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TELEPHONE HANDSET INDUSTRY FACED WITH NEW CHALLENGES.

With the growth of the telecommunications industry all over the world, including in Indonesia and other Asian countries, the support industries--e.g. the telephone handset industry--have also been growing rapidly. Over the last few years, the handset industry has developed into one leading foreign-exchange earner in the electronics sector. The rapid development of telecommunications infrastructure in Indonesia promised large market opportunities for handsets. This eventually led to the emergence of handset companies which relied on TELKOM for their survival because TELKOM monopolized the purchase of handsets for its customers and, hence, served as a captive market for such handset companies.

Subsequently, however, the handset market started to change early in 1996 when TELKOM relinquished its monopoly over the purchase of handsets and allowed its new customers to purchase handsets for themselves. As a result, telephone users now purchase handsets from the free market. Until TELKOM allowed its new customers to purchase handsets for themselves, the buyers of handsets from the free market were only those who wanted new handsets to replace the TELKOM-standard ones either because they did not like the latter or because the latter was broken. Since TELKOM liberated the procurement of handsets, the free market for handsets has been increasingly active because it not only offers replacement handsets to old telephone users but also serves new telephone users.

However, that TELKOM's decision to liberate the procurement of handsets has not made some single-line handset producers happy: they see it still as a threat to their survival, because TELKOM's decision is effective only for the area of Jabotabek (Jakarta-Bogor-Tangerang-Bekasi). In order KSO (Operations Cooperation) areas, it is up to TELKOM's partners in these areas whether to liberate the procurement of handsets or not. Thus, single-line handset producers which do not have access to TELKOM's KSO partners in these areas will find it difficult to survive. They will have to compete tightly with other producers on the export market and with imported products on the domestic market.

The competition on the international market for telephone handsets has been increasingly tough with the number of developing countries which are able to offer competitive handsets growing. This .condition has made handset exporters dependent on large-scale buyers because the latter can easily switch to other suppliers when they think it is necessary to do so.

With Indonesia's telephone network development targets increasingly higher for the years to come, it would be very interesting to study the long-term prospects for the single-line handset industry in. the country. This repot discusses the condition of the single-line handset industry in Indonesian as well as that of the industry which produces the accessories, namely the key telephone and PABX, which are generally operated at offices using a limited exchange facility.

Single-line handset production capacity 11.28 million units/annum

Single-line handsets are mostly used at households, and there are two types of them: simple telephone and cordless telephone.

As for single-line handsets of the simple telephone type, they come in different styles, from the TELKOM-standard handsets in a popular color and with a simple appearance and a minimum range of functions to those with the flash, hold, and redial facilities. Single-line handsets for office use have some additional facilities such as LCD, hand-flee speaker phone, and memory.

According to the Department of Industry and Trade, there are currently 23 single-line handset (simple and cordless telephone) producers operating in Indonesia with a combined production capacity of 11.28 million units/annum with the following breakdown: 8.56 million units/annum for simple telephone handsets and 2.72 million units/annum for cordless telephone handsets. The products of all these 23 producers have been certified by PT Telkom.

A Data Consult survey shows that only 10 of these 23 single-line handset producers are still in operations. The other 13 are trading companies which have not commenced production or have discontinued production. This is so because many trading companies are registered with the Department of Industry and Trade as producers but they are still waiting to obtain licenses to set up factories.

Most of the simple-line handset producers currently in operations are located in West Java because West Java is the largest market for such handsets. Of the 10 producers, seven --namely PT Inti, PT Ometraco Arya Samanta, PT Gajah Tunggal National Electronic, PT Patolipu Dinamika, PT Tjahja Sari, PT Nurizka Artha, and PT Multi Kontrol Nasional -- sell nearly all their output to PT Telkom through its head office in Ban. dung, West Java. Another reason why the population of single-line handset producers is concentrated in West Java is that this province has adequate infrastructure for the production and distribution of their products.

As for key telephones, five producers are registered with the Department of Industry and Trade and they are as follows: PT Daya Manunggal, CV Chatulistiwa, PT Electronic Indonesia, PT Inti Goldstar, and PT Trimurni Raya. They have a combined production capacity of 2.01 million units/annum. However, according to a Data Consult survey, none of these companies actually produce key telephones. All these five companies are telecommunications equipment dealers although they are registered with the Department of Industry and Trade as manufacturers.

As is the case with key telephones, the PABX machines are not produced in Indonesia although three companies are registered with the Department of Industry and Trade as PABX producers. These three companies are as follows: PT Chatulistiwa (production capacity 100 units/annum), PT Gunung Trimurni Raya (5,000 units/annum), and PT Inti Goldstar (60,000 units/annum).

Gajah Tunggal the Largest Simple Telephone Producers

Of the 10 single-line simple-telephone handset producers currently in operations in Indonesia, whose combined production capacity is 5.85 million units/annum, the largest is PT Gajah Tunggal National Electronic (2,875,000 units/annum or 49.1% of the total).

Operating under the foreign investment (PMA) scheme, PT Gajah Tunggal National Electronic is 50% owned by Gajah Tunggal Abadi and 50% by National Electronics International limited of Bermuda, the, United States. The brands produced by this company, whose plant is located in Tangerang, West Java, are GT Phone, Belfon, and Danotra.

It is said that in addition to handsets of these three brands, Gajah Tunggal also produces handsets upon order from other companies. A few years ago, when PT Telkom still monopolized the procurement of handsets for new telephone lines, this company had to receive a supply of 50,000 units from PT Ometraco Arya Samanta. To meet the delivery schedule, PT Ometraco Arya Samanta had to make use of Gajah Tunggal's production facility. Gajah Tunggal's handset production capacity is big enough for the company to fulfill orders from other companies anytime.

The other large-scale simple telephone handset producers are PT Welback Indonesia, PT Daihwa Industrial Indonesia, PT International Electronic, PT Samsung Metrodata Electronics, and PT Industri Telekomunikasi Indonesia (INTI). Each of these companies has an annual production capacity of over 500,000 units. PT INTI, which was established in 1974, is one of the main suppliers of handsets and other telecommunications equipment to PT TELKOM. Operating under the Supervision of the Agency for the Development of Strategic Industries (BPIS), which is led by Minister of State for Research and Technology BJ Habibie, PT INTI can produce from 390,000 to 600,000 units of single-line telephone handsets per annum.

The second largest single-line handset producer in Indonesia is PT Welback, a private company. With its plant: located in Surabaya, East Java, PT Welback has an annual production capacity of 1.2 million units. Like Gajah Tunggal, PT Welback also operates under the PMA scheme. This company is jointly owned by Nakano Fangni, Melinda P., and Hergian P. of Indonesia and a Hongkong-based investor. According to some information, all (100%) of PT Welback's output is exported, especially to Hongkong, Singapore, and the United States. The company's products are marketed under brand name Bellsouth.

Local simple-telephone producers usually have their own brands except for a few of them such as PT Nicom Rayatama, PT Welback Indonesia, PT Daihwa Industrial, and PT International Elektronic. PT Nicom Rayatama produces handsets under license from Siemens, and the other three produce handsets with brand names from the buyers.

As is the case with simple handset producers, more cordless handset producers are registered with the Department of Industry and Trade than those that are actually in operations. As many as six companies are registered with the Department of Industry and Trade as cordless handset producers with a combined production capacity of 3.58 million units/annum. According to a Data Consult survey, however, only three of them were actually in operations as per the end of 1995, and the. se three companies had a combined production capacity of 2.72 million units. All these three companies were established as a result of the relocation of cordless handset factories from certain developed countries in Asia. Since they are located in the bonded zone on Batam Island and since the labour wage is relatively low, these relocated factories can turn out products that are competitive on the export market.

Earlier, in addition to the three cordless handset producers mentioned above, there was another company which produced cordless handsets at Jakarta's bonded zone and it was PT Kodeco Electronics, whose production capacity was 750,000 units/annum. This company marketed its cordless handsets under brand name Belset. Late in 1993, however, PT Kodeco $ Electronics discontinued its cordless handset production and switched to the production of ear audio products.

Of the three cordless handset producers currently in operations, the largest one is Shinoka, which has an annual production capacity of 2 million units and exports all its output. This company was originally named AT & T Consumer Product. Therefore, in addition to producing cordless handsets with brand names from the buyers, Shinoka also produces cordless handsets with brand name AT & T.

Production Down

In Indonesia, simple handsets are produced not only for exporting purposes but also for supplying to PT Telkom and to the free market. As for cordless handsets, however, they are produced in Indonesia exclusively for exporting purposes. This is so because all the three cordless handset producers currently in operations in Indonesia --which are located in Batam's bonded zone-- are relocated companies which are fully export-oriented.

In 1994 and 1995, Indonesia's single simple and cordless) handset production dropped by, respectively, 2.4% and 27.1%. This decline resulted not from shrinking domestic demand but from a decrease in export demand due to the influx of China's and Thailand's products into the international market.

The production capacity utilization rate with single handset producers for 1995 was only 43.8%. because many large-scale factories did not operate effectively. This indicates that the competition on the single handset market was very tough. The reason for such tough competition was that investors entered the simple handset industry simultaneously following PT Telkom's announcement of its telephone network expansion program. Many of these investors did not have any experience in the telecommunications industry; they were originally trading companies. They entered the single handset industry only because the business of such handsets was then booming. Now, when market competition is tough, many of them cannot maintain their operations.

