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Indonesia has an internet user base of some 25 million – the fifth highest in Asia -- but broadband connectivity stands at less than two million. The country’s limited fixed-line infrastructure (less than 10 million lines), coupled with its population of 240 million, means wireless broadband has huge potential, particularly in rural areas where 80% of the population lives.

The government has realized the need for wireless broadband and recently awarded Wimax licenses in the 2.3- and 3.3-GHz band. Of the 73 telecom companies that participated in the bidding, eight winners were chosen for the 15 franchise zones. Each regional zone will have a maximum of two operators.

The eight winners are Telkom, Indosat, Internux, First Media, Jasnita, Berca, Indonesian Wimax Consortium (a consortium comprising Comtronics Systems and Adiwarta Perdania) and Wimax Indonesia.

The highest bid came from First Media (IDR121.2 billion -- $12.3 million) while Telkom’s bid was the lowest at IDR755 million ($80,835) for Papua and IDR533 million ($57,000) for Maluku. The table shows the spectrum allocation details in Indonesia.

Under the license rules, it is mandatory for Indonesian Wimax license holders to deploy 802.16d equipment. It is perhaps surprising that Indonesia chose 802.16d technology, unlike neighboring Malaysia, which allocated 2.3-GHz spectrum for mobile Wimax. One explanation could be that the government has already spent around $2 million to support 802.16d R&D in Indonesia. It would not have been perceived well had the government suddenly changed its policy in favor of 802.16e-2005. In addition, the majority of local companies supported the 802.16d standard.

Indosat M2, First Media and Telkom Indonesia have plans to deploy 802.16d Wimax in the 2.3-GHz band. Telkom will deploy 2.3-GHz network on Central Java, East Java, Papua, Maluku, North Maluku and North Sulawesi. To encourage local industry participation, the government has announced that license holders must use 30% local content for CPE and 40% for base stations.

Telkom Indonesia and other operators planning to deploy Wimax in Indonesia have already entered into the purchasing phase. Telkom is expecting to deploy its Wimax network in the first quarter.

In emerging economies like Indonesia, a network can initially be deployed for fixed/nomadic broadband, and slowly upgraded to support full mobility in line with revenue growth. This will lower the initial capex outlay. The government is planning an 802.16e mobile Wimax auction for 2011.

With mobile Wimax still a few years away from deployment in Indonesia, 3G technology has an early lead. But the 3G market is still in its infancy, three years after services were launched. Five 3G licenses were auctioned - to Telkomsel, Excelcom and Indosat in 2006, and in to Hutchinson and Natrindo in 2004.

Despite a cellular subscriber base of over 150 million, Indonesia's 3G subscribers represented just 7% of that total in early 2009. Uptake remains slow because 3G handset pricing is not affordable enough to attract users.

But this has not hampered operators' future network development plans. Telkomsel and Indosat are deploying HSPA+, with Telkomsel planning to launch in 24 cities this year. Indosat also plans to upgrade its 3G network to HSPA as a precursor to LTE.

Telecom regulator POSTEL has allowed operators to conduct LTE trials but has yet to announce frequency allocation plans. The 2.5-GHz band is currently used for Broadcast Satellite Services.

POSTEL is  studying how to optimize this band for BWA use, regardless of network type. It is also studying the use of LTE in the 700-MHz band and the development of UHF Digital Dividend Mobile Broadband in ITU study groups and Asia Pacific Telecommunity forums.

But the biggest challenge is convincing broadcasters to release the band for the digital dividend. Digital terrestrial TV has not yet started in Indonesia. POSTEL is strongly urging the Minister of Communication and IT to migrate from analog to digital TV as soon as possible. The only LTE implementation currently feasible is spectrum refarming from current GSM/HSDPA operators.

Basharat Ashai is a market analyst for APAC & MEA at Maravedis -- basharat@maravedis-bwa.com