Analysis on the Success of Foreign Telecom Companies in Indonesia and How to Enter the Market

The telecommunications industry provides the technology necessary for communication through the internet, cables, phone, airwaves, wires, or wirelessly. The industry has built the infrastructure necessary for passing word, audio, voice, and video to satisfy our basic needs in today’s world. Globally, Indonesia is among the fastest-growing developing telecommunications and continues to expand its fiber-optic network and 4G coverage backed by strong investment in capital expenditure.

Taking into account the prospect of investment in Indonesia’s telecom industry, this article will analyze the successes of global players in the industry for prospective investors to learn the most effective way to be successful in entering Indonesia’s telecom market of 270 million populations.

The Global Telecommunications Outlook 

The telecommunications industry is made up of all the telecommunication or telephone companies and internet service providers, playing the role of mobile communications and the information society. Communication equipment and delivery of voice, data, and broadband services are produced by the modern telecommunications industry using the digital infrastructure, such as fiber, telecommunications towers, active networks, and data centers.

There were over 4 billion internet users at the end of 2019 according to The Telecommunication Union (ITU) of which over 3 billion users are in developed countries. There are around 7.7 billion active mobile broadband subscriptions worldwide in 2020. The telecommunication industry is the fastest-growing and fifth-largest industry in the world. The industry itself plays an important role in the world economy as the global telecom market size was valued at USD 1.8 million in 2020 and is forecasted to reach USD 2.53 trillion in 2027.

The COVID-19 pandemic has affected the critical importance of telecommunication infrastructure which plays in keeping societies, businesses, governments connected and running. The social distancing and working from home restrictions have disrupted the economic and social aspects that people across the world rely on technology for information. However, the existing telecom infrastructures need to be carefully balanced with improvements from satellites to mobile networks and cables. 

Why Invest in Indonesia’s Telecommunications Industry? 

market is among the fastest developing in the world, driven by the growth in mobile and fixed broadband subscriptions. The country has a total of 388.04 million mobile subscribers with 150% mobile penetration making it the fourth-largest mobile market in the world (Frost and Sullivan, 2018). It is predicted that the subscriptions will continue to grow strongly in the 2020 to 2025 period (The Publisher, 2020).

The main drivers of growth in Indonesian telecom sectors are expanded coverage, greater affordability, service improvements, increased data usage, and smartphone penetration. With the long-envisioned Palapa Ring national broadband network completed, most telecommunications operators are in the heavy investment phase, spending heavily upgrading their 4G network infrastructure. Investment in this sector expanded at a fast pace and is expected to remain stable in the next five years. 

Moreover, the industry remains resilient in the COVID-19 pandemic due to the defensive nature of the industry amid the political uncertainties and an uncertain economic outlook. The industry is expected to reap long-term benefits from the COVID-19 physical restrictions that the demand for internet services has surged as people shifted their interactions and daily activities to online. 

The Lessons Learned for Investors to Enter Indonesia’s Telecommunications Industry

There are six mobile operators in Indonesia, XL Axiata, Indosat Ooredoo, Smartfren, Hutchison 3, Net I, and Telkomsel. However, the three largest telecommunications companies are Indosat Ooredoo, Telkomsel, and XL Axiata, two of which are foreign companies. It is estimated that in 2020 alone, Indosat Ooredoo revenues reached IDR 27.9 trillion with a year on year (YoY) of 6.9% followed by XL Axiata at IDR 36.01 trillion with 3% YoY (telecompaper, 2020). 

The success of the companies reflects on the huge opportunities for investment in Indonesia’s telecommunications market of 270 million populations. Thus, it is important to analyze their successes to learn the most effective strategy in entering Indonesia’s telecommunications market. 

Indosat Ooredoo: Increase ROI through Digital Ads

Indosat Ooredoo is one of the biggest telecommunication providers in Indonesia that offers wireless services with their brand, IM3. The company is owned by Qatar-based Ooredoo by 65%, the Indonesian government by 14.29%, and the public at 20.71%. As of September 2020, Indosat records 60,4 million users which is about 22% of Indonesia’s total population (Kompas, 2021). As of 2019, Indosat Ooredoo’s 4G population coverage across Indonesia increased to approximately 90% which is in line with the company’s strategy to become Indonesia’s leading Digital Telecom Company.

A study by Google and Nilsen about marketing mix modeling (MMM) that measured the return on investment (ROI) and effectiveness of online or offline media channel, revealed that Indosat Ooredoo were able to increase ROI overall improvement by 60% by shifting 30% of its marketing budget to digital channel such as YouTube for its 4G relaunch campaign. The study found that the use of online channels could increase potential ROI 5.5X when compared to offline channels and YouTube offers 3x ROI compared to other digital media (Nugroho, 2019). 

