Spectrum auctions could cut Indonesia telecom EBITDA and net profit

Estimated net profit losses nearly double the hit projected for EBITDA margins alone.

Indonesia’s planned auctions of 700MHz and 2.6GHz spectrum are set to raise industry costs and squeeze profitability across the country’s telecommunications sector, according to CGS International Securities (CGSI).

The brokerage estimates additional annual licence costs at $307m (IDR5.5t), assuming auction prices come in 20% above historical levels.

It also expects those costs would cut industry earnings before interest, taxes, depreciation, and amortisation (EBITDA) by 1.9% in 2026 and 4.4% in 2027 if operators absorb the increase without passing it on to customers, whilst net profit is expected to decline by 4.5% in 2026 and 9.1% in 2027.

"We believe TLKM is best positioned to absorb the costs, whilst EXCL faces greater pressure given its ongoing integration," the report said.

The spectrum auction adds to near-term pressure on operators from Indonesia’s nationwide rollout of facial biometric verification for new SIM registrations, effective 1 July.

CGSI said the biometric requirement had intensified competition in starter packs as operators sought to attract new subscribers ahead of the new registration rules taking effect.

Dealer checks showed starter pack prices had declined since mid-May, with competition increasing in mid-June, the brokerage said.

"We believe the implementation of biometric verification for new SIM registration (effective 1 Jul 2026) will improve subscriber quality over the long term. However, it has triggered short-term pricing competition, particularly in starter packs," the report said.

CGSI said operators had relied on bonus data, acquisition incentives, and dealer commissions instead of cutting headline tariffs.

It expects competition in starter packs to ease after the biometric rollout, whilst recharge package prices remain about 5% above January levels.

Despite near-term pressures, CGSI maintained its overweight recommendation on Indonesia’s telecommunications sector.

It cited continued price repair, resilient demand for mobile data, and sector valuations of about four times 12-month forward enterprise value to EBITDA.

The brokerage forecasts industry EBITDA will grow at a compound annual growth rate (CAGR) of 4.9% between 2025 and 2028, whilst mobile average revenue per user will increase at a CAGR of 4.8% over the same period.

CGSI retained XLSmart Telecom Sejahtera as its preferred stock, citing the prospect of a turnaround in net profit in the second half of 2026.

(US$1 = IDR17,898)