Telkom Indonesia signed a deal to spin off and integrate its Indihome broadband arm into mobile unit Telkomsel, boosting the company’s fixed mobile convergence strategy to create a new entity worth around IDR58.3 trillion ($3.9 billion).

The companies signed a conditional spin-off agreement for the integration and the deal is expected to be completed in Q3 subject to certain conditions.

Singtel, which currently owns a 35 per cent stake in Telkomsel, revealed it was in talks with Telkom about the move last week. It pitched the deal as a way to meet high demand for online access in the nation.

In reaching an agreement, Singtel stated the integration aligns with its “strategic reset principles” of moving towards higher-growth businesses, while reinforcing its commitment to Indonesia.

Telkom placed Indihome’s share of Indonesia’s broadband market at 75.2 per cent, citing huge untapped potential given penetration rates stand at 14 per cent compared with 40 per cent across southwest Asia.

It added fixed broadband ARPU is six-times that of mobile in Indonesia and with “rising affluence, fixed connections are poised for significant growth”.

The Indihome spin-off will result in the issuance of new primary shares in Telkomsel.

This means Singtel’s ownership will reduce to 29.6 per cent and Telkom will hold 70.4 per cent.

However, Singtel agreed to exercise an option upon completion to pay IDR2.7 trillion ($236 million) to raise its interest in Telkomsel to 30.1 per cent.

Singtel CEO Yuen Kuan Moon said the spin-off represented a “rare opportunity for Telkomsel to tap into the high growth broadband market” by partnering with the largest broadband provider, “which is profitable and cash generating”.