Thank you for standing by, and welcome to the PT Telkom First Quarter of 2015 Results Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, 7th May 2015. I would now like to hand the conference over to your first speaker today, Mr. Andi Setiawan, Vice President of Investor Relations. Please go ahead, Mr. Setiawan.

Thank you, Natalie. Ladies and gentlemen, welcome to PT Telkom Indonesia First Quarter Ended March 31, 2015 Conference Call. We released our results on April 29, 2015, and the reports are available on our website, wwwtelkom.co.id (sic) [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 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 to any actions which may have been taken in reliance of the discussion held today. Ladies and gentlemen, it's my pleasure to introduce you the Telkom's Board of Directors who are joining with us today. Mr. Alex J. Sinaga as President, Director and Chief Executive 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 Services. Also present are the Board of Director of Telkomsel, Mr. Edward Ying Siew Heng, Director of Planning and Transformation. Before Alex 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. Telkom provides a strong business portfolio of TIMEs: telecommunication, information, media and edutainment, directly or through its subsidiaries. We also deliver services to multi-customer portfolio: retail, enterprise, wholesale and international. As of March 31, the majority shareholders of ours 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. So Alex, time is yours.

Thank you, Andi. Good afternoon, ladies and gentlemen. Welcome to our conference call for the first quarter 2015 result ended March 31, 2015. We sincerely appreciate your participation in this call. Until end of the first quarter of 2015, we continue our excellent performance, both in term of operational and financial results. I would also like to update you on the progress of our cellular and fixed line business as well as our other business portfolio. Ladies and gentlemen, let me start the overview by sharing the highlight of our first quarter of 2015 result. Telkom first quarter of 2015 consolidated revenue grew by 11.1% year-on-year with EBITDA and net income grew by 13.9% and 6.4% year-on-year, respectively, while our cellular subsidiary, Telkomsel, revenue grew by 12.1%, EBITDA by 9% and net income by 11.3% year-on-year. Data, Internet and IT service, excluded SMS, recorded the highest revenue growth with 27.6% increase from first quarter last year. Telkomsel digital business grew by 57.4% as data traffic jumped 110%, supported by 3G- and 4G-capable devices, which grew by 55.2% to 43.7 million. Telkomsel expand its 4G LTE service in several key cities, including Jakarta, Bali, Bandung, Surabaya and Medan. Ladies and gentlemen, our strong result in first quarter of 2015 was in line with solid performance of our cellular business. And in term of operational aspect, Telkomsel gained 877,000 net additional customer during first quarter of 2015, grow total customer base to 141.5 million amidst relatively high SIM card penetration. Mobile data payload jumped significantly to 89.6 terabytes or increased 109.8%, mainly supported by fast-growing 3G- and 4G-capable devices adoption, which grew by 55.2% to 43.7 million users. Telkomsel continue expanding its network infrastructure by adding 5,132 new BTSs during first quarter of 2015, which around 89% 3G and 4G BTSs, including…

Thank you, Alex. We will now begin the Q&A session. When raising your question, please speak clearly and state your name and your company. Operator, may we have the first question please?

[Operator Instructions] Your first question comes from the line of Luis Hilado of HSBC.

I had 3 questions. The first was regarding for Telkomsel, the competitive environment. Now that 1 of your competitors seems to have -- seems to no longer be flooding the market with SIM cards, do you see room for pricing to improve, whether it be on wireless data or SMS and voice in the coming quarters? Second question was just a follow-up on what the CEO spoke about to the tower deal. Is it -- is there any decision yet by the Board of Commissioners regarding the deal and -- in order to proceed? And the third question is a follow-up to the CapEx disclosure. Just wondering if part of the CapEx includes investment opportunities, or is that a separate item? And if it's a separate item, what's the maximum amount you would be spending this year or over the next few years for international investments?

Hello, Suresh [ph]. This is Edward Ying from Telkomsel.

Luis Hilado.

Luis Hilado, pardon me. Yes, anyway, this is Edward Ying from Telkomsel. Just to answer your first question, now you're saying that the competition, will we get better pricing -- price, and competition will be less going forward as they reduce flooding the SIM cards? So frankly, I only saw what's written by XL, and I noticed that it's true, the market now is more controlled, more regulated, including the regulators are also asking operators to actually ensure they register all their new prepaid user. So this will actually have some effect on the ground and starting a little better, more and more aggressive and stringent. So this will take in the next 6, 9 months. So -- but I have to say, the company has continued to be aggressive in terms of targeting customers, attacking the business. I think that continued to grow. So that's 1 part. The other part also, I'd like to say, yes, competition, now more rationale. They don't simply drop price. They observe, and they're actually looking -- if you look at the report, that both XL and us has just announced -- we're actually more -- we will see their prices actually raise in terms of use in SMS and also data as well. So those are my short answer to your questions.

Okay. Regarding the tower deal, so as have been mentioned by Alex, so currently, we keep to expect, this year, the conditional share exchange agreement that was signed and that the CSA will be valid until June. And the progress, the -- or one of the progress, in the end of February, the TBIG, just through the General Shareholder Meetings, to report about this potential corporate action, and we will continue to complete all the process. And our obligation is to follow the accountable and also transparent process, and we will report at a point to our BOC to get approval.

Yes. Hi, Luis. This is Heri. Regarding the capital expenditure for -- in terms of expansions, actually, the numbers included in the guidance are around 25% of the revenues.

Yes. Is any of that allocated for international investments?

Yes, included on the CapEx guidance that our new CEO mentioned.

Okay. And sorry, 1 follow-up is that I saw in the -- on a news article that the guidance of 25% to 30%. Is it -- is 30% like still maximum possible, or it's really just 25%?

Around 25%. Actually, we already mentioned, at around 25% of the revenue.

Your next question comes from Anand Ramachandran from Barclays.

I had 3 questions. Firstly, if I look at wireless realizations or rupiah per meg, it has gone up slightly quarter-on-quarter. But then I also see wireless data volumes, as you report, that's also hardly grown quarter-on-quarter. In fact, it's grown very, very slowly related to the last 5 or 6 quarters. So I was just wondering whether any correlation between, I guess, higher pricing and then lower volumes, or is this just a one-off? Second question is on wireless again. I mean, Telkomsel's margins are weaker again, I guess, on account of the higher network operating costs up. So should we expect some improvement into the year given that your guidance is only for a slight decline in margins? Thirdly and lastly, bookkeeping, I was wondering if you could highlight specifically how much the accelerated depreciation on the fixed wireless assets were in the first quarter number. I did not pick that up in the release.

Sorry, can I answer the number 3 first?

Yes, sir.

Regarding the accelerated depreciation at Flexi, it's actually IDR 872 billion.

Okay, sir. And is there any -- okay, is there any left on the books? Or is this it?

No, just it, that's it, that's it.

Anand, this is Edward Ying. I think you asked, but is it because we raised price slightly went up on broadband, and now our -- the customers actually declined. So actually, that's not true. I think, overall, the data user actually year-on-year about 64 million users on data. In fact, the payload usage increased by close to about 14% -- let's say, 15%. But why there's a slight -- you do not see such a tremendous growth this quarter is because, this quarter, we are 2 days short because of the February month. So in general, I think, if you ask me, there is still momentum of growth. So I hope I answered your question.

Sir, I understand what the -- Edward, I'm looking at the terabytes. And if you look at the terabytes, they grew 2% quarter-on-quarter. So it's, by far, the slowest kind of growth you've seen for a long time. And coincidently, or maybe not, you saw wireless realizations also start to do a welcome U-turn. So I'm just wondering, is there -- is this just coincidence? Or is there something to do between the 2?

So I -- from my record, actually, well, we can speak separately, direct to you. But from my record, actually, our terabyte has gone up 13.5%. [ph] Actually, they have more usage. And more customers is removed from Flexi to actually Flash. So that's probably you do not see the -- probably the increase. But we're also short of 2 working days, that revenue. That's probably you do not see the jump that you wanted to see perhaps, yes. And then the next question you asked, whether our costs were going forward. Actually, this is the only the first Q. As you know, we're still working through the next 9 months. There is a one-off that we take on the ERP regarding release of people, and they cost us some money. Overall, we see that going forward, our EBITDA, that's what declined by 1% at Telkomsel level.

Okay. And how much was the ERP in Telkomsel in the first quarter, sir, if I might impose?

IDR 160 billion.

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

Can you just tell us -- again, just on the CapEx figure, I couldn't hear very clearly. Are you saying 35%, 3-5? Or are you saying 25%, 2-5? If you could just clarify, that would be great. Secondly, just on the fixed line rollout for IndiHome. Could you tell us what is -- as of the end of March, what is the fiber homes passed that have been achieved and the number of fiber customers in place at the end of March? And if you could also give us those figures as targets for end of 2015, that would be great.

So for the CapEx, as our CEO mentioned, that's 25% of revenue, and we are spending -- around 60% to 65% of the CapEx will be allocated for the mobile-related business, around 20% to 25% for fixed broadband-related business, and the remaining would be for other businesses.

So yes, is the overall figure 25% with a 2 in front of it or 35% with a 3 front of it, please?

Say it again, please.

Is the total figure 25% with a 2 in front of it or 35% with a 3 in front of it? I'm sorry, you're not coming across very clearly on that point, 25% or 35%.

2-5 percent, 2-5 percent.

Your next question comes from Arthur Pineda from Citigroup.

Just 3 questions from me. Firstly, with regard to your payout levels, of course, this has been reduced recently. What's the rationale for this reduction? And what do you plan to do with all the cash, given that you'll actually neutrally [ph] geared? Second question I had is with regard to your investments. You mentioned 80-20 split on legacy versus digital. What are the considerations for expansion into this space? And can this actually be loss-making? Third question I had is more on housekeeping. On MRP [ph] charges, can you remind us what are the plans on both Telkomsel and Telkom this year? Will there be more booked in the subsequent quarters?

Arthur, this is Edward. I try to answer your question. You're asking for the ERP that we released at start, that whether we have any more in this year, is it correct?

Yes, yes, for both Telkom and Telkomsel.

Yes, okay. For Telkomsel, we have no intention to do any more for now. This is our first quarter, and we just did it. So we need to, lack of better word, evaluate and see how things go, and we'll come back to you. As of now, there's no intention. Okay, did you ask for more question about the digital transaction? I didn't understand the question on the digital ones.

Yes.

The digital business?

Yes. It was mentioned a while ago that there's this long-term 80-20 split between legacy versus digital. I'm just wondering what the considerations are in terms of expanding into this space, and could you actually see this as being dilutive, given that we've seen that happen for other names in the region? What business lines would you be looking to get into?

Yes, okay. Regarding the internal expansion, yes, I think that most of the asset that we are looking for is in the digital -- mostly in digital business. 80% is focusing on the digital business asset, yes.

And can that be potentially loss-making?

I think, as the nature of the -- this is kind of a long-term investment. This is more about actually kind of future business that we are investing that is something that we just have to commit for long terms, and we see there the fixture, that's why we start to invest from now for our future, and we focus on the digital -- invest on the digital asset.

And could I just get clarification on the payout? And if I can just revert on the Telkom ERP, if there's any as well.

So the rough number's around -- on the budget, it's around IDR 500 billion.

Employees, around 1,000 as well.

Yes, it consists around 1,000 employees. Is it clear?

Very clear. So just maybe on the clarification on the payout levels being reduced, and what do you do with all the cash?

Yes. For the CapEx, actually, we reduce our bank loan, so we reduce our bank loan to give more money for the expansions and for the CapEx, actually.

[Operator Instructions] Your next question comes from Jimmy Chen from Bernstein.

Just 1 clarifying question. It was asked before, but I didn't catch the full answer. On the tower deal, Mitratel and Tower Bersama, can you just clarify also the situation, whether it's happening or not? There are news reports that it may not be going ahead.

Yes. Maybe we are aware that many media publication that...

The rumors.

The rumor is also happening in the media. But again, we have to follow the offer and the preference and process and also comply with all the required procedures and components. And I think, at the second point, we are about -- we will be coming to -- asking for approval.

Okay. And just a follow-up, what's the management's general thinking and strategy to do with the towers held within Mitratel and also within either Telkomsel or the Telkom Group?

I think this deal is just for Mitratel. We haven't incorporate our -- or include the Telkomsel towers, yes. Did that answer the question?

So you're not going to sell the Telkomsel towers?

Yes, yes, no.

Yes, it's not including the Telkomsel towers. It's separate.

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

So I think if we have all the questions, then we can end the conference call.

There is still someone with the...

Oh, okay, Colin -- numbers for Colin, okay.

Sir, to Colin's question that hasn't been answered yet.

So 1 question about the numbers of home passed of fiber we have. So until end of quarter 1, we have already 13.6 million home passed. And out of that, there are -- 7.3 million are fiber and already connected to the houses. As we mentioned in the report, 245 million -- sorry, 255,000 houses, triple play services. And out of that, 25% are fiber. Thank you.

Your next question comes from Jonathan Koh from UOB.

