PT XLSMART Telecom Sejahtera Tbk

Good afternoon, ladies and gentlemen. Welcome to Excel Axiata's earnings call for full year 2022 financial year, ended in 31st December of 2022. My name is Christy. I'm the investor relation for Excel Axiata, and I will be your coordinator today. During the presentation, all participants are in listen-only mode. After the speaker's remarks, there will be a question and answer session. The Q&A session will be hybrid mode to ensure that we can accommodate everyone. To ask questions, please type it in the Q&A box with your full name and company name, or we will not be able... to address you properly. If we have time, we will circle back for follow-up questions. As a reminder, this session is being recorded for replay purposes. With me on the call today are Ibu Dian, our CEO, Pak Budi, our CFO, Pak David, our CCO for consumer, and Pak Abhijit, our CCO for enterprise and home. Now, Ibu Dian will share the highlights for Whole Year 2022, which will then be followed by the Q&A session. I will hand over the call to Ibu Dian. Ibu Dian, the floor is yours.

Thank you, Christy. Good afternoon, everyone. Thank you for attending today's earning call. 2022 was a great year for Excel with our pioneering and consistent strategy execution of digital transformation and conversion. We have outperformed the industry despite the challenges that occur both globally and domestically. Let's see our full year 2022 key highlights. Our revenue grew by 9% due to continued product innovation that are supported by our network excellence Top-line growth positively impacts our EBITDA, which grew by 7% year-on-year, with margin recorded at 49%. Excel Asiata also books stable and path growth. Our network excellence initiatives have been very fruitful as we are closing 2022 with a win in four categories based on December 2022 Open Signals Mobile Network Experience Report. For the second time in a row, we are the winner of the Download Speed Experience Award with overall download speed averaging at 20.8 Mbps or 11% increase compared to July 2022. On top of that, we also obtained first rank on video experience, games experience, and also voice app experience. As our convergence package continues its long uptrend trajectory, with 37% of our FTTH customers subscribed to it, a 5% point increase compared to 32% in third quarter of 2022. This is a result of digital-driven operations through our data analytics that enable us to do effective cross-sell and up-sell. Our digital transformation 2.0 strategy on mobile also evolved the experience on our own apps, which are MyExcel and MyAccessNet. Both apps have delivered a very strong result in 2022, which by end of December 2022, we recorded more than 25 million monthly active subscribers. I would also like to thank our stakeholders for the support and trust on our fundraising initiatives. Last year, we have successfully raised around 8 trillion in funds, 3 trillion rupiah through bonds and sukuk in September and with very competitive pricing, and around 5 trillion through rate issue. The funds obtained strengthen our balance sheet, allowing us to retain the AAA ratings and investment grade we currently have, and of course balancing our debt profile to get up for potential interest rate increases in the future. Now, moving on to the next slide. So this is on 2022 overview and also 2023 outlook. Throughout 2022, Indonesia's telco industry remains rational, with competition tracking slightly higher in the fourth quarter. This is due to seasonal competition that happened in some areas, which we expect to subside in the coming quarters. Data consumption remains strong as we observed higher data package utilization from our subscribers, mainly driven by video streaming, a trend that will continue in 2023. We also observed all MNOs now shifting gears toward convergence following the steps of our convergence proposition whilst adapting for lighter asset business model. As Alf mentioned earlier, our investment in network infrastructure Digitalization and spectrum usage optimization have improved our customer experience immensely. In 2022, our 4G BTS grew by 19%, with 44% of our sites are now fiberized. Our spectrum efficiency initiative continues to be enhanced using N5 technology to remove the disadvantage of relatively narrower spectrum bandwidths. On top of that, our end-to-end digital transformation enhance organizational agility to adapt and cater to market needs and industry evolution. In 2023, opportunities remain promising in telco industry, not only in mobile, but especially in fixed broadband market, both for consumers and enterprise segments due to its relatively lower market penetration. Now we're not only smartphones that are connected to the internet at home, but a wide range of new