Indonesia liberalized cellular telecommunications business in 1995. Since that year the government allows private companies to operate in cellular telecommunications business in open competition. Cellular telecommunications operation business became more attractive after the introduction of the GSM (global system for mobile communication) technology replacing the first generations of cellular telecommunication technology used in the country such as NMT (Nordic Mobile Telephone) and AMPS (advance mobile phone system).
The business expands rapidly in Indonesia placing the country the fourth largest market for that service in Asia after South Korea, China and Japan. The ranks are based on the number of subscribers from year to year.
According to the Indonesian Association of Cellular Telephone (ATSI), the number of cellular phone users in the country grew 49.1% annually in the 2002-2006 period. By the end of 2006, the number of cellular phones users in the country totaled 63.9 million.
GSM operators dominated 95% of the market and pre-paid card system accounted for 94% of the payment system with post paid card system making up only 6%.
Almost all operators recorded a fast increase in the number of subscribers. Market leader Telkomsel already had 35 million subscribers in 2006. 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 highy potential with the low ratio of users to the population in the country. Teledensity in the country of 220 million people is around 38% much lower compared with the teledensity in other Asean countries.
Foreign investors know the potential and are keen to expand operation in the country. A number of operators from other Asian countries such as Singapore Telecommunication Ltd (SingTel), Singapore Technology Telemedia (STT) from Singapore and Telekom Malaysia and Maxis Communication Bhd from Malaysia have established their position in the country by acquiring local cellular operators Telkomsel, Indosat and Excelcomindo Pratama. Indosat, formerly controlled by the state now 41.08% owned by foreign investor.
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.
Currently Indonesia has 8 cellular phone operators including five using GSM technology and 3 CDMA technology. Operators of GSM cellular phone include Telkomsel, Indosat and Excelcomindo (XL) holding the license with nation wide coverage. The country's three largest cellular phone operators use dual band in the frequency of 900 Mhz and 1800 Mhz that could serve 3G.
The first operator using GSM technology was PT. Satelit Indonesia (Satelindo) formerly owned jointly by the Bimantara Group, Telkom and Indosat. Later Indosat and Telkom exchanged shares they had in Satelindo and Telkomsel to prevent joint ownerships and domination by the two largest telecommunications and state companies. At that time Indosat was still owned by the state Under the program Indosat handed over its stake in Telkommsel to Telkom and in exchange Telkom handed over to Indosat its stake in Satelindo.
In 2003, PT Satelindo and PT Indosat Multimedia Mobile (operator of IM3) a subsidiary of Indosat, were merged into Indosat. Indosat maintains cellular phone products of Matrix and Mentari of Satelindo and IM3 of Indosat Multimedia Mobile. In addition to GSM cellular service, Indosat has CDMA fixed wireless service namely StarOne and international and long distance telephone call services.
In 2004, Indosat in cooperation with Starhub, a sister company of Indosat in Singapore, succeeded in launching Black Berry features, a complete mobile solution covering wireles e-mail, global address lookup, wireless calendar synchronization, and mobile data, integrated and safe. The BlackBerry service needs GPRS (General Packet Radio Services) networks to enable all features to run well. The superiority of the BlackBerry service compared with other wireless services is that its has push mail technology, which enables subscribers to access e-mail without first dial up. Users of BlackBerry als will continue to be linked with GPRS which will make possible streaming data in real time.
In 2005, Indosat teamed up with Nokia to launch Black Berry Connect service that could be accessed by subscribers without having to use special handset produced by RIM (Research In Motion). Access could be made with Nokia 9500 and Nokia 9300 handsets.
PT. Cellular telecommunications (Telkomsel) is a subsidiary of state-owned telecommunication company PT Telkom. In the beginning it served as a pilot project for mobile telecommunications project using the GSM digital technology expanded by its then parent companies PT Telkom and PT Indosat, which owned its by a 51% : 49% share split. The entry of foreign shareholder cause a change in the composition of its shareholders now Telkom holding 65% and Singapore Telecom Mobile (SingTel) holding the remaining 35%.
Telkomsel plans to issue bond valued at Rp 2 trillion to raise fund for capital expenditure in 2007. Its parent company PT Telkom has set aside Rp 14 trillion for capital expenditure of Telkomsel this year. Telkomsel needs business expansion to keep its 50% share in cellular phone market. In the middle of this year Telkomsel was set to increase the number of its subscribers to 39 million from 35.6 million earlier this year.
