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Edited Transcript of Z74.SI earnings conference call or presentation 14-Nov-19 10:59am GMT

Q2 2020 Singapore Telecommunications Ltd Earnings Call

Comcentre Nov 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Singapore Telecommunications Ltd earnings conference call or presentation Thursday, November 14, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Arthur Wong

Singapore Telecommunications Limited - CEO of Global Cyber Security & Group Enterprise

* Bill Chang

Singtel Enterprise Security Pte. Ltd. - Director

* Cheng Cheng Lim

Singapore Telecommunications Limited - Group CFO

* Kuan Moon Yuen

Singapore Telecommunications Limited - CEO of Consumer Singapore & Group Chief Digital Officer

* Samba Natarajan

Singapore Telecommunications Limited - CEO of Group Digital Life

* Sock Koong Chua

Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee

* Yang Fong Sin

Singapore Telecommunications Limited - VP of IR

* Yoong Keong Lew

Singapore Telecommunications Limited - CEO of Consumer Australia & Optus

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Conference Call Participants

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* Arthur Pineda

Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research

* Eric Choi

UBS Investment Bank, Research Division - Director and Australian Telco and Media Lead Analyst

* Ian John Martin

New Street Research LLP - Senior Telecommunications Analyst

* Miang Chuen Koh

Goldman Sachs Group Inc., Research Division - Executive Director

* Prem Jearajasingam

Macquarie Research - Analyst

* Ranjan Sharma

JP Morgan Chase & Co, Research Division - Analyst

* Varun Ahuja

Crédit Suisse AG, Research Division - Associate

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Singtel FY '20 Q2 Results Conference Call. (Operator Instructions)

Ms. Sin, over to you.

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Yang Fong Sin, Singapore Telecommunications Limited - VP of IR [2]

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Thank you, Kevin. A warm welcome to all investors and analysts. You are listening to Singtel's earnings conference call for the second quarter and half year ended 30th September 2019. My name is Sin Yang Fong, and let me introduce management on the call. We have Ms. Chua Sock Koong, Group CEO; Mr. Allen Lew, CEO, Consumer Australia; Mr. Bill Chang, CEO, Group Enterprise; Mr. Yuen Kuan Moon, CEO, Consumer Singapore; Mr. Samba Natarajan, CEO, Group Digital Life; Mr. Arthur Lang, CEO, International; Ms. Lim Cheng Cheng, Group CFO; Ms. Jeann Low, Group Chief Corporate Officer; Mr. Murray King, CFO, Consumer Australia; Mr. Art Wong, CEO, Global Cybersecurity.

Before we start taking questions, I would like to invite Sock Koong to share some highlights from this set of results.

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [3]

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Thanks, Yang Sin, and thank you, everyone, for joining us on the call. I know we have a slight change in our usual schedule, but I think you may well understand, it's because of the timing of the Bharti results. I think you have also seen that our results include an exceptional item from Airtel that reflects the provision for the regulatory demand following an adverse Indian court ruling. Airtel, together with other operators in India, continue to make representations to Indian government for relief and also to seek clarification. In the interim, Airtel has made a provision for the demands in its results, and our share -- Singtel's share of the provision was SGD 1.9 billion on a pretax basis. But if you look at its operations, Airtel has actually maintained its momentum. It continued to gain market share, and it's growing mobile service revenue for the third straight quarter.

Let me just quickly touch on the few key highlights that we had [for the quarter]. We are digitalizing our core operations to enhance our competitiveness and driving performance in our growth. In this quarter, we invested SGD 177 million to enhance our mobile network across Singapore and Australia. And in Australia, some 300 5G fixed wireless sites now serve customers that are home broadband. We are also leveraging 5G technology to create innovative solutions for our customers.

In our ICT business, digital services now account for 41% of our revenues. NCS had a record order book of SGD 3.3 billion, with new orders from a diverse range of customers. Amobee, our digital marketing arm, improved its business mix with programmatic business now making up 57% of revenues. And in our e-wallet, Singtel Dash tripled its active users with more services and merchants on board.

We remain focused on growing penetration and usage of our app. Across Singapore and Australia, more than 4.2 million customers actively use our apps, and about 2/3 of our customers now interact with us via online channels. Through these digital initiative and cost measures, the group achieved cost savings of SGD 263 million for the half year.

So very quickly on our financial performance. The consumer operations across both Singapore and Australia remained resilient. We saw both revenue and EBITDA growth, and this -- and that is despite intense data competition and accelerated declines in voice services. Enterprise business was rather impacted by a slowdown in the global economy, which dampened business sentiments and corporate demand. In Australia, declines in legacy products and reforms in the finance sector added further pressure.

