Ladies and gentlemen, thank you for standing by, and welcome to PT Telkom Indonesia Full Year Results Ended December 31, 2014, Conference Call. We released our results on March 6, 2015, 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 questions may contain forward-looking statement within the meaning of safe harbor. Actual results could differ materially from projections, estimations or expectations posed during today's call. This may involve risk and uncertainty and may cause actual results to differ substantially from what we discuss in today's call. Telkom Indonesia does not guarantee that any actions which may have been taken in reliance of the discussion held today. Ladies and gentlemen, it's my pleasure to introduce you the Telkom's Board of Directors who are joining with us today. Mr. Alex Sinaga as President, Director and Chief Executive Officer; Mr. Heri Sunaryadi as Director of Finance and Chief Financial Officer; Mr. Abdus Somad Arief as Director of IT, Network and Solutions and Chief Technology Officer; Mr. Honesti Basyir as Director of Wholesale and International Service; Mr. Vian Vakmawan [ph] as Director of Consumer Service; Mr. Indra Utoyo as Director of Innovation and Strategic Portfolio; and Mr. Muhammad Awaluddin as Director of Enterprise Business Service. Also present are the Board of Director of Telkomsel: Mr. Ririek Adriansyah as President, Director; Mr. Heri Supriadi as Director of Finance; Mr. Edward Ying Siew Heng, Director of Planning and Transformation. Before our CEO 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 154 million telephony customers and more than 71 million data users at the end of 2014. Telkom provides a strong business portfolio of TIMEs, telecommunication, information, media and edutainment, directly or through our subsidiaries. We also deliver services to multi-customers portfolio, retail, enterprise, wholesale and international. As of December 31, the majority of our shareholders was Government of Indonesia with 52.6% ownership, and the remaining 47.4% was under public ownership. I now hand over the call to our CEO, Mr. Alex J. Sinaga, for his overview. Alex, time is yours.

Thank you, Andi. Good afternoon, ladies and gentlemen. Welcome you to our conference call for full year result ended December 31, 2014. We sincerely appreciate your participation in this call. Until at the end of the year, we continue our outstanding performance both in term of operational and financial results. I'd like also to update you on the progress of our cellular and fixed line business development, as well as other business portfolio. Ladies and gentlemen, let me start the overview by sharing the highlight of our full year result. Number one, Telkom consolidated revenue grew 8.1% year-on-year, with EBITDA and net income grew by 7...

9.7%

9.7% and 3% year-on-year, respectively; while our cellular subsidiary Telkomsel recorded triple double-digit growths, with revenue grew by 10.4%, EBITDA by 10.0% and net income by 11.9% year-on-year. Number two, Data, Internet and IT service, exclude SMS, recorded the highest revenue growth with 24% increase from the last year. Their contribution to total group revenue subsequently increased to 26.9% in 2014 from previously 23.5%. Number three, mobile data users grew by 12.1% to 67.9 million. And 3G-capable device subtly [ph] grew by 70.8% to 40.4 million. And also, number four, in December 2014, Telkomsel launched 4G LTE service to become the first mobile operator which commercially market 4G LTE in Indonesia. Ladies and gentlemen, our strong result in 2014 was in line with solid performance from our cellular business. Despite relatively high SIM card penetration, Telkomsel gained 9.1 million net additional customers during 2014, grow to total customer base to 140.6 million. Mobile data users increased by 11 -- 12.1% to 67.9 million or around 48.3 of total subscribers. Mobile data payload significantly increased 142.9% to 234.5 terabytes, mainly supported by fast-growing 3G-capable device adoption, which grew by 70.8% to 40.4 million users. To anticipate high demand for data business, Telkomsel continue expanding its network infrastructure by adding 15,500 new BTSes during 2014, with around 75% 3G BTSes, including 200 4G BTSes. In the meantime, our fixed line subscribers increased from 7.4 -- 9.4 million to 9.7 million, while fixed broadband users increased by 12.9% year-on-year to 3.4 million. Ladies and gentlemen, our excellent operational achievement has resulted in strong financial performance, with consolidated revenue grew by 8.1% year-on-year, mainly supported by our cellular subsidiary with around 60% contribution. We successfully maintained healthy level of profitability with EBITDA margin of 51.1%, improved from 50.4% last year; while net income margin…

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

Your first question comes from the line of Sachin Gupta from Nomura.

