Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (TLK) Q2 2023 Earnings Call Transcript

Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK) Q2 2023 Earnings Conference Call August 1, 2023 4:00 AM ET

Company Participants

Edwin Sebayang - Vice President of Investor Relations

Ririek Adriansyah - President, Director & Chief Executive Officer

Heri Supriadi - Finance & Risk Management Director

Derrick Heng - Marketing Director

Mohamad Ramzy - Director of Finance & Risk Management

Conference Call Participants

Piyush Choudhary - HSBC

Arthur Pineda - Citi

Hussaini Saifee - UBS

Ranjan Sharma - JPMorgan

Operator: Good day and thank you for standing by. Welcome to the Telkom Earnings Call First Half of 2023 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I'd now like to hand the conference over to Mr. Edwin Sebayang, VP of Investor Relations. Please go ahead, Pak Edwin.

Edwin Sebayang

Thank you. Ladies and gentlemen welcome to PT Telkom Indonesia Conference Call for the Audited Results of Second Quarter Year 2023. There will be an overview from our CEO and followed by Q&A after the session.

Before we start, let me remind you that today's call and the responses to questions may contain forward-looking statements within the meaning of safe harbor. Actual results could differ materially from projections or estimations and may involve risks and uncertainties that may cause actual results to be different from what we discuss today.

Ladies and gentlemen, it is my pleasure now to introduce Telkom's Board of Directors who are joining us today: Mr. Ririek Adriansyah as President Director and CEO; Mr. Heri Supriadi as Finance and Risk Management Director; Mr. Honesti Basyir as Group Business Development Director; Mr. Herlan Wijanarko as Network and IT Solutions Director; Mr. Bogi Witjaksono as Wholesale and International Service Director; Ms. Venusiana as Enterprise and Business Service Director; Mr. Budi Setyawan Wijaya as Strategic Portfolio Director; Mr. Muhamad Fajrin Rasyid as Digital Business Director; Mr. Afriwandi as Human Capital Management Director. Also present are the Board of Director of Telkomsel Mr. Hendri Mulya Syam as President Director; Mr. Mohamad Ramzy as Finance and Risk Management Director; Mr. Derrick Heng as Marketing Director; Mr. Adiwinahyu Basuki Sales Director.

I now hand over the call to our CEO Mr. Ririek Adriansyah for his overview.

Ririek Adriansyah

Thank you, Edwin. Good afternoon, ladies and gentlemen. Welcome to our Conference Call for the Unaudited Second Quarter Year of 2023 Results. We appreciate your participating in this call. Second quarter of 2023 was considered as one of the significant milestone for Telkom Group towards the invitation of Five Bold Moves.

On that quarter to be exact on the 22nd of June 2023 Telkom has signed a spinoff agreement with Telkomsel that initiate versification between B2C and B2B business. On the B2C business Telkomsel will concentrate on improving the synergy with IndiHome to be the strongest fixed mobile converge or FMG operator in Indonesia.

By having the FMG initiative Telkom Group is very confident to monetize revenue uplift CapEx and OpEx efficiency to create EBITDA uplift starting as early as the second semester of 2023. On the other hand, Telkom will compensate on B2B business that covers the monetization of fixed broadband and enterprise segment or DBS [ph] enhancement of [indiscernible] infrastructure to form Infraco company, establishment of seamless data center company by Telkom data ecosystem, improvement of B2B services by synergizing [indiscernible] and Regional division and exploration of digital business prospects by creating legal ecosystem nurtured by digital business territory.

The market of B2B business Indonesia is promising and some of the prospects could become the common future engine of growth. Therefore, in order to nurture B2B business prospects in Telkom to become tangible revenue and profitability to Telkom. Just recently, Telkom initiated the development of group business development or GBD Director, led by Director, Honesti Basyir and B2B business market is tremendously promising visible prospects having the potential to drive Telkom future growth.

The strategic move enable to come to proactively seek partnerships, foster innovation and capitalize on growth opportunities within B2B sector by creating innovation and strengthening collaborative relationships, we are ready to create a dynamic ecosystem that drives mutual success and secure a trading feature for both Telkom and our valued business partners.

On our financial performance, as of second quarter of 2023, Telkom could maintain revenue growth by increasing 2.1% year-on-year and on a quarter basis, we could grow our EBITDA by 2.1% Q-on-Q, where our quarterly net income went down 1.4%. This period, we have additional spectrum costs from our last spectrum offsetting 2022 which in the future will have positive impact on service quality and capacity.

