TLK

Ladies and gentlemen welcome to the PT Telekom Indonesia Earnings call for the unaudited results of 9 months of 2024. We will start with an overview from our CEO and CFO of Telkom Group, followed by the Q&A session. Before we start, let me remind you that today's call and the responses to the questions may contain forward-looking statements within the meaning of safe harbor. Actual results could differ materially from projections or estimations that 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 Telekom's Board of Directors who are joining us today Bapak Ririek Adriansyah, as President, Director, and CEO; Bapak Heri Supriadi as Finance Director and Risk Management Director; FM Venusiana as Enterprise and Business Service Director; Bapak Bogi Witjaksono as Wholesale and International Service Director; Bapak Budi Setyawan Wijaya as Strategic Portfolio Director; Bapak Honesti Basyir as Group Business Development Director; Bapak Herlan Wijanarko as Network and IT Solutions Director; Bapak Afriwandi as Human Capital Management Director. Also present are the Board of Directors of Telkomsel, Bapak Nugroho as President Director; Bapak Wong Soon Nam as Director of Planning and Transformation; Bapak Daru Mulyawan as Finance and Risk Management Director; Bapak Derrick Heng as Marketing Director; and Bapak Adiwinahyu Basuki Sigit as Sales Director. I now hand over the call to our President Director and CEO, Bapak Ririek Adriansyah, for his overview.

Thank you, [indiscernible]. Good afternoon, ladies and gentlemen. Welcome to our earnings call for the unaudited 9 months of 2024 results. We appreciate your participation in this call. Ladies and gentlemen, in the past 9 months, Indonesia's economy has proven to be resilient. The confidence transpired to Bank Indonesia-led monetary decision to maintain the benchmark rate of 6% to ensure inflation will remain within the target of 2.5%, plus/minus 1% for the 2024 to 2025. Headline inflation recorded continued deflation to 1.8% year-on-year in September compared to 2.1% year-on-year in August. This marked the fifth month of consecutive deflation since May. Threat of deflation has been counting the consumption pattern of mass market and middle-income segment as they opted to dump credit spending when possible. Consumer spending tracked by credit and debit card transaction value is tightening. However, the slight pickup in debit card transaction value also shows that consumers are still mindful in spending their income. The third quarter is seasonally a soft quarter for Telco sectors, and Telecom is not immune to this. Nevertheless, data payload recorded growth of plus 12.4% year-on-year for 9 months of 2024, indicating stickiness and ongoing sales from legacy business. We also note some stabilization in the competition landscape indicated by the improvement in the supply-demand dynamic and price increase from other operators in starter pack and data packages, albeit selectively. Telkom Group remains committed in repairing the market structure by refraining from engaging in price war as we believe in more sustainable revenue generation by focusing to increase data consumption productivity of our client base. With President Prabowo's inugration on October 20 and the formation of his working cabinet, we see potential support in the purchasing power due to various social welfare programs being launched. Before I share updates from our corporate transformation journey via 5 Bold Move strategy, which started in 2022, please allow me to express our gratitude to our shareholders who have been with us through this process. We remain confident and committed to executing transformation strategies to future-proof Telkom Group leadership. However, we have to be more prudent when executing transformation during a relatively soft purchasing power environment and heightened competition in the sector to solidify market leadership. As part of 5 Bold Move strategy implementation, our corporate transformation group ensured that all business processes achieved efficient results with no duplication processes. An example, in the process of procurement, the rate of CapEx purchases for devices and networks have improved quite meaningfully due to group procurement initiative. This has been evidenced by our ability to serve broader market segmentation, notably in our consumer business segment. Such group negotiation process has additionally made a positive impact to digital content offering, of which in the end resulted to a better experience for our end customer and efficient content cost for the company. On B2B business, we continue to be agile, yet focused to create long-term sustainable growth of revenue on the digital connectivity supported by platform expansions with data center cloud as its business enablers. Apart from organic capacity expansion, we are exploring to have a strategic partner to unlock value while borrowing on their expertise to manage data center business. Through the partnership, we believe to set a better positioning in the market and optimizing our core competence, which creates long-term sustainability value to the group. We aim to conclude such initiative by early 2025. In Telkom initiative, progress has also been encouraging. We have confirmed that the operational day 1 for PT Telkom Indonesia as Telkom's infrastructure-managed service entity was on the 1st of August 2024. The establishment will also enable us to transfer efficient asset deployment while also improving existing infrastructure assets with additional investment to increase CapEx efficiency. With that, I would like to hand over the session to Pak Heri Supriadi, our Group Finance and Risk Management Director, to give you an overview of our 9 months' financial performance. Thank you.

Thank you, Ririek. Good afternoon, ladies and gentlemen. During the past 9 months of 2024, Telkom Group delivered a positive revenue growth of 0.9% year-on-year to RP 112.2 trillion with EBITDA of RP 56.6 trillion, a slight decrease by 4.1% year-on-year. The growth in our revenue has been mostly contributed from our continued efforts in promoting data and Internet services revenue amid continuing natural decline of our legacy business. The slip in our EBITDA, however, has been largely attributable to our investment to initiative toward talent rejuvenation via early retirement program during the second quarter. This has made personnel expenses jumped by 12.7% year-on-year in the 9 months of 2024. Stripping out the one-off cost from the program, our normalized EBITDA stood at IDR 57.8 trillion, of which declined by 2.1% year-on-year making the normalized EBITDA margin decelerated to 51.5%. Meanwhile, our operating net income declined by 5.1% year-on-year to IDR 18.6 trillion after stripping out to market effect from GoTo ARPU costs and one-off from unlocking asset at Telkomsel level. Taking a deep dive into our expenses breakdown, aside from the strategic initiative on early retirement program during the third quarter, we identified an accelerated cost of general and administrative of which come following a low base effect last year as a result of better recovery rate in collection during the third quarter of 2023. Further, we continue to accelerate investment in marketing spending on the back of our continuing effort expanding fixed broadband network of our consumer business. The total CapEx spend during the period reached IDR 17.5 trillion, largely used for connectivity, followed by spending for digital platforms and services. CapEx realization to revenue was at 15.6%, and we still aim to accelerate CapEx spending towards the year-end to a level of 22% to 24%, setting the foundation for future revenue growth. By the end of the third quarter, our total liability is relatively flat at IDR 130 billion. Our gearing ratio also maintained at a healthy level with net debt-to-EBITDA stood at 0.6x during the period. On B2C business during 9 months of 2024, Telkomsel posted a strong 16.4% year-on-year growth. This came on the back of integration of our IndiHome B2C business as part of FMC initiative. During the third quarter alone, however, Telkomsel recorded a slight decline in revenue by 2.1% attributable to the low seasonality impact, coupled by the weakness in purchasing power. Our digital business posted a healthy plus 2.5% year-on-year growth, heightening potential in broadband and digital services. This performance is supported by a healthy productivity subscriber base as our mobile customer grew to 158.4 million accompanied by improved usage pattern that enhance productivity and customer quality. Despite macro challenges and heightening competition, Telkomsel managed to continue to showcase its resilience by optimizing operational excellence. Our effort in continuing product innovation have been able to ringfence our positioning as a dominant market leader. The encouraging trend of data payload growth, we believe to be a positive momentum for us to monetize should we see an improvement in the domestic economy. Fixed broadband business continued showing solid growth, marked by plus 200.6% increase year-on-year as we integrated IndiHome to Telkomsel in the third quarter and grew by 0.3% Q-on-Q basis. This is driven by our expansion strategy, targeting broader segment and accelerated addition of 682,000 of new customers, bringing the total 9.4 million with ARPU at 239,000. And thanks to our synergy from FMC's integration, this has given us a better agility to scale up our network penetration with comparable returns to our shareholders. Our convergence ratio under FMC strategy has reached a 53% penetration rate, and we are committed to further bolstering this with appealing convergent offerings. This initiative supports customer retention and strengthens defensive value aligned with our ongoing execution of one billing system. The ninth month of 2024 is deemed to be a seasonality weak quarter for B2B, where our enterprise business and Telkom International as part of wholesale international business revenue recognition are expected to be backloaded. Mitratel, however, continued to show a solid revenue contribution of IDR 6.82 trillion. or 8.7% year-on-year growth and 5.5% quarter-on-quarter growth with EBITDA margin improved to 83.2% in the 9 months. We maintained our high single-digit revenue growth for the 2 business segments for the full year of 2024. In the past 9 months achievement and the latest development in the economy and the sector have been soft. Nevertheless, we maintain our guidance for 2024. We aim to grow revenue by low single-digit for 2024. We maintain EBITDA margin in the range of 50% to 52% and CapEx to revenue ratio of 22% to 24%. We continue to maintain market leadership initiatives by targeting CapEx to revenue to decline further from 17% to 19% by 2024. That would be the end of my remarks. Thank you for your attention. I now hand over to [indiscernible] to moderate the Q&A session.

[Operator Instructions]. We have one raised hand question from Arthur Pineda.

Three questions, please. Firstly, on the mobile side, I'm just curious, why are we seeing data revenues decline faster than your legacy revenues? Is this symptomatic of reduced top-ups due to the larger data allowances from the recent campaigns? The second question I have is with regard to the fixed mobile conversion strategy. Could you please remind us of the targets for the synergies for this project? We've yet to see any margin improvements on this account nor any revenue acceleration for broadband, which remains flattish on a year-on-year basis and Q-on-Q basis. How should we see this going forward? And just a housekeeping question as well on your cost bookings. I do know that your G&A was down a fair bit quarter-on-quarter. Were there any one-off adjustments being done for the third quarter? Or will these cost items be the baseline going into the fourth quarter?

Arthur, this is Derrick. I will answer your first question. To give more color to the digital business revenue, Telkomsel's digital business revenue, we saw a decline primarily due to increased competition and price pressure, especially in the mobile environment, which has led to strategic adjustments in pricing to retain market share, especially in price-sensitive segments. We have seen more pickup in the lower denom and sachet product lines. It's essentially to address the macro backdrop of economic pressure. Despite this, our focus on quality customer experience and network investments remains our priority as we navigate the very challenging current market dynamics. So besides the seasonal of quarter-on-quarter between quarter 2 and quarter 3. Actually, we also have a peak season in Q2 because of Lebaran. So of course, there is a slightly decline in our data revenue. However, it is actually not faster than the legacy. So our legacy is actually declined even faster than the data revenue. And of course, our main focus now is to make sure that this digital business that mainly comes from 2 parts. From the digital connectivity and the nonconnectivity ones. So we have tried to maintain the connectivity base, digital, but we also have some pressure on the nonconnectivity of the digital business. And that's like it or not, also affected by the policy from government on some illegal gaming that used to be okay before. Yes. So this, of course, is on top of the macroeconomic situation.

On the second question on convergence. I think what we have seen so far as we go to the period of transition on the fixed mobile convergence in terms of integration, we are doing the integration in the Q3 period where we have migrated our back-end system and trying to then starting to have a value on the revenue side. However, I think in the synergy value, we keep maintaining our track on progressing in the same target on the cost optimization where we do a lot of cost optimization on various of activity in terms of doing the sales and also part of the services, where we also closed down some of the duplications of the stores, which also impacted the cost. And on top of that, we of course, expect there is some improvement that we have done so far in the top line where we're able to also do some cross-selling. In terms of convergence customers, we have seen a continuous increase. However, I think part of the EBITDA impact and improvement still remain not yet seen in the financial figures. I think we have to also have to consider that the value of the synergy in terms of revenue is still not yet maximized in the first years of where we actually have the integration. Yes. To add that color, please also remember that although we are in the middle of the system integration post the migration of IndiHome from Telkom to Telkomsel, we still can hit year-on-year growth on our fixed broadband business around 2.8% and Q-on-Q for about 0.3% Q-on-Q. And this is mandatory for us to move forward, considering that our key focus on the next growth for fixed broadband is through FMC. And this is not visible without a smooth integration of the 2 systems after the consolidation. On top of it, we also have some investment that we have put to make sure that the cost on our FMC, including the fixed broadband will be lower for next year onwards.

So the cost savings benefit will only materialize into 2025. Is that how we should see this?

Actually, not only for next year. If we look at the synergy value targets, our target for this year is around IDR 1.9 trillion. However, year-to-date until Q3, actually, we have overachieved the target, but we don't stop at that point because we can still see some potential improvement that we can hit through the investment that can further reduce the cost in the future.

Allow me to answer your question, Arthur. Yes, we see in the G&A year-on-year increase, mainly contributed by the provision that we have. The increase in the provision was due to the low base effect of last year following a better recovery rate at that period. So we have lower base in 2023. So in 2024, becoming a bit of normal growth. However, if we see in the back of this one, this also contributed by some pending collection coming from the enterprise segment that's coming from big enterprise and AAA enterprise basically and also coming from the uppermment, which is, we believe, it is very much collectible later on. But based on the procedure or SOP that we have, we need to also put some provision on this, I think, a very healthy, let's say, receivable. So that is why in the G&A, we experienced upon the increase in third quarter of this year.

Sorry, just to add on that, Arthur, to add to the answer from Basuki and also from Mulyawan. The increase, if you see on the G&A, yes, on top of the last year low base, what you see is, as Basuki pointed out, it is a more prudent approach towards our enterprise business. That this may -- due to nature of the business, the revenue recognitions tend to be backloaded. That later on as we book the revenue, for example, in the fourth quarter, we may see some reversals towards this nature of the provisions that we added. On the Q-o-Q basis, basically, what you saw last quarter, there was a bit of more on the accounting recognitions, where in the second quarter, we saw a bit of an increase in the tax of properties, related to the properties. This is more on the subsea cable business. That last year was more loaded in the third quarter, but for this year was recognized more in the second quarter. But what you see in the third quarter is basically a normal run rate that we should expect to see as well in the fourth quarters. Hopefully, that answers your questions.

[Operator Instructions] Next question coming from Piyush Choudhary.

A few questions. Firstly, on Telkomsel, what is leading to increase in cost of services and O&M quarter-on-quarter? Like EBITDA margin is now down to 44% in third quarter. So if you could throw some light on the outlook for the EBITDA margin for Telkomsel separately? Secondly, on the mobile, can you let us know how are the trends during September and October? Is the revenue improving in month-on-month? And your peers, XL and Indosat have raised tariffs towards the end of 3Q. Have you also done that? Or what's your strategy here? And if I may ask one more third question. On FMC, can you update us on your billing platform integration? Is it complete? And when do you expect to launch new Telkomsel One plans?

Okay. Thank you. First thing is about the cost in the Telkomsel side. The first is in the third quarter, the higher cost is mostly coming from the operating and maintenance expenses in which the -- because of increase due to higher frequency, transmission and lease expenses tied to the network upgrades and in the home integration and also for the marketing costs driven by the intensified effort to expand customer base, particularly in youth and XL for segment and to accelerate fixed broadband growth aligned with initiative to maintaining market share in Java and defining [indiscernible] Java, while for the cost of service increase related to the enhanced digital capabilities and service to improve customer profitability, both in mobile and broadbands for in addition that the increase in the cost of service is also aligned with the revenue.

This is Derrick. I'll answer your second question on what is the trend moving forward. We have seen improved conditions over the past 2 months as supply and demand have begun to stabilize, signaling a healthier competitive landscape. This is further supported by the fact that the -- as you said, the competitors have started to increase pricing. We have been able to withstand the market pressure through several initiatives, addressing affordability and capturing the mass segment market through some of our initiatives like Telkomsel Lite, by.U, as well as the short-term sachet packages. And in that context, we have enhanced productivity and drive in payload. We have also enhanced products and services for our high-value customers and to monetize through CVM with more for more initiatives. Then, of course, we are on track with our FMC play. If you look at the traction of our FMC convergence penetration, we started at 37% in July 2023. We are now at 53% in September 2024, meaning that strategy of multiproduct holding in our customer base is moving traction. Our hypothesis is the more products they are with us, the stickier and more loyal they will be with Telkomsel.

On the FMC integration, we expect that the integration complete in this Q4. I think we are starting to migrate most of the customers today. And we have the plan to Telkomsel One plan to introduce to the customers. We have the piloting being done. And right after the integration completed, we're confident that we're going to introduce upcoming attractive convergence services to the customers to really not only attract the customers for the value of the convergence but also our existing customers as we have the attractive bundling that we can offer to the existing customers. To add to your question on whether we will be increasing pricing. As market leaders, we are always very careful and rational in terms of managing our pricing strategy, really to apply the right pricing and right offering to the relevant segments. The price increase will really depend on various conditions, especially the macroeconomic factors and competition. However, from a seasonality perspective, we will see year-end seasonal pricing adjustments. So that's on track with our plan.

So you have not taken price hikes so far, but you think seasonally, it's a relevant quarter 4Q, and that's why you may be able to kind of take up prices?

From a seasonality perspective, historically, we will have pricing adjustments. But from a strategic sustainable growth, we look at the productivity of our customers. We look at the right offers to the right segments. For segments that have the ability to pay, we will look at more for more. And for mass market segment, we will drive our very affordable sachet pricing packages.

Yes. So some additional information on the pricing adjustment. Actually, last month, we have priced up our price for legacy services because we well understood that the number of users in legacy is consistently declining. So to slow down this decline, we have done the price up to maintain the existing revenue. And on top of it, besides the seasonal price in the end of the year, as we have been doing for so many years, we have seen also some opportunities to monetize further our mid-high segments of customers in response also to the macroeconomy as well as the competition that I think it is the right time, and we are looking into these particular segments for some price up, especially in the broadband.

And one question was missed on EBITDA margin outlook for Telkomsel, if you can.

Yes. Okay. As we can see in the third quarter, the EBITDA margin declined as we explained because of the expenses related to the cost of sales and also operating maintenance. And then we expect that the EBITDA margin for the year-end '24, considering the current macro condition and also the competitive landscape, we expect that the EBITDA margin is around 45% to 46%.

Our next question comes from Sukriti Bansal.

Two quick questions from my side. Firstly, on FMC, I understand that you said you've overachieved your IDR 1.9 trillion synergy target for the year. Can you help us with a breakup of this? And if I understand correctly, this is the gross synergy. Is it possible to share a figure given you would have incurred cost, what is the net synergy value that you've seen? And if there's any guidance from FMC, what is the kind of synergy you're expecting going forward? And second question is on cellular. On Telkomsel, I understand that this is a seasonally soft quarter, but we've now seen ARPU declines quarter-on-quarter for multiple quarters. What is our outlook going forward given -- how much room do we actually have to increase prices? And are we seeing greater traction on some of our more mass market segments like Telkom satellite and By you? And given the combined effect of the 2, how do we see ARPU outlook going forward?

