PT XLSMART Telecom Sejahtera Tbk

Good morning, ladies and gentlemen. Welcome to XL Axiata's earnings conference call for the first nine months of 2018. My name is Jeff, and I will be your coordinator today. During the presentation, all participants are in a listen-only mode. Instruction will be given on how to register your question 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 turn the conference over to our host, Mr. Inder. Please proceed.

Thank you. Good morning, 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, and Pak Alan, our Chief Commercial Officer. Now, Ibu Dian will share the highlights for the first nine months 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 morning, everyone. We are pleased to report that this quarter, we have seen a pickup in revenue growth, where our gross revenue managed to increase 6% Q&Q. And this is a direct result of our successful data monetization effort as part of our overall strategy. Thus, despite the challenges during the first half of 2018 with intense data price competition and structural changes of prepaid SIM registration, we see that market conditions are improving, and if this continues, we are confident that we can finish the year on a strong note. The positive performance this quarter is attributed mainly to consistent execution of our strategy throughout our transformation journey, and this has enabled us to gain traction in the market and particularly in winning data safety customers. Further, as we have executed on our plans to monetize data since mid-May, coupled with our strong product strategy and continued network investment program, we continue to outperform the industry in the first nine months of the year. This quarter, our gross revenue increased 6% queue on queue, and this was mainly due to continued growth in data revenue, which remains our main growth driver. Innovative data offering and improvement in data service quality have successfully pushed data revenue growth in the nine months of the year to 14% year-on-year. Data revenue contribution now makes up the majority of our service revenue at 80% in this current quarter. This percentage is far higher than our peers, which enables us to weather the negative effects of declining legacy services of voice and SMS far better than others. Positively, our EBITDA has also increased by 9% QoQ this quarter, while margins have also added 1% to 37%. Our continuous efforts in driving cost savings have started to show positive results, with total operating costs for 9 months of 2018 remaining flat despite the increase in the number of new network sites, as we expand our coverage at Java, and additional network elements installed to improve network quality during the year. This cost-sufficiency program will continue and will be a key catalyst to drive higher EBITDA and margins going forward. Data continues to be our main engine of growth. Indonesia's data-safety customers have continued to respond well to our improved networks. As of the first nine months of 2018, our smart phone subscribers spanned at 42 million, a 15% growth compared to the same period last year. This makes up approximately 78% of our subs base, which is significantly higher than the industry average. We continue to see a fast rate of migration to subs to 4G, where 4G customers now make up more than half of our total subs base. As more of our base moves to 4G, we are seeing lower utilization of 2G, which will enable us to free up even more spectrum for 4G. This puts us in a better position than our peers, and will enable us to continue to best position to raise the goals in data on our journey to become a data centric company. We are pleased to report that our customer numbers, post the prepaid SIM registration, implementation has continued to rise while ARTO remains stable. This is due to our focus in 2015 on sustainable customer acquisition, and thus we have added another one million customers taking our overall base of registered customers to 54 million this quarter. In establishing the Excel brand as a 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. Thus, our total BTS count is now over 116,000 BTS, with 3G totaling more than 50,000, and our 4G LTE service is now available in 387 cities and areas across Indonesia with more than 28,000 4G BTFs. To solidify ASEATA's position as the leader in data innovation, this year showed the first outdoor 5G and YG live trial in Kota Tua, Jakarta. 5G and YG have the potential to enable a variety of services, including enhanced mobile broadband, smart cities, smart home broadband, and digital transformation for vertical industries. We also continue to invest in transmission, backhaul, and network modernization to support the rising data traffic across our network and deliver stability, expand our network capacity, and improve quality of our data services for our customers. Our network investment continues not only within Java, but with a greater focus on XJava this year, following the strong performance last year, which has translated to better coverage and network performance in this area. This has also translated to a stronger revenue performance of the Java, which continues to grow at a better rate than Java. The dual-brand strategy has successfully led to XR as data, making strong enrolls in different segments through innovative offerings in each segment. During the quarter, we launched a higher-spec version of our popular Xtreme smartphone called the Xtreme Ultima. This offering has done well and is a key part of our strategy to continue to drive smartphone adoption across our base of customers. Access also continues to do well with the youth segment as we have expanded our product offering to appeal even more to the gamers and the music lovers. Our post-paid brand, XL Prioritas, also continues to do extremely well, attracting customers through attractive offerings and smartphone rebate programs. Our performance in the first nine months of 2018 was very promising, and we are seeing signs of improvement in the market with gradual price increases, both by us and our peers, which is positive for the industry. This is evident from our strong performance this quarter as we have undertaken monetization of data. With our positive results, strong fundamentals, coupled with our focus on transforming into a data-centric company, we are confident of delivering a strong finish to the year. Nevertheless, we will closely monitor how the market unfolds, which will have bearing on our overall performance. Taking all this into account, and recent developments in the market, our guidance for 2018 is maintained with revenue to grow above market, EBITDA margin guidance of high 30s, and CAPEX plan guidance for 2018 of around 7 trillion rupiah, which will remain focused on data network investment in 4G, and continuous network improvement and modernization in and outside Java. Thank you, and let us now proceed to the Q&A session.

