Indonesia's mobile segment strives to stay ahead

Like most other telecoms markets across South-east Asia, Indonesia’s mobile segment is expected to rely increasingly on revenues from data services in the coming years. This shift to mobile data has taken place only recently in Indonesia, driven in large part by the introduction of high-speed 4G LTE services by the major mobile operators. As of mid-2017 the transition to a data-centric mobile telecoms market was under way.

WAY TO GO: While most operators have successfully launched 4G LTE networks in Jakarta and other urban centres, much of Indonesia has yet to be covered by high-speed mobile data services. As of late 2016 the nation’s largest mobile operator, Telekomunikasi Seluler (Telkomsel), provided 4G access in around 100 cities across Java, Sumatra, Kalimantan, Sulawesi, Bali, Nusa Tenggara and Papua. Many rural areas across these areas remained uncovered, however. Less than half of Telkomsel’s 160m subscribers paid for smartphone plans by the end of 2016, which suggests that high-speed data is not ubiquitous.

These figures show that Indonesia lags slightly behind regional 4G-rollout efforts. Indeed, according to data from GSMA Intelligence, an international telecoms trade group, as of the end of 2016 4G mobile connections accounted for around 29% of all mobile access across Asia-Pacific, while 3G made up 24% and 2G made up the bulk, at 47%. By the end of 2018 this is expected to have shifted to 41% 4G LTE connections, 23% 3G and 36% 2G. In Indonesia 4G comprised just 12% of all connections in 2016. As this figure continues to grow for the foreseeable future, ensuring that the nation’s mobile operators will be able to keep up with demand is key challenge moving forward. Maintaining profitability in the face of competitive pricing is also an ongoing challenge in the nation’s mobile telecoms segment. “There was a point where Indonesia had the lowest data yields in the region, which was ridiculous,” Alexander Rusli, former CEO of Indosat Ooredoo, a major telecoms operator, told local media in April 2017. “As an operator, we need to be very good at delivering data cheaply to the customer – there’s no way around that.”

HISTORY: Indonesia has been a market leader in terms of the installation of mobile telecoms technology for more than a decade. The country was one of the first in the region to see the rollout of 3G broadband data, in 2006. Since then the population has become highly technology literate. Smartphone ownership – enabled by the availability of relatively low-cost handsets – has rapidly increased in recent years. As of January 2017 the mobile connection rate, measured as the number of mobile connections as a percentage of the total population, reached 142%, according to We Are Social, a UK-based digital media research firm. Central to this expansion has been the rollout of 4G data services by the nation’s largest mobile operators from 2015 onwards. As of the end of 2016 all four of Indonesia’s leading mobile telecoms operators – which together cover 90% of the market – offered 4G services across a significant part of the country. Telkomsel, the largest operator by market share, reported 173.9m subscribers at the end of 2016, up nearly 14% from the previous year. The company has invested heavily in mobile data services. Over the course of the year Telkomsel spent Rp29.2trn ($2.2bn) in capital expenditure, primarily aimed at improving access to the network by installing backbone infrastructure and new base stations. Indeed, at the end of 2016 the firm released data showing that it had added 25,744 new base transceiver stations to its existing network, more than 92% of which were 3G and/or 4G-enabled, according to data reported by TeleGeography, a US-based telecoms analytics firm.

Telkomsel has focused in particular on rolling out 4G services in popular tourist areas. In February 2017 the company announced the introduction of 4G LTE in Mandalika in Central Lombok, which has become a key area of the state’s focus for tourism development. Future plans include rolling out 4G access across an additional 11 nascent tourist destinations, including Borobudur, the Seribu Islands and Wakatobi. Additionally, Telkomsel added a further 24,700 km of fibre-optic cables, including both terrestrial and submarine lines, to its network in and around Indonesia in 2016, bringing the firm’s fibre-optic cabling to 106,600 km in total.

OTHER MAJOR PLAYERS: Similar rates of growth have played out across Indonesia’s mobile telecoms sector, as local operators have competed to install new mobile data base stations and access points across the country. Indosat Ooredoo, the nation’s second-largest mobile operator by total subscribers, was in the midst of a base station roll-out campaign in early 2017.

By the end of the first quarter of the year the firm reported 58,175 base stations operating in total, of which 24,219 were 2G-enabled, 28,510 were 3G-enabled and 5446 were 4G-enabled. As of the end of March 2017 some 56% of Indosat Ooredoo’s total user base were mobile data subscribers, according to the company. The firm’s data subscribers used 1.9 GB of data per month on average in the first quarter of 2017.

XL Axiata and Hutchison 3, Indonesia’s other two major mobile telecoms operators, have also made moves to expand their 4G offerings recently. The former, which had some 46.5m subscribers at the end of 2016, announced in June 2017 that its 4G network covered 245 cities across Indonesia, and was being used by around 15m subscribers in total.

Like the other mobile operators, XL Axiata was in the midst of a large-scale rollout of additional 4G base stations at the time of publication. The firm aims to reach 330 cities with a total network of more than 17,000 4G LTE base stations by the end of 2017.

Hutchison 3, meanwhile, reported subscriber growth in Indonesia of 24% in the first six months of 2016, on the back of ongoing investment by the operator in both mobile data services and advertising. In late 2016 the company announced that it planned to continue to invest heavily in network enhancement measures and coverage expansion in Indonesia throughout 2017.

RISING COMPETITION: In addition to the big four players, Indonesia is home to a growing number of smaller operators. In early 2016 Sampoerna Telekomunikasi Indonesia, an operator with CDMA providing service under the brand name Ceria in a limited number of urban markets, announced that it would rebrand as Net1 Indonesia. The rebranding effort comes alongside a plan to install a nationwide 4G LTE network, which Net1 secured permission for from the government in February 2017. “We have started to sell [SIM cards]; we have it in some provinces like South Sulawesi, Ambon and Banten,” Larry Ridwan, Net1’s CEO, told local media in June 2017. “But we will not launch the full service until the process of migrating CDMA users is complete, and that is not likely before the end of this year.”

Smartfren Telecom, another Indonesian CDMA operator, is also currently in the midst of a migration to 4G LTE operations. The firm, which had 11.1m subscribers at the end of 2016, remained primarily a CDMA-based operator during this period, though with 5.4m 4G subscribers the two technologies are reaching parity. Smartfren plans to boost the number of 4G subscribers to around 10m by the end of 2017. Meanwhile, Interux, which operates under the Bolt! brand, announced that it had signed up 3m subscribers to its 4G LTE network as of June 2017. The firm, which launched as a start-up in 2014, operated 3600 base stations in Indonesia in 2016, and planned to add 450 by the end of 2017.

SECONDARY BENEFICIARIES: In addition to consumers and the mobile operators themselves, the nation’s tower operators have been the main beneficiaries of the growth in mobile data subscriptions in recent years. At the end of 2016 Tower Bersama Infrastructure (TBI), Indonesia’s largest tower operator, announced that it expected its revenues to jump by 7-10% per year for the foreseeable future, on the back of aggressive investment in new base station rollout by Telkomsel, TBI’s single-largest client. The next two largest tower operators, meanwhile, face slightly more mixed outlooks. Profesional Telekomunikasi Indonesia, the second-largest operator, which also counts Telkomsel as a major client, foresaw measured expansion for 2017-18, while Solusi Tunas Pratama, the third-largest operator, with just under 7000 towers at the end of 2016, was expected to see slower growth. This can be attributed in large part to STP’s largest tenant, XL Axiata, reporting slower mobile data network expansion than Telkomsel.

LOOKING AHEAD: Even as the mobile segment seeks to expand 4G services to new areas and new subscribers, a number of the largest players are already looking beyond 4G to newer, faster technologies.

In December 2016 Telkomsel announced that its network could support 4.5G services – two- to four-times faster than 4G – in nine Indonesian cities, including Jakarta, Bandung, Matarak and Ambon. Indosat Ooredoo followed suit a month later, announcing in January 2017 that it planned to launch 4.5G service before the end of the year. Additionally, in May 2017 Telkomsel held a live demonstration of 5G mobile data technology in Jakarta in conjunction with the global Chinese telecoms provider and equipment manufacturer Huawei.