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Outlook of telecommunication industry.

Controversies have marred the fast growing telecommunications sector especially mobile telecommunications in 2007. Issue of cross ownership surfaced involving two largest mobile telephone operators in the country--PT Telkomsel and PT Indosat with owner Singapore's Temasek and its subsidiary. The fact that it has stakes in the two companies makes it a suspect in monopoly practice banned in the country. The anti monopoly agency KPPU has declared Temasek guilty and ruled it to divest its stake in either one of the companies. KKPU also said the prices set by Telkomsel as the market leader was too high hurting the consumers. Temasek and its group have brought the case an appeal court.

Another controversy involving mobile telephone industry is on SMS tariff of Rp 250-350, which is considered too expensive. Oligopoly among incumbent operators was said to be culprit behind the high tariff. The two cases are still unsettled until now.

The KPPU's verdict has raised call for a cut in the voice and SMS telecommunications tariffs. The government has also asked telecommunications companies to cut their tariffs. With the KKPU's decision, the telecommunication tariffs in Indonesia are expected to be cheaper in 2008. Despite possible cut in tariff, prospects of business in mobile telecommunications sector remain encouraging in the country as the market is still wide open and investment cost has declined.

Outlook of Cellular Telephone

According to the Indonesian Association of Cellular Telephone (ATSI), the number of cellular phone users in the country grew 49.1% annually in the 20022007 period. By the end of 2007, the number of cellular phones users in the country totaled 80 million. Almost all operators recorded a fast increase in the number of subscribers. Market leader Telkomsel already had 44.5 million subscribers in QIII 2007. Currently cellular phone coverage has reached rural and isolated areas. Telkomsel claims it has cover 95% of all district areas of the country and in 2008 Telkomsel targets to cover the entire sub-districts (kecamatans) of the country.

The number of users of cellular phones has grown fast as the market is still widely open and highly potential with the low ratio of users to the population in the country. Teledensity in the country of 220 million people is around 30 % much lower compared with the teledensity in other Asian countries.

Almost all world telecommunication technology suppliers have made their presence in Indonesia and share the potential market. Telecommunication service industry is one of the most dynamic service industries requiring huge investment every year. Spending for the country's telecommunications networks is estimated to reach US$ 2.9 billion in 2007.

In the last three years, competition in cellular business has been getting more persistent because of the arising new investors, mainly foreign investors that injected capital to finance the construction of network infrastructures and service to cellular operators, which have not operated although they own operating permit for a long time, for example Hutchison and Smart. In addition, old player like Mobile 8 already has customers now after it expands its network and promotion persistently.

Among Asia Pacific countries, the percentage of cellular penetration in Indonesia is still few, namely 30% in 2007. This is an opportunity to improve cellular penetration in Indonesia. With low teledensity and supported by better economic growth, the need for telecommunication will estimated increase. It is estimated that penetration level will increase by about 9.1% per annum within the next five years. In 2007, the penetration level will increase by 35%, and then keep increasing until 54% in 2011.

Based on estimated number of customers that keeps increasing within the next five years and amount of ARPU per user, it is estimated that cellular service revenue will increase as well. Total revenue will increase to Rp 80 trillion in 2007, and then will keep increasing to more than Rp. 90 trillion in 2008.

Economic growth that keeps developing stably results in potentially high growth of cellular market in Indonesia. With growth percentage of average cellular customers of 49.1% within the last five years, it is estimated that the number of cellular customers in Indonesia will increase to about 90 million at end of 2008. the number of cellular customers will keep increasing to 160 million in the coming 2011, with teledensity level of 50%. It is estimated that CDMA subscribers' growth rate will increase rapidly because CDMA operators get more numerous and the infrastructure network gets more extensive. Therefore, the coverage area can reach remote areas of Indonesia.

Outlook of Fixed line Telecommunications

Fixed telecommunications (PSTN), which consists of fixed wire line and fixed wireless access (FWA) has expanded dynamically especially the FWA segment.

Fixed wire line service has tended to be stagnant although there is no competitor of the only operator PT Telkom. Fixed wire line service is lagging behind FWA service in development. FWA service uses competitive tariff facing fixed wire line although it has growing and higher level technology.

The sluggish growth of fixed wire line is marked by slower growth of the number of its subscribers.

Fixed wireless Access (FWA)

FWA is growing fast both in the number of subscribers and in features and technology that FWA is competing not only against fixed wire line but also with mobile telephone.

The main players in FWA service in Indonesia at present are Telkom-Flexi, Indosat-Star One and Bakrie telecom-Asia. There is also Mobile 8, which has not yet operational, but it is expected to emerge as a strong competitors for the three other operators which are already in operation.

