Ladies and gentlemen, thank you for standing by, and welcome to the Axiata Group's first quarter 2019 results briefing. Throughout the presentation, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session. Firstly, three housekeeping reminders. Please mute your phone during the presentation, and kindly avoid using wireless headsets. Also note that the call duration will be for a maximum of 90 minutes, ending at 5:30 P.M. I would now like to hand the conference over to your speaker for today, Tan Sri Jamaludin, President and Group CEO. Thank you, sir. Please go ahead.
Thank you. My name is Jamal. I'm the Group CEO for Axiata. I'll be presenting to you on third quarter 2019 results. Before I start, again, thank you very much for joining us for this conference call. Joining me shortly will be Vivek Sood, who will be the Group CFO, who will be presenting the details on the results. Let me go straight to slide four in the chart. As you can see from here, I presented to you, I think early this year, the eight focus areas for 2019. I will go through that again, key points to note is the focus on profitability and cash. Just to be sure also, it is more in relatively speaking compared to revenue. We are still very focused on revenue gain, market share gain, and revenue growth and so on.
There's a major shift towards what does it take to improve our profitability and cash for 2019 and even 2020. That's the main message here. Going to slide five. On the first area, we believe we have delivered at least for the first quarter 2019, what we started out to do for this year. EBITDA grew 7.7%, whereas revenue grew 4.3%. This is on constant currency. ROIC also improved 1.8 percentage point to 6.2% year-on-year. As you can see from first quarter, we're glad to announce that Axiata and Robi returned to profit with the highest market share since their respective mergers. That's for number one. On point number two, the spotlight on OpEx and CapEx efficiency.
In first quarter, we delivered MYR 262 million of savings or in terms of cost optimization, both CapEx and OpEx, and we believe we are on track to achieve MYR 1.2 billion for this year. As you can see from the first quarter result, our year-on-year cost is flat. Despite the fact that the growth in revenue, absolute cost was flat. Moving to item four, we said that we will fund investment in new growth areas through strategic partnership. You heard earlier this month where we had capital injection from Mitsui into ADF and bring money into price valuation of $500 million. That will help to fund our investment in ADF. On point number five, we talked about monetizing our investment. Of course, you heard about M1 monetization, with MYR 1.65 billion profit and a gain from their disposal of MYR 130 million.
You have also heard that early this year, we have transferred five digital assets, what we call non-core assets, at MYR 140 million to Pegasus. With a gain on disposal of about MYR 300 million. Consistent with our view about India, we decided to not subscribe to the preferential right in India, so we are now diluted to 2.5%. Zero impact to P&L. Last but not least, we've strengthened our balance sheet from MYR 5.1 billion last quarter to MYR 6.8 billion this quarter. Our gross debt EBITDA also improved slightly from 2.3x to 2.2x. Our OCF also improved MYR 234 million. On point number 6, this is the biggest story of them all. We said for the last two years, we need to consolidate, we need to consolidate, we need to consolidate, and unfortunately, it did not happen.
Instead, what happened was bigger than what we had originally had in mind to create a global champion by the merger of Telenor Asia and Axiata. We'll talk about it in more detail. Point number 8, we have increased the weighting of EBITDA and FCF yield for our KPIs consistent with our intention to go for profit rather than purely revenue. Slide number 7 is an overview of our performance, so I'm pleased to note that in terms of profitability for digital telco. Oh, let me backtrack. There are triple core strategy. There are three pillars, right? One is digital operator, second is digital business, the third is infrastructure. This is just to give a quick snapshot on our performance for all. On digital operator, the most important thing is profitability.
As you can see from EBITDA growth for year-on-year, practically all our companies perform number 1 or at worst number 2 in their respective market. In terms of digital business, most importantly, is to focus on valuation. As you can see, effectively with the two major initiatives, it's now 2.6x the valuation compared to our initial investment of MYR 2.4 million. Last but not least, our tower co performed very well again. Revenue grew 25%, EBITDA 45%, and PAT almost doubled. With that, I pass to Vivek, my CFO, to go through the details of the results.
Thank you, Tan Sri. A very good afternoon to all of you. This is Vivek here. Let me start with slide number 9, which is actual reported results for first quarter 2019. This includes the effects of MFRS 16, which we have adopted from 1st January 2019. So you would see EBITDA numbers on actual reported including the impact of MFRS 16. Let me start with revenue. Revenue quarter-on-quarter is down 5.1% on actual currency, largely because of the devices. In Celcom, the device sale was significantly high in quarter four, and it's not been that much in quarter one. If I exclude the device, the revenue decline would be around 2.3%. Whereas on a year-on-year basis, we've seen a revenue growth of 3.5%.
