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Mobile boom in
Indonesia
By Bill Guerin
JAKARTA - The smiles and handshakes all
round at the Indonesian Cellular
Telecommunications Association's (ATSI) "Indonesia
2005 Cellular Show" last week are hardly
surprising. Although less than 20% of the
country's 238 million people have landline phone
access, mobile phone operators are enjoying
surging profits in a lucrative market that is
enjoying scorching growth. Around this time last
year, there were 32 million cellular phone
subscribers. Figures released a month ago showed
this had jumped to 40 million, with ATSI secretary
general Rudiantara predicting that if the growth
continued, total subscribers could reach more than
80 million next year.
After many years as
a protected and monopolized sector with two
infrastructure-based operators - Telkom and
Indosat - to service domestic and international
markets respectively, fixed and mobile markets
have been liberalized, and an independent
regulator set up. The Indonesian mobile market is
growing fast with compound annual growth over the
last six years exceeding 70%. Yet the country
still has one of the lowest penetration rates in
the region, giving room for almost unlimited
growth. Along with the Philippines, Malaysia and
India, it is one of the major developing markets
in the Asia-Pacific region. The Philippines, with
a population of 86 million, has over 32 million
mobile subscribers. Malaysia has 14.6 million
subscribers out of a population of 25 million.
India has a population of 1.1 billion, yet has
only 53 million mobile subscribers.
Conversely, Taiwan, Hong Kong, South Korea
and Singapore are the region's most mature
markets. Data from APRG Research indicates Taiwan
has an estimated 25.1 million subscribers,
representing a saturated 100% penetration rate. In
Hong Kong, the number of subscribers is 8.1
million and growing fast, although the population
is only 6.8 million (some customers evidently have
multiple phones with different providers). South
Korea, with a population of 48 million, has a
subscriber base of 37 million mobile phone users.
Singapore has 3.9 million subscribers and a
penetration rate of 91%.
Three dominant
players
Operators are plowing profits back
into extending their networks. ATSI has estimated
that combined revenues of cellular operators this
year will reach Rp30 trillion (US$3 billion), 25%
higher than the Rp24 trillion booked last year.
Telkom is the country's largest listed company,
and its $11 billion capitalization equates to
almost 15% of the market capitalization in the
Jakarta Stock Exchange. It has the lion's share of
the market through its cellular unit, PT
Telekomunikasi Selular, or Telkomsel. With a
subscriber base of around 22 million it enjoys a
55% share. Revenues from SMS and other mobile data
services were Rp3.62 trillion last year,
representing around 25% of the company's Rp14.77
trillion net operating revenue. It is majority
owned by Telkom with a 65% stake. Singapore
Telecom (SingTel) holds the rest.
This
year Telkomsel plans to spend $700 million
expanding its network by building 3,000 new base
transceiver stations to supplement its current
total of 7,000 units. Telkomsel's nearest
competitor is publicly listed Indosat, the
country's second largest telecommunications
company. It is 41.94% owned by Singapore
Technologies Telemedia Pte Ltd (STT), 15% by the
government and the remainder by the public.
Indosat has three brands - IM3, Matrix and Mentari
- and 13 million subscribers. In the first
quarter, it wooed 434,000 new subscribers but in
April they could hardly sign up fast enough - more
than 600,000 of them. Indosat also plans to invest
$900 million this year. Most of it will go to
expanding its cellular network to reach out to
over 400 regions of the country through 2,000
additional base transmission stations.
PT
Excelcomindo Pratama (Excelcomindo), the third
largest operator, has 4.5 million subscribers for
its XL brand. Excelcomindo is 27.3% owned by
Malaysia' state-owned Telekom Malaysia Bhd (TM),
which last week announced plans for initial public
offering on the local bourse in September.
Commerce International Merchant Bankers Bhd and
Credit Suisse First Boston are organizing the IPO,
expected to raise around $300 million. TM paid
$265.7 million for a 23.1% stake in Excelcomindo
last year and later raised this to 27.3% after
paying another $48 million. It already has
management control over the company and is
committed to increasing its stake to between 67.3%
and 80% by the end of October.
The
operator has 2,100 base transmission stations
covering the main islands of Java, Sumatra,
Kalimantan, Sulawesi and Bali, and at the end of
2004 had approximately a 12% market share.
Excelcomindo's president/director Rudiantara says
the company may spend up to $400 million this
year, double the amount it invested last year, to
boost capacity and expand coverage. The company
plans to tap the US dollar bond market to finance
the expansion.
Excelcomindo, however,
remains vulnerable to the risk of local currency
depreciation, as its borrowings and capital
expenditure commitments are largest in US dollars
while its revenues are mainly in rupiah. When
affirming its B+ rating on Excelcomindo, Standard
& Poor's Ratings noted the credit quality was
enhanced by the prospect of ultimate majority
ownership by Telekom Malaysia.
Going
for 3G
Third generation communications (3G)
technology has high bandwidth and high capacity.
Using 3G, cellular operators can provide
multimedia facilities at faster speeds and with
much more data than the current 2.5G cellular
technology used in Indonesia. Using 3G technology,
users can make video calls, enjoy video and audio
streaming and even watch TV programs on their
cellular phones. The introduction of 3G services
is expected to bring substantial economic and
social benefits to Indonesia.