devices, enabling the revolution of structural digital lifestyle. This is why our conversion offering is the right strategy to address the needs. Going into the new year, same rates continue to persist, such as weaker consumption due to macroeconomic pressures, risk of aggressive competition to return, as well as prolonged geopolitical issue impact on supply chain. Considering both opportunities and risk, we believe that Indonesia's telco industry will grow higher compared to 2022 growth. Now, before we discuss numbers, allow me to provide you with more details on our key growth strategy that gives us the win in 2022 and hopefully going forward, as well as what many of our investors have inquired, our confidence strategy and also goals for 2020 to be elaborated in this presentation. Next slide, please. So personalization has been a foundation of our growth. One of the keys to our growth has been personalization, which have pushed to the next level. We have already profiled more than 10,000 persona segments to whom we offer tailored propositions. We have already introduced AI-driven dynamic pricing to all our digital channels. With dynamic pricing, we are able to offer each customer a different price to the portfolio with the objective of maximizing the output. Another big step has been the implementation of close-loop feedback, where we have been able to capture more than 3 million customer feedbacks that help us improve the customer journeys. As a result, we have been able to multiply by four the revenue from personalization in digital channels, and multiply by 4.5 the satisfaction of those customers. Next slide, please. This year, we will double down on our convergence strategy by adding more features and boosting our family proposition to provide an even more comprehensive ecosystem that is relevant to our customers, such as smart devices, Ability to build your own Excel packages to better suit their needs. Flexibility to add any Excel numbers to their convergence package. And eSIM that is soon to be launched by first half 2023. We will leverage on our comfort and omni-channel touchpoints, unifying our distribution, taking advantage of over 130K touchpoints distribution synergies. On top of that, Family ID will make Excel Satu in the best position to capture the opportunity in convergence. Next slide, please. So to seize 2023 opportunity with convergence, our early moves towards convergence have helped generate strong momentum for Excel Satu. This year, we will fuel the growth even larger by scaling up our Excel home. We aim to close 2023 with fourth 150K home connect, and 150K conference subscribers. Next slide. So now we will go with our financial and operational KPI. This slide shows our key metrics for full year 2022, which I will not go through one by one. But the only thing that I want to highlight that we closed the year with 57.5 million happy customers that support us. Thus enabling XL to retain the output of 40,000 rupiah, indicating that our additional subscribers are of value accretive despite impact from fuel price hike and competitions. Next slide. So we've been focusing on customer experience and we will still focusing in customer experience going forward. Our 4G BTS cover is at 91.6 thousand, A 19% growth year-on-year. 3G spectrum refarming is completed, with 98% of our 51,000 3G BTS has been shut down. Our network investment and strategy has led to better network experience, hence higher usage as evidence by the 22% year-on-year increase in total traffic for full year 2022. As mentioned earlier during the presentation, our own apps recorded a 62% year-on-year increase in monthly average users with more than 25 million subs are on the platforms. More users on our own apps will sharpen our prediction on upcoming trends and customers' behaviors, enabling us to provide the right offers to the right customers at the right time. In the end, it will improve the offering acceptance rate and increasing our pool. Our fiber side as of December 22 it is at 54% increase of 15% point, year on year, pairing this with our spectrum reforming and new technology adoption has put excellent network ahead of the curve. Ultimately, the increase investment we have put in the past two years has helped making our network better and optimize our capital intensity. Finally, our guidance for the year. Next slide, please. We aim to grow our revenue by mid to high single digit, or at least better than industry. For EBITDA, margin guidance at approximately 49%. And our CAPEX guidance this year will be at 8 trillion rupiah, with 70% of CAPEX are allocated to strengthen network quality as well as to increase digitalization, and this excludes potential spectrum options from the government. With that, I conclude my opening remarks. Back to you, Christy.

