Earnings Call: Q2 2018

Jul 31, 2018

Quarterly report

Good afternoon, ladies and gentlemen. Welcome to XL Axiata's earnings conference call for the first half of twenty eighteen. My name is Rachel and I will be our coordinator today. During the presentation, all participants are in a listen only mode. Instructions will be given on how to register your questions when you 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, Rachel. Good afternoon, everyone, and welcome to the call. On behalf of the Excel 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 Yidian, our Chief Executive Officer Baradlan, our Chief Financial Officer, Bart Allen, our Chief Commercial Officer, and Bart Ferris Group Head Finance. Now, Iberdian will share the highlights of the first half of twenty eighteen, which will then be followed by a question and answer session. I will now hand the call over to Iberdian. Thank you, Indar and good afternoon everyone. We are pleased to report that despite the challenges during the first half of twenty eighteen with deep data flight competition and structural changes of reversing registration, we have come out much stronger than others. This belief is further reinforced from very recent disclosures which recursively implies that the industry has declined year on year in the first half of 2018 by a double digit decline. In contrast through our division and consistent execution of our strategy, we have delivered a positive revenue growth on year on year basis, outperforming our competitors. Though such regulatory reform has a negative short term impact to the industry. We firmly believe that the change is a positive one in the form of a healthier market environment for the mobile industry and there's long term value creation for us. The change is very much in line with our transformation strategy in becoming a data leader focusing on value customer and experience rather than price. We have been very consistent in the acquisition of our strategy through our our transformation journey, and this has enabled us to gain further traction in the market. Our data leadership and transformation is also gaining external recognition with Pross and Sullivan recently awarding us the ATF Pacific Mobile Data Services provider of this year. In the recent quarter, we were the only operator among the top 3 which managed to deliver positive view on view and year on year growth. With growth revenue grew both 1% view on year on year. This was mainly driven by continued growth in data revenue, which has been our main driver of growth. Inoperative data offerings and improvement in data service quality has successfully pushed data revenue growth in the first half of 19% year on year. Data revenue contribution now makes up the majority of our service revenue at close to 80% in this quarter. This percentage is far higher than our peers, which enabled us to weather the negative effects of declining legacy service of police and SMS far better than the others. The data business continues to be our main engine of growth, offsetting the decline from legacy services revenue. The key reason for the good performance so far in 2018 is the continued success of our data led product strategy coupled with continued investment in our laser networks. In donations, they serve the customers have continued to respond well to our improved network as smartphone subscribers now stand at 77% of our subscribers. Which is almost 4 of every 5 customers. This number continues to be significantly higher than the industry offering. The total number of smartphone users now amount to about 41,000,000 and has grown up suddenly at 21% year on year compared to the same period year. We are pleased to report that our customers' numbers post the pre vaccine registration implementation have only seen a slight reduction and this reduction is due to non active subscriber as evidenced by our ARPU which increased due on We manage this through proactive efforts in communication, providing its of registration via multiple channels, engaging our customers via our redirect to get them off the register and promotional incentives to register among others. We were also the operator with the high number of registration as a percentage of our base in the industry due to our softness in 2015 on sustainable customer acquisition. Our offer based registered customer is $53,000,000 at the first half of twenty eighteen. We have always remained supportive of the government's efforts to implement prepaid sim registrations as this will be positive for the mobile industry. We are hopeful that these efforts are continuing by all industry players to ensure that these benefits are ripped off on the long term. In establishing the extra brand, the choice for high value customers Both reliable high speed data and superior network quality are essential. As such, we continue to ensure a high quality data experience to our customers through continued roll out and upgrade our network. This, our total BCS count is now above 111,000 BTS with 3 gs totaling more than 49,000 and our 40 RPA service is now available in 3 380 Cities. And areas across Nelita with almost 25,014 Cities. We also continue to invest in recognition backhaul and network modernization to support the rising data traffic across our network and deliver stability expand our network capacity and improve quality of our data services for our customers. We were well prepared during the laboratory Division in the second quarter which typically see strong traffic growth. Data traffic grew 95% during this period compared to the previous years driven by 14. The strongest paper of traffic continues to be streaming both video and music followed by web browsing, instant messaging, and social media. Our network investment continues not only between JAVA but is a greater focus on XAVA this year following the strong performance last year which has translated to better coverage and network performance in earlier. This has also translated to a stronger revenue performance of the Tiara which continues to grow at a better rate than delta. The