With penetration rates nearing 100% and network coverage encompassing almost all of the country, Indonesia’s wireless communications sector is approaching maturity. Furthermore, average revenue per user is falling and the main providers are now looking for other ways to keep profits from sagging. It is at this point in the development of a wireless telephony sector that selling and sharing network towers might come up, and that is now happening.
A SHIFT TO SHARING: According to a study by PwC, the end of the era in which each carrier built its own network will bring about cost savings. The towersharing system encourages the removal of duplicated resources, but moving into this new paradigm might result in increased consumer criticism. “Sites may provide coverage that is unique, so consolidation may degrade the service in some places and trigger some customer complaints,” the firm’s report concluded. However, “the scale of the available savings means this consideration does not usually undermine the overall economic rationale.” Nevertheless, tower sharing is likely to become increasingly prevalent and dedicated tower companies like Profesional Telekomunikasi Indonesia ( Protelindo), Tower Bersama Infrastructure and Solusi Tunas Pratama (STP) are emerging. In July 2011 Indosat, the second-largest mobile phone company, was looking to sell 4000 of its some 18,300 towers for $500m, according to media reports. In other smaller transactions, Protelindo is in the midst of an agreement with Hutchison CP Telecommunications that will see it purchase 1000 of the latter’s towers by 2012. That would give Protelindo more than 6000 towers as of mid-2011, compared with 3370 for Bersama and 1150 for STP. Therefore, a sale of 4000 Indosat towers would have a profound impact on market share. Indosat would refuse to sell to Telkom or XL Axiata, its two main wireless competitors. Foreign companies are also banned from participating due to a regulation updated in 2010 that stipulates tower building and management be restricted to Indonesians and companies owned by them. The regulation, issued by the Ministry of Communications and Information, reiterates a 2008 ruling that also gives local governments the power to control the number of towers located in its territory, as well as where they are built.
BUREAUCRACY: Having to deal with government on the sovereign and sub-sovereign level in Indonesia is often a major hassle, as overlapping permit regimes, delays, fees and the potential for corruption are all serious obstacles. The decentralisation of government control has been a key theme in the post-Suharto era. These sub-sovereign and often cash-starved governments are extremely keen to grab and hold on to whatever turf they can. Some have interpreted the laws as an invitation to start their own tower companies, and to make life difficult for existing companies by claiming towers already in operation were no longer properly permitted, or finding other reasons to take them down. Chrisna Wardhana, PwC’s telecommunications partner based in Jakarta, told OBG that negotiations with regional governments can often be lengthy. The restriction on foreign companies may also force carriers to sell their towers due to foreign ownership stakes, though the government’s position on this is unclear. Singapore’s SingTel has a 35% share of Telkomsel, and the two companies have been discussing the matter.
As of July 2011, a likely outcome seemed to be that towers would be transferred to Telkom’s towers subsidiary Dayamitra Telekomunikasi. According to OSK Securities, an investment firm based in Kuala Lumpur, the towers subsidiary is a candidate for an initial public offering on the Indonesia Stock Exchange. Telkom has also been trying to buy out SingTel’s 35% stake in Telkomsel, though a deal has not been reached because the mobile carrier is a major source of revenue for both companies. As of September 2011 it was reported that negotiations were still ongoing.