Fixed Telecommunication Industry in Indonesia 2011

INDONESIAN COMMERCIAL NEWSLETTER

March 2011

CELLULAR TELECOMMUNICATIONS IN INDONESIA 2011

FIXED LINE SERVICE INDUSTRY AMID COMPETITION IN WIRELESS TELEPHONE SERVICE MARKET

Introduction

Wireless telephone especially cellular phone contributed more to the rapid growth of telecommunications service industry in Indonesia. Telephone service industry in the country consists of fixed lines and cellular telephone..

Fixed telephones include fixed wire lines (Public Switched Telephone Network/ PSTN) and fixed wireless access (FWA). Cellular telephones are mobile wireless telephones.

Apart from cellular, fixed wireless telephones are also major contributors to the rapid growth of the industry . The change in community activity pattern to greater mobility drives the growth of the telephone service industry.

The growth of fixed wire lines, however, has been sluggish resulting in it being left farther behind. The main user of wire lines are institution or business offices . Fixed wireless telephones and cellular phones are used mainly by individuals .

Infrastructure

Backbone networks with big capacity and integrated have become a necessity to ensure high quality, secured and economical amid the fast growth of the telecommunication service industry, both cellular and fixed .

In addition, development of backbone networks will support distribution of development and expansion of economic potentials in areas in eastern Indonesia far from the economic center.

Backbone networks of telecommunications in Indonesia consists of networks of terrestrial micro wave transmission, optic cable, submarine cables and satellite transmissions which connect long distance telephone centrals which constitute secondary and tertiary centrals of the networks of telephone centrals in Indonesia. The following table shows a description of telecommunications infrastructure in Indonesia.

Table - 1

Telecommunications infrastructure in Indonesia

Infrastructure Description

Backbone networks Constitute networks that make connection between long distance telephone centrals (tertiary, and secondary centrals) through:

- terrestrial micro waves transmission

- optic fiber cable transmission

- submarine cable transmission

- Satellite transmission

Networks of wire lines Networks of subscribers' equipment to local telephone central through connection equipment (outside plant)

Networks of fixed wireless telephone Networks which make connection between the equipment of subscribers and local telephone central through Base transceiver station(BTS), and through Mobile switching centre (MSC) it is connected to Base station sub system(BSS), and from which to telephone central .

Networks of cellular telephone Networks which make connection between cellular mobile telephone and telephone central using integrated dual band (single integrated dual band network), which consists of:

- Base transceiver station (BTS)

- Digital switch centre (DSC)

- Transmission that makes connection between DSC and base station controller and telephone central

Networks of Data and internet Networks of data transport for use in the service of internet dial up, broadband, VoIP and Virtual private network (VPN)

Structure of telecommunications business in Indonesia

The rapid advance of telecommunications technology has brought the countries in the world closer in information . What happens in one country could be heard almost instantly all over the world. The rapid growth brought about change in the telecommunication map. The rapid growth, however, causes no change in the business structure in the telecommunication sector.

In Indonesia, there are four telecommunications business areas fixed telephone, cellular telephone,; data and internet; and networks and interconnections

Structure of wire-line business

The structure of fixed lines includes wire-line (Public Switched Telephone Network =PSTN) and fixed wireless access (FWA). Wire-lines have long existed in the country , but FWA is relatively new or less than a decade.

PSTN was previously monopolized by state telecommunications company PT Telkom, but later the private sector is allowed to operate fixed wire-lines.

PT Telkom stills the main player in wire-line operations . Other smaller players include PT Batam Bintan Telecom (BBT) with coverage only in Batam and Bintan which is a special economic zone. PT Indosat also operates cable telephone known as IndosatPhone or I-Phone.

Table - 3

Types of services and operators of fixed line

Operator Shareholders Share

Telkom The government I 52.47 %

Public 47.53 %

Indosat QTel Asia 65 %

the government 14.29 %

Skagen Entities 5.38 %

Public 5,38 %

Batam Bintan Telecom PT Batamindo Investment Cakrawala 95 %

PT Telkom Tbk 5 %

Sources: Telkom, Indosat, BBT

Capacity of fixed lines

The capacity of telecommunications services is reflected by a number of factors as follows:

1. Installed lines

2. Line in service

3. Subscribers

Installed Lines

Installed lines are lines installed to the point of distribution ready for connection with subscribers. In the past five years installed lines of fixed cable line have increased steadily.

In 2008 installed lines totaled 9,935,231 lines or an increase of 2.4%. Two years later the number of installed lines grew 1.8% to 10,102,590 in 2009 and grew further by 4.9% to 10,606,742 in 2010.

The installed lines grew when the lines in services were on the decline. The operators, especially PT Telkom, are continuing to expand networks to keep pace with growing demand for connection although the growth remains slows. In the coming years, the installed capacity is not expected to change much as demand for fixed line is relatively stagnant.

Table - 4

Installed capacity of fixed lines in Indonesia, 2008 - 2010

(Line unit)

Year Installed capacity Growth (%)

2006 9,731,604 -

2007 9,801,270 0.7

2008 9,935,231 2.4

2009 10,110,259 1.8

2010 10,606,742 4.9

Sources: Post and telecommunication directorate general , PT Telkom, processed

Capacity of lines in service

Capacity of lines in service is the capacity of lines connected to the telephones of subscribers including public telephones. In the past several years, the use channels has continued to decline as both connection to the telephones of subscribers and public telephones declined notable those of PT Telkom.

In 2008, the lines in service decline 0.6% to 8,674,228 lines from 8,729,333 in the previous year. In 2009, the number of lines in service decline 2.4% to 8,423,973 lines. The trend continued until 2010 when the number of lines in service declined 0.3% to 8,349,998 line units.

The ratio of lines in service to installed lines also was on the decline. The ratio was less than 90% since 2008. In 2008, the ratio was 88.2% or down 1.8 percentage points from the previous year. In the following two years, the ratio fell further to 84.1% in 2009 and to 79.4% in 2010.

Paid lines

Paid lines are lines income earner which is connected to subscribers of fixed lines, not including public telephones. Data of paid lines are available only from PT Telkom. Data are not available from Indosat and BBT.

Paid lines also suffered a decline in 2009 and 2010 . In 2009, the number of paid lines declined 3.2 % to 8,038,294 units. In 2010, the number of lines declined further by 0.7% to 7,980,337 units.

Player like Telkom has to concentrate on curbing the declining trend. Cable telephone is still superior in voice quality and connection compared to cellular phones or fixed wire lines.

Cable telephones are more resistant to weather disturbances , therefore, they are still used as the main means of communications by institutional or business offices.

PT Telkom has largest installed capacity

Being the oldest player in telecommunications service, PT Telkom has by far the largest telephone line capacity. Telkom accounted for 99% or 10,510,048 units of the total installed capacity of 10,606,742 line units of the three players PT Telkom; PT Indosat; and PT Batam Bintan Telecomunication in 2010.

Indosat has only an installed capacity of 91,290 units and BBT has 5,404 units. Fixed wire-line is not the core business of Indosat, and BBT has a limited coverage of only Batam and Bintan.

Meanwhile, the number of lines in service of PT Telkom totaled 8,349,998 in 2010 or 99.1% of the total number of lines in service of all players.

Telkom also has higher ratio of lines in service to installed capacity though declining from two years earlier - down from 88.2% in 2008 and 84.1% in 2009 to 79.4% in 2010 in 2010 as against 49.3% of Indosat up from 46.2% in 2009 and 41% of BBT down from 42.6% in 2009.....

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