Indonesia Telecommunication Industry 2H11

Additional Information

Indonesia’s GDP grew by 6.5% in year 2011, recording its best performance in last 15 years. This growth was driven by strong household consumption and investment. Indonesian telecommunication industry also recorded some significant milestones during the course of the year. The mobile cellular penetration rate crossed the 100% mark and was recorded at 110% by the year end. Indonesia’s leading mobile cellular operator, Telkomsel also crossed the 100 million subscriber figure in April. The size of mobile cellular industry was estimated at IDR 60 trillion (USD 6.5 billion) by the year’s end.

The competition in the industry has become fierce, especially in the mobile cellular segment. Cellular operators are using aggressive marketing and promotion strategies to retain the existing customers and acquire new ones. The churn rates in the prepaid cellular segment have gone up to 20% for some operators. Fixed wireless segment may see some consolidation in future as BTEL; the second largest fixed wireless operator had booked substantive financial loss in the year.

Meanwhile, fixed wireline continues to be dominated by Telkom Indonesia with more than 99% market share. The business environment in Indonesia has been very conducive for the growth of telecommunication industry recently, but challenges remain as far as regulatory and political environment is concerned. On the other side, the demographic advantage that Indonesia has in terms of relatively young population is stimulating the growth of multimedia, data and internet services and will be the driver for industry in years to come.

The market still has a lot of potential owing to extremely low penetration rates in non-cellular segments. The growth in fixed line subscription has remained flat with penetration rate of less than 20%. The segment which showed increasing signs of promise was data, broadband and internet. Number of internet users in Indonesia rose to more than 50 million during the year. However, the addition of low spenders in subscriber base has brought down the ARPU of the operators. The cellular industry association recorded an ARPU of IDR 20000 (USD 2.2) for 2011 which was one of the lowest in the world. The operators continued to invest in network infrastructure for enhancing data and voice services and deploying latest technologies. The combined capital expenditure in the cellular segment was estimated at IDR 30 trillion for the year. We expect the mobile cellular penetration rate to reach around 125% by the end of 2012.

During first nine months of 2011, Telkom Indonesia continued to lead the industry by recording operating revenues of IDR 53.1 trillion, a YOY growth of 3.4%. Its cellular subsidiary ‘Telkomsel’ contributed 67.8% to the total revenues. XL recorded the highest EBIDTA growth of 3.5% among the top three cellular players, the other two being Telkomsel and Indosat. EBIDTA margin for the top three players on an average was around 50% during this period.