Welcome to XL Axiata's earnings conference call for 2018 financial year. My name is Elisa, and I will 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. 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. Ibu Dian will share the highlights of 2018, which will then be followed by the Q&A session. I will now hand the call over to Ibu Dian.
Thank you, Indar. Good afternoon, everyone. 2018 was a very tough year for the industry, as can be seen from the industry revenue this year, which experienced a decline. This was mainly due to the implementation of prepaid SIM registration, which had a short-term effect of increased and aggressive price competition in the first half of 2018. However, we came out of the SIM registration as the operator with the highest number of registrations as a percentage of our base in the industry. We managed to do this through proactive efforts in communication, providing ease of registration via multiple channels, engaging our customers via call redirects, and promotional incentives to get them to register, and our focus from the past few years on sustainable customer acquisition.
The implementation of prepaid SIM registration is a necessary change for a stronger and healthier long-term future for the mobile industry and will benefit all operators if properly enforced. We have already started seeing the positive impact from the changing behavior of customers, which is less churn, less buying of starter packs, and instead more of a focus on vouchers and reloads, which is more sustainable in the long run. We are very happy with our performance in 2018, as despite this tough market environment, we continue to execute and implement our data-led strategy, and we managed to outperform the industry with both our revenue and EBITDA rising year-on-year compared to the decline seen by our peers in the industry. This has solidified our position as a strong number two operator in Indonesia by revenue market share, a position we aim to build in 2019.
This quarter, our revenue rose another 3% quarter-on-quarter, which makes it the third consecutive quarter of revenue increase. Driving this was growth in data revenue, which increased 9% quarter-on-quarter due to a combination of data monetization and our success in upselling our data customers to the bigger packages. Our ARPU, which rose 3% quarter-on-quarter in the quarter, is evidence of our success in these two areas. Data revenue, which now accounts for 80% of our service revenue in 2018, is much higher than our peers and enables us to weather the negative effects of declining legacy voice and SMS services revenue better than others. Costs continue to be well contained, with our EBITDA rising 8% quarter-on-quarter and margins increasing to 38.8% this quarter.
Our continuous efforts in driving cost savings have continued to show positive results, with total operating costs in 2018 remaining flat despite the increase in the number of new network sites as we expand our coverage ex-Java and additional network elements installed to improve network quality during the year. This cost efficiencies program will continue and will be a key catalyst to drive higher EBITDA and margins in 2019 and beyond. Data continues to be our main engine of growth. Indonesia's data-savvy customers have continued to respond well to our improved network. As of full year 8th 2018, our smartphone subscribers stand at 43.9 million, a 15% growth compared to the same period last year. These make up approximately 80% of our subscriber base, which is significantly higher than the industry average.
We continue to see a fast rate of migration of subs to 4G, where 4G customers now make up more than half of our total subscriber base. This is partially due to success of our Xtra Smartphone phone offering, which has seen strong traction in the market and been key in migrating our customers from 2G to 4G, as well as helping us gain new 4G subscribers. As more of our base moves to 4G, we are seeing lower utilization of 2G, where traffic is now below 5%, and as a result, we have started switching off the 2G network in certain areas while continuously reducing the capacity in other areas where 2G usage has come down. This has allowed us to reform most of the spectrum that was previously used for 2G to now be allocated for 4G.
This initiative is in line with our business strategy of continuous network modernization and service quality improvement to ensure the best experience and service to our 4G customers. Thus, in this quarter, we have taken a one-off acceleration of depreciation of the portion of 2G assets that have been switched off, dismantled, and obsolete or no longer being used. However, going forward, our depreciation will be more reflective of our underlying business. Furthermore, the cost savings from lower electricity and rental, as well as the reduction in depreciation costs, will improve our future net profit. We are pleased to report that our customer numbers continue to increase post the prepaid SIM registration implementation in a healthy and sustainable manner.
This is due to our focus in 2015 on sustainable customer acquisition, thus we have added another 1 million customers, taking our overall base of registered customers to 55 million this quarter, while our ARPU has risen this quarter. The success in acquiring customers is mainly through our dual-brand strategy, which has led to us making strong inroads in different segments through innovative offerings in each segment this year. As a result of this, both brands achieved their highest-ever Net Promoter Score, or NPS, during 2018 and resonated particularly well within target market segments. Our Xstream smartphone offering was a big reason for the success of the XL brand in 2018, while attractive data-led combo products continue to attract new customers.
Axis brand also continues to do well with the youth segment, as we have expanded our product offering to appeal to this segment with a social media focus, while we continue do more for the gamers and music lovers. Our postpaid brand, XL Prioritas, also continues to do extremely well, attracting customers through attractive offerings and smartphone rebate programs. We also continue to ensure a high-quality data experience to our customers through continued rollout and upgrade of our network. Our total BTS count is now above 118,000 BTS, with 3G totaling more than 51,000, and our 4G LTE service covers around 400 cities and areas across Indonesia with more than 29,000 4G BTS. Our network investment continues not only within Java but with a greater focus on ex-Java this year. Following the strong performance last year, which has translated to better coverage and network performance in this area.
This has also translated to a stronger revenue performance outside Java, which continues to grow at a better rate than Java. In particular, awareness of our brand, improved network quality and coverage, as well as product and value appeal, has significantly increased outside Java, and we are now increasingly known as a nationwide operator. Despite the challenges we faced in the industry in 2018, we are seeing signs of improvement in the market with gradual price increases, both by us and our peers, which is positive for the industry. This is evident from our strong performance in the second half of 2018 as we have undertaken monetization of data. With our positive results, strong fundamentals, coupled with our focus on transforming into a data-centric company, we are confident of delivering a better year in 2019.
We will closely monitor how the market unfolds, which will have a bearing on our overall performance. Taking all this into account, our guidance for 2018 is for revenue to grow in line or better than market, EBITDA margin guidance of high 30s, and CapEx spend guidance for 2019 of around IDR 7.5 trillion, which will remain focused on data network investment in 4G and continued 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 a question, please press star one. To cancel, please press star two. Please kindly but strictly limit your questions to only two and to allow other participants to raise their questions. Should you need to ask more questions, you can go back to the queue by pressing star one again. We shall end the conference call sharp at 3:30 P.M. Jakarta time. Your first question comes from the line of Arthur Pineda from Citigroup Singapore. Please ask your question.
Hi. Good afternoon. Just for my two questions. Firstly, can you talk about the pricing environment for 2019? Do you see room for pricing to improve, or will this be highly competitive? Second question I had is with regard to costs. Staff costs declined by 23%, even though employee count was only down by around 12%. Why is this trending as such, given that you normally see wage escalation for the retained headcount? Thank you.
Okay. Let me start on the first one, which was regarding the price improvement expected in 2019. I think I will follow up on Ibu Dian's introduction here that, yes, we saw already in 2018 some improvement. It was a very competitive third half year, we saw some slight improvement in the prices when it came to 2018. At the same time, we're also seeing kind of a fourth operator coming into markets, which is Smartfren, and we have seen some very aggressive pricing from Smartfren, especially when it comes to unlimited products.
We believe strongly there are some improvement for price increase and monetization 2019. We have already seen that in January and coming into February as well, this is going to be on a granular basis, and it's still depending on the market condition overall. Right now it seems healthy. We do not see the same aggressiveness as we saw in the first half of 2018.
On your second question, I think if you look on the surface, if you look at the salary and employee staff cost, it's actually coming down because if you recall, there is a one-off adjustment in 2017 with regard to our severance payment, right? Typically, if you actually take that out, you eliminate that, staff cost actually 2017 going to 2018 actually increased by approximately 9%. I think that's contributed by probably some salary increase that we did in 2018, as well as some of the new hires that actually came in in 2018.
Okay, it's just that one-off adjustment.
Yep.
Okay. I'll come back in the queue for more questions later. Thank you.
Your next question comes from Colin McColl from Credit Suisse. Please ask your question.
Thanks for the opportunity. First question is for Adlan, actually. Just on those 2G assets you wrote off, Adlan, what was the depreciation charge or run rate, if you like, in 2018, attached to those particular assets? The run rate for 2018, for depreciation for those assets. That's first question. Second question is, I noticed you guys did the test on 5G. I'm interested to know what your assessment would be of what 5G would cost for a kind of fixed wireless cost per home, and would you think there's a good strategy there? Is any of your CapEx in your IDR 7.5 trillion budget, are you spending anything on wireless to the home as a strategy? That's the second question. Thank you.
