Earnings Transcript for TLK - Q2 Fiscal Year 2023

Operator: Good day, and thank you for standing by. Welcome to the Telkom Earnings Call First Half of 2023 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Mr. Edwin Sebayang, VP of Investor Relations. Please go ahead, Pak Edwin.

Edwin Sebayang: Thank you. Ladies and gentlemen, welcome to PT Telkom Indonesia Conference Call for the audited results of Second Quarter Year 2023. There will be an overview from our CEO and followed by Q&A after the session. Before we start, let me remind you that today's call and the responses to questions may contain forward-looking statements within the meaning of safe harbor. Actual results could differ materially from projections or estimations and may involve risks and uncertainties that may cause actual results to be different from what we discuss today. Ladies and gentlemen, it is my pleasure now to introduce Telkom's Board of Directors who are joining us today

Ririek Adriansyah: Thank you, Edwin. Good afternoon, ladies and gentlemen. Welcome to our Conference Call for the Unaudited Second Quarter Year of 2023 Results. We appreciate your participating in this call. Second quarter of 2023 was considered as one of the significant milestone for Telkom Group towards the implementation of five Bold Moves. On that quarter to be exact on the 22nd of June 2023, Telkom has signed a spin-off agreement with Telkomsel that initiate segregation between B2C and B2B business. On the B2C business, Telkomsel will concentrate on improving the synergy with IndiHome to be the strongest Fixed Mobile Convergence or FMC, operator in Indonesia. By having the FMC initiative, Telkom Group is very confident to monetize revenue uplift, CapEx and OpEx efficiency to create EBITDA uplift starting as early as the second semester of 2023. On the other hand, Telkom will concentrate on B2B business that covers the monetization of it's fixed broadband in Enterprise segment or IndiBiz, enhancement of it's network infrastructure InfraCo Company, establishment of seamless Data Center Company by Telkom data ecosystem improvement of B2B services by synergizing Sigma Citra Caraka and Regional division and exploration of digital business prospects by creating digital ecosystem nurtured by digital business directorate. The market for B2B Business in Indonesia is promising and some of the prospect could become Telkom’s future engine of growth. Therefore in order to nurture B2B business prospect in Telkom to become tangible revenue and profitability generator, just recently Telkom initiated the development of Group Business Development or GBD Directorate, led by a director. Indonesia's enterprise and B2B business market is tremendously promising with several prospects, having the potential to drive Telkom future growth. The strategic move enable Telkom to proactively seek partnerships, foster innovation and capitalize on growth opportunities within B2B sector by creating innovation and strengthening collaborative relationships we are ready to create a dynamic ecosystem that drives mutual success and secure a thriving future for both Telkom and our valued business partners. On our financial performance as of second quarter of 2023, Telkom could maintain revenue growth by increasing 2.1% year-on-year and on a quarter basis, we could grow our EBITDA by 2.1% Q-on-Q where our quarterly net income went down 1.4%. This period, we have additional spectrum costs from our last spectrum obtained in 2022, which in the future will have positive impact on service quality and capacity. In the reported net income, you also got the impact from tax treatment because of the opportunity gain from GOTO shareholding. Mobile and Fixed broadband still dominate the revenue growth contribution. On the Mobile business, Data, Internet and IT service grew by 6.1% year-on-year, while IndiHome contributed 4.0% year-on-year growth. Mobile business continues to contribute positive growth on revenue by experiencing a 1% growth year-on-year, supported by growth of the digital business, driven by healthy growth of data and digital services. Telkomsel top line growth absorbing the impact of natural transition of legacy to data as we manage this prolong the tail through personification initiative in order to have more valuable package for customer needs. This EBITDA margin could be maintained at 56% mainly due to revenue growth and successful cost leadership program. Digital Business remained the engine of growth supported by the focus on maintaining dominance in network supply. This segment recorded positive performance with 7.4% year-over-year growth to IDR 37.7 trillion and increased its contribution to total revenue at 85.6% from 80.5% in the same period last year. Telkomsel maintained concentrate on customer value management with a customer base at 153.3 million in the second quarter 2023 increased from 151.1 million in previous quarter with improved productivity and quality of the customer as indicated by higher payloads and data user and solid ARPU growth from IDR 45,300 in first quarter to IDR 49,700 in second quarter of 2023. Through healthy conduct, Telkomsel build strong fundamental base and reflected to the growth of the payload align with the improvement of productive customer as well as ARPU and revenue. Ladies and gentlemen, The penetration of Fixed Broadband in Indonesia still posed big opportunity to grow. The FMC initiative continued to progress in second quarter marked by the signing of spin-off Agreement between Telkom and Telkomsel on 27th of June 2023. This initiative will enable Telkom Group to compete more aggressively in terms of existing customers acquisition and grab more new subscribers.[indiscernible], Telkomsel will prepare massive strategy that involve cross selling, upselling and product differentiation using FWA and FBB technology. During the first half of 2023, we continued to maintain our position as a market leader and recorded revenue of IDR 14.4 trillion Or grew by 4.0% year-on-year, where its contribution to TelkomGroup revenue increased to 19.6% compared to 19.2% in the same period last year. As a result of higher economic of scale and effective marketing strategy, EBITDA margin of IndiHome was relatively stable at around 50% in second quarter. From CapEx and OpEx perspectives. We recorded around 316,000 additional customers during first half of 2023 brought total subscribers to reach 9.5 million by the end of June 2023 or increased 7.2% year-on-year. Around 66% of total customers were on workplaces while remaining 34% were on Dual Play package while the remaining 34% were on Triple Play. We are more selective in getting new customers to ensure customer credit quality. IndiHome important role in building digital society as it's services cover [ 501 ] , 97.5% cities or district throughout Indonesia. IndiHome ARPU in the second quarter of 2023 was slightly declined to IDR 260,000 due to more customer prefer to subscribe the dual play package. IndiHome has become the market leader as main portion of the customer is on high income customer. To maintain the sustainable growth we are aiming the other lower income segment household for overall better services delivery across IndiHome's customer. Along with the economic recovery in Indonesia, Enterprise business segment also grew in a positive correlation. As of first quarter of 2023, Enterprise segment successfully grew by 7.8% year-on-year in revenue to IDR 4.5 trillion due to growing enterprise connectivity business, digital solutions and satellite business. This achievement marked a successful strategic alignment of enterprise segment business and hope to be in positive territory throughout the year. On the Wholesale and International business segment also experienced positive growth in the first quarter of 2023 by contributing IDR 4 trillion in revenue and increase 4% year-on-year. The driver of Wholesale and International business revenue growth was driven by our growing wholesale voice business and our digital infrastructure businesses. We believe that the consistency to implement the five bold move strategy would be our key for TelkomGroup to sustain it's dominancy in the digital telecommunication business, Indonesia and regional peers. After the spin-off agreement on the FMC initiative, we continue to pursue other strategy, especially in Telkom B2B sector and some important moves on 5 Bold Moves are as follows. On the 27th June 2023 after the approval from the minority stakeholders through unanimous decision of FMC independent AGMS, Telkom and Telkomsel finally signed spin-off agreement in which Telkom agree to transfer its IndiHome business to it's controlled subsidiary, namely Telkomsel. As the consequence of this transaction, Telkom's shareholder position increased from 65% to 69.9% whereby Singtel as the minority shareholder diluted to serve Telkomsel from 35% to 30.1% after capital injection of USD 250 million from Singtel to maintain its stake around 30%. The purpose of the spin-off itself is to maintain competitiveness and superiority of Telkom in facing the competition in the Indonesian telecommunications on retail segment. This also expected to accelerate and equalize the penetration process of broadband services for all people throughout the nation. In the spin-off agreement it is also stated that Telkom and Telkomsel agreed on the Wholesale agreement for the Industrial provision, the TSA 1 for fixed broadband and core service provision and TSA 2 for IT system service provision. Telkomsel and Telkom will be prioritizing in cost efficiency with no duplication of investment for the deployment of cellular and fixed networks and ultimately will create significant synergy values. As part of our seriousness to capture the opportunity in B2B, recently Telkomsel and Telkom has launched what called as IndiBiz on Digiland 2023 exhibition in Jakarta. IndiBiz is the solution for digital ecosystem solution for business to support micro and small medium enterprise or MSME, in Indonesia goes global. IndiBiz stands strong on four pillar, that is platform solution for digital services, collaboration with startups and it's developer to focus on supporting solutions for MSME, collaboration with the financial execution of MSME financing, and lastly collaboration with MSMEs community to improve their productivity. In the near future, Telkom will accelerate B2B segment transformation to it's seven Regional Division throughout out the nation to support MSMEs and local municipality government to do digitalization. Telkom has been pursuing infrastructure value and unlock FMC initiative. Telkom will continue to explore new InfraCo and infra sharing potential. This initiative aims at optimizing consolidated Telkom's CapEx and efficiency, quality improvement and coverage of service. We expect carving out Telco infrastructure assets can maximize valuations as well as to achieve strategic differentiation. In InfraCo initiatives, we will have a new entity in charge of managing Telkom's fiber assets, this entity will be established in this year and start running the business next year. By having InfraCo, we can make our fiber network position more neutral and can be used by the external parties. Moreover, with this initiative, we believe Telkom can optimize asset utilization and market penetration to cater Telkom business challenge and create business value that meets our investor expectations. As an effort to enhance competitive advantages, scalable competitive growth and high operation, we are still in the process of restructuring our data center business by consolidating the business and assets under one entity called PT Telkom Data Ekosistem with NeutraDC as the brand. Data center and cloud remain as one of the areas that became our focus as the demand is growing significantly with the rising activities in digital business players. With this, our digital carrier and cloud projects supported by supreme network and backbone as our key competitive advantage to lead the competition in data center business. With our integrated network, we are able to accommodate our future -- our customer future business digitization needs, such as edge computing, 5G services, blockchain and other digital solutions. And during the first half of 2023, data center and cloud recorded [ IDR 837 billion ] in revenue. As of June 2023, we have a total of 30 data center facilities, 25 in domestic and 5 overseas and spread out over the 4 countries, Indonesia, Singapore, Hong Kong, Timor-Leste. Our data center has ideal load capacity up to 42 megawatts. Locally, BC operated data center and 1 Hyperscale Data Center with a classification of Tier 3 and Tier 4, and our data center business provides several products and solutions, such as shared colocation, dedicated colocation, working room, cross connect, and smart hand, DC interconnect. Our tower subsidiary, Mitratel is now the biggest tower provider in Southeast Asia with position of more than 36,000. In the first half of 2023, Mitratel tenancy ratio improved to 1.9% compared to 1.6% at the same -- the first quarter 2023. Mitratel also enjoys a site diversification with around 58% of the tower are located ex-Java, while the remaining 42% are located in Java. Therefore, we believe the tower business still has opportunities to grow, driven by increasing demand for mobile data and the upcoming 5G technology implementations. On a stand-alone basis, in the first half of 2023, Mitratel reported revenue of IDR 4.13 trillion or grew 10.8% year-on-year, driven by total leasing revenues. EBITDA and net income grew by 16.1% and 14.7% year-on-year, respectively. Both EBITDA margin is expanding to 81.2%, increased by 3.7 ppt and net income margin is at 24.8% increased by 0.9 ppt. Colocation and a number of tenants grew by 19.1% and 24.6% year-on-year, respectively. Mitratel has demonstrated a strong financial position with the relatively low rate risk ratio at 1.8x net debt to EBITDA. This allows the company in securing growth opportunity while also providing stability to shareholders. Mitratel is also expanding to the Fiber to the Tower business as part of its strategy to strengthen its product portfolio to become a digital infrastructure company. Mitratel also strengthened the fiber optic business by deploying 10,628 kilometer organically in the first half of 2023 building total fiber optic line of 27,269 kilometers by end of the first half of 2023. That is ending my remarks, and thank you for your kind attention.

Edwin Sebayang: Thank you, Pak Ririek. We will now begin the Q&A session. When raising your question, please speak clearly and state your name and your company. Operator, may we have the first question, please?

Operator: [Operator Instructions] Our first question comes from the line of Piyush Choudhary.

Piyush Choudhary: This is Piyush from HSBC. Two questions, please. Firstly, in the nonmobile segment, we saw EBITDA margin has dropped to 45% in second quarter versus 48% in first quarter. So what is driving such margin decline because within the segment, we see IndiHome EBITDA and Mitratel EBITDA has been stable, which implies the other businesses, EBITDA margin has fallen significantly. So any color over there? . Secondly, on Telkomsel, congratulations on the launch of Telkomsel One brand. Could you help us understand what's the strategic objective here? Would it be to gain market share by providing bundling discount? Or it is more of a retention strategy to defend market share in the high-value segment. Also, any one-off cost due to this integration, which can come in the subsequent quarters? And finally, on the Telkomsel One, when would the cost synergies start to kick in, in the financials.

Heri Supriadi: Thank you, Piyush. Heri Speaking here. On your question on the nonmobile segment, why the EBITDA margin is a decline? There's some reason also. First, on the as you know well, allowance for bad debt, although it is smaller compared to -- it was in the first quarter of this year. It is still quite high anyway around spend. This is because we are in the process of conservative recognition of the cost and also revenue, especially coming from the enterprise segment. But this number is going to be a better month upon the year as we start to finalizing the administration and also want to strengthen the collection. So overall, this going to be in line with the revenue growth in terms of the allowance for bad debt. The reason coming from the interconnection. The investment action a bit as you may aware, some technology, 30% coming to these services, for example, coming from tech like WhatsApp and so on, replacing basically the regulatory coming from interconnection. This makes quite I think lower margin, although the volume is still there. But this is like competitive, the margin becoming smaller. That's why you see the cost of interconnection grew higher compared to the revenue, but it is still a profitable business. The other costs coming also from the -- I think from enterprise as well, some of the content that we will need to basically procure for the service also resulting the growth along with revenue. This [ monthly ] factor that affecting the non-mobile business EBITDA margin. But towards the end of the year, as we explained previously this cost supposed to be in the better state. So the margin that we can generate are going to be betterment.

Derrick Heng: This is Derrick. I will continue to add more color on Telkomsel strategy on IndiHome and FMC. So with the FMC's initiative, we want to enlarge the penetration of home broadband throughout Indonesia. We have launched more valuable proposition, faster product and services as we have termed as Telkomsel One. We enhanced the experience for our customers with 1 bill, 1 app, 1 touch point, 1 solution, which is new to our customers, which we call it unbreakable Internet. So the offers that we have introduced in the market include 1 Gbps package and we have a hero product of 100 Mbps with a -- including new features such as, Wi-Fi calling.

Unknown Executive: Yes. On number two, on how we're looking at the cost synergy. I think we've been identified this since the beginning and since we are the one moving to Telkomsel. The certain cost items that we have identified as immediate cost efficiency that we can manage. First of all, surface and channel integrations, we see there is a bigger resources serving both mobile and fixed immediately we can eliminate. We have the [indiscernible] duplicator we can easily eliminate. Part of that, I think we also can efficiently manage the call center and with managing the channel as one, as Derrick pointed out, we have now Mitratel from south have already been able to serve not only Telkomsel but also new customers. And having said that, of course, with more time that we adopt the channel as one also will be efficient in a way. And on top of that, we're also looking at the efficiency of the asset where we are now looking at how we can manage the CPE and device sourcing both for fixed wire access, which is Orbit that we have and also in CPE that we have for IndiHome that can be efficiently managed on the investment side. On top of that, in terms of channel and go-to-market executions, we're also looking at more cost saving on how we efficiently incentivize our channel. And not to mention that we continuously, efficiently platform costs that we are able to simplify that today, we have duplication on both billing, how we serve the video service platform. And going forward, of course, it is something that we continuously will reduce from time to time.

Piyush Choudhary: Got it. Thanks, Pak Heri and Derrick. Can I just confirm the cost synergies will start kicking in from the second half of '23. Would that be a fair estimate?

Mohamad Ramzy: Yes. In terms of the cost synergy, as this is Ramzy. As we already also put it when we do a non-deal show we expect that our synergy that we will get from these initiatives would be around IDR 5.6 trillion in the next 5 years. But for the immediate, I think we expect to be fair for this first year is about [ IDR 500 ]. It comes from the platforms that already been mentioned by Siti, as well as different market alignment. .

Unknown Executive: And basically, the saving or synergy that Pak Ramzy just mentioned, as you can see in the group level, there are some efficiency coming in the parent level and also the subsidiary, some are resulting from the Telkomsel.

Operator: Our next question comes from the line of Arthur Pineda from Citi.

Arthur Pineda: This is Arthur from Citi. Several questions, please. Firstly, on the OpEx line. When you look at your competitors, you're seeing well controlled OpEx and rising margins, and you're seeing some pressure on your margins on a Q-on-Q basis. What accounts for this and what can be done to address this? Of course, you're seeing O&M, personnel, cost growth as a problem. I know you mentioned a while ago, there are some issues on receivables. Can this change into the second half, even mobile didn't see an improvement unlike your peers. Second question I had is with regard to your fixed mobile convergence savings. You've mentioned around IDR 0.5 billion target synergy this year. Is this cost reduction? Or is this inclusive of potential cost savings, which we may not really see filter through to the margins on basically things like CapEx. And last question I had is with regard to guidance. Having seen the first half trends how do you see guidance for the remainder of the year?

Heri Supriadi: Heri speaking here. First, on the pressure on the margin. If you see from Q-on-Q, as Ririek mentioned, some cost is quite conservative recognition procedure that we apply, especially in the enterprise that rising year-on-year of the allowance for bad debt cost, for example. And then personnel include the cost of, I think, some relative benefit that we provide to the employees. This is going to be also normalized over the year. So we do expect the growth of the, I think, personnel cost going to be slightly lower compared to the cost that we recognized during the first half. And then the other costs also, we may see the benefit coming from example in the spectrum cost coming this year, actually coming since November last year. So this year starts in January, of course. This is going to basically reduce the need for us to invest more, I think our network infrastructure as compared if we don't have that additional spectrum. So along with the time that we basically use the spectrum mall the cost is going to be -- the benefit going to be actually going to be enjoyed by us. So that's going to be betterment in terms of maintain stability of the growth of the expenses itself. By having that scenario we expect here, actually, we expect we can see the benefit from the stability of the margin until the year-end and stability of the growth year-on-year of the cost that we mentioned. So that's I think about the cost figure in the coming half and we do expect this going to makes our margin betterment stable in the second half and towards the year. And then in terms of the synergy, the synergy basically coming from the both side. It is coming from the top line additional offside that we expect coming from the fixed mobile convergent as well as some synergy in terms of cost reduction coming from to eliminate the redundancy and then also some CapEx efficiency as well. So this for the first year, we expect we can recognize around IDR 500 billion of the cost setting of synergy. And then in the 2027, as mentioned by Pak Ramzy around IDR 5 billion to IDR 6 trillion combined of the CapEx and then OpEx as well as in the revenue side. I think that's a direct figure. The last, it is about guidance, how we see what is reminder of the year. We already explained basically the business potential. The challenge that we have right now, if you see from the figures, Telkomsel still had quite good revenue growth in the digital connectivity. But in the same time, for example in the Telkomsel case, they're covering by the around 25% of legacy decline. This limits the growth overall becoming only 1%, but in the digital connectivity, it is quite healthy. Provided that [indiscernible] the legacy is still quite high. We see that -- I think Telkomsel going to be improved in the second half, but this is still also offset by legacy decline until we finally are coming to the, I think, a quite stabilized among our contribution coming from the legacy. By having this situation and then some, I think we do also expect FMC can provide some value added in the -- we start to gain benefit from FMC in the second half. We expect some improvement from that. And then coming from, I think enterprise, I think the growth is supposed to be stable until the year end. And then from Mitratel they already recognized revenue growth around 10% to 11%. We believe this would be consistent towards the year-end. While having that situation, actually, we see actually that the revenue -- in term of revenue in group level, we see the growth of revenue going to around low to mid-single digit because of the situation. In terms of margin, we believe we're going to do our maximum level, of course leadership in the second half of the year, while try to pursue the revenue side. We are able to maintain the stable margin as we have today, 50 plus of EBITDA margin and around 17% and plus in the net income margin. That's going to be our target still. And the last on the CapEx, of course, some of the objective of FMC and also our objective to have I think value added in terms of the CapEx efficiency. We do expect the spending going to still around 25% of revenue of the CapEx that we're going to spend this year. So basically, only in the top line, we have a bit of change in guidelines, but in the midline how much we're going to spend in the CapEx remains the same.

Arthur Pineda: Sorry, just to clarify the comments on the margins for the second half, you mentioned stable margins. Are you referring the full year margins to be stable year-on-year? Or are you saying first half margins versus second half?

Heri Supriadi: Yes. We like to stabilize the margin full year until I come about. .

Operator: Our next question comes from the line of Hussaini Saifee from UBS.

Hussaini Saifee: Several questions from me. First is on the Telkomsel revenues where we had seen some softness or market share decline versus your competitors? I understand that legacy is one part of that. But do you see your competitors becoming a bit more aggressive or gaining market share in the ex-Java region? And the related question is that the data volume growth of Telkomsel, which is around 7%, 8% is significantly below compared to the competitors at around 15% to 20%. So I wanted to understand what is driving a slower data volume growth? The second question is on IndiHome. The growth is softer compared to the previous quarters. I just wanted to understand that how should we see second half for IndiHome in terms of customer additions. Any color on will the focus will be more on fixed wireless access customers or a combination of IndiHome or fiber and wireless access customers. And finally, Telkom is focusing or going to focus more on B2B business. And then the focus will be more on the collaboration. So I just wanted to understand that, will there be any initial investments required to grow B2B business?

Derrick Heng: This is Derrick. I will address your questions. With regards to competition, competition continued to remain rational. We see all our business focused on profitability and long-term service. However, we see aggression in some areas, which translates to price competition. And that's aligned to coverage expansion outside Java and offerings for [ ship pricing ] with prior quarter. So right now, we will continue to lead the healthy conduct, and we focus on profitability. With 2 CVM selected decreasing pricing, and we want to monetize data traffic and improve the renewal journey. So our initiative is to drive smart acquisition to defend market share aligned with profitability. If you look at our last Q, we have grown 0.5% Q-on-Q, over 153 million subscribers. We have applied consistent, healthy market conduct with smart customer acquisition strategy. With optimized CVM, we focus on renewables. So if you look at the customer base, we have improved productive and quality of our customers, as indicated by the growth payload and the strong ARPU growth, which is a plus 9.8% Q-on-Q and plus 13.1% year-on-year and that's aligned to our strategy to lead healthy conduct, drive market repair and industry pricing rationalization. So thoughts on paid load. Traffic will still grow positively aligned with our network quality improvement and increasing productivity by CVM and FMC and product simplification. So in addition, with the initiative of healthy conduct and high-quality staff, we will continue to drive productivity and ARPU improvement in the long run. So we want to manage pricing in a very prudent manner. Payload growth aligned, managed sustainability in terms of yield. I hope that answered your question.

Unknown Executive: On the IndiHome side, I think going forward, what we see the growth is in the various levels, 1 on how we capture the additional of home additions it's both combination between fixed broadband and visual assets. The way we see it we continuously drive the adoption of fixed broadband where it is available. And on top of that, the growth of revenue, which is also coming from driving the ARPU up for the high value customers. Where we see that -- to date, our hero product that we just launched is 100 Mbps. We pushing towards higher speed, higher ARPU in high dollar segment, including the addition or combination between Telkomsel, fixed and mobile in the Telkomsel One product. And on top of that, we also accelerated [indiscernible] fixed broadband assets to address the competition as well as to address the market penetration where our fixed broadband is not available. And we also use fixed broadband access in order to address an interim solution before we can actually serve the fixed broadband. So with that, I think our weapons to really attract the customer and address the customer of home broadband will be complete when we compared to our competitors. So we believe that sort of win for us.

Heri Supriadi: On your question, when Telkom focused on B2B, what the investment looks like. If we see the B2B, the base of the B2B, of course, we have connectivity. We still invest on that one. Of course, it is similar to basically a fixed broadband with the focus on the enterprise subscriber, of course, in this one. And above that one, there's something called specialities that we need to cater on that one. But mostly, actually, coming solution that -- some of that we come with the agreement in the term of partnership with our partners who provide such cloud, I think solution, but we did really want to add some.

Unknown Executive: So thinking of the growth, we also invest on the data center, since we also have started to the groundbreaking of second Hyperscale Data Center in Batam to capture the speed of demand from surrounding country include Singapore. We also expected that we can have additional capacity more than 21 megawatts this year.

Hussaini Saifee: If I can have a couple of follow-ups. On the Telkomsel side, just wanted to get your view as the focus is more on monetization. Do you see opportunities to further or maybe increase some prices in the second half? And on the IndiHome, just wanted to get your view that how would you characterize the competition in the market right now? I mean the softer IndiHome growth in first half was it because of elevated competition? Or was it because of more selective subscriber or new subscriber addition?

Derrick Heng: This is Derrick. I will address your question on what would be the potential price increase opportunities. Indonesia has one of the lowest data pricing in the world. So we saw 2022, we did Telkomsel the market repair, we have done pricing rationalization. In fact, during Lebaran, we did more for more from a pricing monetization perspective. What is good is we see all the operators adjusting pricing, but we have done it in a smart manner. We done it through CVM to address customer preferences, their requirements and in order to deliver better experiences. In fact, we have many options for our customers based on products, customers' preferences. So the impact of the adjustment will be based in -- will impact in stages, whether is it from a prepaid mechanism perspective, personalization, a rotational channels or dynamic competition in various areas. So this is how we see opportunities where we can acquire better pricing through smart CVM.

Unknown Executive: Yes. Well, it we'd like to add on that and also answer the IndiHome question. On the mobile side, I think the way we see it, we are always been consistent on industry growth and you can see from the first half result our ARPU are [indiscernible] increased and also the CBR are there. So we always demonstrate ourselves aligned with the industry growth when we come to the data. Now thing -- and Derrick will discuss on the service. On the IndiHome side, what we see, I think the market competition today, we are seeing, of course, some aggressivity on certain cities. They are very selective when they're entering the market. And the way we see it on those competition markets, of course, we always did to par with the competition. And to me, I think the IndiHome price is actually in the par situation. If you see from the average pricing of the 5 Mbps, it's almost the same. Now I think the game, we need to change a little bit. We shift gear to higher monetization on the higher speed, high-value customers, while we also collected through the rest of the market. That one, I think we used the new product campaigning the higher speed with affordability effort that we have. And with that, we believe that IndiHome with the penetration that we have on the network side, we're going to have that to leverage the value. And also that some of the markets, we are actually fairly high market in terms of share. So certain city, we don't have the competition. So in that condition, we can help to benefit better and monetize it.

Operator: Our next question comes from the line of Ranjan Sharma from JPMorgan.

Ranjan Sharma: Thank you for the presentation. A couple of questions from my side. Firstly, if I can just go back to the cost discussion. I'm seeing O&M cost up 9% quarter-on-quarter. Personnel costs, 10% up quarter-on-quarter. I'm sorry, I missed the part of the discussion on why the costs are up so much if you can revisit that. . Second question is again on if I look at your P&L, you have recorded like IDR 288 billion of nonoperating expenses if you can kindly explain like where that comes from? And the last question is more strategic Starlink seems to be getting licensed in a number of countries, most recently like Malaysia. If they were to get licensed in Indonesia, how would that impact your broadband strategy for IndiHome?

Mohamad Ramzy: This is Ramzy. To respond to your question about the cost side. On the O&M cost, yes, we have some incremental due to our investment in spectrum and it cost to the addition of about IDR 70 billion a month, but it will be a good cost because we will need it to provide more capacity and confidence to our customer without having to have some significant incremental in the CapEx side. The other part is...

Ranjan Sharma: Pak Ramzy, sorry to interrupt. The spectrum costs, when did they start from?

Mohamad Ramzy: It starts from last year because we acquired the additional spectrum in 42100 the...

Ranjan Sharma: So I'm making a quarter-on-quarter comparison versus first quarter, so that will not affect your cost comparison from the first quarter to second quarter?

Mohamad Ramzy: Yes. So I think on a year-on-year basis, as I mentioned on the spectrum side, because last year we haven't spent on that one. The other part is on the personnel cost because since last year, there is some new tax decree from the government on the income benefit tax late last year. We recognize that in the fourth quarter. This year, we start to recognize since earlier this year. So at the end of this year, it will be catch up and it will be normalized on the personnel cost, especially on the Telkomsel. It will be at around 5% to 5.5% growth rate.

Ranjan Sharma: Can you come back to cost again, like because you explained it via spectrum but that will not have an effect on a quarter-on-quarter comparison. So why is the cost up so much from the first quarter?

Unknown Executive: Okay. I think let's Pak Ramzy collect some more information on that question. But and then on the second question, in the profit and loss, you mentioned about our nonoperating expenses. How much you refer the number is?

Ranjan Sharma: IDR 288 billion for the second quarter.

Unknown Executive: Okay, in the second quarter. It is mainly coming from the interest and also coming from the foreign exchange net loss because we have for this case foreign exchange loss, we have in our book around USD 651 million. But during the same time, as you compared to the closing of the year 2022, the rupiah strengthened to USD, USD it bring us to the -- over to recognize some unrealized loss coming -- the change of the foreign exchange compared to our currency. That's why we still recognize some nonoperating expenses.

Ranjan Sharma: Last question...

Unknown Executive: For salary we only operate debt already and is starting in Indonesia is platform and how we manage the filing in Indonesia. And starting right now the licenses has already been published by government is only for the big wholesale services not for consumer services. So for the Telkom [indiscernible] will be used for the take hold of the cellular for the remote, extra remote area and also for the IndiHome and the calling. We started telling that selling in the assumption with will be increasing significantly as well as the better consumption of IndiHome and cellular being increasing significantly.

Ranjan Sharma: Yes. But my question is more around the consumer side, right, because in many countries, now they're providing direct services to consumers, they are licensed in 60 countries or so. So if it gets licensed and how that affect your IndiHome plans? .

Unknown Executive: Government does not published the license for the consumer business for filing in Indonesia.

Ririek Adriansyah: Let me add. Let's assume the scenario is the government is having the rational -- the price point will be different between starting every -- looking from what they have now is about $100 per month. Even if that is still higher than the ARPU of IndiHome. I think they are serving a bit different new segment. And then on the split also can be different between we have live and [ adoptive concerns ]. So I think the 2 are not really to have their way competing, but they have a different market segment.

Unknown Executive: As I highlight, basically, on the O&M costs, quarter-on-quarter basis, growth was 0.8%, but in the year-on-year basis, its growth about 6.6%. Most of the growth comes from the additional costs that we have to pay on the additional spectrum in 2100 as well as in 2300. So on that point, I think I would like to highlight that if we normalize that, I think the growth on O&M just around 2% and it's still aligned with the addition of the capacity and payload that comes to our...

Ranjan Sharma: Looking at different numbers, because I'm seeing 9% growth quarter-on-quarter. Maybe I'll send the calculations after this call.

Unknown Executive: Yes. I think we'll give more detail on that one after the call.

Operator: So our next question comes from the line of [ Aurelio Sathyapuri ] from BNI Securities.

Unknown Analyst: Just a few questions from my end. I would like to touch on the number of Telkomsel subscribers, which have been seeing also the growth in the second Q. So I want to ask what is your take on the subscribers going forward? Should we expect this to growth momentum to continue? Or are we going to see some more stabilizing at current level? And second part of my question is that you added about 2.2 million of new subscribers in the second quarter. But if we look only on the mobile data subscribers, it only added about 252,000 or about 11% of the new subscribers. If you can share a bit of comment on this pattern that we see would be very helpful. And also following this, on the ARPU, a nice churn of about 9.7% quarter-on-quarter. But with the model subscribers increasing only about 252. Should we expect this driven by the existing subscribers. And if that's the case, how do you see like the new mobile subscribers spending kind of like pattern there?

Unknown Executive: We are very sorry if the suddenly, the line will be off here because we have already reached the limit for the time.

Derrick Heng: This is Derrick. I will address the question. First on the Telkomsel subscriber seeing positive growth. Yes, we have managed to grow 1.5% Q-on-Q. And this is a testament of applying consistent, healthy market conduct. We have demonstrated smart customer acquisition strategy. We've optimized our customer value brand management, and we focus on renewal. So that results in a number of consolidation from healthy productive subscribers. From an ARPU perspective, we see stable customer base with improved productivity and the quality of customers, as you can see from the growth in terms of payload and ARPU growth. That was already a context to how we consistently drive healthier conduct and industry fronting rationalization. Telkomsel will continue to focus on improving high-value customers, monthly and highly known and our -- package to address different customer requirements, customer needs via granular marketing initiatives. So moving forward, we will continue to push ARPU with our customer productivity. And of the ARPU increase, we will look at effective as well as price adjustment opportunities. So for fair assumption, the ARPU level, we see will be stabilizing in 2H 2023.

Operator: So we have reached the end of the question-and-answer session. Thank you very much for all your questions. I'll now turn the conference back to Pak Edwin for closing remarks.

Edwin Sebayang: Thank you, everyone, for participating in today's call. We apologize for those whose questions could not be addressed yet. Should you have any further questions, please don't hesitate to contact us directly.

Operator: Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect.