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INDONESIAN COMMERCIAL NEWSLETTER
MARKET INTELLIGENCE REPORT ON

CELLULAR  TELECOMMUNICATIONS INDUSTRY IN INDONESIA

June 2007

Current issue

Indonesia liberalized cellular telecommunications business in 1995. Since that  year the government allows private companies to operate in cellular telecommunications business in open competition. Cellular telecommunications operation business became more attractive after the introduction of the GSM (global system for mobile communication) technology replacing the first generations of cellular telecommunication technology  used in the country  such as NMT (Nordic Mobile Telephone)  and  AMPS (advance mobile phone system).

The business expands rapidly  in  Indonesia placing the country the fourth largest market for that service in Asia after South Korea, China  and Japan. The ranks are based on the number of subscribers from year to year.

According to the Indonesian Association of Cellular Telephone (ATSI), the number of cellular phone users in the country grew 49.1% annually in the 2002-2006 period. By the end of 2006, the number of cellular phones users in the country totaled 63.9 million.

GSM operators dominated 95% of the market  and pre-paid card system accounted for 94% of the payment system  with post paid card system making up only 6%.

Almost all operators recorded a fast increase in the number of subscribers. Market leader Telkomsel already had 35 million subscribers in 2006. Currently cellular phone coverage has reached rural and isolated areas. Telkomsel claims it has cover 95% of all district areas of the country and in 2008 Telkomsel targets to cover the entire sub-districts (kecamatans) of the country.

The number of users of cellular phones has grown fast as the market is still widely open and highy potential with the  low ratio of users to the population in the country. Teledensity in the country of 220 million people is around 38% much lower compared with the teledensity in other Asean countries.

Foreign investors know the potential and are keen to expand operation in the country. A number of operators from other Asian countries such as Singapore Telecommunication Ltd (SingTel),  Singapore Technology Telemedia (STT)  from  Singapore and Telekom Malaysia and Maxis Communication Bhd from  Malaysia  have established their position in the country by acquiring local cellular operators Telkomsel, Indosat and Excelcomindo Pratama. Indosat, formerly controlled by the state now 41.08% owned by foreign investor.

Almost all world telecommunication technology suppliers have made their presence in Indonesia and share the potential market. Telecommunication service industry is one of the most dynamic service industries requiring huge investment every year. Spending for the country's telecommunications networks is estimated to reach US$ 2.9 billion in 2007.

Major players

Currently  Indonesia  has 8  cellular phone operators  including five using GSM technology and 3 CDMA technology. Operators of GSM cellular phone include Telkomsel, Indosat  and  Excelcomindo (XL) holding the license with nation wide coverage. The country's three largest cellular phone operators use dual band in the frequency of 900 Mhz and 1800 Mhz that could serve  3G.
Indosat
The first operator using GSM technology  was PT. Satelit Indonesia  (Satelindo) formerly owned jointly by the Bimantara Group, Telkom and Indosat. Later  Indosat  and  Telkom exchanged shares they had in Satelindo  and  Telkomsel to prevent joint ownerships and domination by the two largest telecommunications and state companies. At that time Indosat was still owned by the state  Under the program Indosat handed over its stake in Telkommsel to Telkom and in exchange Telkom handed over to Indosat its stake in Satelindo.

In  2003, PT Satelindo  and  PT Indosat Multimedia Mobile (operator of IM3) a subsidiary of  Indosat, were merged into Indosat. Indosat maintains cellular phone products of Matrix and Mentari of Satelindo and IM3 of Indosat Multimedia Mobile. In addition to GSM cellular service, Indosat has CDMA fixed wireless service namely StarOne and international and long distance telephone call services.


In 2004,  Indosat  in cooperation  with  Starhub, a sister company of Indosat  in Singapore,  succeeded in launching  Black Berry features, a complete mobile solution covering wireles e-mail, global address lookup, wireless calendar synchronization,  and  mobile data, integrated and safe. The BlackBerry service needs GPRS (General Packet Radio Services) networks to enable  all features to run well. The superiority of the BlackBerry service  compared with other wireless services is that its has push mail technology, which enables subscribers to access  e-mail without first  dial up. Users of BlackBerry  als will continue to be linked with  GPRS which will make possible  streaming data in real time.

In 2005, Indosat teamed up with  Nokia to launch  Black Berry Connect service  that could be accessed  by subscribers without having to use special  handset produced by RIM (Research In Motion). Access could be made  with Nokia 9500  and  Nokia 9300 handsets.   

Telkomsel
PT. Cellular telecommunications (Telkomsel) is a subsidiary of state-owned telecommunication company PT Telkom. In the beginning it served as a pilot project for  mobile telecommunications project using the GSM digital technology  expanded by  its then parent companies PT Telkom and PT Indosat, which owned its by a 51% : 49%  share split.  The entry of foreign shareholder cause a change in the composition of its shareholders now Telkom holding 65% and Singapore Telecom Mobile (SingTel) holding the remaining 35%.

Telkomsel plans to issue bond valued at Rp 2 trillion to raise fund for capital expenditure in 2007. Its parent company PT Telkom has set aside Rp 14 trillion for capital expenditure of Telkomsel this year. Telkomsel needs business expansion to keep its 50% share  in cellular phone market.  In the middle of this year Telkomsel was set to increase the number of its subscribers to 39 million  from 35.6 million earlier this year. 

Currently, Telkomsel is more concerned with improving the quality of its networks. It will no longer be as  aggressive in expanding networks as it was in the past years  as it already has the connection capacity of 49 million.

Telkomsel is already a market leader  in cellular business in Indonesia controlling more than 50% of the market. Its coverage is 95% of the Indonesian population. It has established cooperation with 260 operators of international roaming  in 15 countries including Singapore, Malaysia, the Philippines, Taiwan, Australia, Hong Kong, Germany, Belgium, France, Saudi Arabia, Italy, Greece, the Netherlands, Japan and Sweden. 

Excelcomindo
PT. Excelcomindo Pratama (XL)  came on line in 1989  and became a public company by launching initial public offering (IPO) selling 20% of its shares to the public in 2005. It is the only cellular telecommunications  operator building  and having optic fiber networks consisting of backbone network along its right and left side of the railway  from Bandung in West Java and Surabaya in East Java  covering a number of other cities in Java.

Hutchinson
PT. Hutchison CP Telecommunications Indonesia (HCPT )  was originally named PT. Cyber Access Communications which already held  the license to operate   GSM cellular telecommunications in 2004. Cyber Access was 60% owned by   Hutchison Telecommunications International Ltd (HTIL) of  Hong Kong  and 40% by  Charoen Popkhand Group  from Thailand.

Singapore and  Malaysian investors dominate market
Currently telecommunications business in Indonesia is dominated by foreign investors mainly leading  telecommunications companies from  Singapore  and  Malaysia. They acquired shares of a number of major telecommunications in the country such as Indosat, Telkomsel  and  XL.  ............................



MONTHLY REPORT

INDONESIAN  COMMERCIAL NEWSLETTER
       
June 2007

       

List of Contents

FOCUS:   NEW INVESTMENT POLICY PACKAGE CLEARER BUT IMPLEMENTATION YET TO BE SEEN        1

INDUSTRY PROFILE:

     FIXED LINE TELECOMMUNICATION INDUSTRY IN INDONESIA        5
  • Current issue        5
  • Characteristics of  telecommunication industry        6
  • Telecommunication services of fixed telephone        8
  • Capacity of telecommunication service industry        9
  • Value of the sales of fixed line services        11
  • Operators and owners        11
  • Fixed wire line service industry        12
  • Operation of telecommunication services through joint operation (KSO) scheme        13
  • Fixed wireless telephone service industry        14
  • Telecommunications networks of fixed wireless telephone        14
  • Number of fixed wireless telephone subscribers        15
  • Telecommunication regulations        16
  • Universal service obligation (USO)        17
  • Marketing aspect        18
  • Income from fixed wireless telephone service increasing        23
  • Average revenue per user (ARPU)        24
  • Expansion and new investment        24
  • Migration of frequency of fixed wireless telephone to be effective as from Dec. 31, 2007        26
  • Prospects and conclusion        26

     CELLULAR TELECOMMUNICATIONS INDUSTRY IN INDONESIA        28
  • Current issue        28
  • Cellular telecommunications system        29
  • Business players        31
  • Foreign domination        38
  • New investment        40
  • Number of subscribers        41
  • Technology and infrastructure        43
  • Third generation (3G)        45
  • Tariff war        47
  • Income of cellular telecommunications service industry        49
  • New features        51
  • Level of competition        52
  • Marketing strategy        53
  • Government policy        53
  • Business risks and hindrance        54
  • Conclusion and prospects        54

COMPANY PROFILE: BHAKTI INVESTAMA GROUP        55

INDUSTRY:

     INTERNET SERVICE PROVIDER (ISP) INDUSTRY        59
  • Current issue        59
  • Number of ISP companies down        64
  • Main players        64
  • Number of subscribers        68
  • Income of major players tend to increase        69
  • Competition        70

     GOVERNMENT INVOLVEMENT NEEDED IN TELECOMMUNICATION BUSINESSIN INDONESIA        71

     VERY SMALL APERTURE TRANSPONDER (VSAT)        76
  • Number of players growing        76
  • Major players        77
  • Banking sector still large user        79

CORPORATE NEWS IN BRIEF:
  • Essar to acquire stake in Krakatau Steel        80
  • Mitsubishi to expand the capacity of Muara Karang Power Plant        80
  • Royal Doulton to invest US$ 100 million in gas sector        80
  • Jangsu to build tankers for Pertamina        80

ECONOMIC NEWS IN BRIEF:
  • Corruption detected in wild bank accounts        81
  • Government to crack down on illegal mining        81
  • Government to go ahead with high speed train project        81
  • Batam finally granted FTZ Status        81
  • Bank Indonesia allows tax officers to take a peep at tax payers' data        82
  • Indonesia-Australia study FTA agreement        82
  • Abolition of CPO export tax called for after DMO comes into effect        82
  • Regulation banning license for new airlines reversed        82

APPENDICES:
  • Directory of telecommunication company in Indonesia        83

ECONOMIC INDICATOR:
  • Consumer Price Index in Indonesia        85
  • Oil Prices        86
  • Foreign Exchange and Gold Price in Indonesia        87
  • The Indonesian Economic Trends        88


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