Mobile and Wireless Services and Service Providers in Indonesia

Transcription

1 King-Yew Foong, Nick Ingelbrecht, Jayashri Dasgupta Operational Management Report 29 October 2003 Mobile and Wireless Services and Service Providers in Indonesia Summary The Indonesian cellular market is in a strong growth phase, having already overtaken the fixed-line market by a number of connections. The entry of WLL is likely to change the competitive landscape. Table of Contents Market Overview Vendor Profiles Service Profiles Strengths and Limitations Insight List Of Tables Table 1: Comparison of Old and New Telecommunications Law in Indonesia Table 2: Other Licensed GSM1800 and Personal HandyPhone System (PHS) Operators Table 3: Indonesia Cellular Market Share (as of June 2003) Table 4: Telkomsel Table 5: Satelit Palapa Indonesia (Satelindo) Table 6: Excelcomindo Table 7: Voice Services Table 8: Data Services Table 9: Messaging Services Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Market Overview Historical Perspective Cellular communications was introduced to Indonesia in 1985 by Mobisel, which provided the analogbased rdic Mobile Telephone (NMT 450) service in Jakarta, Bandung and West Java. In 1991, Metrosel launched the first advanced mobile phone service (AMPS)-based cellular service covering East and Central Java. Subsequently, Komselindo launched AMPS-based cellular service covering Jakarta, Bandung, Medan and Ujung Padang, and Telesera launched the same covering South Sumatra, Kalimantan and Bali. Global System for Satelindo introduced Global System for Mobile Communications (GSM) -based cellular service in 1994, followed by Telkomsel and Excelcomindo in 1995 and 1996, respectively. Unlike the previous cellular operators, all three GSM operators were awarded licenses with nationwide cellular coverage. The number of cellular subscribers remained very low until GSM-based cellular service was introduced in Indonesia. But before the cellular penetration could be ramped up further, Indonesia was hit by the Asian financial crisis in mid This drastically affected the country, particularly in terms of its currency depreciation, negative economic growth, high-interest rates, social unrest and political instability. The crisis not only slowed down mobile growth but also caused the operators to reduce their mobile network expansion. Although the economy showed improvement in 2000, investor sentiments were still weak and uncertain over the many unresolved factors listed above. However, amid the political and economic uncertainties, the cellular market in Indonesia continued to grow and caught up with the fixed-line market by the end of The Market as It Is Today Indonesia is currently going through a strong growth phase in cellular services from 7.22 million connections at the end of March 2002 to 14.3 million connections at the end of June 2003, an increase of approximately 98 percent, according to Gartner statistics. Gartner projects that this figure will grow to approximately 36.8 million by 2007, at a compound annual growth rate of 20.4 percent. Growth in cellular services has over the last few years exceeded that of fixed-line services. The total number of fixed-line subscribers grew a modest 9.2 percent to 7.89 million lines at the end of While fixed-line penetration stood at a mere 3.6 percent, cellular penetration had already reached 5.3 percent at the end of However, usage is currently concentrated in Jakarta, while most of the rest of the country still lacks adequate telecommunications infrastructure. The three key GSM mobile operators now control around 95 percent of the country s total cellular market. Telkomsel has the largest subscriber base of around 7.7 million, Satelindo is the second largest cellular operator with 3.6 million, and Excelcomindo has a subscriber base of 2.2 million. As part of the economic recovery program supported by the International Monetary Fund (IMF), Indonesia had to abide by a number of deregulation, restructuring, liberalization and market access plans. With respect to telecommunications, the Indonesian government had to resolve the cross-ownership of Telkom and Indosat in several affiliates, such as Telkomsel, Satelindo and Lintasarta. In addition, the government had to liberalize the sector and remove any monopolistic controls. Hence, in 2000 the government implemented a new Telecommunication Law to deregulate the sector, paving the way for more competition and creating a level playing field. 29 October