EBITDA at 16.2% growth, included in the quarter one number of EBITDA is around MYR 252 million impact on account of MFRS, and 18.9% growth year-on-year. PATAMI has been significantly high in quarter one because of a few items of gains from disposal. One is our investments in M1, where we gain MYR 113 million, and our divestment of the non-digital businesses, which gave a profit of MYR 302 million in quarter one. We reported, on reported numbers, one of the highest quarters of profit at MYR 709 million. On normalized basis, after excluding these one-off items, we've seen profit decline from MYR 310 last year to MYR 209 million. Largely on account of two factors. One is, M1 is no longer an associate of ours, we used to get around close to MYR 30 million gain from M1, which has been a negative impact.
Also the fact that we have in Indonesia moved from US dollar loans to domestic loans, where the interest rate in the domestic loans is much higher than the US dollar. This allows us to prevent fluctuations in the Forex as impacting our profit line. Let me go to the underlying performance. I think that's more important because the reported has an impact of some of the one-off items. Underlying revenue quarter-on-quarter dropped by 5%, again, largely on account of devices, which has been down. If I exclude devices, the impact would be around 2% lower, which is just the number of days. If you adjust for the number of days, the quarter-on-quarter revenue has been flat. However, year-on-year basis, we've seen a 4.3% growth in revenue. If I adjust for devices, service revenue has grown by around 5.8% year-on-year.
EBITDA has seen a strong growth in the quarter, with five of our businesses actually showing a double-digit growth in EBITDA on a year-on-year basis. Axiata showed 13% growth, Robi 38%, Dialog 15%, edotco 26%, and Smart 16%. That's been extremely good EBITDA development from these businesses. Celcom has been lower, and the impact has been largely on two factors. One is on account of the wholesale or domestic roaming revenue, which we used to get from DB. That's come down substantially for two reasons. One is the renegotiated contract, which is half of what it was earlier, and secondly, the overall traffic also we see coming down. Second factor which is impacted is on account of some one-off network costs relating to the LTE expansion.
PATAMI quarter-on-quarter up 39%, year-on-year down by around 24%, mainly on account of two factors which I explained earlier. One is the M1 profit, and second is conversion of US dollar loan to local loan in Indonesia. If I can go to the next slide, this basically gives the waterfall on the underlying PATAMI and the reported PATAMI. I think I briefly touched upon the factors, which explains why year-on-year, PATAMI has been down. While we've seen an improvement on EBITDA, it has still an impact coming of the factors which I said earlier, and also the increased D&A on account of prior investments which we've made in the last year. On reported, I think it has been impacted by two main factors. One is the one-off gains from M&A activities and the Forex gain of MYR 79 million.
If I go to the next slide, I think strong cash flow projections. Capital expenditure pretty much in line with the sound rate which we expect, specifically early spends in Celcom, which should give us some benefits during the rest of the year. A strong cash flow, both free cash flow, which is EBITDA minus CapEx and operating free cash flow on account of the tax and the interest. Next slide, [Manay]. Balance sheet remains strong. Marginal reduction in the debt for us, and also on the gross debt and net debt levels. The numbers look a little inflated, including the MFRS adjustment, because under MFRS 16, we have to classify the leases, finance lease, as a debt item, which does take the gross debt to EBITDA look particularly much higher, though if you adjust for that, you've seen that coming down. Fairly good balance sheet.
From a risk perspective, a lot more local currency borrowing than the foreign currency, which does avoid fluctuation, which was, last year we were hit significantly on account of the Forex volatility. We moved to a good balance between the hedged and unhedged US dollar loan. A good cash position, mainly coming from the improvement in free cash flows, as well as the receipt of around MYR 1.7 billion coming from the sale of M1. I have slides on OpCos, only OpCos, but I'll touch upon just two or three of them. First, let me touch upon Celcom. I think we can get into more details in the Q&A section.
I think we've generally seen our industry being muted in the first quarter, and that's very clearly visible from a decline of around 3.6%, and also the impact on account of wholesale revenue, which has seen the industry being on a year-on-year basis. On a quarter-on-quarter basis, we've seen a 4.7% reduction in the service revenue. Let me clarify, this is based on what is the available information. There may be some operators which we have not publicly available information. However, if I go to the right-hand side, I think we've seen a higher decline for us, mainly on account of wholesale, which is the domestic roaming to webe, which has contributed around MYR 60 million drop in the quarter from the last year, same quarter. We've also seen an impact of in-payment because of the MTR rates coming down effective from 1st of January this year.
