http://www.atimes.com/atimes/Southeast_Asia/GG28Ae02.html
Mobile boom in Indonesia By Bill Guerin JAKARTA - The smiles and handshakes all round at the Indonesian Cellular Telecommunications Association's (ATSI) "Indonesia 2005 Cellular Show" last week are hardly surprising. Although less than 20% of the country's 238 million people have landline phone access, mobile phone operators are enjoying surging profits in a lucrative market that is enjoying scorching growth. Around this time last year, there were 32 million cellular phone subscribers. Figures released a month ago showed this had jumped to 40 million, with ATSI secretary general Rudiantara predicting that if the growth continued, total subscribers could reach more than 80 million next year. After many years as a protected and monopolized sector with two infrastructure-based operators - Telkom and Indosat - to service domestic and international markets respectively, fixed and mobile markets have been liberalized, and an independent regulator set up. The Indonesian mobile market is growing fast with compound annual growth over the last six years exceeding 70%. Yet the country still has one of the lowest penetration rates in the region, giving room for almost unlimited growth. Along with the Philippines, Malaysia and India, it is one of the major developing markets in the Asia-Pacific region. The Philippines, with a population of 86 million, has over 32 million mobile subscribers. Malaysia has 14.6 million subscribers out of a population of 25 million. India has a population of 1.1 billion, yet has only 53 million mobile subscribers. Conversely, Taiwan, Hong Kong, South Korea and Singapore are the region's most mature markets. Data from APRG Research indicates Taiwan has an estimated 25.1 million subscribers, representing a saturated 100% penetration rate. In Hong Kong, the number of subscribers is 8.1 million and growing fast, although the population is only 6.8 million (some customers evidently have multiple phones with different providers). South Korea, with a population of 48 million, has a subscriber base of 37 million mobile phone users. Singapore has 3.9 million subscribers and a penetration rate of 91%. Three dominant players Operators are plowing profits back into extending their networks. ATSI has estimated that combined revenues of cellular operators this year will reach Rp30 trillion (US$3 billion), 25% higher than the Rp24 trillion booked last year. Telkom is the country's largest listed company, and its $11 billion capitalization equates to almost 15% of the market capitalization in the Jakarta Stock Exchange. It has the lion's share of the market through its cellular unit, PT Telekomunikasi Selular, or Telkomsel. With a subscriber base of around 22 million it enjoys a 55% share. Revenues from SMS and other mobile data services were Rp3.62 trillion last year, representing around 25% of the company's Rp14.77 trillion net operating revenue. It is majority owned by Telkom with a 65% stake. Singapore Telecom (SingTel) holds the rest. This year Telkomsel plans to spend $700 million expanding its network by building 3,000 new base transceiver stations to supplement its current total of 7,000 units. Telkomsel's nearest competitor is publicly listed Indosat, the country's second largest telecommunications company. It is 41.94% owned by Singapore Technologies Telemedia Pte Ltd (STT), 15% by the government and the remainder by the public. Indosat has three brands - IM3, Matrix and Mentari - and 13 million subscribers. In the first quarter, it wooed 434,000 new subscribers but in April they could hardly sign up fast enough - more than 600,000 of them. Indosat also plans to invest $900 million this year. Most of it will go to expanding its cellular network to reach out to over 400 regions of the country through 2,000 additional base transmission stations. PT Excelcomindo Pratama (Excelcomindo), the third largest operator, has 4.5 million subscribers for its XL brand. Excelcomindo is 27.3% owned by Malaysia' state-owned Telekom Malaysia Bhd (TM), which last week announced plans for initial public offering on the local bourse in September. Commerce International Merchant Bankers Bhd and Credit Suisse First Boston are organizing the IPO, expected to raise around $300 million. TM paid $265.7 million for a 23.1% stake in Excelcomindo last year and later raised this to 27.3% after paying another $48 million. It already has management control over the company and is committed to increasing its stake to between 67.3% and 80% by the end of October. The operator has 2,100 base transmission stations covering the main islands of Java, Sumatra, Kalimantan, Sulawesi and Bali, and at the end of 2004 had approximately a 12% market share. Excelcomindo's president/director Rudiantara says the company may spend up to $400 million this year, double the amount it invested last year, to boost capacity and expand coverage. The company plans to tap the US dollar bond market to finance the expansion. Excelcomindo, however, remains vulnerable to the risk of local currency depreciation, as its borrowings and capital expenditure commitments are largest in US dollars while its revenues are mainly in rupiah. When affirming its B+ rating on Excelcomindo, Standard & Poor's Ratings noted the credit quality was enhanced by the prospect of ultimate majority ownership by Telekom Malaysia. Going for 3G Third generation communications (3G) technology has high bandwidth and high capacity. Using 3G, cellular operators can provide multimedia facilities at faster speeds and with much more data than the current 2.5G cellular technology used in Indonesia. Using 3G technology, users can make video calls, enjoy video and audio streaming and even watch TV programs on their cellular phones. The introduction of 3G services is expected to bring substantial economic and social benefits to