Telkom Indonesia targeting new growth avenues-
With an overall subscriber base of over 170 million, state-owned Telekomunikasi Indonesia (Telkom) holds the lion’s share in all segments of the Indonesian telecom market. Telkom, established in 1991 following the reorganisation of the government’s posts and telecommunications department, has shown significant growth over the years. Although primarily a fixed line giant, Telkom entered the mobile market in 1995 when it set up Telkomsel.
The mobile segment has emerged as a key revenue driver for the company. During the nine-month period ended September 2013 (9M13), Telkomsel accounted for approximately 71.5 per cent of the parent company’s total revenue of Rp 61.5 trillion. While the entry of other players in recent years has increased the competition in the cellular market in Indonesia, Telkom has managed to hold its ground with close to 40 per cent of the market share in the segment as of September 2013. This figure is more than double the share of its closest rivals – XL Axiata (18 per cent) and Indosat (17 per cent).
In contrast, the fixed line segment, formerly the company’s mainstay, has taken a serious beating. This segment’s contribution to total revenues declined sharply from 16 per cent in 2008 to 7 per cent in 9M13. A key reason for this trend has been the rising subscriber preference for mobile services. While Telkom’s cellular subscriber base almost doubled between 2008 and 2013, its fixed line customers reduced during the same period. Moreover, in the past few years, the wireless voice market has also become highly saturated in Indonesia – the country has over 300 million connections for a population of 240 million – thus limiting opportunities for the company.
Therefore, Telkom has shifted its focus to new avenues of growth such as providing data and broadband services through wired and wireless mediums. It plans to use its fixed line networks as a potential medium for the delivery of high speed services to business customers, as well as small and medium enterprises (SMEs). The response to the company’s Wi-Fi and 3G services has been encouraging. Increasing subscriptions to these services is central to the company’s growth plan in 2014. In addition, Telkom has put in place a few strategies to infuse funds into the company, which include offloading its stake in its tower unit and listing its cellular business subsidiary.
Leading player in the market
As of September 2013, the company serves over 170 million subscribers comprising 127.9 million cellular subscribers (including more than 51 million mobile internet users); 15.6 million broadband (fixed and mobile) users; 20.8 million fixed line (wireline and wireless) users; and 7 million BlackBerry users. Telkom enjoys a dominant position across the fixed line, wireless, and broadband segments, which can be attributed largely to the vast infrastructure network that the company has built over the years. As of September 2013, the operator has 65,653 base transceiver stations (BTSs), of which about 36 per cent are based on 3G technology.
Furthermore, Telkom has been forging strategic partnerships with leading global vendors and operators in an endeavour to expand its service reach and modernise its networks from time to time. Under an agreement reached at the beginning of 2014, Alcatel-Lucent will build a 3,000 km submarine optic fibre network for Telkom, which will link up the islands of Sulawesi, Maluku, and Papua. The system is part of Telkom’s Nusantara Super Highway which aims at building terrestrial and undersea infrastructure throughout the archipelago. Also, in January 2014, Telkomsel appointed Nokia Solutions and Networks to upgrade its GSM and 3.5G HSPA+ network across the country.
On the financial front, the company’s performance was satisfactory in 2013. Total revenue grew by 8.2 per cent from Rp 56.9 trillion in 9M12 to Rp 61.5 per cent in 9M13. Net profit increased by 10.89 per cent from Rp 10 trillion to Rp 11.1 trillion. Cellular voice services continued to be the highest contributor to the company’s revenues, accounting for 38.5 per cent of the total revenues earned during 9M13.
Data as growth engine
Operators all around the world are focusing on data services to drive future business and revenue growth. In 2013, the data services segment emerged as the star performer for Telkom: its contribution to the company’s total revenues was 37.88 per cent for9M13. Revenues from data services have been on an upswing over the past year, growing by 16 per cent (highest among all segments) from Rp 20.1 trillion in 9M12 to Rp 23.3 in 9M13. While Internet and SMS services continue to account for the majority of these revenues, services such as VoIP and e-business services will drive future growth. Telkom is also very optimistic about the sale of its Wi-Fi services. It has already rolled out a huge Wi-Fi network to avoid congestion on its cellular networks. The arrival of 4G in the Indonesian market may also help the operator to address capacity constraints, while enhancing its average data revenue per user.
Revisiting the fixed line potential
In a bid to offset the downward trend in fixed line voice services, Telkom has started tapping into its wireline networks to offer high speed broadband services to business and institutional customers. The demand for higher bandwidth is encouraging the adoption of fixed broadband services and Telkom is aiming for revenue growth in the fixed broadband business to reach 13 per cent in 2014, higher than the industry average of 10.5 per cent. It aims to increase broadband connections to 20 million subscriptions by end-2015, from about 2.9 million as of September 2013. Indonesia’s low fixed line broadband penetration rate (4–5 per cent) offers significant untapped potential for Telkom.
Targeting SMEs
Telkom is likely to expand its enterprise service portfolio to better cater to SMEs in 2014. The move comes at a time when voice markets are reaching saturation and operators are increasingly looking for new avenues to drive revenue growth. Currently, Telkom serves about 150,000 SME clients – about 37.5 per cent of the total SMEs in the country. It plans to add 500,000 SMEs in 2014 and double the number by 2015.
In 2012, the company introduced the Indonesia Digital Entrepreneur (IndiPreneur) programme that allows SMEs to use free high speed Internet and e-commerce software. Recently, Telkom launched SME Indonesia Bisa, a marketing scheme that targets 100 wholesale markets across the country. The company plans to set up optic fibre cable networks to provide Wi-Fi and mobile broadband connections and information and communication technology training skills to SMEs to enable them to market their products better. In December 2013, Telkom launched BosToko – an application that helps SMEs to do online record keeping. Overall, the company aims to earn Rp 10 trillion in unconsolidated revenue in 2014 through its enterprise and business services, of which 75 per cent would come from large enterprises and the remaining 25 per cent from SMEs.
Focus on core operations
Telkom is planning to relinquish major control over a few of its subsidiaries that primarily handle non-core operations in order to focus on its core business of telecommunications. This will allow the operator to streamline its efforts to promote mobile and fixed broadband services in a big way. Telkom has already sold its 80 per cent stake in its pay TV subsidiary, TelkomVision, to CT Corporation.
Furthermore, it is planning to sell a 49 per cent stake in its tower subsidiary, PT Dayamitra Telekomunikasi (Mitratel). Currently, two tower companies – PT Tower Bersama Infrastructure Tbk (TBIG) and PT Professional Telekomunikasi Indonesia (Protelindo) – are competing to bag the deal that is likely to conclude by 2015. This move will not only support the effective management of Telkom’s infrastructure portfolio, but also help the operator to comply with several local and global regulations that emphasise joint development and sharing of telecom towers.
No resting on its laurels
Telkom has set a target of achieving double-digit revenue growth in 2014. Broadband and data service expansion is the company’s top priority. Telkom’s increased focus on SMEs and fixed line services will drive future growth. The company has increased its capital expenditure guidance by about 10 per cent from Rp 20 trillion in 2013 to Rp 22.28 trillion in 2014.
Going forward, with mobile teledensity in Indonesia reaching 120 per cent, operators are left with fewer opportunities in the mobile voice segment. In such a scenario, exploring new growth avenues has become imperative. Telkom’s focus on data and broadband services, as well as its concerted efforts to tap into new business opportunities and consumer segments will drive continuous operational and financial growth for the company.
