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Indosat, Tri team up for stronger position in telcom industry
A planned collaboration between Indonesian telecommunication company PT Indosat and PT Hutchison 3 Indonesia, also known as Tri, is expected to produce a stronger company amid fierce competition among providers and strengthen the country’s telecommunications industry as a whole, according to experts.
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A planned collaboration between Indonesian telecommunication company PT Indosat and PT Hutchison 3 Indonesia, also known as Tri, is expected to produce a stronger company amid fierce competition among providers and strengthen the country’s telecommunications industry as a whole, according to experts.
Qatar-based company Ooredoo Q.P.S.C has entered into an exclusive and nonbinding memorandum of understanding (MoU) on Monday with Hong Kong-based CK Hutchison Holdings Limited to combine their respective telecommunications businesses in Indonesia, Indosat and Tri. The company stopped short of detailing whether the process would be done through merger or acquisition.
“Ooredoo is in the early stages of assessing the merits of such a potential transaction,” the company said in a statement, adding that the exclusivity period for the MoU was valid until April 30, 2021.
The company went on to say that “no binding agreement in relation to the possible combination has been entered into” and that the company would announce the decision “when appropriate.”
Stocks of Indosat, traded at the Indonesia Stock Exchange (IDX) with the code ISAT, soared on Monday prior to the official statement being issued, prompting the bourse to temporarily halt trading of the stocks. ISAT fell 5.21 percent as of 11:56 a.m. Jakarta time on Wednesday and has gained 150 percent over the past three months.
Indosat director and chief financial officer Eyas Naif Assaf said that, as of Tuesday, “there is no further information to disclose.”
Indosat has been struggling to improve its business and financial performance amid rapid changes and tight competition in the industry. The company recorded a loss of Rp 457.5 billion (US$32.48 million) as of September, 60.8 percent more than the loss it booked in the same period last year, although Indosat recorded an almost 13 percent jump in revenue. The higher loss was attributed to increased employee expenses following organizational restructuring earlier this year.
Reliance Sekuritas analyst Anissa Septiwijaya said the corporate action would have a positive impact on both companies in terms of subscriber base to compete with Indonesia’s largest telco, Telkomsel.
Indosat has around 60 million subscribers, while Tri has around 38 million. The combined 98 million subscribers would narrow the gap to Telkomsel’s 170 million subscribers.
According to market research firm Statista, Telkomsel had a mobile revenue market share of about 66 percent in Indonesia in the first quarter of the year, followed by XL Axiata with about 17.7 percent and Indosat with around 16 percent.
“While we are still waiting for further information about the [business combination] scheme, I think if it happens then both companies’ value will increase and their financial position will become stronger,” Anissa told The Jakarta Post in a text message on Tuesday.
She went on to say that the telecommunication industry’s financial performances had remained stable amid the pandemic, supported mainly by internet data services, compared to companies in other sectors.
“However, Indosat was still unable to reverse the losses because of its high debt burden,” she said.
Business consolidation of telecommunication operators in the country was expected as there were too many players in the industry, Information and Communication Technology (ICT) Institute executive director Heru Sutadi said.
“While I think there is still a long way to go for an Indosat and Tri to merge, I believe consolidation is important, because, in the past seven to eight years, the telecommunication industry has not been doing well as companies continue to see losses,” he told the Post in a phone interview on Wednesday.
Heru cited the Communications and Information Ministry’s statement that the ideal number of telecom operators was three, while Indonesia now has five, namely Telkomsel, Indosat, Tri, Smartfren and XL Axiata.
“With that in mind, I think more business consolidations can happen,” he said despite admitting that such corporate actions had been difficult to pursue and were unattractive for telcos, especially since there is a precedent in which the government claimed back radio frequency granted to telcos.
In 2013 when XL Axiata acquired PT Axis Telekom Indonesia (Axis), the government instructed both operators to return the 10-megahertz radio frequency spectrum to the state. Heru said that such a practice was contradictory to the purpose of acquiring extra radio frequency through a merger by a telco.
“Even though mergers and acquisitions are purely business-to-business deals, the government needs to ensure that they proceed smoothly and with greater certainty,” he said.
