Increase Capital Expenditure, Lower Profit: WALLPAPER

The growth of the mobile telecommunications world in Indonesia in the first half of this year, is not very encouraging. Although overall numbers have increased, both in the amount of money that brought the industry to life, as well as the number of customers. Of the top three, Telkomsel, Indosat and XL Axiata, which recorded net profit growth were only XL Axiata. The other two were down compared to the first half of 2009, even Indosat blocked.


In general, there is a growth of customers up to 10 percent. Thus, at the end of the second quarter, the number of mobile subscribers reached 180 million. Around 49 percent are Telkomsel customers. The first half of 2010, marked by reduced capital expenditures, which were only around Rp 18 trillion, with an overall business value of around Rp 100 trillion.


According to data from the Central Statistics Agency (BPS), the growth of the telecommunications industry until semester 2 reached 7.83 percent compared to the same period in 2009. This growth is not proportional to the increase in the number of customers due to the decrease in ARPU (average revenue per user – average revenue from each customer). The average ARPU of the industry is below Rp. 40,000, some are even below Rp. 30 thousand, compared to 6 years ago which was above Rp. 120,000.


The 7.83 percent growth was also not a six-month average, as in the second quarter there was a decrease in growth of 0.09 percent, compared to growth in the first quarter of 2010. The decline in growth could be due to the process of saturation of potential customers has begun to occur, although the total number of 180 million customers does not mean 180 million people. The reason is, many people have more than two cellphone numbers.


The marketing target of cellphone operators is still large, because the population of Indonesia is around 235 million, and the market that is still open is not only 50 million – 60 million. “Of the 180 million subscribers at the end of semester 1 of 2010, only around 120 million real subscribers, because 60 million have more than one cellphone,” said Hasnul Suhaimi, President Director of PT XL Axiata some time ago.


The Chairman of the Indonesian Cellular Phone Association (ATSI) who is also the President Director of PT Telkomsel, Sarwoto Atmosutarno, admitted that the growth of the cellular industry in Indonesia last semester was indeed slow. But he believes growth this year will be high even though it is still below 10 percent. The second semester of each year always has the opportunity to grow better, because there are several annual events that follow the spur, such as Eid al-Fitr and Christmas and New Year.




One of the biggest obstacles that have led to the growth of mobile subscribers is the high number of customer movements, aka churn. The current industry average, records churn up to 20 percent. But Sarwoto said, Telkomsel’s churn is below 5 percent. Meanwhile, Hasnul Suhaimi said xl Axiata’s churn was between 12 and 13 percent.


All operators acknowledge that the high churn figures are the result of a tariff war. That said, although the tariff war has subsided, the consequences are still felt two-three years later. Despite realizing the tariff war would bring the industry to the brink of collapse, operators were individually unable to stop, even if they did not participate, they would be abandoned by customers or potential customers.


The high number of churns makes the industry less healthy. Because churn eats away at the operator’s revenue. Moreover, starter packs – all operators are sold below the basic price on average, for example Rp. 5,000 containing Rp. 5,000 credit. Even though the production cost of starter packs alone is around Rp. 2,500 per piece.


The operator can profit if the customer recharges at least 2 times since the starter pack is activated. But the low price of the starter pack, in addition to the ease of filling in identity data because fake data was received, making the starter pack into a calling card, was thrown away as soon as the credit ran out.


Note that PT XL Axiata achieved the highest profit, IDR 1.32 trillion or an increase of 87.4 percent compared to the same period last year of IDR 706 billion. A number that has never been reached in previous years. The profit was obtained from the company’s revenue of Rp 8.5 trillion, an increase of around 35 percent from the same period in 2009 which amounted to Rp 6.25 trillion.


Whereas on December 31, 2008, the company, whose majority stake was held by Axiata from Malaysia, had lost Rp 15 billion less. “We directors did not get a bonus because of the loss,” said an XL Axiata official.


This high profit was partly triggered by an increase in the number of subscribers which on June 30, 2010 reached 35.2 million, growing 43 percent compared to 24.7 million in the 1st half of 2009. This achievement is only 2.6 million at odds, under PT Indosat’s customers at the same time.




Unlike PT XL Axiata, the top two in other cellular industries, Telkomsel and Indosat actually experienced a decline in profit, and the largest suffered by Indosat. The profit of the operator owned by Qatar Telecom (Qtel), plunged 71.5 percent compared to the 1st semester of 2009 which amounted to Rp 1,007 trillion, to only Rp 287 billion on June 30, 2010. In fact, its revenue increased slightly by 5.8 percent in the same period, from IDR 9.135 trillion to IDR 9.662 trillion.


Basically, Indosat’s revenue cannot be compared casually, and it is named higher than XL Axiata’s revenue. This is because Indosat has several business lines, while XL only has more cellular and fiber optic backbones for its own use. In terms of revenue, Indosat has lost to XL Axiata, if calculated indosat’s cellular contribution which reaches 79 percent of its revenue, or rp 7.662 trillion. This amount is equal to 89 percent of XL’s revenue of IDR 8.5 trillion.


From the number of subscribers, Indosat’s achievements – if they let their guard down – by the end of 2010 will be overtaken by XL Axiata. With the achievements it has achieved, it is not too difficult for XL to add more customers by 7 million – 8 million, in the last six months of 2010. Predicted, if the growth of its subscribers continues to be good, it is not impossible that XL will overshadow Telkomsel, and may overtake in 2015.


The big operator that has to further spur its performance is Telkomsel. The number of customers is still far from the target, which they hope will be achieved by the end of the second half, in December. The target of 18 million new subscribers – to bring the 82 million subscribers by the beginning of 2010 to 100 million by the week after Christmas this year – will only be achieved with hard work. This is because at the end of June 2010, the number of new Telkomsel customers

reached 88.3 million. It has only risen about 6 million since the end of 2009, or about 30 percent of the target.


The financial performance of the joint venture company PT Telkom and SingTel is also not very good. Their operating income only increased by 7 percent compared to June 30, 2009, from Rp 20.6 trillion to Rp 22.9 trillion, with net profit actually falling by 4 percent, from Rp 6.2 trillion to 5.9 trillion.


After all, the operator’s financial statements can open up the operator’s own ulcers, as well as being able to build or collapse investor confidence. However, many investors are convinced that the first half of each year’s financial statements are not everything, not giving a complete and complete picture of the company’s health. There’s still time to fix, and that’s what generally happens. When its performance is boosted, it is supported by events that can boost revenue and profit in the last six months.


For Indosat, the profit, which fell freely with 71.5 percent, was not too troubling. This has happened to XL Axiata, which lost more than Rp 15 billion at the end of 2008, then made a profit in 2009 and a big profit in mid-2010.


Such a thing often happens in any industry or business, when capex (capital expenditure) is drawn forward, charged in the current year. Thus, the capital expenditure burden was very small in the following year. Because the capex is smaller, profit management can be done better, so the profit achieved is much higher. And most importantly, the achievement of high profits will impress investors, shareholders and users of its services.


There was no greater pride and satisfaction for them, when they found XL Axiata, whose balance sheet showed a loss at the end of 2008 of Rp 15 billion, soaring its profit to Rp 706 billion on June 30, 2009 and rising high to 1.32 trillion on June 30, 2010.


It is not impossible that, with the same pattern, Indosat’s profit will skyrocket above Rp 1.5 trillion. Although, profits can also be made high, for example by postponing capex or maintenance costs to the next year. Anything can be done, depending on what results are to be achieved.

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