CDMA operators start to compete GSM carriers

CDMA operators start to compete GSM carriers

Rudijanto
Contributor
Jakarta

When state-owned telecommunications company PT Telkom Tbk
(Telkom) launched its first fixed wireless telephone service
based on Code Division Multiple Access (CDMA) technology, the
TelkomFlexi, in Surabaya, Balikpapan and Denpasar in 2002, many
people believed the new service would pose a deadly threat for
Global Service for Mobile Communications (GSM) cellular
operators.

The entry of other operators such as Bakrie Telecom and PT
Mobile-8 Telecom in the CDMA market late last year makes the
threat even more imminent.

Based on CDMA2000 1X technology, TelkomFlexi only requires a
US$200 investment per line. Such low investment capital makes it
possible for Telkom to offer the service at very competitive
rates, comparable to those of GSM cellular services.

Unlike the previous CDMA generation that uses no Subscriber
Identity Module (SIM) cards, TelkomFlexi is equipped with a
Removable User Identity Module (RUIM).

TelkomFlexi customers can use their wireless handsets wherever
they are, as long as they stay within their coverage area. For
instance, TelkomFlexi users in Jakarta can only use their
handsets within the Public Service Telephone Network (PSTN), or
the fixed line rate within the 021 Jakarta area code.

In other words, subscribers are far more limited in their
movement than those who use GSM cellular services.

However, since the number of cellular phone users requiring
high mobility -- those who travel frequently out of the city --
is estimated at not more than 20 percent, many believe that it is
only a matter of time before the remaining 80 percent of GSM
users shift their allegiance to CDMA-based services.

In September, last year, PT Bakrie Telecom, which has been
providing wireless telecommunication service since 1996, launched
Esia, a wireless local loop service using the 3G CDMA2000 1X
network.

Esia targets notonly customers whose activities are
concentrated in the home zone, but also those who have a highly
mobile outside the home zone.

Jakarta is divided into eight home zones under this concept:
Central Jakarta, East Jakarta, West Jakarta, South Jakarta, North
Jakarta, Bekasi, Tangerang and Depok.

Like TelkomFlexi's rate, Esia also charges PSTN rates for all
calls made within a customer's home zone. Calls made outside a
customer's home zone incurs an additional charge of only Rp 100
per minute -- far lower than that of GSM cellular rates.

As with GSM operators, Esia also offers both prepaid and
monthly billing service options. To allow users to switch
handsets at will, Esia also provides RUIMs that can be installed
easily in any CDMA-compatible handsets at the same frequency.

Unlike TelkomFlexi and Esia, Mobile-8 -- which uses 3G
CDMA2000 1X and 3G CDMA 1X EV-DO systems -- cannot apply PSTN
rates and consequently, its rates are determined by air time.

Mobile-8 promises to deliver high-speed data transfer, a
value-added service beyond the standard features already in the
market. Focusing initially on Java, the company has built around
300 Base Transceiver Stations (BTS).

The company has allocated 17 BTSs to its EV-DO broadband
wireless service, via which Mobile-8 offers various value-added
services, including multimedia content and Internet access. As
part of its promotional campaign, Mobile-8 is offering free
Internet access until March for its Fren card users.

These new players in the CDMA fixed wireless market constitute
a real challenge for existing GSM cellular operators. Without
continuous innovation, GSM operators will be in trouble in the
long run as subscribers to CDMA services continue to increase.

Telkom, for instance, is targeting an increase in TelkomFlexi
customers to 1.2 million, from 452,000 in 2003.

"The growth of TelkomFlexi in 2003 is gladdening, and we have
established services in 39 cities -- including Medan, Batam,
Pekanbaru, Palembang, Cirebon, Semarang, Yogyakarta, Solo,
Balikpapan, Palangkaraya, and Pontianak -- at a capacity of
829,547 lines," said Gunung Simaremare, head administrator of
Telkom's Fixed Wireless Division.

Gunung believes that people are attracted to TelkomFlexi
because of CDMA2000 IX, which is a 2.5G technology -- only a
half-generation away from 3G, or third generation cellular
technology.

"The market for CDMA-based Telkomflexi is very large. We are
targeting those who do not yet enjoy PSTN services and those with
limited mobility within a single area code," he said.

Meanwhile, Esia projects a customer base of 3 million only
five years after its launch.

By the end of 2003, Esia users numbered a modest 50,000. This
year, the company expects an increase to between 100,000 and
150,000 customers.

"We cannot set too high a target, because we know that CDMA is
relatively new. That is why we need to educate the market. We
also have to develop more features, for instance inter-operator
SMS," said Norman Ilyas, Esia public relations manager, referring
to the highly popular Short Message Service.

Norman said inter-operator SMS is facing obstacles among
cellular operators, such as conflicting business interests.
Discussions are ongoing, so there is yet a possibility for
developing this feature.

GSM operators might watch to keep careful watch over the CDMA
market, although CDMA operators claim their products do not
compete with GSM operators, as they have different market
segments.

"We are not competitors of GSM operators because our coverage
is limited while they have full mobile coverage. I prefer to
think of our services as complementary to that of GSM operators.
Rather than competing, I want to establish cooperation with GSM
operators for the benefit of customers," said Norman.

The emergence of CDMA operators have prompted GSM operators to
cut their profit margin and offer alluring discounts to
customers. Norman said this move was attractive to customers and
had thus boosted the number of GSM customers.

GSM operators even enjoyed a surge in the number of customers
despite the launch of CDMA services. This year, the number of the
subscribers of three major GSM operators Telkomsel, Indosat and
Excelcomindo reached 17 million by the end of 2003, exceeding
their combined target of 15 million. The three producers
projected the number of their subsribers would increase to a
total of 26 million by the end of this year.

Compared to such a figure, the population of CDMA users is
merely a blip on the cellular market. The combined modest target
of TelkomFlexi and Esia means that CDMA users will not exceed 2
million by the end of 2004.

Such a user population is relatively small, but quite
significant when compared to the first two years of GSM market
performance.

GSM operators may have to sharpen their innovative edge to
retain their market, but consumers have good reason to expect the
competition to provide more convenient, low-cost services.