Competition working too well in Indonesia

05 Nov 2008

With 11 operators now doing business in Indonesia, the surge in competition has served its purpose - to reduce mobile tariffs sharply from just a year ago. But the question now becomes -- is there too much competition and how many can survive as mobile penetration passes 60% and subscriber growth starts to slow‾

PT Excelcomindo president Hasnul Suhaimi said during a panel discussion yesterday in Jakarta that consolidation may or may not come. 'The market is very large with 140 millions subs, but with another 40 to 50 million to come, there is still a lot of opportunity. The question is will demand be sustained‾'

Bakrie director of corporate affairs R. Junaidi said it was really a matter of if they can serve their customers with quality service and make a slim margin. 'We don't know the timeframe for consolidation and it will depend on the government.'

Despite the high number of service providers, most are operating in the major cities, leaving rural areas underserved with one or no operators.

PT Telkom COO Ermady Dahlan said at the Indonesia Telecoms Summit, organized by Frost & Sullivan and Questex (publisher of Telecom Asia), that pricing is still a major factor and asked when will the price war stop‾

Dahlan said that with the market being driven by globalization, more demanding customers, and the technology quickly changing, operating in the industry is very challenging. 'Competition is intense and it's more difficult to attract new customers.'

Although mobile penetration is expected to hit 62% by the end of the year and surpass 80 million by 2010, Suhaimi said the number of connections should be reduced by 35-40% because of multiple and inactive SIM cards per user. Bakrie's Junaidi put the real number of subscribers at fewer than 100 million. This means the opportunity for continued sub growth is stronger than many estimate and demand is likely to continue to be high.

Fallout from credit crunch

Suhaimi said the industry now faces interesting times. 'In a highly capital-intensive industry, we now face the situation where money is tight and demand is slowing.'

He says operators in the country have three strategy options - stop their investment and slow growth, continue to invest slowly or accelerate growth. 'There are ways to find money and continue to invest. We'll have to see quarter by quarter and our strategy will depend on the demand level.'

Regulation was one of the top challenges cited by all three operators. Suhaimi said operators need more frequency for mobile broadband. 'It's too expensive. [The government] needs to bring down the price so we can lower the cost of mobile internet.'

Junaidi also complained of a frequency shortage and the scarcity of international access.

'We can't offer attractive prices to customers because our costs are high. Regulator needs to re-visit all policies over the next three to five years.'

The Indonesian market is still in the fast growth phase, but growth for voice is slowing so operators need to start to push data services, which account for only a few percent of most operators' revenue.

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