We are able to see each other. We will be able to see all the participants. But when it comes to question and answer, I think there is a strict requirement from the moderator, from Macquarie, that we are not allowed to mention the name of the one asking questions. Just to make sure that we do not do that. I did this before, and suddenly the corporate went on and mentioned the name of the participants.
[Non-English content]
[Non-English content] try to keep the confidentiality of the investors and whatever vested interest that they may have.
Okay.
But Pak Adam and Pak Eugene will be able to see who is asking. But just please refrain from mentioning the name, like somebody from Company A asking this question, please. I had this before, I just do not want to have it again.
Okay.
But if the second sell -side, usually the sell -side will want to ask the question directly. In that case, I will just go and unmute themselves. I will just go and unmute their line, then they will ask the questions directly.
Okay.
If not, [Non-English content]
Either by text or by asking directly?
By [Non-English content], by orally. Yeah.
Yeah.
[Non-English content] by the way, I think Pak Adam just concentrate on answering the questions, also Pak Eugene. I'll do the moderation. I'll read from the text and we try to make the flows. Basically, when there's certain topics spread everywhere, I'll try to group it together, and then we try to answer in the same time, more or less.
Right.
I share you my reserve questions. Hopefully we don't have to use that, but it's there just in case we need it.
[Non-English content] the way we express the fiber expansion for FTTH itu not in terms of kilometers of fiber, but rather in terms of home passes.
Okay.
Actually, I haven't gotten the final number, but there should be additional 10,000 km- 15,000 km of fiber that is physically built or added to support the fiber.
[Non-English content]
[Non-English content] end of September home passes. Because the assets of home passes not only the fiber, but also some equipment. If you only strip out the fiber component of that home passes, then you come roughly about 10,000 km or additional 15,000 km of fiber. The way we charge it is different, number one. Number two, obviously the idea is to utilize it further.
I have been trying to find what would be the maximum capacity of fiber in Indonesia.
Yeah.
I think one way I tried to do it is I just find out the national road length. I think the number is around 550,000 in 2022.
Road length?
Road length.
[Non-English content ]
[Non-English content ] I think if there is road, then there should be some people.
Yeah.
Then people think, I think I have been reading, I think TOWR said this, Telkom said this, that fiberization rate is 50%. I just assume, [Non-English content] , I think the top capacity will be around 50% of that 550,000 km.
Yeah.
What do you think, Pak?
I think it makes sense. Road length represents people living on the side of the roads. There has to be a proxy on what kind of coverage that has been done. But in our case, our 100,000 is for fiber backhaul. Yang FTTH. We are adding FTTH. The cables between the two segments may or may not, but I think-
The same, yes.
there could be some-
Overlapping
[Non-English content] . That is where we make money among others. [Non-English content] improve ROI dan ROE. I agree with you. I think that approach makes sense. Even though we do not know [Non -English content]
[Non-English content ]
[Non-English content]
[Non-English content] There's fiber, Pak. Not even a tower. I don't think.
[Non-English content] 960, [Non-English content] EBITDA?
[Non-English content] Hold on.
Hey Eugene, how are you?
Good. Yourself?
[Non-English content]. I think there is a bit of a relief in the foreign exchange market. The bond yield also inched down a bit because of the last night remarks. Hopefully all goes well.
The yen strengthened too.
Yeah. It all because the Middle East tension. While we are waiting, I am going to try screen share to be sure that everything is working.
[Non-English content]
Hi, Indra, Pak Eugene, and Pak Adam. Can we start the webinar now?
Maybe-
Probably wait for one minute or something.
Okay.
One or two minutes.
Okay. Sure.
[Non-English content]
Yeah. Okay, sure. Thank you.
I am going to start with the press release, yeah. Make sure everybody gets Okay. Share screen. Can you see this? [Non-English content ]
[Non-English content]
Okay, good. I'm going to go back showing my face again.
Yeah. In short, I'm ready for, if Katarina wants to launch now, let's go.
Yeah, Katarina. Let's go, Pak Eugene.
Okay.
Okay then, Indah, we can start. Indah, hello?
Yeah. We are already live, Pak Indra.
Okay.
Maybe just wait for one or 2 minutes to allow the participant joining the call. Thank you.
Okay. All right. Thank you, everybody. We'll just wait for another one or 2 minutes, yeah, to make sure that we have everybody dialing in. Okay. I think I'll just start. I think we have enough people dialing in. So welcome to Macquarie Indonesia Insights. Today we have Sarana Menara Nusantara, so-called TOWR, and we are happy to present you Pak Adam Gifari, Vice President Director of TOWR, and also Pak Eugene Keith Galbraith, Advisor to the Infrastructure Division. As you know that the company just reported at 3Q, and today we're here to discuss about that and possibly also what's going to happen in the next quarter. Without further ado, I'll hand over the floor and the mic to Pak Adam Gifari. Please go ahead, Pak.
