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ISAT.JK - Q1 2012 PT Indosat Tbk Earnings Conference Call and Webcast EVENT DATE/TIME: MAY 08, 2012 / 8:00AM GMT
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MAY 08, 2012 / 8:00AM, ISAT.JK - Q1 2012 PT Indosat Tbk Earnings Conference Call and Webcast
CO R P O R AT E PA RT I C I PA N T S
Nicholas Swierzy PT Indosat Tbk - Head of IR Harry Sasongko PT Indosat Tbk - President, Director and CEO Stefan Carlsson PT Indosat Tbk - CFO and Director
CO N F E R E N C E C A L L PA RT I C I PA N TS
Sachin Salgaonkar Goldman Sachs - Analyst Sachin Mittal DBS - Analyst Yaersk Haider Acquired Research - Analyst Sachin Gupta Nomura - Analyst Colin McCallum Credit Suisse - Analyst Roshan Raj Merrill Lynch - Analyst Kelvin Goh CIMB Malaysia - Analyst Luis Hilado HSBC - Analyst
P R E S E N TAT I O N
Operator Ladies and gentlemen, thank you for standing by and welcome to the PT Indosat Tbk Q1 2012 results conference call. At this time, all participants are in a listen-only mode.There will be a presentation followed by a question-and-answer session. (Operator Instructions) I must advise you that this conference is being recorded today, Tuesday, 8th of May 2012. I would now like to hand the conference over to your host today, Mr. Nicholas Swierzy.Thank you. Please go ahead.
Nicholas Swierzy - PT Indosat Tbk - Head of IR Thank you Operator, and thank you all for joining the Q1 2012 Indosat earnings call. I'm joined on the call today with our President, Director and CEO, Harry Sasongko and our CFO and Director, Mr. Stefan Carlsson. What we'll be doing today is having an overview of results and Stefan will talk a bit about some of the operational results as well, and then we'll go straight into a Q-and-A to make the best use of your time. Just a little bit housekeeping as always; each time you have the floor, you'll be limited to two questions, so please bear that in mind when you are asking. And just a quick Safe Harbor disclaimer. The Company cautions the callers that certain statements are management's intentions, hopes, beliefs, expectations, and are forward-looking statements, and that the Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of future events, new information, or otherwise. With that I'd like to pass off to Harry Sasongko, President, Director and CEO for an overview of results. Harry, yes.
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Harry Sasongko - PT Indosat Tbk - President, Director and CEO Hi everybody. Good afternoon.Welcome to Indosat Q1 2012 call. I would just quickly go -- the results of Q1 2012 year-on-year and quarter-by-quarter. For year 2012 annual review, what has met our expectations is that the EBITDA margin growth 0.7% becoming 47% due to higher revenue and improve in OpEx control. The debt is lower at 3.5% year-on-year and thus lowered the financing cost by approximately the same, 3.5% year-on-year. And subscribers grew by 14% year-on-year which translates into 6.4 million additional subscribers which primarily was in the youth segment generated by the IM3 portfolio. What are the -- the misses were that the free cash flow declined by 70% year-on-year to become IDR83 billion due to higher interesting activities in this quarter. Profit attributable to owners of the Company of IDR16.7 billion is a huge decline from last year due to mark-to-market FX loss of IDR145 billion. In terms of consolidated revenue we grew 2.1% year-on-year to IDR5 trillion, where in fixed telco business we experienced a decline of roughly 30% year-on-year. In terms of Cellular revenue, we grew 3.3% year-on-year to IDR4.1 trillion where the key [gap] on Cellular revenue grow was related to capturing data business growth. On quarterly basis, what has met our expectation is the EBITDA margin growth of 1.8% q-on-q. This is a primary result of one-time charges taken off in Q4 2011 which is one-off, meaning one-off which is the frequency and the personnel and banking charges. Free cash flow grew 108.5% q-on-q due to lower CapEx outflow compared to Q4 2011 and debt lower 1.2% q-on-q.What did not meet our expectation is the profit attributable to owners of the Company, growth 111.6% due to increase in EBIT and lower FX losses. Consolidated revenue declined by 4.5% q-on-q, where the decline were contributed by fixed telco business and MIDI business down IDR89 billion and IDR67 billion respectively. In terms of Cellular revenue, the fall 1.9% q-on-q due seasonality. Our Q1 is always a bit lower than Q4. As mentioned previously, the key gap on Cellular revenue growth was related to capturing the data business growth. In terms of subscriber, we have 1% growth q-on-q translating into 354,000 net additions in subscribers. I will now handover to Stefan to talk about the guidance and financial results.
Stefan Carlsson - PT Indosat Tbk - CFO and Director Thank you Pak Harry. I will then move into the guidance section for 2012. I think the -- one part of the guidance that you have definitely gotten before from us is the CapEx part and as we have articulated earlier is that we think that we can stay around IDR6 trillion on CapEx, plus/minus 10%. And we already know that you -- some of you have been commenting that that might be too low, but we don't think so. We have -- we've done some good initiatives on getting the overall CapEx efficiency, CapEx pricing to an improved level, so we think that IDR6 trillion plus/minus 10% will be sufficient. On revenue, we are now -- given that we have started in Q1 as you have noticed on a slower-than-industry speed on revenue growth, we are saying that for the year we anticipate to have an improved trend from the latter part of the year, which will take us to a in-line-with-industry growth on revenue. And industry growth is what we have said before, around 5%-6% for the year. EBITDA margin, we're specifying to be around 46% to 48% for the year. Moving on from the guidance, as Nick said, I will only go through the operational update part.

