PT XLSMART Telecom Sejahtera Tbk

Good afternoon, ladies and gentlemen. Welcome to XL Asia Trust Earnings Conference Call for the first quarter of 2018. My name is Joanna and I will be your coordinator today. During the presentation, all participants are in a listen-only mode. Instructions will be given on how to register your questions when we get to the question and answer session. As a reminder, this conference is being recorded for replay purposes. Now, we would like to hand the conference over to our host, Mr. Inder. Please proceed.

Thank you, Joanna. Good afternoon, everyone, and welcome to the call. On behalf of the Excel Management Team, I would like to thank all of you for taking the time to join us today. With us on the call today, we have Ibu Dian, our Chief Executive Officer, Pak Adlan, our Chief Financial Officer, Pak Allen, our Chief Commercial Officer, and Pak Feroz, Group Head Finance. Now, Ibu Dian will share the highlights of the first quarter of 2018, which will then be followed by a Q&A session. I will now hand the call over to Ibu Dian.

Thank you Indar and good afternoon everyone. 2018 started off with challenging market dynamics of data price competition and structural changes in the prepaid market in the form of prepaid SIM registration. Although such regulatory reform has had a negative short-term impact to the industry, we firmly believe that the change is a positive one in the form of a healthier market environment for the mobile industry and the long-term value creation for Excel Asiata. The change is very much in line with our transformation strategy in becoming a data leader, focusing in value customers and experience rather than price. We have always remained steadfast in our transformation journey, and this has enabled us to weather through this tough period. Despite the many challenges, I'm pleased to report that we have managed to outperform the industry on a year-on-year growth basis. Overall service revenue grew by 5% year-on-year, mainly defined by continued growth in data revenue. Innovative data offerings and improvement in data service quality have successfully pushed data service growth in the first quarter to 29% year-on-year. Data revenue contribution now makes up the majority of our service revenue at 77%, of service revenue in this current quarter. The data business continues to be our main growth driver, offsetting the decline from legacy service revenue. One of the key reasons for the performance so far in 2018 is the continued success of data-led product strategy, coupled with continued investment in our data network. Indonesia's data-savvy customers have continued to respond well to our improved network, as smartphone subscribers now stand at 74% of our subscriber base, which continues to be materially higher than the industry average. The total number of smartphone users now amounts to about 14 million and has grown significantly at 28% year-on-year compared to the same period last year. Despite the challenging quarter, we are pleased to report that our customer numbers have continued to grow in a sustainable fashion as we have added another 1 million customers, taking our overall base to about 54 million customers for the first quarter of 2018. In establishing the Excel brand as the choice for high-value customers, both reliable high-speed data and superior network quality are essential. As such, we continue to ensure a high-quality data experience to our customers through continued rollout and upgrade of our network. Our total beta count is now above 105,000 BTS with 3G totaling almost 48,000. Our 4G LTE service is now available in 373 cities and areas across Indonesia and stands at more than 20,000 4G BTS. Increased focus on X-Java for data has also led to both growing revenue and traffic outside Java compared to a year ago. as we aim to improve our data market share in this region. We have also launched a marketing campaign aimed at improving perception of better data network quality for the benefit of customer experience. Our Hashtag Be Better campaign has managed to receive positive response and appeal from both existing and potential data customers. Underlying this campaign are consistent efforts for further improved data networks. The network development includes service coverage expansion to new areas which were not reached by the data network, especially outside Java, and strengthening network quality in area of data presence. Furthermore, alongside network expansion, we have also been increasing the quality of the network by implementing several innovative technologies. These allow for improvement in service quality and include network function, virtualization core, 4G spectrum wideband, and 4.5G technology through spectral efficiency, carrier aggregation, as well as high-degree MIMO. All these initiatives improve the stability of the internet service on Axiata data networks and allow for internet speed up to 100 Mbps. Investment in transmission by whole network modernization continues to support the rising data traffic across its network and deliver stability expand network capacity and improve quality of each data service of our customers. The dual brand strategy has successfully seen us gain in roads in different segments through innovative offerings in each segment. We launched the Extra Quota Booster Package for XL, which offers additional quota for its customers and for existing customers. Our post-paid brand extra priority has gained further traction through smartphone bundling package for well-known handset providers. Overall, our performance in the first three months of 2018 was encouraging, despite the heightened data price competition in the industry. Furthermore, we saw a major structural change in the prepaid market, as the government policy on mandatory prepaid number registration resulted in a short-term uncertainty. Nevertheless, we believe the registration is necessary towards a healthier, and a sustainable industry moving forward, and this is very much in line with our strategy. The increase in competitive intent during this quarter has impacted the overall industry growth as well as ours. As competitive, Happy Launcher aggressively priced data packages aimed at grabbing market share. We believe such pricing is both unsustainably low and unhealthy and needs to improve. In addition, the deadline for pre-passing registration for accessing customers came into effect as of 1 May 2018. Customers who have not registered will be blocked from services which include SMS, call and internet services. Those who have experienced the blocking could then register the prepaid phone number via SMS or contact their provider service center while the number is still in the active period. We are pleased to report today that we have secured almost our entire revenue-generating customer base with a minimal impact to our overall business. This was done through proactive efforts in communication, providing ease of registration via multiple channels, engaging our customers via forward direct to get them to register, and promotional incentives to register, among others. We believe post-prepare registration deadline and market cleanup a new healthier environment is expected and thus provide better opportunities for growth in the second half of the year. With a shift in focus from customer acquisition from professional multi-team turners, we also see signs of opportunities to monetize data further in the second half of the year. Our intent has always been on monetizing data while focusing on customer experience rather than price. Having said that, The intent is very much dependent upon how our competitors position themselves in the market. But we heard that one of our competitors had given a signal to the market that they will increase the price, which we will come very much. Taking all this into account, we are reiterating our guidance for 2018 for our revenue to grow in line with market as it reflects the current competitive intensity and our hope for a better second half of the year. Our EBITDA margin guidance is high 30, and our capex spend guidance for 2018 is around $7 trillion, which will remain focused on data network investment in 4G and continuous network improvements and modernization in outside Java. Thank you, and let us now proceed to the Q&A session.