Thank you, Pak Indra. Thank you, Macquarie, for having us today and everybody who sets the time to talk to us about our third quarter results. Let me show you some of the documents that we released during the course of the last two days. Let's start with the press release, just to be sure that we are on the same page for discussion. We announced that the revenue and EBITDA for the period grew by 7.6% and 6.5%. Net profit for the nine months declined by 4.3%, largely due to higher interest rates this year compared to the year before. As you can see, we continue to execute what we thought as a result of our diversification. As you can see here, we want to expand our asset base. We want to diversify our capabilities, especially for the non-tower segment.
The non-tower segment has been serving the home segment, the enterprise segment. We are going to go into financial sector also, as we have discussed probably four quarters ago. Everything is in the making. We are looking for opportunities for us to basically increase our utilization of our capabilities and asset base, obviously. Not to mention on the tower side, we are also on adjacent businesses. We are doing more than what we normally did back 10 years, 15 years ago, in which years we basically a tower landlord, but we are also now helping a lot on the operations of those sites, which is not traditionally a part of our scope of work before. We are now into that kind of business for our customers. Do more of the different things on the same locations of assets. Can be towers, can be fiber.
That's the idea, expanding further, reaching out further from where we are today. I think on year-on-year, I think we discussed on this page, quarter-on-quarter, we grew the revenue 1.6%. Sorry, 1.1%, and then 1.1% on the EBITDA also. Net profit after tax grew 7.3%. Margin at about 28%, 29% during the year. The business, basically iForte is a subsidiary that we acquired in 2015. We discussed this many years. Everybody long enough having met the company, I think we discussed this seven years ago. We want to do more in market onshore in Indonesia. Following some of the tower companies that we saw listed elsewhere in Europe, in U.S., without having to go outside of the country, because we think there could be more things that we can do on the same locations that we have operations.
That result in the growth rate of towers and the non-towers respectively, as you can see on this page. Now we have a total over 160,000 km of fiber generating revenue from our FTTP and broadband business. However, we have not included in this calculation of 196,000 km our fiber that we have been adding during the past 12 months, 15 months actually, on the FTTH segment, because those are being calculated for accuracy. Those are still construction in progress. But we should be adding substantially more than what we are showing to you today on this page, on the press release. The company spent CapEx for the nine months this year, IDR 4.5 trillion. Almost 60% of the spend is on non-tower segment, including acquisitions.
The 40%, which is towers, I can say, I think the bulk of that spend is actually about 30% of the 40% is approximately for the ground leases that we continue to pay, maintain those sites, getting them ready for obviously getting co-locations. Not to mention, also included in that 40% of this 4.5 tower segment spend for CapEx is for our client, IOH, who are relocating to new locations under the terms that we signed with them some three quarters ago. I think we continue to be active on that. I think we are seeing good progress. As we speak, we are continuing to receive additional new tower locations to which Indosat wants to move for new locations for their new operations. Basically, trying to meet their financial liabilities to us, in basically restructuring the Indosat Hutchison contracts pre the merger.
We are executing expansion, as you can see on this page, into connectivity segment. Basically under enterprise clients type. We want to increase asset utilization from our SCT fiber to the tower and FTTH fiber networks. Pak Amin, our CEO, was saying, we will want to continue to contribute positively. We become the solutions to where the situation that IOH is in now that they have merged successfully. We are very hand over heart, very happy with their results. We want to continue to support them in whatever ventures, existing ventures or new ventures that they want to do. We want to execute accordingly. We think the industry is heading to the right direction after a series of consolidation. We've been in this business for 15 years, starting 2006. Now it's 16 years, actually, not 15. We've seen many, many consolidations.
The types of thing that we do for our customers, the MNOs, the enterprise, the homes, have expanded, and we want to continue this, basically. Now move on to our presentations to talk about some of the details if you want to. Come back later for questions if you have any. We are approaching 30,000 tower count today, as you can see here on the left side. I think we're quite confident we can become bigger than 30,000 towers in probably next quarter, given that the pace is quite convincing that the relocation is continuing. Fiber optics, the one thing that we have not calculated in this number, as I mentioned to you earlier on, is this one only includes the fiber we have for fiber to the tower, fiber for broadband business, which is including the subsea cable that we have.
We have FTTH assets that we have been building for the past 15 months. We have not included them. Those are still being counted because our KPI under that contract is actually to deliver home passes. But we actually have physical cable in addition to this 160,000 km of fiber revenue generating number. Again, the model so far is still build to suit. 95%, 90% of the revenue incremental that we do is for build to suit. We get confirmation there will be revenue stream at least 10 years going into the future. Sometimes it can be 13, 14 years, in contracts. Investment grade ratings has been very helpful to us, in our various situations, including today.
I think, we want to be in the market when it basically with the capability to go into market, the bond market, the bank market, and then the synthetic rupiah market that we have been deploying a strategy for getting the best cost of capital for the company. You see the growth rates, 30%-40% for the revenue and EBITDA CAGR, five year respectively. ROI 8.9%, ROE 22.8%. We can talk more about costing later on. In addition to this slither of information, we also got included into index business, the LQ45 here, which is a local, which is a nice surprise for our stock. I think it's quite exclusive, given that the number is not that big, of a select number of stocks for Indonesian listed companies. We have continued to basically discuss with banks.
