The document provides an overview of the telecom industries in Indonesia and the Philippines. Both countries have shown strong economic growth and increasing wireless penetration. In Indonesia, future revenue growth will be driven by higher data consumption, while margins are stabilizing and CAPEX is rationalizing. The Philippines also needs increased focus on data services as voice revenue declines. Operators in both countries could improve efficiencies and invest further in emerging technologies.

1. Country and Industry Assessment (Draft)
Philippines and Indonesia
Telecom Report
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2. Economic and Industry Overview
Both Indonesia and Philippines have shown strong economic growth with increasing wireless
penetration, indicating a point of saturation in telecom industry
4000
Indonesia: Favorable economic and political environment
GDP per Capita ($)
3500 CAGR 17% § Indonesia’s economic GDP will pick up to 6.3% in 2013 and will average
~6.5% during 2014-17
3000
§ Services industry will see higher growth at around 8% in 2014-17
2500 CAGR 12% § Unemployment rate is seeing a downward trend
2000
Philippines: Higher growth potential and political stabilization
1500 § Philippines economy is poised to grow at ~5% in 2012 with sustained
1000 positive GDP growth at around 6% going forward
Indonesia § Services industry will see higher growth at 6%-7% in 2012-13
500 Philippines § GDP per capita is expected to growth at 6% in 2012-13
0
2004 2006 2008 2010 2012
120%
Indonesia: 3rd largest wireless market in Asia
Wireless Penetration
§ Wireless penetration has seen significant growth driven by high SIM
100% CAGR 14%
penetration and strong inclination towards smart devices
CAGR 24%
80%
§ Internet penetration is driven by mobile internet services (20%
penetration of wireless broadband)
60% § Wireless telephony is becoming a commoditized ‘hygiene’ factor
40% Philippines: Near saturation market with growth potential
§ High wireless penetration contributed by government initiatives in ICT
20%
Indonesia and social sectors
Philippines § Growth driven by private consumption and investments in the industry
0%
2004 2006 2008 2010 2012
Source: Economic Intelligence Unit, Gartner, Frost and Sullivan
CAGR: Compound Annual Growth Rate (2007-12)
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3. Indonesia’s Telecom Market
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4. Telecom Industry: Indonesia
Future growth of revenue will be driven by higher consumption of data services; Excelcomindo is
leading the pack in terms of increasing its share of date revenue
80,000 Telkomsel: ARPU above industry average
Telkomsel § Postpaid comprise about 2% with ARPU as 6 times Prepaid ARPU
70,000 Satelindo + IM3 § Revenue growth by 4% (2012) while ARPU declined by 7%
60,000 Excelcomindo
Satelindo: Despite growth, ARPU lower than industry average
ARPU (IDR)
50,000 Indonesia
§ Revenue growth of 6% while subscriber grew by 13%; ARPU declined by
40,000 7%; marginal growth in Postpaid subscribers in 2012
30,000 Excelcomindo: Decelerating decline in ARPU
20,000 § Revenue growth of 7% (2012); ARPU declined by 1%
10,000 Continuous decline in industry ARPU across the spectrum
2007 2008 2009 2010 2011 2012
40,000
Data ARPU (IDR)
35,000 Telkomsel Telkomsel: Data ARPU highest in the industry
Satelindo + IM3 § Data ARPU declined by 0.2%; overall data revenue growth by 11% in 2012
30,000 Excelcomindo Satelindo: Data ARPU lower than industry average
25,000 Indonesia
§ Data ARPU declined by 5%; due to lower revenue growth of data (8%) in 2012
20,000 Excelcomindo: Highest percentage of data revenue and growth
§ Data ARPU growth by 5% driven by higher update of data service in 2012
15,000
10,000 Stabilization of Data ARPU indicates future growth potential
