Earnings Call Transcript - TLK Q2 2021

Operator, Operator

Good day, and thank you for standing by. Welcome to the Telkom's First Half of 2021 Results Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Andi Setiawan. Please go ahead. Thank you, A.J. Ladies and gentlemen, welcome to PT Telkom Indonesia Conference Call for the First Half of 2021 Results. We released our results on the 31st of August 2021, and the reports are available on our website, www.telkom.co.id. Today's presentation is available on the webcast, and an audio recording will be provided after the call for the next 7 days. There will be an overview from our CEO, and after that, all participants are given the opportunity to participate in the Q&A session. Before we start, let me remind you that today's call and the response to questions may contain forward-looking statements within the meaning of safe harbor. Actual results could differ materially from projections, estimations, or expectations voiced during today's call. These may involve risks and uncertainties and may cause actual results to differ substantially from what we discuss. Telkom Indonesia does not guarantee any actions which may have been taken in reliance on the discussion held today. Ladies and gentlemen, it's my pleasure now to introduce Telkom's Board of Directors who are joining us today: Mr. Ririek Adriansyah as President, Director and Chief Executive Officer; Mr. Heri Supriadi as Finance and Risk Management Director; Mr. Herlan Wijanarko as Network and IT Solution Director; Mr. Edi Witjara as Enterprise and Business Service Director; Ms. FM Venusiana as Consumer Service Director; Mr. Bogi Witjaksono as Wholesale and International Service Director; Mr. Budi Setyawan Wijaya as Strategic Portfolio Director; Mr. Muhamad Fajrin Rasyid as Digital Business Director; and Mr. Afriwandi as Human Capital Management Director. Also present are the Board of Directors of Telkomsel: Mr. Hendri Mulya Syam as President Director; Mr. Mohamad Ramzy as Finance and Risk Management Director; and Ms. Rachel Goh as Marketing Director. I now hand over the call to our CEO, Mr. Ririek Adriansyah, for his overview. Please, Ririek.

