【XL and Smartfren Merge】What Happens to Indonesia’s Telecom Industry After Merge? From Telecom to AI & Service Development? ????

?? XL and Smartfren Are Merging!

Indonesia’s telecom industry is about to change! The number of major telecom companies will shrink to just three. Indonesia, which has the 4th largest number of mobile phone contracts in the world, is shifting from price wars to competition in AI and entertainment services.

The third-largest telecom company, XL Axiata, and the fourth-largest, Smartfren, will merge in early 2025. At a press conference in December 2024, Vivek Sood, the CEO of Axiata Group (XL Axiata’s parent company), emphasized: "Consumers will see long-term benefits only after this industry reorganization."

The new company will be called “XL Smart Telekom Sejahtera”, with 94 million mobile contracts, capturing about 26% of the market.

?? Indonesia’s Telecom Industry Today

Currently, Telkomsel, a subsidiary of the state-owned Telkom Indonesia, is the largest telecom company, holding 45% of the market. The second-largest is Indosat Ooredoo Hutchison, with 28%.

About 10 years ago, Indonesia had around 10 telecom providers, but now it’s down to three. This will likely reduce extreme price competition. Over 90% of mobile contracts in Indonesia are prepaid, meaning customers can switch providers easily, making the market very competitive.

XL Axiata reports that its ARPU (average revenue per user) as a percentage of GDP is 0.6% in Indonesia. This is lower than Vietnam (1.2%) and Thailand (1.1%), showing that profitability in Indonesia is still low compared to the country’s large economy.

?? From Investment Phase to Profit-Making Phase

Indonesia is made up of about 17,000 islands, making network infrastructure very expensive to build.

?? "Globally, telecom companies spend about 12% of their revenue on infrastructure investment, but in Indonesia, it's 20%," says a telecom executive.

Telecom companies struggling with low profits have merged to improve efficiency and reduce competition. This merger is the final step in this industry restructuring.

• XL Axiata’s net profit margin in 2023: 4%
• Smartfren was operating at a loss

By removing duplicate base stations, the new company expects to increase profits by $300–400 million.

With better profits, they plan to invest more in 5G and AI. For example:

• XL Axiata has already spent over 1 billion rupiah to train AI specialists.
• AI is being used in customer service to answer inquiries faster.

The new company’s ownership will be:

• 34.8% owned by XL Axiata’s parent company, Axiata Group, which specializes in digital businesses like fintech.
• 34.8% owned by Smartfren’s parent company, Sinar Mas Group, which operates data centers.

They plan to combine their strengths to develop new services.

?? AI & Service Development

Indosat Ooredoo Hutchison, which merged in 2022, is already showing strong growth.

• Base station integration saved them $600 million.
• Net profit margin (excluding temporary factors):2022: 3%Jan–Sept 2024: 9%

This profit increase allowed them to invest more in digital services and AI.

CEO Vikram Sinha stated: "We will become a world-class, AI-native telecom company."

Indosat plans to:

• Spend $200 million to train AI specialists and develop AI-based services.
• Build an AI research & service center in Solo, Central Java.
• Open facilities in Solo and Papua where people can experience AI technology.
• Train 1 million AI specialists by 2027.

?? Partnering with IT Companies for AI Development

Indosat is also working with GoTo (Indonesia’s IT giant) to develop AI models adapted to Indonesian culture.

• In November 2024, they launched an open-source AI language model (LLM) trained in Indonesian languages.
• AI now analyzes customer usage patterns and automatically recommends the best contract plans through a smartphone app.
• In addition to keeping customers loyal, AI-driven services will become a new revenue source.

Meanwhile, Telkomsel, Indonesia’s largest telecom provider (160 million contracts), is focusing on entertainment.

• In September 2024, they launched "MAXstream Studio" to produce movies and dramas exclusively for their customers.
• Their app, "MyTelkomsel", is evolving into a super app that allows users to:Pay for phone billsBook travelWatch exclusive content

Currently, MyTelkomsel has 40 million users, double the number of Gojek users (20 million).

?? What’s Next?

According to Twimbit, a Singapore-based research firm:

• Indonesia has the 4th largest number of mobile contracts in the world (350 million).
• The market is growing at 6% per year.
• By 2027, the market size is expected to reach $20 billion, up from $13 billion in 2022.

The growth of telecom revenue will help expand Indonesia’s digital entertainment market. This could boost overall consumer spending and further drive economic growth.

?? With AI and digital services becoming more important, Indonesia’s telecom industry is evolving beyond just communication! What do you think?

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