Okay. On the synergy value, I think the value that we have today mostly comes from the cost side. In terms of upside on the revenue side is on the top line is coming from the cross-selling. However, as we shared with you that the integration period will be done in the end of this year or quarter 4, we believe that there is room for us to continue to improve our synergy value due to our revenue uplift from the FMC product and convergent services that we offer to the customers. Moreover, I think there is more and more on the cost side that we can continuously leverage. We have continuously evaluated our customer touch points such as the Plaza and Grapari that we have duplicated. We have also some elimination on the call centers and all others that we have today, including, I think, some of the back-end systems like analytics and all that we can actually leverage both fixed and mobile, which we're able to improve our cost in the near future. So that's something that we expect that we can improve on the FMC synergy fairly going forward. So, I'll answer your question on the ARPU, right? The decline in ARPU is primarily driven by the ongoing contraction in legacy services explained by Basuki. So it's declining at a rate of 20% to 30%. And of course, the context of seasonality, Q3 is traditionally soft. And that is also coupled with the challenging macroeconomic condition. However, we see the customer base remains stable as we address the market demand and affordability concerns through low denomination and sachet packages. And we have seen positive signs in productivity. There is strong data growth in terms of traffic, indicating resilient demand and our ability to leverage on superior service and product offerings. From a trend perspective, we see if the market conditions stabilize, we aim to improve customer productivity, and we will achieve ARPU uplift through initiatives like trying to encourage higher tier package upgrades and enhancing digital content to attract higher value from our customers.

Okay. To add to that, I think to answer your point on how is the traction on mass and use market segments. I think using Telkomsel lite and by.U as we go along until the Q3, we've seen that the good positive progress that we have been able to get traction from the market and especially on the Java market where we've seen that the productive of broadband customer base that we have are improving from time to time since we launched Telkom satellite, and this are also addressing to the right strategy where we have seen that the economic condition and macro are impacted in this year, we have Telkom satellite to back up our strategy to maintain our customer base as well as to maintain the competitive in the market. On top of that, I think in compared to the ex-Java, our main concern is that the legacy portion are still big in ex-Java. So we are actually happy to see that our CVM progress so far are being able to continuously maintain our competitiveness in the markets to maintain our existing and dominant in the ex-Java. So with those 2 combinations, including with FMC, we believe that going forward, we would have to be able to stabilize the ARPU as well as the plan that we have on seeing the economic condition on the market and also segments, there is some segments that may be able to monetize in terms of price adjustment and all as we see the market conditions.

This is Oki from IR. Just to add some color in regards to the synergy on FMCs. On the CapEx efficiency, we have started to see some improvements and hence, our now ability to broaden our market segmentations at the Telkomsel level and make it a lot more economic viable. And that is a result from the -- our ability to lower down the CapEx rate that done through mega-vendors. I hope that answers your questions.

Adding to what Oki just mentioned, actually, when we see the synergies, it does not only happen in Telkomsel level but also in the group level. For example, in the CapEx just mentioned by in the Telkomsel level. But actually, the business came between Telkom and Telkomsel in which Telkomsel basically leased in the network from Telkom. The rest of the lease is going to reduce from time to time. So currently around 59% to revenue next year going to reduce to 57%. And then it means the Telkom side, we also need to do some efficiencies, as mentioned by Oki in that Telkomsel level that way. For our side, in the last mile of the network for fixed broadband that we deploy in the last 2 years, we're able to reduce the CapEx per line around 30%. And also in the same time, the operation and maintenance costs on the per line is also reduced around 15%. So with that, we are going to have our flexibility in, let's say, penetrating the market while we maintain the margin in this fixed broadband business. Hope that I think adding some more color on this FMC.

We will move on to Marissa.

Same question as the previous one actually, but if I can follow up on the cost side. Were there other posts or areas where you see meaningful increases that sort of offset the savings and cost, given if you look at the normalized margin, for example, it continues to trend lower. So it's not really reflected in the margin. And if you expect to see some sustainable synergy coming to 2025, should we then expect margin improvement next year or if you actually still see some challenges on margins?

Marissa, I think on the offset saving, as we also already mentioned in some cases, I think fixed mobile conversion, it is also happening across the group. And then how the cost in the upcoming year, for example, we are going to continue to reduce the growth of cost. We do understand that we continue to put our CapEx. It means more networks in the field that are going to also cost some operation and maintenance increase a bit. But this increase, we aim to try to limit the increase by having, let's say, more marginal increase in the operation and maintenance cost. So with this, we do expect the cost going to be more, let's say, manageable. Some costs that we have incurred, for example, in the personnel cost this year increased quite significantly because we have one-off of the early retirement program. That's supposed to also contributing some cost management in the upcoming year as we reduce 5% of our employees based on our rate, the growth of the employee cost actually around 4%. We do expect that this is going to basically manage the cost of personnel in the upcoming years. With this, we do expect that we're able to manage the cost in the, let's say, moving forward, I think should we have, let's say, revenue growth betterment next year compared to this year. Of course, as you mentioned, it is supposed to bring to a better margin.

This is Oki from IR. Just to add what Harry was saying. In regards to the CapEx, I mean, in the previous year and for the personnel, we have working on the 20% of our CapEx. Our next cost initiative is going to be towards the 60% of our CapEx, which is the O&Ms. Hence, our plan to reduce CapEx ratios to revenues from currently 22% to 24% to 17% to 19% by 2028. Harry earlier mentioned that this is viable in our views that should be able to be taken through a couple of reviews such as our network technologies that are expected to be more efficient going forward. And then the new technologies as now we see a different competitive landscape that we see in the market should be able for us to use the technologies adoptions that is suitable for the business. Another thing is the group renegotiations that we earlier discussed, which is now enabling us to serve a broader market segmentation. And the last part is when we prepared the CapEx in the past, as it reached 50% of utilizations, we have started already preparing the new CapEx. Now I think we can see some room for us to optimize the utilizations up until 70% before we start preparing the CapEx. So with that, we are hopeful that the cost side can be a lot more manageable to go subpar to our revenues. I hope that helps.

Okay. Maybe just one more. Maybe it's a bit further out as well. But do you foresee kind of a steady state level on EBITDA margin? And I'm talking about the normalized EBITDA margin level. Is it probably possible to get more than 50% in the next 2 years with this FMC synergy and so on, things like that?

Okay, Marissa. I think with the growth we do expect our growth in the medium term supposed to be around, let's say, mid-single digit. With that, I think most of the costs already in the very good shape. We also attack the cost with some new technology and so on and some with, let's say, better result from procurement, as mentioned by Ririek. I think we do believe that very possible.

[Operator Instructions] We will move on to Henry Tedja for the next question.

Perhaps 2 questions from my end. First one on the Telkomsel. I mean, we understand that the lower or basically the revenue decline on the Telkomsel could be attributed to the macro and also the competition. But I mean, if you look at on the data traffic or data payload, I think the management mentioned several times of the customer productivity increase and how Telkomsel basically gained the market share. So just curious whether the management focus right now has changed from profitability to the market share? And perhaps can you share some color what is the driver of this higher data traffic growth? I mean, do you think that comes from the cannibalization as Telkomsel now put more focus on the low segment and new segment, which perhaps deliver a lower ARPU compared to the existing customers? And then my second question, I think if you look at on the datacom and Telkomsel performance in third quarter, I think the non-Telkomsel performed better in the third quarter. So perhaps can you share some color on which business that really drives the performance in the third quarter for Telkom Group?

Yes, Henry, I will address the context of ARPU. The ARPU decline is really reflecting the typical seasonal trend and our increasing share of the entry-level data packages given the economic pressure, we wanted to address and be more relevant to the more price-sensitive customer segments. Having said that, we saw data traffic has grown to higher consumption, especially in entry-level and promotional plans. However, this traffic growth has not fully translated into ARPU uplift due to the lower price points in these packages. But we are focusing on addressing ARPU resilience. We want to drive the stability and the upselling from encouraging high-tier packages upgrades, and we want to also push more digital content to add more value beyond connectivity. We will address the market demand and affordability concerns through these low-denom and social packages.

And to add to that point, I think our focus remain on the profitability. While we share and improve our traffic growth in those segments that we give more quota, more bonuses. We believe that we are doing that in the back of our remaining capacity utilization that are not adding any investment further. And on top of that, I think what we've seen is that this traffic growth is a good indicator for us, both in Java and ex-Java market, which we believe that besides we have maintained our productive growth of the traffic in terms of the users, both in the low segment and high segments, we are able to continuously seeing that the productivity on the broadband side is improving. In the ARPU, as Basuki mentioned, it is mainly majority impact to the -- because of the legacy portions as we -- if we dissect analysis on the ARPU base in terms of how the ARPU is actually declining.

Okay. On the non-Telkomsel business performance, as we may explain here, some of our subsidiary performed pretty well, which is coming from Mitratel and then Telkom International as well as DC, which has grown around 9% year-on-year. In addition to that, our B2B business grew by 3.8% and we believe, as mentioned in the, I think, presentation that this B2B business can grow up to, let's say, high single digit by the end of the year. So that's about performance on Telkomsel.

Sorry, perhaps one follow-up question on the Telkomsel. I mean, you basically mentioned all this data traffic growth basically coming from the entry-level kind of products and also some promotional packages as well. So just curious whether you can really monetize it in the future as perhaps the segment that perhaps subscribe all those products might be the low customer segments that might be churn when you increase the product prices and et cetera? So just curious on that.

Yes. We are optimistic because from this high data traffic growth, it has indicated a resilient demand and it is really our ability to leverage on a superior service and product offering. So we will want to remain optimistic in this positive signs for -- in terms of productivity.

Sorry, just to add on that, Henry, Oki from IR. Coming back to your first point in regards to your questions on why are we now serving the broader market segmentations. Please rest assured that this has been conducted with the -- at a very careful manner at the same time as now while we are serving now broader market, both on the mobile as well as the fixed broadband, our cost side is also something that we continuously manage. And hence, our discussions earlier on the synergies that conducted between Telkomsel through FMCs as well as from the Telkom Group levels. So with that, now despite the broader segments that we capture, the economic remains at a favorable manner to us. And as well as [indiscernible], as we discussed as well in the past that the entry by -- with the new entry point levels is focusing in the area that we are lacking in terms of market share so that in the end, it will not be cannibalizing the main products that we have. Hopefully, that answers your question, Tedja.

Moving on, we will have a question from Ranjan Sharma.

Two questions. Firstly, on the data usage under the current discussions. There seems to be a lot of focus on productivity of consumers, but it just seems like it's because [indiscernible] data has been given. So you're seeing a tremendous growth in usage, but it's not being monetized properly and that's never been a good outcome for shareholders, unfortunately. So I just want to try to understand why is the management now focusing so much on the productivity of customers rather than monetizing the customers better when the earnings are under pressure. I mean are you also looking to segment the market in a different way, monetize the higher-end users more so you can subsidize the low-end users? Just trying to understand the management strategy. The second question is on the broadband side -- sorry, on the InfraCo side, if you can tell us where you are with respect to opening up of the InfraCo and trying to grow it further?

Can you repeat the second question, Ranjan?

Yes. The second question is on the InfraCo. I understand the plan was to open up the InfraCo and to grow the business further. If you can tell us where we are with respect to the fiber InfraCo?

Ranjan, I'll answer your first question. From a monetization perspective, we always carefully evaluate based on market conditions, competitive dynamics, and the macroeconomic factors. I think Telkomsel strategy has proven that we are on the right track. And we are being relevant, we are adaptive to the macro condition while maintaining our competitiveness. We are optimistic that as market conditions stabilize, then with a dynamic balance in terms of supply and demand, we are well positioned to seize the opportunities of recovery, and we will capture the ARPU uplift momentum once the demand rebounds.

On the InfraCo, actually, we already established our fiber company, we call Telkom Intra-structure Indonesia and start from 1st of August, Telkom Infrastructure Indonesia already manages all Telkom fiber asset by managed service and operations scheme. And in the end of this year, Telkom Infrastructure Indonesia will start to commercialize our fiber asset. Thank you.

Can I have a quick follow-up on that point?

Yes, please.

So as we open up the InfraCo through wholesale access, can you tell us like how are you going to approach the market? Is it going to be a nonexclusive, none discriminating pricing? Or is there a different pricing for Telkom versus other players in the market?

Of course, we have to follow the regulation of the antimonopoly equally, Ranjan. But of course, there is some business scheme that's [indiscernible] regard to, let's say, on the volume consumption and other that we have to be referred as a part of the pricing scenario.

Thank you. Ladies and gentlemen, due to the interest of time, we would like to limit the questions. We understand that there are still a couple of questions that has not been addressed. We will get back to you. I will now hand over the session back to Pa Oki.

Thank you very much, ladies and gentlemen, for joining the call today. I would like to conclude our call for today. Please feel free to contact us any time should you have any more questions to IR, and we'll be happy to answer your questions. Thank you. You may leave the call.

Good day, and thank you for standing by. Welcome to Telkom Earnings Call for First Half of 2024 Results. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the call over to [ Oki ], VP Investor Relations. Thank you. Please go ahead.

Thank you, gentleman. Ladies and gentlemen, welcome to PT Telkom Indonesia conference call for the unlisted results of first semester of 2024. There'll be an overview from our CEO [indiscernible] of Telkom Group followed by the Q&A after the session. Before we start, let me remind you that today's call and the responses to the 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 discussed today. Ladies and gentlemen, it is my pleasure today to introduce Telkom's Board of Directors, who are joining us today, Mr. Ririek Adriansyah, as President, Director and CEO; Mr. Heri Supriadi as Finance and Risk Management Director; Mrs. Venusiana, as Enterprise and Business Service Director; Mr. Bogi Witjaksono, as Wholesale and International Service Director; Mr. Budi Setyawan Wijaya, as Strategic Portfolio Director; Mr. Honesti Basyir, as Group Business Development Director; Mr. Herlan Wijanarko, as Network & IT Solutions Director; and Mr. Afriwandi as Human Capital Management Director. Also present are the Board Directors of Telkomsel, Mr. Nugroho, as President, Director; Mr. Daru Mulyawan, as Finance and Risk Management Director; Mr. Derrick Heng as Marketing Director; and Mr. Adiwinahyu Basuki Sigit as Sales Director. I now hand over the call to our President, Director and CEO, Mr. Ririek Adriansyah for his overview.

Thank you, [Oki]. Good afternoon, ladies and gentlemen. Welcome to our conference call for the unaudited first semester financial results. We appreciate the participation in this call. Ladies and gentlemen, we have seen 2024 as the year of better economic stability and growth compared to the year of 2023. The initial target of 5.2% economic growth rate in 2024 as compared to 5.05% growth in the previous year despite challenges such as declining commodity process and global economic conditions. Domestic consumption is predicted to contribute more than half of Indonesian economic growth supported by [indiscernible] and stable inflation rate of 2.5% plus or minus 1%. Indonesia is highest employment rate country among G20 nations with employment level of almost 70%, although [indiscernible] employment comes from [ employment ] sector. Now the elected president Prabowo Subianto and his administration commit to several current [indiscernible] policies signal stable investment climate and reduced political instability. Energy and food price volatility along with strong U.S. dollar to Indonesian Rupiah should be [indiscernible]. Our growth remained a significant potential for [indiscernible] growth as expanding rates of high-tech products and maximizing the impact on employment could help boost our economic in the case of external financial pressures. Telecommunication industry contributes to the growth of high-tech products and business opportunities in increasing the economics of macro, micro, small and medium enterprises or MSMEs [indiscernible] wholesale spending growth in Indonesia [indiscernible] and the effect of increased spending, including in the telecommunication sector. Telkom Group has been transforming to digital services company serving both B2C and B2B segment, we are ready to catch up the opportunity of increasing telecommunication steady growth. Our [indiscernible] telecommunication company enables us to become the retail economic catalyst for Indonesia. This is important while the industry is in the first solution having the first unique technology coupled with retention of the global geopolitical environment. On the B2C segment, we have implemented fixed-mobile convergence or FMC strategy for one year since 1st of July 2023. And [indiscernible]. Further, [ technical service ] by launching Telkomsat One [indiscernible] offering, Telkomsat Lite and value secondary brand to maintain market share register while we remain focused on profitability so far [indiscernible] and does not create price instability in the market. This has been [indiscernible] distribution of our ARPU during first semester of [indiscernible]. Mobile customer base grew at a healthy 4.3% to 159.9 million subscribers. As a result, normalized EBITDA margin has also been sustained at 51.9% for this semester. We remain of the view that with necessary consolidation and healthy pricing could be developed toward healthy competition. Moving forward, the synergy effect from the FMC initiatives serve as revenue uplift, OpEx efficiency and CapEx efficiency [indiscernible] to ensure maximum effect of FMC strategy to our company's financial. A part of [indiscernible] 5 Five Bold Moves strategy, our corporate performance and group make sure that all business processes achieved efficient results and no duplication processes within our organization. This includes, for example, in the process of [indiscernible] where thanks to a product of group purchase initiatives. The rate of CapEx purchase for [ devices and network ] have improved quite meaningfully. Such a group [indiscernible] process as additional made positive impact to digital content offerings, of which in the end of resulted to a better experience to our end customers, efficient content cost for the company. [indiscernible] we are also successful in [indiscernible] transfer payment mostly in Indonesian Rupiah contract to offset foreign exchange uncertainty. Similarly in June 2024, the group has also initiated an early pension program. This affected more than 1,000 employees. This profile in line with our budget to optimize and fashion [indiscernible] as well as to create linear [indiscernible] 5 Bold Moves strategy. The program cost has a total of IDR 1.24 trillion with a payback of 2 years. That initiative is aimed to less probability [indiscernible] capital and enhance shareholders' value in the future. On the B2B business, we continue to be agile and get focus to create long-term sustainability growth of revenue [indiscernible] supported by platform expansions with data center and [indiscernible] business [ envelope ]. Our additional data center capacity within 2024 will be contributed mostly from hyperscale data center by 18-megawatt in Cikarang as well as our capacity expansion of all [indiscernible] data centers and RS data centers [indiscernible] the established competition in order center could be allocated to a small cloud storages and processing demand driven by artificial intelligence standards as ultra-high decision content [indiscernible] and gaming. International [indiscernible] subsidiary of [indiscernible] end-to-end data center connectivity by building from data center premises up to international gateway. With the international [indiscernible] business as term source of revenue, Internet connectivity quality and latency will improve, since Internet traffic could be rerouted to the Southwest International Gateway. This might pass though [indiscernible] Singapore and [indiscernible] many international gateways. [indiscernible] progress has also been encouraging in this -- our business vehicle, Digital Infrastructure Indonesia will serve as [indiscernible] to commence infrastructure asset managed service [indiscernible] asset maintenance. We have confirmed that the legal day 1 competitor infrastructure Indonesia as our [indiscernible] infrastructure managed service entity will be on the 1st of August 2024. Then it assumes to have a higher duty as an asset owner of dot-com cyber industry in 2025. We also hope that beside from FMC initiative, the establishment will also enable us to transfer [indiscernible], while also improve as leading infrastructure asset with additional investment to increase CapEx efficiency. On the B2B digital added services and the company initiative besides preparing for internal capability and hence, we also realigned our portfolio, especially in all subsidiaries, such as [indiscernible]. That will be the end of my remarks. Next, I would like to hand over the presentation to Mr. Heri Supriadi, our Group Finance and Risk Management Director, to give you brief overview in regard to our financial performance. Thank you.

