Weaker rupiah could force halt to cellular expansion
JAKARTA (JP): The weakening of the rupiah against the U.S. dollar might force local cellular operators to halt their expansion projects.
Vice chairman of the Indonesian Cellular Telephone Association (ATSI) Rudiantara said here on Friday that many expansion projects planned for this year were likely to be postponed if the rupiah continued to weaken.
New investment for cellular network expansion was originally estimated to increase to US$900 million this year, from between $700 million and $800 million last year, as cellular operators geared up for the entry of two telecommunications giants into the mobile phone market.
State-owned telecommunications companies PT Telkom and PT Indosat will join seven existing companies to vie for a niche in the cellular market this year.
The two companies will compete with PT Telkomsel, PT Satelindo, and PT Excelcomindo Pratama (ProXL) in the global system for mobile communications (GSM) market.
Other operators include advanced mobile phone system (AMPS) operators PT Telesera, PT Metrosel, and PT Komselindo, and the Nordic Mobile Telephone (NMT) operator PT Mobisel which will soon migrate to the Code Division Multiple Access (CDMA) system.
"When the investment plans were approved at the end of last year, the conversion rate was Rp 9,000 to the U.S. dollar; now it is over Rp 11,000," Rudi told The Jakarta Post.
This, he said, would greatly effect the continuation of the projects, especially during the second half of the year because the estimated cost of the projects could surge by as much as 20 percent.
In addition, the weak rupiah also affected the buying power of consumers, Rudi said, indicating that reduced buying power had caused the business to be less profitable.
"Can the mushrooming cost be covered by revenue from additional customers?" he asked.
Telkom allocated Rp 90.5 billion (about $8.2 million) for the roll out of its cellular project which is expected to begin operations in August on the DSC-1800 frequency. The company expects to attract 400,000 subscribers within two years of its official launching and 495,000 in the third year.
Indosat, which will also operate on the DSC-1800 frequency, has allotted 35 percent from the proceeds of the sale of bonds worth Rp 1.5 trillion for its cellular business. The company has also indicated that it would begin the service sometime between July and September.
Excelcomindo said it would invest $175 million for the expansion of its cellular network, and a further $350,000 for the migration of its existing GSM-900 frequency to DCS-1800.
Mobisel will invest $200 million to shift its existing NMT system to the more advanced CDMA-450 system sometime in September.
A recent decision by the Jakarta administration to temporarily postpone further base transceiver station (BTS) construction licenses, would also alter some operators' expansion plans in the capital.
Indosat's president Hari Kartana said earlier that of the original 500 BTSs to be constructed, only 200 have so far been built and 40 are operational.
Telkom said it needs to construct 452 BTSs, with 127 located in Jakarta. So far it has constructed 140 of them, Kompas daily reported.
Rudiantara, who is also the director of Excelcomindo, said the postponement would certainly effect the expected launch time of both Indosat and Telkom, and would further undermine the companies' cashflow.
However, existing operators which have so far been operating the GSM-900 frequency were little affected by the administration's decision, as their networks were already firmly established.
Excelcomindo's general manager for engineering M. Danny Buldansyah earlier said that there were two ways for the company to increase its customer capacity -- by adding more BTSs or by upgrading existing BTSs to the DCS-1800.
He said to be able to serve more customers, the company would need to add some 105 BTSs in Jakarta to raise the total to 400 by the end of the year.
"But land acquisition has become increasingly difficult, so if it fails, we could always add capacity by upgrading existing BTSs to DCS-1800," Danny added.
Between January and March this year, cellular users in Indonesia increased by 485,000, which brings the total to 4.2 million users, Rudi said.
By the end of the year, cellular users are expected to reach 5.2 million, compared with 3.7 million in 2000, he said.
"Examining the first quarter new users, it looks as though this target could be achieved, but again it would depend largely on the economic situation," Rudi said.
For the second half of this year, cellular operators will have to concentrate on optimizing between network quality and subscriber capacity, he said.
Rudy explained that with the expected limitations on investment, operators had to choose whether to maintain the number of customers and increase the quality of the network, or to increase the number of subscribers at the expense of quality.
"Operators need to balance both needs carefully," he added. (tnt)