In the report, debt net income you also got the impact from tax treatment because of the opportunity gain from go to shareholding. Mobile and Fixed broadband still dominate the revenue growth contribution. On the Mobile business, Data Internet and IT service grew by 6.1% year-on-year, while IndiHome contributed 4.0% year-on-year growth. Mobile business continues to contribute positive growth on revenue by experiencing a 1% growth year-on-year supported by growth of the digital business driven by healthy growth of data and digital services.

Telkomsel top line growth absorbing the natural transition of legacy to data, as we manage this program through personification initiative in order to have Mobile tickets for customer needs. This EBITDA margin could be maintained at 56%, mainly due to revenue growth and successful cost leadership program. The [indiscernible] business treatment an engine of growth supported by the focus of maintaining dominance and network supply. The segment recorded performance with 7.4% year-over-year growth to IDR 37.7 trillion and increased its contribution to total revenue at 85.6% from 80.5% in the same period last year.

Telkomsel maintained concentrate on customer value management with a customer base at 153.3 million in the second quarter 2023 increased from 151.1 million in previous quarter with improved productivity and quality of the customer as indicated by higher payloads and our data user and solid ARPU growth from IDR 45,300 in first quarter to IDR49,700 in second quarter of 2023.

[indiscernible] strong numbers reflected to the growth of the [indiscernible] of productive customer as well as ARPU and revenue. Like [indiscernible] pose a big opportunity to grow the FMC initiatives continue to progress in second quarter marked by the signing of spinoff agreement within Telkom and Telkomsel on 27th of June. This initiative will enable Telkom Group to compete more aggressively in terms of existing customers' acquisition and get new subscriber.

[indiscernible] competition Telkomsel will prepare a massive strategy that improved cross-selling, upselling, and product differentiation using RWA and FDD technology. During the first half of 2023, we continue to maintain opportunity as a market leader and recorded revenue of IDR14.4 trillion of growth by 4% year-on-year where [indiscernible] Telkom Group revenue increased to 19.6% compared to 19.2% in the same period last year.

As a result a higher economy of scale and effective marketing strategy EBITDA margin of IndiHome was reliably stable at around 50% in second quarter 2023. We recorded around 316,000 additional customers during first half of 2023, brought the total subscribers to 8.9 million [ph] by the end of June 2023 or increased 7.2% year-on-year.

Around 66% of total customers were on workplaces, while remaining 34% were on reported. We are more effective and getting new customers to ensure customer credit quality.

IndiHome's important role in building digital society as [indiscernible] of 97.5% cities or district throughout Indonesia. IndiHome ARPU in the second quarter of 2023 was slightly declined to IDR160,000 due to more customer prefer to subscribe the dual-play packets.

IndiHome has become the market leader and many core portion of the customer is on high income customer. To maintain the sustainability growth, we are aiming the other lower income segment [indiscernible] services across IndiHome's customer.

Some of the economic offer in this year and the past business segment also grew in a positive correlation. As of first quarter of 2023, Enterprise segment successfully grew by 7.8% year-on-year and is a growth of IDR4.5 trillion going into price current equity basis digital solution and satellite business. This achievement marked a successful strategic alignment of Enterprise segment business and hope to be in positive territory throughout the year.

On the Wholesale & International business segment, also experienced positive growth in the first quarter of [indiscernible] by IDR23.4 trillion [ph] in revenue and increase 4% year-on-year. The driver of Wholesale & International business revenue growth was driven by [indiscernible] Wholesale business revenue growth was driven by our growing international wholesale voice business and our digital infrastructure business.

We believe that the consistency of the Five Bold Moves strategy would be our key for Telkom Group to sustain the SMEs in the digital factor business Indonesia and regional base.

Other spin-off agreement on the FMC initiative, we continue to pursue other strategy especially in Telkom B2B sector and some important moves on Five Bold Moves are as follows.

On the 22 June 2023 of the report from minority stakeholders to anonymized decision of FMC in the AGM Telkom and Telkomsel finalist signs of agreement as Telkom agreed to offer its IndiHome business to a controlled subsidiary with the Telkomsel. And as part of this transaction Telkom's shareholder position increased from 65% to 69.9% where repricing to as the manager shareholders diluted to serve Telkomsel from 25% to 34.1% after capital investment of US$250 million from [indiscernible] to maintain its stake around 30%.

The profit of the spin-off itself is to maintain the competitiveness and superiority of Telkom in facing the competition in the Indonesian telecommunications sector on retail segment. This also expected to accelerate the equalized other facility processing broadband services for all people throughout the nation.

