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Edited Transcript of Z74.SI earnings conference call or presentation 8-Aug-19 10:59am GMT

Q1 2020 Singapore Telecommunications Ltd Earnings Call

Comcentre Aug 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Singapore Telecommunications Ltd earnings conference call or presentation Thursday, August 8, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Cheng Cheng Lim

Singapore Telecommunications Limited - Group CFO

* Kuan Moon Yuen

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

* Murray Philip King

Singtel Optus Pty Limited - CFO & Director

* 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

* York Chye Chang

Singapore Telecommunications Limited - CEO of Group Enterprise & Country Chief Officer of Singapore

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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

* Luis A. Hilado

Maybank Kim Eng Holdings Limited, Research Division - Senior Research Analyst

* Miang Chuen Koh

Goldman Sachs Group Inc., Research Division - Executive Director

* Piyush Choudhary

HSBC, Research Division - Telecoms Analyst, South East Asia

* Prem Jearajasingam

Macquarie Research - Analyst

* Ramakrishna Maruvada

Daiwa Securities Co. Ltd., Research Division - Head of Singapore Research

* 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, welcome to the Singtel FY '20 Q1 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. A warm welcome to all investors and analysts. You are listening to Singtel's earnings conference call for the first quarter ended June 30, 2019. My name is Sin Yang Fong, and let me introduce management on the call. We have Mr. 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. 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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Yang Fong, thank you. And thank you, everyone, for joining us for Singtel's results for the first quarter ended June 30, 2019. Before getting to results, I want to highlight that we -- with effect from April 1, 2019, the group has adopted the new Singapore Financial Reporting Standards International IFRS 16 for leases. Financial impact on the group's net income is not material, with lower operating expenses offsetting increases in depreciation and finance expense, details provided in our MD&A.

Very quickly, we are executing to our strategy. We continue to invest in network, content and technology to create competitive advantages and extend our market leadership in telecom and ICT services.

In the quarter, we invested $274 million to enhance our mobile networks, including Optus 5G fixed wireless roll out, targeted to reach 1,200 sites by March 2020. We added 86,000 postpaid customers across Singapore and Australia.

NCS order book also remains very robust at $2.9 billion as we have enterprises and governments in their digital transformation. We continue to build competencies and skills in the group's growth engine, Trustwave and Amobee delivered strong revenue growth. VIA, our mobile payment alliance now covers Singapore, Thailand and Japan and shortly we will also include Malaysia and Indonesia. The expansion will grow the addressable market from 26 million to 50 million wallets and would cover over 2 million merchants.

We are also leveraging technology to drive service innovation, simplify processes and bring greater convenience to customers and to staff. Customers are increasingly transacting and introducing robust there online channels, apps with more than 4 million active users every month. These digital initiatives helped us raise our productivity and transform our cost structure. Cost savings for the quarter amounted to $132 million.

A quick overview of the financial performance. Our results really reflect intense competition in Singapore and Australia, particularly the enterprise segment. The Indian mobile market saw pricing stability. In Indonesia, market recovery drove strong earnings growth for telecom sales. Group revenue rose 2% in constant currency terms underpinned by growth in equipment sales, digital services and higher NBN migration revenue.

The consumer businesses in Singapore and Australia were impacted by lower [wallet in share] and data competition. And in enterprise segment, performance was affected by cautious business sentiment and the impact of price reductions in major government contracts.

EBITDA declined due to an increased mix of lower-margin equipment and ICT services. Contribution from telecom sales rose 18% on the back of robust data and digital growth. Airtel recorded a seventh straight quarter of mobile service revenue growth as earnings were impacted by the higher network costs, depreciation and finance charges. And this led to a decline in the regional associate earnings and underlying net profit. Excluding Airtel, associate's contribution would have increased by 10%, while underlying net profit would have declined 3%.

So with that, I'm going to hand over to Yang Fong to run the Q&A session.

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Questions and Answers

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Yang Fong Sin, Singapore Telecommunications Limited - VP of IR [1]

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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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Operator [2]

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(Operator Instructions) And we have a first question here from Arthur Pineda from Citigroup.

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Arthur Pineda, Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research [3]

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Several questions from me, please. Firstly, on the guidance, what's changing the free cash flow outlook? When we look at your EBITDA, it doesn't seem to be any different from prior, and the CapEx is the same, but you seem to have raised your free cash flow outlook a bit? Second question I had is with regard to the derivative losses on Bharti Africa listing. What exactly are these derivatives linked to? Are these a one-time item or can we still see some in the next few quarters? And related to this, given the IPO in Bharti Africa in July, would the group need to recognize any gain to effect the listing? Last question I had is with regard to the view on the credit ratings and the dividend. How important it would be for you to deleverage and avoid any potential credit downgrades or are you comfortable with a lower but investment-grade credit rating?