Ririek Adriansyah, CEO

Thank you, Andi. Good afternoon, ladies and gentlemen. Welcome to our conference call for the first half of the year 2021 results. We really appreciate your participation in this call. Amidst the prolonged COVID-19 pandemic, Telkom saw positive results by recording IDR 69.5 trillion in revenue, an increase of 3.9% year-on-year. Expenses increased but at a slower rate of 2.8%, resulting in better profitability. EBITDA grew by 4.7%, while net income increased by 13.3% year-on-year. This achievement showed that our business plans are on the right track towards a healthier condition and stronger fundamentals throughout the end of this year. IndiHome continues as the engine of growth for Telkom's revenue and profitability. Its revenue reached IDR 12.9 trillion, growing by 24.2%, supported by additional subscribers and better ARPU. The strong performance resulted in the increase of the consolidated revenue from 15.5% last year to 18.5%. IndiHome's profitability also continued to improve, with an EBITDA margin of 47.6%, a significant increase from 38.6% in the first half of 2020. During the first half of 2021, IndiHome added around 285,000 new customers despite the pandemic situation that might slow down physical marketing activities and installation of new lines. Meanwhile, ARPU improved to IDR 270,000 in the second quarter from IDR 266,000 in the previous year. Ladies and gentlemen, Telkomsel saw improving performance amidst a challenging cellular business environment. Telkomsel's revenue in the second quarter of 2021 grew by 3.5% compared to the previous quarter. Payload consumption reached almost 10 GB per data user, a substantial increase of 41.4% year-on-year. Revenue contribution from Digital Business is consistently increasing and reached 77.3%. Digital Business, Data, and Digital Services also grew by 4.7% year-on-year to IDR 33.4 trillion, and that's been the key driver of Telkomsel as a digital telco company. Digital Services sales grew by 28.1%. Among the retail products are Digital Lifestyle, Advertising, and Enterprise Solutions. Enterprise segment successfully grew by 12.2% to IDR 8.7 trillion, with IT Services and Enterprise Connectivity solutions remaining the biggest contributor to the segment's revenue. This saw consistent improvement in our turnaround strategy. In the meantime, the Wholesale and International Business segment recorded revenue of IDR 6.9 trillion, increased by 1.2% year-on-year, supported by increasing tower business, data center, and A2P services. In the period, total fixed line business contribution has reached more than 40% of Telkom's consolidated revenue and more than 30% of Telkom's consolidated net income, reflecting a healthier and well-diversified business. Ladies and gentlemen, Telkom continued to build synergy and collaboration with digital and technology companies. After an additional investment in May 2021, in a leading digital company, Gojek, in August 2021, Telkom also signed an MoU with Microsoft to explore cooperation in the development of intelligent infrastructure, development of digital talent, and acceleration of Telkom's group digital transformation. Telkom's Venture Capital, MDI, demonstrates strong capability and performance. MDI's portfolio has shown outstanding performance in terms of investees' fund investments, exit strategy, and synergy value. MDI has invested in more than 50 start-ups in 12 countries, of which 3 companies have done IPOs and 6 companies have been successfully acquired by third parties. Moreover, currently, MDI has 2 unicorns in its portfolio, NIUM and Kredivo, and other 2 companies are expected to be the next unicorns. With this achievement, MDI has brought a positive impact on Telkom's Digital Business. We are building up capacity in the data center and cloud business. Today, we operate 26 data center facilities, 21 domestic and 5 overseas, with a total capacity of around 43 megawatts. In the first half of 2021, the data center contributed IDR 713 billion in revenue, an increase of 11.7% year-on-year. To enhance our capacity, currently, we are in the process of developing a new site for a data center, which is a Hyperscale Data Center, certified as Tier 3 and 4 in a total area of 65,000 square meters near Jakarta. Our Hyperscale Data Center will be completed in stages, and the first stage is expected to be finished by the end of 2021 with a capacity of 25 megawatts. At the final stage, Hyperscale Data Center will have a capacity of around 75 megawatts. In the tower business, after we successfully consolidated tower assets, Mitratel owns 23,000 towers with a tenancy ratio of 1.57 as of June 2021. Mitratel, as a stand-alone company, booked revenue of IDR 3.2 trillion in the first half of 2021, growing 10.9% year-on-year. Mitratel's EBITDA margin also improved to 76.8% in the first half of 2021 from 69.7% in the first half last year. The realignment of the tower portfolio within the group is actually to enhance Mitratel's value and at the same time will make Telkomsel put more focus and efficiency on its core services. Ladies and gentlemen, to conclude my remarks, let me share our main guidance for the year 2021. One, we expect that consolidated revenue to grow by low- to mid-single digits. Second, EBITDA margin is expected to be relatively stable. Third, capital expenditure or CapEx for the group is expected to be around 25% of revenue, excluding additional CapEx on 5G. That ends my remarks. Thank you.

Andi Setiawan, CEO

Thank you, Ririek. We will now begin the Q&A session. Operator, may we have the first question, please?

Operator, Operator

Your first question comes from the line of Piyush Choudhary from HSBC.

Piyush Choudhary, Analyst

Congratulations to the management team for the great set of results. A couple of questions. Firstly, on your mobile business, could you share some light on the competitive dynamics? We have taken tariff hikes. So are the tariff hikes likely to sustain? And what are the other potential levers for ARPU development in the mobile business? Secondly, on the data center. What is the total CapEx annually for the new Hyperscale Data Center of 100 megawatts? And how much has already been spent on that? And if you can share in the first stage, like 25 megawatts is coming, how much of the capacity is already presold?

Rachel Goh, Marketing Director

Piyush, this is Rachel. I'll take your first question regarding the mobile market competitive dynamics. I think to your question which is, are the tariff hikes sustainable and what's our outlook on ARPU? Just to recap, since the end of quarter 1, Telkomsel has already taken initiatives to signal to the industry that it's necessary to halt unhealthy pricing practices in the mobile market. We need to make sure that RPMBs are good and the profitability is strong as an industry. So we had stopped unlimited, and we have increased our prices progressively in phases over the last few months. Unfortunately...

Andi Setiawan, CEO

Hello? A.J.?

Operator, Operator

Pardon the interruption, we have lost the line for speaker Rachel. Other presenters, please take over.

Andi Setiawan, CEO

Heri, can you take over?

