Axiata Group Berhad (AXIATA) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Clare Chin, Head of Investor Relations at Axiata. Thank you for standing by, and welcome to Axiata Group's Second Quarter 2020 Results Briefing. Today, we have with us Tan Sri Jamaludin Ibrahim, Axiata Group CEO; Dato’ Izzaddin Idris, Deputy CEO; Vivek Sood, CFO; as well as representatives from our OpCos. There will be a presentation followed by a Q&A session. Lastly, 2 housekeeping reminders, you will be on mute throughout the presentation. Also note that the call duration with context of 90 minutes. Without further ado, I would now like to hand the conference over to Tan Sri Jamal.

Good morning. Good morning to everyone. Thank you for joining us for the second quarter 2020 results. As mentioned by the moderator, I have Dato’ Izzaddin, my deputy, who will be also presenting; and my CFO, Vivek. Let's go to Slide 4 in the Board added packs. These are the key messages, which I will go through quickly and will be elaborating -- they will be elaborated later on. Basically, as you can see from the results known yesterday, the full impact of COVID-19 was felt this quarter -- last quarter, especially in April, where there was a big dive in that particular month. We did -- and we do see early signs of recovery by most OpCos from May onwards. Frankly, if you look at May, June, even July has been quite convincing in terms of the recovery, especially given the fact that basically, it is -- but generally speaking, as a group, to the post-lockdown. The post-lockdown here is defined loosely as January, February as opposed to pre-COVID, which was last year. So it is quite, like I said, encouraging, but I did not say that this will be the trend, given the fact that it's still very uncertain because of the impact of COVID directly and indirectly. So we'll come back to that. What is good, however, regardless of what's happening, our cash position remains very strong and is further strengthened by the recent Sukuk/EMTN issuances. That also has been reflected as a confidence from bond investors as a great validation for us. Also, you will see later on, we'll talk about it, the investment in the digital business by Great Eastern also validated our digital business in general, but digital finance business in specific. Now given this -- what's happened in the last first half and especially this quarter, although the trend looks pretty good, but we maintain that directionally, there will be a low single-digit decline or percentage decline in revenue and EBITDA for this year. From a cost perspective, we believe we have -- we are very much on track to achieve the MYR 5 billion, which is 1 year ahead. If you do recall, about 4 years ago, we said that -- 3 years ago, we said that we will hit a MYR 5 billion saving within 5 years. It seems that by end of this year, we will achieve the MYR 5 billion 1 year ahead of time. This is evidenced from the improvement in our EBITDA year-on-year, especially year-to-date 2020, I mean, EBITDA margin. Now what is important is that it's kind of a preview for our upcoming Data Analyst and Investors Day 2020, which will be organizing the specific date and time shortly. We have agreed with the Board and the Board have agreed that we will position ourselves to be more dividend yield company within a 3 to 5 years' time. There are many implications by saying just that with regards to our portfolio, with regards to our investment appetite, with regards to our growth areas and so on and so forth. They will be discussed in more detail during the Investors Day. In this time around, we may not be able to share you as much details we'd like to. Going to the next slide. These are all the headlines across the group, across all our footprint. Not pretty good with regards to employment, jobs, GDP contraction and so on and so forth, and also the impact of COVID to the economy in general and especially to net power, whereby about 28.7% of our remitters contracted -- for the country contracted affecting us, especially so. And then seeing second quarter results for Ncell as far beyond, far below expectations. Going to the next slide, we'll just quickly go through these highlights and the low lights. On the highlights, all things being said, from -- when we announced the result back in May for the first quarter, we were looking at even worse than what we saw because we look at April results, we were very, very worried. Net-net, though, we have demonstrated operational resilience in the face of the COVID-19 pressures. What is good, like I said earlier, the cash OFCF grew 17.2% to MYR 1.2 billion, resulting in a cash balance of MYR 5.9 billion, which is pretty strong and healthy. Like I said earlier also, the cost improvement have led to the improvement of EBITDA. So EBITDA margin increased by 0.9 percentage points to 42%. We are very happy with the results from XL, edotco, Robi and Smart. They have been pretty good despite COVID-19. As I've said earlier, June results have been quite encouraging. In fact, starting from May, but June, especially, it's largely back to the pre-lockdown level. As I said, not pre-pandemic but pre-lockdown, which we compared to the average of January and February. The Great Eastern validation of investment of USD 70 million. It's a big boost to ADS and definitely a big boost to our DFS strategies and plans. We've been very cautious about dividend as much as we will -- we have huge capacity to pay dividend because of our cash position, because of our balance sheet, and because of what we see in the future, but we have decided to be very cautious and announced an interim dividend of MYR 0.02. That's good news. On the low lights, include the -- I mean, pretty obvious that PATAMI declined 62% because of the impact from Ncell, ADS and higher D&A, especially higher D&A this quarter and of course, this year, will impact PATAMI. The COVID-19 impact, we estimated across the group, the -- estimated -- and estimated foregone revenue of about MYR 400 million. Primarily in many countries, we couldn't -- customers couldn't even [Technical Difficulty] the closure of the outlets. In terms of CSR, we made it very clear during the second quarter that our priorities are staff, customers, and then our own business. This is just what we estimated to be MYR 80 million CSR program. But frankly, a lot of work has been done which cannot be easily quantified. The business challenges in Ncell last quarter has been pretty high given the major action in the business in general, the top part that we couldn't do and more -- most importantly the impact because of the ILD, similarly Celcom, to some extent. If you look at Slide 7, you could see the trend that I was kind of alluding to, practically all, of course, on an uptrend from May onwards. You will see that from this slide XL -- you see from this slide, XL has been badly affected by the COVID-19 to date. Although I must say that the pandemic in Indonesia is on the rise. So that could be a question mark beyond June, July. The -- as you can see also, the recovery of Celcom, May, June, and in fact, if we extrapolate, July has been also on an uptrend. Now I won't go through all these details. You can see from this chart, but if I can summarize the next slide, which is the group. So it's on the same slide -- on the same slide. You can see the pink colored of -- thick pink colored line, you can see that May, June is on a uptrend. Again, I'm not even saying that it will be definitely on the uptrend all the way to the end of the year, given that we are really uncertain about the pandemic and impacted economy and therefore to us. I'll pass to Vivek, who will give you more detail on the results.