2007 2008 2009 2010 2011 2012
80,000
Voice ARPU (IDR)
Telkomsel: Steepest decline in Voice ARPU, still highest in industry
70,000 § Voice ARPU continues to slide, voice revenue declined by 11% in 2012
60,000 Telkomsel Satelindo: Similar trends in declining Voice ARPU
Satelindo + IM3
50,000 Excelcomindo § Voice ARPU declined by 9% in 2012; due to declining call rates
40,000 Indonesia Excelcomindo: Done better than other operators in terms of %decline
30,000 § Voice ARPU declined by 6%, lowest in the industry
20,000
10,000 Voice APRU has declined significantly, revise investments in data
2007 2008 2009 2010 2011 2012
Source: Company Annual Reports
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5. Telecom Industry: Indonesia
Margins are stabilizing within the industry while CAPEX continues to rationalize on the lower side
80%
Telkomsel: Highest EBITDA as %Rev in Industry
EBITDA as %Rev
70%
60% § 4% revenue growth to EBITDA by 2% in 2012, expense increased higher
50% Satelindo: EBITDA as%Rev is lowest in the industry
40% § But, 6% increase in revenue and 7% EBITDA shows better performance
30% Telkomsel Excelcomindo: Healthy trend towards higher EBITDA margin
Satelindo + IM3 § Consistent increase in EBITDA margin over 2007 to 2012
20%
Excelcomindo
10% Indonesia
0% Competitive pressures rationalizing margins, scope to improve
2007 2008 2009 2010 2011 2012
120%
Telkomsel: Lowest CAPEX to Revenue ratio in the industry
CAPEX as %Rev
100% Telkomsel
§ Focus on reducing long term cost of capital; CAPEX reduced by 4% in 2012
Satelindo + IM3
80% Excelcomindo Satelindo: Continued focus on cellular and non-cellular investments
60% Indonesia § Though, CAPEX investments reduced by 11%
Excelcomindo: Increasing CAPEX investments
40% § Focused investments in 3G (Data Services), CAPEX increased by 18%
20%
0% Focused CAPEX investments to fuel future growth potential
2007 2008 2009 2010 2011 2012
60%
Telkomsel: Higher ratio with stable CAPEX and EBITDA
(EBITDA – CAPEX)
40% § Consistent ratio around 37%, due to lowering of CAPEX investments
20% Satelindo: Positive trend indicates renewed focus on cost reduction
as %Rev
0% § Increased EBITDA and lowering CAPEX leading a positive trend
2007 2008 2009 2010 2011 2012 Excelcomindo: Trending downward due to focus on CAPEX in Data
-20%
§ Increased CAPEX investment is pulling the ratio downwards
-40% Telkomsel
Satelindo + IM3
-60% Excelcomindo Higher ratio is an indication of long term business sustainability
-80% Indonesia
Source: Company Annual Reports
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6. Key takeaways for Telecom industry in Indonesia
Industry Trends Recommended Initiatives
§ Voice revenue growth is tapering as market is getting
§ Market growth assessment
matured; but there is scope of market penetration
Revenue
§ Operators needs to renew their focus on data
§ Product pricing assessment
services and VAS service (non-voice)
§ EBITDA margins are stabilizing in the industry § Cost take out initiatives in Ops
EBIDTA
§ Renewed focus on reduction in operation expenses § Business Process Reengineering
§ Increased CAPEX to be inline with increase in data
§ Market assessment for data services
services in terms of capacity (from 2G to 3G/LTE)
CAPEX
§ Competitor assessment
§ Initiatives to increase the cellular coverage
§ Increasing shift towards Prepaid Services § m-Payment growth strategy
Service
Portfolio
§ Growing uptake on VAS service (m-Payments) § Supply chain optimization in Prepaid
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7. Philippines’s Telecom Market
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8. Telecom Industry: Philippines
Future growth of revenue will be driven by higher consumption of data services; Globe Telecom is
