Telkom Indonesia (Persero) Tbk PT (TLK) 2008 Q1 法說會逐字稿

This is Premier Global Services. Please stand by. Good day, everyone, and welcome to the 2007 full year and first quarter 2008 result 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. Please go ahead, sir.

Thank you, operator. Ladies and gentlemen and all participants, welcome to the conference call of PT Telekomunikasi Tbk. Our agenda today, for Friday May 23, 2008, is to discuss the Company's year-end 2007 and first quarter 2008 result. The Company's Info Memo was released this morning and is currently available on our website, www.telkom-indonesia.com under the heading Investor Relations column.

On this conference call we have Mr. Rinaldi Firmansyah, the President Director and CEO of Telkom, and the members of the Board of Directors and other senior management of PT Telekom and PT Telkomsel. The total time for this call is one hour, which will begin with a presentation by our CEO, following a brief question and answer session. The presentation is also available on our webcast. And please note that a tape recording of this conference call will be available after this session for the next 30 days.

Ladies and gentlemen, as usual, let me draw your attention to the disclaimer to say that some statements made during the conference call may be forward-looking in nature. Actual results could differ materially from projections, estimations or expectations voiced during today's call. These may involve risk and uncertainty and may cause actual results and developments to differ substantially from those expressed or implied in these statements. The Company does not guarantee that any action which might have been taken in reliance on those statements will bring about specific results as expected.

Ladies and gentlemen and all participants, today we are pleased to introduce Mr. Rinaldi Firmansyah as Telkom's President Director and Chief Executive Officer, Mr. Sudiro Asno as Director of Finance and CFO.

Hello.

Mr. Arief Yahya as Director of Enterprise & Wholesale.

Yes, hello.

Mr. Ermady Dahlan as Director of Network & Solutions.

Hi.

Mr. I Nyoman G Wiryanata as Director of Consumer.

Hello.

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

Hello.

Mr. Indra Utoyo as Director of Information Technology and our CIO, who is currently unable to attend. And finally, we have Mr. Prasetio, who is Director of Compliance and Risk Management, who is also unable to attend. Last we have also the Board of Directors of PT Telkomsel, Mr. Kiskenda Suriahardja, President Director.

Hello.

Ms. Triwahyusari, Director of Finance.

Hi.

And Mr. Tan Chung Yaw Richard as Director of Commercial.

Yes, I'm here. Thank you.

Now I would like to turn the call over to Mr. Rinaldi Firmansyah for his remarks. Pak Rinaldi, the time is yours.

Thank you, Denny. Ladies and gentlemen, good afternoon. PT Telkom, for the year-end 2007 and first quarter 2008 on a consolidated basis, has delivered some terrific results. Our performance for 2007 and the first quarter 2008 has grown compared to the same period last year amidst the increased level of competition. And we are also glad to report here that this year we are reporting the financial report one month earlier to the SEC in the U.S.

Before I elaborate on our Company's performance, let me first begin to explain you that in the last period of 2007 and beginning of 2008 the telecommunications industry in general is facing a transformation, its (inaudible), something which is quite different and comes from both the competition landscape and the regulatory front. While revenue is still growing, we are seeing that the industry is entering into the new equilibrium, which is different than a year ago. This new equilibrium will give us a new perspective on how we should view the business to expand in the future.

In line with our vision to become a leading telcom player, we are constantly sharpening our strategic initiatives. Over the coming months, you will see a clear indication that our Company will begin to implement clearly defined business level strategies and (inaudible) level strategies to achieve our goals. The future long-term development of Telkom will require the Company to expand into new and exciting business directions, [as the] IT services, content, pay TV and other value-added services, that will help us grow our current businesses and support our strategy in our businesses.

You would have noticed that we recently closed the acquisition of PT Sigma Cipta Caraka, Sigma, a market leader in the IT services sector. This, in line with our enterprise and corporate business, would really strengthen this sector. Also, through our subsidiary Telekomunikasi International, we acquired a 9% (sic - see press release) stake in SCICOM Malaysia, a leading business process service provider there.

We see exciting times ahead, yet challenging for our Company, as we enhance our portfolio of services and products. Our strategic team is currently reviewing a number of opportunities, with a clear focus of Telkom impacting in areas which shall provide long-term shareholder value.

