [indiscernible].

Let me add one more information. So basically, as you probably are aware, in the past few years, there is this regulation from the central bank that all contracts in Indonesia, if it is done between 2 local entities, then it has to be denominated in rupiah. So most of our vendors, they have local entities here in Indonesia. So then they have to quote their prices in rupiah. So those that are denominated in foreign currencies are those that we directly import from outside of Indonesia, like satellite, for instance.

We have the next question from the line of Gopakumar.

Just a follow-up question on the competition side, especially on Excel, we refer to as being aggressive on acquisition plans. Is it mostly outside Java? And is it mostly focused on 4G data alone? Or does it include acquisition plans on Voice, SMS segment as well where they're aggressive? And have you seen a material market share shift outside the Java region in this third quarter 2018? And the later question is, what are your thoughts on managing an overall revenue growth without lowering the prices back to previous levels?

So the -- I mean, what we've observed from Excel is, on the acquisition front, they've been aggressive in about 80 to 100 cities. Probably more skewed toward areas 1 and 4, which is the ex Java East and Western part but not exclusively so. And I think their objective has been to grow market share. The product they're offering is a combo, which includes voice, SMS as well as data. And the data is a mixture of sort of 4G and other types of data quota. And I guess also, we haven't really seen any major changes to their data pricing for their core base either. So we'll continue to -- obviously to watch that. In terms of market share, I don't think we have seen anything dramatic as of yet. But obviously, it's difficult to give a general answer because we monitor on a city-by-city basis. So if there was a particular city where we felt under pressure, we could respond. So overall, I don't think it's had a massive impact but obviously, what it does do is slow the rate for Telkomsel and our competitors, slow the rate at which we can price up because obviously, we have to maintain competitive price levels.

Okay. Just a follow-up question. To offset this, is there -- are you increasing price on the IndiHome segment, specifically?

Yes, we have done so in August and September. That impacted around a 700,000 of our customers.

We have the next question from the line of Arthur Pineda.

Three questions please. Firstly, when you look at the growth in your revenues, how does Java versus non-Java compare? Is there a bias in growth across these regions? Second [Audio Gap] to your comments on some moves by Excel. Are you seeing risk of potential competitive escalation here if Excel does not actually rationalize in their pricing plans? What can you actually do to protect the revenues and market share in these non-Java cities that they're pushing? Third question I had is with [Audio Gap] CapEx, you mentioned 85% is in rupiah, 15% is in foreign currency. But presumably, a lot of the contracts by your local vendors are also based on U.S. dollar pricing. Won't they have to reprice as well on this 85%?

On the first question, on the growth of Java and ex Java, actually we're experiencing bigger growth coming from Java right now because of the, I think, it is much more natural for the data growth in Java because of our smartphone penetration and also I think more [ competitors ] are very competitive in Java. Basically, we have been able to fulfill the growth in Java right now. And outside of Java, we also have more [ dominance ] from voices and SMS that also impact the growth outside of Java. And then I think in terms of the numbers question, Alistair is going to answer the second question. On the 85% of CapEx, yes, you are right, it is converted into USD. We need to have some process of adjustment. But I think we dig a little bit deeper into the -- which, I think, component really affecting by the USD. Some services not necessarily related to USD spending from our vendors. And that's going to be [ phased ]. Some of those related to USD. We also calculate based on the current trend what happened in the industry. Basically, based on our observation, that's because of being after the price up on the CapEx spending by unit of the network O&M we spend. So that's the current situation.

On the second question around competitive escalation, it's a risk. I mean, absolutely, there's a risk. If our competitors price aggressively and, through that pricing, were able to gain revenue market share, then we will have to act. I mean, we -- obviously, we've said consistently that we will protect our revenue market share. At the moment, we think that's stable, but we'll be watching that. The other issue is our pricing premium. I mean realistically, we can sustain a certain pricing premium in the market, beyond which we become quite uncompetitive in price. So depending on what the competitors do with their price,, we'll have to adjust our price. I mean at the moment, I think the forecast is fairly neutral. But if -- I mean, if Excel and others continue to price aggressively then, inevitably, it leads to a more competitive environment.

We have the next question from the line of [ Rupesh Thakare ].

Two questions please. So is there any observable change in customer behavior post-registration period? For example, are you witnessing any significant decline in the subscriber churn? And second question is I see the total subscriber number declined this quarter, so I presume subscriber clean-up is still happening. So could you please comment on how this trend look like going forward?

So post registration, yes, we're definitely seeing a change in behavior to customers having less SIM cards per operator. And actually consolidating their usage. So you'll see that while our subscriber number has declined a bit, actually the ARPU has grown pretty significantly. So we're seeing customers -- I think that, before, the behavior was the customer would have 1 card and then they would buy a data card from an outlet, use it and chuck it away and repeat the process. I think now, with the extra burden of registration plus the fact that our pricing is actually more competitive for renewal packages, we've seen customers buying renewal packages on their main SIM card. In terms of sub numbers, it's still really the process of clean-up from registration. That'll take a little while to wash out. Obviously, we don't churn customers for a certain number of months after they stop using. So that clean-up process is still under way, combined with this process of consolidating usage on 1 card. So we think that's pretty much what we expected. And we're not overly concerned about it. I think that the profile of the customer base, with the number of users with length of service more than one year, is very healthy. So I think, we're not too concerned about the overall sub number.

We have the next question from the line of Kresna Hutabarat.

Just 2 questions for me please. The first question on Telkomsel. Can we just get an update on your plan for the quad-play product offering. Is this still in the pipeline for launch by end of this year? Or maybe next? My second question on Telkom Group, your AR days have been increasing as of 9 months '18. Could we get some color on what's guiding this? Is it more because of the shifting revenue mix? Or any other reason? And where should we see AR days? Whether we -- is it going to normalize by end of this year? Or by 2019? Any color would be helpful.

Sorry, pak Kresna, can you repeat the first question please?

My first question is on the -- on Telkomsel's and Telkom's quad-play product offering. I understand that IndiHome is already offering triple play, right? Is there any plan to combine your IndiHome offerings with these mobile offerings as well?

For converged product offerings, absolutely. I mean, we already offer converged product offerings across the IndiHome and Telkomsel ranges. And we'll continue to do so and no doubt extend that. And cross-selling and upselling each other's products.

Do we know how many takers so far? How many subscribers have actually -- taken any bundle offerings between Telkomsel and IndiHome?

It is still in the, I want to say, trial and evolution stage. Mostly actually, we try to co-offer on this one. Later on, I think we're going to develop these services based on the outcome that we have this trial. We don't really have, let's say, a big figure right now because it is still in the early stage, pak.

So pak Kresna, your second question is about the account receivables, is it?

Yes, yes. Account receivables on Telkom Group level.

Okay. So okay, there are 2 drivers of this. Firstly, is the sharp increase of our business with the government segment, which typically mostly all the government agencies and institutions, they pay at the end of the year. So like what's mentioned by our CEO earlier, year-on-year increase of the government business was 18% by third quarter this year. So secondly, there is a new business model that we have introduced more than a year ago, which will be called CapEx to OpEx. So we bear the CapEx and our enterprise clients just pay this as an OpEx on their P&L.

Understood. Do you expect the AR to fall by end of this year or you think it'll remain at current levels?

Yes. Yes.

[Operator Instructions] As there are no further questions at this time, I'd like to hand the call back to your speakers for any closing remarks.

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

Thank you, sir. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.