Telkom Indonesia (Persero) Tbk PT (TLK) 2014 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Telkom's first-quarter 2014 results conference call. (Operator Instructions). All the material 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 would now like to turn the conference over to your first speaker today, Mr. Prakoso Imam Santoso, the Assistant Vice President of Investor Relations. Please go ahead, sir.

Thank you, Billy. Ladies and gentlemen, welcome to PT Telkom Indonesia first-quarter results ended March 31, 2014 conference call.

There will be an overview from Director, 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 first quarter ending March 31 on April 28, 2014, 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 and 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 discussions held today.

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

Before Pak Indra delivers his remark, 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 149m telephony customers and more than 85m broadband users at the end of first quarter 2014. Telkom provides a strong business portfolio of TIME, telecommunication, information, media and edutainment, directly or through its subsidiaries. Telkom also delivers services to multi-customer portfolio; retail, enterprise, wholesale and international.

As of March 31, 2014, 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 Mr. Indra Utoyo for his overview. Pak Indra, the time is yours.

Thank you, Prakoso. Good afternoon, ladies and gentlemen. A very warm welcome to each one of you to our conference call for the first quarter results ending March 31, 2014. We sincerely appreciate your participation on this call.

In today's call, I will give you an overview of our achievements in the first quarter 2014. Until the end of March, we could maintain an outstanding performance in operational and financial results. I'd also 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 first-quarter results.

First, our consolidated revenue increased 8.7% year on year, and net income grew at 4.9% year on year. This is in line with Telkomsel's performance, which recorded 9.8% year-on-year revenue increase.

Second, Telkomsel gained 1.1m net additional customers during the first quarter of 2014, made total customer base to be 132.7m.

Third, Telkomsel continued to expanding its network, adding more than 4,400 new BTSs during the first quarter of 2014, with around 80% of them are 3G BTSs.

Ladies and gentlemen, our fixed broadband users increased by 17.6% year on year to 3.1m, and the revenue increased to IDR1.2 trillion year on year in the first quarter of 2014. Our mobile data users also gain increase of 26.3% from last year to 33m users -- 63m users.

We booked IDR3.1 trillion revenue from mobile data, a 32.3% increase year on year. Total mobile data and fixed broadband revenues increased 24.4% year on year to IDR4.2 trillion.

During the first quarter, Telkomsel recorded 1.1m net additional customers that made total customer base to be 132.7m.

In the first quarter of 2014, we added 4,462 units new BTSs. 3,541 units of them are 3G Node-B BTSs. Until 10 of March 2014, Telkomsel owned 74,326 BTSs and 30,575 or 41.1% of it are 3G Node-B. This equal to 28.9% increase of total BTS and 72.2% increase of 3G BTSs compared to the same period last year.

Ladies and gentlemen, consolidated revenue growth remained strong, with 8.7% increase year on year, and Telkomsel's revenue growth maintained at the level of 9.8% increase year on year.

Revenue contribution for the first quarter of 2014 dominated by data, Internet and IT services revenue, which made 39.5% to total Group revenue. Cellular voice revenue came second, contributed 37.8%, followed by fixed line voice that contributed 10.9%. The remaining 11.8% is contributed by interconnection, network and others.

Data, Internet and IT services now being the first contributor, increased 14.3% year on year, while cellular voice revenue, as the second contributor, showed a remain good increase at the level of 6.1% year on year.

In the meantime, on the expense side, O&M was the biggest contributor with 35.8% of total expenses. The second and the third contributor were depreciation and personnel expenses, with 27.7% and 15.7% of total expenses, respectively. Interconnection, G&A, marketing expenses, ForEx net and others net altogether contributed 20.8% to total expenses.

Total expenses increased by 11.5% year on year, mostly due to the increase in depreciation and amortization, which in line with the acceleration of network deployment in our cellular subsidiary. During the first quarter of 2014, we built more than 1,000 BTSs per month.

Ladies and gentlemen, for 2014 we focus our efforts and resources on three main programs; first, cellular business. Second is broadband infrastructure and the third is international business expansion.

Synergy within Telkom Group is implemented looking at that context. Priority given to the cellular business to make sure that Telkomsel could grow in line with or better than market.

In the meantime, broadband infrastructure is being our second focus for this year to anticipate increasing demand for broadband and data services, both fixed and mobile. We expect, with the proliferation of broadband infrastructure all over Indonesia, it could overcome digital divide problem that we have in Indonesia. International business expansion is the step that we have to go through to realize our vision to be the leading player in the region.

For the first three months of 2014, Telkomsel recorded 9.8% year-on-year revenue growth. We expect that for quarters to come our cellular subsidiary could maintain good performance.

Telkomsel is in the process of growing its digital business. For the first quarter 2014, digital business contributed close to 22% of Telkomsel's total revenue, increased 3.6% compared to last year. Revenue from digital business grew 31.3%, mainly from data broadband which grew 32.3% and digital services increased 23% from last year.

Over the coming years, these businesses will continue to be Telkomsel's main engine of growth. The potential to further increase the number of data users is still huge, as current penetration of smartphones is still relatively low at around 21% of Telkomsel's customers. We will encourage the adoption of smartphones, as this is one of the keys to accelerating data consumption.

Telkomsel's legacy revenue grew by 4.9% fourth quarter over the last year. Our voice revenue grew 6.8%, while SMS slightly increased 0.1%. To exploit Telkomsel's legacy revenue, we focus on geographic clusters and customer segmentation where we can provide more services and generate more revenue.

On the fixed line business, let me share our Indonesia Digital Network 2015 (technical difficulty) 2015. We would like to share our Indonesia Digital Network 2015 progress for the first quarter of 2014.

On the ID-Access, until end of March, we have 8.5m broadband homes passed, blended of fiber to the home, fiber to the curb and ADSL. Meanwhile, on the transport side, we call it Id-Ring, we have completed 68,800 kilometers of national and regional backbone network, out of targeted 75,000 kilometers by 2015.

Currently, our international business contribution to total Group revenues is still in small numbers. However, we are committed to make this growing from time to time. As mentioned in previous conference call, for the international business, we are targeting footholds in 10 countries until 2015.

We are committed to have more international business exposure to broaden our market room, diversify our business risk and improve the competencies of our human capital.

Our subsidiary, Telkom Indonesia International, together with 12 Asia telecommunication companies and two European companies, as members of South East Asia/Middle East/Western Europe 5 Consortium, signed a contract for the development of International Sea Cable System that's connecting South East Asia and Europe.

On January 16, we established a wholly owned subsidiary under the name Infrastruktur Telekomunikasi Indonesia or Telkom Infra. Telkom Infra will be positioned as a holding company for telecommunication infrastructure business.

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

For 2014, we expect both consolidated and Telkomsel revenue could grow in line with or better than market growth. Telkom consolidated revenue expected to grow between 6% to 7%. Meanwhile, Telkomsel could maintain revenue growth in line with or slightly above the industry.

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

Consolidated CapEx spending for 2014 expected to be 20% to 25% of revenue. Allocation for Telkomsel purposes is around 60%; meanwhile, for fixed line business and other subsidiaries is 40%.

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?

(Operator Instructions). Roshan Raj, Merrill Lynch Singapore.

Hi. Thanks for the opportunity, and three questions. First one, are you satisfied with the rate of monetization of data traffic? Looking at the 1Q trend, traffic is up 42% year on year; revenue is up 32%. Is this an area of concern? If not, why? And at what levels do you think it becomes an area of concern, if it doesn't start monetizing?

The second is in terms of your earnings strength; first quarter just about 2% earnings growth Telkomsel, 4%, 5% at Telkom. Is this is the kind of run rate we should be expecting for the remaining quarters?

And the third question is the kind of royalty or access fee you pay to BlackBerry on a per device basis. How does it compare to what you obtained last year? And is there a scope to bring this down going forward, given that you have a wider range of competing Android devices in the market? That's all. Thank you.

Could you please repeat the second question, Roshan?

Just looking at the earnings for the first quarter, low- to mid-single-digit kind of net profit growth for the first quarter, is this the kind of trend we should expect for the remaining quarters or for the full year?

Thank you. Pak Heri and Pak Edward, I think that is for Telkomsel.

This is for the Telkomsel as well as Telkom.

Hi. This is Edward. I'll just take the question number one, and then I'll pass to my CFO, Pak Heri, to answer number two and number three.

So I think quite clearly you pointed out that data rate is growing faster than the revenue, so are we happy. So the answer is we are never happy, right? So we always want to improve. So the question is -- so we are looking at a traffic growth faster than revenue provided. We are actually -- there are two reasons.

One, we're just growing out our 3G network. We try to understand the users' [needs]. Number two, the data front, the data user is now about 63m and the smartphone is only about 21% of our base. So there are a lot of things we are trying to get better with, encourage users to engage into using data. So there are a lot of activities, including digital applications and so forth.

So the long and short of it is that we are definitely finding new ways to improve our revenue on data charges and payload. So that's the answer.

Thank you. I'll continue the question number two. The second question is what is the outlook of our net income for the upcoming quarters. I think I can explain to you here. First, the first quarter always weaker compared to the fourth quarter, because we have peak season in the last quarter of the fourth quarter of last year.

And the second, also, we continue to have leading supply, in which we have our BTS and our network, I think ready upfront to be monetized a longer time for the remaining of the quarter. And the third is we try to be more conservative in recognizing the costs, so we try to avoid the possibility of any surprise, while having that one, we recognized that net income grows by 2.2%. And if you see that in terms of margin, it's not much different compared to the full year of last year.

So what we expect for the remaining quarters, the net income will improve along with the time, so we expect -- I think the net income, revenue, net income, and then EBITDA will be in line at the full year of this year.

And then, in the third question, it's about BlackBerry access fee. We can inform you, actually, compared to the first quarter of last year, the access fee tariffs of BlackBerry already reduced from IDR27,000 to IDR19,000 this quarter. It's along the way with our bargaining position, in line with increasing number of BlackBerry subscribers that we record. Right now, it's around 7.60 thousand -- 7.060m subscribers. This is -- I think the number of subscribers are much higher compared to what we got last year, around 5.75m last year.

So basically we used the, I think, bargaining position and our economic of scale so as to get the better offer from the BlackBerry. That's our end solution.

Okay. Thanks. Just following up on the first two responses. One, on the data monetization part, I understand you are trying to encourage subscribers to use more of it, but in terms of timelines, is it like a few quarters, a few years? How far are we from really seeing the revenue trends tracking or getting closer to at least the data traffic trend?

And in terms of earnings outlook for the next few quarters, I was not able to get a sense of it. Are you suggesting it will be a kind of mid-single-digit kind of earnings growth for the next few quarters?

So, again, I'll start first here on data. Firstly, I think we are in a very competitive environment, so we have to depend how the competition reacts and then we'll respond accordingly, so data prices will actually be competitive.

So point number two is if everything be equal at what it is today, where do you see the -- catch up our revenue with the usage? So I will say that in the next three quarters you will see us hopefully moving upwards. I hope I answered the question.

Yes. I think, as I already mentioned before, we try to make that in line with the revenue growth and EBITDA growth by I think also doing a lot of initiatives. I tried to make the cost, EBIT and (inaudible) work. So, basically, we will be in line with the growth of revenue and EBITDA.

Okay. Thank you.

Welcome.

Colin McCallum, Credit Suisse.

Thanks very much. My question is just regarding the depreciation at Telkomsel, which increased obviously quite meaningfully year on year. I was wondering if you could clarify exactly how much of that increase was due to the accounting change; in other words, more towers being treated as finance leases. Could you specify the number in rupiah billion that is due to that specifically?

Could you also tell us how many towers now or tenancies are treated as finance leases versus how many at the end of the year and how many at the same time last year, so we can see what's actually moved there in terms of the number of towers that have moved into finance lease accounting?

And could you also let us know how many towers are remaining that could be moved into finance lease accounting, so that we can understand how far this process has gone? I hope that all makes sense. Is the question clear?

Heri? Hello?

Hello?

Pak Heri, is that clear?

Hello. Hello, sorry. Yes, clear. It is about a depreciation increase related to the tower lease accounting treatment. In first quarter of 2014, we record around IDR504b of tower lease expenses that we record under the finance lease, of which around IDR312b posted in the depreciation, and the balance will sit to the interest expenses. At March 2014, also, the towers that we already rent is 15,083 towers, of which 7,873 towers were under operating lease and 7,210 towers under finance lease, or the composition almost equal, which is 48% to 52%. That's about the tower lease accounting treatment and the impact to the depreciation.

And the figures to (multiple speakers).

Sorry, how much -- so what was the impact in terms of if you look at the first-quarter figure for depreciation at Telkomsel versus the first quarter of the year before, how much of that increase is due to the accounting change?

How much is needed compared to last year?

How much of the increase in depreciation charges in Telkomsel is due to the change in accounting?

Okay. I will come back to you on that one. I think last year it is around IDR41b. Now become IDR312b.

IDR41b to IDR312b, so 261 billion?

Yes.

Okay. That's helpful. Thank you. If I could just ask one other quick question as well, I think you mentioned in the presentation that you now had 8.5m homes passed on broadband. I think your Speedy customer base still were only about 3m, and the net addition rate each quarter has actually been quite slow. Any particular reason for that, and what would be the target for getting the Speedy subscriber base to by the end of 2014?

Okay. For fixed broadband subscriber, has already grown by 17.6%, and the revenue fixed broadband itself has also grown around 7.8%. But if we -- combined including together with UseeTV Cable, the growth has reached around 9%. And then the number of subscribers will be -- our target by the year will be around 5m subscriber of Speedy. Thank you.

Okay. Thank you very much.

(Operator Instructions). Arthur Pineda.

Hi. Thanks for the opportunity. I have three questions. Firstly, we have seen margin to be under pressure and your EBITDA and profit growth has basically failed to match your revenue momentum. Is there room for you to reduce expenses in the following quarters, or should we see costs continue to weigh down on margins? I'm not sure if it's just a timing issue on the build-out costs and if there are any one-offs recognized in the first quarter.

The second question I had is with regard to -- it's related to this. If you aren't able to effectively monetize on the network investment with faster growth, would it make sense for you to slow down your network build-out so that you could actually accelerate your earnings momentum?

The last question I had is with regard to your thoughts on mobile competition. Have there been any notable changes in the industry post XL-Axis deal that we should be cautious about? Thank you.

Okay. May I start from the mobile side. I think in terms of the margin, if you see this quarter, actually, the number of days also shorter compared to the other quarters, because we have February which is less compared to the other months, the days in February. And also, we continue to build our -- because we know some events will be big in the second and third half of this year, so we start to prepare our network for readiness of that events that are going to come.

So, based on that, what we expect is in line with the following revenue that we can generate, the margin will be also improved from time to time. Our objective, of course, we want to have the margin of the -- the growth of EBITDA margin and net income also in line with the revenue. This is our objective. We try to improve the revenue and also try from time to time to get a good deal in costs, so our costs also will be, I think, more efficient. This is about the margin.

The second question, about the slowing down of network deployment, what we see is we had a formula of growing network in which the traffic is still -- the demand for traffic is still growing, and also we continue to put our network to that side.

We are very selective in adding our network, so that we already predict with our sales and marketing team. So, basically, we see that we still are -- the situation is still in line with our plan. So we expect we can continue the network build up. But if you ask us whether we can be rational, of course we are very rational in making the priority.

The third, maybe, Pak Edward, you can --

Maybe I could add on with what my CFO has said here, so number one. Then I think Telkomsel has been always a leader. One of our leadership position in Indonesia for being the largest cellular operator is our network. So we have widest coverage, widest network and the best quality in Indonesia. So I think that's something that we will not let go of. We want to hold to that premium position. So we will continue to roll out. So, as long as we are rational (technical difficulty) and do the cost analysis.

The other thing that also go into, we have been 18 years, 19 years in business. There's some transformation that we need to do with our network as well. So we go through these two phases aggressively.

So the other point you asked on mobile competition with XL and Axis merger. So I have to say yes, the market dynamic will change in twofold. One, the positive side will be they are actually a better competitor now because XL will now introduce costs paying off and write off all the goodwill and building a new network and working with a bigger customer base, so I think become more rational. We will not simply drop price to compete because, their bottom line, they have things to pay for. So that's the good part of it.

At the same time, obviously, they become more formidable, pick up more frequency, be able to roll out now with new frequency. So we have to be actually more mindful of that. So the question is that will change. I think that's true. But that's competition, right? Having said that, we've been in this for the last 18 years, like this, and hopefully we can also ride this storm through and hopefully we'll come out -- emerge as the leader as well. So that's all I want to add on.

Thanks very much for the color. So if I could just backtrack a little bit with regard to the comment on the margins, because it was mentioned that margins are expected to change from time to time and improve over time in the following quarters. When could we actually see things are changing with regard to your OpEx, so that margins could actually get better and profits could get better?

I think the first question, Roshan already asked it. I already mentioned to him that some of our cost recognition, we try to be more conservative, in which I think we'll try to operate the price and so on. We'll do the, I think, more frequent reconciliation with our vendors. So most of the costs I think we try to recognize as soon as it happened.

And the second, we from time to time try to do a lot of initiatives in our operational efficiency in terms of power and so on. We also know how to do the efficiency from the design of our network and so on. From that side, along with our economical skill, we have I think a better bargaining position from time to time, that we expect we can bring us so our unit costs will be more efficient from time to time, that we'll also end up with a better margin. That's what we can add to you.

Okay. Thank you very much.

Navin Killa, Morgan Stanley.

Hi. Thank you for the opportunity. Good afternoon, everybody. I have three questions. One is on broadband. I don't know whether I heard it correctly. Did you talk about a 5m subscriber target at the end of the year? That would obviously imply a big acceleration in terms of growth. Can you correct if I heard it wrong?

Generally speaking, what kind of initiatives do you think you need to take to accelerate growth in the broadband market? I would imagine there is probably a lot of demand there.

Second, I don't know whether it's early, but what's your thoughts on 4G in Indonesia? When do you think the market will be ready? Do you think you are well positioned in terms of spectrum? Have you started thinking about rollout, etc.?

And the third question is personnel expenses are down year on year. Is there anything going on there? How should we look at the trend of personnel expenses for the full year? Thank you.

I think, for the target for fixed broadband subscribers for full year 2014, we put the high target because we want to monetize all assets that we already spent on the full year 2013. So I think 5m subs as a Speedy subscriber is our target for 2014, end of year.

Okay. So I did not hear it incorrect, your target is 5m?

Yes, 5m subs for end of year 2014.

Navin, could you please repeat the second question again?

Well, I just -- there was actually a second part to the first question, which was now that you have confirmed that the target is so aggressive, how do you -- what are the strategies in place to take you from, I guess, quarterly net adds of 100,000, 200,000 (technical difficulty) probably need to be near 1m? So what's the strategy to pick up the growth there?

Okay. Our first strategy is to protect potential existing customer by upgrading the network from copper to fiber. That's the first strategy. And the second strategy is by the offering Indihome to the customer; we call it Indonesia Digital Home. This Indihome consists of unlimited local call [broadband, unlimited] telephone, unlimited long distance call, unlimited calls to Telkomsel and also UseeTV and much higher speed of broadband.

And the third is Speedy Instant itself. Speedy plan is a low offer, affordable customer, where we offer Speedy Instant the price only IDR5,000 for a day. So that's all the three.

Jimmy Chen, Sanford C. Bernstein.

Billy, I think second question has not been answered yet, I think. Regarding 4G, right, Navin?

Okay. I think on 4G -- this is Edward. Just let me reiterate the point I made earlier to the person who asked the question.

One of the successful contribution to our success in Telkomsel is our network coverage and the performance of network. So on that point we have demonstrated leadership in 3G. For example, if you look at today, we have 40% of our base stations are now 3G. Our nearest competitor has less than half of ours. So we have clear leadership in that. And why we do that is because we believe we are planning for the future. We want to provide mobile Internet, and that's where most people have set their Internet business, and especially Indonesia is a big, big country.

So on that point you asked whether we are ready for 4G. So the answer in short is we are preparing for 4G. We are looking into it seriously. We haven't got any license in absolute sense. If someone says you can launch 4G tomorrow, I don't think any of the Indonesian operator has that. When I say 4G, I say FDD, so with voice and data, so we haven't got that.

If we are given the license, will we launch, the answer is we are preparing and we should be ready to launch if need be, and to continue the leadership in Indonesia as the best cellular network. So I hope I answered your question.

I think for full year, we know that to some expense will increase. But even we continue to execute our cost transformation. But we think maybe we also can improve, if we can solve the problem in our Flexi accelerated depreciation, because you know that we are in the progress to move the Flexi into Telkomsel. If we can execute this initiative this year, I think we can terminate the accelerated depreciation in our Flexi, and can be less from our balance sheet.

Okay. Operator, can we get next question?

Roshan Raj, Merrill Lynch, Singapore.

Hi. Thanks. I have two more questions. One is this initiative about area empowerment. I believe that has been cited as one of the reasons for higher cost. I'm just wondering how do you see the offsetting revenue and earnings impact from this initiative. What are the KPIs associated with this particular initiative?

And the second question is do you have any thoughts on participating in local M&A opportunities? Thank you.

Could you please repeat the first question regarding IDN, Roshan?

Yes. It's not -- it's what has been cited as -- on page 7, the G&A expense has gone up, and one of the reasons which has been provided there is higher office rental costs related to area empowerment. I'm just trying to understand, what exactly are you hoping to achieve with this area empowerment and what are the KPIs and how does it benefit your revenue and earnings?

Okay. I may ask about -- I may answer on the area empowerment. If we see our business, the legacy business, if you see from the traffic, the traffic was stagnant in the last -- I think in the last, let's say, four or five quarters the traffic almost stayed stagnant. But from time to time, we also learned that if we recall every cluster in the area, we have around 208 clusters in the area.

We can see that every cluster or each region have their own characteristic in which we can really play our price adjustment, in which we can get benefits from that dynamic. To help that one, we need to do some area empowerment by transferring more people from the headquarters to the area, so our people are closer to the customers. By having this, it impacts the requirement of the building and so on in the area and also some of moving costs in the area. These costs, our costs will be coming increased in the GA.

What's the benefit from this, you can see, despite the fact the price is no longer elastic in the legacy business, SMS and voices, but we still can grow our revenue from that quite lucrative margin around 5% year on year. That's the way we see it, the way we manage our business and customers in order to get value added from the situation.

Okay.

Jimmy Chen, Sanford Bernstein.

Sorry, second question is not answered yet.

So regarding the opportunity for local M&A, we keep looking for the opportunity to find the room for growth from the local companies that can complement our portfolio. So we will execute in a very prudent and calculated way and also considering the benefit and also value creation that we can get from the action. Thank you.

Thanks. If I could just activate, would you be open to considering big ticket M&A deals, be that some of your CDMA or GSM competitors in the market?

Pak Edward, would you like to answer?

Regarding the GSM (technical difficulty).

Well, I think personally for M&A I think we are a dominant player. So any M&A we do, I think there will be some, for lack of a better word, restriction by the regulatory. So we have to be careful and we are watching that. On top of that, we'll be guided by our shareholders, both their comments, how they want to do this merger and things like this.

So at the moment, I would just say that we are open, we are looking, but that's about all I can say. Thank you.

Thank you.

Next question, please, operator.

Jimmy Chen, Sanford Bernstein.

Hi. Thanks for the opportunity again and apologies for logging myself out last time. Three questions. Number one, can you give us an update on the Wi-Fi network situation? We haven't seen a lot of update on that recently.

Number two and number three have probably been asked, but I just want to verify. Personnel costs reduced last quarter. Can you just explain what's driving that and whether that's sustainable going forward?

And number three, on the 3G or 4G roadmap, can you explain a little bit about how management thinks about the rollout of those two technologies and what the roadmap would look like in the next, say, three years in terms of the number of sites to build, the population to cover, etc.? Thank you.

Yes. I think why we want to develop more Wi-Fi at this point, because we want also to support 3G uploading the data for Telkomsel. But on the first quarter in this year, we only deployed around 86,000 Wi-Fi access points and target for full year is around 200,000 Wi-Fi access points. We believe that if we can upload -- it's around 60% up to 70% of 3G, can upload it into Telkom wifi access point, it's also create new revenue for Telkom fixed line.

The second I think Pak Edward or Pak Heri can answer.

Number two question is regarding personnel costs, Jimmy?

Yes, I didn't catch the numbers exactly. You said 200K Wi-Fi sites. Did you say that's the number that you have or is that a target?

200,000 Wi-Fi sites for full-year target.

Thank you.

4G roadmap, Pak Edward, please.

This is Edward, Jimmy. So maybe I think firstly I have to explain this is a very complex discussion. I would like to -- maybe if you are in Indonesia, I am happy to explain to you in person. But let me put it in the short and a simple one, and a short one is firstly I think today 4G in the world are around 900, 1,800 and 2,100. We talk FDD here. And of course TDD is 2,300. So Telkomsel is privileged to have 900, 1,800 and 2,100. So we are ready, so in that sense.

So number two, do we have enough frequency, the answer is obviously we'd like more. We have enough but we need more, because as we go along there'll be more and more downloads of videos and they need frequency.

So then the question is should we jump in tomorrow with 4G? The answer is we have no license. And even if we jump in, we will look at the places that we need to roll out.

So number -- the last point I want to make is today 3G smartphone penetration is only 21%. They are doing well in most capital cities or large cities, and (inaudible) is not. We are still rolling out 3G at the moment. We have about 40% coverage. We want to also hit as far as possible in the next two years. Hopefully we can achieve where we achieve 98% of 3G coverage. We believe 3G is still the first step from 2G to 3G and then to 4G. So that's the nutshell bit. So it's a long and complex one, but I tried to make it simple. I hope I answered your question, Jimmy.

Yes, thanks. And the personnel cost, thanks.

(Operator Instructions). [Casper Ernstein], New Street Research.

Hi there. I'm just looking at your release that you sent out this -- just before this call on your results. We've got a little thing regarding postpaid -- conversion of prepaid to postpaid, a package of IDR50,000 a month. Just wondering how much success you'd had on converting these prepaid people across to the more lucrative higher paid. That's it from me. Thanks.

Pak Heri?

Pak Edward's going to answer that one.

Just give me a minute. I'll give you the number of postpaid and then I can explain how we got postpaid business.

I'm sorry, can you repeat that? Hello? Yes.

Pak Edward?

Hold on. We try to look this up. Hold on. Give us a minute and we'll come back to you.

So, maybe to start with, I just want to tell you that we are trying to grow our postpaid business. So far, I have to say the number has been encouraging. As you know, in Indonesia mostly it's prepaid. So we have worked on it in various programs besides converting prepaid to postpaid, offering packages for SME and also large account customers like the big banks and the big offices in this country, filing company.

So on a year-on-year growth, our subscriber base grew 14%. And I will use the word we can still grow that business. It's encouraging and we are still looking at ways to lever it, monetize and grow that business. I think that's all I will answer for you.

Okay. Thank you very much.

Okay.

There are no further questions at this time. I would like to hand over to Mr. Santoso for any closing remarks.

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

And this does conclude today's conference. Thank you for your participation. You may now disconnect.