Thank you. Ibu Dian, to ask a question, please press star 1. To cancel, please press the pound or hash key. Please kindly but restrict your questions to only two and to allow other participants to raise their questions. Should you need to ask more questions, you can go back to the queue by pressing star 1 again. We shall end the conference sharp at 30 PM Jakarta time. Our first question, from HSBC, please ask a question.

Hi, good afternoon and thanks for the call. A couple of questions. Firstly, can I clarify on your opening remarks in terms of your pricing strategy? Would you look to raise data tariffs if your peer raises? and improve data monetization? Or do you think the current level of tariffs are sufficient and would help you to gain market share? If you can just clarify on that. Secondly, on your cost side, we saw sales and marketing expense rising significantly. Can you kind of bifurcate how much is it one time due to the impact of semi-registration and what would be more sustainable number here? And also, if there is any one-off or cost reversals in 1Q. Thanks.

Thank you for the question. Let me start with the first one about the pricing and the price level in the market. We have some indications in the market and we see some light price increase around both in data and in voices and we will definitely welcome that as this is expected in the market and we will to follow that trend if that's going to happen. And we expect that it's basically going to happen in the second half of this year that we will see a slightly price increase in the market. And again, we will welcome and follow that.

Piyush, on your second question on cost, yes, I think you probably are right that we have spent quite a fair bit in quarter one this year of revenue compared to quarter four last year at around 8.5% of revenue. I think if you look at quarter one, I think we did ramp up our initiative to register customers. I think as we reached the deadline first of May, we actually spent either in terms of marketing dollars to get customers registered as well as putting a lot of resource on the call center, for example, to either call up customers to help customers do the registration. In total, I think I would say that around $120 billion was meant for prepaid registration. I would say that the bulk of this is probably one-off, but there will be some that's out of this amount that would probably be recurring. So moving forward, I think you should expect that as these things stabilize, on prepaid registration stabilize, as we go back to the norm, you would think that probably your sales marketing expense would probably go back at around 7.5% to about 8%.

And is there any other one-offs or reversals?

On sales marketing, no. No one-offs except for the expenses that we incur for prepaid registration.

Great. And if I can clarify on the pricing strategy, like, you know, not more from just second half, like how would you continue to think about your data pricing strategy? Would it be some kind of a discount to the leader or, you know, how should we think about the long-term data pricing strategy from the company? Thanks.

So if you look a little bit back, this whole thing, how it is in Indonesia right now, started back in November, December last year, where when people, our competitors saw our Q3 results, they immediately reacted. So they made some unhealthy packets product in the market. And I just see going forward, we will see a correction for these packets. We will see these competitors taking these packets out of the market. So we will follow our game plan, our strategy. This was set two and a half, three years ago, that we're going to be a data-saving company, and we're going to focus on data. And no doubt about that, the yield for the data has to increase, but at the same time, we also need to give the right service and the right package to the customer. So we are in line with our strategy, we are in line with our game plan, and we will see the data prices going up in the future.

