Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (TLK) Q2 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Telkom's First Half of 2019 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. Now I'd like to hand the conference over to the first speaker for today, Mr. Andi Setiawan. Thank you. Please go ahead, sir.

Thank you, Annie. Ladies and gentlemen, welcome to PT Telkom Indonesia Conference Call for the First Half of 2019 Results. We released our results on 31st of July 2019, and the reports are available on our website at 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 statement within the meaning of Safe Harbor. Actual results could differ materially from projections, estimation or expectation voiced during today's call. Those may involve risk and uncertainty 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 Telkom Board of Directors who are joining with us today: Mr. Ririek Adriansyah, as President, Director and Chief Executive Officer; Mr. Harry M. Zen as Finance Director; Mr. Zulhelfi Abidin as Network and IT Solutions Director; Mr. Edwin Aristiawan as Wholesale and International Service Director; Mr. Achmad Sugiarto as Strategic Portfolio Director; Ms. Siti Choiriana as Consumer Service Director; Mr. Faizal R. Djoemadi as Digital Business Director; and Mr. Edi Witjara as Human Capital Management Director. Also present are the Board of Director of Telkomsel; Ms. Emma Sri Martini as President Director; Mr. Heri Supriadi as Finance Director; and Ms. Rachel Goh as Marketing Director. I now hand over the call to our CEO, Mr. Ririek Adriansyah, for his overview.