3 The government also announced the early termination of Telkom s monopoly in domestic fixed-line and Indosat s and Satelindo s duopoly in international gateways. Both Telkom and Indosat are now allowed to offer services in each other s space, in effect allowing them to be full-service providers. Indosat was given a license to operate in the local market from August 2002 and in the domestic long-distance market from August Telkom, on the other hand, was given a license to operate international services from August In August 2000, to compensate both operators for the early termination of their monopoly and duopoly licenses respectively, the government awarded them nationwide cellular licenses to operate GSM1800. Table 1: Comparison of Old and New Telecommunications Law in Indonesia Under Old Telecommunication Law Telkom has monopoly rights in the domestic telecom market until 2010 for local calls and 2005 for longdistance calls. Indosat has monopoly rights in the international call market until The government is the regulator. The government determines tariffs. Services are classified as basic, nonbasic and special telecommunications services. Source: Gartner. Under New Telecommunication Law Telkom s monopoly rights in the domestic telecom market expired by August 2002 for local calls and August 2003 for long-distance calls. Indosat s and Satelindo s monopoly rights in the international call market expired by August An independent regulatory body will be established to assist the government. The government sets the ceiling or formula for tariffs. Operators are free to set their own tariffs within this limit. Services are classified under network, services or special telecommunications services. In line with the new Telecommunication Law and the reform demanded by IMF, Telkom and Indosat resolved the two companies cross-ownership in Satelindo, Telkomsel and Lintasarta in Telkom acquired Indosat s 35 percent stake in Telkomsel, raising Telkom s stake in Indonesia s largest cellular operator to 77.7 percent. The remaining was owned by SingTel, which then raised its share to 35 percent leaving majority shareholding of 65 percent with Telkom. Telkom then integrated its GSM1800 cellular service with Telkomsel s GSM900 cellular service to provide a competitive dual-band service. Indosat, on the other hand acquired Telkom s 22.5 percent stake in Satelindo and percent stake in Lintasarta. To further strengthen its ownership interest in Satelindo, Indosat purchased all the shares in Bimagraha, which had a 45 percent ownership stake in Satelindo. This acquisition boosted Indosat s position in Satelindo to a 75 percent controlling stake. In May 2002, Indosat purchased Deutsche Telekom s 25 percent stake in Satelindo. This deal gave Indosat full control of Satelindo. With total ownership of Satelindo, Indosat could now restructure and merge its cellular business to achieve greater synergies. With falling international revenue, the cellular business provided Indosat new revenue to boost its overall revenue. Satelindo, with its international telecom service, satellite transponder leasing service and nationwide cellular services, was a strategic acquisition for Indosat. Indosat also launched its GSM1800 operation, called IM3, in The company is now planning to merge both Satelindo and IM3 with itself. By merging the two units into its main body, Indosat plans to consolidate the total debt of the three companies, making it easier to refinance the borrowings. Post merger, Indosat will be able to operate on dual bands, GSM900 as well as GSM1800. While the creditors of Indosat and IM3 have approved the merger, the company is still seeking approval from the creditors of Satelindo. 29 October

4 Telkomsel was first to introduce prepaid cellular services during the economic crisis. The success of the prepaid service quickly prompted other operators to follow suit. t only has the prepaid service helped operators gain new customers, but it also prevented drastic churn rates during the economic crisis and precluded the growing risk of bad debt problems. Prepaid customers drove the strong subscriber growth in 2002, with more than 95 percent of new subscribers being prepaid. Prepaid subscribers made up the majority of the total cellular subscribers in 2002, with more than 85 percent of the total subscribers being prepaid. Gartner estimates the prepaid market in Indonesia will continue to grow and will eventually dominate, making up more than 90 percent of the total cellular market in The prepaid service is highly popular with the subscribers as it not only allows them to control their spending, but also gives them easy access to cellular service without the tedious verification and approval process for postpaid service. Indonesia is one of the countries in Asia that is fast catching up in terms of Short Message Service (SMS) usage. As of May 2001, interoperator SMS was made possible with agreement among the three GSM900 operators to cooperate. Recognizing SMS as a valuable source of increasing average revenue per user (ARPU), operators made SMS service available for both pre- and postpaid customers. The contribution of SMS in the operators toppling can be estimated by the fact that data revenue accounted for almost 11 percent of the total cellular services revenue in In Indonesia, low-telecom tariffs set by the government have been a major concern for the operators and potential investors. Cellular services in Indonesia are among the least expensive in the world, and Indonesia uses a Calling Party Pays (CPP) system. Even though the government has increased cellular tariffs, they are still low compared to tariffs in other parts of the world. Although the government has relaxed the tariff structure, it will, however, continue to set the ceiling price for cellular rates. While the operators are hopeful of further increases to help boost their revenue, the government, on the other hand, looks forward to greater competition in the cellular sector. Apart from that, the government also fears a political and social backlash, which would be caused if the rates went up. While many countries have rolled out the commercial launch of General Packet Radio Service (GPRS), Indonesia has only begun to gear up for it. While Telkomsel and Indosat have started offering GPRS, Excelcomindo, who had originally planned to roll out GPRS sometime in 2002, is yet to launch the same. With the success of SMS, these operators are hopeful that high-speed cellular data transmission will also be popular with the subscribers. At present, most cellular operators in Indonesia are either in the second-generation (2G) or 2.5G (those offering GPRS) cellular technology. However, Indonesia is also gearing up for the third generation (3G) cellular technology in not so distant future. In 2003, the ministry of communication had floated a tender, inviting companies to develop the first nationwide 3G network in Indonesia. Thai service provider Cyber Access Communications won this tender. Cyber Access is affiliated with Thai carriers TelecomAsia and TA Orange. The company will have a three-year lead to launch 3G services and stands to forfeit a US$1.2 million bond if service is not launched within the time frame. Selecting Cyber Access for developing the nationwide 3G network is surprising, considering it is a new entrant in the market, while there are established players like Telkomsel and Satelindo who are fully capable of rolling out 3G services. The government, however, justifies the selection of Cyber Access saying the local partners of the company are several listed companies on Jakarta bourse under the Charoen Pokphand group. Over the last year, Indonesia has also seen an increase in code division multiple access (CDMA)-based fixed wireless local loop (WLL) services being launched. These services operate like a normal cellular service but at the inexpensive rate for fixed telephony. Most of the major Indonesian operators have 29 October

