by Ulisari Eslita
The COVID-19 pandemic is a catalyst for digitalization. And telecommunication companies, being the infrastructure provider, have become ever more central to how modern society operates. As many are aware, due to the pandemic, telco companies around the world are facing surging bandwidth demand as people are forced to do almost everything from home, from working, studying, shopping, to leisure activities. Consequently, to fulfill their needs, telco providers must build customers' trust by providing reliable services.
Luckily, last year, the state-owned telecommunication company PT Telkom Indonesia decided to transform itself into a digital telecommunication company with core business such as digital connectivity, digital platform, and digital services.
"We have to change so that our core business is not merely telecommunication, but also connectivity, data center, cloud, and services," says Ririek Adriansyah, CEO of Telkom.
The change of plan has brought a strong fundamental for Telkom during the COVID-19 pandemic, reflecting its third quarter of 2020 performance. During the first nine months, Telkom booked a slight increase of 1.33% net profit to Rp 16.6 trillion, while its net profit margin increased slightly from 16% to 16.7%. Thanks to some improvements and efficiency, which help Telkom to gain an increase in net profit.
IndiHome, the fixed broadband Internet service, posted a strong performance both in financial and subscribers growth. IndiHome generated Rp 16.1 trillion revenue, an increase of 17.1% from the same period last year. Its subscribers increased 752,000 by the end of the third quarter, reaching out to a total of more than 7.76 million subscribers. Telkom sets a target to reach 8 million subscribers by the end of this year.
"We are making IndiHome one of the mainstay business lines in the future," says Ririek.
Meanwhile, Telkom's enterprise segment business fundamentals are also getting healthier. Telkom's enterprise segment provides end-to-end solutions to corporate and institutional customers. The enterprise segment booked a revenue growth of 9.4% during the third quarter of this year as it focuses on new data business. Likewise, the wholesale & international business segment is also getting better. This segment's revenues grew by 24.9% from the same period last year to Rp 10.2 trillion, mainly driven by the increase of the telecommunications tower business and voice wholesale.
Telkom's mobile business segment, Telkomsel, recorded digital business growth of 10.6% to Rp 47.66 trillion with an increasing contribution of 73.2% in its recent financial report. The mobile segment provides mobile voice, SMS, value-added service, and mobile broadband products. The increase was supported by the company's massive 170 million subscribers, of which mobile data subscribers reached 117.3 million, growing 4.6% from the same period in the previous year. Subscribers' growth pushed data service consumption up 42.5% from the same period last year and has become a catalyst for an increase in average revenue per user (ARPU) of data.
However, Telkom's revenue for the first nine months in 2020 slipped to Rp 99.9 trillion from Rp 102.6 trillion in the same period in 2019 as its Telkomsel cellular business remain underperformed. Besides the mobile segments, Telkom still has issues with fixed-line and network segments. Fixed line's revenue fell 28.76% from Rp 21.25 trillion to Rp 15.13 trillion, while network revenue shrank 20% to Rp 1.07 trillion from Rp 1.34 trillion.
According to Niko Margaronis, an analyst at Danareksa, Telkom is in a position. "Year to date, the Telkom group recorded revenue of Rp 99.94 trillion or 2.6% lower. But the result would be in line with our year-end estimates," says Niko. This year's upside, he adds, was centered on Telkom's transformation to becoming more efficient for its size, adapting to data pricing pressures, and the need to develop a new revenue platform.
Overall, there is no slowdown in Telkom's capital expenditure (capex) this year. It remains 25% of Telkom's total revenue. In the first six months of 2020, Telkom already spent Rp 12 trillion of its capex: 40% to the mobile segment, 30% in the fixed broadband (mainly to support the expansion of IndiHome), and others for IT, data center, and other supporting infrastructure to increase service capacity in the future.
"Following the development of digitalization, data and digital service will be the source of our revenue growth, both through the mobile and fixed broadband segments," says Ririek.
Last month, PT Telkom Indonesia invested $150 million in super app Gojek through its cellular subsidiary, Telkomsel. The company says the investment reflects Telkomsel’s commitment as a digital telecommunication company to provide services beyond connectivity.
“We believe the collaboration will provide better solutions and services to society to create an inclusive and sustainable digital ecosystem,” says Ririek.
Telkomsel joins a long list of Gojek investors that includes Google, KKR, Djarum, and Astra. “In a fast-growing, mobile-first market, collaborations like this one are crucial for supercharging the digital economy. Users of both platforms can look forward to innovative product offerings and cost savings through joint promotions and product bundles,” says Andre Soelistyo, Gojek co-CEO, in a press statement.
Telkom was reportedly close to investing in Gojek back in 2018, but the deal fell through when it failed to secure backing from the government.
Forward-looking, Ririek expects Telkom could maintain a positive performance until the end of this year. “We expect single-digit positive growth for both Telkom’s bottom line and top line this year, as we believe our digital business keeps growing pretty well currently,” says Ririek.