Good afternoon, everyone. Welcome to today's conference call. Gentlemen, please begin the call, and I'll be standing by for the question and answer section.
Hi, thank you. Hi, everyone. Good afternoon. Welcome to Digi.Com Q1 2018 earnings call. Thank you for taking the afternoon with us. With me today is Nakul, our CFO, and Sunny will join me during the call. We'll spend until we walk through key highlights very quickly. We will walk through operational and performance review. Do a quick 2018 outlook, and we open the floor for Q&A. Please allow me to start. Once again, welcome, I would like to report for 2018 Q1, on prepaid mobile internet revenues, we saw this quarter taking us to a 17.3% year-on-year growth. Postpaid revenue continues its strong performance, with 13.7% year-on-year growth. That's leading us to 0.7% year-on-year revenue growth. This then is translated to a MYR 22 million year-on-year gross profit improvement, a reduction of OPEX, which is approximately -0.8% year-on-year, including EBITDA growth year-on-year at 4.2%.
On the non-financial, touching on subscribers, we saw vast subscriber growth on 4G subscribers, taking it to 6.6 million, with adding 405,000 subscribers. MyDigi continues its performance, mainly on upsell transactions, taking it to 9.2 million. On spectrum, the reassurance of 2,100 MHz spectrum for 15 years was also achieved. Just taking you to the next part of the presentation highlights, just very quickly, on 4G Plus network, we've been able to hit 57% population coverage, for LTE Advanced. On 4G LTE, we've covered now 88% of population. This has enabled us to do two things. One, to get an average user monthly data usage up to 7.2 gigs per user, and it's also got enhanced 67 data traffic supported on 4G, LTE, and LTE Advanced.
A number of the trends on how people use it is also shared this time around with all of you, mainly around streaming services that takes part of the pie. Again, just on the spectrum portfolio, we have a portfolio that is shown here, enabling us both the investment that we put into the CapEx of the network, and the customer efficient delivery that we see. The spectrum portfolio has been very helpful in terms of delivering this expense growth for us. On 700 MHz, it's not mentioned here, but it's in process as updates. Just on the quarter, a little bit on the quarter, on monetization of internet growth. I touched a little bit, but let me just recap. We have 6.6 million 4G subscribers, driving bigger internet usage and monetization. Active internet users stands at 73%, of our 11.8 million subscriber base.
The 19.2 million upsell transactions taking place on MyDigi. That just shows us the highly engaged users that we have and 2.5 million active MyDigi users. This app continues to reach out more people, giving them much more control on driving of internet and data. Both these things give us a 1.9% quarter-on-quarter in-service revenue growth and a 22.5% year-on-year growth this time. Nakul, if you don't mind walking us through then the operational update.
Thank you so much, Albern. Good afternoon, ladies and gentlemen. The next few slides I'm going to take you a bit deeper into our performance as well as the financial numbers also. Like Albern has mentioned, our focus, in this quarter, like the previous quarters, has also been on how we grow our internet revenues, and our propositions have continued to be focused around driving internet. As far as prepaid is concerned, in order to drive adoption of internet, we have introduced affordable bite-sized internet passes for the first-time users in order to seed them into start using internet. As far as more mature users are concerned, we are trying to drive recurring behavior with the help of our biGBonus offerings and also our super data plan, which has a combination of data as well as voice.
For postpaid, we continue to drive recontracting of our existing base through plan upgrades, renewals via the Digi Postpaid Family Plan by leveraging on the Thank You campaign that we launched in Q1. We're also trying to step up monetization from an existing base, and for that, we had launched a GBoost upgrade plan as part of our portfolio for Q1 2018. If I move on to the next slide, and I get a bit deeper into the numbers here. Our service revenue, as Albern mentioned, grew 0.7%, and this I would like to say, is the first time since the third quarter of 2015, is when we see a growth in our service revenue. This obviously is fueled by solid postpaid growth and stronger data monetization from prepaid. As Albern mentioned, the internet revenue has grown 22.5% to MYR 761 million.
