5G pushes overcrowded Indonesian telecommunications industry to three major carriers

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(Nikkei Asia) – A wave of consolidation is hitting Indonesia’s overcrowded wireless telecommunications sector, a market that once had seven operators scrambling to position themselves as pressure from 5G investments could reduce the field to just three big players.

The stakes are high. Indonesia is the most populous Southeast Asian country and is expected to have one of the world’s largest digital economies with $ 124 billion in 2025, according to data from Google and others, triple that of Last year.

Parent companies Indosat Ooredoo and Hutchison 3 Indonesia agreed last month to merge the two companies, creating a network operator with more than 100 million subscribers. The merger is expected to deliver savings of $ 300 million to $ 400 million per year, according to the companies, most of which will be invested in expanding 5G services.

The deal is a blow to XL Axiata, number 3 of 56 million customers. The Malaysian-majority carrier received approval in August to launch 5G services, but catching up in itself will be an uphill battle.

Indosat Ooredoo, with the first operator Telkomsel, started rolling out 5G services this year. But coverage is only available in the capital Jakarta and a few other cities.

Spending on 5G equipment has fallen behind due to fierce competition in a saturated market. The standard prepaid voice and data plan from the major providers is between 100,000 rupees ($ 7) and 300,000 rupees, which is cheap even considering average salaries in Indonesia.

The rates of return achieved by mobile operators in 2019 fell 5% from a decade earlier, according to the Indonesian Telematics Industry Association. The return on invested capital fell to 1% from 7% over the same period.

These pressures pushed Bakrie Telecom, lower ranked, to withdraw completely from the mobile activity.

Indonesia is not alone when it comes to expensive 5G upgrades. For the Association of Southeast Asian Nations as a whole, a low-cost 5G deployment that upgrades existing 4G infrastructure would require a further $ 13.5 billion in investment through 2025, according to an analysis by AT Kearney, a consulting firm based in the United States. A deployment using standalone 5G base stations, which provide better service, would more than quintuple the expense.

The Indonesian government has little money in its coffers to build telecommunications infrastructure, so the prosecution is left to the companies. Telkomsel, which has 169 million subscribers, will raise funds by listing a subsidiary of telecoms equipment this year.

Indonesian mobile operators have actively sought foreign investment. Indosat, once a state-owned company, sold shares to a Singaporean telecommunications company, and this stake was taken over in 2008 by Ooredoo, a Qatari communications company.

Many observers say the shakeout will continue until there are only three carriers left. Johnny Plate, the Minister of Communication and Information, expressed his anticipation that more mergers will result from the Indosat deal.

In November last year, the government passed a sweeping bill aimed at increasing foreign investment. The legislation contains language to make it easier for telecommunications to combine wireless spectra, which will encourage more merger activity.

This story was first published in Nikkei Asia.

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