Telkom Indonesia (Persero) Tbk PT (TLK) 2014 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Telkom first-half 2014 results conference call. (Operator Instructions). All the materials for today's conference is available on our website at www.telkom.co.id. Please be advised that this conference is being recorded today. I would now like to hand the conference over to your first speaker today, Mr. Prakoso Imam Santoso, Assistant Vice President of Investor Relations. Please go ahead, Mr. Santoso.

Thank you, Vivian. Ladies and gentlemen, welcome to PT Telkom Indonesia first-half results ended June 30, 2014 conference call. Our CEO will give you the overview and then we conclude by question-and-answer session for all partakers.

The presentation of this earnings call is available on the webcast and an audio recording will be provided after the call for the next seven days. We released the report first-half financial results ending June 30 on July 23, 2014 and could be accessed through our website www.telkom.co.id.

Before we continue, let me remind you that this 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, estimations or expectations voiced during the call. These may involve risks and uncertainties and may cause actual results to differ substantially from those discussed in today's call. Telkom Indonesia does not guarantee to any actions which may have been taken in reliance of the discussion held today.

Ladies and gentlemen, we are glad to name you our Board of Director who are currently joining with us; Mr. Arief Yahya as President Director and Chief Executive Officer; Mr. Honesti Basyir as Director of Finance and Chief Financial Officer; Mr. Indra Utoyo as Director of Innovation and Strategic Portfolio; Mr. Rizkan Chandra as Director of Network, IT and Solution; Mr. Ririek Adriansyah as Director of Wholesale and International Services; and Mr. Sukardi Silalahi as Director of Consumer Service. And also are present Board of Director of Telkomsel; Mr. Heri Supriadi as Director of Finance; Mr. Alistair Johnston as Director of Marketing.

Before Pak Arief delivers his remark, I will take this opportunity to give a brief overview of Telkom Indonesia.

Telkom is the single largest integrated telecommunication company and network provider in Indonesia, with over 150m telephony customers and more than 84m broadband users at the end of first half 2014. Telkom provides a strong business portfolio of TIMES, Telecommunication, Information, Media and Edutainment, directly or through its subsidiaries. Telkom also delivers services to multi-customer portfolio; retail, enterprise, wholesale and international.

As of June 30, 2014, the majority shareholder of our common stock was government of Indonesia with 53.1% ownership, and the remaining 46.9% was under public ownership.

I now hand over the call to Pak Arief Yahya for his overview. Pak Arief, the time is yours.

Okay. Thank you, Prakoso. Good afternoon, ladies and gentlemen. A very warm welcome to each one of you to our conference call for the first-half results ending June 30, 2014. We sincerely appreciate your participation on this call.

In today's call, I will give you an overview of our achievements in the first half 2014. Until the end of June, we could maintain an outstanding performance in operational and financial results. I would like to update you on the progress of our cellular and fixed line business development as well as other business portfolio.

Ladies and gentlemen, let me start the overview by sharing the highlights of our first-half results. First, Telkom consolidated revenue increased by 8.4% year on year and EBITDA grew by 9.1% year on year. This is in line with Telkomsel's performance, which recorded 10% year-on-year revenue increase and 8.2% year-on-year EBITDA growth.

Second, Telkomsel gained more than 5.8m net additional customers during the first half, made total customer base to be 137m.

Third, Telkomsel continued to expanding its network, adding almost 9,700 new BTSs during the first half, with around 75% of them are 3G BTSs.

Ladies and gentlemen, our fixed broadband users increased by 15.6% to 3.2m and the revenue increased to IDR2.4 trillion year on year in the first half. Our mobile data users also gain increase of 22.3% from last year to 63m users. We booked IDR6.4 trillion revenue from mobile data, a 33% increase year on year. Total mobile data and fixed broadband revenues increased by 25% year on year to IDR8.8 trillion.

Ladies and gentlemen, revenue contribution for the first half dominated by data, Internet and IT service revenue, which made 40% total Group revenue and 16% growth year on year. Cellular voice revenue came second, contributing 37%, with 6.4% growth year on year. Those are followed by fixed line voice contributing 10.5%, and the remaining 11.7% is contributed by interconnection, network and others.