Thank you, Ibu Dian, for the very thorough walkthrough of Excel Axiata performance and strategy. Ladies and gentlemen, we will now proceed to the Q&A session. As a reminder, the Q&A session will be hybrid mode. To ask a question, you can type it in the Q&A box. Please ensure to use your full name and company name. And after your question is answered, if you'd like further clarification, kindly use the raise hand button and we will call your name for you to proceed to unmute your mic. The first question comes from Arthur Pineda of Citi. Were there any one-off bookings in fourth quarter 2022? What accounted for the sudden rise in financing expenses? And are any of these factors still relevant to January? And then the other question will be on the DNA. What accounted for the Q&Q jump in DNA expenses? And will it be possible for us to break out the growth momentum between mobile and fixed services for full year 2022 and fourth quarter 2023? Gudi, would you like to take on this question?

Arthur, thanks for the questions. There are two parts of this question. I will answer the first one related to the PNL, and the other one will be answered by David related to the momentum of growth. On the PNL impact, there was one Throughout the years, we've been working on rental negotiation with our towers provider partners. As you know, we think that our rental that we pay roughly around 10 million per month consists of two. One portion is related to the maintenance of regional maintenance, the other one related to the rental itself. For the OMM, operational maintenance, the fee is actually subject to escalation. So every year that fee will be adjusted up. So we've been negotiating with our tower company to reduce overall TCO, overall total cost of the agreement by reducing this OMM portion. Finally, towards the end in Q4, we got the deal closed with our provider. Hence, they agreed to reduce the total portion that's subject to escalation. Hence, as a result of that, there's a one-time adjustment related to IFRS 16. We booked impacting our rental, reduction on rental. But then on the flip side, we got slightly higher on interest, financing costs, and also depreciations. That's what the one time that happening in Q4. The total year will be, will it happen again? The answer is no, because it's only one time, but the new structure will be applied 2030 onwards. So that's the answer for the first questions.

Regarding the growth momentum, so as you can see in the numbers, 2022 has been a very good year for us. So the growth momentum is there. Quarter four, usually because of seasonality and because of some more competitive pressure, it's usually for us not the best of the quarters, but still we see internally very good growth drivers like the gigabytes per subscriber, the market share that we are gaining. So we see very positive growth momentum, even in quarter four. So we are positive also for 2023.

Thank you, Babudi and Padavid. Next, there are questions from Nicola Santoso of Verdana. Is there a reason for the lower postpaid ARPU? Is it because of low end postpaid users from Telkom migrating to Excel? And second, why is the EBITDA margin guidance kept at 49? Will there be any room for this to improve to low 50s? I believe the first question will be addressed by David.

Yeah, correct. So regarding the lower post beta ARPU, it's pushed by the regionalization of the offer. So we are extending the postpaid offer of prioritas to ex-Java and to third-time tier two cities. While we do that, we usually go with regional pricing and the ARPU that we are obtaining from there, it's a little bit lower. So overall, the lower ARPU is because we are expanding to tier two cities and ex-Java cities. But we still see a strong ARPU in Java and in the tier one cities.

Yeah, let me take the second part of the questions. Thanks for the questions, Nicholas. On the EBITDA, we currently, based on the data, based on the estimate that we have, we are looking at 49%. But as you know, however, we continue exploring any other opportunities, as you know, we're implementing our operational excellence, and we're very basically always look for opportunities, whatever is possible. So right now we still keep our 49% as our guidance, whether there's a room to be better than that. There's always a room, but right now still we're looking at 49%. Any questions?

Thanks, Pak David. Thanks, Pak Budi. We actually have one follow-up question from Arthur Pineda. Arthur, you may unmute your mic.

Hi, can you hear me?

Yes, Arthur, loud and clear.

Hi, yeah, just to clarify, can we get a quantification in the DNA and financing impact linked to this contract renegotiation? And just a second question is with regard to the pricing strategy, we've seen both Indusat and Telkomsel raise pricing in January and February. Has Excel done the same so far? Thank you.

Okay, to run the quantification of amount that hitting the P&L is somewhere around 80 to 100 billion related to this IFRS adjustment that we booked in 4Q. So that's the amount. One time, yeah?

Understood. And there's no accelerated depreciation, is that correct?

Oh yeah, there's not actually the patient is more on the yeah like a one time throughout on the depreciation that one somewhere around 200 to 250 billion that amount for depreciation in related to the row you for this I was 16.

Understood. Okay. Thank you.

Yeah. Yeah. So regarding the pricing strategy, it's true. So we have seen that both IOH and Telkomsel have increased their prices for the SIM cards. So the SP prices or the SP related product prices, we have seen that they have increased those prices probably in order to stop the use and throw behavior. So we have done the same. Our prices of the SPs have been also increased and Our strategy is simple. Any product that goes with an SP or with a SIM card needs to be always, let's call it, worse than the equivalent digital or voucher one so that the use and throw behavior is not incentivized. So we have increased the prices of the SIM cards and we have made the portfolio in such a way that it will always be better for a customer to buy a digital voucher or a packet rather than use and throw the same SIM card. Having said this, we are also going to increase because this is just a small part of the revenue, right? The SP or the acquisition product is a very small part of the revenue. So we are committed to keep growing, increasing prices, and we are going to do so in the coming weeks, not for the SP, which we have already done, but for the whole portfolio.

Got it. Thank you very much.

Thanks, thanks for the thanks for the next question is from a kill three ID of panning security this, what do you think about the 700 megahertz frequency auction that will happen in first half of 2023 I think this question is addressed to a good end.

