• The implementation of the Surabaya City Regional Regulation (Perda) No.5 of 2017 regarding the Implementation of Utility Networks for all telecommunications operators.
• implementation of Goverment Regulation Number 71 Year 2019 regarding the Implementation of Electronic Transaction of and Systems (PSTE) which states that providers of public electronic systems can place data outside the territory of Indonesia.
• Several other DOC regulations related to Over The Top (OTT) services, telecommunications joint technical infrastructure, and tariffs for providing telecommunications services.
5. Indonesia’s macroeconomic challenges that grow in the range of 5%, but still experience a budget deficit.
Although Indonesia has the largest economic posture in Southeast Asia, this needs to be watched out because it can hurt national economic stability, especially in the long term.
In connection with the foregoing, the impact on Telkom is the increase in Telkom’s risk profile in 2019 which includes strategic, operational and compliance risks. Also, from the financial side, Telkom has a risk of increasing uncollectible receivables.
Furthermore, in analyzing the company’s business sustainability, Telkom uses several assumptions on strategic decisions making in 2019, namely:
1. Telkom views that the community has made digital as a daily necessity. Therefore Telkom’s transformation into a digital telecommunication company is a strategic policy because the potential market is open widely.
2. Telkom sees positively the Government’s objective to build a strong foundation for economic growth through four aspects, namely high infrastructure investment, consistent budget renewal, new economic structure, and exploiting the potential of a large and stable economy.
3. Telkom responds to global dynamics by seeing uncertainty as a risk as well as an opportunity. Macro conditions will remain volatile in different frequencies and Telkom has the ability and sufficient resources to anticipate strategically.
4. Telkom considers that the growth of the information and communication sector in 2019 is quite good, which is around 9.41%, (source: BPS – Berita Resmi Statistik, 2020) higher than the national economic growth of 5.02%. This shows that the industrial sector is still moving forward in line with the development of the digital era.
5. Telkom believes that since the introduction of prepaid card registration, competition between operators has become healthier with a smaller customer base, but it is more stable and shows the true market potential.
Responding to the existing dynamics, Telkom then made adjustments and decisions making to address potential issues that have a significant effect on business continuity, including:
1. Arranging the best digital experience for customers (embracing the best in class digital customer experience), which is transforming the best experience for customers by digitally interacting at each stage, which is supported by internal company processes that are digitalized.
Telkom presents a memorable experience for customers through digital interactions that are simple, intuitive and progressive according to their hopes and needs. Customers are more intimately connected to Telkom digitally and get services according to their needs in a self-service manner, thereby increasing the performance of service delivery and increasing the number of loyal customers who will continue to use TelkomGroup services (high-value customers).
The system and supporting tools are designed to be responsive and flexible to meet customer needs and allow for changes in service design dynamically that integrates with customer insight in real-time on each customer’s journey. Internal processes are also transformed and tested iteratively based on customer feedback and evaluation of process performance. These activities are supported by the required standards of behavior and expertise, and Telkom continues to hone and retrain its human resources and nurture digital talents to meet these standards. Telkom will not only focus on achieving the Net Promoter Score (NPS) target but also exploit systematic feedback to action cycle to bring customer satisfaction which ultimately
2. Intensifying the digital business (intensifying digital business), which is to continue the expansion of wide map network connectivity and improve services and digital business solutions to secure the dominance of the company in the market.
Telkom continues to intensify the digital business in line with quality sales to maintain its dominance in the market and ensure continued business growth.
Broadband connectivity expansion in the business segments (enterprise & SME) and retail (home &
personal) is directed so that the TelkomGroup becomes the leader in digital business. Telkom has undertaken various initiatives to reach vertical and horizontal markets in all segments through superior expertise and capabilities and synergize in an integrated manner with superior broadband services, smart infrastructure, and intermediation platforms (cloud, big data, IoT, payment, cyber security) that reliable.
On the internal side, Telkom continues to improve operational effectiveness and ensure the profitability of its business lines through harmonizing customer- facing unit synergies, so that Telkom will continue to hold a competitive advantage even if its services are increasingly relevant to market needs amid disruptive industry dynamics. Inorganic initiatives, including partnerships and acquisitions, are an important part of this program, especially to strengthen capabilities and increase value as a group. In line with the dynamics in the corporate action environment, Telkom will continue to encourage smart inorganic executions to support the achievement of the 2019 target.
3. Supporting smart initiatives to increase cost- effectiveness (driving smart initiatives on cost- effectiveness), namely executing smart initiatives that have a maximum impact on company performance through strengthening processes, compliance, system and organizational scale, and utilizing capabilities as a Group to improve company profitability.
This program encourages smart initiatives to increase the effectiveness of costs incurred to be able to deliver healthier financial performance and ensure sustainable growth. The complexity of business lines within the TelkomGroup requires a more granular approach to analyzing the cost structure and implementing these initiatives. The scope of the initiative covers various aspects, both cash and non-cash expenses, product costs (cost of product), optimization of business and organizational processes, optimization of operating and maintenance costs, procurement, taxes, interest costs, depreciation and amortization, and so on.
Telkom’s superiority in business scale or other bargaining position advantages are utilized to achieve cost efficiency or other benefits. The cost-effectiveness and milestone improvement program is set to cover various aspects, such as managing overhead costs, evaluating existing business models, increasing shared service operations, effectively managing the workforce, reengineering business processes, exploiting the value of synergy, and risk-sharing on partnership.