In constant currency terms, the group's revenue was stable. EBITDA rose 7% with higher NBN migration revenue and strong cost management. Underpinned by robust data growth, we also saw improved performances across all the associates markets, and that includes India and Africa. Airtel delivered operational performances -- improvements and narrowed its pretax loss. On a post-tax basis, however, the -- its contribution fell due to a reduced equity stake in Airtel Africa following the IPO, and also, we had lower deferred tax credits this year.

Exceptional losses from Airtel amounted to SGD 1.4 billion, which drove a net loss for the group. Underlying net profit, excluding the exceptionals, rose 3%, and free cash flows were up 14% from higher operating cash flow.

So I will stop there. I would also just highlight that we have maintained our interim dividend of SGD 0.068 per share. And barring unforeseen circumstances, we expect to maintain our total ordinary dividends at SGD 0.0175 for this financial year.

So I'll hand over to Yang Sin for questions. Thank you.

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Yang Fong Sin, Singapore Telecommunications Limited - VP of IR [4]

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Thank you, Sock Koong.

Participants, please be advised that this call is being recorded for playback and transcription. We will now invite questions from participants. Our operator will assist you to put through your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first questionnaire is from Miang Chuen Koh from Goldman Sachs.

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Miang Chuen Koh, Goldman Sachs Group Inc., Research Division - Executive Director [2]

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Three questions, please. For Singapore, with the 5G rollout to start next year, can we get a sense of the possible impact of your Singapore CapEx spending trends ahead? Secondly, the Australia side -- the enterprise business continues to be rather weak. Do we have any better visibility of orders or revenues now compared to the last quarter? Anything that's changed? And the third question is that we've seen Singtel's gearing ratios continue to increase slightly over time, should there be something to be concerned about if -- and is there a level which [you would like] to keep gearing ratios under?

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [3]

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[Miang Chuen]. Because of the line, I think we couldn't hear you very well. That -- you came out as a bit muffled. Can I just try to get a hold of your question? Let me confirm. Your first question was about CapEx for 5G, right?

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Bill Chang, Singtel Enterprise Security Pte. Ltd. - Director [4]

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In Singapore.

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [5]

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In Singapore. Your second question was -- it's about Australian enterprise, and then your third question, what was that?

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Miang Chuen Koh, Goldman Sachs Group Inc., Research Division - Executive Director [6]

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We have seen Singtel's gearing ratios continue to increase over time, is there something to be concerned? Is there a level that you would like to keep gearing ratios under?

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [7]

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Okay. Got you. Okay. Maybe Moon Yuen take the 5G, CapEx, and then Bill -- and the pricing and Cheng for the Singtel gearing ratios.

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Kuan Moon Yuen, Singapore Telecommunications Limited - CEO of Consumer Singapore & Group Chief Digital Officer [8]

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Yes. Your question with regards to the Singapore 5G CapEx, I think, first of all, we have to secure the licenses. I think license was now still being open for proposal by the regulator, IMDA. I think we will be submitting our proposal sometime in January before the deadline. And if you look at our CapEx investment over the years, is always a situation when there's an old technology refresh, the CapEx will go up slightly in [second] year, and over time, it will take it down back to a reasonable level.

And if you look at CapEx as a percentage of revenue, in investment years, it will go up to somewhere between mid-teens or low teens. And usually, before -- when we come down to a steady state, it will go back down to high single digit or 10%, 11%. So that's traditionally how close to get investment cycle of technology. And I do not think that 5G would be very different from this.

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Bill Chang, Singtel Enterprise Security Pte. Ltd. - Director [9]

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Okay. [Miang] this is Bill. On the Australian enterprise question, let me give you some color to this. We saw generally a weaker economic conditions, particularly at the [sites] factor where the slowdown was quite pronounced from a year-on-year standpoint, primarily driven by some of these reforms that's happening since the Royal Bank Commission rulings. And a lot of the focus with the banks, which amounted to office business that [affected our] business with it.

And a lot of this is diverted to compliance spending -- compliance-related investments. So we do see a slowdown. And we think that, that sector will probably take some time to recover in terms of the spending. The growth sectors are generally muted and soft. So when it hits us on the product lines view, it's in the usage services like voice. We do see a compression of that. And in the data -- enterprise data market, obviously, we have to contend with the disruptions with the NBN into the enterprise sector and to work out the model with the NBN and to handle this from a margin standpoint.

The other key product line that we see some sort of transitions, it's actually on the ICT side where we had what's called product-related sales in part of our ICT and where we do systems integration, and we do managed services along that. So the -- this sector, this segment is impacted by the transition to cloud as more enterprises move to the cloud. And as they move to the cloud, obviously, the volumes on the one-time purchases will drop. And then, either some of this is spread up from [NP] business standpoint.

So yes, year-on-year, you do have some significant, especially in [FSI] sector, hardware purchases that as you move through the cloud -- and some of them even stopped spending or also divert spending into other areas. We do see that shift is something that we have to navigate through in the next couple of quarters in the FSI sector as we try and build out more cloud-related services to try and transition this [once we do the] ICT side.

