Telkom Indonesia (Persero) Tbk PT (TLK) 2013 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Telkom third-quarter 2013 results. (Operator Instructions). All the materials for today's conference is available on our website at www.telkom.co.id. Please be advised that this conference is being recorded today.

I will now hand the conference over to your first speaker today, Mr. Prakoso Imam Santoso, Acting VP, Investor Relations. Please go ahead Mr. Santoso.

Thank you, Derek. Ladies and gentlemen, welcome to PT Telkom Indonesia nine-month results ended September 30, 2013 conference call.

There will be an overview from Director of Innovation and Strategic Portfolio, and after that the question and answer session will be conducted for all participants on this call. Today's presentation is available on the webcast and an audio recording will be provided after the call for the next seven days.

We released our financial results of nine months ending September 30 on October 25, and the reports are available on our website www.telkom.co.id.

Before beginning, let me 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 to differ substantially from those discussed in today's call. Telkom Indonesia does not guarantee to any actions which may have been taken in reliance of the discussion held today.

Ladies and gentlemen, it's my pleasure to introduce you to Telkom's Board of Directors who are joining with us today. Mr. Indra Utoyo, Director of Innovation & Strategic Portfolio; Mr. Honesti Basyir as Director of Finance and Chief Financial Officer; and also present are the Board of Directors of Telkomsel. Mr. Heri Supriadi as Director of Finance; Mr. Alistair Johnston, as Director of Marketing; and Mr. Edward Ying Siew Heng, Director of Planning & Transformation.

Before Pak Indra Utoyo delivers his remarks, I will take this opportunity to give a brief overview of Telkom Indonesia.

Telkom is the single largest integrated telecommunication company and network provider in Indonesia, with over 171 million customers at the end of nine months 2013. Telkom provides a strong business portfolio of TIMES; telecommunication, information, media and edutainment, directly or through our subsidiaries.

We also deliver Service through multi customer portfolio; retail, enterprise, wholesale and international.

As of September 30, 2013, the majority shareholder of our common stock was Government of Indonesia with 53.1% ownership and the remaining 46.9% was under public ownership.

I now hand over the call to Director of Innovation and Strategic Portfolio, Mr. Indra Utoyo for his overview. Pak Indra, the time is yours.

Thank you, Pak Prakoso. Good afternoon, ladies and gentlemen. A very warm welcome to each one of you to our conference call for nine-month period results ending September 30, 2013. We sincerely appreciate your participation on this call.

In today's call, I will give you the overview of our operational and financial results for the nine months. Secondly, I'd like to update you on the progress of our cellular and fixed line business development, as well as other business portfolio.

Ladies and gentlemen, let me start the overview by sharing the highlights of our nine-month results. First, Telkom's consolidated revenue increased 8.2% year on year. This is in line with Telkomsel's performance which recorded 10.4% year-on-year revenue increase.

Second, our broadband users grew by 41.8% year on year to be 22.6 million, consisting of fixed and mobile broadband. While Telkomsel gained 6.43 million net additional customers year on year, made total customer base to be 128 million.

Third, Telkomsel continued to expanding its network coverage and capacity by adding more than 11,000 new BTS during the nine months of 2013, with almost 70% of them are 3G BTS.

Ladies and gentlemen, our fixed broadband users increased 35.8% year on year to 2.9 million and the revenue increased to IDR3.4 trillion in the nine months of 2013.

Our mobile data users also increased. In the nine months of 2013 it increased 9.4% from last year to 55.3 million users. We booked IDR7.6 trillion revenue from mobile data services, a 36.5% increase year on year.

Total mobile data services and fixed broadband revenues increased around 26% year on year, to [IDR11.0 trillion]. (During third quarter, Telkomsel recorded 2.8 million net additional customers that made total customer base to be almost 128 million.

In the nine months 2013, we added 11,356 units new BTS, at around 70.5% or around 8,010 units of SIM cards, 3G Node-B BTS. Until end of the nine months, Telkomsel owned 65,653 BTS and 23,443 of it are 3G Node-B.

