Telco

Tracking the Progress of Product Simplification Plan

• We see TLKM with the greatest product simplification potential, EXCL with room to streamline, and ISAT well-positioned for price increases.
• Simpati, IM3, and XL have room to improve ARPU by shifting away from high-volume, low-yield packages toward mid-range offerings.
• We reiterate our OW rating on the sector amid momentum in price repair; ISAT remains our preferred pick.

TLKM, EXCL: Potential for simplification; ISAT: room for price upside

TLKM, EXCL, and ISAT are set to implement product simplification strategies aimed at reducing price cannibalization. By tracking the data and combo packages (exc. add-on & short duration packages), we note that TLKM currently has the highest SKUs at 214, followed by ISAT with 154 SKUs (Hutch + IM3) and EXCL with 139 SKUs (including Smartfren). As a result, we see TLKM to have the largest upside potential for product simplification. We believe that post the merger EXCL has room to streamline its portfolio by eliminating overlapping products, especially in Smartfren’s combo packages. Meanwhile, ISAT appears to be better positioned to raise prices as IM3, as its first-tier brand still offers discounts of 29% to Simpati’s data yield.

Targeting the elimination of high-volume data packages

Based on our observation, Simpati, IM3, and XL rely heavily on low-yield, high-volume packages (>100GB), which is understandable as they serve as the flagship brands. We think these large data packages are likely to be reduced under the product simplification strategy. A >100GB package for 30 days is excessive, given Indonesia's average monthly consumption of 14GB, and could also cannibalize their fixed broadband. With >100GB packages making up 21% of Telkomsel's, 26% of IM3's, and 29% of XL's portfolios, phasing out some of these low-yield plans in favor of more efficient mid-range offerings (5–50GB) could be a potent strategy to lift ARPU.

Starter pack rationalization lowers cannibalization risk from second brands

All operators currently manage multi-brand structures, with second brands like Axis, Hutch, and By.U targeting mass or youth segments, typically offering a ~30% discount compared to their flagship brands. Post merger, EXCL-Smartfren, now still operates three brands (XL, Axis, Smartfren) with no plans yet to phase out any of them. Despite similar data yield to the second brands (of around Rp2.9k), By.U is at a slight premium (Rp3k) but with a 41% discount to Simpati, potentially posing a significant internal cannibalization risk. However, we believe the starter pack rationalization to Rp35k for 3GB creates a strong switching barrier and helps mitigate churn. Meanwhile, Simpati’s bundling strategy, which includes 105 combo SKUs and 113 short-duration packages, offers better value compared to By.U which only focuses on core data package, hence should reinforce customer loyalty and ARPU retention.

Reiterate OW rating on the sector

We reiterate our Overweight rating on the Telco sector, supported by ongoing price repair and further upside potential from continued product simplification. Our top pick remains on ISAT (Buy, TP Rp2,600) on the back of the potential higher ARPU uplift compared to its peers.

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