Internet and Multimedia Service Industry in Indonesia

MARKET INTELLIGENCE REPORT ON

November 2008

INTERNET SERVICE PROVIDER (ISP) INDUSTRY IN INDONESIA

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Introduction

Internet Service provider (ISP) entered a new era in the past three years after PT Telekomunikasi Indonesia Tbk (Telkom) offered broadband internet service in 2006 with a cheap tariff. Since then the number of subscribers of broadband internet has continued to scale up.

Previously the number of internet users in Indonesia grew sluggishly as access service through dial up using telephone network of Telkom was not up to expectation with low speed. Meanwhile, high speed internet access offered at that time was too expensive that only corporate subscribers could afford to use that service.

Internet users is growing in number with the launching of Hybrid Fiber Coaxial (HFC)-based internet broadband access offered by First Media with low tariff although the coverage was limited in Jakarta and a number of other large cities.

Until, now internet service provision business in Indonesia is still dominated by companies having telecommunications networks such as Telkom, Indosat and Excelcomindo. A company which is expected to come on line soon and become a powerful rival in the ISP business is PT Indonesia Comnets Plus ( Icon+). This company also has wide network through electrical cables that could be developed for internet connection(Broadband over power line). Meanwhile, most of other ISP companies serve only as internet service operators depending on network providers.

The number of internet service subscribers is expected to grow faster with the increase in the popularity of mobile internet access through cellular networks. Higher speed and decline in tariff make access through mobile internet potential competitors to be faced by other internet access providers.

Dial up internet access technology pushed aside by broadband internet

Internet technology is not new in the world of computer. Internet is only an expansion of computer network, which has long been used in various agencies or companies since the 1960s the technology is developed by the academic world as educational infrastructure in the United States. In 1983 the U.S. National Science Foundation (NSF) opened internet networks between universities called NSFNet.

Apart from NSFNet there is a number of other networks used by government and he business sector. In 1990, the networks were connected with TCP/IP technology to be known as internet. In Indonesia there are a number of products of internet connections such as dial up, ADSL (broadband), cable, dedicated, wireless, and mobile connections.

Dial up

Internet connections through dial up are made by connecting computer with certain number through cable fixed telephone networks of PT. Telkom.

This product has weaknesses in access speed maximum only 56 kilo bit per second (Kbps). It uses telephone communication line that could not be used for voice communication at the same time. Consumers also have to pay local telephone cost to the owner of the network that is PT. Telkom.

Dial up product is offered mainly by ISPs in Indonesia. The main layer is PT. Telkom with product TelkomNet Instant, which was launched in 2004. Telkomnet Instant service has superiority over its competitors in that it controls cable fixed telephone networks (fixed wire line) that the price it offered is very competitive at Rp 165 per minute for networks and internet connections.

Connections that could be accessed from the number of 080989999 do not need registration of subscribers first and without monthly payment. Meanwhile, other players like CBN put up tariff based on access time depending on the type selected.

The subscribers of other ISP also have to pay registration fee and monthly fee. They also have to pay for the local telephone pulse to Telkom as the owner of cable fixed telephone networks .

With the expansion of high speed internet connections technology internet access grows in speed resulting in a decline in the number of users of dial up connections.

Asymetric Digital Subscriber Line (ADSL)

Asymetric Digital Subscriber Line (ADSL) is an advancement of dial up technology and connections using copper cables that the limited capacity of dial up connection could be increased that it could transmit data with larger volume (broadband).

The technology of ADSL could not be expanded on all fixed wire lines of Telkom, as the service could only be accessed through copper fixed telephone networks of Telkom which has been modified into Multi Media Access (MMA).

Originally the broadband service was available only in the Greater Jakarta area but now it could be accessed from 27 large cities in Indonesia including Sumatra, Java, Bali, Kalimantan, and Sulawesi.

ADSL could receive data (downstream) with a speed of 512 Kbps and transmit data (upstream) with a speed of only 64 Kbps. In addition, ADSL also could separate internet channel from voice channel hat fixed telephone could be used when the channel is being used by internet. This come with the modem technology which work on the frequencies of 34 kHz to 1.104 kHz, while dial up uses modem, which works on the frequency of below 4 Khz that could channel data with a speed of 56 Kbps.

In Indonesia, ADSL connection is monopolized by Telkom. Other ISPs like CBN, Biznet, and Centrin also offer ADSL service but they only resell the product of Telkom. Telkom launched ADSL service with the brand of Speedy.

The difficulty in the development of ADSL in Indonesia is limited networks with quality that could be expanded into Multi Media Access, as most copper cable networks owned by Telkom have been too old.

Only 25% or 2 million lines of fixed telephone of PT Telkom could be used for ASDL service.

Internet broadband cable

High speed internet access could also be made through fiber optic and cable network of Hybrid Fiber Coaxial (HFC) or known as cable internet. In Indonesia internet service becomes one with cable television service.

A number of players offering this service include PT Indonusa Telemedia, which is subsidiaries of PT. Telkom (Telkom Vision) and Kabel Vision managed by PT Broadband Multimedia.

Telkom Vision which uses HFC network could send data with a speed of between 64 Kpbs to 512 Kbps. Meanwhile, Kabel Vision could transmit data with a speed of up to 2 Mbps.

Kabel Vision cooperates with 7 ISPs including MyNet, LinkNet, Indosat Net, CBN, UniNet, IndoNet, and Centrin. Subscribers of the 7 ISPs could use he channel of Kabel Vision.

Dedicated

Internet access is widely used by corporate subscribers that need high speed access with minimum snag. Therefore, most of the users of the dedicated service are corporate subscribers.

Dedicated connection service could be channeled through several types of media such as copper cables, microwave, fiber optic, and satellite. Almost all ISPs operate this service but only a few having own networks. Most ISPs serve only to provide connections while network is provided by the consumers.

Among the players like CBN and Biznet have networks in the form of copper network (wiring) and fiber optic in the Greater Jakarta area . CBN launched copper network in the high class areas of Sudirman -Thamrin and Pondok Indah in Jakarta.

Meanwhile, Biznet develops fiber optic network in the expensive district of Kuningan -Sudirman-Gatot Soebroto-Slipi- TB Simatupang-Pondok Indah which is known as Metro Ethernet. So far there are 108 buildings in this area connected with Metro Ethernet.

WiFi

The expansion of wireless technology has also covered internet connections. In the past several years the technology of wireless fidelity (WiFi) which makes possible internet access without cable through network card of Wi-Fi 802.11 a/b/g has been applied for internet connections .

Wireless access through the technology of wireless fidelity (WiFi) known as hot spot is generally found in strategic locations like big shopping malls, cafes, airports, and public facilities, hotel, and apartment in cities in Indonesia. Until now the number of hot spots provided by ISPs in Indonesia has reached hundreds.

Cafe Starbucks, which has outlets spread in tens of large cities in Indonesia, constitute one of growing hot spot locations. In Starbucks, there are a number of players providing hot spot access.

Hotspot locations have continued to grow mainly in large cities . Several players such as Telkom, Indosat, Biznet and CBN operate this service . One of the players Indosat has launched hot spot service in 19 cities in Sumatra, Java, Bali, Kalimantan, and Sulawesi.

Meanwhile, Biznet has launched hot spot service in 27 locations - 4 in hotel, restaurants and office buildings and 23 in Cafe Starbucks.

Mobile

The product of mobile access is conducted through cellular telephone network both by GSM through his technology of Global Packet Radio Service (GPRS) and Enhanced Data rate GSM Evolution (EDGE). In addition, the service of mobile internet is also available in cellular telephone with CDMA technology.

In providing access, ISP companies cooperate with the owners of the cellular network. One player Telkom provides connections through Telkom Flexi (CDMA). Several players cooperate with Fren (mobile 8) such as CBN and Radnet to launch similar products.

With the 3G technology , players like Telkomsel, Indosat M2 and XL could serve internet access through GSM-based cellular telephone through the technology of high-speed downlink packet access (HSDPA).

Internet connections service

Service of internet access in Indonesia was originally made through telephone network or dial up networks. For almost 10 years after the launching of commercial internet access, internet access in Indonesia is dominated by connections using copper cables for Dial Up based internet.

Only in the past three years high speed internet access or broadband internet began to gain popularity after PT Telkom offered internet access based on the technology of Asymetric Digital Subscriber Line (ADSL) named Speedy. Dial up- and ADSL based internet connections are dominated by PT Telkom as the owner of fixed wire lines.

Since 2007, broadband internet service began to have strong competitors with the growing number of subscribers using ISP service with modem cable or HFC (Hybrid Fiber Coaxial).

Service offered by the ISP is more attractive as it is combined with cable TV service and the tariff is competitive facing other ISPs that only sell internet service.

ISPs using HFC include Kabel Vision and PT Broadband Multimedia (now PT First Media Tbk.) And Telkom Vision from PT Indonusa Telemedia, which is a subsidiary of PT Telkom.

ISPs with fiber optic based connections are also growing expanding their networks to include individual or household users . Previously the users were only companies in high rise buildings . A number of ISPs which aggressively promote their service to individual n and household users include Biznet and CBN.

Network providers and Internet Service Providers

Based on license registered at the post and telecommunications directorate general, there are 298 ISPs and 44 network providers in 2007 . The number of licensed ISPs continued to increase from 2002 to 2007 , but there are many of them have not effectively been operational. Based on data at the APJII, only 169 of the 298 holders of the ISP licenses in 2007 were effectively operational.

ISP players

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