Good day, and thank you for standing by. Welcome to Telkom Earnings Call 9 Months of 2023 Results. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the call over to Ms. [indiscernible] Vice President of Investor Relations. Thank you. Please go ahead, ma'am.

Thank you. Ladies and gentlemen, welcome to PT Telkom Indonesia Conference Call for the unaudited results of Third Quarter 2023. My name is [ Hanifa Hasan ], and I'll be your moderator for today. There will be an overview from our CEO and followed by Q&A after the session. Before we start, let me remind you that today's call and the responses to questions may contain forward-looking statements within the meaning of safe harbor. Actual results could differ materially from projections and estimates or may involve risks and uncertainties that may cause actual results to be different from what we discussed today. Ladies and gentlemen, it is my pleasure now to introduce Telkom's Board of Directors, who are joining us today. First and foremost, Mr. Ririek Adriansyah, President, Director and CEO, and Mr. Heri Supriadi, Finance and Risk Management Director; Ms. Venusiana, Enterprise and Business Service Director; Mr. Bogi Witjaksono, Wholesale and International Service Director; Mr. Budi Setyawan Wijaya, Strategic Portfolio Director; Mr. Honesti Basyir, Group Business Development Director; Mr. Herlan Wijanarko, Network and IT Solutions Director; Mr. Afriwandi, Human Capital Management Director; and Mr. Muhamad Fajrin Rasyid, Digital Business Director. Also present the Board of Directors of Telkomsel here with us Mr. Hendri Mulya Syam, President Director. We also have Mr. Mohamad Ramzy, Finance and Risk Management Director; Mr. Derrick Heng, Marketing Director, last but not least, we also have Mr. Adiwinahyu Basuki Sigit, Sales Director. So let me now hand over the call to our CEO, Mr. Ririek Adriansyah, for his overview. Over to you, Pak. The floor is yours.

Thank you, [indiscernible] in this call. Ladies and gentlemen, our journey and implemented the 5 Bold Moves strategy is becoming more granular and start to have positive impact to Telkom Group financial and operational performance. We believe that the impact of the Five Bold Moves implementation result will be more significant year-by-year. You need to be ready and [indiscernible] political situation, this may have a negative impact on the overall business. Entering the end of year 2023, the global macroeconomic situation is still facing serious challenges, especially from the [indiscernible] of U.S. and China. The strong U.S. dollar and high inflation still force [indiscernible] policy to reduce inflation by rising U.S. interest rate. The slowing down of China economy and property crisis such as [indiscernible] put more pressures on China's unemployment and low impression could cause China economy to be on the depression state. Our capital structure also has low efforts. With that, the debt-to-equity ratio is 46.2% [indiscernible] interest rate volatility. The cumulation gap of local currency versus foreign exchange that is so high. So that our [indiscernible] is negligible. Finally, our contract with the big vendors, both local and global vendors are mostly stated in IDR, so that Telkom's contract exposure to the ForEx exposure is also not material. The PT Telkom Group business and financial performance result during the 9 months of 2023, [indiscernible] results and believe that the Five Bold Moves I believe is working very well. On the B2C segment with the FMC initiative, the concern [ realizing ] synergy initiatives by improving efficiency in many cost elements as well as cross-selling revenue and product differentiation. OpEx leadership has been successfully implemented by merging mobile and IndiHome customer contact point [indiscernible] and efficient joint marketing initiatives. CapEx efficiency is created towards joint penetration with the…

Thank you, Ririek. We will now begin the Q&A session. When asking your questions, please state your name and your company, also kindly to speak clearly. So I think, operator, maybe we have the first question, please? .

[Operator Instructions] This question comes from the line of Piyush Choudhary from HSBC.

Two questions. In the third quarter, we saw mobile subscriber growth was quite strong at 3.3%. So does it reflect that company is going after low, mid-end consumer segment? Can you share light on what is driving this? And if you can talk about the outlook for mobile ARPU as well? . Secondly, can you share how has been the initial response to Telkomsel One offers? Are you able to share how cross-sell opportunities have helped in both IndiHome subs and mobile subs and outlook for the IndiHome B2C subs growth?

