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

Good afternoon, ladies and gentlemen. Welcome to XL Axiata's Earnings Call for 9 Months 2022 -- on September 30, 2022. My name is Christy, Investor Relation of XL Axiata, and I will be your moderator for today. [Operator Instructions] As a reminder, this session is being recorded for replay purposes. And with me on the call today are Ibu Dian, our CEO; Pak Budi, our CFO; David, our CCO for Consumer; and Abhijit, our CCO for Enterprise & Home. Now without further view, Ibu Dian will share the highlights for 9 months 2022, which will then be followed by the Q&A session. I will now hand over the call to Ibu Dian.

Thank you, Christy, and good afternoon, everyone. Thank you for joining our first 9 months 2022 earnings call today. So let me go first to the first slide. So first slide is showing key highlights and [expertise] for our first 9 months of 2022. We are happy to report another good set of results in the first 9 months. Despite the challenging economic environment, we continue to outperform the industry and book revenue growth of 9% year-on-year, the continuity of our strong momentum year-to-date. In fact, we are the only operator that grew both subscribers and ARPU. Of the third quarter 2022, our ARPU is at IDR 40,000, which is an important milestone. This is made possible by our consistent implementation of business strategy and focused the superior network quality, customer experience and data monetization. To sustain the network performance, we have completed 95% of our 3G shutdown and refarm the spectrum to widen the competitive stage of our network quality. All the efforts garner us to remind the first telco operator in download speed and video [ Axiata ] sales in the first 9 months of 2022. We are also pleased to report that our [ call per just ] initiatives continue to surpass expectations. By end of September, 32% of our PTH base is call per subscribers is upwards to 28% last June. In the third quarter of the '22, we have also successfully listed our bonds and sukuk of IDR 3 trillion. The bonds are rated AAA by Fitch, was offer subscribed by 188% during its book building, thus giving us favorable interest rate at 6.7% to 8.45% per penny. We are further encouraged by the trust and confident given by the investors during the bond issuance. Let's go to the next slide. Telco industry remains rational in the third quarter. Competition is tracking where it was last quarter. Impact on inception due to full price hike and also increase in inflation rates are still quite limited in the third quarter. We believe it was still bolstered by social support from the government. Data service will continue to be resilient, mobility returning to normal, while retaining the hybrid lifestyle. Now customer experience is more important than ever. Higher quality is expected as data has become a primary part of our day-to-day activities. We see the connectivity needs for customers to be more convenient, which is in line with our convergence offerings. To cater to rising demands, we continue to sustain our innovative ways in advancing our network infrastructure through digitalization and spectrum usage optimization, further enhancing the customer experience. Aside from the 3G shutdown mentioned earlier, our 4G BTS has increased by 29% year-on-year. This is on top of new technology implementation that will increase throughput. Our innovative network in the ports are throughput as in Q3, we retained our #1 position in the download speed and network experience. We also continued to push for digital transformation, not only for our customers through our core apps, but also internally on our business process. For instance, on [indiscernible] that has cut down processing time by 90%, further enhancing our [indiscernible] response to market development. We continue to see women to out this quarter encouraging results, but we will also be prudent at risk to performance persist, which include possible weaker consumption as a result of macroeconomic pressure, sure, risk of aggressive competition to return as well as prolonged geopolitical issue impact on supply chains. Next slide, please. Following the Link Net acquisition that we and Axiata completed earlier this year, we have laid out self-alignment synergy plan. We launched XL Link Net [ property ] product last October, and we expect more synergies to materialize soon. This synergy will optimize our backbone, submarine cable and fiber development as well, as implementing the analytics that we have to better target area of distribution and sales. To topic cost, of course, during rollout will be most efficient and faster allowing us to capture the market. Now I will move on to our financial and operational performance in the next slide. There are some key indicators of the first 9 months of 2022. We believe all of our metrics are moving in the right directions as our revenue remains strong, especially on data and digital services, supported by cost personal excellence efforts. Our EBITDA manage grew healthily by 5% year-on-year to IDR 10.37 trillion with margins recorded at 48%. And normalized PATAMI grew by 70% year-on-year. By end of third quarter 2022, subscribers are recorded at 57.4 million with ARPU booked IDR 40,000. This result because we managed to reap the benefit from our network superiority and dynamic pricing strategy. Let's move on into the network investment and the digitalization initiative. Our 4G BTS count is now above 90,000, with less than 2,000 demands of our 3G BTS. Our own apps have outperformed our expectations with monthly average user grew 60% in the last 12 months to currently around 40% of our base -- already using the apps. We also continue to aggressively fiberize our sites. As of first 9 months of 2022, 52% of our sites are fiberized, an increase of 19 percentage points year-on-year. This magnitude increase is significant, considering that we continue rolling our traditional sites annually. Ultimately, the increased investment we have put in -- will have been making our business more efficient. Our traffic grew in a healthy trajectory as well, showing that customers enjoying the quality of our data network, which leads to a higher revenue market share. Move to the last slide. To conclude my remarks, we reiterate our aim to grow our revenue at least in line with market, if not higher. This will be achievable [ next ] quarter. In the first 9 months, we grew faster than the market. The EBITDA margin guidance at [indiscernible] 50%. Fiber with the recent macro situation, this might be positioned slightly lower than 50%. We will continue investing in our network with CapEx guidance checked from INR 9 billion. Now let us proceed with the Q&A session.

