Thank you for standing by, and welcome to the Telkom's Third Quarter 2016 Results Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Tuesday the 1st of November 2016. I would now like to hand the conference over to your first speaker today, Mr. Andi Setiawan, Vice President of Investor Relations.

Please go ahead, Mr. Setiawan..

Mr. Ririek Ardiansyah as President Director; Mr. Heri Supriadi as Director of Finance; and Mr. Alistair Johnston as Director of Marketing. Ladies and gentlemen, I now hand over the call to our CEO, Mr. Alex J. Sinaga, for his overview..

Thank you, Andi. Good afternoon, ladies and gentlemen. Welcome to our conference call for 9 months 2016 results ended September 30, 2016. We sincerely appreciate your participation in this call. Ladies and gentlemen, in the 9 months of 2016, we continued strong performance both in terms of operational and financial.

Telkom recorded triple double-digit growth with revenue grew by 13.8% while EBITDA and net income grew by 20% and 27.6% year-on-year, respectively. Data, Internet & IT Services was the growth driver with 37.2% year-on-year. Its contribution to total revenue increased significantly from 31.3% last year to 37.7% this year.

We also successfully maintained healthy level of profitability with EBITDA margin of 51.5%, improved from 48.8% last year, and net income margin at 17.1% increased from 15.2% last year. In the meantime, our expense increased moderately by 8% year-on-year, lower than revenue growth with manageable operation and maintenance expenses.

Operation and maintenance expense, which accounted 42.2% of total expenses, grew by 10.3%, in line with continuous infrastructure deployment both in cellular and fixed line businesses as part of our effort to grow Digital Business. Central to our strong 9-month result was the solid performance of our cellular business.

Telkomsel once again delivered triple double-digit growth in revenue, EBITDA and net income, which grew by 14.4%, 18.9% and 27.3% year-on-year, respectively. Ladies and gentlemen, Telkomsel gained more than 15 million net additional customers during this 9-month period, gross total customers to 163.7 million users.

Further, in order to maintain its network quality, Telkomsel added more than 20,000 new BTSs. And around 90% of those BTSs are 3G and 4G, reflecting our focus to accelerate the Digital Business growth. As of September, Telkomsel total BTS reached 124,000 with 90 -- with 59% 3G and 4G BTSs.

As a result, Digital Business continues to be the growth engine and posted 50.8% growth, driven by Data, which increased by 40.8%, and Digital Services, which increased by 40.4% year-on-year. Mobile data payload increased significantly by 84.9%. Digital Business accounted for 54.8% of total revenues, increased significantly from 28.3% a year ago.

In terms of its Legacy products for voice, Telkomsel booked 9.8% year-on-year increase in revenue and 9% increase in traffic as a result of innovative voice package and transplanting [ph] strategy. For SMS, we started to see cannibalizing from OTT services with SMS traffic decrease 15.7% year-on-year.

With SMS traffic decline 15.7%, we could maintain its revenue on a decline by 1.5% year-on-year to IDR 9.99 trillion. Ladies and gentlemen, on the fixed line side, our flagship broadband product in the home triple play recorded 1,524,000 subscribers in less than 2 years of operation.

To improve IndiHome ARPU level, starting quarter 3 2016, we performed a comprehensive review and analysis of IndiHome customers as we like to increase more profitable and more loyal customers. Based on the analysis, we managed to reduce the number of low-quality customers.

Given this and the churn customers, the growth of IndiHome subscribers in Q3 2016 was small. However, the ARPU in quarter 3 in 2016 improved to IDR 350,000 from IDR 300,000 in the previous quarter. Ladies and gentlemen, let me now explain about our enterprise and wholesale businesses.

Our enterprise businesses provide access, connectivity as well as integrated ICT solutions for more than 1,300 corporate customers, 190,000 small and medium enterprises and 630 government institutions and regional governments.

And in terms of broadband service, we estimated that Telkom controls around 64% of traffic market share in Indonesia with 2,349 gigabytes per second bandwidth in service. And part of which is the form of integrated ICT solutions.

We also provide data center service to our enterprise clients with 75,000 square meters of data center facilities based in Indonesia. We estimate that we have around 52% share of total data center revenues in the country.

In addition, we almost complete the construction of a data center project in Jurong, Singapore, which has around 20,000 square meter of space. Expected to commence in operation in November 2016, Jurong data center is designed to fulfill the needs of premium [ph] data center service for Singapore regional and also global market.

