Telkom Indonesia (Persero) Tbk PT (TLK) 2009 Q2 法說會逐字稿

This is Premier Global Services. Please stand by. Good day everyone and welcome to the Telkom 2009 second quarter results 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. Please go ahead.

Thank you very much. Ladies and gentlemen, welcome to the Telkom Indonesia first half 2009 results conference call. Before we begin, I would like to remind you that you may find copies of our earnings release and info memo on the Investor Relations section of the Company website at www.telkom-indonesia.com. Today's presentation is also available on the webcast and an audio recording will be provided after the call for the next seven days.

We shall begin the presentation today with our CEO, followed by the question and answer session. Before starting, please allow me to refer to the Safe Harbor statements for today's conference call.

Certain 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 developments to differ substantially from those expressed or implied in these statements. The Company does not guarantee that any action which may have been taken in reliance of these statements.

Ladies and gentlemen, and all participants, joining us today are Telkom's Board of Directors. First and foremost, Mr. Rinaldi Firmansyah, our President Director and Chief Executive Officer; Mr. Sudiro Asno, as Director of Finance and Chief Financial Officer; Mr. Arief Yahya as Director of Enterprise and Wholesale; Mr. Nyoman Wiryanata, as our Director of Consumer; Mr. Faisal Syam, as our Director of Human Capital and General Affairs; Mr. Indra Utoyo, as our Director of Information Technology and the Chief Information Officer; Mr. Prasetio, as our Director of Compliance & Risk Management. Also present are members of the Board of Directors of Telkomsel; Mr. Sarwoto Atmosutarno as President Director; and Mrs. Triwahyusari, as the Director of Finance.

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

Thank you, David. Ladies and gentlemen, good afternoon everyone. On behalf of Telkom [and its employees] I would like to thank all our valued shareholders for their continued support and dedication to the Company.

Telkom is the leading Indonesian telecommunications operator with a positive balance sheet and strong financial fundamentals. Our dominating presence throughout Indonesia has allowed us to continue to reach new subscribers and have maintained a strong market share, taking into account the strong fundamentals as reflected by our performance.

As you may be aware of, the Indonesian telecommunication industry, with 11 players in the field, has experienced extensive competition that caused a severe price war, starting from Q3 2007 and continued until the first quarter of 2009. In the most recent quarter, we saw improved stable pricing conditions among most operators. And we hope that this major industry pricing approach is maintained for the future.

Currently, fixed line and cellular subscribers combined are over 70% penetration in SIM cards, in which Telkom still maintains a dominant market share, both in cellular and fixed line. We would like to emphasize that our combined subscribers are close to 100 million; 76 million of cellular; 13 million in wireless; and 9 million in the fixed line.

During the last quarter, Telkom continued a clear strategy of increasing capacity, coverage, quality and level of new business. This strategy, coupled with an improved competitive pricing environment, has contributed in a positive result for first half 2009, compared to the same period last year.

Ladies and gentlemen, let me reiterate again that our current strategy is to continue strengthening our Legacy business and aggressively grow our New Wave business. Based on this strategy, we have segmented the revenue into Legacy and New Wave services. Legacy services are derived from the basic 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 in broadband services, IT services and other value added data services. We have also focused on developing broadband services as part of our New Wave business and maintain our strong focus on retail customers, corporate customers and small businesses.

In order to achieve the mentioned above strategy, we are currently implementing transformation of our (inaudible) system to align with the (inaudible) of business environment. Among the initiatives in this transformation, we have established (inaudible) and separately as a standalone business decision.

We also have continued to integrate our operation unit under one directorate beginning of July. Our consumer access unit was integrated into network and services.

In (inaudible), we continue our efforts to offer leading edge network IP services, building connectivity and applications offered to corporate customers. To date, we have won a number of projects, including among others, (inaudible) and [settlement] for the [safe] on banks, which commenced in beginning of July 2009. We also developed bundling connectivity and applied services for micro banking to enhance their services.

Overall, the performance of Telkom's core business is mainly fixed wireline, fixed wireless, cellular, network and interconnection, data and Internet. Data and Internet indicate that we maintain a strong market share. In the first half of 2009, Telkom had significant customer growth in almost all of our business segments.

Before reviewing the financials, I would like to inform you of a few key strategic corporate developments during the last quarter.

