How to make a successful merger

Indonesian CEO that defied critics says get the culture right, understand the customer, and the rest will follow.

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Vikram Sinha, CEO of Indonesian operator Indosat, has hailed the progress his company has made since owner Hutchison drove a merger with Ooredoo-owned Indosat a year ago.

Vikram Sinha, CEO, Indosat.

Sinha said that Indosat (Indosat Ooredoo Hutchison) had defied sceptical analysts to deliver customer and revenue growth, synergy savings, and a network integration a year ahead of plan.

“80-90% of in-country mergers have not had a good story, especially in the first year,” he said. So when ratings company Fitch put Indosat on negative watch, Sinha “understood it.”

However, a year later Fitch has Indosat as AA+ and hold a very positive outlook on the company, and revenues and customer numbers have grown.

Sinha said that he knew other mergers had struggled in their first year – he referenced Vodafone Idea in India as an example – but that Indosat had bucked the trend. “In the first year of merger, they [analysts] were asking, ‘How much will you lose? And we gained 6 million customers.” Sinha added Indosat had also grown ARPU and customer satisfaction.

At the same time it has integrated the two networks formerly owned and operated separately by Indosat and Ooredoo into one network. That has meant decommissioning 17,000 sites completely, and building 45,000 new ones, with 10,000 staff “working round the clock on this,” according to Sinha.

a two year integration project will be completed in little over a year.

Ericsson, its network partner in Jakarta,  Indosat’s most complex city environment, has finished its integration, while its two other partners – Nokia and Huawei – expect to finish soon. That means that a two year integration project will be completed in little over a year. And the result of that decommissioning has also meant Indosat has been able to shut down 3G completely and re-use that spectrum more efficiently. “We have the best spectrum holding in Indonesia,” Sinha added.

This enhanced network integration will deliver 80% of the $400 million synergy value that Indosat has targeted from the merger. Sinha has also overseen a $150 million sale of tower assets to two tower companies, one of whom specialises in indoor solutions especially, and said that he wants to be “asset light” so he can concentrate on delivering service value.

The integration and the merger has also given Indosat the scale to invest in new areas, outside Java, where population density is low and any operator requires scale to finance expansion.

Culture drives growth

The reason for the merger success, as Sinha sees it? He is convinced it is because he took time to invest in fostering a new company culture that is distinctly Indonesian, and recognises and celebrates the strengths and diversity of Indonesia, as well as its distinctiveness.

People looking in from the outside need to understand Indonesia

“When I said to employees we want to empower every Indonesian, that culture integration was my biggest focus – to deliver the new Indonesian culture.

“People looking in from the outside need to understand Indonesia. We have a merchandise value today of $70 billion and that will double in two years. We have 62 million SMEs. We have 21 million new first time customers, especially coming from rural areas. That is equivalent to a whole new Australia being born in Indonesia.”

“These are the kinds of opportunities that we have – so we have to make sure that we bring that [network] quality not only in cities like Surabaya, Jakarta, we have to bring it to all the villages.”

Sinha described areas where customers have no choice but to pay a premium for service. He wants to establish Indosat at the very least as a very strong, credible number two in the market, to give customers a choice.

“That is why we are investing our capex. We want to make sure our network is ready. People are paying a premium and I want to give them an option.”

That said, building out a network in Indonesia is not without its challenges. The country has some very low population density, islands and rural and coastal areas, and also challenges in providing indoor coverage in its highly built up rural areas.

As 5G comes, he has seen that it is also not easy to build fibre to sites. That said, the operator has close to 400 sites on 5G in five cities, albeit in non-dedicated 5G spectrum. Really, Sinha is waiting for C-band spectrum to come available, although he would not be drawn on when that its likely. He is encouraged, though, by India’s explosion of interest and use cases in 5G C-Band, seeing ecosystem growth driven by that expansion as beneficial for other operators, such as Indosat.

One area of 5G that does interest him is FWA, where he can provide broadband to home users “where we feel that fibre isn’t the right way to go.”

To learn more about Indosat Ooredoo Hutchison, please click here.