In 1996, Indonesia's single handset production declined by an estimated 32.3% from the previous year. This sharp drop resulted from the fact that the export demand for Indonesian simple handsets fell by up to 60.4% in the same year, namely from 3.1 million units in 1995 to 1.2 million units. Fortunately, the domestic demand for simple handsets rose in 1996 as a result of an increase in the installation of new telephone lines. In 1996, the installation of new telephone lines rose by 31.5% or 1.52 million lines. This prevented the domestic production of simple handsets from plummeting.

Imports Up 141.3% in 1995

The import duty on single (simple and cordless) handsets is 25%. For the period of 1991-1995, the volume of Indonesia's simple handset imports grew at an average annual rate of 16.9% and that of its cordless handset imports at an average annual rate of 21.9%.

All cordless handsets that are available on the domestic market are imported products, and they have different brands such as Panasonic, Sony, Sanyo, Panafone, and AT&T. The data on the annual volume of cordless handset imports indicate that such handsets are widely used in Indonesia.

The main suppliers of single (simple and cordless) handsets to Indonesia are Asian countries such as Japan, Hongkong, Taiwan, China, and Singapore in addition to the United States. Japan and the United States supply Indonesia mostly with cordless handsets while Indonesia imports mostly simple handsets from the other countries. Some field information indicates that Panasonic cordless handsets which are available on the domestic market come from Malaysia.

Like single (simple and cordless) handsets, key telephones are also subject to a 25% import duty. For the period of 1991-1995, the volume of Indonesia's key telephones grew at an average annual rate of 17.9%, with the highest rate achieved in 1995, i.e. 28.2%. The high growth in the volume of such imports resulted from the rapid development of office buildings, apartment buildings, and hotels.

A Data Consult survey of several PABX users and suppliers shows that the PABX is mostly used by private companies and hotels. The PABX is used to support their operations and to facilitate control/supervision. For the period of 1991-1995, the volume of Indonesia's PABX imports grew at an average annual rate of 19.6%. It averaged 6,000-7,000 units/annum. Like key telephones, the PABX also showed the most rapid import growth in 1995, namely 34.7%.

Exports Down

Indonesia started to export single handsets eight years ago. In 1991, the volume of such exports reached as high as 1.12 million units (worth US$ 28.82 million). In 1993, it rose sharply to 4.78 million units (worth US$ 43.71 million). In 1994, however, it declined by 5.6% although the absolute figure was still high, namely 4.52 million units (worth US$ 44.73 million).

This downward tendency prevailed in 1995 and 1996. In 1995, the volume of such exports dropped by 31.4% to 3.09 million units from 4.52 million units in 1994. In 1996, it declined further to only 1.23 million units. However, the value of such exports for 1996 reached US$ 24.38 million, up slightly from US$ 23.73 million in 1995. As for cordless handsets, the volume of their exports declined by 53.8% to 963 thousand units in 1996 while the volume of simple handset exports dropped more sharply by 73.9% to 264 thousand units.

The decline in the export volume of single (simple and cordless) handset exports resulted from the influx of price-competitive products from Taiwan, Thailand, China into the export market. The thing is that the single handset producers in Indonesia --all of which are fully export-oriented-- are mostly relocated foreign companies which already have their own buyers. The local partners in these companies only rely on the foreign partners' buyers for the marketing of theft and they often fail to work on these potential markets.

Although several single handset producers rely mainly on the export market for the marketing of their products, they have not fully succeeded in working on the export market. As a matter of fact, according to some information which Data Consult obtained, the world's single handset demand grows by 8% or US$ 11 billion per annum. Compared to this figure, Indonesia's share of the export market for single handsets is insignificant. This is so because the countries of destination for Indonesian single handsets are Japan, the United States, Mexico, Singapore, and Spain, where competition is very tough. The other potential markets such as the Middle-East, Vietnam, Africa, and several East European countries have not been fully worked upon by Indonesian single handset producers.

So far, Indonesia has been exporting single handsets mostly to the United States, Singapore, and Mexico. In 1995, Indonesia supplied the United States with 1.80 million units of such handsets (worth US$ 19 million), which accounted for 58% of the total volume of the former's single handset exports. In the same year, Indonesia supplied Singapore with 598 thousand units worth (US$ 1.31 million).

Domestic Market Size of Single Handsets Up 25.3%

For the period of 1991-1995, the domestic market size of telecommunications equipment grew very rapidly. As an illustration, the domestic consumption of single handsets grew by 25.3% annually, that of cordless handsets by 21.9%, that of key telephones by 15.4%, and that of PABX telephones 19.6%. This rapid growth was attributable to the efforts Indonesia made at improving its telecommunications system by enlarging the telephone line network. In addition, it was also attributable to the continued improvement in the people's welfare and to the resulting changes in their life-style: a growing number of people required handsets. In addition, more and more people have found it necessary to have not only simple handsets but also cordless handsets for households and key telephones and PABX systems for offices.

For 1996, the domestic consumption of single handsets grew by an estimated 23%. This estimate has been made in view of the fact that the population of telephone users (subscribers) grew more rapidly in 1996 than in 1995. In 1995, it rose by only 1.01 million lines. In 1996, it increased by 1.47 million lines.

Telkom Consumed Over 1 Million Units. in 1995

Until 1996, PT Telkom dominated the domestic consumption of single handsets because the company adopted the policy on providing new telephone subscribers with handsets. Until then, the free (or non-Telkom) market for single handsets was constituted of buyers of handsets for use as replacements only. In 1995, PT Telkom installed 1,006,354 telephone lines for new subscribers, and this means that the company purchased over 1 million units of simple handsets in the same year.

Of the supply of over 1 million units of simple handsets to PT Telkom in 1995, some 300,000 units worth Rp 9 billion came from PT INTI, a state enterprise operating under the supervision of BPIS (the Agency for the Development of Strategic Industries). PT INTI is the first company to serve as an approved supplier of handsets to PT Telkom. However, as the telecommunications sector grew very rapidly, PT INTI was not able to fulfill PT Telkom's rising demand for handsets and, therefore, it subcontracted the procurement of handsets to private companies.

Among the private single-handset producers, Gajah Tunggal is the largest. In 1995, this company supplied 220,000 units to PT Telkom. In addition to local brands, PT Telkom also receive a supply of several different import brands. In 1995, for example, PT Telkom received 96,000 units of "Goldstar" single handsets through PT Galva Technologies Corporation, Goldstar's distributor. This made PT Galva Technologies Corporation the largest importer of single handsets for supplying to PT Telkom in 1995.

The leader of the captive (PT Telkom) market for handsets is PT Inti. This is so because PT Inti is a state enterprise under the supervision of the BPIS and, as such, it has a special relationship with PT Telkom which private handset producers do not have. At the beginning, PT INTI was the only company entrusted with the procurement of telecommunications equipment in Indonesia. However, as has been explained earlier, this company subsequently could not cope with the ever-growing demand for handsets as a result of the rapid development of the telecommunications sector. Therefore, private producers have emerged to help fulfill such demand.

"Inti" single handsets compare rather poorly with the other brands supplied to PT Telkom in terms of appearance and size. "Inti" single handsets look big and unattractive. Even so, it is difficult for the six brands from private producers to make use of the shortcomings of "Inti" single handsets because, to obtain orders from PT Telkom, all handset producers have to fulfill the criteria set by the former concerning product quality, delivery time, and prie. In 1995, the price set by PT Telkom for single handsets ranged around Rp 27,500/unit, and this made it difficult for PT Telkom's contractors (i.e. handset producers) to improve the quality of their products.

The free market for single handsets, on the other hand, was dominated by import brands, of which Panasonic has the largest market share. In 1995, Panasonic managed to secure a 41.2% share of the total domestic market for single handsets, thanks to the strong marketing network of its distributor, namely PT Indotigama Parama. Panasonic's sole agent, namely PT Met &. Gobel, is the oldest company in the industry of office aumation and household appliances. This combination of experience and a good brand image has made it possible for Panasonic to perform well on the market.

Another import brand with a large market share is Panafone, which is represented by Panatronics in Indonesia. Panafone excells on the domestic market for single handsets by offering products with a wide range of prices, from Rp 40,000 to hundreds of thousands of rupiahs/unit.

Since PT Telkom allowed new customers to purchase handsets for themselves, the competition on the free market for single handsets has been increasingly tough. Even when PT Telkom still monopolized the procurement of handsets for new customers, the competition on the free market was already tough. Therefore, local single-handset producers which formerly enjoyed shares of the captive (PT Telkom) market have started to concentrate on the export market. On the free domestic market, a local brand has to compete not only with the other local brands but also with import brands, which are not only quality-competitive but also price-competitive.

Absorbed by Ratelindo and Operations Cooperation (KSO) Contractors

According to some information which Data Consult obtained, certain single-handset producers which formerly supplied their output to PT Telkom on a contract basis are now in critical condition. PT Ometraco Arya Samanta, for example, has started to have difficulties keeping its single handset factory in operations due to tight market competition. On the other hand, PT Multi Kontrol Nasional of the Bakrie Group can continue operating because its output is directly absorbed by its affiliate, namely PT Radio Teleport Indonesia (Ratelindo), which is a provider of radiowave-based telephone services.