Thank you, Tan Sri. Very good morning to all of you. So if I can go to Slide #9. This is the reported results for quarter 2 on a year-to-date basis. Year-to-date, revenue is down by 2.3%, quarter-on-quarter of 4%. The EBITDA is up compared to last quarter by 3.2% and flattish compared to last year. If I adjust for the VSS, which we did in Celcom earlier this year, we would have seen a growth of EBITDA by around 1.3% compared to last year. Profit is, on a reported basis, sees a dip of around 50% from last year, mainly coming out of the fact that last year, we did have around MYR 511 million coming from the disposal of M1, the divestment of noncore digital businesses and disposal of idea rights in the first half of last year. This year, we did get benefit of the profits coming from the sale of towers, but negatively impacted because of the employee restructuring program in Celcom as well as ForEx losses of around MYR 80 million. You would have seen that over the last 6 months, ringgit has weakened against dollar, but now we see the trend turning around the other way with dollar weakening. If I can go to the next slide, this is the underlying performance which is normalized for -- on a constant -- this is on a constant currency basis. So if you look at revenue, we are down 2.4%. So it's not a material impact on translation this year, unlike some of the earlier years we've seen. The impact on revenue is mainly coming out of impact from Ncell, partly known because we knew ILD will come down year-on-year as a share of the contribution, but also the fact that we did get impacted in the lower data and voice revenue in Nepal. Couple of reasons. One is obviously the impact of COVID-19 is 1 country which was impacted for a much longer period of time. In fact, as I speak to you today, there is still a lockdown in Kathmandu region, which would impact some of the revenues. That said, we also had constraints on account of spectrum in that market, which, good news is, we got it in earlier in July and has been activated from July. So we should see the benefits of the additional spectrum coming in on the data monetization capabilities. Celcom has been down by 9.5%, mainly coming in the prepaid section, where we did see a reduction of subscribers as well as drop in ARPU, but also the fact that the government regulated 1 GB per data, free data was given during the lockdown period. So that's the main reason. However, the good news is that we've seen the revenues coming back now in Celcom. I think June revenue, on a run rate basis, in prepaid has been actually better than what it was in January. So we're seeing that trend. We've also seen a positive net adds coming in the month or in the quarter on prepaid. So I think that's good news. That has been offset by continuing strong performance from XL, from edotco, and Robi, even despite the fact that Bangladesh was impacted by substantially lockdown and the economic conditions, the business continues to do well and gain market share. The good news is on EBITDA, we've been able to manage our costs well, partly because of the lower direct costs related to the activities in the market, but also continuing cost excellence program, which has yielded us getting a 1.3% growth in EBITDA year-on-year. PATAMI has been down on an underlying basis, mainly coming from underperformance of Ncell. ADS, if you recall, we also did mention last quarter, the participation in the e-Tunai Rakyat program. We had a impact of around MYR 40 million. And the impact of D&A, as you know, D&A is mostly fixed cost. So the lower EBITDA is not getting compensated by the fixed D&A charges. If I can go to the next slide, the Slide #11. This is basically a reconciliation between the normalized PATAMI last year versus this year. Main impact, as I said earlier, is coming from the D&A, which is basically fixed cost. We would always expect EBITDA growth to offset the impact coming from D&A. However, this quarter has been unusual with EBITDA being flattish given the market conditions. The slide at the bottom is basically showing the year-to-date impact between the reported PATAMI and the underlying PATAMI. So you could see the impact on ForEx, the tower gain, which we got in Indonesia and also the Celcom restructuring costs. If I go to the next slide, I think operating free cash flow remains fairly strong for us compared to last year. We've seen around close to MYR 180 million improvements, 17.2% growth in the operating free cash flow coming out of the impact coming from CapEx, lower CapEx during the first half, as well as relatively on the taxation side. If you look at the slide at the bottom, the chart at the bottom, which shows where is the impact coming from, the [ lower ] impact is actually effectively coming from the benefits in edotco where some of the towers have been deferred as well as Dialog, where the CapEx has been relatively low in the first half compared to last year. But negative impact is in Robi where, if you recall, last year, we did have this NOC program where we couldn't import equipment's, and so this is fairly catch up CapEx, which was underspent in 2019. If I go to the next slide. Balance sheet remains fairly strong, stable, with strong cash flows of MYR 5.9 billion cash in different markets. Gross debt to EBITDA is 2.64. I think also the fact that with this balance sheet, we could actually do a very successful round of further issuance of debt, which is mostly for refinancing the existing debt for us. In terms of breakup, 60% still remains local currency and fixed of 60%. This will change once we have the new debt coming in, which would move much larger to the fixed component of over 80% and also a much larger component of U.S. dollar debt for us. If I go to the next slide, this is a quick summary of all the OpCos. Celcom performance year-to-date, minus 9.5%, mainly coming out of the impact of lockdown and prepaid segment. But as I said earlier, we do see early green shoots with the improvement coming in the prepaid and the net add positive in the last quarter for us, but the impact mainly in the prepaid segment. That said, I think EBITDA has been relatively better off in terms of the percentage impact. So if you exclude the restructuring, it's