PT XLSMART Telecom Sejahtera Tbk

Good morning, ladies and gentlemen. Welcome to Excel Axiator's earnings call for the first half of 2021 financial year ended June 30th. My name is Ajay, and I will be your coordinator today. During the presentation, all participants are in listen-only mode. Instructions will be given on how to register your questions when we get the question and answer session. As a reminder, this conference has been recorded for replay purposes. Now we would like to turn the conference over to our host, Mr. Inder. Please proceed, sir.

Thank you, Ajay. Good morning, everyone, and welcome to the call today. Firstly, just a small housekeeping matter. We have prepared a backup MS Teams link which we sent out for this call today. That link is in listen-only mode in addition to the main conference line. If you are using both the lines, please mute the MS Teams link to avoid any audio issues. With me on the call today are Ibu Dian, our Chief Executive Officer, Pak Budi, our Chief Financial Officer, Pak David, our Chief Commercial Officer for Consumer, and Pak Abhijit, our Chief Commercial Officer for Enterprise and Home. Now, Ibu Dian will share the highlights for the first half of 2021, 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 morning to everyone. We are happy to report a strong set of second quarter numbers, despite the ongoing impacts of the COVID-19 pandemic and the weak Indonesia economy. This is due to the improving market environment, our right product strategy, decisionality, strong liberal period, and also because of our network quality improvement. As a result of the consistent execution and implementation of our operational excellence strategy, We are on track to achieve our vision of becoming the number one converged operator in Indonesia. This quarter, we are happy to report a strong rebound in revenue growth, with our revenue growing 8% quarter-on-quarter in the second quarter, driven coupled with rising EBITDA as well by 8% Q-on-Q due to cost efficiencies. Our net profits continue to rise as well, increasing by 23% Q on Q in the second quarter to Rp395 billion. However, the situation on the ground has worsened drastically in the past month, with the latest unprecedented spike in COVID-19 cases resulting in lockdown across Java and Bali. As a result, economic activity has been severely affected with unemployment going up, which will result in incomes and consumer spending power being impacted. This current trend means there might be an impact to the industry, which is worse than our initial projection of a recovery in the second half. On a more positive note, COVID-19 has accelerated our transformation agenda for our long-term goal of becoming a fully digitalized operator. This is through a faster digitization of our business processes from the front end through distribution and our internal processes. This will create long-term benefits in the form of business and cost efficiencies. We also continue to execute on our strategy with a strong focus on giving our customers what they want. Through our customer intimacy strategy, we are focused on giving our customers the best product and customer experience in the market, and not just offering them the lowest prices. We also continue to develop our analytics capabilities, which enables us to successfully upsell our customers to better product proposition, and almost ensuring we deliver the right product for the right customer. Following the success of our Packet Accra in being the first offer for families where you can share quota with your family members, we have further expanded on this with the recent launch of Excel Satu Fiber. Excel Satu Fiber is the first truly converged offering in the market with a quota on both mobile and fixed, putting us further along our path of achieving our vision to become a truly converged operator. Although it is still in the early stages, we are seeing good traction from the market for this convergent product, indicating strong demand for a product of this type in the market, especially in the current work and school from home situation. Positively, our investment in XJava continues to do well for us, and growth continues to be well ahead of Java growth rate, increasing its contribution to our revenue to 30% in second quarter 2021. Our investments that we have made, there are delivering returns and payback in line with what we had initially planned. We will continue to invest in XJava guided by our operational excellence principle and strategy and ensure that we can continue to see growth and deliver returns for our stakeholders. Our network rollout and upgrade continues to be on track, and thus we continue to roll out our network on schedule, with our BTS count now above 156,000, with 4G present in 458 cities across Indonesia, with more than 65,000 4G BTS. The key now is that infrastructure deployment needs to be modified. What used to be thought as a temporary trend, such as work from home and school from home, is now becoming a more permanent part of living and working. Therefore, there is a need to invest in our network to ensure a higher level of service is available for those both in and outside major cities. We have therefore started putting in more investment in these areas in improving the network quality that will support the business growth. This is an addition to modernizing both our active and transport networks as well as revamping and upgrading our IT systems. Our balance sheet remains strong with net debt to EBITDA of below 1x. We have no USD debt and we have also secured committed facilities with the banks that we can tap anytime if we need additional funding. Last Friday, we announced That along with Asiata, we have entered into a non-binding term sheet with the major shareholders of LinkNet with a view to acquire a 66.03% stake in the company. At this point, we have not made any binding offer and the transaction is still subject to due diligence and negotiation between the parties. If all goes well, we have We hope to enter into a sales and purchase agreement in around four weeks' time. This is the next step in our strategy and vision to become the number one coverage operator in Indonesia, and we are well on track to executing that vision. We will make further announcements on this when necessary. Finally, we would like to reiterate our guidance for the year. In 2021, we are guiding for revenue growth to be in line with markets, EBITDA margins in the low 50% and CAPEX to be around $7 trillion for the year. However, we expect CAPEX to be on the higher end of the $7 trillion number due to the network investment we are making. Thank you, and let us proceed to the Q&A session.