dual brand strategy has successfully led to access assets are making strong in roles in different segments through innovative offerings in each segment. During the quarter, we launched our exclusive smartphone, which is propane co branded with YouTube at affordable prices for our customers. This offering has done extremely extremely extremely well and customers who protect the center have a high resinsular rate for us while 70% of those who bought and active defenses are coming from other operators. Active also continues to do well with the youth segment at 6 produce such as heat as its products such as heat, geos, around social media and fertility offerings. Our postpaid brand access priorities continue to gain further traction through attractive offerings and smartphone repair programs. Our performance in the first half of twenty eighteen was very promising despite the data price competition in the industry. We are seeing signs of improvement in the market with gradual price increases both by us and by some of our peers. Which is positive for the industry and we remain supportive of efforts to monetize data. With our positive results, strong fundamentals, coupled with our focus on transforming into a data centric company, we are confident of delivering a stronger second half performance. Nevertheless, we will closely monitor how the market unfolds postpaid registration, which will help bearing in our overall performance. Taking all this into account and recent developments in the market, our revised guidance for 2018 is for revenue to grow above market EBITDA margin guidance of high 30s and CapEx spend guidance for 2018 around 7,000,000,000,001,000,000,000,000, which will remain focused on data and investment in 4G and continuous network improvements and a modernization in and for at Jafar. Thank you. And let us now proceed to the Q and questions. You. Your first question comes from the line of Sachin Fagwan Karb from Bank of America. Go ahead please ask your question. Hi. Thank you for the opportunity and congratulations for a good set of numbers. I have two questions. Number 1 is regarding your extreme smartphone partnership. I just wanted to understand the impact of this on EBITDA margins. And if you are subsidizing, any handsets in this bundling proposition? And second question is, with respect to your data growth, it appears to be a bit slow in this quarter as compared to last quarter. Is this a one off and should we see the growth normalizing into second half? Okay, Sachin. So yeah, I think we started doing a huge promo on the 4G, 4G handsets, right? So I think if you look at, since we launched, I think we've got a quite tremendous check on this, right? So and I think, if you look at, this program, we are not subsidizing the handset. But obviously that the margin that we are making from this program itself, it's not high, right? So So obviously, I think from a margin perspective, we are still making positive margin, but it's a low single digit margin as from this program, right? What is going to be the impact? I think the way that we measure this is this program is actually beneficial for us in promoting interest. I think people, the non core G to 4G, right? And I think, typically, we see that, people that's migrated to this program typically have, will actually increase the ARPU, right? So, margin wise, I think, if you look from market perspective, I think it's probably going to be impacted slightly, but the way we look at this is we look from an absolute EBITDA, right? I think absolute EBITDA going to be still going to be positive for us. But I think margin wise, I think it's probably going to generate a low single digit margin coming from this program alone. But on longer term basis, I think that impact is going to be quite significant for us. I think all in the same speed for Q2, as we've seen before. But if I look at what in Q2 and what will happen going forward regarding the product that we want to introduce. I do not see any reason for why it should slow down regarding the data growth, right? Because we will still introduce products and handset as well that we will bundle it. The YouTube, we will bundle that iflix is set up going forward. But again, at the same time, we also recognize that the customer in Indonesia, the first movers, they have kind of taken that into the to the pocket and are using it. So for sure, we've not seen this gigantic to growth going forward, but the growth did not stop for sure. As we introduce products, this will be bundled with some those freebies and paid monetized products when it comes to the data. Okay, got it. Just a follow-up. I noticed you changed your guidance from being a growing in line with the end to above industry. What do you estimate currently could be the industry growth for 2018? Sorry. Sorry, we were on mute, so I was talking to myself. Sorry. Let me repeat again, right? So, so I think if you look at the, we just got results coming from competitors, right, this morning. So And hence, I think looking at where the industry is in the first half, I think you probably can compute the numbers yourself. Industry itself in the first half, excluding XL, I think, is at minus 12%, right? So and that's far worse than what we initially That's right. So and given that fact and where we are today, based on first half and looking at our trajectory and momentum, in the market, I think we are quite optimistic in terms of how we're going to perform in the second half, right? And hence, the change in guidance from in line to industry to above industry growth, right? So what industry growth is going to be I think at this point in time, I think we are probably looking in the speed to be declining negative for 2018, at least looking and where we are at this point in time in the first half. So that implies a 2% to 3% kind of a growth for second half? Well, it it could be it could be higher than that, right, in the second half, but the rate that I think if you look, where industry catch up overall. It's quite significant given the position of where we the industry is