Over the course of the past 12 months, the stock price of two of Indonesia’s largest telecoms companies has fallen rapidly.
During this period, both Telkom and XL Axiata have seen their stock price fall by over 1,000 IDR. As a result, many analysts are now wondering whether there is a place for telecoms businesses in Indonesia.
How Have Both Companies Performed this Year?
Both Telkom and XL Axiata have suffered from serious losses over the past year and investors are concerned. The data shows us why. For example, while Telkom Indonesia cleared the 4,000 IDR barrier in November 2019, the company’s stock price has now slumped to 3,220 IDR. Even though this shows a recovery from the low of 2,560 IDR we saw in March, it still represents a significant price loss.
Similarly, XL Axiata’s stock price pushed through the 3,500 IDR barrier towards the end of 2019, but it plunged below 1,500 IDR in March 2020 before stabilizing at the 2,200 IDR mark in November.
Investors have been stung by these large share price losses but falling share prices aren’t always bad news for those operating in the financial markets. For example, these falling share prices have been good news for those involved in shares trading. This is because these investors have been able to ‘go short’ in the market and profit from falling share prices.
The same has also been true for those involved in forex trading. This is because poor performance figures posted by large Indonesian businesses like telecoms companies can weaken the Indonesian Rupiah, causing it to fall in value against other currencies. As a result, those involved in forex trading can ‘go short’ on the Rupiah and profit from its falling value. With the appropriate research, and taking into consideration the currency pairings, there are opportunities in this volatility.
Can the Telecoms Industry Rebound?
Although 2020 has been a bad year for Indonesian telecoms businesses, we must aim to understand whether this is a symbol of a dying industry or simply one of the effects of the coronavirus pandemic. After all, as a result of the coronavirus crisis, we’re likely to see the world enter the deepest recession since World War Two, with 92.9% of the world’s economies now entering a recession.
From the data we currently have available, it appears as though the telecoms industry could actually be vital for helping the country’s economy recover from the coronavirus pandemic, even if it is currently going through a rough patch. This is because telecoms are a core and essential infrastructure service that will improve the Indonesian economy in the long term.
In fact, the Indonesian telecoms market is well-suited to help Indonesia overcome the challenges it will face in the next few years as more individuals and businesses move online. After all, the country is well-served by five large network operators and an incumbent fixed-line provider. As a result, Indonesia has one of the fastest developing communications markets in the world.
However, to meet its potential (which it’s currently falling well short of), the Indonesian telecoms market must overcome some key roadblocks in the next few years. To begin with, it must expand coverage across the country and make the network more accessible for greater parts of the population. Similarly, it must also reduce prices to increase uptake and provide service improvements to areas outside largely populated cities such as Jakarta.
If the telecoms industry in Indonesia remains stagnant and does not provide these improvements, then it’s easy to see how the industry will die. However, if the industry is forward-thinking and expands its fibre-optic network and 4G coverage, then the sector can grow at a fast pace.
Conclusion: Is There a Place for Telecoms in Indonesia?
Although the stock prices of Telkom and XL Axiata have fallen dramatically this year, it’s clear that these market movements only tell part of the story. So, although the marketplace currently appears to be in crisis and traders can profit from negative performances, this will hopefully only be a short-term market trend and the telecoms companies that are currently suffering may be a key economic driver for Indonesia in the years to come.
However, it’s clear to see that this can only happen if telecom companies such as Telkom and XL Axiata are proactive in expanding the country’s fibre-optic network and 4G coverage. If they are, then they should be able to grow the number of both fixed and mobile broadband subscriptions and attract large infrastructure funds that will take the industry to the next level and convert it into a big global player.