As may have been known, Ratelindo is licensed to operate 280,000 lines in the area of Jabotabek (Jakarta-Bogor-Tangerang-Bekasi) and 50,000 lines in West Java. The radiowave technology adopted by Ratelindo for the provision of its telephone services is the so-called ExtendedTime Division Multiple Access (E-TDMA). Meanwhile, PT Telkom has developed the so-called wireless local loop (WLL) technology. As per mid-1997, Ratelindo had managed to install 110,000 lines, of which at least 80,000 had been connected with customers/users in the area of Jabotabek.

Apart from this, PT Multi Kontrol Nasional has also managed to secure a market share in PT Telkom's KSO (operations cooperation) area of Kalimantan. As may have been known, PT Telkom's partner in operating telecommunications in Kalimantan. the company's Regional Division IV, is PT Daya Mitra Malindo, whose President Commissioner is Tanri Abeng. who is concurrently, the President Director of Holding Bakrie. According to the public relations of PT Telkom in Bandung, how handsets are to be procured for PT Telkom's five KSO areas depends on the policy adopted by the contractor for each area. For PT Telkom's Regional Division III (West Java), which is

managed by Aria West International, the policy is that PT Telkom provides applicants for new telephone lines with handsets.

Thus, for its Regional Division III, PT Telkom still receives a supply of handsets from its contractors, e.g. PT INTI. As a state enterprise, PT INTI has the opportunity to establish relationship with PT Telkom's KSO partners for the procurement of handsets for pioneer areas/rural areas. Nonetheless, PT Telkom's policy on allowing new subscribers to purchase handsets for themselves has also had some impact on PT INTI's sales. For the first semester of 1997, PT INTI's handset sales is recorded at only 93,973 units worth Rp 4.35 billion. PT INTI is currently seeking to find agents for the marketing of its products to end-users.

Distributors Play a Dominant Role

According to a Data Consult survey, distributors play a more dominant role than sole agents in marketing telecommunications products, including single handsets and PABX equipment. In the business of handsets, a sole agent is the license holder while a distributor handles the marketing of products through dealers to end-users.

Generally, a handset distributor controls a number of dealers in several major cities in Indonesia. In this regard, a dealer is generally a shop selling electronic and telecommunications products. A handset dealer can be an executive dealer, which is generally a large book store, a department store, a supermarket, or a wholesaler like "Makro."

Developments in Single Telephone and PABX Technologies

The decline in the sales of local single-line handset products on the domestic market has resulted from, among others, the fact that imported brands are increasingly sophisticated. "Casio," for example, has a special facility, namely a lock system which is operated using a digital security password which can be programmed by the user itself. This lock system prevents non-owners to use the handset.

The lock system on the Casio single-line handset has four different functions. The first function is to keep the handset ready for use anytime. The second function is the standard lock, which is used to prevent the dialing of "0" as the initial digit (for long-distance/ international calls). The third function is the all dial pad lock, which is used to prevent the dialing of all the 18 digits available in the memory except for the emergency call digits. The fourth function is to enable the handset to be used just once, after which the handset will remain locked again.

The other facilities on the Casio single-line handset include the "hold with extension release" function. This means that if the Casio handset is connected with another handset on a parallel basis, the former can automatically transfer a call which it keeps on hold to the latter. As for its cordless handsets, Casio provides an additional facility, i.e. one which can keep noise to the minimum.

As for the PABX system, PT Alcates has introduced its new product called PABX 4200 to Indonesia. The PABX 4200 adopts the so-called ditital enhanced cordless telecommunications or DECT technology, which guarantees that an employee can make a call to and receive a call from any digital cellular telephone anywhere within the area of coverage of the company in question. With its PABX 4200, PT Alcatel has solved the problem of failure to make or receive a phone call due to a busy line because this system can handle 124 lines at the same time and it has an automatic operator which makes sure that all incoming phone calls are politely received and passed on to the right persons. The PABX 4200 system is also equipped with a voice mail and a fax machine and with other message delivery applications to make sure that the company in question can be contacted 24 hours a day.

Prices Vary

The price of a standard single-line handset varies from Rp 30,000 to Rp 80,000/unit. When PT Telkom still monopolized the procurement of handsets for applicants for new telephone lines, what was meant by standard handsets were single-line handsets provided by PT Telkom. Then, the price of standard single-line handsets supplied to PT Telkom varied from Rp 20,000 to Rp 35,000/unit.