I have 3 questions. Firstly, can I just clarify on Slide 20, on the guidance? You said, the mobile business, you expect that to grow in double digit, but on the revenues, you're targeting just above market, which is 7%. So that double-digit growth, is that for earnings? Or sorry if I missed that one. It's just not clear. Secondly, just your total competition for this year, especially in the current quarter, and what to expect in the next quarter as well and given some of the changes we are hearing from Indosat and the likes of BOLT! and potentially Smartfren. That's the second question. And thirdly is, any indication on the dividends for the last year with the policy? What's the government thinking on that? That will be appreciated.

Sachin, I am Heri, speaking here. I think the guideline that are already provided by our CEO is on the revenue side. Because in the EBITDA margin, as he already mentioned, that the EBITDA margin will slightly decline as we continue to grow our data business, which provides a lower margin compared to our legacy. That's, I think, the clarification to your question. The market is quite mixed. And we understand some say around 7%, but -- some in the consensus, but what we see are around 9%. So if it's slightly above the market, we can hit double digit. Second question? No, the competition.

Competition [indiscernible]. Okay, okay.

Okay, okay, all right.

So Sachin, this is Edward. I'm standing in for AJ. I think the market competition today, if I see the noise level, is about rolling out 4G in the coming months. I saw over the weekend that both says they're about nearly [ph] done, so I think the competition, in the sense of what they focus on, is actually on data customers. And they bring out [ph] their network on getting data customers. And in terms of price, competition, I think, is as aggressive as before. I noticed my competition have day plan, night plan, afternoon plan with data, so this continue to grow. Obviously, in Telkomsel, we ourself are also looking at how to manage the business. We are looking how to improve our data customer's activation as well as engagement with us. So far, I have to say the result has been positive. It has continued to be good. So that's all I can share with you for now.

Okay, regarding dividend. This is Heri speaking here. Last year, our dividend payout ratio was 70%, consists of 55% annual dividend and 15% special dividend. This year, internally, we still plan to distribute dividend similar to last year, but however, dividend policy is a government discretion. And we are ready to -- government, as our shareholder, decided to reduce payout ratio. So basically, our internal plan still on the 70%, but it's up to our shareholders.

So if the government reduces it, the rest will be a special still?

Excuse me?

If the government mandates a lower level, are you saying you will still match it, the balance, with a special dividend to keep it at 70% for the year?

Based on our informal discussion, actually, they set up around 50% actually, but due to our recent conditions -- I mean, due to the government conditions now to pay a certain amount to the budget, I think, still enough room to increase under [ph] 70%, yes. But this is -- really will depend on the government.

Your next question comes from the line of Colin McCallum from Crédit Suisse.

Just 2 questions for me. In the fourth quarter, I think there was maybe a write-down on Flexi. Could you actually give us the magnitude of the write-down on Flexi in fourth quarter and also just which line item did that come into? Did it come into the depreciation line, if you can just clarify? That's my first question. Second question is -- thanks for sharing the CapEx by division. For the CapEx that you will spend on fixed line, what are your targets for rollout of fixed line broadband? Where do you expect to be in terms of homes passed and customers by the end of 2015? And if you can also share what technology those customers could expect to be receiving by the end of 2015. Are they going to be Fiber To The Home customers, or are they going to be fiber to the node? Are they going to be ADSL? That, the internal targets for that, would be helpful.

Okay, related to the Flexi impairment. In full year 2014, the amount is IDR 805 billion, most of which was recognized in fourth quarter. So IDR 805 billion.

Accelerated depreciation, accelerated...

