Rapid growth continues despite regulatory problem

Rapid growth continues despite regulatory problem

Debbie A. Lubis, Contributor, Jakarta

As sounds, pictures and data are sent from and to many parts
of the city, country or world, the cellular business has always
been a lucrative venture today.

Hence, the country's cellular telephone industry is still
enjoying robust growth this year and is expected to do so in
years to come.

The number of cell phone users has been growing at double-
digit rates in the past few years, and is expected to continue at
similar rates for the foreseeable future.

In fact, the industry reaped revenues of Rp 15 trillion (about
US$1.75 billion) last year in Indonesia, an astonishing 50
percent of the total revenue of the entire telecommunications
industry here.

The Association of Indonesian Cellular Operators (ATSI) has
estimated that the cellular business would generate a total
revenue of up to Rp 21 trillion this year.

Erik Meijer, Telkomsel's general manager for marketing,
revealed that the industry's growth rate was still very high with
the current total number of cellular subscribers in Indonesia
reaching around 12.5 million as compared to only 11 million by
the end of last year.

"The industry will continue to see robust growth. Last year,
Telkomsel almost doubled its customer base by adding almost 3
million new customers from 3.2 million to 6 million by the end of
the year. Now, after only four months of 2003, we have added
another one million for a total of 7 million active customers,"
he said.

Growing market demand has meant cellular operators have had to
increase their network capacity. Telkomsel adds between four to
five new base transceiver stations (BTS) every day to its
network.

"It is not easy to build extra capacity in the network for one
million every four months. But due to our healthy financial
position and well-oiled organization and motivation, this has
been possible," Meijer said.

The company is aiming for a capacity buffer of around 20
percent, so that its network capacity would be 20 percent above
the actual number of customers.

To achieve its target to increase subscribers to 8.5 million
this year, the company should ensure that its network can handle
at least 10 million customers.

Another cellular operator, PT Satelindo plans to build around
1,000 BTS this year with investment worth US$300 million, an
increase of $200 million from last year.

"The industry growth is fueled by increasing demand and that
requires greater investment to expand the coverage," said S.
Wimbo S. Hardjito, one of the company's operations directors.

Besides increasing its coverage, Satelindo also will add
service centers, up to 200, and provide more feature services
like upgrading the 8-KB sim card into a 32-KB. It has cooperated
with some content providers for logos, ringtones and mobile
internet. Satelindo is expecting to have 5 million subscribers
this year, nearly doubling its total from the end of last year,
which stood at around 3 million. It was 1.7 million at the
beginning of 2002.

Yudi Rulanto, director of new cellular operator Indosat Multi
Media Mobile (IM3), said that they would aim for one million
subscribers this year, a marked increase from the current figure
of 650,000.

It entered the market in 2001 with 150,000 customers.
Targeting a youthful market, the company provides 64-KB sim card,
and progressive content, but does not have different charges for
pre-paid or post-paid cards.

Meijer, however, said that many additional regulations and
limitations imposed by several local governments on cellular
operators have made the expansion of networks more difficult.

"In cooperation with other cellular operators through ATSI, we
are continuously lobbying all parties involved to overcome these
issues," he said.

The central government is also expected to take a greater role
in the booming business by adding some regulations of their own,
some of which will be positive, like encouraging the building of
more BTS. "It is better not to charge for the development of BTS
because the cost is too high, but it's okay if we have to pay
taxes after we use them," Wimbo said.

Both Wimbo and Yudi also hope for explicit measures for fixed-
line and cellular prices since state-owned telecommunications
firms PT Telkom and PT Indosat have developed fixed wireless
network called the Code Division Multiple Access (CDMA).

CDMA, with its product Fleksi Phone charges the customers the
same rates of local calls while in fact, its usage is similar to
cellular phones with limited coverage.

Meijer added that with increased penetration in certain
markets, some form of saturation may start to show in the future.

"This means we have to continue expanding into new areas as
well as continuously pushing to provide the best service
available so that we can get the largest chunk of the available
customers in any given market".

Obstacles faced by the industry also include the fact that
with every new sell, the operators are going into a lower segment
of the market, which is putting pressure on the average revenue
earned per subscriber (ARPU).

"This means we have to become more and more efficient in our
operations and also we have to stimulate usage and the use of
alternative services using our cellular service than just for
voice calls," Meijer said.

Total revenue may not grow as much as the total customer base
due to the relatively lower ARPU for the new customers, However,
additional services launched, like MMS and GPRS, may stimulate
usage and revenue.

Some further flexibility in pricing, especially on postpaid
services, Meijer said, may be useful to allow operators to offer
better packages and be more creative in offering value
propositions for this product line.

"The consumers now have the luxury of being able to choose
between many different offerings at different prices and service
levels, and with state-of-the-art technologies and services
comparable to those of any foreign country."

Some clear directions to better support network rollout by the
operators across the country may further benefit a better
distribution of the service so that more and more Indonesian
residents can gain access to cellular services.

"But all in all, as long as the government can continue to
guarantee a level playing field and healthy and fair competition,
the Indonesian cellular industry will continue to grow and
provide high-quality services for Indonesian society, which can
further support the development of the country and its business
prospects as a whole," Meijer said.

Fritz E. Simandjuntak, head of external affairs at PT
Excelcomindo Pratama, said that Indonesia, with telephone density
of between four percent and five percent, which is among the
lowest in the Asia-Pacific region, still offered a lot of room
for mobile phone operators to book a high growth within the next
few years.

The fact that cellular gadgets are getting more affordable for
common people makes the business even more promising for the
mobile phone operators, he said.

Fritz estimated that cellular customers could stand at more
than 15 million this year.

Excelcom expects to add another one million customers this
year from 1.8 million last year, valued at US$200 million. Fritz
said that pre-paid cards of Rp 25,000, Rp 50,000 and Rp 75,000
were very much in demand.

The company also plans to expand its coverage nation-wide this
year. It has recently launched its new BTS in Lampung, Jambi,
Pekanbaru and Manado. It will improve its network quality by
laying fiber optic lines connecting Lombok, Kalimantan and
Sulawesi this year, supporting the current infrastructure that
already lies from far western Java to far eastern Java, Anyer to
Panurukan.

To optimize technological performance, Excelcom will also
invest in information technology through a Network Management
System (NMS).

According to Fritz, regional autonomy, through its rulings has
impeded the investment in infrastructure of cellular
telecommunication, especially in the construction of BTS. In
Jakarta alone, the investment growth has been slowed down since
the issuance of Gubernatorial Decree No. 101/2001. "It does not
only hurt the operators but also consumers," he said.

"The government should create a level playing field for every
operator, including fixed-line operators (PSTN). Therefore, it
should accelerate the establishment of an Independent Regulatory
Body," Fritz said.

Fritz added that the government should also set new prices for
postpaid services because the rates had not been changed much
since 1998. "It means the postpaid customers are subsidized by
the prepaid customers. In fact, most of the postpaid customers
are from middle-up level," he said.