Good afternoon, ladies and gentlemen. Welcome to XL Axiata earnings conference call for the first quarter of 2018. My name is Joanna, 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. We would like to hand the conference over to our host, Mr. Indar. Please proceed.
Thank you, Joanna. 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, Pak Allan, our Chief Commercial Officer, and Pak Feiruz , Group Chief Finance. Ibu Dian will share the highlights of the first quarter of 2018, which will then be followed by a Q&A session. I will now hand the call over to Ibu Dian.
Thank you, Indar, and good afternoon, everyone. 2018 started off with challenging market dynamics of data price competition and structural changes in the prepaid market in the form of prepaid SIM registration. Such regulatory reform has had 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 thus long-term value creation for XL Axiata. The change is very much in line with our transformation strategy in becoming a data leader, focusing in value customers and experience rather than price. We have always remained steadfast in our transformation journey, and this has enabled us to weather through this tough period. Despite the many challenges, I'm pleased to report that we have managed to outperform the industry on a year-on-year growth basis.
Overall service revenue grew by 5% year-on-year, mainly driven by continued growth in data revenue. Innovative data offerings and improvement in data service quality have successfully pushed data service growth in the first quarter to 29% year-on-year. Data revenue contribution now makes up the majority of our service revenue at 77% of service revenue in this current quarter. The data business continues to be our main growth driver, offsetting the decline from legacy service revenue. One of the key reasons for the performance so far in 2018 is the continued success of data-led product strategy, coupled with a continued investment in our data network. Indonesia's data-savvy customers have continued to respond well to our improved network, as smartphone subscribers now stand at 74% of our subscriber base, which continues to be materially higher than the industry average.
The total number of smartphone users now amount to about 40 million and has grown significantly at 28% year-on-year compared to the same period last year. Despite the challenging quarter, we're pleased to report that our customer numbers have continued to grow in a sustainable fashion, as we have added another 1 million customers, taking our overall base to above 54 million customers for the first quarter of 2018. In establishing the XL brand as 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 rollout and upgrade of our network. Our total data count is now above 105,000 BTS, with 3G totaling almost 48,000. Our 4G LTE service is now available in 373 cities and areas across Indonesia and stands at more than 20,000 4G BTS.
Increased focus on ex-Java for data has also led to both growing revenue and traffic outside Java compared to a year ago, as we aim to improve our data market share in this region. We have also launched a marketing campaign aimed at improving perception of better data network quality for the benefit of customer experience. #JadiLebihBaik campaign has managed to receive positive response and appeal from both existing and potential data customers. Underlying this campaign are consistent effort for further improved data network. The network development includes service coverage expansion to new areas which were not reached by the data network, especially outside Java, and strengthening network quality in area of data presence. Alongside network expansion, we have also been increasing the quality of the network by implementing several innovative technologies.
These allow for improvement in service quality and include Network Functions Virtualization, wideband 4G spectrum, and 4.5G technology through spectral efficiency, carrier aggregation, as well as higher-order MIMO. All these initiatives improve the stability of the internet service on XL Axiata data network and allow for internet speeds up to 100 Mbps. Investment in transregional backhaul network modernization continues to support the rising data traffic across its network and to deliver stability, expand network capacity, and improve quality of its data service of our customers. The dual brand strategy has successfully seen us gain inroads in different segments through innovative offerings in each segment. We launched the Xtra Kuota booster package for XL, which offers additional quota for this customer and for AXIS customers. Our postpaid brand, XL Prioritas, has gained further traction through smartphone bundling packages from well-known handset providers.
Overall, our performance in the first three months of 2018 was encouraging, despite the heightened data price competition in the industry. We saw a major structural change in the prepaid market as the government policy on mandatory prepaid number registration resulted in a short-term uncertainty. Nevertheless, we believe the registration is necessary towards a healthier and sustainable industry moving forward, and this is very much in line with our strategy. The increase in competitive intent during this quarter has impacted the overall industry growth as well as ours. Competitors have launched aggressively priced data packages aimed at grabbing market share. We believe such pricing is both unsustainably low and unhealthy and needs to improve. In addition, the deadline for prepaid SIM registration for existing customers came into effect as of May 1, 2018.
