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.

Key highlights:

• Indonesia’s mobile market passed 90 million subscribers in early 2008 with penetration running at about 37%.
• After more than seven straight years of strong growth, the annual increase in mobile subscribers was almost 50%.
• Indonesia’s 3G market was still in its infancy two years after launch, with 3G subscribers representing only about 4% of the total mobile subscriber base.
• Mobile market leader Telkomsel had made a big impact on the still small 3G market with 80% of the five million subscribers coming into 2008.
• Internet penetration remained low (10% user penetration by end-2007) and Internet subscription rates were considerably lower.
• Broadband Internet access numbers in Indonesia were starting to grow, but penetration remained low (0.1%).

BuddeComm just published a new Annual report titled: 2008 Asia - Telecoms, Mobile and Broadband in Indonesia and Timor Leste