Ladies and gentlemen, consolidated revenue growth remained strong with 8.2% year on year, with Telkomsel's revenue growth maintained at double digit, 10.4% year on year. Revenue contribution for nine months to September 2013 was still dominated by cellular voice revenue, which made 38.5% to our total operating revenue.

Data, Internet and IT service came second, contributed 37.9%, followed by fixed line voice that contributed 12%. The remaining 11.6% was contributed by interconnection, network and others.

Cellular voice revenue, the biggest contributor, still increasing 4.7% year on year and data, Internet and IT services as the second contributor showed a very good increase at the level of 16.1% year on year.

In the meantime, on the expense side, O&M was the biggest contributor with 35.1% of total expenses. The second and the third contributor were depreciation and personnel expenses with 27.5% and 17.3% of total expenses, respectively. Interconnection, G&A, marketing and other altogether contributed 20% to total expenses.

Total expenses increased by 7% year on year, mostly due to the increase of O&M, which in line with the acceleration of network deployment in our cellular subsidiary. During the nine months of 2013 we built more than 1,000 BTS per month.

Ladies and gentlemen, during the nine months of 2013, Telkomsel could maintain double digit growth year on year for its revenue, EBITDA and net income. Mobile broadband is still being the growth driver with almost 36.5% revenue growth. This is backed by the increase of Flash, BlackBerry and Pay As You Use customers, as well as our focus on increasing customer wallet share and sustaining revenue growth by maintaining a good quality of customers.

During this nine months, we deployed more than 1,000 new BTSs per month and almost 70% of them are 3G Node-B. We are consistently increasing our 3G coverage and capacity to cope with the growing demand of data access.

Telkomsel data and digital business grew 35.6% year on year for the nine months 2013, contributes 19.1% from total revenue. This is higher than contribution both in the first half 2013 and in the nine months last year, which were 18.6% and 17.6%.

We expect Telkomsel could maintain its performance by consistently exploiting its legacy business; voice, SMS and network lease; strengthening its core business; mobile Internet and mobile broadband; and triggering digital ecosystem; improving digital services and platforms. By that, in line with revenue market growth for 2013 could be maintained.

On the fixed line business let me share our Indonesia Digital Network 2015 progress for the nine months of 2013. On the ID-Access, until the end of September, we have 6.6 million broadband home pass, blended of fiber-to-the-home, fiber-to-the-curb and ADSL. On top of that, we have installed 66,800 Wi-Fi access points in public areas.

These Wi-Fi access points are accessible for Telkom and Telkomsel customers and expected to offload Telkomsel's wireless broadband traffic.

Meanwhile, on the transport side, we call it ID-Ring, we have completed 68,500 kilometers of national and regional backbone network out of targeted 75,000 kilometers in 2015.

We keep working on our overseas business. We have established a subsidiary in Malaysia in August. We still find a form of cooperation with our partner to start an MVNO business in the country where we have around 3 million to 4 million Indonesian workers. We hope it could be started soon.

In Hong Kong, our MVNO subscriber has reached more than 56,000. Meanwhile in Timor-Leste, we have 99,000 subscribers as of September 2013. We won an IP transit service contract in Myanmar and look forward to get contracts for other telecommunication services. We also put efforts on expanding MVNO services in countries where there are significant numbers of Indonesian migrant workers, such as Saudi Arabia, Macau and Taiwan.

On October 3, 2013, we have signed a sales and purchase agreement with CT Corp for 80% of TelkomVision ownership. Telkom still keep 20% ownership. We expect that TelkomVision could grow much faster with the involvement of CT Corp, owner of well-known two free to air TV stations Trans TV and Trans 7.

By partnering with Telkom Group, CT Corp will integrate their businesses into TelkomVision's existing platform. The partnership is focused on providing more value to our subscribers, and creates a strengthened alliance empowering TelkomVision to advance in today's increasingly competitive media market.

With the partnership mentioned above, TelkomVision will become the main source of good quality content for overall Telkom's media business that enable us to further develop the media business including our current online TV service, and planned more for less TV service.

