Indonesia’s major mobile operators bleed as sharp drop in rupiah hurts earnings

Telcoms bleed as sharp drop in rupiah hurts earnings 

Mariel Grazella, The Jakarta Post, Jakarta | Business | Mon, November 04 2013, 8:02 AM

Indonesia’s major mobile operators suffered sharp declines in their profits during the first nine months of this year partly due to lower growth in their revenues and large foreign-exchange losses. Bakrie Telecom (BTEL), one of whose commissioners is Anindya N. Bakrie, son of tycoon and presidential hopeful Aburizal Bakrie, booked a 10.2 percent decrease in its revenues in the first nine months of this year, but its profits plunged even lower due to high costs stemming from the sharp drop in the rupiah against the US dollar in the third quarter.As a result, the operator booked a net loss of Rp 1.5 trillion (US$133.5 million), 55.4 percent greater than the same period last year.
BTEL runs Code Division Multiple Access (CDMA) networks, a mobile technology that analysts say has lost market support when compared to the Global System for Mobile Communications (GSM).
Meanwhile, fellow CDMA operator, Smartfren Telecom (FREN) saw revenues climb by 60 percent annually, the highest growth rate among all operators, to Rp 1.7 trillion in the first nine months of the year. 
However, around Rp 3 trillion in operating expenses, roughly 76.5 percent of which pertained to operations and maintenance as well as depreciation and amortization, caused the company to suffer Rp 1.5 trillion in net losses, 52.2 percent more than the losses recorded in the same period last year.
GSM operators, XL Axiata (EXCL) and Indosat (ISAT), experienced stunted profit growth as well, chiefly due to the depreciation of the rupiah.
XL booked Rp 15.8 trillion in revenues as of September, a 0.8 percent year-on-year gain. However, an “unrealized foreign-exchange loss” of Rp 581 billion partly suppressed its profits for the period to Rp 917 billion, or 58.2 percent less than the bottom line figure during the same period in 2012. 
Similarly, partly due to foreign-exchange losses of Rp 2.3 trillion, Indosat suffered a net loss of Rp 1.7 trillion as of September, despite a 9.3 percent year-on-year revenue increase to Rp 17.8 trillion.
Indosat spokesman Andromeda H. Trisanto said the loss was “non-cash”. He pointed out that the operator booked nearly $1 billion in foreign-denominated debts as of the first half of the year.
“At the beginning of the year, we calculated this debt based on a Rp 9,000 exchange rate, which then hit Rp 11,000 as the domestic currency weakened in the coming months. And with each Rp 100 drop against the US dollar, our debts rose by Rp 100 billion,” he said.
Besides its foreign-denominated debts, the operator also booked Rp 10 trillion in local currency debts as of the first half of the year.
Andromeda added, however, that the operator was not obliged to pay the entirety of its foreign-denominated debts in the short-term.
“Around $650 million of that nearly $1 billion debt is due in 2020. Part of the remainder is due between 2014 and 2019, leaving the amount due per year at roughly $70 million,” he said.
He added that the operator had paid off approximately Rp 4 trillion worth of debts so far, with around Rp 100 billion to be paid off by the end of the year.
“Around 20 percent of that Rp 4 trillion was foreign denominated. However, we have recently signed a Rp 1 trillion debt facility as a standby loan,” he noted.
Meanwhile, state-owned Telekomunikasi Indonesia (TLKM), or Telkom, remained in the black as of the third quarter. Revenues rose by 8.1 percent annually to Rp 61.5 trillion, nearly 72 percent of which came from its subsidiary, Telekomunikasi Selular, or Telkomsel. 
Telkom booked a 10.5 percent increase in net income to Rp 11 trillion, while Telkomsel’s bottom line touched Rp 13.1 trillion, recording a 11.8 percent year-on-year increase.
Indosurya Securities analyst William Suryawijaya said operators’ financial situations in the last quarter reflected the impact of earning in rupiah but conducting capital spending in US dollars.
The majority of equipment, such as base transceiver stations (BTS), are sold in US dollars by foreign-based vendors.
However, William estimated that foreign exchange pressure would start easing off in the last quarter of the year as the rupiah gained traction.
Bank Indonesia (BI), the central bank, estimates that the rupiah, which lost more than 15 percent to slightly below Rp 12,000 per US dollar between January and October, would strengthen to below Rp 11,000 by the end of the year.
“This appreciating of the rupiah will help the operators’ financial reports improve in the fourth quarter. Operators such as XL Axiata, for example, should not see weakened profits,” he said.
He noted, however, that Bakrie Telecom needed to expand its business to drive growth.
“The same thing applies to Smartfren. However, Smartfren has a firmer [business] case because it has saleable data packages,” he noted.