• XL Axiata and Smartfren have been in merger talks for months
• Now their parent companies have agreed a $6.5bn deal
• If the merger is approved, they will create Indonesia’s third-largest operator, with 94.5 million customers

In a highly anticipated move, two of Indonesia’s telcos, XL Axiata and Smartfren, have agreed to merge in order to form a single operator valued at 104tn rupiah ($6.53bn) with 94.5 million mobile customers, which can better compete with market leaders Telkomsel and Indosat Ooredoo Hutchison (IOH).

The parent companies of the two operators – Axiata Group and Sinar Mas – have been in M&A discussions since May and have finally reached an agreement to form a company called XLSmart (or PT XLSmart Telecom Sejahtera Tbk, to give it its full name). Each parent company will hold a 34.8% stake in the merged company, with the rest of the shares being traded publicly. 

Based on data from the end of September, XLSmart will have a mobile market share of 27%, annual revenues of 45.4tn rupiahs ($2.85bn) and annual earnings before interest, taxes, depreciation and amortisation (EBITDA) of 22.4tn rupiahs ($1.4bn). Axiata Group will bank $400m when the deal completes, which is expected to happen during the first half of 2025, and up to $75m extra if certain targets are met during the first year of XLSmart operations. The companies believe they can find up to $400m of annual operating cost savings by merging the two companies “through strategic network integration and resource optimisation,” which will no doubt include job cuts.

“Uniting two of Indonesia’s most trusted telecommunications operators with further market consolidation will foster a healthier competitive environment and advance the nation’s digital transformation agenda through enhanced services, improved network quality, and greater capacity for innovation,” noted Axiata Group in this press release. 

And in this announcement, XL Axiata added that “XLSmart will have the scale, financial strength, and expertise to drive investments in digital infrastructure, expand service coverage, and foster innovation for customers while contributing to a healthier and more competitive market.”

Vivek Sood, CEO of Axiata Group, noted: “We firmly believe that industry consolidation paves the way for a more connected Indonesia and ASEAN [Association of South-east Asian Nations], bridging the digital divide to foster a thriving and inclusive future where communities and businesses flourish. This merger is an important step in laying the foundation for a robust digital economy. It will allow us to cater to the unique infrastructure demands of the Indonesian archipelago by providing a scalable platform that will enhance service coverage, product offering and quality of network experience. Synergies derived from [the] merger will improve shareholder value and will be partly reinvested in future growth opportunities.”

Indonesia’s mobile market leader, Telkomsel, has more than 170 million customers, while Indosat Ooredoo Hutchison (IOH) has just over 100 million. 

IOH was formed at the beginning of 2022 through the merger of Indosat Ooredoo and Hutchison 3 Indonesia, a move that reduced the number of mobile operators in Indonesia, the world’s fourth-largest country by population (278 million), from five to four. 

If XL Axiata and Smartfren merge, that number will drop to three and it seems likely that the impact on competition in such a large market will be the main regulatory hurdle that Axiata and Sinar Mas will need to overcome.

- Ray Le Maistre, Editorial Director, TelecomTV