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [4]

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Since they are all financial questions, let me ask Cheng to do that.

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Cheng Cheng Lim, Singapore Telecommunications Limited - Group CFO [5]

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Okay. I think the first question after -- good morning. I think you're talking about the guidance regarding the free cash flow. Note that we didn't actually revise our guidance, but really we updated it because free cash flow historically would have included the operating unit expense. But because right now, the -- based on IFRS 16, a huge part of the operating lease expense would now have been removed and actually be in depreciation and finance cost. And also there's uplift optically in terms of the free cash flow, and that's why we are updating it. So it's not that we are revising it upwards. I think that answers the question.

The second question with regard to the derivative. I think I -- we got the -- I can't really say a lot more because it really relates to certain confidentiality that we are bound by. But I think if you can look at our EI, actually, it does include all those that you talk about and increase our share of whatever exceptional loss Airtel has. And this is really in relation to the provision of returns to pre-IPO investors and also any reversal of indemnity in (inaudible).

I think on the digital, I think you are talking in relation to my rating. I think in terms of rating, we continue to, of course, be very disciplined with regards to our financials. So we remain financially disciplined and committed to actually maintain our investment-grade credit rating. But I don't see that affecting our dividend for FY '20, which you know that we have guided the market at $0.205 subject to shareholders' approval.

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Arthur Pineda, Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research [6]

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Understood. Sorry, if I could just move back to the Bharti Africa bit, would you need to book any gains on the IPO since it's been done in July? And I'm not sure if you can answer the question with regard to -- is it a one-time item on the derivative losses or is there room for more going forward.

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Cheng Cheng Lim, Singapore Telecommunications Limited - Group CFO [7]

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If you look at my exceptional item, there was a dilution -- actually, gain that we booked with respect to the Bharti Africa...

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [8]

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(inaudible)

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Cheng Cheng Lim, Singapore Telecommunications Limited - Group CFO [9]

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Sorry. But that's in relation to the price issue. Yes.

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Arthur Pineda, Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research [10]

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Not an IPO yet for Africa?

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Cheng Cheng Lim, Singapore Telecommunications Limited - Group CFO [11]

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Yes.

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Operator [12]

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Our next question is from Piyush Choudhary from HSBC Securities.

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Piyush Choudhary, HSBC, Research Division - Telecoms Analyst, South East Asia [13]

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Two questions, please. Firstly, on the Australia business, can you share the outlook for the mobile service revenue because we saw ARPU and revenue erosion quite materially during this quarter? Secondly, on the group enterprise business, can you update on the recent pricing trends? Are you witnessing more price erosion on government contract and general kind of business slowdown is impacting the further renewals of the contract? Some color over there.

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [14]

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Allen, you want to take the questions and then Bill will talk about the enterprise business outlook.

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Yoong Keong Lew, Singapore Telecommunications Limited - CEO of Consumer Australia & Optus [15]

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Yes. I think with regards to Australia and the mobile service revenue, I think one of the important things is that we don't give you -- don't give specific guidance on Australian mobile service. So I will give you some qualitative perspective and benchmarks. I think the mobile service revenue has declined in Q1 primarily because of 2 factors. Number one is basically the mix between handsets as well as BYO or SIM-only plans has shifted more towards SIM-only and that's why the quarter result is down -- declined in our mobile service revenue.

And also, the other important thing is the intense price competition. I think what has changed going ahead is that the incumbent has raised their prices, they're giving away less data allowance as well. So I think that is something that we have followed to a small extent in April. And today, we've also made adjustments to our pricing in both our BYO as well as into our handset plan. And basically, that will have a positive impact on ARPU and mobile service revenue.

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York Chye Chang, Singapore Telecommunications Limited - CEO of Group Enterprise & Country Chief Officer of Singapore [16]

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On the enterprise EMEA, if I understand there are two questions. One on the government renewals. We had a number of large contracts with the government primarily through our NCS arm. And basically, a number of them have been renewed. And these renewals come at a lower margin. So whilst the revenue is there, you could see in the NCS there a slight decline of minus 2% in the EBITDA, so as the revenue growth is 8.4%. So this is the impact on the new deals kicking in at a lower margin profile. Obviously, this is the start of the renewal cycles that will last until Q3, a number of this, we shared this at the June Investor Day. And in -- as this contract, some of these are longer-term basis. We hope to optimize this margins to getting profile, but individually, yes, of these renewals the margin profiles as such.

Overall economic outlook, we know it's cautious globally with the trade tensions. And if you think about our business in the enterprise, a large part of that is networks across the region, where we carry enterprises into Asia-Pacific, whether it's America and European and Japanese MNCs investing. A number of them is obviously concerned with what's happening in China and also looking at their plans in China and the investment strategy in this region and while it takes a longer period in terms of making those decisions, and so the MNCs see a bit of slowdown.