Customers who have not registered will be blocked from services, which include SMS, call, and internet services. Those who have experienced the blocking could then register the prepaid phone number via SMS or contact their provider service center while the number's still in the active period. We are pleased to report today that we have secured almost our entire revenue-generating customer base with a minimal impact to our overall business. This was done through proactive efforts in communication, providing ease of registration via multiple channels, engaging our customers via forward direct to get them to register, and promotional incentives to register, among others. We believe both prepaid registration deadline and market clean up, a new healthier environment is expected and does provide better opportunities for growth in the second half of the year.
With a shift in focus from customer acquisition, from professional multi-SIM churners, we also see signs of opportunities to monetize data further in the second half of the year. Our intent has always been on monetizing data while focusing on customer experience rather than price. Having said that, the intent is very much dependent upon how our competitors position themselves in the market. We heard that one of our competitors have given a signal to the market that they will increase the price, which we welcome very much. Taking all this into account, we are reiterating our guidance for 2018 for our revenue to grow in line with markets, as it reflects the current competitive intensity and our hope for a better second half of the year.
Our EBITDA margin guidance is high 30s. Our CapEx spend guidance for 2018 is around IDR 7 trillion, which will remain focused on data network investment in 4G and continuous network improvements and modernization in ex-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 a pound or hash key. Please kindly but restrict, 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 sharp at 3:00 P.M. Jakarta time. Our first question, Kamlesh Chand of Piyush Choudhary from HSBC. Please ask your question.
Hi. Good afternoon, and thanks for the call. Couple of questions. Firstly, can I clarify on your opening remarks in terms of your pricing strategy? Would you look to raise data tariffs if your peer raises and improve data monetization? Or do you think the current level of tariffs are sufficient and would help you to gain market share? If you can just clarify on that. Secondly, on your cost side, we saw sales and marketing expense rising significantly. Can you kind of bifurcate how much is it one time due to the impact of SIM registration and what would be more sustainable number here? Also, if there is any one-off or cost reversals in 1Q. Thanks.
Thank you for the question. Let me start with the first one. As I understood it, this is about the pricing and the price level in the market. As Ibu Dian mentioned that we have some indications and some, I would not call it rumors, but more indications in the market. We see some light price increase around both in data and in voices. We will definitely welcome that, as this is expected in the market. We will follow that trend if that's going to happen. We expect that this will happen in the second half of this year, that we will see a slight price increase in the market. Again, we will welcome and follow that.
Piyush, on your second question on cost. Yes, I think you probably are right that we have spent quite a fair bit in quarter one this year of revenue, compared to quarter four last year at around 8.5% of revenue. If you look at quarter one, we did ramp up our initiatives to register customers. As we reach the deadline, 1st of May, we actually spent either in terms of marketing dollars to get customer registered as well as putting a lot of resource on the call center, for example, to either call up customers to help customer do their registration. In total, I would say that around IDR 120 billion was meant for prepaid registration. I would say that the bulk of this is probably one-off, but there will be some that's out of this amount that would probably be recurring.
Moving forward, I think you should expect that as these things stabilize, as prepaid registration stabilize, as we go back to the norm, you would think that probably your sales marketing expense would probably go back at around 7.5%-8%.
Is there any other one-offs or reversions?
As of last thing, no.
Okay.
No one-off except for the expenses that we incur for Prepaid Registration.
Great. If I can clarify on the pricing strategy, not more from just second half, how would you continue to think about your data pricing strategy? Would it be some kind of a discount to the leader? Or how should we think about the long-term data pricing strategy from the company? Thanks.
If you look a little bit back, this whole thing and how it is in Indonesia right now started back in November, December last year, when people, our competitors, saw our Q3 results, they immediately reacted. They made some unhealthy package products in the market. I just see, going forward, we will see a correction for these packages. We have seen these competitors taking these packages out of the market. We will follow our game plan, our strategy. This was set two and a half, three years ago, that we are going to be a data-centric company, and we are going to focus on data. No doubt about that, the yield for the data has to increase, but at the same time, we also need to give the right service and the right package to the customer.
We are in line with our strategy, we are in line with our game plan, we will see the data prices going up in the future.
All right. Thanks a lot.
Thank you. Our next question, Kamshaan of Arthur Pineda from Citigroup. Please ask your question.
Hi. Thanks for the opportunity. Two questions. Given that the government seems to have lifted the cap on the number of SIM cards per user, do you see this as changing in terms of churn levels and the cost savings that you may have seen with SIM registration? Second question I had is just regard to your competitor, the smaller competitor, which is Indosat. Your revenue momentum appears to be far stronger. I'm just wondering what's driving this differential. Is it because of geography, you're doing better for non-Java, or it's mainly because of network quality which is driving the differential? Thank you.
