Telkom Indonesia (Persero) Tbk PT (TLK) 2010 Q3 法說會逐字稿

This is Premiere Global Services. Please stand by, we're about to begin.

Good day, everyone, and welcome to the third quarter 2010 results conference call. Just a reminder that today's call is being recorded.

At this time for opening remarks I would like to turn the call over to your speaker for today, Mr. David Burke, Executive Vice President, Strategic Investment and Corporate Planning. Please go ahead, sir.

Thank you, Natasha.

Ladies and gentlemen, thank you for participating in today's conference call to discuss the nine months of our 2010 results.

Last Friday, on October 29, 2010, we released our financial results for the nine-month period ending September 30, 2010.

This press release and other materials are available on our 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.

With me on the call today is Mr. Rinaldi Firmansyah, Telkom's Chief Executive Officer. He will be giving you an overview of the results after my opening remarks.

I will then conclude with a brief overview, after which we'll take your questions.

Before beginning, I'd like to remind you that today's call, and the responses to questions, may contain forward-looking statements within the meaning of safe harbor. 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 the 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, it is my pleasure to introduce the Telkom Board of Directors, who are joining us today.

As I mentioned earlier, Mr. Rinaldi Firmansyah as our President Director and Chief Executive Officer, Mr. Sudiro Asno, as our Director of Finance and Chief Financial Officer, Mr. Ermady Dahlan, as Director of Network and Solutions and Chief Operating Officer, Mr. Arief Yahya, as Director of Enterprise and Wholesale, Mr. Nyoman Wiryanata, as Director of Consumer.

Also present today are the Board of Directors of Telkomsel, who are joining us. Mr. Sarwoto Atmosutarno, President Director, Mr. Triwahyusarii, Director of Finance, Mr. Leong Shin Loong, Director of Commerce and finally, 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. Pa Rinaldi, the time is yours.

Thank you, David.

Afternoon. On behalf of Telkom's management and employees, I would like to thank all of our valued shareholders and stakeholders for your support and business to the Company. We appreciate your attendance on this conference call.

Before presenting the nine months of 2010 results I would like to take this opportunity to give a brief overview of Telkom Indonesia.

Telkom is the largest integrated telecommunication company and network provider in Indonesia.

Serving more than 120 million customers nationwide, we provide a strong portfolio of information and communication services, including fixed wireline, fixed wireless telephone, mobile, cellular, data and Internet network and interconnection services, directly or through our subsidiaries.

As of September 30, 2010, the majority of our common stock, 52.47%, is owned by the government of Indonesia, with the remaining 47.53% under public ownership.

Our shares are traded on the Indonesian Stock Exchange, the New York Stock Exchange, the London Stock Exchange and also publicly offered without listing on the Tokyo Stock Exchange.

Ladies and gentlemen, throughout 2010 we have continued to expand our business and delivered an increase in revenue directly and indirectly from the parent Company and our subsidiaries.

As of September 30, 2010, we have majority ownership in eight subsidiaries.

In the last quarter we increased our ownership in Sigma, Indonesia's leading IP services and applications provider, to 100%. And also increased our shareholding in SCICOM Berhad, Malaysia's leading business process outsourcing company to 29.71%.

Both these transactions were executed via our wholly owned subsidiaries Metra and TII respectively.

Our subsidiary Metra also formed a new joint venture company with the MelOn Indonesia with South Korean Telecom, SKT, on August 16, 2010.

MelOn is targeted to launch in November this year with the [exciting new venture] to provide a wide range of entertainment options for our subscribers, including full track music downloads, videos and extensive library of local and international content, accessible by all our customers via the online [membership card].

Metra has 51% ownership shareholding in PT MelOn Indonesia as of September 30, 2010.

Our tower company, Daya Mitra, has actively begun trading with a number of telco operators and is rapidly expanding its coverage to serve the industry.

Meanwhile, our Pay TV brand, TELKOMVision, achieved over 200,000 subscribers with revenue increasing 43%.

In line with our Company's vision of TIME, Telecommunication, Information, Media and Entertainment, we've continued to enhance our infrastructure development, deploying next generation network, NGN technology. This deployment serves as the pipes to deliver our services as we face a more competitive landscape we are enabling and empowering home and business customers alike by delivering data quality, speed, reliability and customer service.

