JAKARTA - The collapse of the rupiah in 1998
left Indonesian telecommunication companies barely able
to pay their dollar-denominated debts, let alone fund
new investment. As neighbors across Asia signed up
subscribers by the cart load, six of the total nine
Indonesian cellular operators collapsed and AT&T
Wireless Services and the Netherlands' KPN bailed out
and left.
Now, despite the halting progress of
the privatization program and a permanently
cash-strapped government, the sector is showing very
strong growth.
China outpaced the United States
as the world's largest market for mobile phones two
years ago, but the growth in Indonesia has been equally
remarkable. Almost 20 million Indonesians now use mobile
phones, equivalent to some 8 percent of the country's
220 million population. And the best is yet to come.
The country still has one of the lowest
penetration rates in the Asia-Pacific region, the
world's largest telecommunication market, with
neighboring Malaysia, for example, having 36 percent and
Thailand about 32 percent. As recently as 2001, only 1.7
percent of Indonesians had cellular phones, compared
with 6 percent of Thais.
The market is expected
to grow rapidly and even last year's growth of 2 percent
was, pro rata, the largest in the region.
Currently there are 1.3 billion users worldwide,
and most of the growth in the industry is expected to
come from basic voice communications in emerging
markets, including India, Indonesia, Brazil and Russia,
Nokia chief Jorma Ollila said last month. About 4
billion people, half of the planet's total population,
will be using mobile phones by 2015, according to
Ollila.
Indonesia has just three mobile-phone
operators, Telkomsel, Satelindo and Excelcomindo
Pratama, unlike India, for example, with similarly low
mobile penetration rates but plenty of
competition.
The unlisted Excelcomindo, the
third-largest operator in Indonesia, and Satelit Palapa
Indonesia, or Satelindo, the second-largest, have for
some time been eyed up as attractive targets for Asian
telecommunications companies looking for growth and
expansion opportunities.
Excelcomindo is
planning an initial public offering this year, but last
week it was reported that Telstra, Australia's giant
telecommunications company, was talking turkey with the
company over a potential buyout for US$2.3 billion.
Telstra is thought to be bidding against Telekom
Malaysia and China Telecom for Excelcomindo Pratama,
which, with some 2.7 million subscribers, has some 16
percent of the estimated 17 million network subscribers
nationwide.
The company expects subscribers to
top 4 million by the end of this year. Excelcomindo is
controlled by PT Telekomindo Primabhakti with a 60
percent stake. The rest is split up between Nynex
Indocel Holding Sdu with 23.1 percent of shares, Asia
Infrastructure Fund Ltd (12.7 percent) and Japan's
Mitsui & Co (4.2 percent).
Both Telstar and
Excelcomindo are keeping mum about the negotiations but
media speculation last week caused Telstra shares to
fall to $4.67, their lowest since last August. This is
no reflection on the wisdom of bidding for such a chance
for regional expansion, but more a reflection of
analysts concerns that, as Telstra looks west, rivals
are taking its share of the Australian market.
Whoever wins control of Excelcomindo will have
to contend with Singaporean players who were first to
enter Indonesia to capitalize on its fast-growing
mobile-services market.
Infrastructure
investment in mobile telecoms is cheap relative to
investment in a fixed-line network. This, together with
the limited availability of fixed-line services in the
country, explains why the top two telecommunication
companies - PT Telekomunikasi Indonesia Tbk (Telkom) and
Indonesian Satellite Corp Tbk (Indosat) - are
increasingly reliant on their cellular operations.
Singapore Technologies Telemedia (ST Telemedia),
controlled by the Singaporean government, now has a
42-percent stake in Indosat, once the state-owned
monopoly international carrier. The $634 million
purchase last year was the biggest foreign payout for an
Indonesian company since the regional financial crisis
kicked in.
Indosat, however, has been steadily
losing ground to Telkom, Indonesia's dominant telecoms
company, in the mobile-phone sector and was saddled with
the high debt load of its mobile subsidiaries, PT IM3
and PT Satelit Palapa Indonesia (Satelindo). Last year
it restructured its debt and merged the subsidiaries to
create a single national brand, IM3.
Though the
combined 4.3 million subscribers of the two
subsidiaries, before the merger, represented an increase
of 81 percent year-on-year they were dwarfed by the
might of Telekomunikasi Selular Indonesia, or Telkomsel,
the country's largest cell-phone company with 7 million
subscribers and 65 percent of the market share. The
latter is 35 percent owned by Singapore
Telecommunications Ltd, (Singtel), which is almost 70
percent owned by the government. Singtel paid a tad over
$1 billion for a 35-percent stake in Telkomsel.