Thank you, Ririek. Good afternoon, ladies and gentlemen. During the first semester of 2024 unaudited financial results, Telkom Group has delivered a healthy revenue growth of 2.5% year-on-year to [IDR 75.3 trillion]. And -- with EBITDA achieved at IDR 37.9 trillion, a slight decrease by 1.3% year-on-year. The growth in our revenue has been mostly contributed from our continuing effort in promoting data and Internet services revenue amidst the continuing natural decline of our legacy revenue. The slight decrease in EBITDA, however, occurred during the second quarter. We initiated an early retirement program, which has affected a total of around 1,000 employees and expenses of IDR 1.24 trillion. This met personnel expenses jumped by 20.9% year-on-year during the semester. On the other side, we believe this initiative will not only create leaner organization, but also increase [indiscernible] efficiency and productivity. Stripping out the one-off cost from the program, our normalized EBITDA stood at IDR 39.1 trillion, which grew by 1.9% and making the normalized EBITDA margin stabilized at 51.9% as compared to that in the first quarter of 2024. Meanwhile, our operating net income grew by 4.2% year-on-year to IDR 13 trillion after stripping out mark-to-market effect from GoTo ERP costs and one-off from unlocking asset at a consol level. Taking a deep dive into expenses breakdown beside the strategic initiative on early retainment program as the highlight during the quarter. The higher cost in interconnection has been attributed to the growth in revenue related to [indiscernible] The dilution of margin in the business, however, come following the decline in legacy business, including voice and SMS A2P revenue. After first semester of 2024, we have realized a total CapEx of IDR 11.7 trillion, largely used for connectivity followed by spending for digital platform and services. CapEx realization to revenue was 15.5%, and hopefully, accelerated towards the end of the year at the level of 22% to 24% and gradually create significant additional revenue. And at the end of June, our liabilities saw net additional in the position. The increase was seen as we withdraw a certain [debt] used for dividend payment. Our gearing ratio, however, was maintained at a healthy level with net debt-to-EBITDA stood at 0.67x at the end of June 2024. On B2C business. Despite the deterioration of outsource spending [indiscernible] combined with the increasing dynamic of competition in the industry, the second quarter of 2024 has been steadily quarter for Telkomsel. In second quarter of 2024 alone, mobile revenue come at IDR 28.6 trillion, which modestly grew by 0.4%, while in the home revenue was IDR 6.6 trillion with an increase of 0.3% from the previous quarter. This brought our revenue for Telkomsel grew solidly by 29.9% to IDR 57.2 trillion for the semester with EBITDA margin steady at 47%. We have also managed further acceleration in our convergence penetration to 47% and reached digital asset users to around 80 million. Productivity improved driven by data payload, which increased by 11.7% year-on-year, while customer base reached 159.9 million, an increase of 4.3% at the end of June 2024. Our continuous effort to give better customer excellence in digital services together with [further push] in synergy value initiative yield positive impact and maintain ARPU at a healthy level of IDR 45,000. This is [the spread] of our recent introduction of Telkom Satellite, which has proven to maintain healthy pricing and not creating price war. Our IndiHome business has also been showing a consistent positive growth trajectory to capture the tremendous opportunity for growth in the fixed broadband business. We believe the journey of our next 10 million growth in customer life in the mass market segment. This has become our main strategic focus and marked by the recent launch of EZnet of which not only aim at expanding our fixed broadband business into a new segment, but also to grow our [indiscernible] use further. Moving to wholesale and international business segment. In the first semester of 2024, the segment contributed [group] revenue in the amount of IDR 9.2 trillion, grew by 13.1% year-on-year as the result of growing international wholesale voice business and digital connectivity infrastructure with this. [Telin] [indiscernible] as one of the contributors to the segment with international connectivity as the main driver of the growth. In the meantime, we are continuing our journey and our attempt to unlock value of our data center business. We are exploring new strategic partners, of which together could accelerate the growth of our DC business, not only for domestic, but also in the regional Asia. As of first semester of 2024, our data center business has contributed IDR 1 trillion to total group revenue, a solid increase by 22% growth year-on-year driven by higher traffic in Content Delivery Network or CDN. On tower business, as of first semester of 2024. Mitratel keeps maintaining its position as the largest tower provider in Southeast Asia in terms of tower owned with more than 38,600 of towers and more than 58,600 of tenants. The tenancy rate still was improved to 1.52x. On the standalone business, in the first half of 2024, Mitratel recorded revenue of IDR 4.5 trillion or grew by 7.8% year-on-year, driven by tower leasing revenue EBITDA and net income grew by 10.2% and 4.1% year-on-year, respectively. This resulted in strong EBITDA and net income margin of 83.1% and 23.9%. Furthermore, Mitratel demonstrated a strong financial position with relatively low leverage ratio of 1.8x to net debt to EBITDA as compared to the industry. Enterprise segment recorded revenue of IDR 10.2 trillion during the first semester of 2024 or grew by 9.4% year-on-year driven by digital connectivity, contributed by high-speed Internet and digital services contributed by e-payment. We continue to strengthen our capabilities in the cloud business, digital, IT services and cybersecurity. This initiative by among few building strategic partnerships with global technology players. Lastly, in regards to our guidance for 2024. Looking at the latest development in the economy and further dynamic in the industry impairment, we are now aiming for our revenue to grow by low single digits for the year. This will come with EBITDA margin in the range of 50% to 52% and CapEx to revenue ratio of 22% to 24%. That would be the ending of my remarks, and thank you for your kind attention.

Thank you very much Mr. Heri. Ladies and gentlemen, we will now begin the Q&A session. [Operator Instructions] Operator, may we have the first question, please?

[Operator Instructions] First question comes from the line of Kelsey Santoso of Goldman Sachs.

This is Kelsey speaking. A couple of questions from my side. Firstly, on your two cost items. First one is your G&A costs. So if we look at the quarterly basis instead of on semester basis, Q2 actually saw a 20% increase quarter-on-quarter and year-on-year. So can I check what led to the spike? And second one would be your personnel costs. Understand that the spike in Q2 was due to the ERP. But can I confirm if this is already largely behind? Or if there's still some headwinds remaining in the upcoming quarters? And my second question would be on your mobile business. So we saw that ARPU still declined slightly Q-on-Q, while [subs] were still flattish. So how should we expect these to trend in the upcoming quarters? And should there be any uplift that we can expect as you continue executing on the FMC strategy?

Okay. Kelsey, your question. Allow me to answer that one. On the -- in the second quarter of this year, we have kind of spending in the [indiscernible] as part of the [indiscernible] of the [DoD] and also the employees. Second question is will there be any headwind upcoming quarters. Basically, the ERP is a program that follow our transformation in making fixed mobile business becoming more efficient with the reminding those employee who cannot [indiscernible] catch up with our plan with new skill sets and so on. We provide this ERP. We see this ERP in the -- I think, in the -- I think, feel more years becoming [indiscernible] that we're going to do this again because this is part of the transformation, and this transformation in the process of implementation and [indiscernible] that one. This one, I think one of the biggest part of the transformation. We don't have any plan in the near future for another ERP. And the third question, ARPU [indiscernible] I think this question comes to you, Derrick.

Yes. This is Derrick and I'll share some color on our ARPU. In our context, Telkomsel sustained stable ARPU at IDR 45,000. And there are several factors that we think that's attributing to this. From a macro economy perspective, we see contraction of consumer purchasing power. And when we look at it from a [pricing] perspective, the Lebaran incentives out in end of March impacted to spread the spending between Q1 and Q2. And we have maintained the current stake of our average pricing. In fact, there was higher monetization rate. We want to stay relevant and affordable to our customer needs and manage the competitiveness. We have been selective to expand our engagement to the [indiscernible] new segments. Our strategy with our new plans of [indiscernible] and by.U has helped us maintain our churn rate. There was also downside risk in terms of ARPU, which is maintained at the minimum. We are maximizing our CDN strategy, our digital adoption through engaging digital ecosystem. We have also enriched our content offering to stimulate customer usage, which is seen in the payload growth both year-on-year as well as Q-on-Q. So if you look at what next to come, we want to increase our product competitiveness to targeted segments to ensure ARPU stability through productivity gains addressing the mass segment, you customers as well as maintaining and monetizing our high-value customers. We want to maintain subscriber growth and base through healthy market conduct. And then we also support our FMC's rollout strategy, increasing penetration into multilayer of segments by leveraging to grow [underserved] segment. If you look at our convergence penetration, year-on-year, we have already done to reach a state of 47% market product holding in our base. So that will continue our strategy to drive more engagement at the household segment perspective.

Can I just double check on the G&A costs, didn't really catch that.

On the G&A, basically, basically the increase on the second quarter mostly coming from the [incentive] and bonus for the group of management.

[Operator Instructions] Next question comes from the line of [ Ranjan Sharma ] of JPMorgan.

Sorry, can I just again request clarification on what G&A costs are up 20% quarter-on-quarter. I apologize the line is very unclear, so I asked this question again. The other question that I have is on the early retirement program. Are there any costs [indiscernible] level as well [indiscernible]? And lastly, on data center side, if you can help us understand how the lease rates are trending in Jakarta.

Can you repeat again your second and third questions, please?

The early retirement program first, are there any costs put within Telkomsel? And on the data center if you can help us understand how the lease rates are trending in Jakarta.

Sorry, your third question is on data center, you asked in regard to lease rates trending in Jakarta, am I correct?

Yes, for the data center business.

Data center business, okay. And number two is in regards to your Telkomsel cost of early retirement?

Yes, early retirement program costs that you have booked, what are the costs booked within Telkomsel?

Within the Telkomsel for the ERP related cost. Okay. Thank you.

Okay. On the G&A costs, as we explained before, this must be coming from the payment of the bonus for the -- and funding for the management of the company. And on the cost [indiscernible], ERP-related costs in Telkomsel, we don't have that program in Telkomsel. This is from Telkom, the parent company because with regards to the, I think, transformation following the [fixed mobile conversion] and some also following the, I think, establishment of InfraCo, we need to basically mapping the talent that we need to increase the business. Those who cannot really follow after we do retrain and so on, we offer them the early retirement program. Please see this cost as basically our investment for the future, as we do expect by having this ERP, we then can free the space for the new talent with more, I think, relevant skill set with the business. And also [DCRP], the way we calculate basically, we get the net present value of what we pay to them as compared if they stay with us. So this basically put in -- financially, this will benefit us in the medium term. And strategically, we also can fill up the talent in the company with the right skill set. Data center, how is trending?

Yes. Since the demand, they are higher than the supply side. We believe that the leasing rate still trend -- increasing the trend. But I think in the long term, because there are so many [players] will come into Jakarta, maybe will be a rationale the rest and the [indiscernible].

Does that answer your question?

If I can just have a quick follow-up on the G&A side. Sorry, can I just have a quick follow-up on the G&A cost?

Yes. Sure.

So if the G&A costs are up because of payment of bonuses, I mean, that would have been paid last year as well, right? Why is it up 20% on a year-on-year basis?

This month, the timing issue. By the end of the year, it is towards the [indiscernible] year. This is supposed to be normalized again. I think increased by -- I think, the rate of how much the bonus is increased. And second, also the G&A, one of the contribution also coming from the allowance for bad debt in which we also believe that is in the good shape right now. This is supposed to be quite normal after the end of the year.

[Operator Instructions] Our next question comes from Luis Hilado from Citi.

We had three questions. The first is on the wireless side. It seems to be that your revenue market share is still slipping. What's driving this growth gap? Is it because your usage is growing to the other operators? And is it mainly in Java that this happening or in the ex-Java areas where you're seeing the usage shifting? Second question is on fixed broadband. It seems to be quite slow for the entire industry aside from yourselves. What's the key bottleneck in driving better broadband subscriptions going forward? And last question is on the [indiscernible]. As you mentioned, there'll be savings from that as well as having room to hire new talent. But in terms of the savings, can you quantify for us what the amount you're looking at for the medium term in terms of savings?

Okay. This is Derrick. I'll answer your question on wireless. Well, what's our view on the current market mobile competition? Well, we see that our competition is expanding aggressively outside of Java. And that's the space that we want to make sure that we will defend aggressively. With regards to our strategy, we will continue to tailor fit pricing strategy, coupled with [indiscernible] packaging. We will also be -- double down on physical culture and personalized offerings. So we will want to synchronize pricing the specific needs of each customer segment. We want to deliver superior customer experience. So we have also been working very hard to make sure that at our touch points, we have convenient as well as seamless, efficient experience for our customers and flexibility to respond to market dynamics to deliver maximum value. And we aim for a revenue share along with profitability while expanding footprint to maintain market share. If you look at our new initiatives like Telkomsel Lite as well as value, it has gained traction where we see Facebook shares as a proxy as well as our new market share in terms of gaining customer share. Your next question on the fixed broadband business. We are really focusing on accelerating fixed broadband penetration as a first mover by leveraging on our assets. And if you look at our strategy in terms of FMC, we want to maintain our leadership as the nation's largest convergent operator. So we want to drive productivity gains by bringing more value to customers at a household perspective. So hence, our [indiscernible] has shown strongly in our Q2 '24 aligned with positive growth in revenue. This is in context to our strategy that we ultimately want to secure and lock up households and grow via the [ARPH], the average revenue per household.

Let me add on fixed broadband growth in [indiscernible]. I think where we have seen in the market so far, of course, yes, there's competitions among the fixed broadband players. However, we've seen there is a potential growth that we have addressed since Q2 where we have launched the penetrations aggressively on ARPU below 200,000 where we have EZnet. This has addressed the affordability on the fixed broadband. And at the same time, it is aligned with our strategy to increase the penetration of fixed broadband. I think as we have [indiscernible] since the beginning when we transferred in the home to Telkomsel, our main objective is how to increase aggressively our presentations of fixed broadband from 15% on the [current situations] to, of course, above that. And the only way we have to do it is with addressing our affordability. And with EZnet, we've seen that it is still maintaining the net debt in terms of additional subscribers. However, of course, there's an impact on ARPU. We believe that this impact on the ARPU will be able to balance with how we can [indiscernible] to improve or any home, both from the quality as well as on our value add. We have improved our speed and also additional [indiscernible] surface for our Indigo subscribers in order to improve our ARPU in any home segments. So basically, in a way, our strategy is to continuously improve our mid- to high segments on fixed broadband and also continuously penetrate our fixed broadband [indiscernible] EZnet.

Luis, on the ERP. I can basically describe to you how we kind of collect this one in one of the, I think, parameter we use is [ MVP ]. And, of course, by calculating this one with the pay that we give to the early retirement as compared to the -- if they stay and we still pay them the salary and [ MVP ] the different is positive. The other way to see this one is these activities actually resulted the ERR around 21%. If we see in the [ average ], I think the remaining term of most of the employees that follow this one is around 5 years. The payback period is just around [2.5 years] of period. So this is basically more positive to the company. That's maybe my explanation.

Just one follow-up question. I didn't catch the earlier answer to the question on whether there is going to be ERP in the second half or for next year? Or you're done for the year?

I think for the ERP itself, we don't see that we need to do this one because in the fixed mobile convergent, FMC, most of the employees that can really have a catching with the new skill set that we need already [indiscernible], I think identified and already followed this program. Also with regard of the -- I think, [indiscernible] that we established with the business model that we have, we also can reduce some people. The people also already follow this program as well. So with this, we see that in the near future, there's no additional plan for the ERP.

[Operator Instructions] I'm seeing no more questions from the line. Allow me to hand the call back to management for closing.

Thank you very much, everyone, for participating in the call today. We apologize for those whose questions could not be addressed yet. If you have any questions further, please do not hesitate to contact us directly to the [email protected] or always reach out to me directly. Thank you very much. Good afternoon.

That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.

A good day, and thank you for standing by. Welcome to Telkom Indonesia First Quarter of 2024 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the call over to Pak Ahmad Reza, SVP, Corporate Communications and Investor Relations. Thank you, Pak. Please go ahead.

Thank you, Jason. Ladies and gentlemen, welcome to Telkom Indonesia conference call for the unaudited results of the first quarter of 2024. There will be an overview from our CEO and followed by the 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 will differ materially from projection or estimation and may involve risks and uncertainties that may cause actual results to be different from what we discuss today. Ladies and gentlemen, it's my pleasure now to introduce Telkom Board of Directors who are joining us today. First is Mr. Ririek Adriansyah, as our President, Director and CEO; Mr. Heri Supriadi, as our Finance and Risk Management Director; Mrs. Venusiana, as Enterprise and Business Service Director; Mr. Bogi Witjaksono, as Wholesale and International Service Director; Mr. Budi Setyawan Wijaya, as Strategic Portfolio Director; Mr. Honesti Basyir, as the Group Business Deployment Director; Mr. Herlan Wijanarko, as the Network and IT Solution Director; Mr. Afriwandi, as Human Capital Management Director. Also present are the Board of Director of Telkomsel. First is Mr. Nugroho, as the President, Director; Mr. Mohamad Ramzy, as our Finance and Risk Management Director; Mr. Derrick Heng, as the Marketing Director; Mr. Adiwinahyu Basuki Sigit, as Sales Director; and Mr. Wong Soon Nam, as Planning and Transformation Director. I now hand over the call to our CEO, Mr. Ririek Adriansyah, for his overview.

