Indonesia's mobile telephony industry, with 11, is one of the most vibrant in the region. The large potential market, the third largest in Asia, has attracted five foreign mobile operators, which have brought in much-needed capital and expertise.
Indonesia's mobile industry is also fairly unique compared with its immediate neighbors on two counts.
It has a large number of code divisions multiple access (CDMA) operators as well as limited mobility telcos. The limited mobility operators have carved out a strong niche, with about a 13 percent subscriber market share, alongside predominantly GSM-based mobile operators. Seven out of the twelve operators employ the CDMA platform, commanding almost 16 percent of the subscriber market.
Only India is similar to Indonesia, in that it has limited mobility and CDMA-based cellcos competing with GSM operators. The other similarity is the vastness of both countries and the challenging economics to reach out to every consumer.
Indonesia's mobile subscriber growth is the highest in the region, with unique user penetration doubling over the last two years to 38 percent. Three of its largest operators now boast population coverage of over 90 percent, while the smaller GSM operators combined cover an estimated 70 percent.
More importantly, their participation has contributed to healthy competition, and helped drive industry revenue per minute down by 85 percent over the last two years. Lower rates, coupled with cheaper handsets, mean that more Indonesians can afford mobile telephony.
A more recent trend has been the adoption of an asset-light strategy by mobile operators, by selling off their towers, focusing on acquiring customers, and operating and marketing a mobile business.
To date, Bakrie Telecom, Mobile-8 and Hutchison Indonesia have done so. Telkom plans to house its towers under a company. Indosat is considering leasing its towers to rivals.
Excelcomindo's attempt to dispose of its towers, which would have made it the largest transaction, was scuttled by the global financial crisis. The funds raised are being ploughed back into business expansion, by leasing the civil infrastructure from independent tower operators or companies owned by their rivals.
There are numerous independent tower operators in Indonesia, operating as few as tens of towers to a few thousands. A tower-leasing industry is quickly emerging, but more needs to be done.
While regulations encourage foreign investments in Indonesian mobile operators, it is more difficult for foreigners to participate in tower companies. Only 100 percent locally-owned companies can own and manage towers. But companies publicly listed on the Indonesian Stock Exchange are considered locally owned.
However, companies typically need a track record to list. In contrast, India's liberal stance on the ownership of tower companies has attracted numerous foreign investors, who have pumped in US$2.7billion into six tower companies to date.
Demand for towers and tower space in Indonesia is set to boom.
Firstly, network capacity needs to be upgraded to meet rising traffic volumes, which are surging on the back of rapid subscriber growth and increasing voice usage.
Assuming subscribers double and usage per subscriber increase a further 50 percent over the next five years, industry traffic should triple over this period.
The higher capacity needed would require more towers.
Secondly, wireless broadband in the form of HSDPA and the soon-to-be launched WiMAX will further fuel the demand for tower space. And lastly, telco networks need to be expanded to blanket this vast archipelago and towers play a crucial role. Currently, only one telco covers more than 95 percent of the population, and two with more than 90 percent.
All this raises the question of whether domestic players and capital have the ability to meet industry requirements.
The government needs to reconsider its ruling on foreign participation in tower companies. Tower infrastructure is the one of the most capital-intensive parts of a telecom business, comprising about 10-15 percent of a telco's investment. More importantly, foreign participation in the tower industry could bring in much-needed capital and expertise to enhance the telecom industry in Indonesia.
Foreign capital will further help tower operators and telcos expand their networks to the outer islands of Indonesia.
Greater competition among tower companies will lead to lower rental rates, and help reduce the operating costs of telcos, making it feasible for them to expand to less densely populated parts of the country.
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