in the first half, right? And bear in mind as well, I think, if you look at the quarter last year, I think the overall industry still grew, right? So I think putting all that in perspective. I think that's why I think we think that, a likelihood that industry is going to be negative this year. That's the growth. Okay. Thank you. Your next question comes from the line of Pierce Chaudhry from HSBC Singapore. Go ahead, please ask your question. Yeah. Hi. Good afternoon and congrats for a great set of results. Couple of questions. Firstly, on competitive dynamics post and registration. Can you kind of, update us whether Exelix Zietta has taken tariff hikes in proportion to peers, or are you kind of looking to further increase the tariffs and and what's the outlook over there? Secondly, some of your peers, as you know, is lagging on the network investments. So are you looking you know, this has an opportunity where probably you can increase your CapEx significantly and strengthen your number to market share position meaningfully, given some of your peers are not investing. So just your thoughts around that. Thank you. Thank you. Let me start with the question number 1 regarding the tariff hikes and what we have seen so far. And what we're going to expect in the second half of this year. We have got this question so many times both from analysts, guys and from our competitors as well. So we made our I own analyze and looked into how does the figure actually look like? And we did take the hero product in the market. There's no doubt. We are one of the leaders when they come to price increase in the market for the first half of twenty eighteen. Now at the same time, we also recognize that it's a pretty unhealthy price level in Indonesia at the moment. So we will welcome and we will also try also to be one of front run off when it comes to price increase and price hikes in this market. So that as many of you have said before and what we have seen in the rumors in the market, what we've seen so far, yes, we believe that the price will go up in the engineering. On network investment, I think yes, I think so far, our network investment have actually started to show positive results, right? I think whether from a network quality survey or index. I think we are in most cities, we probably felt quite well because it's our competition, right? As of now, as of now, I think we are still sticking to the 7,000,000,000,000 target But obviously, I think we are reviewing the situation as we speak, yes. So I think whether we are going to accelerate or not the investment moving forward something that we'll probably going to come back to the market once we finish looking at all this assessment. Sure. If I may, you know, ask on the parasites, can can I can you clarify whether you have done hikes, you know, in third quarter, which is similar to your peers, or or you are, you know, kind of looking to match that in future? I think it's very much depending on who you're asking for on right? Because so many products is almost unbelievable to find a comparison product or a neck to neck product, right? So, but if you just take our couple of hero products compared to what we believe is our compatible hero product. As I said before, we are the leader in the price hike. But again, that's a lot of circumstances in the market at the moment. It's basically, as I said, just as we got in written stress, civil fundraising process. How strict is it at the moment and what's going to happen in the future, right? So it's very, very difficult to predict what's going to happen, but all indications right now is that will actually go in upwards direction. The reason I'm kind of, you know, stretching final reason is because if I look at your data realization from your results, it's still down 18% quarter on quarter. In second quarter results. So there doesn't seem to be any evidence that the data tariffs are stabilizing in the market? Thank you. Yes, so I think you probably need to look from this perspective, right? Very clearly, I think we know that we have increased the prices for our hero product, right? And obviously, I think what really matters is I think is the end prices to consumer, right? And obviously, that is what really matters in the market. So I think when we track in terms of the effective data prices, we actually track the prices to end consumer. Unfortunately, that you can't see, just purely from a pure yield given that, I think, the end consumer prices will also on the commissions and the Click Commission that I think operators are paying to retailers as well, right? So We know as far as our hero products and all that comparing to the competition, we've increased accordingly. In fact, we think in some areas, we are probably more aggressive than rest, but you are absolutely right that it's probably not reflected in the yield, but that's not the only measure. Got it, Bhavan. Thanks a lot. Your next question comes from the line of Arthur Pineda from Citigroup. Please ask your question. Hi, thanks for the opportunity. Two questions, please. Firstly, on the pricing, how much do you think you need to see pricing levels rise for your hero products in order to see the industry revenues normalize basically where is the pricing now versus 2q 'eighteen? Second question I had is with regard to your growth momentum. It's been very divergent versus peers. And I know you've mentioned that you're focusing on key segments and all. I'm just wondering, what are you exactly doing differently from the rest? Is your revenue growth coming from specific regions or is it specific customer segments? Any flavor there would be great. Thank you. Sorry. Can I understand a little bit your first question pricing when you say normalized? What do you mean by that? Basically, for the industry to go back to the growth levels that it was seeing before all this price war happened, what kind of pricing adjustments do you need to see? And where the pricing is now versus, let's say, 1 year ago before all these, discounting happened? Yes. So I think if you look at the price points