All right. Thanks a lot.

Hi, thanks for the opportunity.

Two questions then. Given that the government seems to have lifted the cap on the number of SIM cards per user, do you see this as changing in terms of turn levels and the cost savings that you may have seen with SIM registration? Second question I had is just regard to your competitor, the smaller competitor, which is Indosat. Your revenue momentum appears to be far stronger. I'm just wondering what's driving this differential. Is it because of geography you're doing better for non-Java or it's mainly because of network quality which is driving the differential? Thank you.

Thank you.

Okay. I will take the question number one. So, yes, with the paper registration regulation, the new one, government will actually limit the number of SIM cards, three SIM cards per ID. Of course, this actually will remove the rotational churn, which currently probably around 20 to 30% in the market. And that will give us in terms of SIM card costs that is currently quite sizable. So the answer, yes.

But I understand that the government changed the ruling from three SIM card limits to unlimited. Is that correct?

No, actually it has not been firm yet for that. So currently, the one that is still under discussion is for the number of SIM cards that can be activated by retail outlets. But per customer, the one that is registered by per customer is still maximum three.

Understood. Let me comment on the revenue part. As you all know, we are not able to comment on our competitors' revenue achievement at all, but we were at surprises, many of you, when we saw this result. So we have not deep-dived into the outcome of that revenue. We can just say that we are following our game plan again, as I said before, and this is exactly what we expected in terms of revenue. So no comments on the outcome for the revenue, actually.

But internally, in terms of your own revenues, is it mainly coming out of Java or outside of Java? What's driving the growth for your revenue base?

Yeah, so if you look at, obviously, I think we put quite a fair bit of investment going outside Java. And you probably have seen from Q4 numbers as well that the growth are probably coming a lot from Java, right? But having said that, I think in Q1, there were probably stiff competition. So I think that number, the growth rate that we were seeing before this has definitely slowed down quite tremendously, right? Given the fact that competition in Java was even more stiffer this quarter one, and hence I think it has impacted everyone. And I think it's reflective in all the numbers that you are probably seeing, right? Nevertheless, I think with the investment we did outside Java and the better network quality that we have, I think that's probably helped us in terms of getting in better quality subs and customers into our network.

Great. Thank you very much.

Thank you. Our next question comes from Colleen McKellen from Credit Suisse. Please ask a question.

Thanks, everyone. Good afternoon. A couple of questions from me. The first is, I think Ibu Diane did mention in her opening remarks, but I just want to confirm that you're basically saying you don't think that Excel will face a big drop in revenue in second quarter as large numbers of SIM cards on 1st of May are basically cut off or removed because you've basically kind of registered the vast majority of your revenue base anyway. I just want to confirm that that is what was said. And then secondly on the related point, I know that there were some pretty aggressive kind of registration bonuses were given to customers. I think it started off about 10 gig then turned into 20 and then 30. So one would presume if you've registered people that those registration bonuses would disappear. going into second quarter and so presumably there would be average revenue per megabit that we would be able to see fairly quickly as those things are removed. I just want to confirm that as well. Thank you.

So Pauline, on the first question, obviously we cannot comment much on our Q2 numbers but I think what is actually said that we have registered quite substantial in terms of our subscriber with events, right? Nevertheless, there are still some that we didn't manage to register on time. So there will be probably some impact in terms of revenue, as far as revenue is concerned. Nevertheless, as you know, it's probably a timing effect, right? Because this customer that failed to register on time or when it comes to the barring date, typically they will come back at some later dates. And typically that's what we have probably seen as well. So you probably may not have registered 100% of your customers at the point of time when you bar. So there is probably some impact on revenue. Nevertheless, I think what we have probably seen as well if customers do come back and subsequently either do re-registration or come in with a different SIM card. So I would say that yes, there will still be some impact to our 422 numbers with regards to the registration, but at this point in time, we cannot comment and quantify what the impact is going to be.

So in terms of the cost part, when you talk about the bonuses to the customer. So first of all, we are welcoming the SIM registration process as we believe is giving a lot to the industry going forward. We could see less rotational churner in the market as well, meaning we have two cost items where we will save. The first is, of course, the production of SIM. Hopefully, we will have to produce a SIM as we don't have these rotational churners. At the same time, there will also be less bonuses for the people because now they have to do the registration as well. But this is an insignificant amount that will be given away for the bonuses, so we will not see that as a big impact on our spreadsheet at all. But you're right, it will disappear in the future.