Thank you for the question so last year, the government actually stated that they would. conduct the. auction for 700 first quarter 2023. But towards the end of 2022, actually they revised the statement saying that the 700 will be auctioned in 2023. So they do not, they didn't specify whether it will be in quarter one, two, or actually later of this year. But with that revision of statement, we think that it will be in the second half of 2023. And the reason is because we think that there are challenges in actually moving the analog TV to digital TV because the government needs to provide the STB for those who doesn't have digital television.

Thank you, Budhian. Next question is coming from johnson full of CMB you mentioned big ticket items are already spent, which are these items, and can you quantify how much was charged in 2022 and will this be recording in for the identity or these are non recurring.

Stoyan Bumbalov? Thanks for the questions related to the big ticket items, as you know, one of the big one last year was the 3G spectrum reforming there's a huge project that we took. Stoyan Bumbalov? A brief decision when the government decided we actually did quickly in Q1 Q2 last year and then finalized in Q4. And as we spend a lot of over there to ensure we get the optimum reframing of the spectrum result. As you know, we are now number one in terms of network quality as we thought of leveraging that, reframing that data spectrum. So that's one of the ticket item. The other things that we did was the digitalization. There's another heavy lifting that we did last year. But it won't stop, so we will continue on this digitalization journey. Hope that answered, Chunfeng.

Thank you, Pak Budi. A follow-up question from Chunfeng is, why Excel guided for flat EBITDA margin while we have made too high single-digit revenue growth and big-ticket items are already spent?

Yeah, I think we answered that already, that we still keep our guidance at 49%. But as you know, we are very opportunistic, right? Whenever possible, our operational excellence is always there. to become our main guideline whenever we make decision. Whenever opportunity is there, we always try to strike and then get a better margin position. But for now, unfortunately, we still keep what we call 49% as our guidance for the years. In terms of revenue, I think, do you want to comment? The revenue, why grow big ticket, single digit revenue growth only, high single digit revenue?

Thank you, everybody. So there are questions from Richard of three mega securities. I think the first question is on a bit of margin guidance. It was conservative. We have addressed it. And the next question is, do we anticipate any cost increases for 2023?

So the one that currently we're looking at for 2023 is the cost for energy and electricity. As you know, government already increased the energy and electricity last year, the fuel especially, 17%, but only for the consumer, not yet for the enterprises. So that's the one that we continue watching out. Having said that, we've been actively also investing to ensure we got electricity productivity So a lot of initiatives have been there to ensure that we can at least manage the impact to ensure it doesn't really hit badly on our P&L. So that's one thing that we're anticipating for 2023.

Thanks, Pak Budi. Chung Chen Fung also has the same question. Do we see any specific cost pressure? Fung, I believe that has been answered. Next question is from Henry Teja of Mandiri Securities. Can we provide more colors on the O&M negotiation that we have mentioned earlier, Pak Budi? And what is the cost reduction that we will get from TowerCost and will it be applicable to all network sites?

Yeah, so your questions, Henry, related to O&M negotiation, right? How much the cost reduction? So the one that we already booked in Q4 is pretty much the one-year top-up. For all costs, it doesn't really impact for the beginning of the year, but total cost is the one that we're looking at. Because you can imagine, Henry, if the portion of the OMN used to be 20% or 30%, and it's always being escalated every year based on certain parameters that we agreed with the vendor or with our company, And that portion being reduced, then it will reduce total cost 10 years of the contract throughout the years. So that's the one that we're looking at. In terms of numbers, roughly some contract 20%, 30% now become 5% to 10% only. So I cannot give you the figures exactly, but I think you can calculate.

Thanks, Fawudy. Follow-up question from Akhil Triadi of Finance Securities. How prepared are we for the auction of 700 megahertz frequency?

Yeah, again, thank you very much for this follow-up questions. Of course, yeah, spectrum is probably the most important asset for any opcos or any MNOs. So for 700, what we know currently is that the available 700 spectrum, it will be actually divided by several packages. So currently we know that probably all of operators will actually keen to get the spectrum of 700. For us, this also will be very important in getting the spectrum because it will actually strengthening our capability for the next generation Not only increasing capacity, but also coverage, knowing that this is a lower band spectrum. So at the moment, we are ready with funding for the spectrum if we win the spectrum. And we also already talked with the government on the importance of actually doing the spectrum auction as soon as possible.

