JAKARTA, Indonesia-Amid an unpredictable economic crisis, Indonesia’s telecommunication sector is moving forward, with new regulation in effect since 8 September, 2000. The new regulation, which says any company can provide telecommunication services, has received positive market response. Many new players, mostly cellular and wireless operators, have purchased spectrum and are gearing up for renewed competition.
Prior to the decree, the country already had seven cellular operators. Three of the carriers, Telkomsel, Satelindo and Excelcomindo, offer GSM 900 MHz services, while the others use AMPS technology (Komselindo, Metrosel, and Telesera) and NMT 450 networks (Mobisel).
The seven operators counted almost 3.7 million users as of 31 December, 2000. More than 95 percent of those users are GSM subscribers. The figure represents 55.21-percent growth compared with the end of 1999. Mobile numbers continue to increase rapidly and are chasing fixed-line services, which recorded 6.6 million users at the end of 2000. Telkomsel, the biggest GSM 900 MHz operator, had nearly 1.7 million subscribers at the end of last year and estimates to have 2.7 million by the end of this year.
New hope in bandwidth
With only 2-percent penetration in the sector, the country’s government announced a new spectrum auction for 1800 MHz licenses. The auction, held in 1998, bore nine winning operators and stipulates the carriers must complete their networks by 2002. Seven of the nine were given regional licenses, while two operators received national licenses.
Natrindo, the license winner for the East Java region, marked its first 1800 MHz services in March. It continues to attract would-be GSM 900 MHz subscribers through the marketing muscle of its holding company, which has nationwide banking, insurance and property institutions with which to promote and bundle its cellular services.
In addition, two state-owned companies, PT Indosat (Indonesian Satellite) and PT Telekomunikasi Indonesia (Telkom), which were awarded national licenses, have begun their road shows to promote their services set to begin in August, while offering competition to Natrindo’s vast promotion. Meanwhile, the other players are still searching for foreign strategic partners for financial and technical strengths.
Bachrumjah Hamzah, chief executive officer (CEO) of PT Kodel Margahayu, which holds an 1800 MHz license in the Eastern Indonesia region, said it is difficult to convince foreign investors to invest amid the country’s unstable political and economic sector, although cellular services are lucrative here.
Johan Soedibjo, head of business development at PT Astratel Nusantara, which has a license to operate in the Sumatra region, revealed similar expressions. He said the depreciation of the rupiah has prevented cellular operators from building out infrastructure. “Only if the currency rate is about 9,000 rupiahs to US$1 will we be ready to start laying down the network,” he asserted.
When the rate goes beyond 11,000 rupiahs to US$1, as it did recently, operator business plans seem to suffer.
Reshaping the giants
While the regulation has spawned many upstarts, it is also supposed to reorganize two stated-owned telecommunication companies, Indosat and Telkom, which have long enjoyed monopolistic rights. They will face competition due to import tariff cuts mandated by the ASEAN Free Trade Area (AFTA) and World Trade Organization (WTO) agreements in coming years. Consequently, both companies, which have joint or cross ownership in nine companies, including Telkomsel and Satelindo, must rearrange the obstacle to make the two telecommunications giants fully compete in the future.
After months of discussion, Indosat and Telkom signed a memorandum of understanding (MoU), which rearranged the ownership in the three most profitable companies. The MoU, which was approved by both companies’ shareholders in mid-May, allows Indosat to receive Telkom’s shares in Satelindo, the second-biggest GSM 900 MHz company; MGTI, a fixed-line service provider in the Central Java region; and Lintasarta, a well-known data communication provider. In addition, Telkom gains Indosat’s share in the most profitable cellular company, PT Telkomsel.
The agreement also demonstrates Indosat’s commitment to become a full network service provider (FNSP). The company, which will release its monopolistic rights as an international carrier in 2003, has introduced its new four-in-one strategy, better known as four business vehicles within one technological base. Radjiman Nasution, public relations manager of PT Indosat, said the four business vehicles are backbone networks, fixed-line access, cellular service, and Internet and multimedia services.
“All services will be IP (Internet Protocol) based,” he asserted.
In the cellular sector, Indosat will launch its new services in August 2001. The so-called Indosat Multimedia Mobile (IM3) will be a part of its strategy to become a FNSP. With IM3, Indosat will offer a new kind of cellular service based on GSM 1800 MHz. Hari Kartana, CEO of PT Indosat, said the new service will not only offer voice communication, but also facsimile, short message service (SMS), voice mail and Internet access through Wireless Application Protocol (WAP) technology.
“IM3 will be devised with GPRS (General Packet Radio Service) technology to provide 115 kbps (kilobits per second) Internet access. And in the coming years, IM3 will launch 3G (third-generation) technology to provide mobile broadband multimedia services from 384 kbps until 2 Mbps (Megabits per second),” he added.
In the meantime, Telkom, the domestic telecommunications giant, announced the gain in Telkomsel shares will strengthen its presence in the cellular business, in which PT Telkom through TelkoMobile also has rights to operate a GSM 1800 MHz network.
Yusuf Kurnia, chief financial officer (CFO) of Telkomsel, said TelkoMobile, which will launch its services in mid-2001, might cooperate with Telkomsel’s GSM 900 MHz and 1800 MHz services. “We have to pour over from now on whether DCS 1800 will still be operated by PT Telkom through TelkoMobile or converged through Telkomsel,” he added.
Amid the technology hype of GSM 1800 MHz service, Rudiantara, chairman of Indonesia’s Association of Cellular Phone (ATSI), suggested the coming services will face hurdles in luring prospective customers, especially from the business sector, because they are reluctant to change their existing cell-phone numbers.
“DCS 1800 operators have to offer a broad range of value-added services to attract will-be GSM 900 customers,” asserted Rudiantara.
Meanwhile, Djamhari Sirat, the country’s director general of post and telecommunications, said there will be fierce competition in the cellular market under the new regulation. The government as the regulator will not play a significant role in determining regulations in the sector.
“The right concept for the cellular market is bringing to the front post-competition structure. Therefore, tariffs will be market driven instead of government (driven),” he suggested.