Thank you, Andi, and good afternoon, ladies and gentlemen. Welcome to our conference call for the first half of 2019 results. We really appreciate your participant in this call. Ladies and gentlemen, up to the second quarter of 2019, mobile industry has been clearly recovering from its worst condition in second quarter of 2018. Revenue from tops up continue to grow positively, reflecting more sustainable and higher quality revenue. Mobile data consumption continue to grow on the back of expanding fortunate book quality and coverage. On our non-mobile segment, the business continue to demonstrate strong performance, in particular, contributed by our fixed broadband service in the home and wholesale business. In the meantime, enterprise business experienced some slowdown as we decided to revisit our strategy in delivering enterprise services to focus on more profitable products. In the first half of 2019, Telkom posted consolidated revenue of IDR 69.3 trillion, a 7.7% increase as compared to same period last year. EBITDA and net income grew by 16.9% and 27.4%, respectively. As a result of declining cost items such as O&M, personnel and G&A. Data, Internet and IT service revenue increased significantly by 23.8% and still become the largest contributor with 58.4% of the consolidated revenue. The 6-months LTE growth was mainly due to increase in mobile data traffic combined with significant additional in the home subscribers. Mobile data traffic increased by 56%, while IndiHome customer rose 45.1% year-on-year. In the meantime, the legacy revenues are Cellular, Voice and SMS revenue continue to decline but a slower pace than last year. The Voice and SMS revenue decreased by 18.9% year-on-year, with a 23.9% contribution of consolidated revenue. Similarly, in fixed line, voice revenue declined by 15.2% year-on-year due to substation and cannibalization by mobile service. Interconnection revenue and other telecommunication services revenue increased by 9.7% and 10.4% year-on-year due to the increased contribution from Industrial and Wholesale Voice business and satellite business. In term of cost, operating expense increased slightly by 0.1% to [ IDR 36.2 trillion ], while total expense increased by 1.9% to [ IDR 47.1 trillion ]. As a result, Telkomsel group-operated EBITDA grew 16.9% year-on-year to IDR 33.1 trillion, with a net income increased by 27.4% year-on-year to IDR 11.1 trillion in the first half of 2019. Ladies and gentlemen, as a result of more healthy competition in the mobile business and [indiscernible] strategy after the pre-consumer [indiscernible], Telkomsel recorded strong signal of recovery with a positive financial performance as compared to last year. Telkomsel revenue grew by 5.5% year-on-year to IDR 45.1 trillion, with the EBITDA grew by 9% to IDR 24.2 trillion, and net income increased by 8.4% to IDR 12.7 trillion. Digital business, which consists of broadband connectivity and digital services become the engine of growth in mobile segment. In the first half of 2019, digital business posted a significant growth of 32.2% year-on-year, with the broadband connectivity grew by 32.4%, and Digital Services grew by 31.1% year-on-year. Retail business contributed to 62.2% of Telkomsel revenue, and the contribution is expected to further expand in the coming years. As of 30 of June 2019, Telkomsel subscriber declined by 5.7% to IDR 167.8 million. As a result of prolonging impact of [indiscernible]. Telkomsel will continue to comply with the regulation and expect to still see further [indiscernible]. However, preparation [indiscernible] has resulted in a better quality customer base with a higher number of active and loyal subscriber and improve ARPU as well as more efficiency in card-production cost. It will also have positive long-term impact and support the emergence of healthier competition in the industry. We continue to enhance our network quality to provide superior customer experience with focus on 4G BTSs deployment. During 6 month of 2019, we deployed around 15,100 BTSs, and all of this were 4G. This brought total 4G business to reach more than 71,700 units, with around [ 94% ] of [indiscernible] coverage. Today, we have a total business on air almost 204,200 units are increased by 16.2% year-on-year, of which almost 153 -- 9,900 were 3G and 4G BTS. Ladies and gentlemen, on the other hand, our fixed broadband product, IndiHome, has successfully maintained its dominance in the fixed broadband market. During 6 month of 2019, we added 479,000 new subscribers. So that the total number of IndiHome subscribers surpassed 6 million. As a result, IndiHome posted a strong financial outcome with the revenue grew significantly by 61.5% year-on-year to IDR 8.8 trillion. In the second quarter of 2019, IndiHome ARPU slightly decreased to IDR 260,000 from IDR 265,000 in the last quarter as a [indiscernible] product still have strong traction compared to Triple Play. In the effort of improving IndiHome ARPU, we keep encouraging customers to purchase various add-on services as well as to upgrade to higher speed or to Triple Play services. In the first half of 2019, our enterprise business recorded IDR 11.9 trillion in the revenue, declined by 3% year-on-year, which was mainly related to lower IP services revenue. The lower IP services revenue was consequence of our new strategy to focus on more profitable products and services, such as connectivity, data center and cloud. We believe in the long run, our new strategy will provide more profitable enterprise business. Our wholesale and international business revenue was IDR 6 trillion, grew by 37.5% compared to the same period last year. The growth was attributable to strong volume growth in the international wholesale Voice business that is done under our wholly owned subsidiary Telkom International. In the first 6 month of 2019, Telkom Group spent IDR 15.1 trillion in CapEx or 21.8% of revenue. CapEx absorption was primarily utilized to enhance our network infrastructure both in mobile and the fixed-line business. In mobile service, CapEx was used to further improve 4G network quality and capacity and IT system enhancement. While in the fixed-line business, CapEx was primarily utilized to develop fiber-based access and backbone infrastructure to support fixed as well as mobile broadband business. Some percent of the CapEx were also utilized for other projects such as tower. Lastly, in June 2019, we divested 57% of our sales in Jalin, our associated platform subsidiary to PT Dayamitra, [ with this will depend ] future holding company of the state-owned banks. Telkomsel also signed a commission on sale and subscription agreement with a number of other SOEs who are becoming the new shareholders of our mobile payment platform, LinkAja. To conclude my remarks, let me share our main guidance for the full year of 2019. One, overall Telkom Group's revenue is positive to grow mid- to high single digit with Telkomsel's revenue to grow low to mid-single digit. EBITDA and net income margin are targeted to be slightly better than last year. Capital [ expenditure ] budgeted at around 27 of revenue -- 27% of revenue. That is the ending of my remarks. Thank you.

Thank you, Pak Ririek. [Operator Instructions]

[Operator Instructions] The first question comes from the line of Mr. Siward Ludin of Goldman Sachs. [Technical Difficulty] Well, I believe Siward has disconnected from the Q&A. [Operator Instructions] Yes. We have Mr. Siward Ludin again from Goldman Sachs.