Thank you. To ask a question, please press star 1. To cancel, please press the pound key or hash sign. Please kindly but strictly limit your question to only two and to allow other participants to raise their question. Should you need to ask more questions, you can go back to the queue by pressing star one again. We shall end the conference call sharp at 11 o'clock. Jakarta time. It's 2 p.m. Jakarta time. First question comes from the line of Piyush Chaudhary. Your line is now open.

Hi. Good morning, everyone, and thanks for the call. Congrats on the good set of numbers. Two questions. Firstly, on data tariffs, we saw further decline in data realization quarter and quarter for Excel. Do you think there is room for hike in data tariffs by Excel or you think current pricing is reasonable to generate required return on invested capital? And secondly, in X-Java, could you share your achievements versus objectives and what are your network coverage objectives in X-Java for 2019 and 20 and what it means for network rollout and CAPEX? Thanks.

Yes, thank you for the question. Let me take the first one regarding data pricing. If I look at the first nine months you are right, in the beginning of the year we were facing the challenge coming from Q4 last year and we saw a decline in the prices, basically both voice and data in Q1. Since then, and here I'm talking around April, May, we have basically been increasing the prices in the market. And at the same time, you also see there is room for more. But you have to remember that we are not, because it's very different here in Indonesia compared to other countries, we are not in charge of the end-user price. As we are selling a price to the dealers, to the distributor, and then they can basically do whatever they want. But you see a slight increase in price in the market regarding data, and we basically welcome that. And you are absolutely right that there is room for that going forward now that we see there are some changes. after the SIM registration process. So yes, we believe that we will still see some prices increase in data, but it will depend on if it's Java or X-Java. Some of the places we still need to be pretty aggressive, especially X-Java. And then to the network, X-Java?

Yeah, I think on your second question, I think we started investing in X-Java, I think I would say 18-24 months ago, right? The objective of expanding XJava is really to gain market share. I think the situation is very different when you look at Java and XJava. You look at Java, I think from a network perspective, I think you compare the three operators, I think we are quite similar in terms of network size. Probably the incumbent have probably slightly bigger network, but I think as of today, I think we are quite equal from a network perspective. However, from a market share perspective, I think we probably have one-third, one-third each. Probably now, Excel and the incumbent are probably slightly more, given what we have seen in the market with one of the other competitors. However, in XJava, you probably would also know that TACOM cells have actually a dominant position with 80% market share. And hence I think pricing outside Java is also extremely expensive. We saw that as an opportunity and I think we have aggressively rolled out outside Java and by the end of this year, I think you would probably see that our 4G coverage would be around 80% of population coverage. And that gives us ample ammunition to probably compete with the market leader. Since we've done the rollout, I think we have probably seen that XJava has been actually growing double digits. And I think the trend is actually continuing. We are seeing good traction coming from outside Java. We have also seen that the perception from our customers on network have also improved significantly with the improved network quality outside Java.

Sure, but in terms of, so firstly on XJava, you know, follow up over there. In terms of concrete kind of objectives, could you share like what's your network objective only in XJava? Because 80% pop coverage is probably for Pan Indonesia, right? And what does it mean in terms of Capex by 2020? And secondly, sorry to follow up on data pricing, but I just wanted to get a sense on we are still seeing the blended pricing decline, right, as against one of your competitors who have reported an improvement in data realization. So I wanted to gather your thoughts. Is there a kind of improvement? Is there a massive case where you can increase prices massively in Java or you would continue with your strategy, current strategy to gain market share? Thanks.

So let me take the first one just to elaborate on the pricing. I think the massive is a very strong word. I don't think we'll see massive price increases in the market for sure. But just to make it clear, we are so happy with the result right now because we are following the game plan. And the game plan is basically back to 2015, 2016, we're going to be a data-centric company. So looking at the first nine months, we're not only looking quarter by quarter, right? We are looking for the first nine months. We are very, very happy with the results, and we are following with steady growth quarter by quarter, right? But saying that, at the same time we welcome any price increase and you're right that we see some price hike in the markets in some specific areas. And we look at my spreadsheet for all the hero price in this market, we have seen increases. And yes, we still believe there will be some price increase in the market going forward, but I don't think we will call it massive price increases.

Piyush, on the X-Java, when I said 80% population coverage, 4G population coverage, that is purely referring to X-Java, right? So we have got quite a decent network coverage by the end of this year to be able to compete with market leader, right? So from a CAPEX perspective, I think you've probably seen that today we have reallocated some of our CAPEX for the investment outside Java. And you would probably expect that going into 2019, that allocation will probably be skewed a lot more to outside Java.

Sure. Thanks a lot.