Thank you, Ibu Dian. Next question is from Lydia. Sorry, Ibu? Yeah, OK, Christy. Continue. Thank you. Next question is from Lydia of eSpring. What is the proportion of postpaid subscriber between first and second tier cities? If we can share that. And what is the mid single digit growth guidance? How much is driven by ASP? Pak David, I think the question is yours, Pak.

So I don't think I can share the proportion. Actually, let me maybe refresh a little bit. It's first and second tier cities, but it's also ex-Java. So I cannot share the subscriber base that we have in ex-Java, Java, or second and first tier cities, but I can tell that the growth that we are seeing in general for the whole company, but also in priorities in those cities, it's big. Now to the second question regarding the mid-single digit growth guidance. Sorry, but what do you mean by the AESP?

How much of that is actually driven by our increases in pricing for the top-line revenue?

If we take a look also to 2022, I think there have been growth from two different areas. One is because we grow market share and those additional subscribers are giving us additional revenue. And the other part, It's because our subscribers consume more or spend more. And that is our subscribers spending more also comes from two things. One is from the price increases or the ASP, but also the other is then gigabytes per subscriber keeps increasing. So let's say that there are like three drivers. One is the pricing or the price of the data. The other is more consumption of data per subscriber. And the third one is increasing market share of subscribers. So all the growth that we expect in 2023 also will be divided in those three drivers. It won't be only the AESP. It will be part of the AESP. As I was mentioning, we are going to increase prices starting in quarter one. So we are going to do it soon. after the speed that we have already done, but we also expect to grow the market share of subscribers, and we expect also a natural organic growth of data per subscriber that is already happening.

Thank you, Pak David. Next question is from Chung Chen Fung of CAMB. Can we quantify the cost spent for the 3G shutdown and also digitalization in 2022? Was this all charged under OPEX in the P&L?

Yeah, so Chenfeng, there are two components, right? Some, but mainly on CAPEX, on this 3G shutdown, refarming, and also digitalization. For CAPEX, as you know, it's not so much on OPEX because of rental, because we basically replacing the active equipment and also core equipment with 4G. That's the big deal. So taking down the 3G equipment and replace it with the 4G. So mainly CAPEX. There are some OPEX like our 3G handset program that impact OPEX or COPS to be precise. So that the one that he think us about the amount for they cannot really share the figures, but you can see the up and down year on year figures and kind of like estimate how much stuff we don't want related to it.

Thanks, Pak Budi. Next housekeeping question.

Yeah.

A housekeeping question also from Fung Ba related to the reserve for the new income tax law implementation that was impacting our labor expenses. Will this be in port Q22 only? Is this a one-off?

It won't be one-off, so it's going to be here to stay for this Article 21. You know what's the law, yeah? I used to be in Indonesia, if you have some allowance, tax allowance, for example, benefit, it's not subject to Article 21, but you can treat it like a non-deductible expense in our P&L corporate. Now, since 2020, And 2021 actually, the government treat this as part of benefit that subject to Article 21. So we adjust it for 2022, then it becomes the new norm for 2023 onward because that's required by the tax law.

Thank you, Pabili.

Next question is from Richardson Raymond of Trimegah. How does management see higher possibilities this year? stronger revenue growth or better OPEX control that will drive our EBITDA margin above our guidance?

Okay, so regarding the revenue growth, as we were mentioning, we are expecting to high single, medium to high single growth, right? So we are optimistic towards the year. We see that competition is becoming more rational, and the expected macroeconomic impact with all the inflation, et cetera, that they started last year, we have not seen hurting the environment or the buying power of our subscribers. So we are optimistic. We see that still the share of wallet of Indonesians in Telco is low, so we know that we have room to grow. And again, being the competition more rational and with our plans to keep increasing prices, we are optimistic in the revenue side of the story.

Yeah, I guess the same on 49%, we cannot, we will not comment, but OPEX Frontal is there. Whether it's going to be above guideline or not, we continue exploring. There's always a room for us to look around. on our cost accounts that we're working on. Sorry, answering not straight to the numbers or figures here.

Thanks, Pak David. Thanks, Pak Budi. Next question is from Eta Putra of Maybank. It's actually the same question also from Richard Stearns. This is regarding the FMC business model. How do we see this going forward? What will be the potential?