Thank you.
Okay. I will take the question number one. Yes, with the prepaid registration regulation, the new one, government will actually limit the number of SIM cards, three SIM cards per ID. Of course, this actually will remove the rotational churn which currently probably around 20%-30% in the market, and that will give us cost saving in terms of SIM card costs that currently is quite sizable. The answer, yes.
I understand that the government changed the ruling from three SIM card limit to unlimited. Is that correct?
No, actually, it has not been firmed yet for that. Currently, the one that is still under discussion is for the number of SIM cards that can be activated by a retail outlet. Per customer, the one that is registered by per customer is still maximum three.
Understood.
Let me comment on the revenue part. As you all know, we are not able to comment on our competitor's revenue achievement at all. We were as surprised as many of you when we saw this result. We have not deep dived into this, what the outcome of that revenue. We can just say that we are following our game plan again, as I said before, this is exactly what we expected in terms of revenue. No comments on the outcome for the other revenue actually.
Internally, in terms of your own revenues, is it mainly coming out of Java or outside of Java? What's driving the growth for your revenue base?
Yeah. Arthur, if you look at, obviously, I think we put a quite fair bit of investment, going outside Java. You probably have seen from Q4 numbers as well, that the growth are probably coming a lot from Java, right? Having said that, I think in Q1, there were probably stiff competition. I think, that number, the growth rate that we were seeing before this has definitely slowed down quite tremendously, right? Given the fact that competition in Java was even more stiffer this quarter one, hence I think it has impacted everyone, and I think it's reflective in all the numbers that you are probably seeing, right? Nevertheless, I think with the investment we did outside Java and the better network quality that we have, I think that's probably helped us in terms of getting in better quality subs and customers into our network.
Great. Thank you very much.
Thank you. Our next question comes in of Colin McCallum from Credit Suisse. Please ask your question.
Thanks, everyone. Good afternoon. Couple of questions from me. The first is, I think Ibu Dian did mention in her opening remarks, just want to confirm that you're basically saying you don't think that XL will face a big drop in revenue in second quarter as large numbers of SIM cards on 1st of May are basically cut off or removed because you've basically registered the vast majority of your revenue base anyway. I just want to confirm that is what was said. Secondly, on a related point, I know that there were some pretty aggressive registration bonuses were given to customers. I think it started off about 10 gig, then turned into 20 and then 30. One would presume if you've registered people that those registration bonuses would disappear, going into second quarter.
Presumably there would be average revenue per megabit that we would be able to see fairly quickly as those things are removed. I just want to confirm that as well. Thank you.
Colin, on the first question, obviously, we cannot comment much on our Q2 numbers. I think what is actually said that, yeah, we have registered quite substantial, in terms of our subscriber with events, right? Nevertheless, there are still some that we didn't manage to register on time. There will be probably some impact in terms of revenue, as far as revenue is concerned. Nevertheless, as you know that, it's probably a timing effect, right? Because this customer that failed to register on time or when it comes to the barring date, typically they will come back at some later dates, right? Typically that's what we have probably seen as well, right? You probably may not have registered 100% of your customers at the point of time when you bar. There is probably some impact on revenue.
Nevertheless, I think what we have probably seen as well, these customers do come back and subsequently either do re-registration or come in with a different SIM cards, right? I would say that, yes, there will still be some impact to our Q2 numbers with regards to the registration. At this point in time, we cannot comment and quantify what that impact is gonna be.
In terms of the cost part, when you talk about the bonuses to the customers. First of all, we are welcoming the SIM registration process as we believe it's giving a lot to the industry going forward because they see less rotational churn in the market as well, meaning there are two cost items where I will say. The first is of course the production of SIM. Hopefully we will have to produce less SIM as we don't have this rotational churn. At the same time, it will also be less bonuses for the people because now they have to do the registration as well. This is an insignificant amount that will be given away for the bonuses. We will not see that as a big impact on our strategy at all. You're right, it will disappear in the future.
Got it. Thanks both very much.
Thank you. Our next question comes in of Foong Choong Chen from CIMB. Please ask your question.