On the expense side, O&M was the biggest contributor with 36% of total expenses. The second and the third contributor were depreciation and personnel expenses, with 27% and 15.9% of total expenses, respectively. Interconnection, G&A, marketing expenses, ForEx net and others net altogether contributed 19.8% to the total expenses.

Total expenses increased by 11.5% year on year, mostly due to the increase of depreciation and amortization, which in line with the acceleration of network deployment in our cellular subsidiary. During the first half of 2014, on average, we built more than 1,600 BTSs per month.

Ladies and gentlemen, I'd like to reiterate that for 2014 we focus our efforts and resources on the three main portfolios, which are cellular business, broadband infrastructure and international business development. This is reflected in how we spent our CapEx for the first half of 2014; 71% is allocated for our cellular business.

Meanwhile, the rest is for broadband infrastructure development, tower, ICT and international business. To be able to give good experience to the grown data customers, Telkomsel keeps deploying its BTS to improve capacity and to expand its coverage.

Meanwhile, Telkom is continuously laying out its fiber backbone to the east of Indonesia. We expect by end 2015 all our major islands in Indonesia from the west to the east could be connected.

For the first half, Telkomsel recorded 10% year-on-year revenue growth. We expect that such a good performance could be maintained.

As already mentioned in the last quarter, Telkomsel is in the process of growing its digital business. For the first half, data and digital business contributed 22.5% of Telkomsel's total revenue, increased 3.9% compared to the last year. Revenue from data and digital business grew 33.1%, mainly come from data broadband, which grew 33%, and digital services increased by 28% from last year.

Over the coming years, these businesses will continue to be Telkomsel's main engine of growth. The potential to further increase the number of data users is still huge, as current penetration of smartphones is still relatively low at around 23% of Telkomsel customers. Telkomsel will continuously encourage the adoption of smartphones, as this is one of the keys to accelerating data consumption.

Telkomsel's legacy revenue grew by 4.8% over the last year. Our voice revenue grew 7.2%, while SMS slightly increased by 1.1%. To exploit Telkomsel legacy revenue, we focus on geographic clusters and customer segmentation where we can provide more services and generate more revenue.

On the fixed line business, let me share our Indonesia Digital Network 2015. On the transport side we call Id-Ring, Indonesia Digital Ring, we have completed 70,000 kilometers of national and regional backbone network, out of the targeted 75,000 kilometers in 2015. On the Id-Access, Indonesia Digital Access, we are now focusing the deployment in the area with high-demand consumers on the route of BTSs and corporate customers.

Even though we faced a lot of challenges in initiating and developing overseas business, but we have to go on as we will have to make ourselves ready for ASEAN economic community in 2015. We have a lot of lessons learned from our business establishment in several countries, such as Singapore, Hong Kong, Malaysia, Australia and Timor Leste.

We expect to be able to make footprints in 10 countries by end of 2015. We are optimistic to make it happen. We are committed to have more international business exposure to broaden our market room, diversity of our business risk and improve the competencies of our human capital.

For the first half, international business contributed 5% of consolidated total revenue, increased 1% compared to the last year. Revenue international business grew 19.8% and EBITDA margin around 27%.

Ladies and gentlemen, let me now reiterate guidance for the year 2014 as a wrap up.

For 2014, we expect both consolidated and Telkomsel revenue could grow in line with or better than market growth. Telkom consolidated revenue expected to grow between 6% to 7%. Meanwhile, Telkomsel could maintain a revenue growth in line with or slightly above the industry. For EBITDA margin, it will be slightly decline for Telkom consolidated and Telkomsel.

Consolidated CapEx spending for 2014 expected to be 20% to 25% of revenue. Allocation for Telkomsel purposes is around 70%. Meanwhile, for broadband business it's around 20% and other subsidiaries is around 10%.

That's ending my remarks. Thank you.

Thank you, Pak Arief. We will now begin the questions-and-answer session. When raising your questions, we would appreciate if you could speak clearly and state your name and your company. Operator, may we have the first question, please?

(Operator Instructions). Sachin Mittal, DBS.

