Good morning, ladies and gentlemen. Welcome to XL Axiata's earnings conference call for the first nine months of the 2019 financial year. My name is Rishi, and I'll be your coordinator today. During the presentation, all participants are in a listen-only mode. Instructions will be given on how to register your questions when we get to the question and answer session. As a reminder, this conference is being recorded for replay purposes. Now, we would like to turn the conference over to our host, Mr. Indar. Please proceed.
Thank you, Rishi. Good afternoon, everyone, and welcome to the call. On behalf of the XL management team, I would like to thank all of you for taking the time to join us today. With us on the call today, we have Ibu Dian, our Chief Executive Officer, Pak Adlan, our Chief Financial Officer, and Pak Alan, our Chief Commercial Officer. Now, Ibu Dian will share the highlights for the first nine months of 2019, which will then be followed by the Q&A session. I will now hand the call over to Ibu Dian.
Thank you, Indar, and good afternoon, everyone. We are pleased with our continued strong performance this year, despite the challenges in the market since July with increased competition. This is now the fifth consecutive quarter we have recorded a sequential increase in service revenue, and we are seeing strong growth across all financial metrics, as well as consistent profitability. The continued positive performance despite increased competition is a direct result of the consistent execution and implementation of our strategy, which aims to position us as the mobile data provider of choice in Indonesia. Our strategy continues to be focused on our attractive dual brand data-led product proposition, enhanced with analytics-driven customer value management initiatives, continued network investment in building out our 4G network, and focused on growing our ex-Java market share.
In the first nine months of 2019, our revenue increased 11% year-on-year, mainly due to service revenue, which rose 16% year-on-year. Driving this is data revenue, which increased 30% year-on-year. Data growth continues to be driven by increased customer usage of data through our product and analytics-driven strategies. As a result, data revenue in third quarter now accounts for 90% of service revenue and continues to be higher than our peers, enabling us to weather the effects of declining legacy services better. Profitability growth has also been strong, with EBITDA rising faster than revenue at 19% year-on-year due to our focus on cost efficiencies, with margins increasing 3% year-on-year to 39% in the first nine months of 2019.
This strong growth in EBITDA is driving our return to profit this year, with nine-month normalized net profit at IDR 505 billion. Indonesia's data-savvy customers have continued to respond well to our improved network as we are increasingly being recognized as the brand of choice for smartphone users. As the third quarter of 2019, our smartphone subscribers stand at 47.7 million, a 14% growth compared to the same period last year. This makes up 86% of our subscriber base, which is significantly higher than the industry average. We also continue to see a fast rate of migration of subs to 4G, where 4G customers make up 70% of our total subscriber base. Our customer numbers have declined this quarter to 55.5 million compared to the previous quarter. On a year-over-year basis, it is still up.
This is mainly due to more intense competition in the market, which is not affecting our longer tenure customers. However, there is an impact to the shorter tenure part of the base. Given that our revenue as well as our ARPU increased Q on Q, it is clear that the subs we lost are in the lower value segment. Our customer value management initiatives are the key part of our efforts in driving higher ARPU and our success in upselling our customers. These are based on analytics through our omnichannel platform. We are doing pilots on cross-selling non-telco products and offers through our customer interaction. In addition to that, we are also doing real-time contextual interception of customer transaction to upsell our products. We intend to do more in this space with tailored and dynamic pricing, as well as expansion of our customer retention and upsell activities.
In parallel, we continue to ensure high-quality data experience to our customers through the ongoing rollout and upgrade of our network. Thus, our total BTS count is now above 129 BTS, with our 4G LTE service covering 410 cities across Indonesia. We also continue to invest in fiberizing our network as this will help in handling the increase in data traffic we are seeing. At the same time, we continue to increase the number of our tower sites that are fiberized. Our network investment continues not only within Java, but with a focus also on ex-Java, which has translated to better coverage and network performance in these areas, and we are increasingly known as nationwide brand. This has also translated to a stronger revenue performance outside Java, which continues to grow at an exponentially faster rate than Java, and increase overall contribution to revenue.
