Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK) Q1 2024 Earnings Conference Call April 23, 2024 2:30 AM ET

Company Participants

Ahmad Reza - SVP Corporate Communication and Investor Relations
Ririek Adriansyah - President, Director and Chief Executive Officer
Derrick Heng - Marketing Director
Mohamad Ramzy - Director of Finance and Risk Management

Conference Call Participants

Piyush Choudhary - HSBC
Kelsey Santoso - Goldman Sachs
Marissa Putri - UBS
Arthur Pineda - Citigroup
Henry Peja - Mandiri Sekuritas
Sigrid Qiu - J.P. Morgan.
Sukriti Bansal - Bank of America

Operator

Good day and thank you for standing by. Welcome to the Telkom Indonesia First Quarter of 2024 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I'd now like to hand the conference over to Bapak Ahmad Reza, SVP Corporate Communication and Investor Relations. Thank you Bapak, please go ahead.

Ahmad Reza

Thank you, Desmond. Ladies and gentlemen welcome to PT Telkom Indonesia Conference Call for the Unaudited Results of First Quarter of 2024. There will be an overview from our CEO and followed by Q&A after the session.

Before we start, let me remind you that today's call and the responses to questions may contain forward-looking statements within the meaning of safe harbor. Actual results could differ materially from projections or estimations and may involve risks and uncertainties that may cause actual results to be different from what we discuss today.

Ladies and gentlemen, it is my pleasure now to introduce Telkom's Board of Directors who are joining us today: Mr. Ririek Adriansyah as President, Director and CEO; Mr. Heri Supriadi as Finance and Risk Management Director; Ms. Venusiana as Enterprise and Business Service Director; Mr. Bogi Witjaksono as Wholesale and International Service Director; Mr. Budi Setyawan Wijaya as Strategic Portfolio Director; Mr. Honesti Basyir as the Group Business Development Director; Mr. Herlan Wijanarko as the Network and IT Solutions Director; Mr. Afriwandi as Human Capital Management Director.

Also present are the Board Of Directors of Telkomsel, first is Mr. Nugroho as the President Director; Mr. Mr. Mohamad Ramzy as The Finance and Risk Management Director; Mr. Mr. Derrick Heng as the Marketing Director; Mr. Adiwinahyu Basuki Sigit as the Sales Director; and Mr. Wong Soon Nam as Planning And Transformation Director.

I’ll now hand over the call to our CEO, Mr. Ririek Adriansyah, for his overview.

Ririek Adriansyah

Thank you, Reza. Good afternoon, ladies and gentlemen, welcome to our conference call for the unaudited first quarter year of 2024 results. We appreciate your participation in this call. We report the year 2024 will be considered to be an exciting and dynamic year and hard to be credited in terms of business and economic stability. We have witnessed the macroeconomic downturn and the direction toward higher inflation worsened by geopolitical situations.

The newly elected government and its administration in Indonesia post election process will also be considered by our investors as the key player in shaping the future of the political, socio-economic and business stability. Amidst the potential recession and the worsening of inflation as well as continuous increase of commodity, Telkom Group dedicated to improving the services and serving an even broader segment. It is resulting in a stable outcome and the increase of traffic indicating the improvement of customer productivity supported by leading infrastructure to maintain dominance in the telecommunication sector.

Telkomsel becoming the biggest revenue contributor to the group which manages B2C business such as mobile and fixed broadband. Telkomsel captured future customers by adopting a strategic localized approach aimed to maintain dominance and sustainable growth of convergence revenue share. With the integration of FMC, Telkomsel Lite end value become more, allowing us to use end mass market segment to cross-sell it and up-sell it within households.

Telkomsel also maintained the dominance by implement consumer value maximization or CVM supported by network corporate and quality leadership. On the B2B business, Telkom consistently implements five business strategies especially in the data centre or DC monetization and InfraCo business enhancement. We plan to fully unlock our data centre business within the year of 2024 by finding strategic partners who could contribute not only to retail but also expertise, management and access to the DC market. The growth of B2B business, especially in data centre business, is very high. We are fully aware that the opportunity in DC needs timely market to market strategy. Leading supplier will create additional operating costs while lagging supplier will absolutely wipe out opportunities.

InfraCo is still important an opportunity for value creation as a relevant market with extremely strong competition and agility on topic of Telekom and arrangements with the partner. Telkom Group nevertheless will drive and donate and co-ordinate the path to pursue the capacity of 400 megawatt within six year onward to year 2030. InfraCo initiative has also been progressing in this our business cycle with the Telekom InfraCo Indonesia, we serve as -- has managed to commence infrastructural asset management service and delivering [indiscernible] assume to have high ability as the asset owner of Telekom Infra have the very process in 2025.

