A report from Bloomberg today raises again the often circulated rumor of a merger between Malaysia owned XL Axiata, one of Indonesia’s top three mobile carriers, with Axis, one of the smaller ones, owned by  Saudi Telecom and Malaysia’s Maxis. Our sister site Trenologi reported on the rumor about a month ago.

Bloomberg said that the debt ridden Axis, worth about USD 1 billion (just slightly less than Tumblr!) is an attractive target for the Axiata group as it will allow XL Axiata to add services and expand coverage. Currently XL Axiata holds three non-contiguous frequency blocks, out of the available 12 blocks on the 3G band, which prevents the company from taking full advantage of its recently won 3rd block.

Following the 3G auction win by XL Axiata and Telkomsel a few months ago which earns each company one extra unused block on the 2.1GHz frequency, the government is proposing to rearrange the frequency block allocation to maximize usage by each operator as maintaining the current allocation means leaving operators with non-contiguous frequency blocks. As it stands, XL operates in blocks 8, 9, and 12 whereas Axis runs on blocks 2 and 3.

The proposed reallocation which is expected to take place in September of this year would put XL’s three frequency blocks on blocks 8, 9, and 10, adjacent to the two blocks operated by Axis on blocks 11 and 12. A merger between the two telcos would allow XL to operate in five frequency blocks in the 2.1GHz range, making it the carrier with the widest 3G band in the country. Telkomsel would be second with three blocks at 3, 4, and 5.

With ten national mobile operators fighting for customers, Indonesia is the second most saturated mobile market in Asia after India. Over the last ten years carriers have pushed themselves into a highly competitive death spiral undercutting each other with dirt cheap text, voice, and data rates.

Even a single merger will ease the pressure among carriers and allow them to operate in a more healthy manner. Currently changes in rates occur in almost every other quarter from the majority of carriers, causing instability in market condition which contributes to a relatively high churn rate, 30% for voice subscribers and 50% for data subscribers according to Bhuwan Kulshreshtha, chief commercial officer at 3 Indonesia in December 2012.

While XL Axiata president director Hasnul Suhaimi had nothing to share to Bloomberg, he had previously said that his company would be open to efforts in consolidating the Indonesian mobile industry because maintaining the current condition is not an attractive proposition for further investments. XL Axiata currently has 46 million customers while Axis has 17 million. A merged entity between XL Axiata and Axis is said to be called Avelon.