This report provides a comprehensive overview of the trends and developments in the telecommunications markets in Indonesia and Timor Leste. Subjects covered include:
Indonesia continues to see its telecommunications sector grow, despite the occasional setback. The country of around 250 million people is obviously a huge potential market; however, it has some particularly big challenges to confront in building the necessary telecommunications infrastructure to cover a uniquely complex geography. At the same time, the nation has had to deal with a range of social, political and economic issues that have been proving problematic.
The government has been gradually reshaping the telecom industry, a process that took on a new impetus following the Asian economic crisis of the late 1990s. In more recent times, Indonesia has been experiencing healthy sustained growth in subscriber numbers and revenues. While fixed-line teledensity remains disconcertingly low (just over 8% in early 2008), the advent of fixed wireless services has boosted the growth rate in the last few years and provided much-needed basic telephone services to previously unserved communities. The roll-out of fixed wireless infrastructure has been well supported by the operators with Bakrie Telecom and PT Telkom leading the way. Although the statistics were somewhat imprecise, by end-2007 fixed wireless services made up about half the total fixed-line subscriber base.
In the meantime, Indonesia’s mobile market continues to grow, expanding at an annual rate of close to 50%. By early 2008 the total mobile subscriber base had passed 90 million, up from 12 million just six years earlier. While the country’s mobile penetration was suddenly approaching 40%, the industry view was that there was still considerable potential for further growth in the market. It was expected that the milestone of 120 million mobile subscribers would be reached by end-2008. At the same time market interest started to focus on the 3G services already being offered by five operators. Telkomsel was indeed making its presence felt in the market, claiming about 80% of the five million 3G subscribers at end-2007.
The number of Internet users in Indonesia was estimated at more than 25 million by early 2008, representing a relatively low penetration of 10%. The Internet subscription market was generally depressed with less than 4 million subscribers reported in early 2008. Broadband Internet access was virtually non-existent. While the government was continuing to promote greater use of online services, these efforts appeared to have little impact.
In a move that some observers felt could have a negative impact on investment in the country’s telecom sector, Indonesia’s competition watchdog, the KPPU, announced in May 2007 that there was evidence of cross-ownership of Indosat and Telkomsel that was violating the country’s anti-monopoly laws. The KPPU alleged that the cross-ownership by Singapore’s state-owned holding company Temasek in two of Indonesia’s mobile operators violated the 1999 anti-monopoly law. At the time, Temasek owned a 56% stake in Singapore Telecom, which had a 35% stake in PT Telkomsel. Temasek’s wholly-owned Singapore Technologies Telemedia controlled 75% of Asia Mobile Holdings, a company that owned 40% of PT Indosat. Together, PT Telkomsel and PT Indosat controlled more than 80% of the domestic mobile market. The issue subsequently underwent a process of resolution by the courts. By June 2008, the parties were waiting on a decision by the Supreme Court, after Temasek appealed a lower court’s adverse ruling.
Timor Leste (formerly East Timor)
The political instability and outbreaks of civil unrest that erupted in Timor Leste in April/May 2006 continued into the first half of 2007. Despite the election of a new government led by Nobel Peace Laureate Jose Ramos Horta in May/June 2007 opposition to the administration caused further outbreaks of violence and looting. To the outside observer, the country appeared to have started reasonably well in rebuilding its entire infrastructure following the turbulence that ensued after the referendum of 1999. However, the events of 2006/07 caused major concerns about the direction of the Timor Leste; it remained difficult to assess the long term impact of these events on the country’s fragile economy and the process of infrastructure building.
Then, in February 2008 President Ramos Horta was shot and severely wounded in an attack led by rebel Alfredo Reinado (who was allegedly involved in the unrest of April/May 2006). A short time later a convoy including Prime Minister Gusmao was fired upon. The Prime Minister was uninjured. Responding to the attacks, the government declared a state of emergency. President Ramos-Horta returned in April 2008, after receiving medical treatment in Australia. The state of emergency ended in May 2008, following the surrender of most of the rebels.
In the meantime, throughout this difficult political period, the country’s mobile sector was experiencing strong growth (over 50% in 2006; just on 50% in 2007), with mobile penetration reaching a low, but nonetheless significant, 7% milestone by end-2007. Fixed-line network expansion was generally languishing coming into 2008, with teledensity down around 0.3%. Although it was difficult to get accurate figures on the Internet market, it was evident that growth in this sector remained constricted and there was little optimism about online activity in the short term.
It is noted that Timor Leste has finally been listed as a member of the ITU. While the ITU does provide some information on this market, it has continued to be a difficult task to obtain official statistics for the country’s telecom sector. Where official statistics are not available, BuddeComm will normally provide an estimate.