been down by 7.3%, mainly coming out of continuing cost initiatives as well as lower direct expenses. Free cash flow, fairly stable. PATAMI down compared to last year. But if I normalize for the restructuring in March, PATAMI would be fairly stable compared to last year. If I go to the next slide, XL, strong performance, continued strong performance from XL, with revenue growth of 7.4% on a year-to-date basis. If I look at year-on-year, around 5% growth for this quarter despite difficult economic conditions in Indonesia. EBITDA growth on a year-to-date basis is 36%. But if I normalize for the IFRS, as you know Indonesia adopted IFRS in 2020, so if I normalize for that, the EBITDA growth is around 15.3%, compared -- which is a strong continued focus on cost in Indonesia despite the fact they continue to invest and drive revenue opportunities. Free cash flow. Strong free cash flow generation, mainly coming out of the fact that, one is the accounting impact, which is the IFRS. But if I exclude that, it's still a strong 52% growth in free cash flow this year. PATAMI looks strong, again, coming out of the fact that there is gain coming out of the tower sale. But if I exclude that, it's marginally lower because of the higher D&A and also deferred tax adjustment. Just to explain on deferred tax, the carryforward losses in Indonesia expire after a period of 5 years. So some of the carryforward losses from the AXIS acquisition way back in 2015 are going to lapse this year. And so those are the -- that's been adjusted as part of the deferred tax adjustment here. That's around IDR 200 billion impacted. If I go to the next slide, I think Ncell has been one of the challenging markets for us in this quarter specifically. And that's been essentially coming out of the COVID impact as well as the spectrum deficit where we are not able to monetize data. So we've seen the impact on revenue coming from both core, which is down by 24% and ILD. ILD has been much larger than we had anticipated, given the conditions where a lot of migrant workers have actually moved back for the time being to Nepal. Consequently, the ILD traffic has come down relatively and continued economic and lockdown conditions in Nepal. And because of the lower revenue, development impact has been on the EBITDA margin. Much larger impact consequent to lower ILD because ILD does come at significantly higher margins. Free cash flow, fairly stable for Nepal. And PATAMI impact coming straight because of the lower EBITDA margins, EBITDA in the first half. If I go to the next slide, Bangladesh, I think difficult situation, market conditions in Bangladesh. However, Robi continues to perform well with the revenue being stable with marginally 1.1% growth. However, strong performance on EBITDA with continuing cost initiatives driven by that business with EBITDA margins now touching 45%. I may recall, go back to the acquisition or the merger with Airtel back in 2016, we were, at that point in time, with EBITDA margins of around 22%, 23%. So that's now kind of more or less doubled over the last 4 years. So strong performance from Bangladesh in terms of improving the EBITDA margins. Free cash flow impacted because of last year, as I said earlier, we could not invest. So there's been some network catch up CapEx, which is resulting in increased CapEx spend in Bangladesh. Profits developing quite better, quite good, coming mainly from the improvement in EBITDA as well as the lower net finance cost in that market. Quickly on the Dialog performance. Stable despite the economic and COVID conditions, both revenue and EBITDA. Free cash flow also stable. Profits coming down mainly because of the ForEx impact. If I normalize for ForEx, the profit would be down by around 18%, essentially coming because of the impact on depreciation, considering the fact that there's been less growth on the EBITDA. Smart market, which had significant resilience and luckily, no major lockdown in that market, continue to do strong performance even despite the fact, a lot of Chinese travelers moving back as well as the dependency of this market on tourism and enrollment revenue has been impacted. Yet, the revenues are fairly stable with strong EBITDA growth of 7.8%, stable free cash flow and stable profits for the first half. Digital businesses, I think, continue to build their scale. Yes, we continue to have investment in these businesses, but they continue to build scale to meet the strategic direction, which has been set for them with Boost continuing to build the number of customer base to 7.6 million, with the merchants around 176,000, merchants and significant development growth on the GTV and also the activity of customers, both in terms of number of transaction as well as the spending per week. Aspirasi, which is essentially the lending business, micro financing and micro insurance business for us, is the one which will essentially get profits going forward, is being building their loan book fairly well and also selling micro insurance products well and continue to keep their credit losses or NPLs still at a much lower level based on the credit scoring model, successful credit scoring model, which they use. AdTech business, I think, continues to grow with acquiring new customers in different fields. Also, moving to move from a traditional agency business to a data-led outcome-based business, continues to show breakeven despite the growth, which is happening in that business, and we expect that to remain profitable or at least break even on profits by the end of this year. Next slide on infrastructure, edotco, strong growth across markets, coming essentially from the new tower orders, relatively lower than what we had expected, given the market conditions. Some of the telcos have been slowing down in terms of placing orders. But that, I think, over time, should catch up. So it's more about deferment of actions than lost revenue. Strong EBITDA growth coming with 64.3% EBITDA margin. If I exclude for some of the one-offs last year, yet, 17.4% EBITDA growth. Strong free cash flow, came in mainly because of the delayed CapEx spend and PATAMI improvement. With that, I'll just forward it to Dato' Izzaddin on some few sections on moving forward then.

