Telkom Indonesia (Persero) Tbk PT (TLK) 2009 Q3 法說會逐字稿

This is Premier Global Services, please stand by. Good day, everyone, and welcome to the third quarter 2009 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, sir.

Thank you very much, Ussan. Ladies and gentlemen, we would like to welcome you to Telkom Indonesia's third quarter 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's website at www.telkom.co.id.

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 by our CEO, Mr. Rinaldi Firmansyah, followed by a question and answer session.

Before starting, please allow me to refer to the Safe Harbor Statement 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 actions 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, Mr. Rinaldi Firmansyah as President Director and Chief Executive Officer; Mr. Ermady Dahlan as Director of Network of Solutions and Chief Operating Officer; Mr. Arief Yahya as Director of Enterprise & Wholesale; Mr. I Nyoman Gede Wiryanata as Director of Consumers; Mr. Faisel Syam as Director of Human Capital & General Affairs; Mr. Prasetio as Director of Compliance & Risk Management.

Also present are the Board of Directors of Telkomsel; Mr. Sarwoto Atmosutarno President Director; Ms. Triwahyusari, Director of Finance; Mr. Leong Shin Loong, Director of Commerce; Miss Herfini Haryono Director of Planning and Development.

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's management and employees, I would like to thank all of our valued stakeholders for their continued support and dedication to the Company. We truly appreciate this.

Post the impact of global economic crisis, regulatory and telecommunication business paradigm shifts, Telkom's management with what our commissioners have said is the strategic objective, creating superior position by strengthening the [registry] and growing the US business to achieve [60%] of industry revenue in 2014.

We are undergoing the big transformation in our Company's history which will cover the whole fundamental and integrated aspects of the Company. This transformation involves four aspects which are mainly -- business transformation; infrastructure transformation; system and operating model transformation; and human resources transformation.

Accordingly, Telkom has changed its brand and tagline to fall in line with the transformation in the service, and also deposits in the Company to achieve the new strategic objectives.

Telkom also announced a new strategic business portfolio. These are telecommunications, information, media, and entertainment or TIME, supported by a new inspiring tagline, the world in your hand, as a committed to you replacement, with a rebranded positioning of Life Confident.

This new tagline and positioning further enhances [our contract] expertise and dedication to improvement that supports our customers wherever they are. This new corporate identity was launched on October 23, 2009. The rationale with the new corporate identity, with new corporate values is described as follows.

Expertise, Telkom represents completeness of products and services; empowering, the expanding hand indicates growth and reaching out to the world; assured, the hand symbolizes trust and personal connection; progressive, the hand and circle combination suggests a sunrise reflecting new beginning and change. The last value is heart -- the hand is a unique personal human symbol which can tell the story of ones life and implies the gentle human touch which demonstrates care.

Ladies and gentlemen, before reviewing the operational and financial highlights, I would like to inform you of key strategy corporate developments during the last quarter.

One -- PT Dayamitra Telekomunikasi is in the process of acquiring a majority stake up to 80% of the shares of Indonesian Tower. On August 18, 2009, PT Dayamitra signed a CSPA with PT Solusindo Kreasi Pratama, Indonesian Tower, stockholders to acquire 66.7% of outstanding common stock of Solusindo at the closing date and subsequently to subscribe shares issued by Solusindo at issuance date to obtain up to 80% of ownership.

Indonesian Tower is the pioneer in the tower industry in Indonesia, and is one of the leading independent tower companies, with more than 800 towers across Indonesia. In 2008, Indonesian Tower had grown its customer base to more than 1,400 tenants throughout Indonesia, with around IDR300 billion.

Telkom, through its 100% subsidiary, Telkom Indonesia International, has increased ownership in SCICOM to 11.9%. As a part of the Company strategy to develop an organic business and to strengthen our corporate business segment, TII has made a strategic investment into SCICOM, a leading Business Process Outsourcing & Contact Center in Malaysia. These businesses are a strategic adjacent business sector that enhances the long term value and sustainable growth of Telkom Group.

As of September 30, 2008, TII has acquired 9.81% ownership in SCICOM. On July 31, 2008, SCICOM issued 35,000 new shares. As a result, TII's ownership in SCICOM diluted to 9.80%.