Telkom-Flexi is now the largest operator of FWA, both in term of the number of subscribers, revenue and networks. Bakrie Telecom reported a the fastest growth in the number of subscribers although in absolute term it is still far behind Telkom Flexi.

Apart from being expansive by offering highly competitive tariff Bakrie Telecom is aggressive in expanding business in fixed wire line market. The company has launched a product "Wifone."

Indosat, currently is the lowest in number of subscribers and revenue as it has focused more in expanding its cellular phone business. However, it has larger networks compared with Bakrie Telecom. Indosat is optimistic it could increase revenue and the number of its subscribers soon.

Fixed Wireline

Until now Telkom is still the only operator of fixed wire line in Indonesia. Batam-Bintan Telecom, although registered as service provider on the islands of Batam and Bintan, its subscribers and revenue are small and its operates only in the bonded zone area.

In 2005 and 2006 the number of new line units was smaller at only 126,781 or an increase of only 1.5%. The number of new lines shrank further to only 23,080 in 2006 or an increase of only 0.3%.

Though slow the number of subscribers for fixed wire line still continues to increase to reach 8.9 million in 2007 and the number is expected to continue to scale up to reach 9.7 million line units in 2011.

The revenue from fixed wire line service has taken a downtrend and the trend is expected to continue in the coming years especially with PT Telkom planning to make FWA as a replacement for fixed wire line.

In 2007, the revenue from fixed wire line service is predicted to reach Rp 9.6 trillion and the figure is expected to continue to slide to reach only Rp 9.3 trillion in 2008. Though declining the fixed wire line is expected to continue to expand for data and internet use.

Future's Outlook of Fixed line

Low penetration of fixed line

The prospects are encouraging for business in fixed telephone. Demand for telecommunications services will continue to increase both for voice, data and multi media telecommunications.

With low penetration of around 4% for FWA, the market is still highly potential although development will depend on the economic condition in general and the purchasing power of the people in particular.

Limited capacity of fixed wire line networks

The development of fixed line is expected to continue to favor wireless fixed telephone (FWA), because of the slow development of fixed wire line.

Meanwhile, the FWA segment is getting more attractive especially as while being mobile it could function as house telephone. With tariff equaling that of fixed wire line, FWA is more competitive facing both fixed wire line and cellular phones.

Lower investment cost

Another advantage offers by FWA service is lower investment cost for network. The investment for fixed wire line network is around US$ 600-US$ 700 per line unit, as against only US$ 150-US$ 200 per line unit for FWA network.

Faster in construction and implementation process

The time needed to establish FWA network is much faster than for fixed wire line network as it does not need to erect poles and install cable lines. In addition registration of subscribers is simpler and faster.

Technology for expansion

The FWA technology has advanced faster both in features, voice quality and in data transfer capacity. The technology of EVDO (evolution data optimize) of CDMA used by FWA is equal to 3G of GSM. With the technology FWA will continue to be competitive facing cellular phone.

The number of subscribers using fixed wire line and fixed wireless has continued to increase. Though slow the number of subscribers for fixed wire line still continues to increase to reach 8.9 million in 2007 and the number is expected to continue to scale up to reach 9.7 million line units in 2011. Meanwhile, the number of fixed wireless subscribers is expected to rise faster from 8.5 million in 2007 to 32.7 million in 2011. See the following table.

The revenue from fixed wire line service has taken a downtrend and the trend is expected to continue in the coming years especially with PT Telkom planning to make FWA as a replacement for fixed wire line.

In 2007, the revenue from fixed wire line service is predicted to reach Rp 9.6 trillion and the figure is expected to continue to slide to reach only Rp 8.4 trillion in 2011. Though declining the fixed wire line is expected to continue to expand for data and internet use.

On the contrary revenue from FWA service has continued to leapfrog estimated to reach Rp 3.2 trillion in 2007 and is projected to shoot up to Rp 20.1 trillion in 2011.
Table-1

Projection of the number of subscribers, 2008 - 2011

(million units)

 Year 2008 2009 2010 2011

Fixed Wire line 9.1 9.3 9.5 9.7
Fixed Wireless 11.9 16.7 23.4 32.7

Total Fixed line 21.0 26.0 32.9 42.4

Source: Data Consult processed

Table-2

Projection of revenue in, 2008-2011

(Rp trillion)

Year 2008 2009 2010 2011

Fixed Wire line 9.3 9.0 8.7 8.4
Fixed Wireless 5.1 8.2 13.1 20.1

Total Fixed line R14.4 17.2 21.8 28.5

Source: Data Consult processed
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Title Annotation:TELECOMMUNICATION
Publication:Indonesian Commercial Newsletter
Article Type:Industry overview
Date:Dec 1, 2007
Words:1829
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