5 jumped into the fray. While incumbent Telkom has already started a CDMA service called TelkomFlexi, others like Wireless Indonesia, Indosat, Bakrie and Ratelindo are also jumping onto the bandwagon. Even a diversified conglomerate like Bimantara is seriously looking at the CDMA market. Bimantara is acquiring a percent stake in Komselindo and Metrosel in an attempt at developing its telecommunication division. Komselindo and Metrosel are being brought under the brand Mobile-8 Telecom, which has been awarded the license to operate cellular service using the idle network of Komselindo and Metrosel. Mobile-8 and Samsung Electronics have already signed a contract to supply a CDMA network with a capacity of 1.9 million lines. However, with just about 40,000 CDMA subscribers at the end of June 2003, it remains to be seen if the service can really pose a threat to the existing GSM cellular services. The Indonesian government is also considering passing legislation to limit WLL roaming to within a single base station. Should that happen, it would definitely affect the prospects of WLL service providers. Including Telkom and Indosat, there are 11 new wireless operators for Indonesia s cellular market (the table Other Licensed GSM1800 and Personal HandyPhone System [ PHS] Operators summarizes the list of new operators and their license coverage). Of all the new operators, Lippo Telecom (brand name of Natrindo Telepon Seluler) became the first to launch its services on 27 April Lippo Telecom officially operates the first GSM1800 network in Indonesia. The operator can now only serve the Surabaya and Malang areas, but this will be widened to cover other cities in the East Java area. Table 2: Other Licensed GSM1800 and Personal HandyPhone System (PHS) Operators Operator License Coverage Network Technology Telkom Nationwide GSM1800 Indosat Nationwide GSM1800 Astratel Nusantara Sumatra GSM1800 Indonesia Selular Jakarta GSM1800 Telkom Personal Jakarta PHS Ariawest International West Java GSM1800 Bima Investa Utama Central Java PHS Natrindo Global (with the brand name Lippo Telecom) East Java GSM1800 Primasel East Java PHS Primarindo Sintel Kalimantan GSM1800 Kodel Margahayu Eastern Indonesia GSM1800 Source: Gartner. The economic crisis had put a stop to most network expansion plans. However, as the Indonesian cellular market is expected to continue to show healthy growth, since penetration is only expected to be 8 percent at the end of 2003, operators are embarking on their network expansion plans to cater to the growth. To capitalize on the growth potential, both Telkomsel and Indosat are raising funds to finance their capital expenditure plans. The Indonesian government has extensive regulatory authority and control over the telecommunications sector through the Ministry of Communications, which, prior to 1998 was known as Ministry of Tourism, Post and Telecommunications (MTPT). The Indonesian telecommunication industry under the New Telecommunications Law released in 1999 is more liberalized, and competition is encouraged. Any company interested in providing telecommunications service in Indonesia can apply to the government for a license. According to the New Telecommunication Law, the operation of the network is divided into 29 October