Ladies and gentlemen, now let me provide you with some of the highlights for the nine months 2010 results.

Telkom consolidated operating revenue up to IDR52.1 trillion, or 3.9%.

Cellular subscribers' base grew by [70%] year on year to 93.1 million subscribers during the nine months 2010 with a total net add of 11.5 million subscribers for the year to date.

Broadband subscribers rose by 155% to 6.38 million, with data, Internet and our IP services consolidated revenues increased by 15%.

The decline in voice fixed line revenues slowed to 8.8% in nine months, showing that our fixed business improvement program, FBIP, was improving the retention.

Now I shall present the operational and financial performance results for the nine months of 2010.

With 93 million subscribers, we are still the leading provider in the cellular market with around 47% market share.

In the nine months, total cellular BTS has reached 35,300 units; 19% growth compared to the same period last year.

Cellular revenues contribution IDR22.1 trillion, a 3% increase compared to the same figure in the previous year.

Our broadband services also showed strong growth with total 1.5 million subscribers in fixed broadband and 4.3 million subscribers in mobile broadband; up 56% and 211% increase respectively.

Fixed broadband and mobile broadband revenues contributed IDR2.7 trillion and IDR684 billion; a 44% and 101% increase respectively compared to the same period in previous year.

Our total number of fixed wirelines decreased by 4% to 8.3 million subscribers. Meanwhile our fixed wireless business flexi subscribers increased 13%.

Total BTS had reached 5,580 units, increase by 5% compared to the previous year.

However, the MOU decreased to 9.2 billion minutes and ARPU blended decreased to IDR17,000 in the nine months of 2010.

In this period, however, we still maintain our position as a market leader in fixed wireless business with approximately 57% market share.

Fixed wireline and fixed wireless revenues contributed total of IDR9.8 trillion.

We continue defending the decline in voice revenue through flat tariff program, fixed business improvement program -- FBIP. We are seeing more and more subscribers participating in the program.

As of September 30, 2010, we have around 2.2 million subscribers registered in the FBIP program, amounting to approximately 25.8% of total fixed wireline subscribers.

The total incremental revenue during the third quarter of 2010 from this program was over IDR98 billion.

Ladies and gentlemen, I shall now briefly present the financial results and try not to repeat all the information that you may have read in the interim report posted on our website.

One, balance sheet on year-on-year basis. Total assets increased by 5% to IDR100.1 trillion. Total liabilities decreased by 3% to IDR46.4 trillion. Minority interest increased by 12% to IDR10.9 trillion. Total equity increased by 14% to IDR42.7 trillion.

Income statement, year-on-year basis. Operating revenue increased by 3.9% to IDR52.1 trillion. Total expenses increased by 8.4% to IDR34.9 trillion. EBITDA increased by 0.3% to IDR28.2 trillion. Meanwhile, EBITDA margin decreased by 1.9% to 54.2%. Net income decreased by 3.9% to IDR8.9 trillion.

Revenue contribution for this period was still dominated by cellular voice with contribution of 42% to our total operating revenue.

The second major revenue contributor was data, Internet and IP, including SMS, that contributed 30%, followed by fixed line with 19% contribution.

Interconnection, network and other totaled 9% contribution to total revenues.

Meanwhile, for our expenses, O&M, 37% of total expenses. This operating and maintenance expense was in line with the additional number of BTS.

Depreciation expenses were [8%] of total expenses.

Personnel expenses contribution reduced to 16% while interconnection, G&A and marketing totaled 17% contribution to total expenses.

As of September 30, 2010, total Group spending for CapEx reached IDR9.6 trillion. CapEx allocated to Telkom, Telkomsel and other subsidiaries amounted to IDR2.7 trillion, IDR6.4 trillion and IDR471 billion respectively.

Telkom's CapEx was utilized to enhance backbone infrastructure. Meanwhile Telkomsel's CapEx was utilized for acquisition of network infrastructure.

Overall, we have a strong quarter for data, Internet and IT services. Meanwhile the fixed line is declining.

The sector for the data, Internet and IT services is an important growth driver for us.

