Half Year 2019 Telekomunikasi Indonesia (Persero) Tbk PT Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Kresna P. Hutabarat - PT Mandiri Sekuritas, Research Division - Analyst : Firstly, congratulations to all the members of the BOD on the new appointment as management of Telkom Group and Telkomsel, and congratulations also on the solid performance in the first half '19. I have one question to Telkomsel and another question to Telkom Group. My first question to Telkomsel. If you look at the read across -- from the list of Telkom's first half results, it seems that Telkom's effective tower rental rate has declined by 3% to 4% in second quarter '19. So can we just get some update if Telkomsel has embarked on any rental rate renegotiation program recently? And if yes, how should we view this rental rate renegotiation opportunity in the context of achieving additional cost savings in the second half of the year and in 2020? That's my first question. And my next question is on CapEx for Telkom Group. So if you look at the CapEx run rate in first half '19, it's a bit -- it's looking behind CapEx guidance of 27% of total revenues in full year '19. So should we expect some acceleration in the second half? And perhaps, could you share some additional color on the CapEx profile for second half '19? Harry Mozarta Zen - Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk - Director of Finance, CFO & Director Okay. Pak Kresna, Harry speaking here. On the cost of tower, your comment actually, the explanation I can give you here is actually the rate that we have is actually competitive compared to the market. It's been almost similar applied to another operator as well. And then why the cost on us also really increased significantly because we already have around 50,000 of sites, which is in 3G, almost double, 98% of population. In 4G, now we close to 95% of population. It mean, actually, we're not really adding new site, just renting some new spaces in the same site. This also limit the increase of costs despite the number of BTSs increased quite significantly. So basically, the cost somewhat -- we can say competitive to the market. Second, our coverage is already very good. And so the increase of the tower lease merrily kind of incremental only to the existing costs. Are we going to see actually the biggest tower that are going to be renewal after 10 years in 2021, 2022? Definitely, we try to find a solution -- win-win solution with the tower provider, if we can, let's say, make the renewal becoming earlier. So both parties going to benefit when we starting to have another new 10-year of contract.

Question: Kresna P. Hutabarat - PT Mandiri Sekuritas, Research Division - Analyst : All right. Can I just have one follow-up question? I think, historically, there seems to be a correlation between CapEx run rate and also the group O&M expenses run rate. In the past, I think between 2012 to 2017, O&M expenses tend to accelerate when CapEx intensity picks up, but that's not the case this year. So could you shed some color on O&M expenses trajectory going forward? It looks like this year has been quite slow. So yes, I just want to get some color on O&M expense run rate for the year.

Question: Ranjan Sharma - JP Morgan Chase & Co, Research Division - Analyst : Just a couple of questions from my side. We have heard more news around new regulatory changes coming into Indonesia. If you can just comment on if you see any impact whatsoever from IMEI regulation, which the government plans to sign on the 17th of August. And also, if there is any update on the priority pricing regulation that we spoke about earlier this year. Then the other question that I had was on the mobile side. Are you seeing -- I mean some of your customers have reported a strong growth in customers. So are you seeing a return of the competition that you had before the SIM card registration that customers are trying to push or rather your peer are trying to push SIM cards into the market, which could lead to further escalation in competition?

Question: Ranjan Sharma - JP Morgan Chase & Co, Research Division - Analyst : Okay. Can I just ask one follow-up? On your CapEx-to-sales guidance of 27%, I understand part of that is related to a data center. When are you -- correct me if I'm wrong, but if it includes the data center, when do you expect to complete this data center? And does that form part of the revenues guidance that you were talking about for the enterprise segment of high single-digit? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. AUGUST 01, 2019 / 8:00AM, TLKM.JK - Half Year 2019 Telekomunikasi Indonesia (Persero) Tbk PT Earnings Call

Question: Choong Chen Foong - CIMB Research - Analyst : Two questions from me. Firstly, on the mobile side. Could you sort of provide us the growth rates that you saw in mobile for Java versus ex Java? I just wanted to sort of understand whether we are seeing faster growth in Java? Or are we still seeing quite good growth in ex Java? And then secondly, I noted in the info memo regarding the staff costs, you mentioned that there was lower actual expense calculation. How much was that in terms of the impact on staff costs in the second quarter? And were there any other exceptional items during the quarter either at Telkom or at Telkomsel? Those are my questions.

Question: Choong Chen Foong - CIMB Research - Analyst : Harry, how much was that in terms of the actuarial pension calculation? Was that a big factor that reduced the staff cost in the quarter? Harry Mozarta Zen - Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk - Director of Finance, CFO & Director For the pension -- the actual pension calculation was around IDR 130 billion decline. Actually, this is year-on-year, yes, not Q-on-Q. Unidentified Company Representative

Question: Choong Chen Foong - CIMB Research - Analyst : Okay. Understood. Okay, and just a follow-up question on the -- question on Java versus ex Java. I just wanted to understand whether -- are we seeing any increase in competition in ex Java in the last maybe 6 to 12 months? I mean except, of course, been explaining to ex Java, but some of the other smaller players, have they also sort of been -- become more active in expanding their network selectively into ex Java in the last 6 to 12 months?

Question: Prem Jearajasingam - Macquarie Research - Analyst : Two questions from me, please. First of all, earlier today, one of your competitors was talking about the advent of unlimited data plans in the marketplace. Now at this point in time, those price points remain pretty high. And it seems to be a bit more of a marketing ploy. But are you worried in any way that we could see an escalation in these plans and that could detract from the growth in the sector? Your thoughts around this would be very helpful. And secondly, just as a matter of housekeeping. I noticed that there's an increased focus in the whole -- international minutes business, which has driven your interconnect revenues as well as costs. Is there a reason for a bit more focus in this part of the business, given that it seems to -- all that revenue growth seems to be coming at an equal increase in costs? So i.e., if this dragging on your margins, what's your rationale there? If you could help me understand that. Harry Mozarta Zen - Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk - Director of Finance, CFO & Director Okay. On your first question, unlimited price plan. Actually, we see early this year -- earlier this year, Smartfren introducing this one. But later, they also limit one gig per day. Basically, if and when, I think, one operator try to provide this kind of plan, basically, we know it. What the actual number going to be consumed by this one. And I think some of this one merely gimmick to invite people. Some also divide the quota. For example, certain application that are going to be some quota for those. This is to attract, basically, to consume the basic package that are contained in that total bucket. But we believe this is kind of more to gimmick rather than we're going to do another price war in this time. That's what we can think.

Question: Prem Jearajasingam - Macquarie Research - Analyst : All right. So it's low margin but low effort as well. That's fine then? Harry Mozarta Zen - Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk - Director of Finance, CFO & Director Yes, absolutely.