Malaysians
already have 3G through TM's subsidiary Celcom 3G
and Maxis Communications Berhad. In Indonesia,
there are currently only five operators with
government licenses to operate cellular services
based on 3G technology: Cyber Access Communication
with 15 MHz, Natrindo Telepon Seluler with 10 MHz,
Wireless Indonesia with 5 MHz, Telkom Flexi with 5
MHz and Indosat StarOne with 5 MHz. This leaves 20
MHz of 3G frequencies to be allocated.
Telkomsel is conducting 3G technology
trials through existing networks supported by
WCDMA (wide-band code-division multiple access)
technology provided by three mobile phone
manufacturers: Ericsson, Siemens and Nokia.
Indosat is also setting up a trial. The government
plans to rearrange the 3G-frequency allocation in
a Rp5 trillion tender for bandwidth slots
following requests for bandwidth from Telkomsel
and Indosat, who have complained that companies
that have secured spectrums have failed to show
progress. For example, PT Cyber Access
Communications and PT Natrindo Telepon Seluler
(Lippo Telecom) were granted 3G-licenses and
allocated frequency spectrums two years ago but
they have yet to operate the technology. Several
parties were reportedly lobbying the government to
cancel the licenses issued to the two operators.
In February, Maxis paid $100 million for 51% of
Lippo Telecom.
In March, Hong Kong's
Hutchison Telecom bought a 60% interest in Cyber
Access. Cyber Access holds licenses for nationwide
operations of 2G and 3G mobile services in
Indonesia, but it currently doesn't provide mobile
services. Hutchinson reportedly paid Charoen
Pokphand Group Indonesia - a Thai
telecommunications group - $120 million for the
stake. CP Group will hold the remaining 40%
interest in Cyber Access. However, Information and
Telecommunications Minister Sofyan Jalil was
quoted as saying that Cyber Access had acted as a
mere "license broker" and that the government
would revoke the company's license to operate 3G
mobile services if the sale violates regulations.
The much smaller carrier, PT Mobile-8
Telecom, was actually the first to roll out
CDMA2000 services to wireless subscribers.
Mobile-8 Telcom was granted a license to provide
cellular telephone services to existing operators,
Komselindo and Metrosel, who were using analog
technology (Advance Mobile Phone System - AMPS).
In line with the rapid development of
telecommunications technology in the country, the
analog system has been gradually phased out. Both
Komselindo and Metrosel still hold their existing
cellular providers' licenses but Mobile-8, working
with South Korea's Samsung Electronics, launched a
CDMA2000 network last year that can accommodate
more than 1.9 million subscribers.
"As
Asia continues to lead the globe in offering 3G
networks, Indonesian subscribers will now join the
technology-savvy consumers in the region that is
already enjoying the advanced features that can
only be offered by CDMA2000 technology," said
Perry LaForge, executive director of the CDG at
the launch. CDMA2000 dominates 3G with more than
65 million subscribers, or 99% of the global 3G
market. There are 80 commercial CDMA2000 networks
globally and another nine will be deployed this
year in Asia, Australia, Africa, Europe and the
Americas.
A winning line for
Indonesia
Under Indonesian law, foreign
investors may buy 100% of companies in
telecommunications, and many other strategic
sectors of the economy. The presence of Malaysian
and Singaporean big hitters in Indonesia, and
their long-term commitment to improved services,
will keep Indonesia on track in the most dynamic
and fastest growing regional markets in the
telecommunications industry. Cellular connections
in the Asia-Pacific region and Japan rose from
667.7 million in the fourth quarter of 2004 to 698
million in the first quarter of 2005, a 4.5%
increase. Japan has the highest percentage of
wireless Internet penetration (87%), followed by
South Korea (66%).
The presence of foreign
entities will help the government to provide
telecommunications and Internet access for the
entire community, even those remote villages that
currently have no access to telephones. The
formidable costs of extending the country's
fixed-line network and extending mobile networks
to areas without infrastructure are a major
challenge, however, and one made more acute by the
dispersed geographical character of the Indonesian
archipelago.
More than 40,000 villages are
still without telephone services, but President
Susilo Bambang Yudhoyono has recently signed a
non-tax regulation obliging all telephone
operators to contribute 0.75% of annual gross
revenues for the state's rural telephone program -
or Universal Service Obligation (USO). This
equates to a considerable sum. Telkom, for
example, recorded gross sales of Rp33.95 trillion
in 2004 and Indosat booked revenues of Rp10.55
trillion the same year. Implementation of the
regulation is expected to raise more than Rp400
billion this year, nine times greater than the
annual allocation made by the government over the
past two years.
Developing the
telecommunications infrastructure in rural areas
will also be good for the economy. "Studies have
shown an 1% increase in the telecommunications
penetration rate will result in up to a 3% rise in
the country's economic growth," says Director
General of Post and Telecommunications, Djamhari
Sirait.
Bill Guerin, a Jakarta
correspondent for Asia Times Online since 2000,
has worked in Indonesia for 20 years as a
journalist. He has been published by the BBC on
East Timor and specializes in business/economic
and political analysis in Indonesia.
(Copyright 2005 Asia Times Online Ltd.
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