We don't have yet a bond program for number one capital management under this page. We will want to set up something early next year, go into the bond market. We never know what the bond market would look like. It's such a volatile market recently, as everybody can see. Investment grade ratings is really helpful for us, for the banks, for the bond market, and different types of financing, including our subsidiaries. Low-risk business because we remain in the build-to-suit contract as much as we can. ESG conscious company, I think we will continue to basically do something on the E side, on the S side, on the G side. Consolidating internally, agreeing internally on what we want to achieve, and then communicating it externally, which we think should be the strategy to go when it comes to improving this ESG perception by the external parties.
Number four is the attractive industry structure. I think industry is consolidating. We are hearing there could be more on the telco side, there could be more on the fiber side. I think we continue to monitor what is happening there. Obviously, the types of assets are different. Even though the bigger ones that have been mentioned in the newspaper news flows do not necessarily include everything, because we are seeing also opportunities for us to buy something that is quite local, in city A, city B, those locations. We continue to see, but we treat these opportunities as fragmented. We can talk more about acquisitions that we have done so far during the nine months of the year, but we have been acquiring for sure even today. Number five, the most unique asset class, we have contracted revenue 67.
I think this has declined a bit because compared to the previous quarter, but we expect to do some renewals also, which is a normal thing to do for a tower company. It's going to be coming our way in dot sizes. We think it's just easier to do thousands or 2,000 or 3,000 in one go with a customer of ours or those kind of arrangement, rather than going 500 or 200 leases at any point given in time. We think the free cash flow continue to be strong. We've been catching up on what we think as third quarter is a relatively better collection period than the previous quarters. It's a lot of work, different types, different contracts. The amount of things that we do now has expanded so much.
We think, given that we have reached such a scale, we think, even though you may hear us buying something, actually consolidating, integrating what we have bought so far is also a bit of a work that we have been doing. I think our team has done a very good job. Slide A, I think it's point number two. I think we know that Indonesia still will be going through an election year. We've been talking quite a bit on 5G, but now I think under 4G still requirement for fiber is there. We're building new sites. We're accommodating co-locations. I think that's quite encouraging. I think a lot of questions came our way. What do we think should be the best technology for the industry? Is it 4G or 5G?
I think from my point of view, who has been in the business, I think as long as the industry is healthy enough, it doesn't really matter what kind of technology that we are deploying, as long as there is good return on investment on what people can afford. That should be the way to go. I think if 5G should be the way to go, then the operators think they should be able to basically make good returns on that additional incremental CapEx for spectrum, for equipment, I think we're happy also to support it. But even under 4G, I think we are seeing this trend. Not to mention, on top of that, the FMC inclusion into the strategy.
A, number three here, we have been including more assets like batteries, rectifiers, or doing some managed service on actually going to the grounds where the allocations of the assets are. Internet growth provider has not been updated. I think we want to wait until next year, but I think the trend is still quite interesting for a lot of people in the TMT space here for internet in Indonesia growth. Moving on to this long-term cash flow. I think FTTH also falls under this predictable revenue once we get everything set up, commencing all those home connects also. The tenants will be dependent on us. It's a 10-year contract. Upset from additional revenue, given that we have locations of different business activities of different customers in similar locations. We should be able to basically expand our utilization of existing assets in the future.
High barrier to entries. Obviously, when we started this tower, this fiber business, we only started with 30%-40% EBITDA margin. But now it has become easier, better, financeable. The banks like it. The rating agencies like it. We've proven that we did a good job on creating such a good scale for the towers and the non-towers operations here in Indonesia. I think return on investment, we can talk more about this later. Now slide number eight about our strategy, build by return. We've been investing in towers and co-locations. Obviously, that's our original bread and butter. Number two, the expand fiber optic network. This is the number two on this box. It's basically very important because it's going to be providing us for our future platform for doing something much more that we can deliver.
We expect to get synergies offering that is basically different than or even better than our competitor because we have locations that are already present with our sheer amount of fiber. Then obviously number three, continue with tower fiberization. So FTTH, the fiber count should also complement the FTTP, given that we want to basically utilize those different types of fiber for different types of business here. Number four, under this strategy, we are using balance sheet to support continued strategic acquisition and expansion. We spent approximately IDR 600 billion during the first nine months of 2023, basically expanding into digital financial infrastructure, going to operation maintenance support. On top of that, we also bought Slither, like smallish, some fiber optics assets during the nine months here. Not too big, but we think that's a nice complementary to what we already have data positions here.
Tower count 200 towers, 50,000 km of revenue-generating fiber has been added during 12 months, and we added 2,274 activations showing that we are very active in the connectivity business. The 71,000 home connects showed a very good performance on the FTTH side of our customers. I think we're quite encouraged by these results, and we want to do more. I think there's a good traction on the offering being offered to the market in the home segment supported by us. So that's, I think, very encouraging. On returns, I think investment grade is always very important for us. Put Indonesia in the context of investable space. Our company also included in that. Not many company in Indonesia from the swasta or from the private sector having that kind of investment grade there.