Got it. Okay, thanks both very much.

Thank you. Our next question comes from Fuchong Chen from CIMV. Please ask your question.

Hi, thanks for the call. Two questions from me. Firstly, on the rental costs, queue on queue and year on year, there was a fairly big drop, and I noted the comments in the info memo on savings from renewal of older leases. But I just wanted to check whether there are any one-offs there, and how should we expect this trend going forward? Is there more room for this to decline in the subsequent quarters? That's the first question. And second question regarding your debt. What percentage of your total debt is floating rate? And in light of the rising interest rates in the market, I'm just wondering whether is that something of concern and whether you are doing anything at all to address it? Thank you.

On rental, you'll probably see that this is actually one of our biggest cost item under infrastructure expenses. And typically, I think you probably have known as well that we have managed to renegotiate in terms of our rental cost area. So at point of renewal, we are probably getting up to approximately 50% discount from the price that we used to pay. And I think as we said in earlier calls as well, starting this year and moving to the next three years as well, there will be quite a big chunk of our hours that's probably coming for renewal. Therefore, it has contributed quite significantly in terms of that reduction of the rental of tower leases. While doing that as well, we are also talking to tower providers as well to probably see whether we can early renew some of these towers as well so that we are able to accrue this savings up front in progress now. So there are still opportunities in terms of, let's say, seeing a reduction in tower rentals. And I think this would also help in terms of trying to question the impact of the new towers that we are probably building, especially in outside Java. On your second question, on the debt, I think if you look at today, 56% of our portfolio is actually floating. And 44% is actually fixed. So I think we have a policy of trying polio ideally at 50-50, but in this case, I think approximately 50% are actually floating rate.

Okay, but do we need to do anything to shift more towards the fixed side because interest rates could be rising, right?

I think we look at it case to case. Obviously, I think as you speak today, right, I mean, you look at the fixed rate today are probably rising as well, right? I mean, especially if you look at longer term, right? So I think we are looking at this, right? And we'll probably do our cost analysis to see what makes sense before we take any decision on this. But definitely something that is in our radar.

Okay, got it. Thank you so much, Adlan.

Thanks.

Thank you. Our next question comes from Nomura. Please ask your question.

Hi. On the revenues, so you had a sequential drop in revenues in first quarter. So is it fair to say that bulk of the impact of SIM card registration is already in the 1Q80 numbers and that actually you expect improvement going forward? That's the first question. Secondly, in terms of the outlook for this year, you mentioned to grow in line of the market. I'm a bit confused here because the growth numbers are quite diverse across the trend course. So if you can quantify how much you expect market to grow this year, that would be great. Thank you.

So let me take the first question. Yes, you're right about the drop in the revenue for Q1. There's a seasonality impact that we see, where it's usually around 4, 4.5% seasonality. And we also see an impact for the SIM registration as well, as it kick-started three, four months ago. But the real start is actually May the 1st, where you cannot buy a SIM in Indonesia without doing the registration. And if you're looking at the neighboring countries where they have done the SIM registration for some time ago, right, we see a dent for the first 12 months, 8 to 12 months, where we see the revenue going down. And then we opt for normal after 12 months. We are not absolutely sure what's going to happen here. As I said before, it just started. But I think we will stabilize right now in Q2, and then we will see some price increase at the end of Q2 going into the second half of the year. So I think we have not seen the full hit yet. We will see some impact in Q2 as well. But going forward after Q2, there will definitely be an uptime upside.

Gopal, on the guidance, I think in line with market is something that we came to the market early this year. Obviously, I think having seen Q1 numbers, I think one would expect that our results and the industry that we could potentially grow the market, outgrow the market. Nevertheless, I think as what Alan said, I think we also need to understand and see what the impact is going to be on Q2 given the barring impact only came in on 1st of May. So, I think at this point in time, we are outgrowing the industry. Nevertheless, I think we are not changing our guidance at this point in time until we have better clarity of the impact on the barring of the private registration at the end of 1st of May. And only then, I think, In any case, if there is a material difference of our expectation, we'll probably back our guidance. But for now, in line with market, it's still the guidance that we're giving.

Fair enough. Thank you.