We particularly like to see the surge in the broadband customers and feel that our investment in high speed Internet infrastructure, along with our aggressive marketing of this offering, is paying off.

Ladies and gentlemen, that ends our presentation of the nine months of 2010.

Let us continue onwards now with the question and answer session and shall be moderated by Mr. David Burke. Thank you.

Thank you Pa Rinaldi.

Now, let's open for the Q&A session. Before raising your questions we would appreciate if you could clearly state your name and company. Please note the BOD will answer directly after each question in posed by the participants.

Natasha, may be have the first question, please?

Thank you, Mr. Burke. (Operator Instructions). We will now take our first question.

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

Firstly, I wanted to know your thoughts on competitive dynamics in the market, particularly outside Java. Are you seeing any heightened activity from Excel and Indosat in the last two to three months?

I also wanted to understand the uptake of some of your low revenue per minute packages which you recently launched.

Secondly, your expectations on growth rate for the cellular industry in 2011 and do you expect Telkomsel to maintain, gain or slightly decline market share going forward?

And lastly, any updates on timeline of the tower stake purchase from SingTel and potential merger with Bakrie? Thank you.

Okay. Thank you, Sachin. What we'll do is we'll go through first, just repeat your questions quickly.

Competitive position outside Java for the last three months.

Some analysis or some talk or statements on us regarding the low revenue packages that we've just launched.

Our growth that we see for Telkomsel through to 2011.

And last, but not the least, you are asking a question regarding the tower merger and also the potential discussions we've been having with [Asia] on the CDMA. Okay.

We'll now move to our next question.

Can we just handle this one first? Thank you, Natasha. We'll handle one question at a time. Thank you.

Okay, we start with the competitive position outside Java.

Hello. This is Shin Loong here. As you know that historically Telkomsel have been strong outside Java, especially in Sumatra, Kalimantan and Sulawesi and the Papua areas.

The -- probably part of the natural growth of the industry as our competitors have brought out in Java is make sure that they go into Sumatra, Kalimantan and so on.

We have been seeing their activities over the last few years and over the last 12 months there was increased activity in Sumatra. And I think not too long ago one of our competitors announced that they're going in the Kalimantan and so on. Actually they have been there for some time already.

So, in a sense, is there heightened activity? One can look at it, yes and no. Yes, they are there. No, we have been competing all along so it's probably not earth shaking news.

Anything you want to add on to my response to first question?

Okay. We'll move on to the question regarding the new low revenue packages. Who'll be taking that one?

I'll take that. Okay. The low volume packages is within our expectations. We are quite happy with that.

And last, but not the least, growth pattern or guidance for 2011.

Okay. We are looking at the numbers now. Once we have finalized our analysis and then our targets for the new year I think Telkom will give the guidance once we have that.

Okay. Thank you, Shin Loong.

I'll take the question regarding the towers and also flexi.

Just to bring you up to date is that in the case of the towers we are still doing specific review on issues to do with tax and regulation. And these have to be done prior to us moving forward.

The simple reason for this is that we to have ensure that once the deal is concluded it has the best possible results for all stakeholders.

In the case of the flexi easier discussed or, shall we say, potential merger, what we are doing there is that we're also reviewing a number of non-commercial issues to do with regulation, also to do with human resource.

These are all areas that we feel we must address prior to any further announcements are made. Once again, the reason why we are going through this process quite diligently is simply because we want to avoid any impact, or negative impact, to any stakeholder process once it's actually completed.

So we'd just like to inform you that those are still ongoing, but we're just making sure that we're doing the right thing.

Okay. We'd like to move on to the next question, please.

We'll now move on to the next question.

Thanks. Good afternoon. It's Colin McCallum here, Credit Suisse. I just had two questions, both Telkomsel related.

Firstly, if Shin Loong can just give us some guidance on the EBITDA margin. I think that fell a bit quarter on quarter. Was anything specific driving that in the third quarter? And is your overall thinking that, I believe Telkomsel guidance earlier was that margins would be only slightly down year on year, for the full-year 2010. Is anything happening that's changing that outlook from you guys on the EBITDA margin at Telkomsel?

And then the second question is a slightly wider question. Have the recent packages that were previously mentioned -- does that represent a change in strategy on your side?