We feel proud about that, and we want to maintain that obviously for obvious reasons. So yeah, dividend, I think we should be continuing what we have been doing so far. Diverse product offering. We are the only one tower provider. We no longer call ourselves tower per se, obviously. But some people call us still a tower company, but we provide end-to-end services to telco companies, towers, fiber to the tower, connectivity here on the right side, and then FTTH here. So all these, the boxes here, this one, this one, this one have different types of fiber. But I think for the FTTH one we have not included because everything is being finalized, being under construction. Then on this one, as you can see here, the amount of capital spent on infrastructure is now markedly higher than already than the tower segment here, the blue one.
Actually starting 2022 is already higher. The difference 2023 and 2022 is that we paid IDR 1 trillion during the first one month of 2022 to pay for the mandatory tender offer STP stocks here. So that's included in this amount also. So yeah, I think we've been starting to invest much bigger portion of our CapEx towards non-tower already starting last year. Then the trends of utilization is quite encouraging. So now again, I want to highlight that even though this chart may show something on the fiber utilization for the fiber backhaul or FTTP, we think we will not be able to show what kind of synergies in terms of number and present here when we use one fiber coming, say, from fiber to the tower and use it for FTTH or maybe or connectivity.
So that's one thing, but hopefully we will be able to show it in a different way, such as return on equity. Okay. I think the trend for FTTP revenue generating continues to grow. The number of activation also growing very nicely. I think this shows that there is a good positive perception on what we can offer to the market as an alternative. Good service, good for value. We just manage our cost accordingly after we're getting just those businesses. I think you can see us becoming a more busier organization in the fiber space because we want to continue utilization of all this fiber that we have. This financial performance, I think we can see the non-tower is growing very nicely.
I think we mentioned in the press release, tower revenue year-over-year at 8%, non-tower year 50% over, and our FFO growing 11% over. I think there was a bit of a dip during 2023 compared to what it's expected from 2022- 2023, but because of higher interest expense, because that's the biggest deduction from EBITDA to arrive at FFO. This is the contracted revenue that I was describing earlier on, that there was a bit of a dip, but we expect to grow this again. But because we're working on renewals here for long-term contracts for the tower side. Given towers is already in our portfolio earlier than when we have fiber. On the leverage, we're still at a 4.3. As you can see, we continue to spend acquisitions. More importantly, we continue to spend on new towers.
Those are relocation sites, and we expect to be compensated in different way. But it's something to show to the audience that we have a very good financial management, financial expense management, cash flow management, that we can still arrive at this kind of leverage after the merger of IOH. I think everybody has seen these numbers. I'm not going to bore you, so let's just skip that unless people have questions. Collections IDR 8.3 trillion, CapEx+ OpEx IDR 5.3 trillion, interest expense IDR 2.1 trillion. Interest expense is on average about 6.1% by the end of the period. Cash surplus from operations IDR 1.2 trillion. We made some payments, IDR 675 billion during the nine months. Dividends, we paid out IDR 900 billion. We also paid for acquisition, the IDR 600 billion that I was talking to you earlier on. Revenue, 1.1% quarter-on-quarter, 5.5% year-on-year.
EBITDA 1% quarter-on-quarter, year-on-year 4.5%. Net profit 7.4% quarter-on-quarter, relatively flattish year-on-year for the quarter compared to a year ago. There was a bit of a decline in tower because the nine months in 2023, we had a full impact of some of the short-term leases under Hutchison that normally would have been renewed. Since they decided to merge, some short-term contracts did not get renewed. But compared to the nine months of 2022, which we did not have impact on. We expect 2024, we will only be dealing with long-term contracts. There's no short-term contracts to be churned for under IOH relationships. For FTTP, the growth is quite nice, 67% year-on-year for the nine months. Connectivity 20%.
FTTH, fiber to the tower, we started from practically close to zero of IDR 6 billion last year, and then this year is IDR 82 billion. Total growth are 7.6%. I think we mentioned also in the press release that FTTH will be a sizable investment in the coming quarters. Towers, 0.7% addition. Tenancy decreased by 1.4%. We had a bigger impact on the revenue side because it is a full nine months of revenue adjustment from IOH merger. Tenancy catches up. Some of this revenue catching up is only for the end part of the third quarter. That is why the difference in revenue and tenancy when it comes to the increase or decrease. Fiber to the tower, 47% increase in terms of revenue-generating fiber. Connectivity, which is already stripping out FTTH. Home connect grew by about 22% year-over-year.
FTTH grew quite substantially, 1,000%, because it is starting from a low base when we are starting. On this foreign exchange exposure, ladies and gentlemen, just to repeat here. We have the benefit is hedged. On the liability of the bonds, we already have enough assets in US dollar, which is number one here. You can see on the following slide that we have some US dollar loans that we think as a nice arbitrage when interest rate was lower, rupiah was in a good position. We decided to establish loans with banks. We have included in that transaction the option to buy rupiah to basically hedge lock in our position whenever we need to pay down the debt upon maturity. The FX rate is 14,500, 15,000, and then 15,000 respectively for each of the deals that we are having here.
Let me walk you through to the next slide. This one, yeah. This one is 2025, which is 14,500. This is 2018, which is 15,000. 2029 is 15,000. It has been locked in. We knew it embedded inside is some costs, but it seems already when we saw and there was an opportunity and the offer came our way. Again, due to the fact that we have good investment grade ratings, foreign banks offer us, and then we just took off upon the opportunities, including everything from the bond market as well as local straight rupiah, that we took, the opportunity for, during different times, yeah. I think that is all I have. Pak Indra Cahya, handing back over to you.
Thank you, Pak Adam.
Yeah.
Maybe before we go to question and answer, we are going to have the Q&A session in this way. First, if you would like to remain anonymous but ask question, please do so by typing in the chat box. But if you do not mind revealing your number and your institution, please raise your hand, then I will go and unmute your mic. Okay, I have seen several. I think that first we have first question from Aishwarya. Aishwarya, sorry. Go ahead.
Yeah, hi, thank you. Hi, Pak Adam, Eugene. Thanks for the presentation. Just a few questions from my side. First, on the interest expense, what are the plans to bring that down, say, in the next year or the next quarter? The second thing is on the FTTH business. Can you give some update on the progress there? Also just a question on why is the share price moved up by 10% today. Any thoughts on that?
On interest expense, thank you for the question. On interest expense, yeah, I think the reason why we continue to spend, because we think there is still attractive opportunities for us to reinvest cash flows. New towers, new fiber, acquisitions to complement our operations on the operations side, on the fiber side, and then including going to the future for serving different types of segment. Basically further utilization in the future for our fiber and our other solutions. That is why. Then when we do not see opportunities like that anymore, maybe we just pay down, right? That is our answer. We will obviously be vigilant in our cash flow management collections, make sure timely. I think I can say to the effect that as of today, we are still signing IDR loans below 6% from banks.
I know some people may say, "Okay, yield has gone up," but again, some of the banks are, we are still signing like that below 6% IDR loans. Then on FTTH, I think we are continuing with what we said before for further achieving 2 million home passes. Then you saw what we have achieved so far. I think the count is about 600,000 or 700,000 home passes already in third quarter presentation slide. Then, number three, I forgot the question. Can you repeat again? Sorry. What was number three?
Oh, the share price.
Yeah, I do not know. No. Eugene, you want to say something on the share price?
No, I mean, just there's buyers and sellers. I think perhaps people like the results. I don't know. You're in a better position, Aishwarya , to answer that question than we are since you're creating market and we're not.
Yeah.
But I would say just on the investment side that we are aggressively building our franchise. That will involve acquisitions and further investment going forward, and that's a top priority for us, to continue to enhance the franchise. So that's why you're seeing the investment figures that we see.
Yeah. I think on the company side, personally, we are quite confident Indonesia should be in a better position, in a better shape than previous quantitative tightening. Because of the obvious reasons, where we have been involved in the global supply chain with the downstream investment, FDI. The last time I checked with banks, FDI into automotive, stuff like that, mineral downstreaming continues to go in. I think there's quite a bit of faith in successful investment in Indonesia. So I think that's one of the things that we expect to help us. Then probably some of the investors also look at that as well and take into account the recent weakness as an opportunity to get in, I think.
Sorry, Pak Adam, just to follow up while we're on the debt side. Do you see any change in appetite for your leverage level? Number one. And two, when you talk about debt and also asset, there is the duration management, right?
Yeah.
So I am just wondering, under current rate environment, do you see any room or appetite to widen or narrow the duration of the asset and liability in the company?
We are cognizant of that requirement. I think if there is opportunity for us to basically price something that is favorable to our liking, like the one I was showing you, maturity 2025- 2028, with favorable pricing. I think those US dollar effectively after hedging everything, the effective is about 6.1%, 6.2%. When Rupiah rates were 5%, that seemed to be a costly reposition, you know what I mean? But now that seems to be a good call. But we continue to look for it. We do not think the market will always be in a weak position than what we saw during the past almost four weeks after the invasion. Other than that, I think we just go with what we have.
I think we are, again, among the borrowers in Indonesia, we are positioned as among the best borrowers here, so that helps us a lot with pricings. While the bank also wants to keep exposure to us. That is why I said, just to highlight, we are still signing below 6% today, just this morning on my desk.
But it seems on the shorter duration buyer as opposed to the longer.
We can do a couple of months, six months, 12 months. It's good to price something on the floating side short-term, so it gives us flexibility to change it to something else in case somebody doesn't like the pricing to our side. But then when we established, we have a bond maturing 2024. When we issued it was 2014. The coupon is about 4.5% in dollars. When we did it was such a good deal. But then during 2021, we couldn't pay it down. We couldn't refinance it. So, at one point you will like it or you dislike it if you fix something on the long term. That's what we're trying to say.
Right. Aishwarya, you have any follow-up question?
Yeah. Just a follow-up on the interest expense bit. How does this higher interest rate affect the IRRs and the target rates?
