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

Hello. Good afternoon, ladies and gentlemen. Welcome to XL Axiata's Earnings Call for the 2021 Financial Year ended December 31. My name is Indar, and I'm the Head of Investor Relations for XL Axiata, and I will be acting as your coordinator today. [Operator Instructions] As a reminder, this session is being recorded for replay purposes. With me on the call today are Ibu Dian, our Chief Executive Officer; Pak Budi, our Chief Financial Officer; Pak David, our Chief Commercial Officer for Consumer; and Pak Abhijit, our Chief Commercial Officer for Enterprise & Home. Now Ibu Dian will share the highlights for 2021, which will then be followed by the Q&A session. I will now hand the call over to Ibu Dian.

Thank you, Indar, and good afternoon to everyone. We are happy to report a good performance in 2021 despite the ongoing COVID-19 pandemic as well as the price competition that impacted the market in the first half of 2021. This is the result of the consistent execution and implementation of our operational XL strategy, which has put us on track to achieve our vision of becoming the #1 conference operator in Indonesia. The highlights of our results are as follows. Our revenue grew sequentially for the third consecutive quarter, rising 2% Q-on-Q due to continued strong product traction in the market. This means our full year 2021 revenue increased to IDR 26.8 trillion, rising 3% year-on-year. Our EBITDA improved as well, rising 2% year-on-year in full year 2021 to IDR 13.3 trillion with margins at 50%. Most importantly, we continue to record profits with our full year '21 total net profit at IDR 1.3 trillion, which is the highest level since 2013. We have spent a higher level of CapEx in 2021 to improve our network performance along with increased digitalization to deliver the best customer experience. The improved customer experience was required to address and match the increasing customers' expectation on Internet quality that emerged during pandemic. Our focus going forward will not to play the price game but on delivering the best experience and creating value for our customers. Our convergence journey continues with our acquisition of Link Net, which I will touch on the later slides. But importantly, our convergence penetration has reached 11% by end of December and currently at 15%, indicating a strong demand for this product. In this slide, let me share with you the update on what has happened in 2021. The consolidation in the industry that happened last year will be positive for competition as it has created a more balanced industry structure. This will mean a focus by market participants on strengthening new value propositions such as customer experience rather than paying on price. Our network investment as well as high focus in digitalization will show how we also play our part in delivering this best customer experience to our subscribers as we continue to invest. Convergence will remain a major focus for us to try and increase adoption to our convergence proposition as we scale up our integrated fixed and mobile business and gain higher share in Home segment. Major positive development. The pandemic is predicted to subside in 2022, which will result in a better market environment during the year along with a higher consumer confidence in that. There is also a great opportunity for us as customers will adopt a more digital way of life, which will create higher and richer niche of our services as a key Internet provider in this country. However, there are also risks to performance, which include pricing inflation, especially with rising oil prices which might affect consumer purchasing power. Our announcement on the 27th of January 2022, where we would be acquiring along with our major shareholders, Axiata, a 66.03% stake in Link Net, which is one of the leading broadband providers in Indonesia, is the next huge step on our convergence journey. We expect to scale up our home presence further with this acquisition and will realize meaningful synergies from the transaction, which we expect to close in the third quarter of 2022. In this slide, we can see some key indicators, both financially and operationally. And as we discussed before, all our metrics are moving positively in the right direction. On this slide, let me drill down a little bit into what we are seeing and why we are confident that our network investment and increased digitalization is leading to a better customer experience. We have taken our BTS count above 162,000, with 4G BTS increasing to above 77,000 with an increased rate of fiberization, where more than 50% of our cell sites are now fiberized. Importantly, this is leading to higher usage as evidenced by the 34% increase in total traffic in full year 2021. This is because our customers have been getting higher access speeds, as mentioned by Facebook, where access speeds have been increasing by 20% since the start of the year. Importantly, our digital sales and care apps named MyXL and AXISNet, have seen a 3.5x increase in monthly active users since the start of pandemic, which more than 1/3 of our base actively using these apps. This is because of the increased focus and investment we have put in and will greatly help in making our business more efficient from the lower cost as well as opportunities for selling more Internet package and giving better digital experience to these customers. Finally, our guidance for the year of 2022. We aim to grow our revenue in line with market. And for EBITDA margin, guidance is in the low 50s. We will continue investing our network as our CapEx guidance of around IDR 9 trillion, as this investment will remain to strengthen network quality, enhance customer experience as well as to increase digitalization. Thank you, and let us proceed to the Q&A session.

