Indonesia’s telecommunication sector is a highly competitive, rapidly changing and dynamic industry that has come to reflect significant shifts in social behaviour and interaction. The sector has undergone fast paced development since 1993 following the introduction of a scheme by the government in cooperation with state owned enterprise Telkom to install millions of fixed telephone lines from 1993-1997. Then, the rise of mobile telephony transformed the communication landscape across the archipelago by connecting friends, relatives and business users in both major islands and far flung areas of the country. In 1997 the country only had 1 million cellular phone subscribers which grew dramatically to reach 11.3 million subscribers in 2002 surpassing the number of fixed line users and driven by increased price competition in the sector as a result of its deregulation in 1999. The cellular phone sector continued to grow at a dramatic pace with the number of users tripling in the five years from 2005-2010, reaching 211 million customers in 2011 (Directorate General of Post and Telecommunications) with the average Indonesian owning 1.68 sim cards (Nielson). Telecommunication companies and mobile phone manufacturers now face a stiff competition in attracting and retaining users the majority of which are young being aged between 10-39 years and therefore very price sensitive as well as quick to switch brand or provider. This youthful market base has grown up being accustomed to using mobile telephones as their main communication device which has made the market highly receptive to the latest trends in netbook and tablet computers thereby creating a new realm of competition for devices, data and roaming packages.
The Indonesian mobile telecommunication industry is dominated by three main players namely state owned enterprise Telkomsel that is part of Telkom which previously held the monopoly over the sector, Indosat which is also partly state owned and XL Axiata which is a private sector company however all three companies have significant foreign shareholdings. Other competitors include Hutchinson Telcom’s 3 network, Axis Telecom Indonesia and other smaller players within the code division multiple access technology (CDMA). The CDMA technology makes up 15% of total wireless customers with GSM dominating the remaining 85%. For CDMA, Telkom’s Flexi network leads the pack with approximately 15 million subscribers in 2011 followed by Bakrie Telekom with 11 million subscribers and Indosat’s Star One which counts less than 1 million subscribers. In terms of fixed line services, Telkom remains the main provider with 8 million fixed lines in use or 99% of the total market. Price competition between the three main providers of GSM services has been underway since the deregulation of the sector in 1999 intensifying in 2007, however Telkomsel has retained a market share of 60% followed by Indosat with 21% and XL Axiata at 19%.
Today, price considerations are just one of the areas that telecom providers are being measured against by consumers as factors such as call quality and network coverage become increasingly important. Investing in network capacity through telecom towers either through construction or leasing of space from third party providers is therefore proving to be an area of strategic focus for the major telecommunication players as they seek to differentiate their network offerings to consumers. Heavy investment will therefore be required and this will have a significant impact on cellular industry market revenue growth which has been tapering off since 2009 as the market matures and approaches saturation. Strategic investments must be made in a timely manner by telecom operators to anticipate the deployment of an LTE Advanced network and increased data traffic to remain competitive and avoid losing market share. Revenue growth is therefore expected to continue at a rate of 4-6% for the next five years according to consulancy firm Frost & Sullivan, however acute revenue growth from data services could well boost this figure significantly.
Indonesia’s mobile phone market is unique in its size, scope and market trends. The key trends that have driven now mature mobile phone markets in developed countries have not taken place in Indonesia. Subscription based mobile phone contracts are one such area; despite widespread mobile phone penetration at 62.7% only 5% of users are post paid subscribers the remaining 95% of which are pre-paid or ‘pay-as-you-go’ customers. Indonesian consumers are extremely price sensitive partly due to the youthful nature of the market as 15-19 year olds are the demographic with the highest concentration of mobile phone use (Nielson). In addition, while disposable income has risen across the board in Indonesia, the amount of money being spent per user is actually in decline. In 2010, 50% of users spent less than $5 USD per month on mobile phone credit compared to 18% in 2005 (Nielson). The reason for this being that while mobile phone tariffs have become cheaper, the way in which Indonesians use their mobile phones and communicate has become dominated by free to use services such as chatting applications and less expensive non-vocal communication such as texting. This brings to light another unique aspect of Indonesia’s telecommunication market which has bucked global trends; the popularity of the Blackberry brand. Blackberry maker Research in Motion has suffered extensive losses to the tune of $ 518 million USD in Q2 2012 as a result of declining popularity in Asia and beyond, with Indonesia standing as one of the only exceptions. Blackberry’s free to use messenger service cemented its popularity among Indonesian consumers and its sustained popularity is illustrative of another particular facet of the market whereby consumer loyalty is driven by the brand or provider of friends and family members.
The mobile phone device industry in Indonesia is a tale of two distinctive market segments as the upper-middle income users gravitate towards the latest smartphones while lower-middle income users, which make up the majority of the market, focus on low cost models. Of the 32 million mobile phones shipped to Indonesia at the end of 2011, 6.3 million were smartphones (International Data Corporation). Such phones which offer internet surfing are proving popular among Indonesian consumers and coming to serve as their main source of internet access. The number of smartphones as a proportion of the total handset market has been increasing year on year making up 9% in 2009 and 18% in 2011 (Frost and Sullivan). This is forecasted to grow by 25-30% in 2012 and to make up 36% of all mobile phone devices in 2014. Coverage for 3G enabled mobile phones has been weak in the past and this coupled with the high price of the handsets and data packages has held back the development of 3G capable devices in the market. While the 3G capacity of each of the main telecom networks are expanding, most smartphones are able to operate on GPRS technology which offers sufficient scope for the most popular smartphone functions among Indonesians such as social media sites including Facebook and Twitter (See Improving Internet Access in Indonesia).
At the other end of the spectrum, the lower income market segment for low end feature phones is being driven by increased competition as global and local brands seek to tap into this heavily price sensitive market. Of the 32 million mobile phones shipped in 2011, 25.7 million of these were feature phones (International Data Corporation). Nokia remains a key brand in Indonesia’s feature phone market as its easy to use interface and affordable handset prices make it the brand of choice for first time purchasers with little experience in handling digital devices. Samsung has also come into the lower end of the market to compete directly with Nokia offering handphones priced at $30-80 USD. Local Indonesian brands such as Zyrex and Mito are also competing in this market with handsets ranging from $20-80 USD and claim 40% market share. However various brands such as publicly listed manufacturer Skybee have failed and subsequently withdrawn as they failed to make an impact in Indonesia’s urban areas. While Indonesia has around 100 local mobile phone brands, only 30 of these have managed to carve out a position in the market. As an instinctively brand conscious market, lower income consumers lean towards international brands as status symbols as much as they are concerned about pricing and phone features.
Global Business Guide Indonesia - 2013
Contribution to GDP: 4.94% (Information and Communications, Q4 2016)
Fixed Telephone Line Penetration: 16% (2016)
Mobile Phone Penetration: 40.4% (Statista 2016)
Unique Mobile Phone Subscribers: 47% (2016)
Smartphone Penetration: 43% Statista, 2016)
Internet Penetration: 37% (2016)
Fixed Line Broadband Penetration: ±2% (2016)
Main Operators: Telkom, Indosat Ooredoo, XL Axiata, Axis Telekom, Hutchison 3 Indonesia, Bakrie Telecom, First Media, Smartfren Telecom.
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