GSM operators watch CDMA expansion cautiously

GSM operators watch CDMA expansion cautiously

Rudijanto, Contributor/Jakarta

Barely a year after the operation of CDMA-based operators the
number of GSM users in Indonesia remains unchallenged, as it
soared to 20 million as of last month and is expected to reach 28
million by year-end.

With a more established market that comes from years of
experience in the country, Global System for Mobile Communication
(GSM) operators have succeeded in their struggle to maintain
market share in the Indonesian mobile phone market.

Compared with that for GSMs, the market for Code Division
Multiple Access (CDMA)-based operators is very small. Telkomsel
subscribers totaled 10.7 million while Indosat's and
Excelcomindo's were 6.5 million and 3.2 million respectively as
of April 2004. The CDMA user market is less than two million.

No doubt the greatest proportion of market share is controlled
by Flexi, which already had 450,000 users by the end of 2003.
Easia could sell only some of its total 50,000 numbers that the
company had distributed to the market since September 2003, by
year-end.

Though the total of CDMA users is still small, such growth in
a very brief period provides strong reason for GSM operators to
worry. Currently, CDMA-based operators such as Flexi and Easia
operate fixed wireless access (FWA) phones, while Mobile-8
provides a cellular phone service.

One of the strengths of CDMA-based FWA, especially Telkom
Flexi and Easia, is the cheaper rate as compared with GSM-based
cellular rates, as the fixed wireless rate is equivalent to that
of fixed-line telephone services (PSTN). But its weakest point is
that its coverage is limited within certain designated area
codes.

However, since most GSM users, around 80 percent, do not have
high mobility, which requires them to move beyond a particular
area code, GSM operators worry that a significant number of their
customers may switch their allegiance to CDMA-based FWA
operators.

The government, as regulator, has tried to accommodate the
interests of GSM operators by issuing decrees that are expected
to dispel their anxiety. Ministry of Communications Decree No.
35/2004 clearly states that fixed wireless operators have to pay
the so-called Usage Right Fee (BHP). The amount of BHP is still
to be determined.

Meanwhile, recently issued Ministry of Communications Decree
PM No. 2/2004 clarifies that FWA has limited mobility and no
automutation facility. This means that users of FWA within a
particular area code cannot use their phone outside that area
code.

Responding to the Ministry of Communications decrees, GSM
operator PT Excelcomindo Pratama spokesman Fritz Simanjuntak said
what GSM operators wanted was healthy competition between the
players in this telecommunications sector.

"For us, Flexi uses the same mobile CDMA technology as Mobile
8. However, Telkom Flexi takes advantge of PT Telkom's fixed-line
license, whereas Mobile 8 relies on its cellular license. That is
not fair," says Fritz.

Although Indosat will launch its own CDMA-based FWA in East
Java by the end of this month, the company's cellular marketing
director, Hasnul Suhaimi, also expresses bewilderment at the low
tariff charged by FWA operators.

"Basically, the investment cost is not too different to that
of GSM but strangely, FWA operators can charge their customers at
such a low rate. I don't know if such low rates are sustainable
in the long term. My feeling is that if the cost of investment
increases due to expansion of coverage, their rates will have to
be adjusted," says Hasnul.

Indosat will launch its FWA service, StarOne, in East Java.
Hasnul reveals that the StarOne FWA rate will be more or less
equivalent to that of other FWAs. That is why, despite being
bewildered at the low FWA rate, Hasnul believes that the two
services, CDMA and GSM, will have their own market segments.

However, Fritz refuses to accept the term FWA since the
telecommunications world knows only two terms, namely mobile
phone and fixed phone. In that sense, he says, Flexi is actually
a mobile phone and, therefore should be classified as such.

Being a mobile phone system, Fritz insists that FWA operators
should have to pay the same amount of BHP as that paid by GSM
operators. The BHP is just one of a number of cost components,
such as air time, that make up the total cellular fee to be paid
by customers.

Flexi, with its FWA rates, has been a source of discontent
among GSM operators. With its Flexi, Telkom has real potential to
challenge GSM domination, thanks to its massive network.

This explains why GSM operators want the the government to
strictly interpret Ministry of Communications Decree No. 2/2004,
which clearly states that FWA has only limited mobility and no
automutation facility on existing FWA operators.

GSM operators may dislike the presence of CDMA competitors,
particularly Telkom Flexi, which seems to enjoy privileges, but
they cannot simply neglect the potential to cooperate with CDMA
operators in the long run for the sake of service to their own
customers.

Currently, GSM operators Telkomsel and Excelcomindo have
forged cooperation in inter-operator SMS features with CDMA-based
FWA Easia. The Indosat Group is also preparing similar
cooperation with Easia.

"We are doing it for the sake of our customers so it is more
convenient for them in using our respective services," says Easia
public relations officer Norman Ilyas.

As a small CDMA-based FWA, Easia seems to have a low profile.
Instead of head-to-head competition with GSM operators, Norman
says that CDMA-based FWA seeks to complement GSM services.

"Some people now use both GSM-based cellular and CDMA-based
FWA. If they want to communicate with someone within one area,
they will use their FWA because it is cheaper, but if they want
to communicate with someone outside their area they use their
GSM," says Norman.

With such complementary functions, Norman prefers closer
cooperation with GSM operators rather than fighting them. Easia
has 40 BTSs in Jakarta for both outdoor and indoor connections.
With such BTSs, Easia has coverage over about 80 percent of
Jakarta, Depok, Tangerang and Bekasi. The company is also
expanding its operations in Bandung.

GSM operators who want to upgrade their 2G or 2.5G technology
to 3G need to cooperate with CDMA operators if they want to
reduce costs. CDMA 2000-1X technology used by FWA operators is
ready for 3G. Mobile-8 has even used a more advanced technology,
CDMA-1X EVDO.

Kompas daily's Moch S. Hendrowijono wrote that the cost of
investment for GSM operators would be reduced if they cooperated
with existing CDMA-1X operators. Otherwise, they would have to
invest in WCDMA (wideband CDMA) to enter 3G technology, which
would be costly for them.

GSM operators will eventually need 3G technology if they want
to have more advanced features, such as video-streaming. With
current 2.5G using GPRS technology, GSM operators can already
provide MMS (multimedia messaging service). But for better
quality video-streaming features, they still need 3G technology.

However, not all GSM operators welcome the idea of such
cooperation, at least in the near future. Fritz from Excelcomindo
says that the demand for MMS services alone is not as great as
expected since the majority of customers are still satisfied with
voice and SMS services.

"We are not too concerned with 3G because it is only a tool.
But we are more concerned with how to get an optimal result from
the market. Thus, we have no intention to step in that 3G
direction," says Fritz.

Indosat is also careful to invest in 3G because the company
has not seen any real demand from the market. Hasnul says that
the current market response to MMS is still very weak. That is
why he believes that even in the future 3G services will simply
become value-added services or an extra on basic voice and SMS
services in the next five to six years.

"We are very careful because we don't know if the push to move
to 3G is really customer-driven or simply vendor-driven. The
ideal is that the demand comes from existing customers but, based
on observation of our customers' behavior, they still do not need
such services," says Hasnul.

The telecommunication sector remains one of the country's
fast-growing revenue sources. While the government is nurturing
the growth of CDMA-based FWA and cellular operators, many hope
that it will be prudent enough not to stifle the growth of GSM-
based operators.