Further, Telkom supports smart government initiative conducted by regional governments across Indonesia as part of the effort to modernize city management by implementing IT and application-based public service systems. Telkom provides broadband infrastructure and cloud-based solutions to help the government improve their service to public.

Telkom has already implemented Smart City system in 2011 -- in 211 cities in Indonesia. While in the wholesale business segment, Telkom serve other licensed operators in Indonesia, the service vary from leased channel, data communication, connectivity, traffic transit, satellite to managed service.

Ladies and gentlemen, all the service mentioned above are supported by our superior nationwide network. We continuously expand our terrestrial and submarine backbone to support both our mobile and fixed line businesses.

During 9-month period of this year, we have deployed almost 2,000 kilometers fiber-based backbone that made the total line of our backbone become 83,878 kilometers. And in addition, we are expanding another 48,000 fiber-based backbone until 2018.

Our major submarine cable system project, SEA-ME-WE-5, or Southeast Asia, Middle East and Western Europe 5, and SEA-US, Southeast Asia, United States are progressing well. SEA-ME-WE-5, which spans 17,800 kilometers from Dumai, Indonesia to Marseilles, France is expected to be in operation by fourth quarter of 2016.

With SEA-US, which stretched 14,400 kilometers from Manado, Indonesia to California reached around 60% completion progress and is scheduled to commence operation in the third quarter of 2017. Both projects are carried out by a consortium of Telkom and several other telco companies.

To connect those 2 submarine cable lines and also to connect them with our domestic network, we are now deploying IGG, Indonesia Global Gateway, stretching from Dumai to Manado. This is our strategy to become a regional hub of data connectivity.

Ladies and gentlemen, as I mentioned in my first quarter earnings call speech, we are in the process to launch satellite Telkom-3S and Telkom-4. We expect Telkom-3S to be launched in the first quarter of 2017. It will carry in total of 42 active transponders, consist of 24 Standard C-band, 8 Extended C-band and 10 Ku-band transponders.

As of September 2016, the progress of this project was around 80%, while Telkom-4, which will replace Telkom-1, is planned to be launched in the third quarter of 2018. It will carry 48 Standard C-band transponders and 12 Extended C-band transponders. As of September 2016, the progress of this project was around 38%.

Ladies and gentlemen, let me now share with you other recent events that happened in the third quarter 2016. On September 9, 2016, Director of Enterprise & Business Service, Mr. Muhammad Awaluddin, was appointed as the President Director of PT Angkasa Pura II, a state-owned airport services company operating in the western part of Indonesia.

Subsequently, Mr. Honesti Basyir was assigned as the acting Director of Enterprise & Business Service in addition to his current position as Director of Wholesale & International Service. Secondly, in September 2016, Telkom entered into an agreement to acquire 49% stake in MelOn Indonesia from SK Planet.

MelOn Indonesia, a digital music company, previously was 51% owned by Telkom's subsidiary Metra and 49% owned by SK Planet. As MelOn has more than 5 million digital song catalogs, its presence is essential to enrich digital contents both for our mobile and IndiHome services.

Lastly, Telin Myanmar, our business arm in Myanmar, attained application service license last month. As such, Telin Myanmar is eligible to provide Internet service, private line voice and data as well as related value-added services.

With more than 50 million population and their country is still in its early stage of national development, we call [ph] Myanmar as an attractive market. Telin Myanmar was also granted the IP transit service license in 2013 and currently serves Myanmar's post and telecommunications. Now let me reiterate guidance for the result year of 2016.

With strong set of results in 9 months 2016, we expect both Telkom and Telkomsel's revenue to grow better than market rate. We estimated that industry will grow at around 10% to 11% in 2016. EBITDA and income margin is expected to slightly decline in line with continuous infrastructure development and revenue shift from Legacy to Digital Business.

Capital expenditure for the group is expected around 25% of revenue with investment focus on mobile and fixed broadband infrastructure. This is the ending of my remarks. Thank you..

Thank you, Pak Alex. We will now begin the Q&A session.

[Operator Instructions] Operator, may we have the first question, please?.

[Operator Instructions] We will now take our first question from Roshan Raj from Bank of America..

Two questions from me. First, if we look at the 3 quarters this year, there has been a continued increase in subscriber net additions over the 3 quarters.