We assume that the financial results you're quite familiar with by now. If I start on a very quick overview on the Cellular market activities, we have to remind everyone that Q1 is normally seasonal. It's a few days shorter than Q4 and normally you have a higher activity level in the fourth quarter of the year. So it's slightly lower on revenues partly because of that.We're also having some issues on rebuilding the premium contents, similar with the other industry players. I think the regulator hasn't -- only intervened one time, but come back and taken action against certain content providers also during Q1. So there's no linear build-back for the time being of that revenue. So we're still impacted by the premium content issue. Overall, in Q1, I would say that the -- and IM3 continues to be very strong youth product.We launched something called Anti Galau which is focused on -- mainly on SMS revenue and you can also see that in the improvement on the SMS profile. On the data revenue side, as Pak Harry mentioned, we're still lagging in growth momentum. Part of the reason there is the big screen or the wireless broadband part which has been integrated into Indosat and during those months, early in the year we foresee -- we expected a slowdown in those big screen revenues simply because of the transition to a new organization. We're also doing -- we're continuing to do CRM et cetera activities, which we will anticipate to see improvements in the numbers probably from the second half of the year.That's a bit of what we did in the market in Q1. If you move to the next slide, we have an overview of the revenue performance with arrows up and down.What's pretty clear from this one is that we have pressure like, I think our industry peers on Voice revenue. In our case, it's not only the pressure coming from data or migration, but it's also migration from Mentari in our case to IM3 which carries a lower average revenue per minutes and lower ARPU. So there's some pressure coming from that on Voice. SMS, as I mentioned we're doing quite well thanks to the campaigns we have run the last quarter. So the net revenue is up and to some degree driving growth for the quarter. Data, we're also seeing apart from having a bit of a lag in our momentum, you're also seeing there that the big screen revenue is migrating to small screen to some degree. And so small screen is growing, however we see the issues of maintaining the wireless broadband revenues. That I think I commented on already. There were a few setbacks also during Q1 that impacted the build-back of that revenue, so that revenue wasn't a linear build-back as we expected from beginning.That's a bit on the revenue. If I move on let's talk a bit more about on the data area on the following slide. We're working quite a lot internally now with transitioning the organization further into the data business. We're transitioning the whole value chain to deliver an acceptable customer experience in all parts of the value chain and to have a more data-centric organization and focus. We're also looking at the value propositions overall, and also jointly with a more aggressive bundling strategy, not only related to certain handsets, but definitely across the operating systems that are predominant in the market, for example Android. Rollout obviously has to happen; we are continuing to rollout aggressively. Actually we're speeding up on rollout of the 3G network and as you also know, most of you, we're having discussions on spectrum neutrality et cetera in this market as well which we think will benefit Indosat long-term as well as other industry players. Moving on to next slide 11 on building a competitive advantage on data, just a few comments on that one. As I mentioned already the -- we're executing on a data comeback plan or a data momentum buildup plan to as soon as possible get back on a fair share of our market share growth that we should have in the business. And we will launch in the period to come more bundled campaigns and more aggressive [re-lo] campaigns to make sure we stimulate data usage.

We also have in general -- we're increasing focus on loyalty programs to reduce churn and stimulate usage. I will move on to subscriber market shares. As you can see from that slide if you look at subscriber counts or SIM card counts, we are maintaining our second position in terms of subscribers and also on consolidated revenue share. Subscriber grew 14% year-on-year compared to Q1 2011, and 0.8% compared to Q4 2011. Yes, it's worth noting that -- as most us know already that the market is getting more penetrated and more saturated. Although SIM cards are more than 100% for the time being and growing, the real penetration still should be noted if it's probably not higher than 60%-65% or so. But anyway it's getting more saturated in this market. Okay, usage trends; I think we're showing for the first time our data traffic trend on this slide. I think Voice minutes and SMS we probably talked about before. Not much to say here; I mean there are still some growth in Voice. SMS is being most cannibalized you could say by messaging moving to instant messaging and over the Internet. Data usage is growing at an increasing speed and we expect that trend to continue. So pressure on Voice minutes, and pressure on SMS, and we expect the data traffic not surprisingly to increase the speed of growth going forward. On the 3G network rollout progress, as you know most of our CapEx is focused on rolling out the data network. They're making sure we have enough capacity in the network. And as of end of first quarter we reached 3,000 -- yes, roughly 3,800 Node-B base stations. And we are continuing and increasing the speed of rollouts going forward and upgrade to HSPA, et cetera is part of the plan. It could be interesting to know the number of cities that we're currently covering with 3G is 156 key cities across the country, and of course growing every week, every month. So we'll come back with updates further on, on the 3G rollout as we go along. Cost efficiency program, you know what we did last year; last year, we talked about it before. I think (inaudible) was the big initiative. We're seeing in this graph here that maintenance cost and personnel cost as expected is showing improvements.We have a general cost pressure upwards on spectrum fee and license fee et cetera on -- which is cost of sales, but in general most OpEx elements are either stable, I mean, under control or decreasing, which is good. The focus in the operational efficiency program is mainly now on looking at what we can do on cost of sales. As I said, it's a big cost and part of it going on direction. Network and IT operational cost is also part of the main focus for the program, and CapEx efficiency. And CapEx we've just concluded on a tender that will improve our pricing and we're continuing with our network sharing exploration as well. So that's enabling us to keep the CapEx to sales level under control going forward. I think that concludes some highlights, Nick, on the operational section. We propose not to go through in detail the financial section, but go to Q-and-A.
Nicholas Swierzy - PT Indosat Tbk - Head of IR Yes, thank you Stefan and Pak Harry. Operator, can you now move us to the Q-and-A section of the call and just ensure that the participants are limited to two questions each time they have the floor?
QUESTIONS AND ANSWERS

Operator Yes sir. We will now begin the question-and-answer session. (Operator Instructions) Sachin Salgaonkar, Goldman Sachs.