Thank you, Reza. Good afternoon, ladies and gentlemen. Welcome to our conference call for the unaudited first quarter year of 2024 results. We appreciate your participation in this call. First quarter of the year 2024 will be considered to be an exciting and dynamic year and had to be credited in term of business and economic stability. We have witnessed the macroeconomic downturn and the direction towards higher inflation worsened by geopolitical situation. The newly elected government and its administration in Indonesia post-election process will also be considered by our investors as the key player considering that these are our political, social, economic and business stability. Amidst the potential recession and the rising of inflation as well as continuous increase of commodity, Telkom Group tried to improve the services and serving an even broader segment. It is resulting in a stable ARPU and the increase of traffic indicating the improvement of customer productivity, supported by leading infrastructure to maintain dominance in the telecommunication sector. Telkomsat is becoming the big revenue contributor to the group, which manages B2C business such as mobile and fixed broadband. Telkomsat captured future customers by adopting a strategic localized approach, aim to maintain dominance and sustainable growth of convergence revenue share. With the integration of FMC, Telkomsel Lite and value become more relevant, allowing guests to use in mass market segments through cross-selling and upselling within of sorts. Telkomsel also maintained the dominance by implement consumer value maximization or CVM, supported by network optimization and quality leadership. On the B2B business, Telkom consistently implement right business strategy especially in the data center or DC monetization and InfraCo business investment. We plan to fully unlock our data center business within the year of 2024 by finding strategic partners who could contribute not only capital, but also expertise, management and access to the DC market. The growth of B2B business, especially in data center business is very high. We are fully aware that the opportunity in DC amidst in timely mark-to-market sizes. Meeting supply will create additional opportunities while lagging supply will absolutely wipe out opportunities. We think there is still an important opportunity for value creation at a very good market with extremely strong competition. And I updated to you on the topic of Telkom [indiscernible] in the past. Telkom Group, nevertheless, will implement organic and inorganic effort to pursue the capacity of 400 megawatts within 6 years onward to year 2030. Infrastructure initiative has also been progressing with our business cycle. PT Telkom Infrastruktur Indonesia will serve as -- is mandated to commence infrastructure asset managed service in 2024 before it assume to have higher duty of the asset owner of Telkominfra further infrastructure in 2025. On the B2B digital business, our performance and business process enhancement between our business unit division and business unit subsidiaries produced positive results. Synergy and efficiency among them have been established and now we are ready to come back with a product portfolio to serve for home and enterprise and small medium enterprise segments. During the first quarter of 2024, unaudited financial results, Telkom Group revenue grew by 3.7% year-on-year to IDR 37.4 trillion with EBITDA stood at IDR 19.4 trillion, increased by 2.2% from the previous year. Our successful effort in promoting data and Internet revenue as well as managing our expenses create better line of profitability. On our operating net income, it grew 3.1% year-on-year to IDR 6.3 trillion after stripping out mark-to-market effects from GoTo. The company recorded positive consolidated revenue growth in first quarter '24 as compared to the same period last year with a good profitability level supported by growth of mobile business. Revenue increased 32.7% year-on-year to IDR 28.5 trillion, consists of IDR 21.9 trillion from mobile and IDR 6.6 trillion from fixed broadband business. Digital business revenue after consol remained strong. Growth rate grew by 8.6% year-on-year and increased its contribution to mobile revenue to 89.9% from 84.4%, in line with the company's strategy to capture new strategic initiative and focus on quality customers. Telkomsel continues to maintain dominance both in the fixed and mobile with the customer oriented approach and productivity improvement. We have expanded mobile customer base to 159.7 million while reaching 8.9 million IndiHome B2C customers. Mobile ARPU remained stable with the improvement of payload as we provide better value to stay relevant with the market and grow the profitable revenue shares. We capture future customers through Telkom satellite and by youth as we aim to become largest corporation in entire Indonesia, securing the youth and mass market segment is important and part of our strategy to drive sustainable performance. Telkomsel has prudently designed their products to better cater the customers' needs and experience while ensuring the relevance compared to other offerings in the market. Consequently, we believe this tailored products will mitigate the risk of price wars and internal churn given the customization for specific segment and localized quota allocation. We committed to continue the healthy conduct initiative, smart acquisition and securing quality customers as indicated by increased payload and customer consumption. As a market leader, we aim to maintain profitability and act rationally to continue fostering healthy and constructive competition within the industry. In the first quarter of 2024, wholesale and international business segment contributed revenue detectable in the amount of IDR 4.8 trillion, growth by 17.8% as a result of growing international wholesale voice business and digital connectivity infrastructure business. Data center business has been prepared as our B2B future revenue growth along with the double-digit growth of data center demand in Indonesia and the region with an initiative to find out a strategic partner in data center who owns not only capital, but also management capability and strong marketing channel. Telkom Group has initiated monetization and hope that to finish the monetization process by end of 2024. Telkom has provided the data center services with a capacity of 42 megawatts with an average utilization of 70%. During the first quarter of 2024, Telkom has recorded data center and cloud revenue of IDR 449 billion, which grew 6.4% year-on-year. PT Telkom Data Ekosistem, which was established in 2022 and operate under the name of NeutraDC as the brand has been working with the local government, various scales of business and even hyperscale companies that need a lot of data space. Currently, NeutraDC is focusing on expanding its ready-to-use capacity by 18 megawatts by end of 2024 at the Cikarang Hyperscale Data Center with various customer segment, including among others, hyperscalers, banking as well as government. Our existing competitive advantages over the competitors, including fiber will further be monetized under our subsidiary, PT Telkom Infrastruktur Indonesia, which has been established since the fourth quarter of 2023. Telkom is focusing towards unlocking new potential or maximizing the value of its fiber to data service. We will generate additional synergy value by optimizing the network optimization, consolidating capital expenditure, boosting external revenue, delivering premium network services, financing operational efficiency and establishing strategic partnership. Telkom Group reduced its remaining idle capacity significantly to [indiscernible] by B2B business areas. Commencing your preliminary talk, PT Telkom Infrastruktur Indonesia is actively preparing for daily operational readiness and conduct dry run exercise as a learning stage to ensure operational excellence and manage service operation and seamless transaction to -- of Telkom end-to-end network infrastructure assets for the coming year. Currently, Mitratel has 38,100 towers after organically added 120 towers in the first quarter of 2024, maintaining its position as the largest tower provider in Southeast Asia. During first quarter '24, Mitratel successfully added almost 400 tenants resulted in improving tenancy ratio to 1.52 from 1.46 in the same period last year. In addition, Mitratel enjoys site diversification as around 59% of towers are located ex-Java, while the remaining 41% are located in Java. On a stand-alone basis, first quarter 2024, Mitratel recorded revenue of IDR 2.2 trillion or grew by 7.3% year-on-year, driven by tower leasing revenue. EBITDA and net income grew by 9.9% and 4.0% year-on-year, respectively. EBITDA margin expanded to 83.5%, increased by 2 percentage point, and net income margin was 23.6%, decreased by 0.8 percentage points. Colocation number and the number of tenants grew by 16.6% and 8.4% year-on-year, respectively. Furthermore, Mitratel demonstrated a strong financial position with a relatively low leverage ratio of 1.7 net debt to EBITDA as compared to the industry. This allows the company to better withstand economic downturns and take advantage of growth opportunities while providing stability to shareholders. Mitratel continued expanding its Fiber-to-the-Tower business as part of its strategy to strengthen its product portfolio to become a digital infrastructure company. Mitratel achieved significant growth in its fiber optic network by adding around 3,700 kilometers during the first quarter of 2024, resulting in a total network length of 36,300 kilometers. Enterprise segment recorded revenue of IDR 4.5 trillion during the first quarter of 2024 with B2B IT Digital Services and Enterprise Connectivity solutions as the largest contributors in the Enterprise segment. We continue to strengthen our capabilities in the cloud business, digital IT services and cyber security, including building strategic partnerships with global technology players. In this initiative, there are several areas that we are now strengthening, which are business development in the government segment. Large enterprise will focus on B2B platform and vertical solutions. [ In the year '23 ], we were focusing on Indibiz to capture the SME market. On the ESG side of the initiative, Telkom has launched EXIST, ESG Existence for Sustainability by Telkom Indonesia program in which Telkom's sustainability performance achievements are described in each of the following three sustainability pillars. First, right environmental approach, focusing on the environmental aspect, Telkom has proactively taken concrete actions, such as reducing carbon emissions through waste management activities, especially e-waste, and rehabilitating coral reefs. Telkom Group has used environmentally friendly energy sources such as solar cells, biodiesel and micro hydro. In addition, Telkom Group also supports the use of environmentally friendly transportation by encouraging the use of electric vehicles among its employees. Second is right people. The efforts to develop HR competency has continued to be strengthened through intensive training and education programs. Concrete steps have been taken in managing the Digital Talent Readiness Program, an initiative aimed at developing employees' digital capabilities to adapt to changes in digital technology. We focus on developing working environments which support diversity and inclusivity. Third one is right governance. Telkom consistently implements sustainability governance, business ethics, and compliance with applicable regulations and supervises to ensure compliance with relevant norms and business ethics by establishing a Data Protection Officer or DPO organization with a more precise map of roles and functions. The company also refers to the provisions of international standards, one of which is ISO 27001, to intensify data protection and security. That is the ending of my remarks, and thank you for your time and attention.

Thank you, Pak Ririek. We will now begin the Q&A session. [Operator Instructions] Operator, may we have the first question, please?

Our first question comes from Piyush Choudhary from HSBC.

This is Piyush from HSBC. Three questions. Firstly, on the mobile, how has been the impact of Telkomsel Lite plan? And any changes on your mobile revenue outlook for 2024 post this plan launch? Secondly, any update on spectrum auction timelines? And thirdly, on IndiHome B2C, what is driving the revenue down quarter-on-quarter and before IndiHome B2C ARPU is also down. So any reasons for the same? And what's the outlook for IndiHome B2C revenue?

This is Derrick. Your first question on the impact of Telkomsel Lite plan. The traction of Telkomsel Lite is aligned to our internal plan. We have seen improvement of payloads. We have seen renewal trends in less than 1 month. However, we are cautiously monitoring progress and we will adjust as necessary with regards to the market movements. I mean we all know that the prepaid market is highly dynamic. So we will always look at whether the impact is still manageable. But our focus is on targeted segments. We are looking at predominantly Java with localized quota offerings.

So just to add on the one question, I think you can see the results today, both traffic, our traffic profile...

Hello, I -- lot of echo, we can't hear you properly.

Yes. To add to what Derrick answers, this is Sigit. For the first question about the Telkomsel Lite. I think if you take a look on our result on Q1. Today, we see that the digital business of broadband, we are growing about 8.6%, and that is one of the things that we've seen that our productivity of broadband messaging in mobile are showing the positive progress. And especially, if you take a look also on the traffic growth, it is 14% compared to last year. I think it is also improving. And on top of that, I think from the Telkomsel Lite perspective, we've seen that this -- our strategy has been right to address various segments, including mass and also youth. And #3 question on IndiHome B2C revenue as well as ARPU. I think from the point of view of the group, our fixed broadband are a bit stable. However, after the first 6 months of legal day one, we are doing the stability period where we're actually migrating the consumer business to Telkomsel. And then I think starting to this year, especially in Q1 and probably also Q2, there are still alignment needed between consumer type of businesses as well as the enterprises. So if you take a look on certain segments like, for example, consumers in IndiHome, there's a little bit of revenue down on a Q-on-Q basis as well as ARPU down. That's due to the alignment of the customer type. However, if we see from the progress on the sales side, for example, we're able to add the [ net of IDR 222,000 ] in the quarterly basis in Q1, which showing the positive progress. And on top of that, what we can update to you that we are progressively also increasing the penetration by having -- addressing a mid- to low segment as well in order to continue to penetrate our fixed broadband penetration across the nation.

Yes. To add on the first question about the revenue outlook. This is Ramzy from Telkomsel. We still maintain our outlook for mobile by low to mid-single digits. And on the spectrum auction, till now, I think we still wait for the official announcement from the government as they are preparing the commentation and also the term and condition. We expect that the option would be at the latest in the second half this year. Thank you.

Our next question comes from Kelsey Santoso from Goldman Sachs.

This is Kelsey. My question is on mobile. So both prepaid and postpaid subscribers were quite flat Q-on-Q but ARPU continued to contract. So I wanted to understand what led to the decline and why this hasn't translated into subscriber growth. And perhaps what you're seeing on the ground when it comes to competition? And how do you expect this to trend in the coming quarters? And then my next question is on the cost side. I saw that you managed to drive efficiency in several line items. Could you elaborate on what led to the reduction in O&M expense quarter-on-quarter?

I think the people -- Ramzy continue with answer. Let me address about ARPU in mobile. If you see the ARPU in mobile, it is comprised of the digital connectivity legacy -- digital connectivity revenue as well as revenue coming from our legacy and in this case, our voice and SMS, which is also a decline in the same time. If you only see the ARPU coming from the digital connectivity, it is supposed to be increased from time to time. I think with smaller contribution coming from the legacy from time to time, we eventually will see the growth in the ARPU. So that's the reason of I think ARPU conversion, as you mentioned.

Yes. If I may add also, I think, Kelsey, if you compare to quarter-by-quarter, I think there's also a seasonal impact on Q1 compared to Q4 that also impacting the mobile ARPU. And on top of that, I think we see also competition on the ground. Our ARPU effort are still above the peers. So this is showing that we actually are always able to monitor and maintain the profitability as compared to peers. And in terms of competition, where we launched also live and also we have some portfolio that we have. We are actually able to maintain the competition level across the nation, especially in Java, where we have comparison market shares against the peers.

Yes. To respond on the cost efficiency side in Telkomsel, actually, on the Q-on-Q, we have O&M growth by minus 2.7% which is one of the most dry quarter in last year. Last quarter, we have one-off impact on the surface tower, which is particularly related with the inflation application on the contract. The other part is also on the WSA contract with parent, which is related with our IndiHome operation currently.

Next question comes from the line of Marissa Putri of UBS.

So my first question is sort of a follow-up to the previous question on IndiHome. Granted that ARPU decline as you expand your target market, but decline in ARPU is so far also not offset by growth in subscribers. And you also mentioned about alignment happening during the transition period. Can management probably elaborate more on this? And what can we do on IndiHome side? And my second is, I guess, correct me if I'm wrong, but I think the by.U quota is also not limited by areas or not just for local quota. So what is group strategy to kind of limit or ensure that there's no cannibalization happening from by.U to main Telkomsel brands? And lastly, it's a bit more kind of accounting maybe question. So revenue from nonmobile, I think, has been very erratic on Q-on-Q basis. So if you see consumer fixed and also enterprise business, I think in the last earnings call, you mentioned that the group deliberately not pursuing some business as you're trying to wind down some segment in enterprise. So how should we think about these 2 segments? And are there any accounting issues as you are separating IndiHome for the parent as well?

Yes. Allow me to answer the #1 question on the IndiHome market. I think as we also kind of mentioned to our company strategy to expanding to [indiscernible] of course, the ARPU will also compensate the [ earnings level ]. However, our strategy is not always only doing a location to fit to those segments. But also we're trying to also add up some in case of the ARPU by shifting the customer and focusing our premium products to the higher speed and higher ARPU from [indiscernible]. So remember also to focus on 50 and 100 mbps where we are actually very interested and trying to increase the contribution of those higher ARPU accounts to balance the composition of ARPU decline where we are addressing the lower segments besides the alignment that we're talking about between the enterprise and also consumers.

This is Derrick. I'll answer the question on by.U. We have not seen any cannibalization of by.U from the customer segment perspective. by.U is our strategy targeting at the youth and the digitally savvy. When we look at the cohort of by.U customers, in fact, we are getting new customers for this group of young customers. At the same time, even if there is any migrations from our prepaid to by.U, the ARPU actually increase for this youth segment. So it is something that we will continue to focus on this underserved segment because the youth is our customers of tomorrow, there are specific strategies that we have done to engage this group of unique customer segments.

Yes. And to add to that, I think for the by.U, besides the branding strategy that we have been continuously monitor, internal rotational terms are limited. We also limit some area like Papua, Maluku, where we have seen that the price will not -- will be very much needs to be maintained, and we are not having that kind of product or within those typical area that we are actually strong and dominant in those area.

Yes. To add, the youth segment, it's aligned to our FMC strategy where we look at the household as a segment. So within the household, not only you have the high-value decision maker, the family decision maker, but we're also engaging the more value segments as well as the youth in the family. So it is part of our strategy to look at household as an account rather than an individual mobile line.

On your third question, Marissa, I understood that's quite -- I think to see what the revenue recognition coming from the enterprise, especially when -- with regard to the, I think, IndiHome case. As we previously mentioned in, I think, a previous call, there's an issue of kind of how we recognize the revenue from IndiHome separated to enterprise and also the consumer. Especially for the enterprise side, whenever we use basically the brand of IndiHome for connected subscriber from the enterprise. So we need to see from principal and agent discipline on this one. So basically, we need to do a kind of accounting treatment on this one. We are in the process of fixing this one, later we are going to have the fixed, let's say, answer on how we're going to treat this one in the more, I think, from waste. But if you see overall, the revenue that we recognize from this is not changing, whatever the revenue we get from external customer, but from consumer and enterprise altogether becoming total revenue in the group level. I think we're going to answer this to you directly how we see -- how accounting treatment on this side, about this.

Our next question comes from Arthur Pineda from Citi.

Three questions, please. Firstly, on mobile competition. Are you seeing any reactions from your competitors following the launch of Telkomsel Lite. It's been a few months since then. Just wondering if there's any worsening in terms of competition? Second question I had is with regard to cost optimization programs. Are you able to elaborate target cost savings for this year probably from your fixed mobile convergence as well as shared network optimization? And third, if I can just clarify, I know this is, you explained on earlier, on the B2B versus B2C revenue. So basically, it's just a reclassification between Telkomsel and Telkom. Is that correct? In that case, how does this actually impact the transaction value wherein Singtel entered into the deal? Because presumably, there were certain assumptions made on consumer revenue spend.

Arthur, can you repeat on the third question, please? I think your voice is quite soft.

Yes, sorry. On the third question, I just wanted to understand, on the B2B -- sorry, B2C revenues, I understand it declined. Is it just mainly a reclassification between consumer and enterprise? So it's excluding the revenues from Telkomsel to Telkom. If so, how does that actually impact the transaction values wherein Singtel entered into the deal? Because presumably, there was an idea in terms of the revenues generated by B2B -- B2C.

This is Ririek, I will answer the first question. Yes, Telkomsel has prudently designed products such as Telkomsel Lite. We want to better cater to certain mass value segments, and we want to ensure the relevance of our pricing competitiveness as compared to other offerings in the market. So consequently, we believe that these tailored products will mitigate the risk of price wars and internal churn. And given the customization of these specific segments, and with very targeted localized quota consumption and allocation, we are committed to continue this healthy conduct initiatives. The acquisition is sharp, and it is targeted and we want to ensure quality customer acquisition, and it is indicated by the increased payload and the customer consumption. So as a market leader we will strive to maintain profitability. We will act rationally to continue fostering healthy and constructive competition within the industry.

To respond on your second question on the cost optim. Actually, we continued the effort that we already captured since the beginning of the FMC integration. Last year, we effectively succeed to book for the cost saving around IDR 100 billion plus the uplift revenue about IDR 400 billion. This year, we expect to expand this cost optimization programs, which includes on the content cost aggregation and also the customer interaction management that we provide the agent as well as the integration of the digital touch point that provisionally conducted through different applications such as my IndiHome, my Telkomsel as well as my Orbit. This year, we plan to integrate those apps to become one. And also the sales force management that we used the performance-based incentive rather than per headcount base. So all of these initiatives would expect to also contribute to additional cost improvement in our expense, Arthur.

Any number related to that? Is there any specific cost savings targets?

We do not disclaim the exact number. But overall, the uplift, both from revenue as well as the cost impact for this synergy, we expect this year around IDR 1.8 trillion.

So basically while it is supposed to be seen from the group level as well because some of this efficiency going to also happen in the parent company, we also get some efficiency in the CapEx side, the way we basically installed per lines supposed to be also cheaper compared [Indiscernible] and also, I think the cost operation and maintenance per line in [Indiscernible] is also supposed to be a decline as well. So this is going to accumulate it in the group level.

Sorry, the third question is probably not answered yet .

Arthur, your fourth question with regard to B2B and B2C revenue reclassification, and how does that affect the FMC valuation, right? Is that correct?

Yes. So firstly, is it merely a reclassification that we're seeing. That's why we're seeing that decline on the Telkomsel bookings because you're booking it now as enterprise and 2 how does that relates to the transaction value that was enacted before [especially] there were some assumptions on revenues back then, now being moved on to enterprise.

Right. So Arthur, thank you for that question. At the point of the valuation of the IndiHome business, it is purely based on the B2B -- B2C IndiHome revenue. So this is purely a reclassification some of the revenue at the time of reporting group under IndiHome, which is consumer. So this is an exercise to kind of clean it up, to classify it according to the different segments. So as far as the valuation of the FMC business are concerned, it remained consistent, and it does not have any impact.

