Indonesia's Mobile Growth Sees Plateau

Indonesia's cellphone market is showing signs of saturation as the number of subscribers and amount of time they talk on their phones is starting to plateau for some major carriers.
In the latest sign, revenue at PT XL

Axiata, the country's third-largest cellular company by number of subscribers, is expected to rise less than 10% this year after jumping more than 25% last year as the number of new cellular users has leveled off, said Ongki Kurniawan, senior vice president in charge of service management at the company.
“There is clear saturation in terms of the minutes of usage,“ for voice calls, he told The Wall Street Journal.

“Revenues for voice calls have been declining since early this year.“
Analysts and other cellular companies agree that the era of easy growth through new subscribers making calls may be ending as the penetration rate of cellphone use is approaching 80% in Southeast Asia's largest economy.


The market for mobile phones “is pretty much saturated, so operators are not competing for subscribers anymore but for revenues per user,“ said Anindya Bakrie, president and chief executive of PT Bakrie Telecom in an interview.

Indonesia is one of the world's biggest cellular markets by subscribers. But as the total number of phones in use has climbed toward 200 million this year, the average revenue per user has fallen below $5 a month, down from more than $7 a month for some carriers three years ago.
If the trend continues, Indonesia would follow India and other emerging-market economies that have seen stabilization in mobile-phone growth.

Overall, subscriber growth in Indonesia is expected to decline from 20% last year to about 10% this year and less than 10% in 2012, analysts say. But telecom is far from a dying business in the country, with profit margins still high. Revenue growth, however, is expected to slow at companies such as XL.

Revenue at XL rose 8% in the first six months of this year to 9.138 trillion rupiah ($1.07 billion) as a 47% jump in revenue from data usage helped offset a 7% decline in revenue from voice calls. Revenue for the full year is on track to grow by a percentage in the “high single digits,“ Mr. Kurniawan said.

While XL doesn't make projections on full-year profit, analysts say its profit growth also is expected to slow this year. The company's net income rose 15% during the first half to 1.52 trillion rupiah.
The slowdown in the growth of revenue from new subscribers suggests that the period in which companies could expand their customer bases through price-cutting rates for calls and text messages has ended in Indonesia. Now companies need to get more creative to survive in a possible consolidation in the industry that could half the number of telecom players to around five, analysts say.

Telecommunications companies have reached about as many customers as they can through rolling out new networks across the 17,000 island archipelago and lowering rates for calls and text messages, they say.
XL, which is 67% owned by Malaysia's Axiata Group, has seen its subscriber base hover near 40 million this year, Mr. Kurniawan said.
It sells hundreds of thousands of new prepaid SIM cards every week, he said, but almost the same number of cards go quiet, indicating that the SIM-card buyers aren't new cellular users but rather people switching cellular providers to capture introductory offers. SIM cards are small chips that allow access to mobile networks.
Other major Indonesian cellular companies include the market leader PT Telekomunikasi Indonesia, which is 35% owned by a subsidiary of Singapore Telecommunication Ltd., as well as No. 2 PT Indosat. The Indonesian companies will have to grow by ringing up more revenue from value-added services, which means everything from downloading ringtones to surfing the Internet, analysts say. Fewer than 10% of Indonesians have smartphones.

To stay competitive, the companies now need to “do a lot more in providing the value proposition via data,“ said Jeffrey Tan, Kuala Lumpur-based telecommunications analyst for OSK Research. “Indonesia's price points have fallen to a state where dropping tariffs any further would do more harm than good as there is little elasticity left in the market.“

XL is trying to lower prices on 3G-enabled phones and smartphones as well as upgrade its cellular towers so they can push larger amounts of data to users' handsets. With more people in Indonesia updating their Facebook and Twitter accounts through their cellphones, the country of 240 million has already become one of the most active on these top social-networking sites.

“Price is no longer the main differentiator,“ so companies need to find new ways to squeeze more rupiah out of their existing subscribers, said Mr. Kurniawan at XL. “It's not going to be easy.“