Okay. Colin, your first question on the 2G write down. Essentially, I think if you look at our traffic in 2G to date, I think it's probably less than 5%, right, as a percentage of the total traffic. If you take as a percentage of data traffic, it's about approximately 1%, right? We've done this exercise where we actually reviewed all our 2G assets line by line, and I think towards the second half as well, we have started switching off some of our 2G assets. Based on that, I think we have taken an accelerated depreciation of approximately IDR 4.1 trillion. I think I would answer your question in a slightly different manner, right? If you look at the yearly depreciation increase from year to year is approximately between 6%-7%. Yeah?
I think with this write down, you would expect that this year, in 2019, the depreciation would actually remain pretty flat as compared to the normalized number in 2018 or slightly lower. I think you probably can do the math, what is probably the run rate for 2018 depreciation.
The second question for 5G. Yes. Last year we have done our 5G test mainly actually to try from functionality perspective, not from commercial perspective, our 5G test. The 5G test that we used at that time is for the B2B use case, not for the consumer use case. Whether it will be used for home, yes, there is actually an idea that 5G will be used for wireless to the home. It will be actually a good complement to FTTH for 5G for fiber to the home. Currently, we cannot set any further plan in 5G because in terms of spectrum, the government has not actually launched any license of the spectrum that can be used for 5G implementation.
That's very clear. Thanks.
Your next question comes from Ranjan Sharma from JP Morgan. Please ask your question.
Hi, good afternoon, and thank you for the presentation. Just two questions from my side. Firstly, on your ROICs, I think it peaked somewhere in 2011 or 2012, and since then it's been coming down every year. You have been emphasizing that 4G is a more efficient technology, and your cost of data is lower. Based on your experience with other emerging market telcos, this moving from 3G to 4G traffic, should we expect improvements in ROICs, especially at the current price levels? Does something have to change in Indonesia? Secondly, on your network within Java, is there any impact on network quality or customers that you're seeing? Thank you.
Taking on your first question on ROIC, I think you are absolutely right. I think our peak ROIC was sometime in 2012 or so, when we actually hit mid-teens. If you look at where we are today, our ROIC is probably low single digit. I think there is a few things that's probably driving this. One is probably the aggressive pricing in the market, what you've seen today. Probably at this current level, it actually deprives operators to probably generate sufficient return to grow your ROIC. Secondly, as well, I think what you probably seen that as we continue our build, especially in areas outside Java, there would be a time period that we would be able to get return on our investment outside Java.
I think when we look at both our portfolio, Java and outside Java, while Java, we are generating quite a high ROIC. However, that investment in outside Java is probably compensating for that high ROIC. In essence, the more that we move into 4G, yes, I think it's going to be a key driver in terms of driving ROIC up. However, we are also putting some new investment outside Java, for future growth. At the same time, I think that would probably come over the next 2 to 3 years. The aim is, I think for us, is to still go back to our peak ROIC at around mid-teens.
I think, ideally, we'll probably be able to realize that when our investment outside Java starts to bear fruits, which we are already starting today, and I think once we actually get a lot more volume and scale outside Java. I think, where we are today, the plan is definitely to grow ROIC, but I think it's probably going to take a bit more time before we actually eventually get to our peak ROIC of mid-teens.
Okay, let me take number 2. Regarding the network in Java, yes, you are absolutely right, and a very good question, that we have been doing some fine-tuning on our network technology-wise, meaning that we have been dealing with a bit of prioritization both between brands and different packets that we have. The best feedback we are getting when we're looking at our NPS score, as Dian said in introduction, that we have the highest ever NPS score, meaning that how many customers are actually promoting us. We are closing the gap to the big guys here, and we actually increased up to 20. Looking into details about our NPS score, asking the customer, "Why are you actually promoting us?" That has changed a lot when we look at the last 12 to 18 months.
Previously, it was basically that the network was bad, and the prices were good. That has changed significantly in the last three, four months, where now the promoters are saying, "We really like your network today," and which attracts us more than, "Guys, you are too expensive in the market at the moment." Yes, definitely our network has improved a lot.
If I may add to that, actually for inside Java, increase the quality of data networks because we do aggressive fiberization for our site in Java. Currently we are replacing the microwave that link the BTS and change it to fiber. That fiber makes the capacity to the site much higher and gives the quality improvements to our data customers.