I'm happy to say that the core revenue, which is both prepaid and postpaid, has seen a positive development year-on-year, which is much better than the other operators in the same space. We've also seen OpEx coming down for Celcom from last year to this year, which is clearly visible and the actions which are being taken to reduce OpEx, largely on account of direct expenses, which is the international interconnect costs have come down. We've seen PATAMI at MYR 140 million. Despite OpEx coming down, we've not seen that positive impact on PATAMI. The reason is the wholesale revenue used to straight flow down as profit for us, which has now come down. Second is the impact of the investments which we've made in the network, resulting into a higher D&A than what we used to have earlier.
I think overall, from an operations core revenue perspective, Celcom has done fairly well, but it's been impacted by either non-core revenue or by one-off elements in quarter one. XL, I won't spend much time because I'm sure you're all very familiar with the XL results. I think a strong performance on revenue and EBITDA compared to the market. I would go to slide number 16, which is Robi performance. I think this has been one OpCo which has really turned around in terms of both revenue growth as well as the EBITDA margin revenue development. We've seen year-on-year revenue growth in Robi ahead of the market growth, which is nearly 11% growth in service revenue, and EBITDA growth of 81%.
81% actually, I would say should be read as 37 because we made some accounting changes on IFRS 15 in quarter two, which if you go back to quarter one, would have been a 38% EBITDA growth from a year-on-year basis. After a very long time since we acquired Airtel, first time the quarter is actually being profitable. We are now running a profitable business in Bangladesh, which had gone down from a good profit before the acquisition because, as you know, we did acquire a business which was a loss-making business. I won't spend time on Dialog. I think again, a very strong quarter for Dialog. Let me touch upon Ncell. Ncell revenue declined by around 5.8%, mainly coming out of the ILD decline, which is expected, and it was part of the plan.
What we've also seen is low growth in the core revenue, specifically on the data, and that's largely because of not much growth on the revenue-generating base in Ncell. One of the reasons for that was delayed investment consequent to the CGT issue, which we had last year. Now I think we've started rolling out aggressively 4G in Nepal, and we should see positive traction on the core revenue going forward. I think good to say in Ncell, despite the ILD revenue coming down, they've been managing to keep their EBITDA margin above 60%, and that's basically resulting in a strong PAT development at 32%. I think the quarter one number has been slightly higher because of some assets write-off, which we reversed in quarter one. Excluding that also, there's been around a 15% growth in PAT in Nepal.
Smart continues to do extremely well on revenue, EBITDA, and profit. Lastly, and if I look at the mobile operations, all operations have done extremely well. Celcom has been muted because of the industry as well as some of the one-off items which we had to deal with in quarter one. Let me just go to the next one. I think I don't have to spend much time on that. Just on the digital businesses, I think the fundamentals are looking quite strong, with growth in the GTV across businesses as well as the, in Boost specifically, expansion in terms of number of customers registered as well as number of merchants active in that place. Next slide, I'll just quickly on infrastructure. I think we've never been very bold on giving all the numbers on edotco.
This is the first time that we've been in the chart explaining it. Good to say that revenue growth of 35% year-on-year across markets. We've seen EBITDA growth of 32% year-on-year, and improvement in EBITDA margin. Adjusted EBITDA is basically to adjust for certain M&A business development activities and on account of employee shares, which is one-off item. I think the underlying improvement is strong. We didn't see that impact as much on the PAT line, mainly because of some of the regulatory costs in a couple of markets, which we've considered in this quarter. Going to the next slide, just a quick reflection on where we are versus our guidance. Overall, pretty much in line with the guidance for the year. This is all on MFRS constant currency basis. The last slide for me is what are the risks.
I think we have seen some unfavorable regulatory issues in the markets, specifically in Nepal and Sri Lanka. Sri Lanka has been largely on account of the floor rate removal as well as loading of the pay-as-you-go tariffs on data. That has some impact, as well as the overall macro environment in Sri Lanka consequent to the events in the month of April. Cambodia, we've seen some electricity crisis, but I think the management has done well to contain impact on revenue. However, this has had some negative impact on the cost line from diesel standby generators, which they had to put in place. Celcom turnaround, I think, while the management has been making all efforts, the industry remains muted. Of course, our still hanging issue on the capital gains tax in India. Opportunity. Indonesia, Bangladesh continues to do well.
