Analysts have predicted that the growth of the cell phone business in the country will not last much longer, with a downturn expected to hit the market in the next two or three years, as it will have become a saturated market.
Indosat president director Johnny Sjam said in an interview recently that the company's average revenue per user (ARPU) would decline by 25 percent from last year, forcing the company to revise downward this year's revenue target.
The country's second largest telecom company is now bracing itself to answer the market challenge by focusing more on the development of its Internet business, which recorded a 35 percent growth in the first semester of this year.
In total however, its Internet user services make up only around 15 percent of the firm's total revenue, with the core cell phone business contributing 75 percent. The following are the excerpts from the interview:
Question: What made you revise downward the increased revenue target from 20 percent this year to 12 percent?
Answer: We see the existing trends based on what we achieved in the last semester. Our average revenue per user (ARPU) is set to drop by 20-25 percent from last year, as our market is now more segmented focusing on lower income people, who use the phone less frequently than higher income people.
But we hope the we can compensate for the lower ARPU level by having more subscribers, so that earnings will not be hit. This year, we target to add 12 million new subscribers and so far we have added eight million, meaning we still have to get another four million. Last year, our subscriber base reached 24.5 million.
Also, for next year, while still focusing on the cellular business, we'll try to expand other businesses like Internet services. In 2009. we are expected to have a new satellite, replacing the old one.
We have appointed France-based satellite operator Thales Alenia Space to carry through an investment of US$220 million.
So, do you agree with analysts who say that the cellular business will be declining in the next two and three years?
In three or four more years the market will be saturated, but there is another opportunity yet to be fully explored. That's the Internet business. Is development is still relatively small. That will be another game.
If you look at our latest financial results you can see that our multimedia, internet data communication division grew about 35 percent in the first half of this year, a number which shows big potential to grow further in the coming years.
What is your strategy to develop this Internet business?
We will want our units and subsidiaries related to the development of this Internet business to be more focused on two market segments. The retail consumers who will be served by our unit IM2, and the corporate customers by PT Lintas Artha.
Maybe someday the composition of our business portfolio will focus more on Internet based services than on the cellular business in line with the expected saturated market.
Do you plan any acquisitions in regards to expanding your Internet line business?
Well we are open to such opportunities, but I cannot tell you about that now. What we are doing now is preparing all the infrastructure needed for future development of our business services, especially in the Internet sector.
This year, we plan to set aside $1.4 billion in capital expenditure, up from $1.2 billion targeted earlier, in the hopes of expanding our network and increasing our network capacity. A number of players are looking for opportunities in the content business as alternative sources of growth for the future. Your response to this?
I see the future in the content industry, but we must remember that to access the content, we must have a strong network. And we want to focus on building more infrastructure, expanding our network, while for the content we will cooperate with third parties, who will have specialist competencies.
How do you view the existing regulations in supporting the development of the telecom industry?
Overall, the government has made some progress. The tax rate has been cut, the government is getting more aggressive in inviting investors to come to Indonesia. But what it needs to improve is its coordination between institutions, for example providing more one-roof service centers.
For example on the Qtel (Qatar Telcom) issue. (The officials) here say its okay, but in other places, they say no. So what I frequently see is investors becoming confused when facing different government institutions. They must wait the process here, and wait for other processes somewhere else. Its very bureaucratic.
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