In Indonesia, most telecom companies use offline channels to sell their SIM cards through retailers, distributors, and agents due to low credit card and online banking penetration. Because of this, companies are struggling to acquire and maintain users with lifetime value (LTV). To overcome this, prospective investors can use offline media such as TV ads, radio ads, and billboards, with the addition of digital ads such as YouTube and Instagram to reach audiences between 18 and 35 years old. 

H3I: Digital Lifestyle Provider

PT Hutchison 3 Indonesia (H3I) under the “3” brand, is a rapidly growing telecommunications service provider operating under the National 2G/GSM 1800 MHz and the 3G/WCDMA licenses in Indonesia. Owned by Hutchison Whampoa Group (65%) and Indonesian tycoon Garibaldi Thohir (35%). H3I launched mobile services in 2007 and within 10 years gained its 17.6% market share. H3I also won a bid at the 2100MHz frequency auction and will use this to enhance its network. 

H31 data traffic increased by more than 80% in 2019 compared to the previous year. In its operations, the company uses around 25,000 base transceiver stations (BTS). The company focuses on network quality by using an additional 5 MHz spectrum band on the 2,100 MHz carrier frequency allocated by the government in 2018.

With 95% of its 30.49 million subscribers out of 270.6 million Indonesian in 2019 are smartphone young digital-savvy users, 3 Indonesia grows as a digital lifestyle provider. The success of 3 Indonesia is established by its commitment to provide innovation, a better internet experience, and the spirit to empower Indonesian youth.

XL Axiata: Rendering Connectivity Solutions

A subsidiary of Malaysia’s Axiata Group, which acquired Axis Telecom in 2014. XL will be adopting a dual-brand strategy, whereby XL will be the premium brand and Axis will be the budget brand. XL spent USD 500 million on capital expenditure projects in 2017, including pay-TV, broadband internet, and voice telephony.

XL Axiata serves 56.7 million  subscribers out of 270.6 million Indonesian in 2019 through business solutions and services. The brand itself focuses on serving the market of white-collar, blue-collar, and youth. Recently, XL received recognition from the public by winning the 2020 Bisnis Indonesia Awards as the best issuer in the telecommunications sector. The company managed to maintain its financial performance report and to reach growth with revenue IDR 13.08 trillion, increased 7% year-on-year (YoY). (XL Axiata, 2020)

The company is revamping to shift subscriber acquisitions, set strategies in moving the XL brand up the value ladder, and reinventing the business model to face the pressure in most of its products including retail and business segments due to more fierce competition. The plan for the company is to focus on providing digital services and to encourage the development of a digital economy. 

The route to Market Entry 

As Indonesia’s telecom market is rapidly growing, foreign investors are now attracted to pursue huge opportunities in the sector. There are several things that the prospective investors need to know which are the landscape of policy regulations surrounding the sector, the decision-maker, the license needed to establish telecom companies in Indonesia, and importantly the right local partner to help smooth your market entry.

The Role of MCIT

Indonesia’s Ministry of Communications and Information Technology (MCIT) is responsible for policies related to telecommunications infrastructure and digital government. MCIT established the Indonesian Telecommunications Regulatory Body (BRTI) to control, supervise, and regulate telecommunications networks and services. BRTI also organizes telecommunications spectrum auctions that are sanctioned by MCIT.

Following the launch of the 2005 National Development Plan and the 2014 Indonesia Broadband Development plan, the major buyer and decision-maker in Indonesia’s telecommunications sector is the Indonesian government. Thus for investors interested in entering Indonesia’s telecommunications market, it is best to connect with MCIT.

Telecommunication Service Provider License 

Investors interested in establishing telecommunications companies need to apply for a Telecommunication Service Provider License/Content Provider License issued by MCIT. The minimum investment to be eligible for a Permanent Business License is USD 1 million. The coverage of Telecommunication Service License is Basic Telephony Service, Added-value Telephony Service, Premium Call, Phone Card, Call Center, Multimedia Service, Internet Service Provider, Network Access Point, Public Internet Phone Service, Data Communication System Service, And Content Provider Service.

BRIGHT Indonesia as your Local Partner

Due to the changes to the regulatory landscape and strong competition among telecommunications players, the Indonesian government will be a critical partner because infrastructure, such as fiber-optic ducts, uses public rights of way along with utility towers and streets. Thus, investors will need an experienced partner that has a wide network of high-quality contacts in Indonesia. 

With BRIGHT Indonesia, you could ease your way into the Indonesian market. BRIGHT Indonesia ranging from providing a thorough market insight research to supporting the process of registration and permit including expatriates utilization plan (RPTKA), expatriates utilization permit (IMTA), and limited stay permit (KITAS), BRIGHT Indonesia will help you and your company into the Indonesian market.

For more information, email info@brightindonesia.net.

This article is co-written with Gianina Amira Zahra