XL's prepares cell phone changes

XL's prepares cell phone changes

By Taufik

Up to November 1999, Indonesia has still not fully recovered from the economic crisis. Nonetheless, many are seeing a ray of light at the end of the tunnel. With sociopolitical advancements, this has encouraged optimism on Indonesia's economic future. This is why many commitments for mid-term to long-term investments are being made, either by local or foreign investors.

On the other hand, there are companies which are not only committing to invest but have invested, although not in a very large sense. This is what Indonesian cellular telecommunications companies are doing, since they have gone through a bumpy path.

After a drastic decrease in 1998, cellular telecommunications companies experienced a large rise in subscribers/users from mid- 1999. This was due to high demands for prepaid cards, approaching network capacity limits of Indonesian cellular providers.

In a normal situation, this would be very pleasing. With the market expanding even more rapidly than expected, companies then had to respond by expanding their networks. Instead, the rise of cell phone subscribers has created problems for cellular providers in Indonesia because it happened during the crisis.

This is because local companies do not yet control the telecommunications infrastructure. In order to expand networks, cellular providers must purchase from abroad. This is obviously difficult in the midst of a weak currency and unstable sociopolitical conditions. Meantime, telecom providers still have large debts in foreign currency. Thus, it is understandable that Indonesia's cellular providers opt not to respond immediately to the rise of subscribers in 1999.

With improving sociopolitical conditions and the risk of investing in Indonesia decreasing, a wait and see attitude is not suitable. Even though Indonesia's currency is not yet strong, a number of Indonesian companies have begun to invest. Although it is not yet significantly large, it is being done selectively. An example is the expansion of network capacity by Excelcomindo Pratama (XL). As the third GSM provider in Indonesia, it has not only chosen locations that are high in traffic, but also where the subscribers are willing to pay more. In other places, although high in traffic, GSM providers like XL choose to improve the managing of their network capacity.

Another option is to increase high quality subscribers of cell phones. This is quite acceptable since the rapid increase of Indonesia's cell phone users is actually triggered by the usage of prepaid GSM cards. The problem is, prepaid GSM users need more costly telecom infrastructure preparations than postpaid subscribers, yet most of the prepaid subscribers are light users. What complicates it more is that GSM providers are unable to take advantage of the rise of prepaid card demands, due to the selling system of these prepaid cards.

That is why cellular providers are halting sales of prepaid GSM cards. Meanwhile, they are trying to promote subscribers of postpaid cards by giving several incentives. Nevertheless, up until now, these efforts do not seem to have been effective; even though prepaid card starter kits have become expensive, due to the lack of supply, demand is still high.

Why is this happening? Because even though the rate per second of prepaid GSM cards is actually higher than postpaid cards, plus the continuing price increase of starter kits, the demand is still high, since there is already a strong notion that prepaid cards have high value. Furthermore, Indonesian cell phone users are mostly light user customers. The economic crisis has driven more people to become light users. Frankly, the increase in subscribers was not followed by an increase of customer quality.

This is not good news for cellular providers. The high influence of rapid technology development has effected the telecommunication business' short life cycle. That is why the telecom business needs a strong financial structure. The important thing is to maintain a good cash flow, which may be reached if cell phone users comprise more of heavy users.

It has to be acknowledged that although several incentives are given, it is difficult to drive cell phone subscribers to become heavy users. Especially when most people strongly believe that Indonesia's economical situation is still dim.

The betterment of Indonesia's economy is why optimism is emerging among cellular providers in Indonesia, not only investing to improve their network capacity, but also to promote postpaid GSM users and also increase heavy user customers.

Pushing for more heavy user customers, besides supporting the financial structure of the cell phone provider, can also be done by changing the way cell phones are used. As what has happened to fixed-line telephones, the usage pattern for cell phones will also shift in the future. If now most cell phones are used to receive calls and contact others, in the future they will be used for data communications or faxing. The steps toward this shift can already be seen. Among them is the availability of cell phones that can be utilized for Internet browsing or for e-mail. However, users of this kind of cell phone are still very limited.

In other words, if the number of heavy users does not improve soon, the transformation of cell phone usage will be slow. This will probably not affect cellular providers too much, since they can feel comfortable with their investment in expanding network capacity. But for subscribers and cell phone businesses this is definitely a loss. In addition, it seems, cellular providers like XL prefer to have the transformation of cell phone users to proceed more quickly. This can be seen from its steps to continue enlarging its network capacity and improving the number of heavy user customers.