Global Insight Perspective | |
Significance | Bakrie will enter the IDD market in a move to expand its reach in the overall telecoms market. |
Implications | The entry of Bakrie will bring more competition to the international call market but will not create any immediate threat to the two existing IDD service providers. |
Outlook | A key threat to the IDD businesses will be the growing usage of cheaper VoIP international call services. |
The Indonesian government has awarded Bakrie Telecom an international direct dialling (IDD) licence, the third company to be awarded such a licence in the country. The other two licensed IDD service providers are PT Telekom and PT Indosat—the country's two largest telecoms companies. Bakrie beat two other companies bidding for the third IDD licence, namely PT Excelcomindo and Natrindo Telefon Seluler (NTS). According to a Dow Jones report, the Director-General for Post and Telecommunication, Basuki Iskandar, said that the government will give Bakrie five years to build its first network and international gateway connecting Batam, Singapore and the United States, adding that U.S.-based Verizon Communications will assist Bakrie in the development of the gateway. Bakrie will need to spend 223 billion rupiah (US$24 million) on building the infrastructure over this five-year period. Bakrie will also be obliged to develop a network that will connect Kupang, a city in East Nusatenggara, to Darwin in a second five-year period, said Iskandar.
Outlook and Implications
Bakrie, controlled by the family of the chief social welfare minister, Aburizal Bakrie, has been an aggressive player in the fixed wireless market since 2003. Thanks to the low tariffs, the company's CDMA-based limited mobility services have grown rapidly, reporting 2.25 million subscribers at the end of June. Bakrie, which has been seeking to expand its reach in the overall telecoms market, will compete with larger rivals Telekom and Indosat for a slice of the IDD market. The entry of Bakrie will not bring any immediate threat to the two existing IDD service providers as it will take several years for the newcomer to roll out its own infrastructure. Although international call traffic has been showing an upward trend in recent years, both Telekom and Indosat have stated that the key threat to their IDD businesses is the growing usage of cheaper VoIP international call services. IDD calls offer better voice quality but are more expensive compared to VoIP, which is available at about a 50%-60% discount to IDD services. The two existing IDD players had earlier predicted that the IDD contribution to their sales in percentage terms is likely to decline in the future, as other services—mobile phone services in particular—grow faster. IDD, Indosat's traditional business, accounted for less than 10% of total sales in the first half of this year, amounting to 7.7 trillion rupiah. By Global Insight’s estimates, there were 63.6 million mobile subscribers in Indonesia at the end of 2006, a penetration rate of 26.6%. Despite the competition—not only from established mobile operators, but also from low-cost CDMA operators—there is still plenty of room for growth: the country has a population of over 220 million. However, factors that could slow subscriber growth rate in the future include the low average income level of the Indonesian consumers and the high mobile tariff level in the market, which is amongst the highest in the world (see Indonesia: 5 July 2007: Government in Indonesia Cuts Foreign Ownership Limit for Telecoms Companies).