On October 1, 2009, TII has purchased additional 5.5 million SCICOM shares, with transaction value amounting to $0.54 million, equivalent to IDR5.2 billion, which increased ownership in SCICOM to 11.9%.

Ladies and gentlemen, I will now present the operational highlight results for the third quarter of 2009.

In almost all business segments Telkom has had impressive customer growth and continues to maintain the dominant market share, both in Cellular and Fixed line businesses. We have recorded 23 million fixed wireline and fixed wireless subscribers, 79.8 million in cellular subscribers, 979,000 Speedy subscribers, and 1,375 million Flash users.

As of September 30, 2009, the Fixed Wireline business maintained a total of 8.7 million subscribers, which increased by 1.4% compared to the same period in 2008.

The launch of the Fixed business improved program, that's the IP or flat tariff, earlier this year, was to mitigate and add value for fixed line customers. In areas where implemented, we are seeing positive gains. In areas where we implemented this program, we are seeing positive gains.

During the third quarter of 2009, Flexi recorded 14.9 million subscribers, an increase of [63%] compared to the same period last year. Flexi is supported by a nationwide network of 5,296 BTS, which is increased by 66% compared to last year.

It is also worth noting that the MoU of Flexi increased by 30% to 12.4 billion minutes from 9.6 billion minutes compared to last year. Flexi consistently maintains its leading position as the dominant player in the fixed wireless market with a 59% market share.

We are pleased to confirm that Telkomsel continues to maintain a dominant leading position in the cellular market, with a total subscriber base of 79.8 million, reflecting a 51% market share. This is a direct result of strong net adds of 14.5 million subscribers in the first nine months of 2009. The cellular MoU and the number of BTS also increased by 71%, and 90% respectively.

As part of our ongoing strategy, we continue to aggressively develop our Broadband business, Speedy and Flash, as a major contributor to the growth of our New Wave business. We intensified promotion campaigns in 2009 by educating the general public about broadband Internet, also positioning Speedy and Flash as a strong national brand that provides a vast, reliable showcase.

Speedy is now available in many cities around the country, and we are still committed to aggressively expand this product for future broadband revenue growth. These campaigns are showing strong returns by way of sales and revenues.

As of September 30, 2009, Speedy recorded a total number of 979,000 subscribers, an increase of 65% compared to last year, and revenue of Speedy were in excess of [IDR1.85 trillion].

Ladies and gentlemen, in discussing our financial highlights for the nine month period ended September 30, 2009, I shall briefly describe and try not to repeat all the numbers that you may have read in the earlier announcements of the Info Memo published on our website.

Balance sheet. Total asset increased 10.7% to IDR95.2 trillion. Total liabilities increased 7.5% to IDR47.9 trillion. Total equity increased by 15.1% to IDR37.5 trillion.

Profit and loss statement. Operating revenues consolidated increase by 5.5% to IDR47.1 trillion. On year-on-year basis, total expenses increased by 6.1% to IDR29.2 trillion. EBITDA increased by 8.3%, and net income increased by 4.3%. Net income per share was IDR472.8, an increase of 4.8%.

As previously mentioned, our strategy objective, creating superior position by strengthening the Legacy and growing New Wave business and allow me first to define our Legacy and New Wave strategies.

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 IT-based data communication for enterprise, Internet connectivity, broadband services, IT services, content, e-commerce, and other value-added data services.

In [net] terms, our New Wave business revenue grew by 50.1%, and contribution to the total revenue increased from 6.3% in first nine months 2008 to 8.9% in first nine months of 2009. The main revenue contributors for the nine months of 2009 were from cellular, 44.7%; data, Internet, and information technology, 26.4%; fixed line, 13.5%; interconnection, 12.2%; and network provision, 1.6%.

The Telkom Group CapEx during first nine months amounted to IDR12.8 trillion, in which allocation for Telkom and Telkomsel amounting to IDR4.4 trillion and IDR8.1 trillion respectively.

To minimize ForEx impact to our bottom line, we have successfully lowered our US dollar debt by a further 10% as of September 30, 2009. And the portion of US dollar debt decreased substantially from 22% to 12%.

In conclusion, we are pleased with our results for the nine month period ended September 2009. We, as a management team, believe we are on the right track to further enhance the value for all the stakeholders.

