Latest Development: Mobile network operators (MNOs) active in Indonesia’s telecoms market have partnered with the Ministry of Communication and Informatics (MCI) to deliver new incentive proposals to accelerate 5G deployment. Our view is that profitability boosts are unlikely to be obtained by amending regulatory charges surrounding the Non-Tax State Revenue (PNBP) system derived from 5G frequencies allocated.
The establishment of a ‘5G Incentives Task Force’ follows a period of bearish capital expenditure (capex) that has temporarily slowed new 5G rollouts nationwide. MNOs are highlighting the issue of profitability associated with new network deployments, and have asked to amend the PNBP charges that apply to operator revenues. The PNBP framework charges approximately 11%-12% of MNOs’ revenues, which can increase to 15% if there are additional spectrum frequencies to be managed. Operators are asking the MCI to cap regulatory charges at 10% to maintain profitability.
Forecast Implications: Our view is that a cap on the PNBP charges is unlikely to significantly boost MNOs’ optimism toward new 5G rollouts, let alone their profitability. We maintain our current forecasts that anticipate 213.7mn 5G subscribers in 2032 for a penetration rate of approximately 72%. Our expectations are optimistic and only partly account for MNOs’ bearish stance toward new network deployments in H123.
This is because we believe that non-capex intensive strategies are already wearing off in Q323. Latest results for Indosat Ooredoo Hutchison (IOH) show that the operators recorded a capex of IDR7,732bn (USD500,000), up 86.9% from the previous quarter. Between the same periods, capex to revenue ratios increased to 27.2%, meaning a 12.6% increase. Under our view, the prospects offered by organic revenue growth across the country outweigh the profitability challenges associated with 5G network rollouts since only 49 cities have deployed 5G connectivity.