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Cheng Cheng Lim, Singapore Telecommunications Limited - Group CFO [10]

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(inaudible) Okay. Let me try to answer your question on the ratios. I think, first of all, when you look at Singtel's cash balances, I think, typically, in the September and the March quarter, you will see (inaudible) spike as we manage our revolver and importantly, our dividend, okay? So that's one reason why you might see a spike in terms of the ratios.

And I'd like to just remind you that in terms of our credit ratings, we remain one of the strongest, actually, among our peers in the telco sector. And either our policy is always to maintain a strong credit rating, so I think that -- as we try to optimize our balance sheet.

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Operator [11]

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(Operator Instructions) Our next question is from Eric Choi from UBS.

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Eric Choi, UBS Investment Bank, Research Division - Director and Australian Telco and Media Lead Analyst [12]

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I just had three on Australia if I could. The first one's just on mobile ARPUs. They've now stabilized quarter-on-quarter. I just noticed you reinstated some promotional activity from October. So just wondering if we could see ARPUs decline sequentially again.

And then secondly, given we've cut CapEx guidance, it sort of suggests free cash flow might be a short-term priority. I'm just wondering what else Optus might look to do to improve short-term free cash flows. For instance, could we push for subscribers again? Or is ARPU still the priority?

And then -- and just lastly, given the recent postpaid pricing changes, noticed your postpaid sub growth slowed, but the prepaid net ads were a bit better as well. So just wondering if you can comment if there's been a bit more postpaid to prepaid substitution.

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [13]

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Allen?

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Yoong Keong Lew, Singapore Telecommunications Limited - CEO of Consumer Australia & Optus [14]

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Yes. Thanks, Sock Koong. Let me just emphasize two things going forward. And then I will answer your questions specifically. I think Optus' mobile strategy is focused around two major considerations. Number one, the fact that we have established our branding as a premium mobile network, and our intention is to ensure that we continue to have that brand and deliver the brand promise to customers across Australia. So that does mean we will be focusing our spend of CapEx in -- on 5G to make sure that we keep pace with Telstra's 5G rollout and to also make sure that at the end of the day, we are also filling up some of the other coverage areas where we think makes commercial sense for us. I think the second important consideration in Optus' mobile strategy is to make sure we -- having made that investment, we grow our market share, but we grow our market share profitably.

So if I -- if you take those two principles and go back to answer the three questions that you have. I think, number one, in terms of the mobile ARPU, yes, there been price changes that have been made, price increases actually and reduction of subsidies by all 3 operators. I think the promotional things are things that will happen on a sporadic basis that goes in and out. Market depending on what's happening in particular segments. But I think at the end of the day, what we are facing is the fact that in Australia, we have all raised prices, and that general trend will continue. Promotions are not something that goes on for long periods. There some things that operators, ourselves, our competitors will do at different times just to address certain, perhaps inadequacies that are happening in different segments of the market. So I hope I answered your first question.

With regard to the question of what we can do in terms of managing our free cash flow, I think the guidance has been given at the group level. And obviously, Optus is a big part of that, and we will manage and make sure that we deliver the guidance despite what we have to do in our CapEx. It's just a question of prioritization, taking into consideration the first principle that I talk about. And we will make sure that we will deliver what has been committed from a guidance perspective and group levels of that.

In terms of postpaid sub growth, I think the quarter 2 numbers are what they are. And I think, basically, it does reflect the fact that the consumers as a whole are adjusting to the price changes that have been made in the market. There is a general trend of customers moving away from handsets and taking up BYO plans. And that's something that has affected us. So picked up perhaps in bundled handset plans from the different operators, and that may have affected the postpaid sub growth market. At the end of the day, I think it's all about creating value, accretive customers, and we'll make -- continue to make sure that the customers that we acquire in postpaid basis are -- in fact, are fulfilling that major objective I talked about earlier. I hope that answers the two questions that you have on Australian Consumer.

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Operator [15]

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(Operator Instructions) Our next telephone question is from Ranjan Sharma from JPMorgan.

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Ranjan Sharma, JP Morgan Chase & Co, Research Division - Analyst [16]

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Two questions from my side. Firstly, on Bharti. As I go through the press release, they talk about that they're hoping for a relief, but if -- so if you can share like in what measures could the relief come regarding the Supreme Court ruling. And if it doesn't, how does this SGD 4 billion in dues get funded?

The second thing is on Singapore's 5G. We have met with IMDAs. They have talked about, like, there are 2 operators, and then the 2 operators will provide wholesale capacity to the remaining 2 [other] operators. So if you can share that -- how the wholesale pricing [kind of] will work. And do you see 5G bringing back pricing power for the telcos?