Thank you, Ibu Dian, for the [indiscernible] remarks. [Operator Instructions] I will read out the first question coming from [indiscernible]. First, how is the pricing environment will be? Do you think price will continue to move up? And second is what is your plan on Link? Will there be a possibility of us taking 100% stake on the company?

So maybe let me take the first one regarding the price, the competitive environment and the price environment. So as we are all aware, we did 2 big price increases in March and June, quarter 1 and quarter 2 and almost all operators. So I think from that point on, I think the incumbent, which is important, yes, has been able to maintain that price increase. So we haven't seen any thing big changes from the incumbent during the third quarter. From IOH, on the other hand, yes, we have seen changes. Unfortunately, we have seen them going more aggressive. They have done a very big core quota product promotion in more than 150 cities, which is giving double the quota for the same price or literally this will have the price, right, in many of their packages, but more in the IMs area. And in Hutch, we see still a lot of aggressivity, especially in the acquisition of products where they are selling the SIM cards even what will be -- to be the cost price, right? So I think, again, a mixed billings. So in general, I think -- okay. So the industry has been able to more or less maintain especially because the incumbents have been there. We have not changed the prices, as was changed in that moment, I was see a little bit the question mark. Smartphone also has not been moving at all since the last few months. So I think that's a little bit the situation. So a little bit mixed. In general, [indiscernible] with that question mark in IOH, that has been doing some aggressive moves during the third quarter, yes, during the double quotas and then from IM 3 and very cheap SPs. But also in IM 3, but especially in Hutch -- in Hutch side.

Yes, I think the second question on Link Net. So as -- this is Abhijit, by the way. So as all of you are aware, we have recently concluded the MTO. And the effective shareholding between Axiata and XL is around 96% now, right? So for all practical purposes, we have a significant majority. I think the focus is, as Ibu Dian was alluding to her -- in her presentation, is on driving the synergies further. Two weeks ago, we launched our mobile product in their base. And we are also working on the cost side of the equation, caring of our network backbone, et cetera. So those efforts will continue at full speed.

Thank you, Abhijit. Thank you, David. From Norman Choong, CLSA. First is regarding the feasibility of price hike in Q4 2022. Should we expect a similar 8% to 9% hike like that, it was in second quarter?

Yes. So as I was saying, we are still looking into the industry. We have had a little bit of everything, right, with the incumbent maintaining the prices. Say, IOH going a little bit more aggressive. So we are still analyzing city by city, what is the strategy to follow. Again, we know that the yields are still low, and we are 100% into move prices up again, if in quarter 4, better than quarter 1. But as I'm saying, we will keep offering a little bit the market dampen the business depending on that.

Thanks, David. Next question is coming from Aurellia Setiabudi of BNI Securities. What is the ARPU on conversion? Second, what is the target for convergence penetration over the next 3 years? And third, any comments regarding the merger news with Link Net?

Yes. The ARPU for convergence -- actually, overall convergence for us is a good story, yes. So we launched it in our footprint 2, 3 quarters ago. And since then, what we are seeing is a few things. The first is increased customer interest by that, what I mean. And this is reflected in the penetration we see in our footprint. So in our own footprint, we are seeing a penetration of around 32%, 33%, which has increased from last quarter from 28 to this figure, right. ARPU also is showing very healthy signs with an increase. So currently, our convergence ARPU is in the 300-plus range. This means that customers are valuing our fixed proposition. They are also valuing the mobile proposition; we combine with the fix in XL Satu, and usage is continuing, right? And we track the performance across existing customers of XL as well as new acquisitions. And in both those segments, we are seeing very healthy responses. Target for convergence penetration over the next 3 years. So as I mentioned, we have gone up from 28 to 33. Now the target is much higher as that, right. If you look at international benchmarks across matured markets like Europe, U.S., et cetera, especially Europe, you will see convergence penetration, ranging anything from 5% to above 80% as well. And this is the range we are looking for actually driving as much upwards as we can because it gives us customer stickiness. It gives us loyalty. It helps our churn. It also increases ARPU. The third question from Aurellia is regarding the merger news with Link Net. I mean, there's always speculation in the market, right? So I will desist from responding to any speculation, but I will guide you to my previous answer. We've just finished the MTO. And effectively, we are at 96% as a family. So operationally, it is enabling us to do whatever we want.