Thank you, Ibu Dian. [Operator Instructions] We shall end the conference call sharp at 3 p.m. Jakarta Time. Our first question comes from Niko from BRI Danareksa. The first question, how much percent of your debt is floating? Do you undertake efforts to change it to fixed? The second question, what has driven the tax expense higher in 4Q '21? How much is the effective tax rate going forward? And the third question, in the Q3 earnings call, you mentioned that price packs increased for XL. How much of the data revenue growth in 4Q '21 is owed to those price hikes?

Yes, Niko, thanks for the questions. On the first item, how much percentage of our debt are having floating rate, in our webinar pages, we show that is around 70% plus, so the exact number almost 78%. We have planned to convert into fixed. As you know, XL is always very opportunistic. Whenever there's an opportunity, we do that. We're working closely with the banks to monitor the trend of this interest going forward. What happened in the other part of the world, also another thing that we are monitoring, then we make the call. You're right. We are in the process of looking at this to convert some floating portion that's coming -- the loan debt coming in second half into fixed. As you know, around IDR 1.7 trillion will be coming to this year. So this is a number that we are looking at. On the second item, what has driven the tax expense higher in 4Q, okay, there's -- if you remember, there was an announcement from government to go back in terms of tax rate into 22% from 20%, so there's an adjustment that we need to book in 4Q. So overall, we're still accruing -- we have to book that number to make the total 2021 in the 22% in terms of tax rate. I think going forward, that would be the number until there's further announcement from the government on the tax rate.

I think in the third question regarding the price hikes and what is the impact in the Q-o-Q growth of the revenue, so I mean, I could not quantify out of the revenue increase how much is due to this. What I can say is that the price hikes brought -- it's one of the causes of the revenue increase, and the impact was positive.

Okay. Thank you. Niko, hope that answered your questions. The next questions come from Arthur Pineda from Citi. The first question, can you remind us what is XL's dividend policy? Does the planned Link acquisition impact that? The second part of the question, why not move to consolidate Link Net on an XL level rather than at the parent company level? Excluding the leases, you are at 0.6x net debt to EBITDA. Also, won't the cost synergies be maximized if done on the local level? Why do it on the parent level?

Yes. Let me answer the first part about the policy, then Abhijit, my colleague, will answer about the relation with the recent acquisition that we have. The dividend policy that we have, still the same, currently is 30% of our net profit, so 30% of NPAT, that's the current policy. What are we going to do for the last year? Right now, we're still looking at it. Then there will be more announcement about it. Then regarding to Link Net?

Yes. So Link Net acquisition, one of the key focus areas was also to protect the gearing ratios at both XL and Axiata levels, right? And from a funding perspective, we have to ensure that both are well within their respective covenant requirements. Given this need and focus or the transaction structure we have arrived at is considered to be the most optimal ones for all parties involved.

Sorry, Arthur, just to correct my earlier statement. I mentioned about 30% of NPAT. Actually, it's minimum 30% of NPAT. So then about exactly 4 months, there -- still under discussion, but that's the policy right now, minimum 30% of NPAT.

Okay. Let me address the last part, right? There's one more, cost synergies being maximized. So Arthur, yes, we have looked at all angles. Actually, at this stage, it would be a bit premature to start calculating synergies. But we are confident that on the cost side at least, the bulk of the synergies we can realize through sharing of passive infrastructure, backbone and transmission. At the same time, we also see potential revenue opportunities, right? So we have complementary footprints in ex Java and mainly Java for Link Net. So we also see a potential opportunity for cross-selling of products across both the companies. Nevertheless, as I mentioned, right now, it's a bit premature as we move towards the closing and the ownership has been transferred, we'll be developing and delving more into this.

Okay. I hope that answered your question, Arthur. The next questions come from [ Hussain ] from UBS. He has 3 questions here. The first, what is the industry growth expectation for 2022? The second, any updates on the 700 megahertz spectrum auction? And the third, how do you define convergence?

Let me take the first one regarding the growth expectations for the industry. So we expect that in 2022, there will be a rebound, so we believe that it will be a higher growth than in 2021. We are thinking on mid-single-digit growth rate, more or less. And we believe that we can perform at least in line, if not better than the market.

Okay. So I will take the second question on the 700 megahertz spectrum auction. So currently, the government is planning to auction more spectrum further -- for 5G purposes. So currently, what are under discussion is to release a spectrum on 2, 3.5 gigahertz and also for 700 megahertz. The auction is expected to happen sometime late 2022 or early 2023.

