Although estimates vary, in Indonesia today, only about one out of every three people are connected to the web, and connection speeds are slow, largely thanks to challenging geography and a thinly spread population of around 255 million people. Mobile broadband penetration in Indonesia is currently 24.2% while just 1.3% of the population has a fixed line connection which illustrates the scope of future growth as more Indonesians plan to move online and take full advantage of lifestyle-changing web based services such as e-commerce.
Internet usage in Indonesia has soared in recent years, as Indonesia’s young, tech-savvy population and rising middle class have seen mobile broadband services and internet coverage expand rapidly. In April 2015 the Association of Indonesian Internet Providers (APJII) noted that there were 88.1 million internet users. This is still low compared to other Asian nations, with the World Bank noting that 15.8% of Indonesia’s population were internet users in 2013, compared to 29% in Thailand and 67% in Malaysia. Notwithstanding, expansion of mobile broadband services has outweighed a slowdown in the fixed broadband market, offering strong growth potential for the country’s telecommunication operators.
Average internet connection speeds in Indonesia stood at 2.4 Mbps in 2014, one of the lowest rates in the Asia-Pacific region, according to a report published by cloud services provider Akamai, significantly slower than in China (3.2 Mbps), Malaysia (3.5 Mbps) and Thailand (5.2 Mbps), respectively. Reliability is also an issue; providers are required by the government to carry out filtering, and this creates latency issues, particularly with foreign sites.
Internet access in Indonesia is comparatively expensive as well. The International Telecommunication Union estimated the cost of fixed broadband in 2013 stood at $20.50 USD for a 0.38-Mbit/s connection, equivalent to 6.87% of GNI per capita, placing Indonesia 113th out of the 165 countries surveyed and well behind neighbouring Southeast Asian states like Singapore (3rd), Vietnam (66th), Malaysia (70th) and Thailand (98th).
The APJII forecasts that the number of internet users in the country will grow to 139m by 2016. Smartphone use grew by over 100% in 2011 and 2012, and by 58% in 2013. According to data from eMarketer.com, the number of smartphone users last year was 61.2 million, but the number is expected to grow to 103.6 million by 2017.
According to Ericsson’s latest Mobility Report, Indonesia was thus one of 10 countries with the largest growth in mobile internet usage. As of the third quarter of this year, Indonesia recorded 3 million mobile data subscriptions (See Indonesian Telecommunications – An Increasingly Mobile Market). The report states that around 39% of Indonesians actively use smartphones, contributing to the growth of mobile data usage. In addition, the report also says that about one-third of all smartphone data in Indonesia is consumed through mobile broadband networks, while the rest is accessed through Wi-Fi.
Recently, the government moved to boost broadband penetration and ICT usage through the Indonesia Broadband Plan (IBP), which came into effect in July 2012 (See Indonesian Enterprises Look to ICT for Higher Productivity). Following 18 months of consultation, the plan was officially unveiled in October 2014. The IBP, which runs from 2014 to 2019, is one of the first IT blueprints formulated in Indonesia, and emphasises development across five priority service sectors, including e-government, e-education, e-procurement, e-logistics and e-health. It also targets connecting remote and rural households to the Palapa Ring, a massive undersea fibre network encircling nearly the entire country, with a particular emphasis on the eastern islands where broadband infrastructure is largely unavailable. The $24 billion USD plan is expected to boost the percentage of households connected to fixed broadband in urban areas to 71% by 2019, with speeds of 20 Mbps. The plan also envisions increasing penetration of mobile broadband in urban areas to 100%, at speeds of 1 Mbps. Targets in rural areas are set at 10% for fixed broadband, at the same speeds, and 52% mobile broadband penetration, again at speeds of 1 Mbps.
On the private side, Google also hopes to address the huge infrastructure challenge faced by Indonesia to connect 17,000 islands to the internet through its “Project Loon” balloons. Loon balloons act as floating cell phone towers in the sky; flying on the winds at altitudes twice as high as commercial planes. Rather than acquiring its own spectrum for Project Loon, Google has opted to partner with local telcom providers (Telkomsel, XL Axiata and Indosat Ooredoo) to utilise theirs. The rationale for the air balloons is that frequency bands can offer broader coverage from the sky than terrestrial towers. Traffic from the balloon network is ultimately relayed to telco partner base stations. Within five years, Google hopes to deliver LTE-speed connections to more than 100 million people in Indonesia currently without internet access, especially in eastern parts of the country.
2G and 3G are still the biggest market with broadband users skipping fixed connections and going straight to mobile and smartphones, which is quickly becoming a must have item for Indonesians. Currently, only 2% of the Indonesian population uses the 4G/LTE network, but by 2018 it is predicted that this will grow to 14% because of rapidly increasing smartphone usage, according to Ericsson Indonesia.
The growth of the e-commerce industry is definitely benefitting from the increasing coverage. Indonesia’s middle class is also expected to double by 2020, according to The Boston Consulting Group, creating a potentially massive pool of online shoppers and other Internet consumers among the 250 million-strong population. However protectionist regulations currently bar foreign investment in e-commerce, an area the government says is primed to grow to $130 billion USD by 2020 from an estimated $12 billion USD last year. This field of business may be subject to revisions in the upcoming Negative Investment List as the government has hinted at opening up the sector. A vaguely defined rule will also require all 4G mobile phones sold in Indonesia to have 30% of their content made locally from 2017 and another proposed regulation calls on banks and possibly other companies to have data centres in Indonesia rather than allow them to store information in the cloud.
A lack of infrastructure for payments and deliveries, an immature market lacking engineers and other tech talent, and a large but mainly low-income consuming class that still prefers to shop offline are just some of the obstacles startups say they face in Indonesia. The government must also make a greater commitment to ensure equal provision of electricity because half the country currently does not have access to electricity 24 hours a day, without which the Internet cannot exist (See Electrifying Indonesia; Opportunities for Independent Power Producers).
It is Indonesia’s huge mobile market that has been the driving force behind the surging internet use. With over 300 million subscribers, Indonesia is the 4th largest mobile market in the world. Experts agree that Indonesia, which has almost 90 million internet users and around 34% internet penetration, is seeing significant growth in the digital economy. Current government and private efforts in increasing coverage will only amplify the trend.
Global Business Guide Indonesia - 2016
Contribution to GDP: 39.07% (Q3 2015)
Sector Growth: ICT 10.83%, Hospitality 4.53% (yoy, Q3 2015)
Number Employed in the Sector: 54.9 million (February 2015)
Main Areas: Retail, Transportation, Media, Telecommunications, Finance, Hospitality, Tourism.
Government Bodies: Ministry of Trade, Ministry of Tourism, Ministry of Transportation, Ministry of Manpower.