With the fourth largest population in the world, inhabiting a nation spread over more than 17,000 islands, Indonesia faces some unique infrastructure problems. But it also has a highly competitive telecoms market, stimulated by a growing GDP, a location that places it at the heart of strategic development in Asia and a young population eager to adopt new technologies.
PT Telekomunikasi Indonesia (Telkom Indonesia) is Indonesia’s largest telecommunications company and network provider, and at the forefront of market development. “Listed on the stock exchanges in New York, London and Indonesia, and trading in Tokyo, and with a market value close to $20 billion dollars, it is the market leader and number one operator in Indonesia today,” says David Burke, executive vice president of Telkom.
The company is majority owned by the Government of Indonesia. It has an aggressive strategy to exploit new areas for growth, and is building on strong economic conditions in the country. “Indonesia’s GDP is doing really well, achieving 4.6% growth in 2009,” says Burke.
Development opportunities
Provision of broadband services are particularly crucial in terms of Telkom’s development plans, and the company has said that it plans to move towards next-generation internet and data services, which offer better profit margins and growth potential. Telkom’s portfolio includes a range of products covering telecoms services, information, media and edutainment.
Telkom’s plans for development focus on wireless technology. Says Burke: “We’re mainly a wireless nation, simply because of all the islands.” In fact, of the 195 million phone subscribers recorded in 2009, 186.5 million were wireless subscribers, made up of 29 million fixed wireless subscribers and over 157 million cellular subscribers.
Indonesia has the fifth largest number of internet users in Asia, with 30 million users in 2009, and a user growth rate of 1150% between the years 2000 and 2009. With a very low broadband penetration rate of about 2% at present, there is huge market potential for growth in broadband services. Indeed, broadband penetration has been showing impressive rates of growth in recent months. The number of Telkom’s fixed broadband subscribers has grown from under a million to 1.5 million over the last 12 months. However, the dramatic growth has been in wireless broadband, where in the 12 months from Q1 2009, subscribers have increased from 300,000 to over 2.1 million, showing an increase of 607%.
While Burke is aware that these rates of growth can’t continue forever, he is optimistic that Telkom is in a very strong position because of the opportunities afforded by converting existing customers to broadband. “We are the dominant player in the fixed-line business, and have close to eight million fixed lines. We have only rolled out the fixed broadband product to 1.5 million of these customers.” The opportunities for wireless broadband are even greater, as the company has close to 90 million GSM subscribers, of whom only 3.3 million so far receive mobile broadband.
These opportunities are strengthened by the fact that Indonesia has a young population – 56% of the population is aged between 20 and 59, and another 9% is aged 15 to 19 – which is showing a keen interest in technology and its benefits. “Take the Blackberry,” says Burke. “We have about 500,000 subscribers on Blackberry, and that figure has grown about 170% in a year. That level of growth is huge.”
Analyst Raymond Kosasih from Deutsche Bank supports Burke’s claims. He says that Indonesia now has the second highest number of Facebook users in the world, with about 25 million users. “Like every other market, Indonesia is moving from traditional services like SMS into data. The growing GDP in the country is attracting new subscribers, as people who find themselves on a higher income are starting to buy mobile phones. Mobile phone users can be as young as seven, while Blackberry users can be as young as 10. In Indonesia, most Blackberry subscribers are private users, not corporate.”
Building infrastrucuture
It is no surprise that one of the biggest concerns facing Indonesian telecoms is infrastructure. Indonesia faces many infrastructure challenges, with huge investments now being made by the government and the private sector in roads, air traffic, construction and power supply. “One of the things that we have to develop further is power supply,” says Burke. “Once we have good long-term planning from the government for that, things will explode even further. It’s very exciting.”
Indonesia has 30,000km of terrestrial and submarine fibre and Telkom and the Japan Bank for International Co-operation have recently entered into a partnership with the consortium Fujitsu-NSW to finance the JaKa2LaDeMa network construction project. This is a submarine cable that will connect Java Island, Kalimantan, Sulawesi, Denpasar and Mataram. Telkom has also invested in two satellites – Telkom-1 and Telkom-2 – with a third satellite under construction and due to be launched in September 2011. As Kosasih says: “The growth potentials going forward will be driven by data, and capacity will be a key competitive advantage. In Indonesia, what we call broadband is a maximum of 380Kb per second. In reality, we don’t yet have enough capacity. Telkom is probably the only operator with the financial capability to invest in increased capacity.”
