JAKARTA -- Qatari communications company Ooredoo is in talks with Hong Kong conglomerate CK Hutchison Holdings over a merger of their Indonesian telecommunications businesses, a deal that would create the country's second-largest mobile network operator.
Ooredoo said on Monday in a statement that it had entered into "an exclusive and non-legally binding memorandum of understanding" with Hutchison over the potential merger. The exclusivity period runs until the end of April, according to the statement.
Ooredoo owns 65% of Indosat Ooredoo, Indonesia's third largest telecommunications operator with 13% of market share in 2018, according to data from the country's Ministry of Communication and Information Technology.
The government of Indonesia also owns a 14% stake in the company. Indonesia 3 Hutchison, meanwhile, is the fourth largest telco operator and has 7% market share. State-owned Telekomsel is the market leader, controlling 60%.
Ooredoo said in a statement that it "is in the early stages of assessing the merits" of a merger but stressed it had not entered any binding agreement. Hutchison also said it had not taken any decision on the potential merger.
Indonesia has seen a surge in mobile data usage during the COVID-19 pandemic, as students were forced to take classes online and demand for streaming services shot up. With data demand still expected to continue to increase, mobile network operators will need to increase their infrastructure investment, a drag on the companies given that Indonesia is a vast archipelago with 17,000 islands.
A potential merger of two Indonesia telco companies will lessen the burden of investment, especially as the country looks to move on to fifth-generation networks in the near future.
Fitch Solutions had said in a report in May that a consolidation of the industry "will reduce duplication of new network investments, especially so given that all of the smaller operators are engaged in building out services outside of the main island of Java." It also said that a consolidation will allow coordinated rollouts of these networks, and ensure quicker expansion of connectivity in more rural areas.