6 three subcategories: (a) fixed network provider, (b) cellular provider or (c) closed network provider. Service providers are also divided into three subcategories: (a) telephony service provider, (b) valueadded service provider and (c) multimedia service provider. The new Telecommunications Law aims to formulate a new atmosphere in Indonesia s telecommunications industry, to stimulate growth and to restructure and provide a level playing field in view of the new regulations encompassing the law. However, it remains to be seen how far it succeeds in achieving its objective. Table 3: Indonesia Cellular Market Share (as of June 2003) Operator Cellular Networks Total Number of Subscribers (in thousands) Percent Market Share Telkomsel GSM900/1800 7, Satelindo GSM900/1800 3, Excelcomindo GSM900/1800 2, Indosat GSM Multimedia Mobile Metrosel AMPS Komselindo AMPS Mobisel NMT Telesera AMPS Total 14, Source: Gartner. Vendor Profiles Table 4: Telkomsel Ownership Date Wireless Services Launched Revenue Average Revenue per User (ARPU) per Month Network Infrastructure System Deployed National Coverage Number of Base Stations Network Enhancements Roaming National International Telkom (65 percent), Singapore Telecom (35 percent) September 1994 Rp7,573 billion ($ million) for FY02. FY02: Postpaid ARPU Rp298,000 ($36.2) Prepaid ARPU Rp103,000 ($12.5) Blended ARPU Rp145,000 ($17.6) GSM900 and dual-band GSM900/1800 All of Indonesia s provinces. Licensed to provide nationwide GSM cellular service. 3,483 (at the end of 2002) GPRS Roaming service to 74 countries worldwide in partnership with 222 roaming partners 29 October

7 Table 4: Telkomsel Pricing Elements Individual Business Tariffs Group Packaged Tariffs Corporate Dialing Plans Private Leased Circuits Support Airtime tariffs for both prepaid and postpaid are segmented based on: (a) Time calls are made: peak time and off peak (weekend and holidays apply) (b) Location (zoning: local, same area, Different Area) (c) Recipients (local phone, other Telkomsel subscribers or other cellular providers) SMS is Rp250 per message. Service-Level Agreements Billing Options Provides itemized billing Source: Telkomsel reports and Gartner Research. Table 5: Satelit Palapa Indonesia (Satelindo) Ownership Date Wireless Services Launched Revenue ARPU per Month Network Infrastructure Indosat (100 percent) vember 1994 Rp4028 billion ($ million) FY02 FY02: Postpaid ARPU Rp386,347 ($46.98) Prepaid ARPU Rp89,658 ($10.9) Blended ARPU Rp102,144 ($12.4) System Deployed GSM900/GSM 1800 National Coverage Four main coverage areas: 27 provincial capitals, 27 business cities, 31 tourism areas and 200 towns. Licensed to provide nationwide GSM cellular service. Number of Base 3,587 (as of 31 December 2002). Stations Network GPRS Enhancements Satellite. Operates Palapa-C Satellite Network/Alliance Roaming National International Global roaming to 94 countries and 199 roaming partners 29 October

8 Table 5: Satelit Palapa Indonesia (Satelindo) Pricing Elements Individual Business Tariffs Group Packaged Tariffs Corporate Dialing Plans Private Leased Circuits Support Postpaid includes a one time activation charge of Rp75,000, a monthly subscription fee of Rp65,000, airtime of Rp325 per minute for nonpeak hours and Rp406 per minute during peak hours. Prepaid call charges are around 140 percent of postpaid call charges as there is no monthly subscription fee. SMS costs Rp300 per message for postpaid subscribers and Rp350 per message for prepaid subscribers. Service-Level Agreements Available Billing Options Provides monthly detailed billing (outgoing call: date, time, duration, total pulse, destination number and amount) on request, with additional charge. Source: Satelindo reports and Gartner Research. Table 6: Excelcomindo Ownership Date Wireless Services Launched Revenue Average Revenue per Subscriber per Month Network Infrastructure Telekomindo Primabhakti (60 percent), Nynex Indocel Holding Sdu. (23.1 percent), The Asian Infrastructure Fund (12.7 percent), Mitsui & Co. (4.2 percent). 8 October 1996 Data not available Data not available System Deployed GSM900/GSM 1800 National Coverage Jakarta, Bandung, Bogor, Cirebon, Tegal, Solo, Semarang, Yogyakarta, Surabaya, Malang, Madiun, Bali and Lombok. Licensed to provide nationwide cellular coverage. Number of Base More than 600 Stations Network Enhancements Roaming National International Global roaming to about 78 countries with 170 roaming partners 29 October

