Credit Suisse ISAT Rural survey points to a three-player market; Indosat is a key beneficiary

● Having travelled across Indonesia to interview rural users “face-toface”, we found a clear difference in the relative strengths of the operators in different islands. In Sumatra Telkomsel (Not listed) remains dominant, with 63.3% of respondents using its service.
● However, in East Java, network coverage dropped in importance, while price and (price-related) popularity among friends rose in importance. Telkomsel’s share of respondents, therefore, dropped to 34.2% while Indosat’s rose to 34.2%.
● Facing both coverage and scale disadvantages, we conclude that new entrants are unlikely to create value. A three-player market is set to emerge, and importantly third-player and market-shareaggressor, Excelcom, is already shifting strategy towards customer retention, and away from acquisition.
● With price points stabilising, we have cut our Indosat capex forecast by 27.0% from Rp10.0 tn to Rp7.3 tn. We revise up our FY09E and FY10E EPS by 7.5% and 19.0%. We raise our target price by 19.4% from Rp5,400 to Rp6,450. We maintain our OUTPERFORM rating.