We should see a positive year for both these markets unless something exceptional negative happens. Digital business continues to have a strong momentum, not only from a validation of values perspective, but also in terms of the core unit economics in that business. The possibility of higher LNCs in edotco and structural cost takeout. We've been focusing on a few of these areas quite actively, we should see some benefits coming out of those actions being taken. Okay, thank you very much.
Thank you, Vivek. I think pass back to the MC, right? Sorry. Moderator.
Would you like to open for questions?
Yes.
Thank you.
Please go ahead.
We will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key, followed by the digit 2. Your first question comes from Wei Shi Wu from BNP. Please go ahead.
Hello, can you hear me?
[Basir], can you talk a little louder?
Yeah, quite.
Yeah. Okay.
What do you go ahead first?
Yeah. Okay.
Yes, better.
Thanks for the opportunity. My first question is related to the infrastructure business. Can I just check what happened to managed sites in Sri Lanka in the first quarter? It was blank. Related to this business, I noticed that the revenue on a per tenant basis increased quite nicely in the first quarter. I wanted to check the driver for this and also the driver for the EBITDA margin increase for the infrastructure business on a pre IFRS basis. Second question is related to the proposed merger. Just wanted to check whether you have had any engagements with the regulator in Malaysia regarding the merger, based on your recent interactions with them, what do you think Axiata could potentially need to give up in Malaysia for the merger to be approved? Thank you.
Okay. Why don't I pass to the CEO of edotco? He just can't wait to answer your question.
Yes.
[Basir]?
Yes.
I think on the first question, it's just a definitional thing. We were running some managed services with Dialog on towers, we changed the arrangement so Dialog is running that directly with us providing staff to them now in a slightly different arrangement. I think that's more just a definitional question. Impact on revenue is almost negligible, I say. On the per-tenant revenues, are you talking about the last quarter to this quarter? In which case, that's largely driven by growth in Bangladesh and probably in Malaysia and Pakistan. If it's the last Q1 to Q1 year-on-year, then much of that is driven by Malaysia, both in terms of tenants, but also because we've taken on a new business with Celcom, which is the field services team. While that's the managed services, that may inflate the per-tenant view as well, right?
I think that's the high-level drivers.
Okay. On the third question in regards to the direction, yes, we did. In fact, we had a full presentation by both teams, myself personally and the Group CEO of Telenor, together with our respective CEOs, CEO of Celcom and CEO of Digi. I don't want to be presumptuous about what was the direction and what they are thinking. All I can say is that we had a good presentation. They understood the case reasonably well, I hope by then. We talk about the impact to consumer, impact to staff, impact to the industry, and what are your thoughts and our thoughts and the benefits to the country and the nation. That's all I can say for now.
As you know, they came out with the merger guidelines almost coincidentally, it was as if prepared well, way before us, but they kind of accelerated knowing that this thing would happen. Based on that, of course, from our point of view, we believe it's a good case, but like I said, I don't want to be so presumptuous to say, what do they think?
Thank you for your comments. Can I just follow up on the question on edotco? From your comments, it seems like the increase in margin was also driven by this new business with Celcom. Is that accurate? Would it be accurate to assume that there's going to be largely eliminated at a group level because of the intercompany transactions?
Sorry, I'm just trying to make sure I heard your question correctly. Was the margin improvement linked to the managed service contract with Celcom? If that's your first question, the answer is no. That's a relatively low margin business that we do with them. The margin improvements that you see are linked purely to increase in towers and tenants, and that's typically the case across all countries. I think, of course, yes, this intercompany revenue gets eliminated at group level.
Sorry to draw on this, if margin would improve from increased tenancy. I note that your tenancy ratio across the edotco was relatively stable at that 1.6 times in first quarter versus first quarter.
One, it depends a bit on mix. I think you're going to find that the mix of Malaysia and Bangladesh has increased, therefore giving it slightly higher weightage that tend to be relatively higher margin businesses, with the margin in Malaysia also picking up over the year. There's also something which we call loading revenues, and that goes up. That doesn't show up in the towers and tenancies data. It's additional equipment that is put on a tower.
That has really grown year-on-year, very significantly.
Thanks for your comment.
Thank you.
Thank you. Your next question comes from Chong Chan Fong from CIMB. Please go ahead.
Hi. Thanks for the opportunity. A couple of questions for Celcom and then a question for Dialog. For Celcom, the wholesale revenue from TM. Given the drop in the first quarter, what are our expectations on how this revenue will trend in the coming quarters on a sequential basis? Also, I note in the slide that there was a MYR 94 million drop in the service revenue for Celcom. You mentioned MYR 60 million related to the wholesale revenue from TM. How about the other MYR 34 million? What is driving that decline? Second question, can you elaborate a little bit more on the one-off LTE network expansion cost? What is that related to? Is the MYR 35 million a pre-tax or a post-tax impact? Thirdly, on the Celcom staff cost, a fairly big drop in 1Q. Would that be the run rate going forward?
