Telco

Selective competition and limited Starlink threat imply a constructive outlook; maintain OW

 

  • Our survey reveals that TSEL’s launch of TSEL Lite and non-Lite packs is targeted toward select segments; hence a marginal impact on IOH/XL.  
  • We expect Starlink to play a complementary role in Indonesia’s remote areas, but shall offer inferior overall value to residential customers.
  • We maintain OW as the sector’s outlook remains constructive; ISAT is our top pick on the strongest earnings potential in 2Q24.

TSEL focus on 30day small quotas, fitting well with its FMC narrative. 

Our latest price survey reveals that TSEL offers reloads starting from Rp19.9k for 30day Hot Promo Lite 6GBs in an effort to entice TSEL Lite subscribers to keep consuming. The 30day Hot Promo Lite/ Non–Lite 15GBs (which is above the avg. monthly usage/sub) is priced at Rp28k/31k. Moreover, it is offered at a price as low as Rp14k (30day Combo Sakti 6GBs, yields Rp2.3k/GB) to encourage TSEL legacy users to adopt more data consumption. TSEL also offers Internet Sakti 12GB at Rp33k, hence enticing the user with free OTT subscriptions. Overall, we believe these offerings fit with TSEL’s narrative to grab the low-end users who may potentially become FMC users with Indihome.

TSEL positioning at the low-end shall have a marginal impact on IOH/XL.

Indosat's 30-day packs start at 3GB/5GB for Rp23k/35k, and XL’s 30-day packs start at 13+7GB for Rp54.5k and 16GB for Rp59.9k, with the flagship products’ nominal prices relatively unchanged in Apr-May24. While we see TSEL positioning itself at the low end/low usage segment (through TSEL Lite sims and existing portfolio), these offerings are observed in young vintage sims (2-12months) and do not occur for older vintage SIMs or high usage customers. The lack of retaliation from IOH and XL, as shown in our survey, suggests that TSEL’s low-end focus shall be seen to have only a marginal potential impact on the conduct of IOH/ XL, who target productive users.

Neutral stance on Starlink: its role is complementary.

Satellites incl. Starlink provide coverage in rural areas with acute connectivity limitations, underserved by telcos. While Starlink Leo-satellite’s lower latency potentially has a higher commercial value for residential users, it has finite capacity. Furthermore, the ~6,000 Starlink satellites aim for global connectivity instead of being country-specific, while local players can scale up network capacity efficiently and have established distribution networks with a comprehensive user ecosystem (exh. 11,12). Thus, we believe the satellite service will complement the terrestrial telco infras and the potential LT advances in satellite technology remain questionable. 

Maintain Sector OW rating; our pecking order is: ISAT> EXCL > TLKM 

We conclude that TSEL’s conduct does not appear to come in direct competition with its peers while concerns on Starlink are overdone. We maintain our sector OW rating with a preference for ISAT (Buy, TP Rp13,300) on the highest earnings upside potential in 2Q24 and EXCL (Buy, TP Rp3,300) as our second pick amid pending potentially value-accretive corporate actions. We maintain our Buy rating on TLKM (TP Rp4,400) on potential value generation from its superior coverage and fiber investments. 

 

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