PT XLSMART Telecom Sejahtera Tbk

Good morning, ladies and gentlemen. Welcome to Excel Axiata's earnings conference call for the first nine months of the 2019 financial year. My name is Rishi, and I'll 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. And as a reminder, This conference is being recorded for replay purposes. Now we would like to turn the conference over to our host, Mr. Indar. Please proceed.

Thank you, Rishi. Good afternoon, everyone, and welcome to the call. On behalf of the Extra 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, Pa Adlan, our Chief Financial Officer, and Pa Allen, our Chief Commercial Officer. Now, Ibu Dian will share the highlights for the first nine months of 2019, which will then be followed by the Q&A session. I will now hand the call over to Ibu Dian.

Thank you, Indar, and good afternoon, everyone. We are pleased with our continued strong performance this year, despite the challenges in the market since July with increased competition. This is now the fifth consecutive quarter we have recorded a sequential increase in service revenue, and we are seeing strong growth across all financial metrics as well as consistent profitability. The continued positive performance despite increased competition is a direct result of the consistent execution and implementation of our strategy, which aims to position us as the mobile data provider of choice in Indonesia. Our strategy continues to be focused on our attractive dual-brand data-led product proposition, enhanced with analytics-driven customer value management initiatives, continued network investment in building out our 4G network, and focus on growing our X-Java market share. In the first nine months of 2019, our revenue increased 11% year-on-year, mainly due to service revenue which rose 60% year-on-year and driving this is data revenue which increased 30% year-on-year. Data growth continues to be driven by increased customer usage of data through our product and analytics driven strategy. As a result, data revenue in third quarter now accounts for 90% of service revenue and continues to be higher than our peers. enabling us to weather the effects of declining legacy services better. Profitability growth has also been strong, with EBITDA rising faster than revenue at 19% year-on-year due to our focus on cost efficiencies, with margins increasing 3% year-on-year to 39% in the first nine months of 2019. This strong growth in EBITDA is driving our return to profit this year, with 9 months normalized net profit at 505 billion rupiah. Indonesia's data safety customers have continued to respond well to our improved network, as we are increasingly being recognized as the brand of choice for SaaS smartphone users. As the third quarter of 2019, our smartphone subscribers stand at 47.7 million, a 14% growth compared to same period last year. This makes up 86% of our subscriber base, which is significantly higher than the industry average, and we also continue to see a fast rate of migration of subs to 4G, where 4G customers make up 70% of our total subscriber base. Our customer numbers declined this quarter to 55.5 million, compared to the previous quarter, although on a year-on-year basis it is still up. This is mainly due to more intense competition in the market, which is not affecting our longer-tenured customers. However, there is an impact to the shorter-tenured part of the base. Given that our revenue as well as our R2 increased QoQ, it is clear that the subs we lost are in the lower-value segment. Our customer value management initiatives are the key part of our efforts in driving higher ARPU and our success in upselling our customers. These are based on analytics through our omni-channel platform. We are doing pilots on cross-selling non-Telco products and offers through our customer interaction. In addition to that, we are also doing real-time contextual interception of customer transactions to upsell our products. We intend to do more in this space with tailored and dynamic pricing, as well as expansion of our customer retention and upsell activities. In parallel, we continue to ensure high-quality data experience to our customers through the ongoing rollout and upgrade of our network. Thus, our total BTS count is now above 129 BTS with our 4G LTE service covering 410 cities across Indonesia. We also continue to invest in fiberizing our network as this will help in handling the increase in data traffic we are seeing. At the same time, we continue to increase the number of our tower sites that are fiberized. Our network investment continues not only within Java but with a focus also on X-Java, which has translated to better coverage and network performance in these areas, and we are increasingly known as a nationwide brand. This has also translated to a stronger revenue performance outside Java, which continues to grow at an exponentially faster rate than Java, and increased overall contribution to revenue. We intend to continue to execute on our strategy to finish the year on a strong note, in line with our objective to become the preferred mobile internet operator in Indonesia. However, we continue to monitor competition in the market and hope it doesn't further intensify. Thus, given our strong performance in the first nine months of 2019, our revenue guidance is raised where we expect revenue to now grow at better than market. Our EBITDA margin guidance is also raised, where we expect EBITDA for 2019 at closer to 40%. We maintain our capex spend guidance at around 7.5 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, Ibu Rian. To ask questions, please press star 1. To cancel, please press the pound or hash key. Please strictly limit your questions to only two and 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 2.30 Jakarta time. Again, please strictly limit your questions to only two and allow other participants to raise their questions. And the first question we have is from the line of Hughes Chaudhry. Your line is now open.

Yeah, hi. Thanks for the call and congratulations for a great set of numbers. Two questions.

Firstly, if you could elaborate a little bit more on the competitive environment and what's the outlook for ARPU improvement going forward?

Secondly, any plans to monetize towers? And if yes, what are the timelines on which we are working? Thank you.

Yes, thank you, Piyush, for the question. Let me first elaborate a little bit regarding the competition scenario in Q3. So what we have seen is that smartphones continue with unlimited capacity. in the market and they gained some acquisition in the market meaning that they took a fair share of the acquisition overall. We also saw that starting in Q2 that Indosat started following Smartfit with the unlimited offering and so far we know that more than half of the acquisition for Indosat was also coming on the unlimited plan. Surprisingly we also saw in Q3 that one of the telecoms introduced Satchel's product, meaning it's low-validity product to a low price, so they also gained some momentum in acquisition. And that's the reason, as Georgian said in the introduction, that we lost some customers on the low-value customer due to this intense competition when it comes to the pricing. Very difficult to predict what's happening right now, but what we have seen in the market that Intercept removed their unlimited product in the market in Q3, sorry, in Q4 here, and we know that there are still some stocks that are limited in the market, so they'll still be gaining some negotiation on the limited. But otherwise, we see some, maybe some cool down at the moment, especially from Indosat when it comes to the pricing. But very, very difficult at the moment to predict what's happening in the market.

Yeah, Piyush, on your second question on Towers, I think we've said this before as well, right? We've got close to around 4,000 plus towers remaining. As we move into a more distributed architecture, a lot of these towers from a strategic becomes non-strategic, and hence that makes it possible to be considered for sale. Is there a plan? I think yes, but at this point in time, I think when we are ready, we'll probably come back and make the necessary announcement to the market.

Sure. Thanks a lot. I'll come back in the queue. Thank you.

Thank you. We have the next question from the line of friend John Sharma from JPMorgan. You may now ask your question.

Hi. Good afternoon and thank you for the call. Two questions from my side. Firstly, you've attributed the increased competitive environment to smartphone and Indosat. But if I look at the price plan, especially for the limited plans, A smartphone is offering unlimited plan at 70,000 rupees, which seems to be at a premium to your ARPUs, so it doesn't seem to be that competitive. Is there something else that you're seeing locally which is leading to disruption in the market? Windows side plans also seem to be at the higher end at 60,000 rupees with the free YouTube in the unlimited plan. The second question is on the loss in customers. Are you seeing this in Java or are you seeing this outside of Java as well? Thank you.

Thank you for the question. This could be a long answer. I'm trying to make it short because you're actually spot on when you're in your question and ask about is this localized. And I would say it's very, very localized in Tunisia at the moment. It's actually into each city, into each small cluster, you will see different prices and different products. So what you see at the web page or the home page at the moment doesn't match what you actually see in each of the clusters. And you're also right saying that it's high priced. It's 65,000 for the unlimited product in the market. And we see that it has affected on the acquisition on the urban white colors, which we look into that segment. So it is at a higher scale. But Smartfront actually have a full range of products coming from the very low, very low searches, very low validity going up to unlimited. So it's not only unlimited that takes the acquisition. But again, it depends on which city, which cluster you're going to and you have different prices. So we are monitoring each of the clusters at the moment and of course we're doing what is needed to be competitive in these markets.

Okay, on the second question, I think the loss of customers, I think if you see that we are still growing in areas outside Java, right? And you know that the intense competition is primarily coming from the areas in Java. we could say that mainly coming from a lot of customers mainly coming from Java.

Okay, thank you.

Thank you. We have the next question from the line of Arthur Pineda from CD Group. You may now ask your question.

Hi, thanks for the opportunity.

Two questions first. Firstly, on the non-Java versus Java growth, are you able to provide color on

on how those two regions are trending, what's the percentage coming from Xjava. Second question I had is with regard to your other telco revenues. It seems to be declining. I recall this is linked to the towers. What's driving that down? Thank you.

Okay, Arthur, we will not be answering, but I think suffice to say that where we are today, both Java and XJava are actually growing. However, XJava is growing, I would say, a double digit, very healthy from the trending that we are probably seeing. And today, XJava actually makes up more than 20% of the total revenue today. So definitely, XJava share is actually growing quite significantly and ahead of target. and we really hope that this trend can continue as we continue to invest more outside Java. Your second question on other revenues, I think primarily due to the decline in the tower revenue, I think you probably would know as well, the industry landscape has also changed. The average tower revenue today has come down quite significantly. from an average of 25 million down to probably about 10 to 13 million. And we also face similar situations. There have been renewal of tower leases as well over this year and hence I think that has probably contributed to the decline in the other telecommunication services. Mainly from the decline in the that we are probably seeing, and that's in line with the market. Understood. I'll come back later for questions. Thank you.

Thank you. And the next question we have is from the line of Sachin Mittal from DBS. You may now ask your question.

Yes, thank you. A few questions. Last year, I think we talked about you had about 15% market share outside Java, and you want to double it. over the next few years. So the question is, are you close to what you wanted to achieve outside Java? And number two is if you could disclose anything about in terms of revenue contribution is XJava coming close to 30-40% of your revenues or what percentage is coming from XJava versus Java? And lastly, After a long time, we saw your revenue per MD actually trend up 2% quarter to quarter. And at the same time, we saw some subscriber loss. So has it got to do anything with that you kind of repriced your offering and hence became less competitive in Java? And this is something you can correct in the near term. Could you comment on that? Thank you. Okay, so I guess on your first question, right, at Java, yes, I think we have said in the past that there is aspiration to double up our revenue share outside of Java, right? So, and I think if we look at the trending today, we have definitely seen that we've taken market share outside of Java. Whether we've really achieved our objective of doubling up, probably not. But I think that's probably our goal in the mid to long term. But at least we are probably on the right track to probably achieve that target. So that's one. Your second question is with regards to the revenue outside Java. I think I probably mentioned earlier that today I think revenue outside Java is probably contributing more than 20% of the total revenue. To be exact, we are probably closer to 23% and it has been growing. For example, if we are able to keep up with the pace that we are doing today, you would expect that the distribution between XJava and Java would probably get closer, but I think it's probably still going to be majority is still going to be coming from Java. So I think it's something that we'll continue to track as we go along.

And the third question... So in regards to the third question regarding the customer laws and the packets that customers are buying, I think we have many, many nights talking about technical moves, what to do and not to do in this market in Q3. And our final decision was not to follow at the moment on unlimited packets and not to go down to both that level below the unlimited and introduce unlimited as well. We would wait to see what happens. And it seems like it paid off as one of our competitors are now removing unlimited, but still, of course, very aggressive. So you're right. We lost some rotational churner, as we call them, in the lower end of the market, which didn't affect our revenue and didn't affect our RPU in that sense. Right now, again, we are still sitting looking into what tactical move we should do depending on the competition heating up or slowing down at the moment. Got it. Thank you.

Thank you. And we have the next question from the line of Chung Chen Fung from CIMB. Your line is now open.

Hi. Thanks for the call. Two questions from me. Firstly, again, back on competition, in terms of the subscriber loss, did that come... at the beginning of the quarter, or did that largely come towards the end of the quarter? I'm just trying to figure out whether we're progressively seeing a greater impact from competition. And as you mentioned, most of the sub-loss are in the lower value segment. Have we started to see any sort of impact on the slightly medium to higher ARPU segment thus far into the fourth quarter? And if it continues to be just a lower value segment, can we sort of presume that Excel will continue to keep to the current pricing strategy? That's the first question. Second question regarding the network you mentioned, I think, earlier about the target to reach about 90% 4G coverage in X Java by the end of the year. Where are we in terms of the progress there? And I've noticed that the base station additions in the third quarter was actually at its lowest in the last three years. Anything to read into this? Those are my two questions. Thank you.

Yes, I think in your first question you added three questions within the first question. So let me try it. So the first one was that actually all through the quarter and to be honest, yes it was. It started mainly because Indusat and Smartfront had the unlimited and the lower price in the beginning of the quarter and continued to the full quarter. So talking about this rotational journal that went out of our network, yes it was through the whole quarter, right? Secondly, you're asking, will we do any aggressive moves to compete in that space? So far, we are keeping our strategy. We are not changing our strategy regarding our two brands, which is the Access brand and the Excel brand. And we start to distinguish between these two brands in terms of pricing and in terms of value proposition. So right now, we are not changing. But at the same time, we have a daily monitoring of what happens in each of the clusters, each of the cities, to see if these guys are moving in an irrational way or they are not doing it. So far we are still on a tactical move where we are monitoring these guys. So I cannot here reveal if we are changing the prices ups or downs at the moment but we are following our strategy and we are not doing any irrational thing in the market at the moment.

Your second question Erfung, I think if you look at where we are in terms of 4G coverage Yes, I think we are probably on track to hitting the 90% population coverage as we talked about in past calls. If you look at the way that we do our network rollout, of course, every time when we do rollout, we probably want to chase for the peak period to get all the network up and running before the bar run. That's typically what we have done. I think if you look at the incremental that you probably see in the first half, in terms of 4G base station has been quite significant. I think in the second half would probably be a bit slowing down a little bit because the plan is to deliver all before the bar run. And I think in the second half, I think we'll probably be thinking about next year's plan already, which we already started. And hopefully, I think in terms of issuing out POs would probably happen in this quarter, right? And hence, to probably chase the rollout for 2020 plan to be ready before Le Baran. So is there any change in plan? No. It's exactly what has been planned for and the aggressive number that you've probably seen in Q1, in first half, was actually to chase Le Baran and hence slowing down a little bit in Q3.

I think I forgot to answer one of your sub-questions within question number one, where you asked about do we see any changes on the high-value subs in our network. And here, I'm going to say we haven't seen that so far, which is mainly due to we are still competitive on the pricing, and it's due to the SIM registration process. So it's still a little bit difficult, a little bit of a hassle to change the SIM, and you're still attached to your number. So we haven't seen any big changes for the higher value.

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

Thank you. And we have the next question from the line of Ewart Luthien from Goldman Sachs. You may now ask your question.

Hi. Thanks for taking my question. So it's a follow-up question on the BTS ads, actually. With your CapEx guidance of $7.5 trillion, does it mean that the fourth quarter of CapEx will decline quite a lot? And also, does it mean that you're satisfied with your current level of network quality, especially since Indusat is still rolling out this network aggressively? And the second question is, last quarter you mentioned it gave some color and profitability outside of Java. How is it currently and how is the outlook for profitability there? Thank you.

Look at the network rollout. Yes, we have seen that our competitors have been aggressive in rolling out our network, but also have to remember that for the last two years we have been aggressively rolling out network and spent quite an amount of CapEx in that sense. I can link it to the NPS score in Indonesia at the moment, what it looks like. And we are still a very strong number two in the net promoter score. And if I deep dive into the network, it's very clear that we are still progressing. We're still having a good NPS score. But also admit that both InterSat and SmartFriend are gaining when it comes to the NPS score for the network. So you're absolutely right that they are getting contraction in the network and building out the network. But we are still a very strong number two when it comes to the network in Indonesia.

Okay, on profitability, if you look at our share outside Java, it's still relatively small, right? If you compare to the market leader. And we probably need to hit some scale in terms of to recover the investment outside Java. So, are we profitable outside Java at the moment? The answer is not, right? And hence, however, we have seen very positive trends coming from outside Java. I think as you've seen that we are growing double digits in terms of revenue outside Java, and it's faster than what we expect and what we've targeted for this year. Definitely, we have taken market share. If the trend continues, I think as you would expect that within the next two, three years, I think we should be able to turn some of this investment that we've made outside Java by increasing our market share from where we are today into probably getting some positive results from that investment.

Okay, got it. All clear. Thank you.

Thank you. We have the next question from the line of Krishna Hutabayat from Mandiri. You may now ask your question.

Hi, good afternoon, everyone. My first question is on the financial disabilities pickup in the quarter 90. Can I just confirm if this is coming mainly from fiber leases or towel leases? And can I also please get your thoughts on how finances, liabilities, balance can add up over the next few quarters, especially in anticipation of the full IFRS 16 implementation in 2020? My second question is on DNA charges. I recall that you previously guided that DNA to grow 67% over the normalized DNA run rate in full year 18. But the nine months 19 trends have been way lower than that. So do you see the need to revise that guidance? or should we expect the DNA growth rate to be much lower in full year 19? Thank you.

I think the finance lease liability is actually growing. I think partly driven by the fact that we are building fiber on an IRU basis. I think we are capitalizing it as finance lease. So that is the primary driver of our financial lease. And as you would expect, in the next one or two years, we expect to keep our fiberized sites, 50% of our sites to be fiberized. So that's probably going to be one of the main drivers of our financial needs. What's that going to be? The adoption of IFRS 15 for us will take into effect on 1st January 2020. And that being said, I think what will happen The impact will probably be all our operating leases today, especially on towers, will need to be capitalized. And that will probably result in higher financial leases numbers that you see. But at the same time, it will also drive your EBITDA margin up quite substantially, right? Because quite a big portion of our tower leases today are still on operating lease, right? And hence, it is classified above EBITDA, right? All in all, I think a full implementation of 516 will be in January 2020. DNA, yeah, I think if you look DNA is slightly trending below what we forecasted. So yes, we did forecast that it will be low single digit growth on DNA compared to last year. However, we are slightly, we would expect that probably this year we'll probably end up at around flattish or flattish compact to 2018 for DNA.

Thank you. We have the next question from the line of from JP Morgan. Your line is now open.

Thanks. Just a couple of questions, a couple of follow-up questions from my side. Firstly, again, on your customers, we also see that your smartphone users have declined. I mean, considering the other operators, you do seem to have been investing more aggressively over the last few quarters or the last couple of years. So I'm just wondering where these customers could be going because, I mean, some of your other competitors, have very limited networks. So can they actually be competitive in gaining customers away from you? If you could share your thoughts. And the second thing is on your EBITDA margin guidance being revised upwards, does this have any contribution of operating leases being classified as financial leases? Or is it just that you're seeing a scale benefit? Thank you.

Okay, so on smartphone penetration, I think what you probably see, we are quite classic this quarter compared to last quarter. I think overall, if you were to compare our smartphone penetration and body penetration over the last four quarters, for example, we have grown quite substantial. So it's not that we are probably losing share, but I think over the years, I think we have grown quite significantly. If I'm not mistaken, if you look at last year, our smartphone penetration, today we are at about 86%, but I think from first quarter last year, we are just slightly below 80%. So there's been about 6-7% growth in smartphone penetration over the last four quarters. Secondly, on EBITDA margin, I think... As I said, the leases are primarily coming from fiber leases, which we are building new to connect all our end sites. And that's given the aggression, I think, that we are fiberizing our sites, that's probably driving the financial lease. However, EBITDA margin growth are probably coming primarily from the growth in revenue. You would expect that our operating leverage is quite high. And given that revenue growth has been very strong this quarter and this year, it has probably driven the EBITDA margin up. And on top of that, there's also cost efficiency that we are continuously driving that has also helped in terms of driving up the EBITDA margin this year.

Okay, got it. Thank you.

Thank you. And we have the next question from Arthur Pineda from Citi Group. Your line is now open.

Hi. Just a few follow-up questions, please. Can you provide more color on your tower rentals? What percentage of your towers are still on $15 to $20 million per month as compared to – and when are these up for renewals? Second question I had, again, is on the tower side. I'm just wondering about your earlier comment on intentional selling.

Given that IFRS 16 is coming and the liabilities will still be lodged under your books, and you don't really need the cash as well, given your balance is under leveraged, what's the incentive to actually examine selling off the towers? Thank you.

Okay, so I think on tower rental, I think if you look at most of our tower are actually subject to renewal over the last, this year, and probably some next year, right? So within these next two years, I think a majority of our tower is up for renewal, right? So I would say that the portion of tower that's based on the old rate are not many, right? Majority has actually been renewed as we speak today, yeah? So secondly, on IFRS 15 and selling of towers, right? So I think the motivation of selling towers is probably driven by not so much of the need of cash, but I think we probably look at two points. One is from an NPV basis, in terms of the cost of running the towers versus doing a sale and leaseback, how would that benefit the overall company in terms of cash in terms of profit, in terms of return, for example, and NPV, right? So that's primarily the main driver. Secondly, it's also looking at the multiples, right? I mean, if I'm able to secure by selling off towers a multiple of 8, 9, or even 10 times, for example, right, compared to what we multiple that Excel has today at around 4, 4.5 times, I think we are in a way that we are looking at how do we monetize these assets, right? So having said all that, we have not decided whether we're going to sell towers or not, right? But we are thinking if we were to sell towers, probably from the aspect of monetization, given the higher multiple. And secondly is comparing between the sale and leaseback transaction as compared to the cost of running the towers ourselves, right? Also running the towers are probably not easy today, given the cost of land lease, the community issues that we are probably facing, permits and all that. So taking all that into account, I think when we do the overall assessment, we'll compare that against the proceeds that we'll probably get from the state land lease tax. So I think not so much driven by cash, but so much of how do we monetize that. And last point as well, I think we don't have much more towers, so we don't have the scale to operate this as well, right? So in terms of, let's say, operating efficiency from our part is also less as compared to people that are holding quite a significant number of towers, like the big tower companies, right? Okay, thank you very much.

Thank you. And we have the next question from the line of Colin McCallum from Credit Suisse. Your line is now open.

Thanks a lot, and congrats on the good numbers. Two questions for me. First one, just a housekeeping one. Adeline, you mentioned 86% smartphone penetration. What would you be at in terms of, if we talked about 4G penetration, someone who had a 4G handset and was actually using 4G functionality, what would that be now compared with, say, December last year? That's the first question. Then the second question is, I'll try my luck with Ibu Diane on this, and the new ICT minister, do we have any feel yet for

you know what the attitude might be towards consolidation keeping spectrum post consolidation those sorts of issues do we have any feel for that as yet those are my two questions thank you okay calling on the first one i think uh today uh our smartphone our 4g penetration is around 70 and if you compare that against a year ago we are around 53 right so there has been a significant growth in our 4G customers over the last four quarters.

So, Colin, on the second question, you know, the new minister has just been appointed, so we haven't heard much from him, but we look forward to working with him, and we are hopeful that his objective is to support equal growth for the telecommunications sector in Indonesia. And, you know, but he already mentioned that you know, one of his objectives will actually increase non-tax revenue. We're actually hoping that, you know, knowing that Indonesia has one of the highest spectrum payment rates as a person of revenue in Asia, we hope that the minister would rather improve the business environment in Indonesia, which suffers from intense competition and will lead into improved tax revenues for the government. So we hope that the new minister will actually come up with policies and also guidelines for improving the industry efficiency such as network sharing policy, network consolidation, and also actually if the minister could improve industry fiscal position by reducing capital imports of network goods. And we hope that also the Minister would actually come up with the spectrum allocation to make more spectrum available for us. Because currently even for 4G, the industry will require more spectrum for 4G. And on top of that, 5G is coming, so we will require even more frequency for 5G. But in terms of what will be his strategic objectives, at this moment, we have not heard much from him.

Got it. That's actually very helpful. Thank you.

Thank you. And again, ladies and gentlemen, to ask questions, please press star 1. And to cancel, please press the pound or hash key. And again, please strictly limit your questions to only two and to allow other participants to raise their questions. The next question we have is from the line of Sachin Mittal from TBS. Your line is now open.

Thank you. I have two questions. You talked about unlimited plans taken off by Indosat and probably other operators. And these are high-end plans. So I'm wondering, high-end plants probably need a better network quality. Has the network quality of plates like Interfat is matching in Xcel already that they're getting a lot of traction for these high-end plants? So this is a question on the network quality. Has the differential been narrowed and physically narrowed? And second question is on what are your thoughts? Give us that. Excel is not just a Java operator now. You are a Java plus X Java operator. It's essentially business now. What is the primary benefit for Excel to acquire any other operator or merge with any other operator? This is a hypothetical question, but try to understand if you're already competing well with the bigger players, what are the key benefits of any consolidation X by Z? Thank you.

I'm not 100% sure I understood or got the first question correctly, but what I heard that you said this, we have higher value package, higher than unlimited, which is absolutely correct. We have higher packages with a higher GB and more voids, et cetera, so that we have in our portfolio. At the same time, you also asked about are we narrowing down the advantage we have in the network compared to our competitors. And there's no doubt about it. Yes, they are building the network. And of course, for every year or every six months they are building the network, getting closer to us, the competitive advantage is narrowing down. We don't have that anymore. We still have, but of course, you're absolutely right, it's narrowing down. Sorry, was there another question? I think there was some disturbance on the line. Yes, you're right. It's narrowing down. Our competitors are getting closer when it comes to the network advance. But in the future, I think we are looking into smart networks. We do not believe it's only going to be about speed in the future. It's also going to be about experience. So today, people are buying a certain GB package, but we also see that the use demand for different OTT players on top of the package. And these OTT players do not only look into the speed of the network, but it's more about the experience. What are you actually getting out of that OTT service that you're getting? So we're looking into that, how to deliver a smart network, and not only talking about speed in the future.

Okay, your question, your second question, I mean, if I can hear correctly that you're asking, given that we are now a nationwide player, why do we need to go for acquisition? Firstly, I think, is that right? Hi, Sachin, are you still there? Yeah, I'm here. Can you hear me? Did you get the second question correct? Yes. What are the benefits, if any? The way we look at it, I think we are fully supportive of any M&A. I think any M&A would probably lead to a better industry. overall position, right? I mean, with consolidation in the market, I think you probably would see that competition would probably, hopefully will improve and actually will bring the overall industry up. Secondly, in any consolidation, I think one of the key aspects for us that we will probably look at is probably from a spectrum position as well, right? Given that where we are today, given our spectrum position, given the geography that we are facing in Indonesia and how data is actually growing, Indonesia's spectrum has always been a constraint. I think if you were to compare spectrum position of operators in Indonesia versus in most of the other countries around the region, we are probably in a very disadvantaged position. So with consolidation, for example, and with the ability to probably acquire more spectrum, that would actually help in terms of providing better network quality at a lower cost. Thirdly, there are definitely synergies that one would probably look at in any M&A. In this case, I think not only looking at Java, but also from segments. There are synergies between customer segments where some of the other operators in some segments as compared to the other. So those are probably some of the areas that we look at and definitely from a cost perspective, definitely I think you'll probably be able to consolidate your cost, your network size and all that that probably drives and gives you a bigger network and a lower operating cost. So I think there are many, many factors that we'll probably look at in terms of M&A. and not that primarily driven by whether we do have network in Java or ex-Java. I understand. I understand. Very clear. Thank you.

Thank you. The next question we have is from the line of Krishna Huda Dara from Mandiri. Your line is now open. Thank you.

Hi again. Thanks for answering to my earlier questions. I just have a quick question on EMA regulation. Can you please give your thoughts on the that you may have to incur and also this is a process that you may have to adjust in order to comply with the planned regulation?

Thank you. So thank you for the question. So the government already mentioned that the EMA regulation will take effect in April 2020. and this regulation will require all new customers to have the handset registered to the EMA database. We don't know actually the impact yet because currently we are still estimating how much will it cost to comply with the new regulation in terms of setting up the new system. So the government, the regulator, has not actually defined the process or the customer journey. So then we could not actually now... calculate what kind of system that we have to put. So we don't know yet the impact in terms of cost by this regulation. But however, to the business, I think the impact to telco business will be neutral.

OK, got it. So we're not expecting any sort of impact that we saw like in previous in 2018, I suppose. No, we don't think so.

got it okay thank you yeah thanks thank you the next question we have is from Niko Margaronis from Lenorexa your line is now open yeah thank you for the opportunity I'd like to go back to the competition and and about your product portfolio so what is the kind of contribution between your main brand, Excel and Axis. And where Axis is doing better? Is it doing better in mainland Java or outside Java? Thank you.

So we don't share the ratio between Excel and Axis, but I must say that both of the brands have been growing significantly. And especially Axis has been doing very well. So the difference between these two brands, we are trying to say that we want to be, first of all, Axis want to be more digital brand, meaning that we have to use our digital platform to acquire the Axis service. And secondly, this is more screwed towards the young population of Indonesia. And when we look at the XL, XL you can buy all over, and at the same time it's good towards the urban white collar and the urban blue collar as well in Indonesia. So the contribution we will not share, but both of the brands have been growing significantly all through 2019.

Okay, thank you.

Thank you. We have the last question from from HSBC. Your line is now open.

Hi, thanks. Two questions, please. Firstly, if you look at data usage is rising relatively healthy pace from 56% year on year, nine months. Just want to check how are we placed on the 4G capacity utilization in Java areas?

Are there any risk of and capital intensity is rising going into 2020. Secondly, if I can check on the churn rate, what's the churn rate now and is it still trending down? Thank you.

So if you look at 4G, I think as traffic continues to grow, I think we have to continue to build work coverage as well as capacity as well. So I think where we are today, utilization is still less than 50%. So we are still in a good shape in terms of serving more data traffic as we go along towards quarter four and next year. So churn rate, I think where we are today, I think churn rate has come down. I think now it's probably closer to the high single digit to close to 10%, right, about 10%. So are we given the prepaid registration? I think we are still not able to generate yet, but definitely the trending is coming down. So I would expect that maybe within the next 12 months or so, you'll probably see improvements before it's stabilized at some point within the mid-single digits or so. Sure. Thanks a lot.

Thank you. If there are no more questions at this time, I would like to pass the call back to the host. Thank you.

Okay. Thank you, everyone, for your participation in today's call. As always, do get back to us if you need more information, and we'll speak to you next quarter. Thank you.

Thank you. That concludes today's conference call. All lines may now disconnect.