Discussions on XL Axiata-Smartfren Operational Consolidation Reportedly Continue

A Bloomberg source, as written by Bloomberg, Thursday (25/4/2024), stated that Axiata Group Bhd and Sinar Mas Group are discussing a potential transaction structure that would create a combined entity from their telecommunications business in Indonesia worth 3.5 billion US dollars.

Also read: The potential for consolidation between mobile operators is still open

The companies could reach a non-binding agreement in the coming months, allowing the two to continue negotiations and conduct due diligence, the Bloomberg report said. However, from the negotiations that will be carried out, there is no guarantee that an agreement will be reached.

The rumor of PT XL Axiata Tbk and PT Smartfren Telecom Tbk consolidation has been circulating since last year. Minister of Communication and Information Technology (Menkominfo), Budi Arie Setiadi, has even heard of the rumor. When met with the media after visiting the Apple Developer Academy BSD City, Tangerang Selatan, Banten on Tuesday (26/3/2024), Budi assessed that the consolidation would make the telecommunications industry in Indonesia healthier and more efficient.

"Three mobile telecommunications operators, right, is enough," he said. However, Budi emphasized that his party would not interfere. All business matters are returned to each cellular telecommunications operator.

Last week, telecommunications operator Dialog Axiata PLC, which is mostly owned by Axiata Group Bhd, signed an agreement to acquire Bharti Airtel operations in Sri Lanka.

President Director of PT XL Axiata Tbk, Dian Siswarini, during a halal bihalal session with the media on Thursday (25/4/2024) in Jakarta, stated that corporate action is the realm of shareholders. Until now, there is no certainty regarding the consolidation, so the consolidation test has not been conducted.

"If the crescent moon (consolidation with PT Smartfren Telecom Tbk) is not there, then the thorough testing also has not been done. If the certainty is out, we will definitely announce it to the media," he said.

Also read: Telecommunication Service Operator Consolidation is Required

Dian explained that consolidation between mobile telecommunications companies is good for the health of the mobile telecommunications industry and the operational efficiency of the involved companies, as well as improving services to consumers. All shareholders of mobile telecommunications operators definitely see the opportunity for consolidation to make the industry grow healthier.

Along with the issue of PT XL Axiata Tbk's consolidation with PT Smartfren Telecom Tbk, the mobile telecommunications industry in the country is also hit by news of the Ministry of Communication and Information Technology's plan to auction off 700 megahertz (MHz) and 26 gigahertz (GHz) frequency spectrums before a change in government regime. The news is also followed by a promise from the Ministry to provide incentives that facilitate mobile telecommunications operators to pay for the cost of using frequency spectrum (BHP).

When asked which option would be more beneficial for PT XL Axiata Tbk, whether to pursue consolidation with PT Smartfren Telecom Tbk first or participate in the promised 700 MHz and 26 GHz auction by the government in 2024, Dian did not answer. She admitted to not having received confirmation regarding the certainty of consolidation between PT XL Axiata Tbk and PT Smartfren Telecom Tbk.

"However, usually, it is the government (Kemenkominfo) that will make the decision on how much spectrum frequency bandwidth should be returned by operators who are ready to consolidate," he said.

Also read: Demand for Internet Services Increases, Frequency Spectrum Increases

Dian stated that so far, PT XL Axiata Tbk has already allocated funds ready to be used to participate in the auction of new frequency spectrum. She also mentioned that the company is in need of additional bandwidth of frequency spectrum to increase the speed of their services to customers.

"Compared to other cellular telecommunications operators, we can say that we have the smallest frequency spectrum bandwidth," he said.

Director of PT Smartfren Telecom Tbk, Antony Susilo, stated in a disclosure to the Indonesia Stock Exchange (BEI) on Friday (April 19th, 2024) that he does not have any information regarding the merger between PT XL Axiata Tbk and PT Smartfren Telecom Tbk, nor is he aware of it. Therefore, the company has not yet obtained any material information that can affect the decision of shareholders or the stock price that can be announced to the Financial Services Authority, BEI, and the public.

On the same day, the company also announced that it would increase capital with pre-emptive rights or right issue amounting to IDR 8.57 trillion. A total of IDR 5.48 trillion of which is planned to be used to pay off debt and interest to Niven Holdings Limited. It is planned that the funds will also be used for working capital.

Also read: 5G Penetration Has Not Yet Increased, Cellular Operators Urge to Provide Frequencies and Incentives

Associate Vice President - Deputy Head of Research at Sucor Sekuritas, Paulus Jimmy, stated on Wednesday, April 24, 2024 in Jakarta that one of the goals of consolidation among telecommunications operators is to pursue frequency spectrum.

The return of frequency spectrum from mobile telecommunications operators involved in mergers and acquisitions to the state will be decided by the Minister of Communication and Information. Usually, the minister will decide on a case-by-case basis. This is common because the government wants to avoid oligopoly.

"With the size of the addressable market for cellular services in Indonesia, we consider that the three large operators are quite good. "A number of countries also generally have two or three mobile telecommunications operators," he said.