In spin-off agreement, it is also stated that Telkom and Telkomsel agreed on the Wholesale agreement for the Industrial provision for SA1 for fixed broadband plus [indiscernible] for IT system service provision. Telkomsel and Telkom will be prioritizing in cost efficiency with no duplication of investment for the deployment of cellular and fixed are block and ultimately will create efficiency balance.

As part of our services and to capture the opportunity in B2B, Telkomsel and Telkom has launched what called as EBDS on digital exhibition in Jakarta. In these basis, the portion for digital ecosystem solution for business to support micro and small medium enterprise or MSME, [indiscernible].

MSME stems on strong popular platform solution for reservices, collaboration with a start-up and is developed to focus on support and solution for MSMEs collaboration with the financial execution of MSMEs financing; and lastly collaboration with MSMEs community to improve their productivity.

In the near future, Telkom will accelerate B2B segment commercial to edge regional division through our division to support MSMEs and local [indiscernible]. Telkom has been pushing infrastructure value and local FMC initiative. The company will continue to explore new Infraco and infrastructure potential. This initiative aims at optimizing consolidated Telkom's CapEx and exchanging quality improvement and cash ratio [indiscernible] asset can maximize revelation as well as to achieve the side differentiation.

And Infraco initiative we will have a new entity in chart of managing Telkom's cable asset this entity will be established this year and start running the business next year. By having Infraco, we can make our fiber network position more neutral and can be used by the external parties. Moreover, with this initiative digital Telkom, it optimize asset utilization and market penetration, general Telkom business since and create business value set with investor expectations.

As an effort to enhance competitive references scalable competitive growth and high operation, we are still in the process of restructuring our data center business by consolidating the business and assets under one entity, called PT Telkom Data Ecosystem with a neutral this year as expected.

Data center and cloud remain as one of the areas that became our focus as the demand is growing significantly with rising activities in digital business players.

With this stands our digital carrier and cloud infrastructure supported by secure network and backbone as our key competitive advantage to lead the competition in data center business.

With our integrated network, we are able to accommodate our future -- our customer future business digitalization mix such as commuting 5G services, blockchain and other digital solutions. And during the first half of 2023, data center and cloud recorded [indiscernible] billion in revenue.

As of June 2023, we have a total of 30 data center facilities, 25 for domestic and five overseas and spread out over the four countries Indonesia, Singapore, Hong Kong Timor-Leste. Our data center has ideal capacity up to 42 megawatts. Locally we see operates a peer advised data center and one hyperscale data center with a classification of Tier 3 and Tier 4 and other data center business profile several product and solution targets, such as shared co-location, dedicated co-location, working room, cross-connect, smart home and DC interconnect.

Our tower subsidiary combined Mitratel is now the biggest tower provider in South Asia with position of more than 36,000 towers. In the first half of 2023, Mitratel tenancy ratio improved to 1.9% to 1.6% at the same -- at the first quarter 2023. Mitratel also enjoys a set diversification with around 58% of the tower are located at Jakarta, while the remaining 42% are located in Jakarta.

Therefore, we believe that all business still has opportunity to grow, driven by increasing demand for mobile data and the upcoming 5G technology implementations. On a standalone basis, in the first half of 2023, Mitratel reported revenue of IDR 4.13 trillion, or grew 10.8% year-on-year driven by a total leasing revenues.

EBITDA and net income grew by 16.1% and 14.7% year-on-year respectively. Both EBITDA margin is expanding to 81.2% increased by 3.7 QVT [ph] and net income margin is at 24.8% increased by 0.9 QVT.

Colocation and a number of tenants grew by 19.1% and 24.6% year-on-year respectively. Mitratel has demonstrated a strong financial position with the relatively low rate of risk ratio at 1.8x net debt to EBITDA. This allows the company in securing growth opportunity while also providing stability to shareholders.

Mitratel is also expanding to the fiber to the tower business as part of strategy to strengthen its product portfolio to become a digital infrastructure company. Mitratel also strengthened the fiber optic business by deploying 10,628 kilometer organically in the first half of 2023 bringing the total fiber optic line is 27,269 kilometers by end of the first half of 2023.

That is ending my remarks and thank you for your kind attention.

Edwin Sebayang

Thank you Pak Ririek. We will now begin the Q&A session. When raising your question, please speak clearly and state your name and your company. Operator, may we have the first question please?

Question-and-Answer Session

Operator

Thank you, Pak. [Operator Instructions] Our first question comes from the line of Piyush Choudhary. Please ask your question, Piyush.