Currently, Telkomsel is more concerned with improving the quality of its networks. It will no longer be as aggressive in expanding networks as it was in the past years as it already has the connection capacity of 49 million.
Telkomsel is already a market leader in cellular business in Indonesia controlling more than 50% of the market. Its coverage is 95% of the Indonesian population. It has established cooperation with 260 operators of international roaming in 15 countries including Singapore, Malaysia, the Philippines, Taiwan, Australia, Hong Kong, Germany, Belgium, France, Saudi Arabia, Italy, Greece, the Netherlands, Japan and Sweden.
PT. Excelcomindo Pratama (XL) came on line in 1989 and became a public company by launching initial public offering (IPO) selling 20% of its shares to the public in 2005. It is the only cellular telecommunications operator building and having optic fiber networks consisting of backbone network along its right and left side of the railway from Bandung in West Java and Surabaya in East Java covering a number of other cities in Java.
PT. Hutchison CP Telecommunications Indonesia (HCPT ) was originally named PT. Cyber Access Communications which already held the license to operate GSM cellular telecommunications in 2004. Cyber Access was 60% owned by Hutchison Telecommunications International Ltd (HTIL) of Hong Kong and 40% by Charoen Popkhand Group from Thailand.
Singapore and Malaysian investors dominate market
Currently telecommunications business in Indonesia is dominated by foreign investors mainly leading telecommunications companies from Singapore and Malaysia. They acquired shares of a number of major telecommunications in the country such as Indosat, Telkomsel and XL. ............................
INDONESIAN COMMERCIAL NEWSLETTER
List of Contents
FOCUS: NEW INVESTMENT POLICY PACKAGE CLEARER BUT IMPLEMENTATION YET TO BE SEEN 1
FIXED LINE TELECOMMUNICATION INDUSTRY IN INDONESIA 5
Current issue 5
Characteristics of telecommunication industry 6
Telecommunication services of fixed telephone 8
Capacity of telecommunication service industry 9
Value of the sales of fixed line services 11
Operators and owners 11
Fixed wire line service industry 12
Operation of telecommunication services through joint operation (KSO) scheme 13
Fixed wireless telephone service industry 14
Telecommunications networks of fixed wireless telephone 14
Number of fixed wireless telephone subscribers 15
Telecommunication regulations 16
Universal service obligation (USO) 17
Marketing aspect 18
Income from fixed wireless telephone service increasing 23
Average revenue per user (ARPU) 24
Expansion and new investment 24
Migration of frequency of fixed wireless telephone to be effective as from Dec. 31, 2007 26
Prospects and conclusion 26
CELLULAR TELECOMMUNICATIONS INDUSTRY IN INDONESIA 28
Current issue 28
Cellular telecommunications system 29
Business players 31
Foreign domination 38
New investment 40
Number of subscribers 41
Technology and infrastructure 43
Third generation (3G) 45
Tariff war 47
Income of cellular telecommunications service industry 49
New features 51
Level of competition 52
Marketing strategy 53
Government policy 53
Business risks and hindrance 54
Conclusion and prospects 54
COMPANY PROFILE: BHAKTI INVESTAMA GROUP 55
INTERNET SERVICE PROVIDER (ISP) INDUSTRY 59
Current issue 59
Number of ISP companies down 64
Main players 64
Number of subscribers 68
Income of major players tend to increase 69
GOVERNMENT INVOLVEMENT NEEDED IN TELECOMMUNICATION BUSINESSIN INDONESIA 71
VERY SMALL APERTURE TRANSPONDER (VSAT) 76
Number of players growing 76
Major players 77
Banking sector still large user 79
CORPORATE NEWS IN BRIEF:
Essar to acquire stake in Krakatau Steel 80
Mitsubishi to expand the capacity of Muara Karang Power Plant 80
Royal Doulton to invest US$ 100 million in gas sector 80
Jangsu to build tankers for Pertamina 80
ECONOMIC NEWS IN BRIEF:
Corruption detected in wild bank accounts 81
Government to crack down on illegal mining 81
Government to go ahead with high speed train project 81
Batam finally granted FTZ Status 81
Bank Indonesia allows tax officers to take a peep at tax payers' data 82
Indonesia-Australia study FTA agreement 82
Abolition of CPO export tax called for after DMO comes into effect 82
Regulation banning license for new airlines reversed 82
Directory of telecommunication company in Indonesia 83