Hi. Thanks for the call. Two questions from me. Firstly, on the rental cost, Q1 and year-over-year, there was a fairly big drop, and I noted the comments in the info memo on savings from renewal of older leases. I just wanted to check whether there are any one-off there and how should we expect this to trend going forward? Is there more room for this to decline in the subsequent quarters? That's the first question. Second question regarding your debt. What % of your total debt is floating rate? In light of the rising interest rates in the market, I'm just wondering whether is that something of concern and whether you are doing anything at all to address it. Thank you.
Choong, on rental, you'll probably see that this is actually one of our biggest cost item under infrastructure expenses. Typically, I think you probably have known as well, that we have managed to renegotiate in terms of our rental cost area. At point of renewal, we are probably getting up to approximately 50% discount from the price that we used to pay. I think as we said in earlier calls as well, starting this year and moving to the next 3 years as well, there will be quite a big chunk of our towers that's probably coming for renewal, right? Therefore, it has contributed quite significantly in terms of that reduction of the rental of tower leases.
While doing that as well, we are also talking to tower providers as well to probably see whether we can early renew some of these towers as well, so that we are able to accrue these savings upfront instead of in progress now. There are still opportunity in terms of, let's say seeing a reduction in tower rentals. I think this would also help in terms of trying to cushion the impact of the new towers that we are probably building, especially in ex-Java. On your second question on the debt. On the debt, I think if you look at today, 56% of our So it's actually floating and 44% is actually fixed. I think we have a policy of trying portfolio ideally at 50/50, but in this case, I think approximately 50% are actually floating rate.
Okay. Adlan, do we need to do anything to shift more towards the fixed side because interest rates could be rising, right?
I think we look at it case to case. Obviously, I think as you speak today, right, you look at the fixed rate today are probably rising as well, right? I think we are looking at this, right? We'll probably do our cost analysis to see what makes sense before we take any decision on this. Definitely something that is in our radar.
Okay. Got it. Thank you so much, Allan.
Thanks.
Thank you. Our next question comes in of Gopakumar from Nomura. Please ask your question.
Hi. Same questions on the revenues. You had a sequential drop in revenues in first quarter. Is it fair to say that bulk of the impact of SIM card registration is already in the 1Q 2018 numbers, and directionally, you expect improvement going forward? That's the first question. Secondly, in terms of the outlook for this year, you mentioned to grow in line of the market. A bit confused here because the growth numbers are quite diverse across the telcos. If you can quantify how much you expect market to grow this year, that would be great. Thank you.
Let me take the first question. Yes, you're right about the drop in the revenue for Q1. That's a seasonality impact which we see where usually it's around 4.5% seasonality. We also see an impact for the SIM registration as well as it kickstarted three, four months ago. The real start is actually May the 1st, where you cannot buy a SIM in Indonesia without doing the registration. If you're looking at the neighboring countries where they have done this SIM registration for some time ago, right, we see a dent for the first 12 months. Eight to 12 months, there we see the revenue going down, and then we're up to normal after 12 months. We are not absolutely sure what's going to happen here. As I said before, it just started.
I think we've stabilized right now in Q2, and then we will see some price increase at the end of Q2 going into the second half of the year. I think we have not seen the full bit yet. We will see some impact in Q2 as well. Going forward after Q2, there will definitely be an upturn upside.
Yeah. Gopa, on the guidance, I think in line with market is something that we came to the market, I think early this year, right? Obviously, I think having seen Q1 numbers, I think one would expect that, okay, our results and the industry that we could potentially grow the market, right? Outgrow the market. Nevertheless, I think as what Allan said, I think we also need to understand and see what the impact going to be on Q2 given the barring impact only came in on 1st of May, right? While I think at this point in time we are outgrowing the industry. Nevertheless, I think we are not changing our guidance at this point in time until we have better clarity of the impact on the barring of the prepaid registration at 1st of May.
Only then, I think if in any case, if there is a material difference of our expectation, we'll probably break our guidance. For now, in line with market is still the guidance that we're giving.
Fair enough. Thank you.
Thank you. Our next question comes in of Sebastian Tobing from Ciptadana. Please ask your question.
Thank you, congratulations for the impressive EBITDA growth and margins. Just want to get a better sense of competition. I think we are quietly familiar what Telkomsel and Indosat are doing. Can you give us some color as to what you think of Hutchison or any other, the smaller players whether they could be a threat to the what seems to be improving pricing environment or not? Secondly, could you just give us some color on consumer behavior on data? Are we looking at what sort of % of the usage is maybe related to videos, online videos or any kind of behavior? That would be appreciated. Thank you.