today, right, in the earlier part of this year, late last year, right? Technically prices dropped by about 30, 40%, right? I mean, and I think where we are today, obviously, I think, as we go along, up to La Baran going, post La Baran. Definitely price has actually increased, but we are probably not back to the level that where we were last year, right? Too, that's still probably if you talk from a price increase perspective in some of the key products, you'll probably see a 15%, 20% increase, right? So we have not had a full recovery in terms of the original price where we were last year yet, right? So just looking at, if you are talking about looking at a growth rate, last year, for example, you probably need to see that, from where we are today, price probably need to go another 20 percent to 30 percent, right, from our latest position today. But again, it's possible to look into the Christmas where we are still going. But when I look at our scope of new products should be launched, we'll be very welcoming that the prices should go up Understood. So the second question, as I understood earlier, was regarding the segment, what are we doing in regards to different segments in the market, right? So So we, as part of the transformation that was introduced more than 3 years ago, we are very much segment based and all the things that we're doing. We're talking about mass segments. We talking about enterprise segment and we're talking about premium segments. At the same time, the product we introduced in the market is also linked to each of these segments, right? So recently we launched this extreme handset in the market and that was very much focused towards the blue color. As we can see that the penetration of 4G handset is very low among blue color. And the traction we can see is very, very positive that the blue colors are actually able to buy this handset and use 4G smartphone for the first time in the market. So we will not stop this journey right now. So within the next couple of weeks, maybe months, we will also introduce some phones for the white collar as well with kind of the same value proposition to attract this segment. So I would say what we're doing different is the product we are launching is very much segmented focus and very much tailor made to different segments in the market. Your next question comes from the line of Miangshuan Kaul from Goldman Sachs. Please ask your question. Hello. A couple of questions. Firstly, on your network infrastructure expenses, it was down QOQ and YOI. Can you explain how XL has achieved this despite rapidly rising data traffic? And can we actually expect more cost cuts ahead? And second question is that we've seen obviously prepaid subs decline for all the telcos Q on Q given the prepaid from registration effect. Has that prepaid single digitization, if I've been fully factored in, in the second Q numbers, or will we still see some lingering impacts in 3rd Q? Thank you. Yes. So, on the network cost, yeah, I think, part of the, contribution, why are you promising our has declined is partly to do with our, our, our new center, right? As you know, that today, for renewal of ours. So we are paying 50 percent less than what we used to pay, right? And I think within the next 2 to 3 years, we are probably renewing the bulk of our towers, right, that was 10 years ago, right? So, whilst we are building new sites, but we also renewed quite a significant number of our towers that will be coming to an end, right? So that has, to a certain extent, resulted in a better Q on Q, and year on year on our network cost, right? Second factor is, I think, if you look at our managed services, we are entering into the 7 year of our managed service and the way that the managed service is captured. Every year, I think we probably see an improvement in terms of the commercial that we are getting as without a managed service. And I think for this year, I think the reduction that we are getting as a percentage of revenue, the decline is quite meaningful that actually contributes to the improvement in terms of our network as well. Last but not least, I think, we are also working together with the group, to really see how we can optimize and capitalize on the group strength in terms of discussion and shaping with the vendors, right? In a lot of our OPEC technical maintenance, for example, we have managed to leverage on the group strength to reduce some of these costs, right? So, and I think that has helped us significantly in terms of driving our network costs down despite I think, building a lot more sites of new towers, for example, to improve our coverage. Regarding, the number of customers, the number of subs in this market, those 3 and both the simplification and I agree with you in good question because it must be very difficult to read from each of the operator at the moment. Some have increased by significant amount of percentage new subsea and Q3 and some of that do maintain the number of shops. So from our point of view, what we can see, we are back to the same level as all the SIM registration and now after the SIM registration, the same level of customers. And we do not see it should have any impact going forward anymore regarding the SIM registration. So we've seen the first shift has been taken so far. Your next question comes from the line of Colin Macallum from Credit Suisse. Please ask your question. Thanks for the opportunity. A couple of questions from me. I'm back to the pricing issue actually because there is quite a difference between the sort of tone you're talking to us here and what we're actually seeing in your numbers. Right, in particular, on this data yield issue, where the gap between you and the number one player actually widened in second quarter. So let me ask the question direct again. In July, so in the last 4 weeks, have you actually increased any standard pricing? That's the first question. And then second related question is, I think you mentioned Hero product a couple of times what percentage of your total revenue comes from that product? And what