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.