Cheaper Calls

Indonesia

Economic News

22 Jul 2010
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Indonesia's telecoms sector is set to see increased competition and higher mobile phone penetration rates following a government decision to reduce interconnection fees.



The Indonesian Telecommunications Regulatory Agency (BRTI) announced on February 4 that it would cut mobile interconnection rates, the tariffs charged for calls between operators, by between 20% and 40% as of April 1. It also announced fixed-line rates would be decreased by between 5% and 20%.



Heru Sutadi, a spokesperson for BRTI, said telecom operators who would see an impact on the average revenue per user (ARPU) might be unhappy with the move. However, he said lower charges for consumers are likely to further stimulate adoption rates. The anticipated increase in the number of users is expected to compensate for the drop-off in revenue by value.



"Of course, the earnings-per-minute rate will decrease, but we expect to make up for it by increasing the number of subscribers and network usage. People tend to use more when it is cheaper," Telekomunikasi Indonesia (Telkom) President Director Rinaldi Firmansyah told media in January. Telkom is the parent company of Telkomsel.



"We hope this decrease will also be reflected in the operators' retail prices," said Heru on February 3. He said the agency's move was expected to create healthier competition between the country's telecoms operators.



The lowered rate follows a ruling by Indonesia's Business Competition Supervisory Commission (KPPU) in November, which found Telkomsel, the incumbent operator, guilty of price fixing. It ordered the operator to reduce its retail mobile prices by 15% this year. Although the ruling is being appealed, prices have already started to fall as competition among GSM operators has increased.



The mobile telecoms market has rapidly grown since the original liberalisation of the sector in the mid-1990s, when Excelcomindo (XL) joined the existing duopoly. In the second half of 2006, '3', a mobile phone company owned by Hong Kong-based Hutchison CP Telecommunications, started operations with a straightforward and low tariff structure. Nonetheless, the mobile telecoms sector has remained relatively concentrated, with the two largest companies, TelKomsel and Indosat, reportedly accounting for over 80% of the market of 86m users.



Mohammad Nuh, minister of communications and information, said that with the new changes he expected penetration rates to rise by between 30% and 40% in 2008, up from 86m users at the close of 2007.



"We still see a trend of declining tariffs from this year lasting until 2009. The trend needs to be maintained," Nuh said.



Growth in the mobile telecoms market has been sharp, expanding substantially by almost 79m users in the past 10 years. Despite this, Indonesia's mobile phone penetration rate - at less than 50% - lags behind those in Malaysia and Thailand, which, according to the 2007 Southeast Asia Mobile Communications & Mobile Data report, have 86% and 71% penetration rates, respectively.



"The main reason penetration rates are lagging behind even those in the Philippines is simply the pricing," the head of a foreign technology company with offices in Jakarta told OBG. "The fall in prices we have seen starting over the last six months will lead to a rise in adoption and this has already started to overload some of the networks. We will see all GSM operators investing to improve the capacity and quality of the network."



Telkomsel has increased its customer base to 47.9m users by the end of 2007, according to figures released by SingTel, a Singapore-based company that owns 35% of Telkomsel. Indosat, the second-largest operator by number of users, has 23m customers, up from 16.7m in 2006. In a recent press conference, Telkomsel said it anticipated revenue growth of 15% for 2008, while Indosat is predicting 18% growth in revenue, a forecast it delivered upon announcing its Q4 figures in January. Meanwhile, the third-largest operator, XL, witnessed a 63.2% rise in its customer base, from 9.5m to 15.5m last year according to a report issued in January.



The expanding number of mobile phones in service has placed pressure on the existing infrastructure. As a result, Telkomsel has announced it plans to spend between $1.5bn and $1.7bn to expand network coverage and quality.

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