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No Rating Impact from Indosat's Subscriber Number Adjustment
Fitch Ratings has today commented that Indonesian mobile network, Indosat's Long-Term foreign currency and local currency Issuer Default Ratings (IDRs) at 'BBB-' are unaffected by Indosat's announcement of a revision to previously reported cellular subscriber numbers and ARPU from Q1 '09 until Q1 '10.
Based on the revised numbers, Indosat's 2009 subscriber count was adjusted down to 32.97 million compared with the 33.14 million previously announced on 10 May 2010. The company's Q110 subscriber count was also revised lower by 1.4 million to 37.73 million from the previously reported 39.12 million. Indosat confirmed that the subscriber adjustments have made no impact on the company's revenues and costs. Consequently, average revenue per user (ARPU) has been revised upwards to IDR37,664 and IDR33,827 in 2009 and Q110 respectively from IDR37,330 and IDR32,988 respectively as previously reported on 10 May 2010.
Fitch reiterated its view that subscriber numbers can be somewhat misleading in Indonesia due to multiple SIM-card ownership and a very high proportion of pre-paid wireless customers (about 98% at end-2009) along with a very low switching cost which results in a very high churn rate (around 11% per month). Due to these factors, subscriber numbers reported by the cellular operators are subject to significant variance at each quarter. Therefore, Fitch has taken a more conservative assumption for its internal projections -- which may not necessarily align with the issuers reported subscriber numbers. Hence, Indosat's downward revision of its subscriber numbers has not made any major impact to Fitch's internal projections -- and consequently the agency does not anticipate any immediate impact on Indosat's existing ratings.
Indosat's current ratings incorporate a three notch uplift from its standalone rating of 'BBB-' to reflect a strong parent-weak subsidiary relationship with Qatar Telecom (Qtel, 'A+'/Stable), which has a 65% beneficial ownership in Indosat. As the largest overseas investment of Qtel, Indosat accounted for about 27% and 28% of Qtel's consolidated revenue and EBITDA in FY09 respectively.
Indosat is second largest cellular operator in Indonesia with diversified revenue streams (i.e. cellular, fixed-wireless, international direct dialing and fixed-data services). Fitch estimates that Indosat has GSM revenue market share of about 21% in 2009 (Fitch's estimates are based on the revenue of the top three GSM operators). The market leader, Telkomsel has a GSM revenue share of 61%.
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