Thanks, Vivek, and good morning, everybody. In the background that Tan Sri has sketched just now, whilst revenue has seemed to be -- seem to have recovered to pre-lockdown levels in the month of May and June, we are still concerned for the performance of the operating company [ throughout ] the year for the reasons that Tan Sri has elaborated just now. However, from our perspective, looking ahead for 2020, the USD 1.5 billion bond issues has helped us reduce the costs of debt by about 0.7 percentage points from 2021 onwards. The Celcom transmission, restructuring of the staff essentially, VSS program that was completed on 30th of June, will reduce staff costs by about MYR 33 million per annum. Enterprise growth, we see enterprise growing from the online education space as well as the work-from-home approach that many companies have adopted. ADS, as you recall, the USD 70 million injection by Great Eastern, has certainly validated evaluation. We are continuously being approached by various parties to invest in edotco, given the expansion plans we've lapped up. Of course, the spectrum, one of the key reasons of the performance of Ncell was a capacity constraint in terms of spectrum. There were some conditions that was imposed on us, but that has all been resolved -- well, partially resolved, but we see the spectrum being activated in July. So we see the capacity constraint be no longer an issue for us to [ demonetize ] data. And of course, the collective bid initiative that we have done for IT network procurement, we should see some benefits starting to come in perhaps next year onwards. And these collective [ big ] initiatives will be expanded to cover other areas in time to come. And so far as risk is concerned, yes, COVID-19 continues to provide uncertainties. Further lockdowns could be imposed on the various countries, including Asia. And the government-led initiative to provide free data will certainly impact our revenue line. Of course, intensifying competition in Indonesia and Malaysia will also be a big risk for us. And last but not least, is the developments from Huawei. We are in constant discussions with Huawei. At the same time, engaging other vendors to see whether we could also diversify our supplier base of our network treatment. On to the next slide, just providing some color on Celcom sort of customer profile between prepaid, postpaid, as well as the MVNO. We have -- we are going to focus on prepaid segment for the second half. We started that already. The Trade Ubiquity Program to make sure that we are present in all corners of the market, trying to implement outsourcing dealerships by making everybody possibly everyone to become a dealer. On the prepaid segment, we've launched this truly unlimited plan from as low as MYR 12. You can get unlimited internet and unlimited voice calls. And the 1 feature of that is you can even get the SIM cards delivered to your doorstep. So you can see some improvement in the subscriber base. And hopefully, this will become -- will gain traction in the months to come. And so far as postpaid segment, the middle set of bar charts, you see some improvement as well in the month of July. And so far as MVNOs, this is a strong customer base of about 4 million customers for Celcom. Next slide on Ncell. As I've mentioned, the new spectrum has been activated. We should be able to see some improvements in the subscriber base subscription. And of course, the lockdown that has been imposed has affected the ARPU on the left-hand side. And of course, the total subscribers has come down, soften, and gross adds has slightly improved in the month of July. I think the -- on the next slide, as Vivek has alluded to, this is part of our capital management exercise to make sure our -- the liability -- asset liability maturity matches. So what we've been -- we've successfully done is to extend the average loan life to about 16 years in our business capital-intensive, and therefore it's a long haul. And the fixed rate portion of that come after the completion of about 87% from currently from 66% in June. So that's the advantage of doing that bond issue and expected net finance cost savings of about MYR 60 million per annum. And specifically, the 