What in your view are the key internal and external factors which led to this uptrend? Second question, if we look at the regulatory changes that's been discussed in the industry, most of them are kind of looking at diminishing your market position.

So looking further out over the medium term, what are the variables or what are the options that you are looking to explore to kind of manage the impact of regulatory changes to both your fixed and mobile businesses?.

I can take the first part. I think the increase in net adds, I think, is really indicative of the competitive situation in the market. I think that the cellular market here is, I think, more competitive than it has been for some time. And I think on sort of 3 dimensions, one is competition on voice packages, which hasn't been seen much of late.

But [indiscernible] have been targeting sort of low cost and voice pricing. I think number two is the investment in 4G. All the operators are investing heavily in 4G and therefore trying to drive customers on to the 4G network. I think that's driving competition.

And thirdly, I think with combo packages, so these are packages which include voice, data and SMS combined, we've seen our competitors push quite aggressively on those. So I think it's really reflective of a more competitive market dynamic..

Yes, thank you. For the second question regarding the regulatory, let me update you regarding the progress of changes in the industry. We think that the [indiscernible] especially for interconnection and [indiscernible], and we will decide our position after we get the [indiscernible] result from the regulation from the government.

But as we anticipate the situation, I think that we've already done previous in Telkom and Telkomsel, I mean, the synergy, has been the key thing for us to anticipate the regulatory changes. So definitely we can ask in the group and also to keep the deployment of that work and to keep our capacity dominant and also to improve our quality service.

I think that these things anticipate any changes in regulation..

I was a bit unclear with the first one. My question was the net adds for Telkomsel, it's gone from around 1 million in 1Q '16 to about 6 million in 3Q '16.

So has Telkomsel been more active in terms of the variety of prices and products that has been launched in the market? Or it's been more a tactical marketing or something else which you have done better to gain progressively more subscriber additions over the quarters? But that was my first question.

Second question was not specific to say interconnect, but more general question. The general sense we get as Telkomsel and Telkom as seen as a dominant player. And so the regulatory changes are possibly aimed at kind of bringing down its dominance.

So do you kind of at a big-picture level have a clear view as to how you are going to manage all the regulatory changes, which will be in different forms, and then playing out over a few quarters? What are the counterpoints or counterarguments you have to kind of defend status quo or manage the downside risk?.

Yes. So to clarify on the first question, I mean, the reason we're doing more net adds is because there's a higher turnover of customers in the market. And in the prepaid market, this higher turnover, you end up having more customer base but actually a smaller, what we call, revenue-generating base.

So it's really, if you think about the dynamic, more activity in the market than the more each of the operators will have customers who haven't yet turned off but have acquired new customers. You're quite right to point though that we're winning in the market.

I would say that the reason for that is not one individual factor, I think it's the continued platform that we've had for the last couple of years, which is superior network and superior execution. And so I think that's continued. And so nothing really different in our approach to the market.

But like I say, when there's more activity, then you'll notice that all the operators would show net adds, which at a later date will probably churn off at some point..

We will now take our next question from Colin McCallum from Crédit Suisse..

Two questions from me, one on the broadband side. Could you just talk us through a little bit of what you ended up doing on the pricing for your fixed line broadband? I note the ARPU, as you said, did increase a bit.

But if you could talk us through sort of what your most common package is now for the fiber offering and what your targets might be for customer numbers and ARPU level. It was an increase, as you said. But I think it was actually quite a small increase.

So if you can talk a little bit about what your studies have suggested you need that ARPU level to be, and therefore, what the target would be for the next year or 2, that would be helpful. And the second question is more for Alistair on Telkomsel side. I noted that Telkomsel is still doing very well on monetizing.

And the combo packages that the peers have launched is a bit more mixed in terms of results for your competitors.

Do you expect the competitors to, at some point, have to increase the price points on those combo packages? And is that something you think is imminent or you think it's going to be awhile before they get around to trying to do? Just your own view in terms of the way the market dynamics are going to shape up over the next year or so..

Yes, I can take the first question. For IndiHome, we have what we call the deluxe package with speed minimum of 10 megabytes per second. It consists of 95 TV channels and home phone connection. This costs around IDR 405,000 per month. And of course, this is only the beginning of the cheapest deluxe package.

We do have packages which are more expensive than this. However, in competitive areas and in areas where the affordability is the issue, we enter the area with more competitive packages, which cost around 30% or 40% lower than the deluxe package, so in the range of IDR 200,000 to IDR 275,000 per month.