So congratulation on a good set of the results. I have 3 questions here. So first, on the mobile side, could you give more comment on the competitive landscape and specifically why your subscriber decreased Q-on-Q? So we would appreciate more color on which regions do you see this coming from and whether -- what are your plans to reverse this. Because the SIM card registration has been done for a while, and we've seen growth of subscribers into competitors as well. And secondly, on IndiHome's ARPU, what are -- what is driving the higher proportion of Dual Play? Are these new customers or old customers downgrading? And what efforts are you making -- are you doing to make customers upgrade? And lastly, on your cost buckets, could you explain more on why on a Q-o-Q basis your cost buckets on personnel expense and G&A increased quite a lot? And what items are you spending more here?

Okay. Harry from Telkomsel speaking here. On the competitive environment, especially on the subscriber base, that's why we experienced a decline of subscriber base in the second quarter of this year, basically, what we tried to do to make the industry becoming healthier, we focus on the renewal base rather than selling SIM card. So mostly our subscriber are doing renewal. We closely identify who is our subscriber, the SIM card and also the email of our subscriber. What we see, actually, our subscriber base quite stable from time to time, but we try to focus to increase this quality. And the result of this one, also you can see, actually, the revenue is still growing, and that, that growth is quite convincing. It's been actually our focus on increasing the quality of subscribers and also the contribution in line with our expectation. Second -- and the third question, you asked about the -- why the personnel cost has increased. I think this mainly -- if you address in the Telkomsel side, we do a salary adjustment in last year. We tried to make our salary becoming attractive and also competitive to the, I think, market benchmark today, encouraging our also -- so those who perform to get a more, I think, more attractive packages. This bring us to the adjustment of the, I think, salary this year that -- which is, in our view, it is a betterment for the long-run position in term of maintenance and attractive package to the -- our talented employees. On the cost of GA and also the cost of services, it's mainly coming from -- when it comes to the cost of services because we implement IFRS 9, which requires us to do, I think, some allowance even in the first day of the -- when we bill the customer. Actually, we're using the same base that we applied previously. Our -- with the quality of our collection becoming higher, the cost caused to be -- decline instead of growing. But we now implement the IFRS 9. So that caused the cost of service becoming higher. But in term of quality of our collection, actually improving. That's for your third question.

Okay. On the questions about the IndiHome ARPU. Yes, the majority of the new subscribers that we got in the first semester has been mostly the Dual Play customers. So in fact, more than 60% of these new clients, new customers were Dual Play customers. And then on the G&A, overall, on the group level Q-on-Q, why it increased, mostly increased due to the higher provision. My colleague just mentioned about the provision related to the IFRS 9 on mobile, but also, there was some increase of higher provision in our consumer, i.e., IndiHome segment. Plus also that in second quarter, we always -- that is the time when we pay bonuses to the management.

Okay. Just a small follow-up. Are there existing customers also downgrading to Dual Play? Or is it just the new customers that are signing up to Dual Play?

Yes. Almost all were because of the new Dual Play customers.

Our next question comes from the line of Kresna Hutabarat of Mandiri.

Firstly, congratulations to all the members of the BOD on the new appointment as management of Telkom Group and Telkomsel, and congratulations also on the solid performance in the first half '19. I have one question to Telkomsel and another question to Telkom Group. My first question to Telkomsel. If you look at the read across -- from the list of Telkom's first half results, it seems that Telkom's effective tower rental rate has declined by 3% to 4% in second quarter '19. So can we just get some update if Telkomsel has embarked on any rental rate renegotiation program recently? And if yes, how should we view this rental rate renegotiation opportunity in the context of achieving additional cost savings in the second half of the year and in 2020? That's my first question. And my next question is on CapEx for Telkom Group. So if you look at the CapEx run rate in first half '19, it's a bit -- it's looking behind CapEx guidance of 27% of total revenues in full year '19. So should we expect some acceleration in the second half? And perhaps, could you share some additional color on the CapEx profile for second half '19?

Okay. Pak Kresna, Harry speaking here. On the cost of tower, your comment actually, the explanation I can give you here is actually the rate that we have is actually competitive compared to the market. It's been almost similar applied to another operator as well. And then why the cost on us also really increased significantly because we already have around 50,000 of sites, which is in 3G, almost double, 98% of population. In 4G, now we close to 95% of population. It mean, actually, we're not really adding new site, just renting some new spaces in the same site. This also limit the increase of costs despite the number of BTSs increased quite significantly. So basically, the cost somewhat -- we can say competitive to the market. Second, our coverage is already very good. And so the increase of the tower lease merrily kind of incremental only to the existing costs. Are we going to see actually the biggest tower that are going to be renewal after 10 years in 2021, 2022? Definitely, we try to find a solution -- win-win solution with the tower provider, if we can, let's say, make the renewal becoming earlier. So both parties going to benefit when we starting to have another new 10-year of contract.

Okay. And then on the second question on -- yes.

On the CapEx for full year. We remain optimistic and remain our guidance 27% CapEx to revenue. Actually, from -- every year, the first semesters, we always still lag behind from our full year target in terms of CapEx-to-revenue target. So the -- and most of the CapEx items in the second semester were almost the same like what we've been having in the first semester, which is to enhance our broadband coverage as well as obviously CapEx to enhance our mobile coverage.

All right. Can I just have one follow-up question? I think, historically, there seems to be a correlation between CapEx run rate and also the group O&M expenses run rate. In the past, I think between 2012 to 2017, O&M expenses tend to accelerate when CapEx intensity picks up, but that's not the case this year. So could you shed some color on O&M expenses trajectory going forward? It looks like this year has been quite slow. So yes, I just want to get some color on O&M expense run rate for the year.

Yes. The profile of our O&M expense growth in first semester was related to the decline in the IT service business. So the revenue declined, the cost also declined. Plus also, in our enterprise, we also experienced some decline because we are shifting to more profitable segments. In terms of the hardware or what we call CPE trading -- because some customers do ask us to provide hardware when we provide them with our enterprise solutions. So that is also experiencing some decline in the first semester. And those were part of the overall O&M. So with regards to the trajectory of O&M this year, we are -- for total OpEx overall, we are optimistic that the growth of revenue will be bigger and the growth will be larger than the growth of the OpEx for full year this year. So that's why, if you remember the guidance from our CEO just now, EBITDA margin and net income margin are targeted to be slightly better than 2018.

Our next question comes from the line of Arthur Pineda of Citi.

Several questions, please. Firstly, can you clarify on the enterprise revenues that is down 11%, 12% Q-on-Q year-on-year? I recall, at the start of the year, you were guiding at high single-digit growth outlook here. Are you still keeping that? Or has that changed? Second question I had is with regards to G&A expenses. That's up nearly 50% Q-on-Q. You mentioned there was an IFRS 9 adjustment. Is that one-off? Or are there any other adjustments to be seen? And lastly, on the mobile side, can we get some color on the mobile competition? Your competitor earlier mentioned that they're seeing some escalation happen in the market with unlimited plans being pushed. Are you seeing any such impact on your business?

Yes. Thanks, Arthur. On the enterprise business, we are still optimistic that we would get the target of high single-digits growth for full year basis this year. And our optimism is obviously based on the pipeline projects that we're securing since -- particularly since second quarter of this year. So hopefully, we will be able to recognize the revenue within the first -- the second semester of this year. So we are pretty much on track with such a target. In terms of the G&A increase, the IFRS 9 is the on mobile side. Well, maybe Pak Harry can shed some light on that.