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [17]

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Arthur, you want to take the first part of the question and then...

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Arthur Wong, Singapore Telecommunications Limited - CEO of Global Cyber Security & Group Enterprise [18]

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Sure. Okay. Well, thanks for the question on Bharti. I think to -- as you mentioned, right, on the -- at this point in time, the government has actually formed a very high-level committee of secretaries to assess the financial impact and the stress that has been created as a result of the Supreme Court decision. It is -- I think the committee of secretaries is expected to come up with some of the findings and recommendations over the coming weeks. I don't want to kind of front-run the process or anything. But the various measures for relief could be -- if you look at the [AGR], the calculation for the license fee, looking forward, they could adjust that.

In terms of the demands that the Supreme Court has imposed on the telco operators, a large part of these numbers that you see actually relate to penalty and the interest on the penalty as well as the interest on the original amount that is owed. So they could actually look at one option could be there, actually, relief or waive off the interest or the penalty or both, or they could actually term out the timing of the payments of these amounts. In -- outside that, we have -- they could actually look to adjust the GST. The -- currently, for mobile services and goods, there's an 18% GST. That's on top that, it could actually come down to the next level, which is at 12%. And then there are various ways to actually impose some relief measures for the telco industry. So we, Airtel, actually are working very closely with the government proactively and in a very constructive way to try to bring some relief back to the sector because we still believe that the current situation is not tenable and does not bode well for the long-term benefit of the sector.

In terms of funding, I mean we have taken the prudent approach of taking a provision upfront. It is, by no means -- this approach is not going to prejudice us in terms of our appeal to the government to relook their decision. So we are working very proactively, as I said. But in any case, it is too premature to talk about funding at this point. But I should also highlight that if you look at Airtel's balance sheet -- well, first of all, the company has a very manageable level of debt. It has shown itself to be able to tap various sources of funding. As you might recall, early this year, Airtel has undertaken a rights issue very successfully with very strong investors coming in, including GIC and of course, the sponsors of Airtel. We have -- they have actually undertaken a PoP, a very successful PoP at a very attractive cost of financing. They have undertaken the Airtel Africa IPO. And as you know, currently, with the Airtel Africa IPO listing, Airtel -- Bharti Airtel has actually 2 listed subsidiaries: Airtel Africa and Bharti Infratel.

So there are actually multiple sources of funding. And on top of that, they have debt financing. And if you look at their debt, I think Airtel has about USD 16 billion equivalent of debt, of which USD 10 billion is actually spectrum debt, $5 billion, $6 billion of debt is capital markets volumes with our maturities, which are kind of anywhere between 2023 and 2025. So in terms of bank facilities and availability to borrow from the banks, I think I would say, it's adequate at this point in time. So too early to talk about funding. But at the same time, if you look at Airtel, I think it has a robust balance sheet and multiple sources of funding.

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Ranjan Sharma, JP Morgan Chase & Co, Research Division - Analyst [19]

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Maybe we can go to the 5G question in Singapore.

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Kuan Moon Yuen, Singapore Telecommunications Limited - CEO of Consumer Singapore & Group Chief Digital Officer [20]

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Sure. This is Moon here. Thank you for your question. I think with regards to the 2 -- 3.5 gigahertz license that's issued by IMDA, it is primarily due to the limitation on the availability of the 3.5 gigahertz spectrum, and I think the way that the license will be given out -- because there are 4 mobile operators in Singapore, and there are only 2 licenses, the 2 winning license holder will have to resell the 3.5 gigahertz spectrum network to the other 2 operators. However, they have also come out to offer that the millimeter wave spectrum will be given to all 4 operators if requested. So essentially, all 4 operators can actually grow out of 5G networks if they are doing it on a meaningful way basis.

And I think your question -- for your question regarding to this, whether 5G will -- to bring back pricing power to the mobile operators, I think it's really a function of competition. And whether that's the value of the service that we are bringing to the end user. And I think if the customers or the end user, both enterprise and consumer, feel that 5G really can enhance their usage and give them the productivity gains on the enterprise side as well as on the experience and consumer side, then customers will be willing to pay more. And therefore, mobile operators will be able to sort of price it accordingly to bring value back to the mobile operators. I think it's still very early days. We still have to grow our networks. And in Singapore, we are also watching very closely what other global telcos who have launched 5G and looking at their experience, how are they pricing it up, are they able to price it up higher because they are giving a better experience in terms of AR/VR usages or in terms of other experience on the enterprise space. It's still very early. And we certainly do hope that we can use this technology change to reposition our mobile services and offer it to our customers.

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [21]

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I should also add that the properties of 5G means that you're going to see a lot of new enterprise use cases. So maybe I can get Bill to talk about some of the trials that we are running.