We intend to continue to execute on our strategy to finish the year on a strong note, in line with our objective to become the preferred mobile internet operator in Indonesia. However, we continue to monitor competition in the market and hope it doesn't further intensify. Given our strong performance in the first nine months of 2019, our revenue guidance is raised, where we expect revenue to now grow at better than market. Our EBITDA margin guidance is also raised, where we expect EBITDA for 2019 at closer to 40%. We maintain our CapEx spend guidance at around IDR 7.5 trillion, which will remain focused on data network investment in 4G and continuous network improvements and modernization in and outside Java. Thank you. Let us now proceed to the Q&A session.
Thank you, Ibu Dian. To ask questions, please press star 1. To cancel, please press the pound or hash key. Please strictly limit your questions to only two and allow other participants to raise their questions. Should you need to ask more questions, you can go back to the queue by pressing star 1 again. We shall end the conference sharp at 2:30 P.M. Jakarta time. Again, please strictly limit your questions to only two and allow other participants to raise their questions. The first question we have is from the line of Piyush Choudhary. Your line is now open.
Hi. Thanks for the call and congratulations for a great set of numbers. Two questions. Firstly, if you could elaborate a little bit more on the competitive environment and what's the outlook for ARPU improvement going forward. Secondly, any plans to monetize towers? If yes, what are the timelines on which we're working? Thank you.
Yes. Thank you, Piyush, for the question. Let me first elaborate a little bit regarding the competition scenario in the Q3. What we have seen is that Smartfren continue with the unlimited in the market, and they gain some acquisition in the market, meaning that they took a fair share of the acquisition overall. We also saw that starting in Q2, that Indosat started following Smartfren with the unlimited offering. So far, we know that more than half of the acquisition for Indosat was also coming on the unlimited plan. Surprisingly, we also saw in Q3 that Telkomsel introduced sachet product, meaning its low validity product to a low price, so they also gained some momentum in acquisition.
That's the reason, as Ibu Dian said in the introduction, that we lost some customers on the low-value customer due to this intense competition when it comes to the pricing. Very difficult to predict what's happening right now. What we have seen in the market that Indosat removed their unlimited product in the market in Q4 here. We know that there's still some stock for unlimited in the market, so they'll still be gaining some acquisition on unlimited. Otherwise, we see maybe some cool down at the moment, especially from Indosat when it comes to the pricing. Very difficult at the moment to predict what's happening in the market.
Yeah, Piyush, on your second question on towers. I think we have said this before as well, right? We've got close to around 4,000 plus towers remaining. As we move into a more distributed architecture, I think a lot of these towers from a strategic, it becomes non-strategic, right? Hence that make it possible to be considered for sale, right? Is there a plan? I think yes, but at this point in time, I think when we are ready, we'll probably come back and make the necessary announcement to the market.
Sure. Thanks a lot. I'll come back in the queue. Thank you.
Thank you. We have the next question from the line of Ranjan Sharma from JP Morgan. You may now ask your question.
Hi. Good afternoon, and thank you for the call. Two questions from my side. Firstly, you've attributed the increased competitive environment to Smartfren and Indosat. If I look at the price plan, especially for the unlimited plans, Smartfren is offering unlimited plan at IDR 70,000, which seems to be at a premium to your ARPUs. It doesn't seem to be that competitive. Is there something else that you're seeing locally, which is leading to disruption in the market? Indosat plans also seem to be at the higher end, at IDR 60,000 with a free YouTube in the unlimited plan. The second question is on the loss in customers. Are you seeing this in Java or are you seeing this outside of Java as well? Thank you.
Yes. Thank you, Ranjan, for the question. This could be a long answer. I'll try to make it short because you're actually spot on when you in your question ask about this is localized. I would say it's very localized in Indonesia at the moment. It actually into each city, into each small cluster, you will see different prices and different products. What you see at the webpage, at the homepage at the moment, doesn't match to what you actually see in each of the clusters. You're also right saying that it's high priced. It's not IDR 70, it's IDR 65,000 for the unlimited product in the market, and we see that it has affected on the acquisition on the urban white collars, which we look into that segment. It is at a higher scale.