The price of cordless handsets on the domestic market also varies according to their technical specifications and, especially, to their effective area of coverage. In mid-1996, the retail price of a Panasonic cordless handset with an effective area of coverage of 1 kilometer (inclusive of the answering machine) in Jakarta stood at around Rp 679,500. Meanwhile, the price of a Panasonic cordless handset with an effective area of coverage of 200 meters (inclusive of the answering machine) was Rp 528,000. However, a Panasonic cordless handset with an effective area of coverage of 50 meters (inclusive of the answering machine) was only Rp 325,000. A Panafone cordless handset with an effective area of coverage of 50 meters (exclusive of the answering machine) was only Rp 160,000. The cheapest brand among cordless handsets with the same effective area of coverage (50 meters) was Maxton, which sold for Rp 110,000/unit.

Prospects and Conclusions

As per the end of 1996, as many as 6,343,695 telephone lines had been installed, of which some 4,862,442 lines or 76.6% had been connected with subscribers. This is a nearly ideal rate of capacity utilization because PT Telkom usually sets aside some of the telephone lines as permanent reserves and as routine reserves for purposes related to the maintenance of central exchange facilities.

Since the number of telephone lines kept as reserves in 1996 was considerable, PT Telkom sought to make sure that the additional telephone lines installed in the same year were absorbed by new subscribers. In 1996, as many as 1,519,000 lines were installed, and nearly all of them have been absorbed by new subscribers. For the years to come, PT Telkom's telephone line expansion targets --which the company will seek to achieve either by itself or in cooperation with its KSO partners-- are expected to be the same as market demand levels. For 1998, the target is 1,517,000 lines, and all of them are expected to be absorbed by new subscribers.

For Pelita VII (1999-2003), the target has been set at 9.5 million telephone lines. It is expected that the rate of utilization of these new telephone lines will not be much different from that in the current Pelita VI. This optimism is based on the fact that the population of households in Indonesia is high and so is the potential number of new telephone subscribers.

In 1996, the population of telephone subscribers in Indonesia grew by 1,474,000 lines. In the same year, the domestic demand for handsets reached 1,811,000 units, which was 23% higher than the number of new subscribers. This was possible due to the fact some new subscribers required other handsets for parallel connection with their lines and some old subscribers purchased new handsets for use as replacements either because they no longer liked their old handsets or because their old handsets were broken. Given that a handset has a life-span of 6-7 years, some 15 % of the population of handsets require replacements annually.

The demand for handsets for use as replacements is expected to grow in the years to come. The rapid growth in the number of telephone subscribers in 1994 will not have visible impact on the demand for replacement handsets until 1999 or 2000, when the total population of telephone subscribers in Indonesia reaches 8 million lines. This means that, given some 15% of the existing handsets require replacements, the demand for handsets to replace broken ones in 1999 can reach up to 1.07 million units. In the same year, the demand for handsets to be connected parallel to the existing lines and to replace old ones which the owners no longer like can reach up to 0.2 million units. Given that the demand of new telephone subscribers for handsets can be projected at 1.25 million units for 1999, the total domestic demand for handsets for the same year can be projected at 2.52 million units.

With the growing population of handsets, the demand for replacement handsets will also increase. On the basis of the projections of new telephone subscribers for Pelita VII and on the basis of the assumption that the life-span of a handset averages 7 years, the total domestic demand for handsets for Pelita VII (1999-2003) can be projected at an average 3.67 million units annually.

At present, the total production capacity of the domestic handset industry is much higher than the annual domestic demand from now through 2003. This means that it is impossible to expect the domestic market to be able to absorb all the output of the domestic handset industry. Now that PT Telkom has allowed new telephone subscribers to purchase handsets for themselve, those handset producers which formerly enjoyed this captive market have to deal with increasingly tough competition from local as well as overseas producers. Although Indonesia is one of the areas in the world with the highest telecommunications network growth, handset producers can not rely exclusively on the domestic market for the marketing of their products. They have to be export-oriented in order to survive and grow. Many of them have for a long time relied on certain buyers for their survival. This makes them vulnerable to changes in the purchasing policy adopted by the buyers.

Certain handset producers will certainly collapse now that PT Telkom has allowed new subscribers to procure handsets from the free market. Meanwhile, certain export-oriented handset producers which have been relying exclusively on certain buyers have started to feel confused because their buyers have started to switch their orders to other suppliers. Unless certain measures are taken, the domestic handset industry may face the same situation as the shoes industry, which once enjoyed high export growth and subsequently found difficulties increasing its exports because its buyers had switched their purchase orders to more competitive suppliers from other developing countries.

Table - 1 Simple and cordless handset producers in Indonesia and theft production capacities
Producers Location Brand
 of plant

Simple telephone :
- Inti, PT Bandung, Inti
 West Java
- Ometraco Arya Jakarta Omefone,
 Samanta, PT TeleNets
- Gajah Tunggal Nasional Tanggerang, GT Phone,
 Electronic, PT West Java Omedata,
 Belfon, Danotra
- Tjahja Sarim PT Semarang, Tens
 Central Java
- Patolipu Dinamikar PT Bogor, Natron
 West Java
- Nurizka Arya Artha, PT Karawang, NAA
 West Java
- Multi Kontrol Bandung, MKN
 Nasional, PT West Java
- Nicom Rayatama, PT Bandung, Siemens
 West Java
- Welback Indonesia, PT Surabaya, Brand determined
 East Java buyer
- Dai Hwa Industrial, PT Surabaya, Brand determined
 East Java buyer
- International Surabaya, Brand determined-
 Electronic, PT East Java buyer
- Others

Subtotal

Cordless telephone :
- Integrated Display Batam, Riau --
- Shinoka, PT Batam, Riau --
- PCI International, PT Batam, Riau --

Subtotal
Total

Producers Prod. capacity
 (Units/year)

Simple telephone :
- Inti, PT 395,000

- Ometraco Arya 200,000
 Samanta, PT
- Gajah Tunggal Nasional 2,875,000
 Electronic, PT

- Tjahja Sarim PT 50,000

- Patolipu Dinamikar PT 200,000

- Nurizka Arya Artha, PT 100,000

- Multi Kontrol 100,000
 Nasional, PT
- Nicom Rayatama, PT 100,000

- Welback Indonesia, PT 1,100,000

- Dai Hwa Industrial, PT 900,000

- International 750,000
 Electronic, PT
- Others 1,786,300

Subtotal 8,556,300

Cordless telephone :
- Integrated Display 360,000
- Shinoka, PT 2,000,000
- PCI International, PT 360,000

Subtotal 2,720,000
Total 11,276,300



Source: Department of Industry and Trade/Data Consult

Table - 2 Indonesia's single-line handset production 1991 - 1996 (Units)
Year Simple Cordless Total Growth
 telephone telephone (%)

1991 941,500 403,500 1,345,000 --
1992 1,547,600 1,571,394 3,118,994 132.0
1993 3,517,964 2,345,310 5,863,274 88.0
1994 3,262,340 2,461,066 5,723,406 -2.4
1995 2,086,495 2,083,715 4,170,210 -27.1
1996(*) -- -- 2,821,500 -32.3

Average growth 31.6



(*) Tentative figure

Source: Department of Industry and Trade/Data Consult

Table - 3 Indonesia' s handset imports, 1991 - 1996
Year Simple Cordless Total Growth
 telephone telephone (%)

1991 398,939 19,705 418,644 --
1992 316,996 24,680 341,676 -18.4
1993 138,344 26,755 165,099 -51.7
1994 100,208 30,450 130,658 -20.9
1995 272,696 42,609 315,305 141.3
1996(*) 168,183 48,380 216,563 -31.3



(*) Tentative figures

Source: Central Bureau of Statistics

Table - 4 Indoneia's key telephone and PABX imports, 1991 - 1995 (Units)
 Units
Year Key telephone PABX

1991 6,900 4,800
1992 7,800 5,700
1993 8,400 6,400
1994 10,300 7,000
1995 13,200 9,700



Source: CBS/Data Consult

Table - 5 Indonesia's single-line handset exports, 1991 - 1996
Year Volume Total volume Total value
 Simple Cordless (US$'000)

1991 718,400 403,500 1,121.9 28,825.0
1992 819,600 1,571,394 2,391.0 42,963.7
1993 2,437,014 2,345,310 4,782.3 43,711.7
1994 2,054,340 2,461,066 4,515.4 44,733.4
1995 1,012,761 2,083,715 3,096.5 23,773.0
1996(*) 264,427 962,628 1,227.1 24,384.5



(*) Tentative figures

Source: CBS/Data Consult

Table - 6

Indonesia's 1995 single-line handset exports by country of destination
Year Volume Value
 ('000 Unit) (US$'000)

U.S.A 1,796 18,842
Singapore 598 1,308
England 22 156
Japan 10 158
Others 671 3,309

Total 3,097 23,773



Source: CBS/Data Consult

Table - 7

Indonesia's single-line handset, key telephone and PABX consumption, 1991- 1996
Year Simple Cordless Key PABX
 telephone telephone telephone

1991 622,039 19,705 6,900 4,800
1992 1,044,996 24,680 7,800 5,700
1993 1,219,344 26,755 8,400 6,400
1994 1,308,208 30,450 10,300 7,200
1995 1,430,145 42,609 13,200 9,700
1996(*) 1,810,963



