KONTAN.CO.ID - JAKARTA. Malaysian conglomerate Axiata Group and Indonesian group PT Sinar Mas have sought permission from the Indonesian government to merge their telco units, the communications minister told Reuters on Wednesday.

Their planned merging of Indonesian units, PT XL Axiata and PT Smartfren Telecom would further consolidate companies in the telecoms sector into just three big players, Budi Arie Setiadi said in an interview.

Bloomberg had previously reported the planned merger to create a $3.5 billion entity, citing people familiar with the matter. Budi said he had no knowledge of the expected value of the prospective new entity.

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"The two companies are still in talks to do the merger," Budi said. "I, as the regulator, support this plan so that Indonesia's telecommunication ecosystem becomes healthier," he added.

A deal could be reached this year, he said.

In response to the minister's comments, Smartfren president director Merza Fachys told Reuters late on Wednesday that shareholders would have the final say on the merger, which he said was an opportunity to improve the health of telco industry.

XL Axiata spokesperson Henry Wijayanto said the firm was always open to establish strategic collaborations with others.

Budi said executives from both XL Axiata and Smartfren had multiple meetings with him during which they mentioned the merger plan, including at a meeting in Spain at the end of February.

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The combined unit would compete for customers with market leader PT Telekomunikasi Selular (Telkomsel), an affiliate of Singapore Telecommunications (Singtel), and Indosat Ooredoo Hutchison, a unit of Qatar's Ooredoo and Hong Kong's CK Hutchison.

"It's better to have only three operators in Indonesia, more manageable. After that, we can improve quality of the services," Budi said.

XL Axiata is currently Indonesia's third largest telecom operator, serving 58 million customers, followed by Smartfren, which has 32 million users

Editor: Yudho Winarto