Intense price competition in Indonesia and unequal access to spectrum resources, as the country mulls 5G opportunities, have renewed calls for mergers among the five mobile operators.
Ratings agency Fitch Solutions stated the market is heavily fragmented, with smaller operators incurring periods of losses as subscriber growth has failed to keep pace with investments, making consolidation a strong possibility.
Last week, Axiata Group, the parent company of third-ranked XL Axiata, reportedly held discussions with all its rivals, except market leader Telkomsel, about a potential share-swap deal.
The other three players are Indosat Ooredoo, 3 Indonesia (owned by CK Hutchison) and Smartfren, which last year acquired the subscribers of Bolt [1] after its licence was revoked.
Less duplication
The ratings agency said the key benefits of consolidation are reducing duplication of network investments, particularly in rural areas, and lowering the cost of building out sales and marketing channels nationwide.
In addition, spectrum resources could be distributed more equally among fewer players.
While Telkomsel, Indosat and XL each hold at least 90MHz of spectrum across three to four bands, the two smallest players – 3 Indonesia and Smartfren – have 50MHz or less in just two bands.
A major obstacle to any merger is existing regulations don’t allow spectrum to be included as part of a deal, and the government is reluctant to reform spectrum. After a merger, bandwidth must be returned to the regulator, which then decides how much to give back to an acquirer.
5G push
Fitch Solutions argues a thinning of the ranks would also reduce the barriers to 5G adoption by giving the remaining players improved scale and financial resources to deploy the new technology.
The agency noted, however, 5G services are unlikely to be rolled out in the near term, with the government showing little urgency to push the next-generation technology. While last year it suggested licences would be awarded in 2020, it hasn’t identified the spectrum bands. The 3.5GHz band, widely used across Asia for 5G, is held by the country’s satellite operators until 2024.
It doesn’t expect service launches until 2022, and even then, forecasts adoption will initially be slow until operators expand coverage after “sufficiently monetising” their 4G investments.
[1] https://www.mobileworldlive.com/asia/asia-news/smartfren-takes-over-bolt-4g-operations-in-indonesia/
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