Good afternoon, ladies and gentlemen, welcome to the conference call. Today with us, we have Mr. Albern, Mr. Nakul, and Winnie. Please begin, I'll be standing by for the Q&A. Thank you.
Good afternoon, Jeffrey. Thank you for the introduction. Good afternoon, everyone on the call. Thank you for taking time with us this afternoon. With me is Nakul, the CFO, Winnie, the IR head, and also a representative of management. Let me just introduce two that might join us in the conversation with the Q&A, which is Loh, the CMO, and K. Sri, the CCO. Let me just get started. Just wanted to give you an overview of Q4, also start off by giving you an overview of the performance for the full year. Let me just start off by giving you a quick overview of full year 2018. It's been a strong and a good year for us. We're happy in terms of what we've delivered, mainly on shareholder's return.
If you look at some of the details in the deck that you have, I just want to point out a couple of things. Firstly, on postpaid, we took postpaid revenue to a 14.8% growth. Internet revenues, very strong subscriber internet users at 500,000 subscribers, an increase of it. That took internet revenue to close to 20% growth. EBITDA margins improved by 2.4%. On the efficiency, we've talked to you throughout the whole year, also from 2017 in terms of the structural changes that we've made on efficiency. We continue to deliver on this pillar and flat OpEx for 2018 as reported. CapEx, we invested in MYR 685 million for 2018 as to the guidance. Looking at LTE, specifically on 4G and LTE-Advanced, coverage at the end of 2018 at 65% and 89% on 4G LTE. We've spoken a lot about MyDigi on the digital transformation.
MyDigi closed the year at 3 million subscribers, more importantly, closed more than 85 million upsell transactions on the MyDigi platform. Digital distribution, you've seen us in a recent announcement that we've taken a number one position on both on Facebook and Android. We would like to think that some of the digital transformation, the things that we've done in the year, the structural changes and the model changes, has helped us hold the number one position on Net Promoter Score for 2018.
Let me now move to fourth quarter 2018, with some specifics on the numbers. For Q4 2018, postpaid revenue was 15% year-on-year. Internet revenues 13.7%, EBITDA year-on-year has also improved by 2.2%. You see improvements on the OpEx, which is 0.8 lower OpEx. We've also seen significant improvement across our channels in improving efficiency and targeting our customers and our customer segment.
We see a 12% improvement in sales and marketing efficiency. We also have seen a rapid growth on 4G subscribers, taking the total slightly shy of 8 million subscribers. Digital transformation, I touched on the one item here that we are also now exploring is to take education to a broader number of students nationwide through the JomStudy program, and later this quarter, we'll come up with more information on this. Let me just break it down in terms of the areas that we focused in the fourth quarter. In the area of core business, we saw more conversions from pre to post, mainly on the entry level. We also saw higher ARPU based on a couple of campaigns that we've run.
For example, on borderless or on roaming packages that we have now been pushing on the market, trying to take a roaming position and also on plan upgrade. We also see an increased contracted base with the launch of our flagship PhoneFreedom 365, and we'll cover that later. On MyDigi, the active users is very promising, and what it shows us is that the 20% increase year-on-year, but what it's been probably a change from user behavior is also when we launched Box of Surprise and the rewards on this platform as well. The base is not only an active once a month, but they're extremely active, which is close to 10.7 times a month on mobile. Digital distribution, something that Digi started in the industry. We are now working with two new methods of trying to do that.
One is on mobile data management on Android devices, and the other one is making purchases on these devices much easier. On connectivity for 2018 in the last quarter, we also tried moving into two things. One is both pilot on Wi-Fi, trying close to 270 plus locations where Wi-Fi is available and also worked with TNB on the Jasin home fiber PoC. Let me just take you one more slide before I hand over to Nakul. Just very quickly on the internet.
I touched a little bit on the coverage that we've taken on 4G LTE and LTE-Advanced. Fiber, we have passed now 8,400 kilometers of fiber. Data traffic, we see a 58% year-on-year growth and 11% quarter-on-quarter. Same thing on 4G Internet subscribers. That growth continues with close to 8 million subscribers on 4G, and the monthly data usage is slightly shy of 10 GB per user.
Nakul, can you just walk through the next slide, please? Thank you.
Right. Thank you so much, Albern. Gentlemen, I'm going to take you through the next slides, give you a roundup on fourth quarter, and just briefly touch upon how the 2018 has been for us. Slide seven. If I speak about the postpaid, we added 75,000 customers this quarter, and our subscriber base increased up to 2.8 million as at the end of the year. With the internet penetration standing at a healthy 89% at 2.5 million customers.
We actually continued to grow the entry-level postpaid segment from a pre to post conversion. We also continued to drive ARPU through higher ARPU plans, whether it's the SIM-only plans or the ones which are linked to devices. We also introduced the easy device ownership through the PhoneFreedom 365 program. As a consequence, the postpaid revenue grew 15% year-over-year, and a healthy 4.2% QoQ.
Coupled with the internet revenue grew a healthy 26.1% year-on-year versus the same quarter last year. Rounding up the year, this has been the best postpaid growth in 2018, which is underpinned by solid acquisition momentum and stronger base management efforts. As you can see, the 2018 has also witnessed close to a 15% growth on postpaid business as a whole. The quarterly performance continues to be the annual performance for us, as far as postpaid is concerned. As I move on, the next slide, we speak about the prepaid. We did continue with our good efforts to strengthen the prepaid and internet adoption, and also the usage, as far as our subscriber base is concerned. We have an ever-increasing internet subscriber base to about 6.7 million, which is approximately 75.3% of the prepaid base.
The prepaid internet revenue increased 2.8% year-on-year and almost the same percentage QoQ. Although the growth has been challenged by intense data price competition and the abundant data offers that are there in the market. As a consequence, the moderating demand for prepaid legacy services and the steady conversions to postpaid has led to a 12.6% reduction in prepaid revenue year-on-year. If I look at 2018, the decline did narrow to an 8.5% versus the 12.9% that was there in 2017.
On an overall basis, prepaid was better as far as 2018 is concerned, but we do continue to see data price competition and abundant data offers in the market. If I move on to overall roundup on the service revenue. There was a marginal sequential growth of 0.5% on service revenue, leading to a MYR 1.48 billion number.
As mentioned, this is underpinned by solid postpaid growth and steady ARPU development at MYR 41. Like I also mentioned, this is challenged by the decline in the prepaid legacy services and the internet data price competition. Consequent to an increase in data usage to 9.9 gigs per customer, as Albern mentioned. Along with the healthy growth of 4G subscribers to 7.9 million, we did deliver a double-digit growth again in 2018 of internet revenue of 13.7% and 3.9% quarter-on-quarter. The prepaid service revenue, as mentioned, and the impact on mobile termination rate, was substantially mitigated by the solid growth on the postpaid and also on the internet growth. As a consequence, the service revenue remained resilient at MYR 5.92 billion for the financial year 2018. I move on to the operational efficiency areas for us.
If you look at the cost of goods sold, this is the next slide, which is slide 10. The cost of goods sold have increased 4.8% year-on-year and 18.2% QoQ because of the surge in demand for contracted device bundles and also the new PhoneFreedom program that Albern had briefly mentioned about. At the same time, the gross profit growth remained quite solid at 1.1% year-on-year and at 3.3% quarter-on-quarter because our rationalization efforts on the subsidy front. We continue to focus on operational excellence, which has contributed to an OpEx reduction of 28% year-on-year, approximately 33.7% of service revenue. The more important part is that we have spent a lot of time and effort and resources in 2018 to develop new digital capabilities, and at the same time, we still manage to keep the OpEx flat.
Which also reflects our solid cost management efforts and operational efficiency across the different cost elements, whether it's sales and marketing, network, or IT operations. I go further down into the P&L. Our EBITDA rose 2.2% year-on-year and 2.8% QoQ at a 44% margin. The EBITDA for 2018 also increased a similar percentage to 2.4%. Our profit before tax improved 9.4% year-on-year and 4.2% quarter-on-quarter, which was aided by modest depreciation and a steady finance cost of MYR 29 million for the year. This result has been consequent to a healthy growth on EBITDA. Our PAT remains steady at a 23% margin, which is up 6.9% year-on-year and 4.6% QoQ. Further down, slide 12, on the CapEx, we continue to invest to expedite network deployment and also capacity upgrades in preparation for 2019.
As has been our focus over the last years, we always look at the end of the previous year and the beginning of the next year to try and maximize how we want to invest into our network to grow profitable businesses for that specific year. As a result, the CapEx investment was about MYR 230 million for the fourth quarter. The CapEx for the whole year was within the guidance of the 11%-12%. We ended the year at 11.6%. Because of the high CapEx spends this quarter, the operating cash flow, which did improve by 6.2%, we ended up at a 35% margin for entire 2018. Slide 13, further on, the EPS after accounting for the MFRS 15 impact, which I'll briefly touch upon in a subsequent slide, stood at a healthy MYR 0.049.
The board of directors declared a fourth interim dividend of MYR 0.048 per share, which is equivalent to MYR 373 million, payable to the shareholders on 29th March 2019. With this, we round up 2018 with a cumulative dividend of MYR 0.196 per share, which is 4.3% uplift of the dividend of MYR 1.52 billion for 2018. The net debt to EBITDA ratio remained at a healthy 0.8 times, while the conventional debt over total assets is steady at 21%, well within the Shariah threshold. The next slide talks about the impact on MFRS 15. As you can see, the impact of MFRS on the quarter has been a reduction in service revenue of MYR 45 million, almost compensated by an increase in device revenue of MYR 40 million, and an increase in OpEx of MYR 2 million, with a net negative on profit after tax of MYR 7 million.
We've also indicated the full impact of 2018 as far as MFRS 15 is concerned, it is included in the table below. Net, the impact of pre versus post MFRS is a MYR 78 million improvement in our net profit. My last slide before I hand it over to Albern. 2019 is going to witness an adoption of MFRS 16 and also we're going to see an MTR revision. However, for the purposes of easy comparison of financial statements, the 2018 will not be restated and all communications regarding to the development will be based on the old accounting principles. Financial statements of 2019 will be based on both old and the new, which is going to facilitate a comparison as far as our underlying performance is concerned.
You will also note that there is a 33% reduction in the termination rates in 2019, which we've already factored in as far as our guidance for the year is concerned. With this, I hand over to Albern to take you through the rest of the presentation.
Okay. Thank you, Nakul. Just allow me to take you away from the financials and numbers for a few minutes. I just want to talk to you a little bit about things that we have done beyond just the core part of the business. Starting off with JomStudy, which is a partnership with Astro and Media Prima. Together with the Ministry and MDEC, we've taken the possibility of reaching children and school-going kids that don't have access to either tuition or extra classes, but are able to get good content, education resources via the mobile phone. This has been made possible through a good collaboration and partnership with the partners that I mentioned.
Also on reducing inequalities, we have taken a program that we launched in Q4, to drive digital resilience by providing awareness to students on internet safety, but also reducing inequalities by providing future skills and learning opportunities for youth and Malaysians in general. On the next one, I also want to just announce the changes in the Digi management. As you have seen, we announced to Bursa the changes of CFO. With me today, Inger is also present to meet the team and officially start later. I will hand over to Inger in a few minutes. Before I do that, I also want to just recognize my appreciation for Nakul, who has had to make a tough choice of returning back home and family.
He's definitely going to be missed by Digi, and I know all of you on the call have also interacted with Nakul many times in the last two years. Nakul, thank you very much, and maybe just a few words from you to them, and then Inger.
Thank you so much, Albern. Thanks to everybody. I've loved every bit of the last two years that I've spent with this company. It's been fantastic running and working with all of you, and the size of the company that we are. I'm happy that we end the stint at a high with the good results of 2018. I also want to personally thank you, Albern, for the support that you've given me during this tough time over the last year or so. Over to you, Inger.
Thank you, Nakul. Hi, everyone. I'm really looking forward to working with you in Digi and look forward to meeting every one of you on the call as well eventually, hopefully face to face.
Good. Thank you, guys. Just allow me to wrap this up with two last slides. One is on the priorities for 2019. On the slide, you will see that the strategy continues to be the same with a little bit more emphasis on a couple of areas. The growth that we look at is based on existing customers coming into 2019. Base management increase in ARPU levels and also focus on ensuring the customer's connectivity is met. We will continue to drive postpaid growth. Also, as mentioned before, building new inroads into B2B and SME, while deploying network with the best internet experience across LTE and 4G. We've done well on efficiency for the last couple of years. We intend to keep that focus and momentum on efficiency just as we do on growth.
That will also allow us to free up money that we need in terms of investment and to grow new areas and additional areas as well. On the organization, we will continue to focus on the culture of the company, which has been the DNA and a big part of the success of the company, and continue to build talents to ensure that continues going forward in 2019. Just allow me one last slide on the wrap-up here, which talks a little bit about the sustainable growth in 2019. But allow me to just look at 2018, what we have guided you previously. Service revenue is +0.2%. It closed at MYR 5.924 billion. EBITDA margins are at 46%, and CapEx to service revenue ratio ended at 11.6%. For 2019, on the service revenue side, we have provided the board a pre and a post MFRS for you.
On the service revenue side, our ambition is to maintain it around the 2018 level. On the EBITDA, we aim to keep it at low single-digit growth. On CapEx to service revenue, we intend to keep it at the same range that we have guided for 2018 as well, which is 11%-12%. With that, we conclude our presentation, and we open for Q&A. Jeffrey, over to you to help us manage the questions and answers. Thank you.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one. Our first question comes from Arthur Pineda from Citi.
Hi. Thanks for the opportunity. Several questions, please. Firstly, is it possible to elaborate on the cost savings initiatives? I see in your guidance, you are expecting revenues to be flat, yet EBITDA to increase. What other items can you actually extract more efficiencies from? Second question I had is with regard to spectrum. Any expectations on spectrum assignments and the timing, based on your dialogues with MCMC? Last question I had is with regard to network capacities. I noticed that you have kept your CapEx at 11%-12%, but we have seen data volumes balloon significantly over the last year. Is this 11%-12% sustainable for you into the long run? Thank you.
Thank you for your question, Arthur. This is Nakul. I am going to take the first one, and the next two will be taken up by Albern. On the cost-saving initiatives, I think, quite proud to say that we ended 2017 with a 3% reduction in OpEx. 2018, like I mentioned, was relatively flat. Yet, the more important part for us has been that we have invested into the business at the same time. As far as OpEx saving initiatives for us is concerned, the main focus that has been for the last few years and is going to be going forward as well, on how we digitize our core business. By digitize our core business, I mean by digitizing our sales, by digitizing our service channels, and also by increasing the digital solutions that we offer to the customers.
All of these initiatives help us in managing our cost base. For example, help us in reducing the cost of the call centers, which has seen a reduction of close to 50% over two years. Obviously helps us managing our cost levels better. The kind of improvements we've seen on MyDigi, which has three million customers today, obviously helps us in actually delivering to our ambitions in this area. We also look at a lot of other elements as well. We have a host of initiatives. Some of them are on the lines of reviewing our sales and maintenance contracts and trying to negotiate with the vendors as well.
We did also announce that we introduced a new operating model sometime in Q2 this year or in 2018, which was basically building on a future-proof, data-centric network operating model, which obviously gives us tools and capabilities, but also helps us in managing our cost levels much better. We also did see that the sales and marketing costs were reducing by 12% in 2018. We've got good proof points to indicate that we have done well as far as our operational excellence program is concerned, and we believe that we're going to continue to work on it in 2019.
Okay, I'll just answer the other two questions. One was around spectrum, and the other one was around CapEx, and how we are able to stay efficient on CapEx. On spectrum, there has been no change from the previous update that we did in post Q3 call.
However, discussions continue to be held with the ministry and with MCMC. We have been kept informed and in the loop. We're happy with that progress. On the network and CapEx investment, yes, you're right. There is the increase in volume of usage and customers in terms of capacity requirements. We are very confident that we feel that we have the right CapEx levels to support that growth, and we also feel that the sourcing capability that we have, both as Digi and being part of Telenor group
Are we able to scale the benefits from that. We also believe that we will have dynamic effects. Even when we need it, we'll be able to look at it. Hence why the guidance is between 12%, which we feel is efficient.
Understood. Thank you very much.
Thank you.
Thank you. Next question comes from Wei Shi Wu from BNP Paribas.
Hello. Hi. Thank you very much. My first question is with regard to the prepaid data dynamics. You mentioned that the competition has been quite intense. Can you give us a little bit more details as to what changes in data dynamics happened in the fourth quarter for the revenues to be flat on a year-on-year basis in the fourth quarter? Related to this, I'm just trying to understand the apparent gap between the company's ability to combat competition in the postpaid segment where you've been relatively successful versus the prepaid space, which continues to decelerate. Any sort of thoughts around that would be appreciated. Then, second question is with regard to cost. Can we expect more O&M cost savings in 2019? Presumably, the cost savings that materialized in 2018 was due to the transition in your operating model.
Can we expect more synergies to be reaped this year? Finally, in terms of the guidance, I noted your comment that the guidance takes into account the reduction in MTR. In the absence of the MTR reduction, where do you think your revenue growth could potentially be in 2019? Thank you.
Okay, thanks. My name is Lo. Back to the first question. I think on the prepaid dynamic, it's not necessarily in the form of the pricing, but it's really a lot of the data allowances that we've been giving in the form of free data. Also, there's a lot more choice now as well, with this free data allowance from Wi-Fi. I think all these are part and parcel impacting the monetization of the prepaid. Again, if you look at our developments, you can't just look at free and post as a separate. I think you should look at it on totality. As what Albern and Nakul have mentioned, while we are moving a lot free to post now, if you look at the prepaid internet development, we are happy with the progress and just to see some signs.
What it means is really while we are moving free to post, we also start to look at the new segment in the prepaid. These are mainly on the migrant segment, internet is more and more relevant. At the same time, there's still occasional or nomadic users where not necessary they will commit with the post-paid plan, but these are the people who come in and now buy data. This is really linked back to part and parcel of the digitization activities and the Box of Surprise. How do we continue to churn out relevant offerings to monetize the data?
All right. Thanks, Lo. Hi, this is Nakul. I'm going to try and answer the second and the third question that you have. On the O&M cost savings in 2019, I just want to caution here that the savings that we are getting on O&M are not solely as a result of the new operating model. Like I mentioned, we run a lot of initiatives to manage our cost much tighter and much better, and this is one of the many that we are doing in each of those areas. I guess you're alluding to the fact that the O&M cost for the fourth quarter is slightly lower as compared to the other quarters of the year.
I would also like to say, some bit of it is also linked to some of the OE initiatives that have had an impact from the cost for the previous quarters, and hence the cost for fourth quarter looks artificially low. On our ability to maintain these run rates and work on efficiencies in 2019, like I said earlier, we believe in running a very structured cost program. Our cost initiatives are such that help us in giving recurring benefits and structural benefits going forward. That has been one of the mottos of this company on how we can look for very sustainable avenues to reduce our costs. Which in my view, is going to continue as far as 2019 is concerned.
I cannot give you a number here if you're looking for that, because we don't guide on specific elements of our costs, but we speak about an overall cost program, and we do guidance based on the EBITDA and the top line. Your next question on the revenue growth, if it's not for the MTR, where it is going to come from? I think what has worked well for us in 2018 is what we're going to concentrate on as far as 2019 is concerned as well. The growth definitely is going to come from our existing customers, where we'll try and upsell them with higher value price plans. We're going to try and see how we can sell them devices, get them into a bundled program, use our PhoneFreedom 365 initiatives and so on. The next definitely is also going to come from growing the internet.
I think we also spoke about the fact that the internet consumption has been increasing over a period of time. We believe that though there are some challenges on internet monetization, especially on the prepaid, but we are well positioned in terms of how we can get the maximum benefit out of it. That is going to be one more growth engine for us for 2019. Last but not least, we have spoken about the B2B segment. We also believe that the next level of growth opportunities are going to come from B2B. Like we mentioned in the past, we are underrepresented in this market on B2B, and that is one untapped potential that Digi is currently working on. The fact that we have been quite effective and efficient in terms of transitioning from a prepaid to a postpaid operator.
We entered the year 2017 with a negative 5%, and we end 2018 slightly better than flat. We believe that we are well positioned to run transitional initiatives in the company, and hence we are betting on B2B for our growth for the future.
Thank you very much for your comments, all the best to management, old and new.
Thank you.
Thank you. Next question comes from Srinivas Rao from Deutsche Bank.
Hi, a couple of questions, thank you very much. Nakul, best of luck. I understand some constraints on your behalf. First, on the termination rate, will that have an impact on margins going forward? Are you a net interconnect payer, I would imagine? Any cuts should have a positive impact, if at all modest. If you can just a comment on that. Second question on the overall revenues itself for the sector and for you. Sector revenues do not seem to be growing almost at all, give or take. What's your outlook for the sector? Within that, how is the competition shaping up? Clearly we haven't had, at least it looks like, any major competitive impact of the TM's launch. On your thoughts on someone like U Mobile would be helpful. I'll come back for more questions.
If you can just talk about these first. Thanks.
Thanks, Srinivas. Thanks for the nice words. I look forward to speaking to you later as well. As far as your first question on the impacts on the margin on account of MTR, I'd like to say that there is an impact on revenue and there is an equivalent impact on cost. The net effect on the margin is insignificant for us. You don't expect an increase or a dilution in the gross margin as far as the MTR rate reduction is concerned. On the sector revenue not growing, I'll pass it on to Albern to comment.
Srinivas, hi, how are you? Just on the question that you had in terms of overall revenue and the sector, I think we're actually quite positive on 2018, seeing that we had come from a bad or negative previous years to where we are today on service revenue, and also on the margins. While that took a lot of discipline in terms of how we execute on the products and pricing, it actually required us to be even more disciplined on the channels and distribution, and in terms of how we actually do the efficiencies in terms of driving that growth. You could see that we had intentionally moved to a postpaid. We had gone into pockets of prepaid where there was still growth for us. At the same time, openly doing pre to post migration and movement strategically.
That has paid off for us. I think competition will always be there, and I think we have our own strategy in terms of focusing on the segment. Hence why we will continue our focus as guided on postpaid. B2B, as Nakul and Loh mentioned, will be future growth. But there's also an element of increasing usage of our existing customers, which I believe is still there for us. That comes from moving them up onto upper levels, moving them into roaming plans, growing them into new devices and larger data consumption packages, which we will see an increase on. For me, competition is not just on price and packaging, but really competition is really how we engage, how we provide customer experience, and also how we reach out on the channels. For us, we have our plans quite clear.
Understood. Albern, this is very helpful. Two more questions. First, what is your estimate for the addressable B2B market? We have a broad number for the mobile market in Malaysia, and probably a very small percentage right now is enterprise. A, what is your sense of the addressable market for enterprise? B, does the change in the regulatory framework for access to fiber, does that help? How do you view that in the context of your B2B, or that's not really important for you at this stage?
Srinivas, I'll take those two together. First of all, I wouldn't give a breakdown of the SME and business revenue per se, what I can say are a couple of things. They are the slowest in terms of adoption of internet on SMEs in Malaysia. There's still a huge opportunity for the SMEs to run business in a digital format. That includes services like tracking, sales force automation, sales force management. Many things that require the whole supply chain to move into a digital way of doing business in Malaysia. That's something that the government's pushing, and that's something that we also feel now is timely. The opportunity there is quite huge. As you know, Malaysia, 70%, 80% of the business revenue comes from SME. There is a huge upside there.
Digi has always had a position in SME on the mobile line, where we see opportunity and growth is now coming from the digital or the data internet line. I think that's where we will see subscription and take up increase. To answer the regulatory part of the question, on fiber. Yes and no. I think regulatory decisions that' be taken on fiber will ensure that there is increased number of businesses that move onto fiber. I don't think the SME or business space is very different from consumer space. You see more Malaysians using internet on their mobile, and that's their first gateway into the internet. I see that as also the same way that SME and businesses will move in. When I talk about businesses, I'm not talking about the few of us that sit in corporate buildings in two market centers.
I'm talking about the majority of Malaysians that are neither SOEs or small, medium businesses between 50- 100 employees. That's where the opportunity is.
Understood. This is helpful. Thank you so much. I'll come back for more questions later.
Thank you.
Next question comes from Prem from Macquarie.
Thank you for the opportunity. Few questions from me. Firstly, if you could talk about your broadband plans. I noticed this comment around working with Tenaga in Jasin. What has the experience been, and do you think there's an opportunity for you to grow this part of the business even further going forward? That's one. Number two, I note your comments in the slides where you talk about postpaid ARPUs from new additions are MYR 5-MYR 10 higher. Could you talk about what's happening there? Is it that people coming onto the network because the average usage is already going past those basic plans, and therefore they're going for bigger plans? Or are you attracting the higher end of the market, which naturally has a higher ARPU? If you could talk around those things.
I would make this comment that your 11%-12% CapEx to service revenue number seems very efficient. Do you think there's any risk to this number from a regulatory perspective if there was a greater emphasis on QoS? Do you think there's a risk that this number will have to move up over time, or are you comfortable with this over the medium to long run? Thank you.
Hi, Prem. Thank you for the questions. I'll split up the questions between me and Loh and Nakul, so in that order. Just on the question that you had on the pilot that we did with TNB, and whether we see fixed broadband as something that we want to go into. This was a pilot, and the pilot was with TNB. We saw that as a good opportunity to actually do two things. One is to try and see what it would take to get onto the regulatory changes that we've seen now on fiber. The second one is to actually take the pilot as a learning to see and do a proper assessment whether there is some form of a business opportunity that we would like to evaluate. Our position is still in discussion. It's just started.
We will come back to this call in future to make a clear stand in terms of whether we see and whether we will be part of it. As of now, we are treating it as an opportunity. We're looking at the new regulatory frameworks that have come out on fiber, and we're evaluating it as we do with any other new technology opportunity in the market space. Loh, maybe you want to take the next question.
I think if you back to the question on postpaid ARPU, really, there's a few components here. One is when the customer moving from a pre to post, and if you understand, I think postpaid is almost like always on, right? When you're always connected to the network, and then the tendency to use is always there versus postpaid. Naturally, when you move from a pre to post, you are always connected, and that as a result you would drive more. We move into the postpaid. Also with this postpaid, it come with a different device bundle. I think the device will also play the role how you consume the data. This will contribute to the ARPU. One last look at our average reserve gig per user is growing a lot more healthy, and now it's peaking at 9.9.
I think this also going back to how we package the product and the ability to monetize. I think these are the three factors that will continue to work on and to drive the ARPU.
Yep.
Hi, Prem. This is Nakul. I'm going to take your third question. This is on the CapEx. It's quite obvious that we are probably one of the more efficient in the market as far as CapEx spends are concerned. I just also want to put it on record that we are amongst the best in the market as far as the 4G LTE penetration is concerned. We are close to a 90%, and the LTE-Advanced is actually sitting at a 65% with a fiber footprint at 8,400 kilometers. We've demonstrated the fact that even though we spend between 11%-12%, we are right up there as far as the network performance is concerned.
What we regularly shout out is that we want to be the most consistent network in Malaysia, which means that we want to give 10 megabits a second to the customers 80% of the time, and we also want to make sure that 4G is available 80% of the time for the customers. This is the mindset with which we invest into our network. If there are bits and pockets where we feel that we will need to invest a bit more to give a better quality to the customers, we take those bets and we invest in those areas. If 11%-12% may fall short of that particular range, then we look at dynamic CapEx, as have been mentioned, to invest in those specific areas for us.
Albern also did mention earlier that we take a lot of synergies as far as the global procurement is concerned. Like we've mentioned in the past as well, there is a procurement company that does the sourcing of procurement in Telenor for all the views, and we get a huge benefit on economies of scale. That fact definitely helps us differentiate from the market. We're going to be consistent as far as the network promise is concerned.
Yeah. Thank you.
All right. Thank you very much. Good luck, Nakul.
Thanks, man.
Thank you. Our next question comes from Alex Goh, AmBank.
Yeah. Thank you very much. I've got three questions. Your notes mentioned that you are not going to, in fact, account the MFRS 16 for leases. Could you give us a bit of a guidance? Would it be significant to 2018 numbers if that were to be applied? That's my first question. The second one is regarding the broadband that you are looking into in terms of opportunities. The MSAP involves freeing up fiber, and it includes, I think, even the backhaul fiber. I'm wondering, is that a new business opportunity that you're also exploring? I'm just wondering, how big is that market if you were to be involved in? My third question is regarding the cost initiatives that you are doing. I've noticed there were significant reductions in terms of your O&M, the traffic costs, and as well as the sales and marketing.
I'm just wondering, internally, what sort of KPIs have you come up with in terms of Are you looking at 5% or 10% reduction this year? I'm just wondering how do you measure the reductions in terms of those particular markers. My fourth question is regarding the challenge on the postpaid segment. We've seen some of your peers coming out with prepaid Postpaid plans at MYR 30 for unlimited data. I'm just wondering, is that going to put a lot of pressure on your postpaid segment in terms of the pricing and in terms of the permutations that are going to come up later this year? Thank you.
Thank you for the questions. Alex, this is Nakul. I'm going to take the first and the third. Albern will take the second, and Loh is going to take the fourth one. On the first one, you spoke about the MFRS 16 and the significance of the impact for our 2019 numbers. Actually, like I mentioned, we'll use a prospective method to account for this accounting standard. Then next week on Wednesday, we're going to organize a session in our office to give you a brief of how this is going to be implemented in 2019. I don't want to spend too much time as far as MFRS 16 is concerned in this call. I hope you don't mind.
Let me just take the third one first, and that's on the O&M and the sales and marketing and the traffic costs and how do we measure them. Our fundamental is very, very basic here. We are working in a structured way to digitize our core business. Whatever KPIs we define to digitize the core business, whether it's reduction in call volumes, whether it's monthly active users, whether it's digital sales, whether it's a digital service to the customers, whether it's how much of our transactions are going through the cloud, and so on and so forth. Those are the KPIs that we measure. We don't set our eyes on an X% cost reduction because we believe that a top-down ambition there without granular KPIs or key drivers is not the way to run a structural cost initiative.
Hence, we break it down into those elements, that's how we deliver cost reductions in different areas, please note, without compromise to our growth ambitions. I've mentioned in the past, cost reduction is as much in the DNA of Digi as growth is. The fact that we don't compromise on either of the two for the benefit of the other is seen in our numbers as well. The second one, let's let Albern.
Alex, I think the question is on broadband, whether we see an opportunity on backhaul fiber. Certainly is an opportunity, I think the way we've been doing backhaul fiber and fiber deployment for Digi is, one, is to do it on our own. Two, we do it through partnerships, we announced that with Telekom before. The fiber that we have is backhaul mainly for, right now, for sites to ensure that there's capacity at the site level are able to take the traffic. It's tapping into the backhaul. We will evaluate it, when we see at appropriate level that we see there's the opportunity, we will also evaluate that fully.
For now, we are just waiting to ensure that we are able to serve what we need for our mobile space. Loh?
On question number four, again, I think price is important, I look at the internet market, what drives consumption is more than price. I think really today, if you look at the device and the rich content, that really drives the consumption. Customer will continue to consume more. The question here is really not just about price, it's a lot more about experience, especially in the postpaid market. If you go deeper into the postpaid segment, there were different needs, they will consume different content with the different devices. Again, I think we believe here is, yes, price is important, it's even more important that we continue to work on the right packages and the experience that will continue to help us.
Okay, thank you.
Thank you. Our next question comes from Foong Choong Chen, CIMB.
Hi. Thanks for the call. Three questions from me. Firstly, on the cost front, I saw a couple of movements in the key items like staff cost, provisions, and also, I think in the deck, you mentioned professional fees to strengthen digital and distribution capabilities. Can you sort of provide a bit more color on that, the movements QoQ, and whether there are any one-offs there or is this going to be the run rate going forward based on maybe your new operating model? Also just to clarify on the O&M question earlier on, would you mean to say that the 4Q 2018 level is the sustainable level going forward and the third quarter was the one where it was artificially high because you had some costs related to OE initiatives in that quarter? That's my first question. Second question on the prepaid side.
The business still looks fairly under pressure. Appreciate if you could give us some idea on outlook on the prepaid revenue going into 2019. Thirdly, on the postpaid side, very clearly, you guys are doing quite well migrating pre to postpaid in terms of the subs base. But regarding new customers that you're looking at in the medium to higher ARPU range, are we gaining share from other competitors? Yeah, those are my three questions. Thank you.
Hi, Foong Choong Chen. This is Winnie here. With regard to the staff cost that is a little bit higher in the fourth quarter, that's kind of one-off in nature. It's a provisional catch-up for the full-year cost. I think for assessment purposes, it'll be better for you to take the whole year to project for 2019. Yeah.
Yep.
The next question on the O&M, which seems to be the hot topic in this call. I think I would also recommend let's not look at the cost for the fourth quarter here, because like we did also mention, there are some elements of one-off in nature. Our endeavor definitely is to run the structural cost program from one year to the other. Hence, even on O&M, the advice would be the same to look at the whole year trends because like you also mentioned, Q3 was abnormally higher as compared to Q2, Q4 is lower as compared to Q3. Let's look at an overall trend for the full year rather than looking at the cost for the quarter. It is quite clear that our structural cost program covers all elements of cost and nothing is left unturned there.
Okay, thanks, three and four.
Getting back to your question number three, again, I don't think we can just look at pre and post separately. We really need to look at from a totality point of view. As we just covered earlier, as and when we move from the pre to post, obviously, then there will be a new segment within the pre, mainly the migrant segment, as well as the more occasional users that did not necessarily commit. Their user behavior and how they pay and how they consume will be very different. I think if you look at 2018, our MI development, both pre and post, I'd say, I think we are happy with what we have done so far. It's the right strategy.
Again, if you look at the totality, as and when we move from the pre to post and within the postpaid, that is a totally different activities that focus not just on the pricing, but is really focused on upgrading them with the device bundle as well and also offer them the right quota for the right segment within the postpaid. I think holistically, if you look at a lot of this, we have seen it in 2018. All the revenue is flat. We are happy with the MI development. Even the stock development on the combined basis, I think we are happy with the development. Okay, just one more point on the high ARPU segment. That is really a lot to do with what we are working on now with the device bundle as well as the B2B segment and what has.
Okay, got it. Thank you so much, and good luck, Nakul.
Thanks so much.
Thank you. Our next question comes from Nazari from Capital Dynamics.
Hi, good afternoon. Just have one question. Speaking upon the B2B before, you mentioned you'll be targeting the small SMEs. May I know the reason why you wouldn't want to target the enterprise? That's all. Thank you.
Thank you for the question. We didn't say we didn't want to target the enterprise. Actually, we would welcome anybody to move over to the Digi network. On B2B, we actually see SME as an underserved area, where they're actually transforming and transitioning into internet data, bringing borderless into their business. Malaysian SMEs doing a lot of businesses in the region, and data roaming are all becoming relevant to this group of potential customers. Hence why we take those focus on B2B, particularly SME. For enterprise customers, we are definitely working and having our base, and we continue to grow both enterprise and SME customers. Hope that clarifies it. Thank you.
Understood. Thanks.
Thank you. Next, we have a follow-up question from Arthur Pineda.
Hi, just a follow-up question on this enterprise and B2B SME push. As you said, you are underrepresented in these areas and see opportunity. How big a portion of the market is this? What % of the market would be enterprise, B2B, and SME? When I look at your flat revenue guidance, it doesn't seem to imply growth in these segments. Is it merely because you're seeing shrinkages in the consumer segment, and that's offsetting the growth in enterprise? Thank you.
Arthur, thank you for the follow-up question. What I mentioned earlier was on B2B, I think we see it as an opportunity and we see that growth. What we really see is the growth coming from data and the data monetization towards the B2B customers. On the market and guiding in terms of how big the market is, I'm not going to probably be able to do that right now. What we see is we have a big group of SME in our own base that is now starting to use and starting to want data to do their business cross-border and locally as well. What we're doing is investing into solutions that is based on connectivity and based on core services that we already provide today. For example, roaming, for example, fleet management, sales force automation.
Those are the things that we're taking out and packaging out to the market. You would have seen in Q3, Q4 that we took a big position on roaming and borderless. Those are also areas which are pain points today for B2B and enterprise customers, and we see this as an opportunity to grow. Yes, there's some level of rebalance between movements in terms of prepaid, postpaid and enterprise and B2B, but we are just starting this journey. Hence why we think that this is for the long haul in terms of bringing growth for the next couple of years. Hence why we've guided as such, and we believe that that's the right way to look at this opportunity.
Just to clarify, this is coming from your competitors or are they relatively unserved customers at this stage?
I think there's both in that category. There's a big base that has not gone into the space, and there's also those that are, and there's new opportunity there as well.
Understood. Thank you very much.
Thank you. Next, we have a follow-up question from Srinivas.
Yeah, Jeffrey, we'll take the question from Srinivas. Do you think that could be the last question?
Yes. We have no more further questions for now.
Perfect. Srinivas, please go ahead.
Hi. Thanks. Just sneaking in. Does the, what you call, the Chinese equipment manufacturers, the global issues which are going around on account of that, does that have a potential impact on you going forward? Especially, as I understand that there is a fair amount of sourcing which happens from them. Any feedback as to how do you see the landscape play out over the next 12 months?
Srinivas, thank you for the question. I think we've seen some challenges in the past, with embargo and everything else that was done before. I think we have basically worked together with the other business units and Telenor are looking closely at this matter. For now, we continue business as the normal. We're also looking at what the country is concluding in this area. We've seen recently news in this space as well. We're just monitoring. For now, it's business as usual for us.
Understood. Thanks so much. Thank you.
Thank you for the question. Everyone, thank you very much for participating in the call. Thank you for the very list of good questions today and also a very engaged session. I wish everyone a pleasant day and also wishing you ahead for Happy Chinese New Year to everyone that celebrates. Thank you.
Thank you. That concludes today's call, and you may now disconnect. Goodbye.