This also offsets the dilution effect from prepaid legacy services and the effects of MTR reduction that was effective 1st of January 2018 onwards. The ARPU has strengthened to MYR 42 on the back of increasing postpaid subscriber mix, although marginally trimmed quarter-on-quarter due to seasonal decline. The next slide, if I get into the postpaid bit a little bit more, we have continued the growth momentum on postpaid with a healthy net add this quarter, which takes our subscriber base to 2.6 million postpaid subscribers, up 17.5% year-on-year and 3.7% quarter-on-quarter. The postpaid revenues have also increased by 13.7% year-on-year as well as 1.9% quarter-on-quarter, and the internet revenue has also shown a good increase. The next one is talking about stronger data monetization on prepaid. However, let me start by saying that the prepaid revenue declined this quarter at 6.4% year-on-year and at 4.5% sequentially.
The decline is lower than the 13.1% for the same quarter last year that we saw. This performance is aided by the strong internet contribution that we've had despite the decline in the legacy prepaid voice and messaging services, and the Q1Q has been impacted by seasonal decline from shorter number of days. We've also seen a strong demand for prepaid internet passes that led to a high internet usage, and that's the reason why internet today is 44.1% of our prepaid revenue. If I jump onto the cost, and the next slide speaks about the efficient cost management that we've had.
The cost of goods sold has marginally increased 0.8% year-on-year with increase in device cost from the bundled sales that we have done in this quarter, and it is significantly cushioned by the lower traffic cost from the MTR revision as well as the reduced traffic volumes from the legacy services. The gross profit on a nominal basis has improved MYR 22 million this quarter, 1.8% higher year-on-year, and this is backed by higher internet revenue contribution, as we mentioned before, and also a well-managed cost of goods sold, where we continue to optimize our cost along with increase in the data traffic. As far as OPEX is concerned, it's improved 0.8%, and this is for the reason that we continue to drive OE initiatives to run our cost as efficiently as possible. The next slide, speaking about EBITDA. The EBITDA has strengthened 4.2% year-on-year and a 1.4% quarter-on-quarter.
This is also supported by a resilient service revenue growth and also efficient cost management. The PBT and PAT has slipped 5.7 and 5.6 percentage points year-on-year respectively, accounting for the higher depreciation from the progressive CapEx investments that have been made, and also the amortization of spectrum assets that is coming in this year for the 900 and 1800 MHz spectrum, which was not there last year. The PAT margin stood healthy at 22% for this quarter. The next slide on operating cash flow. The operating cash flow has strengthened 8.9% year-on-year to MYR 560 million, which is at a 35% alongside stronger EBITDA and relatively lower CapEx investment in this year versus last year.
After accelerating network deployment in 2017, our CapEx for this quarter is at MYR 181 million or 12.2% of the service revenue. We continue our deployment towards LTE 900 MHz sites with LTE Advanced and LTE reaching 57% and 88% of the population coverage, respectively. We have approximately 8,200 km of fiber network nationwide. It's also worth a mention that we continue to tap into Telenor Group's synergies on sourcing as well as operating model shift as we try and make efficient use of the available assets that we have to deliver competitive infrastructure capabilities in a sustainable way. Just to take a look at the balance sheet. Actually, the EPS has trimmed slightly to MYR 4.70 as a flow-through from the level, the PAT that we have this quarter. The EPS has also seen an uplift of MYR 0.005 to MYR 0.05 post the adoption of MFRS 15.
I will go through some of the nuances of adopting the MFRS 15 in a subsequent slide. The board of directors has also declared the first interim dividend of MYR 4.90 per share, equivalent to MYR 381 million, payable to shareholders on 29th June 2018. The net debt to EBITDA ratio remains healthy at 0.8 times, while the conventional debt over the total assets has trimmed to 21%. It is worth a mention that the balance sheet continued to demonstrate solid financial capability and flexibility to fund immediate as well as future investment and operational commitment. Next slide, just to show you the debt profile that we have. As mentioned earlier, our conventional debt as a percentage of total assets is a healthy 21%. On this note, would also like to let you know that we have filed our audited financial statements to Bursa before 31st of March 2018.
I'll spend a few minutes to speak about the impact of MFRS 15. As mentioned earlier, we will give you a pre and post standard adoption to just make sure that the financial statements are comparable to you. The numbers that you saw previously were before adopting this standard. This standard basically reallocates revenue between the different performance obligations that are there in any contract, which basically means that the amount allocated to the device revenue increases and the amount allocated to service revenue decreases. Further, along with this, the timing of recognition of the device revenue, since it is upfront, also means that there is a higher upfront recognition of revenue versus the pre-MFRS period. There is also an impact on the contract cost, but I'll touch upon it once I'm through with explaining the impact that we have on service revenue and the device revenue.