Those are the questions on Celcom. Then on Dialog, you mentioned about rising price competition. Can you provide some additional color as to the magnitude that we are seeing in the market? Has it gotten worse or better after the first quarter results? Those are my questions. Thank you.
Okay. Let me pass to the CEO of Celcom, Idham, to answer your question and together with the CFO.
Hi, good afternoon. This is Idham. I will pass the other questions to Jen, our CFO. A bit on the CM, the drop in revenue was because one is on webe, is because of the rate, but we do expect that this is going to recover because of the 4G traffic that is supposed to be coming in. We expect for it to be coming in by the end of the second quarter. With the new traffic coming in, we expect the revenue will be increased from what it is today. It may not reach the level that what it was in the previous year, but it is something that we see a positive trend will come up from this. I am going to pass to Jen to talk about the rest of the cost that appear in the MYR 94 million drop.
I will answer the first part, which is in terms of the service revenue drop of MYR 94 million, there are two parts to it. The first part, as we have explained earlier, is regarding the domestic roaming, which is the charges that we charge to TM for webe portion of the traffic. The second part of it is mainly derived from the regulated termination rate, which has dropped from MYR 2.92 to MYR 1.96. Effectively, it is close to about maybe 30%. The drop of MYR 94 million, the first part of MYR 60 million is coming from wholesale. The remaining will be coming from the mobile termination rate. The third question that you have in terms of the one-off LTE expansion cost. As you see, the LTE pop coverage that we have, we increased quite a bit in the last couple of quarters.
There are certain one-off expense that we need to incur to do the expansion. This quarter, in quarter one, we have got close to about maybe MYR 35 million worth of one-off expense, and we think that there is going to be a bit more that is going to come in quarter two, then thereafter it should stabilize. In terms of the staff cost, the quarter one number will reflect more or less the run rate that we are going to have going forward. It will be more or less there, but I would not say that is the run rate. Potentially, there is going to be a bit hike.
We have got a one-time reversal in quarter one, that will offset with some of the headcount that is going to be going away because some of them are still in the company until the first half of the year. It will be more or less there, in the longer run, we should see that the run rate should maybe even be a bit lower compared to what we are seeing in Q1. I hope that answers the question for Celcom.
Yeah. Jen, maybe just a follow-up question regarding the LTE network expansion, just to clarify. You're meaning to say that some of these costs were incurred a couple of quarters ago, but then it's all being recognized in bulk in one Q. Is that what you're saying?
A portion of that will be in relation to the previous quarters, to be fair, but there's also quite a chunky part which is actually relating to the current quarters.
Okay. That MYR 35 million, you said that we might still see some one-off network costs in the second quarter, but after that, we should see a reduction in the network cost?
Yes. The one-off should actually go away thereafter.
Okay.
Okay. On the third question, Dr. Hans will be answering the question.
Thanks for the question. As you know, the floor price removed in the fourth quarter. Since then, on the voice side, we’ve seen two rounds of price reduction, culminating in the market tariff structure changing more in the direction of near unlimited voice with data. If you look at this package construct, we would see that taken a hit of close to 71% on a revenue from EBITDA basis, since Q4. I would say that change took place in two rounds, Q4 and Q1. It appears that in Q2 and going forward, there could be some stability because we have hit the bottom, so to speak. On the data side, less significant, 44% on a package basis and around 70% due to the regulator mandatorily bringing down the pay-as-you-go rate to LKR 0.30 per megabyte.
The overall impact here in terms of contracts ARPU base, all customers who had an ARPU of LKR 300 or less, we would see a revenue stability, but the erosion is for the higher segments who would downgrade to the packs of around LKR 300 per month. Overall, pressure on revenue, I would say, with the elasticity impacts coming in as well, would be in the 4%-5% range relative to what it would have been otherwise. Okay, got it. Thank you so much. Thank you.
Thank you. Your next question comes from Srini Rao from Deutsche Bank. Please go ahead.