One, METRA or PT Multimedia Nusantara, a 100% subsidiary owned by Telkom, has signed a conditional sale and purchase agreement to acquire the 49% share of Infomedia Nusantara, owned by Elnusa. Therefore, consolidating this strategic business to a 100% ownership. This agreement is in line with the Company's strategic plan to accelerate its business transformation towards telecommunication, information media and entertainment. And also to further develop our BPO business process, outsourcing businesses within the corporate sector.

Two, Telkom has also signed an agreement of frame supply and deferred payment arrangement with HUAWEI Investment Tech (inaudible) facility amounting to $300 million, with a two to three years' tenure. This facility is to finance all projects engaged by HUAWEI. With this agreement, the Company improved the financing schemes available to Telkom.

Three, the Indonesian government has announced the results of the WiMax bidding process for providing nationwide broadband wireless access and Telkom has obtained 12 zones out of the 15 available for the 3.3 GHz spectrum with seven licenses. And five licenses from the (inaudible) bidding on the 2.3 GHz spectrum.

Broadband wireless access licenses for seven zones covering Jabodetabek and Bantan, North Sumatra, Middle Sumatra and South Sumatra, West Java, East Kalimantan, and West Kalimantan. That was in the 3.3 GHz. Meanwhile, five zones on the 2.3 GHz cover Middle Java, East Java, North Sulawesi, Papua, and Maluku.

Ladies and gentlemen, I will now present the highlight results for the first half of 2009, in which we see that we see a good customer growth. As of June 30, 2009, the fixed wireline business maintained a total of 8.7 million subscribers; an increase by around 1% compared to the same period in 2008.

The fixed wireline voice business recorded an ARPU of IDR114,000, a decrease of 19%. In order to mitigate and compensate the decline in fixed wireline voice revenue, we launched a marketing program called fixed business improvement program, or flat tariff, where these fixed wireline customers can select one of seven packages of monthly payments, ranging from IDR65,000 to IDR1.5 million. And with these benefits such as free monthly subscription charges and extra usage for local calls, as well as long distance.

As a result from this program, we have noted a positive growth in revenue of around [6%] specifically within the customer base that have subscribed to this program.

As of June 30, 2009, Flexi recorded a total of 13.5 million subscribers, an increase of 83% compared to the same period last year. Flexi is supported by a nationwide network of 4,943 BTS. The number of BTS increased by 85%.

It is also worth noting that the MOU of Telkom Flexi increased by 42%, to 8.6 billion minutes from 6.1 billion minutes, compared to the previous year. The blended ARPU for Flexi decreased by 43% to IDR23,000 as compared to IDR41,000 a year ago. Flexi still maintains its leading position as the market leader in the fixed wireline market.

Then we are also pleased to confirm that Telkomsel is still the clear market leader in cellular GSM, with a 51% market share. The Company increased its subscribers by adding a further [10.7] million new subscribers in first half 2009, taking the total number of subscribers to 76 million. And this was a substantial growth of 45% compared to the previous year.

The cellular MOU and the number of BTS also increased by 112% and 24% respectively. The aggressive price war that took place among the Indonesian mobile operators from 2007 and throughout first half of 2009, still put an increased pressure on cellular margins. As a result, our cellular blended ARPU decreased by 25%, from [circa] IDR63,000 to IDR47,000 in the first half 2009.

As part of our ongoing strategy, we continue to aggressively develop our Telkom Speedy product. This is the major contributor to the growth of our New Wave business. We intensified promotion campaigns in 2009 by educating the general public about the broadband Internet, and entered into new strategic partnerships with PC manufacturers to further develop Speedy as a strong national brand, together with Flash.

Telkom Speedy is now available in many cities around this country and we are still committed to aggressively expand this product for future growth and revenue growth. As of June 30, 2009 Speedy recorded a total number of 816,000 subscribers; a significant increase of 107% compared to 393,000 subscribers in first half 2008. And the revenues were in excess of IDR1.18 trillion.

Ladies and gentlemen, in discussing our financial highlights for first half of 2009, I shall briefly describe and try not to repeat all the numbers that you may have read in the earlier announcement of the info memo that is published on our website.

Total assets increased by 9.6% to IDR94.2 trillion. Total liabilities increased by 8.2% to IDR51.6 trillion. Total equity increased by 12.3% to IDR34.1 trillion. Operating revenues consolidated increased by 1.5% to IDR30.7 trillion. On a year-to-year basis, total expenses increased by 7.6%. EBITDA increased by 0.2%. And net income decreased by 4%.