The other segment we have is MNCs of China prior to this was a sort of another segment that was growing, actually investing in Southeast Asia. So with these tensions, we do see a bit of opaque for the time being until these things get a bit more visibility. So that's the MNC plan as far as international networks.

On the domestic front in Singapore, we have -- obviously, the economy's slowed down as reported in the last quarter. And for that primarily the segment impact that is on SMBs and a lot more cautious in terms of the discretionary spend in the [recontracted] services, there is a bit of a impact there. But overall, in the Singapore telco business, it's still a very stable business there.

In Australia, it's affected by 2 sectors that slowed down, one the banking sector due to the RBA-related measures. And in the government sector, the elections just over in the federal and 2 states. And the -- some of the activity is set to start. And so I think the government sector will open up later as the new officers are all settled in. The banking sector may take a while, too. So that's the overall climate in as far as the enterprise business across where we operate it.

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Operator [17]

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And 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 [18]

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I just had two questions as well. Just to follow up on those Australian ARPUs, just to clarify Allen's comments. Can you maybe just confirm then there's no sort of revenue attribution impacts on that minus 11% postpaid ARPU decline? That's actually the underlying run rate. And then I think Allen also mentioned that we're expecting today's price changes to have a positive impact on the forward ARPUs. Is that -- should we sort of expect sort of like a 1-year lag just because I sort of look at the price cuts that you guys made August '18 last year, and it sort of seems to be flowing through now? So should we sort of expect FY '21 to be the potential ARPU inflection year? Sorry, that's actually just one question. And then the second one, I just wanted to ask about your subscribers. Are you broadly happy with how your sort of postpaid subscriber growth tracked in the sort of first quarter that you've removed those postpaid subscriber discounts?

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [19]

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Allen, you want to take the question?

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Yoong Keong Lew, Singapore Telecommunications Limited - CEO of Consumer Australia & Optus [20]

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Yes. So there are 3 parts to the question. First is the underlying run rate that underpins the minus 11% in Q1. I think the minus 11% is recurring. There are no one-offs in there. And basically, it reflects the 2 points that I mentioned earlier in answer to a previous question.

I think whether the price adjustments will start to impact this year, I think, definitely, I think -- since some price adjustments on the handset plans were already made in April and then now we have a bigger price adjustment, it will start to have an impact on the year rather -- at least definitely on the second half of the year.

And then in terms of our subscriber acquisition in mobile postpaid, we added 50,000 customers compared to the same period last year. I think that's an increase from the same period last year. As we look at what we are reporting for the January to the June period 2019 for mobile postpaid, it's significantly higher than the other operator that reported their results last week. I think -- let's see what the biggest -- the company's largest mobile market share reports next week. But I think on a year-on-year growth basis for us to be -- we're happy that Q1 this year for mobile postpaid, this is the most valuable part of the market. We collected more customers than we did. So we have more new customers than we did 1 year ago.

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Operator [21]

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Our next question in queue is from Prem from Macquarie.

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Prem Jearajasingam, Macquarie Research - Analyst [22]

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A few questions from me, please. First of all, with regards to enterprise, where are the new pain points or are these the same points that we had described back at the Investor Day? That's one. Secondly, in Singapore mobiles, both yourselves and StarHub are talking about new MVNOs coming into the market. Could -- I'd like to get your thoughts around why, even with these price points, there seems to be more people coming in, and we still haven't seen the full impact from TPG as yet? So your thoughts around that would be very helpful. And could you remind me what percentage of your mobile revenues in Singapore are still coming from roaming and IDD revenues?

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [23]

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Okay. I'm going to ask you to talk about the new pain points.

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Kuan Moon Yuen, Singapore Telecommunications Limited - CEO of Consumer Singapore & Group Chief Digital Officer [24]

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I think by and large, it's the -- the pressure points are really the traditional core carriage erosions. I wouldn't say they're new. And things that are, call it, usage-rated services, when the economy slows down, we can see that sort of exacerbated in SMEs, for example. They cut back on travels, they optimize their spend, even big companies do that. Obviously, when companies restructure as we've seen some big enterprises in markets like Australia and the FSI sector, when there are big restructuring involving large number of employees, their communication lines, their mobile lines, we do see that. So beyond the usage services, where people tighten their curves, the restructuring of some of these sectors, like the financial sector -- and some of this may be structural line in where the people get the -- reduce the workforce. So those are another segment. So that affects largely the core carriage business. Our focus is to really look at how do we then grow the ICT business, the digital business and to look at how do we pay up to areas where buying in terms of what the transmission industries, the Smart Nation, and to play along with that journey that they're looking at and making ourselves rather than by bringing new capabilities like digital, and we're measuring that at the overall mix as we point MD&A measuring the digital services growth as the overall part of the ICT to ensure we capture that growth over there.

