Indonesia Telecom - Tactical competition

Tactical competition

Ahead of the mandatory implementation of the biometric subscriber registration on 1 July 2026, we are observing a renewed wave of competitive activity among cellular operators to capture new prepaid subscribers ahead of the policy cut-off. Under Indonesia’s Ministry of Communication and Digital (Komdigi) ministerial regulation No. 7/2026, a six-month voluntary transition period ran from January 2026, with full mandatory enforcement for all new SIM registrations taking effect on 1 July 2026. This pre-deadline competitive dynamic may weigh on 2Q26F operating performance for major cellular operators, in our view.

Our recent on-the-ground surveys indicate that starter pack (SP) pricing has compressed, with select offerings observed at IDR30k for 10GB of data — implying an average yield of approximately IDR3/MB. While this is broadly in line with the prevailing average data yield across operators, it represents a step back from the IDR35k entry price for 3–5GB of data that had become the de facto industry standard following the pricing reforms in 2025. Telkomsel (TSEL, not listed), Indosat (ISAT IJ, Buy), and XLSmart (EXCL IJ, Neutral) had broadly aligned their SP pricing at IDR35k for 3GB in 2025, signaling a degree of industry coordination. The current softening in SP pricing risks slowing down the recovery momentum in blended data yields, in our view.

Notwithstanding the near-term competitive noise around SP pricing, we remain constructive on the sector's medium- to long-term trajectory. Under the new regulatory framework, prepaid SIM cards that are not registered by the set deadline will be inactive by default and can only be activated following successful biometric registration — eliminating the "fake number" phenomenon that has historically inflated subscriber counts and depressed ARPU. The phased rollout — initially centered on operator outlets with on-site officer assistance — is designed to allow sufficient time for public education and adaptation. Over time, we expect this to structurally suppress new SIM activations, reduce multi-SIM ownership, and lower churn rates across the industry. A more disciplined subscriber base should provide operators with greater pricing power, creating conditions for a sustained recovery in data yields and ARPU, in our view.

We, therefore, view the major telco providers as key beneficiaries of the data yield recovery cycle, with the positive impact expected to become more visible from 2H26F as the biometric registration regime sets in and competitive SP dynamics normalize. We maintain Telekomunikasi Indonesia (TLKM IJ, Buy) as our long-term top pick within the sector, given its dominant network positioning, superior coverage depth, and highest leverage to a structural ARPU improvement cycle.

Valuation and risks

TLKM – Our TP of IDR3,650 is based on the DCF methodology, in which we assume a risk-free rate of 6.0%, an equity risk premium of 5.1% and a terminal growth rate of 1.5%. At our TP, the stock would trade at 5.8x FY26F EV/EBITDA (compared to 4.2x at the current price). Risks are adverse macroeconomics, lower data traffic growth, irrational competition, lower ARPUs, declining cellular revenue market share from outside Java and difficulties in getting new sites for network expansion.

ISAT – Our TP of IDR3,300 is based on the DCF methodology, in which we assume a risk-free rate of 6.2%, an equity risk premium of 7.4%, beta of 1.2x and a terminal growth rate of 2.5%. At our TP, the stock would trade at 5.1x FY26F EV/EBITDA (compared to 4.2x at the current price). Key risks include adverse macroeconomic trends that could impact purchasing power, lower price increases or subscriber base, high opex due to slower post-merger network integration, and/or irrational competition leading to price cuts.

EXCL – Our TP of IDR3,300 is based on a DCF methodology, in which we assume a risk-free rate of 6.2%, an equity risk premium of 7.4%, and a terminal growth rate of 2.5%. This results in a WACC of 9.0%. Given the recent share price performance, we maintain our Neutral rating. At our TP, the stock would trade at 5.5x FY26F 2026F EV/EBITDA (compared to 4.5x at the current price). Upside/downside risks include better/adverse macro conditions, higher/lower customer spending, more/less service price hikes leading to higher/lower data prices, and/or lower/higher opex.

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general.

GENERAL DISCLOSURE/DISCLAIMER
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ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this report and certifies that the views about the companies including their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.

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Research Analysts

Erwin Wijaya (erwin.wijaya@verdhana.id)

Tags: TELECOMS, Indonesia Telecom, Erwin Wijaya

Indonesia Telecom - Tactical competition

Tactical competition

Fig. 1: Saturated subs base ('000)

Fig. 2: Off bottom ARPUs IDR'000

Fig. 3: Industry data rev growth yoy IDRbn vs Ave yield IDR/MB

Fig. 4: Average data price IDR/MB

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Indonesia Telecom - Tactical competition

Fig. 1: Saturated subs base ('000)

Fig. 2: Off bottom ARPUs IDR'000

Fig. 3: Industry data rev growth yoy IDRbn vs Ave yield IDR/MB

Fig. 4: Average data price IDR/MB

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