Thank you. The next question comes from Sebastian from GreenGraph. He's asked a question.

Thank you and congratulations for the impressive EBITDA growth and margins. So I just want to get a better sense of competition. I think we are quite familiar with what Telkomsel and Indresat are doing. Can you give us some color as to what you think of Hutchison? or any other, you know, the smaller players, whether they could be a threat to the what seems to be improving pricing environment or not. Secondly, could you just give us some color on consumer behavior on data? I mean, are we looking at, you know, what sort of percentage of the usage is maybe related to videos, online videos or any kind of behavior that would be appreciated.

Thank you. Let me start with the first one regarding the competition. As I said before, it all started back in Q4 2017, and the starting point was here that Intocet introduced the yellow packets, which was extremely significant cheaper than anybody else. That was followed up by Telkomsel taking the prices down and later on, especially in the beginning of Q1, we became extremely aggressive both in terms of prices and in terms of the kickback and the commission to the dealers and to the retailers. That was actually only one month. We saw that in the month of January and since then we haven't seen a lot coming from three as well. So they have kept the same level as they did in January, taking a little bit out of the commission for the market. But we haven't seen them. So we don't see a big threat coming from the smaller player in this market. Hopefully, it will be to set the stage in the future, and we'll be able to take the small steps upwards when it comes to data pricing. I'm not able here to go down to detail and give exact figures on how many people use YouTube, how many people do video setup. But what we can say, after we introduced this one, two packets where we have YouTube as many of our packets and we now have a handset in the market where you get free YouTube for one year as well, that has created a significant impact in the market and a hype in the market. And we now see in our network, users of YouTube is increasing significantly. So there's no doubt about this segmentation we have done for Excel for the white color, blue color, and Access Brand for the youth has actually worked in this market. So we see more and more youth people using the offerings where we have free YouTube going forward. So it's significant how much they're using it. But specific figures, I do not have.

Thank you. DBS, please ask a question.

Thank you. Two questions for me. Firstly, we heard about a reduction in the number of towers by Hutch and a lot of relocation by Marksen. Are you able to claw back some market share from these players given that they might be facing some issues or is it just a thesis and it's not really working so far? That's question number one. Among the three major operators, Could you share with us what kind of signs of pricing improvement you are seeing on the ground? Is it just a talk or we are already seeing something which is happening in this May timeframe now? That's it. Thank you.

On the towers, in terms of reduction in the number of towers from Hatch and SmartFren, As far as the portfolio that we have with them, we don't see much reduction. I really cannot comment whether that reduction is coming from other tower providers or not. But technically, the towers that Hatch or even Smartfren is leasing from us, there is no material changes.

Can you please repeat your question?

Yes, among the three major operators, Have you seen some signs of pricing improvement? And if you could share with us, you know, is it more, again, is it something which is happening on the data side of things? And in what form of improvement are we? It can't be outright, right? Is it something, are we seeing lower data quotas? What is the form of pricing improvement that we are seeing on the ground now? Thank you.

First of all, this is more of indications in the market right now. All the three big operators at the moment have only one thing they concentrate about is the SIM registration. We are basically not looking into the market approach, we are not looking into privacy because all our effort and all the energy has been put into the SIM registration that happened two weeks ago to be able to be 100 compliant in the market. Now hopefully within the next two, three weeks there will be a little bit of release in that sense so people can actually think and work on something else. So the indication is that both the prices will be taking up a little bit, and at the same time, some of the big quotas given from all the three operators will also be taken down. So they're not able to give 20 GB more, it will go down to 10, etc. So that's the indication right now. But we haven't seen it in reality in the market yet.

Okay, that's very helpful. Thank you.

Thank you. Our next question comes from from Goldman Sachs. Please ask a question. Hi, thank you very much for the opportunity. Most of my questions have already been answered, but just one question. Any update you can tell us on your strategy that you were mentioning last time about going into like pay TV and broadband?

Sorry, you couldn't really catch that. Could you repeat the question again?

Hi, yeah, so just one thing on the site. I remember earlier in the year, there was a lot of new rumor about you going into ATV. Is there any update from your side you can tell us?

Okay, so for our fixed broadband, actually we just soft launch it on the 2nd of May. So now it's in the actually introduction stage to the market. So we do a lot of communication and so on and so forth. So that's the progress so far. But so far we have already more than 5,000 home paths that is available in the market.

And this is only in Java or...

Yes, so far we only focus in major city in Java.