Since this is adopted on a modified retrospective basis, we had to restate the balance on 1st of January 2018. As a result, we record a retrospective adjustment of MYR 93 million to contract assets with a credit, but an increase to the retained earnings. This contract assets basically means that MYR 93 million of revenues should have been recorded higher for all open contracts that were existing as at 31st of December 2017. Basically means that the device revenue should have been higher until this period. This contract asset will have a contra to the service revenue in the ongoing months over the remaining unamortized contract period. Along with this impact, there is also an impact on the contract cost. The standard basically says that the incremental cost incurred to obtain or to actually get a new customer can now be amortized over the life of the customer.
Which basically means that the amount that we have already expensed off into the OpEx until 31st of December 2017 can be brought up on the balance sheet, which means a corresponding impact to the retained earnings of MYR 75 million. These two adjustments, coupled with the effect of deferred tax, has had an incremental effect on retained earnings of MYR 128 million on 1st of January 2018. On an ongoing basis into the P&L, as I mentioned, the service revenue is lower by MYR 22 million, which is on account of two effects. One is all open contracts on 1st of January will be reversed out from the contract asset into the service revenue. Also the new contract that we incurred or that we have sold in this quarter will also have a higher allocation on device revenue versus service revenue, and hence the decline of MYR 22 million.
At the same time, the device revenue is going to indicate a MYR 58 million increase versus the pre-MFRS period, and the net effect on the total revenue is a plus MYR 36 million. The impact on OpEx is not significant because the amount that we are incurring on acquiring a customer is quite close to similar to what we are incurring now, hence the catch-up effect is not going to be significant. On a net basis, the impact on EBITDA and profit before and after tax is MYR 34 million or a 1.1 percentage point improvement in our margin. This obviously goes down into our operating cash flow as well as an increase of MYR 0.005 into our EPS as well, which I mentioned to you a few minutes back. I think that's it from me. If I give to Albern to speak about the guidance for 2018.
Okay. Thanks, Nakul. Just wrapping up here with the last comments on the guidance for 2018. For 2018 guidance, we remain and with special focus in a couple of areas. One, committed to continue to drive the revenues from core telco revenue stream and for vendors focus on performance. The cost agenda will remain, and that gives us sustainable and efficient cost structures going forward. The focus areas will continue to be built on where we started the year and also from 2017, is a continuous focus in sustaining our postpaid and enterprise revenue growth. On the Malaysian subscriber growth is driven mainly around internet adoption and switch both from prepaid and fiber base, and for those who are enabling us to monetize data and to grow internet revenue. When it comes to digitization of the core, we've seen a good progress in 2017.
Continue to see that in 2018, at least Q1. The ambition level there is to continue to develop the way we treat and manage our customers on the digital front and making digital customer experience a major differentiator for us. On new revenue streams, on digital, we see good progress and look for new opportunities in that space as well. With that, I'd like to end this session and open up for Q&A after the call. I hand back to you.
Thank you. The question and answer session will now begin. If anyone wish to ask a question, please press star one on the telephone keypad. Our first question is come from Prem from Macquarie, Hong Kong. Prem, please go ahead.
Hi. Thank you for the opportunity. Two questions from me, pretty much around accounting. First of all, with the MFRS 15 accounting standard and that increase in the retained earnings
Is there now going to be an increase in the cash tax payments because you've now got this higher retained earnings coming through the balance sheet? Do you attract the cash tax on that, one? Number two, related to that, is does this increase in retained earnings allow you to pay out more in the form of dividends going forward, essentially that MYR 128 million left? That's one. Secondly, with regards to your depreciation and amortization, would I be right in assuming that this quarter, not only did you have the remnants of the old 2,100 MHz spectrum amortization together with the new fee? That amortization number, I suspect, has jumped as well. If you could give us some color on what the breakdown between depreciation versus amortization was in that D&A, that would be very helpful.
Thank you for the question, Prem. I'll take the first one. This is Nakul.
Yeah.
This is on the impact of MFRS 15, the increase in retained earnings, the impact on tax payments. Our interpretation is that there is no change in tax profit. Only the change is on account of timing, and hence the current and deferred tax adjustment that we had on the impact of the retained earnings here. This is something that we need to look and see how it is taken up by the tax authorities, and we will probably see what needs to be done there. So far, our assessment is the impact on EBITDA flows down to the profit before tax and the profit after tax as well. That's one. The second one on higher retained earnings and probable dividend payout, which will be higher or not. This is something that, again, we have to assess as a going-forward basis.