Our next question comes from the line of Sachin Salgonkar. Your line is now open.

Hi. Thank you for the opportunity. My two questions are, first one is, you know, Pakatlan and, you know, given the initial comments where almost half of your customers are already on 4G and you guys are seeing a faster utilization. Is there a plan to shut down 3G completely and use that spectrum up for 4G? And, you know, sort of a related question is, you know, you talked about investments outside Java, but when we look at an absolute amount of CapEx going into 2019, should that be similar to that of 2018 or, you know, you see a bit of a decline out there given the fact that you already have 80% pop coverage? That's question one. Question two, again to go back on pricing, let me ask it the other way. What will it take you guys to raise tariffs further? Because when we generally talk to your competitors and you had a call a day back, they continue to indicate that they have increased the tariffs and the ball perhaps is in your court. wherein perhaps the premium or the difference between the tariffs is close to around 30-35%. And it all depends upon how Excel is looking at tariffs. Generally, they are happy to take it further, but it appears that indication is involved in your quote. So just wanted to understand, how do you look at tariff increase? And when could we see the utilization rates or data realizations actually improving for you guys?

Okay, I'll take the first question, Sachin. So I think you probably see that I would say today more than 75% of our total traffic are probably on 4G. Our traffic on 2G is very, very small, and hence I think there is a possibility of probably shifting some of the spectrum used for 2G now towards 4G. The debate whether we're going to shut down 2G or 3G is something that we are probably having at this point in time. Obviously, I think there are various views on which are the technology that we should be retaining and which we should be shutting down. So we have not come to a landing yet, but obviously, I think this is something that we are seriously looking at. And at some point in time, I think looking at maybe later this year or early next year, I think a formal decision would probably be made accordingly. On the investment, outside Java, I think yes, I think we'll probably achieve about 80% population coverage this year, by end of this year. Nevertheless, I think there's still quite a fair bit to go. So I think from an investment, total investment perspective, I think we are still doing our business plan. and which I think we'll probably announce in January when we announce our full year results, 2018. But I think from what we have probably seen, there are clear indications that I think it will probably skew a little bit more towards outside Java. What that number will be, I think, would probably depend on the total overall CAPEX that will probably be approved by our So the absolute I think will continue to come back but I think ratio-wise definitely skew will be towards outside Java.

Coming back to the prices again and sorry I have to repeat myself again that we have increased the prices for the last seven, eight months for sure and if you guys one day come to Indonesia I will gladly invite you to the market so you can actually see how the hero products work. Now, usually I do not comment on our competitors' results, but now you're mentioning it and we heard about the call, right? And we were also surprised. And we heard that, yes, circumcell is saying we are increasing the prices and we are waiting for ASA to do the same, which we have done. But we were surprised seeing that circumcell have a data traffic increase around 9%, and at the same time they have a revenue coming from data at 18%. even though the whole market has been increasing 80 to 90% data traffic. So saying that, we are not absolutely sure where that data traffic is coming from or the revenue is coming from, but it could be that the stock, it could be something about the stock market, the stock of the data, et cetera. So we are surprised, but again, we have increased the price. We are not behind, but we, again, welcome if some of the other guys are increasing the prices, and we will also take the lead in some of the areas here in Indonesia when it comes to price hike. Okay, thank you.

Next question comes from the line . Your line is now open.

Thanks very much for the opportunity. First question relates to the prepaid subscriber base. So I've noticed that your competitors lost prepaid subscribers during the quarter, whereas Excel has actually gained subscribers. So I just wanted to check whether this was due to a timing issue Would we see a delayed impact on Excel in the coming quarters, any lingering impact from the SIM registration, for instance? And would this conversely be related to the increase in discounts that you are offering during the quarter? So were you incentivizing dealers a lot more aggressively than your competitors? And then second question is with the change in management at Indosat, have you seen any increased willingness by the new management around collaboration slash any progress in talks about partnerships with them on the network side?

Yeah, I think on the prepaid subs, I cannot comment on what happened to our competitors. But what we can say that in terms of defining prepaid subscriber, for us, we have been super consistent on this one, how we define subscribers. And there is no change in the definition as far as we are concerned. So I think the increase in net ads this quarter clearly reflects what's happening in the market and definitely we have probably gained subscriber share and I think there is no change in terms of definition. On the competitors, I really cannot comment why there's a huge fluctuation in the numbers of their pre-paid subscribers.

Secondly, you talk about... So the question was regarding the Intosat new management team. First of all, we welcome these new guys. What we see from them is a very mature and very experienced guy coming in the management of Intosat. But again, this is very, very early. They have just started. We know they have been going around in the regions to see what's going on. So we basically do not know what's happening right now. We do not expect to see any irrational situation in the market at the moment. We hope that they will continue the journey that they have been on so far after we have the SIM registration. But again, we welcome the team and we are looking forward to see what they are doing in the market.