I think the way we price business in Indonesia is there's a bit of a lucrativity, if I may say. If you compare that even to the U.S., Europe. If you try to calculate the EBITDA of invested capital in U.S. and Europe, I think you come to about a low single-digit percentage on new organic business. Indonesia, we always look, and so far has been successful to maintain double-digit EBITDA CAGR.
Okay. Thank you, Pak Adam.
Yeah.
I think I will move to the next question. Thank you, Aishwarya. I think we have Arthur and Bob online, but first I will go to Arthur.
Hi. Thanks for the opportunity. Just two questions, please. On the InfraCo plans with the fiber, I am just wondering what is your outlook on this going forward? Because it seems to be getting crowded with Telkom, Link Net, Indosat, MNC Group all looking to open up their fiber. Second question I had is with regard to the tenancy outlook. I am sorry if you can just remind me what the outlook is again for the year. So I recall initially, there were some, I think, tower, well, tenancy revisions owing to Indosat. Is it still ongoing because you are still actually adding towers-
Yeah
-as we have seen.
Thank you, Arthur. We estimated at the start of the year it is going to be 5% full year 2023 revenue growth compared to 2022 full year revenue. Now we are showing 7%. That is your number one question. The number two question about the sites moving away. We mentioned from the start of the year, you can go back to the press recordings we already mentioned, the impact is going to be a total of 1,000. If you see us showing a positive number, then we must have added more towers than we are losing sites. Okay, that is number one.
Number two, actually frankly speaking, it is becoming more difficult to basically deciding whether one co-location tenant will be going away from the IOH relationship because in order for a tower with two tenants under IOH merger situation, the tenant number two, the co-location which is under IOH, will have to tell us and then sign a new lease where is the new locations. Without that, then we will not be able to treat such situation as a relocation, and then they will still have to pay double on the same locations. Does that make sense?
Yeah. Sorry, I am just a little confused. Because you mentioned 1,000 towers over 2 twoyears, and you are adding towers. Is it a timing issue or you are confident that you are actually able to add new demand to compensate for that initial drop that you expected?
I think so, yeah. There should be, because we are seeing co-locations organic.
Okay. It's not a timing issue. You're actually seeing faster than expected growth on that side.
Yeah.
The first question I had was with regard to the fiber side. Because obviously it's growing now, but I'm just wondering what your expectations are with regard to competition, given that everyone seems to be pushing out fiber and InfraCo is seeming to be a common theme now.
Yeah. The amount of fiber owned by people on the island of Java is already quite substantial for many, many years. But what can one InfraCo offer to the table when such demand is coming their way? We've been doing this since 2017, and we know Indosat has fiber, Telkom Group fiber. XL has fiber through Link Net. But the one that they need is not the fiber numbers, but they need the service. They need the availability to be there when they need it, which is to connect towers to serve as backhaul. What we have been able to do is to provide them on a timely manner on the spec that they want, and that has provided us with a sheer amount of fiber that we can basically utilize it for different things.
We are probably now the largest independent fiber owner in the country.
Sorry, Adam. I was referring to the consumer fiber, like broadband rather than fiber to the tower.
Including that. Because if we have the capabilities to use the sheer amount of fiber that we use for something else, and already the floor return is underwritten by the anchor tenant from FTTH or FTTP, then we should be at least at par or most likely to be better off. You know what I'm saying?
Okay. I'll take it offline. Thanks, Adam.
Yep. But feel free to ask because last time you said you're going to go offline, but you haven't.
Yeah.
Please, you can text me.
I will try to email separately.
Basically, we have contracts with XL, for instance, and the MNO also has a fiber company. So far we are getting orders from XL also. What is key to that is the mix of different things that we are able to deliver and on a timely manner.
Yeah. My concern mainly lies with the growth going forward because obviously I think in the first stage, XL had placed those orders. Going forward when they spin off their own fiber InfraCo via Link Net and Telkom is also opening up its fiber via its own InfraCo, and I think Indosat.
Yeah
is also looking to do the same. How does that basically change the competitive dynamics and growth outlook for fiber? Maybe that's the way I would ask.
Number one is the location where we serve is different. Some of the assets that is being divested to the news leader to Indosat located in big cities. Also the same thing with one big operator such as Link Net or Biznet, for instance. But we look for other places that basically we can marry on the backhaul side of things on towers and operate FTTH, and then also at the same time later on connectivity and using same locations. This is like towers. Towers, people like it if it's located ex-Java. We happen to have substantial FTTH build to suit orders ex-Java, Kalimantan, and Sulawesi, where basically almost 60% of the FDI into the country is taking place. So yeah. So that's where we're different.
Understood.
Yeah.
Thanks, Adam.
I think also just on the growth going forward, we're not really sure what kind of fiber the other companies are employing.
Oh, thank you, Eugene.
How new or old it is, how many cores they have.
Yeah
What they could pay for utilization rates to go up. In addition, not long ago we were in Kuala Lumpur. We were very struck there by the attitude of some of the investors in Kuala Lumpur to the Link Net deal. We have been struck that notwithstanding, we have been given a nice contract from XL, about 2.5 million. We think that the combination of our dense network, which enables us to provide linkages at a competitive timeframe to others, plus the fact that our fiber is the newest and the most state-of-the-art right now should hold us in good stead in a competitive position.