Okay. On the IFRS 9, when we do implement this year, it is going to be one-time, basically, adjustment this year. Moving forward, it is supposed to be kind of rolling of -- how much that we need to accrue based on this new standard. Based on the, I think, quite stable quality of collection, there are not going to be any kind of surprise moving forward. This is just a one-time adjustment, and then it is supposed to be kind of recurring one. Second, on the mobile competition, subscriber impact on the business. Again, as we mentioned, as also I think stipulating in Pak Ririek presentation, actually, we expect actually the number of subscriber of mobile, not supposed to be increased based on the, I think, SIM card registration, along the time, the quality of subscriber becoming better. And then the number, I think, dual SIM card or triple or even more becoming reduced time to time. What we really have seen from our side is how is actually the number of active subscriber that -- and quality subscriber that we have remain intact and remain contributing to our revenue. This we do in a very granular level. So we ensure that we always give our market share on this one. By having this one, actually, we can increase also our revenue later on. We still have opportunity because the legacy continue to decline. It mean the portion coming from data, revenue becoming bigger and bigger. As we close our revenue sale coming from legacy becoming less than 30%, this going to give us a better impact from time to time. As more, I think, growth coming from data, we can capitalize to our top line. That's the situation that we do expect. I think now with the investment in its operator starting quite intense, it's been actually everyone focused on how they really increase the quality of its subscriber base. As you see also, there's no significant movement from our competitor in term of the number of subscriber base as well. We do expect, with the current situation of the price competition, that's quite benign. Even all, I think, operators are going to benefit from this. Our competitor with the lower, I think, [indiscernible] supposed to be, first, that benefit bigger than us, as you see from the result. But it is a healthy condition for us. It mean we can continue to lead, I think, the price adjustment moving forward as they also make the price adjustments. So we're still -- we're going to have another room for leading the price adjustment as well.

Sorry, just to clarify on the second question a while ago. So the nearly 50% Q-on-Q jump in the G&A segment [indiscernible] because of some accounting adjustments, and we should see that normalizing in the subsequent quarters?

Yes. This is going to be normal in the later on, one-off and then going to be kind of recurring, becoming normal standard. As we have the cyber quality of collection, a good quality of collection, this not supposed to be a scary thing.

Arthur, just to clarify further, right? The provision, the increase in provision amount in second quarter increase did not happen only in mobile, but we all saw some increase in our consumer, i.e., IndiHome segment. And the thing in IndiHome did not have anything to do with accounting treatment. It's all real -- kind of real provision, right?

So for IndiHome, that's a sustainable number. Okay.

Yes.

Next question is from the line of Ranjan Sharma of JPMorgan.

Just a couple of questions from my side. We have heard more news around new regulatory changes coming into Indonesia. If you can just comment on if you see any impact whatsoever from IMEI regulation, which the government plans to sign on the 17th of August. And also, if there is any update on the priority pricing regulation that we spoke about earlier this year. Then the other question that I had was on the mobile side. Are you seeing -- I mean some of your customers have reported a strong growth in customers. So are you seeing a return of the competition that you had before the SIM card registration that customers are trying to push or rather your peer are trying to push SIM cards into the market, which could lead to further escalation in competition?

I'm Emma from Telkomsel. With regard to the IMEI regulatory, the government has been postponing the activation of this particular regulatory just because of few considerations. I think the effectiveness for this regulatory will be effective for the new mobile device. So it's not activated for the existing one. But even though that it will be activated for the new one, that it will be impacting to the mechanics and the operation of how the mobile device can be registering because it will be creating additional costs whether it's on the government side as well as from the mobile operator side. So this kind of detail mechanics still being discussed in the government. That's why the government still postponing this activation of this particular regulatory framework. As for IMEI regulations. So of course, there are some contingent impact whenever this regulatory will be activated, but it will be isolated for the new upcoming mobile device. On the second one, I think this really -- competition in the market is quite happening. But for us, I think we keep continuing with our strategy outside Java as well becoming more priority for Telkomsel as well, despite any other competitor. Also, we'll be putting more focus on outside Java. But I think this is something that probably we need to manage and -- within our priority as well to how then to subsidizing the impact from the competition strategy. Harry will be adding some more?

I think -- this is Rachel from Telkomsel. We don't see a return on price war. It's -- we're seeing a stabilization of price because everyone's now focused on increasing the quality and ARPU of the data subscribers and smartphone subscribers. So this is our position for now.

Okay. Can I just ask one follow-up? On your CapEx-to-sales guidance of 27%, I understand part of that is related to a data center. When are you -- correct me if I'm wrong, but if it includes the data center, when do you expect to complete this data center? And does that form part of the revenues guidance that you were talking about for the enterprise segment of high single-digit?

