The government is moving to boost internet usage via an ambitious five-year broadband plan. Acting as one of the country’s first IT blueprints, the plan targets expanding internet access to the most remote rural areas, enhancing e-services across a number of sectors and improving network performance nationwide. The plan has been welcomed by citizens, especially those outside of Java, where infrastructure remains underdeveloped and internet access can be inconsistent at best, although telecoms companies expected to lead the broadband charge have raised questions regarding its viability. Delivering the right incentives and ensuring telecoms policies are designed to support quality service will be critical for the long-term IT strategy, and recent developments indicate the government is already moving towards these goals.
High Potential
Internet usage has soared in recent years, as Indonesia’s young, tech-savvy population and rising middle class have seen mobile broadband services and internet coverage expand rapidly. In January 2014 the Association of Indonesian Internet Providers noted that there were 71.2m internet users at the end of 2013, up 13% over 2012, although estimates vary, with telecoms research consultancy BuddeComm reporting that there were between 40m and 55m users at the end of 2013. This is still low compared to other Asian nations, with the World Bank noting that 15.8% of Indonesia’s population were internet users in 2013, compared to 29% in Thailand and 67% in Malaysia. Notwithstanding, expansion of mobile broadband services (see analysis) has outweighed a slowdown in the fixed broadband market, offering strong growth potential for the country’s telecoms operators.
In August 2014, for example, state-owned operator Telekomunikasi Indonesia (Telkom) announced it plans to increase its focus on broadband network expansion in the medium term. With its mobile arm, Telkomsel, projected to fall short of its annual growth targets as a result of high market saturation, the firm told media it is instead targeting double-digit broadband growth in a bid to bolster revenues, reporting that revenue from its data, internet, and IT segment rose by 14.8% in 2013, compared to 4.6% growth in mobile voice services. It plans to add 1000 new base transceiver stations (BTS) each month in 2015 to meet growing data demand, reporting that 70% of new transceivers support 3G technology, while the remaining support 2G. At the end of 2013, Telkomsel’s BTS network comprised 69,894 stations, up 28.7% year-on-year, of which 38.7% are 3G-enabled, compared to 28.4% the previous year.
Scattered Access
Expansion of broadband services faces several hurdles. Geography is one. Indonesia spans over 17,500 islands, and underdeveloped infrastructure in eastern and rural areas offers low revenue generation potential to private players. Market growth is also limited by the rising demand for data, with existing networks frequently criticised by consumers as slow and unreliable. A 2014 survey conducted by Ooredoo, parent company of telecoms provider Indosat, found that out of 1400 people surveyed, 91% reported that they do not spend as much time online as they would like due to problems with connectivity. The problem is particularly severe in rural areas, home to one-third of survey respondents, in which 60% of people mentioned poor internet coverage and 82% said they are frustrated by slow connection speeds.
Speed & Cost
Average internet connection speeds in Indonesia stood at 2.4 Mbps in 2014, one of the lowest rates in the Asia-Pacific region, according to a report published by cloud services provider Akamai, significantly slower than in China (3.2 Mbps), Malaysia (3.5 Mbps) and Thailand (5.2 Mbps), respectively. Reliability is also an issue. Providers are required by the government to carry out filtering, and this creates latency issues, particularly with foreign sites. According to Accenture’s September 2014 digital consumer survey, 85% of respondents said the speed of their home broadband internet connection is not always fast enough for the TV, movies and videos they want to watch, and 85% also said they would be prepared to pay a bit more for a faster or more reliable connection. The numbers for mobile broadband were largely similar.
Internet access in Indonesia is comparatively expensive as well. The International Telecommunication Union estimated the cost of fixed broadband in 2013 at $20.50 for a 0.38-Mbit/s connection, equivalent to 6.87% of GNI per capita, placing Indonesia 113th out of the 165 countries surveyed and well behind neighbouring Southeast Asia states like Singapore (3rd), Vietnam (66th), Malaysia (70th) and Thailand (98th).
Broadband Plan
The government has long been aware of the importance of ICT connectivity to future economic growth. ICT infrastructure is recognised as a critical facet of industrialisation, and was included in the government’s National Industrial Policy, unveiled in 2008, which seeks to transform Indonesia into a knowledge-based economy. More recently, the government moved to boost broadband penetration and ICT usage through the Indonesia Broadband Plan (IBP), which came into effect in July 2012. “Less than 15% of Indonesia’s population has access to mobile broadband. Broadband implementation, along with industry efficiency, will be the legacy of this administration,” Rudiantara, the minister of communications and IT, told OBG.
