Two events to monitor in Telco 2024
Two events: (1) Spectrum auction & (2) merger of the #3 and #4.
(1) Spectrum Auction.
Ministry of Communication & Telecommunication (MOCIT) has planned to conduct spectrum auction in the second quarter of 2024 for 700 Mhz and 2.6 Ghz frequency. The 700 Mhz is known as the frequency that would be suitable for 5G technology because it has wide coverage while complemented with the 2.6 Ghz frequency that could fill-in the gap for the capacity.
Learning from the past spectrum auction results in Indonesia, some experts predict that the spectrum price shall be very expensive. Based on research from GSMA, spectrum fees in Indonesia is relatively high compared to the countries in Asia Pacific and in the world. The WACC-adjusted spectrum fee-to-revenue median is at 12.2% while it is 8.7% for APAC countries and 7.0% for world countries.
What’s the impact if the spectrum fee too high? Expensive fee means more pressure for telco operators to adjust their other costs, meaning reduced investment, slower deployment on latest network technologies which may decreased the speed of adoption and lower availability of mobile connectivity. Hence, the spectrum would deliver lower-than-optimal benefits for the citizen of Indonesia, including potentially lower productivity. For operators, there is certain doubt that the investment will be paid off with the use case of 5G technology — not to mention the low ability to pay of Indonesia’s telco consumers.
(2) Possible merger of XL and Smartfren.
The unification of the 3rd (XL) and the 4th (Smartfren) could result in a change of Indonesia’s telco competitive landscape. Currently, there are four main operators with strong #1 and strong #2 companies, leaving the last two with significantly different number of customers.
If XL and Smartfren were to merger, hypothetically the combined entity would be a strong contender to Indosat with estimated subscriber market share of 26% and estimated revenue share of 22% before calculating synergy and cannibalization impact. It seems the merger is favored by the government and both Smartfren & XL. however, the deal seems to be pretty challenging to happen.
With as-is situation, the merger would end up with XL have more dominant control over Smartfren — and I do not think it would be an ideal situation for Smartfren’s side. However, for both companies to have an equal shares in the merged entity, Smartfren needs to inject a significant amount of cash to match with XL’s share — although Smartfren seems to have leverage on the existing spectrum ownership.
Impact to TowerCo.
It is interesting to see how the impact of both events to TowerCo. The demand for fiberization (FTTT), de-towerization, and ex-java roll-out would be different depending on the results from both events.
