Wireless technology provides Indonesia’s fixed-line market with fresh new growth

Indonesia, the largest economy within the Association of South East Asian Nations (ASEAN), Indonesia has built a substantial telecom sector, providing a solid platform for further growth. This has been despite the occasional serious setback. This country of around 240 million people presents a huge potential market; however, it faces some particularly big challenges that need to be confronted if it is to successfully continue the building of the telecommunications infrastructure needed to support what is a uniquely complex geography. At the same time, there is no avoiding the fact that Indonesia must also deal with a range of social, political and economic issues that have been proving problematic.

Although more than a decade ago, the Asian economic crisis of the late 1990s forced the government to take steps to reshape the telecom industry that are still having an impact today. In fact in recent times the telecom market has taken on a new impetus. Previously this the government had certainly been addressing the issues and working towards a more competitive market; but progress had been slow and at times erratic. The reform process was accelerated, with the government being more decisive; over this same period Indonesia has been experiencing healthy sustained growth in subscriber numbers and revenues.

While fixed-line teledensity remained disconcertingly low for a number of years there has been a recent upturn that has delivered much better outcomes (over 16% fixed-line penetration by early 2011). The biggest single factor in this surge has been the advent of the fixed-wireless service. This technology has considerably boosted the growth rate in the last few years and provided much-needed basic telephone services to previously unserved communities. The roll-out of fixed-wireless infrastructure has been given good support by the operators with Bakrie Telecom and PT Telkom leading the way. By end-2010, fixed-wireless services made up about 80% of the total fixed-line subscriber base. In other words, in a short space of four years this technology platform had transformed the fixed-line market.

Meanwhile, Indonesia’s mobile market has continued to grow. While the global financial crisis saw growth slow somewhat in 2009, the market has did not lose much momentum. In the 18 months up to June 2011 the subscriber base grew from 150 million to 250 million. Whilst penetration had passed 100%, the industry view was that there was still considerable potential for further growth in the market. Market interest hard started to shift to the 3G services being offered by the operators, attracted by the potential of 3G to boost Average Revenue per User (ARPU)

The number of internet users in Indonesia was estimated at 22 million by early 2011, representing a relatively low overall penetration of 9%. At the same time, the internet subscription market was generally depressed with less than 7 million subscribers reported by early 2011. Broadband internet access, whilst certainly increasing, remained at a relatively low level of activity. Importantly, broadband subscriptions were already running at around 40% of the total internet subscriber base. While the government was continuing to promote greater use of online services, these efforts appeared to be having only limited impact on the take up rate of the various Internet services on offer.

Market highlights:

• Indonesia’s mobile market passed 250 million subscribers in mid-2011 with penetration running at just over 100%;
• After years of strong growth, the annual increase in mobile subscribers had moderated somewhat by 2011 to somewhere around 20%;
• Indonesia’s 3G market was still in its infancy four years after launch, with 3G subscribers representing only a modest %age of the total mobile subscriber base;
• Nevertheless, much is expected of 3G and beyond with the operators keenly pursuing 3G business because of its potential to increased ARPU.
• Internet penetration remained low (9% user penetration by end-2010) and internet subscription rates were considerably lower;
• Broadband internet access numbers in Indonesia were starting to grow and by 2011 broadband as a proportion of the total internet base was running at 40%;
• DSL remained the dominant broadband platform for the time being; the heavy reliance on limited copper-wire infrastructure to access DSL services offers a huge opportunity for increased use of wireless-based internet access.

Indonesia - key telecom parameters – 2010 - 2011

Telecoms, Mobile and Broadband 2O10

Indonesia has built a substantial telecom sector, providing a solid platform for further growth. This has been despite the occasional serious setback. This country of around 230 million people presents a huge potential market; however, it faces some particularly big challenges that need to be confronted if it is to successfully continue the building of the telecommunications infrastructure needed to support what is a uniquely complex geography. At the same time, there is no avoiding the fact that Indonesia must also deal with a range of social, political and economic issues that have been proving problematic.

Although more than a decade ago, the Asian economic crisis of the late 1990s forced the government to take steps to reshape the telecom industry, and as a consequence it took on a new impetus. Prior to this the government had certainly been addressing the issues and working towards a more competitive market; but progress had been slow and at times erratic. In the last decade or so the reform process has accelerated, with the government being more decisive; over this same period Indonesia has been experiencing healthy sustained growth in subscriber numbers and revenues.

While fixed-line teledensity remained disconcertingly low for a number of years there has been a recent upturn that has delivered much better outcomes (over 15% fixed-line penetration by early 2010). The biggest single factor in this surge has been the advent of the fixed-wireless service. This technology has considerably boosted the growth rate in the last few years and provided much-needed basic telephone services to previously unserved communities. The roll-out of fixed-wireless infrastructure has been given good support by the operators with Bakrie Telecom and PT Telkom leading the way. Although the published statistics have been somewhat imprecise, by end-2009 fixed-wireless services made up about 76% of the total fixed-line subscriber base. In other words, in a short space of four years this technology platform had transformed the fixed-line market.