Okay, thank you. Thank you. Our next question comes from Bharat Joshi from Aberdeen. Please ask your question.

Hello, hi. Thanks for the results. I just have two questions. The first question, I noticed that the data traffic growth has been very healthy. So basically, you know, going forward, what would be a sustaining rate for data growth? And we also noticed that the investments in BTS in the quarter was quite significant. So how are you aligning data growth with BTS expansion? And then the second question, which was actually asked earlier about the debt, given in a rapid increase in interest rates going forward, would it be more conservative to use part of the cash flow to repay down the debt and what would be a comfortable leverage going forward?

Yeah, okay. Let me take the second question first. So yes, I think you probably expect that there is pressure on interest rates to go up in the near future. So I think our approach has always been to adopt a balanced portfolio in terms of fixed and probably floating rates. But anyhow, as I mentioned earlier, at this point in time, we are evaluating to see the business case of probably moving into, let's say, converting some of the floating into fixed at this point in time. But you may well appreciate as well that at this point in time, given the expectation that the interest may increase, you would expect that fixed rates have also gone up as well. But nevertheless, that's something that we are probably evaluating. And I think, should we use our cash probably to pay down debt? I think... while we are also evaluating that, but we are also in the midst of expanding and building our network outside of Java as well. Hence, I think if you look at the revenue growth that we are probably seeing from last year and even moving on to this year, I think there's no question that most of this cash that we are generating today will need to be used for our expansion purpose. So I think we have no intent to probably early repay some of this debt at this point in time.

Regarding the data growth rate, it's very difficult to predict about the future data growth, but we don't see any reason why it should ease down at the moment. So to be honest, we actually see the same growth rate going forward. We have the CAPEX, as Ibu Dien mentioned in her introduction speech, and that we have to build BGS within that CAPEX, and we do the optimization to accommodate this data growth. So right now, I would claim that we have an extremely healthy network at the moment. We are not utilizing our network completely, so we still have space in our network. But so far, it looks good, and we can accommodate that future data growth.

Okay, thanks.

Thank you. Our next question comes from Norman Chung from CLSA. Please ask a question.

Hi, good afternoon. Thanks for the call. I actually have three questions. First is actually regarding data traffic as well. Actually, looking at year-on-year trends, yes, indeed, the growth is very strong. But looking on Q-on-Q trends, is that traffic only grew 2% compared to competitors that have double digits. Do you mind to give some color on this one? Second is your xJava marketing strategy. I just want to understand that your xJava expansion this year, do you plan to do it as aggressive as last year, meaning doing a lot of uh free promo to entice people to use your sims or you are trying to do it the other way meaning mainly from more healthy competitions uh using price per service level those kind of angle to entice people to use your network third is actually regarding to guidance i just want to clarify that what is your definition of market growth because telecom cell right they expect market growth rate at low single digit but they expect themselves to outperform the market so do you do you define yourself do you define market as talcum self growth rate or or how yeah these are my three questions

Let me try to answer on the data traffic. You're right that if you look at the traffic growth from our competitor, it has been higher or stronger or whatever, and we have not been growing so fast. And the reason for that, what we believe in, we started this program almost three years ago where we had our transformation here. So we started to be a data-centric company before the other guys. And we see that they are coming now. So I will claim that they are one, one and a half year after us. When you look at the figures when it comes to 77% of our revenue today coming from data, we have the highest smartphone penetration in the market as well. So we have taken the first step into this data-centric world, and the other guys are following. That's why we will not see the same growth rate for data coming from us as from our competitors as we have taken the first step. The second one we've done...

The second one is with regards to AgJava. I think we will continue to expand our network outside Java because I think we see opportunity there. I think whether we're going to be as aggressive going into this market, I think we'll probably be selective. In areas that we see a big opportunity where we come in, in areas where Takomcell are probably the only competitor there, I think there is no need to be very aggressive in terms of your data pricing, right? Because even at, let's say, 20-30% discount to Takomcell's prices in two areas, you are probably selling at 30-40% premium from the Java prices, right? But in areas that you probably see more than two competitors, for example, right, will probably be a bit more aggressive in those markets. So I think the answer to your question, yes, we will still continue our XJava expansion and I think we will probably be selective in terms of how we go out in terms of aggression into the market depending on the competition in those areas or those clusters. On guidance, I think if we look at a market as an industry, typically between ourselves, Indosat and Hatch, and Telkomsel, Indosat and us, we are probably pursuing more than 90% of the market already. And I think that's how the guidance is actually based on the market share of these three operators. As we said, what is our expectation on market growth today? I mean, it has been the same since early this year. What we said that if prepaid registration is strictly enforced, we expect that market growth to be at low single digits. I think that guidance is probably similar to what our competitors have probably quoted as well. So, at this point in time, as I said, given the uncertainty that we are still seeing in terms of impact on this registration, especially in Q2, we are still keeping our guidance in line of the market. And market, we are looking at around low single digits.