10-year Sukuk statutory rate of 2.163% and 30-year notes, statutory rate of 3.064%, and definitely lowest ever for telco to be able to issue in history. So effectively, our blended borrowing rate has improved to about 3.3% from 4%. Now on the right-hand side, the pie chart, let's just show the pro forma group borrowings in fix and floating, 71% will be fixed with this 1 bond issue and between local currencies and unhedged portion remains about 38%. Because the plan is for us to hedge the USD 500 million Sukuk and leave the USD 1 billion unhedged. And importance we have a hedging policy. Now the last slide that I have -- we have for today is largely to look at what we mean by looking at -- or reimagining our future, taking advantage of evolving norms. Yes, can you just bring everything up? Now we all acknowledge that there hasn't been a primary shift in the consumer behavior as a result of COVID-19. What we need to do is optimize our physical assets, network acumen and so on as well at the same time, accelerate the digital efforts. And so far as the various functions in our business is concerned, those boxes at the bottom, 6 aspects, 6 large -- 6 broad aspects of our business. So far as product pricing for consumer and pricing, talking about consumers, we're looking at making -- are focusing on various segments to be service-specific, time-specific or device-specific. And so far as the SMEs are concerned, we are hoping to provide them with various tools, a solution box, if you like, so that they can digitize their business and able to operate at minimal cost. And so far as enterprise is concerned, this is quite a big opportunity for us as well, SMEs as well as micro SMEs. We have recently announced a partnership with Telefónica to provide security as a service. The Health Care and Education segments certainly will see sectoral transformation. And of course, with the connectivity we provide, we can offer and serve operate remote areas at a scale. On sales and distribution, the phrase that the team has adopted is a gorilla distribution, largely to provide retail on wheels and so that anyone can sell at the same time. Yes. So retail on wheels, if you like, is making sure that we can distribute through trucks and delivery channels, for example, Grab or the various delivery services that is available in the market. And so for us everybody can sell, we are thinking of activating or allowing people to also be our sellers, yes. Of course, our big issues are making sure that our brand is preserved. So we're currently just experimenting how we do this. And of course, at the same time, with the advent of technology, we're relooking at our distribution channels in the form of Blue Cube stores in Malaysia. So that people no longer need to go to Blue Cube stores, and that you will see some rationalization of the network. And so far as the customer care is concerned, of course, we need to make sure that everyone's provided with a specific or attended to in terms of customer service, AI-based routing in terms of customer call centers that's been adopted for network and IT, as part of the collective brain, which hopefully can improve and make our systems more efficient. IT stacks will also be transformed to deliver best-in-class sales services across and improve the go-to-market strategy. And lastly, insofar as people are concerned, not just internally, we're also helping organizations to make sure that the work-from-home approach is done effectively by improving network services and so on. So that's, in a nutshell, the work internally that we're doing, trying to take advantage of the evolving norms or new norms. Hopefully, we'll be able to report better outcome in months to come. And lastly, just to recap on the key messages. Directionally, we're looking at a low single-digit percentage decline in revenue and EBITDA for 2020. We're on track to deliver the MYR 5 billion cost optimization a year ahead, as Tan Sri mentioned earlier just now. And once we have the -- at Data Analyst and Investor Day sometime towards the end of October, we'll confirm the date later, we'll be able to share with you our positioning or our approach or our strategy to be a dividend income company. Thank you.

