Indonesia is the world’s fifth-largest telecom market in terms of cellular subscribers after China, India, the USA, and Russia. It is also one of the fastest-growing markets in the world with the total number of cellular subscribers increased from 163.7mn in 2009 to 262.3mn in 2012. Indonesia’s large population (fourth largest in the world) and steady economic growth have supported strong demand for telecom services in the country.
Telecom services in Indonesia have been provided by a succession of state-owned companies since 1961. The Indonesian Government, through the Ministry of Communication and Information Technology (MOCIT), has extensive regulatory authority and supervisory control over the country’s telecom sector. While the government has historically maintained a monopoly over telecom services in Indonesia, reforms initiated since 2000 have attempted to create a regulatory framework to promote competition and accelerate infrastructure investment in telecom facilities.
The cellular market in Indonesia is currently dominated by three major operators: Telkomsel, Indosat, and XL Axiata. Together they hold about 94% market share in the Indonesian cellular industry. These operators primarily offer cellular services using GSM technology. Starting in 2002, the Indonesian government issued new cellular licenses for using CDMA technology to Mobile-8 and fixed wireless access services licenses using CDMA technology to Telkom, Indosat, and Bakrie Telecom. There are also other smaller players in the Indonesian cellular market, such as HCPT, Axis, Smartfren and STI. Competition in the industry is based primarily on service quality, pricing, availability of data services and value-added features such as voice mail and text messaging.
Since its introduction in 1998, prepaid service has been popular in Indonesia, because it permits customers to register for wireless service without undergoing a credit review. Prepaid service also gives customers more control over monthly expenditures. SMS has proven to be popular in Indonesia, particularly on the prepaid platform, as it provides a convenient and cost-efficient alternative to voice and e-mail communications. The contribution of data services to industry revenues is growing steadily. This is in line with the trend of an increase in people’s need for data supported by cellular phones with internet capabilities and growing use of value-added services such as over the top services (OTT services like Skype, Viber, WhatsApp, etc.), IP Messaging, and Cloud services.
Cellular penetration in Indonesia has increased above 100%, indicating the industry is gradually maturing. However, this rate is still below as compared to some of the other Asian countries like Thailand, Malaysia, South Korea, Singapore, and Hong Kong, indicating some more growth potential is left in the industry. Industry growth going forward is expected to come from regions outside Java, where the cellular penetration rate is still low. In addition to the growth in core markets, there are sizable emerging segments of strong growth, primarily in the consumer broadband and mobile towers segment. Indonesia’s cellular industry and demand for wireless telecommunication services are expected to continue to grow as Indonesia develops and modernizes. As such, stocks and bonds (mostly high yield bonds due to sovereign rating cap) issued by Indonesian telecom companies offer good investment opportunities for global investors.