Okay, just the final one, coming back to my question number one, just want to clarify, are you saying that your data traffic, I mean, data usage per users has already heading to maturity stage or this is just a temporary run rate? How should we look at the growth on a quarter-by-quarter basis going forward?

No, it's definitely not coming to mature stage. That's for sure. We will still see significant growth in this market. What I'm saying is that In some of the quarters, you will see that the other guys have a higher growth than us because they are just starting the transformation into the data-centric model, and we have just been ahead of these guys. So it will continue. There will still be growth in the market, and we will take our share of that growth in the market as well.

Okay. Thank you so much.

Thank you. Our next question comes from Alta Pinata from Citigroup. Please ask a question.

Hi, thanks. Just one follow-up question, please. Back on your third-party tower leases, how different are the new leases versus the expiring leases on the pricing side? And what percentage of your tower portfolio should be expiring over the next two, three years? Thank you.

Yeah, if you look at the towers, that's probably coming to end period, right? tower that we have leased for approximately 10 years is coming for renewal now. We are paying at approximately between $25-26 million all in. And I think today if you look at the market for all this renewal, even for new build today, we are paying at a range of between $10-13 million. So I think if you look just purely from those, we are getting approximately 50% savings in terms of our renewal of towers. And as I said, if you look at our build pattern over the last 10 years, you would expect in the next 2 to 3 years, a big chunk of our towers would probably come for renewal, right? And I think that would actually help in terms of reducing our tower rentals and at the same time easing the pressure when we continue to build new towers, especially outside Java. In terms of percentage, we are not able to disclose that number, but safe to say that I think over the next two to three years, a big chunk of our towers will come for renewal.

Understood. Thank you very much.

Thank you. Next question comes from Alex Goh. And Ben, please ask a question.

Thank you. I've got two questions. The first thing is I'm trying to understand how is it that your revenue has declined by 8% quarter on quarter from fourth quarter, but your subscribers have actually increased by almost 1 million. That would mean that your existing customers which are paying higher outputs are moving out of Excel as data, and your new customers are not paying as much as those existing customers that you have lost. Am I right in that estimate? And my second one is, since the new SIM registration essentially is completed in February, has the new take-up of subscribers, have they had it? normalized in March and April and should we expect going forward your new intakes are going to well improve from here on okay so

If you look at the revenue sub, I think you probably are well aware, in quarter one, there's probably steep competition in the market. No question that we are gaining subscribers, but at the same time, you are probably seeing that there's a lot of pressure on prices as well, on yields. Overall, generally in the market, you've probably seen that yields have probably dropped by 30-40%. As a result, we're going to impact is also going to impact your existing customers as well, as people trade down into a lower package and a more cheaper package. And hence, that's why you see that even though we are acquiring customers, nevertheless, there is pressure on revenue, given the fact that I think the yield has probably come down. So I think that's what is probably happening in quarter one.

When it comes to take for new customers, we have three segments of new customers. The first one is the customer who wants to buy a SIM who has never had a SIM before. The second segment we have is the guy who actually wants to shift the telco, who wants to shift M&O or going from one to another one. And then we have the third part is the rotational churners, right? So the two first we see that we will not see a change in these two segments. On the third segment, the rotational churners, we will see a significant change. because now there should be no reason to go out and buy a new SIM every month or every quarter, so they will just stick to the SIM. So we will have products, business data, encouraging people to keep the current SIM with new packages, et cetera, right? So there will be an impact for that particular segment when it comes to rotational churn. So yes, you're right. Going forward, we will see less acquisition coming in, but the acquisition we will get is much more healthier than what we're getting. So we will not see a big impact on the revenue in that sense.

My second question was regarding your subscribers in March and April. The SIM registration was supposed to be completed in the end of February. So March and April, was there a normalization of your take-ups?

So I just want to clarify that actually the deadline of the prepaid SIM card registration is not 1st of February. That's when it is introduced, but then the service blocking only happens in 1st of May. So what we see is that, I think this is the habit of Indonesians, they will wait until the last day to register. So from April to May, there has not been a significant movement in terms of the pre-registration. So most of the customers registered when we applied the service blocking, which happened in April, closing to 1st of May deadline. So the deadline was not 1st of February, but 1st of May. So since 1st of May, whoever has not registered, all the service will be blocked. But there's still a subscriber, so they can re-register and then their SIM card will become active again.

I see. But for the past one to two weeks, since the end of that deadline, was there any significant change in terms of subscription intake?

Yeah, obviously, after the SIM registration enforcement, right, I mean, you would expect your acquisition, there would be some impact on your acquisition, right, because there is a nuance people have got to register before they activate the SIM, right, so you would expect there would be an impact on the acquisition. Okay, great, thank you.

Thank you. The next question comes from Nafkupa Kumar Nomura. Please ask your question.

Hi, thanks. On your comment on SYN registrations, early impact since May, are you seeing more subscribers moving to reloads versus starter packs now? Or is it too early to say that? Second is your comments on the fixed broadband business. Can I understand what is your strategy here, whether you can share any medium-term, long-term KPIs in terms of subscribers or homes passed? or any capex implications from this. Thank you.

Thank you for the question, a very valid question, the first one regarding what is in the market. Yes, we have done products, we have done services where we motivate, where we encourage users to actually go from buying a start-up pack to buying reload or to buy something similar, right? So we encourage the consumer of Indonesia to keep the thin and top-up as you do in neighboring countries in Asia. So hopefully that will work. If we haven't seen the results so far, it's only 14 days old, but at least we can see a first indication that it actually works. So we will see a shift in the behavior from consumer from buying a SIM to do reload or similar services going forward.

On the second question on the fixed broadband, I think this is still too early to share with you our strategy on fixed broadband. We just did the soft launch. So currently we are in the stage of testing the market opportunity to see, you know, how we will shape our strategy on building this business. So very sorry, we cannot share with you at this point. Okay, thank you.

Thank you. Is there no more questions? Our hand is covered today, so...

Joanna, can we just have the last question, please, that's on the line?

Sure, of course. The last question is from . Please answer the question.

Thank you very much for the opportunity. Just two questions from my side. How do you see your CAPEX momentum beyond FY18? Is the 7 trillion CAPEX something that you believe you can actually sustain given your own forecasts of operating cash flow and EBITDA? And my second question is, if you look at, let's say, who your challengers are, I know PTTelcom is always going to be the incumbent outside Java. But when you're looking to build your network outside non-Java, who do you think is your most credible, let's say, challenger? Is it Indosat or are there operators who are strong in certain pockets that you need to contend with? Thank you.

Okay, first question on CAPEX. I think if you look at this year, right, once we complete the $7 trillion investment, we probably will hit 4G penetration coverage of around, population coverage of close to about 80%, right? So, and you would expect that we still probably need to spend some more CAPEX to probably cover the remaining balance, especially on 4G, especially on Java area, right? So... So the 7 trillion, the investment, capex investment, let's say in between one or two years, you still expect to be around this region. But post that, I think we'll probably need to see how that's going to take forward, right, given that new technology on 5G and all that that's going to come out. But I think the strategy on 5G would probably be, an approach on 5G would probably be completely different to what we have seen on 2G. So at least for the next one to two years, yes, I think we should continue this investment, especially outside Java. And I think if you look at our internal cash flow and if we are able to ramp up our growth outside Java, definitely something that we could definitely fund this investment internally.

Number two, regarding how do we actually build a network and how do we see our competitors? To be honest, this is a pretty complex spreadsheet that we have, and we spent a lot of work and a lot of main hours to find out where to build our network. And there's not one attribute or not one parameter that stands out in terms of competitors. We have multiple parameters, multiple attributes for how to build a network and where to build a network. And one of the parameters, of course, where do they see telecom cells and where do they see industry, where are the strongholds, where are the non-strongholds, et cetera, right? But there's no doubt about looking at the map, Telkomsel is very strong outside Java as well. Of course, we see potential business in the areas where only Telkomsel is. So there's no doubt about VR building network where we also see Telkomsel as well. But there's multiple parameters in our spreadsheet.

Got it. Thank you. Thank you and all the best.

Thank you.

Thank you, Daniel, for the questions. I'll hand the call back to Dave Schultz.

Okay, thank you everybody for your participation in today's call. And as always, do get back to us if you need further information. We'll see you next time.

Thank you. This concludes our call. You may now disconnect.