The Indonesia mobile communications market is known for being intensely competitive. The market remains highly promising with abundant upside opportunities. However, with mobile penetration approaching 120%, there is increasingly less room for subscriber growth.
During the most recent financial disclosure, a number of operators reported further downward pressure on ARPU. Clearly, the market conditions signal an urgent need to shift from a subscriber-based model to a revenue-generating one to achieve future growth.
Smaller operators' primary strategy has been to aggressively cut prices. As all players retaliate it has become clear that competing primarily on price is not sustainable even if the market is still expanding. Despite having more than ten mobile operators for years, the big three players maintained their strong foothold with a 75% share of the market. Clearly, the established players have the financial muscles and brand equity to counter price-cutting measures from the smaller operators.
However, the competitive landscape and value chain are changing with the emergence of over-the-top services and numerous content providers offering voice and messaging services for free. In a price-sensitive market like Indonesia, we can be certain that consumers will jump on them. The innovativeness of operators will be put to test.
The smaller players have been responsive to market challenges as they prove their resiliency through mergers and acquisitions. Notably, Mobile 8 and Smart Telecom last year integrated their assets and created a new brand identity and tag line - "I Hate Slow" - that struck a chord with consumers.
Axis, another fast growing operator, received $1.2 billion in support for its network expansion from the Saudi Telecom when the key stakeholder raised its shareholding to 80%.
More recently, Bakrie Telecom and Sampoerna Telekomunikasi started working toward a share swap to integrate the two businesses under a single management.