Earnings Call: Q2 2018

Aug 24, 2018

Ladies and gentlemen, thank you for standing by and welcome to Axiasat Group's 2nd Quarter 2018 Results Briefing. Throughout the presentation, all participants are in a listen only mode. There will be a presentation followed by a question and answer Firstly, Treehousekeeping rules, please mute your phone during the presentation and kindly avoid using wireless headsets. Also note that the call duration will be for a of 90 minutes ending at 6 pm. I would now like to turn the conference over to your speaker today, Anne Sri Jamaluddin. President and group CEO. Thank you, sir. Please go ahead. Thank you very much for the introduction. My name is Domal. I'm the group CEO. I'll be presenting together with my group CFO Vivek. So we'll go straight to the, slide one flight to weather. And I guess the adjusted intro This has been one of the most eventful quarters in so many ways of 1st and foremost, of course, idea finally where the stage where we reached the final regulatory approval for Vodafone idea merger. And from our point of view, it will be the the major cut off point when it comes to our accounting treatment. Again, Vivek will explain in more detail. The all of course, it's very hard to find all our codes to outperform their India recycling markets. Typically, we have 2, 3, a majority of them doing very well, but this time around all performed very well from EBITDA and revenue perspective. Out of which 3 performed the best in the industry. 1 of the best news, although in a small way, but in a big way in a sense that it's a big validation of our 3 core 1 of the 3 core ADS or digital core verticals, Sumitomo invested about 20,000,000 in our analytics data advising company implying a valuation of $109,000,000. Like I said, although the amount is small, given where we have been and what we're doing in the advertising area, which is probably one of the largest in Asia. Has been a major validation for us. And the good news is that we are back to after 2 years of a muted dividend. From a DPL perspective, we are moving to expect towards the 85% So we are very committed for that for the full year, but for the interim, we are announcing My apologies for the short disconnectivity. I must have said something wrong, but let me try again. Let me go straight to Slide 3. Which was when I believe when we got cut off. Slide 3 shows the reported financials or the statutory numbers But as you can see, all these numbers have been very much clouded by so many, the one off and significant transactions that made it very hard to understand the underlying performance. Namely, if you look at idea itself, there are 3 aspects technical impairment, which is to the tune of $3,400,000,000 loss at the dilution itself because we didn't participate in the rights issue or the placement issue that amounted to 358 accounting loss. And of course, the operational losses of 95,000,000 in the year to date. At the same time, there's a major Forex translation on average 10% ringgit against the other the other currency within the footprint and the Forex loss. And actually, the most complicated once the accounting changes due to MFRS 159, where in general, is helped in the revenue but hurt the EBITDA. And there are many other one off items. So to really understand the underlying performance, if you can turn to page 4, It shows our real actual underlying performance. As you can see from this chart, our revenue grew Q on Q3.8 percent Year to date 5.1% on EBITDA. EBITDA grew 5.6% year on year, Q on Q and year on year 4.6%. And the margins are quite an improvement from $36,500,000 to $37,100,000 improvement on a quarterly basis. Normalized PATami, however, There's a drop of 22.5 percent Q on Q and 24.1% year on year, which will explain shortly. As you can see from the notes below that the what is interesting is that the we have revenue gains in all our markets, all the sixth market that we operate in with Sarcom excel dialogue performing the best in the industry on a Q on Q on year to date basis for revenue. Many of them performed very well too on the EBITDA on EBITDA level. The digital investments fortunately has helped the revenue growth although in a small way, 0.3% by diluted EBITDA growth by 1.7%. And in terms of losses for the year, year to date, it was to the tune of $180,000,000 loss. Due to our investment in these digital businesses. The cost optimization program, we delivered 1,400,000,000 to date sorry, on target to deliver $1,400,000,000 to date with the first half reaching $800,000,000, both CapEx and OpEx. Our balance sheet remained very healthy fortunately. We have also, as you can see, mentioned above, provided for the idea related sorry, the recognition of idea from associated simple investment and provided for $3,400,000,000 just for the technical impairment. And from and from 16 August onwards, we