Sachin Salgaonkar - Goldman Sachs - Analyst My two questions, firstly I want to better understand your EBITDA margin guidance. So on a normalized basis, are you looking for a decline in EBITDA margin in 2012 because your normalized EBITDA margin in 2011 was 49.5% and your 2012 guidance is 46% to 48%? So any particular cost item pressurizing EBITDA margin going forward? And the second question is any reason why Indosat is seeing a more pronounced impact of this data migration that is from large screen to small screen and how long do you expect this to continue? Thank you.
Stefan Carlsson - PT Indosat Tbk - CFO and Director Thanks for your questions. So on the EBITDA margin, you're right, there are some pressures on the margin that we see in 2012 which we haven't articulated in detail before, but we have indicated them. One is within the cost of sales area, we have a spectrum and license charge which is growing heavily. We also have a BlackBerry fee because our BlackBerry base is increasing. We also have a growing cost from that area which is pressuring the margin. And then in general we also have with an increased going forward data revenue share of the total revenue, there will be a general pressure from that as well. Those are the main pressure points on the EBITDA margin, why we say it's going to be between 46% to 48% and not something higher than that. Large to small, I think that's -- maybe the reason for that is that I think we were pretty early in on large screen and took a very strong early position there and I think that's why you might see a bigger effect in that migration for other players, but -- that would be the comment on your questions.
Operator Sachin Mittal, DBS.
Sachin Mittal - DBS - Analyst My first question is why are the marketing costs up in this quarter when competition is relatively stabilized? And I'm expecting -- I was expecting the cost given the kind of revenue growth which is coming through in this quarter, the marketing cost looked high to me. Any reason behind it and what can be done about it? Second is on -- you have not reported non-Voice as a percentage of revenue. Any reason behind because you claim to be data leader, at the same time we are not seeing the numbers of non-Voice and the trends in the non-Voice as a percentage of revenue. If you can indicate to us what kind of figure is that?
Stefan Carlsson - PT Indosat Tbk - CFO and Director Thanks for your questions, Sachin. I'll take both of them I think. So marketing cost, I think it's a good observation.What we -- obviously that's a cost that we fully controlled and we deliberately decided to be a bit more aggressive in Q1 because we were not happy with the momentum that we had in -- coming into the year. So it was simply a -- yes, a decision to try to build momentum which naturally you haven't seen in the Q1 numbers, but sometimes that also takes time to buildup. So it's part of trying to build that momentum on the revenue side mainly for Cellular, for (inaudible) this up, so that we can get back to industry speed or higher. Non-Voice break-down, I think that's -- again there's an alignment there with the rest of the Qtel Group.We -- I think we have shared some of those numbers before, but we don't share it formally in these calls because the broader Group hasn't shared that split-up yet.

Operator Thank you. [Yaersk Haider, Acquired Research].
Yaersk Haider - Acquired Research - Analyst Just a couple of questions; firstly just on the strategy, firstly on the SMS side. Obviously that's a big part of your promotional push at the moment. Just wondering how that will be impacted once the SMS Interconnect fee comes into play? And then also strictly on the strategy side of things, what you --- I guess your observation there is that the migration from Mentari to IM3 and is that something that you guys are I guess willingly encouraging or what's the stance there, what are you guys thinking? And then just -- secondly just on the competitive outlook in terms of you mentioned that you're a little bit more aggressive on marketing cost in the first quarter to try and build revenue momentum, I mean can you give a broader picture where you see the market at currently and I guess where Indosat fits into that picture? Thanks.
Harry Sasongko - PT Indosat Tbk - President, Director and CEO Yaersk, this is Harry. I guess on the SMS, I think, we see this as quite positive and we have the Interconnect implemented. I think it's more the smaller operator that has been utilizing this free SMS as a tool to actually acquire subscribers.We have been very -- quite balanced in using this SMS actually and that's why I think we view it as positive. As for the second question, can you repeat the question just to try to understand what you are trying to get at?
Stefan Carlsson - PT Indosat Tbk - CFO and Director About the Mentari to IM3, yes.
Yaersk Haider - Acquired Research - Analyst Sorry, this is the Mentari to IM3, my question.
Harry Sasongko - PT Indosat Tbk - President, Director and CEO I think we don't feel that that's so much of a migration -- (technical difficulty), but basically I think we feel that on Q1 I think the -- obviously the bulk of the revenue comes from the IM3 and secondly from the Mentari. So I think what we probably are very careful of is the Indosat Mobile and the Indosat Internet migration. I think while those on relatively basis has been growing well, I think we are focusing a lot on the IM3 which is the youth program basically that has been the strongest portfolio of Indosat. So I think the Mentari staff is still there, but again I think what we have focused on right now is on the IM3. I hope that (inaudible) what you are looking for.
Stefan Carlsson - PT Indosat Tbk - CFO and Director If I may add a couple of points on that, I think the migration is currently something that impacts us a bit negative, because IM3 carries a lower ARPU et cetera, but I think we definitely are trying to control that migration.
And we are generally of the view that if that segmentation is working in the medium and long-term, which we expect, it's better to have a customer on a product that it will stay and they feel is the right product for them rather than have them stick around and leave to another player, right? So part of the migration is problematic, but also partly it's a good thing. So we need to make sure that it eventually becomes more and more good and that people settle in into the segmentation level that we have rather than leaving us potentially. Your last question we had on market competition, what was your angle there? I'm sorry, I missed that.
Yaersk Haider - Acquired Research - Analyst Currently, the overall market in terms of competition, and obviously you guys seem to be ramping up a little bit on your marketing costs to try and drive top-line. So I just wanted to get your big picture on where the industry is?
Stefan Carlsson - PT Indosat Tbk - CFO and Director Yes, I think we -- I think the industry is as usual competitive. What we probably see around the corner is a bit of pickup when it comes to data competition. I think we already mentioned that the previous quarters that given that there are also some small players fighting for market share specifically on data, I think we might be eating up the in the short medium term at least, because of that. Otherwise, we feel that we are ---- we're building our own capabilities and we've -- improving our toolbox to compete as we talked about before. So I think we're looking forward to competition.
Harry Sasongko - PT Indosat Tbk - President, Director and CEO Yes.
Stefan Carlsson - PT Indosat Tbk - CFO and Director And with that improved toolbox, we should be able to get back to our share sooner or later.
Harry Sasongko - PT Indosat Tbk - President, Director and CEO Yes, in addition to that we've been tracking and monitoring very closely the GRPs of competitors. And I think we are just making sure that we are not lagging behind in the GRPs and marketing stand. We -- currently we see that the competitors are cranking up a little bit on the GRP on Q1, I guess also facing the same cyclical situation.
Operator Sachin Gupta, Nomura.
Sachin Gupta - Nomura - Analyst Two questions; firstly, Stefan, on this time's revenue guidance you are talking about to grow in-line with the market. As you said, 1Q has been weak, and even the past one year or even bit longer you can say it has been more of a challenge to grow in-line with the market. So I was wondering what has changed now or what gives you the confidence that you can actually pick up the right run-rate for the rest of the year? That's number one.
Number two, any further updates on the tower sale; what stage are we at in terms of the closure? Any update on the tax liabilities or the tax treatment? Any update on that would be useful as well.Thank you.
Stefan Carlsson - PT Indosat Tbk - CFO and Director All right, thanks Sachin. On -- yes, your first question on guidance, it is a guidance and not written in stone. It is our best estimate at this point. Why do we feel that that should happen? I mean, they have mentioned some of those things before.We have a lot of commercial initiatives, you can call it turnaround activities partly running right now. It's a pretty big number of projects running in various areas of -- in the commercial area that we -- since they will take us either up to where we should be or even past the competitor level. So we feel confident that we will -- especially on the data area, we will build up momentum pretty soon. The question is -- and the uncertainty is around how long it will take before we get that effect. So we're hoping that the second-half of the year will be much stronger for us than obviously the first quarter had been. So we think that could take us to the overall industry growth level. Tower sale, that is going accordingly to plan.We see the closure of the tower sale probably being done during late part of second quarter. Accounting treatments -- I think tax treatment hasn't really been a big discussion because tax follows pretty much the money and the gain on the sale, but the accounting treatment has been, I would say, partially decided. There will be -- currently, we've also included in Q1 and there is a partial financial lease treatment, not a complete financial lease treatment. It depends on certain criteria for certain towers.They're looked at basically on the one -- one-by-one basis where the life of the tower in comparison to the lease term. If that is deemed to be -- so the remainder of the lease term is the majority of the -- what's left of the tower life, that means that it's more prone to be a financial lease. So some towers will be financial lease and some will not. And I propose we will post or send out a slide to all of you showing the effects on the first quarter, I think in -- also in 2011 because even though the tower transaction hasn't happened, this treatment has also been assessed on the existing towers that we are leasing out as well as the towers that we're leasing from others, right? So we can send out the clarification on that to you on a couple of slides and other analysts to show the effect that we have from those accounting changes. So in that process now in Q1, we also changed the useful life estimate of the towers to 25 years from 15 and we can include some documentation on that as well in the material. So why did I say it's a intermediate treatment, because we're still having discussions and we'll have discussions with the SEC because we're trying to do a pre-clearing for the treatment of the tower transaction related to 2012 financials. So there could later be a potential change, but we don't think so, but it could be a change to the accounting treatment that we have currently based on the SEC IFRS point of view, okay? But this is rather complicated topic, so I prefer we share a couple of slides with you on this topic if that's okay with you.
Operator Thank you. Colin McCallum, Credit Suisse.

Colin McCallum - Credit Suisse - Analyst First question I had is just on the desire to start rolling out 3G on 900 megahertz. I understand the BRTI has still not approved that. When would you expect that to happen and is (inaudible) approval going to cause you a major problem, we're going to hear later in the year that CapEx will have to go up sharply because that again does not allow, therefore, you have to go to plan B? That's the first question. The second question is just again network-related. I can see you're quite right, you've added more BTS in first quarter than you've added for a long time. But in relative terms, you added one-third of the BTS that your closest competitor added, and I think your -- the number of BTSs is -- on 3G even is maybe half of your nearest competitor and a third of the biggest player. How can you not be concerned that you're falling behind on data, getting these numbers and what actual -- overall of your 156 cities, what percent of the population are you actually covering and what capacity does that give you and how does that benchmark against your competitors? That's really -- I just want to understand where you think you are on that.That would be great.Thank you.
Unidentified Company Representative Hi, Colin. On the [UMTS] 900, actually we are targeting that we approve in Q4 of this year and it has been incorporated in our budget. As we speak today, we have a tech neutrality conference right here and it's actually done by the association and we have international speakers. So far we have the director general opening and doing the speech and everything is within our expectation right now. So we are quite optimistic that it will be achieved as planned. Stefan will take the second question.
Stefan Carlsson - PT Indosat Tbk - CFO and Director Yes, hi, Colin. Yes, on the network, first of all, we never said we are not concerned. We are concerned on that as we have highlighted several times and that also partly goes into the current number of BTSs and coverage we have on 3G. But if I just cover -- in general for us to make sure everybody is on the same page. When it comes to 2G, there are -- there might be differences in general in how we report. You might know that also that the definition of BTS might be different between the players, but also on 2G, we don't need to have as many BTSs as, for example, XL because of more -- we have more spectrum. So that's on 2G, but on 3G, obviously that's the same spectrum, so there is no differences. And we are acknowledging that we have to catch up and we think the best way of catching up and a big strategic advantage for us will be 900 because then we will have a much better coverage and we'll be able to catch up in that rollout, also having to do fewer base-stations and spend less CapEx on it as well. So right now, we obviously have a coverage deficit, but we hope we can close that probably within the next 6 to 12 months or so. Yes, you said about percentage of population as well.We are not ready to share that yet. I think we will spend a little more time internally to assess those numbers and we might talk about it in the subsequent quarters, but yes, on the (inaudible) I think you noticed already. About the percentage of population, we have -- we're discussing internally and we might choose to talk about that in the subsequent quarters.
Operator Rosh Raj, Merrill Lynch.

Roshan Raj - Merrill Lynch - Analyst This is Roshan Raj from Merrill Lynch. I have two questions. I missed out the early part of the call, so could you just clarify what was the reason for the relatively slower revenue growth in this quarter? Was it largely due to external factors like competition or because of ongoing internal changes? And second question is on wireless broadband. If I recollect, last quarter, there was a slide saying that Indosat targets to become the market leaders in wireless broadband and this quarter we are talking about migration from large screen to small screen. So has there been a rethink on how we're going to approach wireless broadband and if there is -- there has been a rethink, what's driving that? Thank you.
Stefan Carlsson - PT Indosat Tbk - CFO and Director Hi, Roshan, thanks for the question. Okay. So on the revenue, basically, the main reasons for the slowdown in revenue is partly seasonal. I mean, you have a few less days in Q1, but you also have generally a stronger Q4 in this market because of certain factors, et cetera.That's one reason. The other one is more of an Indosat internal reason. There are couple of migration effects going on. One is from higher-end prepaid like Mentari for example to IM3 to more -- which has -- which carries a lower output. So it's a migration effect pressuring the revenue growth. There is also a migration going on as you mentioned from wireless broadband to small screen or mobile Internet. And the third reason for revenue to be below industry is also that we recognize that our data revenue growth is not as strong right now as it should be, and we're -- we're having a lot of activities internally to deal with that on the commercial side and also on the metric side. That are the revenue. On data -- wireless broadband, I think you might have twisted it a little bit there. We have said that we want to be a data leader over time. We think we are extremely well-positioned to be one of the key players in this market on data, but we also recognize that data in this market will be more about small screen than big screen. So I think the migration that is happening from wireless broadband or big screen to small screen is probably part of the trend in the markets, also partly because of pricing, I think. So it's a data leadership position we are after in general and it's not necessarily wireless broadband or big screen that is the key focus. It's rather the small screen that is the focus. Okay, thanks.
Operator Thank you. Kelvin Goh, CIMB Malaysia.
Kelvin Goh - CIMB Malaysia - Analyst Can I just -- trying to understand the dynamics of how much of your revenue weakness, if I may, is attributable -- attributed to the migration from Mentari to IM3 and from the large screen to the small screen. In other words, how much more longer do you expect this trend to continue? That's the first question. Second question is on CapEx. Although you're maintaining it around IDR6 trillion for this year, do you see any upside pressure beyond this year? Thank you.
Stefan Carlsson - PT Indosat Tbk - CFO and Director Hi Kelvin.Thanks for the questions. I think the first question is unfortunately a bit too sensitive for us to discuss like this due to competitive situation.