Heri Supriadi, Finance and Risk Management Director

Can I continue with the second question while we're waiting for the continuation of the first question? Piyush?

Piyush Choudhary, Analyst

Yes.

Heri Supriadi, Finance and Risk Management Director

On the second question, Piyush, the total CapEx for the new hyperscale that is currently under construction is around USD 70 million. It is 1/3 of the capacity that we can build on the property that we have here. So I think gradually, along with the expanding demand, we're going to build 3x of what we already built. So that's the situation now. How many? I think the clients that we have or users right now, we are in the process of preselling these capacities. For your information, in our data center in Telin in Singapore, for example, the utilization there is already around 82%; in Indonesia, around 76%. It means we have a list of demand for selling these capacities. Hope that answers your question.

Piyush Choudhary, Analyst

Yes. Pak, this is very helpful.

Rachel Goh, Marketing Director

Piyush, I'm back. Should I continue?

Piyush Choudhary, Analyst

Yes.

Rachel Goh, Marketing Director

Hello? Yes. So I think we have already started changing the prices in stages. So I think in terms of RPMB and ARPU, we should be seeing a healthy pickup. However, there are also headwinds that we are facing in Indonesia now with the next round of the COVID wave that is hurting us. We are seeing more customers staying in, and mobility has not picked up yet. So those will be some of the challenges we might foresee when it comes to ARPU. Nevertheless, we expect ARPU to stabilize first and then improve over time. I hope that answers your question.

Operator, Operator

Your next question comes from the line of Arthur Pineda from Citigroup.

Arthur Pineda, Analyst

Three questions, please. Firstly, on housekeeping, if you can get some clarification on the OpEx items, like G&A and personnel expenses seemed to have jumped significantly Q-on-Q. I'm just wondering, are there any one-off bookings that we should be aware of? That's the first one. Second question I had is with regard to the MDI investments, if you can get any clarity on that side. I understand you've invested around $900 million into this. What size of stakes would you normally take for these investments? I'm actually quite curious about the 2 unicorns and how big a stake you actually have. And on the Microsoft deal, the third question, what do you expect to see with this deal with Microsoft? Is there any specific targets on additional revenues or cost savings which can happen with digitization?

Heri Supriadi, Finance and Risk Management Director

Arthur, I'll try to answer your question. First, on the increase of G&A cost, it is because of consultancy or expert cost on this one because we have quite a few plans, quite a number of corporate items that require expertise on this. This is in line with company progress and development. And then on the personnel cost, it is related to the last year's bonus that we paid in the second quarter of this year. This is performance related. Some of this is also attributable to the expected discount rate also declining, which means our exposure to pension benefits also increased, thus increasing our pay to the contribution to our contractual arrangements with the employees. Those are the reasons for the growth. But it is not kind of a one-off thing. We still can manage this to keep our pay attractive to retain talent.

Arthur Pineda, Analyst

Pak Heri, just to clarify that, so for these cost items, it should remain at these levels going into the next few quarters? Is that how we should look at this?

Heri Supriadi, Finance and Risk Management Director

I think, essentially, we try to manage the cost of employees over time. It will slightly increase, of course, compared to last year regarding this. But overall, I think we don't have any kind of one-off items that can make this even higher. We try to manage to keep it more moderate in the growth. And the MDI investment, MDI currently manages about $900 million in assets. We have already invested in numerous start-ups in 12 countries. So far, we can say that in terms of return, we periodically do a mark-to-market with our investment pool, and the returns we have from this are about what we operate or write in the same investment globally.

Arthur Pineda, Analyst

Understood. So this $900 million has been deployed already? Or is that the fund size?

Heri Supriadi, Finance and Risk Management Director

The fund size, I think, in total, from internal, the plan is around $700 million. Now in the process, I think we incurred an additional $200 million of the $900 million. So I think we have quite many investment plans.

Ririek Adriansyah, CEO

Well, on the Microsoft side, as you are aware, Indonesia is probably behind other countries in terms of improving retail facilities. So working with Microsoft is actually one of our steps to explore those markets and the opportunities that we have. So it can be B2B, B2G, but it can also be B2C. We don't have the number yet at this point. We just laid down a full detail of our plan, continuing the signing of the MoU. So at this point, we don't have the numbers yet. Working with Microsoft is one of the partners that we have, and we may continue with other similar companies because we believe that IT consumption and digitalization present huge opportunities in Indonesia.