will cease to do any more accounting equity account. As I mentioned earlier, one of the best news for the quarter is the investment of $20,000,000 from Sumitomo into ADA, our digitally by advertising company. Mitsui also exercised the next 10%. As you know, the are currently the owner of 10% of Smart, but they have exercised their call option for additional 10% at 92,400,000 taking a stake now to from 10% to 20%. Unfortunately, the order has been delayed again and again, very unfortunate. We were expecting them to be completed in the 1st quarter then 2nd quarter and looks like it will be completed more toward September. Lastly, we've declared a $0.05 dividend, possibly think back to 86 DBR, very much the bringing back our commitment to 85 percent DPR for the whole year. Let me pass to Vivek to explain the details, especially with regards to the normalization of autonomy. Let me just step back to the slide number 4, which is what the entry has completed. You will probably then look at the numbers we reported last quarter versus what we are reporting, this quarter underlying performance you would see a differential of last quarter. We reported 195 as a normalized Permian versus 306. What we've done is to make the run rate comparable, we have excluded the operating losses from or gain from our reported number because as Sanji said, this is discontinued business. There's no further impact for us coming from idea. So we will continue to exclude that. That's why the quarter one number now looks like 306, because there was an operating loss from idea, which we had consolidated And in quarter 2, there's actually a positive effect of 20,000,000, which should be read as 257 if we want to look at like to like based on what we reported. So on that basis, it's actually 21% growth But given that we are now excluding IDM, the normalized Pottami looks like negative 22% degrowth. Let me come to, I think, given there has been so much of impact of the translation and some of the other factors, slide number 5 kind of gives a bridge between what is the underlying performance last year same period, which is 1st half versus the underlying performance in 2018. We had last year $779,000,000 to $85,000,000 coming out of the EBITDA improvement over last year. However, that's been more or less offset by the increased depreciation, consequent to the last couple of years of increased investment. We are not much concerned about this, given that this is clearly to get the network superiority in all of our markets. That's what we've been focusing on. There's a 1 off, 54,000,000 tax, which was a credit in 2017. And then, the investment increased investments of $135,000,000 at Pattami level impact coming from the digital businesses. So that's kind of a bridge between the last year performance first half versus the underlying performance versus the first half of this year. If I switch to the next slide, starting with each of the off course with first one, Cellcom. I think we are extremely pleased with the good execution of strategy and performance of Cellcom. Where we have seen us gaining 3 percent quarter on quarter service revenue and 2.8% on total revenue much ahead of the peers in the market. And we've also seen this quarter and 2nd consecutive quarter a positive development on net adds in both postpaid and prepaid business and also an improvement in the ARPU reflective of our strategy. You're focusing on high value customers. So you've seen a postpaid ARPU on last year versus this year, moving up 5 ringgit and prepaid moving up by pouring it. But I mean, you would see a negative impact compared to last year, largely on account of the around $140,000,000 gain we got last year in Cellcom because of sale of 11th Street, which is more an internal movement from, from Cellcom into Exyatta. At a group level, there was no impact because this was, eliminated. However, from a Cellcom standpoint, we did show a profit last year because of sale of 11th Street in first half of twenty seventeen. And as far as the again, the impact this year is also on account of tax, where we have actually settle tax claim with the tax authorities here in Malaysia However, at the group level, again, this did not have an impact because there was a liquid provision available. But from a perspective, there is a $44,000,000 negative impact coming because of the tax settlement. I think key focus for cell comm, while on the top line, has been a good performance, key focus going forward is really on cost takeout and rationalization spend to improve the EBITDA margin. If I can go to the next slide, I think Excel, the transformation strategy has been working well. We've been a much better position after same registration compared to the market. We've seen a positive growth in revenue as well as EBITDA for a year to date basis compared to the market which has seen a high single digit D growth during the same period of time. And I think we continue to position ourselves as a very strong data player where the 73% of the service revenue is actually coming from data. And when we compare our data users, we are our share is much higher than what the other operators have. I think the positive news is while SIM Registration is behind us, I think we were able to get around 97% of our customers who had registered as part of the same legislation back into our network. So the loss, which has happened from the existing portfolio of customers has been very, very small, for XL. And we continue to expand our footprint in 4G in different markets, Java, which is also giving us a much stronger growth in the market. If I go to the next slide, dialogue strong performance overall on each line of business as well as on revenue, EBITDA and PAT. And I think we are gaining market share across a in Sri Lanka. So I think extreme, good performance, and we expect that to continue during the year. Robbie, we as you know, we got the license for 4G in February this year. After that, we've been extremely fast enrolling our 4G network. We've already touched more than 7000 base station covering nearly 70% of the population on 4G. And that's been reflective of our growth in service revenue by 9.4%. And also, the overall profit improvement, EBITDA improvement, which is nearly 39% on a year to date basis. If I can go to the next slide? I think we have seen improvement on revenue at 4.9% and EBITDA has been flat However, this is despite a 16% drop in ILD revenue. As you know, ILD 95% of the revenue comes as EBITDA margin. But we and in line with our plans, we were at we expect the ILE revenue to come down. However, we are happy that the it's been offset with a strong mobile revenue growth which is 12.3% and EBITDA growth of 10.2%. And I think the end sale despite the ILD revenue coming down, maintains an EBITDA margin of 63% and we have a beginning of the year been able to take out around $208,000,000 of dividend from NSAID. If I go to the next one, which is Cambodia, I think we are seeing some bit of stabilization of price war in that market, which has resulted in growth of 11% quarter on quarter in revenue. We've also seen on a year to date basis, the growth of, I mean, flat revenue growth. But from on a quarter on quarter basis, we've seen a positive trend. However, EBITDA has been in impacted largely on account of new regulatory charges specifically the revenue share, which has gone up from 4% to 7 person. We continue to have a good strong data growth and we've also launched our fixed broadband proposition in in Cambodia early days, but that's something we would track very closely And I think, Mitsui did exercise their call option, which was available for them, for 10% which also suggest strong our commitment as well as performance of the business, which reflects as interest from its way. If I go to the next one, which is on E.co, E.co contributes around 7.5% on revenue. And EBITDA continues to show a strong revenue growth of 12.2 percent EBITDA has been impacted mainly on account of some of the charges leading to the acquisition, which we are pursuing in Pakistan. And some of the charges relating to the new licensing requirement in Bangladesh. Otherwise, on an underlying basis, EBITDA is also showing a positive trend. When it comes to tenancy adding strong development on tenancy to nearly 1.6 compared to 1.47. The other being delayed contrary to our expectations because of regulatory hurdle as well as a delay because of the elections in Pakistan. We are hopeful to resolve this soon and we have still a long stop date of 14 September, which has been extended. Digital businesses as you know, we are focusing on 3 verticals in digital businesses, boost, which is the financial services wallet in Malaysia has been doing well. We've got now around nearly 3,000,000 customers registered around 35,000 35,000 merchants on this wallet. And we are by far the largest at this point in bank terms of registered customers. ADA, which is the digital marketing business, has been expanding well and has also been, has secured, as Panchi said earlier, investment from Sumitomo, which basically reflect a strong commitment to this business. We've also been in the process of nationalizing of our non recourse. As we said earlier, our focus will remain in the 3, services and with this data, advertising, digital marketing and the platform is Apart from that, we are spending a base of monetization. And we have, Asia, I think you covered early in the only one thing that I would have is that by taking a decision of deconsolidating idea and converting that into simple investment, we would not see ongoing P and L impact into the results coming from the performance in India. And as you know, the market still remains fairly volatile. In the Indian space. M1, we continue to follow this closely. It does contribute still to profit and dividend. However, we are cognizant of the fact that there would be a 4th operator coming in shortly. But M1 has been preparing to deal with the increased competition. If I go to the next one, which is on the capital expenditure, I think pretty much in line with the guidance we had given on CapEx. So we may be slightly marginally shorter, short of the CapEx but we will continue to have this focus months and in line with what the plans are. However, increased CapEx in quarter 2 is reflective of lower cash flows in this quarter. The next slide, the financial numbers, as balance sheet continues to be strong, marginally impacted by the fluctuation in exchange rate between operating currency and ringgit. Consequently the EBITDA on actual reported numbers has come down and that's reflective of, that's reflective of gross debt to EBITDA. Marginally moving up, but we stay remain strong as far as the cash position is concerned. And I think also from the risk because of the exchange, it's it's around 22% of our loan, which remains exposed. And we continue to monitor it very closely with the developments which are happening in the international market. If I go to the next slide, What air we are trying to explain what would be the KPI adjusted if we exclude Diodar. At the moment, we're still confident of closing that, but we are assuming other point in time, if it does not happen, what would be the adjusted KPI number? And similarly, the impact of technical impairment on idea being excluded. So we based on that, we all look at our revenue to be in line with the guidance. EBITDA would be marginally below the guidance. ROIC would be below However, the ROCE and CapEx will remain in line with the, with the guidance we are given earlier. So if I come to the last slide, I think we see opportunity in Indonesia and Cambodia, Indonesia mainly because of now same registration being behind and XL has been fairly doing well in relation to the market. I'm just seeing some immediate short term increases in prices in Indonesia. Hope that continues. And if that, we should see a positive, landscape in Indonesia market. Similarly, Cambodia, I think Cambodia went through a fair price war over the last 3 to 4 quarters. However, last quarter, as we speak, we are seeing a little bit stability on prices which should see a positive impact. And we've also seen that in the last quarter numbers. Sri Lanka and Nepal continues to do well. So I think we expect that moment to continue. However, I think we have to be wary of the risks associated with currency and interest rate volatility in markets, specifically Sri Lanka, Bangladesh and Indonesia, There are regulatory uncertainties in Malaysia, especially with respect to the SSD, which will be imposed from September. We are also concerned about the extent of enforcement on synchronization that will happen in Indonesia. And that may, if that is weak, that may bring back the industry to to a situation, which is pre same registration, which may not be good for the industry and for Excel. And the last bit, I think we will continue to rationalize our non core digital portfolio. We do not see as we speak major impact. However, we will have to be we have to take into consideration any, any new requirements which come into or if potential losses, if we have to. Rationalize this portfolio. So that's it for me. Thank you. Okay. Thank you Vivek. So we are now opening up to question and answer. You. Your first question comes from Chung Cheng Phong of CIMB. Please ask your question. Hi, thanks for the call. Couple of questions from me. Firstly, for Cellcom, If I look at the prepaid ARPU, it's rising on a Q on Q basis over the last two quarters, a couple of quarters. And on a growing stock base, So I appreciate you could give us a bit more color as to what you're doing there to drive this solid performance. And secondly also for Cellcom, can you also give us an update on the competition post the second quarter any impact from new mobile, new mobile's recent unlimited offers? And then another question on costs, Can you also explain to us the drivers for the increase in staff costs Q on Q whether there were any one offs there as well as the direct expenses, which were down Q on Q, what drove that as well. Yes, I'll leave that here and I'll come back for more questions. Michael? Yes. I'm taking one by one. So the first one is PPIT ARPU, apple rising quarter on quarter over the last two quarters. In fact, yes, and this is due to a very, conscious pricing policy coming out with new packages promoting upsell on the packages. It's one of the key parameters that we are following up and I'm happy to see obviously that it works out. And the second one, competition I obviously, there is an impact from the your mobile unlimited offer, but it's not at the scale where we would possibly think it should be. And that is due to the fact that I think we have competitive offers as well, which deliver enough gigabytes for customers to be happy. And so we don't see a major impact on this one. Next one is increased in staff costs. I think This is the one off, there was a one off in Q1 which brought the stuff cost down was a reversal and this basically normalized on a normalized base. There is no increase in stuff cost really. Quarter on quarter. I hope that answers the question. And for comments, Eric, expenses, it was down Q on Q over the last two quarters. Is that seasonal or is that a trend that we'll see direct expenses continue to come off into the second half of the year? No, I think if I may, Michael, I think Q on Q, we've seen direct expenses coming down because we corrected one of our ILD products, IDD products, which is Asia Pass, which we have reduced increase the price or reduced the offering ahead, which was in first quarter. Had an impact of nearly $30,000,000 to us in Cellcom, which has now been removed in quarter 2. And we would expect that to continue the same. Yes, we'll continue. Okay, got it. Thank you so much. Your next question comes from Arthur Pineda of Citigroup. Please ask your question. Hi, thanks for the opportunity. A number of questions for me, please. Firstly, on the Roby performance, it seems like the revenues were up 1% but EBITDA was maybe 38%. I'm just wondering what's driving this, is there any cost items that you reversed? 2nd question I had is with regard to the dialogue call earlier. I'm just wondering how do you see the removal of the price floors that's impacting revenue momentum? Third question I had is with regard to the digital loss. Sorry if I misheard this. Is it $118,000,000 or $118,000,000 as of the first half? And are you keeping the $200,000,000 loss that you're expecting that you've guided earlier? Next question is with regard to the DADAR Towers What's pushing the delays on the deal? Is this merely procedural or is there risk that this may actually not push through? That's all for now. Thank you. Okay. Let me answer the second part question and then I'll pass to Mary Talkdown. You want to answer the first two questions, yes? So on the 3rd question, it's 180, not 118, all right? And we were trying to cap it to between 200 to 150 for the rest of the year. On the 4th question, it's mostly procedural as you know, there were a couple of changes at the regulatory level, change of the chairman of the commission And then, and of course, the election and change the government has been solving our approval, I guess, at this point in time, We do not foresee. We'll be we do foresee that we can close it by end of this quarter. So, Doug Hodge? Yes. I'll take the first question, sorry, take the first question on Roby's performance. Multiple contributors to the increased inhibitor. Revenue has been growing very significantly as we would see. But even more so, the synergies from the merger coming through, lot of costs coming out of the system. And same lifting or the acquisition costs, has been reduced during the same period. So multiple contributors, but these 3 would, I believe, account for a major part of the BTEC loan. Sorry. Sorry. Sorry. Because when I look at the revenues for Roby, it's only up around 1% Q on Q. But you're seeing nearly 38% rise in EBITDA. Is there any adjustments done on the expense side? No, no adjustments. There are no one offs, but the same lifting, the aggression on the SIM cards going out into the market to drive gross additions is down very significantly. 3,500,000,000 dollars, $6,000,000,000 on a quarter to quarter basis. Understood. On Sri Lanka and the removal of the flow price, Yes, it's a significant event in the market since the floor price was introduced somewhere in 2010. However, over this intervening period tariffs themselves have gone down very significantly. And therefore, how much further targets, especially in the data, tariffs which are more relevant today could go, is a key mitigate to an aging impact of this. However, I think it's very early. We would be able to comment more fully on the next call. Understood. Thank you very much. The next question comes from Pran Dara Jazigan of Macquarie. Please ask your question. First of all, with Cellcom, you've shown a pretty good performance, but one thing I noticed is that data consumption of your subscribers has jumped very considerably. My concern here is, do we think we are spending enough on CapEx at Cellcom to support this growth? Or is there any other mitigating factor which would allow you to continue at this rate of growth on the data traffic? Secondly, with NCELL, again, you've done well despite the ILD revenue declines. Could you remind us what ILD revenues were as of the first half as a percentage of total revenues and also as data consumption rises in Nepal, what are you are you concerned with either revenue growth or margin softness as of legacy revenues with data. And finally, in both Dialog and Rovi, again, data revenues are still sub-one third of revenues. As those networks again get rolled out, are you concerned again with revenue and EBITDA trajectories going forward? Thank you, Fran. Michael, the first question? Yes, in fact, data consumption is on the rise. That's not the first time it actually we can see that over the last nearly 2 years. And if you look at competition, I'm it's comparable, so we are not far off others in the market with it. Obviously, yes, you are right. We have to spend quite an amount on capacity enhancements. And we are doing this. So it's catered for in line with the planning and I don't see any major issue coming out of this. Yes. With respect to Enso's ILG revenue, the as a percent of total revenue range between 26% 30% during the first half. And the question on whether data consumption drives us, whether data revenue growth would stop versus IRD. I guess the effects we're seeing are of transition of ILD traffic on to OTT services, as well as overall higher degree of price competition on the termination rates. So it's 2 impacts, not only the OTT impact. So, we would drive data growth nevertheless and the domestic revenues are moving very well in Nepal. The strategy of compensating for ILD through domestic revenue growth, both data and voice. Has resulted in the overall performance of the company. You're not concerned with EBITDA potentially coming down? No. We, Umita would continue to go because as domestic takes over from ILD. Prima, I think just to add what Doctor. Anshul saying, yes, we would expect EBITDA to come down over time, but I think, which is part of the plan, in Nepal, However, we are seeing the good development on the core revenue to more than offset the impact of, ALD margins ILD revenue coming down, which is positive, but it is obviously from a long term perspective, not sustainable. So we would see as the data consumption increase, data realization is also coming down, which will have an overall impact, but I think Dave to say that it is much looking much better than what we would have anticipated. But just to add to that, we do from a margin perspective because ID has very high margin relative to non LID. Obviously, you should expect margin to compress over the next 2 years. And that has been affected. In fact, our business case when we acquired this company is primarily on the fact that ILD will go down and significantly and margin will go down, but still a very good business. I mean, we actually started when 40% of our revenue used to be ILD. Now it's actually down to 26 So it's not the exposure has come down. However, as a company, they've still been holding on to 60 three-sixty four percent margin. Good question. Doctor. Hi. This data revenue data revenue as a percentage of total revenue would continue to increase in dialogue and Robbie. ILD is not a significant play in Rabi due to the fact that termination rates are fixed through the interconnect provider. However, in dialogue, it is very significant. We do expect international revenues to fall in Sri Lanka. But, with the very healthy growth in data, revenues, the EBITDA growth trajectory is, we are confident to maintain EBITDA growth. Okay, perfect. Thank you very much and good luck on growing that and sell EBITDA going forward. Your next question comes from Gova Kumar of Nomura. Please ask your question. Thanks, Rafiki. Firstly, on Cellcom, your revenue momentum is pretty good, but the OpEx seems fairly elevated. Going forward, are there opportunities for material cost savings or should we expect the EBITDA margins to be at these levels? Second is a follow-up on digital business losses. Is there any way to give or do you expect for the losses of this business, maybe in a slightly more medium term, say, for the next couple of years. Next is on Rovi. Obviously, the benefits on the cost side is coming through, would you expect further improvement in EBITDA margins or on this business? And also, can you remind me what's your current expectation for profitability for this business. Last year on NCELL, not sure if I heard it incorrectly, but can you confirm if you said that you expect EBITDA to decline for this business? Thank you. Okay. Let me answer the question, except for number 3, Doctor. Hans will then I'll go the other one. For number 4, we're looking EBITDA margin to decline, not necessarily because of the a huge margin of IRD, which is obviously in the training. And then the other than IRD, of course, the margins much lower still pretty high, but lower than IoT. So margin as a percentage will go down, but margin absolutely should be quite stable. The first question actually is a far reaching question. I wanted to answer because from a strategic perspective, the last 2 years, our focus, because our revenue engines kind of broken down back in 2015 2016. So the main focus has been to repair the revenue engine quote unquote. It involves product services, building out a better network and revamping the distribution was also broken down quite badly unfortunately. So that we have done most part maybe not quite all or most part And that has improved quite a lot. Now during the process, of course, from a CapEx in OpEx has been more than what it has increased, right? So the coming into the future, we probably have to shape gear a bit where the focus on costs will take us equal emphasis and revenue. If I were to put in the right word, a profitable growth as opposed to just our revenue growth. And hence, you can expect margin to increase maybe not dramatically, but on the it will increase more gradually. We have done a lot of things this year. You will see some benefits coming on next year. So we are very confident that we'll increase both the margin and margin percentage. For example, the cost program that we are undertaken across the whole company, from network to other areas will a lot of the benefit will come to next year. One of the things that you will see are fairly significantly is our work on the right sizing. We have done under leadership of Micah. We have done a major revamp this whole year to ensure that we have a very high productivity next year in a form of rightsizing, our monitor will be given but you can expect, that the HR cost as a percentage of revenue should, should reduce quite significantly. Among others, those are the plans that we plan to make. So I hope I'm going to take a question from a more technical and strategic perspective. The focus will shift slightly from an equal focus on both revenue growth and profit growth. On the second question, we no, this is very much affected. In fact, I mentioned much earlier last year, our plan is to kind of look at the investment to the tune of 200000000 to 250000000. And of course, $180,000,000 doesn't mean that we multiply by 2 for the full year. We are kind of tapering off. Now the good investing of ideas the more sectors we have, the more losses we will achieve, we will experience. So we are, at the same time, very guarded not to overdo this, So there'll be a cap somewhere. Net net, we don't expect, next year to have the same kind of losses, perhaps more than the same. And of course, from then on to be better. So this and perhaps this year, next year will be our peak from then on, we expect to do well. In fact, most of the 3 businesses that we are focusing on right now will be neutral PAT neutral in the year 2020 onwards. Thank you. Thanks. We have on the 3rd question at all times. Yes. On question 3, there are some of the margin synergies still ahead of us. We should reach mid to high 20s in terms of margin this year. In terms of profitability, we need to push profitability or bottom line out to next year. Driven largely by the increase in interest rates in the local market by a very significant shift from 6 to 7% all the way to plus 12%. Thank you. Your next question comes from John Mung of Virgin. Please ask your question. Hello. Hi, and thanks for taking my question. My question pertains to Robi as well as dialogue. On Rovi, I wanted to hear from you what you think the likely impact will be of the recent uniform rates that were introduced in the market. How do you see this impacting on Ruby's voice revenues going forward? And on dialogue, could you kindly repeat what sort of impact you're likely to see from the recently introduced regulatory changes, mostly on the removal of the flourish? Thank you. Doctor. In Robbie, I believe you are referring to the unified rate for boys. This would broadly favor Robi, because we are a challenger in the market and the incumbent does enjoy a large on net advantage So under the circumstances, any unification of the flow rate or the recommended rate by the regulator, would move in favor of the challenges. Okay. In dialogue, the impact of the flow rate, as I said a little earlier, It's very early days it has just come into force. The flow rate, as you know, was introduced in 2010 during a price for or in the aftermath of the price. So Tariffs have themselves gone down significantly since then both voice and data and data in particular. Which is the source of, competitive activity right now is pretty low at, around $0.80 on incremental basis. So yes, there would be heightened competition, but dialogue given its very strong market presence, coverage as well as market share, would I believe be in a strong position to bridge this challenge. Okay. And finally on Rovi, given, are you intending to maintain the same momentum on marketing and advertisement spending? Or will you look to cut back cut down on this to lift margins going forward? Yes. The 4G launch took place earlier this year. There has been increased marketing and promotion activity naturally. With the new service and also the opening of several new coverage areas, Ruby, now completing with the incumbent across most territories using on the 4G network. Obviously, this would be moderated going forward. Since the launch is behind us. Okay, sure. Is there a particular timeline, whereby you'll start moderating this cost? No, we'll go with the market. No specific direction of guidance we can give on there. Okay sure. Thank you. Your next question comes from Srini Rao of Deutsche Bank. Please ask your question. Hi. Thank you very much. Two questions, sorry to be on Rovi again. I just want to understand the impact of the merger with Bharti. We haven't seen the revenue line go materially. I mean, I'm kind of looking at, say, 2Q 2017 levels versus the current numbers. And your market share gain also which you have mentioned has been in like low 2% odd. I just want to understand what, I mean, the consolidation of Hati's revenue should have been a larger impact, or am I getting it wrong? The second question is on EBITDA margins. You were in the past, and again, in 2016, you had 32% out of it's come down. When do we see the benefits of merger and going back to at least, I guess, the pre merger EBITDA margin levels? So that's the question on Ravi. On NCELL, I mean, the question is that, yes, you have maintained the EBITDA margin despite the fall in ILD. Would that mean that the data pricing has been managed in a manner, which remains slightly elevated and hence there is a possibility of that pricing coming off sharply in the future? Those are two questions. I'll come back for more. Thanks. Okay. So let me start with Robi. There has been a discontinuity in the accounting for device sales, commencing this year. So what there are 2 impacts, you have you're probably seeing them mix the revenue growth in service revenues, which is at around 9.4% and that is largely driven by the 4G services. And also the year to date service revenue market share effect has been recorded at 28%, up 1.9 points year on year. Certainly, impact of the device revenues coming off and being accounted on a net basis has signed up diluted at an accounting level diluted revenue growth. Does that answer your question? Yes. Service revenues grew by 9.4%. Okay. And that wouldn't that be higher or shouldn't that be higher given that when you took over RTed had approximately 10% share, I believe, or have you got the numbers wrong? Yes. Post merger, our estimate that is that market share over and above the addition of the market share pre merger is a little over 1.5 points. As of today. Yes. The second question on EBITDA margins. That's a dilution, obviously, due to the margin of the merged entity. Meaning Airtel had a much lower margin as a point of merger. There's also the carve out of the towers which took place around the same time. Today, we are targeting around 25% to 27% margin by year end. And, to reach pre merger levels, we expect that to take place earlier in the course of next year. Thanks. Thank you. Yes. Encel, as I think Hans, we also explained, the EBITDA margin, no doubt, would dilute over the ensuing period due to the high margin international services being replaced by lower margin domestic However, at an absolute level, we are confident to hold out in terms of absolute detail. Because of the very significant market power the company has announced the performance on the data side we're seeing right now. Is pricing elevated slightly higher than other countries in the region yet, but there's a graduated or calibrated aggression that will take place in line with market forces. And we don't see the current level of data pricing to be in terms of maintaining absolute EBITDA. One more question on dialogue. Both the tower tax and the removal of the floor pricing, should that should be a positive for dialogue, right? Because you are the number one player there and you have almost 75% revenues which are on net. So really the floor pricing should be, I mean, both his moves are positive for a larger player in the market. Is that a fair assessment? Yes, you're right, because there has been no decree on unified pricing. The removal of the flow pricing does be much more freedom to the incumbent. Okay, understood. Thank you. There are no further questions at this time. Will now pass the call back to Tantry. Please continue, sir. Well, thank you very much. Okay. Apparently, there's one more question. At the moment, there's no questions in the queue. Okay, sorry. Thank you very much to everyone for joining us for the second quarter results. And any more questions as usual, please refer to to me Vivek or our IR team. Have a good weekend. Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.