Indonesia’s telecoms industry is primarily about mobile, with 278 million mobile subscribers and just 11 million fixed lines. While eight mobile operators make the market openly competitive, the Big 3 operators – Telkomsel, Indosat and XL Axiata – have 80% market share between them. The other influential players in the industry are the device manufacturers, and local handset companies now compete fiercely with the global players. In the fixed line market, Telkom and other niche players primarily focus on business customers.
A mobile market dominated by 3 players
At the end of 2012, the Big 3 owned 221 million of the 278 million mobile subscribers in Indonesia. Within the Big 3, Telkomsel is undeniably the Big 1, and its user base of 123 million makes it the 7th largest mobile company in the world. And though Indosat with 55 million subscribers and XL Axiata with 42 million subscribers both trail Telkomsel, they are well ahead of the fourth largest operator, 3 (known as Tri in Indonesia), which has 20 million subscribers.
All of the operators are now determinedly focused on growing the mobile data market, and have enormous influence over the development of the internet sector. The amount of advertising dollars they are putting behind their 3G and enhanced-2G offerings is a direct driver of increasing internet penetration in Indonesia.
The Big 3 also influence the market in terms of setting de facto standards, and how they choose to implement technologies such as mobile ad platforms, payment systems and security systems has a major impact on companies who are delivering internet services.
A prepaid rather than a postpaid market
98% of mobile subscribers in Indonesia pay via prepaid cards or electronic top-up vouchers. Handsets are not subsidised by the operators, and long-term contracts do not exist, even for postpaid customers.
The dominance of prepaid has led to the establishment of extremely large nationwide distribution channels, facilitated by the handset manufacturers to sell devices and facilitated by the mobile operators to sell minutes, messages and megabytes of use. A number of large distributors such as Trikomsel (Oke stores) and Erajaya (Erafone stores) have emerged, both of whom have gone public via IPOs. The need for distribution has also led to huge megamalls of mobile shops, such as Jakarta’s eye-wateringly large Roxy Mas.
High-profile handsets aren’t necessarily top-selling handsets
While flagship devices such as iPhones, Galaxys and Blackberry Z10s grab the headlines, none of these phones is even remotely near the top of the bestseller list in Indonesia. Smartphones are expected to be around 20% of all handset sales in 2013, with most of the remaining 80% consisting of feature phones. However, note that most feature phones in Indonesia provide full internet access, including Facebook, Twitter and browser capabilities.
The top 5 handset manufacturers by shipments are Nokia, Cross, Samsung, Mito and Blackberry. Cross and Mito are fast-growing local manufacturers who sell handsets made by Chinese OEMs. Both have been historically strong in the feature phone market and are now moving into value-priced smartphones – how does Rp. 499,000 (US$ 51) for an Android-based smartphone with a 3.5″ touchscreen, camera and a 1GHz processor sound?
Fixed line players target high-end customers
Telkom, Indonesia’s old PTT, still dominates the fixed line market, but it is a market with very low line growth: the number of fixed connections has drifted up from around 9.7m lines in 2005 to nearly 11m lines in 2012. Revenue growth still continues, however, as business and institutional customers seek ever higher broadband data speeds to run their organisations.
Fixed-wireless connections were a growth market in the late 2000s, peaking at 18.7m users in 2010. This technology is now in a slow decline as customers move over to full mobile services, and the market had fallen to around 14m customers by the end of 2012.
Cable and satellite TV are still relatively small markets, with 2.5m households in 2012, representing a 4% household penetration. They do provide high speed broadband services, but high subscription prices have inhibited growth to date, and household penetration is only expected to rise to 7% by 2015.
So Indonesia’s telecoms market will remain mobile-led. The mobile operators will be the major determinant of market growth, the mobile handset manufacturers the major determinant of how users experience the internet, and the mobile phone distributors will play a major role in promoting internet-ready handsets to Indonesia’s 240 million potential customers.