Telkom Indonesia (Persero) Tbk PT (TLK) 2008 Q2 法說會逐字稿

This is Premier Global Services, please stand by. Good day everyone and welcome to the 2008 first half result conference call. Today's call is being recorded.

It is 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, ladies and gentlemen, all participants, welcome to the conference call of PT Telkom Indonesia TbK.

Our agenda today for Wednesday, August 6, 2008 is to discuss the company's first half year 2008 results.

The company's info-memo was released this morning and is currently available on our website, www.telkom-indonesia.com, under the heading of investor relations.

On this conference call we have Mr. Rinaldi Firmansyah, our President Director and CEO of Telkom and the members of Board Directors and other senior managers of PT Telkom and PT Telkomsel.

The total time for this call is one hour, which we will begin with a presentation by our CEO, following with a brief question and answer session and this presentation is also where -- we would like to announce, is available on our webcast. Please note that a tape recording of this conference call will be available to you after this session for the next 30 days.

Ladies and gentlemen, as usual, we would like to draw your attention to the disclaimer and say that some statements made during this conference call may be forward looking in nature. Actual results could differ materially from projected estimations or expectations voiced during this call. These may involve risk and uncertainty and may cause actual results in developments to differ substantially from those express or implied in these statements.

The Company does not guarantee that any action, which might have been taken in reliance with those statements, will bring about specific results as expected.

Ladies and gentlemen and all participants, today we are pleased to Mr. Rinaldi Firmansyah, Telkom's President Director and Chief Executive Officer, Mr. Sudiro Asno as Director of Finance and CFO, Mr. I Nyoman G Wiryanata is Director of Consumer, Mr. Faisal Syam as Director of Human Capital and General Affairs, Mr. Prasetio as Director of Compliance and Risk Management.

Among us, we also have in the conference call the Board directors of PT Telkomsel, Mr. Kiskenda Suriahardja, the President Director, Ms. Triwahyusari, Director of Finance, Tan Chung Yaw Richard, Director of Commercial.

And now I would like to turn the call over to Mr. Rinaldi Firmansyah for his remarks. Well, Rinaldi, the time is yours.

Thank you Denny. Ladies and gentlemen, good afternoon everyone, PT Telkom for the first half year 2008 on unconsolidated basis has still delivered positive results.

Our operational revenue for the first half year 2008 in growth measures still in the positive territory and (inaudible - highly accented language) has 42% growth compared to the same period last year and made happy competitions.

Let me first begin to explain that for the first six months in 2008 the telecommunication industry in general is facing a transformation, both on the competitive as well as the regulatory front. The mobile industry currently has 11 operators, all offering a range of very competitive products and services.

The Company's revenue is still growing and we are seeing the industry taking shape and forming itself into an equilibrium never seen before in this market. Despite this, our competitive strength, commitment and resources that will make us more sustainable in the longer run. We are still the only full service operator in the country offering a diverse range of products.

In the near future, you will see that Telkom will begin to expand into new and exciting business directors, such as IP services, portals, [contents], TV and other value added services that will help us grow our business and support our traditional businesses in the effort to continue providing long term shareholder value.

Ladies and gentlemen, overall, the performance of Telkom's current businesses, namely Fixed Wireline, Fixed Wireless, Cellular, Network and Interconnections, Data and Internet indicate continued growth. We are also continuing to impress. Telkom Group's CapEx 2008 is $2.5 billion.

For the first half of 2008, the company net income on a consolidated basis was IDR6.3 trillion and we are currently concentrating on developing, in all areas, including broadband services to retail customers, corporate customers and small businesses.

Fixed Wireline, as of June 30, we have recorded a total of 8.65 million fixed line in service, excluding fixed wireless, which slightly decreased by 1% compared to the same period in 2007. The ARPU for Fixed Wireline was 147,000 per month.

Telkom Flexi, as of June 30, 2008 has reached a total of 7.4 million subscribers, a 45% increase compared to the same period in 2007. Flexi is also available nationwide, supported by a network of now 2,677 BTS. Moreover, we do like to mention that the line in service products and for fixed wireless has increased by 49.3% to 6.1 billion minutes from 4.1 billion minutes compared to the previous year.

Flexi has kept its leading position as the market leader in the fixed wireless market. The branded ARPU for Flexi decreased by 29.8% in the first half to IDR41,000 compared to IDR58,000 a year ago.

International call, in the international direct dialing business, for the first half year 2008 result, Telkom 007 and Telkom Global 017 have generated net revenues with a total amount of IDR788 billion gross basis. As of June 30, Telkom recorded the incoming and outgoing international traffic of 660 million minutes and 143 million minutes respectively.

Telkomsel Cellular, during the first year 2008 the competition in the Indonesian mobile cellular business has been tremendous. While the growth in the first quarter was very strong, in the second quarter we were improving the quality of the network. Nevertheless, Telkomsel was able to maintain its position in the market and adding for the first half year of 2008 4.6 million new subscribers, making that a total of 54.2 million subscribers as of June 30. This is an increase of 22% compared to the previous year.

[Cashable receipts] recorded a total of 32.1 billion minutes, a growth of 184% compared to the previous year. As a result, we are pleased to note that this maintains Telkomsel as the market leader for cellular DSM with more than 50% market share under full mobility.

As of June 30, the total number of BTS grew 23% to 23,056 units as compared to last year, as we take steps to build capacity and quality.

Blended ARPU slightly decreased year on year from 78,000 to 63,000, while simPATI ARPU had slightly decreased by around 11%, Kartu AS and postpaid Halo decreased by 29% and 15%.

Speedy, ladies and gentlemen, we are committed to expand our Telkom Speedy broadband services into many cities around the country. We would like to also mention that the recent launch of the 1 megabit service has delivered strong growth in subscribers. We have intensified our promotion campaigns, by educating the public and entering into new partnerships to make Speedy a strong brand.

As of June 30, Telkom Speedy has recorded a total number of 392,000 subscribers and increased significantly by 135% compared to 2007 of 167,000 subscribers. The revenue from Speedy has now reached IDR572 billion.

Well, on the Telkom Net Instan, the dial up Internet, as of June 30, we have recorded a total of 2.4 million fixed telephone users who have accessed the Telkom Net Instan, totaling 1.6 billion minutes of usage.

Ladies and gentlemen, I would like to move on now to highlight some of the first half financial results.

First, operating revenues grew by 6.2%. Second, EBITDA consolidated has shown flat or slightly grows at IDR18.2 trillion, just down 0.1% compared to the same period last year. However, the margin EBITDA has now become 57.6% compared to 61.1% last year. Net income per share is at IDR317.8, a decrease of 4.1% compared to the same period last year.

The three biggest revenue contributors of our first half year 2008 were mainly from Data & Internet, Cellular and Network, where each has grown by 16.4%, 6.8% and 137.5% respectively.

Meanwhile, in the operating expenses, total consolidated operating expenses have increased by 14.5%. The main factors were 12.7% increase in depreciation, 26% increase in operating maintenance and telecommunication services, 47% increase in marketing expenses. Furthermore, personnel expenses increased by 5.2%.

Finally, I would like to briefly mention the cash position of the Group. Telkom's cash and cash equivalent position for the first half year 2008 was maintained at IDR10.9 trillion compared to IDR10.8 trillion in the same period in 2007.

Ladies and gentlemen, that ends my presentation for the first half year 2008. Let us continue now with the question and answer session, moderated by Denny Suryo, thank you.

Thank you Rinaldi, now let's open for the Q and A session. Before raising your questions please do mention your name and your company and after the first questions, we will also like the BOD to answer directly after each question.

Operator, may we have the first question please, thank you?

Operator, may we have the first question please, thank you?

Hi good afternoon, this is Ken Yap calling from Macquarie Securities based in Jakarta. I would be interested in your updated forecast for 2008 at the PT Telkom network. Could you please give that to us?

Thank you Kenneth Yap. So, the question is you would like to have the updated guidance of 2008 if you have any.

Can you -- specifically what updates would you like?

Well, at the start of the year you gave us guidance on revenue, EBITDA as well as net income and CapEx. So, for these four items I would appreciate an update please, thanks.

Right. Perhaps this question has for Sudiro on the revenue, EBITDA and CapEx updates.

And also for net profit.

Or Rinaldi, thank you.

Okay, thank you for the question, yes. I think the cellular market, in particular, has seen an overall industry reduction in pricing over the recent months.

This has led to decreased revenue per minute, while at the same time, positively contributed to an increased minutes of use per subscribers. So, we have seen that happened in the first half of the year.

To be prudent, we would like to say that while initially -- basically that the minutes of use should be growing, the revenue from the increased usage of the capacity. But we believe now while we still like to grow, but for the guidance, we believe now that for the year end, we still see that we will grow at the rate of around 11% to 14% our revenue. I think this would be slightly an adjustment from the previous guidance.

While on the CapEx, we don't see any reason why we need to change the CapEx for the time being, because in Q2, we have been able to organize our network capacity in the Cellular. While also, on the Fixed Line we have been able to, basically, deploy our infrastructure. And Flexi, actually, we have been able to deploy a double number of BTS as compared to the full year 2007.

So, we were building, basically, around 766 BTS on Flexi and more than -- close to 2,000 BTS in '07, plus actually infrastructure in the -- basically, on the NGN broadband services.

Thank you, Rinaldi. May we have the next question please operator.

Thank you Mr. Denny. We'll move on to the next question.

Hi, Karen Ang here from Citi, I have two questions.

First is I'm just curious how many TRXs have you had installed by the end of the second quarter. I think given the fact that most of your effort in that quarter was focused on expanding capacity, and how did that number compare to first quarter?

Related to that, question is how many minutes can you now handle relative to the 32 billion minutes you handled in all of the first half of 2008?

Then the following question is can you please explain why SMS revenues declined 22% quarter on quarter in the second quarter, and it's only up very modestly on the year? Thank you.

Karen, can you repeat your second question again please, your second question.

Well, the CR -- I know that you expanded network capacity in the second quarter. I just want to know what that now allows you to handle in terms of the number of minutes. I know in the first half you handled 32 billion minutes. So, how many more minutes can you handle now with improved network capacity?

Okay, thank you very much. Perhaps this question goes to Kiskenda, on the TRX and the minutes.

Yes, thank you about the TRX, for the total in the first half is 33,000 something of TRX. Especially for the Q2 it's 19,000, so increase, let's say, 60%.

And about the SMS, let me explain briefly what actually happened in the first half of 2008. Basically, for the SMS, based on the services, the most effective SMS revenue, actually the tariff cut of the 67% in the simPATI and 40% Kartu AS have brought down the revenue for SMS in this two products minus 34% for the simPATI and minus 7% for the Kartu AS.

But the most mainly cause are the decline of the revenue, actually it's in the Kartu Halo. Kartu Halo is 18% of Q on Q. Talking about the SMS, it's declined about 48%, with a 30% tariff decline in Voice and 65% in SMS tariff.

And briefly, for the Voice actually, the introduction of cyclic tariff still generate 20 -- sorry, 2% Voice for the simPATI [really].

But in the -- talking about the SMS, actually, we as an incumbent and the market leaders, the impact is very critical and becoming [appraiser] for the Telkomsel for reducing tariff in order to comply with the Government regulations on new interconnection tariff and also to address market perception. And Telkomsel tariff was expensive, [appraiser] by [KKU]. So, the SMS is one of those tariffs we've deceased related to the reducing tariff in the first half (inaudible).

But if you look at from the general and not only the SMS actually, as I mentioned for the simPATI, still generate 2% Voice revenue increase. Do, I think it's not too bad or too detrimental if you look at it from the other benefits, because the strategy for the cyclic in the first half on simPATI, actually, it not make the decreasing of the revenue. It shows that the implementation of cyclic still resulted a revenue growth.

In the same time, just for the information, this program was able to reduce the unproductive long call traffic, which could lead the new CapEx demand and improve the network quality. Moreover, this program has avoided the loss of opportunity during the most productive time then.

For the additional information, the impact of cyclicality was increase of international roaming revenue of 15 due to improved network quality.

So, back to your question about the SMS, actually, most of the SMS has decreased, because we are reducing tariffs. And the most important one is in the Kartu Halo, because in the Kartu Halo, it's not too elastic for the SMS, thank you.

Okay. And just to clarify what you said on the TRX, you had 33,000 TRXs as of the first half? Or is it the first quarter?

And then, what was the 19,000 number, I didn't really quite understand?

33,000 is our total for the first half and 19,000 is just only for the Q2.

New TRXs?

Yes, because we are aggressive [for] our deployment, especially for the TRX, because are related to the capacity.

So, total TRXs now in the system is how much?

Now is 209,000 TRX.

Okay, and how many more minutes you can accommodate? Can you accommodate double, triple or what do you think for --?

Okay, let me maybe talk about the number of minutes. You will notice that for the first half of the year of the year we carried 32 billion minutes outgoing. And I think it's very hard to talk about minutes in isolation, because in the first quarter of the year especially, a lot of minutes were concentrated at night.

So, in terms of the network's ability to carry more minutes, I think a lot of it depends on how we spread the minutes across the hours of the day, which -- I think a lot of the current programs are focusing on.

So, what I would like to leave with you, rather than just focus on the absolute numbers is to take note of the existing [breakdown], which actually breaks it into four time bands. And I'd like to share with you that we've been very successful in spreading the load across all four time bands, which we will be able to carry. And obviously, in absolute number of minutes obviously a lot more than what we have carried in the first half of the year.

So, don't focus on the absolute number, but I think on the fact that we've been very successful in spreading the load and that helps.

And I also should add to what [Kis] has said; that we have implemented a lot of new network quality features, for example, we have also implemented call prioritization for our high value customers. So, a lot of work has gone into improving the capacity and also the quality of our network.

Thank you.

Thank you.

Right, thank you for your question, Karen Ang. We can take the next question, please?

Right. (OPERATOR INSTRUCTIONS). We will have the next question now. Please go ahead. Sir or Ma'am, your line is already open, please go ahead.

Sorry, this is for me?

Yes, that's right.

Hello, can you hear me?

Yes, we can.

Hello, sorry about that. This is Andrew Haskins calling from Nomura, two questions, please?

Firstly, if you look at -- firstly, regarding Telkomsel, if you look at revenue per minute in the second quarter, I believe it was something like IDR610, rough -- about five times the level of your rival, Excelcomindo.

Now, I spoke to you on Friday and you said that you were already -- your tariff cuts within the third quarter had already brought that -- brought the revenue per minute down substantially to reduce the gap relative to your competitor. I wonder if you could comment on what you see perhaps as a level to aim for for the second half of the year. That's my first question.

And my second question is -- relates to your revenue growth. According to the operating indicators that you have provided today, the Fixed Line business fell -- saw quite significant revenue pressure.

But if you look at the segment information, the US GAAP segment information in your full first half results -- your audited results release, actually, in -- for the first half there was an increase of 2% or 3% in Fixed Wireline segment revenues. And in the second quarter it was plus 6% year on year. I wonder if you could explain why that figure doesn't really correspond with the figures in the release today. Thank you.

Okay, thank you Andrew. I just want to make sure that we understand your question. I think the first one was a question on competition on the first half of '08? Was that what you wanted to know?

No, RPM.

Was it the RPM?

Yes.

My first question related to the RPM for Telkomsel in the second quarter.

Okay.

I think it was something like IDR600. For Excelcomindo it was IDR100 and something, so obviously there was a huge gap there. And I wondered what do you think is the level to aim for, for the second half of this year?

Okay. And your second question was on the Fixed Fine; why our year on year 2007 a growth of 2% or 3% -- I believe 6%, did you say?

Yes, if you look at the segment information, page -- section 45 of your unaudited consolidated financial statement that shows -- for the first half year on year that shows quite and increase. And in the second quarter it was actually plus 6% year on year total segment revenues. For the first half as a whole it was plus 2.2%. And I just wonder if you could comment on why the second quarter there seemed so strong?

Okay, thank you, Andrew. Perhaps maybe the first one, on the revenue per minute?

Hi Andrew, my name is Richard. So, let me address you question on the Telkomsel side of things.

I think you have rightly noted that for Q2 revenues per minute were on the higher side compared to competition. I think that reflects the success of the cycling program and our ability to monetize long calls. But -- and we were also improving the quality and capacity of the network.

And I think you have noted that obviously, in our latest program from July 1 onwards we are focusing -- again, the strategy is focusing on filling up the network and driving across -- driving the demand and the elasticity curve. So, revenues per minute and the MOUs for [some] will obviously change.

Again, without being too fixed on any particular number, the reason is because it depends on how aggressive the environment will be in Q3, as Q4. But I think what we can share with you is the general projectory. I think the general projectory indicates that the revenues per minute will still be in the IDR200 per minute range. And in terms of the MOUs that we are able to carry for stock on a blended basis, bearing in mind that we have three products, Kartu Halo, simPATI, as well as Kartu AS on the blended basis. We believe that we are more than adequately prepared to carry up to 200 minutes per [sub].

Yes, okay. Thank you, Richard. I think Sudiro on the second question, on Fixed Line.

Yes. I think for the revenue growth first half year on year as a growth is 6% and if -- Q on Q revenue growth is 1%. That's the answer.

And while the total Fixed Line business revenue growth Q on Q is -- was growth by 3%. Is that the answer?

