Earlier this year, Indonesian infrastructure giant Protelindo announced the acquisition of 100% of the equity in PT Komet Infra Nusantara (KIN). The deal is adding 1,400 to Protelindo’s existing portfolio of 14,854 sites across Indonesia while the company maintains its position as the leading independent tower provider in the country.
Protelindo writes another chapter in its success story and the company’s growth appetite remains intact. They have acquired two key companies and an operator portfolio in the last three years and in words of their CFO, they have the financial wherewithal to keep driving consolidation and expanding their footprint in Indonesia.
Understanding the drivers and benefits of KIN’s acquisition
After a successful run in the business, KIN’s main shareholders Providence and META decided to leave the tower industry and refocus investments outside Indonesia. A perfect opportunity therefore arose for Protelindo, which was in a very favourable position to raise competitively priced debt and pursue an acquisition that reinforces their role as the largest independent towerco in Indonesia.
KIN’s deal will in fact bring numerous opportunities for synergies and minimum operational overlap, a decisive factor that pushed the transaction forward. KIN has a very strong customer base—with Telkomsel, XL and Indosat among their main clients—and that will make a positive impact on Protelindo’s balance sheet. KIN’s 300km of fibre infrastructure across six islands will improve Protelindo’s fibre capabilities and allow them to expand their footprint in some new areas where the company did not have coverage before.
Through the acquisition of KIN, Protelindo diversifies its portfolio, gets very credible customers with long-term contracts and keeps developing its fibre network; a strategic corporate priority.
On the way to fibreisation
The last three acquisitions that Protelindo has executed were not massive in terms of scale or capital, but their strategic relevance is yet evident.
Three years ago, Protelindo made a game-changing decision when they acquired iForte. Mobile phone penetration and data demand were already growing exponentially, and Protelindo quickly understood that traditional macro sites were not going to be enough to satisfy that boom, especially in urban environments. The iForte acquisition facilitated Protelindo’s entrance into small cells and allowed the company to promote them in key urban areas such as Jakarta.
Fibre and micro cells have played a critical role in Protelindo’s growth. The return these new product lines offer is not as big as that of traditional macro-towers, though small cells and fibre are very profitable businesses from a volume perspective. In fact, the results have grown faster than was initially expected for both companies. Back in 2015, iForte had 750 km of fibre and a run-rate revenue of about IDR120bn. By the end of this year, iForte is expected to own nearly 8,000km of fibre with a run-rate revenue of nearly IDR600bn.
Protelindo is now offering a more comprehensive service while reaching new areas and customers across the country. Additionally, fibre and small cells infrastructure are better positioning the company for the future as operators transition their networks to 4G and are set to explore 5G implementation imminently.
In the near term, iForte also expects to provide VSAT cellular backhaul and mini-data centres, which will further complete Protelindo’s offerings.
Leading consolidation
Just six year ago, we could have counted 80 towercos in Indonesia. The market has since consolidated to 50+ companies and the big four—Protelindo, Tower Bersama, Mitratel and STP—are cementing their dominance. Protelindo, Tower Bersama and STP have consolidated countless local, private tower companies in Indonesia – many in transactions too small to merit disclosure.
During 2015 and 2016, the market was quiet. Now interest rates are rising and the local currency (IDR) is weakening, so some smaller players might start to feel pressure to sell their assets. We will definitely see more dialogue between towercos but there is also a mismatch on valuation expectations between buyers and sellers, which could preclude some potential acquisitions, as Protelindo’s CFO Steve Weiss recently told TowerXchange.
Regulatory challenges slowed organic growth for a couple years, but the market trend shifted in 2017 and new build has been very solid recently. Operators are embracing the country’s data boom and increasing smartphone penetration while trying to expand their footprint in new locations. Players like XL, Hutch and Indosat have now started investing outside Java, seeking to challenge Telkomsel’s dominance.
The competition
Indonesia has at least 40 small towercos with portfolios between 50 and 100 sites. However, as mentioned before, the “big four” play in a different league and they are expected to keep driving consolidation.
With an estimated tower count of 13,300+, Tower Bersama is after Protelindo the second largest independent infrastructure provider in the country. Telkom’s captive towerco Mitratel has also consolidated its position as a relevant force and they currently have more than 13,000 assets across the Indonesia. In fourth position, STP has been acquiring small towercos over the last few years as part of its growth strategy, on top of organic growth. STP has also made relevant investments in the fibre and small data space that could be a positive complement to Protelindo’s network.
What’s next for Indonesian towercos?
As highlighted in the latest TowerXchange’s Indonesian market analysis—the country still holds attractive opportunities for growth and consolidation. New, underserved local markets can present good business cases for both operators and towercos. While Jakarta and some of the main cities have competitive environments, new towercos will find positive prospects in more remote locations and smaller islands, where coverage is limited. The country’s population is expanding and that expansion will continue to fuel increasing data demand.
Moreover, large players will always have the option to pursue organic growth by acquiring assets from the numerous smaller towercos that operate in the country. Assets owned by private equity firms are likely to be sold and the election in April next year could enhance some interesting deals.
Protelindo and Tower Bersama were recently interested in STP’s portfolio and the former was very close to moving forward, but some disagreements regarding valuation stalled the transaction. TowerXchange will keep an eye on that front, where we could see some movement before the end of the year.
Beyond new technologies, energy management could provide new business opportunities for local players. Indonesia is one of the very few Asian countries where towercos are strictly limited to “steel and grass”. While most players are already involved in IBS, DAS and fibre, none of the towercos have yet been involved in energy management directly. Despite having a wide-ranging and diverse geography, Indonesia enjoys a reliable and stable grid and local power companies monopolise energy supply to operators in the country. Towercos are already considering tower+power options to be included on their offer and it seems like a natural evolution for the infrastructure providers there.
Indonesia is one of the most mature tower markets in Asia, but there is still room for diversification and growth. Protelindo’s ambitious plans, and those of its competitors, together with increasing financial pressures on the market will generate consolidation. Additionally, the increasing data boom and new upcoming technologies such as 5G and small cells will require new infrastructure developments and innovations from both towercos and MNO’s. The fun has just begun.
