With the acquisition of Axis, how will Indonesia’s telco landscape change?

xl axiata axis

Credit: Liputan6

Yesterday, a huge acquisition happened in Indonesia’s telco industry: third-placed XL Axiata (EXCL:Indonesia) bought fifth-placed Axis for $865 million. How significant will that move be in Indonesia’s telco landscape? Here are the two biggest changes we see happening:

1. Best of the rest

The first change will come in the telco rankings in terms of user reach. Before the acquisition, the five biggest telcos were Telkomsel (42 percent), Indosat (16.7 percent), XL Axiata (15.9 percent), Hutchison 3 Indonesia (5.4 percent), and Axis Telekom Indonesia (2.1 percent). The change of hands will see XL Axiata usurping Indosat to be the country’s second biggest telco with a total of 18 percent market reach.

Of course, Telkomsel is still the undisputed king of Indonesia with a market reach bigger than all four other telcos combined.

2. Biggest frequency assets

The second change will be the transfer of Axis’s valuable assets to XL Axiata. Besides the brand and user reach, Axis will also give its 2G and 3G frequencies to XL Axiata.

Axis has two blocks (each block is worth 5 MHz) in the 3G frequencies (at 2.1GHz spectrum), while XL Axiata has three. If it’s combined, XL Axiata would have more 3G frequency blocks than Telkomsel’s three blocks and Indosat’s two blocks. XL Axiata stated the company is only willing to give up one of the 3G blocks. If the proposal is accepted by the ICT ministry, then XL Axiata would still own the biggest number of 3G blocks in the country.

When it comes to 2G frequencies, XL Axiata’s prowess in the 1,800MHz spectrum will be on par with Telkomsel and bigger than Indosat thanks to the acquisition.

Pending ministry approval

All of the frequency transfers above can only happen if XL Axiata gets permission from the ICT ministry. Despite the acquisition, regulations dictate the telco frequency assets are not automatically transferable.

Kompas cites Indonesia ICT Institute representative Heru Sutadi yesterday as saying there’s no precedent of returning frequency assets in the case of acquisition and merger deals between telcos in Indonesia. Sutadi himself is a keen observer in the telco industry, he cites two examples: Indosat’s acquisition of Satelindo in 2003 and Bakrie Telecom’s acquisition of Sampoerna Telekom Indonesia last year. Both of those cases did not require the companies to return the frequency assets to the government.

However, this might not be the case because XL owns two more blocks compared to its rivals in the 3G frequency. As mentioned before, XL Axiata has declared it is willing to part ways with one block in the 3G frequency, but that’s it.

What’s most valuable in the end is XL Axiata’s frequency assets acquisition. It automatically puts the telco on par with Telkomsel, making XL Axiata’s signal service potentially the best in Indonesia. In the end, Indosat might still get a slice of benefit by if it can obtain the ownership of that returned 3G block.

(Editing by Paul Bischoff)

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