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alaysian telecommunication operator Axiata Group Bhd may soon own a stake in PT Axis Telekom Indonesia as the government says it will likely formally approve the plan later this year.

Meanwhile, rival operators say that the terms allowing the acquisition must not disrupt industry cohesiveness.

The Communications and Information Ministry has given initial approval for the acquisition of Axis, a majority of which is owned by Saudi Telecom Co (STC) and Axiata Group through its Indonesian unit, PT XL Axiata '€” Indonesia'€™s third-largest mobile phone operator.

'€œIn principle, I have approved the [acquisition] plan involving XL Axiata and Axis,'€ Communications and Information Minister Tifatul Sembiring said recently.

However, he pointed out that he would give the formal go-ahead after the Indonesian Telecommunication Regulatory Authority (BRTI) and the ministry'€™s directorate general for postal and informatics equipment submitted their joint review of the validity of the acquisition.

'€œI will be able to give my formal approval before the end of the year, since they will hand in the review sometime around August,'€ Tifatul said.

The review examines, among other things, the legality and terms surrounding the acquisition. The team is expected to submit the review to the minister later this month.

Tifatul added that the review was necessary in delineating acquisition guidelines, which the current Telecommunications Law lacked.

'€œThe current law is very open market and this is why the market is filled with a multitude of mobile phone operators,'€ he said.

PT Telekomunikasi Selular (Telkomsel), PT Indosat (ISAT) and XL Axiata (EXCL) have a combined market share of nearly 70 percent, research by Frost & Sullivan shows.

According to Tifatul, the acquisition of Axis by XL Axiata would help level out competition among operators, instead of intensify it.

'€œThe market is overcrowded with 14 operators and this has incited unhealthy competition because 92 percent of industry revenues go to the top three operators,'€ he said.

The telecommunications industry is known for its fierce competition.

Operators previously engaged in price wars to win subscribers and have to submit bids for frequency blocks auctioned off by the ministry.

XL Axiata'€™s plan to acquire Axis will also consequently require the latter to return its frequency blocks to the ministry '€” instead of automatically consolidating them with the former'€™s '€” as stipulated by the law, which bars operators from handing over blocks allotted to them to other operators, the ministry said.

However, the ministry is deliberating whether the returned blocks should then be handed back to the post-acquisition entity or put up for auction. Telkomsel CEO Alex Sinaga pointed out that the acquisition was good for competition as it reduced the number of players.

'€œHaving fewer players will make the industry healthier,'€ he said.

PT Telekomunikasi Indonesia CEO Arief Jahja added that the ministry had to devise fair acquisition regulations to maintain industry cohesiveness. '€œConsolidation will naturally occur because the market is overcrowded with operators. But the regulation on consolidation must maintain the balance in the industry,'€ he said.

'€œA single operator, for example, should not be allowed to become far larger than the others.'€

Indosat CEO Alexander Ruslie added that in the short term, the acquisition would not pose a serious threat to other players given that the market had stagnated.

'€œHowever, in the medium to long term, their [XL and Axis] networks will be wider and hence, investment will cost less. Thus, they could lower their prices,'€ he said.