Yes. The new data center that we are going to build for this year will not be adding into new revenue stream. But bear in mind that we already have some data center facility that we've been having since several years ago, which is, obviously, the revenue coming from that is already part of the enterprise revenue guidance we shared with you. In terms of the new -- construction of the new data center facility itself, we will start to do some groundbreaking activity by Q4 this year. That is going to be located around 20 to 30 kilometers from Jakarta and in one of the Jakarta's satellite city, and we are going to build that on stages. The CapEx for this year will not be big. But for this year and next year, the total CapEx estimation for that construction is roughly around USD 50 million. And the strategy to build that is the construction will be done on regular basis following the increasing demand of data center and cloud services.

Next question in line is from Colin McCallum of Crédit Suisse.

Just 2 quick questions, really, for Pak Harry. First of all, just on the employee numbers. Can you just remind us roughly how many employees in the fixed line division are likely to hit the kind of mandatory retirement age this year? And give us maybe some indication of how many new staff you'll bring in, sort of new, younger staff in the growth areas. So what we may expect to see in terms of the net employee numbers in the fixed line division. That's the first question. And then on a related point, are you thinking about doing an ERP this year as well? Or you don't need to because of this natural attrition that I just mentioned? Those are my questions.

Thanks, Colin. My colleague director -- our new Director of Human Capital, Pak Edi Witjara, will answer your questions.

Yes. Colin, thank you. Edi here speaking. Total number of the employees today in the Group Telkom, around 24,000 employees. And especially for the parent, we have around 11,000 employees. For the fixed line, I think around 1,000. So this is our profile of our employees in group and parent. And the second question is ERP. We have planned the -- because you know that ERP is one of our strategic plan in this -- in Telkom company. And -- but for the implementation, I think we need waiting for the performance of our company. So actually, when we implement the ERP, maybe we will implement the end of this year.

New employee [indiscernible].

For the new employee, we have planned around the 200 employees for the fresh graduate. Yes.

Okay. I add a little bit. So in total, in the non-mobile business, close to 1,900 will be retired this year.

Normal retire.

Yes, natural retirement. So around 1,800 something, close to 1,900. And we are recruiting only around 200 fresh employees, new employees.

And next question is from the line of Piyush Choudhary of HSBC.

This is Piyush from HSBC. Congrats on the great set of numbers. Three questions, please. In mobile segment, could you elaborate on the initiatives which you would be undertaking to increase the ARPU as was alluded by Rachel earlier? Secondly, on the enterprise segment. Can you elaborate your shifting of the strategy? Does it structurally mean probably a slower revenue growth in enterprise segment, but it is more profitable, higher EBITDA margin business? And lastly, just bookkeeping. In IndiHome, can you tell us what's the number of optical fiber ports as of first half?

Rachel from Telkomsel. Thanks for the question. First of all, in the area of mobile initiated to drive up. I think, naturally, in the market, there's a demand of bandwidth now as we're seeing a lot of growth in the consumption of [ video, games ] and multiple OTT services, also driven a lot by the additional economy in Indonesia. So I think the demand is high. So as we continue to focus on betterment of the network quality, especially in areas of 4G and the packages they offer and also more granular, more personalized segment targeting and bundling, I think we're able to then achieve the increase in ARPU.

Yes. Piyush, on our Enterprise business, as per the part of the speech of our CEO, we are going to focus on -- we've been focusing more on the higher-margin business lines, for instance, like connectivity, data center and cloud. As you can imagine, our clients, from time-to-time, ask for bundled products, which may consist of connectivity and some others. So sometimes without realizing that it is not healthy for the company, the team might have discounted the connectivity segment of the bundled products, which is actually the higher-margin part of the business. So this time around, we are moving away from that strategy. Hence, we are quite optimistic that we can keep the revenue growth target. And hopefully we'll be achieving a slightly better EBITDA margin for this year. In terms of the fiber portion of our IndiHome. We have around 91% fiber share as per June this year.

Sure. Okay. I was asking about the fiber ports number. Like how many fiber ports you have? In 2018, you had to 9.1 million. So just what's the number as of first half?

All the ports are fiberized, Piyush.

Yes.

Is that answering your question?

No, in -- as of 2018, you had 9.1 million. So I was checking how much it has increased from 9.1 million optical fiber ports. I can follow-up on that later, Pak Harry. No worries.

Okay. We'll get back to you later.