Thank you again. To ask a question, please press star 1. To cancel, please press 1. please kindly but strictly limit your questions to only two and to allow other participants to raise 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 11.30 a.m. Jakarta time. We have our first question. AJ, can we have the first question? Yes, sir. The first question comes from the line of Karsana from Mundari Securities.

All right, hi. Hi, can you guys hear me? Yes, Karsana, go ahead. All right, thanks for the opportunity. Just two questions from me, please. Number one, would you mind giving some update on XL Home and XL Satu Fiber, especially on XL Home How many homes passed added in second quarter, and also how many residential fixed-work band staffs that Excel managed to add in the second quarter 2021, and what will be the targets for 2021, or if perhaps for 2022 as well? My second question is actually on mobile telegraph distribution. How is the impact from a recent mobility restriction? How different is the impact to Excel this time versus the restriction back in second quarter 2020? And what are Excel's strategies to circumvent these challenges? Maybe just to slip in another one, and when we look back at the cellular revenue growth recovery in second quarter 2021, any sense on how much of that growth coming from digital channels versus traditional channels? I guess I'm just trying to get some sense of customer behavior shift post-COVID-19 at Excel. Thank you.

First one I'll take, right? Yeah. So thank you, Krishna. This is Abhijit. I'll take your first question, guidance on Excel Home and Fiverr. So our fixed broadband business, it continues to do well in the first half. And as all of us know, this is driven by a strong demand for home internet services overall. We have now reached more than 580,000 homes passed. And what we are witnessing is a very healthy penetration rate of 30%, which is an average penetration rate across our whole footprint. In particular, what we are witnessing is a strong demand ex-Java for this. Our ARPU remains healthy with this penetration rate, and this is north of 250,000 rupiah. We have recently launched, as our CEO highlighted, our first conversion product, Excel Satu, wherein we approach homes with a converged, fixed, and mobile proposition. And this is the first step in our journey to become a fully converged operator, offering bundling of fixed and mobile and driving conversions. I think your second question was on mobile. I'll hand it over to you. Hi, Krishna.

So answering your second question around the distribution challenges due to the lockdown, right, to the PSBB. So, it's true that there has been, I mean, it's true that there is a PSBB that we all know and that has some impact in the traditional distribution. Some of the retail outlets might be closed, especially in certain areas. So, you know that the lockdown has not been homogeneous in whole Indonesia, so it has been more localized in certain areas, like Jakarta, for example, and that we can see. Now, as you were saying, one of the things that we are seeing is that our digital channels are growing very healthily. I can tell you that it's double digit growth from quarter on quarter. But most importantly, that's the user growth. But most importantly, the revenue that we receive from those digital channels, it's growing even faster than the adoption of the customers, which means that The customers are coming to our digital channels, but they are moving more of the share of the wallet. So we are getting better customers and part of the share of the wallet is also moving to digital. So this is a trend that we are seeing. It is accelerated because of these lockdowns, etc. Yes, it is. But it is a trend that is already there and it's quite consistent in the last few months. I don't know if that answers your question.

Yeah, but would you be able to share how much of the revenue is right now coming from digital channels versus traditional channels, perhaps in comparison to pre-COVID time?

I cannot give you the exact split as of now. What I can tell you is that the growth in the digital challenge, the revenue growth in the digital challenge, it's more than double digit quarter on quarter.

Sounds great. Thank you. Thank you. Very helpful. Thank you.

Thank you. We have our next question from the line of Arthur Anita from Citi. Please go ahead.

Hi, thanks for the opportunity. Just a few questions, please. Firstly, on the CapEx side, I know you've maintained it at around $7 trillion, but are you able to split out between fixed and mobile investments? I'm just wondering how that is trending. And just going back to the fixed line comments, sorry if I missed this, you mentioned you have around $580,000 Homes Fast. What is your target or ambition for this into the next year?