Operator, Operator

Your next question comes from the line of Foong Choong Chen from CIMB.

Foong Choong Chen, Analyst

This is Foong from CIMB. Three questions from me, basically follow-ups to the earlier questions. Firstly, on the mobile business, Rachel, you mentioned just now that we are seeing some headwinds with the next wave of COVID-19 cases in Indonesia. So I just wanted to get your thoughts about whether you think this potentially could see some risk in terms of the development of competition. Are you seeing some of the smaller players adjusting their prices, trying to appeal to consumers because of the lower spending power? Or is everybody just sort of holding steady, and you think that beyond this, we will continue to see prices going up, including the smaller players? That's question number one. Second question is regarding the Hyperscale Data Center. I just wanted to clarify again that the $70 million that was mentioned is just for the first phase, is that right? And does that include the acquisition of the land? Or is the land leased? And my third question is regarding MDI. You mentioned that the AUM is $900 million. Is that the cap for the AUM, or do we see that potentially going up further from the $900 million fund under management? And what's MDI's current portfolio value in terms of the current values? Yes, those are my 3 questions.

Rachel Goh, Marketing Director

Foong, I'll take your first question. So, Foong, yes, indeed, with this COVID rise and also the PPKM in Indonesia, we are seeing lower spending power from certain segments, especially the larger mass segment. So the operators here, including Telkomsel, are now looking into lower denomination to make sure we address the affordability factor. So not towards reducing prices, but towards making it more affordable in smaller denominations for the customer base.

Heri Supriadi, Finance and Risk Management Director

Foong, on the $70 million, it is for the first stage only, and it does include the land acquisition costs. And then on the MDI, of course, there's potential for us to increase the investment in this. As you may know, in this region, the growth of digital start-ups is very high. We still see many opportunities in health, logistics, and others. So we still see this as a part of our strategy to go digital.

Foong Choong Chen, Analyst

Okay. And Pak Heri, what is the current value of these digital investments? And another follow-up is you mentioned just now that the $70 million includes the acquisition of the land. Is that the land just for Phase 1? Or have you also bought the land for Phase 2 and Phase 3 already?

Heri Supriadi, Finance and Risk Management Director

We have already purchased the land for the three campuses. Regarding the value, we cannot disclose that information at this time. For instance, if you look at the planned IPO of our investment in Kredivo, the market value is approximately $2.5 billion. We could potentially gain around $100 million from this if it proceeds. I think a one-on-one discussion could provide more details on this matter.

Operator, Operator

Your next question comes from the line of Niko Margaronis from BRI Danareksa.

Niko Margaronis, Analyst

Congratulations for the good results to both teams. My first question is on the data centers. You mentioned that it has a total capacity of around 43 megawatts. How much of that is used for Telkom group purposes? And you mentioned earlier that it is about 76% utilized capacity at present. How much of that is used for Telkom internal purposes? That's question number one. Question number two is about what has been mentioned in media outlets that there's potential cooperation between PLN ICON+ and Telkom. Is this some new initiative, or is this a project that has been worked on both sides extensively? What are the scheme for this cooperation? What scenarios can be considered as cooperation between the 2 SOEs in the fixed broadband space?

Heri Supriadi, Finance and Risk Management Director

Pak Niko, thank you for the question. On the utilization of this 43 megawatts capacity for our internal use, I think about 30% is for internal purposes. The rest, I think, is used for our clients. So that's about the utilization. On the second question, I think Pak Ririek will answer that.

Ririek Adriansyah, CEO

Thank you, Pak Niko. The segment was made by the Minister of SOE during the meeting with the House of Representatives. It was just yesterday. So we haven't started yet to discuss anything with ICON+ or PLN, so that we cannot give you any information at this point. Thank you.

Niko Margaronis, Analyst

All right. Just I have a follow-up on the data centers. On the new 25-megawatt new capacity, how much of that does Telkom intend to occupy? And maybe I can squeeze one more question, if I may. Regarding your price hikes, what has driven you to increase those prices at this point? Are these implemented on a nationwide basis or selectively? And are the unlimited packs still promoted, like, for instance, in Combo Sakti or the MAX series? What has driven you at this point to do those price hikes? And how confident are you that the other mobile outlets will not take advantage of this?

