Telecommunication Industry in Indonesia 2011

INDONESIAN COMMERCIAL NEWSLETTER

March 2011

CELLULAR TELECOMMUNICATIONS IN INDONESIA 2011

Current issue

Cellular phone telecommunications have grown fast in Indonesia over the past 15 years marked by the number of subscribers. The number of subscribers has increased from year to year. Indonesia is the fourth largest in number of cellular phone subscribers in Asia after South Korea, China and Japan.

Currently, Indonesia has 7 operators of cellular phone using the technology of GSM (Global System for Mobile) and 4 operators with technology of CDMA (Code Division Multiple Access). Based on data at the Pots and Telecommunications Directorate General, in the period of 2006-2010, the number of cellular phone users in Indonesia grew 31% per year. By the end of 2010, the number of cellular subscribers reached 211 million, with GSM operators dominating 95% of the cellular market CDMA having a 5% market share. Pre-payment dominate 94% of payment system with post payment accounting for only 6%.

Telkomsel, with 94 million subscribers, had the largest share or 44.5% of cellular market in 2010. Cell phone market has reached rural areas even isolated areas in the country . Telkomsel service has covered all kecamatan district areas in Indonesia since 2008.

The number of cellular phone users in Indonesia has increased rapidly Teledensity has reached 91.7% in the world fourth most populous country of 230 million people, but still lower than Singapore's 100%.

The rapid growth of the business and the market potential that is still open for penetration attract more investors to the country. A number of foreign operators in Asia such as Singapore Telecommunication Ltd (SingTel), Axiata Group Berhad (formerly Telekom Malaysia) and Maxis Communication Bhd from Malaysia already established foothold in the country through acquisition of the shares of local operators including Telkomsel and XL Axiata (formerly Excelcomindo). Indosat, which was formerly a state telecommunications company, has also fallen into the hand of foreign investor. Qatar Telecom Group acquired 41% stake in Indosat from STT (Singapore Telecommunication Technologies), and 15% through tender offer. The government holds 15%.

In early 2011, the government approved additional frequency allocation of 5 MHz for 2 operators of third generation (3G) telecommunications technology PT Axis Telekom Indonesia (formerly PT Natrindo Telepon Selular) and PT Hutchison CP Telecommunication Indonesia. Meanwhile, almost all suppliers of telecommunications technology in the world have their units in Indonesia to get a share of the huge and growing market. Cellular telecommunication is one of the most dynamic service industries that require large additional investment every year. In 2011, spending on telecommunications networks is estimated to reach US$ 4.7 billion.

In facing the tight competition, some operators seek merger such as PT Smart Telecom by acquiring PT Mobile 8. The merger of the two companies gave birth to new larger company PT Smartfren Telecom early 2011. Currently all cellular operators rely more on data service and subscribers as the main sources of income.

Cellular telecommunications system

Currently Indonesia has two systems of cellular telecommunications Global System for Mobile communication (GSM) and Code Division Multiple Access (CDMA).

a. GSM

In 1995 the government granted the operating licenses nationally for three GSM 900 operators without going through tender - Satelindo (later merged into Indosat), Telkomsel and XL Axiata (formerly PT. Excelcomindo Pratama). Currently there are 5 GSM cellular operators in Indonesia.

In order to increase the GSM canal capacity, there is now frequency of 1800 MHz (1.8GHz) or known as Digital Cellular System (DCS) 1800, a Personal Communication Network - PCN from Europe.

With the growing demand for mobile telecommunication services, higher frequency will be needed to serve the growing number of subscribers that is one with a frequency of 1900 and known as PCS (Personal Communication System) 1900.

PCS 1900 has smaller coverage area but has larger capacity to serve larger number of subscribers compared with DCS 1800 and GSM 900. One new GSM operator using the frequency of 1900 MHz. Is PT HutchisonCP Telecommunications Indonesia using the 3 G technology 3G in addition to GSM.

b. CDMA

CDMA also constitutes a system of digital technology used in fixed as well as mobile telephones. The technology is adopted widely in North America.

The CDMA technology especially CDMA 20001x is known to be superior in that it produces much clearer voice and in the speed of data transfer. The superiority of GSM lies in roaming and broad usage of the technology.

The superiority of CDMA technology particularly CDMA 2000 1X lies in the quality of voice which is much clearer as the CDMA technology could remove noise to the very minimum level. The clearness of the voice is considered important in the provision of telephone service. CDMA fixed wireless telephone is equal to the wire line in the quality of voice.

