Towers of strength: Capital-intensive segment could be set to pay off in the coming years

Businesses supporting and on the periphery of Indonesia’s telecoms market have been active over the past year as the sector evolved and grew. Firms selling mobile phones or owning and operating base transceiver station (BTS) towers have taken on partners, made significant investments and formed new ventures. These businesses are now in a perfect position to capture growth in telecoms services.

Growth

According to consultancy Frost & Sullivan (F&S), towers is a good business to be in in Indonesia. While BTSs are capital intensive, and thus unattractive to some operators, they do not require as much investment in new technologies. Operators have an expensive period ahead as they have to transition their users from voice and SMS to data. That will take a considerable amount of money, and the capital expenditure will be a drag on growth. F&S forecasts that 45% of cellphone users will have 3G devices by 2015, compared with the current 23%. While F&S anticipates growth rates of 15% in the tower business, it is looking for revenue growth of 7.6% in 2015 for the operators’ main businesses. The big deals of previous years – Indosat, for example, sold 2500 towers to Tower Bersama in 2012 – were in short supply in 2013, but some are in the works. Indosat has said it will divest itself of the 5% stake in Bersama it gained in 2012, and still has 7500 towers it could sell if it needed to raise funds. Telekomunikasi Indonesia (Telkom) said in November 2013 that it was considering listing its Telkomsel subsidiary via an initial public offering or a reverse takeover, and that it was also contemplating the sale of its tower subsidiary, Dayamitra Telekomunikasi (Mitratel). It was looking for an arrangement with an existing tower operator, with a swap with Profesional Telekomunikasi Indonesia (Protelindo) or Tower Bersama among the options. The fundraising efforts would be undertaken to allow Telkom to focus on its main business. Telkom agrees with F&S’s assessment that the market has reached saturation point and growth will begin to stagnate in 2014, with an expansion rate of 6-7% expected. However, rather than stay in the faster-growing tower business, it sees this as a time when it should be investing in its core business to maintain growth there.

Buying In

Other companies are choosing to get involved or become more involved in the business. In December 2013 Nusantara Infrastructure bought 39.55% of Tara Cell Intrabuana for Rp598bn ($60m). Telecoms infrastructure firm Solusi Tunas Pratama targeted 1000 new towers in 2013 – most of them in Jakarta – raising its total to 3500. It has budgeted $150m for the expansion. The company said it was considering the acquisition of existing towers from other companies, but that supply was limited, meaning it would have to build new towers. From January to March 2013, the company bought 493 BTS towers and built 200. Despite the fact that the capital was crowded with cell towers, demand exists because of the rise of smartphones. Analysts said that the major operators often preferred to rent from companies such as Solusi Tunas Pratama.

Other investments are being made for development-related and broad economic reasons. In August 2013 the World Bank’s International Finance Corporation (IFC) announced an investment of $50m into Protelindo, the country’s largest independent tower operator. According to the IFC, towers are vital infrastructure for the country, and Protelindo, with 9000, is a key player in the sector.

Handsets

The mobile retail sector has also been busy. In March 2013 Trikomsel – the country’s largest mobile retailer – formed a joint venture with US wireless distributor Brightstar. The deal is expected to help Tricomsel, which trades under the name Oke Shop, improve distribution and develop buy-back and trade-in solutions. Brightstar will control 51% of the venture. The move highlighted the increasing sophistication of the distribution sector and suggests consolidation, led by advanced players, is inevitable.