Telkom Indonesia (Persero) Tbk PT (TLK) 2006 Q4 法說會逐字稿

Good day everyone and welcome to the Telkom year end 2006 and first quarter 2007 conference call. Today's call is being recorded. At this time for opening remarks I would like to turn the call over to your moderator for today Mr. Harsya Denny Suryo, VP Investor Relations and Corporate Secretary. Please go ahead, sir.

Ladies and gentlemen and all participants of the conference call good afternoon, and thank you for joining PT Telkom's year end 2006 and first quarter 2007 conference call. We are very delighted to announce that this conference call will start with an opening remark by our CEO who will present to you the year end 2006 financials and operation results. And also at the same time, the first quarter 2007 results. After this we will continue with a brief question and answer session, which we hope will end at about 2.10 p.m., so 2.10 p.m. Jakarta time. We'd also like to mention that the info memo for the Company's results were released today and is available on our website www.telkom-indonesia.com.

Ladies and gentlemen, before proceeding with our conference call, I would like to make this announcement that some statements made during this call are related to matters that are not historical facts, which are considered as forward-looking statements. These may involve risk and uncertainty and may cause actual results and development to differ materially from those expressed or implied in these statements. The Company does not guarantee that any action which should have been taken on reliance on these statements will bring specific results as expected.

First, allow me to start by introducing the new Board of Directors of PT Telkom as a result of the last Extraordinary General Shareholders Meeting on February 28, 2007, which consists of Mr. Rinaldi Firmansyah as Telkom's President Director and Chief Executive Officer.

Good afternoon, ladies and gentlemen.

Mr. Arief Yahya as Director of Enterprise and Wholesale.

Good afternoon.

Mr. Ermady Dahlan as Director of Consumer.

Good afternoon.

Mr. I Nyoman G Wiryanata as Director of Network and Solution.

Good afternoon.

Mr. Sudiro Asno as Director of Finance or CFO.

Good afternoon.

Mr. Faisal Syam as Director of Human Capital and General Affairs.

Good afternoon.

Mr. Indra Utoyo who is not available here. He is Director of Information and Technology or our CIO. And Mr. Prasetio who is also not attending today as Director of Compliance and Risk Management. And also present here are Mr. Jusuf Kurnia, Director of Finance of PT Telkomsel.

Good afternoon.

And we also have other key senior management of the Telkom Group that include Telkomsel.

Without further ado, I would like to ask Mr. Rinaldi Firmansyah, CEO to give his opening remarks. Pak Rinaldi, the time is yours.

Thank you, Denny. Ladies and gentlemen, first of all I would like to say thank you very much to all participants of this conference call.

Please allow me to convey the 2006 year end results highlights as follows. Overall, the growth of Telkom's five business pillars, which consists of Fixed Wireline, Fixed Wireless, Cellular, Network and Interconnection and Data and Internet still indicated strong progress. We are continuing to develop our five business pillars as reflected by the allocation of Telkom Group's CapEx for the year '05 and '06, which amounted to IDR13.5 trillion and IDR18.8 trillion respectively.

Today we are also pleased to announce that for the year ended 2006, the Company has recorded a significant increase of 37.7% in consolidated net income of IDR11 trillion.

The Fixed Line business in Indonesia still provides the platform for our continuous growth. We are currently concentrating on developing broadband technology by focusing on corporate customers as well as increasing Internet users. As of December 31, the Company had recorded a total of 8.7m lines in service, excluding Fixed Wireless, which has grown slightly compared to the same period in 2005. The ARPU for the Fixed Wireline was an average of IDR188,000 per month.

Also for the Fixed Wireless business, Flexi has reached a total of 4.1m subscribers, 2.8% increase compared to the same period in 2005. Flexi is now available in 236 cities across the country supported by a network of over [1,500] BTS. Moreover, we would like to mention that lines in service [production] for Fixed Wireless have increased by 52% to 5.6b minutes from 3.7b minutes compared to the previous year. Flexi has kept its leading position as the market leader in the Fixed Wireless market with approximately 70.8% market share. The blended ARPU for Flexi by year end 2006 was 55 -- IDR54,500.

On the international lines, the IDD business for the year ended 2006 has generated net revenues amounting to IDR827b as of December -- IDR527b as of December 31, 2006. Telkom recorded incoming international traffic of 760m minutes or an increase of 79% compared to 2005. And outgoing international traffic of 147m minutes, an increase of 13% compared to last year.

