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Indonesia Telcos' Capex to Stay Flat, Competition Easing

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Fitch Ratings says that the credit profiles of Indonesia's top three telcos will remain stable, given flat capex and rational competition. However, potential tower sales could lead to deleveraging for XL Axiata and Indosat.

Average capex/revenue is likely to stay flat at around 25%-26%, driven by network expansion in 3G/4G and fibre broadband. Fitch also does not foresee a strong pick up in tower capex for independent tower companies as they focus on co-locations - which are less capex-intensive - due to the current excess tower capacity.

Fitch expects industry revenue to grow by the mid-single-digit percentage, driven by stronger data growth and cheaper smartphones. The smaller telcos' focus on profitability rather than market share should ensure continued price discipline. However, the structural change in revenue mix could result in the average operating EBITDAR margin narrowing to around 43% (2015F: 45%).

A faster-than-expected industry consolidation leading to higher data tariffs, and which results in better profitability for the top three telcos, could lead to a positive rating outlook on the sector. However, significant debt-funded M&A or higher-than-expected dividends could turn the sector's outlook to negative.

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Tags: fitch ratings  xl axiata  indosat  Indonesia