Again, the fact that people have fiber located in many places doesn't mean it's going to be up to par on what the requirement of the market. That's where we see opportunities. We understand the model in some places where you just build ahead of the demand. In our case, we already have the FTTH, the FTTH contracts. That means basically we are receiving 10 years on the first use of those fiber, and then we are just using it for something else on different types of business. Again, to your point, Arthur, looking at this page, I don't know if you see this, the footprint that we show growing from 2019 until 2022. Can you see this?
Yeah.
Okay. Java. People say Java is already overcrowded with fiber. But are those fiber belonging to the operators as existing at the time in 2019? Are those available for the types of the tower backhaul that was being required at the time for 4G? That's the question becomes. Now again, back to the same situation in 2022. The growth is there. We got the contract to lease 10 years fiber for tower backhaul. That serves us, again, unreturned returns from first anchor tenant. Now as you can see here, we will be using some of this fiber in Java here. Kalimantan also growing from basically non-existent, now it's 2,700. Sulawesi, Maluku, basically non-existent three years ago, now it's 3,700 kilometers. The same thing with Sumatra.
Again, some people may have got fiber, but are those ready for the scope of work, the type of specification that people want to use for, at that time, tower backhaul. Now we are using this set of fiber, and on top of this, we are adding FTTH for our other fiber business, Arthur.
Got it.
Yeah.
Thank you.
Thank you.
Thank you, Arthur. Next I will hand it over to Bob. Bob, please go ahead.
Hi, can you hear me?
Yeah, we can hear you.
Yeah.
Oh, yeah. A couple of questions for me. Number one, your tower and tenancy numbers finally recover after dropping in three consecutive quarters. Just wondering what is the drive this increase in tower and tenancy in third quarter. Is it because more order from Indosat or
Other tenants.
or is it from other tenants?
Other tenants.
From-
Yeah. Because when we discuss this about the IOH relationship, any new business that we are giving or getting from Indosat, new towers or co-locations, we will not get new revenue. Instead, we are getting new locations. So in order for the net add, there has to be a compensating factor, which this means other companies are giving us organic business.
Okay. Thank you. My second question is regarding your CapEx.
Yeah.
I think you showed there that the non-tower CapEx has already surpassed the tower. Any guidance on the split going forward? Perhaps could you also share your expected annual CapEx, say, in the next two or three years? Thank you.
Thank you. I am going to guess. We are still devising. Okay, before people comes to the question, might as well just say it. We are still devising our budget for 2024 full year revenue. 2024 of everything. Revenue, CapEx, those numbers to be one file, and then getting it approved internally, and then also convey that to the Jakarta SEC. But I am going to guess it is going to be around IDR 5 billion-IDR 6 billion again. But without having too much details on it. But that is just a guess.
And the split item?
Oh, yeah. Starting two, three years ago, it is already 40%, 50% on non-towers. I think it is going to be around 60% also for non-towers. Again, these are just estimate.
Got it. Thank you.
Yeah.
Adam, following up on Bob's question. Can you provide more color on where do these new tenancies come in, I mean geographically?
Yeah. I think XL acquire sites in really dense area. Smartfren wants to basically help to complement their Java operations also. New locations that we are building is outside of Java. Again, I think that's quite encouraging given that there's already towers belonging to tower companies, also listed. There's still requirement for new towers. Yeah, that's the situation now in there.
Now that you mention Smartfren, I think everybody here must have thought that XL-Smartfren merger is, I think it's crystallizing more clearer than before.
What do you think the impact to the tower industry? Is it net positive or net negative? What is the exposure probably to you in this case for Smartfren?
Oh, okay. Is that really? That it's crystallizing? I did not know, and we haven't really checked that.
No. Yeah, sorry. At least the news resurfaced for at least two, three months ago.
Yeah.
The news resurfaced again.
I think we are going to treat it like the same that we saw with IOH merger. Long-term contracts will remain as they are. We are just helping out. I think we are quite positive if that happens because that is the kind of industry that we want to see. We continue to monitor what is happening in India, which is, I think, among the best ASEAN telco market now after the de facto two players that they have over there, even though there is another two players who cannot form because of financial situations. We like it, if that happens also, getting more ideal than before from four to become three players. I think there will be processes, contribution by each of the vendors, including us, to that process. I think we will be contributing positively.
After that, there should be better profitability, which is as always expected from consolidations. Yeah.
Yeah. Our view very much is that the best market structure is three players.
Yeah.
If the XL-Smartfren merges, then we think that is an improvement. That will make competition healthier, and it will also increase the ability of companies to invest since the balance sheets will be bigger.
Thank you, Eugene. Yeah, I think that is always the scenario for consolidations. I think the penetration can increase, the usage can increase. I think profitability has to be better from consolidation. That is my personal expectations.
I have a question from the chat box, Pak.
Yeah.
What has been the recent pricing environment, Pak?
