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Smaller players in the mobile phone industry such as Bakrie
Telecom and Mobile-8 Telecom are likely to benefit the most from the
new interconnections tariff introduced by the government, analysts say.
"The lower interconnections tariff means war between the dominant
players and the low-cost small and relatively new players."
"It will be the smaller ones that are likely to benefit more in the
coming competition," said Felix Sindhunata, the head of equity research
for Mega Capital Indonesia.
The government introduced Monday a new formula on interconnection costs
between operators which will bring down tariffs by 20 to 40 percent.
Stock market analyst Dandosi Matram said the new tariff would benefit
smaller operators because they had higher chances of penetrating the
market with their low-cost technology.
"In the next two to three years new players will be able to raise their
profit margins by cutting their investment cost."
"They can rent the BTS (Base Transceiver Station) of other operators,
which is cheaper than building a new one," said Dandosi.
Analysts also believed the new rates would help lower the operational
costs of smaller operators, as they could pay fewer interconnection
fees to bigger operators such as Telkomsel and Indosat, which together
control 80 percent of the market.
Mobile operators have been told to revise their retail prices to
reflect the change in interconnection rates and implement the new
tariff on April 1.
However, the government will impose no penalties on the operators for
refusing to comply.
The government also exhorted mobile operators to share their BTSs and
improve internal efficiency.
Indonesia, Southeast Asia's largest economy, has experienced whopping
growth in its telecommunication industry with many newcomers craving a
piece of the lucrative pie.
Bakrie Telecom, which trades under the Esia brand, a CDMA-based mobile
phone service, and Mobile-8 Telecom, which provides CDMA-based Fren,
are just a few new operators trying their luck in this multi-trillion
rupiah industry.
"Fren and Esia have proven to be growing healthily in the past year,
and they are likely to grow more this year," Felix said.
The number of Esia subscribers increased from 1.55 million in 2006 to
3.8 million in 2007, making the company bold enough to target 7 million
by the end of this year.
Mobile-8 has reported a total profit of Rp 55 billion in the first
three quarters of last year, a staggering 513 percent increase from the
same period in 2006.
Felix said shares for PT Telekomunikasi Indonesia (Telkom), the parent
company of the biggest player in the industry, PT Telkomunikasi Selular
(Telkomsel), fell drastically after the KPPU announced Singapore
investment company Temasek and subsidiaries guilty of a cross ownership
in Telkomsel and the second-biggest player, PT Indosat, which led to
"unhealthy competition" in the market.
"The public will price in any improvements or setbacks in the
telecommunication industry into the operators' shares," he said.
He predicted main players like Telkomsel and Indosat would experience
sluggish growth due to the heavy competition.
Heru Sutadi from the Indonesian Telecommunication Regulatory Body
predicted a much more "real" competitiveness to follow the decrease.
"Consumers will go after quality, instead of quantity, because tariff
is not everything in the telecommunication industry," Heru said.
Mas Wigrantoro Roes Setiyadi of the Indonesian Telecommunication
Society said the new interconnection tariff wouldn't affect the
competition landscape significantly.
"The decrease in retail prices is influenced by the dominant players.
So if these players don't decrease their prices, others will follow,"
he said.
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