So it's the core carriage kind of erosions and making sure that we're investing in the right areas in digital to stay relevant as the customers look beyond core carriage to drive the digital transformation, whether it be the Smart Nation agenda, the industry's agenda or enterprises think about how they can transform. So that is our primary focus in the enterprise group.

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Yoong Keong Lew, Singapore Telecommunications Limited - CEO of Consumer Australia & Optus [25]

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Prem, Yoong here. Okay. With regards to the Singapore consumer mobile market, I think currently there are 8 MVNOs operating in Singapore. And many of them, we really look at the way that they are marketing their services -- actually, addressing certain niches within the market. And you see some of them are focusing on actually the foreign locals market and really selling into that phase and giving free SIMs and trying to capture a segment of that market. So I think every one of them so far we're seeing -- really looking at the SIM-only segment. So we do not think that they -- actually, bunching into the full sort of bundled service, which is good handset yes, although some of them will go on installment plan with credit card on handset. But there's a key -- quite small number primarily focusing on the SIM-only. And we believe that they can create a viable business model with their niche targeting. And obviously, some are probably more successful than the others. So just have to watch and see how the market develops further.

Sorry, roaming -- to your question on roaming, we currently see about 19% of our mobile revenue coming through roaming. But we are also seeing the shift into data roaming contributing a higher proportion on the total roaming revenue. So we have seen the cross-over as well. Previously, the roaming revenue primarily comes from voice. Now our roaming revenue also contributing by data usage on roaming. Of course, IDD revenue continue to decline because we are seeing people switching away from voice calling IDD to data calling.

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Prem Jearajasingam, Macquarie Research - Analyst [26]

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Could I just follow up on that one? Do you -- are you more worried about the consumer mobile market in Singapore today than you were 3 months ago or does this look like it's going to plan and we are probably coming closer to the bottom than we are at the top?

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Yoong Keong Lew, Singapore Telecommunications Limited - CEO of Consumer Australia & Optus [27]

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Well, I guess, we are always looking at how we could turn the industry back into growth again. We want to ensure that the mobile business is a growing business and a sustainable business. So you look across. There's definitely room for the market to be more rational in terms of going after the single-need customer base with free SIMS and almost 0 costing showing up in the market.

I guess when those numbers starts to be reduced, that means people are looking at how -- what's the cost of actually providing service, we will get a bit more rational pricing coming back. To that end, I think we have actually created a digital brand GOMO, and we're not giving it away for free. And we are getting traction and customers are coming in. So we are focusing on value, creating nonprice differentiation by adding -- containing to our bundle, by also creating loyalty, value by allowing customers who enjoy data when they do step up. So these are the things that we want our customers to focus on in terms of value and quality of the network. So we do hope that other players in the market will also look at this and compete not on just price and giving away free SIMs. And we are optimistic that given a bit more time, the market will respond, and we can go back to a healthier mobile marketplace, just like what we are seeing in Australia. You see that all the mobile carriers are actually lifting the prices in a more sustainable manner.

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Operator [28]

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Our next question is from Luis Hilado from Maybank Kim Eng.

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Luis A. Hilado, Maybank Kim Eng Holdings Limited, Research Division - Senior Research Analyst [29]

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I had three questions. The first is for Moon. Sorry to belabor the point on the outlook for wireless services in Singapore. But we did notice that for this quarter, yourselves and StarHub, while the service revenues were actually stable Q-on-Q, is that just sort of a lull or do you think as -- whether there's some sort of stability now in the industry? Second question is regarding Telkomsel. Very healthy performance year-on-year, but wanted to get some color, Q-on-Q, there was drop in profits. Is that just seasonality or is there any revenue or cost pressure? And last question is at the group level, there was a SGD 55 million investment gain in the quarter, should we expect similar levels of these investments going forward?

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [30]

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Okay. Moon and then maybe the last question, I toss to Cheng.

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Kuan Moon Yuen, Singapore Telecommunications Limited - CEO of Consumer Singapore & Group Chief Digital Officer [31]

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Yes. If you look at the mobile revenue stabilizing, actually it's the mix of the revenue that you look at -- service revenue is a bit down, whereas equipment revenue is up. So as you can see that this is really the changing landscape of customers going to SIM-only and recontracting on higher-value phones. That's why you see equipment revenue pushing up. And the same time service revenue coming down because customers are moving towards SIM-only plans. While you see that the top line is stabilizing, we are still seeing some decline on the voice revenue. So that will continue because voice revenues will constitute a significant part of our overall revenue. We do hope that the pricing on data will actually improve. And as I said earlier, on to an earlier question, the data usage has been actually very healthy. This quarter, you've seen that our average smartphone data usage have gone up to 5.2 gigabytes per month. So the momentum on data usage is healthy. We just now need to be able to monetize that growth of data better to compensate for the decline in voice. And if we are able to achieve that, then the industry can go back to a healthy growth scenario.