Okay. Thank you. Can you just check, can you provide the organization providing the NPS score so I can get more details?
Sorry, could you just repeat the question again?
Yeah. Sorry. Can you provide the name of the organization providing the NPS scores so I can dig into the more details on the methodology?
Yeah. We can come back to you on that one, Ranjan.
Okay.
We can do that.
Okay. Thank you.
Thank you.
Your next question comes from the line of Chong Cheng Fong from CIMB. Please ask your question.
Hi. Thanks for the call. Two questions from me. Firstly, just some clarification on the guidance. What are you looking at in terms of the market revenue growth for this year? Also, in terms of the EBITDA margin guidance, you seem to be guiding for about the same margins as FY 2018. Are you expecting some margin improvements, and do you see potential for margins to be better than guidance in 2019 or only in later years? Why would that be the case? Second question, I just want to circle back to the competition side, where Alan mentioned about Smartfren being very aggressive. I just wanted to understand whether, with the stricter enforcement on the prepaid registration since late last year, early this year, have we started to see any positive effects on market competition from that so far?
Also wanted to understand, based on Smartfren's network coverage and distribution, to what extent do they overlap and compete against XL? Thank you.
Chong, on the guidance, I think we are probably looking at market revenue growth this year at around mid-single digits. I think if you look at the situation of where we are today, from an industry perspective and if you look at the incumbent, there is still quite a big chunk of legacy revenue that the industry is actually still carrying. We have seen this previously in past years as well, that the legacy revenue declines by double-digit. Maybe in the range of even 20%-25%. Because of that, I think our guidance actually is also reflective of that. Secondly, also, I think from the guidance perspective, we also are a little bit more cautious on this year's guidance, given some of the competition, the aggression that we are probably seeing from Smartfren.
I think we may need to monitor the situation and probably see how these things are probably going to impact the industry moving forward. EBITDA margin, yes, we are keeping the guidance at around high 30s. I think just to give a little bit of perspective, this high 30s margin in 2019 is probably would include device as well. Yes, I think if you were to exclude device, you probably would see that the number would probably be growing quite a fair bit. Given the fact that we are going to be quite aggressive in our 2G to 4G migration of smartphone, I think we're probably going to be quite aggressive in promoting 4G device in 2019. Hence, the guidance of high 30s would probably be reflective of that.
Okay. Regarding the market situation and in particular Smartfren. What we have seen for the last five, six months is Smartfren being pretty aggressive, and we are basically mainly talking about the big cities here in Indonesia. I can give you one example, this is Surabaya. They are going out to this big city, and they are extremely aggressive on the pricing and acquisition. The minute they do that, we see that Telkomsel immediately react on that and also changes the prices and change the distribution. Meaning that hits the three of us, meaning Indosat, Tri, and also hit at the time Smartfren being aggressive in the market. We also see that what happened two, three months ago has actually eased down a little bit, meaning that we don't see that effect at the same level off now.
We don't see the same amount of high acquisition coming from Smartfren. We believe that the regulator have somehow talked to them, saying that they need to be as compliant as anybody else in the market, which we have seen now, as we do not see the same acquisition at the moment. I do not believe this will continue for a long term. I think this is a short-term exercise coming from Smartfren. Immediately when they do that in some of the big cities, we of course react with retailer, canvas program, retailer program, looking into the regional pricing, et cetera. We also have a defense system starting at the point we see that. They were very aggressive, but they have eased down a little bit the last one month.
Okay, got it. Thank you so much.
Your next question comes from the line of Frank Jurajasingam from Macquarie. Please ask your question.
Hi. Thank you. Two questions from me. Maybe for Allan. Could you provide us some detail maybe on what successes you've had in upselling the product? Just because that Xtra Combo plan seems to be a very dominant plan within your mix. At the very least, we'd like to understand how successful you've been in being able to upsell and therefore generate the revenues that will eventually support profitability. Secondly, if you could help us get some color with regards to the network and the traffic growth, because again, your traffic growth is much stronger than the revenue growth. At which point is our price point way lower than the competition, so much so that it's loading your network without a sufficient return? If you could help us see through those things, that would be very helpful. Thank you.