Is your strategy still to be focusing on profit and EBITDA maximization rather than chasing market share by subscriber? Is that still your strategy? And are these latest packages that you've launched still in line with that strategy? Or have you actually changed strategy and you now feel that you must go for subscriber growth to protect your scale advantages? Thank you.

Colin, we'll start off with the second. We'll go to Pa Shin Loong regarding the strategy on the recent packages, which I think he's going to repeat [himself from the] first question. And then we'll move on to the CFO regarding the EBITDA margin.

Okay, to answer your question, basically we have not made any changes to our strategy.

Both the -- the three branches that we have, kartuHALO, Kartu As and SIMpati have been strong and able to grow quite well over the last few months. But unfortunately, we see the low value packages coming into the market, introduced by somebody in April at IDR50 per minute and then subsequently followed by somebody else at IDR25 per minute.

We waited and we took a look at the outcome. It wasn't too bad but at the same time, we see that we are losing share in the -- what we call the switching markets. That is still a significant amount of money in there. And, therefore, we have launched the IDR20 per minute package to address that segment.

So we are looking at this as a particular step, not a change in strategy. My strategy still remains to maximize profits for the Company and to go for the higher value subs. But at the same time, I'm not willing to walk away from a segment that is actually not too bad.

Thank you Pa Sin Loong.

I've got it. That's very clear, thank you.

For the question with EBITDA margin for Telkomsel, considering the competition currently, so we expected that our EBITDA margin at this year-end is declining around 2% until 3% compared to last year's.

And was there anything particularly in this third quarter that occurred on the costs side that is particular to the third quarter? Or we should expect these operating cost levels to continue going forward?

No I think for the next quarter there is a flat year quarter on quarter. And why in the third quarter is slightly higher than the last quarter, because there is also the seasonal in the third quarter of [Lebaron]. So it is our expense more than the last quarter.

Got it, okay, thank you very much indeed.

Thanks Colin, next question please.

We'll now move on to your next question.

Hi thanks for the call. This is Arthur Pineda from Citigroup, three questions for me.

Firstly, I'm wondering what your thoughts on these IDR20 to IDR25 per minute packages. Do you really think that -- don't you think that those will actually serve to dilute the revenues or is there any embedded upfront cost to offset RPM dilution? I'm not sure if I'm misreading something here.

Secondly, could you please remind me how much you're planning to book for ERP for this year and how much has been booked as of 3Q?

And lastly, is there any discussion for you to better manage your balance sheet going forward [through your] underleveraged and you could actually afford to pay more.

Arthur, I just want to repeat this, so I make sure that we get this right.

The first question is regarding the new packages again of the IDR20. Do you think it will be diluting revenue?

Yes.

The second is really taking a look at the -- sorry the end of 2010, hello?

Yes, the ERP targets for this year.

Our guidance for early retirement planning for 2010.

The last question is regarding the balance sheet, whether or not we're going to do anything ourselves about the current leverage position of debt, yes?

Okay, well I think Pa Shin Loong has answered many, many times already regarding this question. So if we don't mind, we just want to make a statement now to all in the room that if you're going to ask any further questions on the IDR20, Pa Shin Loong has already answered it twice. This will probably be his final answer on the IDR20 package. So please try and omit that moving forward.

So we'll give that back to Shin Loong for the third time on the same question.

Okay, let's answer the same question a different way.

As I mentioned earlier, there is a segment of what we call the floaters that will move from operator to operator based on the latest promoters out there. And that segment is still -- there's still good money in there. So I'm not willing to walk away from that segment. It will mathematically dilute some of the RPM but I expect the revenues to be positive.

And do you feel you need to raise your CapEx accordingly based on this?

Sorry?

Do you feel that you may need to raise your CapEx to raise your utilization rate?

No, we have enough --

Sorry I think I can add also, don't forget that this is the year end. We like to end the year end with a good market share as our basis, as our fundamental for a better year for 2011.

So I think that is also creating [new] products.

Okay, just one last point, let's say I think the IDR20 per minute is actually a promotion with limited duration, okay? And at the end of that program we will review the effectiveness and the impact on our revenue and so on and then we will decide accordingly.

Yes, the next question that we are going to address for you Arthur is our ERP target for 2010. And then followed after that, the balance sheet, to see whether or not we're going to make any changes to our leverage, Pa Sudiro.