CDMA 2000-1X technology has been used in many countries like South Korea, China and the United States. In Indonesia, the operators of CDMA 20001x with cellular license are PT. Smartfren Telecom (a merger between PT. Smart Telecom and PT. Mobile-8 Telecom) and PT. Sampoerna Telecommunications Indonesia. Other cellular operators hold the license as fixed-wireless operator such as PT. Telkom, PT. Indosat and PT. Bakrie Telecom.

Business players

Currently Indonesia has 10 cellular operators including 5. GSM operators and 5 CDMA operators. There are three large GSM-based cellular operators - Telkomsel, Indosat and XL Axiata which hold the license to operate with nation-wide coverage. The three companies operate with dual band - on the frequency of 900 Mhz and frequency of 1800 Mhz hat could serve 3G technology

Indosat

The first GSM operator in the country was PT. Satelit Indonesia (Satelindo), which was originally jointly owned by the Bimantara Group, Telkom and Indosat. Later Indosat and Telkom agreed on exchange of their respective shares in two subsidiaries Satelindo and Telkomsel in order to end cross ownership and to create a healthy competition.

In 2003 PT Satelindo and PT Indosat Multimedia Mobile (IM3 operator, a subsidiary of Indosat, were merged into Indosat for efficiency in cost. Indosat, however, maintained the cellular products of each the defunct subsidiaries Matrix card, Mentari card of Satelindo and IM3 card of Indosat Multimedia Mobile. Apart from providing GSM cellular service, Indosat has CDMA fixed wireless service called StarOne and offers international direct dial (SLI) and long distance direct call (SLJJ) and multi media service.

In 2004, Indosat in cooperation with Starhub, a sister company of Indosat in Singapore, succeeded in launching the feature of Black Berry which is a complete mobile Solution including wireless e-mail, global address lookup, wireless calendar synchronization, and mobile data, integrated and safe. The Black Berry service needs GPRS (General Packet Radio Services) networks to allow all the features to function properly. The superiority of the BlackBerry service over other wireless services is that it has push mail technology which will enable the subscribers to access e-mail without dial up first. The user of BlackBerry also will always be connected with GPRS that will allow real time data streaming.

In 2005, Indosat teamed up with Nokia to launch Black Berry Connect service through which subscribers could access the service without having to use special handset from RIM (Research In Motion). Access could be made with Nokia 9500 and Nokia 9300 handsets.

In 2009, Indosat focused more on upgrading technology rather than expanding networks with more units of base transceiver station (BTS). In 2010, Indosat promoted its 3G service by expanding service network and broadband capacity. It also started modernization of cellular networks through the application of the technology of single RAN SDR (Single RAN Radio) in the BTS broadcasting network, and prepared migration to digital Internet Protocol network. Indosat succeeded in attracting more subscribers, increasing its market shares and improving cost efficiency with the expansion program

In 2011, Indosat plans to take over control of retail broadband from subsidiary PT. Indosat Mega Media (IM2), which operates as an Internet Service Provider.

Telkomsel

PT. Telecommunications Seluler (Telkomsel) is a subsidiary of the state telecommunications company PT Telkom. In the beginning Telkomsel was designed to function as a pilot project for GSM-based mobile telecommunications project of Telkom and Indosat, respectively with stakes of 51% and 49%. The entry of foreign partner changed the share composition in Telkomsel. Currently, Telkomsel is 65% owned by Telkom (65%) and 35% by Singapore Telecom Mobile (SingTel, 35%).

Around 50% of BTS units of Telkom are used by Telkomsel, and on the other hand around 8% of BTS units of Telkomsel are used by Telkom's Flexi service.

Telkomsel issued a bond valued at Rp 2 trillion to finance its capital expenditure in 2007. Meanwhile, PT Telkom set a budget of Rp 14 trillion for use as capital expenditures of its cellular subsidiary. The bond fund was used for business expansion to maintain its market share of at least 50%.

Telkomsel has been the market leader in cellular business in Indonesia with a market share of 50%. It has coverage of 95% of the country . It has established cooperation with 260 operators in international roaming in 15 countries Singapore, Malaysia, the Philippines, Taiwan, Australia, Hong Kong, Germany, Belgium, France, Saudi Arabia, Italy, Greece, the Netherlands, Japan, and Sweden.

XL Axiata

Originally it was named PT. Excelcomindo Pratama (XL) and started operation in 1989. In 2005 it launched Initial Public Offering (IPO) selling 20% of its shares to the public. XL is the only cellular telecommunications company in the country using optic fiber network consisting of backbone along the right and left side of the railway track from Bandung in West Java to Surabaya in East Java to cover other big cities in Java.

In order to expand capacity and to cope with traffic jams in crowded cities in Central Java, the company has built four networks connected with the backbone. The main optic fiber in Java consists of 72,144 kbps and 216 core fiber which use synchronous digital hierarchy (SDH) to make connections with each point along the backbone and ring cables.

In September 2003 , around 4,400 kilometer cable of optic network was built and in 2010 was 13,000 kilometer cable. In August 2007, network of marine cable extending between Batam and Johor in Malaysia was operation. The project called Batam Rengit Cable System (BRCS) would provide connection between XL networks in Indonesia and that of Telekom Malaysia (TM). TM would provide access to the global network for XL. The submarine optic cable network of Batam-Rengit is around 63 km long with a capacity of 48 cores. Each pair of cables (@ 2 cores) has an initial capacity of 10 GHz. With the latest technology of DWDM, a pair of cables could be upgraded to Terra Bit unit.

In December 2009, the name of the company was changed with PT XL Axiata Tbk., to follow the change in the name of its holding in Malaysia. Currently XL Axiata is 66.7% owned by Axiata Investment Indonesia Sdn Bhd (formerly Indocel Holding Sdn Bhd), 13.3% by Etisalat and 20% by investing public.. Axiata Investment is a subsidiary of Telekom Malaysia (TM) Berhad Group, which in 2009 changed its name with Axiata.

XL Axiata is a subsidiary of the Axiata Group Berhad , which has 8 operators in Asia Aktel (Banglades), Hello (Cambodia), Idea (India), MTCE (Iran), Celcom (Malaysia), Multinet (Pakistan), M1 (Singapore), and Dialog (Sri Lanka).

AXIS Telekom Indonesia

The company was established with the name of Lippo Telecom as a subsidiary of Lippo in cooperation with Hutchison. It started operation in 2002 and it succeeded only in attracting a small number of subscribers. Later its name was changed with PT. Natrindo Cellular phone (NTS) which acquired the licenses of 6 regional operators that it could operates as a national operator. In 1998 with a capital of US$ 60 million, NTS won a tender to become a GSM operator on the frequency of 1800 Mhz with regional license in East Java.

The number of NTS' subscribers even declined largely because of the small coverage. Now it has only around 10,000 subscribers and reported a loss of S$20 million in 2004. Toward the end of 2004. NTS teamed up with the Kodel group and secured the national operational license. NTS also grew to become a dial band operator after securing the TDD frequency TDD, allowing it to serve G3 cellular subscribers.

In 2006, NTS cooperated with Maxis ommunication, a leading telecommunications company from Malaysia, as a strategic partner which acquired 51% stake in NTS at a price of US$ 100 million . Maxis is committed to develop NTS to operate in a number of cities in Java starting July 2006.

In mid 2011, the name of the company was changed with PT AXIS Telekom Indonesia. Currently its shareholders include Saudi Telecom Company holding 80.1% stake, Maxis Communication Berhad from Malaysia as a 14.9% shareholder and PT. Harmersha Investindo a 5% owner.

In 2011, the government approved the first addition of 5 MHz frequency canals based on 3G technology for Axis. The same cost of Rp160 billion per year is also charged for the additional canals of 5 MHz uplink and downlink on the frequency of 1900 MHz earlier granted to three other 3G operators - PT. Telkomsel, PT. Indosat and PT. XL Axiata.

Hutchison

PT. Hutchison CP Telecommunications Indonesia (HCPT) was originally named PT. Cyber Access Communications which held the license as GSM cellular operator in 2004. Cyber Access was taken over by Hutchison Telecommunications International Ltd (HTIL) from Hong Kong as a 60% shareholder and Charoen Popkhand Group of Thailand a 40% owner. HTIL is a 3G service provider in Hong Kong and Israel. Charoen Pokphand, a multinational company which has operated in Indonesia since 1971.

HTIL and Charoen Phokphand spent US$1.4 billion on development of GSM 3 (Three) service in Indonesia. The name of the company was changed with PT. Hutchison CP Telecommunications Indonesia (HCPT). HCPT was the newest cellular operator in the country holding the license for 2G/1800 Mhz and 3G/WCDMA coming on line in March, 2007.

The name of Three is also used by Hutchison for its products in a number of countries in Asia and Europe including Hong Kong, Australia, Britain, Italy, Ireland, Austria, Sweden and Denmark.

HCPT is present in 67 cities in Java and Bali in June 2007 and August 2007. Its service covers Sumatra. Toward the end of 2008, "Three" was distributed by a national distributor in Kalimantan and Sulawesi and six regional distributors for the Jabodetabek area, Central Java, West Java, East Java and Bali. In 2010, HCPT expanded its network to Central Kalimantan as the 23rd province to be covered by the three services.