Accelerated, yes, yes, so...

And that just came out of the -- and was that just in the depreciation charge?

With depreciation fixed [indiscernible], accelerated depreciation.

Yes, yes, depreciated for that, accelerated depreciations.

Yes, okay, for the CapEx in the more fixed line content, this year, we focus on monetizing the home passed. So we must say the CapEx is to connect the houses with FTTH, so mostly for fiber-based fixed broadband connection.

Got it. And what would be the target for rollout? How many customers do you hope to have by the end of this year on fixed broadband?

Okay, let me try to answer. In fact, we already done, built [ph] up 13.2 million home passed. So this year, by 2015, we are monetizing the home passed to be homes connected. We are aiming to sell, to actually fit, to bring 3 million home passed -- homes connected, sorry, to 3 million subscriber by the end of 2015. And we forecast on the selling bundling triple play, which is consists of the voice, IPTV and Internet high speed. Thank you.

Got it. And isn't your broadband subscriber base already more than 3 million? So does that target make sense? Or are you talking about just internal upgrades to fiber for 3 million?

Yes, we noticed that. In fact, around 3 million is consists of half portion of migration from 1 play or 2 play to be triple play. And half portion, being as a new sales of triple play, is up.

Got it. And your previous subscriber base that was Speedy and is now IndiHome, you expect that to decline in size, is it?

Yes, correct.

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

I had 2 questions. On the fourth quarter results, we saw that your SMS effective pricing was quite strong at a very healthy recovery and growth. Just wondering if you could give us some highlights of what drove that and whether you can apply any of that into your wireless data pricing, which still seems to be under pressure in the fourth quarter. And the second question is regarding international expansion. Will this include investments in overseas operations? And if so, is there sort of a maximum budget for 2015 and 2016 that you're looking at for international expansion?

So I'll take the first question. This is Edward, Luis. On that -- if you will look at overall result in 2014, actually, our MoU for voice as well as SMS has come down, but our revenue overall still goes up about 7% for voice and about 2.5% [ph] for SMS. So actually, we reevaluate [ph] to the right pricing to ensure that we continue to reevaluate [ph], seize the opportunity and get as much as revenue as we can from the network. So in December, usually, we look at our revenue. This is peak period where we actually look at some of the free SMS. We actually do not implement [ph] too many of those promotion campaign on SMS, and that is the reason why you see we raise our prices. So that's how we actually got more revenue in SMS in the last Q. So coming back to about data that you mentioned, I think it's a different ballgame between SMS and data. Data is -- SMS is a legacy business we classified. Data is a new business. Data is a new business where we now have engaged customers; help them; and guide them; and actually coach them how to use data, for those who don't know. For those already that use, you can see 65 million, our base, really using data in one way or another. So we are engaging that in a different way and educating and getting them to get excited, to use and surf the net and so forth. So we slowly but surely will get the revenue. The buy-up, as you can see now, is coming down. I know you noticed that. In fact, the usage, like what our CEO has said, it's gone up 134% in term of usage, but revenue grown now 34%. So this is area that the management or the Board of Directors are looking at how to monetize. Hopefully, you see some result before the end of the year. I hope I answered your question.

Okay, so regarding the guideline for the international expansion, yes, so as you already saw in the previous year, it actually is entry strategy. So currently, we already have presence in 10 countries. In 2015, as already been stated by our CEO, the direction is stretching and expanding internationally, expanding international business in our current footprint, but also searching for another opportunity in the other market. So we would like to come out both on presence [ph]. We would like to stretch the business in the current footprint and also expand the portfolio in the existing footprint. So we'd also keep this managing the risks by applying the principles of lean investment and also gradual investment and commitment of the resources and also leveraging the synergy and focus on business portfolio that we believe will become the next big things in our TIMEs business. So naturally, we extend our value chain in our current business. Therefore, we have decided to -- that for the next outlook was -- is not on one business portfolio but this extends into key portfolio like the cable systems, satellite business; second, to extend our international value chain such as the CDN, IP transit and also virtual POPs and also in the alliance in mobile business of MVNO and other form of alliances. And then the third is IT services, starting with BPO and IT operations. And fourth is the digital company or digital businesses; and the fifth in the enterprise solutions, starting with the data centers and cloud computing. And it has [indiscernible], yes.