So I think to answer your question, it is largely due to the Lebaran period. So it is somewhat seasonal. The -- and also the expenses that you're seeing, I would say, largely relate to marketing as well as increased depreciation -- D&A.

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Cheng Cheng Lim, Singapore Telecommunications Limited - Group CFO [32]

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This is Cheng. I think with regards to the SGD 55 million income, it actually includes financial returns arising from our pre-IPO investments into Airtel Africa.

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Operator [33]

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

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Ian John Martin, New Street Research LLP - Senior Telecommunications Analyst [34]

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Allen, just in relation to CapEx for the quarter, AUD 235 million mobile, AUD 105 million in the core, look, one of the key things as we're getting to maturity in the 4G network and moving into 5G is how the growth in mobile network capacity is dealing with the growth in usage. So I wonder if you can talk to that in terms of where the growth in capacity is coming from with that capital spend. Does it include the 5G fixed wireless that you're undertaking at the moment? And in particular, also, what's happening to usage in terms of gigabytes per month over, say, the last 2 quarters?

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Yoong Keong Lew, Singapore Telecommunications Limited - CEO of Consumer Australia & Optus [35]

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I think the answers to your questions are as follows. I think basically when we look at our mobile CapEx, our mobile CapEx is weighted towards making sure that we have enough capacity to meet the needs of our customers. I think we've spent significantly to make sure that we have the right coverage, and we have the right coverage in regional areas and density in the cities. We now believe we have a premium world-class mobile network, and we want to keep it that way. So I think of the AUD 235 million, the bulk of that's going to capacity improvements. Please bear in mind that people are using more and more data on their mobile devices. And they are watching more and more video on their mobile devices. The rest of the CapEx, which is a smaller portion of it, goes towards regional expansion. We believe that there are still some very important regional areas that we believe that makes commercial sense for us to cover, to enhance what we've already done in previous years. And then, yes, our 5G SWA 1,200 base stations that Telstra -- that Sock Koong talked about basically is within the AUD 235 million.

In terms of your second question, what are we seeing in terms of usage, I presume you are talking about usage of data on the mobile. Mobile data has increased by more than 50% year-on-year. I think the average -- Moon talked about average user using about 5.8 -- I think, about 6 gigs per month. Australia's number is a little bit higher than that. I think it's between 7 to 8 gigs a month.

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Ian John Martin, New Street Research LLP - Senior Telecommunications Analyst [36]

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7 to 8 per month, and that's 50% up on a year ago?

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Yoong Keong Lew, Singapore Telecommunications Limited - CEO of Consumer Australia & Optus [37]

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The overall data is up 50% from a year ago. Yes.

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Operator [38]

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Our next telephone question is from Koh Miang Chuen from Goldman Sachs.

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Miang Chuen Koh, Goldman Sachs Group Inc., Research Division - Executive Director [39]

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Three questions, please. On the Australia consumer business, the retail fixed revenues were down a bit year-over-year, if you exclude I think the NBN payments. Can you maybe give a bit more color on why that's the case? And secondly, on the enterprise business, I just wonder about your latest thoughts on perhaps when Trustwave can become EBITDA positive and slightly separate from the Optus enterprise business. I think those are mentioned as the new Ramsey healthcare contract as well. I just wondered like how impactful that would be for the coming quarter? And lastly, on the Digital Life, mobi had a positive EBITDA number this quarter, partly explained by the technological licensing fee. I'm wondering how sustainable are these fees, and are we also expecting a mobi deal also see that profitability from its other services in coming quarters?

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [40]

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Okay. Why don't we do the Australia question first? Allen, you want Murray to do it?

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Yoong Keong Lew, Singapore Telecommunications Limited - CEO of Consumer Australia & Optus [41]

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Yes.

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [42]

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Yes. Murray, can you answer the first question on the fixed revenues?

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Murray Philip King, Singtel Optus Pty Limited - CFO & Director [43]

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(inaudible) one because customer growth moderated. You saw us put our prices up in the beginning of the quarter. And unfortunately, the market didn't respond. And as a consequence to our market for that period during the quarter. Having said that, at the back end of the quarter, we did go back and reposition the pricing to be competitive in the marketplace. That has dampened the growth in respect of customer growth. I mean ARPUs have been under a little bit of pressure as well, particularly as the result of going (inaudible) element of the fixed revenues continue to decline as we've seen in prior quarters.