Hi. Thank you. This is Srini, Deutsche. I have a couple of questions. First, just want to understand the MFRS 16 impact, because there's been a bit of a change in how you have reported. It seems to me, and correct me if I'm wrong, but the maximum impact seems to be for Celcom and Robi. That's number one. Is that a fair understanding of that? Secondly, if the MFRS impact is such that now the depreciation number from a cash flow perspective, actually it's not a non-cash item completely anymore. Is that, again, a fair understanding of the MFRS 16 impact? That's my first question. The second question is, I know you have indicated the MTR impact. Is it fair to say that it was net negative at the EBITDA level based on the disclosure which you have given for Celcom? Those are my questions.
I'll come back from here.
Okay. Srini, let me take the first one, and I can also answer the second one.
Go on.
First one, the MFRS impact is increased EBITDA by around MYR 250 million, and increase in depreciation by around MYR 235 million, at EBIT level, not that kind of impact of MFRS. There is now a new finance cost comes in because this is classified as a finance lease, which is around MYR 50 million. Net-net, we have a negative impact on the profit by around MYR 13, 17, 13 million and post-tax at MYR 17 million negative impact. At the PATAMI level, it's not that big, but it does impact the profit line as well as the EBITDA line and the depreciation line. This does not have any impact on the cash as such. Yes, one can argue when one looks at the OSCF number, you typically do the EBITDA minus CapEx minus interest, and now you eliminate the depreciation item, which could effectively show the cash flow numbers higher.
Anyone has to be adjusting for that because this is really just an accounting EBITDA increase. It's not a cash-related EBITDA improvement. On the MTR, Jennifer?
The MTR, if you look at the impact in terms of revenue, yes, there is impact in terms of revenue. At the same time, there's also impact in terms of the cost. Net-net for EBITDA is almost neutral.
Understood.
Is that clear?
Yeah, that's about it. Thank you.
No, that's all right. Okay.
Thank you.
If I can
Okay, your next question comes from Prem Jearajasingam from Macquarie. Please go ahead.
Hi. Thank you for the opportunity. A few questions from me, please. Firstly, on Celcom. Could I just get an appreciation of, do you think that the issue with Celcom is one of revenues or costs? Because in the absence of market growth, which I suppose we'll have to take as a given, then obviously that cost line is where we seem to be having issues relative to your peers, which explains the big EBITDA margin gap to your peers. What needs to be done, and how long do you think this process is going to take? Do you think that the potential merger with Digi essentially means that everything gets put on a back burner until the merger actually takes place before we actually go and clean things up? That's one. The second one is a bit more macro.
With all these restrictions on Huawei, how has that impacted your network planning, et cetera, across the group? What do you think it means for your CapEx trajectory going forward? Thank you.
Before I pass to Jennifer question on one, the answer is cost. I think revenue-wise, we know what we're doing. I think minus the monthly or weekly hiccup, we're not worried. I think we are on the right track. I think cost, admittedly, is something that we have to work very hard. On with regards to the merger, I think by the time merger happens will be third quarter or so next year. It is too late. We have to do a lot now rather than then. Jennifer, you want to elaborate?
Yeah. I think in terms of revenue, we know that this first quarter, we see a major shift, mainly because of the termination rate. That will actually affect the whole industry. On the same note, because whilst we actually reduce the revenue, it also reduce the cost. Net-net, EBITDA-wise, it should be more or less neutral. Yes, we understand that there is another portion to it, which the wholesale revenue, it will go all the way down in terms of profit. We are still in negotiation with TM currently, before we actually close the deal. The thing is that until we have actually completed the deal, we should be able to see some increase in terms of traffic, as Idham explained just now, to actually nullify some of the impact in terms of the change in rates from TM.
In terms of revenue, the other portion, which is not the core revenue, that is the portion that has got a lot of impact to the revenue. Having said that, for the core revenue, in terms of postpaid and prepaid, we see there's pretty good traction in terms of postpaid. Postpaid, we have been continuously growing, and if you look at this quarter, it's quite a good growth in terms of postpaid. Having said that, the revenue in terms of prepaid, because this is a shorter quarter in quarter one, we see a slight decline. At the same time, we also see some migration in terms of prepaid to postpaid in that effect. Yes, we do agree with you. Revenue is one side of the thing. Cost is something that we need to address.
We know that there's a couple of areas that we're actually focusing on to actually reduce the cost. The main one, I think if you look at the last two quarters, what we have actually done is that we have done some voluntary separation schemes with the employees, and we start to see that the staff cost is starting to decline in that effect. That is one of the major difference between us as compared to the competition. The second piece that we are also working on is that this quarter is actually quite a difficult quarter for us to actually show the results of some of the work that we are actually doing because of the one-off network cost that is coming.
