Spectrum auction to kick-off soon: each operator can purchase 1 block maxIndonesia’s Ministry of Communications and Information Technology announcedguidelines on 29 August for an upcoming spectrum auction in 2.1 GHz and 2.3 GHz.    Key highlights: (1) Spectrum quantity and reserve price: Two blocks of 2.1GHz (1block is 2 x 5MHz) at a reserve price of IDR296.7bn per block (cUSD22m); and oneblock of 2.3GHz (1 block is 1 x 30 MHz) at a reserve price of IDR366.7bn(cUSD27m); (2) spectrum auction is ring-fenced for existing operators with mobilenetwork operating permits; and (3) Limit on spectrum purchase: an operator canpurchase either 1 block in 2.1GHz or 1 block in 2.3GHz.    What’s changed versus initial expectations?There is one change versus initial expectations: earlier, the auction was likely to berestricted to four operators holding 2.1GHz. Under revised guidelines, all sixnationwide mobile permit holders can participate in the upcoming spectrum auction(i.e. Telkomsel, Indosat, XL Axiata, Hutchison 3 Indonesia, Smartfren andSampoerna Telekomunikasi). Bidding could be higher than initial expectations due toa larger number of eligible participants; however there is no risk of new entrants asthe auction is still ring-fenced for existing operators. Telkomsel and Hutch are incritical need of spectrum (due to network capacity issues) and so are likely to be keybidders – followed by Indosat. Clarity on spectrum auction results could be a keycatalyst for consolidation.    PT Telkom is our preferred pick: Reiterate Buy with TP of IDR5,300Reiterate Buy on PT Telkom due to its signficant competitive advantage over peers –both in wireline and wireless. We retain our Buy on Indosat as we expect margins toexpand, and our Hold on XL Axiata as we expect its revenue growth to lag peers.

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