Let me start with the first one regarding the competition. As I said before, it all started back in Q4 2017, the starting point was here that Indosat introduced the Yellow Package, which was extremely significant cheaper than anybody else. That was follow up by Telkomsel taking the prices down, later on, especially in the beginning of Q1, Tri became extremely aggressive as well, both in terms of prices as in terms of the kickback and the commission to the dealer and to the retailer. That was actually only one month. We saw that in the month of January, since then we haven't seen a lot coming from Tri as well. They have kept the same level as they did in January, taking a little bit out for the commission for the market. We haven't seen them.
We don't see a big threat coming from the smaller player in this market. Hopefully, it will be Telkomsel who set the stage in the future and will be able to take the small steps upwards when it comes to data pricing. I'm not able here to go down to details and give exact figures on how many people use YouTube, how many people do video setup. What we can say, after we introduce these bundled packets where we have YouTube as many of our packets, and we now have a handset in the market where you get free YouTube for one year as well, that has created a significant impact in the market and a hype in the market. We now see in our network, users of YouTube is increasing significantly.
There's no doubt about this segmentation we have done for XL, for the white collar, blue collar, and AXIS brand for the youth has actually worked in this market. We see more and more youth people using the offerings where we have free YouTube going forward. It's significant amount they're using, but specific figures, I do not have.
Thank you.
DBS, please ask your question.
Yeah, thank you. Two question from me. Firstly, we heard about reduction in the number of towers by Hutch and a lot of relocation by Smartfren. Are you able to claw back some market share from these players, given that they might be facing some issues? Is it just a thesis and it's not really working so far? That's question number one. Among the three major operators, could you share with us what kind of signs of pricing improvement you're seeing on the ground? Is it just a talk or we are already seeing something which is happening after this May timeframe now? That's it. Yeah. Thank you.
Okay. Second, on the towers, in terms of reduction number of towers from Hutch and Smartfren, as far as the portfolio that we have with them, we don't see much reduction. I really cannot comment whether that reduction is coming from other tower providers or not, right? Technically, the towers that Hutch or even Smartfren leasing from us, there is no material changes.
Can you please repeat your first question?
The second, yeah.
Repeat the first question.
Yeah. Among the three major operators, have you seen some signs of pricing improvement? If you could share with us, again, it is something which is happening on the data side of things and in what form of improvement are we? It can't be outright, right? Are we seeing lower data quotas? What is the form of pricing improvement that we are seeing on the ground now? Thank you.
First of all, this is more of indications in the market right now. All the three big operators at the moment have only one thing they concentrate about is the SIM registration. We're basically not looking into the market approach. We're not looking into prices, et cetera, because all our effort and all the energy have been put into the SIM registration, which happened two weeks ago, to be able to be 100 compliant in the market. Hopefully, within the next two, three weeks, there'll be a little bit of relief absent, so people can actually think and work on something else. The indication is that there will be both. The prices will be taken up a little bit, and at the same time, some of the quotas, some of the big quotas given from all the three operators will also be taken down.
They're not able to get 20 GB anymore. It will go down to 10, et cetera. That is the indication right now, but we haven't seen it in reality in the market yet.
Okay. That's what I heard. Thank you.
Thank you. Our next question comes in of Phuong Viet from Goldman Sachs. Please ask your question.
Hi. Thank you very much for the opportunity. Most of my question have already been answered, just one question. Any update you can tell us on your strategy that you were mentioning last time about going into pay TV and fixed broadband? That's it.
Sorry, couldn't really catch that. Could you repeat the question again?
Hi. Yeah. Just one thing on the strategy. I remember earlier in the year, there was a lot of news and rumor about you going into pay TV. Is there any update from your side you can tell us?
Okay. For our fixed broadband, actually we just soft launched it on the 2nd of May. Now it's in the actually introduction stage to the market. We do a lot of communication and so on, so forth. That's the progress so far. So far we have already more than 5,000 home passed-
Okay
that is available in the market.
this is only in Java or where?
Yes. Far we only focus in major city in Java.
I see. Thank you.
For the first phase. Yeah.
Thank you. Our next question comes from Bharat Joshi from Evercore. Please ask your question.