Okay. I'll answer the next question from [ Hussain ]. Actually, that's a good question, how do you define convergence, right? So convergence has many sub-definitions. We can talk about convergence at the consumer level. We can talk about device convergence. We can talk about network convergence. We can also talk about organization convergence. The way we see convergence in the telco sector generally and XL specifically is the ability to offer all range of services and products into a household, right? So we view our customer base from a customer lens perspective. Now these services could be mobile. These services could be fixed. These services could be content or any other value-added services. From a customer perspective, this gives the consumer an ability to interact with a telco through a single interface. So in our case, today, our customers can avail of all our services through the MyXL app. So it kind of negates the need to interact with different service providers for your fixed broadband needs or for your TV needs or for your mobile needs. So this, according to us, is the definition of convergence.

I'll take the next question on the fiberization target for 2022. So now our fiberization rate for our cell sites is around 50%, I think more than 50%. So for 2022 at least, we targeted that this level can increase by additional of 10% to 20%. Of course, synergy with Link Net in our infrastructure, especially on fiber infrastructure, will help our fiberization. This -- actually, this is very logical to do that we can get infrastructure collaboration to have like more economical and efficient CapEx and OpEx for our operation.

There is another question [indiscernible].

Yes. So I think, [ Hussain ], you had one more question on the synergies from Link Net, which Abhijit has already commented on in the previous question. So yes...

Do I need to repeat it?

No, it's okay, I think. So the next question will be from Sachin Mittal from DBS. So his question is that data yields have declined 7% Q-on-Q in fourth quarter. Have we seen the impact of repricing of booster plans in October? And what's the outlook?

So yes. Yes, we have seen the impact of the price increases that we did in October, November. So I think that impact was positive. But you are right, the yields keep decreasing. There are mainly 3 reasons because of that happening, right? So number one is that we keep growing faster in those geographical areas where our yield is lower. So that makes that the average, the total average keep decreasing because we are growing more in areas where the yields are lower. That's number one. Number two is at the consumer level. Consumers also, we see that they are upgrading and using more and more of their data packets that they are buying. So there is natural, more usage, lower yields coming from the same customer or customers that are upgraded to higher packets. So that's the second one. The third topic is regarding the school program. So the school program, as you may know, had a change in December. And that meant that the yield that we were receiving from those customers in the school program decreased massively. So it was double-digit decrease. So I think those are the 3 main reasons why you can see that the yield has decreased, although we have done price increases and the price -- the impact of those increases has been positive.

Okay. Sachin, I hope that answered your question. We'll go to the next question from Kresna Hutabarat from Mandiri Sekuritas. He has 3 questions. The first question, can we check if there is a one-off on the personnel expenses or staff costs in FY '21? If yes, what would be the normalized run rate for personnel expenses in FY '21? The second question, should we continue to expect sales and marketing expenses to form 10% of revenues going forward? And the final question, given the government's plan to retire 3G networks, should we expect accelerated depreciation for XL's 3G assets in the near future as well? How much of XL Axiata's assets currently are tied to the 3G network now?

Okay. Kresna, I will answer the first question. I think this question came up in last quarter 4 as well, and we already mentioned the roughly figures. Whether we can expect -- or can we -- about the personnel expense, yes, we book it 3Q around IDR 70 billion adjustment at that time, and it would be considered as normalized items for 2021. I will answer the third question, and David will address the second question on the sales and marketing. In terms of the retiring 3G network, if you still recall, in December 2022 -- 2020, we booked a big adjustment at that time, CapEx, 3G depreciation acceleration, it was around IDR 2.5 trillion. So that's the number that we recall of the last year -- I mean, 2 years ago in 2020. And so the one that's still remaining is not really that material. So I would say there'll be some a bit that's still left, but majority are almost all already fully write off in 2020 December.

Okay. So let me take the second question regarding the marketing and sales expenses, right? So as you know, we are in a very unique situation, and there are like 3 factors that are bringing our marketing and sales expenses to higher than the areas before. The first one is convergence. So we are -- as you know, we are working hard on starting to launch our convergence offer, and that makes that we are doing a higher effort in both marketing and sales expenses there. The second topic is the 3G to 4G migration, which we are also aggressively pursuing now, and it's also making that our marketing and sales expenses are higher. And the third one is the specific go-to-market strategy that we have now given the very unique context -- consolidation context in the market, which also is driving us to be more aggressive in certain areas. So as long as these 3 factors keep aligning among themselves or we have a few of them, we can expect that the marketing and sales expenses can be around that level.