exactly did you change there on on that product? And when did you change it? So, Colin, I think, just to your question, yes, right? So, I think, we have been increasing our price since April, right? Obviously, not in big step, but definitely, but sorry, Ivan. That wasn't my question yet. I said, did you increase prices in July in the last 4 weeks? That was my question. Yes. We did increase in July policy. That's the answer to your question, right? So I think if you look at 0 products, obviously, there are quite I would say if you look at the portfolio, at least 4 to 5 products for the makeup I would say 50%, 60% of the total revenue, right? So I think, we expect, most of the 0 products right? Obviously, some is more than the rest, but definitely, I think, since we came over this year, I think we we touch and increase prices for almost all the hero products. But the extent of it, the quantum of it may differ, depending on the segment, and the target market. Your next question comes from the line of Rajin Sharma from JP Morgan. Please ask your question. Hi. Thank you for the call. I just have one question. Can you please help us understand what is the ARPU that you would require in your Edge Java, roll out that will allow you to break you in on your investments. So sorry, sir. ARPU. You're talking about ARPU to breakeven. In that job? Yeah. So I think firstly, we don't break down a wahoo jabber, right? So I don't think there's information that we probably want to share in the market But as we said today, you're absolutely right. I think you probably generally, you see the ARPU in Java is probably higher than outside Java. But I think what is more assuring, I think, in outside Java, we are at the stage of building up more market share, right? So and definitely, we want to expand our market share outside Java. And if you can see that, the investment that we've been making so far has started to show some results. And if you look at the growth outside Java today, it's still, contributing to double digit growth. I think that trend would continue as we move along. At this point in time, we are probably not breaking even in outside Java yet. Obviously, I think this is an investment we are looking at to capitalize maybe in the next 2 to 3 years, right? Well, well, thank you for that. Maybe I can elaborate a bit more. I mean, we're just doing a bit more analysis outside of Java, and and I'm happy to talk about this in more detail offline. It just seems that your investments might not be profitable for the next 4 or 5 years at least. And there is questions are and it's not certain if you'll actually generate any returns on capital, I appreciate that there will be growth in revenues but I'm struggling with the returns and capital, part of the equation. So that's why I was trying to figure out what is the ARPU that you would need, to generate returns on capital. Because even if I take your ARPUs that you have in Java, I'm starting to get the returns on capital. So would appreciate your thoughts. Thank you. Yes, I think it's a long journey, right? I mean, obviously, when you take the investment in this area, for example, you're not expecting any immediate return, right? So one fact you need to understand as well, right? The price point outside Java today is actually much higher. Outside Java is probably much higher within Java, right? And I think, and in some cases, you probably see that the average price point is probably outside Java is probably one point five times higher than within Java, right? So there is clearly an opportunity there, right? 2nd as well, right? I think what we're also seeing that when we invest for new CapEx outside Java, what we're also seeing is the exist we're also seeing our traffic on existing Tahoe actually growing as well, right? So from our perspective, today, right, by putting additional investment Ajaba, we also think that the return on our previous investment also starting to show results, right? So obviously, I think, we're still a way to go in terms of going to breakeven. But I think we see that, that a huge opportunity. And I think the ability to win and capture market share outside Java at this point in time, given the competitive landscape, I would say it would be a lot more feasible at a more decent margin if you would compare within Java, right? It's a long term journey. No doubt about it, right? But it's something that we are we need to stay true, to realize our goal to achieve a nationwide coverage. Your next question comes from Hi, good afternoon, and thanks so much for the opportunity. Congrats for outperforming your peers. Just a couple of questions from me. One is, we've just wanted to understand your interest expense since it's been increasing quite a bit, the second quarter versus the previous quarters. My second question is, would appreciate if you could comment a little bit on, my understanding is that there is a smart friend is quite aggressive in the market. Yes, no doubt, it's a very small revenue base compared to Excel. I just want to understand your thoughts on them, especially given their spas 4G network. Yes, I think, let me answer on the interest, right? Yes, I think you've probably seen, right, our portfolio think beginning of this year, we had a portfolio of fixed to floating. It's around fiftyfifty. Obviously, I think some of the debt that we paid during the year happens to be a fixed fix that, right? And as a result, I think as of today, we have that portfolio fixed and floating at around 64 percent floating and 36 percent fixed rate. And you know, I think over the last, 4 weeks or so, right, or last 6 weeks or so, you have probably seen that interest rates have probably gone up, right? And likelihood of it going up further in the coming months is extremely high, right? So and that to a certain extent have led to a slightly increase in our interest expense. Having said that, I think we are looking at looking at the more balanced portfolio, how do we address this listing? And obviously, we are looking at various instruments to make sure that we manage this interest rate risk moving forward. Question regarding SmartFrend. How are they doing any noise in the market? And that's going to be a very short answer because we don't see them in the market. Those team and our trust plans. They are there, but they're not doing a lot of noise in the market right now or disturbing the business that we are doing. So that's the concrete answer. Your next question comes from the line of Marvin Kelle from UBS. Hi. Thank you for the opportunity. I had a couple of questions. 