If I can just follow up, has there been any progress or any improvements in the In terms of the partnership, you talked about network sharing, which stalled for a while. Have you seen any progress or improvement in that situation with the new management team? I appreciate that they're fairly new, but have they made any contact or given any indication that they may bring that forward?

So far, we have not made any contact with the new management because they were recently appointed. But we are very welcome if they want to initiate another discussion with us on network sharing on any other form of cooperation.

All right, great. Thank you very much.

Next question comes from the line of Rajen Sharma. Your line is now open.

Hi, good morning. Thank you for the presentation. It's Ranjan Sharma from JP Morgan. A couple of questions from my side. Firstly, regarding your CapEx plan, so first see that you have managed your CapEx, the absolute CapEx amount from 2016 to this year, but effectively you have increased the contribution to XJava. I mean, you have been emphasizing XJava strategy, but what I'm concerned about is your Java network. because effectively you have cut your Java capex by a third while your data usage has doubled in the last couple of quarters. So are you not concerned that reducing capex at a time when data is exploding within Java is going to impair your network within Java and that can dis market share losses? I know the network is fine now. I'm looking forward, let's say three quarters or four quarters from now. That's the first question. Secondly, you talked a lot about your radio equipment and what you're investing. But there's also a need for fiber and submarine cables outside of Java. And that tends to be expensive but can lead to bottlenecks if you don't invest in that part of the network. So if you can share your thoughts on how you might mitigate some of the challenges as you see ex-Java data usage increasing. Thank you.

Yeah, so I think if we look at our investment this year, I think the ratio between Java and XJava are close to about 50-50, right? So to say that we are not investing in Java is also not true. No doubt that I think we have reduced slightly the investment within Java because of the fact I think from a population coverage within Java, we've probably arrived at close to about 90% or 91% or so, right? From a coverage perspective, I think we've all covered most of the Java area. I think the bulk of the investment that's going into Java this year is primarily in terms of upgrading capacity, as well as investment in the transport, including fiber. Next year, I think the capacity expansion will continue. As I said, the absolute amount is something that we will come back to the market when our plan has been approved in January. So, no doubt that there will be some skew towards X Java, but rest assured, I think network quality is something that is absolutely important to us and to our customers, and we will monitor that very closely. And I think as of today, as you said, there's no indication that the quality of our network have actually deteriorated in Java. And that's something that we will also ensure and monitor as we move into next year as well. Secondly, I think over the last 12 months or so, I think we have started investing heavily in terms of fiber. I think there is quite a number of collaborations as well that we are probably doing on the submarine side. Just to give you a feel, I think by next year, we are probably looking at fiberizing close to 10,000 of our sites. I think within the next three years, we are probably looking at more than 50% of our sites are probably fiberized. I think we are adopting a model where it's probably a lot more innovative in terms of how the fiberization project gets funded. I think we are adopting the same business model as how we are doing it with ours. It's more of a long-term leasing model. With that, I think it enables us to scale up in terms of fiberization quite quickly and quite extensively within these one or two years. Secondly, on submarines as well, you probably have seen some announcements as well. There have been quite a number of collaborations that we have probably done. I think in partnership or flopping that we've probably done with some of the other submarine owners. The one that is up and running that our collaboration that we probably have with ASE that connects our submarine from Sydney to to Jakarta to Singapore. I think with that route today, we are the only provider in Indonesia that has an alternative route going out of Indonesia and not depending on . I think we see that this new cable that we are having is probably getting huge demand in the market as well. On top of that, there are other plans that we're having, collaboration that we're having with other partners, which we cannot share with you at this point in time. But rest assured, submarine and fiber are part of a key planning in terms of coming out with a better network quality for us in the years to come.

Okay, thank you. Next question comes from the line of Colin McCallum. Your line is now open.

Hi there. Thanks for the opportunity. Just one question from me and one comment. The question is just on the, from what you were saying, Adeline, just on the fiber side. In terms of extending that out to actually addressing the fixed broadband residential or enterprise market, can you just explain what you're thinking in that regard if there's a business case worth looking at there and what the extent of your plans might be in terms of quantum of capex or targets for that sort of area if you do move into it. Secondly, I was going to ask about data pricing. I won't dwell on it. I think there's been enough questions on it, but I guess comment for Alan who sounds a bit exasperated by all the questions. I think the issue is that it's always difficult when what's being said in the call isn't just not matched by the numbers, right? So we've had one competitor said they've raised prices and the numbers show that they have and the revenue has gone up. And you guys are saying you've raised, but your numbers are suggesting that you haven't. That's why there's so much difficulty on this, but I won't dwell on it. If I could get an answer to the fixed broadband, that would be fine. Thank you.