And for CapEx for our [indiscernible], as mentioned in the website, to -- more carefully to manage the risk exposure during the expansion. But talking about the CapEx, up to February 2015, we already spent almost USD 100 million, mostly to finance our submarine cable to U.S. and similar types. Thank you.

I had one clarification for the international expansions lookout. Is this part investments are a part of CapEx budget, or a separate line?

This is including CapEx in our total CapEx mentioned by Pak Alex as the guidance.

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

Three questions from me. First one, on your revenue guidance for 2015, could you share some color as to where you see a potential to do better than the market in terms of cloud? Will it come from better pricing, be that from voice, SMS or data? Or you see opportunity to gain subscriber or SIM market share. The second question is on the update on the tower deal with Tower Bersama. What sort of time line are you looking at? And has there been any thinking on follow-on tower divestment options? And the third matter is on the government's plan to roll out fiber in Indonesia. What is your assessment of the kind of role that PT Telkom might be asked to play in this mandate?

Roshan, I [indiscernible] the growth potential that we can achieve from the cellular side. From the cellular, we expect we only grow the subscriber only about 4 million this year. Most of the growth will be coming from the data, from the existing, our high-value subscribers. So we grow the data from them. We expect also from the increase of the number of 3G-capable device, which is, in the last year, growth by around 87%. It will give us a lot of chance to monetizing the potential revenue on that side. Meanwhile, for the legacy, we still see there are some opportunity if we can really play, enrich our network superior. And also, the -- I think we have quite less competition on that area, and also we have the right season. We can do some monetizing by timing and the readiness of market and that we'll see is still can also grow the base from the legacy side. So based on that one, we believe that, despite the fact that I think the people, subscribers, are quite -- the growth is quite less, but from digital, data and also machine-to-machine, we still have opportunity to grow our ARPU overall. I think that, our potential revenue growth from the cellular side, I think, for Alex?

Yes. And also, from the fixed line, Heri already mentioned about the source of the growth in mobile side. For 2015, as I mentioned before, we revitalized the fixed line, as Pak Vian [ph] mentioned. Now we have more than 3 million Speedy subscribers. And then we roll out the Fiber To The Home. And some of the Speedy subscriber, we plan to be around 50%, will migrate to triple play. And another 1.5 million will be a new subscriber. Using the triple play bundling, of course, the ARPU will be higher, so we can keep them, the subscriber, sustained. At the same time also, we can get the additional ARPU. So the total from the mobile business, including the revitalized, the fixed line, especially in the Speedy side, to be a triple play, I think, is a very big momentum for us in 2015 to maintaining our growth, higher slightly, compared to the market growth. And number three, yes, back to number two later on by, Basyir [ph], roll out fiber to -- we call it like this. We are now already keep sustainability of the business in digital through the air, yes. We call it through Telkomsel. Now 2015, we plan to be also to build our strong position in the land, yes, through the fixed line using the fiber; and also to be strongest in this country in term of submarine cable, yes, from the West to the East. The direct contribution for us at the moment is to reduce the cost, especially for the Eastern part, while at the moment, using the satellite equal [ph] high cost. And then we roll out the fiber. And we migrate that, yes, from the satellites to the fiber. We will saving the cost, but for the future, digitalized all the country, I think we invest it now so the growth, I think, is not only for this year but, I think, for the next few years, with a very big opportunity for us to strongest our digital business, yes, from the West side to the East side and across the country. And another question, I think, is the tower: We still keep the schedule, now still in progress with the partner that we choose already. And we still have a time up to the end of June this year. And the last update it for you, I think, the partner just finished the...

Extraordinary AGMS.

