PT XLSMART Telecom Sejahtera Tbk (EXCL) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to XL Axiata's Earning Conference Call for the First Quarter of 2020. My name is Elisa, and I will be your coordinator today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. Now we would like to turn the conference over to our host, Mr. Indar. Please proceed.

Thank you, Elisa. Good afternoon, everyone, and welcome to the call. On behalf of the XL management team, I would like to thank all of you for taking the time to join us today. With us on the call today, we have Ibu Dian, our Chief Executive Officer; Pak Adlan, our Chief Financial Officer; and Pak David, our Chief Marketing Officer. Now Pak Adlan will share the highlights for the first quarter of 2020, which will then be followed by the Q&A session. I will now hand the call over to Pak Adlan.

Thank you, Indar, and good afternoon, everyone. We are happy to report a good result to 2020 despite the rising competition and what is usually seen as a weak quarter. We managed to deliver quarter-on-quarter growth in revenue and EBITDA. Through consistent execution of our data strategy and our focus on operational excellence, we have managed to deliver a good set of Q1 numbers. Our service revenue grew 2% quarter-on-quarter as customers continue to gravitate towards our attractive product proposition for both our brands and improved quality network across Indonesia. EBITDA also rose strongly by 22% quarter-on-quarter as a result of rising revenue and our continued focus on operational excellence, and will continue to be in positive net profit position. This is despite increased competition in the market since Q4 2019, where we have seen most of our competitors launch aggressive unlimited offerings and reduced the prices of their entry-level sachet packet, which have negatively impacted the overall yield and pricing in the market. This, to a certain extent, has impacted our customer acquisition during the quarter, which led to a lower customer numbers at the end of Q1 2020. However, the environment is getting increasingly more challenging as COVID-19 continues to have immediate impact to the business and economic landscape, not only in Indonesia, but also globally. Whilst our Q1 performance has been resilient, with data traffic increasing as more people start working from home, the impact of a full city or country lockdown is yet to be seen at this juncture. We are going through an unprecedented period of increased uncertainty, and the outlook remains cloudy as to how long this impact will last. Our priority now is to focus on business continuity and employee well-being. I'm pleased to say that most of our organization has started to work from home effective from 10th March 2020. And our crisis management team has ensured all operation runs smoothly and business can continue as normal during this period. So far, there is no delay in our network rollouts and upgrade plans as our early planning and procurement process has helped us secure all the materials needed to meet our Lebaran plan. We are seeing several key trends emerging across our business as a result of COVID-19. The first is an accelerating shift to digital across our distribution channels when it comes to purchasing our products and services. Thus, we have seen that more and more customers are purchasing data packets and reloading through digital channels. Moving to digital has been one of the key pillars of our transformation program, and it seems that COVID-19 has helped us accelerate this process. Through digital, we have a greater degree of control on our pricing and products as well as sales in these channels as well as lower cost structure. We are also seeing rising traffic across our network driven by most people working and students schooling from home. The traffic increase is also partly attributed to our CSR initiative to support the government by giving customers an allocation of 2-gigabit per day to access government websites, e-learning portals and university websites as well as Office 365. However, during this period, we are also seeing an accelerated decline of legacy services of voice and SMS, which is negatively impact to revenue. We have also started to see massive movement of people back to their hometown before the border closure implemented by the government in early April. But a lot of traffic has already moved out of Jakarta and the Greater Jakarta or Jabodetabek to the regional areas, as the typical mudik are going home ahead of Lebaran by many people, have happened earlier this year. This is likely going to be prolonged, wherein people will remain in the regional areas until the border control eases. Finally, our unlimited booster plan that we have launched in early March is seeing strong traction in the market, and it's especially helping us to drive acquisition. This plan was designed with our customer needs in the forefront of our minds, and we are pleased that is well -- it's being well received by the market. We continue to invest in our network, and we continue to roll out on schedule, with our BTS count now above 133,000, with 4G presence in 449 cities and areas across Indonesia, with more than 43,000 4G BTS. We also continue to fiberize our network to ensure that we can handle the rising traffic that we are seeing. Our balance sheet is strong, with net debt-to-EBITDA is below 1, and strengthened further with additional proceeds we have received from the completed tower sales. We have no USD debt, and we have also secured committed facilities with the bank that we can tap to refinance our debt. It is key in this time to have a strong balance sheet and healthy cash position, which is what we have today. Although our results are positive, we are seeing short -- some short-term impact from COVID-19, from rising traffic to shift -- and shift to digital. If the effects are prolonged and last for the next 6 to 9 months, there will be likely a negative impact to the industry revenue, especially if unemployment of the population starts creeping up and continue to be so for a long time. This will impact discretionary spend, and the cellular industry will eventually be negatively impacted by a reduction in the spending power of our consumers. We are hopeful that we will be able to weather this storm and return to business as usual as quickly as possible. However, as a result of this uncertainty, we are withdrawing guidance for now until we have better clarity on the situation. Finally, I would like to introduce David on this call, who has been with the company for the last 5 years, and will be taking over from Allan Bonke as our Chief Marketing Officer. I would like to thank Allan for his contribution to XL growth over the past few years as he pursues his next step of his career at our sister company, Celcom. I'm sure David will do a great job for us going forward. Thank you, and let us proceed to question and answer.