Hello. Hi. Thanks for the results. I just have two questions. The first question, I noticed that the data traffic growth has been very healthy. Basically, going forward, what will be a sustaining rate for data growth? We also noticed that the investments in BTS in the quarter was quite significant. How are you aligning data growth with BTS expansion? The second question, which was actually asked earlier about the debt. Given in a rapid increase in interest rates going forward, would it be more conservative to use part of the cash flow to repay down the debt? What would be a comfortable leverage going forward?
Okay. Maybe let me take the second question first, right? Yes, I think you probably expect that there is pressure on interest rate to go up in the near future. I think our approach has always been to adopt a balanced portfolio in terms of fixed and probably a floating rate, right? Anyhow, as I mentioned earlier, right, at this point in time, we are evaluating to see the business case of probably moving into, let's say, converting some of the floating into fixed at this point in time. You may well appreciate as well that, at this point in time, given the expectation that the interest may increase, and you would expect that the fixed rate have also gone up as well. Nevertheless, that's something that we are probably evaluating. I think, should we use our cash probably to pay down debt?
I think we are also evaluating that, we are also in the midst of also expanding, and building our network outside Java as well. I think if you look at the revenue growth that we are probably seeing from last year and even moving on to this year, I think there's no question that most of this cash that we are generating today will need to be used for our expansion purpose, right? I think, we have no intent to probably early repay some of this debt at this point in time.
Regarding the data growth rate, it is very difficult to predict about the future data growth. We don't see any reason why it should ease down at the moment. To be honest, we actually see the same growth rate going forward. We have the CapEx, as Ibu Dian had mentioned in her introduction speech, and that we have to build BTS within that CapEx, and we do the optimization to accommodate this data growth. Right now, I will claim that we have an extremely healthy network at the moment. We are not utilizing our network completely, so we still have space in our network. But so far it looks good, and we can accommodate that future data growth.
Okay, thanks.
Thank you. Our next question, line of Norman Chang from CLSA. Please ask your question.
Hi, good afternoon. Thanks for the call. I actually have three questions. First is actually regarding data traffic as well. Actually, looking at year-on-year trend, yes, indeed, the growth is very strong. But looking on Q1Q, data traffic only grew 2% compared to competitors that have double digits. Do you mind to give some color on this one? Second is your ex-Java marketing strategy. I just want to understand that your ex-Java expansion this year, do you plan to do it as aggressive as last year, meaning, doing a lot of free promo to entice people to use your SIMs? Or you are trying to do it the other way, meaning mainly from a more healthy competition, using price per service level, those kind of angle to entice people to use your network? Third is actually regarding to guidance.
I just want to clarify that what is your definition of market growth? Telkomsel, right, they expect market growth rate at low single digits, but they expect themselves to outperform the market. Do you define market as Telkomsel growth rate or how? Yeah. These are my three questions.
Let me try to answer on the data traffic. You're right that if you look at the traffic growth from our competitor, it has been higher or growing stronger or whatever, and we are not growing so much. The reason for that, what we believe in, we started this program almost, as I said before, three years ago, where we had our transformation period. We started being data-centric company before the other guys. We see that they are coming now. I will claim that they are one and a half year after us. When you look at the figures, when it comes to 77% of our revenue today coming from data, we have the highest smartphone penetration in the market as well. We have taken the first step into this data-centric world, and the other guys are following.
That's why we will not see the same growth rate for data coming from us as from our competitor, as we have taken the first step. The second one we done.
Yeah, the second one is with regards to ex-Java, right? I think we will continue to expand our network outside Java, right? We see opportunity there. I think whether we're going to be as aggressive going into this market, I think we'll probably be selective, right? In areas that we see a big opportunity where we come in areas where Telkomsel are probably the only competitor there, I think there is no need to be very aggressive in terms of your data pricing, right? Even at, let's say, 20%, 30% discount to Telkomsel's prices in these areas, you are probably selling at a 30%, 40% premium from the Java prices. In areas that you probably see more than two competitors, for example, we'll probably be a bit more aggressive in those markets.
I think the answer to your question, yes, we'll still continue our ex-Java expansion. I think we will probably be selective in terms of how we go out, in terms of aggression into the market, depending on the competition in those areas or those clusters. On guidance, I think we look at a market as an industry. Typically, between Telkomsel, Indosat, and us, we are probably pursuing more than 90% of the market already. I think that the guidance is actually based on the market share of these three operators. As we said, what is our expectation on market growth today? It has been the same since early this year. What we said that if prepaid registration is strictly enforced, we expect that market growth to be at low single digits.
