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Jakarta Post

Limited space pushes telco companies to merge

  • Mariel Grazella

    The Jakarta Post

Jakarta   /   Tue, July 9, 2013   /  11:41 am
Limited space pushes telco companies  to merge

As a plan looms for publicly-listed cellular operator PT XL Axiata to acquire smaller rival PT Axis Telekom Indonesia, the cellular industry is bracing for more mergers as the limited frequency spectrum impedes the sector from expanding.

The frequency limitation has seen five operators '€” providing global system for mobile communications (GSM) '€” standard services unable to improve their services amid the high demand for mobile data access.

Protracted problems over slow mobile Internet access and disruption in calls are likely to remain due to the shortage in the frequency '€” a limited natural resource that an operator could not exist without.

Communications and Information Ministry postal and information infrastructure director general Muhammad Budi Setiawan said there would be no quick fix other than to have mobile operators merged in order for them to have a greater share of frequency spectrum.

'€œRegulators and industry players in GSM and CDMA [code division multiple access] have always looked for consolidation due to limited frequency,'€ said Budi.

'€œIt'€™s only sufficient for the market to have four operators '€” three GSM and one CDMA,'€ he said.

The five GSM operators include PT Telkomsel, a subsidiary of state-run PT Telkom; PT Indosat, controlled by Qatar Telecom Pte Ltd; XL Axiata, controlled by Malaysia'€™s Axiata Group; Axis, controlled by Saudi Telecom Company (STC); and PT Hutchison 3 Indonesia, controlled by Hong Kong-based Hutchison Whampoa Ltd.

The CDMA includes all locally owned companies; PT Bakrie Telecom, PT Telkomflexi and PT Sampoerna Telecommunication Indonesia.

Amid the frequency shortages, industry players have often pointed out that the market, compared to other countries, has suffered from a glut of operators serving 240 million people, in which more than half already subscribe to mobile devices.

This has incited cut-throat competition, not only in acquiring subscribers, but also in frequencies.

The government has only allocated a small spectrum for mobile operators while the largest chunk is for radio and television networks.

Mobile operators have to compete in auctions to secure new licenses to utilize a block of new frequencies, organized by the Communications and Information Ministry.

Earlier in the year, the government auctioned additional blocks for third-generation (3G) mobile networks.

Around five operators joined the bidding, but only Telkomsel and XL Axiata managed to secure the blocks.

However, XL Axiata president commissioner Tan Sri Dato Muhammad Radzi bin Haji Mansor said the additional frequency they obtained was '€œinsufficient'€.

'€œIf you are going to expand your business, you need more spectrum,'€ he said, adding that the lingering question was access.

XL Axiata, the country'€™s third biggest operator with five frequency blocks, is looking to acquire Axis, which is the fourth biggest with two blocks.

Should the acquisition be materialized, XL Axiata will become the second biggest operator after Telkomsel.

Ministry spokesman Gatot S. Dewa Broto said the ministry received notification in June from XL Axiata regarding the acquisition plan.

'€œWe'€™re still studying if the consolidation has the potential in bringing about a monopoly in frequency,'€ he said, adding that operators were barred from handing over their licenses to another operator.

While the regulator is calling for the consolidation, Telkomsel president director Alex Sinaga said that the company would only venture into acquisitions or mergers only if the potential partner had '€œequal network coverage and capacity'€.

'€œThis is to ensure fairness for both sides,'€ he said.

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