Okay, thanks for the question.

Yes, for the ERP fiscal year, we have already (inaudible) on [IDR500 billion]. However, due to the accounting standard implementation, basically we haven't [just yet] implement the ERP for this year.

And last question about the leverage of the balance sheet, now as of September 30, Q3 of this year, we had IDR22.5 trillion in our equities of IDR42.7 trillion. So I would then allow [IDR52.7 trillion].

So I think until the end of this year, I think it's still in this level of 52%, 53%, 55%.

And our gearing, of course only runs at 51%. So that's our -- and there is no change of this leverage until the end of this year. Thank you.

Thank you Pa Sudiro. Could we move on to the next question please.

(Operator Instructions). We'll now move to the next question.

Hi, it's Riaz Hyder here from Macquarie. Thanks for the call guys, just a couple of questions.

Just firstly on wireless broadband, can you give us a split between, with your subscribers, the number of USB dongles versus 3G handsets? Also what your incremental ARPU is for new Flash subscribers?

And do you have a target in mind for both the number of subs and also what the ARPU will look like say 12 months out?

And then the second question, just on your 3G network, can you confirm how many node Bs you've currently rolled out and how many you plan to roll out over the next 12 months?

And then what you're seeing in terms of growth in data traffic on both your 2G and 3G networks. Thanks.

Riaz, just let me re -- sorry, you went through that very quickly.

First of all wireless broadband, you want to know the split between 3G handsets and dongles. And also what we are seeing by way of ARPU on the incremental net adds, correct?

Yes, for Flash.

Okay, second -- sorry for Flash, right.

The second question on the node B, where do we see ourselves moving over the next the 12 months by the way of rollout, right?

And also having a looking at traffic 2G, 3G traffic pattern right?

Yes and then number of subs for Flash say over the next 12 months, along with ARPU over the next 12 months on Flash.

Okay, so subs and ARPU guidance for the next 12 months on Flash.

Okay, if you just hold on one second.

Okay, Riaz, Pa (inaudible) is actually in the room, so he will take the question on the node B.

For node B, so far this year we have already rolled out 2,000 plus. Probably the end of year, it's about 2,500/2,600 maybe.

But for going forward next year, we have a plan to roll out about [1,100/1,200] node Bs.

Does that mean (inaudible - multiple speakers) total for next year, sorry?

About 1,000, probably 1,200 node Bs.

Okay.

Now we have the question on the wireless broadband.

On the wireless broadband, from the 4.3 million subscribers, around 12% is basically using dongle, while the rest is using 3G handsets. That's about the number.

12%, so one, two?

Yes, correct.

And on the ARPU?

Today ARPU is still around IDR30,000.

Pa Sarwoto has just confirmed that currently the ARPU is still around IDR30,000. We don't have any guidance today for the future ARPU over the next 12 months.

Okay, because your ARPU actually came down to IDR30,000 currently. So that means, obviously, that your new subscribers that you're picking up, I'd imagine, would be lower than IDR30,000, correct or -- am I --?

In addition, I think that for broadband ARPU, we will introduce more and more Smart illumination. So it will affect the ARPU blending business.

Hold on Riaz.

Hi, this is Herfini here, I just want to add a bit.

I think the question on the 2G/3G split, we expect it's going to be getting less of headache for us, since moving forward all the vendors, all the big vendors, actually already have, what we call the single RAN.

I think by buying the single RAN equipment, I think we can just see how is the situation and actually fit the 3G/2G accordingly. It's just purely a software capability.

I think in the future, I think it's going to be more in the direction over the numbers, that's been proved by the (inaudible) before. I think roughly on that direction. Just that because of the flexibility and the technology maturity on the single RAN and SDR single defined radio, I think it's going to be quite flexible for us.

Thank you Herfini. Natasha, we'll move on to the next question. Thank you.

Thank you, we'll now move on to our next question. Please go ahead.

Hi, good afternoon, this is Luis Hilado from HSBC. I just have three questions, two of them on --

Could you speak up. Sorry, could you speak up. We had difficulty hearing you then.

Yes, hi this is Luis Hilado from HSBC. I have three questions, two of them on the third quarter results and one on the future investments.