Smartfren actually have a full range of products coming from the very low sachets, very low validity, going up to the unlimited. It is not only unlimited that takes the acquisition. Again, it depends on which city, which cluster you go into, and you have different prices. We are monitoring each of the clusters at the moment, and of course, we're doing what is needed to be competitive in these markets.
Okay. On your second question, I think the loss of customers, if you see that we are still growing in areas outside Java, right? You know that the intense competition is primarily coming from the areas in Java. We could say that loss of customers mainly coming from Java.
Okay. Thank you.
Thank you. We have the next question from the line of Arthur Pineda from CIMB Group. You may now ask your question.
Hi. Thanks for the opportunity. Two questions. First, on the non-Java versus Java growth, are you able to provide color on how those two regions are trending? What's the % coming from ex-Java? Second question I had is with regard to your other telco revenues. It seems to be declining. If I recall, this is linked to the towers. What's driving that down? Thank you.
Okay, Arthur. We will not be in space, but I think suffice to say that where we are today, both Java and ex-Java are actually growing, right? However, ex-Java is growing, I would say, a double-digit. Very healthy from the trending that we are probably seeing, right? Today, ex-Java actually make up actually more than 20% of the total revenue to date, right? Definitely, ex-Java share is actually growing quite significant and ahead of target, right? We really hope that this trend can continue as we continue to invest more outside Java. Your second question on other revenues, I think, primarily due to the decline in the tower revenue. I think you probably would know as well, right? The industry landscape has also changed, right?
The average tower revenue today has come down quite significantly from an average, I would say IDR 20 million-IDR 25 million down to probably about IDR 10-IDR 13, right? We also face similar situation. There have been renewal of tower leases as well over this year. Hence, I think that has probably contributed to the decline in the other telecommunication services, mainly from the decline in the tower lease revenue that we are probably seeing. That's in line with the market.
Understood. I'll come back later for questions. Thank you.
Thank you. The next question we have is from the line of Sachin Mittal from DBS. You may now ask your question.
Yes. Thank you. Few questions. Last year, I think you talked about, you had about 15% market share outside Java, and you want to double it over the next few years. The question is, are you close to what you wanted to achieve outside Java? Number 2 is if you could disclose anything about, in terms of revenue contribution, is ex-Java coming close to 30%-40% of your revenues, or what percentage is coming from ex-Java versus Java? Lastly, after a long time, we saw your revenue per ARPU actually trend up 2% quarter-over-quarter. At the same time, we saw some subscriber loss. Has it got to do anything with that you reprice your offering and hence became less competitive in Java? This is something you can correct in the near term. Could you comment on that? Thank you.
I guess, on your first question, right? Ex-Java, yes, I think, we have said in the past that there is aspiration to double up our revenue share outside of Java, right? I think, if we look at the trending today, we have definitely seen that we've taken market share outside of Java. Whether we've really achieved our objective of doubling up, probably not. I think that's probably our goal in the mid to long term, right? At least we are probably on the right track to probably achieve that target, right? That's one, right? Your second question is with regards to the revenue outside Java. I think I probably mentioned earlier that today, I think, revenue outside Java is probably contributing more than 20% of the total revenue, right? To be exact, we are probably closer to 23%. It has been growing.
If, for example, we are able to keep up with the pace that we are doing today, you would expect that the distribution between XL Java and Java would probably get closer. I think majority is still going to be coming from Java. I think this is something that we'll continue to track as we go along. The third question, [other than]?
In regards to your third question regarding the customer loss and the packets that customers are buying, I think we have many nights talking about tactical moves, what to do and not to do in these markets in Q3. Our final decision was not to follow at the moment on the unlimited packets and not to go down to both that level below the unlimited and introduce unlimited as well. We would wait to see what happened. It seems like it paid off as one of our competitors are now removing unlimited, but still, of course, very aggressive. You're right, we lost some rotational churner, as we call them, in the lower end of the markets, which didn't affect our revenue and didn't affect our ARPU in that sense.