Next question is from the line of Choong Chen Foong of CIMB.

Two questions from me. Firstly, on the mobile side. Could you sort of provide us the growth rates that you saw in mobile for Java versus ex Java? I just wanted to sort of understand whether we are seeing faster growth in Java? Or are we still seeing quite good growth in ex Java? And then secondly, I noted in the info memo regarding the staff costs, you mentioned that there was lower actual expense calculation. How much was that in terms of the impact on staff costs in the second quarter? And were there any other exceptional items during the quarter either at Telkom or at Telkomsel? Those are my questions.

Yes. On the growth of the business in Java and outside of Java. We have actually bigger revenue contribution coming from data in Java, and that's actually contributing higher revenue increase in our baseline compared to outside of Java. Outside of Java, actually, the data revenues, also quite healthy. But the bigger portion of Legacy also ahead of Java compared to -- in Java, that's a bit [ muted ], I think, the growth of our business outside of Java. But we see, actually, the -- in term of demand for the future of the business, which is from data and digital, actually still healthy in both Java and also in outside of Java. You want to add? First on the -- I think in the cost side in the mobile, we don't have any other, I think, quite exceptional costs as of now. All a bit regular.

Yes. The decline personnel costs were due to the decline in -- first of all, due to the natural retirement. And secondly, due to the decline in bonus to employees. And thirdly is there's a decline on the actuarial, i.e., pension benefit calculation.

Harry, how much was that in terms of the actuarial pension calculation? Was that a big factor that reduced the staff cost in the quarter?

For the pension -- the actual pension calculation was around IDR 130 billion decline. Actually, this is year-on-year, yes, not Q-on-Q.

Q-on-Q increase.

If you're talking about Q-on-Q, it's actually slightly increased. So the decline that we have was year-on-year for personnel costs.

Okay. Understood. Okay, and just a follow-up question on the -- question on Java versus ex Java. I just wanted to understand whether -- are we seeing any increase in competition in ex Java in the last maybe 6 to 12 months? I mean except, of course, been explaining to ex Java, but some of the other smaller players, have they also sort of been -- become more active in expanding their network selectively into ex Java in the last 6 to 12 months?

Okay. Yes, we do see some of our smaller competitor quite active in putting new investment in selective city outside of Java, but it is not something new for us. I think it happened from quite long time ago. Outside of Java, that we think is -- actually, in the end of very far eastern part of Indonesia, it is only maybe selected island like in Sulawesi, Kalimantan and Sumatra. And also in the first year of city, it is becoming kind of normal for us to facing such competition from our competitor on this one. But again, as I mentioned to you, we are granularly seeing this competition from city to cities, from segment to segment, and so we are not losing our revenue share and also market share. We try always to maintain that way.

Our next question is from the line of Prem Jearajasingam of Macquarie.

Two questions from me, please. First of all, earlier today, one of your competitors was talking about the advent of unlimited data plans in the marketplace. Now at this point in time, those price points remain pretty high. And it seems to be a bit more of a marketing ploy. But are you worried in any way that we could see an escalation in these plans and that could detract from the growth in the sector? Your thoughts around this would be very helpful. And secondly, just as a matter of housekeeping. I noticed that there's an increased focus in the whole -- international minutes business, which has driven your interconnect revenues as well as costs. Is there a reason for a bit more focus in this part of the business, given that it seems to -- all that revenue growth seems to be coming at an equal increase in costs? So i.e., if this dragging on your margins, what's your rationale there? If you could help me understand that.

Okay. On your first question, unlimited price plan. Actually, we see early this year -- earlier this year, Smartfren introducing this one. But later, they also limit one gig per day. Basically, if and when, I think, one operator try to provide this kind of plan, basically, we know it. What the actual number going to be consumed by this one. And I think some of this one merely gimmick to invite people. Some also divide the quota. For example, certain application that are going to be some quota for those. This is to attract, basically, to consume the basic package that are contained in that total bucket. But we believe this is kind of more to gimmick rather than we're going to do another price war in this time. That's what we can think.