Extraordinary AGMS. And after that, I think we will provide the related procedures in Telkom side and also get I think the approval of the commissioner. And hopefully, we can finish that at the end of June 2015.

Just on that fiber question, my question was more to understand whether your targets are a part of the government's mandate to roll out fiber in Indonesia, or this is a standalone target which you have set for your company.

Yes, actually, this is more to our company, but if it is in line with the country target, it is, of course, good for us. But the 3 million is our own budget. And we are -- since we are more aggressive this year, so we also widen our focus. Last year, we focused on FTTM people, fiber to the mobile, but now we are also expanding to Fiber To The Home, means cluster of houses; and fiber to the company, means our focus as a [indiscernible]. Thank you.

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

I just have 2 questions. What is that -- in fourth quarter, your general and administrative expenses jumped quite a bit. Like I just want to know what drove that. And the second question is, what proportion of FY '15 CapEx will be on 4G services? And the latest question is, how many of Telkomsel subscribers are on LTE-enabled handsets? And the final question is on that -- in the fourth quarter, fixed line also had a strong YoY and quarter-on-quarter growth. What drove that?

First, we -- Hussaini, Heri of Telkomsel speaking here. On the LTE, we identify around 3 million of our subscriber using the LTE devices right now. Up to now, we have around 150,000 customer that already use LTE. Moving forward, this year, we're going to deploy around 70 piece of [ph] LTE networks. That's what LTE is so far, yes.

This is Heri from Telkom. Regarding the dividends, I think I already mentions in the first session that internally our plan still is 70%, which is 55% annual dividend and 15% is special dividend. But as you know, that dividend policy is government discretions, so we have to discuss also with the government actually. And then after that, we will know what kind of dividend that the shareholders want from us. But internally, it's 70%, but still we have to wait until what the shareholders' decisions. Thank you.

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

I've got 4 questions. Number one, going back to CapEx, given the -- if the government want to cut subsidies, I think the plan is to have the companies reinvest into the businesses. So I'm wondering -- and also, from the sound of things, their mandates for a fixed broadband rollout is -- can be above or beyond what your current plan is. So can you talk through what the CapEx guidance would look like if the government actually want the company to reduce dividend this year? Would it be above that 22% to 25% target, and how much above? My second question is on personnel costs. We saw it declining last year despite the employee numbers remaining the same. I just wanted to understand why there. My third question is on Flexi. How much of that asset is still on books? And do you expect that to be all written off in 2015? And lastly, just on your mobile investments plans, can you guide us on, one, how much of the BTS, the 500 -- the 85,000, sorry, BTS is from 3G and 4G? And in 2015, how much of each do you plan to build?

Okay, Heri of Telkomsel speaking here. Total CapEx that we allocate for the mobile this year will be IDR 12.9 trillion. It is around 75% will go to the 3G, and the remaining will go to 2G and some of 4G. That's, I think, what the total CapEx we're going to spend. And how many are BTS that we're going to have this year, we expect we will have, until the end of the year, close to 100,000 of BTS in Node B, including the LTE. Okay, next question?

This is Heri from Telkom. Regarding the Flexi impairment, in 2015, there is no Flexi impairment anymore. So we expect Flexi subscribers will be fully migrated before year-end so Telkomsel can utilize the 800 megahertz spectrum. Until December 31, 2014, around 50 -- 550,000 of our 4.4 million subscriber were already migrated to Telkomsel, under prepaid scheme as known as our Kartu As Flexi that this is -- that has a similar tariff. So for the guidance CapEx, we are still -- for 2015, if the government decides not 70%, let's say 50%, we still -- our guidance is 60% to 65% for mobile-related business, 20% to 25% to fixed broadband-related. And the balance is for other business. Thank you.

Sorry, on the CapEx question, just to clarify, are you saying, even if the government reduces the dividend payout from 70% to 50%, your total CapEx intensity wouldn't increase, it will still remain -- your guidance would still remain at 22% to 25% of your revenue?