In 2011, HCPT was granted an allocation of additional 5 MHz of 3G-based frequency canals. This was the first addition of 3G-based frequency for the company. Meanwhile, two other operators already received such addition Telkomsel in 2009 and Indosat and XL Axiata in 2010.

Smartfren Telecom

PT. Smartfren Telecom was established through merger between PT. Smart Telecom of the Sinarmas Group and PT Mobile-8 Telecom early 2011.

PT. Mobile-8 was established in 2002 by the Bimantara Group. In 2005, it was taken over by Bhakti Investama Group of Harry Tanusoedibyo. In March 2007, Mobile-8 merged its three subsidiaries - PT Komunikasi Selular Indonesia (Komselindo), PT Metro Selular Nusantara (Metrosel) and PT Telekomindo Selular Raya (Telesera) into one with itself in a bid to improve efficiency .

The three subsidiaries were operators of AMPS-based cellular telecommunications service in different areas including Nanggroe Aceh Darussalam, Java, Bali, Sumatra, Sulawesi, Kalimantan and other eastern regions of Indonesia. After acquiring the three operators, Mobile-8 gradually changed the technology of their cellular networks from AMPS to CDMA digital, to allow them to expand coverage to include all Indonesian regions.

PT. Smart Telecom (formerly PT Indoprima Microselindo) was a merger between PT. Primasel and PT. Wireless Indonesia in 2006. This company held the license for CDMA technology2000 1X EV-DO-based service. It started operation in June 2007 using the frequency of 1900 MHz which is designed for 3G telecommunications cellular service of GSM operators.

Wireless Indonesia holds the license for data communications (not cellular) on the 3G frequency 3G since 2001. Currently WIN has to move from the frequency of 1900 to Time Division Duplex (TDD) in 1.9 Gigahertz. According to the Indonesian Telecommunications Regulator (BRTI) although Primasel is not on the 3G core band but in the satellite, it has to move because the downlink of Primasel still is overlapping with 3G.

PT Smart Telecom operates the 4th generation communication technology, Long Term Evolution (LTE), in Surabaya and Malang toward the end of 2010. This technology is given mainly for corporate subscribers requiring high speed internet access. LTE network helps data subscribers which want to use speed higher than EVDO Rev B 9.3 mbps developed earlier. Different from the Wimax technology, which will require construction of new infrastructure, the LTE technology could utilize existing network components.

Sampoerna Telecommunications

PT. Sampoerna Telecommunications Indonesia (STI) was established in 2005 by the Sampoerna Group which is owned by Putra Sampoerna, the second richest person in Indonesia according to the Forbes Magazine. Through Miel Investment Corporation, which is wholly owned by Putera Sampoerna and Trans Asia Telecom Ltd., the Sampoerna family is aggressive in expanding business to a number of other countries such as Sri Lanka in which it uses the brand of Lanka Bell. Miel Investment Corp. has a 72% stake up from 67% previously in Transmarco Ltd., a company with core business in telecommunications, retail and property. It is listed on the Singapore Stock Exchange.

In early 2006 Sampoerna through its subsidiary Twinwood Venture Ltd acquired 58% of PT. Mandara Seluler Indonesia at a price of US$ 38 million. Mandara, which operates in Lampung, earlier took over PT. Mobisel, a mobile cellular operator with the technology of Nordic Mobile Telephone (NMT), which is already outdated.

STI which has the license to operate nationally with a low frequency already covers Kalimantan, Sulawesi, Maluku and Papua in 2007. In order to expand operations, STI launched card public phone for Lampung and East Java.

Foreign domination

Singaporean and Malaysian investors dominate the market

The telecommunications business in Indonesia is dominated by foreign investors mainly by leading telecommunications companies from Singapore and Malaysia. He foreign investors acquired a number of local telecommunications companies such as Indosat, Telkomsel and XL.

Temasek Holdings from Singapore acquired a 35% stake in Telkomsel through Sing Tel and 41.08% stake in Indosat through Singapore Technology Telemedia (STT) . STT paid Rp5.62 trillion for the stake. The stake in Indosat was later sold to Qatar Telecom to comply with the government regulation banning foreign investors to have stake in two or more telecommunications companies.

Sing Tel is a leading telecommunications company in Singapore currently having 124 million subscribers including 35 million subscribers of Telkomsel . Sing Tel also has stake in telecommunications companies in other countries such as Bharti in India, Optus in Australia, Advanced Info Service (AIS) in Thailand, Globe Telecom in the Philippines and Bangladesh Telecom Limited (PBTL) in Bangladesh.....

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