At the B2B results, our Telkom asset and business process enhancement within our business unit division and business unit subsidiaries, we face positive results. Synergy and efficiency of modem has been established and now we are ready to come up with a product portfolio to serve the home and enterprise and small and medium enterprise segments.

During the first quarter of 2024 unaudited earnings results, Telekom Group revenue by 3.7% year-on-year to IDR 37.4 trillion with the EBITDA stood at IDR 19.4 trillion which increased by 2.2% from the previous year. Our successful effort in promoting data and internet revenue as well as managing our expenses creates better middle line of EBITDA breaking.

Our operating net income which grew 3.1% year-on-year to IDR 6.3 trillion after reshape -- as stepping out mark-to-market effect from GOTO. The consolidated revenue growth in first quarter than before as compared to the same period last year with a good profitability level supported by growth of mobile business. The revenue increased 32.7% year-to-year to IDR 28.5 trillion consists of IDR 31.9 trillion from mobile and IDR 6.6 trillion from fixed broadband business.

Digital business revenue of Telkomsel remain strong growth with engine grew by 8.6% year-on-year and increased its contribution to mobile revenue to 89.9% from 84.4%, aligning with the company's strategy to capture new strategic initiative and focus on quality customers. Telkomsel continues to maintain the business growth in the fixed and mobile with the customer-oriented approach and productivity improvement. We have expanded mobile customer base to 159.7 million while reaching 8.9 million IndiHome B2C customers.

Mobile ARPU remains stable with the improvement of payload as we provide better value with stated finding of the market and grow the profitable revenue shares. We captured future customers through Telkomsel Lite end value as we aim to become the largest coverage operator in Indonesia. Securing the youth and mass market segment is important and part of our fundamental strategy to drive stable performance.

Telkomsel specifically designed these products to better cater the customer's needs and experience while ensuring the real finds compared to other offerings in the market. Consequently, we believe these tailored products will mitigate the risk of price wars and internal churn, given the customization for specific segment and localized quota allocation.

We committed to continue the healthy conduct initiative, smart acquisition, and securing quality customers as indicated by increased payload and customer consumption. As a market leader, we aim to maintain profitability and act cautionary to continue fostering healthy and constructive competition within the industry.

In the first quarter of 2024, wholesale and international business segment contributed to the total growth in the amount of IDR 4.8 trillion, growth by 17.8% as a result of growing international wholesale voice business, and digital connectivity infrastructure business. Data center business has been prepared as our B2B future revenue growth along with the double digit growth of data center demand in Indonesia and the region, with the initiative to find also strategic partner in data center who own not only capital but also management capability and strong marketing channel.

The group has initiated monetization and hope that we finish the monetization process by end of 2024. Telkom has provided data center associated with a capacity of 42 megawatt with an average utilization of 70%. During the first quarter of 2024, Telkom has recorded data center and cloud revenue of IDR 449 billion, which grew 6.4% year-on-year. It is a combined data system which was established in 2022 and put under the name of NeutraDC, as the brand, has been working with the local governments, various kinds of business, and even hyper-scale companies that did a lot of data space.

Currently NeutraDC is overseeing and expanding is ready to be distributed by 18 megawatt by end of 2024 at the Cikarang Hyperscale Data Center with a fabulous customer segment, including modular hyperscalar binding as well as [inaudible]. Our adjacent competitive advantage over the competition embedding a public [inaudible], including fiber which would be monetized under our subsidiary PT Telkominfra Indonesia, which has been established since the fourth quarter of 2023.

The firm is focusing toward unwrapping new potential for maximizing the value of its fiber data tool. We will generate additional synergy value by optimizing the network consolidation, consolidating capital expenditure, boosting external revenue, delivering premium network services, advancing operational efficiency, and establishing strategic partnership.

Telkom Group reduces remaining idle capacity significantly to conduct integrated sharing by B2B business horizon. Commencing year 2012 with Telkom Indonesia, is actively preparing for daily operational readiness and conduct trial run exercise as the learning stage to ensure operational excellence in many service operation and seamless transition to optical fiber and other assets as well in the coming year.

Currently, we have about 38,100 towers after we organically added 130 towers in the first quarter of 2024, maintaining its position as the largest tower provider in Southeast Asia. During the first quarter of 2024, Mitratel subsequently added almost 400 tenants, resulting in a moving tenancy ratio to 1.52 from 1.46 in the same period last year. In addition, Mitratel enjoys, had data centers and around 59% of towers are provided ex-data, while the remaining 41% provided in-data.

On a stand-alone basis, the first quarter of 2024, the Mitratel recorded revenue of IDR 2.3 trillion, or grew by 7.3% year-on-year, driven by tower leasing revenues. EBITDA and net income grew by 9.9% and 4.0% year-on-year respectively. EBITDA margin expanded to 83.5%, increased by 2.0 percentage point. And net income margin was 33.6%, decreased by 0.8 percentage point. Co-location number and the number of tenants grew by 16.6% and 8.4% year-on-year respectively.

On the whole, Mitratel demonstrated a strong financial position with a particularly low leverage ratio of 1.7 connected to EBITDA, as compared to the industry. This allows the company to better withstand economic downturns and take advantage of growth opportunity while providing stability to shareholders.

Mitratel continue expanding its fiber to the tower business, as part of its strategy to strengthen its product portfolio to become a digital infrastructure company. Mitratel achieved significant growth in its fiber optic network by adding around 3,700 kilometers during the first quarter of 2024 resulting in a total network length of 36,300 kilometers.

The Persero segment had a revenue of IDR 4.5 trillion during the first quarter of 2024, with the big advantage vigorous appreciation in enterprise connectivity solution as the larger contributor into the Enterprise segment. We continue to strengthen our capabilities in the cloud business, digital IT services and cyber security, including within such deep partnerships with a global technology player. In this initiative, there are several areas that we are now strengthening with our business development in the government segment. Large enterprise will focus on the B2B platform and vertical solution, an original territory we were focusing on in the base to capture the SME markets.

On the ESG side of the initiative, Telkom has launched EXIST ESG Existence for Sustainability by Telkom Indonesia. The program with Telekom’s creative performance achievements are described in each of the following three Sustainability initiatives. First, that involve environmental with gross focusing on the environment aspect performance for actively taken concrete actions such as reducing carbon emissions through wash management activities, especially in water, and rehabilitating coral reefs. For the workers, use environmentally friendly energy sources such as solar cells, AOD cell and micro-metro. In addition, the company also supports the use of environmental friendly transportation by encouraging the use of electric vehicles among its employees.

Second is radical. The effort to develop SR competency has continued to be strengthened through alternative training and education program. Concrete steps have been taken in managing the digital talent readiness program, initiatives aiming at developing employee’s digital capabilities to adopt change and digital technology. We focus on developing working environments that support diversity and inclusivity.

Next one is development at Telekom persistently implementing sustainability governance, business ethics and compliance with applicable regulations, and supervise to ensure compliance with the referred norms and business ethics by establishing a data protection officer at the organization with a more precise map of rules and concepts. The company also refer to the provisions of international standards, one of which is ISO 37001, to intensify data protection and security.

That is the ending of my remarks, and thank you for your kind attention.

Ahmad Reza

Thank you, Pak Ririek. We will now begin the Q&A session. When raising your questions, please speak clearly and state your name and your company. Operator, can we have the first question, please?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from Piyush Choudhary from HSBC. Please go ahead.

Piyush Choudhary

Yeah, hi. This is Piyush from HSBC. Thanks for the opportunity, three questions. Firstly, on the mobile, how has been the impact of Telkomsel Lite plan and any changes on your mobile revenue outlook for 2024 post this plan launch? Secondly, any update on spectrum auction timelines? And thirdly, on IndiHome B2C, what is driving the revenue down quarter-on-quarter? And we saw IndiHome B2C ARPU is also down, so, any reasons for the same and what's the outlook for IndiHome B2C revenue? Thank you.

Derrick Heng

Hi, Piyush. This is Derrick. Your first question on the impact of a Telkomsel Lite plan. The attraction of Telkomsel Lite is aligned to our internal plan. We have seen improvement of payload. We have seen renewal trends in less than one month. However, we are constantly monitoring progress and we will adjust as necessary with regards to the market movement.

Piyush Choudhary

Yeah.

Derrick Heng

I mean, we all know that the prepaid market is highly dynamic. So, we will always look at whether the impact is still manageable, but our focus is on targeted segments. We are looking at predominantly Java, we’ve a localized quota offerings.

Ririek Adriansyah

So, Piyush, to add on the Mobile questions, I think you can see that it necessarily starts today. More traffic, of traffic Mobile on --

Piyush Choudhary

Excuse me. Hello.

Ririek Adriansyah

Yeah.

Piyush Choudhary

Sort of echo, we can't hear you properly.

Ririek Adriansyah

Oh, okay. Hi, Piyush. To add to what Derrick answered, this is Ririek. For the first question about the Telkomsel Lite, I think if you take a look on our result on Q1, today we see that the digital business of broadband, we are growing around 8.6% and that is one of the things that -- we've seen that our productivity of broadband business in mobile are showing the positive progress. And especially if you take a look also on the traffic growth, it is 14% compared to last year, I think it is also improving. On top of that, I think from the Telkomsel Lite's perspective, we've seen that our strategy has been right to address various segments including mass and also youth.

And number three question on income, good to see revenue as well as ARPU. I think from the point of view of the group, our fixed broadband has been stable. However, after the first six months of legal day one, we are doing the stability period where we are actually migrating the consumer business to the Telkomsel. And then I think starting to this year, especially in Q1 and probably also Q2, there are still alignments needed between consumer type of businesses as well as the enterprises.

So if we take a look on the certain segments like for example consumers in IndiHome, there's a little bit of revenue down on Q-on-Q basis as well as ARPU done, that's due to the alignment of the customer type. However, if we see from the progress on the sell-side, for example, we are able to add the net add of 222,000 in the quarterly basis in Q1, which -- showing the positive progress. And on top of that, we can update to you that we are progressively also increasing the moderate penetrations by having, addressing a mid-to-low segment as well in order to continue to penetrate our fixed broadband penetration across the nation. Thank you.

Mohamad Ramzy

Yeah, to add on the first question about the revenue outlook, this is Ramzy from Telkomsel, we still maintain our outlook for Mobile by low-to-mid single digit. And on the spectrum auction, till now, I think we still wait for the official announcement from the government as they are preparing the documentation and also the term and condition. We expect that the auction would be at the latest in the second half this year. Thank you.

Operator

Thank you for the questions. Our next question comes from Kelsey Santoso from Goldman Sachs. Please go ahead.

Kelsey Santoso

Good afternoon management. This is Kelsey. Thank you for the opportunity. My question is on mobile. So both prepaid and postpaid subscribers were quite flat Q-on-Q, but ARPU continues to contract. So I wanted to understand what led to the decline and why this hasn't translated into subscriber growth and perhaps what you're seeing on the ground when it comes to competition and how do you expect these to trend in the coming quarters? And then my next question is on the cost side, saw that you managed to drive efficiency in several line items. Could you elaborate on what led to the reduction in O&M expense quarter-and-quarter?

Ririek Adriansyah

I think before Ramzy continue with the answer, let me address about ARPU in mobile. You see the ARPU in mobile, it is comprised of the digital connectivity legacy, digital connectivity revenue as well as revenue coming from our legacy. And in this case, our voice and SMS, which is also a decline in the same time. If you only see the ARPU coming from the digital connectivity, it is supposed to be increased from time to time. I think with the smaller contribution coming from the legacy from time to time, we eventually will see the growth in the ARPU, so that's the reason of I think ARPU contraction as you mentioned. Yeah.

Mohamad Ramzy

If I may ask also, can you compare, Kelsey?

Kelsey Santoso

Yeah.

Mohamad Ramzy

If you compare to quarter by quarters, I think there's also a seasonal impact on Q1 compared to Q4. That's also impacting the Mobile ARPU. And on top of that, I think we see also competition on the ground. Our ARPU are still above the period. So this is showing that we actually are at work to monitor and maintain the profitability that is compared to the first. And in terms of competition, where we launched also Lite and also we have some portfolio that we have, we are actually able to maintain the competition level across the nation, especially in Java where we have a competition market shares. Derrick, please.

Derrick Heng

Yeah, to respond on the cost efficiency side in platform sale, actually on the Q-on-Q, we have O&M growth by minus 2.7%, which is one of the most driver is last quarter. We have one-off impact on the surface tower in which particularly related with the inflation application on the contract. The other part is also on the WSA contract with parents, which is related with our IndiHome operation, Kelsey.

Kelsey Santoso

Yeah, got it. Thank you.

Operator

Thank you for the questions, one moment for the next question. Next question comes from the line of Marissa Putri of UBS. Please go ahead.

Marissa Putri

Hi, management. So my first question is sort of follow-up to the previous question on IndiHome.

Granted that ARPU decline as you expand your target market, but decline in ARPU is so far also not offset by growth in subscribers. And you also mentioned about alignment happening in transition period. Can management probably elaborate more on that and what can we do on IndiHome side? And my second is, I guess, correct me if I'm wrong, but I think the by.U quota is also not limited by areas or not just in the four local quota. So what is group strategy to kind of limit or ensure that there's no cannibalization happening from by.U for main Telkomsel brands? And lastly, it’s a bit more kind of accounting maybe question. So revenue from non-mobile, I think has been very erratic on Q-on-Q basis. So if you see consumer effect and also enterprise business, I think in the last earnings call, the management mentioned that the group deliberately not pursuing some business as you're trying to wind down some segment in enterprise. So how should we think about these two segments and are there any accounting issues as you are separating IndiHome from the parent as well? Thank you.

Ririek Adriansyah

Yeah, allow me to answer the number one question on in the IndiHome, I will be backing. As we are also translating to, our strategy penetrating to our various segment, which is the [indiscernible]. Of course, the ARPU also compensate in this level. However, our strategy is not always only doing the remote penetration to the three pillar segment. Also, we are trying to also add some, increase of the ARPU by shifting the customer and focusing on your product to this higher speed and higher ARPU from the existing customer. So, it will enable also to focus on 50 mbps and 100 mbps where we are actually doing the same and trying to increase the contribution on those higher ARPU as well to balance the compensation of ARPU decline where we are digesting the lower segments besides the alignment that we are talking about between the price and also consumers.

Derrick Heng

This is Derrick. I will answer the question on by.U. We have not seen any cannibalization of by.U from the customer segment perspective. by.U is our strategy targeting at the youth and the digitally savvy. When we look at the cohort of by.U customers, in fact, we are getting new customers for this group of young customers. At the same time, even if there is any migration from our prepaid to by.U, the ARPU actually increase for this youth segment. So, it is something that we will continue to focus on this underserved segment because the youth is our customers of tomorrow. There are specific strategies that we have done to engage this group of unique customer segments.

Ririek Adriansyah

Yeah, to add to that, I think for the by.U, besides the branding strategy that we have been continuously monitoring, the internal rotational changes are limited. We also limit some areas like Papua-Maluku where we have seen that the price will be very much limited and we are not having that kind of product within those typical area that we are actually strong and dominant in those areas.

Derrick Heng

Yeah, to add, the youth segment is aligned to our FMC strategy where we will look at the household as a segment. So, within the household, not only you have the high value decision maker, the family decision maker, but we are also engaging the more valued segment as well as the youth in the family. So, it is part of our strategy to look at household as an account rather than an individual mobile line.

Ririek Adriansyah

On your third question, Marissa. Understood, that's coiled up. I’ll have to see the revenue recognition coming from the ethanol price, especially when with regard to the, I think, IndiHome case. As we have previously mentioned in the, I think previous call, that there's an issue of kind of how we recognize the revenue from IndiHome separated to enterprise and also the consumer, especially for the enterprise side whenever we use the basically the plan of IndiHome for connected subscribers from the enterprise. So, we need to see from principal and agent discipline on this one.

So, basically, we need to do a kind of accounting treatment on this one. We are in the process of fixing this one. Later, we are going to have the fix, let's say, answer on how we are going to treat this one in the more, I think, firm ways. But if you see overall, the revenue that we recognize from this is not changing, whatever the revenue we get from external customer but from consumer and enterprise altogether becoming total revenue in the group level. I think we're going to answer this to you directly how we see the other -- how accounting treatment on this type move, Kelsey.

Marissa Putri

All right, thank you, management.

Ririek Adriansyah

Marissa.

Operator

Thank you. One moment for the next question. Our next question comes from Arthur Pineda from Citi. Please go ahead.

Arthur Pineda

Hi, thanks for the pitch, three questions, please. Firstly, on mobile competition, are you seeing any reactions from your competitors following the launch of Telkomsel line? It's been a few months since then. Just wondering if there's any worsening in terms of competition? Second question I had is regard to cost optimization programs. Are you able to elaborate target cost savings for this year following your mobile convergence as well as shared level of optimization? And third, if I could just clarify, I know this is, you cited earlier on the B2B versus B2C revenue. So basically, it's a reclassification between Telkomsel to Telkom. Is that correct? In that case, how does this actually impact the transaction value wherein Intel entered into the deal because presumably, there were certain assumptions made on consumer revenues then? Thank you.

Derrick Heng

Arthur can you repeat on the third question, please? I think your voice is quite soft.

Arthur Pineda

Yeah, sorry. On the third question, I just wanted to understand on the B2B, sorry, B2C revenues, I understand it declined. It's just merely a reclassification between consumer and enterprise. So it's just moving the revenues from Telkomsel to Telkom? And if so, how does that actually impact the transaction values wherein Intel are entered into the deal because presumably, there was an idea in terms of the revenues generated by B2B and B2C? Thank you.

Derrick Heng

Hi, Arthur, this is Derrick. I'll answer the first question. Telkomsel has prudently designed products such as Telkomsel Lite. We want to better cater to certain mass value segments and we want to ensure the relevance of our pricing competitiveness as compared to other offerings in the market. So consequently, we believe that these tailored products will mitigate the risk of price loss and internal churn. And given the customization of these specific segments and with very targeted localized quota consumption and allocation, we are committed to continue this healthy conduct initiatives. The acquisition is sharp and it is targeted and we want to ensure quality customer acquisition. And it is indicated by the increased payload and the customer consumption. So as a market leader, we will strive to maintain profitability. We will act rationally to continue fostering healthy and constructive competition within the industry.

Mohamad Ramzy

To respond on your second question on the cost optim -- actually we continue the effort that we already captured since the beginning of the FMC integration. Last year, we effectively succeeded to book for the processing around IDR 100 billion plus the uplift revenue about IDR 400 billion. This year, we expect to extend that cost optimization programs which include on the content cost aggregation and also the customer interaction management that we provide the agent as well as the integration of the digital touchpoint that previously conducted through different applications such as MyIndiHome, MyTelkomsel as well as MyOrbit. This year, we plan to integrate those apps to become one and also the sales force management that we use the performance-based incentive rather than per headcount base. So all of these initiatives would expect to also contribute to additional cost improvement in our expense as such.

Arthur Pineda

Thank you. Any number related to that? Is there any specific cost savings for you?

Mohamad Ramzy

We do not disclaim the exact number but overall the uplift both from revenue as well as the cost impact for this synergy, we expect this year around IDR 1.8 trillion.

Ririek Adriansyah

So basically, but Arthur it is supposed to be seen from the group level as well because some of these efficiency going to also happen in the parent company, you also get some efficiency in the CapEx side. The way we basically install the lines was to be also cheaper compared before and also I think the cost operation and maintenance for line in certain place is also supposed to be a decline as well. So this is going to be accumulated in the group level.

Operator

Thank you for the questions.

Arthur Pineda

Oh sorry, the third question has not been answered yet.

Ririek Adriansyah

Yuen?

Unidentified Company Representative

Arthur, good afternoon to you. Arthur your fourth question with regard to B2B and B2C revenue reclassification, and how does that affect the FMC valuation, is that correct?

Arthur Pineda

Yes, so firstly, is it merely reclassification that we're seeing? That's why we're seeing that decline on the Telkomsel booking, because you're booking it now as enterprise? And two, how does that relate to different tax and value that was enacted before? Just presumably there were some assumptions on revenues back then which is now being moved on to enterprise?

Unidentified Company Representative

Right, so Arthur, thank you for that question. At the point of the valuation of the IndiHome business, it is purely based on the B2C IndiHome revenue. So this is purely a reclassification. Some of the revenue at the time of reporting are grouped under IndiHome, which is consumer. So this is an exercise to kind of clean it up, to classify it according to the different segments. So and as far as the valuation of the FMC business are concerned, it remains consistent and it does not have any impact. Thank you.

Arthur Pineda

Understood, thank you.

Operator

Thank you for the questions. Our next question comes from Henry Peja analyst Mandiri Sekuritas. Please go ahead.

Henry Peja

Hi, thank you management. Perhaps two questions from me are related to the Telkomsel Lite, so allow me to deep dive on this. So I'm just curious, the response from the competitors in the market, how do you see a response on the ground? Do you see any reactions from XL or Indosat? And then second, you mentioned how Telkomsel want to maintain the profitability, healthy market conduct and basically in the market. So just curious, is there any solid plan from the Telkomsel to increase product prices this year? And perhaps one more thing, on the data traffic growth, we highlight that you book a strong data traffic growth in the first quarter, right? So what are the key drivers of this strong data traffic growth in the first quarter and should we expect this figure or trend to be sustainable in the following quarters? So perhaps those are three of my questions.

Derrick Heng

Thank you. Henry, this is Derrick. I will address your questions on the Telkomsel Lite. So, Telkomsel Lite as a product, you know, we target at increased product competitiveness in the market. While we ensure that the ARPU uptrend remains intact through productivity gain and this is aligned to the income and usage and the ability to pay for the value segment. So we will maintain the subscriber base and growth while adhering to healthy market conduct, ensuring the profitability remains uncompromised. So if you look at the construct of Telkomsel Lite, it leverages on local and a little bit of the nationwide quota, just to provide the ability for a very targeted roll-out to optimize relevance and to achieve yield comparable to competitors which covers more than IDR 200 nationwide. So this is our segment of focus. As mentioned earlier, it also supports the FMC roll-out strategy, which at the household, there are layers of different customer segments within the family. So this is able to help us grow unserved segments.

Your question on competition and response from our competitors, so I think we will all continue to apply the right pricing and offerings. And if we look at, especially to existing base, we talk a lot about CVM where we'll be able to be granular, where we are able to be very relevant to the usage of our customers so that we will expect that the mobile ARPU to stabilize and increase in line with the usage. So we believe that competitors will also continue to improve profitability and therefore maintain healthy market conduct. So this is our take to the industry.

Ririek Adriansyah

Can I add a bit on a part, Derrick, I think explanation on this one? What we have previously, we only have a single brand for prepaid, basically. It is responsible around 90% of our revenue to that one. So it is not flexible for us to, let's say, to address what specific reason to address this market, the segment, and so on, by jeopardizing the one brand that carries so much revenue for us. The second thing that you don't need to worry about, this is mostly in local quota. And this is acquisition package. After sold, the subscribers need to top up, cannot buy the new one again on this one. So this also limit basically the internal churn by having, I say, internal churn too big to our customer base.

The third is because this is comprised of mostly local quota, it's not going to create the kind of competitive, unnecessary in the area in which we are not targeted. So this also limit the competition, the area that we target. And the third, in terms of price, we are first to premium compared to our competitor on this one. So this is also kind of thing that you need see, not to worry on this one. The last one, actually, if we compare to many, many years back, maybe about 10 years ago, there's still big elasticity in the market. And we can still add in quite many subscriber base at the time. So when we decrease the price, we're going to have quite good elasticity.

With the current condition, I think the market already almost mature. You don't expect too much, I think, elasticity on this one. We need to be responsible to manage our, I think, market condition. I believe other operators also need to see the same way. I think that's additional explanation to Derrick.

Derrick Heng

On the third question on data traffic, I think what we've seen, the research-wise, the data traffic increase in Q1 is one in which case there is an increase of data usage of 11% compared to last years. And this increase in data usage also come along with the productivity of payloads for subs that we've seen are also improved, which I think is one of the key data that we take a look on our success in our product portfolio strategy today and going forward. And with the input of productivity with our offerings so far, we believe that we can maintain those effectiveness and consumptions within the networks and within our services that will also work with the system a little bit.

Mohamad Ramzy

Yeah, just to conclude on the profitability side, I think with all the initiatives that we've done, actually we want to simulate the productivity of the customer. But on that point, I think the result has already been there, so it doesn't impact significantly to additional cost. And also, from time to time, we monitor our network quality as well as the productivity. And for that point, I think we still expect that we can drive the profitability level in terms of around 46% to 48%.

Henry Peja

Okay, I think that's very clear. Thank you, management, and good luck for the upcoming results.

Operator

Thank you for the questions. Our next question comes from Sigrid Qiu from J.P. Morgan. Please go ahead.

Sigrid Qiu

Hi, thank you. This is Sigrid Qiu from J.P. Morgan. Thank you very much for the opportunity. Management, can I just ask, is it possible for you to give us a breakdown of the changes in subscriber in the mobile customer category, meaning you're targeting men and youth at the moment, so and you also have your traditional mobile customer? So what's the increase and decrease in each category that gave you a flat quarter-on-quarter mobile subscriber number?

And my second question is, so you mentioned that Telkomsel Lite is currently meeting your internal goal. I'm just wondering if you can share that goal with us. And looking at the quarter-on-quarter flat subscriber number, will you in the future make the plan more competitive to sort of reach your target? And the last question is, I'm not sure if I hear it right, but at the start of the briefing, you mentioned that you are looking to offload data center business by the end of 2024. Could you just give us more detail on that, please? Thank you.

Derrick Heng

Hi, Sigrid. This is Derrick. To answer your questions, the profile of our customers, so, with the launch of Telkomsel Lite, just to share, the traction has been positive. When we had Telkomsel Lite and by.U as our sub-brands, it helped to serve the youth and mass market segment while leveraging on personalized offers to maintain the dominance in ex-Java, to drive the Apple through CVF. And we could see the improvement of our Facebook share. So, this strategy was to really target a segment and it will help us to address future customers. So, by adopting a strategic localized approach, we aim to minimize competition, impact and sustainably grow our market share. We also talk about these new plans. It's really an integration to our FMC strategy.

So, Telkomsel Lite and by.U will become even more relevant as it allows us to engage in cross-selling, up-selling to households, where these form the part of the household segment. So, we will continue to maintain margin optimization and market share retention. So, it is important to capture these customers of tomorrow, since we aim to become the convergence operator to grab share of these underserved customers. So, this is our approach to expand our fixed broadband business into new segments, ring-fencing existing subs through retention and CVM and to drive better customer journey so that the main objective is to drive sustainable performance while maintaining dominant productivity as well as to elevate the customer experience.

Ririek Adriansyah

So, let me answer the second question. I think the flat Q-on-Q subscriber group is one of the things due to the seasonality because we compare Q1/Q4. And if you take a look on what we have so far, in terms of our market share and Facebook shares across the quarter one, there's been an -- internally seeing that it's an improvement of what we have done so far as an increase of Facebook share as well as the data usage. It also shows that there's a traction on the broadband penetration or mobile penetration and usage across our subscribers. And on top of that, I think we've always been, I mean in terms of subscriber base, there's always the customers who have multi-shifts that we always manage to not continue to stay with us if there's no more in our networks. However, I think mainly the Q-on-Q flat is due to the seasonality. Can you repeat the third question? Is it the third question regarding the data center?

Sigrid Qiu

Ah, yes.

Ririek Adriansyah

Okay. [Bhavnesh], do you want to answer or what? The data center, what is the plan for 2024 on the data center?

Unidentified Company Representative

Oh, okay. Honestly, yes, thank you for your question. Actually, I feel that this quarter we operate already 32 data centers in addition. The plan of the capacity added is about 40 megawatt capacity. For this year we also have a plan to add more capacity to AIMS data world. But finally, [indiscernible] year Telkom data center will have 60 megawatt capacity. Does this answer your question?

Sigrid Qiu

Yes, sure. Thank you very much.

Operator

Thank you for the questions. One moment for the next question. Our next question comes from the line of Sukriti Bansal from Bank of America. Please go ahead.

Sukriti Bansal

Hi, am I audible?

Derrick Heng

Yeah, yeah.

Sukriti Bansal

Yeah, thank you for taking my questions. Just want to, I think, follow up on the previous question on Telkomsel one section. Is it possible for you to just roughly quantify what percentage of your customers right now are on Telkomsel Lite? And where do you see this going as an overall base of your customers? What is your target on Telkomsel Lite? Also, if the data payload increase that we've seen in this quarter, is this majorly driven by the launch of Telkomsel Lite?

Derrick Heng

Hi, Sukriti. This is Derrick. You have more questions?

Sukriti Bansal

Hi, yeah.

Derrick Heng

One more question?

Sukriti Bansal

Yeah, one more question. Maybe I'll just list the question and then you can answer both. So the second question is, you know, you said that overall in the year you expect IDR 1.8 trillion of synergy impact from IndiHome integration. In 1Q, is it possible to quantify what was this, you know, if there was any impact? And is there any way to break up how you see this in the coming quarters through the year? And also just one quick one is, we've seen a couple of major reclassifications in the last two quarters in 4Q with the voice revenue being declassified and the B2B IndiHome revenue being declassified in this quarter. Are the major reclassifications now behind us or are there more that we can expect in the coming quarters? That's all.

Derrick Heng

Hi, Sukriti. This is Derrick. Just to share some thoughts about our color and on Telkomsel Lite.

It's still early days for Telkomsel Lite. What we want to share is the fraction of Telkomsel Lite has been positive and it was really meant to serve the mass market segment. And we want to leverage our personalization to drive our engagement in Java. If you look at the post Telkomsel Lite, so we have recorded a higher traffic growth of a plus 14.4% year-on-year in Q1 as compared to the 9% year-on-year growth in the last FY. We also look at the increase of data users that plus 11% year-on-year. So the main objective of Telkomsel Lite is really to maintain and improve our market share, our customer productivity and profitability.

Ririek Adriansyah

Yeah. To add to the data payload increase, I think besides the Telkomsel Lite initiative, of course we have a lot of initiatives on our existing customers who also drive productivity on our side. And I think mainly in these quarters what we've seen is that the growth of digital business of 8.6% has come from both the acquisition product which we use the Telkomsel Lite as a brand and also others subsequent portfolio in the existing like CVM and all others who also boost up the productivity on our subscribers. So that's why I think if you can see the increase of traffic has been very positive in our side.

On the reclassification of the B2B IndiHome from the total IndiHome revenue, we're going to I think finalize by next quarter of the impact of this one. It means the second quarter of this year. I think if you relate to the reclassification of the legacy business last year, it is a one-off classification that we did for the IFRS and it's a different case on this kind of reclassification that we have IndiHome. So it is not a repeating reclassification that we did which is two different subjects that we are discussing here to clarify on that.

Mohamad Ramzy

To add on to your last question about the 1.8 trillion EBITDA uplift breakdown, internally we have this breakdown. It's comprised from uplift revenue either from cross-selling or up-selling, both fixed and mobile. Secondly, comes from the OpEx efficiency that some of them have already been discussed earlier. And third is from the CapEx. All of that comes from both parties' Telkomsel as well as our parent Telkom but we do not disclose this in detail to you now.

Ririek Adriansyah

That’s last question.

Sukriti Bansal

Understood.

Operator

Thank you for the question. We have no more questions from the phone line. I would like to hand the call back to Bapak Reza for closing.

Ahmad Reza

Thank you everyone for participating in today's call. We apologize for those whose questions could not be addressed yet. So if you have any further questions, please don't hesitate to call us directly. Thank you.

Operator

That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.