And we would like to see and we expect to have slightly better ARPU by end of this year. But I think it would be in the range of IDR 300,000 range..

number one, continued superiority of our networks; and number two, increasingly bundling our packages with premium content, so music and video and really trying to differentiate that way..

We will now take our next question from Wei-Shi Wu from BNP Paribas..

Two questions from me. Firstly, I would like to ask about the Telkomsel's voice use [ph] in terms of revenue per minute. That seems to be up quite strongly during the quarter. So I just wanted to find out what exactly the company has done during the quarter to drive the big uptick in the revenue per minute.

And then secondly, just over in terms of competitive dynamics, your -- one of your competitors obviously lost quite a lot of share.

Do you anticipate a return to intense competition like the one we saw a number of years ago? And if so, how would Telkomsel respond to the competition?.

So I think on the first question, I mean, actually, the pattern we've seen on voice for the last year, 1.5 years has been steady or declining RPM combined with growth in volume, and that's been driven by strategy of putting the price up on out-of-bundle voice and encouraging customers to buy packages.

We're using more -- I mean, that strategy continues. But in this quarter, quarter 3, it's distorted by seasonal price increases during Lebaran. And actually, the -- some of those price increases, we kept back to the Lebaran holiday on the basis that we thought it would be sustainable.

And so the strategy is pretty much the same, but I think it's just the -- those seasonal changes. There's competitive dynamics. I think I would characterize the market as pretty competitive at the moment anyway. I don't think it's quite similar to how it was a few years ago, what -- with the market's a bit different.

But I do think it remains very competitive, particularly around data pricing and particularly on the 4G data pricing, where I think our competitors both [ph] see an opportunity to 4G to try and compete with us..

Okay. I have somewhat an addition about -- an explanation on this one. I think that our pricing right now is not in the rate that we expect, very healthy. I think if you could possibly -- I think they saw the trend [ph]. Our competitor also considering, I think, upsell, tried to increase their use.

They're starting to -- thinking about how to monetize the market. Right now, there are -- the return that we expect, they also come to the same direction. So based on this one, I believe that what happened in the -- a few years ago and last year [indiscernible].

One happened right now because we already feel right now the result is not really positive for our competition right now, although they're, I think, increasing in terms of rate growth [ph] and also the user [ph]. That's our view and our expectation on this.

Obviously, we try to find some, I think, mitigation in terms of managing the cost investment and so on just to be able -- providing the quality, along with, I think, good margin in this market..

We will now take our next question from Hussaini Saifee from Citi..

Two questions from me. First is on the competition. Now you said that the competition remains very intense, but still we are seeing the industry growth of high-single digit, which is, again, one of the best in the region.

So what's your sense of -- like that from here? What do you think that the competition will further intensify? Or how should we see the growth for the industry in the next year? That's question number one. The second question is on the guidance, your guidance on the EBITDA margin.

Do you still expect margins to slightly decline versus last year? But as of 9 months, your margin seems pretty healthy. So any color on that will be helpful..

I'm Harry on Telkomsel. To answer you question, first on the competition and then the industry is still by single-digit growth. First, from the -- I think from the -- the growth mostly coming from the broadband data and digital services. If we see from the payload, actually compared to our peers in the region, our consumption is still quite low.

This provide us a little more growth. The second also, they have smartphone penetration which is also, I think, quite low compared to our peers. That also will provide us with, I think, room for growth and from the data, although the competition is different. In fact, actually we find room for growing whatever, given all the players.

In terms of the -- I think my colleagues who is having some explanation on this one -- I'll jump to the second question. In terms of the EBITDA margin, from the data, actually as we mentioned earlier, actually data is not that lucrative at the legacy in terms of providing the margin.

We continue to grow on that one and also our competition also increased. They encouraged the usage by providing quite a lot of quota. This brings actually the smaller margin on that one.

Of course, as [ph] management [indiscernible], perhaps better revenue than what we expect and also what our targets that are coming from the continuous effort on the design and then our marketing position and also continues doing some improvement on the efficiency, that's being primarily software, although we said it is supposed to normally decline, but we continue to put maximum effort in order to maintain the margin..

Just that you've been -- forcing [ph] your point on the first question like competitive intensity. I think the fact that the volume of data growth is so high. I mean, on our network and on our competitors' networks, the data traffic is roughly doubling each year, but data revenue is growing, in our case, about by 40%.