Prepared in collaboration with a host of public and private entities, the IBP was originally conceived as a part of the National Medium-term Development Plan, as well as the Master Plan for Acceleration and Expansion of Indonesia’s Economic Development, and aims to promote broadband internet expansion as an engine for growth. Following 18 months of consultation, the plan was officially unveiled in October 2014.
The IBP, which runs from 2014 to 2019, is one of the first IT blueprints formulated in Indonesia, and emphasises development across five priority service sectors, including e-government, e-education, e-procurement, e-logistics and e-health. It also targets connecting remote and rural households to the Palapa Ring, a massive undersea fibre network encircling nearly the entire country, with a particular emphasis on the eastern islands where broadband infrastructure is largely unavailable. The $24bn plan is expected to boost the percentage of households connected to fixed broadband in urban areas to 71% by 2019, with speeds of 20 Mbps. The plan also envisions increasing penetration of mobile broadband in urban areas to 100%, at speeds of 1 Mbps. Targets in rural areas are set at 10% for fixed broadband, at the same speeds, and 52% mobile broadband penetration, again at speeds of 1 Mbps. These targets are ambitious; in 2013 only 18.2% of rural residents reported having used the internet in the last three months, compared to 46.6% of urban residents, while just 12% of the population had access to mobile broadband, at a relatively slow speed of 512 Kbps, according to the Ministry of Communications and IT (MCIT).
The IBP’s flagship projects cover several main areas, including infrastructure (developing the backbone Palapa Ring network), funding (restructuring the Universal Service Obligation Fund to change its setup, mandates and objectives) and human capital (helping to build capacity to support the adoption of broadband).
Palapa Ring
Connecting users to the Palapa Ring is arguably the most important initiative under the IBP. The network consists of an integrated “ring of rings” submarine cable network layered along coastal areas of major islands, stretching 35,000 km from the northern tip of Sumatra to the eastern border of West Papua. High-capacity links to each district are expected to facilitate low-cost internet access across towns and villages, with the project’s budget standing at $1.5bn. The Palapa Ring was 80% completed at end-2013 and is expected to be fully constructed by end-2015 According to a 2014 report published by the Institute for Prospective Technological Studies (IPTS), a branch of the European Commission, 497 cities in commercial areas will be connected to the ring, including 51 cities located in non-commercial areas, mainly in eastern Indonesia. The IPTS reports that the 51 eastern cities will see infrastructure delivered by private companies, while state-owned Telkom will be responsible for connecting the remaining 446 cities.
Telcos Lead Development
Indeed, telecoms operators will play a critical role in expanding internet coverage, and in December 2014 the MCIT announced Telkom will take the lead in the drive to expand broadband capacity. Rudiantara told media the government is finalising plans to roll out the IBP, and that the ministry is discussing potential incentives to be rolled out to operators and e-commerce firms, as well as mulling new regulations for the telecoms industry.
The yet-unspecified incentives will be a critical element of the IBP. Operators said in December 2014 that they will require incentives before they can commit fully to the plan, with Telkomsel specifying that it will need additional broadband spectrum, as well as a guarantee, to see a return on investment for covering less commercial areas. It is also advocating tax and regulatory incentives to reduce the burden of new capital expenditure (capex), while XL Axiata has said it would prefer that the government adopt an infrastructure sharing plan. Indosat has said it will commit to the plan if the government provides assistance in boosting revenues and trimming operational costs – something that may only be achieved through consolidation.
Hope on the Horizon
Recent announcements indicate that the government intends to support broadband expansion. In February 2015 Rudiantara announced plans to change the licensing model criteria for mobile operators to improve the consumer experience, with a particular focus on quality of service and coverage. Rudiantara told media that under the new model, operators will need to focus on service quality – meaning speed and reliability – as well as coverage. “Previously, the licence agreement was mainly based on the number of BTS the mobile operators had to build. We would like to change it so that it encompasses coverage and quality of service,” he told local media. Stakeholders expect this will result in better network coverage, particularly in rural areas, and while it could have a negative impact on struggling operators, it might also kick-start consolidation, improving the operating environment and freeing up revenues for capex.
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