I think that guidance is probably similar to what our competitors have probably quoted as well. At this point in time, as I said, given the uncertainty that we are still seeing in terms of impact on this registration, especially in Q2, we are still keeping our guidance in line of the market. Market, we are looking at around low single digits.
Okay. Just the final one. Coming back to my questions, number 1, just want to clarify. Are you saying that your data usage per users has already heading to a maturity stage? Or this is just a temporarily run rate? How should we look at the growth on a quarter-by-quarter basis going forward?
No, it's definitely not coming to mature stage, that's for sure. We will still see significant growth in this market. What I'm saying is that in some of the quarters, you will see that the other guys have a higher growth than us because they are just starting the transformation into the data centric model. We have just been ahead of these guys. It will continue. There will still be growth in the market, and we will take our share of that growth in the market as well.
Okay. Thank you so much.
Thank you. Our next question comes in of Arthur Pineda from Citigroup. Please ask your question.
Hi. Thanks. Just one follow-up question, please. To loop back on your third party tower leases, how different are the new leases versus the expiring leases on the pricing side? What percentage of your tower portfolio should be expiring over the next two, three years? Thank you.
Yeah. If you look at the towers that's probably coming to end period. Tower that we have leased for approximately 10 years, that's coming for renewal now. We are paying at approximately between IDR 25 million-IDR 26 million all in. I think today, if you look at the market for all this renewal, even for new build today, we are paying at a range of between IDR 10 million-IDR 13 million. I think if you look just solely from those, we are getting approximately 50% savings in terms of our renewal of towers. As I said, if you look at our build pattern over the last 10 years, you would expect that in the next two to three years, a big chunk of our towers would probably come for renewal.
I think that would actually help in terms of reducing our tower rentals and at the same time easing the pressure when we continue to build new towers, especially outside Java. In terms of percentage, we are not able to disclose that number. Safe to say that I think over the next two to three years, a big chunk of our towers will come for renewal.
Understood. Thank you very much.
Thank you. Next question comes in of Alex Go. Maybank, please ask the question.
Okay. Thank you. I've got two questions. The first thing is, I'm trying to understand how is it that your revenue has declined by 8% quarter-over-quarter from fourth quarter, but your subscribers have actually increased by almost 1 million? That would mean that your existing customers, which are paying higher ARPU, are moving out of XL Axiata and your new customers are not paying as much as those existing customers that you have lost. Am I right in that estimate? My second one is, since the new SIM registration essentially is completed in February, has the new take-up of subscribers, has it normalized in March and April? Should we expect, going forward, your new intakes are going to improve from here on?
Okay. If you look at the revenue subs, I think you probably are well aware. In Q1, there's probably stiff competition in the market, right? No question that we are gaining subscriber, but at the same time, you are probably seeing that there's a lot of pressure on prices as well on yields, right? Overall, generally in the market, you've probably seen that yields has probably dropped by 30%-40%, right? As a result, it's also going to impact your existing customers as well, right? As people trade down into a lower package and a more cheaper package, right? That's why you see that even though that we are acquiring customers, nevertheless, there is pressure on revenue, given the fact that I think yields has probably come down, right? I think that's what is probably happening in Q1.
When it comes to take for new customers, we have three segments of new customers. The first one is the customer who wants to buy a new SIM who's never had a SIM before. The second segment we have is the guy who actually want to shift the telco, who want to shift MNO or going from one to another one. We have the third part is the rotational churners, right? The two first we see that we will not see a change in these two segments. For the third segment, which is rotational churners, we will see a significant change, because now there should be no reason to go out and buy a new SIM every month or every quarter. They will just stick to the SIM.
We will have products which is actually encouraging people to keep the current SIM with new packages, et cetera. There will be an impact for that particular segment when it comes to rotational churners. Yes, you're right. Going forward, we will see less acquisition coming in, but the acquisition we will get is much more healthier than what we're getting. We will not see a big impact on the revenue in that sense.
Yeah. My second question was regarding your subscribers in March and April. The SIM registration was supposed to be completed in February. March and April, was there a normalization of your pickups?