We knew that our network cost as compared to the competition, we are still a lot higher, and hence we are actually putting a lot of focus in terms of that. This quarter, whilst we have done quite a fair bit in terms of reducing the cost, the one-off charge for the LTE expansion has kind of nullified the impact of the cost saving that we have actually done over the last couple of quarters. We are actually very conscious of that in terms of cost, and there's a lot more that we actually have initiative that we actually have on our list for us to actually execute this year.
Thanks, Jennifer.
Did that answer the question?
Yeah. Sorry, I'm going to put you on the spot here. Let's assume the fact that because edotco takes away a fair amount of or adds a fair amount of cost to Celcom which the other operators don't have, and I'm sure there are various other costs that are lumped at the Celcom level in these numbers. If, let's say, our baseline should be an EBITDA margin of 35% versus on a pre-MFRS 16 basis, we're quite a distance from that. How long do you think it will take for us to narrow that gap?
I think in the last couple of briefings that we had, we had a program, a three-year program, for us to actually close the gap. I wouldn't say that we will match entirely, there's a program that we have in place of close to about maybe MYR 900 million OpEx plus CapEx to actually look at the network cost. I think that's a three-year program to actually close the gap in the effect of, I can't remember what the 41st, the absolute amount is about MYR 900 million.
All right. Okay, thank you. Sorry.
I will answer your third question, which was on Huawei. First of all, we believe, after talking to the other operators, many of them, it is more a geopolitical issue related to the trade war. There is no clear indication that there is a real security issue, but there is obviously vulnerability, which we all understand. Consequent to the issues which is being currently discussed in various places, 5G security is still being questioned.
We are not there on 5G at this point in time. From our perspective, at this point in time, there is no real change in CapEx plan. We also understand that the new legislation in the U.S. puts them into the Entity List, the difference between the Entity List and what was expected earlier is that the Entity List is more on purchase, which means they cannot purchase from any U.S. companies unless they have a license obtained. Our understanding on talking to Huawei at various levels, that they have sufficient stocks of spares and equipment to supply to us. We have also been closely working with Huawei as well as internally on doing a business continuity planning, which is basically looking at each and every component of our network and identifying which of those components have U.S. components in it.
We do not see much of it on the renewal on the core network side. Where we do see potential issues are on the BSS or OSS, that is where we are working on different options going forward. We are also actively now pursuing, which may have been done on a slower pace, is looking at moving to a virtual core network, which does allow us much more greater flexibility than depending on Huawei on the core network. There is clear plan being done, developed, but at this point in time, there is no real impact on our CapEx projection.
Perfect. Thank you very much.
Okay.
Thank you.
Have you asked your question, Prem?
Yes, thank you, Tan Sri. Thanks.
Sorry, we can't hear you.
Yeah, we can't hear Prem.
Oh, yes. That's fine. Thank you.
Your voice is breaking, Prem.
Oh, really?
I believe Prem is finished answering the question.
Yes.
Thank you. We will now take our next question from Alex Goh from AmBank. Please go ahead.
One second.
Yeah, thank you for the opportunity. I have one question on Celcom. It's regarding your postpaid segment. I noticed.
Alex, can you hold on a second?
Yeah.
I think the problem will be on our side now. We can't hear you or Prem. Sorry.
Hello, can you hear me?
Oh, yes, I can. The line is quite bad. We can't hear Prem just now towards the end, and now we can't hear you.
The moderator, can you speak so that we know where the problem is?
Can the moderator speak and say something?
Yes. Bear with me for just one moment as we try to reestablish a better connection. One moment, please.
We can't hear you.
Hello, can you hear me?
No, we can't. It's breaking up very badly.
Please bear with me for just one moment as we try to fix the issue.
Just hang on, yeah? Just hang on.
Ladies and gentlemen, please stand by as we reestablish the connection with the main speaker. Mr. Goh, you may proceed with the question once you are connected again. Thank you.
Okay.
Okay, please go ahead. The lines are open. We were in the process of taking a question from Mr. Alex Goh from AmBank.
Okay, thank you so much. Yeah, I have two questions. One is on Celcom. I have noticed your postpaid subscribers, if I were to compare from the fourth quarter of last year to this quarter, first quarter, it has actually declined by 10,000. That has come after the previous four quarters of increase. I am just wondering, has the trajectory for the postpaid segment, has it turned around? I mean, in the sense that has the competition reached such a point where your traction of gaining new subscribers is tapering off? That is my first question. The other question is regarding the merger with Telenor Asia. I appreciate the fact that it is difficult for you to give clarity at this point in time, but is there a possibility that you may need to go on a dual brand strategy like XL situation?
could you also need to give up some of the spectrum?