I have a question on the depreciation, which seems slightly unusual. So, could you give us a breakdown of how many tower leasing is treated as OpEx and how much of that is treated as financial lease resulting in high depreciation? So just a bit of breakdown on that, how do you treat a tower, as financial lease or as an OpEx or a simple tower lease? Number one.

And number two question I have is on what's happening on the non-Java business. Are you seeing more competition outside Java from the likes of Hutch or XL? Thank you.

Hello. Heri speaking here. We address first question on the -- what is the policy on the financing lease and operating lease of the tower. First, all the tower that will be categorized as [Bildusut] will be coming to the operating lease and the [Covol] tower will be coming to the finance lease.

So far now we have 14,982 towers that we lease in, of which 7,811 will be under operating lease and the balance goes to the finance lease. So the composition is 51% will be operating lease and 49% will be coming to finance lease. This is the composition.

And up to now, we already recorded until the first half of this year around IDR794b tower lease expenses recorded under finance lease. And for op lease, 469 is posted in the depreciation and the balance goes to interest expenses.

Okay. Thank you.

Okay. In terms of the second question, which was about the competition outside Java, I think the answer in short is yes. I think we're seeing XL probably a bit more resurgent than they have been in the last few quarters, and I think we're seeing Hutch a little bit more aggressive as well.

Looking across the country, actually, in Sumatra we're doing particularly well at the moment. I think the main challenging areas are in Area 4 for us, which is Sulawesi, Kalimantan and Papua. And I think having recently visited myself Sulawesi and Kalimantan, I definitely have the sense that in particular Hutch were making efforts to improve their network and to improve their execution.

So in short, yes, the competition remains pretty tough.

Great. Thank you.

Choong Chen Foong.

Hi. Thanks for the call. Four questions from me. Firstly, could you bring us through some of the tariff adjustments that you have made for the mobile side year to date, and whether you think there is room to further tweak up the tariffs in the coming months?

Number two, could you give us an update on the progress at Mitratel, where you're trying to spin it off? Have you already decided on a strategic partner and what is the cost going forward?

And number three, could you give us some sense of how much you're paying for BlackBerry access fee for the first half?

And number four, is there going to be an early retirement program this year? If so, what is the expected cost for that? Thank you.

So I should probably start on the first question, which was on tariff adjustment. So I think just to put it in context, I've been saying for the last number of quarters that our intent has been to increase price across all our products.

I think if you look at our performance, our year-on-year growth on voice is 7%, which is by and large driven by smart pricing, as we call it, which is effectively breaking the country up into a large number of pricing clusters and finding local opportunities to put up price, with a general direction upwards. So that's been successful.

I think with SMS revenue, our growth year on year was only about 1%. And actually in the first part of this year I've put in place changes to the SMS pricing, which in the immediate data that I can see shows that we're starting to make progress in terms of driving revenue through those price changes. So, voice and SMS certainly the direction is up.

And I think in terms of the competitive environment, I think all the operators now realize that there's no elasticity; there's nothing to be gained by cutting price on voice and SMS. So I expect them to continue to rise.

I think the big opportunity is on data, because the market has really focused on driving data adoption and data usage, in particular driving customers onto data -- buying data packets, which is a good customer experience and a sustainable customer experience. And the problem with those is obviously they're cheaper on a per megabyte level, and as of June our price per meg has gone down to IDR62 per meg.

So the opportunity is there to start monetizing data more effectively, and I'm certainly embarking on a series of price increases on data, following the Lebaran holidays, which is next week in Indonesia. From then onwards, I'll be actively looking to push the data price up. So hopefully the market will be responsive to that.

Okay. I will add information on the access fee for BlackBerry. So far, we already spent around IDR822b for the BlackBerry access fee. Per user, the price already decreased from being IDR19,000 last year, in June, becoming IDR18,400 by June this year.

Right now, we have around 7,279,000 of BlackBerry subscribers. This is still higher compared to last year, which was 6,332,000. But if we see the current situation, the number of subscribers slightly declined from month to month, starting in the early of this year.

(Inaudible) Pak Indra, could you please handle this?