OVERVIEW OF BUSINESS PROSPECTS
Telkom believes that the opportunity to continue to grow in the future is still very promising. Data connectivity and digital services are now the basic needs of the community, and even their use has penetrated in small towns and rural areas. As for institutions and business people, digital services have become the main need to improve services and to maintain and develop their businesses.
Telkom, with all of its infrastructure and facilities, is at the forefront to take these opportunities and continue to grow in the future.
For the Mobile segment, there is business potential in three focus areas, namely increasing potential growth in high- value customers, mobile solution services for the enterprise segment, and developing various digital services such as mobile financial services, games, and video. Currently, high-value customers make a significant contribution to Telkomsel’s revenue. To provide the best experience to maintain loyalty while increasing the number of high-value customers, we do profiling of high-value customers and utilize big data analytics so that they can offer diverse and quality services according to their personal needs. We also develop products to meet the needs and demands of the youth segment through by.U products to fulfill their lifestyle because young people will still dominate in Indonesia demographic structure for few next years. Telkom also continues to develop innovative products and digital solutions for the enterprise segment or B2B including mobile security, NB-IoT and other cellular solutions that utilize the Telkomel myBusiness product portfolio. Meanwhile, on digital services, we focus on providing lifestyle experiences such as video, games, and music.
Along with the increasing use of smartphones, by the end of 2019 169.5 million of our customers have used smartphones (up 4.6% from last year), and it is expected to continue to grow. The wider use of smartphones will also encourage the growth of digital services & solutions where Telkomsel has prepared platforms, applications and content to anticipate the needs of these customers. Globally the cellular business is experiencing pressure on yield data (data prices per gigabytes), which in Indonesia is quite low compared to global benchmarks. This happens because the level of competition is still competitive.
In the enterprise segment, opportunities to increase business growth are still wide open. We always strive to find new sources of growth that are sustainable (recurring). One of the business lines that we will develop is the data center.
We believe that the data center business has high potential demand along with the development of digital services such as e-commerce and various other digital solutions and
provides a fairly good level of profitability. We also believe that the trend of digitizing business processes in corporations will continue to strengthen, as will government agencies and institutions, both central and regional. Also, the penetration of ICT services among Small and Medium Enterprises (SMEs) is still relatively low. We hope that our presence by providing ICT services can help business development among SMEs given the enormous benefits generated, and at the same time is a market opportunity for us to be able to grow together. We also actively explore opportunities for enhancing digital capabilities through inorganic activities to strengthen integrated digital services.
In the Consumer segment, opportunities to continue to grow are still wide open. Besides, the level of competition is also relatively low since fixed broadband service providers require relatively high capital expenditure requirements, which is one of the barriers to entry for newcomers or for existing operators to expand to various regions. In terms of products and services, Telkom always provides additional choices for customers by offering more varied services and products so that they can reach a wider market niche according to customer needs. Among of them, we develop Indihome Lite products that offer affordable prices to reach a wider market segment.
For the wholesale and International Business segment, by connecting the SEA-ME-WE 5 connectivity line with the SEA- US through the Indonesia Global Gateway (IGG) which is a submarine cable communication system owned by Telkom, this makes Telkom stronger in playing a role as a possible Hub Telkom provides alternative direct broadband connections between Europe, Asia, and America. We continue to develop the data center business. After 2019, TelkomGroup increases the capacity of neuCentrIX data centers in Indonesia to accommodate customer demand, we also build a new neuCentrIX data center in Jakarta which is expected to be completed in 2021. Besides, we also strengthen the tower supply business. In 2019, Telkom through Mitratel acquired 95.0% of share capital in PT Persada Sokka Tama, which has 1,017 towers located throughout Indonesia.
Then, in October 2019, Mitratel signed an agreement to buy 2,100 telecommunication towers from PT Indosat Tbk.
The development of towers either organically or through acquisitions will strengthen the tower business line and open up even greater opportunities, moreover, it is predicted that in the next few years new cellular technology, 5G, will need higher tower densities.
Throughout 2019, Telkom experienced revenue growth of 3.7% to Rp135,567 billion. Then Telkom’s EBITDA and Net Profit in 2019 were recorded at Rp18,663 billion, with EBITDA margins and Net Profit margins of 47.8% and 13.8%.
Following the business strategy aimed at strengthening the digital business, Telkom spent Rp36,585 billion on capital expenditure in 2019, especially for the development of digital business infrastructure.
Comparison between the target/projection of the beginning of the financial year with the results achieved (realization) in 2019 can be seen as follows:
Indicator Realization in 2019 Targets in Initial 2019
Revenue Growth Revenues grew by 3.7%. Revenue or sales growth is above the industry average and income from digital businesses continues to increase.
EBITDA Margin and Net
Income Margin EBITDA Margin increases to 47.8% while
Net Income Margin was 13.8%. EBITDA Margin and the Net Income Margin are projected to decline slightly in line with the development of broadband infrastructure, both for mobile and cellular, accompanied by an increase in the portion of revenue from digital businesses.
Capital Expenditure The realization of Capital Expenditures is to Rp36,585 billion, or 27% of revenue with focused investment in digital business infrastructure.
Capital Expenditure is around 25-30%
of revenue with an investment focus on digital business infrastructure.