The first question is just looking at the fixed line revenues for the third quarter alone, any particular reason why it's down 5% q-on-q? Any one-off reason for that or should we believe this will carry forward at that decline rate?

And on the OpEx side, I'm just checking on personnel expenses, a 23% q-on-q increase, was there any ERP booked in that quarter or any other one-off?

And that question is a broader one in terms of what kind of budget would you have for the IME CapEx going forward? And what type of targets would you be looking at, locally and overseas?

Thanks Luis, just to repeat your questions.

First of all, looking at the fixed line revenues, you want to have some -- a deeper dive into what was the 5% q-on-q decline in revenue.

Your second question is regards to the OpEx, especially on the personnel expense line, to find out what happened on the q-on-q there.

And last, but not the least, is the budget projections that we have CapEx wise for our IME. Okay IME.

So we'll move on to Pa Sudiro, our CFO, who will handle those three questions. Thank you.

Three questions?

At least the first two.

Yes, okay, thanks. Luis, yes, as we know, I think our fixed line revenue basically declining if we see the trends there. And it's specifically for the q-on-q in Q3, we decline if voice fixed line continues, in other [words], 7.6%.

This is especially for the fixed line view because this is basically very sensitive to the number of working days of the usage. So because (inaudible) was -- we had Lebaron in Indonesia, so we had a long holiday. So actually in September we only had 14 days or 15 days, working days.

So this is basically in Q3, the number of working days is shorter than other Qs, especially in Q2. So that's why our fixed line continues to decline around 7% in Q3.

Thank you.

And about the CapEx of IME, so we have in sub, yes, [NP] is around 98% and I 1% and ME 1%. So basically we still have much bigger in the CapEx. That's the IME CapEx.

In terms of potential targets, can you give color on what percent of the overseas, what percent local?

I think we don't have that right now for you. What we're doing is we're looking at a number of different options we face. We'll provide you with clarification on whether they're overseas or local in the very near future.

All right.

Let me add for Pa Sudiro, I think the cycle of the fixed line revenue is basically routine, closing to the Lebaron actually because the number of days is shorter then the revenue is down. So that's following the pattern.

On the -- I think you were asked one is on the personnel expenses. Personnel expenses, also because of Lebaron we have a one-off, Lebaron allowance, which is not going to be repeated in the next Q.

Thank you, that's very clear.

Thank you very much. Natasha, the next question please.

(Operator Instructions). We'll now move on to our next question.

Hi, this is Navin Killa from Morgan Stanley. I actually had three questions.

The first one was with regards to your CapEx guidance, your nine month spending is, if I understand correctly, around 55% of your full year guidance. I was just trying to understand if you see room for the actual spending to be lower.

And, in fact, a related question was, obviously given the exploding data demand in the market, I was actually wondering why your CapEx levels are lower. One would imagine given your balance sheet, you are in a unique position to outspend your competitors and build a superb 3G/backhaul network. So any thoughts you have there.

And I guess related to that also is your CapEx plan for next year.

The second question, again, on the personnel costs, you did mention about the one-offs.

If you could help us understand on a full-year basis what kind of an absolute number for consolidated personnel costs should we be looking at, for us to glance through the sequential volatility. Thanks a lot.

Navin, so we have a couple of big questions there.

The first one is the CapEx guidance for nine months year to date will be around 55% of our target. Is there any room for us to spend less or lower?

And in line with the data demand, you just want to know whether or not, we need to be spending more on the broadband products. And you just want a little bit of guidance for the CapEx 2011.

Second question is regarding the personnel costs again. You just want to know what the year-end absolute number consolidated for the Group. Is that correct?

Yes, consolidated.

Okay, all right, thank you.

Let me answer that one. First on the personnel expenses, we -- basically if you look into the personnel expenses, the expenses in the fixed actually declined, while the growth is in the cellular side.

So combining these personnel expenses, I think we expect by year-end it will still be declining by around 7% to 9% in combined, yes, consolidated.

To the previously applied sum efficiency [program] in the previous years.

On CapEx you are right, actually we do not reduce the volume. What happened is the price because of the price has been going down from our vendors, so if you look into the volume actually the volume has not been down. So that is even actually on the note B, on the fiber optics and the submarine cables to support of the data network, we are increasing the CapEx on there.