Hi, this is Abhijit. Thank you for the question. We are very aggressive and ambitious about the FMC business model going forward. In the initial slides presented by Budhian, you must have seen the figures about our aspiration to achieve 450,000 homes connect and 150,000 homes with our convergence product, which is excellent. So FMC remains the key driver of our growth going forward. Now, what is the business model, right? So in the presentation, we also mentioned asset light. So this is typically how we look at growth options. We don't necessarily have to inject huge amounts of capex. There are a lot of players in the industry who are willing to inject capital in infrastructure. So what we do is we tie up with them through partnerships. So it becomes a capex light or a zero capex model for us. And mostly these partnerships are termed as build to suit or co-location models where somebody injects the CapEx, builds the infrastructure, and we ride on that as a service company. Now, the third element of your question was the business model and the integration with LinkedIn. So there are two fundamental areas we are looking at. First is the synergies. And the work has progressed significantly on these. So where we are looking at backbone sharing, some pole sharing, transmission, and we will also be tying up on CPE, the consumer premises equipment. So trying to eke out synergies in all these areas. And the second element also ties into the asset line, as I just mentioned, right? So we will be looking at Linknet's deployment engine to see if we can leverage that to build out new areas for us to drive our FMC strategy. Christy, do you want to read out the next question? I think it's related to the topic.

Yeah, go ahead, Pa.

Yeah, so Raymond, your question is expectations for how the FMC initiative will affect Excel's total revenue in the short or long term. Well, in the short term, our focus is on getting Homes Connect on board. Once we have subscribers on board, then that will drive revenue. So in the short term, I think there will be an incremental kind of impact. But longer term, as stated in our strategy, we see ourselves as a very strong conversions player in this market. And by that definition, obviously, significant portion of our revenues will come from FMC. And by the way, we are looking at FMC not only in the consumer side or just homes. We are looking at that in enterprise side as well.

Thanks, Pak Abhijit. Next question is from Chung Chen Fung regarding our increased fiberization rate that came up by close to 15 percentage point from 39 in full year 21 to 54% in full year 2022. He asked how much of that was self-built and how much is leased and do we have any target of fiberization for this year?

So the one that we did throughout 2022 is mostly on this model. So because, as you know, we apply operational excellence, right? So we always look at the cheapest, the fastest, and the highest return possible. And based on our calculation, the price, at least in the market, still very compelling for us compared if we invest ourselves. If you put the same fund as the same fund for the building of our own, the return is very low. So because the return is very better, then we go with the list model most of the time.

Thank you, Pabudie.

As addition to that, I think Not only from the cost perspective, but from the practicality, it is also easier to do it in the leasing model because those fiberization is true to tower, which is also owned by tower company in leasing model with us. So most of this fiber is provided by those tower provider.

Yeah, correct. As you know, the practice in industry, right? If you roll out your own fiber to the tower company, there's some fee requested by tower company. For part of the deals, we work with the tower company to provide the fiberization with zero fee for the access. And that's already very good on paper and in practice as well. And it's faster, as Budian mentioned. The permit, everything already are there for us to to execute. So that's why we go ahead with this list model more compared to if we do it self-deal.

Thanks, Budien.

Sorry, go ahead, Kristi. No, Pak.

Please, Pak.

Yeah, in terms of target, as you know, every year we're adding more towers as well, right? So 50% to 60% is the one that we continue looking at because as our number of towers continue increasing, then the ratio we're fiberizing compared to additional towers also align together.

Yeah, but now we also have additional reason why we need to do this fiberization. So initially, this fiberization is not only supporting our 4G, but also for the 5G, but now for FMC as well, because for FMC, if we have already fiber as tower, then the last mile for FMC, which will be much more economical and faster.

Yeah. And it depends on the plug as well, right? It's not always the best case to do fiber decisions, as Budian mentioned, depend on the opportunities that we're looking at and depends on technicality and also uh situation on the specific fibers that we only do so specific towers then we do the fiberization so you're not always going to be 100% fibrous thanks Pabudi possible to address the debt repayment that we have done in January 2023 and how it impact our debt profile Yeah, so after we use up 100% of the 5 trillion tests coming from the drought issue, our position in January, roughly, I can give the figures, is somewhere between 53% to 55% compared for the fixed and remaining with floating. So that's the position post the repayment. So still not CCT, but we are going towards that mix that we aspire.

Okay, next question is from Vaniko of Danarexa. What is the asset-light model that we are currently pursuing? And any specific Calco areas that it's referring to? And second question is on our guidance regarding the financial expenses for towers.