Yeah, Colin, on the fixed broadband, I think it's something that we are closely looking into it. As we said in earlier calls, we are currently doing a pilot, and I think we are addressing not only Tier 1 cities, but also doing pilot in Tier 2 and Tier 3 cities, just purely to understand the behavior of a consumer and the opportunities that we see in these cities, right? At this point in time, I think as we are doing our business plan, We have not come to a conclusion yet on this. But I think, rest assured, I think early next year when we announce our capex numbers and all that, this is something that we probably will come back to the market. The plan on fiber, I think, as you know, that I think as your traffic grows with the 5G coming into stream and all that, fiber is actually a key component of the overall network for a better quality network. Hence, I think we are taking a longer-term view in terms of building the fiber upfront, because I think we have probably looked at the business case whether to serve to microwave or to go direct to fiber. From a business case perspective, from me to longer-term, it makes absolutely sense to go direct into fiber. And I think with the new business model that we are adopting, similar to what we are doing with ours, I think that will also allow us to be a little bit more aggressive as it is probably a longer term leasing arrangement as what we have done with ours. So yes, I think we have looked at the business case with the increasing frequency that we are seeing as well being judged by the regulators. it makes absolutely sense to go direct to fiber rather than continue to invest in microwave. Got it. Thank you.

Next question comes from the line of Arthur Pineda. Your line is now open.

Hi. Thanks for the opportunity. I'm just sorry to belabor the point on pricing. but can we just get some clarity with regard to pricing strategy outside of Java? What kind of discount do you normally apply when you enter these new markets and how sustainable are these discounts? Presumably, the economics are far worse outside of Java. Second question I had is again on the pricing side, I just can't reconcile your pricing trends. Your RPMB is down 7% quarter-and-quarter even though you've mentioned that you've raised prices. You've also mentioned that it's partly because of the distributor issue, and you cannot control the pricing done on the distributor level. Why aren't you able to control data yield on the distributor level? Is that not dictated by the telco? Thank you.

So let me take the first one. So the pricing strategy outside Java, which We cannot reveal exactly what kind of discount we are taking, where we are doing it, etc. But there's no doubt about since many of the places outside Java is a single player market, meaning that we only have telecoms from there. And now that we are building science, we are building networks, we of course need customers to justify that investment. So to get these customers, we need to be pretty aggressive on the pricing, on the products, etc. In these areas, yes, we are pretty aggressive. To start with, we have a go-to-market plan where we acquire customers based on a very good price, based on a very attractive product. So, yes, we are aggressive outside and out.

Yeah, I think, Arthur, let me try to point on pricing again, right? So, I think if you look at first is on the pricing to the dealers, right, to the consumer, right? If you look at what we can control is the pricing from dealers selling to the retail outlets. That we actually dictate in terms of pricing that dealers sell to retail outlets. However, you know, in Indonesia, I think typically when retailers sell the data packet to the consumer, there's always a markup. And I think what Alan was referring to in his initial comment, that pricing, that markup is something that we are not able to control. And I think this retail outlet, we are probably talking more of the mom and pop shops, the traditional channel itself. If you talk about the modern channels, you talk about the Alphamart of the year, the Alphamart, the Indomaret or any franchise, for example, or even, let's say, selling at a bank, the modern channel itself is something pricing we dictate and we control. So in this sense, I think the part that the operators are still not able to control the end pricing to the consumer is mainly from the traditional channel. But on the modern channel, yes, we have absolutely full control of that. So obviously, I think as we expand more and more towards modern, and we shift more and more towards modern, we probably have a better control over the pricing going to the consumer. So if you look from a yield perspective, yes, I think you probably have seen that quarter on quarter, yield has declined slightly. Yield has declined slightly. I think, as I think we have actually mentioned this before, right, yield in itself is not a clear indication of pricing in the market. I think you probably need to see where your starting position is today as well, right? So for us, I think, obviously, I think from the overall yield, we are probably going to be lower than the industry, given that where we are in 4G. And you know that pricing for 4G, given the throughput, big throughput and all that, I think, have a much lower yield, but at the same time as well, cost of 4G is also much lower than let's say 2G or even 3G, right? So given the fact that our smartphone penetration is rated at around 80%, that probably has resulted in probably yield to be much lower than the overall industry. Secondly as well, I think what we have probably seen as well, and it's also part of our strategy, we are also pushing our customers to subscribe to a bigger data packet. And you know from a yield perspective, as people move from a sachet to a big data quota, the yield is also much lower. And it's part of our strategy. We want to push customers up towards a big data package as well. That has also partly contributed to that. And thirdly as well, I think you probably have seen, especially lately, I think post-prepaid registration, we have actually seen that the migration going from 3G to 4G has been quite substantial. And it goes back to the argument that the yield on 4G is going to be much lower than 3G as well. And I think that primarily applied to access, which I think in the past used to be more of a 3G-driven customer. But today, since we started promoting 4G on access, I think we've seen a significant pickup on 4G traffic, especially on access. While I think definitely we have actually raised prices in the market, especially in the Java area, but because of the other factors that I've mentioned, that's probably putting some pressure on the yield, and that's what you're probably seeing in the numbers. Understood. Thank you very much.