Okay, let me start by addressing the second question, Arthur. Our target is to be the leading number one converged operator in Indonesia. And to achieve that target, we launched our business a couple of years ago, as you know, the fixed footprint, and we have a healthy a healthy footprint of around 580,000 homes passed. Now, as you know, we have announced the first step of the LinkNet transaction. So we will progress according to that, and then we'll see where we reach and establish an ambition next year onwards.

Yeah. Arthur, on the first question, I'm going to get to CapEx. But first of all, I give a glimpse on Why we still call it 7 trillion right now? Right now, we're seeing the traffic pattern in the last one year, post-pandemic, people going for work from home and less mobile right now. So we're seeing that as a new normal. And then we start looking at invest more to strengthen our network, especially on the housing area in Jabutabek and major suburbs. And then we are also modernizing our network and also increasing our fiber footprint because, as you know, as the data continues growing, then fiber footprint becomes more and more strategic investment that needs to be done, right? So with those situations, we continue re-looking at our CapEx guidance. So $7 trillion is... The numbers of now, but we continue looking at this CapEx guidance. So that's the baseline, yes. On the fixed, how much, on the mixed, how much it goes to fiber, how much goes to mobile. Currently, with the majority still goes to mobile because that's where the structure right now because of the demand, right? But again, we're still looking at this CAPEX guidance, and soon we will share more. I hope that answers your question, Arthur.

Understood. Thank you very much.

Thank you. We have our next question from the line of from CGS CIMB. Please go ahead.

Hey, Paul, this is from me. It's a bit choppy.

Can you hear me better?

No, we can't hear you. Can you hear me better?

No, it's cutting in and out, Phuong. Maybe we'll go to the next question first and then we'll try and address yours. Come back in.

Okay.

Operator, can we go to the next question?

Yes, sir. The next question comes from the line of Vida from J.P. Morgan. Please go ahead.

Hi. Thanks for the call. My question is regarding the potential investment in LINK. Can you share on how do you plan to fund the acquisition of LINK and also share the strategic rationale behind the acquisition? And also if you can share some color on the fixed network that Excel has. Thank you.

Vida, thank you. This is Abhijit. Let me address the strategic rationale first and then I'll hand it over to Budhi for the funding question. As we mentioned, our intent is to become the number one converged operator in Indonesia. We saw this vision about three years ago or so, and as a first step of that, we decided to launch our own fiber business, which was an organic deployment, because we wanted to test the demand in the market and our ability and capability to scale a business. And as I shared a few minutes ago, we have achieved a significant scale in our own fiber business. I shared the figures as well. And now the second step of this journey is to scale it even more in order to drive convergence and become the number one converged operator. And as such, Linknet is considered to be a good company to acquire to help us scale and drive the strategy further. So this is the strategic rationale behind acquiring Linknet. I'll pass over to Budi for the funding question.

Yeah, so in terms of how we're going to fund the transaction at this stage, we're still evaluating all funding options along with ASEATA. As you know, we're always trying to get the most optimum option that we could get in any form. Operational excellence in our DNA, so we always try to squeeze anything possible with the optimum option available. So you can name it right tissue, bank loan, bonds, local, international, all we're exploring. We're looking at the most optimal, then soon we'll... you know, share more detail on that one. So that's the status of NAMA FIDA.

Okay.

Okay. Yep, thank you. Thanks for that.

Thank you. Operator, can we have the next question? The next question comes from the line of Sachin Mitchell from DBS. Please go ahead.

Yeah, I have two questions. Could you share with us the latest fixed broadband penetration in Indonesia, the latest number that you have with you? Secondly, if we notice, the second question is, if we notice in most countries, fixed broadband ARPU is two to three times, you know, of the mobile ARPUs. perhaps including the pay TV component inside it. But in Indonesia, the difference is very high, you know, seven to eight times. So we are talking of more than 20 US dollar kind of ARPU for the fixed broadband side. So could you throw some light? I mean, you know, do you expect this overall fixed broadband ARPUs to come down? Given that the question is, why are people willing to pay such a high premium for fixed broadband? Is it that Mobile quality is bad or the fixed broadband is very good. You know, the difference seems to be simply too huge in Indonesia in terms of the pricing or the ARPU between mobile and fixed broadband. So could it be some color here? What are your views on how the ARPUs are going to behave given that penetration will rise for fixed broadband? Thank you. Yeah.