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Bill Chang, Singtel Enterprise Security Pte. Ltd. - Director [22]

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Thanks, Sock Koong. Good morning, everyone. I think you are aware that we are already doing trials in the Port of Singapore Authority, PSA and also in industry for that all facilities that is sort of a collaboration platform for many of this are for the all players in [the ITC]. And there are a number of these other sort of trials that's happening as well. We've got a garage in the 5G Garage that is in Sing Poly to ensure that we can bring a lot more clients into the garage to co-innovate, co-develop. Our play would be really looking at beyond connectivity and looking at the properties of 5G, how can we extend that into a lot more of edged-cloud capabilities with the low-latency, high-throughput network and combine that with our ecosystems to be able to support enterprises needs. And what we're focusing on is to allow this use cases to play out in all this early trials. We're in early stage. That's important that we create a platform and allow enterprises to try out and to test out those use cases so that as they develop this, the business models becomes clearer. This is where the use of our ICT capabilities with our applications and also in area around system integration and our cloud units please -- plus also this whole network capabilities that we have comes into effect to support our customers' needs. So this is an exciting period and -- at the early stage. But we certainly are focusing into ways to be able to go beyond connectivity play in 5G.

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Operator [23]

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The next telephone question is from Prem Jearajasingam from Macquarie.

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Prem Jearajasingam, Macquarie Research - Analyst [24]

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Just one question from me, really. Looking at the business as it's growing, looking at the competitive dynamics in Singapore, in Australia, the need to invest in 5G, what is management's view over the midterm cash flow generation of this business? And should we not consider either rights issue or even cutting that dividend to keep us nimble and -- from a balance sheet perspective at the group? Your thoughts around this would be most appreciated.

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [25]

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This is Sock Koong here. I think you view -- from a starting point, I think we have a strong credit rating, which, of course, that give us further debt capacity at the various credit ratings. I think if you look at the core business, cash flow generation continues to be robust, including our associates. Of course, we are conscious that as we go into new investment cycle for 5G, we would need to look at cash resources within the group, whether we've been -- we've -- Cheng has talked about our cost-saving program in the company we've been executing to plan. So that cost management is certainly a lever that we will continue to make sure that we exercise to make the operations as efficient as can be, effects to that market, effect to postpaid equity markets, looking at some of our non-core assets, you'll see if we can realize further liquidity, those are the options that we have. And I think we do have a fair bit of flexibility as we examine the options that would allow us to build different requirements. So yes, so I think we certainly will keep an open mind to -- of the various ways of fundraising.

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Prem Jearajasingam, Macquarie Research - Analyst [26]

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Just one follow-up. I recall at the Investor Day in June, we were talking about monetizing our digital assets. Have we made any progress on that? I do appreciate it's a short period of time, but has there been any progress on that front?

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [27]

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Yes. That's something that we continue to examine. Clearly, we -- in the meantime, it's all about execution, manage the business, deliver as good an outcome as possible from an operating basis and then keep an open mind as to what are the options for monetization. So I would say that it's a constant look in progress. And like (inaudible) it's Samba here looking after our mobile business. We are very focused on making sure on delivering operating results first and then monetization option second.

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Operator [28]

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Our next telephone question is from Ian Martin from New Street Research.

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Ian John Martin, New Street Research LLP - Senior Telecommunications Analyst [29]

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A question for Allen. Just more on the enterprise sector, I guess, where there's quite strong declines. You talked about price competition and so on. I guess the key driver there is the NBN product set coming into that market and resetting prices but also perhaps taking some market share. Can you comment on that?

And also, the mobile side of enterprise is down quite strongly as well. And I just wonder what you see the prospects for that product set in enterprise as you roll out 5G? Is there an opportunity there to use some wireless connectivity in competition with fixed connectivity, similar to what you're doing in the residential market?

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Yoong Keong Lew, Singapore Telecommunications Limited - CEO of Consumer Australia & Optus [30]

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Yes. [Morning]. I will address the enterprise queries. On the NBN, basically, there is disruptions, as I shared earlier. And one, the network speeds and also the ARPUs that the NBN is offering is causing disruptions in the -- sort of all the fixed-line players there. As you've seen our commentaries from various players, Optus is no different from them. And I think the plan is for Optus [of course] there is disruption, but it's also an opportunity that we have to leverage NBN in terms of looking at how we can complement our network footprint around these metro cities and to complement such that we don't have to deploy the CapEx to build it out into other areas where businesses are going beyond the cities. This is where the opportunity for Optus is. Of course, we're trying to manage the NBN disruption in pricing and our margins.

So a few quarters ago, we announced our key wins like [calls]. And that's one good example of how we leverage NBN to be able to increase the footprint addressability with our networks with NBN to ensure that we can take the contracts of some of the other players. Otherwise, we are deploying a lot of CapEx to support that. So this is just one of the -- few of the examples that's happening. We are looking at NBN, working with them on looking how do we address this pool of customers with such needs and at the same time, looking to build the platforms that we need to try and make sure that the NBN and us can work together in such a way that there is sustainable margins.