Meanwhile, Indonesia’s mobile market has continued to grow. Whilst it was expanded at an annual rate of close to 50% in 2008, the impact of the global financial crisis saw growth slow somewhat in 2009. The total mobile subscriber base had passed 150 million by January 2010, up from 12 million just seven years earlier. With the country’s mobile penetration at around 65% in early 2010, the industry view was that there was still considerable potential for further growth in the market and the operators were scrambling to position themselves to meet the ongoing demand. Furthermore, market interest had started to focus on the 3G services already being offered by five operators. Whilst 3G subscribers comprised only around 7% of the national subscriber base by early 2009, the potential of 3G to boost Average Revenue per User (ARPU) was not lost on the operators and competition was starting to hot up on the 3G front. Telkomsel was indeed making its presence felt in this market segment, claiming more than 70% of 3G subscribers by March 2009.

The number of Internet users in Indonesia was estimated at just over 26 million by early 2010, representing a relatively low overall penetration of 11%. At the same time, the Internet subscription market was generally depressed with less than 7 million subscribers reported by early 2010. Broadband Internet access, whilst certainly increasing, was at a relatively low level of activity, with subscriptions running at around 18% of the total Internet subscriber base. While the government was continuing to promote greater use of online services, these efforts appeared to be having only limited impact on the take up rate of the various Internet services on offer.

Market highlights:

• * Indonesia’s mobile market passed 150 million subscribers in early 2010 with penetration running at 65%;
• * After more than seven straight years of strong growth, the annual increase in mobile subscribers had moderated somewhat to just under 20%;
• * Indonesia’s 3G market was still in its infancy four years after launch, with 3G subscribers representing still only about 7% of the total mobile subscriber base;
• * Nevertheless, the operators were keenly pursuing 3G business as it opened the door to increased ARPU.
• * Mobile market leader Telkomsel had made a big impact on the relatively small 3G market with more than 70% of the total 3G subscriber base in 2009;
• * Internet penetration remained low (11% user penetration by end-2009) and Internet subscription rates were considerably lower;
• * Broadband Internet access numbers in Indonesia were starting to grow, but penetration remained exceedingly low at 0.5%;
• * DSL remained the dominant broadband platform with about 95% of the broadband subscriptions; this meant of course a heavy reliance on the limited copper-wire infrastructure to access DSL services.
   

Broadcasting

Free-to-Air (FTA) television has had a substantial impact in Indonesia, with almost two out of every three households having access to television. The advertising market, having suffered a major setback during the Asian economic crisis, has taken a decade to recover but is now moving strongly and sector revenues are steadily increasing. The pay TV market has not been as fortunate as the FTA market, struggling to some extent to build its customer base. This has been partly due to the fact that pay TV was too expensive for the average Indonesian household. The sector has also suffered problems relating to infrastructure.

Fixed Network Operators

Over the last decade the Indonesian telecom landscape has undergone massive change. With the telecommunications sector experiencing major regulatory restructuring, the two dominant players duly lost their previous monopoly rights. The domestic telephone market, previously the exclusive domain of PT Telkom, was initially opened up with the entry of PT Indosat into this market. Telkom, in turn, started to have an impact on the international call business. The expansion of fixed-wireless networks has also been a very significant move. There are signs that the restructuring of the big telcos and ongoing privatisation push have together started to deliver a positive overall outcome for the industry.

Internet and Broadband Services

This report presents an overview of Indonesia's Internet market and looks at the changes that have taken place over the last decade as the telecommunications industry got back on its feet following the economic crisis of the late 1990s. Commercial Internet services were launched in Indonesia in 1995. Coming into 2010, it was estimated that Indonesia had 26 million Internet users, up from 13 million in 2007. The early 2010 user figure, however, represented only around 11% of the population, and at the same time broadband Internet services were still very much in their infancy. In fact, broadband services constituted only 18% of all Internet subscriptions by end-2009 and were estimated to only number around 1.2 million by that time. Problems with inferior telecommunications infrastructure are likely to continue to impede Internet growth. However, the country is considered to have enormous potential as an online market.

Key Statistics, Telecommunications Market and Regulatory Overview

The Indonesian telecom sector has been through a lot of turmoil over the last decade. This report gives an overview of the market at a time when it seems to have successfully weathered the worst of the country's economic and social difficulties. Growth, both in subscriber numbers and in revenues, has been occurring and, more importantly, there are signs that the changes in the regulatory regime and operator restructuring are starting to have a positive effect on the industry. The mobile market has been especially strong and there has been a good resposne to the launch of 3G networks by five operators. However, there were some signs that the government was hesitating in its efforts to restructure the industry. Some pertinent statistics are provided for the telecom sector.

Mobile Communications - Major Operators

The Indonesia mobile market has experienced an exceptional run of boom years. At the same time the mobile operators are busy positioning themselves as growth starts to moderate and competition becomes more intense. To continue to expand their customer bases and build market share, the operators must offer competitive prices. The shape of the market can also be expected to undergo change as a number of new operators, with foreign partners, have entered the market. With 3G services having been launched in 2006, following a somewhat controversial licensing phase, there is much interest in how the operators have taken up the next generation challenge.