Thank you, Sachin. This is Abhijit. I'll take both the questions. So, yes, Indonesia, unfortunately or fortunately, is amongst the emerging markets with a very low fixed broadband penetration. Right now, it is hovering in the low double-digit team figures, so around 10% to 12%. I'm talking about the overall broadband penetration in Indonesia. Now, structurally, if you look at the market, there have been two major players in Indonesia. The first is Indihome, a telecom group, and the second one is Linknet. The rest of the market is pretty fragmented with a lot of players having very small market shares. So the first is a low broadband penetration, which means there is a huge pent-up demand, which has been enhanced by the current COVID situation. And secondly, only two major players in the market. Now, if you also look at the geography of the country, it is extremely complex. So it is not necessary that competitors compete in the same area. As such, the players in the market have not felt the need to have a price-based competition. And hence, what you see is price points are still high and the resulting ARPUs of the players are still high. So structurally, we still have the view that this is going to continue. The basis of competition in the market is still predicated upon quality of service, speed, content offerings, providing an overall good customer experience. The market hasn't matured to a level where there is intense competition and the overall penetration has crossed 40%, which is when typically you start seeing the basis of competition shift to price. Hence, we don't see a very high degree of output decline or a price-based competition in the market.

Abhijit, just a follow-up question because the question is, we are talking of an annual market. spending of almost 300 US dollar for the fixed broadband. You're looking at the fixed broadband APU. So there's the question of affordability. You know, let's compare to even Thailand, right? Thailand has higher GDP per capita, but their broadband is almost 60-70% lower than fixed broadband. So the question is not about price competition. The question is affordability factor. Because does the affordability hurt the pent-up demand? That's the question, actually.

Yeah. When we talk about ARPU, one thing we need to understand is mobile and fixed are inherently and fundamentally two different businesses. If you look at the fixed business as a nationwide business, then perhaps that's not the right lens to look at it. It is a very localized business and the nature of consumer demand and affordability differs geography to geography. Yes, you're right. An ARPU of $20 approximately a month is still in the higher range. It's almost like similar to some of the mature markets. But at the same time, even in that demographic, there is a lot of pent-up demand. And as I was saying, it's 10%, roughly 10% to 12% penetration in the market. So I think there's still some way to go before we start going out of that demographic, out of that geography, and into other geography where the question of affordability starts coming into play. Got it. Very clear. Thank you, Abhijit.

Thank you. Thank you. We have our next question from the line of Nicker from BRI Dynamics and Securities. Please go ahead.

Thank you very much. Congratulations for the good results in the second quarter. My question is on the marketing expenses and overall for the EBITDA margin. EBITDA margin you suggested will be low 50s for the year. Currently it's at 50%. So my question is in relation to your comment that marketing expense have increased Q&Q due to expanding distribution footprint. This is – it appears that it will be – the marketing cost will remain high. Q1 and Q2 has been higher. Is this the trend going, moving forward? And do you see other cost, do you see cost savings made in other OPEX lines? Yeah, that's question number one. Number two, I missed in the introduction from Ibu Dian, Was it 8 trillion capex in 2022? And what is driving the increase in that number? Thank you.

Okay. Let me start with the first question. So you are right, right? Our marketing and sales cost increased as a percentage of the revenue. That's a fact. Now, there are different factors that have played in this. As you mentioned, and we have mentioned in this, one of it is that we are expanding our footprint and digitalizing our footprint. So that is part of the increase of the cost. In the second quarter, of course, you always have the levar and seasonality that also brings it up. We have had also in the last few months a government school program that has that has also sucked a little bit of the marketing and those expenses. And even a fourth thing that, as you know, we are now launching new products and new services like Convergence, which is also a new line of expense. So I think those are the reasons why the marketing and expenses has increased in this first half. We expect it to remain at the numbers that we are seeing, at around 8% to 9% most certainly in the coming months.