I just wanted to clear -- double check 2 numbers that you mentioned when you answered the question. So the first number is the accelerated depreciation for fixed wireless. Is that 8-7-2, IDR 872 billion? And then the second number is the one-off expense for ERP, is that IDR 160 billion, 1-6-0 billion? So can I just double check the 2 numbers?

Okay. So the -- it's correct, IDR 872 billion is for the accelerated depreciation for the Flexi.

And the ERP.

And the ERP is...

We have 2: one, Telkomsel; one...

Well, yes, there is a process of 2. From the Telkomsel, is it correct? It is correct, that's IDR 160 billion; and for the Telkom, around IDR 500 billion.

2015.

For 2015.

For the first quarter 2015?

For the whole 2015 for Telkom.

Okay, I understand. That's the budget?

Yes, the budget.

Your next question comes from Princy Singh from JPMorgan.

I have 2 questions. The first one is on your voice and SMS pricing strategy. I believe there have been some price hikes over the last few quarters. And how should we think about this going forward? Will you continue to take these price hikes, or you think most of these price hikes are done? And my second question is on the 4G rollout. And where is the -- what is the status of the 1800 megahertz network, where some refarming are to happen? And when can we expect that to be concluded? And when should we then expect the network around 4G starting to get rolled out from a timing perspective?

Mr. Singh, this is Edward. Let me -- I didn't capture your second question. But anyway, let me try to answer 1 at a time, and then we'll see what are the gaps that I have to respond to you. Firstly, I think your question is, can we continue to have an increase in voice revenue and voice usage going forward?

Yes, my question was on pricing -- more on voice pricing.

Yes, pricing. So, so far, let me talk about overall business. The first Q result, our voice revenue has gone up by close to 8%, so is the usage for voice. For SMS, our -- actually, our usage -- our revenue gone up by about 5%, but usage actually came down. So actually, lack of better word, we redefined our pricing, we cluster-based. We learned how to target the users and how to, lack of better word, get the best value of both side, the user as well as the operator. So will we continue that way? Yes, we are looking forward to see where else we can actually improve, not so much just decrease pricing, but learn how to engage the nonactive customers to make them more active in voice. Those that are more active in SMS, we make them do that. And that's how we got our revenue, lack of better word, increase in the first Q, our results. But truly, in voice, too, there is continuous usage as we grow more and more of our network and also taking some share from the competition. So that's on voice. So pricing, I would like to say that we will continue to adjust accordingly. And the next quarter will be Lebaran. We will do the same thing as well -- sorry, in this quarter coming up, in June, the process will -- and then the Lebaran. So I hope I answered your question on SMS pricing and voice pricing. I think I caught your third question, is that about the refarming or the 1800? So actually, 1800, as you probably read and heard so many times that the government has decided that 1800 will be tech-neutral. That means you can now use it for 4G, and they have a series of plans. So to cut the long story short, they must end by end of the year. So the whole country should able to use 1800 LTE by end of the year. Now you asked whether we started the program. The program has started about last week and in Papua, in 2 area, Papua, Maluku and where we actually -- we have done a few hundred base station on our site, and we started to, lack of better word, again, start to migrate the 1800, where all the operator, 3 or 4 months, can now actually call tech-neutral. However, we need a certificate from the BRTI, which is the regulator, to pass our ULO testing. I hope I answered your question.

Yes, no, that's very clear. Just 1 last question, if I have your permission. Just in terms of your wireless network build going forward. I mean, understandably, you have the best footprint across Indonesia. But as you rollout a more data-centric network, are you concentrating more on densification or adding capacity in select locations where you think monetization prospects are better? Or is it still going to be your strategy where you just keep densifying across the entire footprint?

So if I put it plainly, we start on what we have today. We have over 90,000 base stations. Our nearest competitor has about 50,000, 52,000. So they are far away from us. Then what's our strategy? Our strategy has continued to be innovation and leadership in network coverage. So they will continue to rise. When we say innovation, we are looking with 4G. For example, we're the first to launch in Indonesia 4G. So now with the 1800 moving forward, we are also looking at how we will deploy in the area that we think is important to us, where there are a lot of 4G customers. So we are doing that for 4G. Other than that, we are improving our 3G coverage because we believe mobile broadband is the next drive. So today, we cover about 300 cities. But having said all this, we only have 55% of the 19,000 base stations in Indonesia that is 3G-enabled. So there are more rooms to move for us. But our intention is to provide mobile broadband across Indonesia.

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

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 do not hesitate to contact us directly. Thank you.

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