7 Oct 2009Indonesia Broadband Overview

Until 1989, the Indonesian government had a monopoly in the telecoms sector. In 2000, policies governing the telecoms sector were amended in order to create a competitive environment for the entry of new telecom players. Internet services were first introduced commercially in Indonesia in 1994. Before 1994, Internet access was only available to a few universities and research institutes through ‘IptekNet’, the National Science and Technology Network. Since their inception, Internet services have been on the rise in Indonesia increasing to serve around 30 million Internet users by early 2009.

With a total population of 240 million, Indonesia is the fourth largest country in the world, and is ranked as one of the top four telecom markets in terms of scale and development potential. However, Indonesia faces some big challenges if it is to successfully continue the building of telecommunications infrastructure needed to support its uniquely complex geography - an archipelago that spans over more than 16,000 islands.

According to forecasts by the Ministry of Communications and Information Technology based on current trends, Internet users will continue to rise reaching almost 80 million by end 2010. However, broadband is very much in its infancy. The advent of fixed wireless services, aggressively rolled out by key operators, has been important in boosting the growth rate over the last few years. By the end of 2008, fixed wireless services comprised over 50 per cent of the total fixed-line subscriber base. With a mobile subscriber base of over 130 million by early 2009, and market interest starting to focus on existing 3G services, mobile broadband is also set for rapid growth in coming years.

The key players in the Indonesian market are PT Telkom and PT Indosat who further strengthened their positions by acquiring two other major telecom operators in Indonesia. PT Telkom, also known as Telkom Indonesia acquired PT Telkomsel, the largest mobile operator in Indonesia, and PT Indosat settled for PT Satelindo, the second-largest mobile operator. Indosat’s ‘IndoNet’ was the first commercial operator to launch ISP services in Indonesia in September 2004. In August 2007, PT Telkom announced that it would retreat from the highly competitive wireless market and invest more in promoting fixed broadband services. In Q1 2009, PT Telkom reported 716,000 DSL subscribers, up from 292,000 in Q1 2008.

In June 2008, the sale of a 41 per cent stake in PT Indosat by Singapore Technologies Telemedia (ST Telemedia) to Qatar Telecommunications (Qtel) for USD 1.8 billion was announced. This sale was initiated because the Commission for the Supervision of Business Competition (KPPU) charged ST Telemedia’s holding company (investment firm Temasek) with violation of Indonesia’s anti-monopoly laws by indirectly holding stakes in Indosat and PT Telkomsel. Temasek also has substantial stakes in SingTel, which owns 35 per cent of Telkomsel. Consequently, in May 2008 a court upheld the KPPU’s ruling, and Temasek was ordered to either give up its stakes in one of the two telcos or reduce its stakes by half in both units within a year. The deal gives Qtel, which previously controlled 25 per cent of Indosat, the majority shareholding in the company.

Several cable companies offer broadband through coaxial cable with multimedia capabilities. The forerunner in Jakarta is Kabelvision, which has the widest coverage to date with 60,000 residential customers in Jakarta, Surabaya and Bali. However, in order to gain Internet access through Kabelnet (broadband cable Internet access), subscribers must first subscribe to Kabelvision (cable TV).

Indonesia’s mobile market has been growing rapidly in recent years, with the number of subscribers passing 130 million in early 2009, up from 90 million in 2008. Penetration in early 2009 was at 55 per cent, leaving considerable room for market expansion in Indonesia. Telkomsel (in which Telkom Indonesia, majority-owned by the Indonesian government, has a 65 per cent holding and SingTel the remaining 35 per cent) is the dominant player in the mobile segment, followed by Indosat. At the beginning of 2009, Telkomsel and Indosat had more than a 70 per cent market share, and the top three, which includes Excelcomindo (67 per cent owned by Telekom Malaysia) held 90 per cent of the market. Telkomsel had 71.3 million mobile subscribers at the end of Q1 2009.

The incumbent’s competitive advantage of having large subscriber and base station networks has slowly been eroding over 2008 and into 2009. With capex remaining high, market shares declining and profit growth slowing, competition has become “multi-pronged”, as well capitalised contenders are emerging from amongst the 11 wireless licence holders, most of which are well funded and backed by foreign telecom companies. The majority of these licences were handed out only in the last five years. Low network utilisation and a high-tariff regime currently enjoyed by the incumbents have allowed challengers to take market share through an aggressive pricing strategy.

In August 2006, Indonesia became the third Southeast Asian nation, after Singapore and Malaysia, to launch 3G services commercially. The country's largest cellular operator, PT Telkomsel rolled out its W-CDMA-based 3G service, making this the first commercial introduction of 3G to Indonesia. The goal of Telkomsel is to supply the entire country with 3G network services, focusing particularly on the eastern regions which are experiencing rapid economic growth. At March 2009, Telkomsel’s 3G network covered more than 140 cities across the country, and the operator plans to spend IDR 1.5 billion in 2009 to further upgrade the 3G network.

While 3G is steadily establishing market presence, it is still in its infancy three years after launch, with 3G subscribers representing only about 7 per cent of total mobile subscribers in early 2009. One of the challenges cited by operators is more frequency for mobile broadband. Operators say it is too expensive, and that the government needs to bring down the price so they can lower the cost of mobile broadband. Mobile market leader Telkomsel however, has made a huge impact on the still small 3G market with 72 per cent of the 9 million subscribers coming into 2009.