Still assuming.

CapEx, yes, still assuming...

It's 100 facilities. Yes, that is yes. So CapEx, I think -- still related to the dividend, I think the financing that we have to find...

[indiscernible].

Yes. If the dividend payout reduce compared to last year, I think we will have a more strong internal financing, but if the dividend payout is similar to last year, of course, we will find another financing scheme, the normal procedure that we have done in the last few years.

Your next question comes from the line of Lucky Ariesandi from Danareksa.

Pak, I have 3 questions. The first one is related to your long-term investments in Tiphone mobile. First, I noticed that you recognized a net loss from associated company of about IDR 3 billion in 2014. And I noticed that Tiphone actually booked about IDR 240 billion profit in 9 months of 2014. I wonder, but maybe you can give more color on that. I mean I find it hard to believe that the company booked like a significant net loss in the fourth quarter. And the second thing is about the plan, the divestment of Mitratel. I wonder if -- what's the consideration behind you not putting Mitratel under the long-term investments, because it's up for sale. And I also want to know -- actually, in Tower Bersama's disclosure about 2 months ago, I noticed that Tower Bersama said that if they consolidate Mitratel into its full year 2014 profit, the profit will increase by about IDR 120 billion. And I noticed that Mitratel actually had a higher net profit in 2013. Perhaps you can elaborate more on that. And maybe that's all my questions for now.

So regarding the -- our investment into TELE, the Tiphone, the objective is to have at least of 3 things: to have a capital gain per year from the operation, also synergy then that we expect from this investment through TELE. And from what we recorded, the -- from the result, 2014, TELE booked the net income for what, I think, around 200-something but, since the closing of the deal, is maybe it is only 4 -- it will be only 4 months, roughly, 4 months of the last year. So we booked the dividend around IDR 13 billion...

[indiscernible]

[indiscernible] divided by 12...

30%.

IDR 13 billion, I think, around that numbers. And we also recorded the synergy that it can create through this investment. This is also to support Telkomsel to penetrate more smartphone and also to help us in migrating the -- in the migration of Flexi program. So we recorded some number, but I forgot. Maybe we can send you maybe offline the synergy value that it can create through this acquisition. And also, from the capital gain, I think the share, when we do the deal, is around 790-something but, at the end of last year, is around 900-something, so we gained from the capital. And that's what we can report from the TELE investment...

And the rationale question [indiscernible] transaction question...

Okay, yes, the rationale of this long term for the Mitratel action, I think it's based on the -- based off regulation that's been imposed by government that it require for a smart sharing [ph] in terms of towers. So if you reduce the number of towers and -- we also have to see the nature of the tower business. This actually is that the customer is operators. And the value of this business, I think, is based on 2 things, that the -- since the customer is operators, so the service is to be seen at the independent providers. So currently, as we can see from the profile of Mitratel, since most of the customer is coming for our own, I mean from Telkomsel, so it make the Mitratel at this point is still not independent yet. And of course, ratio is still 1.1 while the other best performers is around 1.7 up to 1.9. So we would like to match the -- what type of -- to what actually industry we would like to see this industry. It's independent also of increasing the tenancy ratio. I think that's the rationale behind the divestment, okay?

And can I have a follow-up question on that? My question is about the Mitratel was -- can you perhaps give more details on Mitratel's numbers for FY '14? Basically, you guide for a revenue growth of similar to the industry of about 7%, but I noticed that you will lose, like, a portion of your revenue from the divestment of Mitratel. I wonder if your guidance is including Mitratel or excluding Mitratel. And the second thing is -- about my question is, yes, the details on the FY '14 number because, from the disclosure, the net profit for Mitratel is only about IDR 120 billion for FY '14, which I find a bit low, actually. Maybe you can give more details on that.

Yes, Lucky, I think we can send you directly the more detailed numbers on Mitratel, yes.

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

So one more question?

[indiscernible]

Already done, okay. 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. Once again, thank you.

Thank you.

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