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Sep 21, 2017 09:12:21

Indonesian Telecommunications Regulatory Authority (BRTI) has announced that the upcoming spectrum auction of 2 x 5MHz (2.1GHz band) and 1 x 30MHz (2.3GHz band) will be held in October. Our previous channel check with BRTI officials suggests that the 2.1Ghz band was transacted at about USD40m per 5MHz at the previous auction. Assuming that the price does not change, this implies that the 5MHz and 30MHz blocks would account for approximately 3%/10%/10% and 10%/50%/50% of Telkom, XL and Indosat’s FY17F capex respectively. PT Telkom and XL may bid for both blocks, while Indosat would only bid for one block. A likely scenario of the auction results may be Telkom winning one block, while the remaining block would be won by either XL or Indosat.

Telkom and XL Axiata (XL) have the highest data traffic/spectrum owned and financial muscle. Representatives from Telkom and XL have both indicated that the companies are willing to bid for both blocks, while Indosat would only bid for one block. This is understandable – as Telkom has the biggest balance sheet, its data traffic/spectrum is also the highest in Indonesia. This is followed by XL and Indosat. In terms of flexibility to bid for the blocks, according to their net gearing levels, the descending order would be as follows: Telkom (0.14x), XL (0.6x) and Indosat (1.5x). We also believe Indosat would be the least flexible player, as it may be pressured to raise capex to build base transceiver stations (BTS). It currently has the least BTS, among the top three telco operators. (Norman Choong, CFA)

$TLKM $EXCL $ISAT

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