Telkom Indonesia (Persero) Tbk PT (TLK) 2010 Q2 法說會逐字稿

(Inaudible) Global Services. Please stand by, we're about to begin.

Good day everyone and welcome to the First Half 2010 Results conference call. As it's time for opening remarks I would like to turn the conference over to your moderator, Mr Agus Murdiyatno. Please go ahead, sir.

Thank you for participating in this conference call to discuss the result of (inaudible) results.

Last Friday 30 July 2010 we [released] our financial results for the six month year, ending on 30 June 2010. The press releases and other material are available at our website, www.telkom.co.id.

Today's presentation is also accessible on the webcast and I'll be recording if I get [up on] the call for the seven days.

With me on the call is Mr Rinaldi Firmansyah, Telecom's Chief Executive Director. He will discuss (inaudible). I will then conclude, after which we will take your questions.

Before beginning, let me remind you that listeners are cautioned that with this call and [we reported] to questions may contain forward looking statements with the meaning of (inaudible). Actual results could differ materially from projections, estimations or expectation (inaudible) to this call.

This may involve risk and uncertainty and may cause actual results and development (inaudible) in these statements. The Company does not guarantee that any action which may have been taken in reliance on these statements.

Ladies and gentlemen and all participants, it is my pleasure to introduce Telkom's Board of Directors who are joining us today. Rinaldi Firmansyah is President Director and Chief Executive Officer. Mr Sudiro Asno is the Director of Finance and Chief Financial Officer; and Mr Ermadi Dahlan is Director of Network & Solution and Chief Operating Officer.

(Inaudible) then and the Board of Directors Telkomsel who are turning up today. Ms Triwahyusari, Director of Finance and Ms Herfini Haryono, Director of Planning and Development.

Now, I would like to turn the call over to Mr Rinaldi Firmansyah (inaudible).

Thank you Agus. Ladies and gentlemen, good afternoon everyone. On behalf of Telkom's management and employees, I would like to thank all of our valued shareholders for your support and dedication to the Company. We fully appreciate this.

Before presenting the First Half of 2010 Results, I'd like to take the opportunity to give an overview of Telkom Indonesia in case this may be the first time that some of you are hearing our story.

Telkom is the largest telecommunication company and network provider in Indonesia, serving more than 100 million of customer national wide, and we provide a strong portfolio of information and communication services, including fixed wireline, fixed wireless mobile cellular, data and internet, and network and interconnection services directly or through our subsidiaries.

As of 30 June 2010 the [majority] of our shareholders 52.47% is owned by the Government of Indonesia, with the remaining 47.53% by the public ownership. Our shares are traded in the Indonesian Stock Exchange, New York Stock Exchange and also London Stock Exchange without listing.

Ladies and gentlemen, Telkom has expanded its business and grew the revenue directly and indirectly through subsidiaries. As of 30 June 2010, we have eight subsidiaries with majority ownership. Telkom and subsidiaries are eager in creating synergy to [deliver] value added service to our customers. To maintain our dominant position in the industry, we expand our portfolio of wire services to include information, media and edutainment, or TIME.

Ladies and gentlemen, I would like to inform you some of the highlights for the first half of 2010. One is the improvement on the cellular net add with total net add of 6.37 million in Q2 2010. Second, the decline in wireline revenue sloped down in the first half 2010 as compared to the first half of 2009 from minus 19% to minus 8.3%, mainly as a result of our Flat Tariff Strategy. We call it Fixed Business Improvement Program or FBIP.

EBITDA was up 2.9% compared to the last year's result (sic -- see Press Release). On the second quarter our EBITDA net income has returned back to grow by 7.7% and 16.2% respectively.

Ladies and gentlemen, now I will present the operational and financial performance results for the first half of 2010. In the first half of 2010 cellular business now has 88.3 million subscribers, representing 16% year on year growth and also added 6.7 million new customers in the first half.

In this half year the total BTS had reached 34,000 units, 19% growth compared to the same period last year. To increase cellular market share, Telkom -- this BTS growth was aimed to increase the cellular market share. That has the positive impact for maintaining our leading position in the cellular market with approximately 47% market share.

Cellular revenue has contributed IDR22.7 trillion, a 7% increase compared to the same period last year. As part of our ongoing strategy, we continue to aggressively develop our broadband businesses, Speedy and Flash. Broadband services grew significantly with total 1.4 million subscribers in fixed line broadband, and 2.9 million subscribers in mobile broadband, a 74% and 230% increase respectively. Broadband business will be our key drivers for growth and will continue to offer valuable opportunities in the future. Moreover, to make Speedy closer to the market, Speedy has changed its tagline from "Speed That You Can Trust" to "Lead Your Life".

In fixed wireline business we continue defending the client in (inaudible) revenue through Flat Tariff Strategy. More subscribers are participating in the program and have shown positive results to the revenue of fixed line [price]. The ARPU has been stable for the last six months at IDR106,000 and this program has slowed the decline in the wireline revenue by only minus 8.3% as compared to minus [19]% last year. We hope that this program will continue defending the (inaudible) revenue from further decline.

For fixed wireless businesses, our flexi subscribers increased 18% to 15.9 million subscribers with a total BTS reaching 5,552 units at 12% growth compared to the previous year.

MoU decreased to 6.2 billion minutes and ARPU blended was also decreased to 17,000 in the first half of 2010. In this period, however, we maintained our 56% market share in the CDMA fixed wireless business.

Ladies and gentlemen, in discussing our financial performance for the first half ended, a period ended 30 June 2010 I shall briefly describe and try not to repeat all the numbers that you may have read in the inform-memo posted on our website.

First, balance sheet. Total asset increased by 5% to IDR99.1 trillion. Total liabilities decreased by 4% to IDR49.4 trillion. Minority interest increased by 15% to IDR9.7 trillion and total equity increased by 17% to IDR39.9 trillion.

Second, income statement. Operating revenue increased by 5% to IDR34.2 trillion. Total expenses increased by 8.8% to IDR22.9 trillion, and EBITDA increased by 2.9%. Meanwhile, EBITDA margin decreased by 1.2%. Net income slightly decreased by 0.7%. Third, CapEx decreased by 32% to IDR6.2 trillion. CapEx to revenue decreased by 9.7%.

The revenue contribution for this period was still dominated by cellular revenue with a total contribution of 42% to operating revenue. The second contributor, being data, internet and IT, contributes 30% and then fixed line revenue with 20% contribution. Another contribution was from interconnection, network and other, total of 9%.

Meanwhile, the largest expense proportion was operating and maintenance, which contributes 37% to total expenses. This large O&M expense was in line with additional number of BTS unit. The depreciation expense contributes 32% to total expenses. Meanwhile, personal expenses contribution was 15% going down from 17% last year. We were also able to reduce the contribution of G&A by around 1% from the same period last year.

As of 30 June 2010 the total Group spending for CapEx has reached IDR6.2 trillion (sic -- see Press Release). The CapEx has been allocated to Telkom, Telkomsel and other subsidiaries amounted to IDR1.7 trillion, IDR4.1 trillion and IDR226 billion respectively. Telkom's CapEx was mostly dedicated to the (inaudible) infrastructure. Telkom's sales CapEx was used to increase the capacity and also 3G and (inaudible) and also to improve the quality service in the data.

In IT and multimedia services, our subsidiary Metra has had tremendous revenue growth by 36.5% from IDR332 billion to IDR453 billion for the first half of 2010. Our tower company, Mitratel is now starting to operate Telkomsel's towers on an offsource or minute services basis. Meanwhile, our pay TV operation is now having close to 200,000 subscribers.

To minimise foreign exchange, ForEx impact to our bottom line, we have successfully reduced foreign debt portion by 8% from 25% in the first half of 2009 to 17% in first half of 2010. meanwhile, we received a BB+ rating from Fitch Rating for Long-Term Rating and Baa2 from Moody's for our Long-Term Debt Rating. These ratings expect our leverage and interest coverage to remain strong for its rating category.

Overall, we have improved the revenue and strengthened our balance sheet and developed more efficient organisation while sustaining a better and high quality level of service to our customers in 2010. Moving forward, in the middle of intense competition, we as a management team are committed to maintain the dominant position of Telkom in the Indonesian telco industry and continue to further strengthen our business platforms.

Ladies and gentlemen, that ends our presentation on the Q1 -- first half 2010. Let us continue onwards now with the question and answer session, which shall be moderated by Mr Agus Murdiyatno, our VP of Investor Relations. Thank you.

Now, let's open for the Q&A session. Please note that our directors will answer (inaudible) participants. May we have the first question, please.

Thank you. We will now take our first question.

Hi, this is Sachin Salgaonkar calling from Goldman Sachs. Thank you for the call. I have three questions.

First, I need to know your thoughts on the competition dynamics in the last few months. In the uptake in competition pressures have you seen any material, promotional offerings by the competitors which you think are aggressive enough that you need to respond to it?

Secondly, your O&M cost has increased this quarter, I guess, due to 3G expansion. So should we expect the same trend in coming quarters, as you continue to expand 3G network and invest in backbone?

Can you repeat this question?

My second question was related to the O&M cost increase. Should we expect the same trend to continue as you continue to expand in 3G network and invest in the backbone?

My last question is can you tell us exactly what is leading to the decline in CapEx guidance? Is it slower than estimated piece of investment in 3G backbone or it is better terms from equipment vendors? Thank you.

Okay, thank you for the questions. If we look at what's happened now, if we follow what happens from the first quarter, I think we can say that competitive pressure has now been more stable, is being stabilised.

The first quarter, well, there was an offnet-SMS in which at the time we were basically a little bit late in responding. Now we are responding for any action quite instantly. I think I'd like to add as well, we have improved and upgraded our [links] system so since the beginning or end of July, we have launched the new program we call Simpati program, yeah, Simpati Freedom. That is also to celebrate a new billing system that we have just installed.

We'll see the result going forward but, however, if you look at the market and also our competitors we see that the competitive pressure has been stabilised, and we do expect since we are entering in the Ramadan month, and also in the next 40 days we will have the Lebaran time. So I think the competition we expect will be stabilised. So that is one.

Second, on the O&M, (inaudible)?

I think a bit to add on the Company's dynamic. I think particularly the Simpati Freedom that we just launched. Actually, new features that we tried to introduce and then we just caught a common trend in the market currently is actually to let the subscriber pick what is the best package more suitable for them. Somehow they are more enjoying the [SMS]. They will have a very attractive package for the data and then if they are more like kind of type of people who like to talk in the night more, then that for example --- we also let them pick the data or the package accordingly.

So that's I think the trend of the industry, that actually we let the subscriber pick whatever package that is more suitable to their needs.

Okay, on the expense side, actually the most expense that's being seen in the O&M is actually still on [VPS], right. [VPS] is still referred to the 2G rollout because whatever we aim to get [VPS], the frequency based on the spectrum. Currently, we are still based on the number of BTS. We are looking for what actually this one's going to normalised one. New regulation is going to be launched soon.

Most of the cost additionally is actually related to the powers. Don't forget actually our [VPS] is still the most receipted in the rural area compared to other competitors, find the power cost is still seen higher compared to the other competitors.

On the 3G and fibres, I think it's quite normal. I would say we are quite optimum in doing the 3G operation costs on that side. On the number three CapEx guidance for the Telkomsel, we hadn't really put them - maybe I--

No, I'm talking about in general about the PT Telkom guidance, which has been reduced down from 2 to 1.7.

Yeah, I think there are a few things. We've seen that in the past few years there are a few Chinese vendors coming in, especially into telecom and cellular. We have executed more [E-auction 5] application processes in which the unit price has declined. So there are two reason, because of the pressures and, second, because of the more cheaper unit price from the vendors.

So that is why we are estimating that the CapEx for the year 2010 was slightly lower than 2009. in fact, we have asked our procurement and network team to look into all of those measures, including the capacity, et cetera, so the current guidance is that, okay, we'll make a saving in the CapEx for year 2010.

Okay, right. Thank you.

Just one follow-up question on the billing system. Is this upgraded, kind of the billing system, just restricted to something in Java or Jakarta, or is it on a nationwide basis that you operated your billing system?

It is going to be the whole network. Actually, currently Freedom can be enjoyed by nationwide customers.

Okay, thank you.

I think let me also add it's not upgrading, it's a replacement. So we are buying the new basically system, and that is to make us more flexible and more creative and basically for the billing to be able to follow the marketing strategy that we developed.

So this is just the beginning, because the program is actually taking a year. So what we do is adjust the first phase of the completion. It will be finished by first quarter next year.

Okay, thank you.

Okay, next question is?

We will now take the next question.

This is Sachin Mittal from DBS Vickers. I have two questions. First question is on your general and admin expenses, which are down substantially due to lower (inaudible) and for inventive solutions. I just want to check with you is this kind of sustainable level, can you extrapolate the 2Q GMA expenses going forward into the quarter, moving forward?

My second question is on the fixed line revenue. We have seen stabilisation of the fixed line revenue in this quarter. Again, my question is, is it a sustainable trend?

My last question is on basically your Early Retirement Program, ERP. Should we expect some additional costs due to ERP in the last quarter? That's all. They are my three questions.

Yes, I think on the G&A expenses, I will ask [Prasetio] to answer this.

Thanks. For the G&A declining, basically (inaudible) was from, you know, we had planned a renegotiation of the collection with the [banks]. So for example, from some one person and a certain country to something so basically declining by around 20% to 30%, so that's the significant impact of the Y10 plan compared to last year.

Do you think this is a sustainable change?

Basically, from this number, hopefully, basically we will have a fixed number, because the declinings were from the higher number and now are the lower number, but going forward I think with what we have now. So a fixed number - I mean a flat number.

Okay, great.

Yeah, I think let me rephrase. I think on the collection fee we have been able to renegotiate, so this number depending later on the collection amount this number will be sustained, this amount.

Second on the fixed line, I think we have now from around 8.5 million subscribers, we have been able to reach around 2% - 2 million subscribers who takes up our flat rate programs.

Of course, now the rate of increment of the additional subscribers who takes the flat tariff will be in percentage wise will be lower than before. However, we expect that the current decline will be sustainable and we do not expect that, you know, most of the subscribers who already participated in this program will turn and move to the normal party plan. So we do not expect that to happen currently. I hope is answering your question.

On the third one, on the ERP, I think we have still maintained a possibility of a maximum of basically doing the ERP. Don't forget that next year we will have a (inaudible) from the ending of the (inaudible) so if we do ERP this year it will be smaller than before and will be smaller than next year. So our maximum, if we do it, it would be around IDR500 billion. Thank you.

Okay, thank you much.

The next question.

Good afternoon, it's Colin McCallum here, Credit Suisse. Three somewhat interrelated questions, I guess, for [Shin Numa] or Herfini. Can you give us some indication of how much revenue smart phones are now contributing to Telkomsel, perhaps as a percentage of total revenue as at the second quarter, or even better if you can give us some sort of idea of what you think might be contributing to the growth rate year on year for Telkomsel's revenue?

Secondly, just to ask is anything likely to happen in terms of Blackberry issues with the regular in Indonesia? Have you guys heard anything about that and would it have a significant impact if there was going to be some change in the rules on Blackberry?

The third question is just on the network site. Can you tell me for Telkomsel's network right now what percentage of the network base stations are connected by fibre rather than microwave, and what are you plans for increasing the fibre component going forward? Thank you.

Yeah, I think on the smart phone, we have - let's see - currently our broadband revenue is actually occupying around 6% of our total revenue, (inaudible) 6%. I think we still see most of the contribution is actually coming from the smart phone, even though we are quite proactively also selling our dongle base, right. But seeing the easiness of our customer using the smart phone as the main equipment for data access we do believe I think the smart phone sale contributing around quite close to the 80% actually of the total revenue.

So we still see that this is still going to be growing due to the easiness of the, well, a huge number of customers getting an access of the smart phone. But like I said earlier, we are still proactively selling our dongle as potential increased sector of broadband revenue later on.

Don't forget we already have the second carrier for the broadband, so I think competing or offering the surface that our customer needed either with smart phone or even on a wide screen basis I think it is still going to be our commitment in the future.

On the second, I think, [Parin] will get back to you on the broadband issue related to the government. To make it short, I think we always comply to whatever our government regulatory is going to be leading to into this Blackberry issue. Definitely there will be a saving if it is being shifted to the local for example, but I think we are going to be complying with whatever regulatory going to be set up on the Blackberry matters.

On the Telkomsel percentage using the network fibre, for sure I think we can confirm that currently for the 3G, most of our 3G is actually being supported by fibre from the Telkomsel, by PT Telkom. We are using a lot of [Metra E, G Pond], all the networks that - yeah, maybe not later Rinaldi will add also some.

Microwaves heavily we are still using it on the 2G so for 3G, like I said, most of our 3G (inaudible) is actually supported by the fibre.

Thank you. Just if you were to give us a percentage of the network that has 3G base stations on top of 2G. What sort of percentage of your total network would be 3G network now?

I think the one that is building the fibre optic networks for Telkomsel is Telkom network efficient. Currently, 3G for Telkomsel is around 25% to 30%, has already been there. the fibre optic which is connecting all the 3G BTS of Telkomsel is now available in 24 cities of Indonesia, and if all 100% are [supported] by the fibre optic for the time being and will be on that basis going forwards.

I think on the Blackberry situation, we are basically - we do not really see as of now that as being the priority by the regulator. I think the more priority, although this has nothing to do with the revenue, et cetera, the more priority now from the regulator, because we are entering into the fasting month and the (inaudible) is more to the porn content and the triple-X content.

So I think that is the priority currently being put by our regulator and we have had a few meetings to discuss on that while on the Blackberry we don't really have in the time for question and answer meetings by our regulators. I think that is what we can answer for now.

Thank you very much, [Pak], very clear.

Moving to the next question.

Good afternoon, this is Luis Hilado from HSBC. I just have three questions. Just one bit of housekeeping. I noticed that the cellular voice revenues of PT Telkom were up 15% QoQ, but for Telkomsels, it seems to be only 6%. What is driving the differential?

Second question is you've mentioned that Mitratel has started managing Telkomsel's towers on the outsourcing basis. Will this lead up to the transfer of the towers? What's the timetable in that right now?

Last question, if I could get any update on potential CDMA joint ventures with any of the operators.

So we had put Mitratel as our sole tower provider. Mitratel is 100% wholly owned by Telkom. So in lieu of the potential March 2011 implementation of the ministerial decree, of which basically one is the tower must be shared and, second, that tower operator must be fully local. That's why we are installing and [floating] Mitratel to be fully tower provided.

Now actually Mitratel has two sources of tower. One is from Flexi. Even from Flexi it has not made it 100% because it is on stages, or transferred to Mitratel, and that is for sure. While on the Telkomsel tower we still have a discussion with our partner from Singapore so meanwhile in order to lose time, because if then the time pass and the tower has not been shared with other operators, especially on the common area, then on the operational level we agree to let Mitratel managing the (inaudible) on the minute service basic and outsource basis.

Of course if the discussion with our partners on a tower is finished then it can go directly to Mitratel. However, until now we cannot give you a specific date when would the discussion finish.

Second, on the potential CDMA, I think, yes correct, we have talked to [BTEL]. In the past we also have talked to other operators. I think the intention, as we mentioned before, was to have the CDMA consolidation going forward. However, up to now it's still on the discussion stage. Later if we agree on something, or not agree on something, we will let you know further. We cannot give further information because we haven't signed anything yet. But the intention, yes, we like to have CDMA to get consolidated because of the spectrum, because of the market, the price has, the difference is lowered before et cetera, and for other purposes. I think that is the explanation. Thank you. To answer the first question, I'll let [Prasetio] answer that.

Thanks very much. So you're right. Increasing of the SMS revenue QoQ (inaudible) Telkomsel's revenue -- so if we compare the SMS revenue to Telkomsel's revenue, the QoQ increasing is 6% but in this case, if we compare the total revenue as consolidated and we compare to consolidated (inaudible) so the QoQ is increasing 3%. So (inaudible) because if you will see the operation of Telkomsel revenue is itself at 6% but if you see the consolidation [operation], that's at 3%, that's the explanation. Thank you.

There seems to be cellular [voip] that's up 15%. Is that correct? I guess is it Flexi driven also? Does Flexi has a very strong revenue gross in the quarter?

Absolutely. That's purely Telkomsel's revenue, (inaudible).

Hi, this is Navin Killa from Morgan Stanley. Thanks for the conference call. I had three questions. The first was, if you look at your total consolidated EBITDA and we subtract the Telkomsel EBITDA, what we kind of notice obviously is that the fixed line, or however you define it, non-Telkomsel EBITDA, that number is up significantly from almost IDR2.6 trillion in the first quarter to IDR3.1 trillion in the second quarter. I was just trying to understand what are the drivers? I mean, you've talked about fixed line revenue stabilisation but I would struggle to kind of attribute all of that to that factor.

So I just wanted to understand what is driving that now, can you see that driving forward? Again, a kind of house keeping question. The 3 million odd mobile broadband subscriber numbers that you have disclosed for Telkomsel, if you could give us some break up between people on dongles, Blackberries and those who are taking your bundle packages? Just relating to the previous question on fibre was (inaudible) Indonesia. I know you know, 18 months ago there was this Palapa Ring project that was started by the government. If you could give us any update on you know, where that project is heading and what Telkomsel still intends. (Inaudible) Thank you.

(Inaudible) Additional information that we can share is actually currently 15 million subscribers from Telkomsel actually have accessed the data. This figure is definitely going to be continued because the figure was around 13 million around a quarter ago and it has been improved to 15 million. I think that the pick up of the data take-up is very promising in this market. On the breakdown side of things, I think sure, I think definitely off line, I think that we will share with you in more detail way Navin, but for sure like I said earlier, mostly the smart phone contribution is still the biggest, right. The detail I think we'll share off line with you.

Then for the, okay, related to that I think you also asked about the (inaudible), I think [Parin] will be giving an answer.

On the EBITDA, non-cellular first. (Inaudible) EBITDA of non-cellular why increasing if we see the QoQ, one is because the topline, the revenue of (inaudible) also was increasing 3.8%. Another side, the operating expenses declined 1.7% and of course that is because of the personnel costs. It's a very significant decline. It was 17% because of the impact of the ERP. So that's why EBITDA QoQ on the non-cellular increased. Thank you.

Okay. Second on the fibre optic, we have basically moved on the projects on the Eastern part of Indonesia from Mataram to Kupang. It's ongoing. On the onshore basis some of the project has been finished and done. We are now in the state of the submarine cables. We do expect the first quarter of 2011 at a total Mataram Kupang fibre optic has increased. The good news is actually while we just (inaudible) another fibre optic project in the Eastern part of Indonesia.

Actually the traffic for example, from you know, Java to (inaudible) actually the traffic has increased better than inspected so we are increasing the number of capacity for our fibre optic in the Eastern part of Indonesia. So that is the information. On the other part in, with from the top part of Indonesia from Sulawesi to Papua, we have not started yet. So we will let you know once we decide to start on the other loop of the Palapa Ring going forward. I think that is the progress made so far.

However, I'd like to add actually on the backbone fibre optic we have been able to make the loops for almost 14. 14 loops all over Indonesia. So the Western part of Indonesia practically is already covered with the loop. 14, so we have a much more reliable network capacity and that is actually able to serve you know, our customers in a much more better quality and reliability. Thank you.

Sorry, if I can just follow up on that. Is there any form of risk of regulatory intervention that you kind of need to make available, all of this capacity to your competitors, and what are you trying to do to manage that?

Well, if we follow, for example in the Palapa Ring, actually it was open to all operators this early and mine operators participated initially to basically develop the project in the form of consortium. However, then the number declined to only three from those numbers and when we decided to build the number declined again only to us, to one. So we have actually all the arguments to get to the government. While we built this we already offered it to our other competitors to build the same with us but they don't build. So I don't think that the government would ask to a certain degree as what you said, because all of the history on the development was there.

So the same we expect to happen in the other Eastern part projects. In addition to that actually the capacity now, because of the fibre optics that we made connected to Telkomsel's 3D network, plus the increase of the Speedy number of subscribers. Actually capacity is also been used by our networks. Thank you.

Thank you. We will now take our next question.

Hi, it's Kelvin Goh from CIMB. I have two questions. I just wanted to, regarding your guidance of single digit revenue goal and even a margin of a slight decline, that's a decline, that's a drop from your guidance that you issued during your first quarter and the briefing. Back then you are guiding for group revenues to grow in the high single digit, now it's a single digit growth. Margins back then you were guiding it for it to be up slightly, now you're guiding for it to decline. Could you tell us what has changed. In relation to that, given that your GA, your bad debt collection has come down substantially and you expect that to sustain, I'm still wondering why you are guiding for decline in EBITDA margins?

Okay. I think if you look into the numbers, as you said, like a collection fee, there is a potential that this year the collection fee is declining and on the EBITDA margin, yeah, we do expect actually a stable EBITDA margin going forward. Yeah. We do expect that the revenue, especially because the second half of revenue is normally higher than the first half of the revenue so it will definitely, going forward, how do the operating costs. So I think we do expect actually, the EBITDA margin would be as stable since Telkomsel has come back in the second quarter.

No, but I mean, that's exactly my question. I mean, you were initially guiding for margins to be higher in your previous quarter and now in your current quarter guidance you were expecting it to be lower and you know, what has caused this lower guidance, not just for the margins but also for your revenues?

(Inaudible) no, I think as we said, we do expect the EBITDA margin will be stabilised for the year ahead.

This is even despite the fact that you expect the lower G&A to be sustained?

Yes. I think we do expect on the collection fee, yes. However, we do expect some actually on the [BHP] frequency. That is the area in which we are still looking for word on what is going to happen on the [BHP] frequency. Up until now there are a few things that we are talking to the regulator.

Correct me if I'm wrong but you know, when calculating your general main expenses the percentage of revenue, it's fallen to like, 0.8% of venue versus close to 6% the previous quarter. Are you suggesting your G&A to be that low going forward as a percentage of revenue?

Basically happen, you know, calculated yet but what we have done to (inaudible) the CapEx ratio but I don't think basically will decline in terms of percentage but okay, let me check this. Thank you.

I think it's better that you go off line to our financials, because to get clarification on this G&A, yeah. So the details about that, we will be providing later.

I will arrange a call for you with (inaudible), yeah.

Alright, thanks.

Okay, next question please.

Thank you.

Hi, thanks for the call. This is Foong Choong Chen from BNP. I've got four questions. Firstly, I just wanted to ask you on the net adds for Telkomsel during the quarter, a lot of them are coming in the (inaudible) segment. I'm wondering whether, are these the same Simpati subscribers that churned out earlier in the first quarter and could you also comment on the quality of subscribers in this segment. Traditionally do you see higher churn rates for the (inaudible) subscribers?

