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Business deals

Indonesia's No. 2 telecom emerges in Qatar-Hong Kong deal

Ooredoo and CK Hutchison seek greater scale in nation of 195m mobile users

Commuters in Jakarta: Ooredoo and CK Hutchison seek greater scale for their Indonesia wireless carrier.   © Reuters

JAKARTA -- Qatari communications company Ooredoo and Hong Kong conglomerate CK Hutchison Holdings have agreed to merge their Indonesian telecom businesses in a deal to create the country's second-largest mobile network operator.

Both companies said in a statement Thursday they had signed "definitive transaction agreements for the proposed merger" of Indosat Ooredoo and Hutchison 3 Indonesia. The combined entity will have an estimated annual revenue of about $3 billion, they said.

Indonesia has seen a surge in mobile data usage during the COVID-19 pandemic, as demand for internet-based services surged amid government efforts to curb social activities. With data demand expected to continue to increase, mobile network operators will need to increase infrastructure investment, a drag on the companies given that Indonesia is a vast archipelago with 17,000 islands.

Indosat Ooredoo was the third-largest telecommunications operator in Indonesia with a 13% market share in 2018, according to data from the Ministry of Communication and Information Technology. Hutchison 3 Indonesia was ranked fourth with a 7% market share. State-owned Telkomsel was the market leader, controlling 60%.

The merger "will create a company with the strength and scale to accelerate Indonesia's digital transformation and improve network performance and customer experience across the country," said Aziz Aluthman Fakhroo, managing director of Ooredoo Group.

Canning Fok, group comanaging director of CK Hutchison, said the merged entity will "be better positioned to extend the rollout of its network and enhance service quality and speed." 

Indonesia had 195.3 million mobile internet users in 2020, according to a research by We Are Social.

The talks were first announced in December.

The merged company will be renamed Indosat Ooredoo Hutchison and remain listed on the Indonesian Stock Exchange. After the series of transactions under the deal, Ooredoo and CK Hutchison will hold a controlling stake of 65.6% through another entity. The government's stake will be reduced to 9.6%.

The merger of two Indonesia telecom companies will lessen the burden of network investment, especially as the country looks to expand its telecommunications networks further into remote parts of the archipelago. Both companies "own highly complementary infrastructure and the combination of these assets will also enable the merged company to benefit from cost and CAPEX synergies," they said in the statement, adding that they hope to achieve annualized pretax synergies of $300 million to $400 million over three to five years.

Ratings agency Fitch Ratings said in a memo in August that "industry consolidation should support price stability and profitable growth, although [state-owned] Telkomsel and [its parent] Telkom are likely to retain their key positions in mobile and fixed broadband markets due to their nationwide network infrastructure."

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