Yes. Thank you, Frank. This is a little bit of a detailed question regarding our pricing, but let me try to give you two examples. The good thing about the SIM registration is that we can see the tenure of our customers are actually significantly increasing. From before being around 7% to 60% lower than three months, we are now opposite. Now we have 67% with a tenure more than three months. The minute you have customer with high tenure, you can actually work with the customer. Meaning that our marketing system, which is called mCRM, kicks in. We are able to attack and be able to reply to our customer, meaning upselling them. We have created a program called next best offer.
When people do something, we always create an offer that is better one they have today, meaning that we are trying to get the ARPU up, and the customer are very happy with that. That's one thing. Number two, you are absolutely right, that Xtra Combo is one of our hero product in the market. Right now we have introduced something called Prima, meaning that for IDR 10,000 more, you can actually get iflix VIP, and you can get full data rollover for the next month. We are trying to upsell our customer from Xtra Combo to Xtra Combo Prima, which works pretty significant. You'll see that on our rate take soon coming up. That's just two examples of upselling, and that's one of the main reasons why we see an ARPU increase as well.
The good part here is that going forward, if this continues, that actually people stay in our network, we are able to work more granular with all the customer that we have and increase the ARPU going forward.
I think your second question, Frank, I think if you look at our network utilization today is still probably sub 50%. While I think as we continue to build, I think, and we attract more and more smartphone customer towards our base. You will probably see that it will probably also drive traffic up. Essentially, if you were to look the composition of 4G smartphone users in our base, we are definitely have much higher smartphone users as compared to the industry and competition per se. I think what we probably have seen as well, smartphone users in our base today are doing north of 6 gig per month. That has what we have actually seen a quite extreme growth in terms of the smartphone data usage in our network.
That does not indicate or mean that our prices are we are actually selling lower than competition. I think we've probably done some benchmark comparison, whether the small sachet products or even the bigger data yield package, for example, our prices are comparable. If not, I think in the smaller sachet, based on our latest comparison lately, I think we have probably seen that probably our prices are actually higher than our competition. Yes, I think probably overall, I would say that the overall industry prices are still relatively low, and hence, that's why you are not able to see the increase in traffic is fully translated into data revenue growth. Having said that, I think the industry overall has moved quite significantly from price point perspective, post prepaid registration and definitely we have done so as well.
I think even in January itself, we have done some more price tweaking to optimize further and increase our pricing of our product.
Okay. Thank you very much.
Your next question comes from Sachin Mittal from DBS. Please ask your question.
A couple of questions. Firstly, the guidance is for growth to be in line or above industry, your industry growth is pretty low expectation 5%. Trying to understand, since you have so much less legacy revenue, why is the guidance not clearly above industry? If Smartfren is a factor, then what needs to happen? Do they need to increase? Do you need to further decrease pricing? What needs to happen for you to actually then risk materialize? Because the current price point, as you said, are low for Smartfren. Number two, you have been using Huawei for your managed services contract. Trying to understand, is there an expiry date to that contract? There were some significant cost savings in the last two years from there. When will we see expiry of this contract and any impact from there on?
Lastly, we have already seen stabilization of data pricing in this quarter finally. Trying to understand from you, besides Smartfren, among the three operators, where do you find yourself? What's your sweet spot now? Thank you.
Pricing. Okay. I will take your first question. I think, as I mentioned, the industry guidance is around mid-single digit. I think, as I said, we are probably a little bit more cautious on providing the industry guidance, given the industry is still carrying a bulk of the legacy revenue. In our case, our legacy are probably a lot less than what the industry is carrying. Hence, I think that's why we think that we should be able to grow in line or better than the industry. On the question on Smartfren, I think for now is I think we are looking at the situation, monitoring the situation, whether this aggression is going to continue for the longest of time or whether it's going to be a temporary period.
We have seen in the past as well that Smartfren has been super aggressive in one period and subsequently within six to nine months increasing price again, once their network start loading up. I think we are just probably a little bit cautious in providing the overall industry guidance. Having said that, I think that position might probably change as we go along in 2019 as we have a clearer picture of what level of competition that we are probably going to be seeing from Smartfren to say. Your second question on Huawei managed service. Yes, it's going to expire sometime this year, and I think we have already started the process of discussion and tendering the services, the project out. I think we should be finalizing that project tender very soon.