Heri Supriadi, Finance and Risk Management Director

Budi?

Budi Wijaya, Enterprise and Business Service Director

Thank you. For the new data center, the purpose of data center is for the global tech giants. For the internal, we predict not more than 20% utilization. The rest is for external purposes. The intention of this data center is one part of the data center ecosystem on telco, which will serve mostly global players, not local players. Thank you.

Heri Supriadi, Finance and Risk Management Director

Ibu Rachel, I think that question...

Rachel Goh, Marketing Director

Okay. Thanks, Pak Heri. So a few questions. If the price hikes were started at the end of Q1, it's not so much in the form of price hikes, but it was the withdrawal from unlimited. We had unlimited for about half a year. It was only launched in selected cities, not nation-wide. We picked selected cities to launch unlimited, and we have progressively stopped that since the end of Q1. Where we did have price hikes, it wasn't really just increasing the packages; it was more for more. So the packages, the prices with the removal of unlimited, we had packages, but we gave more quota. So in RPMB level or PPMB level, it might look more competitive or more valuable for customers, but we try to keep an eye on making sure our ARPUs are very healthy. Hence, maintaining a reduction in ARPU and stabilizing, hopefully, will lead to growth. In terms of ComSak, which is our Internet, basically our BTL personalized packages for our existing customers, we have also been using machine learning models to ensure we are only recommending the right packages for our customers. Customers who prefer low denominations will be promoted low-denomination ComSak, while those with higher usage will receive offers for higher denomination packages. Outlets are also offering different options, like physical vouchers, etc., to assist customers affected by the new wave of COVID. We are diversifying our packages and various acquisition strategies to ensure every customer segment will find something suitable. We hope this provides competition to correct their pricing. We are seeing some movement in recent weeks, and we hope this will continue, leading to healthier conditions in Q3 and Q4 for the entire industry. Thanks.

Operator, Operator

We have a follow-up question from the line of Piyush Choudhary.

Piyush Choudhary, Analyst

Two questions, please, if I may. Firstly, on IndiHome, the ARPU has been lifting up extremely nicely. Could you share how management is thinking about the ARPU outlook and subscriber addition for the year? Secondly, on your partnership with Gojek, you have detailed in the Info Memo various initiatives that you have taken. But could you also share some tangible benefits accruing due to this Gojek partnership, like subscriber addition, revenue uplift, or reduction in churn rate? Any kind of tangible benefit would be good to know.

FM Venusiana, Consumer Service Director

Piyush, we expect current IndiHome ARPU of around IDR 270,000 to be relatively sustainable. Given the subscriber growth trend in the first semester of '21, for the second semester of '21, we target to add at least a similar number of new IndiHome customers as in the first semester of '21. But more importantly, revenue patterns will remain on track. Does this answer your question, Piyush?

Piyush Choudhary, Analyst

Yes, that's correct.

Budi Wijaya, Enterprise and Business Service Director

Okay. Related to the project investment that we did in the last quarter, I think we are increasing in terms of the certificate, meaning that the driver use, our SSDI is increasing Q-on-Q and in terms of the ARPU increasing to 6%. Given that Gojek as a reseller in terms of unit preference is also increasing 23%, and in terms of our ads with the budget business, it's also increasing quite significantly, more than 100%. This is part of what we did with Gojek.

Operator, Operator

Your next question comes from the line of an unidentified analyst from Macquarie.

Unidentified Analyst, Analyst

I just have 2 questions. First question, can you update us on the IPO plan for Mitratel? And second question, on IndiHome, actually, apologies, I missed your response earlier on the question about growth outlook for IndiHome subscribers going into this year and next year.

Hendri Syam, President Director of Telkomsel

Pak Arindra, I think on the IPO plan for Mitratel, we plan to do the first submission of the registration for the IPO today. The plan is to list itself in November. So we have book building and listed in November. That is in our plan. Currently, we are in the process of planning the roadshow and other activities related to the IPO process itself. On IndiHome, I think, Ibu Venus, you want to answer this on the target subscribers this year?

FM Venusiana, Consumer Service Director

Given the subscriber growth trend in the first semester of '21, for the second semester of '21, we target to add at least similar new customers as in the first semester. But for next year, it depends on the situation. If the pandemic is still ongoing, we might face off-cycle challenges, affecting government mobility utilization. Thus, we need to be selective to ensure that we can acquire quality customers, for example, looking for 12-month contracts to facilitate customer visits and to offer IndiHome service effectively.

Hendri Syam, President Director of Telkomsel

Adding to Ibu Venus' answer on this one, in terms of demand, we see the demand is still strong. We believe demand for the next 2 years will remain very robust. From an installation perspective, we are facing some challenges due to the COVID situation, but we are trying to increase the quality of our customer base by having contracts of at least one year to ensure service efficiency.

Operator, Operator

We have a follow-up from Niko Margaronis from BRI Danareksa.

Niko Margaronis, Analyst

I wanted to check about the progress on the 23-megahertz spectrum refarming. When will this be finalized, and do you expect to switch on this frequency, the additional frequency of 20 megahertz? Also, about the guidance, it is a bit open for interpretation. It states about 25% of your revenue, excluding 5G CapEx. How should we interpret this? I understand your current investments will also be utilized for 5G. How do you see this guidance?

Hendri Syam, President Director of Telkomsel

Okay, Niko, I will answer the first question. As for the progress of the reallocation from the 2.3 spectrum, it's still ongoing. Hopefully, we will finish by the end of September. Regarding the CapEx, I think we already planned for 5G in this year's budget.

Heri Supriadi, Finance and Risk Management Director

Basically, what Pak Hendri mentioned is 25%, including the 5G, actually. So the outlook remains because the 5G CapEx will still be part of our overall CapEx.

Hendri Syam, President Director of Telkomsel

We are still limited in terms of the implementation of 5G.

Niko Margaronis, Analyst

Right, right. So just to follow up, does this mean that 5G investments may be intensified next year, and that CapEx to sales ratio may have to increase in the following years?

Hendri Syam, President Director of Telkomsel

I think, in terms of the 5G implementation, we have to wait until the spectrum is finalized. But currently, the 2.3 frequency is only utilized by limited countries. However, Telkomsel will deploy significant CapEx, not next year, but in 2023.

Niko Margaronis, Analyst

Maybe I can squeeze one more question. Regarding Mitratel, is Telkomsel planning to transfer more assets to Mitratel in the foreseeable future?

Hendri Syam, President Director of Telkomsel

Thank you, Pak Niko. On the transfer of the tower, yes, it is in Telkomsel's plan because we want to focus on the core business. This means this asset is necessary. We are currently in the process of finalizing the transfer of 4,000 towers to Mitratel. If you are asking how much it is going to cost, I think it has come to the market participant's mark. We expect this transaction to be completed soon, and we will provide additional information once it's finalized.

Niko Margaronis, Analyst

Okay. So just to confirm, this is 4,000 new towers in addition to the 6,000 already transferred in the past, right?

Hendri Syam, President Director of Telkomsel

Yes. This is an addition to the previous 6,000 towers. Mitratel is expected to have around 28,000 towers after this additional 4,000.

Niko Margaronis, Analyst

And you recently transferred 1,000 towers from Telkom or from Telkomsel?

Hendri Syam, President Director of Telkomsel

We have what we call an in-brand transfer of assets from Telkom to Mitratel. This is not included in the 10,000 that we previously mentioned.

Niko Margaronis, Analyst

Okay. And what is the tenancy ratio of these 4,000 towers?

Hendri Syam, President Director of Telkomsel

We see that the tenancy ratio of Mitratel is around 1.65, yes 1.7.

Ririek Adriansyah, CEO

5-7.

Hendri Syam, President Director of Telkomsel

1.57, sorry.

Ririek Adriansyah, CEO

This tower, if you see the distribution of the tower, can be set half in Java and the rest outside of Java. Of course, I believe this provides a significant potential to increase tenancy.

Operator, Operator

Your next question comes from the line of Samuel Chen from AllianceBernstein.