During the year 2006, we understand the competition in the Indonesian mobile cellular industry was tremendous. Nevertheless, Telkomsel was still able to maintain its leading position in the market by taking up a major part of the net adds in the year 2006 of 11.3m new subscribers, making that a total of 35.6m. This is a notable increase of 47% compared to year 2005.

The chargeable usage recorded a total of 18.2b minutes or a growth of 73% compared to 2005. As a result we are pleased to note that this puts Telkomsel as the leader for full mobility with more than 55% market share in Indonesia. As of December 31, 2006 the total number of BTS grew by 62% to around 16,000 units as compared to the last year. The ARPU has slightly decreased year-on-year by only 3.4% which is a much better than average industry, from IDR87,000 to IDR84,000. While the ARPU of the prepaid subscribers, SimPati decreased slightly, Kartu AS has managed to increase by 20%.

On Telkom Speedy, ladies and gentlemen, we are still concentrating our efforts on expanding our Telkom Speedy Broadband services into many cities around the country. We see this as a great potential for growing this business. And for this reason we intensified our promotion efforts. As of December 31, Speedy, which was already available in many cities and the service covered all of the divisions from Division 1 to 7. It has now by year end 94K subscribers, a significant increase compared to 2005, which was 30K subscribers. So in terms of percentage this is over to 200%.

TelkomNet Instan recorded 689,000 fixed telephone subscribers who access the TelkomNet, the dial up Internet, totaling 3.6b minutes of usage, growing of 26.2% compared to last year. Compared to 500,000 who accessed in 2005, this translates into an increase of [38%] of access.

Ladies and gentlemen, I would like to move on now to highlight some of the financial results. I shall not have time to repeat all the numbers that you may have already read in the earlier announcement of the info memo. But I would like to mention that year 2006 result has been very positive for the Telkom Group.

I can sincerely say that the performances were mostly attributable to the following facts. One, EBITDA consolidated has shown growth in activities of IDR31.7 trillion, a 23.4% increase compared to the same period last year. The consolidated EBITDA margin increased from 61.3% to 61.83%. Consolidated operating revenue also grew by 22.7% to IDR51.2 trillion. Net income per share for the year end 2006 was IDR547, 38% increase compared to the previous year. The three biggest revenue contributors were mainly from Cellular, Data and Internet and Interconnection, where growth was recorded at 41.5%, 30% and 12% respectively.

Meanwhile, in the area of operating expenses the operating expenses have increased by 20.6% mostly contributed by growth in the depreciation by 21.2%, 26.7% in operation and maintenance and 18.4% in G&A expenses. Furthermore, personnel expenses increased by 29.7% mainly due to the recognition of accrued expenses relating to the early retirement program.

Finally, I would like to touch on the cash position of the Group. As a result of the group's profitability and improved collection efforts, the Group's cash and cash equivalent position for year end 2006 increased to IDR8.3 trillion compared to IDR5.3 trillion for the previous year.

So may I conclude that [all the developments] for 2006, which we have described to you are showing strong progress in almost all of our business segments. Looking forward, our intention is to accelerate even more the Group by synergizing with companies among the Telkom Group.

Ladies and gentlemen, now please allow me to briefly explain our business performance in the first quarter of 2007. As of March 2007, the operating revenues were IDR14.1 trillion (sic - see documentation), an increase of 22.8%, which comes from 23.8 coming from Cellular, 25.8 from Data and Internet revenues and 36.5 from Interconnection revenues. Bearing in mind that the way the revenue is booked in the first Q is I think slightly different than 2006.

Consolidated margin EBITDA is slightly lower than 2006, largely attributable to the revised accounting methodology applied for the Interconnection revenues and from also a slightly declined EBITDA margin from the Cellular.

Meanwhile, the consolidated operating expenses increased by 33.6%. The main factors were 13.5% increase in depreciation, 37% increase in the operation and maintenance and 17.8% increase in G&A expenses. And also personnel expenses increased by 22%.

Our Fixed Line business including Fixed Wireless, as of March 31, 2007 achieved 13.3m total lines in surface, which consisted of 8.7m for Fixed Lines and 4.6m for Fixed Wireless. As of March 31 there were 116,000 Telkom Speedy subscribers. Net additions in the first quarter 2007 for Flexi amounted to 420K compared to a negative growth of 958 in the first quarter of 2006.