Okay. We will now proceed with the Q&A session. [Operator Instructions] So we can see that the first questions are going to be coming from Ranjan from JPMorgan.

Two questions from my side. You alluded -- the first one is on Huawei. You made a brief reference to it, but can you please share what is the impact that you see of the recent restrictions on Huawei, both for Axiata as a group and for Malaysia? The second question is on, like, the growing importance of the tower portfolio. We've had tower companies reratings, other telcos also looking at strategic options with the towers. Is it something that you would look as well, like maybe revisit the IPO of edotco?

Dato’ Vivek?

So Ranjan, I think, Huawei has been something which is a very frequent development, right. Things keep changing very often. And we know early or middle of this month, there was new guidelines coming from a new regulation from the Department of Commerce in U.S., which basically does not allow U.S. companies to ship chips to Huawei. So from our perspective, I think a couple of points. One is, we've not seen any negative reaction from any of our footprint market. So it's not that the politically or for other reasons, the local governments have been reacting to the U.S. action. So from that extent, our footprint market unless warrant. So that brings the second question, which is on supply chain. Does this mean disruption to the supply chain from Huawei? So we've been on a constant frequent dialogue with the senior management in Huawei. And we understand that they have actually stocks available for nearly a year to supply all the spares we need as well as the equipments we use from them. Third thing is that the impact of chips, we also understand from them that most of the markets -- most of the exporters also have their licenses for the time being to be able to deliver chips to Huawei. That said, I think we are -- given that this is a very frequently developing issue, we've been in constant dialogue, along with the -- our lawyers and the lawyers of Huawei on what is the business continuity measures we need to take? And what are the consequences of the legal actions taken by the U.S.? In addition to that, we are also looking at some business continuity measures going forward, specifically on the core network for us. So that's where we are. So that said, I think we are on top of it in terms of a regular dialogue with Huawei as well as looking at the necessary measures to derisk our exposure.

And so far as the edotco IPO is concerned, in actual fact, Ranjan, we're in no rush to do this simply because, firstly, edotco has the capacity to gear up to expand its business portfolio. And secondly, we are looking at various other alternatives, if you like, capital raising exercise. And so edotco is kind of in a sweet spot. And largely, yes, at some stage, we'll revisit this idea of an IPO, but the ability to raise capital is -- edotco is not restricted. So it's something that we will continue to evaluate. And in any case, current market conditions are not really conducive for an IPO. I mean, yes, tower companies have been rerated. But -- and to be fair, edotco is pretty resilient in this current market condition, so hence, the re-rating of the TowerCo. So we hope that, that trend will continue. And at some stage, we'll revisit the IPO excise.

Maybe one quick follow-up on Huawei. In absence of any relief to Huawei, like how easy will it be for Axiata to, as a group, to add new vendors and maybe even swap out some of the old equipment from Huawei? And does that impact your ability to upgrade the network?

Let me answer that. So just to give you of a big -- much bigger picture. What we are doing on the network is to completely relook at the architecture of a network, what we call modernizing of our -- the network. Before I answer your question, let me just explain a bit. What we're trying to do is to the -- delay virtualization of our networks, such that we have a core and RAN within the core. Right now, we are actually quite in advanced stage of delayering the software and hardware to the extent that the hardware, we can buy with practically most hardware vendors. Now therefore, we are limited the software. Now I'm not saying that it will be easily replaceable. But the dependence on the vendor will be quite -- will be much lesser with the architecture. Similarly, on the same concept, you look at RAN with the open RAN concept, similarly, is a decoupling of hardware and software. And so -- and then, of course, the cloudification concept all into place. So net-net, without going to further detail, is the decoupling of the hardware and software, both for core and RAN, but also decoupling or the dependency on a specific vendor. So that's the general plan. Like I said on the call, we are very in advanced stage. On the RAN, we are in a very early stage. We have not even implemented, but we are doing a couple of POCs. So now coming back to your question. So that will help us in the long run, medium to long run. On the short run, we are looking at our vendor strategy as we speak. But having said that, Huawei has done a very good job. We are very happy with what they're doing. And they have assured us the digit supply in a short term so we will be watching the space very, very carefully. I don't see any issue with ability for us to upgrade network at this point in time. You want to add anything?