I just want to clarify that actually the deadline of the prepaid SIM card registration is not 1st of February. That's when it is introduced. The service blocking only happened in 1st of May. What we see is that, I think this is the habit of Indonesian, they will wait until the last day to register. From April to May, there has not been a significant movement in terms of the prep registration. Most of the customers register when we applied the service blocking, which happened in April, close to 1st of May deadline. The deadline was not 1st of February, but 1st of May. Since 1st of May, whoever has not registered, all the service will be blocked. They're still a subscriber, so they can re-register, and then their SIM card will become active again.
I see. For the past one to two weeks since the end of that deadline, was there any significant change in terms of subscription intake?
Obviously, after the SIM registration enforcement, you would expect there would be some impact on your acquisition, right? Because there is a nuance. People have got to register before they activate the SIM, right? You would expect there would be an impact on the acquisition.
Okay, great. Thank you.
Thank you. The next question comes in of Gopakumar, Nomura. Please ask your question.
Yeah. Hi, thanks. On your comment on SIM registrations early impact since May, are you seeing more subscribers moving to reloads versus starter packs now? Is it too early to say that? Second is, your comments on the fixed broadband business. Can I understand what is your strategy here, whether you can share any medium-term, long-term KPIs in terms of subscribers or home spots or any CapEx implications from this? Thank you.
Yeah. Thank you for the question. A very valid question, the first one regarding what is in the market. Yes, we have done products, we have done services where we motivate, where we encourage users to actually go from buying a starter pack to buying reload or to buy something similar, right? We encourage the consumer of Indonesia to keep the SIM and top up as you do in the neighboring countries in Asia. Hopefully that will work. We haven't seen the results so far. It's only 14 days old, but at least we can see a first indication that it actually works. We will see a shift in the behavior from consumer from buying a SIM to do reload or similar services going forward.
On the second question on the fixed broadband, I think this is still too early to share with you our strategy on fixed broadband. We just did the soft launch. Currently we are in the stage of testing the market opportunity, to see how we will shape our strategy on building this business. Very sorry, we cannot serve you too at this point.
Okay. Thank you.
Thank you. There are no more questions. I'll hand over to David.
Joanna, can we just have the last question, please? That's on the line.
Sure, of course. The last question is Kamlson of Kasich Capella. Donna Vistafan, please ask your question.
Thank you very much for the opportunity. Just two questions from my side. How do you see your CapEx momentum beyond FY 2018? Is the IDR 7 trillion CapEx something that you believe you can actually sustain given your own forecasts of operating cash flow and EBITDA? My second question is, if you look at, let's say, who your challengers are, I know PT Telkom is always going to be the incumbent outside Java. When you are looking to build your network outside non-Java, who do you think is your most credible, let's say, challenger? Is it Indosat, or are there operators who are strong in certain pockets that you need to contend with? Thank you.
First question on CapEx. I think if you look at this year. Once we complete the IDR 7 trillion investment, we'll probably hit a 4G penetration coverage of around population coverage of close to about 80%. You would expect that we'll still probably need to spend some more CapEx to probably cover the remaining balance, especially on 4G, especially on Java area. The IDR 7 trillion CapEx investment, let's say in between one or two years, you still expect to be at around this region. Post that, I think we'll probably need to see how that's gonna take forward. Given that new technology on 5G and all that's gonna come out. I think the strategy on 5G would probably be an approach on 5G will probably be completely different to what we have seen on 4G.
At least for the next one to two years, yes, I think we should continue this investment, especially outside Java. I think, if you look at our internal cash flow and if we are able to ramp up our growth outside Java, definitely something that we could definitely fund this investment internally.
Number two regarding how do we actually build a network and how do we see our competitor? To be honest, this is a pretty complex spreadsheet that we have, and we have spent a lot of work and a lot of man-hours to find out where to build our network. There's not one attribute or not one parameter that stands out in terms of competitor. We have multiple parameters and multiple attributes for how to build and where to build the network. One of the parameters, of course, where do we see Telkomsel and where do we see Indosat, where are the strongholds, where are the non-strongholds, et cetera. There's no doubt about looking at the map. Telkomsel is very strong outside Java as well and of course, we see potential business in the areas where only Telkomsel is.
There's no doubt about we are building networks where we also see Telkomsel as well. There's multiple parameters in our spreadsheet.
Got it. Thank you. Thank you, and all the best.
Thank you.
Thank you. There are no further questions. I'll hand over to Dave Arcelus Oses.
Okay. Thank you everybody, for your participation in today's call. As always, do get back to us if you need further information. We'll see you next.
Thank you. This concludes our call. You may now disconnect.