In order to further maintain and develop our successful growth in Telkom Flexi, we have embarked on an aggressive marketing campaign for 2007. And we are now in the preparation of migration from the 1900 to 800 for Flexi [Band].

In the IDD business, our IDD has recorded an incoming international traffic of 234m minutes an increase of 57% compared to the first quarter of 2006 and an ongoing international traffic of 38.2m an increase of 9%.

Telkomsel has in Q1 continued its strong growth of subscribers with an increase of 44% year-on-year, with ourselves the leading in terms of market share on the subscribers. Telkomsel continues to be the market leader in terms of the revenue and in terms of the subscribers. In addition, EBITDA and net income increased by 18% and 8% respectively.

In the first quarter of 2007, an average of 689,000 telephone subscribers accesses TelkomNet Instan dial-up Internet and utilized a total of 952m minutes of usage, reflecting an increase of 18.5% compared to the same period last year.

Ladies and gentlemen, this will end my remarks. And let us continue with the Q&A session moderated by Denny Suryo.

Thank you.

Thank you, Pak Rinaldi. Now let us open up the lines for the Q&A session. Please do mention your name and your company. And for this reason, operator may we have the first question please.

Certainly. (OPERATOR INSTRUCTIONS). We have the first question in queue and I will open the lines up.

Hi, this is Navin Killa calling from Morgan Stanley. Thanks for the conference call. I had a couple of questions focusing on the Mobile side. Obviously if you look at the revenue trends at Telkomsel for the past couple of quarters, we have seen a bit of a slowdown compared to the trends that you showed in the second and third quarter of last year. I just wanted to understand your perspective as to are there any one offs there? How do you see the trend line going forward? And in particular if you could share your views on how the second quarter trends are looking like. That would be helpful.

The second question also on Telkomsel. In view of the increased competitive intensity, I guess we've seen a launch from Hutch and we continue to see more aggressive behavior from the fixed wireless operators. So what is your overall guidance for the EBITDA margins, again on the Mobile side?

And if you could also share with us your CapEx plans for both Telkomsel and Telkom for 2007. Thanks.

Thank you Navin, for the three questions, I believe. The first two I would like to ask Jusuf from Telkomsel perhaps to answer and maybe the third one on CapEx we'll ask Pak Rinaldi.

Okay, thank you, Denny. First of all as you know that the competition actually we've shown that the situation is a bit tough since the '05 actually. Typically we are competing on the low end market, also competing with all the operators who is going forward to the low end market. And the second one because the tariff from all the operators is open to the market, always [ranges] by any policy from other operators and from us, [ranges] on the tariff.

Then because of that, of course in terms of customer base we are leading. At least we get 60% by 2006 for the customer base. And in terms of revenue we had 68% market share. So then according to that situation we believe that we are still leading for that one.

But please make a note that all the operators now are just really going to go to the low end market. So because of that then the EBITDA we're sure that we will reduce also because of that situation by 3% to 4% from, for '07. And also for the next three to five years perhaps.

For Hutch, I believe Hutch is like satisfied to make a promotion. They try to offer with promotion with '3'. 3 means three benefits, three discounts and so on. So it's very good for that promotion. But actually according to the analysis we have, we are not going really through head to head for the price war with Hutch.

And the second one, because the coverage of Hutch business, of course it's slightly limited for the moment. Now it's just like how to have more [instant] to control it in terms of input and output. That's the activities we have right now.

For Fixed Wireless maybe after my answer maybe Pak Rinaldi will add it. The other Excel and also Indosat as you know is actually from the announcement of Q1. The result in term of the revenue or customer base is not so significant for us. So that's all the answer.

Okay. Sir, if I could just follow up on the EBITDA margin number that you gave. You're expecting a 3% to 4% percentage point decline this year. That just sounds a little too drastic to me. If you could explain what are the drivers for that.

And I think I remember when you mentioned that you also mentioned that over the longer term you expect further margin declines. I just want to make sure that I got it right. And any guidance in terms of the magnitude that you can think of there.

Yes, so far we succeeded to manage our operating costs. But since two years ago, 2005, 2006, we are having a big problem on power supply because we go to the rural area (technical difficulty).