Our next question comes from Henry Tedja from Mandiri Sekuritas.

Perhaps 2 questions from me related to the Telkomsel Lite. So allow me to deep dive on this. So just curious the response from the competitors in the market, how do you see response on the ground? Do you see any reactions from -- Indosat? And then second, you mentioned how Telkomsel 1 to maintain the profitability, healthy market conduct and basically in the market. So just curious, is there any solid plan from the Telkomsel to increase our product price this year? Sorry, perhaps one more thing on the data traffic growth, we highlight that you booked a strong data traffic growth in the first quarter, right? What are the key drivers of the strong data traffic growth in the first quarter? And should we expect this figure or trend to be sustainable in the following quarters? So perhaps those are my questions.

This is Ririek. I will address your questions on Telkomsel Lite. So Telkomsel Lite is a product, we target at increased product competitiveness in the market while we ensure that the ARPU uptrend remains intact through productivity gains, and this is aligned to the income, and usage and the ability to pay for the value segment. So we will maintain this subscriber base and growth while adhering to a healthy market conduct, ensuring the profitability remains uncompromised. So if you look at the construct of Telkomsel Lite, it leverages on local and a little bit of the nationwide quota just to provide the ability for a very targeted rollout to optimize relevance and to achieve yield comparable to competitors, which covers mor than 200 nationwide. So this is our segment of focus here. As mentioned earlier, we also support the FMC rollout strategy, which as a household, there are layers of different customer segments within the family. So this is able to help us grow and serve segment. Your question on competition and response from our competitors. So I think we will all continue to apply the right pricing and offerings and if we look at -- especially to existing base, we talk a lot about CVM, where we'll be able to be granular, where we are able to be very relevant to the usage of our customers. So that we will expect that the mobile ARPU to stabilize and increase in line with the usage. So we believe that competitors will also continue to improve profitability and therefore maintain healthy market conduct. So this is our take to the industry.

Can I add a bit on part, Ririek. I think explanation on this one. Previously, we only have a single brand for prepaid. Basically, it is responsible around 90% of our revenue to that one. So it is not flexible for us to, let's say, to address what specific reason to address this market, new segment and so on by jeopardizing the one brand that carries so much revenue for us. The second thing that you don't need to worry about, this is mostly in local quota. And this is acquisition package. After the subscriber need to top up, cannot buy the new one again on this one. So it is also limit basically the internal churn by having, let's say, internal churn [Indiscernible] to our customer base. The third is because this is comprised of mostly local quota. It means not going to create the kind of competitive unnecessary in the area in which we are not subjected. So this is also a limit competition in the area that we have targeted. And the third, in terms of price, we are still premium compared to our competitor on this one. This is also kind of a thing that you need to see -- to worry on this one. The last one, actually, if we compare to many, many years back, maybe about 10 years ago, that's still big elasticity in the market. And we can still adding quite many subscriber base at the time. So when we decrease the price, we're going to have good elasticity. With the current condition, I think the market already almost mature you, don't expect too much, I think, elasticity on this one. We need to responsible to manage -- I think market condition. I believe other operator also need to see the same way. I think that's an additional explanation to, [Indiscernible].

And on your third question on data traffic. I think what we've seen -- the reasons why the data traffic increased in Q1, just one cost, there is increase of data users of 11% compared to last year. And this equates also come along with productivity of payload per subs that we've seen are also improved which I think is one of the key [Indiscernible] we take a look on our success in our product portfolio strategy today and going forward. And with the improve of productivity with our offering so far, we believe that if we can maintain those effectiveness and consumptions within the network and within our services, that will also lead to the system...

Yes. Just to come on the profitability side, I think with all the initiatives that we've done, actually, we want to simulate the productivity of the customer but on that point, I think the resource has already been there. So it doesn't impact significantly to additional costs. And also from time to time, we monitor our network quality as well as the productivity and for that point, I think we still expect that we can address the profitability level in Telkomsel around 46% to 48%.

Our next question comes from [Indiscernible] from JPMorgan.

This is [Indiscernible] JPMorgan. Management, can I just ask, is it possible for you to give us a breakdown of the changes in subscriber in the mobile customer category, meaning you're targeting mass and youth at the moment and you also have your traditional mobile customer. So what's the increase and decrease in category that gave you a flat quarter-on-quarter mobile subscriber number? And my second question is -- so you mentioned that Telkomsel Lite is currently meeting your internal goal. I'm just wondering if you can share that goal with us. And looking at the quarter-on-quarter flat on subscriber number, will you in the future, make the plan more competitive because sort of you've reached your market share target. And my last question is, I'm not sure if I hear it right, at the start of the briefing, you mentioned that you are looking to offer data center business by the end of 2024. Could you just give us more detail on that, please?

This is Ririek. To answer your question, the profile of our customers. So with the launch of Telkomsel Lite, just to share the traction has been positive. When we had Telkomsel Lite and By.U as our sub-brands, it helped to serve the youth and mass market segment while leveraging on personalized offers to maintain the dominance in ex Java to drive the ARPU through CVF and we could see the improvement of our Facebook share. So this strategy was to really target a segment, and it will help us to address future customers. So by adopting a strategic localized approach we aim to minimize competition, impact and sustainably grow our market share. We also talk about these new plans, it's really an integration to our FMC strategy. So Telkomsel Lite and By.U will become even more relevant as it allows us to engage in cross-selling, upselling to households where these form the part of the household segment. So we will continue to maintain margin optimization and market share retention. So it is important to capture these customers of tomorrow, since we aim to become the convergence operator to grab share of these underserved customers. So this is our approach to expand our fixed broadband business into new segments, ring-fencing existing starts through retention and CVM and to drive better customer journey so that the main objective is to drive sustainable performance while maintaining dominance, productivity as well as to elevate the customer experience.

So let me answer the second question. I think [Indiscernible] Q-on-Q subscriber growth is -- one of the things due to the seasonality because we compare Q1 compared to Q4 and if you take a look on what we have so far in terms of our market share and Facebook shares across the quarter 1, there's been internally seen that it's an improvement of what we have done so far, has an increase of Facebook shares as well as the data users. It also show that there is a traction on the broadband penetration and mobile, broadband penetration and usage across our subscriber. And on top of that, I think we've always been -- I mean, in terms of subscriber base, there's always the customers who have multi [Indiscernible] We always manage to not continue to stay with us. If there's no more in our networks. However, I think mainly the Q-on-Q flat is due to seasonal. Can you repeat the third question?

The third question regarding the data center.

Okay [Indiscernible] do you want to answer the data center, what is the plan for 2024 on the data center.

[Indiscernible] this quarterly operate already [32 data center] [Indiscernible] is about [18 megawatt]. So this year, we also have a plan to add more capacity up to 18 megawatts [Indiscernible] will have a 60 megawatt capacity.

Our next question comes from the line of Sukriti Bansal from Bank of America.

Just want to, I think, follow up on the previous question on Telkomsel [transaction]. Is it possible for you to just roughly quantify what percentage of your customers, right now are on Telekomsel Lite and where do you see this going as an overall base of your customers, what is your target on Telekomsel Lite. Also, the data payload increase that we have seen in this quarter, is this naturally driven by the launch of Telkomsel Lite?

This is Ririek. You have more questions? One more question?

Yes, one more question. Maybe I'll just list the question and then you can answer both. So the second question is you said that overall in the year, you expect IDR 1.8 trillion of synergy impact from IndiHome integration. In 1Q, is it possible to quantify what -- if there was any impact? And is there any way to break up how you see this in the coming quarters through the year? And just one quick one is, we've seen a couple of major reclassifications in the last 2 quarters in 4Q with the voice revenue being reclassified and the B2B IndiHome revenue being reclassified in this quarter? Are the major reclassifications now behind us? Or are there more that we can expect in the coming quarters? That's all.

This is Ririek. Just to share some thoughts about our color on Telkomsel Lite. It's still early days for Telkomsel Lite. What we want to share is the traction of the Telkomsel Lite has been positive, and it was really meant to serve the mass market segment, and we want to leverage on personalization to drive our engagement in Java. If you look at the post Telkomsel Lite, so we have recorded a higher traffic growth of plus 14.4% year-on-year in Q1 as compared to the 9% year-on-year growth in the last FY. We also look at the increase of data user that's plus 11% year-on-year. So the main objective of Telkomsel Lite is really to maintain and improve our market share, our customer productivity and profitability.

To add to the data payroll increase, I think besides the Telkomsel Lite initiative, of course, we have a lot of initiatives on our existing customers who also drive productivity on our side. And I think mainly in these quarters, what we've seen is that the growth of digital business of 8.6% have come from both the acquisition product, which we use Telkomsel Lite as a brand and also others subsequent portfolio in the existing like CVM and all others who also boost up the productivity of our subscribers. So that's why I think if you can see the increase of traffic have been very positive on our side.

On the reclassification of the B2B IndiHome from the total IndiHome revenue, we're going to, I think, finalize by next quarter [Indiscernible] the impact of this in mid-second quarter of this year.

I think if you relate to the reclassification of the legacy business last year, it is a one-off reclassification that we did for the IFRS. And it's a different case on this kind of reclassification that we have in IndiHome. So it is not a rebating reclassification that we did, which is 2 different subject that we are discussing to clarify on that.

To add on your last question about the IDR 1.8 trillion EBITDA uplift break down. Internally, we have yet breakdown. It's comprised from uplift revenue either from cross-selling or upselling both Fixed and Mobile. Secondly, comes from the OpEx efficiency that some of them already been discussed earlier. And third is from the CapEx, a lot of that comes from both parties, Telkomsel as well as our parents Telkom. But we do not disclose this in detail to you now.

We have no more questions from the phone line. I would like to hand the call back to [Ahmad Reza] for closing remarks.

Thank you, everyone, for participating in today's call. We apologize for those whose questions couldn't be addressed. So do you have any further questions. Please don't hesitate to contact us directly. Thank you.

That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.

Good day, and thank you for standing by. Welcome to Telkom Full Year 2023 Results Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. It is now my pleasure to hand you over to Telkom SVP, Corporate Communications and Investor Relations, Pak Ahmad Reza. Please go ahead, Pak.

Thank you. Ladies and gentlemen, welcome to Telkom Indonesia conference call for the audited results of full year 2023. There will be an overview from our CEO and followed by the 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 the safe harbor. Actual result could differ materially from projections or estimation and may involve risks and uncertainties that may cause actual results to be different from what we discussed today. Ladies and gentlemen, it's my pleasure now to introduce Telkom's Board of Directors who are joining us today. First is Mr. Ririek Adriansyah, as the President, Director and CEO; Mr. Heri Supriadi, as Finance and Risk Managing Director; Mrs. Venusiana, as Enterprise and Business Service Director; Mr. Bogi Witjaksono, as Wholesale and International Service Director; Mr. Budi Setyawan Wijaya, as Strategic Portfolio Director; Mr. Honesti Basyir, as the Group Business Development Director; Mr. Herlan Wijanarko as Network and IT Solution Director; Mr. Muhamad Fajrin Rasyid as Digital Business Director; Mr. Afriwandi as Human Capital Management Director. Also we present the Board of Director of Telkomsel, Mr. Nugroho, as the President, Director; Mr. Mohamad Ramzy as Finance and Risk Management Director; Mr. Derrick Heng as Marketing Director; Mr. Adiwinahyu Basuki Sigit as Sales Director. And now I hand over the call to our CEO, Mr. Ririek Adriansyah, for his overview. Please go ahead.

Thank you, Reza. Good afternoon, ladies and gentlemen. Welcome to our conference call for the updated full year of 2023 result. We appreciate your participation in this call. The competition in telecommunication business in Indonesia during 2023 showed improvement and consolidation among mobile telco players and moved towards positive NBLs. As mobile and fixed broadband are still our revenue contributors, the more rational pricing vehicle in 2023 was also reflected in our financial performance by still growing both in revenue and net income. Moving along to year 2024, the political tension in Indonesia is expected to be less in the second quarter of 2024. This situation will be the catalyst of telco industry to grow more aggressively and also an opportunity for Telkom to increase its financial. Telkom Group is consistently implementing fixed mobile convergence and in the meantime, preparing data center modernization and InfraCo value creation to take the policy in 2024. After the spin-off, IndiHome to Telkomsel known as FMC initiative. Telkomsel has been performing quite well in synergizing the mobile and fixed broadband products through some brilliant initiatives such as effective cross-selling, customer value maximization through pricing, product revision and substitution, as well as also action in CapEx and OpEx disbursement. This could be seen from the mobile customer subscriber take-up, acceleration in fixed broadband customer growth and enhanced customer loyalty. On the data center monetization, we are in the process of assisting and finding the best potential partner that could bring energy and capital. As of first quarter of 2024, PT Telkom Data Ekosistem has successfully become the only entity that Manage Telkom Group data center business after several assets transfers from other business units and subsidiaries. On the whole year of 2023, [indiscernible] financial, it's so that Telkom Group revenue grew by 1.3% year-on-year to IDR 149.2 trillion with the EBITDA at IDR 77.6 trillion and EBITDA margin of 52%, decreased solely from the previous year due to the allocation of capital cost and electricity expenses. Net income grew by 18.3% year-on-year to IDR 24.6 trillion due to acceleration [indiscernible] and less mark-to-market affected by go to in 2023. In the full year of 2023, Telkomsel recorded positive consolidated revenue growth as compared to previous year with a good profitability levels supported by growth of digital business, both in mobile and fixed broadband. The results could be seen that Telkomsel mobile and fixed broadband revenue increased by 15% year-on-year to IDR 102.4 trillion, consists of 13.23% in fixed broadband and IDR 59.1 trillion from mobile business. Digital business revenue of Telkom -- of Telkomsel grew by 7.6% year-on-year to IDR 28.5 trillion, and becoming the most significant project to take up top line while legacy business for SMS in 2023 at 10.7% in recent [indiscernible], a sharp decline from the previous year at minus 33.8%. Of the few that legacy business will continue to taper off the growth of our mobile business revenue will be more significant. Digital business segment recorded positive [indiscernible] bonus and increased its contribution to total 88.0% from 81.9% last year, driven by healthy growth of data and business services, sort of future growth. We are committed to deliver a diversified portfolio services and innovative products, including digital lifestyle, [indiscernible] advertising and retail enterprise and sourcing IoT business. Telkomsel has successfully increased the mobile customer base at 159.3 million in 2023 as compared to 156.8 million in previous year with improved productivity and quality of customers. With different dominance in mobile competition, Telkomsel increased its capacity and quality in ex-Java, while Telkomsel Lite and value product. Its capacity and quality Telkomsel Lite's strategy to gain back Telkomsel dominancy in Java area, where value is positioned to retain youth customers and encourage them to use the number of consistently until they become productive and spend more budget to utilize the numbers. A total injection of retail-fixed broken business by managing IndiHome. Telkom continue to take the advertise of synergical impact on the contracts, mobile and fixed broadband product. In last 1 month, after the legal day 1 started 1st of July 2023, we launched a new product called Telkomsel One as a commitment in continuing the business of MC initiative, which will further encourage equal distribution of digital connectivity and wide selection of customer-centric packages and multiscreen approach initiatives through content optimization. Under Telkomsel, it has successfully accelerated new additional customer of IndiHome B2C in the form of 425,000 with ARPU of 253,000. We are committed to continuously improve our services and order customer base while maintaining high standards of quality and value that our customer expects. We really care to customer [indiscernible] and hope to find customer stickiness to our services. In full year of 2023, Wholesale and International Business segment contributed to revenue growth and IDR 16.9 trillion or grew by 9.6%. [indiscernible] growth mostly come from the International and Wholesale prices from Telin [indiscernible] Telkom acquisition [indiscernible] the growing data center business of Telkom start to contribute higher revenue and gross even though demand is relatively small to our consolidated revenue. As of full year 2023, data center and core business booked IDR 1.9 trillion of revenue, grew by 13.8% year-on-year. So order accelerated from that ecosystem with an ultra DC as the brand, we have clarity of data center, including hyperscale center, enterprise data center and as data center, of which [indiscernible] its own markets again. As of December 2023, we have a total of 22 data center facilities, domestic and pipe overseas, the spread of our 4 countries, namely Indonesia, Singapore, Hong Kong and Timor Leste. Our data center consists of, an IT load capacity of 42 megawatts with an office total acquisition level of 30%. In order to expand more aggressively on the DC business, we plan to do both organic and inorganic capabilities. We are also starting to unlock the DC capacity by looking for partner preferred global data center improving capacity and utilization. We already prepared some action including operating business and attracting financial adviser and hope to update the analog data center business this year so that our expansion in data center business could be growing more rapidly. In our Intraco initiative, at the end of 2023, we have established [indiscernible] Indonesia that later on will be the only subsidiary of Telkom to organize and manage infrastructure facility business. The company will be dedicated to create additional ways to enhance [indiscernible] utilization, capital and action and optimization [indiscernible] investment service offerings and improve operational efficiency and strategic partnership creation. [indiscernible] as many service companies for Telkom fiber asset with a specific focus on optimizing the utilization through the provision of wholesale home services for wholesale B2B. Later on, step by step Telkom will transfer its fiber asset to the company so that it can cater both internal and external demand for connectivity. During 2023, our [indiscernible] has successfully added 2,596 towers and 5,403. We started a different tenancy ratio to 1.51 compared to 1.47 in 2022. It also keeps its dominancy as the largest telco provider in Southeast Asia. In addition, Telkom enjoys our [indiscernible] as around 58% of towers are located in ex Japan, while the remaining 42% are located in Japan. With this unique proposition with Telkom India, equal revenue growth opportunity to support Telkom Group B2B and B2C business. In term of revenue, in full year '23, [indiscernible] recorded revenue of IDR 8.6 trillion or grew by 11.2% year-on-year, driven by tower leasing revenue. EBITDA and net income grew by 12.7% and 12.6% year-on-year, respectively, with the EBITDA margin expanded to 80.5% or increased by 1 [indiscernible] year-on-year and net income attributable to 23.4% or increased by 0.3 percentage points year-on-year. Total [indiscernible] so currently becoming our prospective revenue engine growth and part of our strategy to strengthen product portfolio to become a digital industrial company. With other adjusted dividend growth and as fiber optics by adding 15,880 kilometers throughout 2023, resulting in a total network line of 32,521 kilometers. With the full year of 2023 and the project recorded IDR 18.2 trillion in revenue with B2B digital service and enterprise connectivity solution as the biggest contributors. We see our capability in cloud business, including to build a partnership with a global technology player. Following the spinoff of IndiHome to Telkomsel, Enterprise segment launched a new umbrella brand namely Indibiz in the third quarter of 2023 to focus on securing SMEs market. Indibiz provides connectivity solution as well as digital platform and categorize the service into Indibiz for [indiscernible], Indibiz for multi-finance, Indibiz for school and Indibiz for hotels supported by regional resources for B2B digital IDs at this business. On government and enterprise markets, we offer solutions at the government digital solution in broadband platform office, business and industry [indiscernible] solution. We're also offering B2B connectivity products to support our various product solution. That is the ending of my remarks, and thank you for the kind attention. .

