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Starlink: A potential threat to local players due to its advantages
Elon Musk's satellite-based internet service, Starlink, was introduced in Indonesia in May-24. This service has the potential to intensify competition among telco players in Indonesia in medieum to long term. Initially, the service will be concentrated in rural and remote areas across Indonesia. Compared to conventional telco and tower companies, which require expensive, land-based infrastructure to provide quality network, Starlink, being satellite-based, has advantages: 1) No after-sales services, 2) No technician costs, 3) minimum marketing costs, making Starlink far more efficient than telco companies which usually spend big on opex (1Q24 opex/sales: 1) TLKM: 69.7%, 2) ISAT: 79.9%, 3) EXCL: 83.5%). As of May-24, Starlink boasts a constellation of over 5,200 operational satellites, beaming internet access to 2.7 million subs across 75 countries. We noticed that Starlink cut its prices by ~60% within 2-3 years after its launch in most of those countries. At the moment, Starlink’s price package in Indonesia starts at IDR 750k/month (USD 45.7), and if the same strategy is applied, the starting price will go down to IDR 300k/month (USD 18.3), lower than Indonesia’s current FBB ARPU of IDR 350k/month (USD 21.3).
Direct-to-cell services using satellite-based phones
Elon’s next plan is to create direct-to-cell services for Starlink users, enabling them to access Starlink services directly through their smartphones. According to the pipeline, the company will release the prototype for text services in late 2024 and voice, data, and IOT services in 2025. Looking at the business model, Starlink will need to partner with local operator(s) to use their spectrums. Given TLKM’s huge mobile subscriber base outside Java ISAT’s strategy to expand to rural areas and have the largest spectrums market share of 36.5% and 29.9% respectively, they are the most likely partners for Starlink.
May-24 FBB price package updates: Lower yield post Starlink’s entry
As Starlink set its foot in Indonesia, we noticed aggressive price adjustments by smaller FBB players in May-24. ICON+ (Java and Bali) cut its premium subscription fees from IDR 560k (USD 34.1) to IDR 399k or USD 24.3 (100 Mbps) and from IDR 330k (USD 20.1) to IDR 299k or USD 18.2 (50Mbps), bringing overall effective yield to IDR 5.6k (USD 0.3)/mbps (-10.5% m-m). The same, lower-yield strategy was used in Sumatera + Kalimantan, with ICON+’s effective yield now standing at IDR 8.0k (USD 0.49)/Mbps (-8.0% m-m), while in Eastern Indonesia, monthly subscription fees for 35Mbps and 50Mbps packages were +10.0% m-m and +9.5% m-m respectively. Balifiber also cut the headline prices on Xtreams internet combos -10.6% m-m and launched new internet combos called Pandawa Xtream with initial subscription fee of IDR645k or USD 39.3 (250 Mbps) with 70+ TV channels, bringing overall effective yield to IDR 9.6k/Mbps (-2.9% m-m). Meanwhile, the ‘bigger’ FBB and telco players did not take the same aggressive approach to face Starlink, at least for now (please see Table 13).
Cut to NEUTRAL on the sector, with ISAT as our top pick
Given deteorating fundamentals on the back of Starlink’s entreance into the telco space, we downgrade our rating to NEUTRAL from Overweight, as we believe Starlink is likely to be a new disruptor in the industry potentially triggering another ‘price war’ in both FBB and mobile network markets in medium to long term.Hence, we lower our Indihome ARPU growth forecast in FY25F and FY26F to -5.0% and additional subs to +450/year, leading to lower EPS of -1.8% and -6.0% y-y, and cut our DCF-based TP to IDR 3,600 (from 3,900) implying 5.9x EV/EBITDA FY24F. However, we keep most of our stock recommendations at BUY, since our listed telco players have relatively underperformed (YTD Performance: TLKM: -17.9%; ISAT: -14.9% from peak). At this stage, we pick ISAT as our top pick with TP of IDR 12,500 (5.4x EV/EBITDA FY24F) due to its choice of strategy to expand aggressively to rural areas outside Java, providing higher growth. Upside risks: 1) lower competition, 2) Higher-than-expected ARPU growth. Downside risk: 1) more intense competition.
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