Yes. Thanks for the question. Telkomsel managed to have a 3.3% Q-on-Q growth in terms of subscribers. We have consistently applied healthy market conduct. We have delivered smart customer acquisition strategy, optimizing CBM and that the focus is really on renewal, hence resulting in consolidation of customers, essentially healthy, productive subscribers. So with that said, we have the FMC integration that help us in terms of a quick win like cross-sell and upsell, hence increasing the number of subs. So we have secured a stable customer base, and we delivered improved customer quality that hence demonstrating a strong 11.4% year-on-year growth in terms of ARPU. Well, there is a decline Q-on-Q, but this is purely due to seasonality. That's aligned to our strategy of promoting ethical from that and industry pricing rationalization. So this total sub of data users really is a mix of legacy and data users. And we are trying -- we are driving the non-data to data customers and bringing out the multi-SIM customers from our base.

If I may add on the number two, how our tax at today in terms of FMC, including Telkomsel One. We've seen that Telkomsel One are, of course, addressing some of the cross-sell as well as a new sales for combining with Fixed mobile. However, I think the cross-sell is not only based on the Telkomsel One. We've also seen that because we have combined the channel as well as the sales channels including the [indiscernible], we have an opportunity to offer our customers both cross-sell between Mobile and Fixed [ priceless app ]. And on top of that, we are now actually combining the sales force in the Fixed and Mobile and that's gaining some traction, as Ririek mentioned just now. One of the results [indiscernible] subscribers or maintaining the subscribers and also maintaining [indiscernible] 2 of the cross-sell that we are doing between Mobile and Fixed at the same time. So I think this is still early stage. We are in the stabilization of the implication to make, but we are gaining early traction from the FMC initiative as we go.

Sure. But can I ask like understood that 3Q ARPU was impacted by seasonality, but how should we look at the outlook for the mobile ARPU? Is the competitive environment stable and we should continue to expect improvement in the mobile ARPU?

So we've seen that the competitive environment in the mobile ARPU are relatively stable, and some of the price adjustments have been realizations in Q3 and even recently, it's seen from the [indiscernible]. So going forward, I think we expect that the ARPU will be continuously stabilized in our side. Looking at the movement, of course, on the base of the competitors in the mobile and also, we are consistently, selectively doing the adjustment of pricing and seeing the room for us to improve our ARPU from each of the portfolio. And on top of that, with the FMC combination that we have, we actually are leveraging the ARPU not only mobile and fixed ARPU but we are looking at as a wholesale and mobile ARPU as a part of protected. But this is still an early statement. We are consistently seeing the data from fixed subscriber and mobile subscriber and combining the ARPU as one group of account going forward, Piyush.

Just to add, we will continue to further apply the right pricing and right offerings. We want to be simple. We want to differentiate via personalization. We want to scale up content through CVM as well as to provide similar services to -- in order to be relevant to our customer needs, but considering affordability as well as customer [indiscernible].

Our next question comes from the line of Kelsey Santoso from Goldman Sachs.

Congratulations on the results. A few questions from my side. So firstly on mobile, we can see Q-on-Q growth in prepaid subs pick up further from Q2. So is it fair to say that we're already past the bottom for good when it comes to subscriber churn from the strategy to focus on quality user? And then number two, can I check if there's any changes to your full year guidance for group and Telkomsel revenue growth, EBITDA margin and CapEx? And last question is, what are the opportunities in group you see from [indiscernible] entry in Indonesia. I understand that they have a partnership with you to the B2B now, but we are planning to do B2C as well. So do you see a significant churn from this? Or any cannibalization risk to your core offerings?

Yes, I'd like to answer your question on how we are managing our stock growth as well as subscriber churn. So our objective was to really to acquire productive customers. So we have examined our low value or low ARPU customers. They essentially have expenditure less than [ INR 5,000 IDR ]. So the customers that we profile are often categorized bonus seekers and they are [indiscernible] to prioritize promotions and temporary offers. So with that focus on acquiring productive customers, we have stabilized our overall subscriber monthly churn, which was 6% to 7% before the pending initiative. Now the market churn rate is already below 5% so we have stabilized the base.