We continue with the same basis that we have on paying dividends, which is based on our net profits and our dividend policy of paying at least 80% of our net profits that we get every quarter. This is something that we will monitor and update over the course of the next month.
Sorry, could I just interrupt there. It is not whether you will or not, but does the change in this MFRS 15, or the changes brought about by MFRS 15, therefore, allow you legally to increase the payment of dividend? Otherwise, you are limited to 100% of current earnings. Essentially, you have an extra MYR 128 million that could be pumped out to shareholders if the board approves.
Yes. To answer your question, it is yes. It allows.
Okay.
Prem, for the third question, with regards to the spectrum amortization, I think, the question on the 2,100, that is only secured recently, and the start date is 1st of April onwards. The total one-time fee was MYR 118 million over 16 years. One quarter is just roughly around MYR 2 million, but that amortization has not kicked started yet, so it'll be only for quarter two.
If I may just add, the higher amortization in this quarter versus the same quarter last year, it's because of 900 and 1800 MHz that was made available for us on the 1st of July 2017.
All right. Thank you.
Thank you. Our next question is come from Foong Choong Chen from CIMB Malaysia. Please go ahead.
Hi. Thanks for the call. Three questions from me. Firstly, the O&M cost was down a fair bit. What drove that, and should we look at the first quarter O&M cost as the run rate going forward? Secondly, on the prepaid revenue trend that's still coming off, can you share what the prepaid revenue would look like if we were to exclude out the effects of a prepay to postpaid migration? Also, when do you see data revenue growth offsetting declining legacy voice and SMS revenues? My third question, regarding the EPS uplift post the MFRS, I just wanted to ask whether that's permanent or is there a timing factor to that? Those are my three questions. Thank you.
Foong, can you please repeat your third question, please?
The third question regarding the EPS uplift post the adoption of MFRS 15. I'm just wondering whether that is permanent or is there a timing element to that? Meaning to say, it's because you can basically amortize your device cost or your subsidies. Does it mean that, yes, we see this uplift now, but then in the future quarters, when the subsidies then are charged out, then your EPS may be a bit lower than what it would have been under the pre-MFRS basis.
Thank you for explaining your question again. I will take the first and the third, and request Albern to step in for the second one. Your first one is on the O&M cost being lower. I think, as we mentioned in the past, it's because of the series of OE initiatives that we have been running over the past few months and quarters. Whether this is something as a trend that we expect in the quarters going forward. We do not guide on specific items on cost on a quarter-on-quarter basis, hence, it's difficult for me to say whether this is the trend going forward or not. However, as we mentioned, we're going to continue to work on big OE initiatives and also the structured way of how we have been delivering on the O&M cost and the other elements of cost as well.
The third question that you have on the EPS lift for MFRS 15. Actually, there's no straight answer to this one, but let me explain it a little bit. The impact of the standard is dependent on what kind of contracts or what kind of bundled contracts are being sold in the respective quarter. While we have visibility on what happened in Q1, it's actually difficult to predict what's going to be in Q2, Q3, and going forward, because we don't specifically mention about a strategy on what we have to do in the subsequent months. On the existing contracts, since there is an upfront higher recognition of revenue, and towards the end of the contract obviously means the recognition of revenue goes down, which basically says that the overall cash that we receive in a transaction doesn't change.
This impact will obviously be offset with the new contracts coming in. As the tail end of the existing contracts come, the new contracts coming in, and this will basically offset the two. The extent to which these two will be offset is dependent on how many bundled contracts are sold in the subsequent quarters, which is very difficult for us to predict and guide on right now.
All right. Hi, this is Albern. Just on the second question on the prepaid declines. Just to recap a little bit before I answer the question. On prepaid, as we talked about previously, prepaid decline is mainly coming from some of the core traditional voice services and IDD. We had an intention there basically to move away from non-profitable types of services. We were not surprised to see that. However, as Nakul pointed out, we are extremely pleased to see that the reduction year-on-year as a group, seventeen was immense for that. I think that basically was cushioned by mobile internet or just them coming to your first term, which is if you exclude, if you ask, if you exclude post, what would that runway be?
I won't give you that sort of guidance now, but what I can tell you is that something we've quoted before, which is about 30% of the base is coming from pre-post. That is a good runway for us because that way we can actually lock the spend of the customer within the postpaid. When it comes to MI, we already are seeing MI and traditional voice almost at a close to 50-50 split. For me, that is the reason why we continue to drive MI usage, and also things like MyDigi reaching out to the customers directly, we will be able to further push the MI growth for the future. Okay?
Yep. Okay. Just a follow-up question. On the O&M cost for Nakul, were there any one-off in the quarter that lowered the O&M cost? That's my question. Also, do we have a post-MFRS guidance for FY 2018?
Yes, I think there is a one-off, which is a catch-up on the OE initiative that we've taken that has an impact on the current quarter cost. Also would like to say that these are structural cost savings that we're going to see in the subsequent quarters as well. However, the impact that we had in this quarter is slightly higher than the current quarter impact itself.
Okay. Post-MFRS, the guidance for FY18, do we have that?
We don't guide the post-MFRS 15 because we want to make it very comparable to what we have in 2017. As we had given in the last two, four calls, we will guide it only based on the pre-MFRS scenario.
Okay. In subsequent quarters, you will continue to provide the pre-MFRS financial numbers?
Yes, that's right. We will transparently give a comparison between pre and post-MFRS on all quarters when it's going to have an impact for us.
Okay, got it. Okay, thank you so much, guys.
Thanks, Foong.
Thank you.
Thank you.
Our next question is come from Wei Shi Wu from BNP Singapore. Please go ahead.
Thank you. Some of my questions have already been asked, I'd like to dig a little bit deeper into the operations and maintenance question posed earlier. Specifically, can you talk in more detail around the initiatives around operations and maintenance as resulting in the cost savings? Related to this, could you give us an indication of what the operations and maintenance costs in first quarter 2018 would have been without what Nakul mentioned, the one-off saving in first quarter?
Yeah. Thank you for your question and your interest in getting a bit deeper into the O&M cost. If I have to explain what kind of thing that has been done on O&M, it's basically on optimization of the site rentals, because that is one of those most significant items into our O&M cost. Hence I say that it has some amount of catch-up adjustment and also the subsequent benefit that we get from negotiating the good site rentals as well. Has it not been for this adjustment, is something that we do not specifically guide on, and we do not explain this to this extent and in detail because this, for us, is quite sensitive.
Okay, got you. If I can just squeeze in a second one. Would you care to share some of your strategy around the enterprise segment and any specific initiatives there, please?
I think on the enterprise segment, as I've mentioned earlier as well, this is one area that we have not been very active on. We certainly see that this is one of the important areas if we were to focus and we see growth in the subsequent quarters. Right from making sure that we have the right product and proposition in place, for example, with the fact that we have 900 MHz of spectrum already available with us, we definitely have a good quality network that we can shout out. Along with this network, what we also have is a host of other capabilities besides only offering standard connectivity to the customers. Shared with the digital services that we have in place, for example, the iFleet solutions or the payment wallet or vcash and also some of the state-of-the-art HR services that we've already launched.
This actually gives us the one important lever with which we can go out to all the SMEs and approach that Digi means business now, and that's why along with connectivity, they should give us the other services as well. Our investment into the CapEx over the last few months and quarters are definitely being divvied with a better quality network and more seriousness from the SMEs to actually take interest in us and hopefully in the months to come, have an uplift on our end.
Thank you very much.
Thank you. Our next question is come from Arthur from Citi Singapore. Arthur, please go ahead.
Hi, thanks for the opportunity. Just one question from me, please. If you can get some color with regard to the shift back to revenue growth, are you actually seeing more stable momentum across the industry with easing competition driving this? Or do you think you're actually gaining share, especially on the postpaid side, and it's helping drive growth? Thank you.
Thank you for the question, Arthur. We definitely see a good momentum as far as our performance is concerned. However, we still believe that the market situation is as per it was in the previous quarter, which is that it remains challenging. What we can say is that we will continue to deliver on what we have done in the past. As the customer behavior shifts from legacy services into more of prepaid, we will make sure that we are equipped well enough to offer good quality experience to the customer and grow the internet revenue. Sorry, not the prepaid, but grow the internet revenues. That's something we will continue to focus on. It's very difficult to say whether this growth is at the expense of somebody else in the market.
What I can definitely guide on is that we are in a good momentum as far as delivering on our strategy as well as on what we had set out sometime in the beginning of 2017 to do. We will continue to do that even better going forward.
Understood. Thank you very much.
Thank you. Our next question is come from Alex Goh from AmBank, Malaysia. Please go ahead.
Thank you very much. I just want to follow up on the question on MFRS 15. I just want to understand, the MYR 34 million increase in the net profit, post MFRS 15, is this something that is going to recur every the next three quarters or is it a one-off, assuming all things remain the same? Yeah, that's my first question. My second question, I understand on the O&M side, there is a one-off item, but what about the other items in terms of the traffic cost has gone down about MYR 30 million quarter-on-quarter, as well as there's some impact as well, I noticed, on your sales and marketing. How much of that reduction in cost is that sustainable?
Thank you, Alex, for your questions. I will take these both. I think for the sake of not repeating myself on MFRS 15, what we can offer is that in case any of you is interested in getting a bit deeper into how the standard is implemented and what is the impact on our financials, we will organize a session with all of you into our headquarters, and we will invite you. If you can please go ahead and register your interest with Winnie, and we will walk you through the standard in detail. Even I can understand, it's not very easy to interpret the numbers over a phone call.
While it has taken us some time to make sure that we are on top of this, we also appreciate the fact that it is a lot of information to take in a half an hour, 45-minute phone call. If you can register your interest with Winnie, we will be more than happy to walk you through the impact of the standard and what it may entail for the future as well. What it also means that the standard does not change the cash in the transaction. While it is an accounting adjustment, it doesn't give the higher cash from the customers twice. It is just a reallocation of revenues between the devices and the service revenue. Since the device revenues are recognized upfront, there is a higher recognition for all the new contracts versus what it was previously.
On your next question, which is on the COGS. COGS has an impact on account, two reasons for us. The first one is definitely because it is lower because of the MTR revision that actually happened on the first of January this quarter, and also the fact that there is reduced traffic volumes because the legacy services have actually gone down. We all know for a fact that the IDD business, as Albern mentioned, that didn't have the highest margin and we decided consciously not to play the price game there. Any shift from the IDD business to the internet business definitely has an uplift on our margin, and that is what you see as well. These are the two impacts that are there on the COGS, and it is difficult for me to indicate what is the specific amount for each initiative.
However, what I can say that the impact of the MTR revision is not significant on our gross margin.
Okay. Thank you so much.
Thank you. Our next question is come from Ranjan Sharma from J.P. Morgan, Singapore. Please go ahead.
Hi. Thank you, and good afternoon. A couple of questions from my side. Firstly, on your internet users, there was a slight decline quarter-over-quarter. If you can just explain that. Secondly, have you seen any increase in competition for the customers which are moving from prepaid services to postpaid services? I know there have been these hybrid postpaid kind of plans being introduced in the market. If there's any impact that you've seen from March onwards. Yeah, I think I can stop here. Thank you.
Hi, Ranjan, thank you for the question. Just on the internet users decline QOQ, actually that's more seasonality coming from Q4, where we had a slightly larger base and activity impacted. That's quite normal, and we've seen that traditionally as well. On the second question, now that we see more pre to post movements and whether we then see more competition, especially on the postpaid with the introduction of new, different kinds of new offers in the market. I think that will always be there, Ranjan. I think our approach to that is we just need to make sure that we are finding the right customers on a pre to post. That's basically our customer. Then automatically we'll know what plans they are on the prepaid side and what would be the matching offer on the post.
What we do see is positive whereby the customer ends up basically moving into a higher plan because of the higher usage and the trends that are going on. I think while competition means we will always find new offers in the market, it has to be focused on to the segment that it serves.
All right. Thank you.
Thank you. Our next question is come from Koper Kumar from the Nomura Singapore. Please go ahead.
Hi. Thanks for the opportunity. A few questions. Firstly, the O&M expenses, I'm not sure if you mentioned this, but do you expect the current lower cost runway to continue going forward because of the savings that you've got? Second is, when subscribers move from pre to post, like you mentioned, what sort of ARPU upside are you seeing? Thirdly, on the guidance, we have gone back to the revenue growth in this quarter, your guidance still remains the same, flat to slight decline. Why would that be the case? Thank you.
Thank you for your questions. I think I did mention in quite detail about the O&M, just to give you a brief. There are some savings that we have done because of the OE initiatives that we have run over the past few quarters, which has definitely seen some traction in the O&M cost. We do not guide on specific cost elements in the future. Hence, it's actually difficult for me to say whether the cost is going to be at the same levels that you see now. We will continue to deliver on the OE initiatives as well as the structural way in which we try and manage costs. As mentioned earlier, the O&M reduction is coming on account of optimization of site rental expense, which is the biggest portion of our O&M cost. Your second question on pre to post.
Yes, there is definitely an ARPU upside on pre to post migration. However, because of competitive reasons, we do not disclose the impact. Yes, I can confirm that there is an incremental impact on our revenues as well as on our ARPU when we move from pre to post. As far as our guidance is concerned, I think you will appreciate that this has been a good quarter for us, and we accept it, and we are quite happy with that as well. The market situation for us continues to remain challenging. There is a shift in customer behavior that we've seen in the past, and we will probably see in the future as well.
The legacy services will continue to decline, and we will endeavor our level best to make sure that we offset it with the growth in internet as what we have seen in the past. I think it's quite difficult for us to give you any judgment based on a change in our guidance looking at one quarter alone. We will have a look at it in great detail, and we'll come back to you by the end of the second quarter, whether there is some adjustment that need to be made here or not. I'm being absolutely honest with you.
Thank you.
Thank you. Our next question is come from Srini Gnan from Deutsche Bank Singapore. Please go ahead.
Yeah. Hi, Srini here. Hope you can hear me. My question has two sides. One, on the overall sector revenue, are you seeing any buoyancy in the sector revenue space at all or the situation today is still.
Srini, sorry to interrupt. Sorry, Srini. We're having a software issue. Can you speak up?
Oh, can you hear now? Is it better?
Yeah, better. Thank you.
Okay. Yeah, sorry. I was saying, first, on the sector revenues, if you can throw some light as to if there is any relative improvement in the sector revenue landscape. Is there a bit more buoyancy are you seeing or that's not the case? The second question, I'll just go back to the O&M. Nakul did mention, one, that there is a bit of some runoff left in terms of the legacy contracts. Does that mean that after some time, we will see the O&M number reset to a slightly more lower number than what we are seeing now? That's the first question. Second, when you say optimized site rentals, do you mean basically you managed to get a lower site rentals negotiated? Is that what we should take it at? I just want to check, you had bilaterals on a couple of sites.
That's the way the rentals have gone down or something else? It'll be helpful if I can get some feedback on that.
Yeah. Srini, just on the first one, very quickly before Nakul talks about the O&M. Just on the sector revenue, I won't be able to comment on whether there's a general improvement in the landscape. What I can comment is that at least we see that customers are willing to move up when they see value. This can be seen on the pre to post migration and also on the prepaid side, where we start to go back to our own base and start to look at upselling, cross-selling. That at least shares the same sentiment and that we get to the inquiry in Q1.
Yeah.
To your second question, Srini, on the O&M. I think what I would mention here is that this is something that we have continued to do over the last quarters as well. We know that one of the most significant portion of this is actually the site rentals, and that's something that we have always tried to negotiate to the best possible way. For me to comment whether this cost per site is going to increase or decrease is actually quite difficult because it is the effect of a lot of market factors therein. However, what I can say that what has been negotiated is going to remain with us for the time that the contract is already in place for us. Is it possible for you to repeat your third question, please?
Sorry, gentlemen. Srini's lines just dropped off.
Okay. We hope he heard the response.
Okay. Then next question is come from (Pin Yu) from Deutsche Bank Singapore. Please go ahead.
Yeah. Hi, sorry. This is Srini again. The line got disconnected. Sorry about that.
Srini, just help us, tell us how much did you hear and how much did you not?
I got the full one. I got the whole. Don't worry. I got it.
Perfect.
It's all okay. My third question was on the sites which you had bilaterals, where you have some bilateral agreements or bilateral sharing with other operators. Is that the fall in rentals linked to those or it is third-party towers which you have hired?
no, Srini, it's not. Sharing is, as you know, in a lot of markets and even Digi and others have done it, sharing is a way of better optimization. That will always continue to be.
Okay, fine. Understood. Thank you so much.
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Okay, Frank. I think there's no more questions. With that, I would like to thank everyone for taking the time, for dialing in, and also for the very good questions. Thank you very much, and we'll talk to you soon.
Thank you. Final conference call has been concluded. Thank you for your participation.