Yes, I think on your question that whether we have actually enjoyed some significant benefit from the managed service, the question is whether we are able to realize the same savings or not at the same level as our previous contract. I think that's something that we are still working on at this point in time. I think we are negotiating very hard, and I think we are probably going to see whether eventually we'll end up at the same level or not. Even if we are not, we are probably going to optimize the scope of work, and improve in terms of certain deliverables and KPI to ensure that whatever that we are probably getting are probably maximized. We cannot answer your question at this point in time because at this point in time, the tender is still ongoing.
Just a follow-up question on Smartfren. How long you are seeing Smartfren is aggressive for? Is this something, this is already factored in your results, right? I mean, the aggressiveness of the Smartfren. If it continues, then that's what you're saying, just to reframe that's your main worry, that this kind of attrition is quite bad for industry growth. Or is that what you're saying? Smartfren?
Let me try. There were two questions now. The first one was the sweet spot regarding the pricing and then on the Smartfren. Let me try to answer the first one. The beauty about having a dual brand strategy is that you can play with that, and we do not have exact sweet spot for these two products. What we are doing for the Axis is mainly targeting the young people of Indonesia, meaning that there's a low validity and a low price. It is around 2 GB maximum, up to IDR 30,000 maximum, where the XL brand is facing the urban white collars and the urban blue collar, and that's a high validity and higher GB, more than 2 GB and priced around IDR 30,000 and upwards.
What the beauty about this is really that we were one of the first to have the voucher and the scratch card in the market. Even though today in the shops, you likely see some of our competitor comparing 4 GB with our 1 GB product, even though that's the same price, but people have now kind of changed the behavior. They would like to buy a voucher instead of a SIM because they do not want the hassle to do the registration. Even though we are higher priced in the market, we still see exact same traction as we have before. Smartfren, and this can only be a personal view about what they're doing. I do not think that Smartfren is sustainable for what they're doing at the moment. That's actually not my biggest worry.
I have a much higher worry about what Telkomsel are doing because if they are losing momentum outside Java, meaning ex-Java, they're going to be extremely aggressive to compensate for the loss ex-Java in Java. That's a higher worry than what I have for the Smartfren because we have already seen Smartfren ease down at the moment. I do not believe they will continue at this. At the end of the day, now they have a free network, but at the end of the day, they will continue with unlimited value proposition. They will, of course, fill up the network with data, and that will slow down and the customer will not be happy going forward.
Okay. Very clear. Thank you.
Your next question comes from Arthur Pineda from Citigroup Singapore. Please ask your question.
Hi. Sorry, just two follow-up questions from me, please. Firstly, can we get your thoughts on dividends? If you actually see earnings improve and given that your balance sheet is actually in decent shape, can you see dividends come back this year? Second question I had is with regard to your CapEx. Obviously, you've been diverting more CapEx outside of Java, but north of 80% of your revenue still come from Java. Are you not concerned that you may see network congestion in your core revenue markets? Thank you.
Yeah, I think dividend, I think there's a high likelihood that looking at our numbers this year, that we should be able to pay out some dividend this year. I think, and given some savings that we are probably going to get from the accelerated depreciation as well, I think you should be expecting that we should be in a profitable position in 2019. Secondly, on CapEx, I think Allan have actually alluded to this as well earlier, right? Yes, we are switching some investment more towards outside Java to build our coverage there. At the same time, we also have actually continued to expand our capacity within Java. I think as Allan mentioned, that's actually thoroughly reflected in the NPS score today that the customers are not only happy with the price today, but also the network quality, especially in Java, have actually improved quite substantially.
Right? Whilst we are investing outside Java, we are not ignoring the fact of the capacity and network quality within Java.
Thank you, Adlan. Sorry, just to clarify on the dividend, are you going back to your 30% payout ratio in the past?
Yeah. That's the policy. I think if we are in a normalized net profit position, we'll definitely apply that policy that we have actually guided the market.
Great. Thank you very much.
The next question comes from Alex Go from AmBank. Please ask your question.
Yeah. Thank you very much. I'm just trying to understand now the direction of your accelerated depreciation. We've seen you just bumped up in this fourth quarter. I'm just wondering, could you give some guidance going into this year? How much more left should we be looking at for financial year 2019? That's the first question. The second one is, regarding your CapEx of IDR 7.5 billion, could you give us a sense of how much proportion of that is going into ex-Java? The other third question I'm looking at is your revenue guidance is mid-single digit, but looking at your CapEx against what you have capitalized for 2018, it looks at growth of 10%.