Samuel Chen, Analyst

Just 3 questions here. The first question is on the guidance of a dividend policy, if you have any. Understanding that 5G investment might be coming up, I want to hear your thoughts on the dividend first.

Heri Supriadi, Finance and Risk Management Director

I think on the dividend policy, we need to see the reason what is expected in the market from the investment that you guys make in us. Of course, we want to meet the situation. Currently, it is too early to talk about this, maybe next year.

Ririek Adriansyah, CEO

Too early.

Heri Supriadi, Finance and Risk Management Director

But the intention of the company is still to provide a return to our shareholders, servicing.

Samuel Chen, Analyst

The next question is about your venture fund, MDI. I would like to understand your investment approach. Are you planning to exit like SoftBank, or is your strategy different since most of your investees belong to your verticals? Do you intend to be a long-term investor in your portfolio companies?

Ririek Adriansyah, CEO

Well, as been mentioned by Pak Heri, but I just wanted to emphasize that we're not going to be like SoftBank. SoftBank is actually very impressive, and mostly, if not all, they seek capital gain. What we do with MDI is twofold. One, of course, we are seeking capital gain; however, we're also looking into the potential synergy and B2B that can emerge either with the companies within the Telkom Group or with other SOEs. I think we need to maintain a balance between the two. For MDI, it varies by case, as we choose the best approach depending on the circumstances.

Samuel Chen, Analyst

Perhaps I could ask for a quick clarification. I understand that forming a long-term partnership with the start-up is important. However, is having a 20% or 30% stake in the company essential for solidifying that relationship? Or is it sufficient to have worked with them for a time and supported their initial growth?

Ririek Adriansyah, CEO

Well, I think the more important aspect is what kind of synergies or B2B relationships we can establish. It's quite promising, and we believe it's beneficial for us as long as we can maintain those relationships effectively. This is typically the way we approach our investments in MDI.

Samuel Chen, Analyst

Okay. So my last question is on the fixed segment, the Telkom segment overall. I noticed the EBITDA margin is now very close to 50%, considering the scale has now played out very nicely. I noticed that if I take the whole segment, the operating margin is in the mid-20s. This suggests the EBITDA margin is probably low 30s, if not higher. Would you be able to give us some guidance over the long term between broadband, enterprise, and wholesale, which is mostly just towers and IDCs? What kind of EBITDA margin are we looking for in each subsegment?

Heri Supriadi, Finance and Risk Management Director

Thank you for the question. I think it's a very good question as well, and also a tough one to answer. Overall, we're quite pleased with the non-cellular margin right now. If you see IndiHome, we have a very good margin here. If you ask whether we can increase the margin, the margin right now comes from the basic connectivity that we provide. We also have upsell options, I think, with additional services we provide. Therefore, we need to balance between short-term margins and long-term sustainability by attracting more sticky customers. With this margin, we are very happy. We hope to increase our customer base over time while maintaining the current margins. If everything runs smoothly, we can expect even better margins as new opportunities arise, but for now, we're focusing on growing the business with stable margins. In the enterprise area, we have about a 10% EBITDA margin at present, and we expect this to grow as we offer more services. In the long run, we hope this segment will also see margin increases. The tower business should achieve a comparable margin, especially as they prepare for an IPO.

Samuel Chen, Analyst

Okay. So maybe just a long-term basis, over the next five years, would it be fair to say that the fixed segment's EBITDA margin could be around 35%, 40% once you reach the scales in the tower business for the IPO? Or would it remain similar to what we have now, around low to mid-30s?

Heri Supriadi, Finance and Risk Management Director

I think it is supposed to improve, but more granularly. We know that for IndiHome, we're going to have more competitors in this area. Therefore, we need to remain market-dependent. It's going to improve, but I think it will be more segmented.

Operator, Operator

As there are no further questions, I would like to hand the call back to Pak Andi. Please go ahead.

Andi Setiawan, CEO

Thank you, A.J., and thank you, everyone, for participating in today's call. We apologize for those whose questions could not be addressed yet. If you have any further questions, please don't hesitate to contact us again. Thank you, everyone.

Operator, Operator

Thank you. This concludes today's conference call. Thank you for your participation. You may all disconnect now. Thank you all.