Weaker rupiah could force halt to cellular expansion

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)