Now the NBN market moving to the enterprise segment is a wholesale provider. It is not a retail service provider. So ultimately, they would have to work with retail service providers like Optus or any other medium-service providers to address the customers' needs. And they do not go out to customers to cut the deals and to provide them directly as a retailer. So that's a opportunity for us to play that part of value chain with them. And as far as 5G and addressing the set of mobility and usually to overcome some of fixed line, it is something that -- well, the hypothesis currently, in Australia, we are looking at just fixed wireless success, largely consumables. We are testing this concept, how to see whether the enterprises where, beyond the NBN, we could use that success and looking at this in the early stage of discussions with customers. But it is, however, a possibility depending on the needs, and it's a place of looking at the CapEx allocation whether to do this on various fronts of connectivity media.

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Ian John Martin, New Street Research LLP - Senior Telecommunications Analyst [31]

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So it's kind of a case-by-case basis we're looking at 5G connectivity in the enterprise sector is what you're saying?

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Yoong Keong Lew, Singapore Telecommunications Limited - CEO of Consumer Australia & Optus [32]

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Yes.

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Operator [33]

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Our next question is from Varun Ahuja from Crédit Suisse.

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Varun Ahuja, Crédit Suisse AG, Research Division - Associate [34]

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First, on Singapore, I want to check two things. Competition, one of your competitors suggested that next year first half, you may see lot more MVNO coming into the market and big MVNOs. So how do you see competitive landscape planning out over the next 12 months or so? That's number one.

Number two, on 5G, I think you mention you look at what is happening in other countries where 5G has been launched. So what we can see is that most of the countries have launched 5G on non-stand-alone network, and they're trying to push it as a premium pricing but looks like Singapore, the regulator wants a stand-alone network and which the standards will be finalized by early next year and then hopefully, the products will be out. So [what do you think about it]? And Singtel Singapore launches 5G, it will be on a stand-alone network. How do you see that happening? How soon can you do that on a consumer scale out on enterprise side? And how do you think the pricing will that -- then be? That's number 2.

Then number three. On Bharti Airtel, just wanted to check, if you look at media articles, some of them are suggesting that the liabilities may be around SGD 8 billion to SGD 9 billion, which is INR 620 billion. A Bharti retailer's taken up provision of right now INR 340 billion. I know that still the amount is under discussions, there is no clarity on it. But can we get a little bit more clarity? Is there any more provisions that you need to take? And how does this INR 340 billion being arrived at? If you have any discussions with the Bharti team that will be helpful.

And lastly, on gain -- investment gains that you made from pre-IPO investments. I just wanted to understand why didn't you create an exceptional item? Is it something that keeps on reoccurring? Is it really to what Airtel is currently providing in their income statement relative to derivatives, something? Just wanted to understand what is the nature of this? Will it be coming in every quarter, which last 2 quarters, which Airtel is kind of showing -- or both of them are different items?

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [35]

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I think, on the Bharti question, there are various provisions. Some of it's taken in India. Some of them had already been taken previously. And so I think -- I suggest that maybe best voice for you to take out with the Bharti so that we -- I don't -- cause for the confusion with the numbers. So suggest you talk to Bharti IR to sort out the provisions question.

I'll ask Moon to talk about the mobile competitive situation with MVNOs, et cetera, and Cheng and (inaudible) the investment income question.

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Kuan Moon Yuen, Singapore Telecommunications Limited - CEO of Consumer Singapore & Group Chief Digital Officer [36]

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Thank you, Sock Koong. Yes. With regards to the competitive environment, yes, we do recognize that there will be more MVNOs coming into the market by next year. And this is no different. I think they just reflect a very vibrant MVNO in a market where there are many operators or MVNO operators trying to create niches for themselves and looking at various segments that they see they have not been fully addressed. It is primarily competing in the SIM-only segment. And I think this will continue probably all the way until we see some commercial offerings by TPG, which is also rumored to be announced next year. So we will be watching this space very closely. And the competitive environment will continue to be intense. However, we do see also some stabilization on the market with the 2 major mobile operators. So I think at the end, the MVNOs are still buying services from the MNO on a wholesale basis. It is how the MNOs would want to manage the whole competitive landscape in the market. With regard to 5G. I think, yes. In Singapore, the regulator have stated that the 5G license should be roll out on a SA basis. By the time, I think the license is awarded and the networks roll out, the standards will be ready because you are looking at some time in 2021 where the network is rolled out. So we will definitely want to ensure that we grow out a network that is of international standard and not on a off-standard basis. And also that the ecosystem supporting the SA network will be ready by then. And it has a -- the different challenges with SA, but it also has different advantages of having a SA network. I think this is something that we also want to wait for the market to mature in terms of the ecosystem development.