Thank you, Pak Ririek. We will begin the Q&A. [Operator Instructions] Operator, may we have the first question, please?

[Operator Instructions] Our first question comes from the line of Kelsey Santoso from Goldman Sachs.

This is Kelsey from Goldman Sachs. A few questions from my side. Obviously, could you provide some color on full year '24 guidance, including your group and Telkomsel revenue growth target and EBITDA margin as well as the CapEx for this year? And then my second question is on mobile. What led the ARPU weakness in Q4? It would be great if you could give the latest update on the mobile competition? And my last question is on the cost side. We saw personnel and G&A expenses spike in Q4. So for personnel costs, is this related to any one-off at the year-end? And for G&A, in the info memo, you mentioned that it's due to transformation costs. So assume that it's referring to the FMC, how should this trend in 2024?

Okay. Thank you, Kelsey. This is Heri. I first address your question on the guidance of full year 2024 for the group in Telkomsel. First on the group side. The revenue is expected to grow mid-single digits, and then we're going to have EBITDA around 50% to 52% of EBITDA margin. And then on the CapEx, we're going to spend around 22% to 24% of the revenue. I think, Ramzy, you can have color on the Telkomsel guideline. .

Yes. Thank you, Kelsey. This is Ramzy from Telkomsel. In Telkomsel, our guidance in some of the revenue growth would be in mid- to high teens post IndiHome integration. On the EBITDA margin, around 46% to 48% as we implement asset-light approach adoption. And on the CapEx to revenue ratio, we will have around 14% to 15% revenue. .

I think the guideline for 2024 with the company as a group and also Telkomsel. On the CapEx, the CapEx that we spent around 22% to 20% of the revenue. It will go to mobile around 40% and then fixed broadband around 25%, and the balance goes to data center and other businesses. .

Okay. Kelsey, this is Derrick from Telkomsel. I'll answer your question on mobile ARPU. So we are accelerating penetration and maintaining competitiveness by acquiring new households, particularly by addressing affordability concerns to the lower ARPU products while we want to offer high-quality services. Our focus is on profitability. So our future growth will be driven by customer productivity. We want to optimize our network. We want to drive customer loyalty and stickiness. And ultimately, that will help us to drive the ARPU uplift while maintaining our leadership position in market share. .

Okay. The third question on the some of the costs. The cost you addressed in the personnel cost. Actually, there's some [indiscernible] of the personnel cost increase first, which is natural from time to time, we need to adjust by inflation for the basic salary. The second, on the, I think, tax policy, I mean, from government on the natural benefit that we need to apply in the context of the employee. The third is some like, I think, benefit for the loan service of the employees, that is kind of periodically whenever employee 7 years, 15 years and 20 years, we need to give some benefit as well, allowance for debt. And I think that's most of the cost of the increase in the personnel cost. And then in the G&A, GA costs, mostly, as you also already pointed out, it is coming from the transformation cost, transformation related to most of the, I think corporate action we did last year, but in the call for action. And also there, I think the way we have done this monitoring and controlling the transformation itself. This year, as we see that most of the corporate action already been done last year. The trend of the cost coming from the professional fee is supposed to be decreased compared to last year. And I think that's about the costs and the other costs in the operation and maintenance, some costs are coming from the content that we provide along with this connectivity services in the enterprise side. This is coming at a cost that we need to also up. So mostly, I think the cost that happened in the last quarter of last year. .

Our next question comes from the line of Marissa Putri from UBS.

So I have 3 questions. Firstly, in terms of your numbers. Can you provide some details on why the group booked a negative IDR 1 trillion revenue from the IndiHome Enterprise business in Q4, whether it has anything to do with the transfer of IndiHome to Telkomsel or maybe InfraCo establishment. And also how big is this impacting to your EBITDA net profit numbers in general? Secondly, you launched Telkomsel Lite this year. There was also a push of by.U product. Given that we are now seeing 2 consecutive decline in both ARPU and data volume, data subs, would it be fair also to assume there has been some change in your mobile strategy, which would also point to potentially more intense competition, especially in lower end of the market? And lastly, your guidance of mid-single-digit growth compared to the current 1% growth. Which part of the business you're expecting to be a lever for growth on the top-line side? And I guess your margin guidance would also imply some decline to flattish margins with such top line growth target, what cost item you are expecting to increase in 2024 then? .

Okay. And I think on the revenue from enterprise, basically, when we did, I think, transferred IndiHome to Telkomsel, part of the enterprise connectivity we use, I think, brand of IndiHome, in which we -- because of this, we also booked a gross revenue in Telkomsel. So this is intercompany transaction. So when you see from the segment-wise, this looks like the enterprise is declined and actually, it's not. So we mentioned, the IndiHome still grow around 2.7%. In addition to that, I think, bookkeeping side, actually, in the -- some of the subsidiary still ongoing of turnaround. So we do more selective business, I think, acquisition for the projects that's coming to the enterprise. So this becoming more conservative in the growth and some correction in the growth in the subsidiary as well. That's basically the main reason of the enterprise. I think revenue, we booked a decline compared to last year. And then on the third question before we go to Telkomsel, which part of the business that could provide the mid-single-digit growth in our business. Actually, 75% of our business is actually coming from, I think, our consumer side that's currently managed by Telkomsel. We see actually the both mobile and also fixed broadband able to provide with a mid-single-digit growth as well on this one. So the other part of the business, of course, coming from enterprise and then the wholesale business still provides almost similar figure or slightly higher than that, for example, in tower business and international business and also enterprise, we expect a kind of improvement this year. This all together will provide us with the basis how we come to the mid-single digit of revenue growth. I think in the EBITDA side, we do expect that we, of course, can beat this. I think guideline 52% margin that we have today. We do expect, I think, the competition is still manageable. And also we can do some, I think, bring in cost control. So I think we do expect around 52% to 53% supposed to be a target we want to achieve.

Yes. [indiscernible] from Telkomsel here. I would like to share our view on how our study on Telkomsel [indiscernible] I think we believe that we need to address various segments of markets that we have in overall markets. And basically, Telkomsel and by.U is our strategy to address both selectively mass market segment, as well as the youth. With this broad product portfolio that we have, we have carefully selected the market who actually been very competitive to make sure that our affordability and also competitiveness are maintained in the market. I think from the ARPU decline point of view, we believe it is a balance between how we maintain the market share situation and also trying to still provide the profitability. If you see from the past perspective, I think the Telkomsel Lite positions, we always maintain the price point while we're accelerating the more bonus in the quarter basis. So basically, with that, we believe that we can attract more towards the mass market segment as well as youth with by.U and also Telkomsel Lite.

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

Several questions, please. Firstly, on Telkomsel. What's causing the quarter-on-quarter drop in external mobile revenues when your peers are growing by mid-single-digit levels on a Q-on-Q basis, I know in the past, you used to mention the legacy revenues. But now your revenue ratio on legacy versus total seems to be very aligned to that of your peers. So I'm just trying to understand why there is a drop in ARPU and drop in revenues? Second question I had is with regard to the margins. Can you help us quantify what would be the transformation-related expenses on the FMC. I recall last year, you mentioned the target was around IDR 0.5 trillion in synergies back and in the second half, yet costs have actually expanded and margins had dropped in the second half. Are there any one-off bookings? And what are the related target synergies for FY '24? And lastly, maybe if I can just ask about the asset spin-off plans. What are the timelines for potential strategic investors for data centers and maybe the fiber business?

Arthur, this is Derrick. I'll address your 2 questions. For our Q-on-Q, legacy declined minus 52.2% Q-on-Q. That's actually due to a continued natural decline and a onetime adjustment from the IFRS implementation on legacy business post integration. So this onetime adjustment only applies in Q4 2023, and it will not be reflected in the next quarter, and you'll be back to a normal run rate. So we see this continued natural transition of legacy towards data, and we will project it to be stabilized for the next 1 and 2 years with the current rate, along with our initiatives to manage this decline as well as to prolong the tail. And your thoughts about how we are accelerating the profitability. On Q-on-Q, the ARPU declined by minus 4.3%. As we are investing and we are securing the future of, this is really this balance between customer quality as well as profitability.

On the, I think, synergy that we expect to be achieved from fixed mobile convergent. So this year, we do expect we can hit around IDR 1.5 trillion. This is coming from the combination of the revenue uplift as well as the cost synergy that we can achieve. Along with that, also, we're going to have, I think, a synergy coming from CapEx efficiencies as well on this one. So that's, I think, about the synergy that we budget in 2024. And is there any other one-off cost in 2023, if I'm not mistaken your question on this. Arthur, I think if we see the cost that's coming quite new in 2023, basically coming from the cost of spectrum 2,100 and 2,300, which coming by the end of 2022. So basically, this we booked around 868 additional spectrum costs in 2023. The other costs that we make -- consider there, I think kind of one-off, the cost of the electricity of data center because of, I think, energy price increase, around IDR 300 billion. But the cost has already been adjusted right now by the agreement with a customer, they are going to be at the cost. In 2024, we do not expect that we're going to have this one-off cost, so far that we see at that. Number 3 assets spin-off timeline for data center and fiber business.

Thank you. I see here [indiscernible] getting our target for data center [indiscernible] through higher [indiscernible]

Sorry, the line is really bad. is it possible to put the mic nearer? Sorry, the audio is quite bad.

Is it clear now?

Much better. Yes.

So regarding our time line to unlock the data centers, we are now in the process to hire the business consultant as well the financial advisor. Hopefully, [indiscernible] we will start in this first semester and the target will be close at this end of this year. So about the fiber business, we just set up our subsidiary to transfer asset for our fiber optic to the business subsidiary. But for this year, this [indiscernible] all Telkom fiber businesses. In 2025, we have a plan to transfer all the asset fiber to this company. And after that, we see that opportunity if we can also fund such partner also to invest together with us and going together. Thank you.

Sorry. Just on the first point, it was mentioned there was an IFRS adjustment, which resulted in a reduction in revenues. What is this about? And any guidance what the actual growth would have been like if we were to look at it on a like-for-like basis versus prior quarters? .

Yes. Arthur, this is Ramzy from Telkomsel. As you may see that the Q-on-Q legacy declining around 52%. Actually, it is because of the implementation of the IFRS 15, especially for the legacy from our postpaid. It will be only one-off this last quarter. And throughout 2024, it will be back to normal, and we expect that the declining rate is around 28% to 30% on an annual basis.

Our next question comes from the line of Henry Tedja from Mandiri.

This is Henry from Mandiri Sekuritas. Perhaps 2 questions from my end, please. The first is about the IndiHome business. I think Heri mentioned before about the IndiHome Enterprise business, how there are some turnaround in this business, how to be more selective in terms of the enterprise segments, et cetera. But if we talk about -- more about the B2C business segments in IndiHome, we highlight that the IndiHome booked more than 200,000 net subs in the last 2 quarters, but it seems like the revenue growth on a Q-on-Q basis are not aligned with this IndiHome B2C subscriber adds. So could you provide more color on that? What are the drivers for this sluggish IndiHome revenue growth on a Q-on-Q basis? And the second question for the Telkom itself. We highlight that the company booked like more than IDR 500 billion of the unrealized loss in fourth quarter, which due to the MDI investment. Could you provide more colors on that? Any [indiscernible] for this unrealized loss in the fourth quarter?

Okay. Maybe I'll go to the first [indiscernible] thought that coming this year. Actually, we booked around IDR 118 billion plus coming per value of GoTo. In addition to that one, some investees in MDI, we need to do also the kind of, I think, fair value valuation based on the method that been also, I think, audited by the -- our auditor and also external parties on this one. So it is supposed to replace what is the closest to the real value at that time. So based on that one, several investees, we need to do, I think, book some loss because the valuation is lower compared to the last year. So the amount in total, including the GoTo is around IDR 700 billion. So that's the development, I think, about our investment in the start-up of digital company.

Yes. I think let me address on the IndiHome consumer part questions. I think, as you mentioned, I think in the first half of last year, we actually booked additional about 245,000, which is improving compared to the first half of last year. I think from the revenue side, what we've seen so far, I think in the consumer side, we can grow the Q-on-Q basis on 0.3%. Part of the revenue impact is actually beside the additional knowledge we have growth in some of the IndiHome. We're also doing some promotions and also bonuses that we can give. So I think the impact on the revenue is not as much as the additional. However, I think we believe it is a one-off discount that we can give to the customers to attract to have the additional addressable market that we can attract and capturing the penetration. But in the long run, it will still going to be reflected in the revenue growth on our fixed broadband business.

Our next question comes from the line of Piyush Choudhary from HSBC.

Yes. I have several questions. Firstly, in the mobile. Subscriber additions have been quite strong in the last 2 quarters. But if I look at service revenue in the fourth quarter, it was flat sequentially. Just trying to understand like if you can dig a bit deeper and help us understand what is happening there? Is it cannibalization of existing subscribers to new plans? Or are you -- like is there a decline happening in the old subscriber base, and that's why this even despite of new subscriber growth not leading to any revenue growth. Any light over there? And what is the outlook for mobile ARPU going forward? And in light of this Telkomsel Lite plan, which you have launched recently, what is the outlook for mobile ARPU, can it further drop from here?

Okay. This is Ririek. I would like to address your questions. Yes, the declining ARPU in Q-on-Q basis is basically due to how we apply the right pricing initiatives across our customer segments, and we wanted to stimulate customer productivity. And we were addressing additional segments like the youth and the selective mass market customers. So going forward, we expect ARPU to be stabilized along with the improvement of customer productivity. Yes. I think we have shared about -- when we launched Telkomsel Lite, it is really an initiative where we see opportunities to grow our market share in selected areas where we deem that we have that ability to grow. Plus, from a network perspective, we still -- we are still able to optimize the network utilization. So this is a segment that we will be focusing at as well as by.U, which is our youth segment, the customers of tomorrow. So these 2 segments will help us in our perspective to grow market share while balancing profitability.

Yes, sir, I would like to add some more color on the revenue side. I think if you take a look on the broadband and digital businesses, we are even grow 7.7% on a Q-on-Q basis. Basically, it also drives that our impact on the revenue in the quarter 4 is basically because of the decline on legacy and one-off that we have mentioned before. So in terms of aligning on how we grew the customer base with the right approach on the segment addressing to the market, we've seen that, I think the traction on the Q-on-Q basis in terms of broadband revenue are still on the right track. And even further, I think we've seen there is a good positive momentum that we have gained along the way in this year even after we launched the Telkomsel Lite. And it give us confidence to continue to drive the market share that we can gain from the -- especially on the market that we have seen that we have room for us to grow and gain the market share.

If I may ask, like on this Telkomsel Lite plan, what percentage of industry customer base or what percentage of your customer base like this footprint has an overlap with this new Telkomsel Lite plan? Because you're saying it's selective, right? So if you can shed some light on that. And secondly, on IndiHome. Earlier, there was an expectation there will be cost synergies coming in, in second half of 2023, right? But we saw margins actually dropped in fourth quarter at Telkomsel level. So what happened? Is the synergy benefit delayed? Or yes, if you can shed some light there?

I think on the Telkomsel Lite plan, we -- when we talk about the selective targeted market, we basically believe that there are certain cities that we carefully select that we can actually gain the market share through the competitive plan that we have in the Telkomsel Lite. And I think if you see from the press point angle, as I mentioned previously, we keep maintaining our price point. But I think given the bonuses, both on local bonuses and also the new bonuses that we apply only for the new subscribers. So basically, we believe that although probably in the yield side, when we use the Telkomsel Lite approach, it will be impacted. But in terms of ARPU impact, I think it is not that big compared to actually drop in terms of the ARPU because of this Telkomsel Lite approach. And so far, I think what we believe, especially on Java markets, the Telkomsel Lite have been positively progressing on how we actually attract the competitiveness, again, the pace.

Maybe I'd like to add to particularly to Derrick. So Telkomsel Lite also supports our FMC strategy. Looking at our family members. So we want to really increase penetration to these multiple layers of segments. And we want to leverage the brand and our portfolio to grow the unserved segment. So the goal is really ARPU accretion from productivity and volume increase. So that's our strategy.

Yes. To add on the synergy, as we already explained in the previous quarter, actually, we realized certain synergy that we expected on the cost side, at least we realized about IDR 100 billion cost synergy that comes from the optimization and the closing of the outlet go from the existing Telkom Plaza or Telkom [indiscernible]. It is more than 280 now until December. And also the content cost that we spent previously on the 2 different channels from Telkom and Telkomsel and also contribute some cost. On the uplift in terms of revenue, we also recognized some uplift revenue, both on the cross-selling and also upselling. As we now more understand about the customer and also, we try to provide the offer to the customer, who are likely to have the same ID that own both fixed and also the mobile. And if you look at the quarter-on-quarter basis, if some of that reflects to the improvement in G&A costs, in the last quarter, a decline by 3.7% and also the cost of service. But it is still early, as we will continue certain initiatives towards the synergy value creation. And as mentioned by Heri, this year, we aim at least about IDR 1.5 trillion, both from the revenue uplift as well as the cost side.

So, Pak, if there are cost synergies, then why is the guidance more of a flattish margin year-on-year in Q4? Like is there any other cost headwind which you envisage? Or you do -- or this is more of a conservative guidance and you do expect margins to improve?

Actually, we don't expect any kind of new costs coming to quite -- coming at price this year, except for the, let's say, the cost, for example, if we have new spectrum, which is not in our discussion today. But this is more, as you mentioned, to the counterparty guidance. We do believe this is supposed to be improved next year, the cost situation. I think that's what I can say appears.

We'll take our next question from the line of Sukriti Bansal from Bank of America.

Quick 3 questions from my side. Number one, on the transformation-related costs. How come large [indiscernible] have been booked in 4Q and not in 3Q when the -- the IndiHome spin-off actually happened, both on marketing and sales expenses for Telkomsel, which have increased 15% Q-on-Q and at the Telkom level G&A expenses, which have increased 33% Q-on-Q. Why is this a 4Q phenomenon? I'll come to my end.

Okay. I think on the cost transformation related. Besides IndiHome, we also did several consultancy with regard to the [indiscernible]. That's also ongoing up to a year-end. And also when we -- if and when we did the transfer IndiHome to Telkomsel, actually, we are not only focusing on the process of the spin-off itself. But also, basically, we need kind of PMO to answer all the business process can be smoothly run by Telkomsel. And also we try to find, I think, some room for improvement as well whenever this business is run by Telkomsel. That's -- I think that cost, why this has also happened in Q4 and Q3.

Yes. To add to Heri point on Telkom side, I think on especially on the marketing and sales expense in Q4, this is due to, I think, seasonality. First of all, I think we believe that Q4 has been -- we're trying to capture the demand on the seasonality. And on top of that, after the merger, we're trying to also accelerate our fixed broadband penetrations to really boosting with many and various new initiatives that we believe it will help us to capture and increase the penetration of the fixed broadband itself. I think on top of that, we also enhanced our digital capability and also along with how we also manage the promoting beyond the connectivity, which is also the content and also services that we have.