Hello?

Ladies and gentlemen, please stand by. The moderator has accidentally hung up from the call. We will be attempting to contact the moderator. So please stay on the call. Thank you for your patience.

Hello.

Sir, please go ahead.

Okay. So that is about the power supply. We have some back up we bought for some of the part of our sites. This will be covered by genset also. So that's why the operating expense is going higher and higher. But now we're just trying to, how to manage that trend in term of the operation and maintenance.

On the other hand, also we have higher expense for the transmission because we are using E1 and also the idea of satellite. For that one we are just trying to manage also by using what we call, it's like optimization of our transmission, like using the [IP-backed 14] 3G technology. We have the experience in May, in this month that now we manage on reducing on the transmission cost on that one. So that's why for, all in all for the operating expense, it's bringing at the level of, it seems like quarter one of 2007. We believe that the EBITDA margin is 3% to 4% reduced this year.

Okay, let me add on the competition. I think first if you notice on the Cellular side, the margin decline was not definitely -- not yet due to the competition. It's because of internal operating expenses, as a result of the aggressive expansion in the past two years. In some areas, we are using the genset for 24 hours. And the cost of this continuous utilization of genset is come to around 6 to 7 times higher than the normal utilization rate if there is any power supply from the state electricity company.

However, I think to put more in perspective, our Cellular has been growing quite healthily. We picked up 3.3m new adds in the first Q. And we keep on -- I think we believe we'll keep on posting a good subscriber growth in this one.

And in relation to the competition, I think the new competition and plus the Fixed Wireless competition, will even put a stronger correlation between our Fixed Line, Fixed Wireless and Cellular business. Because then it will basically put Flexi in a position to be a fighting brand to fight against the new competitors both in the Fixed Wireless and in this other area.

So bear in mind the reason why there is also an issue because our Flexi, we are still working on the migration from 1,900 to 800. So you'll see that the competition and the Fixed Wireless competitor has taken market share. But that is limited only in the area in which we have to migrate. So we are launching a new campaign in the last two to three weeks. And it's yet early but the initial sign is quite positive on our side.

So I think we will work closely between the Fixed Wireless and Cellular together on attacking the competition both from the Cellular competitors and the Fixed Wireless competitors going forward. That is I think -- and we have actually accelerated the synergy between the Fixed Wireless and our Cellular site on location and other, basically other synergy potentials. So we believe that would be more than enough for the time being to defend and to even expand our market share going forward.

For the Q1, just the net adds was 63%, but the revenue share is still 68% of the total. So that is I think the trend that we will see going forward for the Cellular and for the Flexi. So Flexi will be effectively competing in the two region, which is now going to migrate.

The second one on the CapEx, I think the guidance we give are still not changed. For the time being we are giving a guidance of a total of $2b which is $1.5b coming from the Cellular, which is about 50-50 for coverage and 50 for the capacity. And the rest going to be from our Fixed Line, Fixed Wireless and Broadband businesses. So I think that is the answer. Thank you.

Thank you. Operator, may we have the next question please.

Certainly. Your line is open, please go ahead.

Right. Yes, Richard Moe from Macquarie Securities. I have a couple of questions about Telkomsel. First, if we look at the traffic that you report on a quarterly basis going back a couple of years, in each quarter it had been increasing by double digits quarter on quarter. And what we saw in the first quarter was the first time that it actually declined from about 5.5b minutes down to 5.4b. Is this a cause for concern and can you give us some idea as to why that happened?

And the other question is, can you estimate what has been the amount of extra money that you've had to pay for power generation because of the need to use these generators. Thank you.

Richard. Well I think we'll have Pak Jusuf answer that one. Can you hold on?

Yes.

Okay.

Go ahead [sir].

So let's say since 2005, 2006 we have the competition it's very tough in term of tariff. Sometime we call it a discount. Sometimes we call it on-net tariff or peak tariff in the evening to, until in the morning. Then from previous experience actually we are very optimistic that traffic will be increasing significantly for 2007. But the experience on Q1 2007, the traffic is really, we call it flat growth because maybe the fact is because of the competition for the low end market. As you are aware of the reducing of our product in SimPati in term of those customer base growth.