Second question is with regards to your O&M expenses. I think you explained earlier that the BTS rollout has been quite quickly rolled out in the second quarter and therefore your two [GPs] frequency fees is up as well. I'm just wondering whether this is front loaded in terms of BTS rollout? Because it seems to me that there were quite a lot BTS put in place in the second quarter versus the three quarters before that. Then the third question is with regards to the guidance of Telkomsel. You're guiding for single digit revenue growth. I'm wondering why you're not more optimistic on this guidance, because your first half revenue is up 13% year on year and you're probably going to add more in the second half versus the first half. So maybe you can explain a little bit on why you're being a bit more conservative on your revenue guidance for Telkomsel.

Then the last question is in regards to CapEx. Now that you've guided down to US$1.7 billion, I'm wondering whether you also think that your CapEx to sales ratio for the next few years will also being going down much faster than earlier guided?

We have launched a very aggressive or attractive program in that they come to us in the second quarter, right, or at the end of quarter one. We are all familiar with the market in Indonesia that (inaudible) [introduction] is happening, you know, along the business of Telkomsel itself because in a way, that is always like a kind of very attractive offer in one product compared to the other product for example, yeah. This little thing, the [introduction] is still much more healthier than (inaudible) churned. On the quality of the customer, we can tell Telkomsel is very strict in applying the churn procedure with an internal subsidiary itself. Whoever outside the (inaudible) actually we've never been reporting our customers, we are very strict on that.

Churn rate, we are one of the best, I believe the best in the market in this country. I think our churn rate for total [blended] product is around 8% to 9%, worst case has ever been happening actually, even in the worse case time which was in 2007 I think our figure is under 11% or 12%, it's never been worse than that. Maybe you can add some more on the --

As mentioned (inaudible) we launch the promotion on (inaudible) while the expatriate also attack us in the certain area (inaudible) and Jakarta. That's why we attack also in those regions and we know the gain of markets (inaudible) in those regions is really huge numbers, around 4 million in Sulawesi, Sumatra and the greater Jakarta.

The 2G one, maybe I may add a bit. If you take a look at our pattern, normally you know, we start consuming the budget of CapEx normally in the early stage of the quarter right, and then we can see the development time normally taking like three to six months if it is a new site and then it could be faster if we did an upgrade. The second quarter is normally the heaviest site build that is happening in the network to consider that actually the Ramadan season is going to be happening in the third quarter, that's the reason actually the second quarter for this year is actually the heavy load BTS build.

On the ongoing, coming forward, quarter three and four, we have some carry over of costs coming from the previous quarter. I think based on our guidance, I think the new BTS build is going to be around 4000 to 5000, so that's still the guidance that's going to be given to the market. On the single digit, maybe [Parin] may add later on, definitely our guidance remained the same from the beginning of the quarter, of the year. Actually we are starting with a figure that we are very confident at. I will take a look on the market. True, our second quarter has been very strong to us. Don't forget also, if you talk about the year on year basis, we had a very strong end year in 2009. We are confident that Q3, Q4 is going to be a strong quarter also for us, especially the seasonal, the festive season is there, but for this time being we are still more profitable to remain to our guidance to give extra single digit growth as our end of the year guidance.

We might review it in the coming quarter three, but for this time being, like I said, I think we'll stick to that figure, although we are confident, yeah. Back to you.

I think the time is up now.

Yes, it is Agus.

Okay. Well, thank you everyone for participating. We look forward to updating everyone in a few months to review the first quarter results. If you have any further questions, please feel free to contact us to see who can help you. Before we end our conference call I would like to ask our CEO for this quarter, just finally.

Thank you everyone for participating. Ladies and gentlemen (inaudible) leader in cellular, fixed wireless and broadband services. First half of 2010 is as important (inaudible) of the industry. (Inaudible) there are opportunities to explore in our fixed line. We are working hard to synergise all elements in Telkom to make sure that our customers' needs and wants of communications, information, technology services may be accommodated satisfactorily at the best price at the best (inaudible). Ladies and gentlemen, thank you again and have a great day.

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