Piyush Choudhary

Yes. Hi. This is Piyush from HSBC. Good afternoon and thanks for the call. Two questions please. Firstly, in the non-mobile segment we saw EBITDA margin has dropped to 45% in second quarter versus 48% in first quarter. So what is driving such margin decline because within the segment we see IndiHome EBITDA and Mitratel EBITDA has been stable, which implies the other businesses EBITDA margin has fallen significantly. So any color over there?

Secondly on Telkomsel, congratulations on the launch of Telkomsel-1 brand. Could you help us understand what's the strategic objective here? Would it be to gain market share by providing bundling discount, or it is more of a retention strategy to defend market share in the high-value segment. Also any one-off cost due to this integration which can come in the subsequent quarters? And finally on the Telekomsel-1 when would the cost synergies start to kick in in the financials? Thank you.

Heri Supriadi

Thank you, Piyush. Heri Speaking here. On your question on the non-mobile segment why the EBITDA margin is a decline. There's some recent also. First on the as you made well allowance for bad debt although it is smaller compared to -- it was in the first quarter of this year. It is still quite high anyway around spend? This is because we are in the process of conservative recognition of the cost and also revenue, especially, coming from the enterprise segment.

But this number is going to be a better month upon the year as we start to finalizing the administration and want to strengthen the collection. So overall this going to be in line with the revenue growth in terms of the allowance for bad debt.

The second -- reason coming from the interconnection. The interconnection a bit as you may aware some technology 30% coming to these services for example coming from tax like [indiscernible] and so on, replacing basically the regulatory coming from interconnection. This makes business quite having lower margin although the volume is still there. But this is like competitive the margin becoming smaller. That's why you see the cost of interconnection grew higher compared to the revenue. But it is still profitable business.

The other costs coming also from the -- I think from enterprise as well some of the content that we will need to basically procure for the service also resulting the growth along with revenue. This among three of our – factual debt affecting the non-mobile business EBITDA margin, but for the end of the year as we explained this cost supposed to be in the better set. So the margin that we can generate are going to be determined.

Derrick Heng

Hi. This is Derrick. I will continue to add more color on Telkomsel strategy on IndiHome and FMC. So with the FMC's initiative, we want to enlarge the penetration of home broadband cloud Indonesia. We have launched more valuable proposition faster product and services as we have termed at Telkomsel-1, we enhance the experience for our customers with one bill, one application, one touch point, one solution which is new to our customers which we call it Unbreakable Internet. So the offers that we have introduced in the market include 1 GBPS package, and we have a hero product of 100 Mbps with -- including new features such as WiFi calling.

Heri Supriadi

Yeah. On number two on how we're looking at the cost synergy I think we've been identified this since the beginning and since -- to Telkomsel sustain cost the assets that we have identified as immediate cost efficiency that we can manage. First on the surface and channel integration, we see that, the bigger resources serving both mobile that immediately we can eliminate. We have the [indiscernible] Plaza Telekom duplicator we can accelerate in the minute. Part of that, I think we also can efficiently manage the cost and with managing the channel as one as Derrick pointed out we have now might have -- have already been able to serve not only Telkomsel, but also in new customers.

And having said that, of course, with more time that, we adopt the channel as one also will be efficient. And on top of that, we're also looking at the efficiency of the asset where we are now looking at how we can manage the CPE and device sources for fixed wire access which is a bit that we have and also in CPE that we have for IndiGo [ph] that can be efficiently managed on the investment side.

On top of that in terms of channel and go-to-market executions we're also looking at more cost saving on how we officially incentivize our channel. And not to make sure that we continuously efficiently platform costs that we are able to simplify that today we have application on both ruling how we serve the video service platform. And going forward, of course, it is something that we continuously will reduce from time to time.

Piyush Choudhary

Got it. Thanks, Heri and Derrick. Can I just confirm the cost synergies will start kicking in from the second half of 2023. Would that be a fair estimate?

Mohamad Ramzy

Yes. In terms of the cost synergy as this is Ramzy. As we already also put it when we do a non-deal show, we expect the synergy that we will get from these initiatives would be around IDR5.6 trillion in the next five years. But for the immediate, I think we expect to be fair for this first year is about 500. It comes from the platforms that already been mentioned by Basyir as well as regular market alignment.

Heri Supriadi

And basically, the saving or synergy that Ramzy just mentioned as you can see in the group level, there are some efficiency coming in the pattern level, and also the subsidiary some are resulting from the Telkomsel.

Piyush Choudhary

Thank you, Pak Ramzy, Thank you Pak Heri

Operator

Thank you. Our next question comes from the line of Arthur Pineda from Citi. Please ask your question, Arthur.

Arthur Pinedai

Hi. This is Arthur from Citi. Several questions, please. Firstly, on the OpEx line. When we look at your competitors, you're seeing well controlled OpEx and rising margins, and you're seeing some pressure on your margins on a Q-on-Q basis. What accounts for this and what can be done to address this? Of course, you're seeing O&M, personnel cost growth as a problem. I know you mentioned a while ago, there are some issues on receivables. Can this change into the second half, even mobile didn't see an improvement unlike your peers.

Second question I had is, with regard to your fixed mobile convergence savings. You've mentioned around IDR 0.5 billion target synergy this year. Is this cost reduction, or is this inclusive of potential cost savings, which we may not really see filter through to the margins on basically things like CapEx. And last question, I had is with regard to guidance. Having seen the first half trends, how do you see guidance for the remainder of the year? Thank you.

Heri Supriadi

Thank you, Arthur. Heri, speaking here. First, on the pressure on the margin. If you see from Q-on-Q as Ririek Adriansyah [ph] mentioned some cost is quite conservative recognition procedure, that we apply especially in the enterprise, that rising year-on-year of the allowance for bad debt cost for example. And then personnel cost, and the cost of I think some logistics benefit, that we provide to the employees. This is going to be also normalized over the year. So we do expect the growth of the, I think personnel cost going to be slightly lower compared to the cost that we recognized, during the first half.

And then the other costs, also we may see the benefit coming from example in the spectrum cost coming this year actually, coming since November last year. So, this year starts in January of course. This is going to basically reduce the need for us to invest more, I think our network infrastructure as compared, if we don't have that additional spectrum.

So, along with the time, that we basically use the spectrum mall, the cost is going to be -- the benefit going to be actually going to be enjoyed by us. So, that's going to be betterment in terms of maintain stability of the growth of the expenses itself. By having that scenario, we expect here actually, we expect we can see the benefit from the stability of the margin, until the year-end and stability of the growth year-on-year of the cost that we mentioned. So, that's I think about the cost figure in the coming half, and we do expect this going to makes our margin determine stable in the second half and towards the year.

And then in terms of the synergy, the synergy basically coming from the both side. It is coming from the top line, additional subsidy that we expect coming from the fixed mobile convergent, as well as some synergy in terms of cost reduction coming from eliminate redundancy and then also some CapEx efficiency as well.

So this for the first year, we expect we can recognize around IDR500 billion of the cost setting of synergy. And then in the 2027 as mentioned by Ramzy around IDR5 billion to IDR6 trillion combined of the CapEx and then OpEx as well as in the revenue side. I think that's a direct figure.

The last it is about guidance how we see what is remind of the year, we already explained basically the business potential. The challenge that we have right now, if you see from the figures, Telkomsel still quite good revenue growth in the connectivity. But in the same time, for example, in the Telkomsel case, they covering by the around 25% of legacy decline. This limits the growth overall becoming only 1%, but in the digital connectivity it is quite healthy.

Provided that export sold the legacy is still quite high, we see that I think Telkomsel going to be improved in the second half, but this is still offset by legacy decline until we finally are coming to the, I think a quite stabilized among our contribution coming from the legacy. By having this situation and then some I think we do also expect FMC can provide some value added in the -- we start to gain benefit from FMC in the second half. We expect some improvement from that. And then coming from I think enterprise, I think the growth is supposed to be stable until the year end.

And then from Mitratel, they already recognized revenue growth around 10% to 11%. We believe this would be consistent towards the year-end. While having that situation actually, we see actually the revenue in term of avenue in group platform we see the growth of revenue going to around low to mid-single digit because of the situation.

In terms of margin, we believe we're going to do our maximum level cost leadership in the second half of the year while try to pursue the revenue side. We are able to maintain the stable margin as we have today 50 plus of EBITDA margin and around 17% and plus in the net income margin. That's going to be our target still.

And the last on the CapEx, of course some of the objective of FMC and also our objective to have I think value added in terms of the CapEx efficiency. We do expect the spending going to still around 25% of revenue of the CapEx that we're going to spend this year. So basically, only in the top line, we have a bit of change in the guidelines, but in the middle line how much we're going to spend in the CapEx remains the same.

Arthur Pineda

Sorry, just to clarify the comments on the margins for the second half, you mentioned stable margins. Are you referring the full year margins to be stable year-on-year, or are you seeing first margins with the second half?

