Telco

Positive dynamics in mobile pricing and M&A catalysts to enhance execution in fixed BB

• IOH monetization tweaks will drive a 6–7% turnover increase in its tactical Hot Promo packs.
• TSEL's data payload spike during elections and Smartfren price hikes confirm our expectations for positive momentum in 4Q24/1Q25.
• We maintain sector OW rating as the imminent EXCL-FREN merger will improve competition and enhance confidence in fixed BB execution.

IOH improves monetization outlook with tweaks in 30-day packs and VAT

IOH has made strategic improvement to its offerings by shortening the validity period of its 30-day Hot Promo to 28 days. This adjustment is expected to encourage users to reload more frequently, potentially increasing turnover by 6-7%. Additionally, IOH has recently begun passing on VAT charges onto consumers, starting with smaller denomination packages of Rp5k and Rp10k. The plan includes extending this pricing strategy to more packages over time. By doing so, IOH aims to nudge users towards migrating to higher-value packs and encourage more spending.

Confirming positive trends: TSEL spike in traffic and FREN raising prices

TSEL experienced spike in data payload reaching 62Pb during regional elections (+10% vs. average 56Pb in 3Q24). This is inline with our thesis for positive seasonality in 4Q/1Q25. Meanwhile, Smartfren raised prices in its Kuota series by +2-6%. It also raised its Unlimited Non-Stop prices by +3-14% in exchange for higher local quota. As per Smartfren, it sees positive pricing trends in the market and room to deliver stronger value proposition.

Fixed Broadband Expansion is the key growth driver in 2025

We expect fixed broadband (Fixed BB) to become a pivotal strategic growth area for telcos in 2025, with subscriber acquisition largely hinging on their ability to deliver more competitive and economically attractive pricing for end users. (pls see: Telco FY25 Outlook). Kominfo data identifies 1,209 registered ISPs, 770 of which have entered the market in the past four years (often identified as ‘RT-RW net’), operating under minimal regulatory oversight. We estimate these ISPs collectively serve over 1.2mn households, with approx. ARPU ~Rp150k. This fragmented market presents a low hanging fruit opportunity for telcos to capture new subscriptions by leveraging pricing and service quality differentiation to outcompete smaller players.

Sector OW: Positive dynamics with Fixed BB and M&A catalysts

The latest developments in mobile and fixed BB reinforce in the sector’s positive trajectory. TSEL is actively promoting By.U as part of broader strategy to cross-sell to IndiHome and maximize network utilization. Additionally, the EXCL-Smartfren merger appears imminent, indicated by the resignation of EXCL's CEO and the rescheduling of Axiata's analyst day. These dynamics create an opportunity for market stabilization and focus on fixed broadband. These dynamics create an opportunity for market stabilization and refocus on fixed BB priorities. We maintain Sector Overweight rating, with preferred pick on ISAT (Buy, TP Rp3,800). Key risks are heightened competition and payload uncertainty linked to online gambling.

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