[Operator Instructions] Your first question comes from Piyush Choudhary of HSBC.

Two questions, please. Firstly, if you could talk about how is the price competition in the market and the outlook for the same? And Pak Adlan, you mentioned in your opening remarks that shift to digital would help in improving pricing or gives you better control on pricing. Can you elaborate on the same? Secondly, could you touch upon the month-on-month trends for March and April? How you are seeing the impact of COVID going into second quarter?

Yes. So David here. Let me take your first question. So regarding price competition, what we have seen in the first quarter has been quite a tough competition. We saw that many of our competitors, some of them brought back some unlimited propositions. And some of the smaller players have been pushing the prices down. So I would say that the prices in quarter 1 have been under big pressure. This has been like that already for a few months. So I wouldn't say that it increased significantly, but it is true that it's at a high pressure. Now to the second part of your question, how does the movement to digital help on this? As you know, when prices -- when the products are sold via the traditional channel, usually, there are markups, and the final price to the customer is heavily impacted by the channel. When we have the access to our customers directly via the digital channel, we are able to control those prices much better. We are able to set up the final price for the customer. So that's regarding your first question. For the second one?

Yes, Piyush, on the second one, I think you know Indonesia have started implementing the, I would say -- I wouldn't say lockdown, right? It's probably some restrictive movement in the 1st week of April, right? So hence, I think if you look in the month of -- for the first quarter, yes, there's hardly much impact, I would say, attributed to COVID, right? Hence, you see the good results, right? However, in April, I think when the restrictive movement is implemented, I think you can see a few things happening, right? One is people. There's a closure of outlets. So far, there have been 10% to 15% closure of outlets, not as significant as yet. Point number two, you also seen that just before the lockdown, and even during the lockdown, there's a huge movement of people out from Jabodetabek to the other regions, to the other areas, in other parts of Java or outside Java, right? So -- but in any case, I think these trends, some of the trends that we're seeing that legacy is definitely declining much faster than what we have seen before. However, we've seen that a lot of shifting on the legacy business are going to probably WhatsApp [ Crop ]. Point number two, I think you probably would have seen that there's significant increase in traffic initially at the beginning. But towards the end of April, it's actually stabilizing, I would say, yes? And point number three, I think if you look at people that is going back to hometown and starting the mudik, which is earlier today, are generally the people that have either lost their jobs or actually have taken a pay cut, and they cannot afford anymore to pay for the higher rental in the Jabodetabek area, right? So hence, they go back to their hometown. So generally, we have seen that towards the second half of April, there is some impact, some slowdown in terms of the demand -- on the demand side, yes, as we see that people may start losing their jobs and all that. And I think the other trends that you're also seeing that because of that, people are shifting to the lower denoms and the smaller sachet packets, right? And I think you'll see that reloading and buying smaller packet more frequently, instead of buying monthly, they're probably resorting to daily or weekly packets, right? So yes, there has been signs of slowdown as a result of the closure of outlet, which impact acquisition. But at the same time, as people loses their job and go back to their hometown, we have also seen a shift to lower denom and smaller sachet packet. And hence, there would be some impact on ARPU as well as revenue.

Your next question comes from Arthur Pineda of Citi.

Firstly, a housekeeping question. Can you please help us flesh out the impact of IFRS 16? How much has the EBITDA been impacted? And how is this booked into D&A and interest, respectively, in the first quarter? Second question I had is with regard to -- it's a follow-up question to Piyush's earlier question. I'm wondering what you're seeing into the month of May. And we've already seen some normalization in other emerging ASEAN markets. Are we seeing any of such happening in Indonesia?

Arthur, I'll probably take the first question, right? Arthur, we actually prepared a presentation, a corporate presentation that we actually showed reconciliation, right, in terms of the impact on EBITDA, the pre- and post-IFRS for quarter 1, right? So you may look at the presentation slide. But essentially, the biggest impact to EBITDA would actually be the impact of IFRS 16 on the leases, right? So now the leases -- intake of operating lease are actually being treated as a finance lease, right, so a lesser OpEx, and hence, you see that the EBITDA margin actually increased to 49% in quarter 1 here. But however, you will probably see that it's a higher D&A, depreciation and amortization as well as financial charges as a result of the impact of IFRS 16. Yes, so you can see from the corporate presentation that we have posted on our website this morning.

Regarding the second question on the trend that we have seen in the first few days of May, right? So again, it may -- still it's very early days, right? So it's only 10 days that have gone on. To be honest, we are seeing, more or less, the same trend that we saw at the second half of April, right? Bear in mind as well that starting in the 24th, we have the Ramadan seasonality, that it's exactly now when it's happening. So that also influences a little bit the behavior of the customers, both in data consumption, but also both an SMS consumption, like we know the seasonality also from previous years. So I think these first few days are impacted by that. But I would say that the trend is similar to what we have been seeing in April, especially the second half of April.

So no pickup yet. Okay.

Your next question comes from Colin McCallum of Crédit Suisse.

A couple of questions for me. First of all, for Adlan, on your CapEx, I think you're looking at IDR 7.5 trillion was your initial guidance. Will you be able to build everything kind of on schedule there? And are you needing to look at maybe shifting where you're building capacity, given, as you say, people have maybe shifted out of the city area? Do you have to maybe rebalance a little bit to regional areas instead of building out more in Jakarta? So in other words, is there any change in either the total amount you'll spend, or kind of where you're going to spend it? That's the first question. And then second question is, we've seen in other markets that fixed broadband tends to do really quite well when everyone's working from home, so that's been a good balancing factor for operators who have fixed broadband. I know you've been experimenting in fixed broadband and kind of dabbling in it a little bit. What's your view on that? Do you feel that now is the time to get more heavily involved in that, if this trend of work from home is maybe, to some extent, here to stay? Those are my questions.

Thank you, Colin. So on CapEx, I think, at this point in time, I think we are not changing our CapEx plan, right? So just to put in perspective, we do our planning very much earlier, right? Towards the end of last year, quarter 4, we have probably issued most of the purchase order for our CapEx, right? So as a result, the time line that we are typically chasing is for Lebaran, right? So far, I think, given that early planning and all that, we have not been impacted from a logistic perspective and most of the equipment that we have ordered are already on site, right? So Lebaran plan is actually on track. But from -- of course, I think we've also seen the impact of COVID and the trend -- changing behavior and all that, right? There is some shifting of CapEx, some minor shifting of CapEx between capacity and coverage and between regions to cater for these trendings or behavior that we are -- what we're seeing, right? Maybe moving some from Jabodetabek out to the other regional areas, given the movement out that we are seeing by our customers and the population overall, right? So -- but in the scheme of things, I think that changes is not significant. And I think we are still sticking to our earlier plan that we have actually crafted, right? So no change to CapEx and to CapEx plan. And everything is executed accordingly to deliver for Ramadan, yes? So that's the first. On your second question on broadband, yes, I think we have seen that there is increase in the take-up for broadband since the work from home. And I think we've also seen the same with the 250,000, 260,000 homepass that we have actually built, right? To date, I would say that our homepass has increased quite -- just a bit. I mean, in fact, if we see that in the latest month or so, it has -- acquisition has almost doubled. So our numbers as of to date is -- penetration is close to around 20% already, right, from where we were before. So there is a significant pickup on that, right? So on this business, during this point in time, which I think work from home could typically be a normal norm as we move forward, is something that will actually increase or make the business of home broadband a little bit more interesting, right? So this is something that we are looking at. And I think -- and we have actually more experience and knowledge on this. So we probably can see -- look at this in the scheme of things, of COVID-19 and all that. There's also a little bit of uncertainty, how things move forward. But again, this is always on our radar, and we'll continue to assess and evaluate this as we go along.

Your next question comes from Ranjan Sharma of JPMorgan.

Two related questions from me again on the CapEx side. Firstly, how important is the fiber rollout for you, considering the sharp increase in data traffic? And if you need to see the high or higher deployment of fiber, are you actually able to make it? Or are there any logistical challenges of rolling out fiber in this environment? The second question is on -- how are you approaching adding capacity versus improving your network coverage? Because, I guess, you are saying that you are seeing a movement of people, but there might be, again, a logistical challenges of rolling out new sites because of the licensing environment.

Yes. So fiber is -- fiber rollout is actually an important aspect of our strategy or CapEx strategy moving forward, right, given we are moving heavily to data and eventually to 5G at some stage moving forward, right? So as you know that we are aggressively rolling out fiber. And as we can see, right, within the next 1 to 1.5 years, about 50% of our sites would actually be fiberized, yes? So that's how aggressive that we want to be. And at this point in time, the way that we are doing it, we are using a lot of partners, right, to roll out the fiber for us, where we actually lease call, right, from this -- from the partners itself, right? And this call would actually enable us to carry the traffic and take us through for the next 5, 10, 10 -- 5, 10 to 15 years, right? So -- and it's essentially big enough, right? And that's how we are accelerating our fiber rollout. Yes, no doubt that there will be some challenges during this COVID-19. But given that we are an essential industry in Indonesia today, there's a lot of leeway and flexibility that is given to the telco industry to continue rolling out our network, right? So -- however, permits are probably a little bit slow at this point in time, given that I think some of the regulators are also -- or the regional offices are probably also working from home, not all, but some parts of it, right? So there is a little bit of delay probably in the issuing of permit, but otherwise, I think we are continuing as aggressive as ever in rolling out our fiber, yes? In terms of how we look at capacity and coverage, again, I think it's all driven by business case, right? And in some cases that we see that some of the new areas that we probably want to get into, it requires you to build your distribution and all that, right? And some of these new areas are probably going to some of the third-tier cities or even fourth-tier cities, right? So as a result, that given the current situation, where probably movement are probably a bit restricted, we have actually shifted some of those CapEx to more on capacity, which have actually increased higher than what we actually anticipated in our earlier business plan and in our plan, right? But at the end of the day, I think all this is driven by business case and returns, right in line with our policy of trying to drive for the shortest return, right? So there's been a shift. But as I said, it's not significant shift, right, at this point in time.

Your next question comes from Foong Choong Chen of CGS-CIMB.

Two questions from me. Firstly, on the service revenue growth Q-on-Q, as you mentioned, Adlan, it's pretty strong given the usual weaker seasonality that we see in the first quarter, right? So can you sort of provide a bit more color on what's driving that? We also saw Indosat also reporting Q-on-Q service revenue growth as well. So is XL charting market share gains, doing better in ex Java? Or is it the whole industry still being able to generate some decent revenue growth Q-on-Q despite current levels of competition? That's question number one. Number two, on the unlimited booster also that XL launched in early March, can I just sort of try and understand if we saw negative net adds in January and February, and then that sort of turned around to positive net adds in March, and how is it developing in April and May? And also on the unlimited booster, I understand that it's helping XL to defend the subs base, but potentially, does it have some dilutive impact on revenue as well? Those are my questions.

Yes. Okay. So regarding the first quarter, as you say, our service revenue was positive, right? So we were able to increase it. The main reason, as you can imagine it, because we have been able to monetize our customers better. How we have been doing that? We -- I mean we have relied a lot in our analytics to do up-selling and cross-selling to our existing subscribers. So I think that's been one of the key factors on why we have been able to monetize better in this first quarter our customer base regarding the service revenue, and that's why the positive trend. Now looking at your second question, regarding the unlimited proposition that was launched in the market at the end of March, yes, it has had a very positive impact in acquisitions. We have started to see second half of March, and in April very, very especially. So the acquisition impact has been very positive. As you say, any unlimited proposition will have some diluting effect. Nevertheless, the diluting effect that it has had in the existing subs has been paid off by the stronger acquisition. So we have been able to have a positive effect of the unlimited proposition, increasing the customer base more than the dilution that it has caused in certain segments of our existing base. Having said that, we also believe that our unlimited proposition, because of its mechanics, is the most sustainable that is currently in the market.

Your next question comes from Prem Jearajasingam with Macquarie. Your next question comes from Kresna Hutabarat of Mandiri Sekuritas.

This is Kresna from Mandiri. Just 2 questions from me, please. Firstly, on the tower sale transaction, I noted that the company sold 2,400-plus towers for IDR 2.48 trillion, and while the reported net book value of fixed assets and prepayments disposed totaled to about IDR 555 billion. So the implied gain difference is about IDR 2.9 trillion there, but the company only booked around IDR 1.5 trillion transaction gain. So how do we explain the remaining IDR 1.4 trillion difference between the impact gain versus the accounted gain on the P&L? That's my first question. On the second question, in terms of fiberization, what does it mean in terms of data pricing and competitiveness versus peers? Does fiberizing most sites help you to lower the unit data cost, hence, the capacity to make your pricing even more competitive in the future?

Yes. So Kresna, I think if you look at the tower sale, right, we have sold about 2,431 towers, right, out of the total 2,700 towers, right? So essentially, there's still a balance of 300 which we have not closed yet, which we intend to close this quarter, yes? So there are some parts of the total tower that is still not closed, which will be closed this quarter, right? So from a gain perspective, I think, first, you need to put in perspective that I think the way that it's been done this year is slightly different to how we have recognized gain for towers in -- than the previous quarter, yes, so because this year, we are adopting IFRS 16. So in previous quarter, you probably would see some deferred gain from some of this -- the tower recognition that we had. However, under IFRS 15 -- 16, there is not going to be any deferred gain anymore. Everything would probably be recognized upfront. However, I think you need to calculate, for example, what is the ROU value, right, the liability that you are going to book in based on the net present value of the liability that you foresee in the next 10 years, right? So I think the method of calculation this year under IFRS 16 versus what we've adopted before for our last 2 tower sales are slightly different, right? So hence, that's why the gain that you are seeing is probably not the same, right? So secondly, fiberization. When we think about fiberization, right, we think about the long term, right? So because, typically, a fiber will take you through for the next 10, 15, 20, even 20 years, right? Fiber will last you for 20 years, right? And that gives you ample capacity for you to cater for the exponential growth in data traffic at the site, yes? So -- and what's the alternative to fiber is microwave, right? We've done our business case, right, when we do microwave versus fiber. So in the short term, probably microwave is actually cheaper. However, in the midterm and long term, fiber is definitely more beneficial to the company, right? As essentially, all microwave requires it to be upgraded every now and then, depending on new technology and all that. And that includes even upgrading the hardware and all that, right? So in every 3, 4 years, you need to continue upgrading your microwave. And given that, with this microwave as well, you probably have a rental that you need to pay to tower providers and all that, right? So we've looked at the business case. In the longer term, fiberization was definitely beneficial, especially in a scenario where data grow exponentially. And I think -- and in the case of 5G, for example, fiber becomes very crucial. And hence, it's a no regret. And it's also -- from a business case perspective, is also more beneficial to the company. You are right, if you talk -- if you look at the midterm, even short to midterm, you will probably see in a scenario where data traffic grow exponentially. The unit cost for data with fiber will actually be much lower than if you continue to serve with microwave.

Okay. So if I -- sorry, but just if I may press on the accounting treatment of the tower sale gain. So do you -- should we -- does this imply that the remaining IDR 1.4 trillion difference on the implied gain is somehow accounted differently in terms of -- is there some impact from the capitalization of the fiber leases and the tower leases from the sale and leaseback transaction? Is that so?

Kresna, I think we can take that offline. It's not as simple as taking the proceeds minus the tower -- minus the book value of the asset, right? Because you need to take into account of the long-term liability, the deferred interest charges and all that, and the lease liability, right? Maybe we can take that offline because the way that is calculated is not as simplistic as taking the proceeds minus the book value. But you have to take into -- all the other account of -- the rest under IFRS 16. Yes, we'll take that offline.

Your next question comes from Niko Margaronis of Danareksa Sekuritas.

Yes. You mentioned at the beginning of the call about roughly -- about sales being generated more from digital channels. How much is that exactly? How much percent is that coming from digital channels versus traditional? And do you expect this to be sustained going forward? I mean, post-COVID, this is -- will be sticky? That's number one. And yes, number two, the CapEx, it is -- yes, it is very strong. And I wanted to check whether it has a ForEx effect given the volatility in IDR.

Yes. So let me take the first one. Regarding the digital part, currently, our majority of -- if we take into account the reloads and the packet sales together, already a big part, the majority is coming from digital channels. Now I cannot disclose the exact percentage of how much it's going from each channel. But I can say that the increase that we have seen in the usage of our own digital touch points, meaning the applications, it's a very strong double-digit growth in the last 3 to 4 weeks. Now whether we expect this to stay after COVID, absolutely yes, not only to stay, but we expect this to keep increasing at a very, very strong pace. And yes, that's also what we are going to encourage, and that's where we are putting a lot of effort moving forward as well.

Your second question…

Sorry, may I have a follow-up on David's answer? Do you expect any savings on marketing? Any improvement on marketing cost due to this base? And can you quantify maybe?

Yes. I cannot quantify, but yes, we expect that our marketing and sales and commission expenditure will improve. We are actually seeing some trend in that sense, and we expect this to be the trend. Yes.

Okay. Your second question on CapEx, yes? So I think over the years, we have actually worked very hard, right, to shift a lot of our CapEx to local currency. So today, I would say that majority are already in IDR, in rupiah, hence, it's not exposed to USD. If there's still remaining that there's some exposure to USD, I would say that it's still -- it's less than 30% today, right, of our CapEx actually exposed to USD. But in whatever the case may be, as much as possible, we will continue to start -- to also to continue to negotiate our CapEx, the remaining of this, to even try to push it to IDR base.

Would you do -- would you overrun your budget, given this maybe 30% exposure to USD?

So typically, when we do our business plan, I think we actually factor some exchange movement already, right? So I think, where we are today, the average exchange plan as per our BP is still within range of what the average movement ForEx today, yes? So…

We have a follow-up question from Arthur Pineda of Citi.

Just 2 follow-ups, please. Firstly, you mentioned the traffic is moving out of the key cities to the provincial areas. Are you able to closely retain these consumers when they move to the provincial areas? Or are you meeting them to other operators? I'm just wondering if the network footprint is sufficient. Second question I had is with regard to the consumption change. When these subscribers do move out of the key cities to the provincial areas, how does their usage or top-up pattern change?

Okay. So answering the first question, when these customers are moving out of the big cities, we are able to maintain them. The answer is most of them. Nevertheless, it's true that we are seeing an increase of churn on those places with high mobility, but not only us. We see that this is an effect that is happening to all operators. So I think all operators are seeing some kind of increase in churn due to this effect. So the market is a little bit more likely in this sense. Now when they move back to their home cities, their behavior, is it the same or not? We could say that their reload behavior and the usage behavior is being changed, but not only for these particular guys that are moving, but in general, both affected by the COVID scenario and the new economical environment, also currently because of the specific seasonality of Ramadan. Now whether we see a different behavior from those that have moved versus the ones that have not moved, that also have changed their behavior, not really. So we see that it's more or less same behavior. But again, the behavior, in general, has changed and has moved to more work from home, et cetera, et cetera.

Your next question comes from Prem Jearajasingam of Macquarie.

Can you hear me now?

Yes, Prem.

Good. Sorry about earlier. Anyway, 2 questions from me. Following up on Arthur's question around the network, especially in the ex Java areas, do you find that your network is better or worse than your peers? And does that give you an advantage? Or is it putting you at a disadvantage, given capacity constraints? Could you give us some idea of how loaded the network is in potentially the worst of the areas? And secondly, has all of this accelerated or decelerated the potential for consolidation within the market? Or have you seen any of your peers -- of the smaller peers tone down their aggression? Or do you think they will tone down their aggression going forward?

So okay, interesting question. Yes. So Prem, so from a network perspective, you know that we -- for the last 3, 4 years, we have been investing quite a fair bit in terms of building up of our network outside of Java, right? So in the 3 main islands today, you would say that if you look at our 4G coverage, we are already at around 90%, right, of population coverage in those areas. Obviously, from -- so we are definitely second behind the incumbent, yes, from a coverage as well as capacity as well in those areas. So if you look at -- if you look from a capacity perspective, of course, our capacity would not be as much as where the incumbent is today. However, I think it's -- we have built enough, for example, to cater for the traffic that we carry, factoring growth in terms of the traffic that we see, at least, in the next 2 or 3 years, right? So if you look at our -- generally, network outside Java, our utilization currently is still less than 50%. I would say that, probably, it's even just slightly below 40%, right? So we still have ample capacity that we can cater for with the increase in traffic coming from those areas that's outside of Java, right? So definitely, with this movement out was -- I think we see that some people not using our SIM that's moved out. But generally, I think we see that a majority are keeping our SIMs, especially in those areas that we do have coverage, right? So it definitely has given us quite a significant advantage with the network buildup that we have done for the last 3 years, especially in the areas outside Java. On consolidation, I think it depends. If this pandemic we see that is going to continue for the longest of time, I think the business eventually will be impacted. And assuming that people -- eventually, more and more people get laid off, you probably would see that disposable income and purchasing power of the consumer will probably eventually be impacted. And that would certainly have an impact to the telco itself. And given that position, for example, if it continues to the longest of time, it may have a significant impact or impact to the industry overall. And I would say that it could also be a catalyst in terms of driving consolidation moving forward. But again, consolidation, there are some challenges around spectrum and all that, that we still need to overcome, right, before we can get to it.

Your next question comes from Piyush Choudhary of HSBC.

Two more questions. Firstly, is there any talks from the government on next spectrum assignment or auction, which brands could be available and when? Secondly, in some countries, we have seen regulatory intervention to give free minutes or data due to COVID. Do you see any risk of the same in Indonesia?

So finally, the recent update from the government on the spectrum auction, there is still no definite time frame for the next auction. So be it for the 2.3 or 2.6 or any other spectrum that might be used for 5G, still, the clarity on when the government will do the auction is still not clear to us. Second one, for the potential that the government will impose the free Internet, it's mandatory for us. Currently, all operators actually have given a free Internet for helping the customer and people Indonesia to do their work from home or study from home, which is quite big in terms of the quarter. For instance, like XL, we already given 2 gigabytes per day, which is around 60 gigabytes per month. And that is already a big amount in terms of free Internet than can be utilized for study from home or work from home. Currently, the number of customers that have enjoyed that free Internet is already up to 25 million subscribers. So what we see from the government that they have seen that all the operators Indonesia already given support for people here due to COVID. So hence, the possibility that they will enforce a certain action, to me, is quite low.

Ibu, on the spectrum auction, if there is no road map, let's say, even in the next 1 year or so, how does company expect to handle such rising data traffic? What is the -- what are the plans to handle the traffic increase?

Yes. So currently, what we have in plan in terms of the technology road map is to do a refarming, refarming of both 2G frequency and 3G frequency for 4G technology. What we see from doing that, the capacity that we will get, if we use the same spectrum for 4G, the improvement in terms of capacity will be very significant. So by refarming this 2G or 3G spectrum for our 4G services actually will help us to cater for the projected traffic increase up to 2 years down the road.

Your next question comes from Sachin Mittal of DBS Bank.

Yes. My first question is with regards to outside the Java division. Has COVID-19 delayed your targets in terms of achieving breakeven and profitability? And have you seen the impact in terms of -- because all operators are moving outside Java, have you seen some impact on the movement outside Java because of COVID-19, coupled with your -- and are you seeing being -- are increasingly being seen as a cheaper alternative to Telkomsel, which is very much relevant in this environment? That's question number one. Question number 2 is just to clarify that when you mentioned the XL booster plan, are you saying that, although there may be -- they may dilute the ARPU, they will be most likely revenue accretive? Or are you saying that they may not be ARPU dilutive, just subscriber gains should be enough, and hence, they're likely to be revenue positive? Just to clarify, is ARPU being that -- is ARPU the focus of these plans or not?

Okay. Sachin, on ex Java, actually, it's to the contrary, right? Because when we see people are moving out of Jabodetabek, they are moving to the other regions, including to ex Java, right? So we think that revenue in ex Java has been strong, right, and I think given that people are also moving out to these areas, right? So far, I think whilst we see that there are probably a shift of people buying smaller data packets or buying weekly or daily packets instead of monthly, but given that shift at this point in time, the trends in outside Java are still relatively strong. So we -- at this point in time, we don't expect, let's say, significant impact to returns and all that. However, if this COVID situation will continue within the next 6 to 9 months or so, when customer wallet are actually impacted, then it's a different story, right? It's not only ex Java, but also Java will probably be impacted.

Answering to the second question -- yes, sorry? Okay, answering to the second question. So in an unlimited proposition, currently, how we are positioned it in front of the customer for acquisition, the customer get it, let's say, free or included in the packet. That necessarily is going to drive some ARPU dilution because when people use the unlimited, their time to buy the next packet will be a little bit longer. So we are not saying that there is no ARPU dilution in that segment. Yes, there is, but it is offset by an increase of acquisition. So that's very specific to what segment, that is the biggest one. So yes, there is some ARPU dilution, which is offset by the critical mass that has been increased because of inflow because of acquisition. Now there is another segment as well that is buying certain unlimited packets, to which the price we are able to set up via analytics in order to control the ARPU of that second segment of people who are getting the unlimited. I hope this answers the question.

We have a last question from Colin McCallum of Crédit Suisse.

Actually, I kind of -- related to the previous question and David's response there. My question is for Dian, and it's a question I've asked before, kind of my favorite question, which is, okay, the revenue is reasonable, the trajectory into first quarter. But if we look at the normalized net profit, XL is still kind of struggling on profitability, right? And it's been 7, 8 years since you've had a net profit of over IDR 1 trillion. So my question is for Dian, is there any strategic plan on pricing? Is there anything that can be done on price leadership for overall industry profitability? Or do you have any aspirations in that regard? Or have you just kind of had to give up on that? David's response is pretty clear earlier, but it all sounds very tactical, right? And in fact, if you think about it, it's worse than a zero-sum gain from the industry, if you get lower ARPU per customer and only are able to offset it short-term by taking more customers elsewhere. Presumably, they might fight back and the whole industry actually could -- takes another dive down, right? So is there any chance to think more strategically and increase profit for shareholders? That's my question.

Okay, Colin, thank you for the question. So if you see what happened in last year, actually, we managed to hold our sales to become quite rational in terms of the price war. So last year, several operator already jumped into unlimited, and we didn't follow to actually using the same tactic there. So actually, it was never our intention to be at like a price destroyer or to initiate a price war in the market. However, what we see that in quarter 1 and also in the last quarter of 2019, what was happening in the market is actually reducing our ability to do acquisition. That's why, as mentioned by David, we were forced to follow the same track, which is launching an unlimited product. And what we saw is that, by doing that, our acquisition ability is going into normal. Colin, I understand that our goal is always to actually focusing in our profit and increasing our profit for our shareholders. However, we have a structural issues here in this market that the market still has too many players. So even though we want to catch up with the incumbent here in terms of making of the pricing and so on and so forth, there are still 3 other operators who can play differently in the market. So what we have to do strategically in this market is that make this market healthier, improve the market structure, and we have tried several times. And also our shareholders tried several times to do that by doing network sharing, by actually opening the discussions in terms of consolidation and so on and so forth. However, up until now, the action or the response from the government is still not as what we expected. So to me, the biggest strategic action in this situation is to improve their market structure and make the market healthier because, as we know, if it is not improved then it will be quite difficult for all operators to have healthy result.

I now would like to pass back the call to your host.

Okay. Thanks, everybody, for joining us today. Thank you for your participation. And always, if you need more information, do get back to us. Please stay safe and stay healthy. We'll speak to you next quarter. Thank you.

That concludes today's conference call. All lines may disconnect now.