All the operators now enjoying the additional customer base for what you call for the low end market. It's like Ace from Telkomsel or [Simbal] from Accell or the other one, what it was from (inaudible) and also from [Asia]. So that's why the additional of the customer base coming from low end market is driving us for traffic flat growth actually. So that is the first experience we have on the Q1. We hope it's not, it will continue for the next hopefully because actually we are ready to competing for that one. We have enough capacity but let's see on Q2.

And the other one is about the spending for power generation. We spend at least IDR2 trillion to cover at least for -- how many thousand? It's about 2,500 site for 24 hours a day. So actually it's very costly, but we don't have any choice because we need to grab the market. It's more about the competitive advantages for the strategy point of view for the next futures.

So I think let's see, because first Q there was also, what happened was there was a flat there so that affects also the traffic and (inaudible) basically in the Cellular side. So we'll see actually on the second Q, then you would be understand on how the development is going to be. Because if looking only on the one Q is not going to give you a good description of what is happening. Yes.

And as Mr. Jusuf was mentioning, Telkomsel has basically gone to the area like in outside Java where there is no infrastructure, even there is no road etc. So we have to bear the significant costs. But that's okay, because in terms of profitability, it's still a very profitable. And being the first operator to go to that market is also giving the advantage of having to tap the new clients or the subscriber who has I think can afford to subscribe to our Cellular service. So that's why, if you look into the market share in certain areas, Telkomsel actually is the market share up to 80%, 75%, but healthy for going.

So that is the question from Richard Moe. Can we have the next question please?

(OPERATOR INSTRUCTIONS). We will now take the next question. Please go ahead, your line is open.

Hi. Thank you. This is Arthur Pineda from ABN Amro. I just have four questions for the Company. Firstly on your BTS expansion could you please split it between rural and urban?

Then, if you should expect the gensets in the rural areas to continue going to the next few quarters?

Second question I had was with regard to the flooding, could you give us some guidance in terms of impact, in terms of revenues and expenses, if not quantifiable maybe you can get this by getting a picture of revenues on a monthly basis in the first quarter.

Okay.

Sorry, if I can just proceed with just one last question. Can you talk about capital management plans for the Company as well? Should we be expecting it to be more aggressive this time around given your balance sheets? Thank you.

Okay. Thank you Arthur. Okay first (inaudible) Pak Jusuf.

Okay the first question the answer is like this. Telkomsel management has decided to expand network in some districts. Yes we have the consequences that make it more costly for us. But so far we are enjoying this situation because we believe right now for the next three to five years it's enjoying really as a high growth for the Cellular market. And then after that we expect that maybe the growth of Cellular is just one digit after five years. So that's why we don't stop it for expansion of BTSs for all the surrounding Indonesian area. We are just trying to get more as soon as possible just to show that we have the competitive advantages for that one.

And the second one because the pressure from regulatory, like draft for what they call as like minimum and maximum tariff will be applied maybe for next year. Now drafting is just like finished from the government. Now it's to get the input from anyone who is concerned from that one.

So on the other hand if we just put it all to this way, means we need to get more opportunity to get more at the first. Because what we need to have for the next few years, meaning it's just how to get more volume. It's not about the EBITDA margin for the next, but it's more about the volume of the transaction itself. We believe some, because of the expansion of our BTSs for the existing (inaudible) it's just derived by the regulation itself. So that's why we now just not stop it for that while. It's going forward we'll just (inaudible). I believe, like you called that we are having a plan that is aggressive for CapEx.

Then let's say, if the situation will change enough then we believe the investment for 2007 is about $1.5b minimum level. That's the answer.

Okay. The next question on capital management plan I would like to ask our CFO, Pak Sudiro to answer that question.

Yes. Thank you. As Rinaldi said now we have started the program. And for this program we had [5b] budget and unfortunately until now we have not yet achieved this target. So we are planning to continue this program. Of course for this we need to propose to next AGM to continue this program for another 18 months. So this is part of our capital management.

Thank you Mr. Sudiro.

Thank you. I think, just to add on that basically there are several things that we will do on the capital management and debt management. We shall basically, on the cellular side there will be an additional leverage to fund for the expansion and for other operating requirements, yes. While on the Fixed Line side actually we like to do as what the CFO was saying, currently we have of around [190m] shares being bought back. So we will ask for the approval for the continuation. And of course, on the capital management, basically we are, for the time being we shall manage the payout ratio in a good way.

Yes. May we have the next question please?

Sorry, can I just come back because I had a question with regard to the impact of the flooding.

Okay, sorry. Still with Arthur right?

Yes.

Okay, [Jusuf may] answer it.

According to Q1 actually it's not about flood major causes that the Q1 performance is let's say not so good like what you expect. But the second one of course is about seasonal. It's very typically in the [same year] as we just let's say [spoken in Indonesian].

Pass through.

Pass through the, what do you call, Id Ul Fitr here and Christmas, then after that every Q1 is always dropped. So many churns, (inaudible) dropped. Also that is the second one of the cause for the Q1.

And third because of you know exactly that the Hutch and also Asia now entering to the market just to make intensify on the competition. So three of that now just like to affect the performance for Q1. So I believe you're not happy with this answer, but I don't have any other answer because it's not really big figures on flood. But anyway, almost everywhere there were also flood in other areas, not only Indonesia here.

Okay. Thank you.

Right. Thank you Arthur.

Now we will take the next question.

Hi. Good afternoon. Thanks for the call. It's [Louis Helado] from JP Morgan. I have three questions. Just to clarify on the Telkomsel first quarter results, did Telkomsel already use the same accounting methods for interconnections during the first quarter? And if not, does this form part of the 3 to 4% decline in EBITDA margin that's been guided?

And second question is with regards to the parent Company in terms of retirement expenses to be provided for this year. Do you anticipate that you'll be booking the 2008 retirement program this year, and if so, the timing of that?

And last question is in terms of getting some more color on, update on synergy efforts. It was mentioned you will use Flexi more to combat at the lowest end of the market. Could you give us an idea how we can synergize Telkomsel and Flexi in that effort?

Okay in the first question for Telkomsel it's about the Interconnect. Yes we implemented in January 1 new interconnectivity, they call it as a cost based tariff, but actually we just reduced the tariff in terms of incoming and outgoing. That is one thing. And the second one because of course the traffic is because of the pricing policy from all the operators here. And the third is about the proportion of the customer base.

So all in all it's not just particularly because of the tariff of Interconnect. So the reduction of the result of the Interconnect down 3 to 4% in Q1 is because of many factors, what you wanted about the reducing on the Interconnect tariff itself. But of course we need to see the pricing policy from all the operators like off-peak tariff, on-net tariff and proportion of the traffic because of their pricing and also on-net tariff. So both of that is just reducing our result on the Interconnection.

We believe maybe, maybe if the situation is the same with Q1, as a guidance for you the Interconnect's income maybe will reducing by 8 to 10% for 2007.

Yes. I'll answer the ERP things. For, we had ERP in 2006 even though the implementation was in the April of 2007, yes. And of course we have no plan to approve the ERP in 2007, but probably yes in 2008 to implement in 2009 the ERP.

Sorry, but just to clarify, 2008 we won't see any manpower reduction?

2008, probably yes. The expenses, the ERP expenses.

When will the ERP program be held, 2008 or 2009?

2009.

2009?

Yes. So we plan to accrue in 2008 but the implementation is in 2009.

Is that clear?

Perfect.

Okay. Thanks Louis.

We will now move to the next question.

Hi. Karen Ang here from Citigroup. I have three questions. First judging on your expectation for growth in the Wireless market, do you expect CapEx to continue increasing through 2008 or do we expect that '07 CapEx would be the peak CapEx for Telkomsel as well as for the Group?

Second question is would you, can you give us an idea as to the profitability of a rural based station where you need to set up gensets versus a base station in more urban areas? Maybe if you can give us an idea of what sort of payback period for example does the rural site have versus the urban site if you will.

And the third question has to do with the minutes of use. As you said there was a decline in total minutes but I understand this is chargeable minutes. Would you be able to give us an indication of what the total minutes would be if you included free minutes and how that is trending quarter on quarter and year on year? Thank you.

Very difficult situation, yes, Karen?

Wireless CapEx maybe you can answer this one. CapEx for '07.

Give me time to answer it. First of all, of course (technical difficulty).

Hello?

Hold on. I apologize.

Okay Karen. So CapEx let's say until April we have capital commitment is about $600m, yes. And that is depend on what the development of the situation. If the MOU increase significantly we believe we can spend our money on level of $1,5b. But it's not [that we like] of that. That is one thing.

