KPPU the Indonesian anti monopoly commission made big news last year for its findings in respect of alleged anti competitive behavior in the telecommunication industry. It seems again there are games going on at "the top end of town" and these have been covered exhaustively. The question is where are the anti monopolists when dealing with the reality of the obfuscation of pricing the predominately poorly educated face in everyday life in Indonesia?
Starting with the telecommunications industry, the competition is fierce, but what separates competition in Indonesia is lack of transparency of pricing and creativity of advertising rather than real pressure on margins.
There are recent examples of products repackaged to present a truth that can only be revealed if one has the means to visit the web site of the company concerned. In a country that suffers from abnormally high internet charges and resulting low usage, finding the truth is not made simple for the average punter.
It reminds me of The Hitch Hikers Guide to the Galaxy. The team in charge of demolishing earth for an inter galactic bypass point out that the plans had been on display in Alfa Centauri for over a month, and if you humans do not have the wherewithal to take an interest in local affairs how can you complain now?
Thus one can see advertised rates that have dropped from Rp 10/sec now down to 0.01/sec. However those with access to internet can discover that in fact the first 2 minutes will cost you around rp 3,000 before two minutes of cheap rate and then back to the original charge for another 2 minutes and so on. As Maxwell Smart would have said "if only they could have used their power for good..."
One can only envisage a team of savvy marketers testing their minds as to how to paint such a picture. Maybe they are the same people that create those dot pictures from which a 3D image "emerges".
The others are not far behind with various offers of free calls etc. The fine print (if one can discover it) then indicates no free lunch. It is between specified hours and either to members of the same network or other permutations and combinations thereof.
All in all nobody is doing too badly in the field. Based on third quarter 2007 results things are not too bad. Telkomsel has an EBITDA margin of 70 percent and even the least profitable GSM operator has a respectable 42 percent.
In the developed world real competitive pressure has driven margins down closer to 35 percent. Everyone is doing nicely thank you very much as there has been no full blooded pricing competition as seen abroad.
Where the regulators and legal systems in other countries preclude false and misleading advertising, price and service become the only differentiators. In many other countries we have seen one maverick (usually new entrant with no customer base) launch a capped fee bundle package. A subscriber receives X amount of GPRS time, SMS and call time all for one fixed fee per month.
Subscribers love it as suddenly they have price certainty on their monthly bill. Incumbents hate it as it comes at the expense of margins but as customers stampede away from them they are forced to copy the model to retain market share and consider new business models.
Similar behavior is commonplace in consumer lending in Indonesia. One can see cars advertised at interest rates starting at 7 percent. What a great deal one thinks before rethinking central bank rates are still 8 percent so is the car that bad or something else is amiss.
In Indonesia there is no requirement to quote an effective rate of interest. Therefore 7 percent is simply the rate of interest applied on the total capital balance for say four years. The effective rate is in fact double that number as the capital amount is reducing over the period given a flat principal repayment profile.
Now it is clearer that one is paying 14 percent. Not bad for a car loan one may say given they are the sort of rates still quoted for a home loan. To get this special 7 percent rate one must however pay not insignificant "establishment fees" adding a few hundred basis points, in addition to procuring insurance through the self same entities associated insurance company or erstwhile business partner..
For most however a motor bike loan is the reality. Here published rates are more at the 10 percent level. Our real effective rate is therefore approaching 25 percent per annum.
Credit card companies of course have mastered this better than most around the world and it is big business in Indonesia now. The model of a heavily promoted perceived elitism whilst charging usurious interest rates and annual fees for the privilege is proving as big a hit in Indonesia as elsewhere. People again pay an annual effective rate of up to almost 40 percent for the privilege with some big brand issuers.
The card companies will explain Indonesia is riskier and they therefore need a substantial risk premium. However these companies probably have the best consumer credit assessment systems in the world and have a very good idea of what is at risk. In the end it is just growth driven greed that will bring them undone. The last year has just seen an increase in non performing loans for credit cards of 60 percent yet everyone is still talking it up.
There is a role for an anti monopoly commission to capture egregious cartel behavior where it can be proven to exist. However implementing and policing standards in respect of disclosure to consumers can also do just as much to protect them in the long term.
The writer is General Manager of PT Mobafone Indonesia.
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