Okay. On the guidance for the group for the -- I think, this year, we don't change the guidance. We believe the growth of the revenue going to be out to mid-single digit. And then we are going to be able to maintain our EBITDA margin. In the previous guidance, we said 50-plus percent. Currently, you see around 53% that are quite high base. And we try to continue to maintain that margin as well as in the net income margin as well, around 17% plus. In addition to that, we also plan to have a CapEx spending around 22% to 24% of the revenue. Of course, we love to see lower ratio with the same capacity that we are able to build in order to make our CapEx more efficient. I think that's about, I think, deadline...

For the [indiscernible] as we already integrate [indiscernible]. We update on the revenue guidance. Previously, we put low single digits, but now in mid-teens revenue growth. In terms of EBITDA, we still maintain mid-50% of EBITDA margin. And in terms of the CapEx, slightly higher because we also have some additional CapEx requirements to support our FMC initiatives. So our CapEx ratio now at the range of 15% to 16%.

So understanding, I think we are, as a group, always monitor how is the movement on any technology substitutions going forward. And for us, seeing the [indiscernible] in Indonesia, of course, that's the potential we need to always consider but we've seen that so far the target and addressable market target range. And number two, we've also seen that across, I think, the implementation that possibly we can be offering it to the consumer, the ARPU are probably still much more higher compared to our current ARPU if we compare to IndiHome. And on top of that, we also need to consider the price that -- price consumer needs to pay for the CPE if they want to implement for consumer bases. And if we have an experience of 5G Fixed Wireless Access for example, when we actually introduced that in the early days. The Fixed Wireless Access for 5G is still not picked up because of [indiscernible] high. We don't think that's going to be threatening us in a consumer basis in a very short period.

Our next question comes from the line of Marissa Putri from UBS.

Just probably a follow-up question from the first question. If my calculation is correct, I think this is the first time where I see data volume or data subscribers actually down Q-on-Q. So I think you mentioned something about your new subscribers are product-based subscribers, but if it's actually also related to the strong expansion of the number of stuff, meaning that your -- the bulk of the subs growth is basically came from the acquisition market. That's number one. Secondly, in terms of your mobile growth, excluding IndiHome, I think it's a large competitor. So would you say that more of the market share loss actually coming from ex-Java or Java, some color on competition would be helpful as well. And lastly, on cost, can you elaborate whether there was some kind of one-off element on the G&A costs or the decline here is purely coming from the FMC's synergy?

A question on -- from a -- when we look at the ARPU perspective, right, from our new subscribers, we really want to emphasize CVM as a core component. How we are able to personalize offerings, targeting at individual customers? Our -- from an ARPU perspective, I think our position remains stable with a promising ARPU for slight improvement in the future. So this improvements are contingent to macroeconomic conditions and the competitive landscape. What we are always calibrating is our pricing relevant to the ability to pay. So we are able to offer a range from a very affordable, [ low denom ] in fiscal vouchers to customers who are looking for high quota and longer validity. So we are always offering a portfolio and range of price plans across our very diverse customer segment.

On the competition landscape, I think on the market share, we've seen that in Java, our markets are stabilized among the conditions that we have. However, I think on Java with the current situation that we are now having in the FMC, we've also seen some opportunity that we can leverage from the higher market penetration of market share on Fixed. I'll give you an example, certain cities where we actually have the lower market shares on mobile. We have actually Fixed broadband, which are very dominant. So that will create our opportunity to do a process. In ex-Java, I think as we explained, we have also continuous leverage our CVM. Our CVM are in the penetration around more than 65%. That helped us to maintain our momentum on ex-Java. Of course, we always cautious on how the pricings on acquisition on other competition will affect us. But then I think now we have also another weapon using an FMC as a weapon to lock in the customer with us. So besides the lower segment addressing with the physical voucher or promo and all the low segment value that we are having, we are also maintaining our high-value customers through FMC as well as CVM.

On the G&A costs, we can explain to you that most of the -- I think the decline coming from the collection fee costs. It is coming from the ability for us to collect better, I think, revenue coming especially from enterprise customers and so on. That's reflected actually our current trend. So that's causing a good thing -- progress for us in terms of collection. There's another cost in this, I think, G&A, including consultant fees that we can quite -- maintain well despite we have so many cohorted expense here. Of course, some synergy we do expect in the future. We did some, I think, cost efficiency coming from synergy by closing some, I think, our outlet that redundant, which is around 1 kilometer, I think, in distant. We reduced around 190 gross stores that are also contributing to the efficiency but if you see in this G&A mostly coming from the, I think, our collection costs and consultancy costs. The synergy from the FMC currently mostly can be seen in the marketing cost, which is -- I think we can stabilize the growth of the marketing cost. We have, I think, lower marketing cost because we can synergize all the activities.

Yes. On the synergy realization, one of that to add is on the content costs. Previously, we have a different contract between fixed broadband and also cellular. Now for the content, we aggregate their contract to become one and it can be leveraged towards all of our customer base. So it also delivered some additional cost optimization in our first implementation quarter of FMC.

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

Several questions, please. Firstly, on the mobile business. Can you give clarity on this side. You've seen significant improvement in terms of net adds, maybe 5 million, but ARPUs had actually gone down even though you mentioned you're looking at the quality users. What's driving down the decline in ARPU, which in turn is offsetting the benefit of subscriber gains on revenue? That's the first question. Second question I had is with regard to IndiHome consumer momentum. That's also improved quite a bit. Are we seeing this now as the baseline level going forward? Or do you see this as improving even further in the subsequent quarters? And third question I had is with regard to the synergies. I recall in the prior quarter, you mentioned targeting around IDR 0.5 trillion in synergies for the second half of this year. Just wondering in terms of the cost recognition that or reduction that you've seen in the third quarter, has any of that been built in yet? How much will be realized into the fourth quarter?

Thanks, Arthur. I'll answer the first question on mobile. Yes, the ARPU started to decline Q-on-Q, but it is purely in the context of seasonality. So going forward, we would expect the ARPU to be stable and expect to increase the line with usage improvement as well as the festive season in Q4 2023. Well, we have always talked about Indonesia data price is considered one of the lowest in the world. So telco operators need to have the rationalization to be able to sustain and fulfill our commitments to customers, as their requirements are now a lot more demanding than before. So this is our approach to drive better quality with a more for more strategy.

On the IndiHome expectation, I think we've seen this at an early stage of having the integrations and having Telkomsel managed in IndiHome with also an option of [indiscernible] to really penetrate the market. We've seen that at least these numbers of Q3 is one of the additional -- I mean, the base line today, but we are also looking at improvement going forward. We've also seen that the orbit as a temporary solution is still at early stage and that can accelerate us on the penetration of home broadband and as well as if we can also address some of the segments besides the ABC segments going forward. We are looking for further solution for home broadband penetration, where we actually address more than 15% today. So the room are still there. Now I think in terms of the execution and [ split of ] selling is the one that we believe is the key from us to success. And this market, I think the key is actually the first mover are always a winner. So we believe the Home group will always trying to be a first mover in this home broadband segment, into penetration across the nation.

Yes. On the third question of the synergy realization, as mentioned by Pak Ririek earlier, we expect that the realization for this year is around [ IDR 500 billion ] in which, based on our first quarter implementation, we realized aligned with our target, some part is also exceeding our target. It is not only comes from the revenue, but also on the expenses side. . In terms of the expenses as your question, the synergy comes from the integration of the content contract that previously we ran into separate entities. The second part is the alignment of the outlet or stocks that previously is from Telkom and Telkomsel on their own stores. So we are -- in alignment to normalize our outlet 196 -- sorry, 196 of 191 outlet that we targeted to be consolidated, those are the synergy that we are already realized. On the other part is also about the cross-sell and upsell that based on the fourth quarter that we presented to some of you, it's already been realized both on the quarter 1 and quarter 2 as well as quarter 3. So that seems that we are aligning our target, and we expect to realize the whole [ IDR 500 billion ] of synergy value by the end of this year.

Sorry, if I could just have one follow-up. On the InfraCo because it was mentioned earlier that it's expected to be formed by the end of this year. I'm just wondering, how do you envision this to benefit Telkom? Is it because of additional revenues on wholesaling, any targets of that? Or is it mainly because you expect to be able to spin off and realize higher multiples from the asset? I'm just wondering what your thought process is on the InfraCo.

