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All the Connections

As we enjoy and embrace the conveniences of technology in almost every aspect of human life, from visible smart devices to invisible digital architectures like the cloud, platforms, and applications, going digital is no longer a dream in the foreseen future but in the present.

Even before the onset of the pandemic, numerous industries had already initiated their digital transformation processes, as competition is rife, and digitalization is mandatory for survival.

Minister of Economy, Airlangga Hartarto, predicts that the value of Indonesia's digital economy will approach USD 80 billion in 2023, marking a USD 3 billion increase compared to the previous year's digital economy value of USD 77 billion.

With this growth, Indonesia has solidified its position as a major digital economy player in the region, holding a 42% market share within ASEAN.

Source: ERIA

However, a well-functioning digital economy requires widespread access to high-quality internet. An examination of the primary indicators contributing to the digital divide—internet speed, usage, and technology production—reveals a significant disparity among ASEAN Member States (AMS).

I checked the real-time internet speed on the Ookla website yesterday, and it showed that Indonesia's speed is 21.95 Mbps, Singapore's is 211.36 Mbps, and Myanmar lags at 18.35 Mbps.

This highlights two key challenges: how to make Indonesia's fixed broadband internet access universal and how to increase Indonesia's internet quality.

Several initiatives have been taken, including investments by private service providers and government projects such as Palapa Ring and Satria-1. Moreover, a 12,000 km network and 8,100 BTS have been developed to steadily increase connectivity and service availability across Indonesian districts.

However, it seems that these efforts may be insufficient in addressing the key challenges, as internet subscriptions have not increased in parallel. While Indonesian mobile broadband data packages are relatively affordable compared to similar packages offered by regional peers, fixed broadband (FBB) packages are not.

According to the 2019 ITU rankings on fixed-line subscription fees, Indonesia ranked 131st in affordability out of the 200 countries and territories observed, confirming that Indonesia has one of the most expensive markets for FBB.

Source: ITU

To provide a clear picture, while the mobile broadband sector witnessed a price war in the past, the focus has now subtly shifted to the FBB market- an enduring competition in the telecom industry.

With the mobile broadband market now matured, XL Axiata (EXCL) is also strategically shifting its focus by continuously enhancing its FBB services. The company is achieving this by expanding coverage to 75 cities and districts through XL Home and XL SATU fiber services. According to a McKinsey report, FBB penetration in Indonesia is still at 15%, indicating substantial untapped market potential.

In 3Q23, EXCL boasted 206,000 XL Home service subscribers, with an impressive addition of 52,000 new customers from July to September 2023. As a cherry on top, even though FBB segment is very competitive, EXCL is one of the beneficiaries because of its FMC segment, a unique proposition not shared by other peers such as FirstMedia, Biznet, Iconnect, and Oxygen.

With its engaging offer, EXCL's FMC penetration for XL Home has reached 69% among its customer base, with ARPU consistently maintained at 42k, supported by a refined pricing strategy and the retention of quality subscribers.

Source: EXCL

The positive outcomes from expanding services and achieving convergence are evident in EXCL’s 3Q23 results; revenue was up by 10.19% yoy while EBITDA also demonstrated strong growth, increasing by 13% yoy.

Source: EXCL

In yesterday’s earnings call, the company assured that this positive trajectory would be sustained throughout the year, emphasizing a focus on cost management to enhance profitability by improving free cash flow and maintaining its capital expenditure; as you may know, EXCL's Free Cash Flow (FCF) has seen a significant increase of 53% YoY, and capital expenditures have decreased by 12% over the year.

Source: EXCL

With such positive results, we expect EXCL will continue to bolster its financial position, maintaining a robust bottom line and favorable EBITDA margin. Essentially, EXCL's positive performance sets a benchmark for the industry and this should enhance competitiveness moving forward for other players in this digital transformation.

Keep an eye out for our upcoming report, and we're excited to delve into the details with you!

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