Fixed-line phone service stagnant, cellular service soar

Fixed-line phone service stagnant, cellular service soar

Tony Hotland, The Jakarta Post, Jakarta

In spite of the rapid development of the telecommunications
industry over recent years, tens of millions of people in the
country have yet to benefit from even the basic mode of
communication: fixed line services.

Data at the Directorate General of Post and Telecommunications
indicate only 9.1 million fixed lines have been installed, mostly
in developed cities, for a population of over 220 million.

When the government abolished in 2002 state company PT
Telkom's monopoly over the sector, hopes were high that the
number of fixed lines would increase significantly.

However, despite the entry of a new player, PT Indosat, no
marked progress has been made, as the two firms are reluctant to
invest in fixed line services.

This year, Telkom installed less than 100,000 new fixed lines,
while Indosat installed no more than 20,000 -- all in major
cities, particularly new business areas.

Many argue that the low rate for domestic calls and the slow
return on investment made the sector unattractive. Meanwhile, the
infrastructure for fixed lines is far costlier to develop than
that for mobile phone services using Global System for Mobile
Communications (GSM) or Code Division Multiple Access (CDMA)
fixed wireless technologies.

Installing one fixed line base station costs operators around
US$500, while it costs only about $150 to install one cellular or
fixed wireless station.

In addition, call rates and demand for fixed wireless and
cellular services are comparatively much higher, which means the
investment begins to pay off even sooner.

Given this situation, some experts have begun to question the
effectivity of the duopoly in the sector and to suggest a more
open market. Others say that if the telecommunications sector was
liberalized further, none of the entering operators would be keen
to develop the fixed line network, as it was no longer considered
lucrative.

To solve the problem, the government launched the Universal
Service Obligation (USO) program last year upon a recommendation
from the International Telecommunications Union conference.

Under the USO program, the government plans to install
telephone lines in 43,000 villages using various types of
technology, such as satellite, radio, cellular and Internet
protocol, depending on the local geography.

Since its initiation, the government has installed phone lines
in 3,010 villages, mostly in Sumatra and eastern Indonesia. By
the end of this year, the government expects to have covered
3,500 more with funds of only Rp 45 billion ($5.56 million).

The USO is a two-phase program: In phase one, running from
2003 to 2010, the government must provide each village with at
least one fixed line; in phase two, it must develop more
supporting facilities.

With extremely limited financing, however, even the government
is unsure of how to make the project succeed. A presidential
decree, which is to oblige operators to set aside 0.75 percent of
their annual revenue toward the program, has yet to be issued
years after the proposal was submitted.

Regardless of the rapid use of advanced telephone services,
such as cellular and the relatively new fixed-wireless access
(FWA), the fixed line is still seen as important and vital.

Unlike cellular or FWA services, which are more private, the
fixed line is considered a perfect choice for providing
telecommunications access to as many people as possible, as a
single line can be used by many.

"This is really important, since Indonesia is not really a
wealthy country, and not everyone can or even want to subscribe
to cellular services. The fixed line is more flexible and
established," said Susilo Hartono, head of USO implementation at
the post and telecommunications directorate.

Besides, he said, the government did not want to waste its
limited radio frequency, which is used for cellular and FWA
services.

The growth of cellular and fixed wireless services has been
fairly remarkable over the course of the year, with the number of
cellular subscribers increasing faster and recording 25 million
by October, up by about six million from end of 2003.

Giants PT Telkomsel and Indosat dominated the sector with a
combined market share of 83 percent, followed with PT
Excelcomindo Pratama (XL) and a few new players like PT Bakrie
Telecom and PT Mobile-8 Telecom.

The astounding growth was triggered by more sophisticated and
innovative features on offer, combined with declining tariffs
prompted by a price war among operators and greater ease in
procuring a cellular number.

A whopping $1 billion was invested this year by cellular
operators to build new infrastructure and upgrade services,
including launching new products and brands.

Amid tougher competition, cellular operators introduced new
brands such as Kartu As, Jempol and Bebas, which charge lower
call rates than previous brands.

Analysts say the introduction of the new brands was to attract
consumers from the low income bracket, as the initial market
segment of cellular phones -- middle and high-income groups --
had inched toward saturation.

The FWA also boomed this year, spearheaded by Telkom's Flexi,
followed by Indosat's StarOne. The two brands have collected a
combined two million subscribers, with Flexi serving the majority
at some 1.7 million.

Given this trend, strong growth in the cellular industry is
projected to continue in coming years.