Okay. Thank you, everyone, for the answer. The next question comes from Raymond Kosasih from Verdhana, Nomura. The first question is, post the MTO, what would XL's stake in Link Net be? If it is below 50%, then there is no consolidation benefits, thus, better off XL has no stake since Link would be controlled by Axiata and, thus, XL can still enjoy the convergence benefit. The second question is the CapEx for 2022 split between cellular and Link Net.

Okay. So this is Abhijit. Let me take your question, Raymond, right? So as I mentioned earlier, the reason we had this transaction structure was to protect the gearing ratios of both XL and Axiata, and hence, we have gone in with the shareholding that has been released to the press. So post MTO, we do not envisage XL's shareholding to be above 50%. So no, we will not be consolidating the revenue. Nevertheless, we will be able to record an associate contribution of the proportional profits. Now let's separate ownership from operations for a second. Despite the ownership structure, we are very confident that XL and Link Net can both cooperate and work together to enjoy the synergies both on the cost side that I explained earlier as well as on the revenue side. And actually, we view the world a bit differently because both companies have got complementary footprints. As explained in the previous calls, we are stronger in ex Java, and Link Net brings a pretty robust network in Java to the table. Your next question is CapEx for '22 split between cellular and Link. I think it's slightly premature to talk about CapEx at Link Net because we are still some time away from closing the deal as well. However, I would imagine as a listed company and that is expanding, they would have their own CapEx figures. And my colleague, Budi, will be giving the guidance for the 2022 CapEx, yes?

Right. Yes.

The next question -- sorry, I hope I have answered your question, Raymond. If not, then you can type again. Next question is from Sachin. Will CapEx rise to expand the coverage of Link Net? And how much is its household coverage? In this call, I will give you the figure for the current household coverage, which is roughly around 2.7 million to 2.8 million homes passed. So that what we call homes passed is their actual footprint. And within those homes passed, they have around 800,000-odd homes connected. Your first part of the question about CapEx on -- sorry, where is Sachin's question? Here, CapEx rise to expand the coverage of Link Net. Again, Sachin, sorry, but this is slightly premature because we are still a few months away from closing and transferring of ownership. So I think this would be better addressed at that stage. So I can give the next question. So the next question is from Angus, Smartkarma. How quickly will XL Axiata be utilizing Link Net's fiber network? Will the company bundle First Media with XL Axiata services and merge its own broadband with First Media? So we have just signed the SPA recently, and we announced, I think, on the 27th of January, and as we mentioned, all parties are now focusing on obtaining the regulatory approvals and closing the transaction. So once the transaction closes, then I think we will have -- we'll be able to have more clarity on what are the synergies. I've already spoken about the synergies, both on the cost and revenue side. So of course, we will be looking at utilizing the assets of both companies as well, right? Bundling First Media with XL Axiata services, et cetera, again, this forms a part of my previous response on revenue synergies, where we will be looking actively at cross-selling our products across both respective footprints as well as our mobile products which we want to bring in for the sake of convergence. So yes, we will be looking at all of this.

Okay. Thank you, Abhijit. I hope that answered your question, Angus. The next question is from Foong from CIMB. He has 2 questions here. The first question is on CapEx. So for the IDR 9 trillion CapEx guidance for 2022, that's quite a bit higher than our usual run rate. Where is this spending going to? And do you see that as the run rate into future years because XL now faces competition from a larger ISAT and Hutch entity? The second question, are there risks that the cost could come in higher given the inflationary environment, example, oil prices and then the margins? Or do you think that this is unlikely to be a major risk?

Yes. Thanks for the questions. So it will be 3 parts here, one about the IDR 9 trillion; second about -- is it going to need more [ network ]; and the third part about the risk because of the commodity. On the first part, as you know, we are committed to continue to improve our network. And we continue to focus on digitization to ensure that we have strong network that are able to deliver their promise, giving the best performance and also focus on the customer experience. This is a commitment that XL is going to use as the winning formula. And as you know as well, partially, our spend is also driven by the recent development in the industry consolidation. And we have to ensure we have good quality of network to be able to compete in the area that we believe we should fight to compete. And this IDR 9 trillion is the guidance for this year, whether we're going to do these things. And in the next 2, 3 years, as you know, again, XL is very opportunistic. We see things fairly -- based on the fact of what's happening in the market. So we're going to continuously evaluating our CapEx number based on how the market evolves. So that's the one that will [ begin] at the next 2, 3 years. So -- but we continue using our principles about operational excellence. We always look at the payback, which one is giving us the most optimum return with the lowest investment possible. So that's the formula that we promise we continue to introduce whatever we make decision on any customer. The last piece on the risk, you're right, those are always around about the risk, almost happening in the commodity market, et cetera. But as you know, XL always do negotiation on the -- like [ about nego ], once a year, we already know what we're going to do, and we negotiate to work together with a [ lender ] to secure, to protect our investment in next 1 or sometimes even up to 3 years. So those risks always factored in the price. So we mitigate the risk by having that price lock upfront. And every year, we continue to revisit to get a better deal with the partner. I think that should answer your questions. If not, then feel free to type.

Okay. The next question comes from Mohammad Fakhrus from BCA Sekuritas. He has 2 questions. The first question, could you please share some color on the long-term plan from the acquisition of Link Net? Do you plan to become a major shareholder in Link Net and consolidate Link Net's books? I think this is also related to a question that Raymond also has, which is also, once debt ratios are not a concern, would Link Net be consolidated at XL level?

Yes. So Mohammad and Raymond, this is Abhijit again. The long-term plan, as Ibu Dian mentioned in our presentation, is for XL to become the #1 converged operator in Indonesia. In order to achieve that, we will use different strategies at our disposal. Link Net acquisition is one of them. We also have partnerships with other fiber providers where we do a wholesale, retail. And in addition, we also have our own footprint, right? Nevertheless, all these approaches are geared towards one goal, which is to become the #1 converged operator in Indonesia. Now Link Net consolidation, as I answered before, the reason we have had this current transaction structure is to protect the gearing ratios on both entities, purchasing entities, Axiata and XL. So for the foreseeable future, at least for now I can say that, is that we will maintain this current structure. Nevertheless, allow me to repeat what I have mentioned before. That's separate ownership from what you achieve in the market, right? So owner shareholding is one thing. But operationally, we believe there are a number of synergies that we can achieve both on the cost and on the revenue side with this acquisition. I hope I have answered both questions, yes, Raymond and Mohammad.

Yes. I think the second part of Mohammad's question was what kinds of innovation, yes.

Yes. So Mohammad's question is, what kind of innovation do you guys plan to unleash in the near future once consolidation of -- once you consolidate Link Net operationally? So Mohammad, allow me to share with you, let's separate consolidation and shareholding and ownership from the actual innovation. So what we see is having the ability to interface with a household with an entire breadth and depth of telco-related products and services. So we no longer view the world through a mobile or a fixed lens only. We want to be able to offer the customer a converged experience across content, be it through OTT platforms or pay TV, ability to manage mobile subscriptions and fixed broadband subscriptions through one single interface, one single bill, and any other value-added services that we introduce in the future, be it smart homes or digital lifestyle products or health insurance or any other type of financial products. So we see a household as one unit. And as a telco, we see that we should be in a position to drive all kinds of products and services into this household. So I hope that gave you a bit of color of how we view convergence and the innovation that we are thinking.

I hope that answers your questions, Fakhrus. The next question is from Norman Choong from CLSA. Can you share what's your strategy on convergence after acquiring Link Net? How do you retain existing subscribers of Link? And will there be changes in products offerings and ARPU of Link?

Okay. I think, Norman, I have already answered the convergence and the strategy post this acquisition so -- in my responses about offering all kinds of products and services into the household, so I hope you have got that bit now. How do you retain existing subscribers of Link? And will there be changes on products offering and ARPU of Link? I think retaining subscribers of Link, Link Net is a listed entity, and after this transaction, there still will be 2 separate companies. So I'm sure their focus will be on retaining their customers. The second part, changes on products offering and ARPU of Link. Now ARPU is an outcome of what strategies you deploy, so I cannot comment on that. But product offering, definitely. As I mentioned, we will be working very closely with Axiata and Link Net to drive synergies across the network. At the same time, looking at driving revenue opportunities in Link Net's current footprint in their intended expanding footprint and also in -- on the XL side as well, right? And revenue opportunities initially will come through from cross-selling of products across these 2 companies. So I hope this has answered your question as well.

Okay. We'll go to the next question from Shaun Yap from Zaaba Capital. He has 3 questions. The first, your FY 2022 guidance guides for revenue to be in line with industry growth. Is Axiata no longer anticipating market share gains from the Indosat-Hutch consolidation? The second question, XL lost 70,000 subscribers in Q4. What drove this sub loss? Did XL lose market share in Q4? And then the final question, what is Ferrymount's role in XL Axiata?

Okay. I will take the first 2. So you are right, what I said in the expectations of our growth for 2022 was in line or better than the market, right? But yes, during the question, maybe it was not explicitly explained. But yes, we expect to grow market share in 2022 given that we are an attacker and we have 2 companies that are consolidated and another big company, right? So definitely, yes, we are anticipated to win market share in 2022. Regarding the second question, yes, so I think it's 70,000 subs loss. You can see that, that, is the order of magnitude of the total number of subs, it's a small amount. Now it's true that in quarter 4, we have seen a little bit of consolidation due to some of the dual SIM-ers of the school program, yes, starting to consolidate that, right? So that we have seen. Nevertheless, the track that we do from our market share, we see that we have grown market share in the fourth quarter as well. So it's not a decrease in subs and market share. It's a decrease in subs given to a specific situation as the SIM consolidation that is happening. But what we can see is that our total market share -- subs market share has increased a little bit. And for number three?

Okay. So I will take number three question on the -- or what is Ferrymount's role in XL Axiata. So currently, Ferrymount owns 5% of XL shares, and it can be extended for the -- in the future. So we have shared in our previous call that the objective of Axiata to actually release that 5% or more to Ferrymount is that to have Axiata informing a strategy in navigating through regulatory environment, political situation and so on and so forth and helping XL in those arena.

Okay. I hope that answers your question, Shaun. The next question is from Selvi from UOB Sekuritas. A question, since Link is targeting to enlarge the enterprise segment growth, does XL have plans or synergies, convergence that are also targeting corporate customers? Also, are there any synergy plans on data centers?

I will take that question. This is Abhijit. Selvi, thank you for an excellent question, by the way. Earlier, when I was talking about convergence, I illustrated that using an example of a household, but you are absolutely spot on. Convergence also applies to enterprise customers, and we are actually very excited about using the Link Net acquisition to drive convergence into their enterprise footprint in conjunction with ours. And this means not only selling our mobile solutions and fixed connectivity solutions but also going into the ICT space and selling digital products and solutions from productivity tools to cloud solutions into the entire large, medium and small enterprise space. So the short answer -- that was a long answer, but the short answer is yes to your first question. Your second question is synergy plan on data center, absolutely. So I mentioned about cost synergies are illustrated using backbone and transmission networks. Nevertheless, we will be looking at the entire network components, including data centers, and seeking to drive synergies.

Okay. Selvi, I hope that answered your question. The next question comes from [ Richard ] from [ Tribeca ]. The first question, what do you think the data usage trend will be like in 2022? Will it be lower than 2021, requiring the company to concentrate more on data yield? The second question, is the company willing to consider a rights issue to reduce debt?

I will take the first one. So regarding the data usage trend, we expect it to keep increasing. So we believe that it will be higher -- the data usage in 2022 will be higher than 2021. Now that doesn't mean that we are not going to focus on data yield. So I think we have a strong focus on data yield and on market reparation, I will say. So as we were telling in our last quarter call, we already did price increases in October, November. We are doing the same as we speak. So this February 17, we already modified our biggest portfolio, Xtra Combo Lite, in the traditional channel have increased prices, right? So we have converted it to something that is now called Xtra Combo Flex with some price increases. And we have complete commitment on trying to bring higher revenue per gigabyte.

On the second question related to whether we are considering rights issue to reduce debt, currently, at this stage, we are evaluating our funding options we have, especially with this recent acquisition progress that we're having on Link Net. Could be debt, could be equity, whether its debt is bank loan or bonds, whether the bonds is short term, long term, those are being reviewed currently. We do it together with the group as well because we have this recent acquisition. And to get most optimum options to keep our gearing at healthy levels, I think that's the ultimate goal we're protecting. However, we are in a strong balance sheet position, but we continue with doing options that we have to get the optimum funding expense.

Okay. I hope that answers your questions, [ Richard ]. The next question comes from Niko from BRI Danareksa. The first question, what is the target of convergence in 2022 to 2024? The second...

I think Niko has many questions. Perhaps we go one by one.

Okay. Yes. I'll read out all of them, and then we can answer them. The second question is, what is the current sales outlook for e-commerce marketplace channels? How much sales is attributed to that channel? Do you see any potential for deeper partnerships with e-commerce players? And what is the contribution of sales via your own apps? The third question, do you actively pursue network collaboration with Smartfren or even deeper integration with any of your other peers?

So I'll take the first question, what is the target of convergence in '22 -- from '22 to '24. Put it simply, we want to become the #1 converged operator, as simple as that. But if your question is more about what revenues, what subscribers, then as I mentioned previously, it's a bit premature because we haven't closed the transaction yet. So let us do that. And I think by the time we close the transaction with Link Net and transfer the ownership, then we will be in a better position to offer more details to the market.

Okay. On the second question, so I don't -- we don't discuss the information to earlier, right? So I don't think we share that level of information. But I can tell you that, number one, our most important channel, of course, it's always our own digital application. One information that, yes, we have shared is that our monthly active users have grown 3.5x since January to December. And you know that we have already more than -- almost 16 million monthly active users in our digital applications. You can more or less estimate that the revenue growth has gone also -- has been big, right? That has been in line. So it's no longer -- the whole revenue, it's already a significant amount of revenue that we are receiving directly from our digital channels. To the second point around e-commerce platforms, yes, they are very important for us as well, anything that is digital. Again, the best digital channel for us, it's our own channel. But the second best digital channel is e-commerce or other digital channels. Digital is always positive for us. So we are in constant partnerships and constantly looking for more strategic collaboration with all these e-commerce players.

Okay. So I will take the last question. Do you actively pursue network collaboration with Smartfren? Or it will need integration with the other peers? So I think we have shown in the past few years that XL is the #1 supporter of network sharing. So we are releasing that any infra collaboration will bring benefits for the participants. So the answer is yes, that we actively pursue a collaboration on Smartfren but with any other operator as well. And the second part of the question, I think deeper integration, probably you're alluding to consolidation. At this stage, what we can say is that we are supportive of efforts to improve in the industry via deeper consolidation. However, currently, we are still busy with the focus on our post-Link Net acquisition activities. But the potential of merger is always there. I hope that answered the question.

Okay. We'll go to the next question from Piyush from HSBC. He says thanks for the call and congrats on a great set of results. To his first question on revenue, can you give us the split of revenue in Java and ex Java? What was revenue growth in Java and ex Java in 2021? The second question, can you update us on EBITDA or EBIT margin of ex Java regions? What proportion of CapEx would be spent in Java region in 2022? Would it be fair to think that Indosat-Hutch formation would divert larger CapEx in Java region to maintain your revenue market share?

Okay. Let me take the first one regarding the revenue. So once again, we don't disclose the revenue to that level, but I can give you the data that both regions, both Java and ex Java were growing quarter-on-quarter. Of course, ex Java is still outperforming Java in terms of revenue trajectory, as you know. Currently, ex Java revenues are more or less 30% of the total revenues in this fourth quarter.

Yes. On the second question related to EBITDA, EBIT for ex Java as well as the impact of the investment for ex Java due to the recent consolidation, same like what David mentioned, we couldn't really disclose the detail on how much the EBITDA, EBIT between the 2 split region, Java and ex Java. But I could share a few things, something that we also said before that we've been investing in ex Java since 2017. And as you know, our operational excellence is very disciplined in terms of payback. And depending on the area in ex Java, some area, we're looking between 2 to 4 years payback. So hence, with that -- 2017, we've been doing this. Most of area already profitable or reaching profitability. However, since ex Java continue to become our investment focus also. As a whole, still not yet profitable as we continue building scale right now, and with this recent happening on the profit surely impacting certain pockets of the area. And whether or not will drive the way we present ex Java, the merger is just one of the things that we're considering. In terms of investment, our decision, always look at which one will be the fastest payback and the lowest investment, however -- hence, we're looking at many things, looking at the potency of that area, the demography, the -- what's happening in that area, so many things that we're considering. This recent merger, surely one of it, but it's not a factor or anything, yes.

Okay. I hope that answers your question. Raymond has a follow-up. So we understand your profitability has been on an uptrend. However, your debt costs are still large. How would you finance the Link Net acquisition? Is there any plan for a rights issue in the next 12 months?

Yes. Yes, that question already asked before, but I can elaborate more with them on this. At this stage, again, we are really evaluating all of the funding options, or this could be funded via debt or via equity. So rights issue is something that we do seriously look at as one of the options. At the end of the day, our obligation is to ensure that we're giving the optimum option in terms of funding the transaction and giving the most benefit result for the company. We have to ensure we have the right level in terms of gearing at the healthy level. That's what we are doing right now. So the answer whether rights issue or not, yes, it's one of the options we are looking at.

Okay. I hope that answers your question, Raymond. Foong has a couple of follow-ups. So the first question, XL's subscriber base has not grown in the past 12 months. What are we seeing in terms of subscriber traction in Java and ex Java? The second question, do XL lenders look at net debt to EBITDA with or without finance leases? Given the investment in Link Net and the still higher CapEx in 2022, are we comfortable with where the gearing level will be by the end of 2022? The last question, on the higher device costs in 4Q '21, is that due to handset campaigns? Or is it fixed broadband-related?

Let me take the first one regarding the XL subs. So I think quarter 4 2020 was an extraordinary or different, abnormal quarter due to some of the school program dual SIM-ers that were there. So we already saw much of consolidation in quarter 1, right? So you saw that our subs were decreasing from quarter 4 to quarter 1 and since then have been growing healthily. So when we compare other attributes, again, not the total number of subs that you can see that sometimes the dual SIM-ers play again there, but when we see daily active users in our network, we have seen a very healthy growth in the last 12 months. So I wouldn't say that it has not grown in the last 12 months. Yes, it does, but comparing with quarter 4 of 2020, it's a little bit misguiding. So that's -- yes.

Relative to the fourth question, does lender look at XL net debt to EBITDA with or without finance lease, I think we couldn't answer on behalf of lender. But this -- but I could say something like we've been working with the lenders, and gearing that they are asking, data that they're asking. So depending on the lenders, some lenders will be looking at the net with finance leases, some looking at without finance leases. So they have their own priorities the way they look at the borrower structure, right? And in terms of whether we're comfortable at the gearing level by the end of 2022, surely, that's what we are aiming. That's why we keep all the options open. We continue reviewing which one will bring us the most optimum result by the end of 2022 and also going forward, '23 onwards. So it's not only onetime [indiscernible]. And on the fifth questions on the higher device costs in 4Q due to handset campaign or fixed broadband-related. In terms of cost, David, if we can elaborate more on the device, what we did even in 4Q. But mostly it's on the device, and device basically is accretive on what we did, yes, on the 3G [indiscernible].

Yes. I mean, not much to add, right? So as I was explaining before, we are migrating 3G to 4G, so that requires some handset -- yes, some handset investments in some of these areas.

Okay. I hope that answers your question. [ Hussain ] from UBS has a couple of follow-ups. So the first is, have you seen your competitors responding to XL's move to increase pricing? And the second, I heard that Indosat has increased data quota for one of the plans. Is there a risk that XL increases pricing and competitors don't follow?

That's a good question. That's a good question. So once we increase the prices, I think there have been different reactions in the market. So the incumbent, Telkomsel, we believe that it will play it a little bit more rational in certain portfolio, although it is still quite aggressive in certain other portfolio, right? Now to your question with Indosat, yes, it's true that in both Indosat and Hutch actually, they increased their promotions in quarter 4, right? So they had this double quota in many of their plans. We really hope that our competitors will also push for the market reparation. In any case, I mean, we have a very clear strategy, a very clear go-to-market strategy with very granular pricing, and we keep our commitment on bringing -- on retaining the prices.

Okay. So I think there's a question from Niko. There was an 11% of convergence in 2021, so I'll interpret that as a question. And the short answer is yes. So Niko, what that means is of the installed base of our XL Home customers, 11% of that were already convergence customers. That means they availed of more than one service from XL. And actually, the news gets better, right? So this was end of December '21. Currently, 15% of our installed base are convergence customers. They avail of both mobile and OTT content and fixed broadband from us.

Okay. Guys, just looking at time, so we'll wrap up with one final question from Raymond. So his question is most operators have high-value customers, which is probably around 20% of their customer base contributing 70% to 80% of total revenue. Would it make more sense to raise package prices for these segment of users while leaving price-sensitive segments to be competitive?

Yes, correct, Raymond. So I think you are right. So there are like different segments that we are tackling with, right? So we have a very strong below-the-line strategy where we can adjust the product portfolio prices depending on the segment that we are tackling with. And yes, exactly, the idea is to try to monetize those segments that are less price-sensitive while we can still be competitive in those that are price-sensitive. Now another topic that we are bringing, as you know, our network has improved significantly in the last few months, right? So we are seeing that the customer experience that we are providing, it's also much better now than it was a few months ago, which also plays into the game, right? So yes, price increases and optimization, it's not -- it's going to be general but more selective in those segments that are less price-sensitive via below the line. And we will try to be competitive but still repair the market in those segments that are more price-sensitive. And overall, we have a play in customer experience given also the improvement in our network that we keep -- that we pretend to keep playing.

Okay, Raymond. I hope that answers your question, and that was the last question for the call. So I think if you have any other questions that you need answered, please reach out to us. Otherwise, we'll speak to you next quarter. Thank you very much.

Thank you. Bye.