Indosat to expand outside of Java

Rendi A. Witular, The Jakarta Post, Jakarta

Aiming to capitalize on the growing demand for cellular services, publicly listed telecommunications company PT Indosat plans to allocate a greater portion of its resources next year to expand its cellular network to Sumatra, Kalimantan and Sulawesi.

Indosat cellular marketing director Hasnul Suhaimi said more than 50 percent of its capital expenditure (capex) would be channeled toward setting up new networks in areas outside Java, which has a relatively low penetration of cellular phones.

"We plan to allocate a larger chunk of our capex next year for improving and expanding our cellular services outside Java, which currently accounts for only about 25 percent of our subscribers," said Hasnul on Monday.

He added that Indosat intended to invest US$650 million to $700 million in the network expansion plan, with the funds coming entirely from its internal cash flow.

Indosat has about 9 million cellular subscribers as of September, up from 7.5 million in August. The company has three cellular brands -- IM3, Matrix and Mentari -- and holds about 30 percent of the market.

Hasnul said Indosat's cellular subscribers were expected to grow to about 9.5 million by the end of this year, up from 5.2 million at the end of 2003.

Indosat, the second largest phone company in the country, has been trying to narrow the gap with its key rival PT Telkomsel, which controls half of the domestic cellular market. Telkomsel is run by state-owned telecommunications giant PT Telkom.

Indosat is 41.94 percent owned by Singapore Technologies Telemedia, 15 percent by the government and the remainder by the investing public.

At least 25 million users subscribe to cellular services nationwide, a figure that is partly boosted by the low availability of fixed-line telephones. Only about nine million of the country's 220 million people have access to fixed-line phones.

According to the Indonesian Association of Cellular Telephone Operators, the number of cellular subscribers will grow to about 28 million by the end of the year, and up to 40 million next year, spurred mainly by the wider availability of cellular services and lower rates.

Meanwhile, Indosat finance director Wong Heang Tuck said sales revenue in the first nine months of this year would probably increase by about 30 percent compared to the same period last year.

Tuck also said the company might issue bonds or seek bank loans if the capex allocated for next year was deemed insufficient to meet the higher demand for telecom services.

Elsewhere, Indosat fixed-line director Wahyu Wijayadi said the company's market share of international services, which had been its core business for decades, might possibly decline sharply in coming years due to stiff competition in the sector.

"At present, we control 79 percent of the international call service market. We have projected that the shares will decline to about 50 percent in the next couple of years," he said.

The mushrooming of international call services utilizing voice over Internet protocol (VOIP) had hit the company's market share severely, said Wahyu.

Indosat shares ended higher on Monday by Rp 50 at Rp 4,275 on the Jakarta Stock Exchange.