Yeah. So, Nico, just to add on the whole structure of the effects, impact on the margin, right? So David explained about why we spend in marketing and sales due to the figures. But overall, as you can see, the figure, we managed to ensure that our OPEX is still in the right level. Year on year, our operating expense lowered by 2%. How we do it? Because we continue pushing our operational excellence strategy, where we make sure every single rupee that we spend giving the most optimum return to the company. So we continue looking at that daily, make sure that every time we spend something, it gives us more. How are we going to make sure we go with that? There are a couple of costs involved. saving opportunity to continue with looking at that are giving us good traction to fund other activity like this marketing spending that we did. Because we have a few area, biggest one, as we explained before, cost saving coming more on the tower list renewal, where we have around 30% sites coming up for renewal over the next two years. we are able to secure 10 million rental cost towers per month from all tower providers. That gives us a big lift, right, to relocate the expense to other areas that give us more faster return, like the marketing and selling expense. So those things that we're doing to ensure that we're still hitting the same margin that we're aiming, which is low 50% level. Hope that address your questions, Nico.

Yeah. Oh, you also have to talk about CapEx, right?

Yeah. The second question is on CapEx 2022. For now, we cannot comment on what we're going to do in 2022 because then probably in, you know, nearer the term, then we can talk more, Nico.

Yeah, thanks.

Your question was on CapEx 2022, right? Yeah.

Yes, I heard Budhia mention about 8 trillion capex. Is that or I misheard? Yeah, I think... No. Yeah, okay. That's all right.

So actually, on any part of my speech, I was saying that our capex for this year will be on the high end of the 7 trillion. And that was because, as also mentioned previously by Budi, because we see that after like now more than 18 months entering the pandemic, we see that the new normal will require us to do some network investment modification. So the trend that we thought that it was like a temporary like trend working from home or school from home now become more permanent. And we see that the traffic generated from the housing area is now much higher compared to the, for instance, business district. So we would need additional investment this year, which will be higher than $7 trillion or probably nearing like $8 trillion. because we will enhance the internet experience in those housing areas. Is that answering your question? Okay, thank you.

Great, thank you.

Thank you. We have our next question from the line of Chun Chen Kung from CGS CIMB. Please go ahead.

Thank you for coming across this.

No, Fung, your line is too bad. It's very choppy. Can you hear me? It's cutting in and out, Fung. Is it possible for you to type the question maybe on the MS Teams link? Clear, yeah? Yeah, it's still unclear. Okay. Thank you. Thank you. Operator, can we move to the next question, please?

Certainly, sir. We have our next question from the line of Jim Lim from Kinega Investment. Please go ahead. Jim, your line is open. You can ask your question.

Hi, can you hear me? Can you hear me? Yes, Kan. First question is, what drove the Q&Q prepaid ARPU growth? And second question is, considering the geographical challenges in rolling out fiber in Indonesia, when Indonesia's 5G network is up, do you think 5G fixed wireless access will be more popular than home fiber when it is available in the market? Thank you.

Regarding the first question, the ARPU increase. You have seen that, in general, the revenue has had a very good traction. This has come from different things. The first one is that some of the products that we have launched have behaved very well. Those products are the Acrab family packets, which are high ARPU packets by definition, A second one that is working very well is the one focused on the youth segment... ...that is Paget Xuka Xuka, which is also bringing higher ARPUs. That's number one. Number two is the Lebaran seasonality. Lebaran seasonality, usually, this also happens. So revenue grows, but it is also an ARPU increase, what we usually see. Number three is around our network improvements. So there has been some network improvements that we have done that has allowed us to increase the traffic per subscriber and also the ARPU that they are bringing. And the last one, I will also want to remind that we are seeing that competition it is smoothening a little bit. It's not worsening. It's going in the correct direction, especially from the incumbent. The rest is still aggressive, but the incumbent has put a little bit more of, let's say, common sense or rationality in the market, which is also helping with the ARPUs in the market. So I think, I hope that I answered the first question on the quarter-on-quarter ARPU growth that is also linked to the revenue increase. For the second one, Abhijit.

Yeah. So Jim, this is Abhijit. I'll take your second question. I think geographical challenges are the same, whether you're deploying a fixed network or a radio network, right? So we do have a complex geography. Now, if your question is, if I understood correctly, you were asking about 5G being more popular. So if you're asking whether 5G will replace fiber infrastructure for fixed broadband, the answer is no. And the evidence we are seeing, even from mature markets, is that when it comes to fixed broadband to residences and enterprises, fiber is predominantly the first choice. But I do think that it will act as a complementary technology, as and when it is launched in Indonesia, especially on the enterprise side as well.

Does that answer your question? Thank you. Thank you very much.

Thank you. Thank you. We have our next question from the line of Alex Ska. Please go ahead.

Thank you. I have two questions and congratulations on a great set of numbers. The first is regarding your growth in subscriber in the second quarter. It is strong, no doubt about it, but I'm just wondering the impact of the MCO. Would your growth have been stronger or has it been slightly impeded by the movement in subscribers? by the movement restrictions currently implemented in Indonesia, right? That's my first question. The second question is regarding your potential acquisition of PT Link. I think it looks very good. I mean, in terms of valuation, if EBITDA is lower than what Axial, Axiata will be trading. But in terms of the output for PT Link, fiber, it is about three times higher than your postpaid mobile rates. So I'm just wondering for the regulators in Indonesia, are there any potential risks that there may be a move to lower fiber Fiber rates going forward are similar to experiences in Malaysia.

So let me start by tackling the second question. I'm sitting near the microphone. I'll grab it from David. So let's address the question on the fixed ARPUs, right? You know, as I was explaining earlier, Alex, structurally the market is different to Malaysia and other mature markets, right? We have two major players. And overall penetration is very low. It's in the 10 to 12% range. So fundamentally, there is no reason for players to engage in a price-based competition. So as such, we don't see any reason for anyone to start playing on price. And consequently, reduction in ARPUs. Well, if you look to the future, what are the challenges on ARPU in a fixed broadband business? They are typical, as you would see in any market, right, including pay TV, for example, or the way people consume content. It is shifting towards OTT, et cetera. So these are typical challenges, and they are not unique to Indonesia, and we'll be addressing them as and when they rise up. Does that answer your question?

Yes, thank you very much. What about your growth in mobile subscribers?

Yeah, I will hand it to David. So for the first question on the growth of the mobile subscribers, yes, as you mentioned, we are seeing a very healthy growth in our mobile subscribers. It's been already a few months that we are seeing this traction and it's not linked to the PSVB or to the lockdowns. I mean, we believe or the fact that we see is that it's linked to our go-to-market strategy and strengthening of our digital services that we are offering. As I was saying before, we have launched a few digital services, family packets, or make your own access in the youth that are having a good traction. We believe that the customer experience and the digital services that we are providing are allowing us to increase our Market share, number of subscribers, faster than what was happening previously. So I think those are the main reasons, but not the pandemic or the lockdown.

So going forward, internally, do you expect this kind of growth in the subscribers to continue at least for the next one to two years?

One to two years is long, but yes. So we are seeing still that we are in a good growth momentum, and I expect it to still remain like that.

Okay. Thank you very much. That's all for me.

Thank you. I would like to hand the call to our host to read out a question from one of the participants. Thank you.

Yep, okay. Everyone, Fung has texted me his question, so I'll just read them out. The first question is for Abhijit. With the potential acquisition of LinkNet, does that complete the puzzle for Excel to pursue its ambition to be the leading converged operator in Indonesia, or would there be other areas slash infrastructure where Excel would need to beef up with further M&As? The second question is for Pak Budi. He asks, the finance cost was lower than last year. What is the average interest rate on debt now versus a year ago? Did site renewals at lower rates also contribute or perhaps was the main contributor to the lower finance cost year on year?

So I'll take the first question. I think the journey to convergence is a long and complex one. So the link net acquisition, it is definitely a big strong piece of the puzzle falling into place.

Right. So, Fung, your second question on the finance cost lower than last year. Yeah, that's right. Because last year, if you remember, our weighted average interest was around 7%, right, 7%. So that's the level that we were last year. We are able to get lower rates. I think it's also because of the situation that helped us. So this year, we are looking at around 6.4% for the first half. That's the running rate that we have for the interest. So it's lower. That's one of our contributors. The other reason for the lower finance cost, you are absolutely correct also about the lease rental for the financing. As I mentioned earlier, that we are able to negotiate this with a lower rate for the tower rental, so this also gives us lower financing costs on this tower rental.

Thank you. Can we move to the next question, sir?

Sorry, sorry, the second part to my answer on the pieces of the puzzle. So yeah, LinkedIn is definitely the first big piece of the puzzle to fall into place. Your question was, would we be looking at other potential M&A activities? We cannot rule it out, right? So for us, it's a question of scale and becoming the strongest converged operator. And we will look at every single lever we can pull to achieve that ambition, be it organic or future M&A as well. I hope those two answers from me and Budi address your questions.

Operator, can we go to the next Q&A?

The next question comes from the line of Nicole again from BRI Securities. Please go ahead.

Thank you again. It was mentioned at the beginning that the revenue from XJava is currently 30% contribution. What is the contribution to earnings, EBITDA or perhaps EBIT from XJava? And, yeah. Maybe secondly, in regards to the latest comment, is that... Is that organic and inorganic growth, does that entail also in the mobile sector, or you refer to the fixed product only?

Thank you. Okay, I'll go for it. Okay, let me address the first question, Nico, on the EBITDA. You write it's around 30% now, the contribution, in terms of EBITDA. The majority is still coming from Java, because as you know, we just started our XJava investment in 2017, so it's the third year, coming fourth year now for us. And then, you know, our operational excellence principle, where we always look at the payback area, where the payback somewhere around two, three years payback, and then some of the area, most of the area, already profitable. But EBITDA, the most contribution still coming from Java area.

So, Niko, your second question was about organic growth. And if it was stimulated by my response to Fung's question, then yes, I was alluding to our aspirations on the fixed side. when I said that we will pull all levers, be it MNA or organic. As for the mobile side, well, the story has been of organic deployment of network anyway.

Right, right.

So was that your question?

Thank you, Babuji. Yes, yes, that was the question. Can I go back to Babuji's reply? And may I ask, is the increase in the subscribers coming from... ex-Java as well? Was this the driver in the growth of contribution? Or is it how is the split of the subscriber growth?

Let me maybe take that one. So the subscriber growth has happened in both Java and ex-Java. So we have seen positive traction in both. It is true that in ex-Java the growth, the same like the revenue growth, has been higher But this quarter, the positive growth has been in both.

Okay, thank you, David.

Thank you. We have our next question from the line of Pierce Chaudhry. Please go ahead, from HSBC.

Yeah, hi. Morning. Thanks for the call and congratulations for a great set of results. Two questions, please. On your earlier comment, can you expand on what kind of network improvements were done which have helped to improve mobile ARPU? It was not very clear. And secondly, can you comment on how has been the pricing environment in mobile services over the last one month when COVID-related restrictions have further enhanced? any color over there will be helpful. Thank you.

Yeah, so regarding the network improvement, well, first of all, I am not an expert in the network, so just start today. But we have improved our transport that was congested in certain areas. That has allowed us to increase the throughput and the traffic in certain areas, which has allowed our customers to to upgrade their product and to spend more in general. So I think that's overall in a nutshell what has happened. To your second question, sorry, I didn't get it.

Can you repeat it, please? No, I was referring to the... Regarding the competition pricing. Yeah, yeah.

Yeah, the competition environment. Correct. So I think, as I was saying before, the competition environment is a little bit smoother than before. Especially the incumbent has taken some steps in the correct direction. From the rest of competitors, we can always expect a little bit more of aggressivity, but it's not worsening. I think it's moving to more rational areas. So I think we are moving as an industry towards better pricing and better competition.

So maybe I will add to David's answer on the first question in terms of network quality improvement. So as mentioned by David, actually the first part that was improved is on the transport. So what we are doing on the transport is actually removing any congestion in the network by upgrading the capacity, but also by doing the fiberization. So currently our rate of fabrication has increased significantly if we compare to last year. So that was on the transport part. The other improvement is on the radio network. So in our radio network, what we are doing is actually doing dairy farming. So now we are shifting the spectrum that previously utilized for 3G technology to be more in 4G, because what we see is that now the 3G traffic is becoming less and less. So we are step by step reframing those spectrum, the 3G spectrum to be in 4G. And by doing that, now we have a much higher capacity for our LTE service. And this capacity is actually translated to a better customer experience for our Internet users. I hope that answers your question.

No, thanks, Budhian. This was very helpful. But if I can ask, like, the fiberization of towers, like, how much we have achieved, and could you again share what's the medium-term goals over there? And secondly, on the spectrum refarming, is the exercise complete, or we are still in the midst of refarming from 3G to 4G?

Okay, so on the fiber station, now it's almost reached 50% level for our site. And for the refarming for the major cities, almost done. But we still are going to also implement that for the secondary cities and more smaller cities.

Perfect. Thanks a lot.

Thank you. I now would like to pass back the call to your host today. Thank you.

Okay. Thanks, everyone. If there are no more questions, thank you for your participation on today's call. And as always, do get back to us if you need more information. Please stay safe and stay healthy. We'll speak to you again next quarter. Bye.

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