Rachel from Telkomsel. Just adding to my colleague's point. I think, generally, you can see the industry amongst the top getting healthier, and there's investment made in the network. So we do believe that the pricing rationale in the market moving forward will be one that is healthy and focused on increasing value with the customer rather than moving into a price war direction.

Your question regarding the wholesale voice business, we see this as an opportunistic business. We do realize that this is not something that will be lasting on in the next several years. But I mean, given that the effort to tap into this business is fairly small, even though the margin is also not big, we see this. Why not we back into this.

All right. So it's low margin but low effort as well. That's fine then?

Yes, absolutely.

Next, we have [indiscernible] of [ AIA ].

Congratulations again on a good set of results. I just want to follow-up on the Telkomsel side. As earlier mentioned, that actually price has been stabilized, and the focus is to increase on the quality side, so can you like give us sort of like a guidance on the pricing side for the second half of the year or probably going into 2020? Like, is there more room for you guys, Telkomsel, to increase prices?

Thank you. On the price strategy that we aim to play, actually, if you see, even when the -- with the growth of our competitor in revenue, still not resulting in good net income. It mean, actually, the price that they play is still quite low. We do expect that we already did price adjustment during the -- mostly invested. We keep in most of the city that we already implement that the prices now are adjust back. So we do expect this going to sign to our peers also, that we came to lead the price adjustment to the betterment of the pricing environment. We are always looking for what to do this situation, and we do expect they are going to also follow us so we can have more room to do this price adjustment, to make this industry becoming healthier.

Our next question is from -- by the way, we only have 5 minutes now or 4 minutes to end the call. And we have our question from Sebastian Tobing of Trimegah.

And first question is just on LinkAja. Could you share with us what's your cost run rate, monthly cost run rate currently? Secondly, Pak Ririek, since you've taken over Telkom, could you just share a little bit -- because I'm sure a lot of -- a lot has been discussed about the short-term outlook of the company, but could you share a little bit on what your plans for Telkom the next 3 to 5 years?

Okay. Pak Sebastian, I think LinkAja's still in very early of the stage. What we aim to do right now is to increase the subscriber base of this one, the active users by integrating all the use case that we have in -- with our partner in this company, especially all the shareholders and others coming from, let's say, does -- that don't have quite big use case, and that's in that stage. So far we have around 3.5 million active users, growing from time to time. The spending that we -- we spent -- it is quite -- I think quite conservative compared to our competitor in this industry because we are more focused to the recurring use rather than, let's say, lifestyle use. That, I think, the strength that we have now. We spent, up to now, for the -- less than IDR 400 billion in this year. We used to also -- we think we're going to double that spend with a more effective result as we able to, I think, consolidate more and more use case on this one. Plan for the next...

Well, especially, as I said, you know that the main revenue contribution as of now is data. And of course, we'll be -- at one side, we will be more focusing on standing of the data business. But on top of that, we plan to also adding some new businesses in the digital platform, like the data center, cloud, Big Data. That's kind of stabbing also on the application side as we probably will be more focusing on the B2B than B2C, and it can be -- it will be done as whether we do our own investment, our own development and also -- can be also partnering with somebody else. I think in short, that is the plan that we [ going to be doing ].

Our last question comes from the line of [indiscernible] Batavia.

I was just wondering if we have talked about IMEI, who will bear the cost? And also, I've been hearing that the timeline of the signing will be on the 17th of August. Is it still on track? And can you comment about it?

Actually, it's already addressed by the previous -- by the previous speaker. So I think this IMEI regulation will be postponed by the government. So initially will be announced by 17th of August. But the last announcement made from the government, it will be postponed for a while. With regard to the cost, it is something also that becoming the discussion between the government and the mobile operator. So from the mobile operator side, it will be proposed that supposed to be the cost, supposed to be borne by the government. It's not borne by the customer as well as not by the mobile operator. So the detailed mechanics of this IMEI regulation activation is not yet finalized. So that's why the announcement and activation of this regulatory is still being postponed for a while.

Ladies and gentlemen, that's the end of our question-and-answer session. I'd now like to hand the conference back to our presenters. Please go ahead.

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

Thank you. Ladies and gentlemen, that does conclude the conference for today, and thank you for participating. You may now all disconnect.