Yes. Okay. Regarding the progress of tower portfolio, so I will start with the (inaudible) that we -- the plan that we have been reported -- we have reported to the analysts and to the investors that we -- currently is that we just maybe pass into the evaluation period option to assess the two option between the (inaudible) to be a public listed company and also IPO. We actually would like to bring it into the direction, the stated intention of Telkom in the tower market.

We start from the aim that Telkom as a group would like to be the largest maybe tower provider in the market. So that's the intention of Telkom in the tower portfolio, in line with the corporate development that we plan in our corporate strategy direction. And the Mitratel is actually -- is one of the steps into that direction.

So to be the largest, I think we come into -- I think there is two option, is to build and to buy. And to build, it means we can do the IPO or a new investment in Mitratel. And to buy, it means we acquire the largest maybe public tower providers in the market in the past.

So in the analysis I think we already come into recommendation and step in how we enter into this unlocking or developing the tower business, and we -- from the analysis that we did, we plan to take the buy option. Hopefully it's more certain, more faster and also very clear in terms of value, in terms of maximizing the value we can obtain, also we can grow in the future.

So that's the direction. We already gave the recommendation, actually. But we are at this moment in the process of getting support about how we can proceed on this direction from our commissioner and also from the ministry. We still expect that we can move forward with this direction in this quarter, and until maybe this year we will try to finalize the review of the legal aspects, the business process and also the value that we can -- which is a parallel of -- is good and also proper.

So if you see from that context, to buy, it means we can go into looking for the best partner, that we can be the largest shareholder, and the Mitratel is just one mechanism for the swapping the value or paying or buying the company, and apart from other mechanisms like treasury stock or cash. That's the position we are going to take, and we'll definitely update the tower unlocking strategy when it's done.

Then we get to the (inaudible), Prakoso.

Thank you, Indra. The early retirement program, it's Pak Honesti.

Thank you. For the early retirement program, we still have the plan to did this in the last quarter this year. We budget around about IDR100b and we hope that around 700 employees will enter this program. But the (inaudible) that's on our [cut here] that we're now in the progress by our human capital department and the target is the last quarter this year. Thank you.

Thank you very much.

Jimmy Chen, Sanford Bernstein.

Hi. Thank you for the call. Two questions. First, on the CapEx intensity that we've seen peaking in H2 last year and it's still at a pretty high level for H1, but given the guidance for the full-year CapEx, it didn't seem that the intensity would drop in H2 this year. Can management just give some explanation on what caused that peak CapEx intensity in the last two halves?

Second question is on the 3G rollout strategy. Can you give more detailed guidance on what the strategy is in terms of, for example, geographical focus, and also how that differentiates from the competitors? Thank you.

So, for the rollout strategy that you have, it's for the mobile side, right?

Okay. Thank you, Jimmy, for the question. Yes, we already have a program to accelerate our CapEx on the first half of this year, because we know summer peaking month is happening in the first half. We have Lebaran, that weekend and so on in the first half of this year.

Second, we want to have our network ready to be monetized in the second half of this year, so basically that's our program from the beginning. Through the second half of this year, of course we're becoming more corrective in adding new investment to the plate, but our plan is to monetize when all the investment has been made.

Yes. So I think in terms of the criteria for the 3G rollout, I think it's changed somewhat this year versus previous years. Obviously, initially we had a bigger focus on coverage and really identifying the areas where we felt the demographics and the handset population, etc., were appropriate for 3G.

Currently we cover about 300 cities, so our coverage is very good. Where we have invested more recently is in quality. So we have 30 cities identified where we set a benchmark which we call world class. So we set a series of KPIs around latency and speed and throughput, etc., which we deem to be of a world class standard. So a lot of the investment in those cities tends to be on increasing the amount of cell sites, cell splitting, increasing capacity, but also investing to improve quality.

And I think, going forward, that's really going to be the name of the game. I think it's focusing on delivering a reliable quality service is going to be our main criteria for investment.

And just to follow up on that, in terms of the 3G coverage, how much of the population is actually covered now? And what is the near-term target in the next two halves, for example?

So, the current population coverage is 60%, roughly 60%. Actually, to be honest, we're not really working off a particular target in terms of population coverage. We continue to look at our footprint and we find areas where we think the 3G handset population is rising or where we think the demographics are appropriate, and then we'll put 3G out there. But probably we have a greater focus on, within the 3G coverage area, making sure that it's really a good quality service.