As you rightly mentioned, in the market, they have launched 5G. Primarily, they are still looking at a lot of a -- data usage from consumer use cases. The enterprise use cases will take time to emerge and develop because of their own individual ecosystem. And actually, having the SA network roll out later in 2021, actually give us time to wait for some of this ecosystem to be developed internationally before we actually embark on the rollout of the enterprise services. So I do think that this will give us a bit more time. We are not rushing into it. And I think the timing would be appropriate.

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Cheng Cheng Lim, Singapore Telecommunications Limited - Group CFO [37]

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Good morning, all. Let me take the pre-IPO liability question. As you will see in our MD&A that is put out in the net yesterday, I think, first of all, all the exceptional items classification is in accordance with [post-Airtel] always classified. (inaudible)

(technical difficulty)

item. [So] first of all, the actual liability, that may be returned. So I think that has to be mark-to-market every quarter. So this is the additional provision that's taken up based on the current outlook of the share price, which is in the exceptional item. And that's Singtel's share of it, okay? That's the other leg in the net finance expense. And it is -- you may recall that last quarter, we received a -- to the tune of about SGD 15 million of cash in terms of investment income on that. So again, as [everyone], the pre-IPO investors, that's how -- when cash is actually received, we classify as the investment income. And when you see this investment income for this quarter, basically, this is consistent with how we treated it in the last quarter. But under the SGX 7.2 Appendix, you would see that, actually, it's not cap against the share of profit.

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Varun Ahuja, Crédit Suisse AG, Research Division - Associate [38]

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And [totally], the voice wasn't clear. So is this -- do you think that this investment is in mark-to-market? Will it continue to reoccur, that's -- I didn't get that line because I think the line wasn't clear at that time.

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Cheng Cheng Lim, Singapore Telecommunications Limited - Group CFO [39]

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Yes. You are right, Varun. It will be mark-to-market every quarter.

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Varun Ahuja, Crédit Suisse AG, Research Division - Associate [40]

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Okay. Okay. And lastly, TPG is related -- your...

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Cheng Cheng Lim, Singapore Telecommunications Limited - Group CFO [41]

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Varun, just to highlight that it was in the last quarter because the payout is, I think, around end of Christmas.

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Varun Ahuja, Crédit Suisse AG, Research Division - Associate [42]

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Okay. Okay. Okay. So on a cash basis. Okay. And lastly, your competitors showed some income from TPG. Where -- did you receive, and where have you incorporated the sale?

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Kuan Moon Yuen, Singapore Telecommunications Limited - CEO of Consumer Singapore & Group Chief Digital Officer [43]

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Yes, Varun. We have actually under a -- other income and infrastructure sharing.

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Operator [44]

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There's no more further questions at this time. I would like to hand the call back to the speakers for any closing remarks. Please continue.

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [45]

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Thank you. So we are very grateful for all the questions. Okay. I think, operator, do we have one more question?

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Operator [46]

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Yes. Can we just -- yes, it just came in just then. Arthur Pineda from Citigroup.

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Arthur Pineda, Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research [47]

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Several questions, please. Firstly, is it possible to provide more color on what's driving the change in the revenue and EBITDA guidance? Is this mainly an ICT and digital? Or are you seeing changes in the other segments as well?

Second question I had is with regard to the NBN revenues that seems to have jumped a fair bit this quarter. What's driving this? And how should we view this going forward?

Third, on GDL. It seems like Amobee's losses are actually quite narrow now driven -- and the losses, which is happening in the GDL segment, is being driven by the content business. How important is content for you going forward? It seems like it's a very crowded space. Won't exiting this allow you to actually shore up your free cash flow?

And lastly, on 5G CapEx. Moon mentioned earlier this typically, I think, mid-teens on tech refresh. In terms of CapEx sales ratios, doesn't seem this to be a big difference. But won't 5G spending necessarily have to be higher, given the use of higher-band spectrum? Or it's just assumption because of the longer buildout in 5G to be expected?

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [48]

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Okay. That's a whole -- that's a lot of questions. Maybe I can ask...

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Arthur Pineda, Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research [49]

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[Sorry.]

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [50]

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No. It's our pleasure. I'll get Cheng to talk through the guidance question and then maybe Samba can talk about the digital businesses. I think maybe -- and maybe Moon can just comment on CapEx. But otherwise, we'll say that it's probably too early. But you -- I think you have heard that it's going to be stand-alone network. So there's probably see a whole lot more development in the equipment ecosystem that has to happen to have a tighter assessment of what 5G CapEx is going to be. And then maybe Allen can round off with comments on NBN revenues.