Okay. Thank you. [indiscernible] strategy is a part of a global telco strategy. And our InfraCo strategy is in line with the global growth strategy. [indiscernible] increasing overall our fiber network revenue by optimizing utilization of our fiber asset. And if we look to the low penetration on the home broadband in Indonesia, it will create a better opportunity, not only for Telkom group, but also for other service providers. So by offering those strategy to other provider, we can create the new revenue from, as you think, our fiber assets. Thank you. And then upon the progress, it's early. We are in the process of step-up a new [indiscernible].

And this should be ready for commercial operations by 1Q '24. Is that right?

Yes. Equally, we start to commercial through gross sale division.

Okay. I will just a bit add on that. But the company will be established hopefully, by end of this year, and it will be start of operation in early next year. But the [indiscernible] is not going to be at that point because most of the asset was still in intercom and we probably transfer the asset to the company. So the big impact may not be coming in the one, but this will be [indiscernible] along the way.

Our next question comes from the line of Ranjan Sharma from JPMorgan.

Two quick questions from my side. There are a bunch of moving parts. So if you could just quantify what your underlying clean net profits are excluding any one-off gains and losses? The second is that you have seen a pretty significant improvement in certain costs like G&A, but also O&M cost as well. I know you talked about closing some stores. But if you can also help us explain what some of the other drivers are and if they are sustainable.

Okay. Ranjan, I think on the net income, net profit, maybe we need to consider by 2 ways. If you see the inside of the profit, we also have the kind of unrealized loss or gain that may come from our investment in broadband for example. That's going to becoming effective, going to determine the net income of the company after the end of the year, in which we are -- we have the control of the -- what is the stock price of go to. But when you see the net income coming from the operational, that's supposed to be quite predictable. You can predict that one based on our results up to the third quarter. I think that trend going to be sustainable up to the end of the year. So we don't like to see any surprise in the net income coming the operation. And in fact, actually, when we talk about on the dividend, we always consider from, I think, what we need to return to the investor based on I think dividend per share and also yield and so on. And then unrealized loss, again is not coming as a cash. So we have quite good -- let's say, during last year that enable us more to invest continue and also maintain the dividend payout. And then on the G&A cost, I think it is -- if we see the 2 main contributor to this is actually coming from collection costs and consultancy cost. It is supposed to be -- in terms of the production cost, it is supposed to be very predictable based on the current performance, what is our collection cost. It is, I think, very predictable. And we believe this turn going to sustain based on the percentage in the revenue.

Contingency costs on the O&M cost?

O&M cost. I think on the O&M costs, this year, we have quite a big increase coming from the spectrum costs. The other costs actually pretty much in line with the capacity and our operation. We believe this cost after we have discussed, we've done really our predict -- new spectrum next year. Maybe 700 spectrum can come next year, but not supposed to be a kind of consideration in terms of how we're going to manage our operation and maintenance costs. Without new -- I think new spectrum coming to our cost. Our cost is supposed to be very pretty much, I think, stable based on the customer base that we have, based on the, I think, network that we need to build. That's going to be quite low. I think it is supposed to be in line as well with the growth of the revenue.

Ranjan, your line is distorted. You may wish to reconnect. Our next question comes from the line of Niko Margaronis from BRI Danareksa Sekuritas.

My first question, and if you can basically confirm about there is an uptick on the enterprise segment, if this is correct. And what's driving it? And yes, what's the outlook on that segment?

Okay. From the enterprise segment, actually, the revenue growth 6.6% coming from the enterprise connectivity. And then [indiscernible]

Sorry, it wasn't clear. Can you repeat [indiscernible]

Okay. From the enterprise, actually grew 6.6% coming from the biggest one is the enterprise connectivity, IT service, digital solutions and the fixed process on the headline indices. .

Okay. Okay. Maybe for another question is on the InfraCo comments earlier, is going to close by the end of this year. And how many kilometers of fiber -- I understand that you have to set up a new unit, and you're going to transfer the assets there. So I'm assuming it's about fiber. What kind of -- how many kilometers that is in total? And is it only backbone or includes FTTH or also FTTT?