Right now, again, we are still sitting looking into what tactical move we should do, depending on the competition heating up or slowing down at the moment.
Got it. Thank you.
Thank you. We have the next question from the line of Choong Chen Foong from CIMB. Your line is now open.
Hi, thanks for the call. Two questions from me. Firstly, again, back on competition. In terms of the subscriber loss, did that come at the beginning of the quarter, or did that largely come towards the end of the quarter? I'm just trying to figure out whether we're progressively seeing a greater impact from competition. As you mentioned, most of the sub loss are in the lower value segment. Have we started to see any sort of impact on the slightly medium to higher ARPU segment thus far into the fourth quarter? If it continues to be just the lower value segment, can we sort of presume that XL will continue to keep to the current pricing strategy? That's the first question. Second question regarding the network.
You mentioned, I think earlier, about the target to reach about 90% 4G coverage in ex-Java by the end of the year. Where are we in terms of the progress there? I've noticed that the base station additions in the third quarter was actually at its lowest in the last three years. Anything to read into this? Those are my two questions. Thank you.
Yes, I think in your first question, you added three questions within the first question. Let me try. The first one was, did they actually all through the quarter? To be honest, yes, it was. It started mainly because Indosat and Smartfren had the unlimited and the lower price in the beginning of the quarter and continued to the full quarter. Talking about this rotational churner that went down on our network, yes, it was through the whole quarter. Secondly, you're asking will we do any aggressive moves to compete in that space. Far, we are keeping our strategy. We are not changing our strategy regarding our two brands, which is the Axis brand and XL brand, and we try to distinguish between these two brands in terms of pricing and in terms of value proposition. Right now, we are not changing.
At the same time, we have a daily monitoring of what happened in each of the clusters, each of the cities, to see if these guys are moving in an irrational way or they are not doing it. Far, we are still on a tactical move where we are monitoring these guys. To be honest, I cannot here reveal if we are changing the prices up or down at the moment, but we are following our strategy, and we are not doing any irrational thing in the market at the moment.
Your second question, Foong. I think if you look at where we are in terms of 4G coverage at Java, yes, I think we are probably on track in hitting the 90% population coverage as we talked about in past calls. I think if you look at the way that we do our network rollout, of course, every time when we do a rollout, we probably want to chase for the peak period to get all the network up and running before Lebaran. That's typically what we have done. I think if you look at the incremental that you probably see in the first half in terms of 4G base station has been quite significant. I think in the second half would probably be slowing down a little bit because the plan is to deliver all before Lebaran.
I think in the second half, I think we'll probably be thinking about next year's plan already, which we already started, and hopefully, I think in terms of issuing out POs would probably happen in this quarter. Hence to probably chase the rollout for 2020 plan to be ready before Lebaran. Is there any change in plan? No. It's exactly what have been planned for. The aggressive number that you've probably seen in first half was actually to chase for Lebaran, and hence slowing down a little bit in Q3.
I think I forgot to answer one of your sub-questions within question number one, where you asked about do we see any changes on the higher value subs in our network. Here, I must say we haven't seen that so far, which is mainly due to we are still competitive on the pricing and is due to the SIM registration process. It's still a little bit difficult, it's a little bit of a hassle to change the SIM, and then you're still attached to your number. We haven't seen any big changes for the higher value.
Okay, got it. Thank you so much, guys.
Thank you. We have the next question from the line of Ivar Luiten from Goldman Sachs. You may now ask your question.
Hi, thanks for taking my question. It's a follow-up question on the BTS adds actually. With your CapEx guidance of IDR seven and a half trillion, does it mean that the fourth quarter CapEx would decline quite a lot? Also, does it mean that you're satisfied with your current level of network quality, especially since Indosat is still rolling out its network aggressively? The second question is, last quarter you mentioned you gave some color on profitability outside of Java. How is it currently, and how is the outlook for profitability there? Thank you.
Regarding the network rollout, yes, we have seen that our competitors have been aggressive in rolling out our network. We also have to remember that for the last two years, we have been aggressively rolling out network and spent a quite amount of CapEx in that sense. I can link it to the NPS score in Indonesia at the moment, where it looks like, and we are still a very strong number two in the net promoter score. If I deep dive into the network, it's very clear that we are still progressing. We are still having good NPS score, but also admit that both Indosat and Smartfren are gaining when it comes to the NPS score for the network.
You are absolutely right that they are getting some traction in the network and building out network, but we are still a very strong number two when it comes to the network in Indonesia.
On profitability, if you look at our share outside Java, it's still relatively small. If you compare to the market leader, we probably need to hit some scale in terms of to recover the investment outside Java. Are we profitable outside Java at the moment? The answer is not. Hence, however, we have seen very positive trends coming from outside Java. I think, as you've seen that we are growing double digits in terms of revenue outside Java. It's faster than what we expect and what we've targeted for this year. Definitely we have taken market share.
If the trend continues, I think, as you would expect that within the next two, three years, I think we should be able to turn some of this investment that we've made outside Java, by increasing our market share, from where we are today, into probably getting some positive returns from that investment.
Okay. Got it. All clear. Thank you.
Thank you. We have the next question from the line of Kresna Hutabarat from Mandiri. You may now ask your question.
Hi. Good afternoon, everyone. My first question is on the finance liabilities pick up in the quarter 2019. Can you just confirm if this is coming mainly from fiber leases or tower leases? Can I also please get your thoughts on how finance liabilities balance can add up over the next few quarters, especially in anticipation of the full IFRS 16 implementation in 2020? My second question is on D&A charges. I recall that you previously guided that D&A to grow 67% over the normal D&A run rate in full year 2018. The nine months 2019 trends have been way lower than that. Do you see the need to revise that guidance, or should we expect the D&A growth rate to be materially lower in full year 2019? Thank you.
I think the finance lease liability is actually growing. I think partly driven by the fact that we are building fiber on an IRU basis. I think we are capitalizing it as finance lease. That is the primary driver of our financial lease. As you would expect, in the next one or two years, we expect to hit our fiberized sites, 50% of all sites to be fiberized. That's probably going to be one of the main driver of financial lease. The adoption of IFRS 16 for us will take into effect on 1st January 2020. That being said, I think the impact would probably be all our operating leases today, especially on towers, will need to be capitalized, and that will probably result in a higher financial leases number that you see.
At the same time, it will also drive your EBITDA margin up quite substantially. Quite a big portion of our tower leases today are still on operating lease. Hence it is classifiable as EBITDA. All in all, I think a full implementation of IFRS 16 would be in January 2020. D&A, I think if you look D&A is slightly trending below what we forecasted. Yes, we did forecast that it will be low single-digit growth on D&A compared to last year. We would expect that probably this year will probably end up at around flat-ish compared to 2018 for D&A.
Thank you. We have the next question from the line of Ranjan Sharma from JP Morgan. Your line is now open.
Thanks. Just a couple of follow-up questions from my side. Firstly, again, on your customers, we also see that your smartphone users have declined. Considering the other operators, you do seem to have been investing more aggressively over the last few quarters or the last couple of years. I'm just wondering where these customers could be going, because some of your other competitors have very limited networks. Can they actually be competitive in gaining customers away from you? If you could share your thoughts. The second thing is on your EBITDA margin guidance being revised upwards. Does this have any contribution of operating leases being classified as financial leases? It's just that you're seeing a scale benefit? Thank you.
Okay. On smartphone penetration, I think what you probably see, we are quite sluggish this quarter compared to last quarter, right. Overall, if you were to compare our smartphone penetration and 4G penetration over the last four quarters, for example, we have grown quite substantial, right. It's not that we are probably losing share, but I think over the years, I think we have grown quite significant. If I'm not mistaken, if we look at last year, our smartphone penetration, today, we are at about 86%, but I think from fourth quarter last year, we are just slightly below 80%, right. There's been about six, 7% growth in smartphone penetration over the last four quarters.
Secondly, on EBITDA margin, I think, as I said, the leases are primarily coming from fiber leases, which we are building new, to connect all our end sites. That's given the aggression, I think, that we are fiberizing our sites, that's probably driving the financial lease. However, EBITDA margin growth are probably coming primarily from the growth in revenue, as you would expect that our operating leverage are quite high. Given that revenue growth has been very strong this quarter and this year, it has probably driven EBITDA margin up. On top of that, there's also cost efficiency that we are continuously driving that has also helped in terms of driving up the EBITDA margin this year.
Okay, got it. Thank you.
Thank you. And we have the next question from Arthur Pineda from Citigroup. Your line is now open.
Hi, just a few follow-up questions, please. Can you provide more color on your tower rentals? What percentage of your towers are still on IDR 15 million to IDR 20 million per month as compared to? When are these up for renewals? Second question I had again is on the tower side. I'm just wondering about your earlier comment on intention to sell them. Given that IFRS 16 is coming and the liabilities will still be lodged under your books, and you don't really need the cash as well, given your balance sheet is under leverage, what's the incentive to actually examine selling off the towers? Thank you.
Okay. I think, Arthur, on tower rentals, I think, if you look at most of our tower, are actually subject to renewal over this year and probably some next year, right? Within this next two years, I think a majority of our tower is up for renewal, right? I would say that the portion of tower that's based on the old rate are not many, right? Majority have actually been renewed as we speak today. Yeah, secondly on IFRS 16 and selling off towers, right. I think the motivation of selling towers is probably driven by not so much of the need of cash, but I think we probably look at two points, right? One is from NPV basis, right?
In terms of the cost of running the towers versus doing a sale and lease back, how would that benefit the overall company in terms of cash, in terms of profit, in terms of returns, for example, and NPV, right? That's primarily the main driver. Secondly, is also looking at the multiples, right? If I'm able to secure by selling off towers a multiple of eight, nine or even 10 times, for example, right, compared to what multiple that Axiata has today at around four, 4.5 times, I think in a way that we are looking at how do we monetize these assets, right? Having said all that, we have not decided whether we're going to sell towers or not, right?
The thinking if we were to sell towers are probably from the aspect of monetization, given the higher multiple, and secondly is comparing between the sale and lease back transaction as compared to the cost of running the towers ourselves, right? Running the towers are probably not easy today, given the cost of land lease, right, the community issues that we are probably facing, permits, and all that, right? Taking all that into account, I think when we do the overall assessment, we'll compare that against the proceeds that we'll probably get from the sale and lease back, right? I think not so much driven by cash, but so much of how do we monetize that. Last point as well, I think we don't have much more towers, so we don't have the scale to operate these as well, right?
In terms of, let's say, operating efficiency from our part is also less as compared to people that's holding quite a significant number of towers, like the big tower companies, right?
Got it. Okay, thank you very much.
Thank you. We have the next question from the line of Colin McCallum from Credit Suisse. Your line is now open.
Thanks a lot. Congrats on the good numbers. Two questions from me. First one, just a housekeeping one. Adlan, you mentioned 86% smartphone penetration. What would you be at in terms of if we talked about 4G penetration, someone who had a 4G handset and was actually using 4G functionality, what would that be now compared with, say, December last year? That's the first question. The second question is, I'll try my luck with either Dian on this, the new ICT minister, do we have any feel yet for what the attitude might be towards consolidation, keeping spectrum post-consolidation, those sorts of issues. Do we have any feel for that as yet? Those are my two questions. Thank you.
Colin, on the first one, I think today, our smartphone, our 4G penetration is around 70%, and if you compare that against a year ago, we are around 53%, right? There has been a significant growth in our 4G customers over the last four quarters.