Heri Supriadi

Yes. We try to stabilize the margin until comparable to…

Arthur Pineda

Got it. Thank you very much.

Heri Supriadi

Thank you, Arthur.

Operator

Thank you. Our next question comes from the line of Hussaini Saifee from UBS. Please ask your question, Hussaini.

Hussaini Saifee

Yeah. Hi. Good afternoon. Thanks for the opportunity. Several questions from me. First is on the Telkomsel revenues where we've seen some softness or market share decline versus your competitors? I understand that legacy is one part of that. But do you see your competitors becoming a bit more aggressive or gaining market share in the X Java region? And the related question is that the data volume growth of Telkomsel which is around 7%, 8% is significantly below compared to the competitors at around 15% to 20%. So I wanted to understand what is driving a slower data volume growth?

The second question is on IndiHome. The growth is softer compared to the previous quarters. I just wanted to understand that how should we see second half for IndiHome in terms of customer additions. Any color on will the focus will be more on fixed wireless access customers or a combination of IndiHome or fiber and wireless access customers. And finally, Telkom is focusing or going to focus more on B2B business. And then the focus will be more on the collaboration. So I just wanted to understand that will there be any initial investments required to grow B2B business? Thank you.

Derrick Heng

Hi. This is Derrick. I will address your questions. With regards to competition, competition continued to remain rational. We see all of business focused on profitability and long-term service. However, we see addressing in some areas which translates to price competition. And that's aligned to coverage expansion outside Java and offerings for ship pricing with prior quarter. Telkomsel, we will continue to lead the healthy conduct and we focus on profitability. With two CVM selective decreasing pricing and we want to monetize data traffic and improve the renewal journey.

So our initiative is to drive smart acquisition to defend, market share aligned with profitability. If you look at our last Q, we have grown 0.5% Q-on-Q over 153 million subscribers. We have applied consistent healthy market conduct with smart customer acquisition strategy. With optimized CVM, we focus on renewables. So if you look at the customer base, we have improved productive and quality of our customers as indicated by the growth payload and the strong ARPU growth, which is a plus 9.8% Q-on-Q and plus 13.1% year-on-year and that's aligned to our strategy to lead healthy conduct, drive market repair and industry pricing rationalization.

So thoughts on paid load. Traffic will still grow positively, aligned with our network quality improvement and increasing productivity by CV and FMC and product simplification. So in addition with the initiative of healthy conduct and high-quality subs, we will continue to drive productivity and ARPU improvement in the long-run. So we want to manage pricing in a very prudent manner. Payload growth aligned, managed sustainability in terms of yield. I hope that answered your question.

Mohamad Ramzy

On the payload side, I think going forward what we see the growth is in the various levels. One on how we cater the additional of home additions it is both combination between fixed broadband and visual assets. The way we see it, we continuously drive the adoption of fixed broadband where it is available. And on top of that the growth of revenue which is also coming from driving the ARPU up for the high value customers.

Where we see that – to date, our Hero product that we just launched is 100 mbps. We pushed to a higher speed, higher ARPU in higher segment including the additional combination between Telkomsel Fixed and Mobile in the Telkomsel-1 product. And on top of that to also accelerate the position in the fixed broadband assets to address the competition as well as to address the market penetration, where our fixed broadband is not available. And we also use fixed broadband access in order to address an interim solution before we can actually serve the fixed broadband. So with that I think our weapons to really attract the customer and address the customer on the [indiscernible] retaliation will be complete to be compared to our competitors. So we believe that we are sort of work for us.

Heri Supriadi

On your question when Telkom focused on B2B, will the investment looks like. If we see the B2B, the base of the B2B, of course, we have connectivity. We still invest on that one. Of course it is similar to basically a fixed broadband with the focus on the enterprise subscriber of course in this one. And above that one there's something cloud facilities that we need to cater on that one. But mostly actually coming the solution that some of that we come with the agreement in the term of partnership with our partners, who provide such cloud I think solution but we didn't really want to add some.

Ririek Adriansyah

So as of the growth we also invest on the data center, since we also have started to the Groundbreaking NeutraDC Hyperscale Data Center in Batam to capture the speed of demand from surrounding country include Singapore. We also expected that we can have additional capacity more than 21 megawatts this year. Anybody?

Hussaini Saifee

Hey, thank you. If I can have a couple of follow-ups, on the Telkomsel side just wanted to get your view as the focus is more on monetization. Do you see opportunities to further or maybe increase some prices in the second half?