(*) Excluding key, telephone and PABX

Source: Data Consult

Table - 8

Growth in population of automatic and manual telephone subscribers, 1991-1996
 (Sst)

Year Telephone subscribers Growth
 Automatic Manual Total (%)

1991 1,209,123 36.788 1,245,911 --
1992 1,485,273 17.652 1,502,925 20.6
1993 1,794,473 14.695 1,808,876 20.4
1994 2,374,954 7.196 2,381,669 31.7
1995 3,383,954 4.069 3,388,023 42.3
1996 4,862,422 -- 4,862,422 43.5



Source:Data Consult

Table - 9

Target of telecommunications development through KSO agreements for 1st year, 1996

PT Telkom's Area of Total
KSO partners operations target(*)

Pramindo Ikat Nusantara Sumatera 516,487
Aria West International West Java 500,000
MGTI Central Java 400,000
Daya Mitra Malindo Kalimantan 237,000
Bukaka Singtel Indonesia' s 403,000
 Eastern parts

 (Sst)
PT Telkom's Target for Actual achie
KSO partners 1st year(**) vement (***)

Pramindo Ikat Nusantara 43,510 21,304
Aria West International 70,000 232,062
MGTI 60,000 -
Daya Mitra Malindo 25,930 -
Bukaka Singtel 34,700 20,000



(*) Cumulative target for 1996 - March 1999

(**) Target by KSO contract agreement

(***) For first year (1996) up to the end of 3rd quarter

Source: Data Consult
Table - 10

License holders for simple handsets, cordless handsets and PABX

License holder Brand Country of
 origin

Amida Tulus Sejati, PT Mita Japan
Aneka Spring, PT Toshiba Japan
Ansu Vivatraco, PT Olivetti Italy
Askomindo Dinamika, PT Fujitsu Japan
Dian Graha Elektrika, PT Siemens Germany
Dura Nitsuko Utama, PT Nitsuko Japan
Electronic Indonesia, PT Samsung South Korea
Metrodata Industri Pratama, PT Iwatsu Japan
Galva Corp, PT Goldstar South Korea
Met & Gobel, PT Panasonic Japan
Metrodata Electronics, PT Hitachi Japan
Nindya Komunika Nusantara, PT Oki Japan
Permai Raya Sakti, PT Sanyo Japan
Sinar Gadjahmada, PT Toyomi Japan
Sumacom Matra, PT Nayako Japan
Tritanu, PT Sharp Japan
Wasana Citra Mulia NEC Japan
PT Erindo Utama Erickson Sweden



Source: Various source
Table - 11

Retail prices of simple handsets, 1996

 (Rp/unit)

Brand Price

Panasonic 80,000
Panafone 40,000
Danotra 35,000
Toyomi 78,000
Goldstar 51,000
Belfon 32,000
Omefone 41,000
Fiscom 38,000



Source: Data Consult
Table - 12

Retail prices of cordless handsets, 1996

 (Rp/Unit)

Brand Area of Price
 coverage

With an answering machine :
Panasonic 50 meters 325,000
Sanyo 50 meters 335,000
Sony 50 meters 350,000

Without an answering machine:
Panafone 50 meters 160,000
Sanyo 50 meters 150,000
Panasonic 50 meters 180,000
Sony 50 meters 250,000
GE 50 meters 200,000
NEC 50 meters 185,000
Sharp 50 meters 240,000
Maxton 50 meters 110,000



Source: Data Consult

Table - 13

Projections of growth in telephone capacity and population of subscribers, 1996 - Pelita VII
 ('000 Unit)

Year Capacity Population Growth in
 (lines) of telephone population of
 subscribers subscribers

1996(*) 6,344 4,862 --
1997 7,843 6,011 1,149
1998 9,360 7,173 1,162
1999 11,000 8,426 1,253
End of Pelita VII 21,500 16,470 8,044
(2003)



(*) Actual

Source: Data Consult
Table - 14

Projections of handsets consumption, 1996 - 2003

Year Projection of Projection
 population of of handsets
 telephone consumption
 subscribers (000 Units)
 (000 Sst)

1996(*) 4,862 1,811
1997 6,011 2,078
1998 7,173 2,264
1999 8,426 2,529
End of Pelita VII 16,470 3,676(**)
(2003)



(*) Actual consumption

(**) Projection average annual demand

Source: Data Consult3
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Comment:TELEPHONE HANDSET INDUSTRY FACED WITH NEW CHALLENGES.
Publication:Indonesian Commercial Newsletter
Geographic Code:9INDO
Date:Sep 22, 1997
Words:6841
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