9 Table 6: Excelcomindo Pricing Elements Individual Business Tariffs Group Packaged Tariffs Corporate Dialing Plans Private Leased Circuits Support The tariff for prepaid from local area to: Public switched telephone network (PSTN) is Rp1,070 Cellular is Rp1,800. Adjacent area is Rp3,750. Other area is Rp4,150. The local tariff (peak and off-peak) for postpaid is Rp83, long-distance tariff to adjacent area for peak is Rp1,800 and off-peak Rp1,400. The long-distance tariff for other area is Rp2,400 peak and Rp2,000 off-peak. SMS costs Rp350 per message (prepaid) and Rp250 per message (postpaid). Service-Level Agreements Available Billing Options Itemized bill with additional charge Source: Excelcomindo reports and Gartner Research. Service Profiles The tables Voice Services, Data Services and Messaging Services offer a comparison of some of the major services being offered by the three cellular operators in Indonesia. Table 7: Voice Services //Planne d Telkomsel Satelindo Excelcomindo Caller Identity Call Waiting Call Baring Call Forwarding Call Transfer Conference Calling Virtual Private Network Additional Services Enhanced Codecs Voice over IP (VoIP) International telephone (008 access code), VoIP 29 October

10 Table 7: Voice Services Telkomsel Satelindo Excelcomindo Source: Gartner. Table 8: Data Services Telkomsel Satelindo Excelcomindo //Planne d Speeds 9.6 Kbps for 9.6 Kbps for circuit switched 9.6 Kbps circuit switched Wireless Application Protocol (WAP), speed for GPRS not available WAP, speed for GPRS not available Coverage National and international (roaming) National and international (roaming) Domestic (Java, Bali, Lombok, Medan, Batam dan Bintan) and international (roaming) Internet Other Mobile data and fax; GPRS Mobile data and fax; GPRS Mobile data and fax, WAP service; GPRS planned PSTN Integrated Services Digital Network (ISDN) Fixed Leased Circuit Public Switched Packet Data Network (PSPDN) Using X.25 Source: Gartner. Table 9: Messaging Services Telkomsel Satelindo Excelcomindo //Planne d Integrated Offering SMS 29 October

11 Table 9: Messaging Services Multimedia Messaging Services (MMS) Telkomsel Satelindo Excelcomindo Fax Voice Mail Information Services Source: Gartner. Strengths and Limitations Telkomsel Strengths Has the most comprehensive domestic coverage and better signal coverage in most places Has the largest customer base Able to provide dual-band service and further expand reach and quality Able to leverage on SingTel s cellular expertise and financial strength Provides competitive customer service and has high-brand awareness locally Limitations More competition expected from both established and new cellular operators Potential competitive challenge from low-priced WLL services. Satelindo Strengths Indosat s 100 percent ownership of Satelindo, allowing it to manage better all its cellular business. This could mean better synergies. Ability to provide integrated services cellular, satellite and international call services Can leverage on Indosat s GSM1800 service when operational to provide dual-band services Limitations Strong competition expected from established and new cellular operators Satelindo is debt-ridden. Excelcomindo Strengths Innovative and quick in offering new services 29 October

12 Offers a wide range of value-added services that could help boost its ARPU Limitations Although licensed to provide nationwide cellular services, it currently has the smallest domestic coverage. Insight Strong cellular growth is expected in 2003, and Gartner projects the number of cellular subscribers to reach around 17.5 million by the end of 2003, a year-over-year growth of about 51.5 percent. Prepaid subscriptions have been instrumental in the growth of the cellular sector and are set to continue to prevail over postpaid services. More competition can be anticipated once the new cellular operators are ready to offer commercial services. Recognizing the potential growth of the cellular market, Telkom and Indosat would also focus their efforts to compete in this sector. With control of Indonesia s two established largest cellular operators, these two incumbents would be strong competitors in the industry. The entry of established players in the mobile space may impact the competitive landscape. Despite Indonesia s economic and social problems, its 220 million population still represents an important growth market, bearing the low fixed-line penetration and myriad of cellular operators coming on board. 29 October