Our first half 2009 performance showed a positive development in the last quarter. Operating revenues, operating income and EBITDA increased by 8.6%, 18.9% and 13% respectively. Meanwhile, net income increased significantly by around 45%, and EBITDA margin reached 60.6% (sic - see presentation) or increased by 2.3%. These are strong signals that we are on the right track.

As previously mentioned, our current strategy is to continue to strengthen the Legacy business and aggressively grow our New Wave business. New Wave business revenue grew by 52.5%. And as a contribution to total revenue, this increased from 6% in first half 2008 to 9% in first half 2009.

Meanwhile, our Legacy business decreased slightly by 1.7%, mainly due to the decline of interconnection tariff and (inaudible) from fixed to mobile substitutions.

The decline of the Legacy business revenues were partially offset by the positive increase in the New Wave revenues.

A main revenue contributor for the first half 2009 were from cellular 44%; data, Internet and information technology 26%; fixed line 14%; interconnection 13%; and network provision 2%.

Meanwhile, the total consolidated operating expenses increased by 12%. The main factors were an 18% increase in depreciation expense; 14% increase in operation, maintenance and telecommunication service; 7% increase in marketing expenses; 6% increase in general and administration expenses. However, it is worth noting that there was a decrease in the personnel expenses.

The Group capital expenditure amounted to IDR9.1 trillion in the first half of 2009.

To minimize the foreign exchange impact to our bottom line, we have successfully lowered our US dollar debt denomination by a further 12% in first half 2009. And the portion of US dollar debt in first half 2009 decreased from 30% to 18%.

In conclusion, we are pleased to report the results for the first half of 2009. And we as management team believe we are on the right track to further enhance the revenue and the value. The Company has proven that, even within the era of strong competition and [hyper] competition actually, and a global financial crisis, we have steered a course that has delivered good results to our stakeholders.

Moving forward, we must not forget that competition may continue to increase. So, as a management team, we are committed to maintain the strong position of Telkom in there and dominant position of Telkom in the [innovative] market space.

Ladies and gentlemen, that ends my presentation on the first half results of 2009. Let us continue onwards now with the question-and-answer session which shall be moderated by David Burke, our EVP for Strategic Investment and Corporate Planning. Thank you.

Thank you, Rinaldi. Now let's open up for the Q&A session. Please may I remind you that before raising your questions we would appreciate it if you clearly state your name and your company. Please note that the BoD will answer directly after each question is posed by the participant. So operator may we have the first question please?

Thank you Mr. Burke. (Operator Instructions). We will take the first question.

Hi, thanks very much, this is Sachin Gupta from Nomura. If I can ask three questions. There's a little background noise, so I don't know if you addressed that in the opening remarks, so I apologize in advance.

Firstly for the Telkomsel business, it looks like the operating and the maintenance costs they have come down a fair bit on a sequential basis and on the year-on-year basis. So I just wanted to understand that given your MOUs have gone up and subscriber net additions are positive as well, what led to this drop in maintenance costs and operation costs please?

Secondly, just on the Flexi business, the net adds seems to -- the net add run rate seems to have slowed down to about 90,000 or so, but looks like the revenue growth was quite strong. So once again any more color on that please. I'm not sure if you talked about that previously, I just didn't hear it.

And lastly, just your -- just interested on the competitive landscape over the next three to six months, obviously given the recent Management changes at Indosat, and potentially (inaudible) slipping away from capital as well. I was wondering what are your expectations and what's the Company doing to prepare for it? Thanks very much.

Okay, thank you very much Sachin. I think for the question on T-Sel as regards why the OpEx and maintenance have gone down, maybe we can ask [Shin Lung] or Sarwoto (inaudible). We can still take that question first and then we'll move on to Flexi with (inaudible), and maybe I'll answer (inaudible).

Okay, thank you. With regard to operating and maintenance why in Q3 it's [suddenly declined] compared to Q1. So in the Q3 in the (inaudible) our operating [numbers] decreasing value of operating (inaudible) for our (inaudible). It's around about [IDR140 billion] so we will get one adjustment in April.

Okay, thank you. And for (inaudible) please?

Sorry, apologies, I didn't hear that.

Sorry I think Telkomsel has been able to renegotiate its operating elements across most of the vendors, and that created a safety cover of [IDR140 billion].

Thank you. For the competitive landscape I think we'll stay with Telkomsel with Shin Lung if you could give us an overview (inaudible).

I didn't quite catch the question.

Well the question was regarding the competitive landscape; what do we expect (inaudible) Indosat and also there's Excelcom picking up some -- what do we expect (inaudible)?

Hi this is Shin Lung here. Interesting question; what do we expect going forward? Probably the same as what I have shared last quarter, which is optimistic but cautious. The price drop has declined, there are still price competitions based on specific promotions but those are very narrow segments. So we can live with that.

The coming (inaudible) normally for the Q3 should be a good quarter, so from that sense we are optimistic. Q4 will depend on the economy, again there are reasons to be cautiously optimistic. And if the operators do not make any silly moves we should be okay.

Thank you Shin Lung. The last question is really regarding Flexi and the net adds were slow compared (inaudible), however the revenues are strong, so (inaudible) if you could give some light on that?

Yes, okay thank you. In terms of Flexi (inaudible) net sales, you do see a growth, a little bit slow offering with Q1. Why? Because our strategy, as you know, last year we focused to subscribe (inaudible) for the net add lease and so on. But this year we focused on revenue. If we look Q1 to Q2 this year our -- with the new blended increased 10%. So that's why our net adds are not so high as growing comparing with Q1 this year. And what we could do this year, we hope this year maybe our net adds around 2 million until 3 million.

Thank you (inaudible). May we have the next question please?

Please go ahead.

Hi, Karen Ang from Citigroup. I have two questions. First, if you can share with us what the trends have been so far in the first few months of the third quarter of 2009, particularly on revenue per minute trends and demand trends.

The second question is I notice that you cut the CapEx guidance for the full year for Telkomsel to $1.3 billion. Can you please shed some light as to why you expect to spend less in terms of CapEx for Telkomsel? Thank you.

Thank you Karen. I'll go through Shin Lung in regards to maybe the Q3 RPM to see what his views are on that one. And then we'll move to (inaudible) to discuss the CapEx guidance.

We've just finished our first month of Q3. The RPM is still holding. We are waiting for the final results to come in. But overall I do not anticipate any decline in the RPM.

Thank you Shin Lung. (Inaudible)?

Hi Karen. So in previous quarters our guidance is fixed on the (inaudible) and you know that most of the CapEx in this year is [rated] with (inaudible), we also improvised (inaudible) vendors. But the difference is slower than the biggest vendor. So we renegotiated with the specific vendor and the [restart] is we can reduce, and we reduce and we anticipated that our CapEx will be lower than our guidance before.

So we do not cut the spending based on the capacity and coverage, but we make an addition investment going forward.

Can you share what your expectation is for the CapEx for 2010?

2010, I think we are now just entering into Q3 and we are going to discuss about the budget in the next one or two months so we are holding to answer that question until we are certain on our budget next year.

Thanks Karen. Can we have the next question please?

Hi, it's Kelvin Goh from CIMB here, thanks for the call. I have two questions, first one is on your margins. It looks like costs have been coming down very nicely, especially in the second quarter and you talked about your cost strategy. But do you see any reason to revise your margin guidance? Are you still seeing that it should decline 1 to 2 percentage points and that's for Telkomsel?

And perhaps you can give us some guidance as well for Telkom Group on the back of your strong margins?

Second question is on your power strategy, your plans to cover the Telkomsel towers, if there's any progress on that? Thank you.

Thank you very much. I think the first one we'll go to is maybe to (inaudible) on the margin in Telkomsel and then we'll take the Group question with Sudiro.

Hello Kelvin. In connection with the second quarter, yes it did slightly declined [by 100%]. No, (inaudible) because of we are now still repaying for the restart of the negotiation it was -- (inaudible). Also as the (inaudible) is not applied in this year, so we anticipate that it will be around [100%].

(Inaudible) did I hear you correctly that there will be a 1 point decline to the margin?

Yes.

Yes, we're saying that we're maintaining our guidance as at the beginning of the year for now, until we get results about the negotiation. [1%] yes of (inaudible).

Yes, however, for the EBITDA margin for the Group, our guidance is still basically flat as last year's, around [67%] because we believe that we can maintain the 55% (inaudible).

