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

My name is Christopher from the Investor Relations, and I'll be coordinating today's call. Allow me to remind you that this call will begin with prepared remarks from the management followed by hybrid-and-answer session. [Operator Instructions] As a reminder, this session is being recorded. I would like now to introduce the esteemed members of the management team of XLSMART, who will be joining us for the call today. Mr. Rajeev Sethi, President, Director and Chief Executive Officer; Mr. Antony Susilo, Director and Chief Financial Officer; Mr. David Arcelus Oses, Director and Chief Commercial Officer for Consumer; and Mr. Feiruz Ikhwan, Director and Chief Strategy and Home Officer. I would like now to hand over to Mr. Rajeev to present the management highlights. Mr. Rajeev, you may kindly proceed.

Thank you, Christopher, and good afternoon, [Foreign Language]. And thank you for joining the call today. We'll be presenting our first quarter results. And as you would know, we are in the process of merging. The merger got approved on 16th of April, and we are in the process of running that merger. The results which we are presenting today are the stand-alone performance of XL Axiata ending -- quarter ending March 31, 2025. The consolidated results of XLSMART will be reported from next quarter, which is the second quarter of the year. At this time, I would also want to express my deepest appreciation for the erstwhile CEO of the company, Ibu Dian Siswarini, who retired end of last quarter. And under her leadership, as you would know, XL Axiata became a leading convergence player in Indonesia, driving both transformation and growth If I just dive into the results of quarter 1 2025, -- this year started with modest growth whereas this year was a tough year for the entire industry. In that tough year, our top line grew by 2% year-on-year. We outperformed the market. Competition is intense. The customer buying power remains weak. Our strategy of disciplined pricing, focus on digital execution and on higher-quality subscribers has helped us sustain the revenue growth. Our FMCG strategy -- FMC strategy continues to be an area of focus. We added the First Media subscribers to XL. And now we believe we are in a very strong position to scale the convergence drive even more effectively in the future. As I mentioned earlier, the merger was completed on 16th of April, and we believe we are in a much stronger position now to compete effectively in the market. It will be a new phase for growth for us, combining the complementary strengths, which I spoke about last time when I met you of both the companies, one coming from the local Sinar Mar conglomerate and another from the Axiata [ stable ] . We'll be able to combine our assets, spectrum, market reach and be able to compete effectively in the market. We'll only -- not only have scale, but we'll also be able to accelerate the delivery of more comprehensive and better digital and converged services to millions of Indonesians. As we say in our purpose, we are here to connect all Indonesians to a better life. If I move to the next one, please. In 2025, we will continue to spearhead the digitalization as one of our core focus areas. We are building a truly digital company from distribution and engagement to service experience. Our digital channels, especially MyXL and AxisNet continue to drive self-care and sales, impacting both cost efficiency and also user experience. I'm happy to report that the active users increased 18% year-on-year, reaching 35.7 million subscribers. These platforms, as I said, have helped us to not only improve the customer experience, but has also helped us maintain a more efficient cost structure, which is especially important given the weak quarter the entire industry had. We remain committed to investing in digital capabilities, to build deeper customer engagement and create long-term value. In light with that -- in line with that in the first quarter, we launched XL Circle feature and myXL that provides a host of features and one amongst them is group data sharing with bonus quotas and several other benefits. If I move to the next slide, please. This is about our convergence play. This will remain a strategic pillar for us in the future. And there are 3 priorities which I want to talk about. The first one is the First Media integration. We got the subscribers on board end of last quarter. The integration is well underway. And the migration of the First Media customers will pave the way forward towards improved customer retention by combining the strengths of mobile, broadband and the content offerings. Second is we'll focus on much better quality acquisition, especially on the XL Satu side. And by accelerating the FMC penetration, we aim to deliver long-term customer sustainability and drive subscriber expansion. Thirdly, we are building a foundation for future value creation. We are advancing cross-sell initiatives, enhancing value proposition for existing mobile and broadband customers and preparing to launch new product offerings that will enrich the convergence experience. This will be enabled through a very disciplined execution against these priorities, and we are confident that we'll be able to cement our place as one of the prominent players in this space. If I move to the next slide, which speaks about the financial resilience, which we have demonstrated. As I've mentioned, the quarter 1 was marked by price competition and the ARPU, especially the prepaid ARPU was under pressure across the industry. Despite this, we maintained financial resilience. Revenue grew modestly year-on-year 2%, helped by the First Media subscriber acquisition. Our cost discipline and the productivity improvements helped us cushion the margin pressures which we had. EBITDA is maintained above 50%, and we'll continue to evaluate our pricing strategies to ensure that we are able to balance both growth and profitability. If we move to the Slide 9. Our mobile traffic grew 9% year-on-year, which means that the demand is pretty stable. In fact, it's growing at a pretty healthy pace. And despite the intense market competition and softer consumer environment, we maintained a stable subscriber base. And our focus is to acquire and retain high-quality engaged customers. The blended ARPU declined during this quarter slightly to around IDR 40,000. Again, a reflection of the weaker consumer spending in the market and also the lower seasonal mobility. This year, we noticed that people movement in Lebaran was around 25% lower than last year in the same period, which is a very significant number, which also indicates the overall weaker macroeconomic situation. Nevertheless, we are committed to drive ARPU sustainability. And as I mentioned earlier, our digital platforms, myXL, [ my Axis ] and also the Smart platform will help us move forward on that path. Also the convergence offerings on the wireless business -- fixed wireless Business will help us move forward here. If I move to Slide 10, which is about the profitable growth through cost discipline. As always, we will continue to prioritize cost efficiency and network productivity and aiming for a profitable growth. This becomes even more important once we merge the 2 companies. In our first quarter, the operating expenses increased by 7% year-on-year. This is, in a way, a reflection of the change in the business portfolio we have. As I mentioned earlier, we onboarded customers from Link Net to us, which has changed the cost mix, which we have in this quarter. The year-on-year costs which are higher were primarily driven by fiber lease expansion, the first media business transfer related costs, internalization of mass segment distribution operations. while savings in sales and marketing expenses through distribution channel optimization, digital acceleration and more selective sales and marketing spending helped us moderate this cost per share. We remain committed to maintaining strict cost discipline while continuing to invest prudently in areas which will help us drive growth. Moving to Slide 11 now. Our network continues to grow both in quality and also in size. At the end of the quarter, we had close to 165,000 BTS. The 4G BTS grew 7% year-on-year. And now 63% of our sites are fiberized, which will enable us to enter the 5G era, which should be soon upon us in a much better position. And with the merger now effective, we will be further able to expand and rationalize our network infrastructure to serve our customers better. If I move to the next slide, please. This is about the merger, and we are very excited. The merger happened on 16th of April when the 2 companies officially came together. And we believe this is a landmark event not only for us as people within the organization, but for the entire industry in Indonesia. And our ambitions are very clear. Firstly, we aspire to become the most loved company in Indonesia for our customers by 2027. And we would do this by consistently delivering better customer experiences, meaningful innovations and best-in-class service quality. Secondly, we aim to be the best place to work for our people. building an environment where talent thrives, collaboration is encouraged and purpose drives our actions. Thirdly, we are determined to become the most efficient service provider, operating with discipline, agility and our relentless focus on operational excellence. Our guiding spirit, which in Bahasha is [Foreign Language] or Go Beyond, Together, underscores our commitment to work collaboratively within an organization with our partners, with all the stakeholders internally and externally to unlock new possibilities and create a better future for all Indonesian. And which leads to our mission, which is to connect every Indonesian for a better life. I'm personally very excited about this opportunity and confident that together with the strengths of both the companies which have merged, we'll achieve extraordinary success. The formal merger is over. But our immediate focus now is to ensure that the synergies, which this merger promises to unlock, we are able to deliver on that, and at the same time, ensure that we maintain and enhance customer experiences as we move forward. So I'll take a pause now and hand it back over to Chris.

Thank you, Mr. Rajeev. Ladies and gentlemen, we will now proceed to the Q&A session. As a reminder the Q&A session will be in hybrid mode. [Operator Instructions] . We'll go to the first question. The first question comes from Sabrina, Sabrina from Trimegah Sekuritas. There are 2 questions. We note -- the first one is, we note an increase in the bonus quarter allocation, notwithstanding the absence of any adjustment to headline pricing. Concurrently, a higher price package for XL for [ IDR 168,000 for 180-gigs ] was discontinued while a more accessible attractive price at [ IDR 35,000 for 9.5 gigs ], featuring a lower renewal threshold was introduced. Does XL continue to observe sustained pressure on consumer purchasing power through April and into May? And the second question is also about commercial. We also observed that XL has aligned with peers by launching 3 gig starter pack priced at IDR 35,000. It would be helpful to understand the initial traction of this offering. Actually, how this resonate with consumers? And what proportion of this total revenue does starter pack currently contribute?

Yes. So hello Sabrina, thanks for the questions. Regarding the first one, yes, we have seen pressure on consumer purchasing power that I think it's a reality for us and for the industry. As you can see, during quarter 1. Now very specific products changing like a higher end or more premium, less premium et cetera but typically goes very, very detailed. So we will take very tactical decisions based on which products are more attractive, less attractive, more tractional, less traction in the geography, et cetera. So yes, there is pressure on the consumer purchasing power. Now don't take this as a clear example of that because, again, we do many of these changes during the year. To the second one, well, we have not aligned with anybody about any new price package. Now it's a reality that we are moving towards reducing the number of SIM cards or SP -- different SKUs that we have in the market because it's -- for us it's -- from a distribution point of view, it's more complicated, for the customer and even the outlet it's also more complicated. So we are moving into a much more simplified distribution system. So in that sense, we are trying to reduce the number of SKUs that we have in the SIM cards. As you may know, the physical vouchers are much easier to move because we can move blank voucher, let's say, and then those merchants can get whatever amount of gigawatts or products, the different products, right? So for the SIM cards, we are trying to simplify us as well. I hope that answers the question.

Thank you, David. I would like now to unmute the line for Sabrina to ask any follow-up questions.

I don't have any follow-up questions.

All right. Let's move on to the next question, please. The next question comes from Piyush Choudhary from HSBC. Thank you for the call. Congratulations on the merger completion. Three questions. Are you able to retain all spectrum post merger? Can you share your network integration strategy and margin target for 2025, 2026 as you integrate networks? And the third question is on, would you retain all brands, if you can share your brand strategy? Any change in your distribution strategy across the brand? I think for the first question, I would like to invite for Mr. Rajeev to help answer the question.

So if you're okay, Chris, I'll try and answer all the 3 questions with your permission, Chris.

Yes please.

The first one is on the spectrum side. yes, we are able to retain all the spectrum until end of 2026. By end of '26, we have agreed with the regulator to retain -- to return the 900 spectrum, which is 15 megahertz. I think something -- this is something which we plan for. We believe this is better for us to return this expensive spectrum. And as you would know, there is a new spectrum auction, which is on the horizon. And we intend to participate in that. The merged entity will have much better spectrum portfolio even after 2026 based on whatever I just informed to you. On the network integration strategy, as you know, we have 45,000 towers, XL Axiata. SMART has around 22,000, 23,000 towers. 67,000, 68,000 towers as the total numbers, which we have. We believe between 15% to 20% of those towers are overlapping, and those towers would be sunset taken off. That's ongoing negotiation we are having with our partners. That will result in a significant synergy for us. And some of those towers we'll redeploy in areas where we believe we can compete effectively and profitably. So that's going to be our approach on the network integration. But obviously, this is not only just about combining the towers, it's also about combining the spectrum. And you know we do not have overlapping spectrum. We have different spectrum bands, which in a way is a blessing, which will help us not only do this synergy of the networks, but will also help us prepare our network, which was -- which is future ready. In terms of the margin targets, unfortunately, I cannot get into that. At this stage, we are into the early stage of integration. But as we promised earlier, we expect after the merger is completed, an annual run rate saving of between $300 million to $400 million pretax. And we believe that we should be in a position to achieve that. Retain all brands. Yes, we intend to retain all the 3 brands. I think we spoke about this earlier also premerger investor calls. We believe that's a pretty strong strength, which we have, a very strong differentiator we have. Indonesia is a very large market, very different customer segments. And the 3 brands which we have, they are resonated with very different customer segments. If anything, we'll want to sharpen this differentiation in the future and ensure that these brands are clearly targeting different customer segments. Changes in distribution strategy, distribution is always evolving. Nothing is set in stone. We always look at what is the best distribution model for us. And as we move forward, we'll continuously evaluate the different models, which are there in front of us. There's 1 model which is used in XL and Access. There's another model, which is used in Smart. It's not that we'll force it one approach to the other, but we will do what is best for that brand and somewhere, which I spoke about earlier, the entire brand strategy in which -- segment which we are wanting to focus on will also feed into this distribution plan or strategy which we make. So those are the answers. But in case you have any follow-up question, Piyush, please go ahead and ask.

Thank you, Mr. Rajeev. I would like to open the line for Piyush to ask any follow-up question.

So just on the spectrum, so would you be using the 850 megahertz for the indoor coverage for 4G and going forward for 5G, like what's the spectrum kind of strategy going forward? And if you can also share -- you mentioned that there are more spectrum bands coming for auction. If you can highlight which bands are coming and which would be of keen interest to you?

Yes, I think 850 on the Smart side is being used for indoor 4G coverage. And the good part is 850 will be available to the entire set of even XL customers to take advantage of. So yes, 850 would be used for indoor 4G. The spectrum road map, I think that's public knowledge, most likely 700 and 2600 are going to come up for auction in the near future, end of this year or beginning of next year. That is something which would be of interest to us. Obviously, subject to the auction mechanism, the quantum available and the pricing, I think those are always a factor there. But we would be interested in those spectrum bands. There's also ongoing discussion about 1400. That is something which we are evaluating. We are not very sure about the use cases around that, but that is something which we are actively considering. And we will not conclude on yes or a no for a 1400 as we speak, but that's being actively considered. So these are the ones which I see in the next 1 quarter to the next 4 quarters, the spectrums, which will be up and available in the auction.

Rajeev, this is very clear. And any kind of like annual cost synergies which you can share like -- or maybe it would be better after 2Q once kind of the combined numbers are there. I just want to know -- the big picture we know but kind of milestones to see on the cost synergies on a year-wise basis? How should we think about that? We've just -- as you know, we just finished the merger. Now we have just started to learn to work together. We have some plans, but I think we'll wait a few more weeks, possibly a quarter or so before we come back to you with some exact milestones which we have.

Let's move on to now to the next question from Indra Cahya from Macquarie. There are 2 questions. The first one is on spectrum retention, which I think has already been addressed that basically we'll have to return the spectrum of 900 megahertz by 2026, December. Second question is on guidance for CapEx to sales revenue, post-merger, I would like now to invite Pak Antony to give some colors on the question.

Thank you, Chris. So Indra, on the guidance for the CapEx, I think as explained by Rajeev earlier that we just finished the -- completed the merger. We are currently aligning all the key operational network, financial strategic frameworks against -- across the 2 entities here. So I think we are in the early stages in integrating the 2 businesses. So I think -- we believe I think it's better to hold off to the issuing the guidance at this moment. I think another -- like Rajeev mentioned, maybe another few weeks or months, that we will issue the guidance until we have greater clarity and alignment across our operations. Once the integration reaches greater clarity, then of course, we will share the guidance based on the well-defined postmerger model. So I think we'll -- we need to secure sort of like consideration or understanding, as we focus currently on the execution of the seamless integration. But for sure, the CapEx will be elevated this year. of course, mainly driven by the network consolidation. We have to do the asset -- network [indiscernible]. We have to do redeployment as well as the upgrading the capacity. Okay? Thank you Indra.

Thank you, Antony. Now I'd like to open the line for Indra to ask any follow-up questions.

That's very clear. But probably it's also a bit early to gauge about dividend policies. Just wondering, I mean, if you were to, let's say, to sustain a more sustainable dividend policy, how long would you take -- it takes for the 2 companies to discuss and...

You're talking about dividend now. So in terms of the dividend, I think at this moment, we cannot -- giving you any certainty whether it's going to be -- we will maintain or not. But I think we'll -- along the way that we will see that what will be our profit at the end of the year. And after that, then we will start discussing internally and proposing to the shareholders on that subject. Thank you.

Let's move on to the next question, comes from Aurellia from Indo Premier. So there are 2 questions. Can you share the guidance for this year on EBITDA margin and growth? Second one, any color on the network integration technology and how fast would the integration happen? I think for the -- let's answer the second question first on the network integration process. I would like to invite Pak Rajeev to help address the question on network integration part.

Yes. On the network integration process, we believe the entire integration to be over in the next 2 years. Obviously, we'll try and accelerate it faster than that. But that's the outer limit, which you have kept for ourselves to finish this integration in its entirety. Obviously, it will start immediately in the next few weeks and gradually it will gather pace. But over the next -- as I said, 2 years, it will be completely done. On the first part, by Antony, would you want to...

Yes. On the first part, this is for Aurellia, right? That one -- I think I have covered that one also when I explained to Pak Indra. I hope Aurellia can get the same understanding here. Thank you.

Thank you, Pak Rajeev, Pak Antony. I would like to unmute Aurellia's line. Please ask if you have any follow-up questions.

I have another question regarding our cost synergy. You mentioned the potential in cost synergy is around [ IDR 300 million to IDR 400 million ] annually, right? For this year, how much should we expect that to materialize? Can you give us guidance in terms of the timing as well? And should we expect the cost synergy to kick in?

Yes. Thank you Aurellia. I think on the -- for this year, of course, given -- we understand that there will be a lot of integration costs, but also we expect that some savings will happen, we will realize. So maybe the numbers may be -- but we expect that we cannot get, of course, the [ IDR 300 million to IDR 400 million ], but at least like [ IDR 100 million ] that hopefully, we can get it from this synergy savings. Thank you.

Okay. Maybe another follow-up question. What's the split between the OpEX and CapEx. Is that the [ IDR 100 million ] you mentioned only for OpEx? Or that's including for your CapEx for this year?

Yes, I'm referring to the operating expenses only. I think it's more to the cost avoidance here because basically, if there is no merger. So XL and Smartfren will continue to deploy the network on their own. But of course, after this marger, then there will be a synergy from the cost avoidance.

Okay. And for the following year, I mean, out of that [ IDR 300 million to IDR 400 million ] how much OpEx should we expect the split include so the [ IDR 300 to IDR 400 million ], that's including the cost avoidance for the CapEx. So a normalized full year basis, how much of -- do you expect the OpEx efficiency?

The [ IDR 300 million IDR 400 million ] that we talk about is about the operating expenses.

On the OpEx.

Just to jump in here, just to clarify, when we speak about operating expenses, we're talking about the lease rentals. In the IFRS, it's not classified strictly as OpEx. So just a clarity there. So some of that is reported below EBITDA. So that we are clear in terms of what we're talking about.

I see. So that's majorly for the [ lease ] around cost efficiency like manpower, et cetera.

Yes. So there are multiple angles to it, but a significant component of that will be the leases.

Let's move on to the next question from Ranjan Sharma from JPMorgan. There are two questions. The first one is about the -- what is the wireless revenue growth for First Media? And then if there is any reason for why CapEx has declined 40% year-on-year?

Yes. I think we spoke about this earlier, but correct me if I'm wrong, Pak Feiruz. The adjusted for First Media, there's a decline of 4% -- 5%. So that's the number if we are adjusting it for First Media. CapEx declined 40% Y-o-Y. As you know, the merger was impending. So any CapEx which we thought would be done better in the merged entity with the network integration happening was not done in quarter 1. So that's the reason. But you would see a significant CapEx being done, especially on the integration side between now and the next few quarters.

Ranjan, you have any follow-up question?

Thank you for the presentation as well. Yes, just a couple of follow-ups. Did I hear that right? So your revenues would have declined 5% on a year-on-year basis, excluding First Media?

That's correct.

Okay. And on the CapEx, right, if I just triangulate that with your free cash flows, and I'm adjusting your lease liabilities and using your financial statements, I come to a negative free cash flow for the firm even before considering interest payments. Is there a thinking around when you can become like free cash flow positive? And is it prudent for you to pay dividends before you become free cash flow positive?

Sorry, you are referring, Ranjan, to the EBITDA -- lower EBITDA margin even?

No, I'm looking at your financial statements that you sent out separately along with the presentation. When I go to Page 9 where you report the cash flow statement. In that, I just take the operating cash flow deduct acquisition of fixed assets, lease payments and I come to a negative free cash flow even before considering interest payments. And this is considering that the CapEx is down 40% year-on-year.

Yes. No, I think we know that the EBITDA margin was lower because of the result from the revenues, right? So with the lower revenues figures and then also that this additional cost happens in the first quarter or the last quarter because of the acquisition of Link Net customers. So with that one, our EBITDA is getting lower. In terms of free cash flow, I would say that, yes, I think our free cash flow is, of course, reflecting to the negative -- lower free cash flow, I would say.

Is there a thinking around when you can be free cash flow positive? And is it prudent for you to pay dividends before you become free cash flow positive?

EBITDA positive [indiscernible] .

Free cash flow. Annual free cash flow positive.

Free cash flow, right? You're referring to Ranjan? Can you hear me, Ranjan?

Yes. I'm referring to the annual free cash flow.

Correct. So you're absolutely right. I think from a free cash flow, if we take all in, right, it's negative for the quarter. I think one also have to look at the timing, right? If you look at the year-on-year, there's an improvement in the free cash flow. position, albeit it's still negative. It's also a timing of when we actually make the payments in the quarters of the year. Now certainly, moving forward, to answer that question, it will also depend on the synergies that we've just highlighted and also the integration cost. So unable to give you an indication as for XLSmart moving forward. But once we're able to give that guidance, we'll be able to provide a bit of color, right, in terms of the free cash flow, how should I say, progress throughout the integration.

Okay. So the other part of that was like is it prudent for XLSmart to pay a dividend before you become free cash flow positive?

I think for the dividend policy of XLSmart as Pak Antony has highlighted that it will come back in terms of how the financials will look like, right, after factoring a lot of the integration exercise. I think that's something that we'll relook right, together as a team and then come back right to you.

And as you know, also, the dividend policy is by the shareholders and BOC. So as management, we'll obviously have our own views, but the new BOC has been constituted. And as and when they finalize the dividend policy, that will be shared with all of you.

Let's move on now to the next question from Elizabeth [indiscernible]. So the first question is about how big is the impact from First Media business transfer to first quarter revenue? And then we saw a decline in sales and marketing costs in 2025 first quarter. Do you think this number is sustainable? Or will it increase in the remaining months? And the third question is, is there any potential one-off costs, which is associated from the merger, which you could already tell us. Thanks for the first question, I would like to invite Pak Antony and Pak Feiruz, maybe to help address the question.

Sure. Thank you, Elizabeth. I think for the first question, I think the indication was already provided by Pak Rajeev. You can see from a year-on-year, the consolidated for XL numbers grew 2%. But excluding the first media, it would have been minus 5%. So then you can actually work the impact, right, of the first media business based on those numbers.

And then second question is about the decline in sales and marketing costs for 2025 Q1. Do you think this number is sustainable? Or will it increase in the remaining months? Just jump in.

So thank you for question. I think on this one, as in the previous question, right? So since we merged this margin or this sales and marketing cost was for the XL Axiata. So since now we will have a third brand and as XLSmart, probably this we'll have to revise. It will be a different number moving forward. I still cannot give the guidance, but it will be a different number.

Antony, you would like to address that question and maybe address the third question as well on one-off costs potentially anything about the merger?

Okay. Thank you, Elizabeth. I think the answer that, of course, yes, there will be potential one-off costs, for example, I think that we anticipate that there will be like a recording on impairment on the related -- in relation with the network assets. I think we know that like similar like what Indosat and [ Hutchison ] at that time, there will be a certain impairment asset that we have to do because, of course, we recognize that the certain -- there are certain legacy assets that will no longer be part of the long-term network road map. So with that one, of course, we have to do impairment. But it is a noncash in nature. And I think aligns with our transition to a more modern network infrastructure. Thank you.

Thank you, Antony. Now we'd like to open the line for Elizabeth to ask follow-up question.

It's actually Bob from CGS. I think the -- yes, all the answer is already answered exactly. No more questions for me.

All right. Let's move on now to the next question from [ Andy Gunawan from Ares ]. If we look at the interconnection and other direct expenses, we see that the home broadband expenses increased significantly. Is it due to First Media integration or what? And then could you share your revenue from First -- [ FEB ] business? ARPU and the growth in year-on-year in 2025. And that is still on [ FBNM ]. The third question is about, do you still expect the ARPU will increase in 2Q 2025, I think this is more on mobile. I think first question, yes, the increase is because of the integration for First Media, which we acquired the subscriber in September last year. Maybe Feiruz would like to add more color on that.

Thank you, Andy Gunawan for the question. On the impact of the First Media, right, the customer transfer, actually, you can actually see the impact from the fourth quarter of 2024. Would you see the movements, right, from the interconnection and other direct costs. So primarily, the reason is it's on a lease model, right? But in this case, it's accounted for as under cost of goods sold due to the nature of the contract and arrangement. So you would expect this interconnection direct expenses. Contribution is coming also from this home business, right? I hope that answers the question, Chris.

And then the third question on ARPU for mobile for 2025 Q2 onwards, I think I would like to invite Pak David to provide colors.

So for sure, our main goal, as Rajeev was mentioning before, is to acquire and have good quality subscribers. So ARPU is one of our main targets. And we want to increase the ARPU. Now whether it will happen in second quarter, 2025 or later again, I mean, that's the guidance that I cannot give. But you can be sure that that's our top priority, increasing the ARPU moving forward.

Now Andy Gunawan, do you have any follow-up questions?

No more questions for me.

Okay. Thank you. I think we have addressed all the questions. We will wait if you have any follow-up questions, please type it in the Q&A box, and we will address it. Okay. I think we have a question coming from Arthur Pineda from Citi. So there are 2 questions. First one is where do you see the mobile industry revenue growth on an organic basis, for 2025? And then second is can you provide some colors on the broadband progress and expectation for 2025? Or is this not accelerating even with the relatively low market penetration, is there a demand problem or capacity problem? I think the first question, maybe Pak David can help address. And second is for Feiruz.

So for the mobile industry's revenue growth, as you could see, I think we have been for a few months that has been like a tough environment. A couple of reasons, right? But one, as we were mentioning before, is the macro situation. and also higher competitive stance, right? So I believe that moving forward, probably the market is going to be more rational. So in that sense, we have positive news there. Now we would like to see also some positive macro news so that we can see that the mobile industry starts recovering a little bit and going back to where it was at the beginning of last year. So again, like out of the 2 factors, the competition and the macro, I believe that the competition will start rationalizing and I'm confident that we have touched the bottom in there. But again, I think we need still the macro to come also and support, right.

I think Arthur on the second question, to provide color on the broadband progress. While we certainly see there's still a demand and potential -- a very strong potential in this market. I think we also have to be mindful in terms of how to serve the demand, right? So as you're aware on the backdrop of also a weaker economic, we need to be also trying to be very selective in terms of the kind of segments and how we serve, right? So you've seen also in this market that the pricing competition, right, has also stepped up. So we're also being very mindful and very selective in terms of trying to acquire the right segments and the quality customers. So that's something that we are working on. I think the 3 pillars that Rajeev has highlighted, provides you a color in terms of what the areas that we intend to do right in this segment.

Thank you, Feiruz. Now I'd like to open the line for Arthur to ask follow-up questions.

That's very clear. Sorry, just to clarify on the comment a while ago made to Ranjan on the 4% reduction. So when we look at the pro forma numbers for FY '24, that does not adjust for any of the MNC numbers. How should I look at the FY '24 pro forma numbers?

Thank you. Sorry. Arthur, can you clarify again your question about the 4% and then the...

Yes. Sorry, on the MNC contributions, sorry, if I didn't catch this correctly, you said. Yes. there was an adjustment that needed to be made on the revenues by around 4% -- sorry, on the First Media contributions rather. When we look at the pro forma numbers, which is released on the presentation deck on the merger, that does not do any adjustment, right? So we should reduce the revenues accordingly. Is that how we should look at this?

You're referring to the pro forma number for the merger. Is it?

Yes. I think let me try and clarify that. We've reported a 2% growth in our revenue this quarter as compared to last quarter -- last year same quarter, Q1 '25 versus Q1, '24. In Q1 '24, the First Media business was not part of the base. So if you exclude the First Media from a Q1 '25 when compared like-to-like, we are speaking about a 5% decline. So that's what it was mentioned. So 2024 numbers, in quarter 4 of 2024, the First Media business was consolidated. So 2024, there is no change in the numbers.

Okay. Thank you, Arthur. [Operator Instructions] The next question comes from Paulus Jimmy from Sucor Sekuritas. There are 2 questions. First one is on the, can management provide the view on market repair, especially on the industry competition climate in 2Q and for the rest of 2025? And then second is broadband subs is relatively flat on a Q-on-Q basis. What are the factors during the slower organic growth?

Okay. So regarding the first question, I think in the past also we discussed, right, I think the last few quarters have been quite tough regarding competition, especially in the -- competition in the acquisition. So there were like very cheap SIM card prices and products in the market. That has been the case to the rest until now. We believe that it's just starting to change. It's just starting to change, and we are confident that in the rest of the year, we hope to see much more rational, much more rational behavior in that acquisition market. We -- I mean, we are following more rational. And as I was mentioning before, we are trying to decrease the number of SKUs that we have out there in order to simplify our distribution. And again, we hope to see also from the market more rational behavior in that sense.

Yes. On the second question, Jimmy, right, as we've highlighted. Again, number one on the first pillar, so we're also focusing on migration right of the FM customers, right? So that process is currently ongoing. So we're managing that process. At the same time, we're also looking at very mindful in terms of how do we ensure quality acquisitions, right? Because we also don't want to go down the path of -- how should I say, going after the lower end of the customers at a lower price. So hence, that explains the relatively stable, right, quarter-on-quarter basis.

I'd like to open the line for Jimmy, if you have any follow-up question to us.

Just one follow-up question, but. So yes, I think we have noticed that the normalization of the [ package ] has been done, and we see that we are just waiting for the old inventory to be fast in the market, right. But we also noticed that there's -- that all the players are basically keeping away so many bonus quota, I would say, to basically retain all of these customers that are acquired during the previous quarters, right? So should this be the trend that we should expect going forward for the rest of the year for -- I mean, like lower data yield, but higher data traffic? Or are we still focusing on the market repair that we see during 2022 and '23?

So again, I can talk about ourselves, right? Yes, there is, I think, simplification also from competition regarding the SIM card or the acquisition products, which we believe is good. I mean we are doing it for distribution reasons, et cetera, but everything that comes in that direction, it's good. We are very focused on increasing the ARPUs. We believe that in order to increase the ARPUs, prices need to be reasonable. So as you mentioned, there are a couple of things that you can do. If you believe that the elasticity is decreased yields, not prices, decreased yields further and increase the usage, that's one way. The other way it's like, no. I mean let's have also price or yield reparation or stabilization. And when the usage comes, the monetization will come right? So we are more into a second one, to be honest. We believe that decreasing prices in order to decrease yield and give more than what we are giving already at very low yields in general in the market, probably not the correct way of moving forward, right? So our strategy, its quality. It's going to go for ARPU increase. And in order to go in that direction, we believe simplification of the acquisition that will help lot in the distribution as well and price rationalization in order to get more monetization.

[Operator Instructions] The next question comes from Theodorus Melvin from Stockbit. The depreciation and home broadband costs decreasing on a quarterly basis, can you elaborate on this trend? Is it due to cost efficiency? Maybe Antony you would like to give some color.

Thank you. I think on the depreciation expenses, why it's decreasing in quarter 1. I think one of the reasons is because of there is change of the accounting policies on the tower lease, especially because I think as we know that we are entering into a merger. So we are -- for a certain number of sites, we are negotiating with the tower providers to change to a 1-year basis instead of a 5-year basis. So with that one, so we need to apply the accounting policies using IFRS PSAK 73 which is where we have to record it as an OpEx. I think that's the reason why our depreciation expense goes down. Yes. I hope that one answers the question.

Theodorus, do you have any follow-up questions to ask?

Just want to follow up on the cost on the broadband cost on a quarterly basis. I see the trend is going down. Can you explain what these trends?

Which line are you referring to, to be clear?

The interconnection and the home broadband.

Interconnection and home broadband. Are you referring to interconnection and -- what you call this? Direct expenses?

Yes.

Okay. So it's not entirely related to the broadband, right? I think that bucket of the cost, we've highlighted one of the item is the impact of the increased COGS, cost of goods sold, due to the home broadband. But also -- it also relates to also our enterprise business, right? So sometimes it's also due to timing, right, of the closure of the project, at the end of the year, obviously, typically in the enterprise business, a lot more projects gets closed at the end of the year compared to the first year. So there's a slight timing as well, right, in that cost bucket that relates to the enterprise business.

All right. I think we have come to the end of our conference call today. We'd like to thank you for your participation, and thank you for joining us today. If you have any further questions, please reach out to Investor Relations. We wish you stay safe, healthy, and we look forward to speaking with you next quarter. Thank you.