1, I just wanted to understand what is your current level of network utilization particularly outside Java. And I guess the related question to that, probably in contrast to some of the previous questions have been asked why would we actually much rather not be more aggressive on tariffs to gain market share outside Java given one of your competitors is, you know, struggling with Nektar rollout and the other, as an incumbent, will probably be limited in terms of how much they can respond. So that's question number 1. And the second question I had was, I know previously you have talked in the past about ambitions in the fixed broadband space. It's obviously a trend we are seeing in other markets, more bundling, if not from a product perspective, at least from a network perspective. What are your thoughts there? And do you see an opportunity either organically or inorganically to become bigger in that space? Thanks. Yes. So from level utilization, I think overall, you probably see that we are currently at around 6 centralization. Obviously, I think it's a slightly lower, outside Java, right? So I think there is a still a lot of room in terms of loading up traffic into the network, right? So are we aggressive outside DAVA? Yes, we are, right? But I think to a certain extent that I think our pricing will also depend on the price level in various factors outside Java, right? No doubt that I think in areas where we see absolute dominant or monopoly by the market leader, you probably see a prices as high as 50,000 per gig or so, right? So typically, even if you price it at a 50% discount, you are probably pricing at a price that's much higher than what that you probably see, it's most aided within jobs. So I think, we are aggressive in terms of pricing outside Java, but obviously, I think our pricing will probably depend on the level of competition, what we see in certain areas. Yes, we are we could be a lot more aggressive than the price within Java, right? So it depends on the strategy depends on the latest cluster that we are probably attacking. On the fixed broadband, yes, I think, yes, I think we will wait one second. For the fixed broadband related to the convergence, you can say that competent is something that we have always had in our minds. For the future of our business. As we have been, we have seen in other markets that customer want a one stop triple play solution for home and mobile. As such, we have communicated that the intent to have a fixed broadband product to be in line with this aspiration. So, actually, we are currently coaching interest for a fixed broadband product on a small scale. So we did a soft launch in early May for our, fixed broadband product. And we are currently fine tuning the plans for the roll out, and then we'll come back to the market when we have something to share including the required investment that you us about. Your next question comes from the line of Arthur Pineda from Citigroup. Please ask your question. Hi, 2 follow-up questions, please. Firstly, can you just clarify how you assigned the revenues on the bundled plans? I know that you've mentioned that 79% or so of your revenues are on data, but is this like for like versus your peers? Second question I had is with regard to this Java non Java issue. I'm just wondering about your pricing strategy. Is is the strategy to undercut telkom sale or is it pushed on other items like network quality and and coverage. I'm just wondering how much flexibility do you actually have in terms of cutting rates given that the costs are relatively higher outside of Java. Yes. So, on the timing of revenue per bundle, I think firstly, I think, we don't know what our competitors, adopt in terms of assigning the revenue, right? But from our perspective, I think, it's very clear that I think when we do a signing revenue, we look at the total traffic. We translate even voice SMS into megabit per second, right? So based on that translation, for example, and take on that traffic, and I think that's where that you assigned your revenue, right? So that's that's probably one. On the on the Java and Java and on Java? No, no, I can take it Yes, you're right that, we have a telecom in non Java and they are very strong when it comes to network and we are the newcomers in non Java So, of course, to gain market share in these places, you need to be aggressive on the pricing as well. Not saying that we want to go down to the same level as we have in Jabber because we do see potential in non dial closer to saying that according to our plan for expansion network out there, of course, we to be aggressive on some other items like network quality, like throughput, etcetera. But so far, the based where we are right now, we of course need to be aggressive on the pricing to gain market share in these areas. Next question comes from the line of Gopa Kumar from Nomura. Please ask your question. Yeah, hi, thanks. I just want to confirm a few things firstly. I in the 2% to 3% growth in second half? Is that for the industry? Or is it the growth you expect for XL on a Y oy basis? And also, if I look at the second half twenty seventeen, it was quite strong for XL. So do you think that, why over growth in order to achieve a buy over growth, would you have to raise pricing, or would it be possible with the current pricing in the market and should be driven by data usage? Lastly, on the debt, just on the follow-up question on the debt, do you have any thoughts on reduction of debt or on the foreign currency debt? Thank you. So firstly, Gopa, I think, I don't think we