Next question comes from the line of Prem Chirajasingam. Your line is now open.

Hi, thank you for the opportunity. Sorry, we're going to go back to data pricing. Could I clarify this, right? So are you saying that the yields are down because you are able to get people to buy bigger and bigger buckets and those people are potentially consuming more of that bucket, therefore pushing down the yield even further? And to top it all off, because of your go-to-market strategy in the X Java areas, then that potentially, although the price points X Java are potentially higher than Java, but because of your go-to-market strategy, potentially that's diluting that number more than it should in the early days. And as you take away those promotional numbers, then we get some form of a yield support in there. Would that be... a right read of what you've been saying. And I suppose the second question is how afraid are you that given the situation in the market where, you know, your competitor says you've not raised prices enough, et cetera, et cetera, that we go back to a situation that we saw probably 10 years ago when they suddenly decide, you know, if you want to bleed, let's see how much you can bleed. and they decide to cut prices by, say, 50%, 60% next year, and they become the only party that makes money in the market. How significant a risk is that?

So let me take the first one. And thank you for the summary. I think you were spot on. Thanks a lot. I don't want to have more comments on that one. Maybe I don't also want to answer the second one. We have not discussed that risk yet. But of course, that's a risk. If they basically want to kill us, they can kill us. But again, we are in the same boat and we want to increase. If we see in the market the price increase is happening, we will take out of that. And as you said before, when it has cooled down, ex-Java, we again will be able to increase the prices when we have got our fair share of the market where we are investing in the network.

So Prem, I think the risk will always be there, right? I mean, we have probably seen earlier this year as well, right? I mean, late last year. But our strategy is, from our perspective, is spring. Java outside Java. And I think, rest assured, data modernization, I think, is something that we will continue to push in Java. I think that's where you've probably seen the battle that has been over the last so many quarters that have driven data pricing down. And that's essentially in Java. And I think when we are talking about all these price increases and all that, that is all coming in Java, primarily in Java. So I think generally as an industry as well, I think we have also seen the industry is also pushing price up, especially in Java. It's a different story altogether outside Java. You see a very skewed scenario where the incumbent have more than 80% market share. Is that a situation that's probably sustainable in the longer term? Probably not. I think you have hardly seen any sort of this scenario taking place in any other markets around the world. So at some point in time, that 80% will probably need to come down. And essentially, the only reason why that has been for a long time is because there has been a monopoly situation. But now, given that there is an alternative network, that's present in outside Java, I think consumer will also have the choice to choose within the more expensive and incumbent or the alternative provider. So from our perspective, I think we are present outside Java to gain market share and I think our pricing strategy will probably reflect that. So in any case, I think we are also absolutely clear that from a price perspective, outside Java pricing are still higher than within Java, right? So to say that we are going to kill the market by reducing price is also not the intent at all, right? So for us, it's more of a portfolio, and I think Java, outside Java, have got its own separate objective.

Perfect. Just one follow-up. Do you think the changes at Indosat could mean a more aggressive Indosat even in the near term? Or do you think that network differential is sufficient to provide you guys with market share gains without needing to play the price game?

So first of all, we are not in a situation where we can comment on what we expect our competitors to do. The only thing we can comment on was that there was an article saying that they have got X amount of millions of dollars with the expense. So meaning that, yes, it could happen that due to the more network from Interstellar as well, we will see increasing competition. So that's the only thing we can comment on.

All right. Thank you very much and good luck.

Next question comes from the line of Chong Chen Fung. Your line is now open.

Hi, thanks for the call. Two questions from me. Firstly, on the guidance for EBITDA margin of high 30s which you've maintained, I'm just wondering whether you think that that could be a bit difficult to achieve because your margins must go north of 40% for you to get to high 30s for the full year. And if you do think that would be the case, which cost lines do you expect to ease off further into the fourth quarter? Or would most of that margin extension come more from revenue improvements? And then on to the second question regarding your network managed services contract with Huawei that's coming to an end of that seven year period this year. I just want to understand what will happen next and should we expect possibly higher or lower costs going forward on that portion of your cost item? Thank you.

Thank you, Phuong. So I think if you look at the Narrow Guidance, we have maintained the high 30s and I think I mean, our cost exercise that we have actually done, we know that there are certain cost items that would probably be realized sometime in quarter four, right? So we are quite optimistic in terms of achieving these numbers. I think where is it going to come? It's a combination, right? I mean, definitely we are looking at from the revenue line moving into Q4, I think if If the trajectory, the momentum of what we think in the market, we expect Q4 would continue to be a good quarter as well. So the margin guidance stays as is, and I think we are expecting this to be achieved from increase in revenue as well as some realization on the cost optimization that we've been working on so far. On DMS, it's not expiring this year. It will expire next year. So, obviously, I think we are in a tender situation. So, I think we will... In fact, by the end of this year, we're probably not going to be there. But I think it's something that we are re-tendering and I think we need to look at... how best to make sure that we get an effective overall pricing from the new tender that we are probably doing. So it's still too early to comment on that at this point in time.