And on the IndiHome, just wanted to get your view that, how would you characterize the competition in the market right now? I mean, the softer IndiHome growth in first half was it because of elevated competition, or was it because of more selective subscriber or new subscriber addition?

Derrick Heng

This is Derrick. I will address your question on, what would be the potential price increase opportunities. Indonesia has one of the lowest data pricing, in the world. So we saw 2022, we did Telkomsel the market repair. We have done pricing rationalization.

In fact, during first half, we did more for more, from a pricing monetization perspective. What is good is, we see all the operators adjusting pricing, but we have done it in a smart manner. We had done it through to CVM to address customer preferences, their requirements and in order to deliver better experiences.

In fact, we have many options for our customers, based on products customers' preferences. So the impact of the adjustment will be based in -- will impact in features whether is it from a prepaid mechanism perspective, personalization rotational channels or dynamic competition in various areas. So this is how we see opportunities where we can acquire better pricing through smart CVM.

Ririek Adriansyah

Yeah. Well, Hi Hussaini, we'd like to add on Telkomsel and also answer the IndiHome question. On the Mobile side, I think the way we see it, we are always been persistent on industry growth and you can see from the first half is up or ARPU are slightly increased and also the CVM up there.

So we always demonstrate ourselves are aligned with the industry growth when we come to the data. Now Derrick will discuss on the Telkomsel. On the IndiHome side, what we see I think the market competition today we are seeing of course some aggressivity on certain cities. They are very selective when they're entering the market.

And the way we see it on those competition markets of course we always did to part with the competition. And today I think the IndiHome price is actually in the part situation. If you see from the average pricing of the IndiHome it's almost the same.

Now I think the game we need to change a little bit. We shift gear to higher monetization on the higher speed, high-value customers where we also produced to the best of the market. That one I think we used the new product containing the higher speed with affordability effort that we have.

And with that we believe that IndiHome with the penetration that we have on the network side we're going to have that to leverage the value. And also, of that some of the markets we are actually very high market in terms of share. So certain city, we don't have the competition. So in that condition we can help to benefit better and monetize it.

Hussaini Saifee

Understood. This is very, very clear. Thank you very much.

Operator

Thank you. Our next question comes from the line of Ranjan Sharma from JPMorgan. Please ask your question, Ranjan.

Ranjan Sharma

Hi. Good afternoon. And thank you for the presentation. A couple of questions from my side. Firstly, if I can just go back to the cost discussion. I'm seeing O&M cost up 9% quarter-on-quarter. Personnel costs 10% of quarter-on-quarter. I'm sorry, I missed the part of the discussion on why the costs are up so much if you can revisit that. Second question is again on, if I look at the P&L you have recorded like IDR 288 billion of nonoperating expenses if you can kindly explain like where that comes from? And the last question is more strategic Starlink seems to be getting licensed in a number of countries most recently like Malaysia. If they were to get licensed in Indonesia how would that impact your broadband strategy for IndiHome?

Mohamad Ramzy

This is Ramzy. To respond to your question about the cost side. On the O&M cost, yes we have some incremental due to our investment in spectrum and it crossed the addition of about IDR 70 billion a month but it will be a good cost because we will need it to provide more capacity and confidence to our customer without having to have some significant incremental in the CapEx side. The other part is...

Ranjan Sharma

But the spectrum costs when did they start from?

Mohamad Ramzy

It starts from last year because we acquired the additional spectrum in the...

Ranjan Sharma

So I'm making a quarter-on-quarter comparison versus first quarter, so that will not affect your cost comparison from the first quarter to second quarter?

Mohamad Ramzy

Yes. So I think on a year-on-year basis as I mentioned on the spectrum side, we have last year we have on spend on that one. The other part is on the personnel cost because since last year there is some new tax decree from the government on the income benefit tax that last year, we recognize that in the fourth quarter. This year we start to recognize since earlier this year. So at the end of this year, it will be catch up and it will be normalized on the personnel cost especially on the Telkomsel. It will be at around 5% to 5.5% growth rate.

Ranjan Sharma

Can you come back to the O&M cost again like because you explained it via spectrum but that will not have an effect on a quarter-on-quarter comparison. So why is the O&M cost up so much from the first quarter?

Mohamad Ramzy

Okay. I think let's Pak Ramzy [ph] collect some more information on that question. But and then on the second question in the profit and loss you mentioned about our nonoperating expenses. How much you refer the number is?

Ranjan Sharma

IDR 288 billion for the second quarter.

