Indonesia Telecommunications Report Q1 2013

BMI View: Indonesia’s telecoms market presents good growth opportunities due to its large and youthfulpopulation and extremely low broadband penetration rate. Although incumbent operator PT Telkomdominates the fixed-line market and has a strong presence in the mobile sector, fixed-wireless servicesare becoming more prevalent as operators roll out services to metropolitan and underserved areas. Thehealthy competition in the mobile/fixed-wireless market brings cheap services to consumers, but decliningARPU and usage levels for operators.

Key Data

The mobile market picked up on a quarterly basis in Q212, although the y-o-y growth was theslowest ever recorded. We forecast mobile penetration will hit 173.5%, with nearly 444.8mnmobile subscribers at the end of 2017 .

Mobile growth in Q212 was led by Telkomsel which signed up over 7.3mn net new customers.

ARPU and MOU levels remain on a downward trajectory with an extremely high proportion ofprepaid customers unlikely to change any time soon.

We have revised our 2011 estimate for Indonesia’s fixed broadband market but we forecast thatgrowth will remain muted as customers opt instead for mobile broadband services. We forecastthat fixed broadband penetration will rise to only 1.4% by 2017.

We continue to expect the fixed-line market will post modest growth in 2012, reaching 45mnsubscribers and penetration of 18.4% by year-end. However, we predict growth rates will taperoff and by 2017 there will be just under 55mn subscribers, penetration of 21.6%.

Key Trends And Developments

In early October the Ministry of Communication and Information Technology postponed a tender toallocate 3G frequencies, which was originally scheduled to take place at end-September. This was thefourth time the third phase of 3G bidding had been postponed since its original date in June. The decisionwas made after Telkomsel was declared bankrupt by the Commercial Court of Central Jakarta as it wasnot able to pay debt off IDR 5.3bn (US$546,960) to Prima Jaya Informatika, its prepaid phone voucherdistributor. The decision to postpone the tender may result in the ministry being accused of being biasedtowards Telkomsel and that could also result in the authorities being in a breach of competition andmonopoly law.

Under BMI's new methodology for its Asia's Risk/Reward Ratings analysis for the telecoms sector,Indonesia retained its ninth position with a score just above the regional average. We continue to believethat Indonesia scores relatively well due to above average performances within the wider telecomsindustry and also in the macroeconomic arena, but that it is held back only by a disappointing CountryRewards score.