Okay, I'd like just to follow up on the margin side. If we look at the next few years, do you think that Excel can keep the overall or absolute cost rather flattish I think you've done a really good job last few years keeping it flat, but next three years, do you think that's possible, or do we see quite a fair bit of upward pressure?

I think, Fung, the answer, obviously, I think there has been a challenge from our BOC as well, our stakeholders, to probably keep OPEX flat. And we know that we have quite a rigorous cost program that we are running within Excel, to look at every cross-line item to see how we make structural changes to make sure that it's sustainable in the longer term. So I think at this point in time, what I can say is yes, I think it's something that we are probably looking at. Whether we are able to do that or not is something that we probably need to see. but rest assured what we can say that even if there is a pressure on cost and cost increasing but as a percentage of revenue cost as a percentage of revenue we expect that to improve in as we move forward and into subsequent years yeah but whether we are able to keep opex slash is something that we probably, it's still a challenge, it's something that we are looking at, but I cannot tell you at this point in time whether that's really possible or not. But as a percentage of revenue, it's something that we are probably more confident of.

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

Next question comes from the line of Krishna Sotabayat. Your line is now open.

Hi, Budian and Padlan. Thanks for the opportunity. Three questions for me. My first question related to the previous question on trade channels. Can I get a latest check on your latest distribution channel mix, you know, the split between general trade and modern trade? I recall it used to be 60% GT and 40% MT, but I suppose your GT portion may have increased now as you expand your trade channels in XJava 2. Perhaps on your comparison on your retail touch points in XJava, is it going in line with your network coverage there as well? My second question is on the fast-rising bundling cost. I know this is in line with your fast-growing bundling revenues too. We saw 200 billion rupiah of bundling cost in the quarter alone. Should we expect this quarterly bundling cost to go high in the coming quarters? And can we get some idea on the traction of this bundling program, especially in terms of subscriber addition? I understand if you don't have the bundling subscription data now, I'm happy to take the figure offline too. And my last question is on the internal upselling trends. Now that the industry is somewhat stabilizing, do you have an estimate of how much revenue growth potential that Excel can get internally by upselling your internal customers, say from moving your customers from Excel subscription to Excel subscription? Do you have any data or evidence that you could share just that internal upselling is happening at Excel? That's all. Thank you.

It's a little bit difficult to hear your question number one, but as I understand it, it was about the channel outside Java. Is that correct? Our strategy regarding the channel outside Java. Is that correct?

That's right. Any year on year comparison, I mean, how fast are you growing your tree channels in XJava?

Yes. So what we have, we have a project we call the go-to-market project, meaning that every time we put a site somewhere outside Java, we have a very clear KPIs for our go-to-market team. how many sales people do we need to have, how many mom and pop shops, how many modern trades, etc. I cannot reveal how many it is because that's very confidential, but at least we are following that plan, and for us it's one of the most important KPIs that we have the distribution and the channel outside Java. I'm not saying it's easy, but it's very promising so far, the way we are actually delivering on our KPI for the channel, and we actually follow what we have done here in Java. So it's working like that.

Yeah, on the bundling cost, yes, I think we have been pushing 4G smartphones device bundling quite aggressively, starting from Q2 onwards, post prepaid registration, right? And you probably see this quarter that I think we are probably doing around $200 billion of bundling device. What we can say that we are seeing very good traction. We are probably doing close to $2,000 to $3,000 a day of registration. And I think we would expect that that trend will continue. So I think this quarter, the bundling cost is around $200. You should expect that I think moving into subsequent quarters, it will be around that number or probably slightly more. And I think this is a key part of our overall strategy as well as we move to become a more data-centric company and pushing our subscriber up towards 4G. Third question on internal upselling. I think we are doing this quite granular at this moment with our CLM process and all that where today we are selling to all our existing customers where we actually have a platform today that will enable us to communicate with our customers regardless of the various channels that we have. Whether it's SMS, whether it's an app, whether it's through web and all that. So a single channel of communication to the customer that plans to actually upsell all our services. And this is going to be a key part of our strategy as we move towards more detail in terms of data analytics. So far the engagement has been quite good. And I think as you probably would expect as well, at this point in time, we are able to give personalized offer to each and every one of our customers, depending on their behavior and usage pattern.

All right. Is there any tangible data or evidence on if you're seeing any upgrade from gap selling initiatives so far?

I think we definitely see an uplift, but I think that info is probably not something that we probably want to share to the public. Sure, that's fine. Thanks. Very helpful. Thank you so much.

Next question comes from the line of Gopal Kumar. Your line is now open.