Ladies and gentlemen, due to the two areas of reporting, we divided this presentation into two, year-end 2007 and Q1 2008. Overall, the growth of Telkom's current five business pillars, mostly in fixed, wireless, cellular, network and interconnection, data and Internet, still indicate progress. The fixed line voice revenue still keeps on declining, while other lines of businesses keep on increasing. We continue to develop, as reflected by allocation for Telkom Group's CapEx for 2006 and '07, which amounted to IDR18.9 trillion and IDR17.6 trillion respectively.

Today, we are also pleased to announce that for the full year ended 2007 the Company has recorded an increase of 16.8% in net income, consolidated, of IDR12.86 trillion. The amount should have been higher if we exclude the retirement benefits, which is not there, before the fixed/wireless migration in which we pay for the handset subsidies for the migration from 1900 to 800, and the acceleration in depreciation of WLL, which has not been there in the early 2008.

The fixed line business in Indonesia still provides room for growth, except for the voice part. We are currently concentrating on developing broadband services, by focusing on retail customers, corporate customers and small businesses. I'm pleased to announce that Telkom has just recently announced an increase in our broadband speed from 384Kbps to one megabit per second. This is our overall commitment, to increase quality and service to our (inaudible) and [corporate] customers.

Fixed wireline. As of December 31, the Company has recorded a total of around 8.5m fixed lines in service, which has slightly decreased by 0.3% compared to the same period in 2006. In addition, the ARPU for fixed line was IDR186,000 per month.

TELKOMFlexi, as of December 2007, has reached a total of 6.4m subscribers, a 52.4% increase compared to the same period in 2006. Flexi is now available in 238 cities across the country, supported by a network of around 1,911 BTS. Moreover, we would like to mention that line in service production for fixed wireless has increased by 62.8% to 9.1b minutes from 5.6b minutes compared to the previous year.

Flexi (inaudible) position as the market leader in the fixed wireless market, with approximately more than 50% market share. Our blended ARPU for Flexi has only decreased by 1.9% in the year ended 2007, to IDR53,000 as compared to IDR54,000 a year ago.

TELKOM TIC-007, in the international direct dialing business, for the year-end 2007, Telkom has generated net revenues of a total around IDR1.5 trillion. As of December 31, Telkom recorded the incoming and outgoing international traffic of 1.1b minutes and 143m minutes respectively.

Telkomsel. During the last term of 2007, the competition in the Indonesian mobile cellular industry has been tremendous. We are entering into the new equilibrium. Telkomsel still was able to maintain its leading position in the market by taking up a major part of the new additions in the year ended 2007, up 12.3m new subscribers, making that a total of 47.9m subscribers. This is a notable increase of 34.5% compared to the previous year.

[Telkomsel] recorded a total of 25.2b minutes, a growth of 38.5% compared to last year. As a result, we are pleased to know that this puts Telkomsel still as the leader for full mobility wireless with more than 50% market share. And as of December 31, the total number of BTS grew to 20,800 units as compared to last year.

The blended ARPU slightly decreased year on year, by just 4.8% to around -- to IDR80,000. While the ARPU of postpaid has only slightly decreased of around 3.6%, the prepaid ARPU has managed to increase by 5.6% compared to the previous year.

Now, on Speedy. Ladies and gentlemen, we are still committed to expand our Speedy Broadband services into many cities around this country. Yesterday, we launched a program to revitalize Speedy that offers higher broadband speeds for new and existing customers, from a speed of 384 to one meg with the same price. Economically, this means that there is a price reduction.

We see this as a great opportunity for growing the business. We have intensified our promotion campaigns by educating the public and entering into the new partnership to make Speedy a strong brand. Speedy is now available in many cities around the country with [maximum upgrades]. As of December 31, we have recorded a number of 241,000 subscribers, an increase of 158% compared to 2006, when we recorded 93,000 subscribers. The revenue from Speedy was reaching IDR564b.

TELKOMNet Instan has recorded an average of 662,000 fixed telephone subscribers who have access to the TELKOMNet Instan, with a total of 3.7b minutes of usage. Compared to last year, this translates into a growth of 3%.

Ladies and gentlemen, I would like to move on now to highlight some of the year ended 2007 financial results. I will not attempt 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 the year ended 2007 has been quite positive for Telkom Group.

I can sincerely say that the performance was mostly due to the following points. One, EBITDA consolidated has shown growth in activities at IDR37.1 trillion, an increase of 16.9% compared to the same period last year. The consolidated EBITDA margin improved from 61.8% one year ago and now at 62.4%. Operating revenues consolidated also grew by 15.9% to IDR59.4 trillion. Net income per share grew by 17.7% compared to the same period in 2006.

The three biggest revenue contributors of our year ended 2007 result were mainly from data and internet, cellular and interconnection, where each has grown by 62%, 9.8% and 11.2% respectively.

Meanwhile, in the area of operating expenses, total consolidated operating expenses have increased by 11%. The main factors were mostly contributed by growth, resulting in a 4% increase in depreciation, 27.9% increase in operations and maintenance and telecommunications services and 42.5% increase in marketing expenses.

General and administrative expenses increased by 9%, mainly due to the increase in amortization of goodwill and intangible assets related with the higher amortization amounts of the rights to operate the KSO operations as a result of the KSO acquisition and the upfront fees for Telkomsel's 3G license.

Finally, I would like to briefly mention the cash position of the Group. The cash and cash equivalents position for the year ended 2007 was maintained at IDR10.1 trillion compared to the IDR8.3 trillion at the same period in 2006.

So may I conclude that for all the developments for the year ended 2007 which we have described to you are showing some progress on most or all of our segments. And this will -- and this will reassure ourselves that the growth process will be sustainable in the long run.

Ladies and gentlemen, and finally, allow me now to briefly explain our business performance in the first quarter 2008. As of March 31, the total consolidated operating revenue was IDR15 trillion, or grew by 8.5%, attributable to the 6.9% increase in cellular revenues, 34.1% increase in data and internet revenues and 6.1% increase in interconnection revenues, while the Company has recorded an increase of net income by 5.4%, from IDR3 trillion a year ago to IDR3.2 trillion now.

In addition, the consolidated income statement indicates that the growth of operating expenses is higher than the growth of operating revenues. It was reflected through the 62% consolidated EBITDA margin, or a decrease by 1.4% compared to the first quarter of the year 2007.

The total consolidated operating expenses increased by 10.6%, from IDR7.7 trillion to IDR8.5 trillion in the first quarter of 2008. The main factors contributing to the growth were a 7.2% increase in depreciation, a 9.4% increase in personnel expenses and a 16.6% increase in operation and maintenance, mainly resulting from Telkomsel's network infrastructure growth, which constitutes transmission costs, frequency fees and power supply costs.

As of March 31, fixed line business, including fixed wireless, achieved 15.4m total lines in service, consisting of 8.7m lines in fixed wireline and 6.7m lines in service for fixed wireless. TELKOMFlexi today is available in 254 cities with 2,153 BTS.

In the IDD business, Telkom International Call has recorded incoming and outgoing international traffics of 292m minutes and 35m minutes, respectively.

As the main vehicle in the cellular business, Telkomsel has, in Q1, continued to have a high growth of subscribers, by 32% year on year, with 51.3m subscribers as of March 31. Telkomsel, as the market leader, has more than 50% of subscriber market share in the first quarter of 2008. EBITDA and net income were increased by 20% and 20% compared to the same period last year.

In the first quarter, an average of 645,000 telephone subscribers accessed to TELKOMNet Instan, with utilization of a total 829m minutes of usage, a decrease of 13% from the same period last year.

In Broadband Services there were 292,000 Speedy subscribers, or a growth of 151% in the same period last year. The revenues from Speedy services for the first quarter has reached IDR250b.

Ladies and gentlemen, that ends my presentation for 2007 and first quarter 2008. Let us continue now with a question and answer session moderated by Denny Suryo. Thank you.

Thank you, Pak Rinaldi. Now, let's open for the Q&A session. Before raising your questions, please do mention your name and your company that you represent. For this event, can we have the first question, please, [Camilla]?

Certainly, one moment.

Hi. Good afternoon. This is Luis Hilado from JP Morgan. Thanks for the call. I have two questions. First of all, I just wanted to ask, for Telkomsel, when you think you'll have a network that is capable of handling around 400 to 500 minutes of use per user per month, and what kind of CapEx you'd expect to get to that network capacity.

And the second question is just do you have any updates on Telkom or Telkomsel's 2008 guidance?

Okay. Thank you, Luis. Okay. I think we'll just answer directly on the questions that (multiple speakers). Okay. Operator, let's have two more questions, so we'll take three questions at a time. Thank you.

Mr. Denny, shall I proceed with the next question?

Yes, please.

Hi. It's Raymond Kosasih from Deutsche Bank. I have a couple of questions. First, looking at the first quarter result for Telkomsel, you have experienced an increase in the MOU, almost double, I should say more than double on a Q-on-Q basis, yet your revenue is also down on a Q-on-Q basis, and I'm looking at the ARPU, SMS ARPU, but I believe relatively it remained flat during Q. So I guess most of the decline is attributed to the decline in the voice ARPU. So can you elaborate on that, and perhaps also give us some indications with regard to the second quarter's performance, given the recent pricing adjustments?

Secondly, are you still comfortable with your CapEx of IDR1.5b to IDR1.7b or is there any risk on the upside? On Telkom specifically, can you update us with regard to the early retirement program cost for this year?

And for Flexi, can you give us some data on the revenue and also EBITDA for the first quarter? Thank you.

We will now move to the next question.

Hi. This is Kenneth Yap calling from Macquarie Jakarta. I've got a couple of questions. Firstly, can you please talk about the price elasticity that you expect from SMSs? On April 1, every telco in Indonesia cut the price of SMSs from IDR300 down to IDR100. That's a 67% price reduction overnight. We talked about price elasticity in this market. I'm just wondering what your thoughts are on what kind of a demand pick-up you will see there.

Secondly, could you also please spend some time talking about the cannibalization of customers that [your consultants] are seeing? In the first quarter, we had very strong growth at the simPATI level, but we saw Kartu As seeing negative subscribers, and it has also affected the net adds that we have seen at TELKOMFlexi. From my understanding, TELKOMFlexi is [directed] to add 3m to 3m subs this year, but in the first quarter it only achieved 10% of that target.

And then, thirdly, on your guidance for Telkomsel, you talk about revenue growth of 15% and I believe that your net adds growth that you're forecasting is 10m subs, which in fact is a 21% growth in subs. What kind of ARPU decline are you forecasting your 15% revenue growth on? Thank you.

Okay. I think that are the first three questions. For this question made by Luis Hilado, Telkomsel.

Okay. I think part of the question we answer by (inaudible) about the customer elasticity and also the (inaudible). In line with the position of the CapEx and also the capability of our network to handle the traffic, I think the first I can answer is the CapEx. For the time being, we don't see the need to increase the CapEx rate for 2008, because we have been successful adding capacity during Q1 with a [separate] engineering and rebalancing program, by using technology and managing infrastructure to support close to five times traffic increase with the very minimum CapEx. Only in the Q2 on what we will see most of our CapEx program being executed, we're anticipating increasing traffic.

So, talking about the CapEx, I think it's still in line. We stick on our current estimate. But we -- and also in line with our strategic -- the last strategic [or the tariff] plan, actually, as you know, we can maintain our traffic. So for the end of this year, actually, I believe we can maintain about our estimate of the traffic.

In line with the ARPU and SMS, actually, for the MOU double, yes, of course, because there is the decreasing of the tariff, but the tariff actually is not longer. In the short term, the impact of the revenue is quite linear for the Q1, but in the long term I believe we're seeing less elasticity, because price cuts will create a new potential market due to increased portability.

From the last experience, we observed three different kinds of elasticity in the market. The first is generally in the [hyper competitivity]. Not much elasticity can be triggered here, since cannibalism will happen, so I think -- which I will explain later on. For the medium competitive area, some impact of (inaudible) detected many make unnecessary long calls to enjoy the sudden price cuts. And for low competitive area, where we have elasticity seen. That's why the overall price cutting strategy needs to be minutes, so we can monetize the elasticity produced.

In terms of the ARPU, I think we believe we can increase. More or less it's 15%. But in line with the [substitutes] and also the affordability of the market, now we a little bit changed the strategy to make more selective to new areas, in line with affordability, and also to get the new market to compensate the decreasing of the ARPU with the number of the (inaudible). Maybe Richard can explain -- elaborate that question.

I think I will just touch on two things. Number one is price elasticity on SMS and the other one the cannibalization of customers when you launch some product and its impact on the other products. Now, with regard to SMS, yes, there was a price adjustment on April 1. I think many operators made adjustments during the month of April, in line with the interconnect tariff and as well as to be in line with some of the recommendations from BRCI. Now, the price adjustment on SMS was necessary because we needed to be within the ballpark of what were the prevailing tariffs for SMS.  And I believe, Kenneth, you were referring primarily to simPATI.

Now, with regard to elasticity, we have seen some growth in the number of SMSs being sent by simPATI customers, but I would still say right now it's still early days. The reason is because when you make adjustment on tariffs it takes time for the information to be propagated to our customers. Yes, you can -- you know, for example, send SMS. We do our SMS blast. We do our newspaper advertisement. We even talk about it on TV commercial sometimes. But the point of the matter is that it takes time for people to be aware that there is -- the benefit of the -- that the tariffs have actually dropped and that they'll be able to send more SMSs for the same amount that they would spend on sending SMSs. So I would say it's still early days, because it takes time for people to be aware of the changes in tariffs when it comes to SMS. So hopefully by the end of Q2 you will see some of the elasticity that you've come to expect.

Now, cannibalization of customers, for Q1 I think it was very, very clear that PATI was very, very strong. PATI grew our base significantly. There was an impact on both Kartu As as well as kartuHALO, but most of the impact was on kartuHALO. But net overall, we grew our base by 3.4m. I think in this business, with regard to the prepaid business in general, cannibalization is a necessary effect. Now, why would I say that? It's because churn in the market for Indonesia is very high. It ranges from 10% to 15%, depending on which operator that you talk to.

There is, I think, all analysts I'm sure on this call is very much aware of the calling card syndrome. Many people out there are just looking out for the next best offer. So when you launch a very, very strong offer like PATI, without a doubt you will not only cannibalize your own -- some of your own brands, you'll also cannibalize the competitors brand as well. Of course, within Telkomsel we hope that the cannibalization of competitors' brands is much more than our own brand. So this -- I think we would be fooling ourselves if we said no, it's not a war. It is a war out there. So we would definitely need strong brands out there and to continue our momentum of adding subscribers.

Okay. (Multiple speakers) Telkom.

Yes. I want to answer Raymond's question. Raymond, talking about the -- our [flat ARPU] for the Q1, we grew 4% compared to last year. And -- but it peaked at around 50%. It's of course an increase from around 45% last year. Thank you.

Yes. And about the ERP, EBITDA margin. Yes, EBITDA margin.

ERP, we are going to basically implement ERP in this year. It's around IDR500b to IDR800b. It's for around 600 to 1,000 people, Pak Raymond. Thank you.

Okay. We can have the next three questions, please, operator.

Yes, sir.

Hi. Karen Ang here. Three questions from me. First is on your minutes of use. Can you please give me the number for fourth quarter and first quarter minutes including the free minutes, not just the chargeable minutes? And relating to that, if also you can give the same number, which includes chargeable, free, outgoing and incoming minutes.

The second question is on inflation. Are you already seeing impact of high inflation on usage in April and May so far, and on your cost base?

And the third question is a follow-up on the ERP question. Do I understand correctly that you've cut your ERP cost to IDR500b to IDR800b? I remember previously the guidance was for IDR1.5 trillion. And if so, do you expect more ERP costs or ERP spending in 2009? Thank you.

Thank you, Karen.

We will now take the next question.

Hi. This is Arthur Pineda from ABN Amro in Singapore. I've several questions. First, on the balance sheet, it seems like it still remains to be under-utilized. Any plans to optimize this in the short to medium term?

The second question I had is with regard to your data communication revenues. There seems to be a significant drop year on year. What is the reason behind this?

The third question I have is with regard to your guidance, if you could please remind me again what your EBITDA expectations are for Telkom and Telkomsel, as well as revenue growth targets for this year. Thank you.

Thank you, Arthur.

We will now move to the next question.

Hi there. It's Colin McCallum here from Credit Suisse. Just two questions from me. First of all, the fixed line revenue on a gross basis appears to have increased quite sharply in the fourth quarter '07 and then decreased again in the first quarter '08. What actually lead to the pickup in fixed line revenue recorded in the fourth quarter of '07? That's the first question.

Secondly, on interconnect, you've given us the net incoming balance for both fourth quarter '07 and 1Q '08. Could you actually split that incoming interconnect between the fixed line business with external parties and the Telkomsel business with external parties? Obviously, we're looking at PT Telkom as a consolidated whole versus outside parties. So if you could just give us the net balance for each of your fixed line and Telkomsel vis-a-vis other competitors. Thank you.

Okay. Thank you, Colin. Okay. I think we've had three questions already (inaudible).

Okay. Well, I will handle the MOU question and the number of free minutes. I think everyone is aware, again, that the number of -- the MOUs increased dramatically in the first quarter of 2008. But anyway, given that we're talking quarter on quarter, for the fourth quarter year ending 2007 the number of free minutes was approximately 10%. For the first quarter of 2008 it is less than 5%, because of the growth of the base.

Kiskenda, I believe, will talk about the inflation.

I'll deal with the inflation. In the current situation, less than 6% of our total OpEx is covering for the power costs, which would directly be impacted by the fuel price hike. Total OpEx is 30% of our total costs. But as has been mentioned before, we have been actively utilizing alternative power sources, like solar cell and other hybrid cells, to control our operation and maintenance costs. There is not yet electricity companies increasing their tariffs due to fuel price increase.

Inflation definitely will lower the purchasing power of the customers and impact the usage. But with the higher cost of the fuel, I believe it is possible some spending in the (inaudible), for example, will be substituted for the telco usage. So hopefully the impact will be neutral for the telco.

Another impact of the inflation is in the ARPU. It is quite known. We find the ARPU declined, since the prices continued declining now for years. Although so far Telkomsel has been able to maintain the ARPU decline with various strategies that we will continue exploring. That's from the new business and new areas. But additionally, we'll lower price of usage, affordability is increased. We believe that the bigger sub base will also compensate the yearly ARPU decline. So now we change a little bit the strategy for the coverage, more selective, more focused in the new areas. In term of the revenue, obviously we'll come -- we'll be generating [a gap]. Thank you.

Let me add on the inflation impact. I think if one reflects the experience we had in year 2005, when the oil price increased even higher than what is happening now. However, the current situation is different because food price is also increased. At that time, we didn't really see the impact to telecommunications sector. So I think it will not be much different, expect really for the operating expenses, as Kiskenda just explained before.

Second, Karen, on the ERP, I think you were talking about the ERP in the year 2006. The guidance for this year has not changed on the ERP, actually.

And Luis from CSFB, on the interconnect, I think we need more details on the splitting with the external parties. We will be providing the information to you offline.

Yes. Splitting up the fixed line business revenue, yes, if we compare Q on Q for -- Q1 to Q4, it's decreased by around 5% in Flexi and 5% in wireline, fixed wireline. Actually, for the Flexi, because you know our MOU decreased by around 8% in Q1 compared to Q4 last year. And of course, in fixed wireline, because the lifestyle people now -- because basically from -- especially from the fixed line -- fixed usage to mobile usage, so that's why the fixed line business of voice has steadily decreased by around 5%.

And talking about the optimizing of the balance sheet, of course, now we are planning to continue our share buyback program by 2 trillion to 3 trillion in this year and we need to get approval from the next AGM. So this is how to optimize our balance sheet. And of course, as I -- as we planned, in this year we are planning to spend CapEx around 2.5 (inaudible). So this is -- of course, we need some financing, around 40% of our CapEx for this package here. So this is how to optimize our balance sheet.

About the EBITDA margin expectation for the Telkomsel, for this year it's around 2% to 3% decrease. Thanks.

Yes. And about our guidance '08 (inaudible), basically, we still keep on the double digits. Yes, we are keeping in the double digits for the revenue growth for (inaudible). Thank you.

Okay. Sorry, let me handle the question on interconnection. Telkomsel -- for the first quarter of '08, Telkomsel is still a net receiver, about 60% plus. Talking about the revenue side, which means that it's the traffic that we receive, about more than 65% of the revenue that we receive or the traffic that we receive is from Telkom. The rest is from the other operators. Now, in terms of the traffic that we send out, it's more than 64% going to Telkom. So I hope that answers the question.

Okay. We can take the next three questions, please.

Certainly.

Hi. Just one question on fixed line. Could you give us a guidance on what you think the growth will be like for this year and the ARPU for this year? And do you see any sort of cannibalization, due to the price war going on in the mobile market? Thank you.

Sorry, who was that again?

Yes, sorry. It's Kelvin Goh from CIMB.

Yes. Hi, Kelvin

Hi. I had just the one question.

Yes. Kelvin, would you repeat the question again?

Sure, okay. I'd just like to have an idea what you think your fixed line growth would be like for this year, both in terms of number of lines and in terms of ARPUs. Do you see any sort of cannibalization due to the price war going on in the mobile market? Thank you.

Okay. Thank you. Got it. Okay. The second question, please.

We will now move to the next question.

Hi, good afternoon. It's Luis Hilado from JP Morgan. I just had one follow-up question. For Telkomsel, 2008 CapEx is intact. But just wondering, for 2009, could you give us some rough guidance if you believe CapEx will be similar to 2008 or lower or higher? Thanks.

Thank you, Luis.

(OPERATOR INSTRUCTIONS). Mr. Denny, there seems to be no question at this time.

Okay. I think let me answer on the fixed line side. I think the ARPU for -- actually, fixed line has been declined, as we mentioned, a little. The other businesses keeps on growing. The one which is declining, in the voice fixed line. And the growth last year was -- the decline was actually around 9% on the voice fixed line. Yes? We believe this decline in the voice fixed line will continue. We are preparing a new strategy on -- especially on fixed line voice, both in the pricing and on the deployment. So, because I think, on top of the multi-play services that we are preparing, now that we are launching the new GSM network, started already this year, we'd like to defend our legacy business in fixed line. So the [line in] service, actually we should expect if not flat then basically slightly declined at the same rate as previous years on the fixed line side.

So, on the other part, we saw quite an interesting growth in the broadband, Speedy, in the first Q, up to -- especially on April. And we are quite optimistic that Speedy, in stages, will be able to compensate the revenue declines on the fixed line voice business. So that is on the fixed line one. Thanks.

For the CapEx for '09, most likely I think that they are similar with the 2008. As I mentioned earlier, that in our -- the last experience during the Q1, that we've been increasingly successful in adding capacity without additional CapEx significantly. So for the 2009, with the same numbers of the CapEx, hopefully, I believe we can make more productivity in terms of the MOU, increasing MOU handling capability. (Inaudible) our reengineering and rebalancing program by using technology and managing infrastructure. Thank you.

Okay. I think, on the CapEx 2009, Luis, I think it's too early now to be able to answer that. We haven't even started our budgeting plan. So let's wait until we are ready to answer that question.

ARPU growth on mobile, I think that's an interesting question, because I think the industry is going through a lot of changes right now. Even within our product set, month to month there are actually fluctuations in ARPU depending on what is the promotion. So I would say really it's too early to predict what is the trend, but there will probably be a gradual decrease (inaudible).

I think, for the additional information about the ARPU, I believe the ARPU for the voice, I believe will be a decrease, but in line with our strategy to enter in the new business. I also believe there is additional ARPU from the new business, something like content, and also for the broadband.

Okay. Thank you very much, gentlemen.

Okay. I think there was one question I've not yet answered on the EBITDA margin for the Telkom. So I think the EBITDA margin will also face the similar 2% to 3% decline on the consolidated basis.

Okay. Operator, we can take the last questions in this part, the last segment. May we have the questions, please?

Certainly. I'll open the lines now.

