Telkom will spend Rp 12b on capital next year

Telkom will spend Rp 12b on capital next year

Rendi A. Witular, The Jakarta Post/Jakarta

State-owned PT Telekomunikasi Indonesia (Telkom), the nation's largest telecommunication company, plans to spend at least some Rp 12 trillion (US$1.19 billion) for next year's expansions and operations.

Telkom president director Arwin Rashid told The Jakarta Post recently that more than 50 percent of the allocated capital expenditure (capex) would be spent on expanding the company's cellular business and adding new equipment.

"We have not come up with a definite figure yet, as it is still being arranged. But we will certainly allocate some Rp 12 trillion for capex, which is more or less at the same amount as this year's allocation," he said.

Arwin said this year's capex would be lower than the initial allocation of Rp 13.7 trillion.

Telkom cellular subsidiary PT Telkomsel has engaged in an aggressive expansion to take advantage of the country's untapped mobile phone users, which are estimated to reach more than 50 million, or some 23 percent of the country's 220 million people.

At the end of March, the company had 17.9 million users, or 55 percent of the market share.

Telkom owns 65 percent of Telkomsel, while Singapore Telecommunications Ltd. (SingTel), Southeast Asia's largest telecommunication company holds the remainder.

"Growth in cellular business has outperformed other telecommunication businesses. Telkom will remain focused on expanding the cellular business, which is becoming more competitive," Arwin said.

Telkomsel expects its users to grow by more than 50 percent this year to around 25 million this year, and at least by about 30 percent next year. The company had around 16 million subscribers last year.

Higher economic growth, which propelled stronger purchasing power, is driving cellular demand in Indonesia and the country's $258 billion a year economy is projected to grow by around 5.7 percent this year and 6.2 percent in 2006.

In the fixed-line business, Telkom is targeting users to reach some 11 million this year, with at least 15 percent growth in new users next year.

Currently, only about 4 percent of the country's population have access to fixed telephones, including fixed-line and fixed wireless phones. Telkom controls some 97 percent of the domestic market.

The government has urged local phone operators to build 10.7 million fixed telephone lines by the end of 2008. This year alone, Telkom and smaller rival PT Indosat are obliged to build at least 1.4 million lines.

Critics have said that the low penetration of fixed lines in rural area is because Telkom is reluctant to implement its public service obligations as mandated by the government. The business is a high-investment one with lower returns than other sectors.