Great. Thank you.

Jennifer Gou, Credit Suisse.

Thanks very much. Three questions from me. First of all, if I can just clarify on the ERP number that was mentioned a short time ago, was it IDR100b that was mentioned as the potential number for the fourth quarter of this year? That's the first question.

Secondly, if I could also just clarify on when you're determining when to move towers from being on operating leases to being treated as finance leases. What is the criterion that you use in determining when to move those towers over? That's the second question.

And if I can just ask another question on towers as well, I think the question earlier on in the call had been about how you would look to monetize your towers, which obviously you've been looking into now for a couple of years, the idea of effectively being a seller of some towers. But for some reason the strategy that was just outlined sounded like you said you were going to be a buyer of towers, of existing tower companies, which I find a little bit confusing. I just wanted to make sure that what was said there was really what you meant to say. That would be helpful if you could just clarify on that point. Thank you.

Okay. Let me explain again regarding our early retirement program. So, as I said before, the target for this year is for 700 employees, and the budget is around IDR500b.

IDR500b. Okay. Thank you.

On the policy of the operating lease or finance lease, it is -- we have the formula. It's already sitting in the (inaudible), I think, our US GAAP, which is if the composition of our expenses on operating is around 90% of the total rental that they get from our lease, I think this should be coming to a finance lease, and the others will be going to the operating lease. That's the policy. We follow that policy.

And about monetize, I think, to monetize the tower. So maybe the question you should direct to both the parent or also to us. The way Telkomsel monetize the tower that we own right now, we ask Telkom subsidiary Mitratel to lease out our towers. They are becoming the seller to our towers to the other operators. And for the more strategic level, I think our colleague from Telkom can explain about this.

Okay. I'd like to maybe elaborate more about the unlocking tower business and be hopefully more clear. That's actually the direction, is to unlock the tower portfolio in the Group. So one of the portfolio is with Mitratel and actually the last part of the tower is Telkomsel.

So the intention of Telkom as a Group is how we can leverage these towers and can give the maximum value to the Group. Of course, the step to unlock or develop the tower portfolio is starting with Mitratel, and then the next is the maybe largest part of the tower in Telkomsel.

So the option maybe that we have reported before is coming through from Company. We have five options in the beginning. First is sell the tower; that we don't want to use, to do that. Second is what we call its merger, and that's a complex one. And the third is IPO. The fourth is back door listing or swap it with a current public listed tower company. And the fifth is doing nothing.

From the fifth option, we come into two options as the best option. First is the listing through a back door listing and the second is IPO. Second, we do the acquisition. And actually the aim or the end goal is still we would like to be the largest shareholders in the tower business, but to do that it [should be true] in the facts.

So Mitratel is the first step and Telkomsel is the next step, and maybe we will do it in phases. But the option to be the largest player, which is also seen as also still in the acceptable level, so we go into public listed, and the best public listed tower company. And Mitratel is one of the options to swap the tower into focus, into one tower portfolio that we would like to leverage or unlock our tower portfolio.

Then next we will add more towers to be unlocked in this cycle. That's actually one of the steps. So that hopefully can support the idea to be the largest or to be the main player in the tower business. So (multiple speakers).

Got it. So you're saying that you do something with Mitratel first and then whatever that vehicle becomes then buys towers from Telkomsel. That's what you're saying, is it?

Yes, and also put into the vehicle that we are choosing, yes.

Got it. Got it. Okay. That's much clearer. Thank you so much.

Thank you.

[Jose Fife], Citigroup.

Hi. Thanks for the opportunity. Three questions for me. Firstly, can you give us an update with regard to this LTE launch that is reported in the press that you will be launching (inaudible) peers, if you can comment on that?

Second question I had is with regard to the revenue element. We mentioned tighter competition in the second quarter, with XL and Hutch more aggressive, yet your revenue growth seems to have accelerated. Was this bump up in revenues due mainly to election related activity? Should we see this as normalizing in the second half?

