Latest Development: Reportedly, Axiata Group is exploring options to sell part or all of its interest in Indonesian broadband and cable-TV subsidiary, Link Net. The aim is to raise USD400-500mn to assist with the latter’s transformation into a national wholesale fibre infrastructure provider that would complement Axiata’s core retail fixed-mobile operations.
Forecast Implications: Driven by mounting debts and rising operational costs in challenging markets, the Group has, as of late, been actively pursuing asset divestment and consolidation across its Southeast Asian footprint, with recent transactions including the sale of its Nepalese unit and the opening of discussions that may potentially lead to a merger with rival Smartfren in Indonesia. Asian digital infrastructure assets are securing considerable interest from private infrastructure investors working across markets in Asia, a trend that is gaining momentum as we have outlined in our Technology Key Themes for 2024. Offloading all or part of Link Net (yet maintaining direct or indirect access to its infrastructure) would allow Axiata to focus on its core retail fixed-mobile services business and secure a useful one-off financial input that would help pay down debt.
Analysis: The Indonesian mobile market is characterised by intense competition that is already putting pressure on average revenues per user (ARPUs), particularly in the low-value segment where price sensitivity is high and customer loyalty is often fluid. This environment has led to a landscape where consolidation is not just a strategic option but a necessity for survival and growth. The potential merger of Smartfren and XL Axiata, which resurfaced in discussions in H223, is a testament to this trend. If realised, this merger would create a new entity with a combined mobile market share of 27.1% according to our estimates, positioning it as a stronger competitor against IOH (28.1%) and narrowing the gap with the market leader, Telkomsel, which commands 44.8%.