So there's a lot of competition, which is leading to price erosion on data and, in particular, larger and larger data packs are available to customers.

But you're quite right pointing out that we're still growing and the industry is still growing, and that's really fueled by slightly huge customer demand, which is driven by more and more smartphones, more and more network, more and more application usage. And looking ahead, cannot continue.

I think demand in data will continue, but all circumstances will be around voice and SMS and how long they can be sustained..

Yes, just to add briefly on the EBITDA margin point. What was mentioned by our CEO just now, it's actually we are moving gradually towards more and more of digital businesses. So then we expect in combination both from mobile as well as fixed business, the EBITDA margin will slightly decline in the near future..

Okay. Just maybe couple of follow-ups. So how do we see the growth going in the next year on the mobile side and also on the CapEx? So as the data growth, data demand is very high, how should we see the CapEx at all? Is your network ready to handle such a steep growth in data demand? And a small housekeeping question on the impairment of receivables.

It is also high for the 9 months '16.

So were there any one-offs related to that?.

I think on the next year figures, we're still working on that one in our budget -- yearly budget on this one. But basically what we try to achieve, continue to grow everything above the industry, because we have all the the results as needed.

And as long as we have opportunity there, we'll try to have our [indiscernible] and certainly some exiting the market..

Obviously, our data network able to handle. I mean, we have at a strategy for the last couple of years to what we call leading supply. So effectively we build our network ahead of demand. Having said that, when the network traffic is doubling each year, then you have to continue to spend ahead of the curve.

And I think particularly on 4G, I think we'll see a big focus on 4G investment. So I don't expect this CapEx burden to define any kind of [indiscernible]..

On your second question, you're correct. There was a one-off item in the third quarter, which was from the write-off of net debt amounted to IDR 741 billion. This is as a part of our continuous effort to improve the quality of our accounts receivables..

We will now take our next question from Gopakumar from Nomura..

I have 3 questions. Firstly on Telkomsel, sorry to go back on the revenue trajectory.

And even the data is certainly picking up, when do you expect it'll impact in legacy revenues and then you see some cannibalization, and what sort of a data contribution do you expect legacy revenues to decline? So would that mean that the current double-digit revenue growth could slow down to maybe mid- to high-single digit growth.

So I'm just trying to understand at what sort of data contribution would do you expect that to happen? Second question is on the IndiHome broadband. Sorry, just to check, management had previously highlighted some issues on the rollout side in terms of getting permits to households, getting access and in terms of talent availability.

Is that all sorted out? Or have you seen an improvement there? Also, a bit longer data question, in case of some issues persisting, would you be looking to acquire any of the smaller players on the broadband side to gain scale faster, given that your balance sheet is quite strong?.

So I think on the first question, if I see, I guess, the balance between legacy and data growth. I mean, what we're seeing, clearly SMS is in decline, I think terminal decline. Our volume has declined by 15% year-on-year for obvious reasons. Revenue is sustained by price increases, but it's debatable how long that will continue.

Voice has been in great health, both in terms of traffic and revenue. However, I mean, technology will eventually lead to cannibalization by OTTs. I mean, almost half of our base now have smartphones, so that's only a matter of time. And to the phasing and -- but it's difficult to predict, and we don't want to make any big predictions.

In terms of our data business, like I mentioned before, the traffic is growing by about 100%, roughly doubling every year. I currently don't see that declining. I mean, our usage per customer per data user is now 1 gig a month. Compare that to a 4G customer where the average usage is about 2.4 gig a month. So I mean, that's a significant uplift.

And we now have about 17 million 4G handsets on our network, growing 500 million additional handsets or 1.5 million per month. So I see very healthy demand for data. I think pricing will continue to be an issue and that's largely dependent on market conditions as to how much of that we can monetize..

Yes, on the IndiHome question, we still face, from time to time, on-the-ground challenges, if you will, probably not so much of getting permit for the household, but it's mostly related to the home taking readiness in most areas in Indonesia.

And also if you are aware that most Indonesians still live in rented houses, so we literally have to go connect the cable from one house to another as opposed in the developed market whereby people -- most people live in apartment buildings. So once you connect one apartment building, and you can get like maybe 20 or 30 homes.