Telkom is the leading Indonesian telecommunication 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 increase market share in Indonesia. Taking into account these strong fundamentals I trust that this could be reflect -- this will be reflected in our performance.

Moving toward -- moving forward, we must not forget that competition may continue to increase. And as a management team, we look forward to executing and delivering to you our new strategic objectives, and also committing to the transformation of our business to face the future.

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

Thank you, Rinaldi. Now let's open up the session for Q&A. Before raising your questions, we would appreciate if you could clearly state your name and company. Please note that the BOD will answer directly after each question is posed by the participants. Operator, may we have the first question, please?

Certainly. (Operator Instructions). We will now take the first question.

Hi. This is Sachin Gupta here from Nomura. I have two questions on the Mobile business. Firstly, I was just wondering, is it possible to talk about the mobile usage trends, the MoU trends in 3Q? Because some of the numbers I'm coming up with, it looks like my number's showing about 6% to 7% decline on a sequential basis. I'm just wondering, what are your thoughts there? If these numbers are right, why is the usage declining on a sequential basis?

Secondly, just your previous guidance for Telkomsel business is for single-digit revenue growth for 2009 and some dilution in margins, but if you look at the nine month trends it seems to be well in excess of that. I'm just wondering, what are your updated expectations for the rest of 2009, please? Thanks.

Okay, thank you very much, Sachin. The first question being that you wanted to know what the MoU trend has been sequentially from Q1 through to Q3. And secondly, what is the updated position on the companies for the year, if there's been any change. I'll hand it over to Shin Loong to answer those two.

Hello. This is Shin Loong here. On the question of the MoU decline, it is the result of the marketing and the promotion mix. We are pulling back on some of the promotions, so as a result that the usage pulls down. But we are benefiting from the [elastic] nature, so we are able to keep our revenue up.

Thanks.

Thank you for the [definite guidance]. So after we concerning our performance and the nine months this year, so we would like to refresh our guidance. Therefore, this year, our revenue grow we targeted for high single-digits. On the other hand, for the EBITDA, it's remaining flat.

Okay Sachin, thank you very much. Can we have the next question, please?

We will move on to the next question.

Hi, Karen Ang from Citigroup. Yes, my first question is on CapEx. Can you please tell us what your CapEx targets are, or guidance is, for 2010? And in particular, how do you break that down between fixed line and mobile? And even more specifically, how do you see your fixed line CapEx being apportioned to, let's say, the New Wave business and the traditional fixed line business and acquisitions?

Okay, thank you, Karen. I will pass the question on to [Rinaldi] to deal with the CapEx targets for 2010, the breakdown between fixed and mobile, and look at the fixed line segments, or at least look at what the breakdown should be for [New Wave] versus [fixed line].

Yes, the CapEx guidance for 2010, it's in -- excluding the CapEx for the investment or acquisitions, in percentage of our revenue, it is going to be a 2% decline, which is going to be from 31% to around 29% in 2010.

And in total, basically, absolute numbers, the amount is about the same. From which, actually, still around 60% is going to Telkomsel, around 27% is going to Telkom, and the rest is of -- to other subsidiaries. To the subsidiaries, it's mostly also going to be included [in New Wave]. The New Wave CapEx will increase by around 29% for 2010.

What's the absolute number for that?

Okay. The direct New Wave is around IDR1.75 trillion. But in addition to that there is also infrastructure related to increasing bandwidth, etc., that is going to contribute of around IDR2 trillion.

And if I may just reconfirm that the absolute number in terms of CapEx guidance for 2010 is about IDR20 trillion, is that right?

Correct, yes.

Also, if I may follow-up, that seems that the Telkomsel CapEx is more or less the same level as 2009. When should we expect Telkomsel's CapEx to start declining materially?

Yes, I think Telkomsel's CapEx, we haven't given any guidance that it should decline materially because, actually, in absolute number, absolute amount, actually the CapEx guidance for Telkomsel 2010 is slightly decreased by around 2% to 3%. The reason it's being, that Telkomsel needs to go into the more broadband-based and IT-based network and more of deployment of Note B and additional capacity to be able to absorb the -- basically, the increased demand of the data.

