Telkom Indonesia (Persero) Tbk PT (TLK) 2008 Q4 法說會逐字稿

Good day, everyone, and welcome to the 2008 full-year results and 1Q 2009 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. David Burke, Executive Vice President, Strategic Investment and Corporate Planning. Please go ahead, sir.

Thank you very much, moderator. Ladies and gentlemen and all participants, first of all let me welcome you to the conference call of PT Telkom Indonesia Tbk.

Our agenda today is to present to you the Company's year-end 2008 and Q1 2009 results. The Company's Info Memo for the full-year of 2008 and the Q1 of 2009 was published today, and is currently available on our website, at www.telkom-indonesia.com, under the Investor Relations heading.

We are now delighted to introduce to you on this conference call the members of the Board of Directors and Senior Management of PT Telkom and PT Telkomsel. We would like to remind you that the total time for this call is one hour, and we will begin the presentation by our CEO, followed by a question and answer session.

The presentation is also available on the webcast, and a tape recording of this conference call will be available after this session for the next seven days.

Ladies and gentlemen, we'd like to draw you attention to the Company's disclaimer, that some statements made during this 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 development to differ substantially from those expressed or implied in these statements. The Company does not guarantee any action which may have been taken in reliance on those statements.

Ladies and gentlemen and all participants, first of all I'd like to introduce Mr. Rinaldi Firmansyah as President Director and Chief Executive Officer; Mr. (inaudible)(technical difficulty) and also Chief (inaudible); Mr. Sudiro Asno as Director of Finance and Chief Financial Officer; Mr. Arief Yahya as Director of Enterprise and Wholesale; Mr. Nyoman G. Wiryanata as Director of Consumer; Mr. Faisal Syam as Director of Human Capital and General Affairs; Mr. Prasetio as Director of Compliance and Risk Management.

We also have members of the Board of Directors of PT Telkomsel present, and I'm pleased to introduce Mr. Sarwoto Atmosutarno as President Director of Telkomsel; Mrs. Triwahyusari as Director of Finance; and Miss Herfini Haryono as Director of Planning and Development.

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

Thank you, David. Good afternoon, everyone. On behalf of the Board of Directors, Senior Management, and employees of Telkom, I would like to thank all of our valued shareholders for their support and dedication to the Company.

Before I elaborate on our Company's performance, first let me begin to explain to you that 2008 and the beginning of 2009, the telecommunication industry faced a major transformation in all its (inaudible), and challenges we encountered due to aggressive price war, increased competition, and the global financial crisis.

Our corporate theme for 2008 is Bringing You Excellence. At the core of what we do is connecting our customers with fast, reliable, flexible and responsive solutions that allow them to engage with each other, providing information and entertainment whenever and wherever they want it.

This year, we have focused on raising and maintaining standards of excellence by anticipating the rapid evolution of technology and consumer lifestyle. Telkom is a leading Indonesian telecommunication operator, with a positive balance sheet and strong financial fundamentals. Our strong presence throughout Indonesia has allowed us to continue to reach new additional subscribers, and have maintained a strong market share.

In line with our vision to become a leading (inaudible) player in the region, Telkom continues to provide our customers with superior quality, speed and versatility they need in our increasingly interconnected world.

Ladies and gentlemen, our current strategy impact in the current condition within the telecommunication industry is to continue to strengthen the Legacy business and aggressively grow our New Wave business.

Based on these strategies, we have segmented the revenue into Legacy and New Wave services. Legacy services are derived from domestic services of fixed wireline; fixed wireless; and cellular, including SMS; network services, interconnection, and other telecommunication services. New Wave services encompass mostly IP-based data communication for enterprise; Internet connectivity; broadband services; IT services; and other value-added services.

Overall, the performance of Telkom's core business, mainly fixed wireline, fixed wireless, cellular, network and interconnection and data and Internet indicate that we maintained a strong market share.

The fixed wireline business in Indonesia still profiles some room for growth despite pressure on markets. In order to mitigate and compensate the decline in the fixed wireline revenue, we have launched a marketing program called Fixed Business Improvement Program. It's a flat tariff program for fixed wireline, in which customers can choose one of seven packages of monthly payments and get some benefits, such as free (inaudible), monthly subscription charges, and extra usage for local calls as well as long distance.

We have also focused on developing broadband services as part of our New Wave business, and maintain a strong focus on retail customers, corporate customers, and small businesses.

Next slide. As of December 31, 2008, the Company recorded a total of [21.4 million] in fixed line. This comprised of 8.6 million fixed wireline and 12.7 million fixed wireless. In (inaudible), we recorded ARPU for the fixed line voice was IDR139,000.

Our TELKOMFlexi reached a total of 12.7 million subscribers, an increase of 100% compared to the same period last year. TELKOMFlexi is supported by a nationwide network of 4,054 BTS; the number of BTS increased significantly compared to the previous year. It's also worth noting that MOU at TELKOMFlexi increased by 45%, to 13.6 billion minutes, from 9.3 billion minutes compared to the previous year.

However, the blended ARPU decreased by 28%, to 38,000, as compared to 53,000 a year ago. TELKOMFlexi still maintained its leading position as the leading market leader in the fixed wireless market.

Cellular. We are pleased to confirm that Telkomsel as the market leader in the cellular GSM has more than 47% market share. The Company increased its subscribers by adding a further 17.4 million new subs in 2008, taking the total number of subscribers to 65.3 million as of December 31, 2008. This was a substantial increase of 36.4%, compared to the previous year. The cellular MOU and the number of BTS also increased by [250%](see slide presentation) and 28%, respectively.

However, the aggressive price war that took place among the Indonesian mobile operators from 2007 and through 2008, have increased pressure on cellular margins. As a result, our cellular blended ARPU decreased 27%, from IDR80,000 in 2007, to IDR59,000 in 2008.

Speedy. As part of our ongoing strategy, we see Telkom Speedy as a strong opportunity to continue to grow the New Wave business. We intensified our promotion campaigns by educating the general public and entered into new strategic partnerships to further develop Speedy as a strong national brand.

Telkom Speedy is now available in many cities around the country, and we are still committed to expand this product for future growth.

As of December 31, Speedy recorded a total number of 645,000, excluding 205,000 for education and trial; an increase significantly by around 168%, compared to 2007. And the revenue were in excess of IDR1.4 billion.

Ladies and gentlemen, I would like to highlight our financial 2008 results. I shall not attempt to repeat all the numbers that you may have read in the earlier announcement of the Info Memo published on our website.

First, total assets increased 11% to IDR91.3 trillion. Second, operating revenues consolidated increased 2.1%, to IDR60.7 trillion. On year-on-year basis, total expenses increased 16.4%. EBITDA, 6.6%, and net income decreased by 17.4% respectively, mainly due to early retirement program, with a total of IDR788 billion paid to 1,156 employees.

Increasing of our EPS, effective operating and maintenance costs, primarily radio frequency usage charges, which added by IDR2.6 trillion in 2008.

Rupiah appreciation against US dollar totaled a ForEx loss this year with IDR1.6 trillion. Net income per share was [IDR537], a decrease of 16.4%, compared to the same period last year.

The main revenue contributors for 2008 were from cellular, 41.7%; data, Internet and information technology, 24.3%; fixed line 16%; and interconnection, 14.5%.

Our current strategy impacting the current condition within the telecommunication industry, is to continue to strengthen the Legacy business and aggressively grow New Wave businesses. Based on this strategy, we have segmented the revenue into Legacy and New Wave services in our Info Memo, which is based on the Group (inaudible).

This segmentation may slightly differ from the financial statement.

The New Wave revenue grew by 42.9%, and its contribution to total revenue increased from 6.6% in 2007 to 9.2% in 2008. Meanwhile, Legacy business is decreased by 0.8%, mainly due to a decline on interconnection tariff, pressure on cellular price war and lifestyle change on wireline usage. Decreasing in Legacy business was compensated by increasing in New Wave businesses.

Meanwhile, the total consolidated operating expenses increased by 16.4%. The main factors were a 17% increase in depreciation expense; 27% increase in operating expenses; and 7% increase in personnel expenses; and marketing expenses, which increased by 33%.

We are also continuing to increase the capacity, coverage and improved quality of service, as well as to provide investment to develop our New Wave businesses. This is reflected by the allocation of Telkom Group's CapEx for 2007 and 2008, which amounted to IDR15.8 trillion and IDR22.2 trillion, respectively.

To minimize ForEx loss impact to our bottom line, we have decreased our US dollar cap by (inaudible). The portion of US dollar debt in 2008 decreased from 31% to 21%.

So, may I conclude that the developments for the year ended 2008, which we have presented to you show that despite the strong pressures on the Indonesian telecommunication industry and the global financial crisis, we believe that Telkom, as the dominant player in Indonesia is on the right track to grow our business into the future. We are facing uncertain challenges, but we continue to deliver a positive (inaudible) for our stakeholders.

Ladies and gentlemen, I would like now to present the result for Q1 2009. As of March 31, Telkomsel's fixed line business, including fixed wireless, achieved 22.1 million total lines in service, consisting of 8.7 million fixed wireline and 13.4 million fixed wireless.

Telkomsel continued to show strong growth in subscribers, by delivering an increase of 41% year-on-year, resulting in 72.1 million subscribers, and maintained its position as the dominant cellular operator with more than 50% of subscriber market share in the Q1 2009.

We also continued a strong growth in our broadband subscribers; PT achieved a record of 716,000 subscribers showing an increase of 145%, compared to the previous year.

In Q1, total assets increased 11.6%, from IDR81 trillion to IDR91 trillion. Consolidated EBITDA margin was 58.3%, a slight decrease by 3.8%, compared to Q1 2008.

Overall, the Company recorded a decrease in net income of 23%, from IDR3.2 trillion to IDR2.4 trillion in Q1 2009. As of March 31, the consolidated operating revenues were IDR14.7 trillion, a decrease of 2.2%, caused mainly by a 16% -- 15% decrease in the interconnection revenues and 17% decrease in fixed line revenues. However, it is worth noting that cellular and network revenues increased by 9% and 20%, respectively.

The New Wave revenues grew by 74%, and their contribution to total revenue increased from 5% in Q1 2008 to 9% in Q1 2009.

We must highlight that the first quarter of 2009 results were impacted by a number of factors. Mostly, we can attribute some decline in revenue to a decrease in tariff rates from Q1 2008 to Q1 2009. And secondly, foreign exchange losses has resulted in (inaudible).

The total consolidated operating expenses increased by 11%, from IDR8.5 trillion to IDR9.4 trillion, attributed to a 19% increase in depreciation and a 31% increase in operation, maintenance and telecommunication services, resulting from the Telkomsel's network infrastructure growth which constitute transmission costs, frequency fees and power supply costs.

We are pleased to confirm that the personnel expenses decreased by 15%. The main contributors were due to the decrease in recognition of the good liability related to Telkom's Early Retirement Program in 2008.

And also, to minimize foreign exchange loss impact to our bottom line, we have decreased our (inaudible) debt by 9% in Q1 2009. The portion of US dollar debt in Q1 2009 decreased from 31% to 22%.

Ladies and gentlemen, that ends my presentation for year-end 2008 and Q1 2009. Let us continue onwards now with the question and answer session, which will be moderated by David Burke. Thank you.

Thank you, Rinaldi. Now we'd like to open up for the Q&A session. May we remind you that before raising your questions, we would appreciate it if you could clearly state your name and your institution. Please note that we shall direct you to the BoD who will answer the question after it is posed by the participant.

Operator, may we have the first question, please?

Thank you, Mr. Burke. (Operator Instructions). We shall start with the first question.

Hi. It's Raymond here from Deutsche Bank. A couple of questions from me. First on the revenue per minute. It has declined in the first quarter compared to the fourth quarter. I just wonder, can you give us some color about the outlook into the second quarter and subsequent quarters?

Second question is related to your number of subscribers, which has risen to 72 million. Can you give us some indication of how many percents of a (inaudible) Telkomsel's subscribers have been with the Company or in the system for more than three months?

And last question. Can you give us some guidance about the broadband services; target for this year, subscriber target and also the revenue? That's it from me, thank you.

Okay. Thank you, Raymond. For the first two questions we'll pass you on to Sarwoto from Telkomsel with regards to the revenue for Telkomsel. But for the overall revenue of Telkom, we'll speak to Rinaldi first and then we'll move you to the subscribers over there with (inaudible) and then we'll bring you to broadband with Sudiro Asno. So maybe I'll lead with Rinaldi on revenue.

Yes. Thank you. I think if we see what happened in the Q1 2009, it's not fully comparable again with Q1 2008 because the pricing -- the tariff is different. You recall on April 1, 2008, there were a decline in the interconnection tariff and also the pricing of cellular was also (inaudible).

So of course, if you see, even though we have shown a strong subscriber growth but the revenue has not really grown similar to the subscriber because there are different comparisons. So however, that is why we still say that Q1 would not be a good reflection of what would it be in the year 2009. We still see, and based on what we are seeing in the performance, we believe that revenue will still see a good positive growth in the full year 2009 and that has been if we see also what happened in the last month, first quarter (inaudible). So I think that is what we see going forward for the year 2009. Okay. Thank you.

Thank you so much, Rinaldi. Now I will pass it onto Sarwoto to deal with the subscribers for the broadband. Sarwoto?

Yes. Thank you, Raymond. On Q1 we have 6.8 [billion] customer net adds and we have internally monitored and analyzed that all of the net adds on Q1 it's really the real customer. It means that we evaluate and monitor that all the customers recorded on Q1 is at least three months active customer. That is the question.

Okay. Thank you. We'll now move on to Sudiro for the broadband forecast for 2009.

For the broadband subscribers, Raymond, which clearly we are planning to get like 400,000 to 500,000 subs, net adds, and so by the end of this year hopefully we will have like 1.2 million subs. And (inaudible) the revenue for this year, if we are to win the broadband and 3G channel, last year we got 1.4 billion and this year we are planning to get (inaudible) so almost 100% growth broadly speaking.

Can we have the next one, please?

We have the next question.

Hi. Thanks very much. This is Sachin Gupta from Nomura. I have three questions. Firstly, just on the ARPUs in 1Q, there's been quite a large sequential decline. If you look at Telkom's sales ARPUs, blended ARPUs were down 20%. Given the competition was a bit more benign and there weren't major price falls, I was just wondering what drove this ARPU decline? Is it just a reflection of the quality of subscribers? Or is there something else to it?

Secondly, I guess is in your guidance for Telkomsel of mid single-digit revenue growth, I'm just wondering what are your expectations for prices and ARPUs for the rest of the year?

And my last question is just on slide 38 in the business development section, you talk about setting up Mitratel DMT. Just wondering if you can give us any more information on that? When would that entity be set up and would the whole tower portfolio be migrated to that place? Thanks.

Okay. Thank you. I think in the case of the Telkomsel question we'll pass that directly to Telkomsel. Probably Sarwoto would be able to answer that first for you. So talking about the ARPU decline of 20% and then also going on for the revenue guidance and also ARPU guidance for 2009.

Yes, ARPU Telkomsel has declined 20% and if you compare with Q1 last year, that definitely the effective tariff has also declined minus 70%. This is the main reason why ARPU Q1 is minus 20%. If we talk about ARPU for the next, I think we are confident that with our effort on network expansion and also a new promotion and so on, we can expect 6% to 8% will be achieved on our next ARPU. Thank you.

Thank you, Sarwoto. Regarding DMT Mitratel succession, I'll take on that question myself. Just to bring you up-to-date, Telkom has an aspiration to consolidate its tower business underneath Dayamitra, which is the Company named Mitratel.

We have begun working very closely with our colleagues at Telkomsel as this is a third party transaction between two legal entities. We have appointed a financial advisor (inaudible). Telkomsel has also appointed a financial advisor to represent them and both parties are in the case of discussion right now for the proposal of the due diligence process.

As you can understand, the number of towers involved are quite significant so we expect that this due diligence process will take at least five to six weeks. After that, the shareholders will be getting together, I'm talking about the shareholders of Telkomsel, to discuss the most appropriate structure for the transaction or consolidation of towers. I hope that answers the question.

Operator, the next question, please.

Let me add another one. Actually it's interesting. Basically the price war yes, it's benign, but bear in mind that actually Q1 is still affected by the price war, to the promotion pictures that has been launched in Q4 2008. So in fact the impact of the price war is still being felt until Q1 2009. And yes, we expect and we see that actually starting in Q2 we expect that it will stabilize (inaudible).

Thank you, Rinaldi. Operator, the next question, please?

We'll move on to the next question.

Hi, good afternoon. It's Luis Hilado from JPMorgan. I have two questions, which are just follow-up questions. Essentially, is it fair to say that for second quarter we should see, as you mentioned, revenue rebound rather than increased churn in terms of the subscriber base?

Second question is with regards to Mitratel, or rather the tower business in general. We heard yesterday from Excelcom that TELKOMFlexi is one of their new tenants for its own tower business. Why is this the case given that we would think that Telkomsel has a more extensive network?

Okay. Well, the first one we'll address is the second quarter revenue rebound for Telkomsel and what do you think our views are? Sarwoto?

Yes, I think we have a positive indication on Q2 and (inaudible) quarters that's a very good indication. We also expect that on April onward it will be a positive growth of our revenue.

Thank you, Sarwoto. For the question regarding which towers Flexi are utilizing right now I think I'll pass you on to (inaudible).

Yes, hi it's (inaudible). It is true because in some big cities in Indonesia, that's like Jakarta, Surabaya and Makassar, we [witnessed] the high density traffic in our BTS in the inner city but not any BTS from Telkomsel we can (inaudible), that includes Mitratel too, but (inaudible) our revenue and our customer experience we must join Telkomsel to use BTS in the --

Excel.

Excel, sorry. It's no choice for us. We have to save our customer and our revenues.

I think it's also worth noting that (inaudible) is the name of the game. We also -- Dayamitra is also getting few contracts from Excel on having the tower (inaudible).

Thank you (inaudible). Thank you, Rinaldi. Moderator, the next question, please?

Certainly, sir.

Hi. Karen Ang here from Citi. I have three questions. First, it seems that you're alluding to a second quarter recovery. Is this more from usage recovery or have you started raising prices?

The second question is relating to your radio frequency fees for 2009. Given your network build-out plan for Telkomsel for the year, what would you estimate to be your full-year frequency fee expense for the year?

The third question is more a housekeeping question. I noticed that there seemed to be some reclassification in the way you break down data and Internet revenues in your footnote, i.e., there seems to be some changes between how SMS revenues and data revenues are presented. So in that case, can you give me what the quarter SMS revenue was for fourth quarter '08? Thank you.

Thank you, Karen. Karen, maybe I could make a point regarding the second quarter recovery. I think (inaudible) highlighted by Sarwoto. To be honest with you, on this call we'd like to refrain from looking at revenue per quarter. We'd like to focus on the yearly numbers and I think historically you will note that first quarter results are not as exciting for (inaudible) as they normally are from the second quarter, third quarter onwards. So I think we will try to refrain from focusing on second quarter recovery. I think perhaps Sarwoto did the job of answering that in the earlier questions.

So I'll move straight on to the [BHB] and ask Sarwoto again whether there's any updates there on the frequency fees. Thank you.

Thank you, Karen. I think the driver for second Q performance will be the combination of increasing usage and also try to maintaining price. There is a very important strategy right now because you know that we always aware about the price wars (inaudible) maintaining. But again, the driver will be our effort on how our customer can increase the usage.

About the frequency fee, we know that there is a change of the formula from [PRH] basis to bandwidth basis and we expect that for frequency fee costs, it will be maintaining [flat] from 2008.

Okay, thank you. Now we'll pass on to Sudiro for the last question.

Yes, Karen, thanks. That (inaudible) in Internet revenue (inaudible) 2009, basically we are planning to get around 8.5 trillion in the whole of that Internet so mainly consists of datacom around 2 trillion, Internet around 3.7 and (inaudible) 1.9 billion. That's the breakdown.

Okay. Thank you very much, Sudiro. Operator, can you move onto the next question, please?

Please go ahead.

Hi there. It's Colin McCallum from Credit Suisse. Three questions from me. First of all, just on Telkomsel. It seems that the other players in the market, particularly Indosat, are trying to reduce calling card behavior by lowering the discounts on new starter packs. Is that something that Telkomsel is following? And I guess if you're not willing to follow, is there not a risk that Indosat might start increasing the discounts on starter packs again in response? That's the first question.

Secondly, if I can just confirm, it looks as if your Flexi revenues were flat Q-on-Q into fourth quarter and fell into first quarter of 2009. Can I just confirm that that's correct? And maybe you can just outline for us your strategy for Flexi now there appears to be ex-growth.

Third question is back to Telkomsel. Is it sensible to spend IDR1.3 trillion to IDR1.5 trillion on CapEx if mid single-digit revenue growth is all but achievable? It doesn't seem like a big step down from what was spent in 2008 yet obviously it looks as if you're expecting fairly low growth. If you could just touch on the rationale for that, please? Thank you.

Thanks, Colin. For the first question I'll pass on to Shin Loong to answer the question regarding the calling card.

Okay, hi. This is Shin Loong. On the calling card, we actually have started as early as Q4 last year to stay away from the calling card business. There is a combination of actions that we have taken including working closely with our dealers to make sure that the cards that we sell are to real customers. So because of that, our Q4 and the Q1 database have been relatively clean, so that's why you -- and those are some of the reasons why our Q1 subscriber base have been quite nice, as far as I'm concerned. So in short to repeat myself, we have stepped away from the calling card since fourth quarter last year.

Thank you, Shin Loong. I'll now move to Rinaldi to discuss the issue on the Flexi revenue q-on-q.

Yes, I think that's correct. I think the Flexi revenue has been quite flat. There are a few reasons. One is actually if you look into the pricing tariff on Q1 2009 it's much lower than the tariff (inaudible) 2008 so that's declining quite significant the tariff. So although the (inaudible) driver but the revenue is flat.

So we still maintain our strategy for Flexi as basically also the competing brands and also to capture the lower segment of the market. So that also is tougher for our GSM operations. We still maintain a moderate (inaudible) of capital expenditure. It's not going to be extraordinarily high so we will focus on expanding the capital expenditure in our cellular and GSM businesses. So that is basically our strategy going forward. So Flexi is still on that (inaudible).

Thank you, Rinaldi. I'll now pass on to Sarwoto to discuss the CapEx (inaudible).

Okay. Thank you. In addition to what Rinaldi strategic comment about CapEx, I think that maintaining CapEx in the level of IDR1.3 trillion to IDR1.5 trillion for Telkomsel is more strategic reason, because in the time that 2009 is still in the crisis and we look also at the condition of our competitors, I think it is time to use our CapEx more effective. We're trying to have more cost-effective saving in CapEx that give a very strong foundation to Telkomsel to move from basic services to broadband. And also, at the same time, we're expanding in the area that's still a lower penetration for basic services and also to have a better quality. I think that this is strategic foundation that makes Telkomsel strong in the future. Yes, thank you.

Okay, thank you very much.

Actually on the CapEx, there are a few things that I need to add.

One of the common measure of the CapEx is a CapEx over the sales of (inaudible). If you look into that actually, we expect that it will keep on [plan].

Second. Actually, Telkomsel is adding new vendors, coming from China, so we do expect now being calculated that there would be a few savings, quite a big savings on the CapEx subs on the Telkomsel side. So with the same amount of money or even a slightly less amount of investment, we would be expecting a higher number of capacity and coverage (inaudible) for 2009.

I would like to add something. On the (inaudible) part, I think if you may know all right that we are participating in the [new] (inaudible). I think it's in that, we're also using the hi-tech (inaudible). I think we are talking about (inaudible) being used to (inaudible) area.

With the same amount of money, definitely we can do it more. The possibility of the [savings] is also still possible. We haven't really finalized what is the end CapEx going to be utilized within this year, but for sure with all this combination, Chinese vendors, new technology being used, I think it's going to be -- the IDR1.3 trillion, IDR1.5 trillion is a figure that we could see slightly different at the end of the year, yes.

Thank you. Operator, can we have the next question?

Certainly, sir.

Yes, hi this is Navin Killa from Morgan Stanley. Thanks for the conference call. I had actually three questions.

First, just a small (inaudible) for broadband subscriber net additions. They seem to have picked up towards the middle of last year and then seem to be lower on a quarter-on-quarter basis for the last couple of quarters. I just wanted to understand whether there are any hurdles there and how are you trying to address that?

The second question I have is with regards to the mobile industry. Obviously, we have a bunch of small operators. With the kind of market situation, there is always a possibility of consolidation. How would you like to position Telkomsel in the eventuality of industry consolidation?

And the third question, which kind of relates to this, is you've obviously indicated your interest in international expansion and in particular the reference to Iran. If you could share with us your latest thoughts, both with respect to the Iranian opportunity, and more broadly with regard to your national ambitions? Thanks a lot.

Thank you, Navin. We'll go straight onto the broadband subs by passing onto Nyoman, our Director of Consumer.

Thank you.

Thank you, Nyoman here. Our line interest is for broadband as an (inaudible) grew around 168% and q-on-q, (inaudible) 145%. Yes, if we look the growing, comparing the end of this year -- last year I mean, comparing with q-on-q, this will be slowed down. It means -- if you look at the market share, we still (inaudible) as the market leader, especially in Jakarta.

And as information, last month we suppose [Multi Speed] Speedy and with this (inaudible) we hope we can compete, especially with Fastnet because we capture the subscriber with lower segments. Thank you.

Thank you, Nyoman. I'd like to answer the question on the international expansion first then pass to Rinaldi and then maybe anyone else who'd like to step in regarding the mobile industry issue and where that would put Telkomsel.

First of all, Navin, I think we've discussed this prior in one of our four meetings. We set a basic criteria for international investment as far back as 2007. And this was basically looking at companies that we felt satisfied specific EBITDA margins of at least 30% or more. We were looking at companies that were close in culture to the Republic of Indonesia. We were looking at cellular, data and broadband, also content application and IT services. We looked at companies that we could feel would complement the Telkom competency and where we could actually come in, either as a majority or a strategic minority, where we could offer skills and services that would benefit not only the Company but ourselves.

So that would be the general criteria that we would set for our international expansion.

(Inaudible) commercially around all that criteria. And one issue that we had to face then in that particular area was concerns that some of our shareholders had in regards to the political implications and the sanctions on Iran.

However, we are pleased to say that we have kept this very much in our minds. We've discussed this with all the various shareholders on a number of roadshows and also with our majority shareholder, and we are taking further advice before we proceed to the next step. So that would answer the Iran.

In regards to the wider network, it's worth bearing in mind that Telkom has looked at opportunities in Sri Lanka, has looked at opportunities in Vietnam, has looked at opportunities in Bangladesh and in most cases we have decided that maybe some of those opportunities were not appropriate for us at the time.

I'd now like to pass on to Rinaldi for (inaudible).

Thank you. I think this is good question and not easy to answer.

On the -- as we understand that, on the mobile industry, GSM and (inaudible), we look definitely (inaudible) we have to look into our -- what we have here. On Telkomsel for sure we already have all the resources that we need; a large spectrum etc., etc., wide coverage, etc.

However, there are also a few other strategic reasons if consolidation is to happen because basically, in the future [frequency] and other infrastructure and competition is also coming into play. So how would we phrase the future? If consolidation happens, basically then the number of players will be reduced and that would make the market more stable.

So for the time being, from the Telkomsel's point of view, we are very passive. We are not really looking into it. And also not only in the GSM but also in the TDMA, definitely consolidation will also happen there. I think our stance is also like that. We are monitoring, we are looking closely into what is happening in the industry and how other players are looking into the potential consolidation in the industry in the next -- basically this year and next year.

So our stance is, of course, we are business people. As long as (inaudible) is good, as long as we see opportunity in which we can grow further, we'll look into it. But, however, for the time being, we are not going aggressive.

Thank you, Rinaldi. We'll now move on to the next caller, thank you.

Hi, this is Arthur Pineda from RBS. I have three questions.

Sorry --

The first is --. Can you hear me?

Will you repeat that?

Yes, this is Arthur Pineda from RBS. I have three questions. Firstly, on your fixed line side, what are your expectations for this going into 2009 and what initiatives do you have in place to actually stabilize this? It's been a problem for the last year or so.

Secondly, with regard to Telkomsel in the first quarter, it seems that you've lost the most versus your peers during that period. So what has changed and how are you different and what can you do to address this?

Third question I had is with regard to Telkomsel again. You've been adding subs at a record pace, relative to peers, and you've not really been able to monetize this. Isn't it just better to focus on maximizing yields and not really growing the subscriber base at this point, given the cost implications of that?

Okay, thank you very much, Arthur. Well I'll move onto the question number one for Nyoman, which is really looking at the fixed line business and what is the strategy for stabilization and expectations for 2009. Nyoman?

Thank you, Arthur. On the fixed basis itself, as we know, we are almost down but we try to different and maybe we'll be growing. And two months ago we launched what we call fixed business improvement program and we are happy for the customer who have already taken this (inaudible); there are around 220,000 already. The revenue growing around 9.47%. If we compare with the total fixed business, of course it's still slower; there's more. But at least this is the signal we hope the fixed business will be increased going forward. Thank you.

Yes, I think on the fixed business, that is only one area. As we stated in the speech that what we do is we like to strengthen our Legacy and grow them with. So, of course, as what happens in maybe other part of the world, the voice revenue of fixed wireline declined. So to mitigate that, we introduced a flat tariff in the (inaudible). That way, we do expect that the decline is not as fast as before.

In fact, we did expect the decline was only around 9% but you'll see the number, it declined higher than that, it's around 17%. So that we have to stop or we have to [devalue] it. So that is the strategy for the voice wireline.

However, still on the wireline, actually we are upgrading all of our networks now to be able to serve the whole 11 operators and also to offer the new services, New Wave services. And that is ongoing. So those are the strategies that we are now working closely.

We basically set Flexi as a standalone business unit, so we can concentrate Flexi by itself and we can concentrate on the fixed line, broadband and other businesses with more focus. So we do expect that if we execute, and we believe that we can execute this strategy, the discipline will be definitely (inaudible). Yes, it is short-term challenges but we believe that it will be a long-term (inaudible). I think that is the strategy for the fixed line.

We still have broadband, we still have enterprise, we still have network and other businesses that we still continue to grow (inaudible). The only issue is fixed wireline voice. We will face it. We are doing everything to stop -- not to stop but to reduce the fixed line. That is the whole strategy that we are now doing.

We upgraded our IT system. Now we can offer a bundling or basically one bill between fixed line and other services. And in stages, we will do a single billing in all of our product lines. That is basically the strategy going forward. Thanks.

Thanks, Rinaldi. Arthur, we'll try and answer the question. There's a little bit of confusion here about what we lost in Q1 against competitors but I think Shin Loong will try and address this (inaudible) if that's the case. But we'll also go back and come back to you on the monetization of the subscribers. Please Shin Loong?

Okay, thanks. Maybe if we can get a little bit more clarity on the parameters you're looking at with respect to the second question. Maybe you could answer that?

But let me go to the third question, whether we are able to monetize the new subscribers that we have. Internally, we monitor the quality of our subscribers very closely. We have our ARPU and the [lessees] according to the length of service. And from what we have seen for those that are within the first three months, we are fairly happy with the revenue that they have brought in.

So I think the first is I want to clarify that if there's any thinking that our subscribers are phantom, they are not. And many of them are actually high ARPU customers.

The second point I'd like to bring out is that we have (inaudible) internally we have 1 million subscribers, how come we don't see any results? How come the revenue did not go up by 10% and so on?

Mathematically, our base is over [17] million, so 1 million contributes to 1%-plus. So you need to have about 2, 3 million net adds and every one of them on the same ARPU as our existing customers before we are able to have results that are stronger than the days in a month. So every day in a month accounts for about 3%, so we need about 3 million just to be able to overcome that.

So basically, again a very long answer to that -- to your question. Our subscribers are real. They are not phantom. We monitor their ARPU and the usage and it so far has been reasonable. We were, perhaps, a little bit surprised at some of the higher ARPUs are coming in. And overall, the recharge for the prepaid have been growing very strong and the usage has been strong, so we are optimistic that we will be -- we are on the right path.

Thank you, Shin Loong. I'd like to suggest at this point that Arthur, you might send us an e-mail regarding your second question, so at least we can get back to you with the right statistics to answer that question.

Moderator, I believe that we are almost at the end of the session. Do we have time for one or do we close now the Q&A?

Would you like to take one last question, sir?

Okay, we'll take one last question, thank you.

Thank you.

Hi, it's Kelvin Goh from CIMB. Thanks for the call. I've got two questions. The first one is on Telkomsel's revenue pattern. I'm wondering if there's any -- Shin Loong, last quarter you said that there could be some weakness in the commodity-driven areas. I'm wondering if you can give us some details and further elaborate on that? And that's the first question.

Second one is on your tower Mitratel business. Could you give us what your plans are on your towers? Do you plan to open up your entire portfolio of towers to third parties, and whether or not you plan to hive off this part of the business? Thanks.

Okay, thank you very much. Well, I'll go back to Shin Loong first of all regarding the revenue question on Telkomsel. Please Shin Loong?

Yes, I think the previous dialog was whether the fall in the CPO prices have an impact on our sales and usage and revenue. We have not seen that, so that was the good news. Whether it's because it was offset by the increase in the election spending, we don't know; one can speculate. But, overall the CPO area seems to holding up quite well so far.

Thank you, Shin Loong. I think I'll answer -- I'll take the question on the towers of Mitratel. Kelvin, it's worth bearing in mind that we have only just begun the process of due diligence (inaudible). What the strategy is moving forward is where appropriate we shall open up the towers in areas where we feel that those areas would be economically logical for us to do so.

In areas where it doesn't make financial sense and where we find that there may be a lack of usage on those towers, in that case, we would not be in a position to open them up to third parties. But wherever we feel that it's economically viable, we shall do so. It won't be the whole network all at once. It'll be done over a period of time in a series of phases looking at Java, non-Java and other areas, subject to where we feel the business strategy will lead us.

So I think from that, if you don't mind, operator, if nothing else we would like to close the Q&A at this point. Is that okay?

Yes, sir. I'll pass the call back to you, Mr. Burke.

Thank you very much. Ladies and gentlemen that really today ends the Q&A session for today and that ends also my role as the moderator. Thank you very much all of you for your participation. But before we end the conference call today I would like to ask our CEO one more time for his closing remarks. Rinaldi, your closing remarks?

Ladies and gentlemen, well I would like to thank you all for participating in the conference call today. The key message that we would like to convey to you is as follows.

Despite increased competition, pressure on pricing, global financial downturn and other external factors, Telkom has continued to lead the Indonesian telecommunication sector. With our aggressive strategy for 2009, we intend to build a solid foundation for future growth and maintain our leading position in market share which should result in revenue growth.

We, as a management team, remain committed to continue to build new services and products that shall cater for the growing needs of our customers. We shall achieve this by defending our Legacy business and growing our New Wave businesses.

Finally, the management team shall not lose sight of keeping a strong control on expenses. We believe that the combination of aggressively building the future revenue streams of Telkom and remaining aware of expenses is the right strategy.

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

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