I think that is the answer to your question.

Thank you Pa Rinaldi. I think that's it, [next question].

We'll now move onto our next question.

Hi, this is Foong from BNP. Thanks for the call. Just got a few questions, first question is with regards to -- with the broadband business, can you give me a breakdown of the revenues between Speedy and also Flash?

Second question, I've seen some slow down quarter on quarter for the Speedy subscribers. I'm wondering whether you're facing more competition or is there any substitution effect from mobile broadband?

And the third question is with regards to Telkomsel's revenue per minute in the third quarter, can you give me that number? That's it.

Could you just repeat the third question again for us?

The third question is RPM for Telkomsel in the third quarter?

Okay that's it, RPM for the third quarter for Telkomsel. The first question was the revenue breakdown for Speedy and for Flash where are we right now. And also you mentioned that you have spotted or you have noticed that q-on-q growth of Speedy had slowed down and you'd like to know whether or not there's any further issues regarding competition.

I think whilst I'm waiting for my colleagues to obtain the information on that one, but bearing in mind that today Speedy, fixed line broadband constitutes around 78% of the market share. So we're quite the dominant player for the fixed broadband product.

In the meantime I think I'll move onto Rinaldi for the breakdown of revenue.

Yes, I think if you see our broadband subscribers and revenue growth has been quite healthy including in the Q3. The breakdown of the revenue is -- Speedy revenue is around IDR2.7 trillion while the cellular or Flash revenue is around IDR684 billion. Of course we see now that these two surfaces are basically moving together. We don't really see that the effect of substitution as in the cellular [fastest] decline. Actually the growth of Speedy fixed broadband subscribers has been still strong in the Q3.

And our market share for your information, this is based on the marketing intelligence, our market share of the fixed broadband is around 80%, while on de-cellular broadband is around 60%. So that shows that our broadband is still moving forward. Just bear in mind that we are preparing our network now to be upgraded to a higher bandwidth and we are now in the trial for the IPTV and with the offering of the IPTV, which we expect to happen next year, first quarter of next year, we do expect that this combines well with our Speedy and [VoIP]. So the real triple play game (inaudible).

So that is what we see and how we retain our fixed broadband going forward. Thank you.

Thank you Pa Rinaldi, I'll now go on to Pa Nyoman, who is our Director of Consumer, to give you an overview on the q-on-q growth of Speedy.

Yes thank you David. Even though we are facing high competition q-on-q, especially third quarter, our Speedy is still growing around 4% because we offer bundling scheme to the market, as Pa Rinaldi mentioned, between TELKOMVision, GS TV, Speedy and other products. So that's why we are leading and compete with our competitors.

Thank you very much Pa Nyoman. I'll now go to Pa Sarwoto Atmosutarno to raise or to answer the question regarding the revenue per minute for the third quarter.

Yes, I think for Telkomsel revenue per minute is driven by the success of Kartu As promotion. And the increase in minute of use is driven by Kartu As so then blended revenue per minutes has declined around 8% to IDR214. But despite the decline in RPM with strong [minutes of use] in third quarter voice revenues still increased in q-on-q basis in this quarter.

Thank you very much Pa Sarwoto. Natasha we'll now move to the last question of the session. Thank you.

Certainly, we will now take the last question. Please go ahead, your line is now open.

Hi, this is Sachin Gupta from Nomura. I just have a few questions. Firstly to one of the previous questions I think you mentioned that there has been no change in strategy even with this new plan. I was just wondering is there perhaps a need to change the strategy though because if you look at your revenue shares at the Telkomsel business it has gone backwards this year, the cost base hasn't really changed. So wondering perhaps is there a need to actually change the strategy to some extent?

That's one, secondly, you mentioned on CapEx the difference is largely because of prices and lower pricing -- prices. I was just wondering what is actually driving these lower equipment prices because I don't think you guys have changed the vendors recently and I would imagine you would have signed this contract a while back at least, so I'm not sure what's been the change in the prices?

And lastly just a small clarification, at the Telkomsel level the interest cost has come down in 3Q but your net debt has actually gone up. I was just wondering is there anything I've missed there?

