Fast-growing Indonesian operators prepare for LTE rollout

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Indonesia was the world’s fifth-largest mobile market in the third-quarter and is on track to surpass 200 million mobile connections before year-end, according to the latest Wireless Intelligence data. The country’s main operators are also revealed to have made good progress in migrating customers to 3G networks and in some cases have already outlined LTE plans. However, Indonesia’s prospects of becoming an early adopter of LTE are currently hampered by spectrum constraints and other regulatory issues that may take some time to untangle.

Mobile connections in Indonesia are currently growing by around 30 percent a year, reaching 197 million in Q3. Mobile penetration stands at just over 80 percent, suggesting this strong growth should continue for the foreseeable future. Although Indonesia has eight mobile operators (as well as three fixed-wireless operators and several WiMAX providers), the market is dominated by three large GSM-based networks, which together account for 85 percent of the country’s mobile connections: Telkomsel, Indosat and XL.

Telkomsel is the clear market leader with a 46 percent market share and is forecast to surpass 100 million connections by year-end. It is currently the seventh-largest operator in the world by subscribers. Telkomsel’s customer growth is attributable mainly to its attractively-priced prepaid products, ‘simPATI’ and ‘Kartu,’ which helped the operator add 6.4 million new customers in the second-quarter. This marked a recovery from a weak Q1 which saw it record net additions of just 306,000. However, Telkomsel is also reporting strong growth in non-voice (SMS and data) revenue, which grew by 14 percent to IDR6.17 trillion (US$680 million) in Q2 to account for 28 percent of operating revenue.

Telkomsel already offers 21Mb/s HSPA+ in Indonesia’s main cities and has been trialling LTE since August this year with network vendor ZTE. Migration to LTE is being co-ordinated with Singapore’s SingTel – which owns 35 percent of Telkomsel – which is working on a “regionally compatible LTE network” that will cover its APAC footprint across Singapore, Indonesia, Australia (Optus) and the Philippines (Globe Telecom). Telkomsel has also recently hired Telecom Italia to assist with its ‘2011-2015 Technology Plan,’ which will define its network infrastructure strategy for the next five years.

Second-placed Indosat – which is majority-owned by Qatar’s Qtel – has yet to confirm LTE migration plans but became one of the first operators in Asia to upgrade to dual-carrier 42/Mb/s HSPA+ in June. However, the operator recorded a 72 percent slump in net profit in Q2, a period that saw its replace its entire senior management team. Indosat is in danger of losing its number-two position to Malaysian-owned XL, which has recorded strong operational and financial numbers in recent quarters. XL is the strongest of the big three operators in terms of 3G with over 19 percent of its customer base migrated to the faster networks, though connections growth continues to be driven by prepaid customers. XL is currently conducting LTE trials with Ericsson.

Meanwhile, the CDMA-based operators are looking to consolidate in order to keep pace with their larger rivals. Smart Telecom and Mobile-8 – which have almost 7 million customers between them – have formed a new joint-venture known as SmartFren that intends to share the same retail and distribution network and carry out joint marketing (though will stop short of a full company merger). Similarly, CDMA fixed-wireless operators TelkomFlexi and Bakrie Telecom are reportedly seeking regulatory approval for a US$1 billion merger that will create a new entity with around 25 million connections, which would make it Indonesia’s fourth-largest operator by subscribers.

Migration toward LTE in Indonesia is complicated by a spectrum licensing environment that means that almost all the country’s airwaves are currently used by existing operators and broadcasters – with no spectrum band deemed to have sufficient free capacity to successfully support LTE rollout. The regulator has identified 1.8GHz as the most likely band, though this will still require extensive spectrum re-farming. Other possible bands – such as 2.6GHz – run the risk of interfering with existing Pay-TV, satellite and broadcast services, while the broadcasters’ move from analogue to digital TV – which would free up the ‘digital dividend’ 700MHz spectrum – has yet to begin.

Joss Gillet, Senior Analyst, Wireless Intelligence:

As we shall highlight in our forthcoming LTE study, Indonesia has the potential to become one of the mobile markets to watch with regards to rollout of LTE services. We estimate that Indonesia could account for as much as 11 percent of the total LTE connections in the Asia Pacific region in five years, reaching over 10 million LTE connections. We expect local operators to begin LTE network testing in 2010/11, leading to possible pre-commercial launch (limited in scope) before 2012. However, this best-case scenario is currently hampered by regulatory constraints. The local regulator (DG Postel) is investigating the most efficient options to trigger a wave of LTE deployments – either re-farming spectrum, auctioning additional bandwidth or releasing digital dividend bands. But lengthy negotiations between telecommunication and broadcasting authorities and the government could mean it will take at least a couple of years before LTE services get introduced to consumers. Regulators in markets such as Indonesia or New Zealand are aligning their own timelines against large economies in the region – notably Australia – to see how they will repurpose their digital dividend spectrum and learn from best practice. In the meantime, local mobile operators will continue to educate consumers about the benefits of mobile broadband and get ready to migrate to LTE networks when the time comes.

Indonesia Mobile Connections Q3 2010
Source: Company data, Wireless Intelligence