International links
Telkom International (TII) is the international arm of Telkom, and its core business is to support the development of the telecoms business in Asia-Pacific and beyond. Indonesia is the largest country – and the largest contributor – in The Association of Southeast Asian Nations (ASEAN). “We benefit from being a liberal Muslim country with a stable government,” says Burke. “That means we also have a lot of good relations in the Middle East.”
Telkom is also a member of the Asia- America Gateway (AAG) consortium. It is working on the Singapore-Tokyo link of the project, which aims to develop a 20,000km, high-bandwidth fibre-optic submarine cable system that will connect south east Asia to the United States and which provides direct connections from Indonesia to more than 100 countries. “We’re constantly looking at more opportunities to develop the backbone fibre,” says Burke. “Because of Indonesia’s strategic position on the Strait of Malacca, we can link up to Hong Kong, Australia and Japan, and have opportunities to further develop our international business.”
Consolidation
There are 11 mobile operators in the Indonesian market, five of which are GSM based and six of which are CDMA based. In the GSM market, the top three players – Telksomsel, Indosat and XL – control 90% of the market; while in the CDMA market, the top two operators – Flexi (owned by Telkom) and Esia (owned by Bakrie) – between them control 96% of the market.
Burke expects to see consolidation in CDMA provision. “We welcome consolidation and would happily work with others. We’ve been looking for consolidation in the CDMA market since 2008, and have engaged in strategic discussions with most of the CDMA operators.” When asked about the rumours of a possible Telkom-Bakrie merger, Burke was encouraging: “Telkom Flexi and Bakrie Esia have 90% of the subscribers in the CDMA market and control 96% of the frequencies, and our frequencies are most closely aligned. From a strategic perspective, this makes the most logical sense and Telkom and Bakrie should look at this very seriously. I can’t say when this will happen, but we are in discussions with them right now.”
Market reach
Telkom’s reach stretches across a number of business sectors. Telkomsel is the company’s business-to-business global group, contributing a substantial amount of Telkom’s revenue. Infomedia, Telkom’s call centre business, runs the largest call centre in Indonesia with over 5,000 agents. Metra is its company for strategic media and edutainment assets, while Sigma is one of Indonesia’s largest applications outsourcing companies. Admedika focusses on ehealth, assisting hospitals and insurance companies with electronic transactions.
“Our enterprise and wholesale business has 6,000 corporate clients and generates close to a billion dollars a year of revenue for us,” says Burke. “We also make use of our fibre networks, satellites and the backhaul that we’ve got with our submarine and terrestrial cable to supply backhaul and wholesale services to other operators, including our close competitors: Indosat, XL, Hutchison, Axis and Mobile8. It’s a strong revenue business for us.”
Telkom is also eager to explore small to medium-sized enterprises. Burke says that almost every Indonesian household has a small business, ranging from “mom and pop shops” to village traders, and they generate revenues of between $500 and $10,000 a month. “There are almost 50 million households in Indonesia, and we estimate there are close to 40 million small and medium-sized businesses. This is a market we really must be looking at.”
The next few years look exciting for Telkom Indonesia, as it focusses both on driving consumer demand for improved technology and connectivity and managing the delivery of new services to a market of young and demanding consumers.
Key facts |
| History: PT Telekomunikasi Indonesia was originally established during the Dutch colonial time in 1882 as a private company for postal and telegraph services. In 1991, based on Telecommunications State Laws, it was made into a state-owned limited liability company, “PT Telkom”, and has consolidated and reformed its business to lay the foundation for future growth. The company’s vision is to become a strong information and communication player at a regional level. Ownership: Telkom is majority owned by the government of Indonesia (52.5%). The remaining 47.5% is under public ownership. CEO: Rinaldi Firmansyah. Revenues: Operating revenues were IDR64.6 billion in FY 2009 (US$7.1 million). Customers: At the end of 2009, the customer base in Indonesia was 105.1 million , including 8.4 million fixed wireline telephone subscribers, 15.1 million fixed wireless telephone subscribers and 81.8 million mobile telephone subscribers. If the proposed merger of Telkom’s existing CDMA network with Bakrie Telecom’s goes ahead, Telkom would provide services to nearly 90% of the total CDMA subscriber base in Indonesia. Network: Telkom owns and operates Indonesia’s PSTN and has a CDMA-based limited mobility fixed wireless network in most Indonesian cities. Products and services: Provides a wide range of communication services in Indonesia, including telephone network interconnection services, multimedia, data and internet communication-related services, satellite transponder leasing, leased line, intelligent network and related services, cable television and VoIP. |