Okay, Sachin I'll just repeat the questions. First of all on the strategy of Telkomsel you'd like to know if there is a need to have a change in strategy because of the fact that we've launched the new products?

Secondly you want to go back to the CapEx issue that if it is really lower pricing why is this the case and what are the vendors doing to bring that pricing down specifically?

Last but not the least on the Telkomsel side, really you've seen the interest costs have come down but the net debt actually went up? I think we can start with the last one and we can go straight to [Ibu Tiri] regarding the interest cost and net debt yes.

Okay thank you for the decline of interest because the rate of interest currently is around 2%. And why the net debt is so high because the (inaudible) it was in the last month, yes.

Okay.

Okay I'm trying to answer the question related to the reduced price of the equipment. I think the whole price competition in the equipment vendors has been started maybe around 2006/2007 where actually there is new vendors coming in the market. I think we know based on that the Chinese vendor has been introduced a new price that has made the European vendor also somehow wake up.

Honestly we currently enjoying a kind of discounted price also, not only from the Chinese vendor but also from the European. I think this is a trend that has been happening in the last two or three years. All the equipment vendors have been competing, which is very positive to us. In a way they are working on their efficiency, I think we can tell every vendor is trying to somehow cut costs in terms of their personnel (inaudible) we can tell even in the local contacts there are a lot of expertise [I can tell you] so minimize their ex-patriot for example.

R&D costs I think there is still some (inaudible) to somehow going by [efficient] on that. And then we also know majority of the technology has come also to the maturity; I think that is also a factor of the economical scale. I think all of this combination has figured all the efficiency on the final fact that definitely end up with a good story for our site, yes.

Thank you Herfini, thanks [Ibu Tiri] and finally to Pa Shin Loong for the answer on the final question regarding the strategy.

Okay thanks. I would like to respond by noting that we are (inaudible) of a change in the market usage pattern, in part driven by the high usage of social networking. I think most of us know that Indonesia has the second largest Facebook network in the world. And also the introduction of the Chinese handsets, the low-end handsets has driven up data usage in the 2G and we are also seeing that 3G data handsets coming in.

So the answer to that question is, yes, we are looking at the extent and the impact of this shift in the market and we will definitely develop a strategy for that. Looking at the three quarter pick up of data, we were very happy with our numbers. And to respond to a question earlier, whether we have put enough CapEx into the data network, the answer is definitely yes. So we are going to be aggressive in that area and hopefully the next few quarters will bear results. Thank you.

Thank you Shin Loong. Natasha could we just go to close.

That's all the time we have for questions today. I'll turn the call over to Mr. David Burke for his closing remarks.

Thank you Natasha. Well we'd like to first of all thank everyone for participating in the call, for all of those who came in and listened to our Q3 2010 results and also for all those who posed questions to us.

We'd like to thank as well the Board of Directors of Telkom and Telkomsel. We look forward to updating everyone in the next few months for the review on the year-end results.

If you have any further questions please do not hesitate to send an email directly to our Investor Relations department on the email provided on the website.

And before we end our conference call today I would like ask Rinaldi Firmansyah, our Chief Executive Officer for his closing remarks. Pa Rinaldi.

Thank you David. Ladies and gentlemen being the clear market leader in telecommunication industry in Indonesia Telekom's talents is to be able to maintain its leading position in more competitive market conditions and more regulation changes while at the same time developing our future business portfolio. We are working hard on synergizing all Telekom Group companies so that we can create more value and create more efficiencies.

Operational synergy between cellular and fixed has begun and will be enhanced in the future. Synergy is also being executed in marketing as we provide bundled Telkom Group products and services. So customers can have truly viable services for their telecommunications, entertainment, IT, media and entertainment requirements. To achieve our target for the year-end 2010 we intend to intensify our promotion and marketing campaign to encourage subscribers to use our products and services more.

We have improved our broadband capacity, both fixed and mobile, to make sure that service quality is maintained and more affordable. This is part of a strategy to stimulate our IME businesses.

Finally we shall continue to provide further value by maintaining our cost competitive approach whilst delivering new and improved services to our customers. The end results are improved long-term returns in value to our stakeholders.

Ladies and gentlemen thank you again for joining this conference call and have a great day.

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