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York Chye Chang, Singapore Telecommunications Limited - CEO of Group Enterprise & Country Chief Officer of Singapore [44]

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On the Trustwave business, we are basically investing in growing 2 key segments in the NSN and the professional services. We're seeing moved up performance in that. And we believe these are the key elements of our sort of growth of the overall cybersecurity services of our Trustwave. We're currently only EBITDA negative (inaudible) but probably flat with $1 million improvement. But the focus is really to drive growth in this key segment, and we're investing in the U.S., it's actually in the NSS business with the upgrading of our future (inaudible). And also secondly, investments in our [fiberless] professional consulting services to ramp up further. And the third line is, we've got a range of products for cybersecurity, plus with all the number of our products as well, we're investing in the targeted R&D a couple of the key products to be able to drive more product growth, which has much higher gross margins.

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Samba Natarajan, Singapore Telecommunications Limited - CEO of Group Digital Life [45]

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Thank you. On the mobi, this is Samba here. The (inaudible) is to continue to show up in FY '20 and FY '21, and -- which derives from licensing fee for supporting broadcasters such as ITV. And we expect that supporting broadcasters is a part of our longer-term strategy in mobi now in addition to our device-side platform, given the acquisition of the (inaudible) platform.

As far as profitability is concerned, that guidance for this year is that we'll deliver higher profitability than last year. And although there may be quarterly fluctuations, given this is not a good demand, we expect that profitability on the [mobi DSP], will also continue to improve outside of the broadcaster business.

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Miang Chuen Koh, Goldman Sachs Group Inc., Research Division - Executive Director [46]

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Maybe going back to the enterprise business, I think I asked how big the impact could be from the new Ramsey healthcare contract. Just wondering whether it is material to Optus numbers for the coming quarter?

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Unidentified Company Representative, [47]

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Can you repeat the question? Yes.

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Miang Chuen Koh, Goldman Sachs Group Inc., Research Division - Executive Director [48]

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Yes. I think there was a mention of a new contract from Ramsey healthcare for Optus enterprise business? (inaudible) I will take it offline. It's fine.

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York Chye Chang, Singapore Telecommunications Limited - CEO of Group Enterprise & Country Chief Officer of Singapore [49]

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Yes. So this is upwards of tens of millions. So this is one of those -- for the healthcare service rollout. So it's one of those projects that we have, tens of millions.

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Operator [50]

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Our next question here is from Rama Maruvada from Daiwa.

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Ramakrishna Maruvada, Daiwa Securities Co. Ltd., Research Division - Head of Singapore Research [51]

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I have three questions, please. Firstly, with regards to your EBITDA guidance, I'm just wondering if you could provide a little bit more color here. You have reflected the -- updated the guidance to high single-digit, but if you were to normalize the first quarter, we are probably looking at around 1% growth. And at the same time, you have erosion of higher-margin businesses. So my question here is, where do you expect the EBITDA growth to come through over the next few quarters? Is this going to be revenue led or are there any cost initiatives or changes in the cost mix?

The second one is with regards to your free cash flow. On the Singapore division cash flow, there's a big negative working capital drain because it tagged on free cash flow. Could you talk about what is driving this? And would it reverse going forward? And at the same time, could you -- I caught your comments on updating of the free cash flow guidance, but just wondering, the reclassification IFRS 16, it doesn't impact -- it raises your free cash flow guidance because you're classifying operating leases as financing cash flow or is there something else going on here?

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Cheng Cheng Lim, Singapore Telecommunications Limited - Group CFO [52]

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Let me take your both of your questions. I think for the quarter, we affirm our guidance for the full year. And really the changes that we have made with regard to the EBITDA number and the free cash flow guidance is really an update to reflect the IFRS 16 impact. So EBITDA guidance, I think previously, we're guiding stable. But right now, we updated it higher to really reflect the fact that operating lease is no longer -- are now no longer in the EBITDA makeup because everything -- a large part has been shifted to depreciation and finance costs, which is below the line, okay? I hope that answers the question on EBITDA, so we are affirming that.

For the free cash flow, again, that's really just an update to the guidance. I think you firstly asked about the Singapore free cash flow, so let me address that. A large part is due to timing of payment to vendors because of a certain cutoff -- actually, these payment should have been in the last quarter, but been met this quarter, so it caused a down drop in the Singapore free cash flow. And the other thing, which I also highlight is the data center setup that we are doing for key customers. So that also has an impact on free cash flow numbers in Singapore.

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Operator [53]

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Our next question is from Ranjan Sharma from JPMorgan.

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Ranjan Sharma, JP Morgan Chase & Co, Research Division - Analyst [54]

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This is Ranjan from JPMorgan. Two questions from my side. Firstly, in the Investor Day, you emphasized your digital business focus quite a bit. If you can share any update on if you have launched or looking to launch new services, let's say, on cloud services or gaming? Secondly, on 5G, the last we spoke, we talked about consultation for stand-alone 5G is ongoing in Singapore. If there's any further update to that? And has fixed wireless access 5G launched in Australia? And if you can share how the customer experience has been so far.

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [55]

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Let me talk about 5G first, the stand-alone 5G.

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Kuan Moon Yuen, Singapore Telecommunications Limited - CEO of Consumer Singapore & Group Chief Digital Officer [56]

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Yes. Well, I think we have given all our feedback in the open consultation to IMDA with regards to our position on 5G stand-alone and non-stand-alone. I think, in essence, the reports are all published -- available publicly by IMDA. But in essence, what we are saying is, the 5G stand-alone network ecosystem may not be fully established now because of the chipset and device availability.

And obviously, to roll out 5G stand-alone, ahead of the ecosystem buildup may not be able to sustain the next adoption of 5G. But obviously, with time the ecosystem will catch up. And I think there will be a migration path for us to get into SA 5G as well. So it is still very early days. We are still awaiting the final terms of reference given by IMDA in terms of -- to the spectrum allocation of the 5G.

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [57]

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Somebody want to talk? Maybe you can talk about the data.

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Samba Natarajan, Singapore Telecommunications Limited - CEO of Group Digital Life [58]

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Yes. Sure. You asked for an update on the digital -- since the last Investor Day. I think, firstly, on Amobee, we are continuing to gain some momentum in the platform side in the DSP business. And we are also now extended our technology stack to the broadcaster side to support content producers and broadcasters to monetize their media on the digital side as more of the digital consumption is going towards digital even for TVs. So that's sort of number one. And that's how the IDD got consumed, consummated. And I think we will continue to support more broadcasters globally. That's one update.

The second update is that we have also since then made a few investments throughout our venture capital fund into some growth equity investments in the healthcare arena, and we've announced 2 at least, one is the investment in Indonesia, called Hellodoc and another investment in Singapore in CXA. These are material investments, larger than our traditional venture investments as a way to participate in the growing healthcare space in Asia.

And thirdly, we have continued to expand our partnerships at HOOQ, and we announced a partnership with Grab in Indonesia, which is now extending to Singapore. And we've also signed up some important partnerships with OVO as well as with Hotstar in India. So that's sort of an update on sort of the key events in the digital space in the last 3 to 6 months.

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York Chye Chang, Singapore Telecommunications Limited - CEO of Group Enterprise & Country Chief Officer of Singapore [59]

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On the enterprise side, as shared in our Investor Day, we have a number of digital offerings. cloud being one, fiber, data analytics with AI and robotics. A lot of depth is applied into the sort of Smart Nation and also industry transformation and digitalization of enterprises, both here and in Australia.

And talking about cloud, where we do the cloud migration services across private or public -- I'll cover digital as a whole because there are a number of technologies since then. The overall mix of our digital growth as part of our overall ITV business is -- was last year 33%, and this year, in Q1, it's gone to 38% of our overall mix. We also saw the increasing mix of digital as far as the Australia market is concerned as well as an overall increasing mix.

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Kuan Moon Yuen, Singapore Telecommunications Limited - CEO of Consumer Singapore & Group Chief Digital Officer [60]

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And final point, in the area of gaming, I think in terms of new sports, it is actually very -- quite well-developed, not only in Singapore but across the region. From a financial standpoint, it is not material yet as of this point, but we are looking to launching a broader gaming platform and business sometime at the end of this calendar year.

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [61]

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Ranjan, did you also have a question on fixed wireless?

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Ranjan Sharma, JP Morgan Chase & Co, Research Division - Analyst [62]

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Yes. Because -- we spoke about fixed wireless access in Australia being one of the use cases of 5G. I was just wondering, has that been launched, and what's the customer experience?

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [63]

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Allen, you want to begin?

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Yoong Keong Lew, Singapore Telecommunications Limited - CEO of Consumer Australia & Optus [64]

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Yes. Fixed wireless, obviously, is leveraging off our 5G network with the new technologies. And we believe that in the short term, fixed wireless will deliver significant benefits to Australian consumers, especially, bearing in mind, it can produce a better service than some of the NBN technologies. So right now, we're putting the final touches to our customer trial. We have close to 50 customers across Sydney, Canberra, they are trialing the product at different distances from our base station.

Bear in mind that it's -- we're using a higher spectrum. We want to be very clear that it could work under different conditions, under different terrain. We also want to make sure that the product is totally walk-out working, which means that somebody can buy the 5G device that's meant for the home, take it home, self-install, and it can connect well to our network. So I think we are making sure that we -- firstly, the product delivers the speeds that customers expect that we are putting out there. And secondly, we want to make sure that the customer experience is a seamless one and can be truly self-installed. So I think we're finishing that. At some point, when we are ready to go-to-market in a big way within the footprint of our 5G coverage, we'll make an announcement.