leading the pack in terms of increasing its share of date revenue
300 PLDT: ARPU lower than industry average
PLDT
§ Revenue growth has been declining since 2009
ARPU (PHP)
250 Globe Telecom
Philippines
200 Globe Telecom: Beginning to show higher industry average
150 § Revenue growth of 4% while subscriber grew by 12% with substantial
100
growth in Postpaid subscribers in around 15% in 2012
50
- Continuous decline in industry ARPU across the spectrum
2007 2008 2009 2010 2011 2012
140
Data ARPU (PHP)
PLDT PLDT: Data ARPU lowering at a steady pace
120 Globe Telecom
Philippines
§ Data revenues growth has been flat in 2012, indicating lower uptake of services
100
80 Globe Telecom: Data ARPU highest in the industry average
60 § Data ARPU declined by 5%; due to lower revenue growth of data (8%) in 2012
40
20
- Stabilization of Data ARPU indicates future growth potential
2007 2008 2009 2010 2011 2012
Voice ARPU (PHP)
160 PLDT: Steepest decline in Voice ARPU, still highest in industry
140 PLDT
Globe Telecom § Voice ARPU continues to slide, though slightly higher the industry average
120 Philippines
100 Globe Telecom: Similar trends in declining Voice ARPU
80 § Voice revenue on a decline, though recovered slightly in 2011-12
60
40
20
- Both data and voice are contributing to overall decline
2007 2008 2009 2010 2011 2012
Source: Company Annual Reports
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9. Telecom Industry: Philippines
Margins are stabilizing within the industry while CAPEX continues to rationalize on lower side
68% PLDT
EBITDA as %Rev
66% Globe Telecom
Philipinnes PLDT: Highest EBITDA as %Revenue in Industry
64%
62%
§ 4% revenue growth to EBITDA by 2% in 2012, expense increased higher
60%
58% Globe Telecom: EBITDA as %Revenue has been falling steadily
56% § But, 6% increase in revenue with 7% EBITDA shows better performance
54%
52%
50% EBITDA growth is flat in the industry, leaves scope to improvise
2007 2008 2009 2010 2011 2012
30% PLDT
CAPEX as %Rev
Globe Telecom
25% Philipinnes PLDT: Higher CAPEX to Revenue ratio in the industry since 2010
§ Strategic investment decisions to modernize network and emerging technologies
20%
15% Globe Telecom: Decline in CAPEX investments
10% § Though, focus is on network modernization and IT transformation programs
5%
0% CAPEX as%Rev has been fluctuating though investments to rise
2007 2008 2009 2010 2011 2012
50%
(EBITDA – CAPEX)
40%
PLDT: EBITDA growth offset by increase in CAPEX
§ Stable EBITDA over 60%, increasing CAPEX over the same period
as %Rev
30%
Globe Telecom: Falling EBITDA couple with falling CAPEX
20% PLDT
§ CAPEX as %Rev has been falling at a faster rate than EBITDA as %Rev
Globe Telecom
10% Philipinnes
0% Ratio consolidating at around industry average
2007 2008 2009 2010 2011 2012
Source: Company Annual Reports
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10. Key takeaways for Telecom industry in Philippines
Industry Trends Recommended Initiatives
§ Voice revenue growth is declining steadily
§ Market growth assessment
Revenue
§ Operators needs to renew their focus on data
§ Product pricing assessment
services and VAS service (non-voice)
§ EBITDA margins are flat with scope to increase
§ Cost take out initiatives in Ops
operational efficiency
EBIDTA
§ Business transformation initiatives
§ Focus on business transformation
§ Investment in emerging areas of cloud services and
§ Market assessment for data services
multimedia solutions
CAPEX
§ Due diligence (spectrum acquisition)
§ Investments to acquire 3G spectrum in 2012
§ Increasing shift towards value-added services § Service portfolio assessment
Service
Portfolio
§ Diversification of revenue mix through data service § Competitor assessment
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11. Please do not distribute, for internal use only