International calls: Competition getting tough

International calls: Competition getting tough

Rudijanto, Contributor, Jakarta

International callers might have gained some benefits of cheaper
overseas rates as PT Indosat Tbk (Indosat) and PT Telkom Tbk
(Telkom) engage in a tough battle to grab significant market
share, but the public has a legitimate right to expect more
benefits from the competition.

Unlike in the recent past when they had to rely on Indosat and
its newly acquired company Satelindo for overseas calls, nowadays
callers have Telkom International Call (TIC) 007 and Telkom
Global (TG) 017 and even cellular operators, including Bakrie
Telecom E-Asia SLI 1188 and SLI 888 as alternatives.

As a long-time and still dominant player in overseas call
services, Indosat have to accept the reality that they cannot
force they own terms on consumers like they did in the past
without risking losing customers.

The opening up of the market in overseas calls to Telkom has
already eaten into Indosat's market share. The company even
predicts that this downward trend in market share will stabilize
only in two years after Telkom's onslaught with its TIC 007 ad TG
017.

"We believe that the competition will make the market grow
though, currently, the downward movement of market share looks
faster than the growth of market share," Indosat's senior vice
president of marketing and sales Bambang Priantono said in an
interview last week.

As of the end of last year, Indosat's 001 market share dropped
to 63 percent, while its second tier long distance service 008
dropped to 11 percent.

Bambang expects the downward trend in Indosat's market share
to stabilize in around April 2006. But without good marketing
strategies, the downward trend may continue even longer.

The strategy includes creating a third tier product to protect
Indosat's first and second tiers, namely the premium 001 and
second line 008. The third tier Indosat 016 is expected able to
engage VoIP-based operators, including Telkom's TG 017, in a
budget-conscious market.

Though applying similar method of channel compression as that
of VoIP, Indosat insists that Indosat 016 has a different quality
to VoIP since a channel is only shared by four users.

"VoIP usually provides one channel that is shared by up to 20
users so that the quality of voice suffers. In our Indosat 016,
we maintain the quality so that the voice is similar to that of
the clear channel," Bambang said.

Telkom itself had set an aggressive target of grabbing 50
percent market share of international calls with TIC 007. The
company even boasted of its international call performance by
saying that barely six months after launching TIC 007, it has
grabbed 25 percent market share.

"We are quite optimistic of being able to grab long-distance
market share, based on our performance since the launching of TIC
007 on June 7 of last year," said the head of Telkom's long-
distance division Sarwoto.

Like Indosat's 016, TG 017 also claims to compress the channel
by one to four. This means that one channel can only be shared by
four users at the same time.

"We manage the bandwidth of TG-017 so that the quality will
not drop and the traffic will not pass by public Internet," added
Sarwoto.

Having practically similar products, both Indosat and Telecom
can hardly avoid head-to-head competition in the market.
Already, Indosat has accused Telkom of engaging in unfair
competition.

Indosat has even reported the alleged blocking of its
international call service codes, 001 and 008, by Telkom to the
Commission for the Supervision of Business Competition (KPPU).

Though Telkom had previously denied the allegation, the
company later admitted that it forced its subscribers to make a
request if they wanted to have access to Indosat's 001 and 008.

This 'normally closed' policy has made Indosat's 001 and 008
difficult to access from Telkom's fixed lines and Telkom's Telkom
Kiosks (Wartel).

Certainly, Telkom feels it has the right to protect its
existing customer base in its nation-wide networks. Having built
costly and vast telecommunications infrastructure, Telkom seemed
to consider that Indosat was only taking advantage of the
existing infrastructure.

The fact is Indosat as a long established player in overseas
call services has not developed infrastructure such as fixed
lines like that of Telkom. Indosat only has gateways for its
overseas call services.

Under previous monopoly arrangements that placed Telkom as the
only provider of domestic calls, Indosat as the provider for
overseas calls certainly felt no need to develop its own
infrastructure for fixed lines.

Facing such a tough challenge in the field, Indosat is now
relying on government regulations and its existing cellular
customers. The issuance of ministerial decrees, including
Ministerial Decree Number 28, 2004, was certainly welcomed by
Indosat.

The decree states that every telecommunications network
operator is obliged to provide interconnection to any service
provider that requests it.

But the battle for interconnection was not going to be an easy
one. In early May of this year Telkom employees demanded that the
Minister of Communication and Information revoke decrees numbers
20, 29, 30/2004 concerning the opening up of SLI codes in
Telkom's network. The decrees were deemed to inflict losses on
Telkom.

Not wasting time in the battle for interconnection, Indosat
has shifted its campaign to focus on their own cellular customers
that have reached 10 million.

"We will use all our network of customers as we already have
cellular users, including those using Mentari and StarOne.
Instead of using fixed lines, we encourage people to use cellular
phones for overseas calls as the price of cards is getting
cheaper and cheaper," Bambang said.

But Indosat will not be the sole player in the overseas call
service via cellular market since other mobile phone operators
also provide such services. Bakrie Telecom's E-Asia, for example,
has recently offered a similar service, which enables its
subscribers to make international calls to 22 countries in Asia
Pacific regions as well as Europe, the U.S. and Canada.

Consumers certainly benefit from the competition among players
as their rates are getting more competitive. However, the public
may gain more if the competing operators battle fairly and
responsibly.

By opening up the telecommunications market to competition,
Indonesia certainly has a right to expect faster development of
telecommunications infrastructure.

According to data from the Post and Telecommunication
Directorate General, the number of fixed-line telephones in
Indonesia was only 8.7 million, while cellular phones amounted to
23 million.

Without opening the market to investors, Indonesian fixed-line
penetration of 4 percent will lag behind that of Malaysia's 19.79
percent, 46.36 percent in Singapore, 9.87 percent in Thailand,
and 6.85 percent in Vietnam. (Telephone penetration is calculated
based on the number of telephones for every 100 people).

Although is looks large, the cellular phone population is
mainly concentrated in big cities, leaving most of the country's
towns and rural areas still way behind. Combining cellular phone
and fixed-lines, Indonesia only recorded 10.45 percent
penetration in 2004.

While opening the country's international call and long
distance call sectors to competition is a good start, the public
as the recipients of the benefits of competition has the right to
expect that it will speed up the development of the country's
telecommunications infrastructure. Otherwise, the government
should review its policies.