mentioned that 2% to 3%, right? It came from one of the caller, right? So I think what we actually said that, the industry was going to see overall growth negative growth, I think, in 2018, right? So and I think but we expect that the 2nd half industry growth, it's going to be much stronger than the first half, right? So from our perspective, I think, we have revised our guidance looking at the situation, where we are today, we have actually revised our guidance to be above the industry growth, right? So So you definitely can expect a much stronger growth in the second half. Obviously, I think looking at price point and this needs to be driven by few things, right? Obviously, the healthier environment as a result of the enforcement of the prepaid registration. Secondly, as well, what we're seeing now, there's something of a more rational pricing. Obviously, I think if we see as where we were today, right, price has gone up but we will probably not at the level that we will before last year, right? So obviously, I think that's an important assumption as well that market competition be a bit more rational in the second half. Thirdly, on the reduction of debt, I think firstly is I think we do have about 300,000,000 of foreign debt, and I think you know that these are actually hedged up to maturity. All these debts are probably due, in Q1 next year, right? So I think from an exposure perspective, at this point in time, we should be covered. Thanks, sir. Just a follow-up question. I just want to clarify. So is it fair to expect excel to grow on a Y oy basis in 2018? Or would you would you be able to quantify it? If you at least based on the current trajectory, it's possible looking at the market condition and Okay. Thank you. And with the assumption of a vector market in the second half. Your next question comes from the line of Farfetch Shalapha from Buenavista Fund Management. Please your question. Yeah. Thank you for the opportunity. So two questions. Firstly, your paid CapEx for the first half is actually down materially year on year. Although there is going to be some sort of a catch up in the second half, the low paid CapEx, is this also an outcome of better credit terms you're getting from, let's say, some of your vendors, especially from China. And, my second question is on our 4 g base station, which is currently now at about, let's say, about 25,000 I presume all of this is basically loading on existing three g sites. Any color of flavor on how much of this will actually the non Java, was this Java? Okay. So if you look at, state CapEx, you are still right. I think, one of the things that we have probably gone out as a group is to negotiate it for better credit terms with our vendors, right? So and essentially, we have managed to secure a better credit term with some of our vendors. As a result, I think you probably have seen that a similar CapEx amount committed CapEx, but I think a slow slightly lower paid CapEx in the first half. Right. So, secondly, I think if you look at 4 g, yes, I think you probably would see that, the bulk of this 4G is actually loading on a 3G tower. Yeah. And I will say that from a tower perspective today, out of the total, Java would probably still execute around sixty-forty, right? Java non Java. Got it. And these better credit terms that you're getting, are they confined just to, let's say, Chinese equipment, or is it pretty much across the board? I take off the board. Yeah. Your next question comes from the line of Alex Goh from Ambac. Thank you. I've got a couple of questions. 1 is on your sales and marketing, your first half fee accounts about 11% of your sales, service revenue I'm wondering whether it's going to revert back to your normal 7 to 8% after the same registration campaign is over, and that is gonna come in the first in the second half of this year. My second question is, has 30 completion of the registration campaign have you seen your prepaid subscriber start to move upwards on a net basis, not in June and in July? And, third one is, could you give us your tax effective tax rate guided, so, yeah, I mean, the first quarter was a positive deposit tax charge. Now in the second quarter, it's a negative one. I'm wondering going for the full year, what sort of guidance? What sort of which we'll be looking at. Yeah. So let let me take the first and the third question. Right? So if you look at the sales, I'm asking, yes, you're absolutely right, right? As you know, that, during the prepaid registration time, I think, we did spend a lot of money to get our customer registered, right? So, and hence, I think you see a sales and marketing going up to about 10.3% as percentage of revenue. However, not all of these expenses that we incurred in the first half will continue to recur in the second half, right? There'll definitely be some savings, right? So the amount that a small amount of this expenses will probably return in the 2nd half, right? So we expect, I think, the sales and marketing expenses to probably stabilize at around in quarter at least between 8.5% to 9%, yes? That's it. I think, gives a bit difficult for you to see, right? Because I think what we have probably seen in Q1, Q2, there was some element of a tax refund. Right, that you're probably seeing that's probably skewing a little bit in terms of the effective tax rate. Obviously, there are quite a number of tax feel that we are probably doing, appealing with the, the government at this point in time. And obviously, in this pipeline, there are some that we probably stand a good case of winning the tax case, right? So In all the cases, I think the way that we do our treatment, we are always very conservative, right? When there's a dispute, we typically provided full target, right? So in any case that we win, there will probably be a refund and hence, that's why you're probably seeing that, in some cases, that you probably see a positive tax income as a result of the successful period. So I think it's going to be a bit more difficult to give us guidance on this tax rate for this year, given some of the