Indonesia’s telecoms market

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With 278 million subscribers, Indonesia is the 4th largest mobile market in the world. It is also in the world’s top ten 3G markets, with broadband users skipping fixed connections and going straight to mobile (just as they did before with voice telephony). The rapid move to smartphones means the mobile operators are also key players in the internet sector, though note that 2.5G mobile technology is still remarkably widespread. Fixed broadband lines only feature at the top of the market, targeted at businesses and high-end consumers.

One of the world’s largest mobile markets

The Indonesian telecoms sector is first and foremost a mobile market, and the 278m mobile subscribers completely overshadow the 9m fixed lines and 12m fixed-wireless subscribers. So any discussion of telecoms in Indonesia inevitably has a primary focus on mobile.

At a headline level, the Indonesian mobile market is characterised by:

  • Prepaid (98% of subscribers are prepaid users)
  • A huge data market (115m data users in 2012)
  • Rising data revenues (already over 30% of the average user’s spend)
  • High volumes of messaging and mobile ads

Growth was rapid throughout the 2000s, with the subscriber base growing at an average of 37% per year from 2005. The market hit its saturation point in 2010 as penetration hit 100%, and as a result growth slowed down to 12% in 2011 and 2012.

While underlying growth is forecast to continue in mobile (130% penetration – 330m mobile subscribers – is the consensus forecast for 2015), the main focus of the mobile operators is now to drive the growth of data subscribers and the associated data revenues.

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Having shown you the big numbers, we should also add a caveat: one of the unusual characteristics of Indonesia’s mobile market is the ubiquity of multiple SIMs. Many subscribers hold two or three active SIM cards – and often own two or three phones. People do this in order to find the best signal quality (for higher end subscribers) or the cheapest prices (for lower end subscribers). So the number of unique users in Indonesia is actually around 165m, which means on average each user holds 1.7 active SIM cards.

Rapid shift to smartphones and 3G

While Blackberrys have long been extremely popular (Indonesia was Blackberry’s third biggest market in 2012, after the US and UK), smartphone growth really took off in 2010 as the price of Android smartphones fell below US$200.

Growth since 2010 has been rapid, and at the end of 2012 there were 33m smartphones in Indonesia, representing 15% of all handsets. We believe this will grow quickly over the next three years, since by early 2013 the price of the cheapest Android smartphone in the market had already fallen to Rp. 499,000 (US$51), which is easily affordable for many Indonesians from the C social class (and is within reach of even the Ds). Note that the mobile operators do not subsidise handsets like they typically do in the US and Europe.

By 2015, the consensus forecast is that smartphones will represent around 40% of all handsets. This means around 75m smartphones will be bought in Indonesia in the next three years. (And at this point we would like to note that pretty much every smartphone forecast around the world over the past three years has been an under-estimate).

The 3G services market is already sizeable, and was ranked the 10th largest in the world in 2011. The mobile operators are pushing data services very strongly, backed up with huge advertising budgets, and helped along by falling device and subscription prices. All the big three operators – Telkomsel, Indosat and XL – have stated that stimulating growth in data services is now their top market priority.

But feature phones and 2.5G still matter, and both are full of innovations

Although smartphones are growing rapidly, feature phones will still dominate the installed base for the coming five years. There are currently 180m active feature phones in Indonesia, and by 2015 there will still be 140m feature phone users.

These phones are usually connected to the internet via slower 2.5G connections, and use simple browsers such as Opera Mini. However, it would be a mistake to think these users are unsophisticated. It is simply fascinating to watch a salesperson from one of the hundreds of stalls in Jakarta’s Mangga Dua electronics mall take a thirty dollar feature phone and within minutes have it running Facebook, Twitter and WhatsApp while also providing the owner with the capability to surf the web from anywhere with a mobile signal.

The fixed network serves the top end of the market

The number of fixed connections in Indonesia has slowly risen from around 9.7m lines in 2005 to nearly 11m lines in 2012. Customers are primarily businesses and institutions, concentrated in the major cities, who use fixed lines to obtain the high broadband data speeds required to run their organisations.

Fixed wireless connections grew in the late 2000s as part of efforts by Telkom and Indosat to increase fixed line penetration in outlying geographies, and peaked at 18.7m users in 2010. This technology is now in a slow decline as customers move over to a full mobile service, and had around 14m customers by the end of 2012.

Ultimately, the fixed line market will stay relatively small in Indonesia, though it will be lucrative since this is where the high-revenue customers congregate. It is a segment where tech startups can thrive, especially in the B2B sector, but the headline action will remain in the mass mobile consumer market.

Sources: Telkomsel, Indosat, XL, Hutchison, SmartFren, Axis, Esia, Telkom, Reuters, CTIA, Kleiner Perkins Caufield & Byers, Informa, Research and Markets, IEMR, IDC, Pyramid Research, Frost & Sullivan, mig33