So that's not the case in Indonesia. But to be fair, if you, again, see the development of the subscribers number that we have managed to get in less than 2 years, I think it's quite an encouraging achievement..

And just sort of -- I was wondering if some of the issues was also if you think that rolling out fiber and then obviously [indiscernible], will you be willing to acquire any of the smaller players to gain scale faster given your cash and balance sheet strength?.

So we are always open for any interesting acquisition opportunity, but I think we can tell you at the moment that we are not invertibly looking at such opportunities that you mentioned..

We will now take our next question from Miang Chuen Koh from Goldman Sachs..

Three questions from me. Firstly on the mobile side. In terms of the ARPU, we saw further increase, both Y-o-Y and Q-on-Q basis. So the reasons attributed is like cluster-based pricing, market implementation, and of course, the data increase -- data usage increase as well.

Just wondering in terms of those cluster-based pricing benefits, how much more is there actually to go? It seems like it happened every quarter, you continue to be able to kind of monetize that or increase it. Second question is on IndiHome. So subscribers were pretty flattish and because you are kind of rationalizing the quality of the customer base.

Just wondering like any guidance over the next 12 months, what kind of subscriber base are you looking for? And in terms of the EBITDA margin for this business currently, can you give a sense of that? And then final question is on tax. I think previously you mentioned, I think, previous quarter was about IDR 750 billion of one-off tax expenses.

Did any of that show up in 3Q? And if not, then it's all going to be lumped in 4Q then?.

So on ARPU, yes, increasing. I'd say the major reason for that would be -- well, growth in voice volume because we're encouraging customers to take packages. And I think growth in data volume obviously have prices been in decline. I think that's really the underpinning reason. How long can that continue? I don't know. It's difficult to say.

I think, inevitably, voice will be under pressure from OTT. I think data volume will continue to increase as it is today, but I think it will be -- the real question is how effective pricing will be and that's really a market question.

Then across the base pricing, it continues to be for a very, very useful tool for us, and we're actually getting more and more smaller scale in terms of our pricing. There is -- and what that means for us is that we can optimize and maximize the revenue without causing major competitive shifts in the market. So it's a very useful tool for us..

For IndiHome, next year, we are targeting to have in the range of 1.5 million to 1.8 million new subscribers. And unfortunately, until now, we still don't disclose the EBITDA margin for this particular business. And then your last question on the tax. So we paid IDR 750 billion tax related to asset revaluation program in the last quarter of last year.

Until June this year, that is still fixed as prepaid tax, and we extend some portion of the figure in the top quarter of this year, which is around IDR 200 billion in this third quarter..

Right, and so the remainder of the expense will be taken in the fourth quarter? Or will you be spreading them further out?.

It would be spread out. Some could be in the fourth quarter and some of this could be next year, sometime next year..

Okay.

Sorry, just to clarify in the IndiHome guidance, 1.5 million to 1.8 million total subscribers next year or new incremental subscribers next year?.

New customers, new subscribers, new additional customers..

Okay, this is kind of doubling, I guess, okay..

Yes..

We will now take our next question from Chen Lee [ph] from Bernstein..

Just 2 quick questions. One on just to clean up numbers. I thought SMS growth -- revenue growth for the 9 months have been only -- has been about 20% to 30%, but Internet data growth is only less than 10%. So just want to clarify whether that is the actual numbers? Or whether it's a misstatement.

And if it is, the actual number, what's causing that very different to expected dynamics? The second question is about the potential for market entry from a stronger operator from overseas. So we've seen 3 markets this year across the region including latest in the Philippines that they talked about introducing stronger backers especially from China.

Given the said competition in Indonesia, what's the possibility of that happening, do you think?.

The first question, I think, why data usage grows smaller than that of data [indiscernible]. Usually in Telkomsel side, we put like SMS for the non-P2P coming into the digital services. And then the consolidation, it is not in that category. So it is kind of different from the way we reconcile the group on that one.

But I think, overall, if you see from the payload and then how is payload coming to the digital, and as mentioned by Alistair, the payload grew by 85%. That brings us to the growth of revenue about 41%, which is just [indiscernible]..

So in terms of market entry from probably overseas operators, so I think there's probably 2 ways that could happen. It could be a new business startup or it could be buying an existing operator. I think the first one, the new business startup, I think the prospect of that is pretty much 0 and that there's really no spectrum available.

