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.