I think it has been quite stable, yeah. I think the discussion is five years old, at least, on pricing. Indra, you just came back from other places, but it has been like that. There is so much that pricing can go down from this. Our interest rate were going down. Now I think, there is a clear different macro environment that it is higher. Not everybody can borrow as cheaply as we do. Yeah, we just play by ear, then we think if the pricing renewals are still making sense, then yeah, we can still do it. We want to retain profitability.
Okay. I think considering the time, I think I have one more question from Henry.
Yeah.
Henry, go ahead.
Hi, Pak Adam.
Hi.
Hi, Pak Adam, Pak Eugene. Thanks, Pak, for taking my questions. Pak, perhaps two questions from me. First, if I can. You mentioned earlier about the contract renewals, Pak, in the presentation. Can we check on how big is the contract renewals that we discussed before, perhaps for the next year and also in 2025? That will be my first question, Pak. Second, just curious on your thoughts or view on Starlink. Will Starlink change the competition landscape in the towers and also infrastructure industry in Indonesia, Pak?
Yeah. Thank you, Henry. We have 54,000 leases, right? If you assume a 10-year lease for all those tower leases, that means every one year there should be around 5,000 lease renewals. It's just that the difference the way each of the operators wants to do renewals are different one another. Because simplicity, sometimes they go in, okay, I want to do one, two, three years of expirations in one go, just renew everything. We have seen that before, like in 2019, when we renewed thousands and thousands in one go with different customers at the time. We expect something similar could happen also. On the technology front, I think, there is an advantage that Indonesian telecom market can. People can see that price points is really affordable.
I think we continue to expect given the sheer amount of investment by the participant in the industry has made during the years. There should be like an inflection in pricing points. If you compare that, even current pricing points after the said price repair has taken place, I think we still see that's still very much affordable. Then you compare that affordable price of mass market consumer telcos pricing in Indonesia, and then you compare that with whatever new technology you see being offered out there, like Starlink, and then I think $100, $200 a month per user or something. That's obviously above. Yeah. That's how we think.
Now we see also. I think we see also the continuation of fiber towers, given that, again, the market is the pricing, the nice pricing point is the one that is more affordable to the mass market, and not the one that is much higher than the market can bear. Eugene, you want to say anything?
Yeah. It is just that, Henry, some quarters ago, we issued a press release about an investment we have made in what are called Stratospheric Platforms. These are basically towers in the sky at about 60,000 feet in the stratosphere. We think that the Starlink model is going to be too expensive to really make a big impact in Indonesia, unless there are significant subsidies from someone. On the other hand, we do think that this tower in the sky model does represent progress of a disruptive and advancing kind for the tower business. The basic technology here is you have a drone. In the company in which we have invested, the drone is hydrogen-powered, which stays up in an orbit for about nine days. The antenna is on the bottom of the drone, and it goes directly to the hand phone.
Starlink is hand phone to transmitter to satellite to transmitter to hand phone. This is hand phone to tower in the sky to hand phone. This has a faster speed for 5G than the Starlink does. We think it also is significantly less expensive. The company that we have invested in is headquartered in the U.K., in Cambridge. They estimate that for the U.K., for the entire United Kingdom, coverage of 5G with this technology, they would require 2,500 Drones.
Yeah.
We think this is a technology which offers good promise, and that is why we have decided to invest in it. We also see that in addition to the power in the sky model, the antenna itself, we are experimenting right now in the U.K. and later in Jakarta, with taking these antenna and putting them on tall buildings.
Yeah.
And see if using them on tall buildings, we can achieve significant economies. As I say, in the case of the U.K., the modeling, and it is just all modeling now, but the modeling there is from British Telecom, which is another investor in this business.
Yeah
It is that they would save about $5 billion in CapEx every year using this technology for the country. So there are things on the horizon. They are probably several, five or so years off, but there are things on the horizon which could be quite promising and would be quite different in their approach.
Yeah. But I think, bear in mind that all these things are a bit on trial, and then there is a side on the economics that needs to make basically local market sense, yeah. So yeah. But we do have some exposure, and those are still being basically on trial by other partners. Then there is one question from Nico. Acquisitions. Yeah, we acquired, in nine months, synergized one company to help us on operations maintenance. Then we also acquired a smallish fiber, and then we also invested in a financial infrastructure, digital financial infrastructure within the first nine months, Nico, to your question. So handing back over to Indra.
Thank you to the participant who asked. I think we are approaching to the end of time. I think we passed that. Maybe before we close, I will hand over to Pak Adam and Pak Eugene for final closing remark.
Yeah, I think we have invested a lot in towers, in non-towers, especially fiber. As an InfraCo, we want to increase utilizations. Again, the key to this success is actually to be there on the spec, on the service levels, on the price points that is affordable. Given that we have been operating on towers, price points have changed. You can see the averages. I think each of the analysts on this call can have their own calculation. As you can see, averages have been quite stable. We just want to increase utilization in terms of for co-locations or utilization of existing fiber, obviously, for better ROE. We just manage our cost accordingly on to get EBITDA and then the-