Hi. It's Raymond again from Deutsche Bank. I just want to ask about the new business models on your services that Telkomsel intends to introduce to help offset the pricing competitions in the voice services. I understand that a while back you discussed about T-Cash. Can you elaborate how the T-Cash [automatically] and the remittances services, in terms of the pickup rates, and just on that part? Thank you.

Okay. Thanks, Raymond.

Raymond, about the T-Cash, until now the progress of the T-Cash is waiting for the license from the Central Bank. Actually, we -- informally we have already got the license, but the product needs actually like the article of association. So, we need to change a little bit of the lines of the business of the Telkomsel about the payment business.

Regarding about our strategy for the competition, actually, Telkomsel could go aggressive to lower its tariffs, as we demonstrated by launching the aggressive packages like simPATI the last time. And you know, as the market leader we value highly our loyal customer that's been with us with 13 years and have selected us due to our strong value and good quality. The last, our stratification in the network quality is inviting for the 400 journalists together in the five locations, running the open (inaudible) show them transparently about our real quality.

So today, the network quality and quality of service is to become competitive, our competitive advantage and as a selling point, while other operators beat each other. So this is our view, Raymond, about how to maintain our positioning. So if you look at the model, the business model, I think it's been balanced with other countries, something like Thailand. Strategy was we maintain about the quality, high quality service and gradually promoting price adjustments without jeopardizing any quality and ensuring profitability is created. Thank you.

Okay. Great. Thank you, Pak Kiskenda. We can have some questions more before we end.

Certainly. I will open the lines up.

Hi there. Yes. Colin McCallum again from Credit Suisse. One follow-up on your broadband plans. The numbers obviously are still fairly low in terms of your total broadband subscribers. The CapEx that you've mentioned on a consolidated basis, of $2b to $2.5b, implied -- obviously, just subtracting the Telkomsel CapEx, implies quite big numbers for this year for the fixed line division. Can you tell us where exactly that fixed line investment is going? Is it going into broadband? Perhaps you could just split it out for us and give us a broadband target, for example, for the end of 2008, that you will drive from that CapEx? Thank you.

Yes. On the broadband, we'd like to ask Pak Ermady.

Thank you. Regarding broadband services, as Pak Rinaldi mentioned before, we believe that broadband is our business looking forward. So therefore, yesterday we launched what we call (inaudible) of the -- with the tag line, the new tag line speed [if you can pass].

Talking about subscribers for the Speedy, Q1 comparing with the Q1 last year, they have grown around 152%. And if we're comparing the net additional [LIS] in Q1, it's increasing sharply if you compare it with the last year. And particularly at this month, our net additional LIS did twice higher than net addition LIS comparing with Q1. So that's why we are very, very positive and believe the Speedy services, broadband services will be a real power future strategy.

Okay. I think, Colin, I would answer the question on the direct competition of the fixed line businesses. First, as mentioned, this is in line with our strategy to improve the broadband. We have spent around IDR2 trillion this year for broadband, including access and its network infrastructure. And then, actually, we are also going to spend around 40% of our -- no, 30% of our fixed line CapEx is on Flexi, while the rest is mostly for the infrastructure, the backbone and the (inaudible) nodes. Yes? So I think that also marks, actually, the beginning of -- you know we actually started to upgrade our network infrastructure to the IP base. We call it the scheme 2010. So, 2008 we already started. In the long run, it would be quite positive if one follows what happens in the other markets, that the new network will make operators more efficient. So this is how we do it. In line with the ERP program, we expect that in the long run we will be able to reduce the OpEx. Thanks.

Thank you, Pak Rinaldi. That ends the conference call for today and before we officially close we'd like to thank everyone on the call. But before we do that, we'd like to ask the CEO for his closing remarks. Pak Rinaldi.

Well, ladies and gentlemen, I sincerely hope that from today's meeting we have given you some clear indication of our condition. We hope that with the positive developments of our Company amid the new equilibrium, as we said, this will bring a continued interest of our company. The global environment with current market conditions has been challenging to the industry, but we would like to assure you that the continued stable growth in the new equilibrium we have the confidence to sustain the business of Telkom for the years to come.

Thank you for being on the call with us today. We look forward for the next call. Thank you for listening.

Thank you, Pak Rinaldi.

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