Okay. The first one?
I'll take the first one. Hi, it's Idham here. Yeah, we see a slight dip on the first quarter, I wouldn't call it as a trend, because what we did was, in the first quarter of this year, we slowed down a little bit in terms of selling the devices for the postpaid. It's also we also saw a shorter quarter, shorter number of days. We were very aggressive also in the fourth quarter last year. It is not a trend, and we foresee in the second quarter, this is coming back in terms of postpaid. Even though the subscriber has gone down, our postpaid revenue has actually increased by about 7%. Yeah.
Okay. On the second question, well, yeah, it's very premature to mention anything about dual brand or whatsoever. We have not even had a detailed discussion with the other side. We will be looking at that as a possible scenario and also a one brand scenario. Both will be in contention from an execution perspective. In terms of spectrum, yeah, I said too early to say too. We believe we have a case to say that in terms of per megahertz per person, per subscriber, we are still low in spec, then again, we are too premature to comment beyond that. Sorry about that.
Just go back on the postpaid segment for Celcom. I understand that your revenue has gone up, but does that mean the deduction in some of your postpaid numbers in this first quarter, was it due to some legacy numbers that are non-performing, that's why your revenue was able to grow?
I think Idham.
Okay. I'll take it. Yeah. Well, we have some legacy plans. Also, we was also seeing the churn that has gone out also more from the lower ARPU customers. What I didn't mention earlier is also includes some of those really low ARPU in terms of the M2M postpaid devices that was using our services. That's why you see a decline in terms of number of subscribers or number of users, but that's why you see also the increase in the overall revenue.
I see. Okay, great. Thank you so much.
Thanks.
Thanks, Alex.
Thank you. Your next question comes from Ranjan Sharma from JP Morgan. Please go ahead.
Hi, good evening. Thank you for the presentation. Just one question from my side. Coming back to the Huawei question, and the impact on network rollout and architecture. Because of U.S. putting Huawei on an Entity List, does that have any implication whatsoever on your merger plans with Telenor because of the way the networks might have been formed or the partnerships with Huawei? Thank you.
No, there's no bearing whatsoever in our merger with Telenor actually. It's not even in the consideration.
Okay. Thank you.
Thank you.
Once again, if you wish to ask a question, please press star one on your telephone keypad. We will now take our next question from Srini Rao from Deutsche Bank. Please go ahead.
Hi. Thank you very much. Srini here again. I just wanted to ask on specific markets, actually. First, if I can start with Robi, where you mentioned that in this quarter's potentially a tipping point. Could you actually suggest what, are you seeing revenue share gains? From what I can see, it probably has come from the number 3 player. Correct me if that's wrong. Again, some commentary on the competitive landscape in Bangladesh would be helpful. Secondly, on XL, at least seems that XL has reached some level of an EBITDA, which is higher than what it has shown the trend rate over the last almost three, four years. Any feedback on the Indonesian competitive environment also will be useful. Thanks.
Okay. Hans, perhaps tell about Robi.
The competitive landscape in the first quarter, the main characteristic, the main difference from previous quarters was Robi's very efficient customer acquisition strategy, which resulted in a reduction in customer acquisition costs and elevation of EBITDA. In terms of revenue market share gains equal measure for both GP and Robi, and you're correct that on a year-on-year basis, it was at the cost of the third player. We've seen the third player being quite aggressive towards the end of the last quarter.
Okay. Vivek, on the second question?
I think XL actually performance has been good, you are right. We are going on the much higher EBITDA levels. I think this is also consequent to some of the cost initiatives which they run. Fair to say that there will be some fact coming on the new managed service which will kick in in quarter two with Huawei, which will have some negative impact. I think we also now seeing some uptake on revenues ex Java actually translating into the improvement in EBITDA. Large contribution actually is coming from the fact that we are seeing a top-line growth in Indonesia. Competitive landscape, I think it remains still difficult. We've not seen the kind of investments which the other operators have said they would do actually on the ground yet.
there have been far more aggression on customer acquisition by some of the operators. I think competitive landscape still remains tough and a little bit unpredictable in Indonesia.
Thanks. This is helpful. Thank you so much.
Thanks, Srini.
Thank you. As there are no further questions at this time, we will now pass the call back to Tan Sri. Please continue, sir.
Thank you very much. Thanks all of you for joining us in the first quarter results announcement. Please, as usual, if there are other further question, we'll be so happy and so glad to respond to you through our IR organization. Thanks again, and have a good evening.
This concludes today's call. Thank you for your participation. You may now disconnect.