Indonesia Telecommunications Report Q3 2011

BMI has revised its forecasts for Indonesia's mobile communications market in light of new Q311 data from Telkomsel, XL Axiata and Axis, which recorded sharp increases in their customer bases. Secondplaced Indosat recorded poor growth in Q411. However, we now believe the market served 268.8mn subscribers at the end of 2011. Much of that growth is attributed to operators' success in delivering affordable mobile broadband services over enhanced 2G networks as well as 3G platforms and meeting demand for portable multimedia devices, such as smartphones (Apple's iPhone and Research In Motion's BlackBerry are popular) and mobile computers.

However, while there is some improvement in the contribution to revenue and ARPUs by non-voice services, bottom-line revenue and ARPUs are not growing very quickly, if at all. This is because operators are focused on voice-centric low-cost prepaid services and short-term price promotions. These certainly help operators to grow their customer bases, but it is likely that many of these customers will cease using the services once their credit is used up. We therefore believe that a substantial proportion of the overall number of registered customers is technically inactive, and unnecessarily weighing on ARPUs.

With Saudi Telecommunications Company (STC) having taken a more proactive role in growing Axis' mobile business in 2011, and with the newly-merged Smart Telecom/Mobile-8 entity Smartfren looking to grow its small user base in 2012, it is clear that the urge to compete on price will not end soon and customers will continue to be signed up in substantial numbers. This is not sustainable and we expect further consolidation.BMI expects there to be 431.8mn mobile subscribers by 2016, a penetration rate of 169.9%.