tax refund that we are probably getting. Regarding the customer and the behavior of proof of timber displacement is what we see in the first indication is that a bit more engagement from these customers hosted in registration and was also surprised of that they are willing to pay more to have a hassle free journey, customer journey going forward, meaning that they're actually ready to pay a bit more, not to have to change with them every time. Instead of being a recurring customer, they buy a scratch card or they buy something, they can continue using the existing SIM that they have. And so we see that kind of change in behavior from our customer demand. But yes, just for that one, was there any net increase after that, after the campaign? You know, you're ending up in, June July? Number of customers. Yes. Your next question comes from the line of Catherine Chan from AGI. Please ask your question. Hi. Thanks for this opportunity. I just want to have one question regarding the margin guidance. Because you're guiding a high 30 for the EBITDA margin, but at the same time, you are mentioning that you are also doing some the extreme 4G smartphone bundling program that has a much lower margin. So is this already factored into your high already guidance for the full year already? Yes, I think, yes, Danfel is yes, right? So I think two parts to it, right? I think we're also expecting a a a better revenue growth in in the second half, right? So obviously, I think if you look at our numbers, we do have operating leverage, right? And in revenue would contribute significantly to margins, right? So Nevertheless, I think, you are clearly right, the with the X team campaign and all that, probably EBITDA you give, from a margin perspective, But also bear in mind that we also do have some other cost incentive that we are working on at this point in time which would probably be realized in the second half as well, right? So on a net net basis, I think, the high 30s, the guidance are probably still intact Your next question comes from the line of Norman Chung from CLSA Indonesia. Please ask your question. I have two questions. The first is actually, back to pricing again. I think one of the key concerns of, me now is that, yes, you have raised prices already, similar to a competitor, but can you give, clearer guidance on how are you going to bring prices up going forward? Is checking extra combo a good way to really track your, I mean, implied value going forward. Second thing is that on this, Extreme Smartphone combo, right, is there a limit to how many phones you can sell, or is is there a timeline when you will stop the promotions or if it's just ongoing until you are satisfied. Thanks. Yes. Leslie McArthur, the first first one regarding regarding the pricing, given the guidance, it's very difficult. You still have to remember that one big player in this market is an incumbent player, right? And usually in markets like this, it should be the incumbent whose food start this journey and we will, of course, follow. But anyway, we determined we want to increase the prices. As I said before, it's is pretty healthy, but to give exact plan for when they're going to do it and how we're going to do it in this product, I cannot reveal at this stage of course because I think my competitors would like see that as well. When it comes to extreme handsets, if there's image limitation, how many you want to sell? Yes, we want to sell as many as we can of course, but I'll was in the beginning here was a little bit of a production issue. Of course, it's difficult to get the right handset for the right price, etcetera. But Right now we are selling everything. We can get into our stocks at the moment, right? So we haven't sat down and said, okay, this is a limit on the average top or anything. Now, now we are on the journey. Will see how it goes to the next couple of months before we take a decision again what to do. Yes, just put it in perspective, right. We are not subsidizing the handsets. And we are still making a positive EBITDA on the, on the handsets, right? So on the whole campaign, right? So So I think, as far as I said, yeah, if we have an impact on margin, but from an absolute EBITDA perspective, it's still positive for And again, it's not a single single stand alone handset. It's a bundle package. Correct. So it's a handset and a package for device. We have a strong 12 month limited evaluation. Is is that going to be a risk of cannibalization to your assisting, a user base, or are you just waiting for this to smire and the convert to your assistant? Yes. Of course, there will be some cannibalization of our recent base system days. But again, the first service that we have done regarding our 3 benefits showed very positive that they're actually gaining customers from our competitor. And the survival rate as well for these customers much, much higher than we see for a traditional customer in our markets because maybe you know that you have to reach out to a device 1000 rupee every month to keep this alive. So it's pretty healthy business. Your last question comes from the line of Piyush Chaudhry from HSBC, Singapore. Please ask your question. Yeah. Hi. Thanks for the opportunity again. Just want to follow-up again on the rental expenses, which have fallen quite sharply 11% quarter on quarter. So can you confirm that this is now kind of a recurring base? There is no one off reversal over here. We we understand the power leases are coming down, but it seems a bit of a sharp reduction on a Q on Q basis? Yes, there's no we can confirm there's no one off there is no one of reversal. Okay. So clearly then as your marketing expenses will come down in the second half, there is a significant room for margin expansion then. In the second half. Okay. And I would like to pass the call to your host. Please continue. Thank you again for participation in today's call. And as always, we'll get back to us if you need further information we'll speak to you next quarter. Thank you. That concludes today's conference call. All lines may disconnect now.