Link to PDF: Indonesia Telecommunication (MNO) Industry
With MNO stocks falling, questions remain whether a buying opportunity arises. We believe that more rational competition, 5G’s arrival, and opportunities from fixed broadband & FMC initiative can help MNOs get back to their feet.
First, SIM-registration policy and the shift from legacy business curbed MNOs’ growth. While the proportion from legacy business is now smaller, aggressive unlimited offerings intensify the competition. As a result, MNO’s revenue growth slowed down more significant than data payload.
As it stands, the competition is more rational thanks to players pulling back their aggressive unlimited offerings. Yet, investors should note as history tells us, competition is always here to stay. It is not impossible for intense competition to be back in the game.
Second, we believe that 5G is the new theme in the competitive landscape. Indeed, 5G can drive data usage and offer faster download speed and lower latency than its predecessors. Yet, MNOs would have to spend money to acquire spectrum (since 5G will require more capacity), not to mention annual fees, and to expand their network. Data monetization becomes increasingly, if not already, important, as 5G that will come with massive investment must economically make sense. Mid-band spectrum could offer a competitive advantage with faster speed than low-band and better propagation characteristics than mmWave spectrum.
Take, for instance, T-Mobile that acquired Sprint’s mid-band spectrum. As a result, competitors such as Verizon and AT&T had no choice but to spend billions of dollars for the C-band spectrum in order to compete with T-Mobile.
Hence, we believe that an MNO with extensive mid-band spectrum holdings might be able not only to gain market share in the 5G space but also to provide incentive for customers to upgrade to premium plan (data monetization). Those with low debt levels and massive free cash flows should have an advantage.
Lastly, while the fixed-broadband market remains largely untapped, the competition intensifies with more players coming into town and offering aggressive pricing. Operators such as EXCL and TLKM came up with Fixed Mobile Convergence (FMC) initiative as a competitive differentiation, which integrates fixed and mobile broadband to produce a seamless experience for customers. The FMC initiative could help operators cut operational expenses or Capex spending, lower mobile churn, and upsell their customers.
As valuations appear to be more attractive than international peers and shares have been falling, MNOs’ stocks might be worth considering. Risks include intensifying competition in the mobile market, high spectrum price, and a price war in the fixed broadband market.
Picture source: Photo by Tracy Le Blanc – Pixabay
Disclaimer: This is only for education not a recommendation.