Then the second one is about the profitability of rural areas. It's very difficult also yes. Rural areas, yes we know sometime let's say like Sumatra area or Indonesia, East of Indonesia, so probably first it's very good benefit for us because in terms of ARPU Sumatra and East of Indonesia is highest one comparing to the other areas. But of course it's very difficult to have individual profitability for any rural area.

Now we have just to think of have a policy for that one. Yes. Sometime we will bring to the shareholder meeting to have a policy for the CapEx for 2008 and beyond. So please waiting for us, maybe after 2008 we have the answers for you Karen yes?

The MOU let's say we expect by the end of 2007 it's about 15.5 to 16, yes. Or [16], it's about [16]. But now I just [criticizing] on the impact of competition to the low end market. First, because we see that the growth of SimPati as our second product now is not so fast like 2005 or 2006. Now just replacing by the third that we have, we call it Ace, then maybe 2007 and 2008 will be dominated by Ace. So that's why it's so difficult to answer for the MOU.

I expect all the player on the industry will intensify on the discount or any other incentive to the customer for the low end. So for the moment I believe will flat in terms of MOU because it's not just we will competing on the discount or reduction of the tariff. That's the answer Karen.

Just to follow up, when you say [16] minutes, that's chargeable minutes or all minutes including --

Chargeable, yes.

Chargeable, okay.

Yes, chargeable.

Okay. Thank you.

Thank you Karen.

We have more -- yes.

I want to add to Jusuf's answer that for the Flexi CapEx for the 2007 is around [200m]. And for 2008 it is of course too early to say but probably I guess more or less same as this year.

Thank you.

Thank you Karen. We have one more question. And for this I'd like to open up for the last question. Go ahead.

Thank you. Hi, it's Colin McCallum here from Credit Suisse. I just had two questions. One was just on Telkomsel. I understand that for SimPati in particular you've been a little more aggressive in the last few months on SMS pricing. And what I was wondering was have you rolled that cheaper pricing out on a nationwide basis, or are you simply using regional pricing, regional discounts for your SMS pricing? And would you plan later in the year to become more regional in the way that you're offering discounts for voice? Would you for example offer discounts inside Java where you have more competition, but not do so outside Java and would that be politically acceptable or not? That's the first question.

Secondly if I can just clarify, your Fixed Wireless revenues in the first quarter of '07, I think the Info Memo I've got here is talking about IDR371b, that seemed too low relative to what you're usually generating from Fixed Wireless. Can you just clarify is that a typo or have I picked it up incorrectly? Thank you.

Thanks Colin.

Firstly question, let's say put it this way, I believe that what you are thinking is the same with me, that we are now focused to have a pricing policy like cheaper pricing, regional pricing and of course we will segment it by Java and outside of Java. But I don't want to announce right now because anyone from all, the guys from you all, it will give the impression and [the belief] that Telkomsel is not giving more discount. That is good for us actually. For the moment we answer just like that, sorry.

Yes, for the Flexi revenue for 2007, if you want 2007 this figure of IDR371b is of course only the voice revenue. But the total revenue was IDR861b which includes the Interconnect, the Internet and everything.

IDR861?

Right.

Thank you very much indeed.

That's all the time we have for the questions today. I'll turn the call over to you Mr. Denny. Please go ahead.

Okay. Thank you so much for everyone's participation on the conference call today. It was very enlightening. But before we end our conference call we would like to ask Pak Rinaldi for his closing remarks. That ends my role here as the moderator. Pak Rinaldi the floor is yours.

I think ladies and gentlemen, thanks for all of the questions that have been asked. I think there are few things that needs to be further stressed, that we look into the Q1 basically deeply and we are doing lot of effort to improve the result in the Q2. And in fact actually operationally we've seen some good developments. Well, on the Telkomsel and Cellular we are working out quite aggressively. We do some new promotions also on the Flexi side especially in anticipation of the frequency migration for year 2007.

So I think, as last word, we also intend to execute our key strategic initiatives and continue aggressive marketing and rollout program to further strengthen our core business. This dominant strategy will be the platform for further sustainable fundamental growth.

Thank you very much for your participation in our conference call today. We will be updating you again in first half year 2007 in the due course. Thank you

Thank you. And that concludes today's conference call. Thank you everyone for your participation.