Lessons from China and IM3

Lessons from China and IM3

Jonminofri Nazir, Contributor, Jakarta

By numbers, Indonesia's huge population of 212 million should
be a lucrative market for both types of telephones: fixed as well
cellular.

Sadly to say, the country has only seven million fixed phone
lines, while the number of cellular phones is more or less
similar.

The good news then is that business opportunities for
telephone operators is wide open and extremely promising, both
for fixed phones (wireless or non-wireless) and for cellular
phones that use GSM or any other system.

Need proof? Just look at the extremely rapid growth of
cellular phone users. In just 10 years the number of mobile
phones has equaled the number of lines provided by state-owned
telecommunications company PT Telkom, which has been operating
for decades.

Another indication is the 260,000 new subscribers acquired by
the latest GSM operator, PT Indosat Multi Media Mobile (IM3), in
just under 10 months. It is not surprising, therefore, that they
are aiming to double that number by the end of the year.

"Our target is 450,000 subscribers by the end of the year,"
said Sumedi Kirono, the commercial director of IM3.

Fully aware of the opportunities in this sector, the
government has deregulated the related policies. Being an
operator is no longer the monopoly of certain companies.

For fixed phones, in line with the new policy, the government
has actually given PT Indosat the necessary permit to market its
local telephone products starting August 1, 2002 based on the
agreement signed by PT Telkom and PT Indosat.

Strangely, until the first week of this month, the government
is yet to fulfill its commitment. With a few weeks left it would
be very difficult to set up a new business.

Based on conservative estimates, the number of cellular
subscribers by 2004 will double to reach 14 million.

Will the local cellular industry be able to meet such a
demand? Taking other countries' experiences as an example, this
should not pose as a major problem.

China, for instance, increased the capacity of its GSM
operators within no time. The world's most populated nation
boasts an increase of five million new cellular phones every
month, which means every month an operator five times the size of
Indonesia's major operator comes into existence.

Of course China is different from Indonesia. The growth of
subscribers here, due to various factors, will not be as fast as
in China. But one important reason that might spur the growth is
the inexpensive cellular phones currently available in the
market. With only Rp 500,000 one can purchase a cellular phone
with sufficient features.

To take advantage of business opportunities, every cellular
operator has its eyes wide open for ways to increase
subscriptions.

Two of the country's major operators, Satelindo and Telkomsel,
keep on implementing strategies to find new subscribers in their
own coverage areas, while at the same time they have been
increasing the number of Base Transmitting Stations (BTS) to
cover the blank spots.

Meanwhile, another operator, Excelcomindo, is opening new
markets by expanding its coverage in Sumatra and other islands to
make its services truly nationwide.

The way IM3 expands its market is also interesting to watch,
though this newcomer operates in the same areas already occupied
by other operators. That's why it has opted for product
differentiation - especially in the technology aspects - to
present to its subscribers entirely new features. This way it has
succeeded in creating a totally new market.

The differentiation has made possible a wide range of
applications. The use of the nationwide GSM 1800 frequency is one
example.

Another is the Enhanced Full Rate (EFR) technology that makes
the voice much clearer, as close as possible to the original
voice quality. A SIM Tool Kit, which is a cellular card with a
64KB memory that makes browsing possible, is also provided.

Finally IM3 applies the GPRS technology for the benefit of its
subscribers. Hence the subscriber can receive and transmit a huge
amount of data at a high speed and have a mobile access to the
Internet also at a greater speed compared with using a modem or a
fixed phone.

The GPRS facilities have indeed created a new market for IM3.
This niche consists of consumers who are used to information
technology for their work or life style. By using GPRS features
these subscribers can receive and transmit a wide range of
information, e-mail as well as play games with distant users.

"The number of GPRS users is rising," Sumedi said. This
service is currently given free of charge. The free charge
strategy, according to Sumedi, is to educate the customers on the
use of mobile Internet. In the future, when the market is more
mature, IM3 will impose the appropriate charges.

However, it is irrefutable that these GPRS users were
previously GSM subscribers of other operators, therefore, the IM3
is today their second card as they want to enjoy its GPRS
facilities. Sumedi feels certain that once they try IM3 they will
instantly feel the difference in the voice quality as well as its
other superior features.

Another market segment targeted by IM3 is the consumers who
are price conscious. IM3 caters to them by making available the
most inexpensive prepaid card, which is sold at Rp 90,000. This
strategy has worked successfully with the lower income bracket,
because for these customers the most important thing is to
receive an incoming call, thus they can economize on charges.

IM3 also offers another service called "IM3 Friend" with
monthly rates half the prevailing price and air time discounts as
well. This service is quite popular with the type of customers
who often communicate within their own circles, such as their
colleagues, friends or family members.

Though IM3 is reluctant to release actual figures, one can
guesstimate from their advertising campaign that "IM3 Friend" has
really penetrated the market better than its sophisticated
feature, the GPRS technology. Obviously "IM3 Friend" has made
communications on cellular phones truly affordable.

The huge number of lower income subscribers has remarkably
expanded the cellular market. In fact they are the new market
segment for GSM cellular phones in Indonesia.