Finally, with regard to the margin, we see that your revenue growth has been very healthy, but your profit growth has been somewhat slow. That's partly due to the rising network costs and all, [given you wanted] to do more aggressive investments. But when should we start to see you better monetizing on the bottom line? Will it be seen in the second half of this year, or 2015? Or should we see more investments coming in because of LTE? Thank you.

Okay. I can probably take the first two. So in terms of the press reports of LTE launch, yes, that's correct. So our plan is to have a very limited scale LTE launch, hopefully toward the end of this year or at the early part of next year. We actually -- our spectrum in the 900 band, we're able to use different technologies so we're confident that we can launch at that wave band. And hopefully, like I say, toward the end of this year but it will be on a pretty limited scale initially.

In terms of competition and in terms of performance, no, I don't think the performance is linked to the election at all, really. I think we've maintained a revenue growth -- double-digit revenue growth now for about two, two and a half years, and I think the underlying reasons for that are twofold.

I think number one smart pricing, so putting the price up on voice and SMS, and number two the growth in data users, and in particular that's driven by the penetration of smartphones. Growth in data revenue year on year is about 33%, so I think those two things really account for the growth.

In terms of looking ahead, difficult to predict, but I think the momentum that's got us here I think remains. So we're hopeful that we can continue with a similar kind of momentum.

When I comment on tighter competition, the competition isn't really based around the cutthroat price based competition. It's really based around our competitors building out network in the areas and improving the quality of their execution, particularly the sales and marketing. So, yes, that is a challenge, but that's one we'll have to compete against.

I will address the question on how the margin will be diluted because of the investment that currently has been made. I think the CEO already explained that the margin will be slightly diluted, because when it comes to the segment, we just find that provides a slightly lower margin compared to the legacy voice and SMS.

And the second thing, also, I think the consumption of data's still is very fast growing, so we try to get into place, somehow. This also will put us a lot of operation costs additional to the current situation. But up until long term, or maybe the second half EBIT, I can see that we can manage, I think, the margin by around 1% or 1.5% lower compared to previous year by having more opportunity to monetize the assets that have been deployed. Also some cost initiatives, in which we try to control the costs and make a cost adjusting program.

So that's basically what we're going to do and how it impacts to the margin.

The second, on the investment with LTE, we now already have the plan for the LTE. But basically the guideline for the investment, total investment, should be about the same. We will optimize the existing budget that we already planned, around maximum 20% of our revenue for the total investment on the LTE infrastructure.

Okay. Thanks very much.

Roshan Raj, Merrill Lynch.

Hi. Thank you. Three questions. First, could you share the breakdown of revenue between Java and ex-Java? And how does this compare to a year ago? How do you compare the pricing in these two areas, as well?

The second question is on the fixed broadband target. If I recall correctly, last quarter you had indicated a target of 5m. I'm just wondering if that target remains. And if it remains, how do you plan to accelerate towards achieving that target?

The third question is, given your focus on international side of the business, could you share how much of your revenue comes from international or outside Indonesia now? And what is the target for 2015 and maybe over the medium term? Thank you.

Sorry. We're just going to clarify the figures for the Java, ex-Java revenues. The team here are just getting the latest figures. So can I just ask that we answer questions two and three first and then come back to me?

Sure.

Someone will take your question on fixed broadband.

Yes, Sukardi.

Okay. Thank you. The fixed broadband subscriber has grown 15.6% from last year. And our revenues there, of Speedy, compared to the competitor, we are still the second after Telkomsel. So we are number two after Telkomsel. And then revenue fixed broadband has grown 8.1% compared to previous year, and also the growth of fixed broadband until now, if including to the [IPT fee], our broadcast rate's around 10% compared to the previous years.

And then the how about the target above 5m. So the 5m target, actually, we want to achieve the 5m target by the low affordable customers. So we already also launched the Speedy Instan since 2012. And then right now we already have the 229m users of the Speedy standard now, and the revenue of the Speedy standard now already IDR18b per month. So we hope 5m we can achieve by this year by penetrating the Speedy Instan itself, which are low cost more or less product from Telkom. Thank you.

As for the international, currently it contributes about 5% of the total Group revenue, and our aim is to grow that revenue to be like 10% in the next few years. And it will boost both (inaudible).

