Indonesia's telecoms market presents good growth opportunities due to its large and youthful population and extremely low broadband penetration rate. While the mobile industry generates low ARPUs in light of consumers' preference for prepaid subscriptions, and strong competition among operators and from alternatives such as fixed-wireless technologies, operators are stepping up efforts to grow the nascent 3G market. However, although mobile data/VAS revenues are increasing, this is being offset by declining voice revenue.
- Indonesia's top three mobile operators - Telekomunikasi Selular (Telkomsel), Indosat and XL Axiata - recorded weak growth in Q213. Consequently, we have downgraded our mobile market forecasts. We now envisage 343.4mn subscribers by end-2018, up from 301.7mn at end-2013.
- The heavy reliance on prepaid subscriptions is reflected by the top three mobile operators, all of which reported sharp sequential declines in blended ARPU in recent quarters. The increasing adoption of 3G services poses an upside risk to our ARPU forecasts, but as 3G services have now been widely available for several years and the boost to revenues and ARPUs has proven limited at best, we are not confident that this view will pan out.
- The fixed-line and fixed broadband sectors continue to show weak growth and we do not foresee a reversal in the trend, given that consumers and businesses are clearly favouring the convenience of mobile solutions and the greater technological advancements.
Key Trends And Developments
The most notable development in H112 was the decision of Attorney General's Office (AGO) to fine IM2 - the internet subsidiary of Indosat - IDR1.36trn for allegedly acquiring part of the 3G spectrum held by its parent and without making the appropriate tax payments to the government. IM2, Indosat, the industry regulator and the government itself deny any sale took place and that, in any case, network sharing agreements are common practice in the industry. The AGO disagrees and warns that it could impose similar fines on as many as 15 ISPs and four or five mobile network operators. If the fines are upheld, many market players would be hit hard financially, making those that survive less inclined to invest in new products and services.
XL Axiata - which acquired one of the last blocks of 2.1GHz 3G spectrum in March 2013 - reported sharp falls in revenue from mobile services in Q113. But in October 2013, it announced the acquisition of Axis Telekom for that company's 17mn subscribers, nationwide infrastructure and spectrum. In the meantime, the government has sounded out the possibility of pooling the remaining limited mobility CDMA businesses into a single operator and/or encouraging consolidation among the smaller mobile operators to avoid wastage of resources such as spectrum.