Telco

Entering the Real 5G Era: A Gradual Monetization Path

• Spectrum upfront cost and deployment capex should pressure MNO earnings; Monetization is unlikely to materialize immediately.
• Earnings drag should be cushioned by 1x upfront payment, special-case pricing, and lower 5G deployment capex vs regional history.
• Switch 3M Tactical to OW on ISAT/EXCL, driven by ISAT’s mispriced and EXCL’s priced-in merger clean-up; maintain TLKM Neutral.

Spectrum pricing should stay anchored by fair allocation

Balanced pre-allocation of the 700MHz and 2.6GHz blocks across TLKM, ISAT, and EXCL should limit aggressive bidding and keep clearing prices near the reserve. We set base-case spectrum cost at Rp35.8bn/MHz for 700MHz and Rp28.5bn/MHz for 2.6GHz, which we derived from a reserve-equivalent anchor of Rp29.8bn/MHz adjusted for band economics, and with a bull case at Komdigi's 50% fee cap (Rp23.6bn/MHz and Rp20.9bn/MHz, respectively). A lighter 1x upfront payment further eases the cash burden, with TLKM seeing a more contained impact at an estimated Rp2.3–3.3tr fee, or 3.2–4.6% of FY26F EBITDA, vs. 6.1–9.4% impact for ISAT and EXCL.

Entering the 5G capex cycle, but softer than regional peers

Regional precedent shows network capex stepping up after the 5G spectrum cycle, with APAC players’ intensity rising ~5ppt, Thailand up 9ppt, and Korea up 43% in 2019. With Indonesia's 5G connections still below 10% and coverage at 26%, we expect a similar deployment phase to begin but at a softer intensity than peers, supported by lower late-mover equipment costs and a likely reliance on NSA rather than a full 5G standalone rollout.

5G revenue upside remains a gradual story

Regional experience suggests 5G monetization comes through subscriber uptrading rather than higher data yield, as traffic growth of 1.7–2.7x outpaces the ~45% tariff premium; Korea's ARPU rose 9.9% post-launch while Thailand's only recovered after four years in 2024. In Indonesia, current 5G plans are not yet monetization-accretive as it is priced at a 5.4% discount to comparable 4G plans with 43% lower data yield. This implies the upside remains a gradual story contingent on wider coverage/ user penetration and 5G device penetration.

Switch 3M Tactical OW with ISAT and EXCL as preferred picks

Based on our assessment, we now see the spectrum cost risk as more quantifiable. This, and the recent de-rating, has us upgrading our 3M Tactical view to OW, with ISAT and EXCL as our preferred picks. While FY27F EBITDA cuts are uneven across MNOs, ISAT’s current valuation at 3.9x 26F EV/EBITDA (-1.7SD 3-yr mean) appears mispriced given its intact FY26F EBITDA growth target of 5.6% yoy. EXCL also offers improving risk-reward as merger clean-up costs appear largely priced in, with synergy realization expected from FY27F onward. We maintain 3M tactical for TLKM at Neutral on weaker near-term growth, unclear margin recovery, and potential capex guidance review.

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