Unidentified Company Representative

Okay. It is mainly coming from the interest and also coming from the foreign exchange net loss because we have for this case foreign exchange loss, we have in our book around US$651 million. But during the same time as you compared to the closing of the year 2022, the rupiah strengthened to USD it bring us to recognize some unrealized loss coming the change of the foreign exchange compared to our currency. That why we still recognize some nonoperating expenses.

Ranjan Sharma

Thank you. Last question...

Unidentified Company Representative

For [indiscernible] the only operator debt already is starting in Indonesia is platform and how do we manage the [indiscernible] in Indonesia. And starting right now a license has already been published by government is only for the big hole service, not for consumer service. So for the Telkom [indiscernible] will be used for the take hold of the cellular for the remote, extra remote area and also for the IndiHome they call it. And we started selling in the consumption with will be increasing significantly, as well as the better consumption of IndiHome and cellular being increasing significantly.

Ranjan Sharma

Yes. My question is more around the consumer side, right, because in many countries, now they're providing direct services to consumers, they are licensed in 50 countries or so. So, if it gets licensed and into orders that affected your IndiHome plans?

Unidentified Company Representative

Government does not published the license for the consumer business for [indiscernible].

Ranjan Sharma

Okay.

Unidentified Company Representative

Let me add. Let's assume the scenario is the government is having the price point will be different between starting every -- looking from what they have now is about $100 per month. Even if that -- is still higher than the ARPU of IndiHome, I think they are serving a bit different segment. And then on the split also can be different between live and abrupted concerns. So, I think the two are not really to have their way competing but we have a different market segment.

Ranjan Sharma

Okay. Thank you.

Heri Supriadi

As I highlight basically on the O&M costs quarter-on-quarter basis, growth was 0.8%, but in the year-on-year basis, its growth about 6.6%. Most of the growth comes from the additional costs that we have to pay on the additional spectrum in 2100 as well as in 2300.

So, on that point, I think I would like to highlight that if we normalize that I think the growth on O&M just around 2% and it's still aligned with the addition of the capacity and pallet that comes to our reform.

Ranjan Sharma

Looking at different numbers because I'm seeing 9% growth quarter-on-quarter. Maybe I'll send the calculations after this call.

Heri Supriadi

Sure. Yes. I think we've more detail on that one after the call. Thank you, Ranjan.

Ranjan Sharma

Thank you.

Operator

Thank you, Ranjan. So, our next question comes from the line of [indiscernible] from BNI Securities. Please ask your question.

Unidentified Analyst

Hi. Thank you for the opportunity. Just a few questions from my end. I would like to touch on the number of Telkomsel subscribers, which have been seeing also the growth in the second Q. So, I want to ask what is your take on the subscribers going forward? Should we expect this to grow momentum to continue, or are we going to see some more stabilizing at current level?

And second part of my question is that you added about 2.2 million of new subscribers in the second quarter. But if we look only on the mobile data subscribers, it only added about 252,000 or about 11% of the new subscribers. If you can share a bit of comment on this pattern that we see would be very helpful.

And also following this on the ARPU, a nice churn of about 9.7% quarter-on-quarter. But with the model subscribers increasing only about 252, should we expect this driven by the existing subscribers? And if that's the case how do you see like the new mobile subscribers spending kind of like pattern there? Thank you very much.

Ririek Adriansyah

We are very sorry if the suddenly the line will be off because we have already reached the limit for the time.

Derrick Heng

This is Derrick. I will address the question. First on the Telkomsel subscriber being positive growth. Yes, we have managed to grow 1.5% Q-on-Q. And this is a testament of applying consistent healthy market conduct. We have demonstrated smart customer acquisition strategy. We've optimized our customer value management and we focus on renewal. So that results in the number of consolidation from healthy productive subscribers.

From an ARPU perspective, we see stable customer base with improved productivity and the quality of customers as you can see from the growth in terms of payload and ARPU growth. That was already a context to how we consistently drive healthier conduct and industry fronting rationalization.

Telkomsel will continue to focus on improving high-value customers monthly and highly known and such a package to address different customer requirements customer needs via granular marketing initiatives. So moving forward, we will continue to push ARPU with customer productivity. And of the ARPU increase we will look at effective as well as price adjustment opportunities. So for fair assumption the ARPU level we see will be stabilizing in 2H 2023.

Operator

All right. Thank you. So we have reached the end of the question-and-answer session. Thank you very much for all your questions. I'll now turn the conference back to Pak Edwin for closing remarks.

Edwin Sebayang

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

Operator

Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect.