Good morning. Good afternoon, ladies and gentlemen. Welcome to Digi's conference call. Chairperson today is Mr. Albern Murty. Mr. Murty, please begin your call and I'll be standing by for the Q&A session. Thank you.
Okay, Charlotte, thank you very much. Good afternoon, everyone. Thank you for dialing in. Welcome to Digi's third quarter 2018 result. With me is Winnie, from IR, our CFO, Nakul, our CMO, Loh Keh Jiat, Kesavan, our CTO, and the rest of the management team are here as well. For today, I just want to quickly go through a couple of things that I will run through first on the key highlights. We'll do a little bit of operational and performance indicators, and then we'll walk you through some financials before wrapping up with 2018 outlook. Let me just get started on the first few slides here. For the first nine months of 2018, we had healthy earnings and good development. On subscriber front, we held about 11.8 million subscribers.
The performance mainly led by Internet growth we saw from the start for the first half of the year and then into Q3 as well. On the dividend, we currently are looking at a healthy returns of MYR 0.148 per share for the first nine months of 2018. Service revenue tracking, as you can see, for the first nine months is also positive and EBITDA at 2.5% comparison same period previous year. Some highlights on the performance, that you can also then link and get more further updates when Nakul goes through the financial. Postpaid continues to perform at 14.9% revenue growth year-on-year. Prepaid, in spite of the overall prepaid decline, we still see prepaid Internet revenues growing at 9.6%. Internet revenues, first of all, touching 9 million Internet subscribers and then revenues subsequently growing at 18.4%.
On the efficiency side, we focused on this from the beginning of the year, we continue seeing improvement of slightly more than 1%-2% OpEx reduction year-on-year. EBITDA margin holding at 46%. On the network side, the updates have been going on. The embargo has been lifted and therefore we complete the roll on 4G. On the digital transformation, you probably noticed that we also launched some new features on MyDigi and that continues to add capabilities onto our core parts of our business, digitizing that. Taking 2.8 million subscribers on MyDigi, with a total value of close to MYR 21.9 million on upsell transactions. Customer satisfaction score continues to improve for us overall. Just a little bit on the market, just to further appreciate the financial numbers. Data monetization revenue growth has been a win for us.
However, in the market, we continue to see that data price aggression is still there in the market with rich quota on packages and bundles. There is a device bundle favoring on the market that is increased subsidy and a continued decline in legacy voice and IDD services. However, our focus areas help mitigate around those areas. Looking at strengthening subscribers, especially postpaid, mainly on the Internet base. They're driving Internet monetization at the right kinds of plans and packages for the segments that we are focused on. Making sure that MyDigi is able to differentiate not just from a service, but also now in the list that we've introduced over the last quarter, and also contributes to finding new efficient ways and using our digital channels for customers. Let me take a little bit of a deeper dive into the Internet growth.
That's mainly coming from a couple of areas. One is 4G, plus network coverage are now close to 89% of the population coverage. LTE-A has also now crossed the 60% mark, covering about 170 cities across the country. Fiber, as you know, surpassed 8.3 thousand kilometers of fiber. Data traffic growth. The growth is on double digits at 60% year-on-year, and on quarter-on-quarter it's 14%. On subscribers, as you can see on the trends on the chart, bringing both Internet and 4G subscribers are on the right trajectory. Average customer usage is also now slightly higher than the previous quarter at 9.1 GB per user.
On the revenue side, you can see the split between prepaid and postpaid, both showing a positive momentum on the growth, which takes us then to the 18.4% year-on-year revenue growth that I mentioned and quarter-on-quarter of 1.5%. Let me do a transition slide between myself and Nakul. On this last slide, first of all, on the core parts of the business, prepaid to postpaid conversion and the 4G easy entry proposition is still core to our growth. Accelerating on high value postpaid. We're doing this on a device bundle and also on a proposition on borderless roaming, mainly on data, the value proposition on data and borderless roaming.
On sustainable Internet growth, we are now looking at, as we did in Q2 as well, indicate that we're looking at the different segments and how people are subscribing to data on different sides that fit the usage profile. On MyDigi, the all-new MyDigi Rewards and Box of Surprise was taken out to market by the team. It was definitely a good job in terms of finding some key differentiators in the market. Personalization of rewards, both from the Digi brand and also then partnering and many locations nationwide. On the transactions and B2B opportunities, we see this focus from the teams and also making sure that the customer sees the value proposition in each of them. On the digital side, we continue to strengthen our position as a trusted digital partner for SME business sector.
We've taken out a core digital plan for the last couple of quarters and continue to build on that. Also taken an enterprise-level virtual PBX system or a business phone system called Omni, the innovation plan also spilled over into an e-commerce platform for the business segment. Nakul, I'm going to hand over to you for the financials.
Thank you so much, Albern. Good afternoon, ladies and gentlemen. I'll take you through the financial performance a bit deeper into the numbers here. Let me start with slide number eight to talk to you about the postpaid business. In Q3, we recorded a healthy growth in subscribers of about 14% year-on-year and about 2.8% quarter-on-quarter to approximately 2.7 million subscribers. This is coming both on account of strong pickup on the Digi's new high-value postpaid plans and also continued acquisition momentum happens to be there in the entry-level postpaid plans and prepaid to postpaid conversions. The ARPU remained resilient at MYR 76 and as a consequence, the postpaid grew a healthy double-digit of 14.9% and also a 3.4% QoQ to MYR 640 million, approximately 43.4% of the total service revenue.
The next slide, I just go a bit deeper into the prepaid performance and as Albern mentioned, the internet revenue climbed a healthy 9.6% year-on-year to MYR 399 million, approximately 48% of the total prepaid revenue. However, it traded 1.5% lower quarter-on-quarter, consequent to the data price revision, although the prepaid data usage and adoption has increased. The prepaid revenue continued to trend lower with a 9.1% reduction year-over-year and a 3.5% QoQ, anchored on stronger internet revenue growth and improved margins. As a consequence, the total service revenue remained relatively flat with a stronger subscriber base of 11.8 million and a healthy ARPU of MYR 41. The growth from postpaid revenue, which is 14.9%, and prepaid internet, which is 9.6%, actually contributed to bolstering the decline in, or actually was able to offset the decline in the prepaid legacy services that we have witnessed over the last few quarters.
The internet revenue as a whole, as Albern mentioned, grew a healthy 18.4% year-on-year and also a 1.5% quarter-on-quarter, now contributing to 55% of the total service revenue. I step into talking about our OpEx efficiency and the cost focus. The cost of goods sold in this quarter increased 4.5% year-on-year and approximately 0.8% QoQ, mainly on account of increased demand for the device bundles. This was to a large extent offset by the improved traffic costs from the higher internet revenue mix that we've had in our total revenues. The OpEx as a whole has reduced to 1.2% or 33.1% of the service revenue, which is mainly on account of the well-structured operational excellence initiatives that we have been running for the last few quarters or I must say, for the last few years.
These are mainly on account of sales and marketing, as well as building new capabilities on the network operations side, yet managing to reduce our OpEx going forward as well. As a consequence, slide number 12, our EBITDA remained resilient at MYR 725 million and a healthy 46% margin, which is supported by a higher mix of internet revenue and also efficient cost management. The profit before tax improved 2.4% quarter-on-quarter to MYR 504 million, and this is post the network operating model transition cost that we incurred in the second quarter of 2018 and a relatively modest depreciation of around MYR 194 million. The PAT remains steady at 23% or MYR 368 million and also up 2.5% quarter-on-quarter. Next slide, 13 on operating cash flow. Ops cash flow strengthened 4% year-on-year at a 38% margin. This flow through from a stronger EBITDA and also relatively lower CapEx spend this quarter.
The CapEx investment was approximately 8.6% of our service revenue. However, we continue to deliver and work towards our ambition on the network KPI that we've mentioned. Also as Albern has suggested, we see improved response from our customers on how they perceive our network. The next slide, 14 on the return to the shareholders. The EPS after accounting for the impact of MFRS 15 has stood at a healthy MYR 0.05. The board of directors declared a third interim dividend of MYR 0.05 per share, equivalent to MYR 389 million, payable to the shareholder on 20th of December 2018. Digi continues to boast of a healthy balance sheet, which is demonstrated by solid financial capability and also ability to fund immediate as well as future investments and operational commitments. Our net debt to EBITDA reduced to 0.7 times, while our conventional debt to total assets remains steady at 21%.
Slide 15. This is the impact of MFRS 15. As you notice, our financials, we always do a comparison on the pre-MFRS scenario, and in this slide, we just give you an indication of what is the impact of this standard. Not dissimilar to what you saw in Q1 and Q2, we do see a reduction in service revenue of MYR 37 million, which is more than offset by the increase in device revenue of MYR 65 million. The OpEx is almost flat, only impacting to the extent of MYR 3 million, with a healthy addition into our EBITDA of MYR 25 million. With this, I hand over to Albern to take you through what we are going to do beyond core and also the guidance for the whole year.
Just wrapping up the last part of the presentation. I think in most brands, I think we just also need to look at the heart of the brand, beyond just the things that we do in the marketplace. I think one area here that we focus on a lot is the development of employees as we try to digitize ourselves in the core part of our business, while embracing new innovations and still keeping customer the core of our efforts. So what you see here is the engagement programs that we run internally and learning and development programs that we've run for the employees. On the right side, you also see a little bit more what we've taken out to market. While we're pushing internet, it's also important to make sure that we are inclusive in terms of what we take out to the society.
Here you'll see some different ways that we've articulated in the country, particularly focusing on youth, where we have engagement with youth and key influencers. The Yellow Heart Program holds all of this together, which basically looks at how the brand and what does it mean in terms of inclusion, both on physical as well as the digital inclusion. The last part here is on Digi Academy, something that we have tested out, and it goes really well on future digital skills training across the country. We've done this now in 20 fully equipped Digi Internet centers, mainly located in urban poor locations and secondary towns or rural community. We've seen actually very positive pickup of this, and as you can see, we've been able to touch close to 500 students through this program. Let's go to the next slide.
Just to introduce to all of you all the things that have changed on the company structure on the chair. Håkon has basically as second chair of Digi from September 1st. Anna has also joined as a new Board of Director replacing Håkon. She has now started on the 16th of October. Just to introduce Elisabeth, who has actually joined us, replacing Haroon as the Chief Human Resource Officer for Digi. The two changes on the board and one at the management level. Maybe just to also share with you that we were humbled to receive recognition as the top 50 company globally, and actually ranked top five in Asia and first in Malaysia for diversity and inclusion impact, which Digizens are actually proud to be part of. Just on the last slide, on just some guidance.
No real change on the guidance that is given from the previous quarter, we have given you a year-to-date position as well. The service revenue at 0.9%, EBITDA margins at 46.4%, and CapEx to service revenue ratio at 9.6%. Just to leave you with a note that we are continuously looking at how can we ensure that there is sustainable internet growth, how do we focus on the pre-to-post conversions, and also the plans that we shared with you previously as well on high-value plans, including positions in the consumer and the business side of the business. On data-driven insights, customer segmentation, that continues to be a trend that we believe we will be much more capable of doing. You can see that that's being demonstrated now in MyDigi and a few other executions that speak at the market.
Proficiency remains an agenda across the whole company, that's a joint effort across all divisions in the organization. We remain committed to basically empowering Malaysians with the freedom to connect. With that, I'm going to end the presentation and then back to Charlotte to manage the Q&A.
Thank you. Ladies and gentlemen, we are now calling for questions. If you have any questions, please press star one on your telephone keypad. Our first question comes from Gracie of BNP Paribas. Please go ahead.
Thank you very much. My questions are for Albern, please. Firstly, in view of the policy risks around broadband pricing, can you give us your thoughts on potentially what the short to medium-term impact might be on Digi? Secondly, at what % of service revenues do you think we can reasonably expect voice revenue decline to stabilize? Finally, can you give us your initial thoughts on what Digi's 5G network strategy might look like and any potential timelines that you might have in terms of investments and launch, et cetera? Thank you.
Now, Gracie, thank you for the questions. Let me just get the first one. The first one was on the policy on broadband pricing. Is there any impact short term or medium term impact on Digi? You asked about what % of service revenue we're expecting on voice decline, and on 5G, some sort of indication on our strategy. Let me just take the first one on broadband pricing. I think you're referring to what's in the media on broadband pricing. Let me just take a step back and answer in two ways. One is, on the mobile broadband and the mobile side, we have basically gone as in the market with extremely affordable products and services for many years now. I think Digi's position has always been taking mobile internet and affordable positions, both on prepaid and postpaid.
What you've seen is also a lot more bundles in the mobile space, where there's voice data bundles, and that shift has also taken place in the last couple of years. We're having more data and lesser voice minutes, if you want to put it that way, or almost unlimited voice minutes, in some of the postpaid plans that you see. That's mainly because of trends and competition in this space has always been there on the mobile space. On broadband pricing in general, I think it's an opportunity for broadband prices to continue to evolve in the marketplace. I think there's always that potential, but I think what's important is that the various segments have the right price plans and the affordable plans that suit their needs for them, and the packages that they want to sign up for.
I believe that we have that right mix. On service revenue, are we expecting further service revenue decline? I think what we've seen is that on the prepaid side, voice decline was definitely there. On the postpaid, how we have turned that around, it's shown a lot more commitment, and bundle plan. As Lewis also mentioned this before in previous quarterly announcements, that we've actually changed that strategy very early on to look at how do we actually bundle plans, in the postpaid space. If you ask me if the trends are we expecting a further decline on voice? I don't think that you would see the subscribers to change that mix, but I think you would see more customers signing up for bundles where there is both internet and voice bundles that we take out to market.
The customers, when the trend is right or when the time is right for them, they will switch between voice or data, that we are building for that movement. On 5G network strategy, as you've seen, there's been some indications on 5G trials that were discussed. We will be part of that. I think together with Telenor Group, we have basically done some 5G trials, and in the midst of doing specific 5G trials, we will be part of the 5G trials in Malaysia. We will ensure that we are part of rolling out 5G and looking at the 5G opportunity in Malaysia way forward as well.
Thanks, Albern. Can I just follow up regarding the question on voice revenue decline? Can you just check at the moment how Digi allocates revenues or ARPU between voice and data for your bundle plans? Follow up on the 5G question, do you have any early indications of when the company may start investing in earnest in 5G technology?
I think on the first one, I don't think we have given a split or we will give a split between how we allocate it. I think if you need a little bit of a further breakdown, we can then follow up with Winnie separately. Just on the second question on 5G, actually, to be very honest, I think there is a couple of things here that we need to look at. One is the technology itself, the spectrum, the device availability, and the market. All these four things have to come together before you start making decisions of when are you going to launch 5G or what's the next step of 5G.
I think the most important principle is that we will be part of any 5G trial and we will ensure that Digi has the right position to gain into the 5G space when the time and opportunity is right.
Appreciate your thought. Thank you.
Thank you.
Thank you. Our next question comes from Nomura, Mr. Gokul Kamal. Please go ahead.
Yeah. Hi, thanks for the opportunity. Some comments on competition would be helpful. Do you see a further pickup in competition, especially on the data pricing side and the market on the ground? How do you expect that to pan out for the medium term? What does that mean to your revenues maybe in 2019? We expect revenue recovery to growth levels. Second is, your data consumption is obviously up, but your costs are quite well controlled. Do you think that the current margins and CapEx levels are sustainable in the medium term? Thank you.
Maybe I'll just address the first two questions. In terms of the data pricing movement, I think we will proceed and continue to be active in offering from prepaid, postpaid, and for the different segments. For Digi, if you look at the last two, three quarters, we're happy with our strategy. If you look at the one slide just now on the internet, both usage as well as the revenue. At least, I think the segmentation models and what Albern has shared just now, we're happy with it, and we are continuing to focus on the same strategy.
Yeah. To your second question on the cost structure and do we see it sustainable for the future, I think Digi takes a lot of pride in saying that we run structural operational excellence initiatives. Whether it's on the sidelines of sales and marketing activities, including commission rationalization, moving towards digitalization capabilities, and also running operating model shifts on the network side. All of these are sustainable initiatives that we continue to run. Hence, what we believe is that the kind of cost structures that we are running are the ones which are going to be sustainable going forward. Obviously, what we need to also factor in is the continued expansion that we're going to do, build into the network to give better experience to the customers. That is one area that we're going to balance it with.
We take a lot of pride in saying that these are sustainable structures that we want to build in for the future.
Thanks. Just a follow-up question, to follow up on the comments on the pricing. Would you expect revenue growth coming back to the business maybe by next year? Or do you expect pricing to remain correlated?
I can take it. We actually don't give any guidance for 2019 for now. This is something we will do or actually cover up when we talk about Q4. What we can say is that the market continues to be quite competitive, and there is some pressure on data monetization. What Digi will continue to do is to drive internet adoption. We have a strategy of how we drive internet as far as getting new customers to start using data with bite-size offerings, which either is the Cili Padi or the bite-size internet passes that we have. On the slightly more mature customers, it's about driving increased usage and also on the premium ones to drive further growth as far as selling data bundles and getting the smartphone adoption increase in the market. These are our focus areas.
I don't see the focus areas changing in Q4 or also in 2019. It's difficult for us to give you a guidance on how 2019 is going to look like right now.
Thank you.
Thank you. The next question comes from Sean of Spring. Please go ahead.
Hi, Sean here. I have two questions. One is on your CapEx. Just want to check whether is there a risk of uptake in your CapEx as the government wish to help the players spend more on enhancing your coverage? Second, on your postpaid growth, you mentioned that the immediate pickup on the higher value plan is getting more robust. Do you see ARPU increase in the near term? Thank you.
Sean, if you can repeat your first question. It was around CapEx, can you just repeat it, please?
Yeah. Because your CapEx guidance is on the low teens, right? Just want to check whether is there any risk on the uptake on your CapEx spend in the next few quarters.
Okay. Thanks for the question, Sean. Our CapEx spend this quarter was about 8.6% of the service revenue, which is slightly on the lower side, especially keeping in mind our guidance for the year. We've actually slightly tweaked our guidance for 2018, and now versus the 10%-12% which we indicated last quarter, now we are a little more targeted in saying that it will be between 11%-12% for the year. We believe that our CapEx spends, especially what we are forecasting and actually guiding to the market, are actually quite sufficient to give the good quality experience to the customer. We are currently at approximately 90% on 4G penetration and also about 61% on LTE -Advanced. We will continue to spend in the areas where we believe the customers need a good experience.
The 11%-12% that we've guided for the year is actually sufficient for the said purposes. What 2019 is going to hold in for us is something that we're going to come back, as I mentioned earlier, for Q4. Obviously, quite a lot of investments going forward are also going to be on the sidelines of capacity enhancements, because the experience of the customer as the data consumption continues to surge is going to be very important for us to manage.
Okay. Thank you.
Thank you. The next question come from Alex of AmBank. Please go ahead.
Thank you for the opportunity. I have three questions. One is regarding the broadband. One of it was addressed. I just want to follow up on the broadband issue. With the new MSAP ruling, would Digi now consider moving into fiber, being one of the players? With your 8,000 over kilometers of fiber, is that now open for other players to make use of? What would that mean in terms of your revenue, where you could potentially charge others who may be using your existing fiber. That's my first question. My second question is regarding your spectrum for the 700 MHz. Could you give us any further clarity on when that will be announced? The third question is following up on Sean's question regarding your CapEx.
I think for the nine months so far, I think your spending is about 10% of service revenue for the nine months, your guidance was 11%-12%. Should we be looking at a higher spending in this quarter, which we are in now, fourth quarter?
Alex, thank you for the question. I think the first part of the first question was on the MSAP and whether Digi is looking into it. I think, yes, we are reviewing the MSAP agreement, we are currently using the timeframe to put an agreement in place that will allow us to decide later whether we are doing or pursuing it as an opportunity or not. For now, we're looking at the MSAP document and agreement, we are finalizing it. Once we finalize it, we will come back after we've done it, that's basically an access agreement. On the second part of that first question, which is, would we use our 8,000 kilometers of fiber? Kesavan, you want to just update that?
On the 8,000 kilometers of fiber, we will enhance and support the seekers, that will be based on the capacity and the requirements that we have for our own capacity consumption. If we do have excess, we will support.
On a case by case basis.
I'll take your third question, Alex, this was around the CapEx guidance and whether you see a higher spend for Q4. Yes, because on a YTD basis, if you see a 9.6% and the fact that we guide between 11% to 12%, which means that you will see enhanced CapEx spends in Q4. This is basically on the areas of giving an improved 4G network experience with additional capacity deployment for our customers.
The clear question on 700, which let me just add on 700, is there any indication? Currently, no further indication than what we have known before, Alex. I think we are still waiting for MCMC to announce what the next steps on 700 MHz are processed.
Okay. I just want to follow up on the broadband, where you're opening up your 8,000 fiber to the market. I just couldn't quite catch the remarks earlier. I'm just wondering, you mentioned something about 5,000 kilometers which will be open. Is it to third parties?
Hi, this is Joachim from Corporate Affairs. Let me just clarify the question a little bit, yeah? The reply a little bit. The mandatory standard of access requires us to provide access to access seekers, other than operators that are coming in, on a case-by-case basis and based on the capacity that we have as well. We will enter into separate arrangements with them. Now we know with the Mandatory Standard on Access Pricing, those prices are also regulated by the government. We will evaluate it as required, and we are obliged to just turn around with them.
Yeah. Thank you, Alex.
Okay. Sorry again, just to follow on that. Would you be required to put a bit more CapEx now to upgrade your fiber network if other access seekers were to come into your network, in terms of increasing the capacity or the speed?
We don't see that so much for now, Alex. That's all I can say.
Okay, thank you.
If you don't mind, can I just answer one of the questions that Sean had asked, which we missed out? This was basically on account of the take-up in the higher ARPU plan, whether we expect it to be on the same lines as what we see in the past. Yes, the answer to that is in the affirmative. We will continue with our strategy to see how we can see better traction on the higher ARPU plans. This is one area that Digi hasn't had enough focus in the past. With the fact that we had 900 MHz available for us on 1st of July 2017, we actually up the ante to get the premium customers, and this is what we're going to focus on going forward as well.
Thank you. Are you ready for the next question?
Yes, please go ahead.
Okay. Our next question come from Fran of Macquarie. Please go ahead, Fran.
Hi. Thank you for the opportunity. 2 questions from me, please. First of all, were you a bit disappointed with the revenue development this quarter, considering the tax holiday and the fact that there was a feel-good factor amongst the consumers? Price points out there appear to be relatively steady. Where exactly is this aggression coming from? Do you think that we are at the start of another drop-off in pricing, or do you think we'll at least have some stability here for future growth? That's one. Secondly, to come back to this regulatory risk question, if I could ask it this way. In your interactions with the regulators post-elections? Do you get the sense that they would now switch the focus to mobile operators in trying to drive down price points?
Do you think that the focus is a lot more in terms of quality of service? To add on to that one, do you think there is a risk, given that the mobile operators also hold fixed-line licenses? Do you think that there may be some added pressure to force you into the fixed-line business as well? If you could help us understand how those conversations are going.
Well, I think if you look at the competition in the market, obviously, it's a combination of many things. There's a lot of free data. There's also some price movements. Some of this offering is really at the channels. Not necessary is the above-the-line kind of offering. As a result of this, of course, if you look at the business, there's 2 parts. On the postpaid, there, as you can see, a lot more stable and there's a lot more bundle and combination of voice data. On the prepaid, because of the sales activities, we still see that there is some high growth, high churn going on. Easily, if you pick the new SIM, you can get a lot more free data. As a result, it's also not immediately impacting the loyalty as well as the wallet management.
There is some SST impact in the month of September that we think will have a big impact on the revenue.
The SST did hit the revenue in September.
It will be subject to I think the foreign worker segment is subject to service tax as well.
All right.
Just on the second question, on sort of a little broad question from you on interaction with the regulators, and if there's a sense of the mobile operator. I think that's for the regulators to respond. I think just one comment there is competition in the market is extremely healthy. I think you've seen mobile prices over the last couple of years, including the more offers or much more affordable plans in the market. On the second question on whether there's added pressure to force us into fixed line. As I indicated earlier, I think we're reviewing the MSAP agreement, and I think we will look at it and explore opportunities just beyond fixed as well. I mean, fixed is just one of it now, but we are looking at all sorts of future technologies and future capabilities for the company.
Last year, you also heard me talking about digital opportunities that we will explore in core and out of core. It is just the same. We will treat it as the same and explore it. As far as the MSAP agreement are concerned, we are reviewing it and working on it. Once we decide what to do with it, we will come back to all of you.
Okay. All right. Thank you very much.
Thank you. Our next question comes from Arthur of Citigroup. Please go ahead, Arthur.
Hi. Thank you for the opportunity. I just wanted to go back to the question earlier on 5G. I am just wondering, what would you need in terms of spectrum in order to offer this service? Would your current band be sufficient to do 5G properly? I had a second question as well with regard to the bundling comment earlier. I understand you mentioned that there is some increased competition on the bundling side. If you could provide any flavor on what is happening there, what is driving competition on that front, how it has changed. Thank you.
Hi, this is Ke savan. With reference to 5G spectrum, we would actually be looking at the 3500 spectrum. That is what we would consider using at this point in time. Whether we would use our current spectrum, we have not decided at this point in time, but we will come back when the time is right.
Maybe you take the second part of it.
Sorry, just to clarify, you do not feel the need that you would need more spectrum going forward to offer 5G? You are happy with the 3500 and the current spectrum band?
We don't have the 3500 spectrum now. That would be the spectrum band that we will be seeking for. Definitely, we would definitely need more bandwidth on the spectrum.
Just to add, that's why I clarified earlier when we talk about 5G and what we want to do on 5G. I said four things that need to come into play before a country decides on 5G. Spectrum is definitely one of them, and 3500 is not made available to the operators to use, and that could be one of the bands that Kes avan's indicating could be used for 5G. I think for that one, we need to come back when both the regulators and the operators have had that discussion.
Understood.
Maybe Lo, just on the bundling question.
I think in terms of the bundling, really, I think you're just throwing in more data allowance and the quota into the packages. This will, of course, continue to drive high usage, but you're impacting the subs on a monthly
Quarter-on-quarter, you've seen increases in terms of the allowances?
Yeah.
Understood. Thank you.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star one on your telephone touch pad. Our next question comes from Rajan of JP Morgan.
Hi, good afternoon, and thank you for the presentation. Just a couple of questions from my side. Firstly, on fiber. With the continued strong growth in data usage, how do you see a need to fiberize the base stations and basically strengthen your fiber holdings? A related question would be, does it make sense to build the fiber assets or buy them? The second question is on OpEx. I think Digi, along with Telenor Group, has done a really good job of reducing OpEx. How much room is there to cut more cost in the business? Thank you.
Hi, this is Kesavan. With regards to the fiberization, with the growing data, definitely, we will be looking at fiberization of our backbone and also to the site. That is nothing new for us. We have been doing this for many years now and building that footprint. Whether we buy or lease the model or build model, that is dependent on what makes sense for us, and we will review that from time to time, and we will also work through opportunistically on collaboration with companies.
I will take the next question, Rajan. This is Nakul. Thanks for this. Your question is on the OpEx and how much more room it is for us to cut. Quite honestly, we do not look at OpEx in this way. I mean, our intention is not to cut cost at the cost of driving growth. That for sure is not our intention. Our intention is, as I mentioned earlier, how to grow sustainable models of cost efficiency. Our change in operating model of the network side was one example, which we did in Q2 or Q1, which actually is going to help us in that direction. This cost efficiency is built into the DNA of the company as much as growth is in the DNA of the organization as well, and this is what you are going to continue to see going forward from our side.
Okay, thank you. Maybe one quick follow-up. On the fiberization, you said that this has been happening for a while. What % of the base stations are now fiberized?
Basically, we will fiberize our sites, as and when we feel the need and, again, growth in capacity as the site is.
Yeah, Rajan, we don't hold back, Rajan. If we believe that there is a demand in that area or the market, and in order to sort of assure customer experience, we roll out fiber to the site. That's not something that we are holding back on. What we've seen in the last two years is that with 4G and the 4G take-up, and that's why you see the users also increasing on the internet usage and the subscribers. Therefore, there has to be a correlation between experience. When that happens, then we would fiberize the site.
Okay. Thank you.
Thank you. Our next question comes from Srini of Deutsche.
Hi. Thank you very much. Just a couple of questions. One, just wanted to, what do you call, circle back again on the MSAP question. The MSAP agreement which is put out talks about fiber access for HSBB. Does that mean it also includes your fiber? Because at least the agreement, the pricing determination seems to only talk specifically of HSBB fiber. That's the first question. Second, you mentioned about you having to offer capacity subject to your own capacity. Fiber, technically, at least capacity constraints are quite minimal, especially based on if you have terminal equipment. Just want to understand, how could you be capacity constrained on optical which has been laid fairly recently? Second, the third, if I may ask on your OpEx. What you notice, obviously, is it's been pretty good reductions on the sales and marketing side.
Excluding the traffic, the fall in OpEx on account of traffic, which is more likely, I am assuming, because of legacy services falling. Do we expect the current level of sales and marketing spend, which have come off, even if I look at a run rate basis, to further fall off as more penetration of your MyDigi app happens? Is there some kind of a midterm, so to say, linkages to that, where you are averaging about MYR 120 million to MYR 130 million on sales and marketing and kind of from the level of almost MYR 140 plus a year and a half back? If you could highlight if that's where we will see a fall in our sales and marketing spends. Finally, on a midterm basis, the overall sector revenues do not seem to be growing, nor are the company revenues.
You have obviously done a pretty robust job of maintaining profitability and cash flow. Do you see any chance of revenue growth? Because revenue growth seems to be completely missing, even if I look over a 3-year period. So how do you manage under that scenario? Is there no opportunity for you to grow revenues from the current base? I understand the postpaid, prepaid substitution, but overall service revenues are not growing, actually. Any commentary on that would be helpful. Thanks.
Srinivas, thanks for your questions. I will take the first two. It is Joachim here again from corporate affairs. The first question, HSBB has been added on to the mandatory standards list. Now you see there is the access pricing on HSBB has been added on to that list. It does not include the fiber that we have right now. So that's the first question. Secondly, how do we determine when we lease fiber out? It's basically based on the needs of the access seekers to us and our capacity and our ability to support their needs, and the routes that they are seeking for. I know this is sometimes a difficult way to understand. Happy to provide more clarity after this call through Winnie. If you can send some questions through, we can obviously take it through that.
I will take the next two questions, Srini. First one was on the sales and marketing side. I just want to correct here that, see, there are two elements. One is the traffic charges, which is included as part of cost of goods sold, and that has seen a 16.3% reduction year-over-year. This obviously is a combination of factors. One is that as the IDD and the voice traffic goes down, then obviously we see a reduction in terms of our IC cost. This also has an element of how efficiently we manage our cost structure. Then on the sales and marketing side, the 9% that you see year-over-year reduction, this is again, combination of many factors. You actually spoke about MyDigi. What our intention to do is how do we digitalize our sales.
Whether it's on the acquisition or whether it's selling reloads, we just want to make sure that we give the best customer experience to our customers. By giving a good experience on MyDigi, which means single-click purchases of data packs or roaming passes, and we mentioned about 21.9 million upselling transactions, it's actually testimony to the fact that this digitalization strategy is going quite well for us. There is no way we're going to compromise on our growth ambition in order to cut costs. That is something I can confirm that you will not see from our side. How much more scope it is, actually depends on the digitalization story that continues to run quite well for us. The more we are able to drive digitalization, the more we'll be able to manage our cost structure efficiently going forward.
Your last question is, any chance of growing service revenue? Yes, you can say that there has been some challenge in the industry, let me just take a step forward on how the last two years worked for us. As you would know, it was a year of transition for us as we moved out from the IDD segment and started focusing on growing postpaid as well as the data revenues. We see quarter-on-quarter and, of course, year-on-year, strong growth in postpaid. This will continue to be a focus for us going forward as well. Additionally, I've mentioned earlier, our focus on B2B.
With a good spectrum portfolio with us, with the fact that we have a focused approach in going for small and medium enterprises, and also the fact that we have good digital service offerings in our portfolio, this actually opens the door to speak to the customers that haven't historically been interested in taking services from Digi. This will obviously be, along with postpaid, along with internet growth, one of the growth engines for us going forward. As far as the guidance of 2019 and how much is the growth we expect to come out of it is actually not possible for us to give you an indication. We'll come back in Q4 on what the guidance for the next year will be.
Thanks. This is helpful. Thanks a lot.
Thank you. Ladies and gentlemen, if you have other questions, please press star one key on your telephone touchpad. Once again, it's star one key on your telephone touchpad to ask a question.
Yeah, Charlotte, thank you very much then. Shall I just close and just end by thanking everyone for taking the time. Thank you very much for all the questions, and thanks for the support. Enjoy the rest of the day, everyone. Thank you very much.
Thank you. This concludes the conference. Goodbye. Have a good day.