Hi, thanks for the opportunity. A few questions. Firstly, there has been a fair bit of discussion on this price increase. So my question is on profitability. You continue to report losses because of your higher DNA, capex related DNA and debt related charges. When do you think Excel should see a bit more sustainable profitability? Is it still a few quarters away or do you have a firmer confidence of this happening a lot sooner? It's perhaps linked to the revenue growth as well, so that's my question on profitability. Second is on the XJava business. What's your market share now versus any target that you can share in this market? How many more quarters of this pricing strategy do you think you would have to continue to reach your target? Our related question is on the interconnect cost side, which seems to have gone up quite sharply sequentially. Would you expect this cost trend to continue on the interconnect cost? Last question is on the payable side. I see that the third-party payables and the balance sheet have gone up. It's now around $8.3 trillion. Can you talk a bit on what's driving this and outlook here? Thank you.

Yeah, so I think on profitability, I think, yes, I think we see quite a fair bit of pressure on the profits this quarter, especially given the fact that I think we are building a lot of new sites. And I think post-Lebaran, I think we've seen that quite a number of new sites have actually come up. And I think you probably see some good impact of the lease rental coming up in Q3 per se. So I think there's a few drivers that we are probably looking at in terms of driving. No doubt as we continue to invest, I think G&A will increase. But one point that I probably want to see that a lot of these sites are probably just being put up and I think what we are probably monitoring is to make sure that we go inside that actually been built as quickly as possible. I mean we are monitoring side by side, we are looking at revenue per tower, we are looking at profitability per tower and I think this tracking is done on a very granular basis. And for each and every one of our salespeople, they are probably aware of the target that has been set in terms of loading up the revenue per tower per se in each of these new clusters. So growing revenue is absolutely key in terms of driving up profitability. Having said that, I think not just from a revenue line, we are also looking at each and every one of our core items. And I think you probably have seen that as much as possible, we are trying to keep our OPEX plan, which we have been quite successful in doing that this year. I think that exercise is probably going to continue next year. So I think we are probably not far from achieving profitability, I think, on a quarter basis. I think we will probably see as well that I think we are able to continue to grow revenue I think in quarter four and looking at some realization of the cost element, we should be able to end in quarter four in a profit situation. Having said that, I think one of the other key unknown factors is probably on Forex. I think the impact on Forex, I think the debt all heads up to maturity. However, I think one of the bigger impacts is probably coming from CAPEX. As much as possible, I think we are trying to push CAPEX, our CAPEX from foreign more to IDR, and we are doing a lot of work on that to see how we can do that. So, to answer your question, going to profitability, revenue risky, looking at all cost elements, I think it's something that we are already doing now. And I think we are probably not far in terms of achieving that number, profit numbers in subsequent quarters, right?

Ex-Java... Market share in Ex-Java, right? Not to share because we don't have the exact figures, but we know that almost 80% is coming from our incumbent, meaning that we can say we mainly have a fair share of the remaining 20%. But it's more important, as you asked, how long time will this continue. And we right now see at least for the next four quarters, we will continue this with the investment, with the go-to-market, with hiring people in these markets, and with hiring new retailers and new outlets. That will at least continue for the next four quarters. And the last question was?

Yeah, on payables, I think, yes, you've probably seen payables have gone up this quarter. You've seen that probably paid capex is also down this year. I think this is primarily attributed to some vendor financing that we have secured with some of our key vendors.

Thanks. Just two follow-up questions. How much of a capex is in local currency versus forex? And when are you expecting to lower these payables? You talked a bit on the Huawei side earlier.

I think these payables, whatever the case may be, the payables, first it's interest-free. It's more of a longer cycle of supplies credit. As and when we have actually renegotiated for a longer credit period. I think as we go along, for example, on all these new purchases with some of our major vendors, we will probably have a longer credit period. So my question was how much of the capital is in local currency? Oh, local currency. At this point in time, I think we have USD capex is approximately about 45%. I think on the overall capex is in USD. I think there is a plan to try and renegotiate this down. How successful is it going to be is something that we need to see, but I think Let's see sometime next year whether we are able to drive this USD purchase down. Thirdly, you asked about interconnection as well. That's interesting. When we see in Q3, you will see a sharp reversal of the interconnection. I think in Q2 also, we were slightly in position. we have moved to a net out position. I think this is when we actually analyze the numbers, it's probably coming from the market leader, right? What we have seen is they have increased price, significant increase in price for voice that have probably, especially off net, that probably drives this behavior from a consumer perspective, right? So I think two things will happen, right? I mean, we have seen this happening as well in the past, and I think we have gone through that cycle as well, right? So first, you probably see a change in consumer behavior. But what you could expect as well, that given that the price increase is quite steep, quite substantial, you probably would see some of these customers would probably be churning out as well, right? So anyway, we are monitoring this situation. We are also seeing some impact on the interconnect, but definitely some positive impact in the market.

Okay, thank you and all the rest.

And now, I'll hand back the call to your host.

Thank you, Jeff. Thank you, everyone, for your participation in today's call. As always, do get back to us if you need further information. We'll see you again next year. Thank you.

And that concludes today's conference call. All lines, you may now disconnect.