Telkomsel major shareholders Singapore Telecommunications (Singtel) and Indonesian telecommunications firm Telkom have signed an agreement to spin off and integrate Telkom’s fixed broadband business IndiHome into Telkomsel.

Singtel said in a statement the move will create an entity worth IDR 58.3 trillion ($3.84 billion).

According to the statement, the spin off and integration are in line with Telkom’s Fixed Mobile Convergence (FMC) initiative, and the signing of this preliminary agreement is a crucial step in implementing TelkomGroup’s strategy to bring about more choices and a better broadband experience, realize digital inclusion in Indonesia, and strengthen TelkomGroup’s business.

The transaction will be value accretive for Telkomsel and has received the support of Telkomsel’s shareholders Telkom and Singtel.

For Singtel, this integration aligns with its strategic reset principles of pivoting towards higher growth businesses, while reinforcing its commitment to Indonesia.

IndiHome is 100 percent owned by Telkom and is the largest fixed broadband business in Indonesia.

The broadband business has a 75.2 percent market share in Indonesia, one of the fastest growing fixed broadband markets globally with a penetration rate of some 14 percent compared to 40 percent across Southeast Asia.

It is noted that fixed broadband average revenue per user (ARPUs) are some six times that of mobile in Indonesia and with rising affluence, fixed connections are poised for significant growth.

As the consideration for the IndiHome spin off is through the issuance of new primary shares in Telkomsel, there would be an increase of Telkom’s shares in Telkomsel, comprising Telkom 70.4 percent and Singtel 29.6 percent upon legal completion of the spin-off.

At the time of the integration, Singtel has agreed to exercise its pre-emptive right to purchase another 0.5 percentage point share in this enlarged entity by subscribing for new primary shares of Telkomsel post-integration, for IDR2.7 trillion ($178 million) in cash.

This brings its effective interest in Telkomsel to 30.1 percent, meanwhile Telkom goes to 69.9 percent.

With this strategy involving IndiHome and Telkomsel, business to consumers (B2C) in Telkom Group will be fully managed by Telkomsel, while Telkom’s operational focus will be on business to business (B2B).

The FMC initiative is expected to strengthen TelkomGroup’s position as an integrated telco to address customers’ evolving needs and create synergies through their extensive customer network.

“The integration process of broadband services for TelkomGroup’s retail customers is part of Telkom Group’s ‘Five Bold Moves’ business transformation to strengthen the company’s position as a market leader in digital telecommunications in Indonesia,” said TelkomGroup Chief Executive Officer Ririek Adriansyah.

According to him, this integration within one of Telkom’s flagship arm -Telkomsel – allows the public to access broader broadband services, provide seamless experience where customers can move freely without worrying about losing service, and to realize digital inclusion.

TelkomGroup’s business transformation also allows the company to operate more effectively and efficiently through focused business structures, including capital allocation and operational expenses.

“Telkomsel is enthusiastic about the achievement of the ongoing spin-off agreement process,

“Together with our shareholders, Telkom and Singtel, we believe that integrating IndiHome services will further strengthen Telkomsel’s position in the telecommunications and digital industry in Indonesia while proving our commitment to advance and expand our business portfolio, especially in Fixed Mobile Convergence services,” said Hendri Mulya Syam, President Director of Telkomsel.

He also said Telkomsel is committed to moving beyond expectations by providing cutting-edge products and services to its customers and consistently developing various integrated innovative services that can accelerate sustainable and inclusive digital access.

Singtel Chief Executive Officer Yuen Kuan Moon said that given the post-pandemic demand for high quality broadband and the global shift to fixed mobile convergence, this move will help Telkomsel entrench its position as Indonesia’s leading integrated telco and greatly enhance its growth prospects.

“We believe this is a rare opportunity for Telkomsel to tap into the high-growth fixed broadband market in Indonesia by partnering the country’s largest broadband operator which is profitable and cash generating,” he said.

Given the post-pandemic demand for high quality broadband and the global shift to fixed mobile convergence, he said this move will help Telkomsel entrench its position as Indonesia’s leading integrated telco and greatly enhance its growth prospects.

“Not only will customers get more choice and innovation, the enlarged entity will also reap significant cost synergies from the higher utilisation of networks and convergence of systems,

“We will work closely together with our long-time partner Telkom to help take the business to the next stage of growth,” he added.

The agreement is expected to be completed in the early third quarter of 2023.

South Korea’s SK Telekom partners Singapore’s Singtel to grow metaverse business in APAC