Okay. What about the question one? So, this year, 2014, 49% of revenue from Java, obviously 51% ex-Java. Last year very similar; it was actually 48% Java, 52% ex-Java. So actually the proportion within Java has increased very slightly.

In terms of pricing comparison, it's difficult actually to make a generalization about Java versus ex-Java because, as I say, our pricing is pretty specific. We have currently about 60 different pricing clusters where we price differently based on network condition and competitive intensity. If I was going to make a generalization, I would say our pricing is probably higher outside Java, because the competitive intensity is generally less, but it's not black and white.

All right. Thank you very much.

Jimmy Chen, Sanford Bernstein.

Thank you. Some more questions. On 3G, what is the current 3G service adoption, and what has been the recent ramp in that adoption curve?

And my second question, also on 3G, in terms of the pricing structure, what is the ARPU uplift, if there's any, from the migration from 2G to 3G? Thank you.

Sorry. I actually missed your second question. Would you mind repeating it, please?

Yes. So the second question is on the potential ARPU lift or the ARPU lift from migrating from 2G to 3G.

Okay. Thank you. So, in terms of the first question, so 3G is an option we measure in terms of 3G handsets. So 3G handsets have topped 30m, I think 31m, which is roughly a 23% penetration. The real driver of revenue growth is not just 3G in particular, it's smartphone, which is a slightly different classification based on the operating system of the phone. And smartphones are now in excess of 29m.

In terms of growth, we're adding 700,000 to 800,000 smartphones per month on average. So the momentum in the market is certainly as positive as we've seen it, and has been that way since about October, November last year.

So in terms of potential uplift from 2G to 3G, on average we see if a customer moves from a -- well, I'll talk about it in terms of feature phone to smartphone. If a customer moves from a feature phone to a smartphone, on average we see an uplift of about 50% in ARPU.

Got it. So, just to clarify, it's not that the 3G services need to be switched on separately and they will have a different tariff plan to the 2G, it's more a together sort of plan. It's just that when they have a smartphone they use more data, which drives ARPU growth. Is that a correct understanding?

Correct.

Okay.

Correct.

Roshan Raj, Merrill Lynch.

Hi. Thanks. Two questions. One, are there any additional updates on Telkom property? I guess there was some press report about you looking at investing in that segment.

And second, on BlackBerry subscribers, I believe that the number of subscribers went down this quarter. Anything specific, or this is just subscribers moving out of BlackBerry to other smartphones? Thank you.

Thank you. For the Telkom property, so what we are doing now is how to optimize the assets under Telkom, because that (inaudible) it's not clear yet if we can move the asset from Telkom to Telkom property. So that's why there has been now Telkom property operate all the assets of Telkom on behalf of Telkom.

And now the lease is around 2m meter square land, Telkom. And also they operate the buildings. It's around -- there is almost all buildings Telkom (inaudible) by Telkom property. But now we also get the new building for Telkomsel and also some building in (inaudible) for the hotel, because the location is -- well, I think it's very appropriate for hotel business.

But the target is someday; maybe it's around [2016]. If the business is growing so much, we think that we can bring the Telkom property to go to a public company. So this is the progress of Telkom property.

Second question, for (technical difficulty).

Yes, you're absolutely right, so there has been a decline in BlackBerry users, from 7.6m to 7.3m, a decline of about 4.6%. The reason for that really is just the waning popularity of BlackBerry handsets. We're seeing this market pretty much dominated by Android, and earlier this year Android took over on our network as the number one smartphone operating system. And really all the growth I spoke about in terms of smartphone growth is all being driven by Android.

I think the nail in the coffin for BlackBerry was when they opened up the BlackBerry messenger service to IOS and Android platforms. It was the real reason I think why a lot of people stuck with BlackBerry. So we're anticipating a further decline in BlackBerry subs and a further increase in Android.

All right. Thank you.

There are no further questions at this time. Mr. Prakoso, please continue.

Thank you, everyone, for participating in today's call. Apologize for those questions could not be addressed, but should you have any further questions please don't hesitate to contact us directly. Thank you.

That does conclude our conference for today. Thank you for participating. You may all disconnect.