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Operator [65]

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And our final question today comes from the line of Varun Ahuja from Crédit Suisse.

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Varun Ahuja, Crédit Suisse AG, Research Division - Associate [66]

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I've got four questions. First, I just want to go back to Australia. So if we look at Australia performance, the underlying net profit declined around 29%, despite being a substantial increase in NBN grants. So if you adjust for the NBN grants, the core performance looks relatively weak. Do you suggest this is largely because of mobile competition? And is there anything else that we should think about? And how do you think about reversing in the next few quarters or so? Just -- you have talked about price increases that you've taken recently, do you think that can help in terms of reversing some of this substantial decline that we've seen in the net profit?

Number two, I just want to go back again on the guidance side. And I understand that the EBITDA guidance that you've given is excluding NBN grants and also looking at the FX status there. So if you adjust for the NBN grants and the lease accounting, it looks like in first quarter EBITDA declined around 17%, so that compared to your stable EBITDA guidance. So just want to understand in the next few quarters, given the pressure on the mobile pricing, which is still there in Australia and also next couple of quarters on the enterprise side, the recontract, which has happened, how do you see -- you're able to get that guidance of stable EBITDA over the full year? That's number two.

Number three, I just want to recheck on the Airtel India on that derivative. Are these derivative contracts linked to Airtel Africa pricing? Just want to understand the dynamics, how is it working, the stock price that has been now listed in London.

And lastly, on the dividend side, I understand till fiscal '20, you guided for a stable dividend of SGD 0.175. Given the decline in earnings that we are seeing, what prevented you to extend for another year till fiscal '21. Because Airtel in -- they have a lot of fluctuations. Are you confident that it will turn around so that you can again go back to your dividend policy of link to net profit, because Airtel doesn't pay any cash flows, right? So your cash flows may be stable. So just wanted to understand the thought process of still putting the SGD 0.177 -- SGD 0.175 till fiscal '20, not extending by another year.

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Cheng Cheng Lim, Singapore Telecommunications Limited - Group CFO [67]

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Okay. Varun, I think with regards to the EBITDA, I think we have updated the EBITDA guidance obviously to increase IFRS 16, so I would not comment what is it like whether it's pre-IFRS 16. But suffice to say, I think Allen will talk about our pricing up in Australia. So that should come a long way in actually listing the revenue, of course importantly the EBITDA numbers.

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [68]

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Okay. Can you comment about the Optus overall number, I think those actually -- the company-wide numbers, including both the consumer and enterprise business.

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Murray Philip King, Singtel Optus Pty Limited - CFO & Director [69]

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Yes. So a couple of comments in relation to the overall Optus at the impact level. As Sock Koong indicated, it's both consumer and Optus business. And you can see in the MD&A where we said we disclosed Optus business as Bill Chang has already spoken to, we've seen some moderation in revenues and profitability in Optus because of some of the economic conditions in some of the key markets, such as the banking sector and some of the government sectors in Optus business. So those are major contributors, some overall contributions from Optus business in relation to the Optus -- overall Optus results.

I think excluding the, as you say, the NBN migration payments, but then you would need to realize that we have been essentially NBN economics, which is obviously diluting the profitability and that's an industry-wide phenomenon. As we migrate customers, we will be looking to manage the cost structures to move to a reseller model. But that can't happen directly in line with migrations. It will take time to be able to restructure the cost structure accordingly. So it's quite a conservative position if you're taking out just a few NBN migration payments and look at the profitability of Optus exposing the migration payments.

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Cheng Cheng Lim, Singapore Telecommunications Limited - Group CFO [70]

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Okay. Well, I think the last question relate with regards to the dividend. I think I will have to disappoint you, unfortunately, we only provide guidance for '19 and '20. So with regard to dividend 1 year ahead, beyond '20, we will provide that guidance as to whether there's any change or anything comes both to our FY '20.

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Varun Ahuja, Crédit Suisse AG, Research Division - Associate [71]

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Lastly, on the Bharti side, derivative side?

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Kuan Moon Yuen, Singapore Telecommunications Limited - CEO of Consumer Singapore & Group Chief Digital Officer [72]

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Oh yes, Varun, I think as mentioned by Airtel as well, this relates to the pre-IPO investment. So some retail provisions were made, and there were some fair market valuation. As to more details than that, I'm afraid we can't quite share because we are bound by confidentiality agreements with the investors and with the company.

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Operator [73]

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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 go ahead.

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Sock Koong Chua, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [74]

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Thank you so much for all your questions. We would be stopping the call here. If you still have further questions, please contact the Investor Relations team. So we'll speak again in the next quarter. Thank you so much. Bye-bye.

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Operator [75]

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Ladies and gentlemen, that does conclude the call for today. Thank you for all participating. You may all disconnect. Goodbye.