Telecommunications in Indonesia

Indonesia is an archipelago of more than 17,000 islands. It is situated between Asia and Australia and between the Pacific and Indian oceans. It spans a large area that extends more than 5,000 km from east to west and more than 1,700 km from north to south. The population is now more than 240 million, making Indonesia the fourth most populous country in the world.

Many of the islands are uninhabited and unnamed. Those islands that are inhabited are populated by a large number of separate tribes with diverse cultures and languages. The islands tend to be mountainous, densely forested and often volcanic.

Economically, the country was among the second wave of Asian tigers, with its economy growing rapidly from the mid-1980s to the mid-1990s. However, it was hit badly by the economic downturn that began in 1997, and is still suffering as a result. The economic turmoil highlighted a range of systemic weaknesses in the way that the country was being run and these have not yet been fully remedied.

Telephone services first became available in Indonesia in 1882, provided initially by privately owned companies. In 1906, the government assumed control of all postal and telecom services by taking over the activities of the private companies and providing the services directly.

Various changes took place over the years but essentially the government continued to control and run the industry. That situation lasted until 2002, when competition was introduced into the local market. It was introduced into the long distance and international markets the following year. Subsequently, competition was introduced into all segments of the industry.

Indonesia has long had an inferior telecom infrastructure. In the early 1990s, there were only one million lines serving nearly 200 million people. Most of those lines were installed in and around the capital, Jakarta. Other parts of the country were served only minimally.

When the government realised that its plans to develop the country could not be accomplished with such an inadequate telephone system, commercial organisations were invited to partner with the incumbent and invest in new networks. Virtually all these partnerships failed and have been unwound. A more transparent and competitive environment has been introduced.

As part of the move to liberalise and de-regulate the industry, the incumbent lost its monopoly over local services in August 2002. Competition has developed, particularly using Fixed Wireless Access (FWA) technology.

Indonesia’s long distance services are hampered by having to cope with thousands of heavily forested and volcanic islands. In recent years, the country has made some serious attempts to address its geographic challenges. A satellite programme was established some years ago and this is playing a substantial role in providing telecom services across the archipelago. Two long distance backbones have been built, mainly with fibre optic cable but with microwave links in places, while backup facilities are now being planned.

In 2000, the government decided to bring forward the date on which the incumbent international operator would lose its monopoly. That monopoly was eventually terminated in 2003. Now, other companies can enter the IDD service market, though the incumbent will continue to control much of that market for some time to come.

As in other countries, the first mobile licences issued in Indonesia were for analogue services. These began to be issued in the mid-1980s. Digital services were introduced in the mid 1990s, with the licences going in many cases to the existing analogue operators.

The mobile phone market is now growing very strongly. The number of subscribers is growing quickly and looks likely to continue doing so. There were about 3.7 million subscribers at the end of 2000, but the number has increased 30-fold since then. This is very rapid growth by any measure, albeit from a low base.

The main trigger of the growth was the introduction of pre-paid services. These have found particular favour in Indonesia, and most new subscribers now take the pre-paid option.

Wireless data services are still not widely used in the country. The one application that has been successful is the short messaging service (SMS). Introduced rather belatedly when compared with other countries, this service started slowly. It was not until 2001 that usage began to grow in any substantial way, and SMS usage is now substantial.

Given the stage of development of Indonesia’s telecom industry, it is not surprising that broadband services are still not widely used. The most promising broadband service currently on offer is the ADSL service provided by the main fixed line operator which began in 2004. Although it has now been available for some six years, it has attracted only a small number of subscribers so far. This is partly the result of it being available only in limited areas.

Economic conditions have precluded much other commercialisation of broadband services. Nevertheless, some such services are now appearing, using technologies such as wireless, Wi-Fi, WiMax and satellites.

Internet usage is still limited to a narrow stratum of the community, essentially students and professionals with relatively well paid jobs. Initially, usage was predominantly for entertainment, personal interest and academic research, but more recently the breadth of applications has widened.

E-commerce has not developed much in Indonesia so far. This applies to all forms of transaction. Also, e-government has not made much impact. A number of government Websites have been set up but their usage and usefulness are minimal. One of the difficulties faced by customers wishing to buy a product or service online has been the absence of any legislation that can be relied upon if problems occur. It is anticipated that the recent introduction of a licensing law will help to overcome inhibitions in using the Internet for commercial purposes.

Until 1998, paging was growing quickly, albeit from a small base. It is designated as a non-basic service, and could therefore be provided by multiple operators. Now, with the rapidly declining popularity of paging, the operators have folded their services in to other companies’ operations or have diversified into other areas.

Trunked Radio Services (TRS) were first introduced into Indonesia in 1993. They were initially seen to have particular value in providing services to the country’s large and dispersed rural population. However, the service did not develop as expected.

Indonesia had a deficient cable and satellite infrastructure for many years, with much of the country not being served by telecom services at all. The situation has changed for the better to some extent in recent years, but still the country overall is one of the most poorly served in the region.

Pay-TV services began in 1994 when one company launched an analogue service via satellite. It then migrated to a digital service in 1997. By that time the service had grown slowly but steadily and looked to have a bright future. A second pay-TV service began in 1999 using HFC cable, while, in early 2006, a new satellite service began, provided by a joint venture between a local company and a major Malaysian pay-TV operator.

Indonesia has numerous free-to-air (FTA) TV stations, including one state-owned station, 10 privately-owned national TV stations and more than fifty privately-owned stations that serve specific regions. Thus the competition that pay-TV stations face from the FTA sector is very strong. On the other hand, the penetration of pay-TV into the large number of TV households is only marginal so far, and thus the potential for pay-TV to exploit the market is substantial.