Indonesia: A boost for internet use

Efforts are under way to boost Indonesia’s relatively low levels of internet penetration, with both the public and private sector taking steps to increase access in under-served segments of the market.

On May 13, the local press reported that Telekomunikasi Indonesia (Telkom), the state-owned telecoms company, had signed a deal with international technology firm Intel to help expand its number of broadband subscribers. The agreement will see computers (including notebooks and laptops) offered in discounted packages with low-cost internet services provided by Telkom. The arrangement allows both companies access to the other’s distribution networks.

The tie-up is part of Telkom’s plans to increase its subscriber base to 20m by the end of 2015 from 2.3m now; it hopes to more than double its number of clients to 5m by the end of this year. The arrangement acknowledges that Indonesian consumers, particularly in the demographic groups in which internet penetration still has most potential to grow, remain price-sensitive. By bringing down the cost of internet access, both Telkom and Intel hope to expand market share.

The value of Indonesia’s broadband market could double this year, reaching $1.16bn, up from $650m last year, according to Sudev Bangah, head of operations at the International Data Corporation (IDC) Indonesia. Bangah suggested that higher utilisation rates among existing users, rather than growth in penetration, is the primary factor behind this expansion, although broadband take-up continues to increase. Bangah says that the number of subscribers jumped 80% to 31m in 2012 and is set to rise by another 28% this year.

Despite this growth, Indonesia’s broadband penetration is fairly low. According to the Ministry of Communications and Informatics, fixed-line broadband penetration stood at just 3% last year, compared with 66% in neighbouring Malaysia, while mobile broadband penetration reached 10%. Overall Indonesia’s internet penetration rates are among the lowest rates in South-east Asia – at around 20% compared to 40% for Thailand and 90% in Singapore.

The Indonesian government has prioritised broadband expansion as part of its long-term economic master plan, recognising the importance of high-speed internet to economic and social development. One of the central elements of this strategy is the Palapa Ring, a fibre-optic broadband network that circles Indonesia’s main islands. The project, which is expected to cost around $1.5bn, would provide valuable backhaul capacity and help bring low-cost internet to villages.

As internet access continues to rise, firms are positioning themselves to serve this larger market. In May, US-based Equinix and PT Data Center Infrastructure Indonesia (PT DCI) announced the opening of a data centre in Citibung, West Java. The facility provides interconnection and data centre services to customers in Indonesia and overseas, allowing clients to access cloud computing, digital content and financial services through Equinix’s systems.

“The exponential growth of internet users and proliferation of smart mobile communication devices is driving strong demand for data centre services in Indonesia,” Marina Budiman, president-director of PT DCI, said in a statement.

With an internal market of more than 240m people and strong economic growth driving demand for online services, Indonesia has a great deal of appeal for international technology investors. Partnerships with the public sector as well as local private companies are providing increasing opportunities for foreign players to tap into this growth.