So I think, plus in addition to that, still coverage, we still want to increase also basically the coverage of Telkomsel throughout all of Indonesia. So for 2010, it's still about the same. We will see what is the number of 2011 next year.

Okay, could we have next caller, please?

And the next question?

Hi, good afternoon. Colin McCallum from Credit Suisse. A couple of questions from me. First of all, on capital management, Rinaldi, I think previously you've had a share buyback scheme, but recently I read some rumor or conjecture that you were looking to sell treasury stock back to the market, which would obviously reverse the benefits for EPS of buying back shares. Can you just outline to us whether you really are thinking in that direction, and why you would think of doing that?

And on a related question, is there any chance of things like special dividends, etc., into the future, because it does look as if you're still quite under-geared?

And the second question I just wanted to ask was regarding the ARPU levels for the Flash wireless broadband product. Or, alternatively, if you can give us some sort of guidance on the amount of revenue in absolute terms derived from that product in the third quarter.

And if I can sneak in a third question as well, just regarding that wireless broadband growth and the implications for CapEx that you mentioned, how much of Telkomsel's backhaul capacity is actually owned and constructed by Telkomsel versus leasing from PT Telkom? And what implications does that have for the CapEx versus EBITDA margin implications from wireless broadband growth? Thank you.

Thanks, Colin. We'll start off with the ARPU and Flash wireless revenue with Telkomsel, and then move on to the backhaul, and Rinaldi will then pick up capital management structure including the dividend. (Multiple speakers).

Colin, thanks for the question. Shin Loong is checking the number. Basically, on treasury stock buyback, for the time being, we don't have any plans yet.

On what to do on our treasury stock, this has not been actually internally discussed. For the time being, [it's still stay there]. So we will, basically, definitely study on it soon. And we also understand that Bapepam regulation on this is still impact for the [treasury] stock.

Second, on the special dividend, we are -- I cannot say much for this time being. We will see as time goes towards the closing of the financials and when the time comes for discussing of our dividends. Because dividend, we need to discuss to [several] stakeholders -- we need to [major] shareholders. So I hope that that answers --

Yes, that's very helpful. Thank you.

Hi, Colin. Herfini here. Now, I just want to give [performance], maybe [Ermady] will add. For the backhaul [expected from Telkom], as you're all aware, for current system, actually the hosts are using a lot of [microwave]. But [once we are going through] the data is through, I think we will go more and more relying on the Telkom support in building the [Middle E], for example.

The arrangement has been improved. I think if you can remember, during 2006 a lot of discussion whether we pay very expensive listing price to PT Telkom. But we, frankly, after the time goes by, actually managed to go to the wholesale basis of [leasing]. So we manage -- or we enjoy -- actually, Telkomsel enjoy a lot of discount due to the volume.

The discussion, actually now we are talking about (inaudible) basis listing with PT Telkom. Even in the Middle E concept, I think we are going to put through wholesale basis a leasing scheme. So I think for that, like you already guess, actually for backhaul, (inaudible) [transition] in the 2010 onwards, I think it will go fully with Telkom support in terms of building the pipeline to enhance our speed on the 3G data.

Right. So that would imply that any impact would more be on the EBITDA side rather than the CapEx numbers that were being mentioned earlier, right?

I think the guidance of EBITDA, we haven't published yet, but definitely we try to manage our costs. Our guidance for (inaudible) is still going to be flat for coming years. But like I said, it will be finalized by the end of the year; maybe we will give the 2010 EBITDA guidance more clearer.

But definitely, we as a Group, I think we consider -- we keep discussing, definitely, the fair wholesale price is still going to be reduced, the objective of costs still to manage the whole of our costs, yes.

That's fine. Thank you.

Okay, sorry for the delay. We found the numbers. The ARPU for the Flash subscribers is around IDR46,000. And the revenue for the first nine months is IDR338 billion.

IDR46,000 for Flash?

Flash ARPU, yes.

So that's about a fifth of the amount that you're generating on the fixed line Speedy. Is that not awful low?

I think I explained that to you before. This is a pre-paid market. It would be very nice that if they will pay us for [whole month]. They don't, so we have this daily package. So for as low as IDR5,000 per day, a pre-paid customer can enjoy broadband service on the phone. And it works because now many of them would just like to pick up their email, Facebook. So one day they pay IDR5,000, they take a rest for two days, and then on the fourth day they pay us another IDR5,000 again. So these are the lines that you add up that will contribute to the IDR46,000.

Within our install base, in particular on the post-paid side, if you look at the higher ARPU segments, you will be able to see there are a significant number of post-paid customers whose ARPU for Flash is [IDR150] and above. And that's because we have this [free] package of [IDR150, IDR200, IDR250]. So for that segment you will see very good numbers.

That's very clear, thank you very much.

Okay, thank you.

Thanks, Colin. Can we have the next question, please?

We will move on to the next question.

Hi. This is Brian Wee from Goldman Sachs. I have two questions. Basically, firstly on your tariff, do you think there is more room for tariff recovery going forward? And where do you see that tariff recovery coming from, whether by product or geography? And in view of your declining MoU (multiple speakers).

Sorry, Brian, can you repeat that question, please? Excuse me, can you repeat the question, please, we didn't hear that?

Okay, sure. Yes. Do you think there is more room for tariff recovery going forward? And where do you see that tariff recovery coming from, whether by geography or by product?

And in view of your declining MoU in 3Q versus the increasing trend amongst your competitors, do you think that you will continue on the strategy to increase the tariffs?

The second question I have is on your cost side. How much is the write-back of expense from the change in discount rate for actuarial pension benefits? And what was the rationale for this change in discount rate? And how much the early retirement plan costs has been booked into this quarter? And how much more ERP cost do you expect by the end of this year?

Okay, I'll try and repeat those very quickly. We're looking at the tariff recovery, right, and we just explained what the tariff recovery -- what steps we've taken to boost tariff recovery. And also the other question is that with our MoU decline, you're claiming that our competitors are increasing their MoU whilst we are not, so why are we still increasing tariffs in this particular case?

And asked about the leases, the change in discount rates for the pension fund, followed by what are ERP costs for this quarter and for the rest of the year, right, approximately but I think it --

Yes, yes.

Okay good. Okay, in that case, I'd like to move on to the tariff first, the tariff recovery but also where we see the MoUs.

Okay, we are watching the response from the market on the tariff recovery and the [connection] of the [larger] city and the trade-off between usage and tariff, okay. So we watch that carefully and we will see how much more we can push, but just offhand, I think -- how to put it, the tariff is not -- the issue is not the tariff itself. The issue is the delta of the tariff amongst the operators. So I think I'll leave that question -- answer to that.

On the MoU, the headline numbers of the MoU that is published could be misleading. For example, you need to make a differentiation between low revenue generating MoU and higher revenue generating MoU. We watch those numbers and today we are quite comfortable that the MoU decline is within our expectation of the tariff increase. We will continue to monitor it and if there's any necessary corrections to be done, we will do so.

Yes, I think on the discount rates, basically we follow guidance of the professional actuaries and normally it is decided before the year-end. So the discount rate was changed because, if you recall also last year, September, October, November, was the time when (inaudible) prices happened. So, of course, then everyone was following the prices. So this is the number that we follow in every year, so I hope that would clarify this discount rate adjustment and that would continue to happen every year.

Second, on the ERP for this quarter up to this September, because we haven't done any ERP for January to September, we have not booked any single amounts into the P&L. However, we are preparing for our ERP towards the year-end, and the amount is around IDR750 billion up to IDR1 trillion and that is basically what would be booked before -- I mean for the year 2009.

How much is the write-back of expense in relation to the change in discount rate?

I'm not -- let us come back to you on [separate] because I don't have the number here yet.

Okay, and I have a follow-up question to the response from Shin Loong. I understand what you say in terms of the focus on the competitive dynamics and what your competitors are offering the market, but it does seem that your competitors seem very cautious in acquiring marginal subs that are not generating revenue growth, while you seem to be taking a different strategy on that. Do you think this will lead to a higher CapEx and higher OpEx model going forward relative to your competitors?

I don't know what my competitors say to you. They didn't tell me much.

Just looking at the subscriber net-adds and the [assisted] revenue growth.

It depends how you can look at -- anyway, they can say what they say, but my view is this and this is one discussion which I had with one of the gurus among you all. Am I better off with one customer that pays me $0.5 million or 0.5 million customers that pays me $1 each? And the answer is the same. The question is, as you mentioned, does your CapEx and your OpEx support that? So we are cognizant of that. From Telkomsel's point of view, we have two things that we like to do.

The first is to offer quality service to everyone in Indonesia, okay, be it in the city or in the rural areas, so that was important for our USO, for our (inaudible) program. And going into the rural area doesn't mean low ARPU. Some of the higher ARPU are from the remote areas.

Together with that, so long as we can keep our costs below the so-called low ARPU, our margins are still good, we make money, and in the end, everybody is happy.

Thank you (inaudible). We'd like to move on to the next question now.

Please go ahead.

Hi, it's Riaz Hyder from Macquarie Securities, just a couple of questions. Firstly, sorry to keep hammering on the minutes of use point, but just in terms of the trend for Q4 then? Do you have any expectations of whether you expect there to be a decline in Q4?

There is a seasonality you need to adjust Q3 captures the Ramadan month, so logically you should see a slowdown.

Right.

As to whether -- what will come, we are watching the trends and, as I say, we will take the necessary corrective actions if any.

Okay thanks. And then just secondly, just on your -- you mentioned in the Telkomsel release of there being a higher interest rate charged in the third quarter of this year versus last year. Can you give details as to what rates or what that change was and then maybe what your weighted average interest rate is across your loan book?

Okay from Telkomsel why our interest [expend] increase, yes, because this year, we also [foresaw] -- we draw our new loan and now our leverage is around about [545].

Yes, I think -- let me clarify this. That is not because of the interest rate increase, that is because our expense increased due to additional loans booked by Telkomsel.

It did also mention a higher interest rate, but I can take that offline. That's fine.

Okay thank you Riaz, we'll take the next question now please.

Oh hi, I just have one question. This is Kelvin Goh from CIMB. What are your targets for wireless [for] next year in terms of revenue contribution that is? Thanks.

Thank you. Yes.

I hate to give you this answer, but we are still working on it.

Okay. Perhaps I'll just follow-up on the earlier question on the employee reduction program. As far as I know, it's a one to two year exercise, so I think that if you're booking it this year and it seems that it's down consecutively because you're already booking a ERP expense or provision last year, am I correct?

Yes, correct, last year and this year, but we may then see basically the implication on -- not the program, [the information] on the book and on the accounting side. So we haven't decided for basically how long that continues, but we will continue but not every year. This year is two consecutive years. We are now reviewing for the next year and the year after.

Okay. Thank you.

Okay, may we have the next question please?

Hi, good afternoon. This is Tim Storey from JP Morgan. Thank you for the call. I had a question on Flexi. Can you tell us a little about your medium term view of this product now that we've seen the mobile tariffs come down in the last one to two years? Is there a reasonable [case] to assume that over time, the Flexi database will be contracting and that your revenues from this going forward will also be [consequently] contracting?

I guess it would be fair to say in other markets where we've seen the wireless [local loop] product, over time it has tended to be impacted by this narrowing of price differences with the full mobility services. Any thoughts on that for a three to five year view in terms of direction would be great?

Secondly, I just wanted to confirm on your broadband subscriber numbers in terms of Flash. The subscriber number of 1.375 million, which you indicated for the quarter, can you confirm that's not included in your wireless subscriber number of 79.77 million?

And similarly, when we look at the ARPU that you're stating for Telkomsel, can you confirm if that ARPU is including or excluding the revenues coming from Flash? Thanks.

Okay, so the first question is on (inaudible) direct to consumer. Regarding the medium term view on Flexi since the price (inaudible) has narrowed. And then the second question goes to this broadband wireless question for (multiple speakers). Okay hold on.

Thank you JP Morgan. You are talking about pricing of CDMA itself Indonesia is quite interesting. Right now, the pricing between GSM and CDMA are quite similar, especially talking about the [on-net], so that's why our strategy right now goes to the communities because it's very, very hard for me to compete with GSM.

As you know, you have CDMA itself have a limitation in devices [coming out] comparing with GSM. This is a fact in our country, the pricing between GSM and CDMA look like the same.

Mr. Sarwoto?

Okay, thank you. About Flash revenue, 1.3, you know that the Flash is based on the registrations, so this revenue is including for in the 79 million subscriber revenue.

I'm sorry, just to clarify, those numbers were subscriber numbers; are they (multiple speakers)?

1.3 million yes, sorry.

Subscribers.

Yes, subscribers.

So effectively we're saying that the 79.8 million subscribers includes the 1.37 million of Flash.

And then -- thank you for that. And then in terms of the -- similar question but in this case for revenues, would the revenues for the Flash product be included in the calculation of your ARPU for Telkomsel as it's provided in your statement?

For total blended, yes.

Okay.

For total blended ARPU.

Thank you very much.

Okay, I think next question please.

Please go ahead.

Yes hi, this is [Sean] from Merrill Lynch. Just wanted to clarify again the question from JP Morgan, that's one -- my first thing. And then second question is really just wanted to get more clarity on your strategy for mobile.

Okay. The thing I need clarification with is that you're saying that the ARPUs for mobile, Telkom sales includes the contributions from Flash, is that correct?

Yes.

Okay and most of the Flash subscribers are pre-paid?

Yes.

Okay, thanks for that clarification. And then second question is really, can you give us more color on how you see the strategy for mobile. Are you expecting a more [structure] driven strategy from here or are you looking for more ARPU optimization strategy from here?

I think our mobile strategy is firstly almost the same for the [dominant] operators, that we try to transform from our basic services revenue from SMS and voice to the new services based on Broadband. So that one should be [increasing] the next year.

Okay. There will be -- so you're saying that you're trying to rework your ARPUs over the next year with that transformation?

Yes, let me add, actually now it's still in the basically early stage of the growth of the Broadband wireless. So our strategy is to capture as much as possible subscribers, while deploying the network to be able to serve those subscribers. So those are the strategies, so I think -- and at the same time the quality must be improved.

So we cannot work alone, we also look into our competitors, everybody is doing the same and Telkomsel has the widest coverage. So we are adding a strong network element -- it is a [new] network element to be able to capture all of those hungry subscribers out there.

And second is, from the Telkom's point of view as mentioned by Herfini, our infrastructure CapEx will be driven to be able to serve the Broadband -- basically increase both Telkomsel and our Telkom. So I think that is a -- and you know we'll [opt] into how to improve the [ARPU], etc., once we [prove] we basically get the customers in because this is still the early stage of development of Broadband wireless. Thanks.

Thank you, just another clarification. Did the Flash -- is this a data -- are Flash customers data only or these are basically handset customers that have 3G handsets and have both voice and data?

The answer is both. We have different packages for those with the USB dongle and we also have different packages for the smart phones and also for the low end.

Okay, so -- but this [1375], would this be only the dongle customers or this also includes customers with the voice?

Everyone.

Everyone collectively, okay, thank you very much.

Thank you. Okay next question please.

Hi, thanks for the call. This is Arthur Pineda from RBS. I have three questions at this point. I'm wondering what Telekom's interest is in pursuing power assets when the trend is mostly towards an asset life business for telcos. What potential gains or competitive advantage do you actually see in this business?

Second question I had is with regards to 3G, what's your coverage at this point and what percentage is actually HSPA enabled among your 3G [entrant]?

And the last question I had is with regard to the balance sheet. Does the Company actually have any longer term gearing target and how will this be achieved, via acquisitions or via capital management?

Okay, thank you Arthur, I think there's three questions there. First on the tower business and why we're doing it, secondly for the 3G HSPA, the percentage of the network that we have (multiple speakers), and last but not least what is our long-term gearing target? I'll take on the tower one first.

It's partly driven by regulation, partly driven by the competitive environment that we're currently in. First and foremost we realized that we had under the regulation in 2011 there would be a condition for operators with maybe foreign shareholders to (multiple speakers).

Sorry David, there is a lot of echo, could you say that again please?

Sure yes, there's a combination of the strategy. One is based on regulatory, the second based on the overall Group strategy of Telkom. The first one on regulatory is regarding the ownership of towers which, as you know, there is some limitation on foreign and/or local owners. And by 2011 these assets would have to be spun out and/or at least sold out of certain companies, including maybe Telkomsel.