So I think, Ranjan, I mean, I think Tan Sri said everything, but just to keep final closing, it's not that other vendors are new for us. I mean we work with other vendors. We work with Ericsson. We work with ZTE. We work with Nokia and some of our footprints. We work with Cisco and some of the others on the core network. So it's not that new. And I think all of them are leading forward in terms of new technologies, how that need to be integrated. And with the advent of open architecture, which is coming in where new vendors are emerging, I think it's not easy, but there are opportunities which are there, which we are evaluating as we speak as part of our vendor strategy.

Our next question is coming from Arthur from Citi.

Firstly, on spectrum. You mentioned earlier that Nepal had acquired additional spectrum in July. Does this come with added cost? And is it possible to remind us which of your markets across the portfolio are actually be looking at spectrum options in the next 1, 2 years? Second question I had is with regard to ADS. Can we get any clarity on the ADS losses and the expectation on this for the year? And third question I had is related to Ranjan's earlier question on Huawei. You seem to have mentioned to decouple hardware and software. There seems to be reopening network. But how is this applicable for the legacy network, such as 3G and 4G networks because that's already there? Are there any cost-efficient option to de-layer that?

[indiscernible] spectrum.

Yes. So I think we got the 2 into 9 megahertz of 1,800 spectrum, which has been activated in July. We are also in discussions for the debt-neutral 900 and 2,100, which is also something in the pipeline. In Nepal, spectrum is not that expensive. And secondly, it's not that you have to pay upfront. So it's paid over a period of time. So cost of spectrum is least of our concern. I think it's more about the regulations, the ability to get the spectrum on time, which has been the concern in Nepal. As far as the markets are concerned, I think we paid what NPR 58 per megahertz for the spectrum. And that's -- 58 is less than $1 million, right? It's $0.5 million, right? So it's not that expensive, as I said. Other markets where we are obviously looking at spectrum would be Malaysia, which is linked to the 5G process, which is currently under way. We are looking at spectrum potentially in Indonesia where there would be some spectrum coming in, which is more regional spectrum. But I think that will depend on the pricing and availability. It's still not very certain. We have to renew our spectrum in Bangladesh, which is the Airtel spectrum, which is coming up for renewal at the end of the year. In addition to that, there would be some spectrum, smaller spectrum, required in Dialog as well as in Cambodia, mainly for 5G as and when things start evolving.

Second question?

Second question on ADS losses, we do not expect -- this year, we should be around anywhere between MYR 260 million to MYR 300 million kind of losses coming from -- MYR 300 million coming from ADS. But that said, I think we need to look at ADS from 2 contexts. One is the P&L context, which we do understand the impact on the overall profitability of the group, but also from a funding context. I think our outlook is more from a funding context than just pure P&L context because I think the upside on value creation on these businesses is far greater than what we incur as losses. I think it's more about the funding context. Now if you look at a lot of this is actually in a way taken care of by getting Great Eastern coming in to invest $70 million this year, which should cut down our funding requirements in this business going forward. In addition to that, we are looking at other opportunities of getting other investors coming into these businesses to help us grow these businesses, both from a funding standpoint, also from a strategic standpoint. Part of this loss is also coming this year because of the participation in the government-led programs, for example, e-Tunai, and as we speak, ePENJANA program, which is going on. And these 2 businesses -- these 2 programs are not just CSR, we don't look at them. I think these are all business opportunities where you copartner with other participants to acquire more customers, which should give us future upside in terms of revenue as well as customer base. Dato', you want to add anything?

No, no, no. The need to participate [indiscernible] that Vivek highlighted is just making sure that we place ourselves to acquire new customers and that's the nature of the beast. And we are compelled to participate in these programs run by the government. But the second phase, if you like, that's been launched, ePENJANA, we are a bit more still this time around, instead of giving hard cash out, we make them -- or we link them up with our various partners, whether it's pharmaceutical companies and so on, so that the customers can encash products and therefore, become our customers to stay. Yes.

On the third question, presumably you are referring to the RAN. In terms of impact under the new open RAN, it wouldn't have much impact on our strategy. And like most others, it's more of a new area, new area, new network rather than existing network. In general, as far as we know today, it's not worthy to completely change all of that to open network, or rather it's more feasible when the add-ons of network to be more open RAN. And then, of course, we will eventually evolve into all open RAN, but it will take a couple of years rather than in a single phase. I hope that answered your question.

It is very clear.

So the following questions are coming from Prem from Macquarie.

Can you hear me?

Yes, very clearly.

All right. So 2 questions from me. Firstly, I think in Malaysia, it would be nice to get your views around this 5G lab series that has just ended and what that potentially means for the operators. Because my feel is the focus is probably going to go back towards the fiberization, getting the foundations of the network sorted out, especially in light of the revelation that only 40% of base stations were actually fiberized by the end of last year. So what would happen if the regulator were to impose 100% fiberization requirement within 3 years? What does that mean for our network and CapEx within a Malaysian context, right? And secondly, I appreciate that the -- we've been through a very tough quarter with COVID at Celcom. But could you give us some updates in terms of outside of just selling, doing food truck kind selling of SIM cards. What else is there left to do at Celcom? And is it a question of coming up with new ideas? Or is this a case of execution? And what are we doing to make permanent changes here?

We have Idham with us. So Idham can address those 2 questions for you, Prem.

Thank you for the questions. Now, yes, the lab, the NDI, the National Digital Infrastructure lab just concluded last week over the span of 6 weeks. You are right, looking at some of the basic fundamentals that we need to cover before we start embarking on the 5G, though we do speak a little bit about 5G, et cetera. It did start with looking at the covering -- in terms of population coverage from 4G LTE as well as fiber. But over the cost of the lab, I think it came to low realization within the industry as well as the regulators and the ministry that there's a lot of factors to be considered to achieve the goal. For example, the cost to reach the last 2% of the population is significantly higher than the cost for the first 90% of the population, both in terms of wireless as well as even more on fiber. So the lab actually came out with a few recommendation looking at multiple technologies, not just limited to fiber and also wireless by looking at others, including the satellite and the high throughput satellite, so on and so forth, even FWA. So the outcome of it has been quite, I would say, rationale, taken into all accounts and cost is -- cost to deploy is one of the major accounts that we -- major items that we took into account. And of course, the lab also looked into -- well, I'm trying not to divulge too much before the ministers make the announcement with the outcome of the lab, but to be that I can share besides looking from the economic perspective, but we're also looking at in terms of maximizing all kind of national assets that we have in order to minimize the cost to deploy, for example, how to utilize the spectrum and the various different layers of network that currently the country is operating, how do we optimize those so that we can use the spectrum with the latest technology. Maybe I will stop there for now because I think the big announcement will come from the government and also from the ministry later. So what -- I guess, to the concern that you brought up, whether it will have a significant impact to our CapEx and OpEx moving forward, I think that's one of the biggest criteria, the concern that we have also going into the lab. So by looking at various technologies and utilizing all the assets that the country has as well as phasing out in the right timing, then I think that part has been managed together with the regulator. On the second question, on the post...

What can be done with Celcom? What needs to be done with Celcom?

Okay. What can be done. On the post COVID, on what can be done with Celcom. Yes, besides the thing what that Dato' has mentioned earlier about new models of going to the market about having our own direct distribution, for example, our Celcom to keep on wheels, we also have our [indiscernible], which is crowdsourcing of dealerships, anybody who can be -- anybody and anyone can be a dealer and sell for Celcom. There are a few other things that we're looking. Of course, we're looking at in terms of our product and services. If you take, for example, what we have launched recently, our Truly Unlimited as well as the XP Lite, is making traction in the market. We're seeing a lot more active dealers participating. We're seeing some trends in terms of some of the new composition of the product that they buy is actually quite encouraging. So without me going into the competitive detail. But those are some of the things that we do. We're also revamping a lot more on the ground itself. In terms of our presence, our market presence, our street presence of our dealers et cetera. There has been a few other alignment that we're doing in terms of aligning our trade better and our trade presence better, optimizing. This is something that a few initiatives that we are undertaking now. Besides that, another big chunk of the drive that we do, that we learn through the MCO in the COVID period is to our MVNOs. Our MVNOs has been quite resilient in terms of their business going through this period and predominantly through the business model that they take. For example, there are MLM business model, there are a couple of our MVNOs adopted is actually quite resilient through this period. We're seeing they are growing. Some of them growing even in the high double-digit numbers during this period. So it is something that we look at, something that we can expand even further.