Colin, on the second question, the new minister has just been appointed, so we haven't heard much from him. We look forward to working with him, and we are hopeful that his objective will support equal growth for the telecommunication sector in Indonesia. He already mentioned that one of his objective will actually increase non-tax revenue. We actually hoping that, knowing that Indonesia has one of the highest spectrum payment rates as a % of revenue in Asia, we hope that the minister would rather improve the business environment in Indonesia, which suffers from intense competition and will lead into improved tax revenues for the government.
We hope that the new minister will actually come out with policies and also guidelines for improving the industry efficiency, such as network sharing policy, network consolidation, and also actually, if the minister could improve Indonesia's fiscal position by reducing capital imports of network goods. We hope that, also, the minister would actually come up with the spectrum allocation to make more spectrum available for us, because currently, even for 4G, the industry will require more spectrum for 4G. On top of that, 5G is coming, so we would require even more frequency for 5G. In terms of what will be his strategic objective, at this moment, we have not heard much from him.
Got it. That's actually very helpful. Thank you.
Thank you. Again, ladies and gentlemen, to ask a question, please press star one, and to cancel, please press the pound or hash key. Again, please strictly limit your questions to only two, and to allow other participants to raise their questions. The next question we have is from the line of Sachin Mittal from DBS. Your line is now open.
Yeah. Thank you. I have two questions. You talked about unlimited plans taken up by Indosat and probably other operators. These are high-end plans. I'm wondering, high-end plans probably need a better network quality. Has the network quality of players like Indosat is matching in XL already that they're getting a lot of traction for these high-end plans? This is a question on the network quality. Have the differentials been narrowed and significantly narrowed? Second question is on, what are your thoughts given that XL is not just a Java operator now, you are a Java plus ex-Java operator with substantial presence now. What is the primary benefit for XL to acquire any other operator or merge with any other operator? This is a hypothetical question. I'm trying to understand.
If you're already competing well with the bigger players, what are the key benefits of any consolidation X, Y, Z, whatever consolidation to you? Thank you.
I'm not 100% sure I understood or got the first question correctly, but what I heard that you said this, we have higher value package, higher than the unlimited, which is absolutely correct. We have higher packages with a higher GB and more voice, et cetera. That we have in our portfolio. At the same time, you also asked about are we narrowing down the advantage we have in the network compared to our competitors. There's no doubt about, to be honest, yes, they are building the network, and of course, for every year or every six months, they are building the network, getting closer to us. The competitive advantage is narrowing down. We don't have that anymore. We still have, but of course, you're absolutely right, it is narrowing down. Was there another question or?
No, I think.
Okay. I think there was some disturbance on the line. Yes, you are right. It is narrowing down. Our competitor getting closer when it comes to network advantage. In the future, I think we are looking into smart networks, meaning that we do not believe it's only gonna be about speed in the future, it's also gonna be about experience. Today, yes, people are buying a certain GB package, but we also see that a huge demand for different OTT players on top of the package. These OTT players do not only look into the speed of the network, but it's more about the experience. What are you actually getting out of that OTT service that you're getting?
We are looking into that, how to deliver a smart network and not only talking about speed in the future.
Okay. On your second question, if I can assume correctly that you're asking, given that we are now a nationwide player, why do we need to go for acquisition? Firstly, I think. Is that right?
Hi, Sachin. Are you still there?
Yeah, I'm here. Can you hear me?
Yeah. This was your question, the second question, correct?
Yes. What are the benefits, if any?
Yeah. Okay. The way we look at it, I think we are fully supportive of any M&A, right? I think any M&A would probably lead to a better industry overall position, right? With consolidation in the market, I think you probably would see that competition hopefully will improve and actually will bring the overall industry up. Second is in any consolidation, I think one of the key aspects for us that we will probably look at is probably from a spectrum position as well, right? Given that where we are today, given our spectrum position, given the geography that we are facing in Indonesia and how data is actually growing Indonesia, spectrum has always been a constraint. I think if you were to compare spectrum position of operators in Indonesia versus in most of the other country around the region, we are probably in a very disadvantaged position, right?
With consolidation, for example, and with the ability to probably acquire more spectrum, that would actually help in term of providing better network quality at a lower cost. Thirdly as well, I think there are definitely synergies that one would probably look at in any M&A, right? In this case, I think, not only looking at Java is Java, but also from segments, right? There are synergies between customer segments, where some of the other operators strong in some segments as compared to the other, right? Those are probably some of the areas that we look at, and definitely from a cost perspective, definitely, I think you'll probably be able to consolidate your cost, your network sites, and all that probably drives and gives you a bigger network and at a lower operating cost, right?
I think there are many factors that we would probably look at in terms of M&A, and not that primarily driven by whether we do have network in Java or ex-Java.
Understand. Very clear. Thank you.
Thank you. The next question we have is from the line of Kresna Hutabarat from Mandiri. Your line is now open.
Hi again. Thanks for answering my earlier questions. I just have a quick question on IMEI regulation. Can we please get your thoughts on the CapEx that you may have to incur and also business process that you may have to adjust in order to comply with the planned regulation? Thank you.
Thank you for the question. The government already mentioned that the IMEI regulation will take effect in April 2020, and this regulation will require all new customers to have their handset registered to the IMEI database. We don't know actually the impact yet because currently we are still estimating how much will it cost to comply with the new regulation in terms of setting up the new system. The government, the regulator, has not actually defined the process or the customer journey. We could not actually now calculate what kind of system that we have to put. We don't know yet the impact in terms of cost by this regulation. However, to the business, I think the impact to Telco business will be neutral.
Okay. Got it. We're not expecting any sort of impact that we saw like in previous regulation in 2018, I suppose.
No, we don't think so. We don't.
Got it. Okay. Thanks, Bu Dian. Thanks.
Thank you. The next question we have is from Niko Margaronis from Danareksa. Your line is now open.
Yeah. Thank you for the opportunity. I'd like to go back to the competition and about your product portfolio. What is the current contribution between your main brand, XL, and Axis? Where Axis is doing better? Is doing better in mainland Java or outside Java? Thank you.
We don't share the ratio between XL and Axis, but I must say that I can say that both of the brands have been growing significantly, and especially Axis has been growing very well. The difference between these two brands, we are trying to say that first of all, Axis we want to be more digital brand, meaning that you have to use our digital platform to acquire the Axis service. Secondly, this is more skewed towards the young population of Indonesia. If you look at XL you can buy all the work and at the same time it's skewed towards the urban white collar and urban blue collar as well in Indonesia. The contribution we will not share, but both of the brands have definitely been growing significantly all through 2019.
Okay. Thank you.
Thank you. We have the last question from Piyush Choudhary from HSBC. Your line is now open.
Yeah. Hi, thanks. Two questions, please. Firstly, if you look at data usage is rising at a very healthy pace, around 56% year-on-year, nine months. Just want to check how are we placed on the 4G capacity utilization in Java areas? Are there any risk of capital intensity rising going into 2020? Secondly, if I can check on the churn rate, what's the churn rate now, and is it still trending down? Thank you.
All right. Okay. Piyush, I think if you look at 4G, I think as traffic continue to grow, I think we have continued to build our coverage as well as capacity as well, right? I think where we are today, utilization is still less than 50%. We are still in a good shape in terms of serving more data traffic as we go along towards quarter four and next year, right? Churn rate, I think where we are today, I think churn rate has come down. I think now it's probably closer to the high single digit to close to 10%, right? About 10% or more. Given the prepaid registration, I think we are still not able to apply the churn rate yet. Definitely the trending is coming down.
I would expect that maybe within the next 12 months or so, you'll probably see improvement before it stabilizes at some point, yeah, mid-single digit or so.
Sure. Thanks a lot [inaudible] .
Thank you. As there are no more questions at this time, I would like to pass the call back to the host. Thank you.
Okay. Thank you everyone for your participation in today's call. As always, do get back to us if you need more information, and we'll speak to you next quarter. Thank you.
Thank you. That concludes today's conference call. All lines may now disconnect.