On this movement forward we realized that this would be a very positive way for us to create a standalone entity that would not only serve Telkomsel but also serve the rest of it. The tower business here in Indonesia is something that we feel has got a positive upside moving forward in value, revenue and potential EBITDA margins for us. And so that's why we're going ahead and doing that.

So basically DiaMetra, the company we have selected, would actually become an infrastructure provider to the industry and not only (inaudible) [operators] but also for other wireless applications, terrestrial broadcast and others. And there's an opportunity here, which has yet to be filled by most players, so we see that an opportunity for us.

Moving forward I'll flick on to the 3G HSPA. (Inaudible). Sarwoto?

Yes for 3G HSDPA, which has started to use our second carrier, that already awarded from government this year. So it's started Jakarta this week and we'll expand to Central Java, East Java and North Sumatra, [Medan], end of next month.

Thank you Sarwoto. I will now go to Rinaldi for the longer term gearing.

Yes, I think if you look into the existing gearing net debt to equity is around 42%. And if one looked into the EBITDA to net debt, it's still 1.8 times, so we are -- there is still an ample of room for debt capacity.

So what we have in mind, at least for the medium term, gearing ratio is going to be a maximum of 1 per fund because first then that we are moving into the new area. I think we also are sparing our gearing for potential M&A activities, which currently is a small amount. But with the experience that we have in time I think we will see what will be the (inaudible) activity. Thanks.

Sorry it was a bit choppy, you said 1 times is the maximum target?

Yes, for I think medium term. Currently it's 42.6%, I don't see that 2010 will be more than 60% if any. However, medium terms depending on the potential of non-organic, I don't think that we will go above 1 over 1.

Got it, thank you.

Operator we believe that's the time now. Is there still a queue?

We still have three questions in queue sir, would you like to take them?

We'll take one more.

Okay. Please go ahead.

Hi, this is Sachin from Nomura. Thanks for the opportunity. Just one question on the on-net and off-net tariff plans. What we have got through -- know from other competitors of Telkomsel is the Telkomsel's on-net tariff plans kind of offer an entry barrier for other operators to launch services in some new markets. So is there a possibility that the regulators have intervened on tax regulating the differential on-net and off-net tariff plans?

Didn't understand the question.

Yes, sorry could you explain because we're trying to work out how other operators could be offended by our own on-net tariff plans?

They also have their own on-net.

Yes they also have their own on-net tariff plans, so we're having difficulty understanding the question. Please could you repeat it?

Right, what it basically means is in a lot of places Telkomsel is already there, it's the incumbent operator and most of the subscribers are already with Telkomsel. And if they launch or they have an on-net plan, which is pretty low, there is no incentive for a new subscriber to go and join a new operator which launches services in that market?

Sorry, if I don't mind answering that one behalf of Telkomsel, why would we want our subscribers to move to somebody else?

No, that's what I'm saying because it offers a natural entry barrier for a new operator to come and offer services because your off-net or rather the on-net prices are significantly lower compared to your off-net prices?

Okay, okay.

I think we have experienced the price war in the past two years. How low would the subscribers want to go? I think that is the answer, even the on-net is already very low. As long as subscribers are happy and then we'll still make a good return for our shareholders, we are happy.

Okay, thank you.

Okay operator I think we will end our Q&A session at that point, and that also, at this point in time, ends my role as the moderator. We'd like to thank you all for your participation. We apologize for the last two questions that could not be raised, maybe you could send them in to our Investor Relations unit via e-mail.

And before we end the conference call we'd like to ask our CEO for his closing remarks. So Rinaldi, please if you don't mind.

Ladies and gentlemen, I would like to thank you all for participating in our conference call today. The message that we would like to convey to all is as follows. Telkom has continued to be the market leader in the Indonsian telecommunications sector. We're continuing our aggressive roll-out strategy for 2009.

Telkom has also launched the new corporate identity on October 30, 2009. We intend to capitalize on this solid foundation to deliver a stronger future growth and maintain our strong market position which should in turn continue to positive growth and increased value for all of our stakeholders alike.

We remain committed to you, our stakeholders, and intend to maintain our position as the leading provider of telecommunication services in Indonesia with an advanced platform to deliver our TIME vision.

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.