I'm just wondering, as your CapEx growth seems to be higher than your revenue growth, I'm just wondering, your new customer acquisitions, will it be enough to offset the increase in your overall cost in terms of acquisition costs, in terms of your depreciation charges as well? Thank you.
Yeah. Just going back on the accelerated depreciation, I think what you probably would see that that's a one-off charge, right? We do not expect any more accelerated depreciation coming from the 2G assets. On the saving side, I think I've answered this question earlier. I think if you look at the yearly depreciation, typically year-over-year, it will increase approximately 6%-7%. With the one-off accelerated depreciation, we should expect in 2019, the depreciation charge to be at similar level of the normalized 2018 or slightly better. I think you probably could do the math. What is the run rate and what is the savings that you could expect from the depreciation charge in 2019? On the IDR 7.5 trillion CapEx that we are probably going to spend in 2019, I think, yes, we are probably going to skew more to outside Java.
I think today, by end of 2018, 4G population coverage outside Java is already reaching close to 80%. By end of next year, I think with the investment that we are putting in, 4G population coverage will be close to 90%. I think I would say that it's probably skewed more towards outside Java, and it's probably going to be just slightly more than 50% that's probably going to ex-Java. The third question. The guidance that we've given, that's the industry guidance of mid-single digit. Our XL guidance is to be in line or better the industry. Obviously, I think looking at where we are today and our position in terms of where our legacy and momentum in the market today, we should be able to grow above the industry growth. If you look at mid-single digit, today it seems probably a little bit quite conservative.
However, I think as I explained, that's probably taking the industry position where legacy revenues are still big within the industry, not necessarily XL, which I think will probably have an impact on the overall industry growth. Yes, I think industry is probably mid-single digit, but on XL perspective, I think we should be able to beat the industry.
Hello.
Hello.
Regarding your CapEx that is moving higher than your revenue growth, how would you offset the expected increase in your acquisition costs coming in for your customers, as well as your depreciation charge?
I think our CapEx is around the same level as where we are last year, right? There's no growth in terms of our CapEx. It's around at the same level as where we were in 2018.
Okay. Thank you so much.
We have a follow-up question from Chong Cheng Fong from CIMB. Please ask your question.
Hi. Thanks. I just one follow-up question regarding on the regulations part. I saw some news on drafts on the new tariff formula regulation. Just wanted to find out your thoughts on when this will go live. Any thoughts on implementation here? This would have any positive impact on overall market competition. Thank you.
Fong, yes, I think they've issued some draft for public commentary at this point in time. Yes, I think the overall industry is having a discussion on that. A draft is currently being issued, and I think they are seeking public comment on this. I think it's probably going to take some time because the next process, having gotten the comment from the public and feedback from the public and all that, I think they'll probably go back to the drawing board to take into feedback that they have gotten, then probably will discuss with the industry players, then probably will reissue another draft later on. I would think if I look at the regulation, it's probably going to be quite positive for the industry.
I think it's probably going to take some time before it's going to be implemented, if it's really going to be implemented.
Okay. I just want to ask because the tariff formula is based on cost, and obviously the cost inputs are going to come from the respective telcos. I'm just wondering whether does that provide too much room for the individual players to put in their own cost inputs, and then go around this whole formula in pricing their packages in the market, especially for the smaller players like Smartfren and all that. Any thoughts on that?
Yeah, I think that's always the challenge when you have this pricing regime. How do you monitor and how do you track this cost element to implement cross-operator? Practically, how does that get executed? I think when we talk about this price point, for example, that's something that we focus our discussion on, and there's always a challenge in terms of how that thing gets practically implemented. Yes, the issues that you raised are probably all the points that are probably being discussed at the industry level. How that's going to be tackled or addressed, something that we are probably still at the drawing board now, Fong.
Okay, got it. Okay, thank you so much, Alan.
That is the last question. I would now like to pass back the call to your host.
Okay. As there are no more questions, thank you everybody for your participation in today's call. Please get back to us if you need further information, and we will speak to you next quarter. Thank you.
That concludes today's conference call. All lines may disconnect now.