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.