Thanks, Abhijit, [indiscernible]for the answer. Next question is coming from [ Melissa of Garvis ]. First, what is the customer purchasing power in Q4? What is the market dynamics with other players? Second, what is the plan for Link and Axiata? Again, this will still be addressed by Abhijit earlier. So question will be on the customer purchasing power?

Yes. So I think -- as I was mentioning in quarter 3, you can see that the impact has been positive for us, right, of the price increases. I know that there were some concerns, especially after the few prices increased or this actually came out, et cetera. But so far, what we are seeing is that the customer purchasing power it's still there. Our traffic has continued to grow. Again, I cannot share much because this is quarter 4 and this call is for quarter 3. But we are seeing a correct trajectory from traffic and customer purchasing power. Again, we keep looking at these numbers in a weekly basis because we know that it's very more than volatile. I would say that it can change in any moment, right? So it is some of the impacts of this macro global things or even the few subsidy things might not keep in a specific moment. They might take a little bit of time. So far, we have not seen them, to be honest, but we remain offset out of it.

Thanks, [indiscernible]. Next question is from Arthur Pineda of Citigroup. First, what is the driver for the significant Q-on-Q -- jumping [indiscernible] shifts [indiscernible] probably this sustained in Q4? Second question is on the acceleration and benefits because there's also a jump there in Q1 bookings? And third, for [indiscernible] on the XL push liable product on the prepaid mobile front. Is it going to be available products as well the PTH or more -- mainly on the postpaid services? Last one is on the company plans regarding 5G [indiscernible]?

Okay. Thanks for the question, Arthur. Let me take the first 2 questions from you. On driving significant Q-on-Q and why year-on-year and interconnection and other expense, mainly as we mentioned in our list, it's driven by the price banding cost. This is related to our 3G shutdown program. Obviously, for us, maintaining our customer in our network is very important because cost to acquisition and all consideration on potential equity that one we'll do. The other items as well inside, but I think more on the definite spending, the other item is on the SIM card costs. As you know, the SIM card price is still on the high side, and we don't see that yet coming driven by the situation of the global supply chain, and also the situation in the Ukraine war that impacted supply of the guest -- unique guest for SIM card production. So this is the main driver for the cost increase impacting our interconnect and other expenses. And on the second question, can we get color in [indiscernible] salaries -- in the salaries and the benefit? This -- are there any one-off booking? Yes, you're right. If you look at the last year number, you remember, there was an only the low that impacting our reserve on our retirement plans. So then there's a big adjustment happening in last year. That's not happening this year. So there's a one-off that impacting the region if you compare year-on-year for the service and benefit. David, do you want [indiscernible] to say?

Yes. So I'm not sure about which bundled products you are mentioning. So there are like super [indiscernible], right? So one can be all the converge product. I will later comment, but maybe you are mentioning about bundled products like device bundling, et cetera, we do. So how this works, it's literally a prepaid thing. So you can buy a bundle, so let's say, 6 months of Internet product with device, et cetera, or sometimes even the packet loan then you have to pay -- repay. So you have to pay front for the data for the next 6 or 12 months. Then what do we do? We analyze what happens to those customers after the 6 and 12 months, right, in order to see whether the churn is higher. I mean tender will be, but how high it is, et cetera, to see the profitability of each of these plans or bundled products that we have, right? And we keep adjusting that. I can say that currently, all the bundle -- device bundle and gear product that we are selling in the prepaid area are unprofitable. So our good products that we know that we can maintain the customers after the period, or a big portion of the customers are providing us with good profitability. But again, I mean, every month, we do an analysis of what did we sell 6 months ago? How are these customers performing in case that we need to adapt any of this prepaid bundle? Now regarding to the convergent product, I will let Abhijit later answer. But the convergent product it's a postpaid. So when you buy XL Satu, there is some mobile part in there. [ 10 ] gigabytes that you receive, and SIM and you're paying at the end. Now if you want to buy additional, if you go to -- if the quota in excess that is not enough and you want to buy additional, currently, it's a prepaid thing. So you need to go and buy upfront, let's say, an additional 5 gigabyte bonus, et cetera, and use that. So it's a hybrid method as you can see. Abhijit, if you want to mention something.

No. I do not want to add anything. It's just that we convert. For us, prepaid, postpaid, we don't make a big deal out of it, right? It's just a payment mechanism. What we are more focused on whether the customer is staying with us, and if he or she is spending more and the frequency of how they spend with us.

Thank you. [indiscernible]. Ibu Dian, would you like to [indiscernible]

Okay. I will address the 5G question. What I have had very simple update giving before is -- it is regarding 5G or any other new technology, there are many aspects that we have to consider. We have to see the resonance of the bond ecosystem. First, regulation, especially in terms of spectrum, the real part is spectrum is not [indiscernible] and the government still has to do the auction for this to be available and to be legalized by all operators. Second is about 5G device configuration, [indiscernible] 5G device penetration is in sales they still very fairly low. From the previous experience, like from the experience and we are on for 4G and also previously 3G. The auction rate is significantly increased if the device is actually in the sub IDR 1 million. So we won't let them the auction will be fairly low. This is the ecosystem that we have to consider if they use listing. Currently, the use cases for 5G is still not there. So we will say that probably, the B2B use case will be coming much earlier than rather than the consumer market, but that still needs to be -- still in the future. So we think that the investment for 5G will not be necessary before 3 years from now. So I think beyond we get with -- we feel 2025 for 5G investment to come. So in the next investment cycle for the new technology, I think beyond 3 years from now. So I hope that answer the question on the 5G?

Yes. Thank you. Next question is from Choong Chen Foong of CIMB. First on the revised [ landline ] cost. Is there also a corresponding revenue from it? And also, what is the net impact on our profitability? Second, do we expect more request ramping in Q4?

Yes. Foong, thanks for the questions. On the corresponding [indiscernible] revenue, yes, there is obviously. If you look at our revenue structure, it's sitting in our other category. As would then pick up earlier, we strip the revenue between data and digital services and the other market standards. So that the price revenue for spending to our bundling the cost program is sitting into this category. Regarding the input conduct of the EBITDA, as you know, this is more on the retention gain. So the EBITDA is still but is very minimum. So because the focus is to retain the customer for their future business with us. And should we expect more fast-bundling cost in 4Q [indiscernible]. We still expect some probably that it can add later on. As you know, we are giving up and aggressively refining the spectrum by starting on the 3G. We still see some needs to address. A kickoff is going to be practical base to return this 3G-based customer by offering the 3G handset bundling program.

Yes. No. I think as Pak Budi was saying, right? So we started this very clearly in order to be sure that our customers have a 4G device in the moment that we don't have a 3G network. Now having said that, we are analyzing how these customers -- these bundles that we said we sold, right, how these customers are behaving? And to be honest, it's a good behavior. So it's good customers, and it's working well for us. Now it's true that most of the 3G is already shut down. So there's still maybe a little bit more, but we will keep analyzing, right? So all these bundles that we sell, whether they are profitable or not, and how good the customers are, those customers that we are acquiring are. So yes, we will keep adapting depending on that, right?

Thanks, Pak Budi. Thanks, Pak David. Next question is coming from Hussaini Saifee of UBS. First is on the subsidy of 3Q 2022 compared to second quarter and third quarter 2021. I think it's referring to the handling [indiscernible] bundling? Hussain, as we mentioned earlier, that device bundling is more of a retention gain. And it is Slide 3 of profitability very minimum impact on our EBITDA, but there are no subsidy involved within the bundling packages. Second question is on the CapEx guidance. We see a downward risk as of 9 months still stores pending for or we only expect we have spent [indiscernible] the full year?

Yes. So we still maintain, as Ibu Dian, [indiscernible] currently. We still maintain our CapEx guidance at IDR 9 million. If you compare to the same [indiscernible] last year, 73%, up to 3Q is above the right record. So we are still running CapEx at the same step, and we still are confident mainly [indiscernible] that is the number roughly that we're going to deliver for the year in terms of CapEx, is sensible.

Pak Budi. Hussain, you have a follow-up question, please handle your mic and ask your question.

Yes. Just a few questions. One is on the digital transformation costs. So just wanted to understand that this digital transformation, it is more of a project which you are going to execute in maybe, say, 2 to 4 quarters? Or is it more of a ongoing process, and we may not see a drop in digital transformation-related costs. And maybe the second question is, what is your comfortable leverage level? And the current juncture, it is around 2.7, 2.8x. Do you see it going further up maybe in the fourth quarter as you -- as the CapEx ramps up?

2 questions, Saifee Hussaini, 1 related to transformation. And you are more towards the question related to spending, related to transformation thing [indiscernible] as the company we continue transforming on the digital side. But there are 2 fronts, on the -- the 1 [indiscernible] fit to talk about what we do on the transformation on the front side dealing with the customer. But on the back end that Ibu Dian mentioned, we're able to do a lot digitalization in terms of back-end process, Ibu Dian said about procure-to-pay process, if you deal with us, you'll be impressed that actually, we don't do any paper. We're almost 99% paperless company on the process. So we don't need to invoice paper, we don't accept billing in the paper, all being done digital with the robots. So that's one of the examples. In terms of how much we spend, nothing is already reflected [indiscernible] on the front side on the marketing and sales team [indiscernible]. But we -- the one that you see in our P&L, there's pretty much the number that ongoing going to spend. But it's not only one time project. It's going to be ongoing. Any opportunities on transformation on the detail. We're going to execute [indiscernible] within the numbers that we're looking at.

Yes, correct. So I think as probably I was mentioning it, but regarding the marketing and sales, so what -- I mean, we are doing the projects now with a project base. So we expect to see the efficiencies, mean in the future. So it's true that we have been spending in the last few months. In any case, you can see that it has been already smooth in, right? Now [indiscernible] was mentioning that, that is something that we can expect to see, but we will see more efficiencies moving forward. As we have mentioned in the past, what we are doing in this transformation, digital transformation, I mean there are many digital transformations moving on, especially with our customers, so how to digitalize the relationship with our customers, but one that is taking part of the cost is the distribution digitalization, right? It's going in the correct direction, and we expect that it will bring more efficiencies in the -- I mean next year and in 2 years from now.

On the second part of the question, you are saying about our gearing ratio, right? That as of September, our gross was around 3.2x and then in terms of net debt to EBITDA around 2.78x. How do we look at this? I think if you color us, we have planned to reduce this gearing [indiscernible] to the [indiscernible] that are comfortable for our rating agency to ensure our people rating is still there. Because our rating is important to ensure our competitive business on the interest expense. So the plan is to do right issue somewhere in Q4 in December, then we will be registered with [ OJK ] for this, and we already did a couple of announcements related to this. So that's the plan. So we're looking at this 3.2x for gross [indiscernible] to come down slightly below 3x and then coming down further once the right issue will be done. And the good possible right issue is to repay the loan, especially the one with the high interest rate and the one with interest floating interest-based debt. So we try -- because of the interest continue going up, the in fact to reduce the balance between floating interest-based debt against one with the fixed. So just to address your questions. Other than of course for same.

Okay. Thank you, Pak Budi. Followup coming from Choong Chen Foong of CIMB. What was the big drop in Q-on-Q? Also the, yes, as labor costs increased and then a drop in [indiscernible] Q-on-Q. [indiscernible] We expect the jump in Q4 to achieve that.

Okay. Okay. So 3 questions, Foong. Thanks for the questions. Number one, what is the increase in labor costs Q-on-Q. Same like I explained earlier, not only last year, there's only a low IFRS adjustment on the reserve for [indiscernible], but also there's this change as well on IFRS for the second quarter this year. So if you want to compare to look at the 1Q spending for labor, and then compare it with 2Q. So that's a big part of it. There's one-off adjustment into 2022 as well. And on the second question related to rental costs, I think this is something that we've been sharing related to rental costs, that 30% of our of -- of our rental contract on the on towers is coming due within the -- within 1, 2 years. And all these rentals will be enjoying the new rates, the ones that we've been selling as well. Now a majority of towers are renewing the new price, IDR10 million [indiscernible] per month. So all this, whenever the contract is due on the tower, we can enjoy the new one. So these are one of the benefit that we gained from the rental cost per tower. And the third question is related to EBITDA margin guidance 50%. Bu Dian, categorically give our indication that we are looking at -- based on the recent situation of the macroeconomics and all the situation we expect around 50%, will be closer to slightly below 50% as the -- It's that Bu Dian said earlier.

Okay. I hope that answered your question, Foong. Next question is from the [indiscernible] of [indiscernible] . First question whether we are moving to over price packages. Second question, regarding the XL takeover of share in Link.

Okay. So let me maybe -- on the first question, right, regarding whether people are moving to lower data, lower price data package. So we are not seeing that. We don't see moving to lower price if by price, we mean that in the nomination of price, right? So let me elaborate a little bit more on this. As you know, we have increased prices around 10% in the last quarter, right, in the last few months. Now we will have expected to have a 10% yield increase. Actually, in our calculations, we were expecting around that, right, a little bit higher than 10%, I'm sorry. Now why our yield was flat Q-on-Q that, by the way, nobody asked, but I was expecting the question, right. So why did this happen? Because of 2 very clear reason. So there were 2 effects, very strong effects that we saw in our customer base. The first effect is people stretched the data in the packet. So usually, we have a utilization percentage the data that they have in the packet. We saw that increase significant. So people previously reduced a percentage -- I mean there are people who always use all of it. There are other people who -- the validity expires and then they have to [indiscernible]. And in total, we see that there is a percentage of utilization. So we saw the percentage of utilization increase. So people stretch their packets more than before. That's a fact #1. Number two, and it's more related to your question. We saw people moving to lower yield packets. Lower yet packets usually are higher the price, the [indiscernible] the yield. This is not created way. I will enter later on. So this is the 2 effects, right? We saw people stretch more, another 2 people move to load packets that are [indiscernible] higher price package. So that's what we saw. So we didn't see the opposite effect, which -- if you move to lower price packets, it will even boost the yield further, right? Now this is related to the ARPU? Well, first of all, we are very glad to have entered the 40,000 [indiscernible] book up in Indonesia, right? That has been a monolithic to [indiscernible] forever. So I think for the first time, we are able to jump that exclusively. So I think we are very happy with that. Now that they need to lower to higher price packets doesn't necessarily mean that they are [indiscernible] to increase or the opposite that they move to lower price packet doesn't necessarily mean that they have to decrease because they can buy several times in a month, right? So I think that's a little bit about it. We didn't see people moving to lower price packets. Actually, what we saw is 2 effects. People stretching more of the data and move to lower yield, usually higher price packets. Consequence of all this of the price increase, et cetera, for us have been very positive, and we have been able to enter the 40,000 ARPU. So I hope that this clarifies the first part.

Yes, Nicolas, so I understand your question on the shareholding and linked facts. So the reason was the deal was structured this way is because of balance sheet considerations at both XL and Axiata level. We closed the transaction in June. And so far, nothing has changed in the balance sheet for us to consider a change in the shareholding. I hope that answers your question on the Link Net.

Thank you, Pak Abhijit. So our next question is from Etta Putra of Maybank. First, what was the jump in direct cost? And is it a one-off? And second question, the rationale behind 40% jump in [indiscernible] addressed by [indiscernible].

Yes. On the first one, I think I already answered the question, but same this other direct expense basically the handset -- the fast bundling costs to address our 3G requirement program and also the same. So those 2 are the main direct component.

Okay. Our 2G jump is actually related with the 3G set down. We know 3G is the technology that can be using live both for safe [indiscernible] voice and also for data. But when we move the network from 3G to 4G and we shut down the 3G, we need to have a player in the network that still can cater for [indiscernible] voice. That's why we increased the number of our 2G. But then the utilization of the spectrum for the 2G is quite thin. For most of the 3G set down spectrum that really run is for 4G consumption. Later, if we already have the significant adoption of 4G in our subs base, meaning that the penetration of handset with 4G capability is quite high, then we can actually set down with 2G and move everyone to 4G or even 5G in the future. We can [indiscernible] about the voice for connectivity or purely in 4G or 5G.

Thank you, Bu Dian. I hope that answer your question. Next question is coming from Niko Margaronis. There are 3 questions. I think number 2 and number 3, regarding the funding cost expectation and also the EBITDA -- I'm sorry, or address the later part. So first question will be -- addressing the customer sentiment. Do you believe that the worst is the second place in terms of inflation? Or will there be more impact coming in 4G?

Okay. So regarding inflation, I guess that your opinion will be more valid than mine, right? So it's a big unknown of how -- I mean not only in Indonesia, right? I guess that globally, how this is going to move. Again, as I was mentioning before, we have not seen the impact of the current changes or -- yes, economic changes here in Indonesia, but we are very aware that things can be different in -- especially, I mean, next year and in the coming months, right? So again, not very sure about the expectations. I think what is important is that we are able to react if something starts moving or the macro trends move in one direction or another. But that's, I think, what I can mention. But Budi, I don't know if you have any other information about inflation.

Yes. I guess the inflation rate is that at the end of this is a sound game of economics in Indonesia. 3Q, we don't really see much to our numbers. 4Q, depending on the overall global situations. As you know, [indiscernible] increased the rate, and we don't -- we expect the investment in Asia will also set our bank [indiscernible] set of wallet. That's the one that we continue on. In terms of cost structure, obviously, the increase utilities will impact our own operation as well as that's the thing where we have seen the impact will come and what we -- right now, we continue monitoring costly.

Thank you, Pak Budi. next question is from [indiscernible] of [indiscernible] Securities. Will we share the amount of value on the Link Net profitability that we booked in the third quarter? Yes, the question, the portion.

Yes. This is because we have to be on 20%. So it's an equity net. It's not very consolidated. So we report based on our 20% on the portion.

And we only book the one after the acquisition, right? The one on treatment?

Yes.

I hope that answers your question. The next question is from [indiscernible] of Mandiri Securities. First, he inquired whether we can get -- whether they can get a proportion of data equity only and if it is a strategy only. And we expect ARPU and that the yield, what is the expectation in the coming month?

Right. On the breakdown of the revenue beyond digital services, data analytics that we split this the way we can say it, we don't really get the next life of the back down. in terms of ARPU and yield Yes. So maybe also in the first part, right? So the line between data only and data services is blurring. And it's much more blurred than what it was a few months before. So now what we -- I mean, we are not taking a selling company. We are a digital services home data services company, right? So in that sense, we are moving in that direction. More and more, how we bundle the data with some kind of digital service, et cetera. So that's why we will have moved towards in this direction, right? Because again, it's very difficult now to start differentiating when we get under how much we account for data, how much we account for the other, et cetera. It will be a little bit financial engineering. So that's why we put all together. Now moving forward. So again, I was mentioning before that we are very happy to have entered the 40,000 to club in Indonesia. So we hope to keep improving that in that area. The data yield also, you -- I mean, as I was mentioning before, this quarter, we were able to keep it flat although we were -- obviously, we were expecting to improve it, but there were these 2 effects of people stretching their data packet and people moving to data package of lower yield, usually higher price that's traded off for the price increase and kept it flat, right? But again, I go back to the pricing discussion. We are aware that the yield is still low. We are aware that prices still have room to improve, and we are committed to move prices up. Now we are also looking at the market, how it's behaving, and we will take the correct action in the correct moment.

Thanks a lot David. Follow-up question from Niko Margaronis of BRI Danareksa. So what is the number of subscribers that needs to be upgraded? The news you've got, I think this is referring to the 3G subscribers, 4G subscribers. Second, what is the impact if we do not acquire a license in 700 megahertz and 3,500 megahertz? Third is the range of CapEx for 2023. To what extent that depends on the right [indiscernible]. Niko, I think on the right [indiscernible], it's very clear that we aim for deleveraging. So it will not be a CapEx spending [indiscernible] thereby exclude providers after we close the full year results of 2022. So that will be in early next year. So Pak David would like to address.

Yes. So for the first question, I think the amount of drivers or the subs that we have at need either using migration or that the device is not longer compatible to our network, we are already below 1 million, right? So I think it's roughly 1 million subscribers, or more or less in that.

Okay. The second question is on the license.

So I guess the other parties will be similar to any operator. While 700 is a very good spectrum. This is on a loan basis on our bandwidth, which actually -- the advantage with low bandwidth is that it has much longer coverage and also can provide a deep penetration in terms of indoor signal. The other advantage of the 700 megahertz is that it can be utilized for 4G and also for 5G. So as for any operator, everyone would like to have this 700 and of 700.

Thank you, Bu Dian. So I haven't answered the question but if you have any follow-up, please type in on the chat box. [Operator Instructions] Next question is coming from Sachin Mittal of DBS. Could we discuss a few factor that can impact our [indiscernible] margins for next year.

Yes. I guess the main one is on the potential revenue in our ability to address the market, mainly impacted by the buying power Budi [indiscernible] thin talk about it during the speech, by the power were impacted by a potential in base next year, just the one that we continue monitoring and also potent our competition getting steeper next year. Also, tax base on there. They're going on the revenue side of seeing -- the other thing that we closely monitor, there are 2 things, right, in terms of Indonesia macro. One is on the [indiscernible] for USD -- IDR/USD. As you know, our CapEx also impacted by the USD and the USD getting stronger, hence, our CapEx spending will be impacted. And [indiscernible] we continue monitoring also the interest rates, how aggressive our Central Bank trying to catch up with the Fed interest. We know this year [indiscernible] are increasing 6x the exchange -- the interest and Central Bank we're trying to catch up there at the beginning of the year at 3.75% for Indonesia, now already 5.7%. So that interest obviously will impact our spending as well. And the other one that you probably want to mention -- or watch out is on the network, network spending. Bu Dian mentioned was separate impact to the potential OpEx saving, but there are a [indiscernible] as well on the expense on the 700 spectrum fee that we are going to absorb in the OpEx if we get that 700 next year. So those are the factors that quite majestically continuing a monthly for our EBITDA next year.

Thank you, Pak Budi. Next question is from [indiscernible] of [indiscernible]. There is a slight condition on the question whether -- okay. So Pak Abhijit will address it. What is the optimal shareholding position of Link Net that the group build? Surely, there are changes in the balance sheet. And we expect there are no changes in that [indiscernible].

So Henry, I will combine both your questions. So your question is surprises, positive or negative and operational synergies. So in our view, I don't think ownership precludes what you are able to achieve operationally on the ground and extract synergies, right? So long as we are able to drive the revenue synergies that we aim for and the cost side of the synergies and create value for our customers and our shareholders in the market. And to be honest, it doesn't really matter what is the shareholding structure, right? In terms of synergies, as I explained earlier, we have just launched our mobile product in the Link Net base. We are discussing a number of topics. We've already started sharing pools, looking at the sharing of our backbone of transmission and a number of other write-ups. We have made significant progress on that. And as all of you are aware, given that we are related parties, we have to go through, let's just say, a bit more complex process, regulatory process than a normal case, right? So I hope that answers your question.

Thank you, Pak Abhijit. Next question is from Piyush. When do we expect [indiscernible] auction of 703.5 gigahertz to happen? And would there be anything like spectrum auction?

Yes. So based on the information that we receive for the [indiscernible], actually, their time line for auctioning the 700 is due for this year, which is in the near future, right. What we have seen [indiscernible] now is that the digital dividend, they move one from analog [indiscernible] digit to digital is already happening is on the executive that is a good indication that the government we'll be able to auction 700 in the next future. For 3.5, the timeline is next year, probably second half of next year. The follow-up question is in test of delay in [ spectrum operability ] how XL position on spectrum capacity. So currently, [ refarming ] the 3G for the spectrum, actually, we are in a very good position in terms of utility share. So our network utilization is in a very decent level. We see that from our current traffic projection, we still be able to take them for the traffic increase for the -- for next year and probably even the following year. The question is beyond 3 years, what will be done for us to actually cater for a bigger capacity. So we still have the 2G to be refund later. Even currently, we are using [indiscernible] technology for our spectrum management, mentioned in my opening speech that even then our -- so it's much lower comfort the other operator, but we manage to give the best data service experience. So there are still maybe rolling that we can adopt for that. But it is true if it is 2 or 3 years, the 2 -- 3.5 is still not auction. We will lead to the network by probably adding new sites.

Thank you, Bu Dian. We have another question on the chat box from [indiscernible] of [indiscernible]. On financing, what is the timing for the right issue as what will realize the level of net debt EBITDA to be for range?

Yes. So on the timing, the rent issues should be announced soon on the pricing [indiscernible] and crossing -- we're expecting the rights will be locked based on the [indiscernible] mid November. And then the whole transaction expected to be finished by mid of December, we're looking at 15 December. And in terms of -- Cost of debt. [indiscernible] cost of debt, yes. For this year, most of our costs at the last year was based on floating interest debt. So we've been enjoying the low side of the interest. And in terms of roughly, we can look at somewhere between 7% to 9%. And compared to last year, it was higher slightly only. So we actually about the same rate in constant of this center.

Thank you. Next is from [indiscernible]. The reason of the increased sale in 3Q outside of leases. I think that one is due to the [indiscernible]

Employees?

Yes.

Okay. So the increase on that is because of the bond issuance during, the IDR3 trillion. And I think you need to be more clear on the following -- follow-up questions. I think that's pretty much everything. We have answered most of the questions. And since we are also coming to the end of the earnings call, I think we will proceed here. If you have any final questions, please reach out to me, post the conference call. Thank you, everyone, for your participation in today's call. And as always, do with us. We have any more feedback. Please stay safe and healthy, and we will speak to you next quarter. Thank you.

Thank you, everyone.

Thank you.

Have a good day.