Understood. Got it. And is there any progress you can share on cross-sell targets for the FMC? You had mentioned that there are about 3 million households, which have only IndiHome, but not Telkomsel, and about 8 million households which have mobile only, but not IndiHome. Is there any progress you can share in terms of where we are now?

Yes. Sukriti, I can share our half year outcomes. So we had a solid half year post integration of IndiHome from the convergence perspective. When we started after commercial day 1, which was at 37.4%, we have now reached 44%, and that has been a smooth integration of how we're able to do cross-sell and to serve our existing customers without any disruption.

Got it. Understood. And thirdly, on Telkomsel Lite, you mentioned that there are specific areas and cities where you're aiming at which you're aiming from these packages. Any further light you can share on which particular areas. You mentioned Java, I think. Is this more a Java focused initiative? And where are you seeing more traction?

Yes. I think on the Telkom side strategy, as we mentioned before, we believe that we have addressed the mass market segment to selectively in the specific area, mainly it's in Java and some of the city outskirts of Java as well, which we believe, I think the competitions are actually comparable against [ rupees ] And we also believe that our network competitiveness also room more to grow actually [indiscernible] For us to actually push further, we're giving up some of the bonuses within the same price that we have, I think. On top of that, I think Telkomsel Lite, what we believe also will help us to improve our brand perceptions in terms of how we can address the mass market segments instead of how we're going to continuously focus with both Halo and also Prabayar for high-value customer segments. And I think what Derrick mentioned on the FMC strategy, we would like to also stress out again, when we have this FMC, we realize that we cannot only focus on high-value customer only, but we also have to address more youth as well as the mass market segments, which we believe within the family, also have to have that to be covered. And with Telkomsel Lite and also by.U in place now in the market, we believe that we have addressed that, and we will use that for us to continue to leverage our mobile penetration using our FMC strategy, which I think was to continuously increase, not individual ARPU, but hopefully, will improve the ARPU per household for ARPA, we call it. .

Got it. And just one last thing. Any further clarity on 5G auctions. Can we expect them still at some point this year? And any timeline that you are expecting?

Okay. Yes. To answer the question on the strategy of 5G. Auction, yes, tentatively is going to be in Q2 or Q3 this year. And [indiscernible] said it will also come with some incentives. So it is good for the industry. Let's hope that it will happen that way.

Our next question comes from the line of Ranjan Sharma from JP Morgan.

A couple of questions. Maybe I can take them one by one. First question is on these new plans, which help you target like more of mass market segment and more competitive in nature. How we should look at the areas to launch these plans in? So that's the first question. And I will talk to you.

Yes. Ranjan, just to share the Telkomsel Lite strategy, we want to address opportunities that we could still increase our market share. So we have increased our product competitiveness, but we will ensure that there is the ARPU upward trend. If you look at what we are offering, it is the same price point, but we are offering more local quota in our product. So that will help us to address the principles of a healthy market on that. At the same time, we want to increase our subscriber base and grow. So it is targeted rollout. We want to make sure that we optimize relevance, and we will achieve yield as compared to our competitors, yes. As just now we mentioned, it is part of our FMC strategy to target the different members of the household. So beyond the head of the household, we want to have our plans to reach out to other family members. So it is aligned to our strategy to increase penetration of the different players of segments to cement our FMC cross-sell and upsell strategy.

I think to add some color on how we select area. We believe, I think, of course, we're looking at how we can always address the competitiveness against the peers. Number two, we also select the area where we have the room for us to grow in terms of [indiscernible] grow as well as the network competitiveness again the pace as well. And I think what we've also seen that the progress so far been good and positive structures on our end, and we believe this is the right strategy as we also address the complete segments as we go along.

If I can just follow up on that. A lot of focus of the discussion on like market share compared to plans, but also profitability. You've seen like Telkomsel EBITDA margin -- sorry, Telkomsel EBITDA declined by 3% in 1 quarter's time. And I think the guidance is also [indiscernible] improvements in the coming period, either, despite higher customer numbers or revenues. So is it like that you're going to see some costs which go up further this year? Or that these are basically like very low-margin products that you're offering for competition reasons?

Yes. In terms of the margin, as we already explained earlier, there's also some costs due to declining in legacy. But as we see the third quarter compared to the fourth quarter, actually, the margin is around 46% to 47%. And as we provide the guidance for this year, we aim at around 46% to 48% in terms of [indiscernible] margin. This will come on the normalized impact of legacy as well as the initiatives that we already been done on the cost efficiency, especially not only in the FMC side, but also in the other areas, which at some point, like in the network operation as well.

Okay. And if you can just share like, I think your earnings are down this year. Should we expect the same level of dividend payment as last year? Or should we expect around like IDR 70 in payout?

Okay. Thank you, Ranjan. On the dividend as we used to say to you and also other analysts, EBITDA that we used to pay around 60% to 80% of net income. Our net income, as reported, grew by 18.3%. So we do expect to still pay with the same dividend payout ratio. With that, we do expect that we can, I think, pay higher dividend per share.

You want to pay a higher dividend per share in 2023? .

We will propose that one.

We have reached the end of the Q&A session. Thank you very much for all your questions. I'll now turn the conference back to Ahmad Reza for closing comments.

Thank you, everyone, for participating in today's call. Therefore, just for those whose questions are not addressed yet. If you have any further questions, please don't hesitate to contact us directly. Thank you. .

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

Good day, and thank you for standing by. Welcome to Telkom Earnings Call 9 Months of 2023 Results. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the call over to Ms. [indiscernible] Vice President of Investor Relations. Thank you. Please go ahead, ma'am.

Thank you. Ladies and gentlemen, welcome to PT Telkom Indonesia Conference Call for the unaudited results of Third Quarter 2023. My name is [ Hanifa Hasan ], and I'll be your moderator for today. 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 and estimates or may involve risks and uncertainties that may cause actual results to be different from what we discussed today. Ladies and gentlemen, it is my pleasure now to introduce Telkom's Board of Directors, who are joining us today. First and foremost, Mr. Ririek Adriansyah, President, Director and CEO, and Mr. Heri Supriadi, Finance and Risk Management Director; Ms. Venusiana, Enterprise and Business Service Director; Mr. Bogi Witjaksono, Wholesale and International Service Director; Mr. Budi Setyawan Wijaya, Strategic Portfolio Director; Mr. Honesti Basyir, Group Business Development Director; Mr. Herlan Wijanarko, Network and IT Solutions Director; Mr. Afriwandi, Human Capital Management Director; and Mr. Muhamad Fajrin Rasyid, Digital Business Director. Also present the Board of Directors of Telkomsel here with us Mr. Hendri Mulya Syam, President Director. We also have Mr. Mohamad Ramzy, Finance and Risk Management Director; Mr. Derrick Heng, Marketing Director, last but not least, we also have Mr. Adiwinahyu Basuki Sigit, Sales Director. So let me now hand over the call to our CEO, Mr. Ririek Adriansyah, for his overview. Over to you, Pak. The floor is yours.

Thank you, [indiscernible] in this call. Ladies and gentlemen, our journey and implemented the 5 Bold Moves strategy is becoming more granular and start to have positive impact to Telkom Group financial and operational performance. We believe that the impact of the Five Bold Moves implementation result will be more significant year-by-year. You need to be ready and [indiscernible] political situation, this may have a negative impact on the overall business. Entering the end of year 2023, the global macroeconomic situation is still facing serious challenges, especially from the [indiscernible] of U.S. and China. The strong U.S. dollar and high inflation still force [indiscernible] policy to reduce inflation by rising U.S. interest rate. The slowing down of China economy and property crisis such as [indiscernible] put more pressures on China's unemployment and low impression could cause China economy to be on the depression state. Our capital structure also has low efforts. With that, the debt-to-equity ratio is 46.2% [indiscernible] interest rate volatility. The cumulation gap of local currency versus foreign exchange that is so high. So that our [indiscernible] is negligible. Finally, our contract with the big vendors, both local and global vendors are mostly stated in IDR, so that Telkom's contract exposure to the ForEx exposure is also not material. The PT Telkom Group business and financial performance result during the 9 months of 2023, [indiscernible] results and believe that the Five Bold Moves I believe is working very well. On the B2C segment with the FMC initiative, the concern [ realizing ] synergy initiatives by improving efficiency in many cost elements as well as cross-selling revenue and product differentiation. OpEx leadership has been successfully implemented by merging mobile and IndiHome customer contact point [indiscernible] and efficient joint marketing initiatives. CapEx efficiency is created towards joint penetration with the mobile and [ Facebook ] expansion planning and revenues uplift accelerated through cross-selling and upselling among Mobile and Fixed broadband customers. The company also successfully launched Telkomsel One to support the differentiation with various customer needs. On the B2B business, Telkom actively implement business strategy to expand and target B2B customers, ranging from infrastructure units, data center, integrated B2B services and dealer subsidies. B2B business expansion could be achieved by not only conducting organic activities and improvement on internal capabilities but also through inorganic activities to collaboration with other B2B entities. M&A and high-end grows to foster our B2B business. We know that establishment of our company to manage infrastructure business, in fact, could be realized in 2023 as well as asset consolidation of our data center into Telkom data ecosystem, especially international data center could be [indiscernible]. could provide a quick win of operate and handling the biggest market share of B2B [indiscernible] products. [indiscernible] 9 months 2023 saw that Telkom still maintaining revenue growth by increasing 2.2% year-on-year to IDR 111.2 trillion, with EBITDA stood at IDR 59.1 trillion and EBITDA margin increased from 52.2% in the first half of 2023 to 53.1% in the 9 month of 2023. Net income grew 17.6% year-on-year to IDR 19.5 trillion. We are [ convinced that ] our improvement on revenue and profitability in the 9-month of 2023 will continue until the end of year 2023. The commencement of FMC initiatives marked by the legal day one of the FMC, the [indiscernible] IndiHome business ownership from Telkom to the [indiscernible]. The result could be seen that both Mobile Data and Internet IT services revenue increased 4.8% year-on-year, while Fixed broadband IndiHome continues to contribute positive growth on revenue by growing 4.3% growth year-on-year. User business revenue of Telkomsel grew [ 7% ] year-on-year becoming the most significant contributor to the top line. This revenue [indiscernible] performance increase its contribution to mobile revenue 81% last year to 86.1% this year. [indiscernible] consistently applied customer value maximization or CPM on the mobile business, and by this quarter, the quality mobile customer already achieved 158.3 million, increased significantly by 5 million Q-on-Q, were relatively stable on ARPU at IDR 48,600 in third quarter of 2023. On IndiHome B2C, we successfully get around [ 105,000 ] additional customers that adopt premium B2C customers with a stunning number of 8.5 million customers. The ARPU of IndiHome B2C could be [indiscernible] 237,000. New product [indiscernible] the new product called Telkomsel One as a commitment SIM contributing the invent of FMC initiative. Telkomsel One in distribution of digital connectivity for the community with a wide selection of customer package. Telkomsel One also offer broadband services with the [indiscernible] in one network. We continued an effortless of Telkomsel prepaid [indiscernible] services in one bill, one apps, one portfolio, one solution including the [ zero ] package of 100 megabit per second, 300 megabit and 1 gigabyte package. The integration that only started in 3 months has been progressing on schedule which include the cross sell activities, service integration, platform cost and quantum synergy, no investment duplication and customer [indiscernible]. Wholesale and international business segment [indiscernible] by providing connectivity both local and international clients. As of 9 months of 2023, wholesale international business contributed a revenue of IDR 12.3 trillion with the international wholesale voice business and digital infrastructure business as the major revenue. During the 9 months of 2023, wholesale and business -- international business revenue increased by 9.1% year-on-year. The growing demand of data center captured the attention of [indiscernible] business player, including Telkom. This is one of the focus of attention of Telkom, has invested its CapEx on a very significant amount and as of 2023 Telkom has a total of 32 data center facilities where 27 located nationwide and 5 located overseas. The average utilization of our data center is 70% with a total IT load capacity of 42 megawatts. Currently, our data center subsidiary, PT Telkom Data Ekosistem or PDE, focused on hyperscale data center and enterprise data center to cater the [indiscernible] support local government, local ISP and small and medium enterprises. Our data center business is also supported [indiscernible] DC customers. Data center integrated services [indiscernible] the customer experience and boost various digital solutions. [indiscernible] supported by our data center, cloud business using pay-as-you-go business scheme. Up to 9 months of 2023, our data center and cloud business has contributed revenue of IDR 1.4 trillion, which grew by 9.1% year-on-year. Our InfraCo initiative is one of the important strategic to optimize network utilization and CapEx as well as increase market penetration for infrastructure sharing by offering better network and operational efficiency. [indiscernible] to increase fiber brand portfolio, security composition as a telco network market leader and improved EBITDA margin at Telkom Group. [indiscernible] our new entity to cater Telkom, InfraCo business. We hope that in the fourth quarter of 2023, the operation for InfraCo has been established and ready to commence operational and commercial activities by 2024. [indiscernible] the largest tower operator in Southeast Asia with the position of more than 37,000 towers and tenancy ratio of 1.5 in the 9 months of 2023, improved from compared to 1.44 last year. The recomposition of tower location ex-Java, higher than Java by 58% versus 42%, respectively. [indiscernible] to grow driven by the increase of demand of mobile data and the upcoming 5G technology implementations, although the Mitratel can support the expansion and domination for ex-Java market. In 9 months of 2023, Mitratel recorded stand-alone revenue of IDR 6.27 trillion or growing by 11.9% year-on-year, driven by tower leasing revenue. EBITDA and net income grew by 14.8% and 16.6% year-on-year. Both EBITDA and margin is expanding to 80.6%, increased by [ 2.1 ] ppt and net income margin is at 22.8%, increased by 0.9 ppt. Colocation number and the number of tenants grew by 21.3% and 10.5% year-on-year, respectively. Mitratel has demonstrated a strong financial position with a relatively low leverage ratio of 1.9x, net debt to EBITDA. That allows the company to better macroeconomic downturns. The Mitratel is also expanding to the Fiber-to-the-Tower business as part of the strategy to strengthen its product portfolio to become a digital infrastructure company. Mitratel also strengthens also strengthened the fiber optic business by deploying exceeding 12,000 kilometers organically in the 9 month of 2023, bringing total fiber optic length to more than 29,000 kilometers by end of 9 months of 2023. During the 9 months of 2023, enterprise business segment recorded a revenue of IDR 14.6 trillion and grew by 6.6%. The biggest contribution to this segment, revenue was B2B IT Digital Services and Enterprise Connectivity solutions. Following the spin-off of IndiHome to Telkomsel and to further implementing of e 5 Bold Moves Strategy, Enterprise Segment through B2B Digital IT Service Initiative has launched a new umbrella brand namely Indibiz in the third quarter of 2023 to focus on securing the SMEs. Indibiz provides connectivity solution as well as digital platform and service to these SMEs and are categorized into Indibiz for Shophouse, Indibiz for Multifinance and Indibiz for School and for Hotel. Through ESG and business sustainability programs, Telkom seeks to create synergies among stakeholders to contribute to environmental preservation, social progress, governance development, and business sustainability. The Telkom was rated good category in Indonesia's Ministry of SOE's ESG Implementation assessment in 2023. Telkom was rated A by Morgan Stanley Capital International, MSCI. This rate has been achieved for three years in a row and from previously in 2016-2020 the company achieved BBB rate. In Telkomsel, we have been developing “Telkomsel Jaga Bumi” as an umbrella campaign to unite several of our environmental initiatives connecting with our business and CSR programs. Waste management – SIM card plastic waste processing into smartphone holders redistributed to retail outlets and pavement block to renovate and develop building facilities. Carbon offset donation Telkomsel Poin exchange to support carbon offset activities mostly in the form of tree planting, particularly in mangrove forests. Digitalization support initiatives Tahura, Taman Hutan Raya, Great Forest Parks digitalization program with IoT and dashboard monitoring and forest conservation education activities with augmented and virtual reality technologies. That is end of my remarks, and thank you for time and attention.

Thank you, Ririek. We will now begin the Q&A session. When asking your questions, please state your name and your company, also kindly to speak clearly. So I think, operator, maybe we have the first question, please? .

[Operator Instructions] This question comes from the line of Piyush Choudhary from HSBC.

Two questions. In the third quarter, we saw mobile subscriber growth was quite strong at 3.3%. So does it reflect that company is going after low, mid-end consumer segment? Can you share light on what is driving this? And if you can talk about the outlook for mobile ARPU as well? . Secondly, can you share how has been the initial response to Telkomsel One offers? Are you able to share how cross-sell opportunities have helped in both IndiHome subs and mobile subs and outlook for the IndiHome B2C subs growth?

Yes. Thanks for the question. Telkomsel managed to have a 3.3% Q-on-Q growth in terms of subscribers. We have consistently applied healthy market conduct. We have delivered smart customer acquisition strategy, optimizing CBM and that the focus is really on renewal, hence resulting in consolidation of customers, essentially healthy, productive subscribers. So with that said, we have the FMC integration that help us in terms of a quick win like cross-sell and upsell, hence increasing the number of subs. So we have secured a stable customer base, and we delivered improved customer quality that hence demonstrating a strong 11.4% year-on-year growth in terms of ARPU. Well, there is a decline Q-on-Q, but this is purely due to seasonality. That's aligned to our strategy of promoting ethical from that and industry pricing rationalization. So this total sub of data users really is a mix of legacy and data users. And we are trying -- we are driving the non-data to data customers and bringing out the multi-SIM customers from our base.

If I may add on the number two, how our tax at today in terms of FMC, including Telkomsel One. We've seen that Telkomsel One are, of course, addressing some of the cross-sell as well as a new sales for combining with Fixed mobile. However, I think the cross-sell is not only based on the Telkomsel One. We've also seen that because we have combined the channel as well as the sales channels including the [indiscernible], we have an opportunity to offer our customers both cross-sell between Mobile and Fixed [ priceless app ]. And on top of that, we are now actually combining the sales force in the Fixed and Mobile and that's gaining some traction, as Ririek mentioned just now. One of the results [indiscernible] subscribers or maintaining the subscribers and also maintaining [indiscernible] 2 of the cross-sell that we are doing between Mobile and Fixed at the same time. So I think this is still early stage. We are in the stabilization of the implication to make, but we are gaining early traction from the FMC initiative as we go.

Sure. But can I ask like understood that 3Q ARPU was impacted by seasonality, but how should we look at the outlook for the mobile ARPU? Is the competitive environment stable and we should continue to expect improvement in the mobile ARPU?

So we've seen that the competitive environment in the mobile ARPU are relatively stable, and some of the price adjustments have been realizations in Q3 and even recently, it's seen from the [indiscernible]. So going forward, I think we expect that the ARPU will be continuously stabilized in our side. Looking at the movement, of course, on the base of the competitors in the mobile and also, we are consistently, selectively doing the adjustment of pricing and seeing the room for us to improve our ARPU from each of the portfolio. And on top of that, with the FMC combination that we have, we actually are leveraging the ARPU not only mobile and fixed ARPU but we are looking at as a wholesale and mobile ARPU as a part of protected. But this is still an early statement. We are consistently seeing the data from fixed subscriber and mobile subscriber and combining the ARPU as one group of account going forward, Piyush.

Just to add, we will continue to further apply the right pricing and right offerings. We want to be simple. We want to differentiate via personalization. We want to scale up content through CVM as well as to provide similar services to -- in order to be relevant to our customer needs, but considering affordability as well as customer [indiscernible].

Our next question comes from the line of Kelsey Santoso from Goldman Sachs.

Congratulations on the results. A few questions from my side. So firstly on mobile, we can see Q-on-Q growth in prepaid subs pick up further from Q2. So is it fair to say that we're already past the bottom for good when it comes to subscriber churn from the strategy to focus on quality user? And then number two, can I check if there's any changes to your full year guidance for group and Telkomsel revenue growth, EBITDA margin and CapEx? And last question is, what are the opportunities in group you see from [indiscernible] entry in Indonesia. I understand that they have a partnership with you to the B2B now, but we are planning to do B2C as well. So do you see a significant churn from this? Or any cannibalization risk to your core offerings?

Yes, I'd like to answer your question on how we are managing our stock growth as well as subscriber churn. So our objective was to really to acquire productive customers. So we have examined our low value or low ARPU customers. They essentially have expenditure less than [ INR 5,000 IDR ]. So the customers that we profile are often categorized bonus seekers and they are [indiscernible] to prioritize promotions and temporary offers. So with that focus on acquiring productive customers, we have stabilized our overall subscriber monthly churn, which was 6% to 7% before the pending initiative. Now the market churn rate is already below 5% so we have stabilized the base.

Okay. On the guidance for the group for the -- I think, this year, we don't change the guidance. We believe the growth of the revenue going to be out to mid-single digit. And then we are going to be able to maintain our EBITDA margin. In the previous guidance, we said 50-plus percent. Currently, you see around 53% that are quite high base. And we try to continue to maintain that margin as well as in the net income margin as well, around 17% plus. In addition to that, we also plan to have a CapEx spending around 22% to 24% of the revenue. Of course, we love to see lower ratio with the same capacity that we are able to build in order to make our CapEx more efficient. I think that's about, I think, deadline...

For the [indiscernible] as we already integrate [indiscernible]. We update on the revenue guidance. Previously, we put low single digits, but now in mid-teens revenue growth. In terms of EBITDA, we still maintain mid-50% of EBITDA margin. And in terms of the CapEx, slightly higher because we also have some additional CapEx requirements to support our FMC initiatives. So our CapEx ratio now at the range of 15% to 16%.

So understanding, I think we are, as a group, always monitor how is the movement on any technology substitutions going forward. And for us, seeing the [indiscernible] in Indonesia, of course, that's the potential we need to always consider but we've seen that so far the target and addressable market target range. And number two, we've also seen that across, I think, the implementation that possibly we can be offering it to the consumer, the ARPU are probably still much more higher compared to our current ARPU if we compare to IndiHome. And on top of that, we also need to consider the price that -- price consumer needs to pay for the CPE if they want to implement for consumer bases. And if we have an experience of 5G Fixed Wireless Access for example, when we actually introduced that in the early days. The Fixed Wireless Access for 5G is still not picked up because of [indiscernible] high. We don't think that's going to be threatening us in a consumer basis in a very short period.

Our next question comes from the line of Marissa Putri from UBS.

Just probably a follow-up question from the first question. If my calculation is correct, I think this is the first time where I see data volume or data subscribers actually down Q-on-Q. So I think you mentioned something about your new subscribers are product-based subscribers, but if it's actually also related to the strong expansion of the number of stuff, meaning that your -- the bulk of the subs growth is basically came from the acquisition market. That's number one. Secondly, in terms of your mobile growth, excluding IndiHome, I think it's a large competitor. So would you say that more of the market share loss actually coming from ex-Java or Java, some color on competition would be helpful as well. And lastly, on cost, can you elaborate whether there was some kind of one-off element on the G&A costs or the decline here is purely coming from the FMC's synergy?

A question on -- from a -- when we look at the ARPU perspective, right, from our new subscribers, we really want to emphasize CVM as a core component. How we are able to personalize offerings, targeting at individual customers? Our -- from an ARPU perspective, I think our position remains stable with a promising ARPU for slight improvement in the future. So this improvements are contingent to macroeconomic conditions and the competitive landscape. What we are always calibrating is our pricing relevant to the ability to pay. So we are able to offer a range from a very affordable, [ low denom ] in fiscal vouchers to customers who are looking for high quota and longer validity. So we are always offering a portfolio and range of price plans across our very diverse customer segment.

On the competition landscape, I think on the market share, we've seen that in Java, our markets are stabilized among the conditions that we have. However, I think on Java with the current situation that we are now having in the FMC, we've also seen some opportunity that we can leverage from the higher market penetration of market share on Fixed. I'll give you an example, certain cities where we actually have the lower market shares on mobile. We have actually Fixed broadband, which are very dominant. So that will create our opportunity to do a process. In ex-Java, I think as we explained, we have also continuous leverage our CVM. Our CVM are in the penetration around more than 65%. That helped us to maintain our momentum on ex-Java. Of course, we always cautious on how the pricings on acquisition on other competition will affect us. But then I think now we have also another weapon using an FMC as a weapon to lock in the customer with us. So besides the lower segment addressing with the physical voucher or promo and all the low segment value that we are having, we are also maintaining our high-value customers through FMC as well as CVM.

On the G&A costs, we can explain to you that most of the -- I think the decline coming from the collection fee costs. It is coming from the ability for us to collect better, I think, revenue coming especially from enterprise customers and so on. That's reflected actually our current trend. So that's causing a good thing -- progress for us in terms of collection. There's another cost in this, I think, G&A, including consultant fees that we can quite -- maintain well despite we have so many cohorted expense here. Of course, some synergy we do expect in the future. We did some, I think, cost efficiency coming from synergy by closing some, I think, our outlet that redundant, which is around 1 kilometer, I think, in distant. We reduced around 190 gross stores that are also contributing to the efficiency but if you see in this G&A mostly coming from the, I think, our collection costs and consultancy costs. The synergy from the FMC currently mostly can be seen in the marketing cost, which is -- I think we can stabilize the growth of the marketing cost. We have, I think, lower marketing cost because we can synergize all the activities.

Yes. On the synergy realization, one of that to add is on the content costs. Previously, we have a different contract between fixed broadband and also cellular. Now for the content, we aggregate their contract to become one and it can be leveraged towards all of our customer base. So it also delivered some additional cost optimization in our first implementation quarter of FMC.

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

Several questions, please. Firstly, on the mobile business. Can you give clarity on this side. You've seen significant improvement in terms of net adds, maybe 5 million, but ARPUs had actually gone down even though you mentioned you're looking at the quality users. What's driving down the decline in ARPU, which in turn is offsetting the benefit of subscriber gains on revenue? That's the first question. Second question I had is with regard to IndiHome consumer momentum. That's also improved quite a bit. Are we seeing this now as the baseline level going forward? Or do you see this as improving even further in the subsequent quarters? And third question I had is with regard to the synergies. I recall in the prior quarter, you mentioned targeting around IDR 0.5 trillion in synergies for the second half of this year. Just wondering in terms of the cost recognition that or reduction that you've seen in the third quarter, has any of that been built in yet? How much will be realized into the fourth quarter?

Thanks, Arthur. I'll answer the first question on mobile. Yes, the ARPU started to decline Q-on-Q, but it is purely in the context of seasonality. So going forward, we would expect the ARPU to be stable and expect to increase the line with usage improvement as well as the festive season in Q4 2023. Well, we have always talked about Indonesia data price is considered one of the lowest in the world. So telco operators need to have the rationalization to be able to sustain and fulfill our commitments to customers, as their requirements are now a lot more demanding than before. So this is our approach to drive better quality with a more for more strategy.

On the IndiHome expectation, I think we've seen this at an early stage of having the integrations and having Telkomsel managed in IndiHome with also an option of [indiscernible] to really penetrate the market. We've seen that at least these numbers of Q3 is one of the additional -- I mean, the base line today, but we are also looking at improvement going forward. We've also seen that the orbit as a temporary solution is still at early stage and that can accelerate us on the penetration of home broadband and as well as if we can also address some of the segments besides the ABC segments going forward. We are looking for further solution for home broadband penetration, where we actually address more than 15% today. So the room are still there. Now I think in terms of the execution and [ split of ] selling is the one that we believe is the key from us to success. And this market, I think the key is actually the first mover are always a winner. So we believe the Home group will always trying to be a first mover in this home broadband segment, into penetration across the nation.

Yes. On the third question of the synergy realization, as mentioned by Pak Ririek earlier, we expect that the realization for this year is around [ IDR 500 billion ] in which, based on our first quarter implementation, we realized aligned with our target, some part is also exceeding our target. It is not only comes from the revenue, but also on the expenses side. . In terms of the expenses as your question, the synergy comes from the integration of the content contract that previously we ran into separate entities. The second part is the alignment of the outlet or stocks that previously is from Telkom and Telkomsel on their own stores. So we are -- in alignment to normalize our outlet 196 -- sorry, 196 of 191 outlet that we targeted to be consolidated, those are the synergy that we are already realized. On the other part is also about the cross-sell and upsell that based on the fourth quarter that we presented to some of you, it's already been realized both on the quarter 1 and quarter 2 as well as quarter 3. So that seems that we are aligning our target, and we expect to realize the whole [ IDR 500 billion ] of synergy value by the end of this year.

Sorry, if I could just have one follow-up. On the InfraCo because it was mentioned earlier that it's expected to be formed by the end of this year. I'm just wondering, how do you envision this to benefit Telkom? Is it because of additional revenues on wholesaling, any targets of that? Or is it mainly because you expect to be able to spin off and realize higher multiples from the asset? I'm just wondering what your thought process is on the InfraCo.

Okay. Thank you. [indiscernible] strategy is a part of a global telco strategy. And our InfraCo strategy is in line with the global growth strategy. [indiscernible] increasing overall our fiber network revenue by optimizing utilization of our fiber asset. And if we look to the low penetration on the home broadband in Indonesia, it will create a better opportunity, not only for Telkom group, but also for other service providers. So by offering those strategy to other provider, we can create the new revenue from, as you think, our fiber assets. Thank you. And then upon the progress, it's early. We are in the process of step-up a new [indiscernible].

And this should be ready for commercial operations by 1Q '24. Is that right?

Yes. Equally, we start to commercial through gross sale division.

Okay. I will just a bit add on that. But the company will be established hopefully, by end of this year, and it will be start of operation in early next year. But the [indiscernible] is not going to be at that point because most of the asset was still in intercom and we probably transfer the asset to the company. So the big impact may not be coming in the one, but this will be [indiscernible] along the way.

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

Two quick questions from my side. There are a bunch of moving parts. So if you could just quantify what your underlying clean net profits are excluding any one-off gains and losses? The second is that you have seen a pretty significant improvement in certain costs like G&A, but also O&M cost as well. I know you talked about closing some stores. But if you can also help us explain what some of the other drivers are and if they are sustainable.

Okay. Ranjan, I think on the net income, net profit, maybe we need to consider by 2 ways. If you see the inside of the profit, we also have the kind of unrealized loss or gain that may come from our investment in broadband for example. That's going to becoming effective, going to determine the net income of the company after the end of the year, in which we are -- we have the control of the -- what is the stock price of go to. But when you see the net income coming from the operational, that's supposed to be quite predictable. You can predict that one based on our results up to the third quarter. I think that trend going to be sustainable up to the end of the year. So we don't like to see any surprise in the net income coming the operation. And in fact, actually, when we talk about on the dividend, we always consider from, I think, what we need to return to the investor based on I think dividend per share and also yield and so on. And then unrealized loss, again is not coming as a cash. So we have quite good -- let's say, during last year that enable us more to invest continue and also maintain the dividend payout. And then on the G&A cost, I think it is -- if we see the 2 main contributor to this is actually coming from collection costs and consultancy cost. It is supposed to be -- in terms of the production cost, it is supposed to be very predictable based on the current performance, what is our collection cost. It is, I think, very predictable. And we believe this turn going to sustain based on the percentage in the revenue.

Contingency costs on the O&M cost?

O&M cost. I think on the O&M costs, this year, we have quite a big increase coming from the spectrum costs. The other costs actually pretty much in line with the capacity and our operation. We believe this cost after we have discussed, we've done really our predict -- new spectrum next year. Maybe 700 spectrum can come next year, but not supposed to be a kind of consideration in terms of how we're going to manage our operation and maintenance costs. Without new -- I think new spectrum coming to our cost. Our cost is supposed to be very pretty much, I think, stable based on the customer base that we have, based on the, I think, network that we need to build. That's going to be quite low. I think it is supposed to be in line as well with the growth of the revenue.

Ranjan, your line is distorted. You may wish to reconnect. Our next question comes from the line of Niko Margaronis from BRI Danareksa Sekuritas.

My first question, and if you can basically confirm about there is an uptick on the enterprise segment, if this is correct. And what's driving it? And yes, what's the outlook on that segment?

Okay. From the enterprise segment, actually, the revenue growth 6.6% coming from the enterprise connectivity. And then [indiscernible]

Sorry, it wasn't clear. Can you repeat [indiscernible]

Okay. From the enterprise, actually grew 6.6% coming from the biggest one is the enterprise connectivity, IT service, digital solutions and the fixed process on the headline indices. .

Okay. Okay. Maybe for another question is on the InfraCo comments earlier, is going to close by the end of this year. And how many kilometers of fiber -- I understand that you have to set up a new unit, and you're going to transfer the assets there. So I'm assuming it's about fiber. What kind of -- how many kilometers that is in total? And is it only backbone or includes FTTH or also FTTT?

Yes, as Pak Ririek already mentioned before, we will set up the FTTT on this year. But for the commercial, we already start selling those assets. We are the wholesale division. And then [indiscernible] we are still on the process of analyzing what is the optimum scenario to transfer the asset. It's not only for the asset, but also the momentum because we did some approval or components that we have to follow if the asset is quite used from our stakeholder. So -- and then the element of the asset that we will close as part of InfraCo strategy, of course, we will start from the last man but of course, it's not closed the opportunity also for other fiber asset. Thank you.

And maybe one more question from me. From the 158 million subscribers for Telkomsel, there's also 8.5 million IndiHome, how much -- I think some of them are from Telkomsel One. How many of the 158 million is coming from the new IndiHome product?

Niko. So when we look at Telkomsel One, we categorize them as multiproduct holders meaning they have both mobile as well as IndiHome. That's currently constituting about 30% of our base. And this is our clear strategy moving forward to increase this percentage through our cross-sell and upsell quick wins.

To add to that one, Niko, I think as we mentioned earlier, the Telkomsel One is just one of the portfolio initiative for us to get the fixed and home mobile potential subscriber. However, we've also seen that existing IndiHome customers, we also [indiscernible] but that may not be Telkomsel One customers as a product, but we consider [indiscernible] customers between mobile and fixed in our base today. So we are currently not really want to differentiate between the product portfolio and the comfort customers in which we define our customers going forward.

But some of that 158 million is also have IndiHome, right? This is my first...

Yes, yes, yes. And I mean, our strategy of Telkomsel One is not just from a product holding perspective. There is seamless connectivity, similar experience from one app and one customer touch point perspective. In fact, the content offering that we are going to market to our customers is a multiscreen offering already. So it is not a silo mobile or the TV offer. So that's where we see this adding value to our customers. So this is really our holistic Telkomsel One strategy.

One question on the EBITDA margin. It's now at 53.1% and Pak Heri mentioned that maybe this is the maximum. This is how should I get it? Or because we have some more synergies, therefore, there is an upside on the EBITDA margin some more?

Niko. On this one, I think this is [indiscernible] because in the same time, we also have the revenue coming from [indiscernible] I think, investment and so on. So we believe if we maintain this one, that's also going to be good for us, if we can do better, of course, we want to do better. But in the optimum one, there's possibly also based on the market competition that we are facing later on. We try to also to keep our profitability as well as possible while maintaining the long run, I think, competitiveness of the company.

Operator, in the interest of time, I think we will only take one final question before hitting an hour mark.

Certainly. So our next follow-up question comes from the line of Piyush Choudhary from HSBC.

Just one question. Could you share your thoughts on outlook for the timing of spectrum auction on -- in 700 and 3,500 megahertz band? When is the most likely probability for these auctions?

I think last August, [indiscernible] regarding the interest of operator towards the 700 spectrum and [indiscernible]

Sorry, we can't hear you properly. Sorry. We can't hear you properly.

Okay. In August this year, ICT Ministry sent a letter to the operator regarding the interest of operator towards related to the 700 [ mega spectrum and 26 giga ] spectrum. Our operator voice, they are interested in participating in the upcoming auction. However, there are conducting studies, analyzing everything, policies to be issued by the government regarding the selection process. I think the selection process will be first quarter next year. But we are -- all the operator is waiting for 2.6 instead of the 36 gigahertz [indiscernible]. We are more interested with the 700 and 2.6 [indiscernible] I think, will be released in the quarter next year.

So 2.6 will be released, you're saying end of 2024?

Yes. It is what I heard that 2.6 will be released...

I think the release date is not fixed yet. But there is the other point that we need to inform you that because of the new regulation, actually, the way the [indiscernible] spectrum is used to be cash. But now we're [indiscernible] also not in cash, but the combined between cash and some probably kind of commitment to [indiscernible] been discussed, but the point is that the government aware that the -- they are -- the intention is to use all the industry on these spectrum case. We don't know yet at this point on how we will come up with the one, but I think I do believe that it will help the industry including all the operators.

Thank you, Piyush. I think we are hitting an hour mark. So I guess, we're just going to conclude the call here. Thank you, everyone, for participating in today's call. We apologize for those questions that cannot be addressed just yet. Should you have any further questions, please do not hesitate to contact us directly. Thank you so much, ladies and gentlemen. .

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

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.

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: Mr. Ririek Adriansyah as President Director and CEO; Mr. Heri Supriadi as Finance and Risk Management Director; Mr. Honesti Basyir as Group Business Development Director; Mr. Herlan Wijanarko as Network and IT Solutions Director; Mr. Bogi Witjaksono as Wholesale and International Service Director; Ms. Venusiana as Enterprise and Business Service Director; Mr. Budi Setyawan Wijaya as Strategic Portfolio Director; Mr. Muhamad Fajrin Rasyid, as Digital Business Director; Mr. Afriwandi as Human Capital Management Director. Also present are the Board of Director of Telkomsel, Mr. Hendri Mulya Syam as President Director; Mr. Mohamad Ramzy as Finance and Risk Management Director; Mr. Derrick Heng, as Marketing Director; Mr. Adiwinahyu Basuki Sales Director. I now hand over the call to our CEO, Mr. Ririek Adriansyah for his overview.

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.

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 Instructions] Our first question comes from the line of 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.

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.

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.

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.

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?

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. .

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.

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

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 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.

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?

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

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

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?

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.

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.

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.

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.

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?

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.

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.

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

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?

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...

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

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

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?

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.

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?

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?

IDR 288 billion for the second quarter.

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.

Last question...

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.

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? .

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

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.

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...

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

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

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

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?

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

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.

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.

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.

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