Thank you (inaudible). Kelvin, briefly on the towers, we've been working very close with our counterparts at Telkomsel, we are moving along quite well. We've executed a series of due diligence for the tower structure. We are hoping that in the next month or so we will sign non-binding terms of agreement for negotiations and that will then lead to the end of the year where we will hope to come to some agreement as to how that tower company will be structured. So we are making good progress. Thank you.

Next question please.

Please go ahead sir.

Hi it's Tim Storey from JP Morgan, thank you for the call. I had a follow-up question just on the margin and also on Flexi. First of all on the margin related to Telkomsel, if the operating and maintenance costs were basically cut in this quarter due to a one-time adjustment and your 68% EBITDA margin in the quarter obviously is quite an improvement. It just seems like your margin for the full year is probably going to end up coming out a little bit better. So I'm just curious, if you can explain a little bit more about why the downturn in the margin guidance?

Second question on Flexi. I believe your CapEx budget for this year is $110 million. And while you have seen a revenue pick-up quarter-on-quarter, year-over-year, your revenues are basically flat on your wireless broadband service. And given evidence of other countries, wireless -- fixed wireless services going into a declining trend, mainly because more often than not mobile or GSM tariffs are coming down much closer to the wireline tariffs. Can you give us some sense of how much more money you plan to invest into this business going into next year and beyond?

And then finally on your broadband wireless business, can I get some data points just with regards to how many customers; what kind of ARPU; what kind of revenue contribution you're getting? And if you can help out in terms of us giving us an idea of where those customers, ARPU and revenues are appearing in your financial statements that would be helpful as well. Thank you.

Okay, I think the first question, let's get this right, we have seen a strong EBITDA performance in the second half of the year in Telkomsel yet we are still providing the guidance that says that we are going to be around 1%. And I guess the question is, do we see, if we're strong in the second half, the first half of the year, is there anything that we should be aware of?

Okay, so I think for the point in the Q2 our EBITDA margin is higher because we do the [adjust] assessment, one-time adjust assessment related with our operating environments because we have to renegotiate with our vendors. So it reduced our OMM in April around [IDR140 billion]. But for the next quarter, as we maintained before, we still anticipate that our [preferential] fee will hit our EBITDA margin around 1% because we are not expecting that the new regulation will be applied in this year.

Okay, thank you (inaudible). Regarding the (inaudible) with Telkomsel if we may, the question on the broadband wireless Flash, just give us an indication of ARPU and revenues for Flash, (inaudible).

Okay. (Inaudible).

Okay then I'll move onto Flexi quickly, and as the question was raised q-on-q (inaudible) revenue-wise, but year-on-year looks flat. So how much more CapEx are we going to project on Flexi for, for the year? Maybe Faisal (inaudible) will take that one.

Yes Tim, for the first half of '09 around [IDR700 billion] and maybe we are going to spend more (inaudible) for the second half. So the total is around [IDR1.7 trillion] this year, for Flexi.

Okay, now I can go to Shin Lung for the growth on wireless, ARPU and revenues.

Okay, for the broadband wireless the first quarter ARPU is about [IDR82,000] a month. Second quarter it came down to [IDR47,000] and this is basically due to picking up the [second] tier customers. The revenue is about 7% of total operating revenue.

Thank you Shin Lung.

Sorry, can I just follow-up on that last point. Can we know how many customers you've got on Flash now please?

Customers on Flash.

Over 800,000.

Thank you.

Thank you very much. Operator next question please?

Please go ahead.

Hi, this is Navin Killa from Morgan Stanley. Thanks for the conference call. Two questions from my side. First, if I just look at the growth in your broadband subscribers and fixed lines, the pick-up I guess is still not as strong as we have seen in comparable markets in the region and across the globe. Is there anything that is preventing the acceleration of growth there either in terms of the way you price the product or I guess in terms of your network capabilities? So I guess the question there is, are you looking to accelerate that growth and how do you intend to do that?

Second question was, how do we look at your balance sheet and dividend policy both in terms of your share buyback and dividend payout ratio for this year, especially now that earnings look to be growing pretty nicely back, CapEx is coming off and clearly your gearing levels remain low. So how do you look at total shareholder returns in this context? Thanks a lot.

Okay I'll start off with the Speedy question with (inaudible) first of all and then we'll move on to Sudiro with the dividend policy and shareholder returns.

