Two of the largest mobile phone operators in the country experienced negative profit growth in the first half of 2013 as both continued to sustain pressure from higher expenses.
Indonesia’s second-largest mobile phone operator, PT Indosat (ISAT) continued to bleed as losses spiraled 28.1 percent year-on-year to Rp 231.2 billion (US$22.4 million) in the first six months, canceling out the 14 percent revenue increase to Rp 11.7 trillion and 11 percent in additional subscriptions to 56.5 million.
PT XL Axiata (EXCL), the third-largest mobile phone operator, booked Rp 670.4 billion in profits for the period, hence earning 54 percent less year-on-year.
Indosat CEO Alexander Ruslie blamed the losses on depreciation and foreign exchange in the first quarter of the year, adding that the losses registered were consequently “unrealized losses”.
Indosat has reduced the depreciation time period of its telecommunication equipment from 10 years to eight. This “change in life span” was written off as a Rp 595 billion loss.
The operator also factored in foreign exchange losses, which stood at Rp 241 billion net.
“It is a choice that we consciously made,” Alexander said. “If we had not factored in change in useful life and foreign exchange losses, we would have booked Rp 605 billion as our normalized profits.”
In the period between June 2012 and 2013, Indosat reduced its total debts by 21 percent after paying off $312.7 million, in addition to another Rp 3.8 trillion, to various banks and bond holders.
Indosat finance director Stefan Carlsson added that the operator had adopted two key strategies to reduce debt.
The first, he pointed out, was by hedging its US dollar debts by roughly 35 percent net.
“We want to stick to 35 percent or lower because the hedging would cost too much if we went above that,” he said.
He said the other strategy was refinancing its US dollar debts and then shifting to Indonesian rupiah to reduce the proportion of US dollar debt the operator had.
“Our debt ratio is roughly 47 percent for US dollars and 53 percent for Indonesian rupiah,” he said. “I would like to refinance our US dollar debts and then shift to rupiah so that the US dollar portion goes down to 30 percent.”
Indosat reported a net debt of Rp 22.1 trillion in the first half of 2013, a figure 0.4 percent less year-on-year.
However, Carlsson noted that the operator would likely sustain losses until year-end as the currency kept fluctuating and depreciation had set in.
“But net profit can go up next year because our accelerated depreciation would be Rp 600 billion to Rp 700 billion in 2014. This year, our total depreciation is Rp 8.4 trillion to Rp 8.5 trillion — Rp 1.4 trillion of which is accelerated depreciation,” he added.
Meanwhile, XL Axiata’s expenses of Rp 9 trillion — or 14 percent more than last year — had eroded the 1.6 percent annual increase in revenue to Rp 10.3 trillion and 18 percent growth in its user base to 54.2 million subscriptions.
However, XL Axiata CEO Hanul Suhaimi said the performance in the second quarter “marks a successful revenue turnaround after two consecutive quarters of decline”.
“We remain flexible yet focused in our strategy after the challenges we had in the third quarter last year,” he said.
He added that moving forward, the operator would continue focusing on data as this was its fastest growing segment.
As of the first half of 2013, data revenue contributed 22 percent compared to 19 percent the previous year, according to Hanul, while data traffic grew 88 percent year-on-year with the number of data subscribers now reaching 32 million or close to 59 percent of the total base.