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Cheng Cheng Lim, Singapore Telecommunications Limited - Group CFO [51]

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Arthur, this Cheng Cheng. Okay. I think with respect to your forecast revenue and EBITDA, yes, we downgraded it. I think, first of all, I think I mentioned in the press media yesterday that two things. One of them being the Australia consumer side, we do see lower mobile net adds. And I called it a transition quarter, as Allen had mentioned that we price up, lower subsidy. So customers do take some time to adjust to that. So with the weaker first half, and that's why we actually adjusted. And Australia is the largest contributor to my top line. And the other one, of course, is the enterprise Australia business. So we continue to see the [Dow] drop, especially in the financial sector. So that's the other reason why I had to call down both revenues and consequently, the EBITDA numbers.

I think with respect to the NBN migration, we do see a record migration this quarter and saw that contributed significantly to the NBN migration revenue. So you'll also see that it's very lumpy. And you'll recall that last year, we actually had a stop sale. So comparatively, it looks like it's very high. It should take another 12 to 18 months for the completion of the migration revenue.

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [52]

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Okay. Samba? Maybe I suggest Allen come back to the end and talk a bit about the whole NBN migration, revenue, business, et cetera, to just give a little perspective.

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Samba Natarajan, Singapore Telecommunications Limited - CEO of Group Digital Life [53]

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Thank you, Sock Koong, it's Samba here. It is true, Arthur, that a lot of the losses in GDL are coming as a result of investments in content in our OTT company called HOOQ. HOOQ -- our thesis around HOOQ remains that the platform is focused on catering to the emerging market, mass-market consumer. Well, that may not be interested in or may not be able to afford premium Hollywood content.

And so that being said, it has treated a lot of the large OTT players that coming in, as you pointed out, beyond Netflix, like Amazon Prime and Disney and a lot of other players are coming in. Our focus over the last year and going forward remains on securing a lot of the local content in these markets, looking at selective original content co-production models with our partners and also securing distribution access in a preferential basis with the Singtel group associates to be able to reach the mass market. So this is still in an investment phase for that business, which reflects some GDL economics at this point.

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [54]

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All right. [Is this for Moon]?

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Kuan Moon Yuen, Singapore Telecommunications Limited - CEO of Consumer Singapore & Group Chief Digital Officer [55]

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Yes. Arthur, Moon here. Yes. With regard to 5G CapEx, I think [that's] the requirement by IMDA is very clear. They are asking for 50% coverage in 2 years of the rollout. And beyond that, I think it is up to us to really submit how fast we want to take it to nationwide coverage. And we are also looking at what other use cases that would require us to densify the network. While it is 3.5 gigahertz today, there are also other spectrums available for us to use in the future and to look at how we can densify the network on a low-band basis. Not forgetting, we do have some 700-megahertz spectrum that is not being issued yet, and that would really help complement the coverage or once it becomes available.

So I think it's very early days to -- for us to see how much we need to densify, but we are just preparing for the initial launch to meet the requirement set up by the license issue. So we will be also looking at what sort of a technology improvement or advancement that's going to come in the next few years that will again help us deploy the network in a more efficient manner.

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [56]

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Allen, do you want to talk a bit on here?

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Yoong Keong Lew, Singapore Telecommunications Limited - CEO of Consumer Australia & Optus [57]

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Yes. Again, I think just a reminder to everyone, that actually, the migration payments that we're getting is primarily because we sold our HFC network to NBN some time ago. So we get these migration payments as and when NBN goes into a particular area where we have HFC. So you can see, as Cheng has mentioned, we've had a significant growth, and that's primarily because of the stop sell, and now they are rolling more aggressively into our area. I think the benefit of that, obviously, we get a migration payment. But the other benefit is that also, we get existing customers who know the Optus brand, who will then migrate from our HFC to our NBN network as well.

I think in terms of the -- how long these migration payments will go for, I think this -- from our perspective, we will guide the market as we do on an annual basis, and we'll share with you whatever information we have. But I think, at the end, they're just pigments of mind going ahead. There are 2 data points. Number one is our NBN migration revenues depend very much on NBN's prioritization in terms of the rollout of the NBN network. And the second point thing is that they have said publicly that they will complete the NBN rollout by end of next year, that's explorational target. So as they adjust that, then that depends on the migration revenues that we get. I hope that answers the question that you have between what change in plan and what I told -- just told you.

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Operator [58]

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There are no more further questions now. I'd like to hand the call back to the speakers. Please continue.

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [59]

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Thank you. So thank you for all your interest and questions in our results. If you still have further questions, please don't hesitate to contact the Investor Relations team in Singapore or Sydney. So on behalf of everyone in Singtel, we thank you so much, and we'll say goodbye. Until we speak again next quarter. Bye-bye.

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Operator [60]

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Ladies and gentlemen, that does conclude the call today. You may all disconnect. Good-bye.