Regarding fixed line broadband Speedy, comparing Q1, Q2 actually our subscriber (inaudible) increased 41% from [21%] and Q1 and Q2 100%. And if we can bring also [delays] year-to-date last year, our subscribers increased 107%. In terms of revenue also increased 108%.

So, as you mentioned, is it due to network capability. Until now our network capability comparing with other competition (inaudible) from our customers, our networks fare better than them. And as far Rinaldi mentioned, we maintain our strategy to bundling between Speedy, [ASDP] and our laptop, netbook, notebook we just start at July 1, and we hope maybe this year we can subscribe more data than Q1 and Q2.

Thank you (inaudible). Sudiro, dividend policy and shareholder returns?

Basically on the fixed line broadband, actually one on the pricing we have lowered the pricing in the first half by around 20% to 25%. And even in the [Greater Jakarta] actually the (inaudible) was higher. So that is basically on the pricing [search] (inaudible).

And the network, we are currently building a very strong network basically on transmission and transport. So we don't see any problems in the network capability and network quality, and even we are building a strong network to support our Flash broadband, so that's why you saw -- we saw Flash increase in the Flash subscribers.

So going forward, we believe then bundling with other services and with PC we will still grow aggressively to catch all the subscribers. For your information, currently the penetration of our Speedy is already 9% of the fixed line subscribers, we have 8.7%, and Speedy subscriber is around 9% of the fixed line subscribers. So it's definitely -- we will pursue more of the fixed line in this area before anybody else is being here.

What is the dividend policy treated? Basically even though our difficulties are still low, and also our (inaudible) is still low, but because of the -- now we are facing the strategy of the financing [to the sources]. So I think basically we will maintain the dividend policy last year around 55% for this year, for the next year.

And basically we also still have (inaudible) until December of this year, but in the implementation, basically we (inaudible) the implementation of the (inaudible) basically. Thank you.

Thanks (inaudible). May we have the next question please?

Please go ahead.

Hi, good afternoon everybody. This is Ken Yap calling from Macquarie Securities in Jakarta. I've got a couple of questions. Firstly, can you please give an update on what is the outlook and guidance for 2009 for the PT Telkom level?

My second question is basically for Telkomsel. Can you please explain a bit more on the rationale of basically targeting 50% of total net adds among the big three as a target? From what we have seen from your competitors, they have stopped focusing on net adds as a target and they're more than happy to have negative net adds so long as the revenue is protected.

And then thirdly, I would like to get some idea as well on the cuts on what the ARPU trend for Telkomsel would be going forward? As Shin Lung has said, ARPM has stabilized. What are the implications then for MOU? Is that expected to increase, decrease or what and the implications for ARPU then? Thank you.

Thank you Ken. Okay, outlook and guidance for PT Telkom, I'll ask (inaudible) if he'll be able to answer that, then we'll move on to the rationale for net adds. Sorry Ken I've got to laugh a little bit because (inaudible) subscribers (inaudible) as well.

In the (inaudible) for the data for the PT Telkom network for the top line (inaudible) basically, they want to grow in the mid single digits and as I said, EBITDA margin, we will maintain under 57%, 58%.

CapEx I guess, as Rinaldi mentioned, we cannot say for now. So this [is our plan].

Okay, I'll move on to Sarwoto. (inaudible) as regards to your question on what are you doing for net adds?

Yes, thank you. We don't think that the strategy of negative net adds is a good strategy because you know that Onetel is always maintaining at least 50% net adds in the top three as a rational way. Why? Because you know that we're -- with stabilizing ARPU and RPM.

We, at the same time, create a foundation with a good quality of net adds and a good quality of subscriber will be a foundation for Telkomsel to grow the new service, a newer business that are basically based on broadband and that it's very good in the future. Thank you.

I think we've covered the RPM and MOU question earlier didn't we? Yes, we did okay. So Ken, if you don't mind, we'll get back to you or give us a shout directly to Shin Lung on the RPM and MOU question because we covered that in one of the earlier questions.

Okay, thank you.

Thanks a lot. Next question please.

Hi, it's Colin McCallum here at Credit Suisse. Three questions from me. First of all, just on the ADSL Speedy rollout on the network side, can you tell us how many ports are now in place and how many lines are enabled to take that service now? That's the first question.

Secondly, if I could just ask will there be another round of early retirement program, ERP, later this year and any guidance you can give on that?

