EXCL-FREN merger is necessary, govt says

Telco - EXCL-FREN merger is necessary, govt says Information and Communication Ministry is aiming to push further consolidation in telecommunication industry as rumours over EXCL-FREN merger has been swirling in the past weeks. According to government, consolidation is still needed in order to improve data service, encourage healthier competition and help support MNOs financial performance that has been battered by prolonged stiff competition. Given that, the government is aiming to limit the number of MNOs operating in Indonesia to only three from currently four mobile providers. (Source : Detikfinance) Comment : As speculation of EXCL-FREN merger is rife, we expect possible merger will be beneficial for industry as a whole especially amid mounting pressure to invest more networks in ex-Java and upcoming adoption of 5G. For EXCL-FREN, the corporate action should warrant the resulting entity to enrich its spectrum portfolio (EXCL: 900 MhZ, 1,800 MhZ and 2,100 MhZ and FREN: 850Mhz and 2,300 MhZ), which enables it to gain competitive edge, improve cost efficiency through synergy and enlarge market share. However, we note that FREN's high leverage could be a stumble block for merger talks, in addition to FREN's high valuation as of 1H23 that stands at 6.2x EV/EBITDA (VS 2.6x EV/EBITDA of EXCL). On the other hand, towerCos could be the losing side of continuous consolidation in telco as it has been facing pressure on lease fees especially for less diversified towercos.