So Christie, Nico, I'll take the first question, right? Asset light is not a new concept in the industry. All telcos have been looking on ways and means how to lighten the balance sheet, right? By asset light, what we mean is it is not necessary for us to own a particular asset in our functional value chain in order to serve our customers better. A few years ago, telcos started selling off their towers. That is one example of asset light. Two, three years ago, Excel also divested our data centers where we formed a JV with PDG where we have an equity stake. We are also looking to divest any other asset in the company which is not core to the business and which helps to lighten our balance sheet and also serve our customers better. Now, the most recent example of this was illustrated in my previous answer. In order to build a home past and build fiber in the access side of our network, we don't necessarily have to inject CapEx ourselves. There are a lot of players in the industry who are willing to inject capital in infrastructure in Indonesia. And what we do is strike partnerships with them, which can take many forms, where they deploy the CapEx, build the asset, and we ride on the asset to serve the customers. So this is the most recent example. Second question, I think, to Prabhu here.

Okay. Nico, on the questions related to financial expense for towers and the interest moving forward, will it come down? As I mentioned, the Q4, the one that we booked, related to financial... Roozbeh Gharakhloo, Expense and interest for related to the power that one is one time, one time that also consists of some portion of our previous quarters, so you have to normalize kind of that. Roozbeh Gharakhloo, Situation, if you want to forecast your Q1 onwards, whereas for interest expense specific after we repay our. Roozbeh Gharakhloo, 5 trillion loan using that right, so we saw obviously our financial interest expense will be lower. after that repayment.

Thanks, Pak Budi. Housekeeping question coming from Henry Tejo of Mandiri Securities related to the bundling costs of the 3G shutdown program, Pak. And will it be normalizing in first quarter 2023? And have we finished doing the 3G reforming?

Yeah, as we mentioned, 3G pretty much refunding almost done, right? We can say done, if not. But then having said that, there's another situation that we are trying to tackle as well. The faulty, as you know, voice service still needed. So there's another program that we probably have to take care of after the 3G. After the 3G shutdown with that handset to faster the adoption of our 3G refarming to 4G.

Thank you, Pa. Next question is from Henry Sugiharto of Jarvis. Do you see collaboration in terms of rolling out XL Home with infrastructure players like TOWR?

And can we provide... I will take that question. Henry, hi. The short answer is yes. as we discussed previously, right? So a couple of things. We are seeking to become an asset-light telco. That means we will leverage other people's infrastructure to serve our customers. And as discussed, you know, answered by Budhian and Budhi, many of these tower players are doing fiberization as well. They have a lot of experience in laying fiber, in maintaining towers, maintaining equipment. So we see them as a natural partner in our drive. to roll out fiber in the access network as well. On the FMC product push with Excel Home and Linknet, it's early days yet. Linknet has taken our product and deployed it in their areas. I think currently we are seeing figures in the low single thousands, but as we move forward, we will be ramping up. I think one point to note is, again, in Ebudyan's presentation, we were mentioning that we are now ramping up our sales effort nationally to drive conversions better in the footprint. And we are working closely with LinkedIn on this topic as well. So we can start driving conversions deeper into their footprint and our footprint.

Thanks, Babijit. Next question is from Richardson of Trimoga. He noticed that the capex is lower this year compared to last year. Is this going to be the run rate onwards?

Hello, Jason.

Yeah, thank you for the question. So as you might be aware of that prior to 2021, our annual capex was around 7 to 8 trillion. But in 2021 and 2022, the capex was increased quite significantly, around 9 to 10 trillion. The reason is because we had to shut down our 3G, so we had to expand our 4G to replace the capacity and coverage that left by 3G technology. So in 2023, because we already completed our 3G shutdown, that requirement is not there anymore. So from this year moving forward, that will be our Riana E. run rate for annual capex, which will be around seven to eight trillion this capex requirement will stay the same until there is a new technology coming in, which is 5g and we think that the another capex high capex cycle for 5g will not come beyond 2020 so will not come before 2026.

Thank you, Ibudian. We have one last question from Ranjan Sharma of JP Morgan. Ranjan, go ahead and unmute your mic.

Thank you, Christy. Thank you, management, for the presentation and this opportunity. I have a bunch of questions. Maybe I can take them one by one. If I look at your presentation on slide 10, The infrastructure costs are down from third quarter to fourth quarter. The first question is, what's behind this? Typically, these costs should be going up. Is this the capitalization of costs recorded as DNA and interest expense?

