Indosat and rivals in Indonesia may cut phone charges

Indosat and rivals in Indonesia may cut phone charges

Bloomberg, Jakarta

PT Indosat, Indonesia's second- largest mobile-phone service
provider, and rivals may have to cut prices to draw users as
operators including a company controlled by Hong Kong billionaire
Li Ka-shing expand in Indonesia.

Indosat, 42 percent-owned by Singapore Technologies Telemedia
Pte, is studying ways to cut prices, President Hasnul Suhaimi
said in an interview. Bigger rival PT Telekomunikasi Selular, or
Telkomsel, began selling its cheapest stored-value phone card,
called Kartu As, last year, helping it add 6 million users in a
year.

"Price cuts are compulsory, not optional," said Winston Sual,
who helps manage the equivalent of $731 million of Indonesian
assets at Panin Asset Management in Jakarta. "Operating profit
margins have stopped growing."

Mobile-phone companies including Telekom Malaysia Bhd. are
attracted to the potential in Indonesia, where only 16 percent of
the population own cellular phones, compared with more than 90
percent in neighboring Singapore and 61 percent in Malaysia. The
resulting competition, with three main operators and more coming
on line, has forced them to slash rates to attract subscribers in
a country where more than half the nation's 238 million people
live on less than $2 a day, according to the World Bank.

Indosat expects sales to rise on price cuts, although average
revenue per user may decline by as much as 15 percent, Suhaimi
said. "The last time we cut prices of our text-message service by
about 70 percent, traffic increased three-and-a-half times."

Shares of Indosat fell as much as 0.9 percent today. The
shares were unchanged at 5600 rupiah at the 12 p.m. midday break
on the Jakarta Stock Exchange.

To boost net income, Indosat and its rivals will have to keep
costs under control as they cut prices of their services and
expand coverage beyond the main island of Java, analysts said.

"They have to learn how to deliver cheap services. They have
to be careful on marketing and other costs," said Gordon Bennett,
research director with Asia Pacific Research Group, a Hong Kong-
based telecommunications research company. "There is a lot of
room to go down" on prices.

Mobile-phone users in Indonesia, the world's largest
archipelago, may more than double to about 79 million subscribers
by 2007, according to Morgan Stanley, making it the fourth-
largest mobile-phone market in Asia. There are only 10.7 million
fixed-line phone users in the nation.

Telkomsel's Kartu As, which is Bahasa Indonesia for the Ace
Card, now accounts for about a third of its 21 million users,
President Director Kiskenda Suriahardja said in an interview. The
starter pack for the service, for which users buy a card and pay
as they use, costs 25,000 rupiah, or $2.60, which allows the
customer to make a local call to a fixed-line phone for as long
as 36 minutes with 10 free text messages.

The prepaid card market accounts for more than 90 percent of
the total number of cellular phones in Indonesia.

The potential growth encouraged Telekom Malaysia, the nation's
biggest telephone company, to raise its stake in PT Excelcomindo
Pratama, Indonesia's third-biggest mobile-phone company, to 80
percent.

PT Bakrie Telecom, a company controlled by the family of chief
economics minister Aburizal Bakrie, will spend Rp 1 trillion
(US$105 million) this year to buy equipment and expand coverage
of its code division-multiple access service.

Indonesia's Sampoerna family, which sold its stake in its
cigarette business to Philip Morris International Inc., may buy
shares in cellular operator PT Mandara Selular Indonesia,
according to a Bisnis Indonesia report June 15.

Competition is also likely to intensify as a unit of Hong
Kong's Hutchison Telecommunications International Ltd. plans to
start high-speed wireless services. Hutchison is waiting for
regulatory approval to invest $120 million for a 60 percent stake
in Indonesia's PT Cyber Access Communications.

PT Natrindo Telepon Selular, controlled by Maxis
Communications Bhd., Malaysia's biggest mobile-phone operator,
may soon start 3G services, which allow users to videoconference
and download large files, while Telkomsel will start the 3G
service next year.

Telkomsel, Indosat and Excelcomindo control more than 95
percent of the mobile-phone market.