I didn't quite follow that, maybe I will follow it up with you later. Thank you.

Yes. I think, Andrew, you were asking on the US GAAP reference on our disclosure? We --

Yes, in the US GAAP disclosure there was a 6% year on year growth in the second quarter and I just wondered why that was so strong?

Yes, I think we will come back to you separately on the US GAAP disclosure. Basically, because what we have now in front of us in the --

Indo GAAP.

Indo GAAP, so we will come back to you soon.

Thank you.

Yes, we'll take a note of that, Andrew. Thank you. May we have the next question, please Operator?

Right. (OPERATOR INSTRUCTIONS). We have the next question in queue.

Hi there, it's Colin McCallum here from Credit Suisse . One question first of all just on Telkomsel. Could you just give us a number, a total number of SMS, please, in 1Q '08 and in 2Q '08?

And then secondly, just on Fixed Line strategy, I note that the Flexi revenue growth, despite the interconnect changes, which were favorable, was actually very slow quarter on quarter and year on year. Given what you've just been discussing about price points coming down, is there a case now for seriously slowing down the investment you're putting into Flexi?

And, in turn it looks as if Speedy is growing very quickly -- and, of course, you have a competitive advantage there. Why are you not aggressively expanding on Speedy and seriously slowing down investment in Flexi? Thank you.

Right, thank you, Colin. A question on the number of SMS the first quarter --

Q1 and Q2?

In Q1, Q2, [Kiskenda]? Yes, Richard?

Okay, the number of SMS in Q1 in total is 13 billion, as well as in Q1, and its 18.5 billion in Q2. So, the reduction in SMS tariffs has helped drive the growth in the number of SMS.

Okay, I think on the second question, on Speedy -- why have we not been aggressive enough?

Well, thanks Colin. I think for the Fixed Line, as can be seen, actually we basically see that on the -- practically on the Voice fixed line that has actually declined faster than we expected in the Fixed Line. So that is why you are right that we basically expand the business into the Speedy.

In fact, the CapEx for Speedy has been increased quite significantly and that is basically in two cycles. One is in the infrastructure, in which we are now upgrading the infrastructure to be able to serve not only 384, as before. Now it's able, in certain areas already 1 meg and by beginning of the year we expect in several big cities, including Jakarta, we expect to be able to offer the service up to 8 meg to 10 meg.

And, in fact, that is on the infrastructure, and secondly, on the -- the infrastructure's close to the subscribers, which we actually accelerated the deployment. However, bear in mind, that in Speedy it needs also investment from the customers' point of view, in terms of the city, etc.

So, yes, actually our focus will be more on Speedy and that is why you see that we have done a heavy promotion on Speedy in the past two months. And we actually upgraded more and more. And, in fact, we are accelerating our NGN deployment. So, we are happy to mention that, in fact, in Bali Island -- the whole Bali island that is our first trial of our broadband and next generation network deployment. We have been able to upgrade it and actually, the whole island is ready for the high speed broadband.

Well, on the Flexi, I think we still position Flexi as our fighting brand for the low segment. And we position Flexi as the low cost and low price bidder in the CDMA market. So, that is why, together with [WAP] [cellular] has been just launched a new promotion in the beginning of July. We also launch a new promotion for Flexi of -- to position our self at the low cost and low price leadership.

Okay. But in terms of total investment though, if the revenue line isn't growing on that low end segment and if Telkomsel's heading down there very, very rapidly, are you actually getting -- beginning to question a little bit more the strategy of continuing to invest in Flexi?

No, I think its market has different segments. We have DSM, which is basically has their own segment. And on the CDMA there still is room, basically to keep on a profitable business and the price has not been basically going down significantly as what DSM is experiencing.

So -- and basically that is the position that while you can see that the focus in the Group is still on the DSM. That's why you see that the CapEx on DSM is $1.5 billion to $1.7 billion, while actually on Flexi the CapEx is still quite low as compared to our DSM, so --

Got it.

Yes?

Okay, thanks very much Rinaldi.

Yes.

Thank you, Colin. Can we take the next question, please?

Hello, this is Lydia Chan calling from UBS. I just have one question. For the new revenue guidance for Telkomsel it's been revised down to 11% to 14% year on year growth. And I was wondering if that's all due to competitive intensity or are there other factors affecting this revision? Thank you.

Thank you, Lydia.

Yes, I think there are a few things that have been dynamic, as we mentioned earlier, actually. The new pricing strategy in the market has created the new level of revenue per minute. We have seen that the elasticity is growing significantly, while we reduce the price.

So, the MOU increase, which has been in the first quarter, which we then to slow it down in the second quarter, has increased significantly. However, it has not been able to be compensated by the decline in the pricing. So I think, while there would be basically an impact. However, this would provide a healthy base for the future growth for our cellular business.

Okay, thank you.

Okay, thank you. The next question?

Yes, Denny. Your line is open, please go ahead, Sir or Ma'am.

Hi, hello. This is [Tian Do] from GIC, thanks for the opportunity to ask a few questions. I've got three. The first is on your operations and maintenance expense. Both at the Telkomsel level and at the Telkom level that looks as if it's increasing faster than revenue growth, looks as if it's increasing faster than your network growth as well. If you could give me some color on the reasons for that O&M expense increasing so fast, that would good?

The second question is just on your EBITDA margins, could you give me some color on whether you think the second quarter is the low for the year and it rises from here on? Or do you think there'll be continued pressure on your EBITDA margin, both at the Telkomsel level and at the Telkom level, going forward?

And the third question is just on your interest expense -- your overall debt levels don't look as if they've moved that much year on year, but your interest expense has fallen by about 20%. Could you just tell me what was the reason for that? Thank you.

I think we start with -- first with Telkomsel on O&M.

Hi, I'm [Tri]. Thank you for the question. So, related with the increase of Telkomsel (inaudible), our O&M. So, the growth of our O&M is mainly related with our additional [of] network with direct impact related to [standard] of our frequency fee, transmission costs and also the (inaudible) as well as the power costs.

The growth in the second quarter also, because there is an additional resulted -- of the recalculation or our frequency fee.

And what was the -- what was that amount due to the recalculation?

It's around IDR200 billion and IDR300 billion.

Okay, thank you.

Okay, the next question on the interest expense? Were you referring to the Group or specifically for Telkomsel?

It was for the Group, yes, it was for the overall Group. It was the --

For the all round Group?

Yes, it was the IDR573 billion figure that you've got in your release versus IDR731 billion last year; it was just a bit lower than I expected, because your debt levels --

Right. It's lower this time, any connection?

Yes, because -- last year, the second half of last year we had some new debt. So, that's why the interest expense now a little bit higher than the first half of last year.

Alright.

Yes. And also, because of the interest rate increase, yes.

Thank you.

I think as you understand, some of our debts are basically short term in nature. So, we have not issued a long term debt in terms of bonds and other means of -- or other instruments. And this short term debt is basically getting -- increasing interest due to the interest in the higher rate and the market of interest rates.

Have we answered your question yet, Tian Do?

Yes, it's actually -- the interest expense is actually down, but you're talking about a rise in interest rates. I'm just wondering whether it was down rather than -- I expected it to be at least flat to up in the first half of this year, but it was actually down. So, I was just wondering why it was down.

Yes, because in the first quarter of this year, we had negative correction for the interest expense around IDR40 billion.

That comes from the [two step] loan?

No, [two step] loan reconciliation.

Okay, alright.

So that was basically correction, around IDR40 billion negative, because of the [two step] loans interest calculation with the Government.

Okay.

Okay, thank you.

And the final question, on the EBITDA margin, what was that; what is your feeling for the second half versus the second quarter?

We believe that while EBITDA margin -- basically have declined now by around 4% as compared to last year. We see that by creating a new promotion program we expect that the subscribers will keep on growing again significantly in the third quarter and fourth quarter.

And we do not expect that the EBITDA margin will decline further on this, because then our network can be built up with the new subscribers that will result in new revenue.

Okay, alright. Thank you.

Thank you. Next question please.

Hi, this is Arthur Pineda from ABN Amro in Singapore. I have two questions. Firstly, on Telkomsel, why do you expect some take up to accelerate second half given that your expected tariff per minute is still so much higher compared to competition? Are you expecting any improvement in the competitive environment to drive this?

The second question I have is with regard to what's going to drive this? Are you launching any major programs, or have you launched any major programs, to support your view of revenue acceleration in the second half as well? Thank you.

I think your question as regards what is the outlook in Q3 and Q4 with regards to the sub base, but let me address your question regarding the tariff and its competitors. We are -- if you look at both simPATI and Kartu AS you will notice that we are more than competitive across all time bands. And in terms of whether a short duration call or long duration call, or even for us SMS we are more than competitive against our competitors. And our market has definitely taken a note of that.

And, therefore, the pick up, for example, in July was significant. In fact, we can show that we added 3.2 million subs in the month of July itself. And we believe that the net adds for the month to come will be quite stable, because we have a very, very strong product and the market reception for the new simPATI program has been, in particular, very, very positive.

So, in terms of our new programs obviously we adjust to market competition depending on what comes by. I think one thing that is definitely very positive for Telkomsel is that we are very confident of our network capacity and policy, and will be able to react accordingly to anything that comes our way. Thank you.

Thank you, Richard. Thank you for the questions.

I'm sorry, if I can just follow up with regard to the programs that you launched in the second half to support your case of revenue acceleration. So if you could just -- sorry, just add some color to that and what listed programs have been pushed out so far?

I think the core program is the new simPATI [payday], which was launched July, 1. That was a program where we split the thing into four time bands to ensure that -- and we priced accordingly to drive the demand in each of the four time bands.

And as I mentioned, it's been very successful. And, in fact, we see a very significant pick up in the number of minutes and the number of calls in time band two, which is from 6.00am to 12 noon. So, that in itself is very successful and a number of card sales in many regions has actually more than doubled. So, you can tell from the net add figure that I've mentioned, it's been very strong.

I think the other thing that people have noticed is that we have dropped our tariffs by 40% from IDR25 per second down to IDR15. And people obviously are taking advantage of that and driving more -- using more. So, in itself, it's been very, very successful.

And I think the other -- the second thing that you should know is that we have not left Kartu AS alone at the same time, because behind the Kart AS program there are three significant changes to the Kartu AS program.

Number one is that we have introduced special daytime option, which is the 50% reduction on its original second pricing. So, it cost [IDR65] per second to call from 5.00 pm to 5.00 pm. And something else to know that we launched what we call an SMSMania program, which is a bought SMS program; very, very successful because if you look at the number of registrations per day the take up is, again, very significant.

And on top of that we are offering a recharge bonus; a small bonus but it's a token in appreciation of our customer's loyalty. So, that in itself is also giving enough customers a very, very strong support in the market.

So, with these two programs we believe that we have built the foundation, at least for the next two quarters. Obviously, there will be segmentation and regional programs as well. You may have heard of a program that we're running specifically for Central Java, East Java as well as Bali (inaudible). And that's what we call Talkmania 2000.

Now, what Talkmania 2000 offers is that for a one time registration, which will cost probably IDR2,000, you can make as many calls as he or she would like, as long as the number of minutes in total do not exceed one hour.

So, if you contrast this against all the other offerings in the market today, you will find that Talkmania 2000 and offers very, very good value against any product that you may want to compare it against with. So, the -- again, the reception of Talkmania 2000 in these three regions has been absolutely fantastic to say the least, based on the number of registrations that we see per day.

And we have the liberty obviously to expand this particular Talkmania promotion to other regions. We could refine it. We could tune it. So, we have a lot of tools in our kit box to do whatever we like to obviously drive the revenues for Telkomsel.

Yes, I think to add that, as such been mentioned by Richard there, what changes basically on the second half, we changed the cyclical pricing towards -- for simple pricing, which is easily understood by the market.

So, what we say is while we still basically focus also on improving the quality, at the same time we will send the message that we will match our price to competitors level as necessary.

Yes, and I think what has been very clear from the market reception is that they are responding very positively to what we have been communicating to them.

Okay, thank you.

Thank you, Arthur. We can take one more question, may we have that question please.

Right, Denny. We'll move onto the next question.

Yes, this is [Ishwar Christian] from [Sondheim]. I have a question actually for Rinaldi and [Kiskenda] if he is also on the line. I guess the -- I guess what a lot of us have been sitting with -- or what we've been struggling with here is, for the last two quarters or so, it appears that Telkomsel in particular has been reacting to promotions and marketing campaigns by Excelcomindo, and has always been in this catch up mode effectively, just trying, effectively fire-fighting. And that's never a very good place to be especially as market leader.

So, the question really is a strategic one, which is, we have the network, we have the balance sheet, and we have at least a very good brand in the country. So, at what point do we see Telkomsel being the aggressor in the market place and acting more as the market leader, rather than constantly fine tuning its offerings like, the Q2 flip flops on the tariff to try and address competitive issues now, because I can't imagine that Excelcomindo is just going to stand still here. And they will react. And then we'll be forced to react to them. So, rather than constantly waiting for the new promo, I'm just wondering what our strategic objective here is?

I guess it's a question for [Kis] to --?

Basically we are not reacting to the competitors. Basically also, we're not competitor oriented, because the competition is an impact here.

Obviously as an incumbent and service leader, we've more -- more important for us is considering our pricing strategy. Firstly, to comply to regulation, of course, including the anti-monopolistic issue and an ethical promotion. Secondly, of course, quality of product and network, so in the last -- first half we aggressive actually in -- related to the roll out, TRX and also of the quality.

Finally, of course, the customer price per se -- (inaudible) related to availability, [CapEx], quality and features. So, basically, we like to protect for the long term value of the Company as the market leader and service leader, as I mentioned earlier. So, in other words, our positioning is not reacting to our -- to the competitors, but offer the best quality network with reasonable price.

Thank you very much.

But do you think that strategy is actually feasible, because if you look at most of the emerging markets, whether it's Barti in India or [AMX] in Latin America, these companies have really thrived by being the market leaders in innovating price plans, actually reducing tariffs, benefiting from the MOU growth and, therefore, growing revenues and growing profits in a more sustainable way.

My only fear is if we continue to be reactive as we have been so far. That we're opening up an umbrella for Excelcomindo and other competitors to really do -- have the disruptive price plans that essentially muddy the water.

Understood. Basically, if you compare with the other operator, we are different here. We have a big customer base and also we have the different customers. Talking about legacy, something like that. So, on our experience in understanding customers' behavior, capability in handling huge traffic increase in the network, as well as introducing various products during Q1 and Q2, we are [firm] to run the business in the segmented basis; like time band area, and regional, and also value added features.

But the segmentation strategy will reverse the decline of the revenue per minutes beside more aggressive marketing effort to stimulate the usage and product awareness, following the aggressive of the (inaudible) of the quality the last -- first half.

And Ishwar --

Sorry, yes?

Yes. I think what we would like to leave with you is a very simple message. We will definitely be in the mind share. We will be able to leave -- we will create the mind share for our customers; that is for sure, when they choose their telecommunication services of choice.

Right. And just one final question, if you look out to the end of '08 and then maybe into '09, where do you see the revenue per minute going and then what is your sense of where MOUs can go? I know you've talked about a 200 MOU this year, but what do you think the yield per minute will be at that 200 MOU?

I think obviously flatter now, because you -- I think other markets are obviously ahead of us. I think it's also we have often being compared to the Chinese market or the Indian market. So, one has to look ahead to some of these markets and I think [our trend] will be -- no different from any of these markets.

And, again, the message we would like to leave with is Telkomsel is more than prepared. We are really.

Yes. I think to add basically the strategy is really still that basically we want to actually -- we like basically [the carrier] to be the market leader. So, market share is our priority and that is why if you see, we are -- after we were improving the network then we are coming back on the beginning of July.

So, your question is more to the -- not in this year, but we are preparing all necessary, as you mentioned, network, cash flow, etc. in order to be able to serve the declining revenue per minutes.

And we do expect -- we do not expect that the revenue per minutes will stay as is. We still expect the revenue per minutes will still go down by year ten. And that is where we see that we could play, and if by providing a better average and capacity at the same time with the lower revenue per minutes.

So, I think as [Kis] and Richard were saying, basically we're ready to match the price of the competitors as necessary.

Okay, thank you very much, that's very helpful.

Thank you, Ishwar. Well, that really ends our question and answer session now and we thank you for all your participation on the conference all. But before we end, we would like to ask the CEO, Rinaldi, to have his closing remarks, Rinaldi?

Okay, thank you, Denny. Ladies and gentlemen, we certainly appreciate the questions that all of you have given us today.

Let us assure you that many of your concerns are, indeed, our concerns as well. We will make every effort to have a more focused business, both in the Fixed Line, broadband, Flexi, [Channeller], interconnection and the new wave, a clearer strategy and policies that we have on hand now. We are confident that we will be able to take this Company to the next level.

Our importance is centered around three things, sustainable growth, strong team play and upholding the competition. With the current strength that we have within the Group we are certain to win despite the challenges that we are facing.

The industry is changing and we are already preparing our self to optimize the legacy businesses and preparing for the next new wave businesses, namely broadband, enterprise solution, next generation network IT services and portal. It will be an exciting time and with all of your help we can certainly make this happen.

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

Thank you.

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