Indonesia. Malaysians already have 3G through TM's subsidiary Celcom 3G and Maxis Communications Berhad. In Indonesia, there are currently only five operators with government licenses to operate cellular services based on 3G technology: Cyber Access Communication with 15 MHz, Natrindo Telepon Seluler with 10 MHz, Wireless Indonesia with 5 MHz, Telkom Flexi with 5 MHz and Indosat StarOne with 5 MHz. This leaves 20 MHz of 3G frequencies to be allocated. Telkomsel is conducting 3G technology trials through existing networks supported by WCDMA (wide-band code-division multiple access) technology provided by three mobile phone manufacturers: Ericsson, Siemens and Nokia. Indosat is also setting up a trial. The government plans to rearrange the 3G-frequency allocation in a Rp5 trillion tender for bandwidth slots following requests for bandwidth from Telkomsel and Indosat, who have complained that companies that have secured spectrums have failed to show progress. For example, PT Cyber Access Communications and PT Natrindo Telepon Seluler (Lippo Telecom) were granted 3G-licenses and allocated frequency spectrums two years ago but they have yet to operate the technology. Several parties were reportedly lobbying the government to cancel the licenses issued to the two operators. In February, Maxis paid $100 million for 51% of Lippo Telecom. In March, Hong Kong's Hutchison Telecom bought a 60% interest in Cyber Access. Cyber Access holds licenses for nationwide operations of 2G and 3G mobile services in Indonesia, but it currently doesn't provide mobile services. Hutchinson reportedly paid Charoen Pokphand Group Indonesia - a Thai telecommunications group - $120 million for the stake. CP Group will hold the remaining 40% interest in Cyber Access. However, Information and Telecommunications Minister Sofyan Jalil was quoted as saying that Cyber Access had acted as a mere "license broker" and that the government would revoke the company's license to operate 3G mobile services if the sale violates regulations. The much smaller carrier, PT Mobile-8 Telecom, was actually the first to roll out CDMA2000 services to wireless subscribers. Mobile-8 Telcom was granted a license to provide cellular telephone services to existing operators, Komselindo and Metrosel, who were using analog technology (Advance Mobile Phone System - AMPS). In line with the rapid development of telecommunications technology in the country, the analog system has been gradually phased out. Both Komselindo and Metrosel still hold their existing cellular providers' licenses but Mobile-8, working with South Korea's Samsung Electronics, launched a CDMA2000 network last year that can accommodate more than 1.9 million subscribers. "As Asia continues to lead the globe in offering 3G networks, Indonesian subscribers will now join the technology-savvy consumers in the region that is already enjoying the advanced features that can only be offered by CDMA2000 technology," said Perry LaForge, executive director of the CDG at the launch. CDMA2000 dominates 3G with more than 65 million subscribers, or 99% of the global 3G market. There are 80 commercial CDMA2000 networks globally and another nine will be deployed this year in Asia, Australia, Africa, Europe and the Americas. A winning line for Indonesia Under Indonesian law, foreign investors may buy 100% of companies in telecommunications, and many other strategic sectors of the economy. The presence of Malaysian and Singaporean big hitters in Indonesia, and their long-term commitment to improved services, will keep Indonesia on track in the most dynamic and fastest growing regional markets in the telecommunications industry. Cellular connections in the Asia-Pacific region and Japan rose from 667.7 million in the fourth quarter of 2004 to 698 million in the first quarter of 2005, a 4.5% increase. Japan has the highest percentage of wireless Internet penetration (87%), followed by South Korea (66%). The presence of foreign entities will help the government to provide telecommunications and Internet access for the entire community, even those remote villages that currently have no access to telephones. The formidable costs of extending the country's fixed-line network and extending mobile networks to areas without infrastructure are a major challenge, however, and one made more acute by the dispersed geographical character of the Indonesian archipelago. More than 40,000 villages are still without telephone services, but President Susilo Bambang Yudhoyono has recently signed a non-tax regulation obliging all telephone operators to contribute 0.75% of annual gross revenues for the state's rural telephone program - or Universal Service Obligation (USO). This equates to a considerable sum. Telkom, for example, recorded gross sales of Rp33.95 trillion in 2004 and Indosat booked revenues of Rp10.55 trillion the same year. Implementation of the regulation is expected to raise more than Rp400 billion this year, nine times greater than the annual allocation made by the government over the past two years. Developing the telecommunications infrastructure in rural areas will also be good for the economy. "Studies have shown an 1% increase in the telecommunications penetration rate will result in up to a 3% rise in the country's economic growth," says Director General of Post and Telecommunications, Djamhari Sirait. Bill Guerin, a Jakarta correspondent for Asia Times Online since 2000, has worked in Indonesia for 20 years as a journalist. He has been published by the BBC on East Timor and specializes in business/economic and political analysis in Indonesia. (Copyright 2005 Asia Times Online Ltd. All rights reserved. Please contact us for information on sales, syndication and republishing.) [Non-text portions of this message have been removed] ------------------------ Yahoo! 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