Yeah, Ranjan, yeah. As I explained earlier, that related to the one time through up on that because our result negotiation with our company is more on the IFRS 16 treatment reduction on the rental network. And then we got a higher ROU depreciation and financing costs. So I think that's answered before.

Okay, so that drop from 993 to 662 in fourth quarter is primarily driven by capitalization of leases. Correct. Okay. From that perspective, if I look at your interest expense, it goes from $700 billion to close to $890 billion in the fourth quarter. Should we take that as a new run rate? I mean, you still have interest expenses going up, interest rates going up.

It's not going to be a run rate. It's a combination of a few things. One, because of the capitalization. Second, because we don't forget we repay 5 trillion our debt that will reduce the interest that hitting a P&L going forward. And you have to come like a mix the impact if you want to forecast.

Got it. And the depreciation and amortization like of 2.9 trillion because you have higher capitalization of leases?

Yeah. So depreciation roughly full year. That will be our base, but then it will depend on how we're going to roll out our capex going forward.

So just coming back to that, right? Apart from capex, you have significant jump in leases. Your capital, your capitalized leases have gone from 25% at the end of 2021 to more than 31 trillion in 2022, and that's been increasing through the year. So shouldn't that increase the DNA run rate?

No, that balance, the increase happening in Q4 because of the one that I explained earlier related to the tower O&M rent negotiation. And hence, we capitalized and ROU increased the balance, liabilities ROU.

And my last question is on the free cash flow. So even if I look at your 2022 numbers, if I just do a simple calculation of cash flow from operating activities minus capex, minus interest expenses paid and minus lease liabilities, you have a negative free cash flow of 1.4 trillion rupiah. When should we start thinking about Excel becoming free cash flow positive?

Yes, so as Budhian mentioned, as you can see, our capex on the high side in the last two years, especially last year also, $9 trillion in 2022. That's one of the driver for the cash flow operational. So with this year, we're back to the normal running rate of capex. Then it will significantly push up the operational cash flow. We are, in our indicated capex, we mentioned the one that we're going to spend around $8 trillion. So that will be the new guideline until the next technology coming.

Okay, got it. Thank you so much.

Thank you, Ranjan. Thanks, Babudi. We have two more questions. We are in the last five minutes of the call. The first one will be from Nico Margaronis. How much percentage of our XL home connection are based on fixed wireless access? And what is the incremental connection?

So thanks, Nico. So currently, actually, none are on fixed wireless access. It's essential to distinguish between fixed wireless access and LTE. So currently our customers on the fixed broadband are served through two technologies. One is fiber and a small minority is served through a wireless router using our LTE network. I think in the future when 5G comes, then we will start looking at fixed wireless access. Currently we are using the mobility spectrum LTE. Incremental connections predominantly will be based on fiber. till the time 5G comes. And once that comes, we will evaluate the business case and see whether we can deploy more 5G in the last mile using FWA. But till such time, it is far away.

Thank you, Babijit. Last question for today is coming from Henry Sugiyata of Jarvis. He wants to know the economics and also the commercial thoughts surrounding the infrastructure rollout partner for fiberization. Babijit, would you like to take this?

Yeah, I think this is a key area. So we've discussed in detail the asset light model. Economics and the commercial model is a function of two things. One is who is the partner and second thing is what is the business model that underpins the commercial model. There are a variety of infrastructure funds willing to deploy capital. There are a number of infrastructure players. We also spoke about tower providers. It really depends on who is entering this game. The economics is driven by their cost of capital, how much capital is required to deploy this, and then what kind of commercial arrangement they enter into us. And there are a number of commercial models available in the market. I mentioned co-location where, for example, a wholesale or an infrastructure builder will just come in and build a network and then go and talk to any operator interested or any ISP who will come and do right on them. The other type of model is what we call as build-to-suit, where we identify the areas where we are going to go in, and then we get somebody to come and build for us, and we do a long-term partnership. So really, the commercial model follows the business model and the economics of the infrastructure. I hope this answers your question. Thank you.

All right. Thank you, Pak Abhijit. So that question concludes today's conference call. Thank you, Ibu Dian, Pak Budi, Pak David, and Pak Abhijit for your thorough explanation. Thank you, everyone, for your participation in today's call. As always, do get back to us if you need further information. Please stay safe and healthy, and we will see you next quarter. Thank you.

Thank you. Thank you, everyone. Thank you. Have a good day.