Yes, as Pak Ririek already mentioned before, we will set up the FTTT on this year. But for the commercial, we already start selling those assets. We are the wholesale division. And then [indiscernible] we are still on the process of analyzing what is the optimum scenario to transfer the asset. It's not only for the asset, but also the momentum because we did some approval or components that we have to follow if the asset is quite used from our stakeholder. So -- and then the element of the asset that we will close as part of InfraCo strategy, of course, we will start from the last man but of course, it's not closed the opportunity also for other fiber asset. Thank you.

And maybe one more question from me. From the 158 million subscribers for Telkomsel, there's also 8.5 million IndiHome, how much -- I think some of them are from Telkomsel One. How many of the 158 million is coming from the new IndiHome product?

Niko. So when we look at Telkomsel One, we categorize them as multiproduct holders meaning they have both mobile as well as IndiHome. That's currently constituting about 30% of our base. And this is our clear strategy moving forward to increase this percentage through our cross-sell and upsell quick wins.

To add to that one, Niko, I think as we mentioned earlier, the Telkomsel One is just one of the portfolio initiative for us to get the fixed and home mobile potential subscriber. However, we've also seen that existing IndiHome customers, we also [indiscernible] but that may not be Telkomsel One customers as a product, but we consider [indiscernible] customers between mobile and fixed in our base today. So we are currently not really want to differentiate between the product portfolio and the comfort customers in which we define our customers going forward.

But some of that 158 million is also have IndiHome, right? This is my first...

Yes, yes, yes. And I mean, our strategy of Telkomsel One is not just from a product holding perspective. There is seamless connectivity, similar experience from one app and one customer touch point perspective. In fact, the content offering that we are going to market to our customers is a multiscreen offering already. So it is not a silo mobile or the TV offer. So that's where we see this adding value to our customers. So this is really our holistic Telkomsel One strategy.

One question on the EBITDA margin. It's now at 53.1% and Pak Heri mentioned that maybe this is the maximum. This is how should I get it? Or because we have some more synergies, therefore, there is an upside on the EBITDA margin some more?

Niko. On this one, I think this is [indiscernible] because in the same time, we also have the revenue coming from [indiscernible] I think, investment and so on. So we believe if we maintain this one, that's also going to be good for us, if we can do better, of course, we want to do better. But in the optimum one, there's possibly also based on the market competition that we are facing later on. We try to also to keep our profitability as well as possible while maintaining the long run, I think, competitiveness of the company.

Operator, in the interest of time, I think we will only take one final question before hitting an hour mark.

Certainly. So our next follow-up question comes from the line of Piyush Choudhary from HSBC.

Just one question. Could you share your thoughts on outlook for the timing of spectrum auction on -- in 700 and 3,500 megahertz band? When is the most likely probability for these auctions?

I think last August, [indiscernible] regarding the interest of operator towards the 700 spectrum and [indiscernible]

Sorry, we can't hear you properly. Sorry. We can't hear you properly.

Okay. In August this year, ICT Ministry sent a letter to the operator regarding the interest of operator towards related to the 700 [ mega spectrum and 26 giga ] spectrum. Our operator voice, they are interested in participating in the upcoming auction. However, there are conducting studies, analyzing everything, policies to be issued by the government regarding the selection process. I think the selection process will be first quarter next year. But we are -- all the operator is waiting for 2.6 instead of the 36 gigahertz [indiscernible]. We are more interested with the 700 and 2.6 [indiscernible] I think, will be released in the quarter next year.

So 2.6 will be released, you're saying end of 2024?

Yes. It is what I heard that 2.6 will be released...

I think the release date is not fixed yet. But there is the other point that we need to inform you that because of the new regulation, actually, the way the [indiscernible] spectrum is used to be cash. But now we're [indiscernible] also not in cash, but the combined between cash and some probably kind of commitment to [indiscernible] been discussed, but the point is that the government aware that the -- they are -- the intention is to use all the industry on these spectrum case. We don't know yet at this point on how we will come up with the one, but I think I do believe that it will help the industry including all the operators.

Thank you, Piyush. I think we are hitting an hour mark. So I guess, we're just going to conclude the call here. Thank you, everyone, for participating in today's call. We apologize for those questions that cannot be addressed just yet. Should you have any further questions, please do not hesitate to contact us directly. Thank you so much, ladies and gentlemen. .

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.