Those actions we mentioned earlier is in line with our overall strategy where Telkom want to further strengthen media business portfolio through cooperative or partnership strategy.

We are still in the process of unlocking the value of our tower business. Our team is now analyzing the strategic partnership scheme, and we expect to be able to decide by end of first quarter 2014. The next step after that is getting the tower company to be listed in the Indonesia Stock Exchange.

We believe this corporate action will enable us to unlock the value of our valuable tower asset in the right time, with the best value for Telkom.

After success with the stage of making tower business unlocked by going public, we'll follow it with the greater stage and greater value that is injecting our cellular towers to the listing company.

Ladies and gentlemen, let me now reiterate guidance for 2014 as a wrap up.

For 2013, we expect Telkomsel's revenue could grow in line with market growth. Meanwhile, for fixed line business, positive revenue growth recorded in 2012 could be maintained. With that, we expect our consolidated revenue grows between 8% to 9% year on year.

For EBITDA margin, it will be slightly decline for Telkom Unconsol and stable for Telkomsel.

By forming partnerships and looking opportunities to pay as grow and revenue sharing scheme, we expect CapEx spending for 2013 to be around 20% to 25% over revenue.

That's ending my remarks. Thank you.

Thank you, Pak Indra. We will now begin the Q&A session. When raising your questions, we would appreciate if you could speak clearly and state your name and your company. Operator, may we have the first question please?

We will now begin the question and answer session. (Operator Instructions). Sachin Salgaonkar, Goldman Sachs.

Congratulations for a good set of results. I have three questions.

My first question is, any particular reason which led to O&M expenses declining materially this quarter? And on the contrary, D&A increased materially. So any color you could throw on that would be helpful.

Second question is, if you look at your number of base station additions on 3G, it is much higher than both of your peers. So any target in terms of BTS numbers or population coverage you have in mind for Telkomsel?

And third, I wanted an update on both Mitratel potential spin off and your E-GSM rollout. Thank you.

Thank you, Sachin. I think for the first question, you will be answered by Honesti and second question is for Telkomsel. And question number three will be answered again by Pak Indra.

Let me give it to Pak Honesti.

Thank you. I think the [deficiency] in our -- and because we give the (inaudible) for our tower. As we know, there is operating risks, and now we are implementing a financial list for our towers. That's why, when we have a bit of (inaudible) but the depreciation increased because we know the accounting and (inaudible) depreciation and amortization.

(Inaudible) If I may add some explanation on your previous explanation. I am Heri Supriadi speaking here. Yes, Pak (inaudible) already maintained to you about the change in accounting (inaudible) of tower list. This is based on the requirement of SEC. They have the standard to make the tower list becoming a financial risk instead of operating risk. You fund about 90% of the [ramp up] that we take and capture the value of the tower.

So some of the expenses under tower list then becoming our depreciation bit on that. So that's why the (inaudible) we record basically from operating risk in the operation and maintenance becoming the depreciation in our (inaudible). I think that's the reason.

Why we do it right now, we did it in the third quarter, it is only for the Dayamitra, Dayamitra previously, they're still fully operating this. And then we need to stick with our auditor, what is we're going to do in our accounting statement. So if on that discussion, so we do the declassifications.

Okay.

Question number two, Alistair is going to answer you, your question. ?

Yes, so I think the continued investment in BTS is really in line with our strategy of leading supply and dealer capacity. I think we -- certainly as we look forward, we anticipate a high growth in the demand for data. And obviously, given our skill and our ability to invest, we think that it's important to leverage our strategic advantage of scale and our ability to roll out network.

Having said that, as I said, our strategy is around anticipating supply but we are seeing pretty hefty growth in our payload. So our payload went up by about 25.8% in quarter 3 from quarter 2, so we're seeing significant ramp up in demand.

In terms of setting a target, I think our guidance for next year will be rollout at a similar rate, which is approximately 1,000 new BTS per month. This year, 70% with 3G and next year we anticipate about 80% being 3G.

In terms of where we put them, our coverage is now pretty extensive. We have coverage or presence in around 300 cities but our real focus is in our top 100 cities in Indonesia, where we're really focusing on building high speed, high capacity, high quality network.

Okay, that's very clear.

Okay, regarding the third question on the Mitratel spin off. Yes, I think currently, we are focusing on making Mitratel to be focused on tower business. And regarding for the (inaudible) also like to increase (inaudible) business. We will separate the business which are related to tower to other infrastructure companies.

So in terms of unlocking the tower business in Mitratel we have the timeline, hopefully, on first quarter 2014 next year, it will be -- happened. And we will come to start everything, start the [completion] of strategic partners. And then after that, we hope we can move into unlocking the value, so by having this strategic partner, they are coming from, hopefully (inaudible) company. Hopefully, it will improve the [story], and can lead (inaudible) our management and also improved tenancy, our tenancy ratio. And then we will unlock (inaudible) also to unlock the tower after that the Telkomsel tower asset.

Luis Hilado, HSBC.

Congrats on the results. I also have three questions; the first one is a follow-up to the tower IPO update. When you unlock the value next phase, after getting the strategic partner, how do you intend to transfer the Telkomsel towers to Dayamitra?

Second question is regarding the accounting treatment changes that you mentioned. Is that only for Dayamitra -- sorry, Mitratel, or does it also apply to Telkomsel? Will they also be going to the tower lease accounting?

And last question is, you're guiding competition and consolidation. Now that Excel seems to be moving to take over Axis, I was just wondering if you would be interested in also helping to consolidate the mobile sector and do an acquisition or merger?

Thank you, Luis. The first question regarding tower business and IPO, it's going to be discussed by Pak Indra. Second question about the accounting treatment, maybe Pak Heri could say a bit more about this. Then for the third question regarding competition and consolidation, regarding taking over Axis, maybe Pak Edward could discuss about this. Pak Indra?

Okay, thank you. Okay regarding the unlocking tower of Telkomsel, it is scheduled actually, because, [obviously], the unlocking of Telkomsel, of course the first phase will be Mitratel first and Mitratel will be adding actually the (inaudible) by embracing the strategic partner. Then we are ready to add a good growth story and would like to go for listing for IPOs. Then on that IPO, we're coming -- we enter the (inaudible) for Telkomsel tower to be unlocked because the [operator] would like to protect the interest of SingTel and also we already copied SingTel about this plan.

The timing actually would (inaudible) because we see that the context of the industry, they have only second quarter of next year, there will be a imposed regulation from government that all [towers] are shared, it no longer can be exclusive. For the [drive], we had to correct the unlocking of Telkomsel tower fully. This time from this year, is the planning but hopefully it will happen on quarter 2 of next year.

And the second question, Heri?

Regarding the accounting treatment on the tower list. Yes, this year we did for the Mitratel but for Q3 we only done for other tower providers such as TBIG and also for (inaudible). So now everything already in the same accounting treatment.

How about Telkomsel, is that also going to follow the same accounting treatment?

Luis, could you repeat your question please?

Telkomsel, will it also follow the same accounting treatment?

Yes, we will follow the same.

Okay, but not yet done, right? It's still to happen.

Already there.

Already, okay, thank you, Pak.

Hi, this is Edward. So to answer this question about the intent of the consolidation in the market. Firstly, I think most of you, if not every one of you, is aware that at (inaudible) it's for our intention to acquire Axis and file the report to the regulator plus the government. While pending the approval for the government or the regulator, there's no news as of yet. So I think the announcement will probably come in the first quarter of next year.

As for Telkomsel, I think as you know, we are the major or the lion's share; the dominant player in this country. I think, at this point in time, we have no intention to acquire. We just look at how the market will consolidate and we probably see how it progressed and then we can decide (inaudible).

Okay, great. Thanks a lot.

Roshan Raj, Merrill Lynch.

A few questions from me. First, on interim dividends, I'm just wondering if you have any updates on providing an interim dividend?

The second is on planned sale of land assets. I believe you were trying to explore opportunities to unlock value from land. How's that progressing? And could you share the book value and estimated market value of your land bank?

And in the event you unlock some of these assets, including the recent Pay TV tower and land, what is the preferred or intended use of the fund that you'll receive from such one-off events? Thank you.

Okay, first question for interim dividend, Pak Honesti will discuss. And also the second one about the land assets. And also estimated -- and regarding Pay TV, Pak Indra will discuss about it.

Thank you for the question. Talking about the interim dividend, actually, we have discussed with, our current -- the current one and discussed it with [PT SLE]. But since (inaudible), we didn't get any (inaudible) from them about the interim dividend.

(inaudible) our plans next year? (inaudible) report them (inaudible) pro forma.

And then about the property; while we have around 22 million meters squared of (inaudible) nationwide in our assets, talking about the value, we don't have any calculation yet about the (inaudible). But approximately if we assume that per meter square now the price is about 1.5 million (inaudible), IDR22 million (inaudible) we'd end up here. I think it's around IDR30 trillion-something.

Thank you Pak. Just to go back to the interim dividend. It was a bit unclear. So, the SOE Ministry has not got back to you, or the SOE Ministry has not approved an interim dividend? I was not able to catch that.

That's because when we're talking about the dividend, we have to get necessary [pro forma] agreement between parliament and Ministry of SOE. While (inaudible) Malaysia, (inaudible) under progress. So we see think that the agreement among the tower (inaudible) agreement with the government and with the Ministry of SOE.

Okay, thanks for that. And just one question on the tower. Just to clarify, the partner that you're talking about, it's going to be (inaudible) and hence any plans to enlist your towers into the listed tower company. That's (inaudible)?

Well, (inaudible) it's not really clear, Roshan. Could you please repeat the question again?

Okay. You're talking about selling a listed company, something like say (inaudible) or (inaudible). So, something of that sort is not being explored any more.

Okay, regarding the unlocking the tower, currently we are in the process of getting [roughly] getting among the two largest power companies (inaudible) and (inaudible). So, hopefully, (inaudible) are reviewing that document and hopefully it can then, a few days -- a few weeks (inaudible) have the result of the issue of the appropriate results.

I see, okay. Thank you.

Does that answer?

Colin McCallum, Credit Suisse.

Three questions from me if I may. First of all, just on the broadband project can -- Pak Honesti, can you give us a little update on how that's going in terms of resolving the issues there? And can you give us any comments on when you expect broadband take up to accelerate a bit?

Can I also ask on a related point, are you a bit disappointed on the pace or rather the ARPU that you're currently generating on broadband? What needs to be done to try and get more out of your fixed line asset in revenue terms? That was the second question.

If I can also just follow up --

Sorry, Colin. Colin, sorry, your voice is not really clear. Could you please repeat the questions again? Your voice sounds somewhat broken.

Okay, let me try again. The first question is on the broadband project. Can you tell us how the broadband project, the fiber upgrade, is going? And if any of the bottlenecks have been removed yet to improve that?

Secondly, on the broadband ARPU level, what can you do to improve the revenue generation on broadband? That's the second question. Hopefully you heard that.

The third question I have is actually related to the previous question that was asked. What would be the intended use of funds that you generate if you do sell towers? What would you do with the receipt? Would you look at, for example, a special dividend? Thank you.

I think the broadband project's progressed, our fiber optic. And the second is the broadband network regeneration. Could you please -- is that basically problems for just acceleration?

No, broadband revenue generation, the ARPU, the ARPU of broadband. How can you improve it?

Okay. And then the third one is use of profit for tower business IPO. Okay.

Now we only have 2.9 million subscribers in our fixed broadband. Now the ARPU is around IDR141,000. It's around $14, is the ARPU now.

We continue to deploy our fixed broadband because we believe that it [can roughly] declining of our fixed voice. That's why the program that (inaudible) already mentioned, to deploy the IDN asset also IDN-Ring, just to improve our quality and our broadband capacity in (inaudible). We can only (inaudible) actually our (inaudible) support Telkomsel in 3G business.

I think that the departments where we deploy this (inaudible) because we know that [Lacau], in (inaudible) in Jakarta. When you (inaudible) in Jakarta is relative (inaudible) about the (inaudible) how we can deploy our 3G on the land to deploy the pipes to (inaudible) our network. But in the other areas like in Indonesia, Bali, Sumatra, there is no (inaudible). That's why we get our (inaudible) when we try to get permit from Council of (inaudible).

But we already have set up the [revenue] with respect of (inaudible) to communicate with the government supporting our process next year.

Okay, thank you, Pak.

And the question about the profits of our IPO, I think, first we continue to use these profits to expand our network. And although if, I say if, if we can approach the government (inaudible). But finally, the (inaudible) on our government, and afterwards parliament.

Suresh Mahadevan, UBS.

I have a couple of quick questions. The first one, I wanted to hear your thoughts on the competitive environment in Indonesian mobile sector, particularly in light of two things. One is clearly this whole little consolidation that may play out. And secondly, obviously Indosat does not seem to be expanding capacity.

So it's only probably Telekomsel versus Excel, and maybe Hutch trying to do some stuff. So I just want to hear your thoughts on how competitive intensity is. Has it reduced? Will it translate into better pricing, etc? That is question number one.

The second question relates to interconnect in Indonesia. Clearly, you have a cost base interconnect on the mobile side, as well as on SMS. I just wanted to hear your views. Do you see any changes to this in the coming quarters or so, especially from a regulatory perspective? Thank you.

Okay, these two questions belong to Telekomsel. Edward?

It's actually Alistair here. I'll go ahead and answer those. So I think -- by and large, we don't see the competitive situation as having changed from the guidance given at previous quarters, which is the market remains more competitive than it has been historically, and really consolidating around three to four large players.

Obviously, from a competitive standpoint, leaving aside any spectrum issues, we obviously welcome the merger between Excel and Axis because it removes one more player from the market.

In terms of your comments about Indosat, obviously they haven't been expanding their network; they're at the same level as ourselves or Excel, but they do have the advantage of having a lot of 900 megahertz spectrum, which they can deploy for 3G. And in the past, we've found them a strong competitor. So we wouldn't want to write them off just yet.

I think really the way I look at the market is, I think stability is everything for us. Obviously, we're more than 50% of the revenue. So really the health of the market will dictate, to a large extent, the health of Telkomsel. And I would definitely foresee Excel and Indosat strengthening somewhat, which is probably a good thing for the market.

In terms of interconnect on the voice and SMS side, no, we don't foresee any big changes.

One quick follow-up if I may on the spectrum. Clearly I think, okay, Indosat has a slightly more 900 megahertz at least. But with potentially the Axis acquisition going through, Excel will almost triple its 1800 megahertz spectrum from 7.5 megahertz to 22.5 megahertz. How do you foresee that playing out in the market?

I'll hand over to Pak Edward, actually, to take that one.

So this is Edward. So I can probably share this. Yes, that is true. If the merger pushed through, and if the government agree to allow Excel to keep the frequency, then I think they have 22.5 megahertz or 1800 megahertz. And they have about 25 meg on 2100 megahertz as well.

But clearly, the rules in this country says that the frequency must be routed to the government. And subsequently the government can decide to option it out, or tender it out to the relevant parties. So at this point in time, the government has not taken a decision on it. And also not made its position clearly to (inaudible). So I think we could not speculate at this point in time.

Okay, thanks a lot. Really appreciate your views.

Choong Chen, BNP Paribas.

Three questions from me. Firstly, the total volume of SMS and the MoUs was actually fairly weak on a q-on-q basis in the third quarter, despite the Lebaron festive season. So what is the reason for that? Are there any signs of subscribers shifting their traffic to other operators' networks?

My second question, with regard to the pace of base station rollout, as mentioned by Alistair earlier on. As you alluded to the fact that the pace will be largely similar in 2014, can we assume that the CapEx as well will be about the same as in 2013? Or would there be reductions in CapEx because you have done quite a bit on the transmission and on the core network?

And then back to the question on the property side. Pak Honesti, you mentioned 22 million square meters. Can I know what does this consist of? Is this consisting of exchange buildings, or is it vacant land? And how soon do you think you can try to monetize this? Thank you.

Thank you, Choong. The first two questions are for Telekomsel; and then the last regarding property will be discussed by Pak Honesti.

Actually, it's Alistair. I'll take these two questions, if I may.

So the first one, I think it's a correct observation. I think our SMS growth in Q3 this year hasn't been as strong as we have seen in previous years, especially around Lebaron holiday. I think we've seen a big growth in the quarter and around Lebaron holiday, indeed, a pay load. So as I said before, more than plus 25% growth.

I think inevitably, we'll begin to see SMS somewhat -- SMS growth is somewhat slowed by the rise in OTT chat services. So while our revenue on SMS is fairly robust, that's really by a process of smart pricing, and hopefully more benign market conditions.

But from a volume point of view, we're definitely seeing signs of SMS volume growth slowing down. And I think that's something which we have factored into our plans moving forward. But I think really it's always been an inevitability.

Okay. Thank you. I will take the second question on the CapEx.

Yes, we are going to spend about the same amount of CapEx for next year. And today, the (inaudible) contribution of CapEx is around 70% goes to the revenue. And then to core networks, around 7.3%; IT around 10%; and [to transfer] around 7%; and the remaining goes to other networks. This is about the distribution of the CapEx.

Perhaps before we go to Pak Honesti, maybe just a quick follow-up for Alistair on the MoU trend. That has also been a bit weak. Was that also due to people -- subscribers shifting towards OTT applications as well, or was that more due to, basically, consumer spending, etc?

No. When you say MoU, you're talking about the voice revenue. No, I don't think we are seeing a similar trend in voice revenue to that which we are seeing in SMS, to be honest. And I think that's really a function of voice revenues at the moment, it's still more secure than messaging revenue, just given the availability and quality of IP services.

It's worth bearing in mind that our legacy business, which we class as voice and SMS still grew, quarter on quarter, by 5%. So I think there's still growth to be had in our voice and SMS business. I'm slightly more confident about voice, actually, in terms of being more resilient, than perhaps I am about SMS.

A lot of what we're focusing on, on voice and SMS, is really -- certainly, on SMS, it's more defensive tactics. There's various tactics we can do on pricing to defend SMS.

On voice, also we've been able to increase our voice prices. We actually have quite a sophisticated voice system which divides the country of Indonesia into more than 200 clusters. And in each of these clusters, we look at local market conditions, network conditions, and we price accordingly.

And in some areas, we've been able to price up. And by and large, the trend is up; which we hope to be able to continue to do, obviously dependent somewhat on market conditions and competitor reaction. But our strong desire would be to manage the pricing on voice and SMS in an upward direction.

Okay. Thanks very much for that. And Pak Honesti, on the question on the property side. Thank you.

(Inaudible), and also, [the property that we build] on top of the land. We have property that we [build] at our [office] in (inaudible) in Indonesia.

About the asset locations, as I informed previous, we have a lot of land bank not for the building. Now the plan is how to unlock the asset. But I think that the strategy -- I think that the final cooperation unlock (inaudible) our power unlocking strategy, how to [invest with partners] because of the financing of this year to be our partner.

Hopefully, we [achieve this] starting next year, 2014. And after this property (inaudible) [we intend to be the] IPO company.

Okay. Thank you very much.

Operator, may we have the last question please?

Arthur Pineda, Citi.

Three questions for me. Firstly, with regard to your O&M expenses and your EBITDA. If we actually normalize for the change in accounting treatment for O&M (technical difficulty).

Second question I had is with regards to --

Hello?

Can you hear me?

Yes, but we missed the last part of your question. Could you please repeat it again, Arthur?

Okay, will do. With regard to the first question, if you were to normalize for the change in accounting treatment because of the leasehold, what would your EBITDA growth actually be, year on year?

Secondly, I just wanted to get your thoughts on the consolidation of Axis and Excel. Do you see the market dynamics changing on Excel side, simply because they now have a lot of excess network capacity? Do you think this will lead to more completion or is it biased, or it's trying to improve it?

Last question I had is with regard to your property assets again. Do you have any specific targets or disclosable [trends] on this? Can you sell the assets or is it more on the site developments and rentals? Thank you.

Okay. I believe the first two questions are for Telkomsel and the property assets will be discussed by Pak Honesti.

Okay. For the first nine months of this year, we [ideally] declassified from operating to finance list around IDR570 billion. Based on this condition, actually, if we normalize, the expense is supposed to grow by 12.7% instead of 9.43% and they developed growth around 8.6%. But if you see again this figure you can also compare in the (inaudible) situation, our EBIT still growing double digit.

In the past, I think it was two years before now, we also doing -- building our own tower, so all the expenses regarding tower will be come to the depreciation like our finance list now. I think by this method we can see that, although there is reclassification and also the EBITDA slightly declined, it will be, in terms of efficiency basis, this Company already growing better [when]. This, I think, the general answer for your question.

Okay, for the second question on the consolidation of Excel and Axis; from a purely competitive standpoint, I think we believe it will make the market healthier. That tends to be the case when the market consolidates and obviously moving from five to four players will do that.

In terms of what Excel's likely behavior will be, I mean I don't know, I can only speculate. But my view would be that they would not be likely to embark in aggressive pricing techniques for a couple of reasons. They will be probably 30-plus-% of the market by the time they combine with Axis or around that area. And I think we have seen in our own customer base that a market -- pricing elasticity is relatively low in that if you cut price aggressively, customers don't use an additional amount if you service sufficient to make up the revenue you lose from the pricing change.

We think that's probably due to the fact that Indonesia's now a highly penetrated market and the absolute voice and SMS costs are low compared to other markets so I don't really see -- if I was in their shoes, I wouldn't really see a strong case for cutting price in order to grow revenue. I don't think that would work for them. So I think, by and large, we would expect it to be positive but purely speculation.

Sorry, as around the topic of Axis, if you see the government is actually allowing Excel to keep the spectrum with an acquisition, would that change your tack with regard to acquiring assets?

This is Edward. I think I can answer this question -- I could try to answer this question. So firstly, I think if the government gives them all the frequency, then clearly I think Excel is in a strong position, like you -- like someone earlier said, they have more frequency than two of us, the big three, out of the big three.

So I think the other avenues that we can (inaudible) improve the productivity of our spectrum, especially with the new introduction of 4G and smaller cell, (inaudible) and so forth. So surely, we will redesign.

And the other thing that you probably know that we are now clearly working with Telkom to grow our WiFi network to offload data, to create better experience for our customers on the Internet service. So these are some of the big steps that we will re-examine and reintroduce to the market and by then technology will change as well.

For Excel to consolidate, it will take them another 6 to 12 months minimum. So in the process, we will look at re-examining our position and we will find another strategy to actually to see how we can compete in this new dynamic. That's all.

Thank you.

Okay, about our policy is (inaudible). So far, our policy will (inaudible) because you know that extra [FRE] they cannot sell (inaudible) from the Ministry (inaudible) couldn't get approval from government. So until today we do not have any policy to sell the asset. What (inaudible) the asset. (Inaudible) we will build the office tower, shopping mall, (inaudible) hotel. And it will be (inaudible) Indonesia.

Any targets on your revenues in CapEx, specifically in property?

(Inaudible) property because we (inaudible) the CapEx you see is not too much. It's just around IDR200 million, but because we want to utilize our asset and operate (inaudible) increase the CapEx (inaudible).

And revenue targets? Nothing to disclose?

Now the property CapEx is not too much because we (inaudible) value in our asset. This year, the CapEx for the property is around IDR200 million. The revenue target for this year is around IDR800 million.

Thank you.

Operator, can we wrap up the session?

There are no further questions at this time. Please continue.

Thank you, everyone, for participating on today's call. Apologies for those whose questions could not be addressed. Should you have any further questions, please don't hesitate to contact us directly. Thank you.

That does conclude our conference for today. Thank you all for participating. You may all disconnect.