And then the third question really is for Pak Rinaldi on international acquisitions. It seemed from the news flow a month or so ago that you guys were less keen on pursuing the Iranian opportunity. What's your broad thinking Pak on what to do international-wise? Thank you.

Okay, thank you Colin. We'll move on with the ADSL (inaudible) first of all with regards to how many lines can we have enabled.

Totally our installed lines right now around 2 million and as Rinaldi mentioned, our (inaudible) is around 850, it's been around almost 45% (inaudible). And we hope we will bundling our products Speedy, PC, [ASDP] and with Flash, maybe we hope our utilization for the end of this year will be more better than this first half this year.

Thank you (inaudible). (Inaudible), did you want to mention (inaudible)?

Okay. I think, as on the fixed line business, the name of the game to be in is the cost productivity. So we believe that we will focus more into this cost productivity game. Therefore, we will continue on (inaudible) this year the number has not been mentioned yet. We expect we will soon announce the amount for the [VRP] broadband at the next few weeks. And that is part of our ongoing process to really [improve] Telkom in a more competitive position going forward.

On the international acquisition, yes, I think we are reviewing currently our international strategy. We believe there are -- since Telkomsel basically wants to pursue some international expansion, we have established our Telkom International in Singapore. We also have an operation in -- a small operation in (inaudible), and we have small shares in the BPO or have (inaudible) company in Malaysia. So we are reviewing that and we will basically try to still pursue the international operation but in a more managed size. Thank you.

Okay, thank you.

Thanks Colin. Next question please. Hello? Do we have any further questions?

Please go ahead sir.

Hi, this is Sebastian Tobing from UBS. Thank you for the conference call and the presentation. May I ask a couple of questions? What's your -- how many startup packs did you sell on the Q1 and how many startup packs did Telkomsel sold in Q2? And also how many vouchers did Telkomsel sell in Q1 and how many in Q2? Thank you.

As [answer] this goes, we sell as much as we have sold. We like to keep that number confidential if you don't mind. Thanks.

Next question please.

Hi, thank you for the call. This is Reena from Merrill Lynch. Just a couple of questions. On your costs, the saving in O&M that you mentioned, is that all related to the second quarter, or is there an element of first quarter savings as well in the number that you gave out of [IDR140 billion]?

And also, if you can please tell us what is the likely outlook on personnel costs going forward?

Secondly, on net adds, I missed the number you gave earlier in terms of your net add expectation. If you can please repeat that for the rest of the year; what are you expecting?

And finally just on the MOU quality, can you please share some thoughts on whether you think the quality of the subscriber has stabilized and that you can now raise tariffs without worrying about minutes contraction, or you think that's still something that you need to watch? Thank you.

Okay, thank you Reena. Okay, we'll start with Sudiro first on the personnel costs and then we'll move back to (inaudible) on the O&M.

Regarding net adds, I think the answer we have to have is that the targets for Telkomsel in terms of the (inaudible) of net adds so we go for industry guidance on that one. Sudiro?

Yes. In line with our ERP for the personnel costs, now it's clear (inaudible) [15%] but I think for [the better] picture, I think around [4% or 5%] management.

Okay, thank you very much Sudiro. (Inaudible) on O&M?

I think for O&M (inaudible) [five year] so as we maintained before, that 32% quarter two related with one assessment because at Telkomsel (inaudible) it's around [IDR143 million]. And for the next quarter, yes, we anticipate that O&M will grow around [910%].

Thank you (inaudible). I think Reena if you don't mind, we don't normally make a full (inaudible) statement (inaudible) and we maintain that our policy is to capture 50% of the net adds of the top three as Sarwoto mentioned earlier.

In the case of MOU and RPM, I believe that was also answered earlier in the call and Reena, if you want to contact Shin Lung directly by email, or just give him a call, he'll be happy to repeat that answer for you.

Okay, thank you.

Thank you. Next question please.

Please go ahead.

Sorry, my question has been answered, thanks.

Okay. Thank you. Next question please.

Yes hi, this is Arthur Pineda from RBS. I just have one question. You mentioned a while ago that MOUs are actually holding firm even with the price increases. If you look at the other markets who have undergone similar price wars, you're actually seeing MOUs to be quite price elastic. What is holding up MOUs for you in your view? Is this an industry-wide phenomena as well or is it unique for you to do specific promotions on off-peak minutes?

Okay, thank you Arthur. I'll ask Shin Lung to give his thoughts on that point whether we think that MOUs are holding firm is just an industry act or is it something specifically with Telkomsel?

I hope there's a science to that. Unfortunately I have not been able to discover that. I think the MOU is all dependent on pricing, promotion and packages and if we are -- were to come out with another huge price discount, the MOU would definitely go up. The current strategy is to maintain our position where we are as much as possible, and we do hope that the MOU will continue to [hold].

Thank you Shin Lung. Hope that answered the question Arthur?

Well actually my question was in relation to your price points going up and I was actually quite surprised that you could hold up your MOU levels. Is it holding up really because you're seeing more off-peak minutes come on board, or is it really an across the board stability in terms of your numbers?

It's fairly across the board.

Okay then. Thank you.

Thanks Arthur. Next question please?

Please go ahead.

Hi there, Henry Cobbe from Nevsky Capital. I'm just interested on the data revenue that showed a huge growth on your Telkom level data revenues and I just wondered where there are any reclassifications out of fixed line into data? Because it seems the data revenues have -- if you strip out SMS, which is fairly consistent year-on-year, about [IDR2.6 trillion], it seems like the rest of the data revenues have more than doubled. Was there any reclassification?

No, I don't believe at this time there has been any reclassification on that. (Inaudible) a question of what the data revenue growth was (inaudible).

No, I think first, we don't see any -- we don't have any reclassification, so basically the accounts are consistent from the previous quarters. So actually that is also (inaudible) to all the revenue lines contributions.

Okay, thank you very much.

Maybe (inaudible) is due to the increase in subscribers. Okay, we have a few minutes left, so maybe we'll take one more.

Hi, this is [Shung] from Merrill Lynch. Just in a way -- a follow-up in a way to Arthur's question. I just want to understand, you seem to emphasize that you're focusing on keeping MOUs up and firm. Once you see that, what would you do? Would you entertain the potential upside from re-pricing? I mean because tariffs have come off quite a bit from where we were. I just wanted to get your thoughts on that and what would be the indicators that we're looking at for you to have the comfort to move forward with such a strategy?

Well I think the pricing came off from '07 and in the last two quarters we've shown some stability, so I'll ask Shin Lung but I don't think we can answer the question as to where we see that going because I think we are trying to hold our position as it were (inaudible).

I think David summarized that we are trying to hold the position. As to where it will go, I wish I do know because there are many forces, there are many players whose decision could impact this. So it's not that we are able to see now, we hope that it will [hold] and it all comes back on where we're supposed to be (inaudible).

I think just let me add the color. In the past, MOU increased substantially because our pricing has been declining very substantially. So what we see is that when the changes it's not a [substitute], then it basically applies to all of the operators, then actually the needs for the users to really use the [points] have not changed a lot.

So that's maybe one of the reasons why MOU -- because the changes in the pricing it's not that significant and it is not really being felt as a big increase like (inaudible) a very deep decline on the pricing there where you saw the MOU was an increase. And this applies all to the operators that we see now in the market, so I wish we know exactly but I think that it's the best estimate that we can give you.

Yes, and maybe I'll reiterate the statement that Rinaldi made in his opening comments which is that he has noticed the improved state of pricing conditions and we hope that this will ensure industry prices are (inaudible) and it's something that we can look forward to in the future.

Well from ourselves, thanks operator. Ladies and gentlemen, that really does end the Q&A session and also ends my role as your moderator. Thank you very much for your participation today. Thank you all for attending.

Before we end our conference call, however, we would like to ask our CEO for his closing remarks, and now Rinaldi, the floor is yours.

Thank you David. Ladies and gentlemen, again I would like to thank you all for participating in our conference call today. The key message that we would like to convey to all of you is as follows.

Despite increased competition, further [unsettling] global financial downturn and other external factors, we continue to maintain our position in the Indonesian telecommunications sector.

We're continuing our aggressive rollout strategy for 2009. We intend to capitalize on this solid foundation to let (inaudible) [grow] and maintain our strong market share position, which should, in turn, result in positive revenue growth and enhanced revenue for our stakeholders.

We, as a management team, remain committed to you, our stakeholders, and intend to maintain our position as the leading provider of telecommunication services in Indonesia.

Ladies and gentlemen, thank you for being on the call with us today. We look forward to our next call. Good evening.

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