So we won't break that up at this point for you. On CapEx, we see that, yes, the IDR6 trillion for 2012 will be sufficient. For 2013, that depends totally on how the traffic takes off, I would say. So when it comes to rollout plans they are pretty much in place, when it comes to rolling out coverage. But I think the big unknown here is how much traffic will grow and how successful we will be to grow that traffic and grow the data revenue, which makes it very difficult for me to actually address that question now. I would rather come back to it at some point later.Thanks.
Operator Thank you. Luis Hilado, HSBC.
Luis Hilado - HSBC - Analyst My first question is a hypothetical one. Let's say if overnight you were able to migrate your 2G subscribers to a 3G frequency, how much would you be able to save in terms of frequency costs or how much margin enhancement would you get out of that? And the second question is regarding balance sheet management. Can you remind us what your targets are or your plans for reducing, if you are, your level of ForEx-denominated debt so you can reduce the earnings volatility?
Stefan Carlsson - PT Indosat Tbk - CFO and Director Hi Luis, Stefan here. Thanks for your questions. I think your first question, if I could answer it on-the-spot like this, I would be probably a pretty fantastic CFO, but I think it's going to be very hard to answer that question like this on-the-spot. On your balance sheet question, we are reiterating that we want to go below 2 times debt to EBITDA in the short medium term, and that stays as an intermediate target. And you're right when you point out that we are very much in favor of reducing the FX exposure, which is why the strategy is if pricing and market conditions allow, we would rather increase the IDR part of the portfolio, but at some point there will also be a balance where the cost of doing that will outweigh the benefit of reducing that risk. So there is a balance there, but we surely want to reduce the US dollar part of the final portfolio over time to reduce the volatility. I mean, hedging is also not totally effective as you see from both us and other players being affected by the FX. So that's the direction we're heading in as you also already mentioned in your question.
Operator Thank you. Sachin Mittal, DBS. Sachin Mittal from DBS, your line is open.There is no response for the line. (Operator Instructions) There is no further question at this time. Please continue sir.
Nicholas Swierzy - PT Indosat Tbk - Head of IR Thank you. Thank you all for participating today. As Stefan mentioned, we may have a supplemental slide we send out on impacts from the tower transaction, which would be mailed out to the broader mailing list and posted on the website as and when that's ready. In the interim, please contact us directly for questions and/or meetings and we would expect first-half results to be published at an earnings call towards the end of July.Thank you and we'll speak soon.

Operator Ladies and gentlemen, that does conclude our conference for today.Thank you for participating.
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QUESTIONS AND ANSWERS

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Operator Sachin Mittal, DBS.

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Operator Thank you. [Yaersk Haider, Acquired Research].

Harry Sasongko - PT Indosat Tbk - President, Director and CEO Yes.

Operator Sachin Gupta, Nomura.

Operator Thank you. Colin McCallum, Credit Suisse.

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Operator Rosh Raj, Merrill Lynch.

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Operator Thank you. Kelvin Goh, CIMB Malaysia.

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Operator Thank you. Luis Hilado, HSBC.

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