And indeed, I think the government's agenda is to -- for consolidation rather than further fragmentation. Obviously, there's always the opportunity for an overseas operator to buy an existing player. And I mean, I guess we have no real view on that. I guess, it could happen but no rumors at present..

We will now take our next question from Choong Chen Foong from CIMB..

Two questions from me. The first question for Telkomsel. If I look at the smartphone penetration for Telkomsel, that's lagging behind Excel. Going into the third quarter, implying that Telkomsel is getting a proportionately lower share of the smartphone users in the market. Is that a concern? You said that your network is superior.

So I supposed that -- could that be then that your data use, which are double of that of Excel, could be the factor of driving that difference? And my second question related to the regulatory side, can you give us an update on the IC rate cut proposed by the regulators? Where are we right now? And is there a certain time line for BRTI to make a decision on the IC rate cut?.

So I can take the first one on smartphone penetration. Look, I think the profile of our base has always been different to the Excel or Indosat, I think, for 2 main reasons. I think, one, their bases are really focused on Java island. Of course, we have a base at right across the country.

Secondly, their customers haven't tended to be slightly younger than ours, and both of those factors kind of mitigate towards higher penetration of smartphones. And it's a good thing and a bad thing. It's a good thing in a sense that we have half of our base are voice and SMS users, very, very solid revenue, very, very loyal.

Obviously, we're looking to grow the smartphone penetration. I also think that percentage growth is a little bit misleading as well because, in absolute terms, we're growing at a faster rate in terms of absolute numbers. I think really it's something which we've known for quite some time..

For the regulation updates, 74 interconnections regulation. We expect that [indiscernible] released by the government someday this week or next week, just waiting the information from the government when exactly the dates they will release in the region.

But based on our communication with several parties, we think that maybe someday, this week or next week..

Okay, and just follow-up on the 2 questions and answers. Back to the question on the smartphone penetration. You mentioned that you don't think that your competitors would be inclined to lower their pricing for the combo packages and overall data use.

But does that mean that you might have to bring yours closer to the competitor over time? That's my first follow-up. And second follow-up for the regulatory side. If the BRTI were to come back and say that they want to set the IC rate for Telkom and Telkomsel.

What can Telkom and Telkomsel do?.

So I mean, I guess on the first question, to be honest, I think the premiums that we have in the market are pretty well set. We're obviously the most expensive and that's driven really by superior quality, and I'd expect that to continue.

And I mean, ultimately, if the market is driven down any further in terms of price, that will have an impact on us. I mean, we're certainly not looking to drive the market down. And whatever opportunity we have to monetize further, we will do. I can't really predict what my competitors will do.

And if they do decide to ease off their own pricing, I think that speaks for everyone, but I just don't want to predicate future prospects based on what they're doing..

On the interconnection rate, I think as mentioned several times on the call that actually the revenue from interconnection only account for about 5% of the revenue, gross revenue. And then this one makes, I mean, 1% on the net [indiscernible]. It is quite small. And the second also, the pattern of the credit [ph] itself, 90% is actually is on net.

I think some part -- as long as, I think, the price is not that aggressive, I think we still maintain that one. But again, based on, I think as Harry said, on the trend of the payload [ph] is lot higher compared to the [indiscernible] so we focus on that one. I think on that one, we don't have the lead on interconnection rate.

So that from the business-wise, we see that one. We continue to invest our quality and addressing that kind of regulatory threat..

We will now take our next question from Navin Killa from UBS..

I just have one question on the interconnect rates. So in the very recent conference call, Excel management had indicated the possibility of having differentiated interconnect rates among different operators.

What is your thought on that scenario? And what it could mean in terms of a multi-tiered pricing structure? Is that something you'd be comfortable with? Is there a scenario you would like to avoid? So any big picture thoughts there..

We already expressed that our position on the interconnection supposed to be not kind of symmetric right now -- that we apply.

The best practice supposed to be asymmetric by considering the same rate that all advisers are going to bill across on this one so that the field rate -- our feel on the what is the best practice also based on the recommendation of IPU [ph] on this one. Second, I think on this, so we would like to see also the clear cost figure from them.

So everybody needs to clear, putting their costs. So their asymmetric, I think, supposed to be really the asymmetric rate..

There are no further questions in the queue at this time..

Thank you, everyone, for participating in today's call. We apologize for those whose questions could not be addressed. Should you have any further questions, please do not hesitate to contact us directly. Thank you, everyone..

That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect..