Competition drives down profits at Indosat, XL Axiata

1 May 2012

Indonesian telecommunications group PT Indosat has reported a 96.5% slump in first-quarter net profit to IDR16.7 billion (USD1.8 million) from IDR483.7 billion in the first three months of 2011, on revenue which climbed 2.1% year-on-year to IDR4.98 trillion. Earnings before interest, tax, depreciation and amortisation (EBITDA) during the period increased 3.7% y-o-y to IDR9 billion. Indonesia’s second biggest telecommunications firm by subscribers said that despite intense competition in the increasingly saturated local market, its cellular subscriber base rose almost 14% y-o-y to 51.58 million in the first three months of the year. Furthermore, The Jakarta Post notes that Indosat rival, PT XL Axiata, also recorded slower net profit growth in 1Q12 due to price pressure in the competitive mobile market. XL Axiata booked an 11% y-o-y decline in net income to IDR667 billion in the first three months of the year, on revenue which increased 9% to IDR4.96 trillion – fuelled by a 71% hike in data revenue. The cellco increased its own subscriber base in the year to 31 March 2012, to 46.4 million, up from39.3 million in 1Q11. The paper adds that XL Axiata recorded paid CAPEX of IDR1.76 trillion in 1Q12 and secured a new loan agreement in March with Bank BCA for IDR 1.1 trillion, which has upped its overall debt from IDR9 trillion in 1Q11 to IDR11.5 trillion.

Commenting on the two firms’ performance in the first three months of this year, local analyst Reza Priambada said: ‘These companies are mainly offering the same products and targeting the same market. They basically cannot benefit from the increasing number of subscribers, because they offer cheap telecommunication packages to get subscribers, and apparently they cannot overcome it.’

By contrast the market’s leading player by subscribers Telkomsel reported a strong Q1. As reported by CommsUpdate, the cellco’s parent PT Telekomunikasi Indonesia (Telkom) last week reported a 17.5% rise in group net income for the three months ended 31 March 2012 to IDR3.32 trillion, its highest for six years, fuelled by strong growth at Telkomsel. Turnover from the group’s cellular business expanded by 6.5% y-o-y to IDR7.20 trillion (accounting for 40% of group sales), while net profit climbed 23% y-o-y to IDR3.50 trillion as the mobile arm closed out March with a total of 109.88 million subscribers, up 10.6% on the corresponding year-earlier period.

Indonesia, Indosat Ooredoo (incl. IM2), XL Axiata