Admittedly, the attractiveness of Indonesia's
booming mobile-phone sector for cash-rich Singaporean
firms seeking to expand beyond the tiny republic is
clear enough. But the flagship status of both Telkom and
Indosat and the presence of the Singaporean government,
one of the biggest investors in Asia, sent a loud and
clear message that amid the security concerns and the
political uncertainty, business as usual was the order
of the day in Indonesia.
Mobile-phone
manufacturers with the foresight to enter the large
Indonesian market ring up the profits as they sell more
handsets to supply the growing demand. The makers have
yet another reason to be happy, given the limited number
of cell-phone brands currently available to Indonesians
who, a recent survey suggests, are simply mad about
their beloved hand phones.
The survey, published
last month by Siemens, covering 335 respondents from two
different age groups -16-29 and 30-60 - showed that 65
percent of respondents said their phones were so
important to them that they were a "technological
extension" of their personalities.
The happy
Indonesian mobile-phone owners can afford to buy
handsets on easy payment terms offered by distributors,
suppliers and banks.
Nokia, which makes about
two out of every five branded name handsets worldwide,
also dominates the Indonesian handset market, and sold
more than 50 percent of the total 3.65 million units
bought in 2003. Samsung is in second place, with Siemens
and Sony Ericsson bringing up the rear.
Nokia's
core business strategy is to provide the Indonesian
market with low price products for the
middle-to-low-income market segments. About 65 percent
of its sales last year were low-end types that cost
about Rp1 million ($120) apiece. Samsung, on the other
hand, sets its stall out with products attractive to the
middle-to-high-income segment. Samsung also targets
younger consumer groups with unique and appealing
designs.
Nokia predicts that wireless
communications will overtake fixed-line communications
in terms of the volume of voice call traffic in
developed countries, where the proportion of the
population using mobile phones is already high. This has
already happened in Italy, the Czech Republic and
Portugal.
It may not be far off in Indonesia
either. Fixed-wireless services work much like cellular
but offer cheaper rates, as unlike GSM (global system
for mobile communications) operators, they do not have
to pay frequency charges to the government.
Two
months ago, PT Mobile-8 Telecom (Mobile-8) launched the
country's first fully wireless code division multiple
access (CDMA) mobile-phone service. The company bought
out three failed mobile-phone service operators, PT
Komselindo, Metrosel and Telesera, which, still using
the ancient analog Advanced Mobile Phone System (AMPS),
lost out to the GSM operators.
CDMA gives
clearer sound, wider coverage, smoother transmission and
multimedia facilities but, more important in a country
renowned for very poor Internet access speeds, can
deliver a high-speed data-access capability of 80
kilobytes per second (kbps). Samsung is also likely to
be a winner with its prescience to be first to develop
all singing and dancing handsets for the Indonesian
market with CDMA capability.
The country's
largest mobile-phone operators, PT Telkomsel and PT
Satelindo, still rely on GSM, which gives data access at
only 20-30 kbps.
Mobile-8 president BT Lim,
explaining why he was "very confident" of the growth
prospects for data communications, pointed out that when
mobile operators launched SMS (short message services)
as recently as three years ago, it brought in only 3
percent of their revenue but now accounts for some 20
percent.
Mobile-8 is 70.52 percent controlled by
publicly listed PT Bimantara Citra, previously owned and
controlled by former president Suharto's son Bambang
Trihatmodjo. The remaining shares are divvied up among
Bimantara subsidiary PT Centralindo Panca Sakti, with
9.54 percent, Asialink (8.5 percent), and a consortium
of Qualcomm Inc and Samsung Electronics of South Korea.
Mobile-8 hopes for a million subscribers by the
end of 2004, according to Bimantara president Hary
Tanoesoedibjo, who adds that the company will provide up
to 2 million lines by the end of next year in a bid to
become the third-largest player in the cellular-phone
sector by 2007 with its Fren brand wireless phone
service.
Telecom researcher Gartner Inc predicts
that by then Indonesia will likely have 42 million
cellular subscribers. But the downside is the very high
mobile tariffs compared with the rest of the region.
Though this gives the companies more profit, it
restricts the potential for a better penetration rate.
The cellular industry has an unsophisticated
pricing system. Postpaid card charges are usually
Rp65,000 ($7.50) a month as a standing charge for the
service alone, not including call charges. For the much
more common prepaid cards, the usual minimum price for a
refill voucher is Rp100,000 ($11.50).
One cloud
on the horizon is the government's threat to lift
controls on prices, currently capped at Rp500 rupiah (7
cents) a minute for local peak-hour calls. Though
legislators have come out strongly against the planned
hikes, and a decision is pending for the time being, in
the run-up to the elections, the issue has created
uncertainty.
However, cellular-phone makers are
still on a winner with the predicted boost in demand
from the legislative and presidential elections this
year.
(Copyright 2004 Asia Times Online Co, Ltd.
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