Indonesia is seeing significant investment in fixed broadband access networks as operators are rolling out next generation fiber and cable networks. Whilst the perception might be that Indonesia is a mobile dominated market, investments in fixed networks from a number of operators, particularly the incumbent Telkom Indonesia, are at significant levels.
Telkom has been the largest investor in FTTx, covering 13.2 million homes at the end of 2014, equivalent to around 20% of the total. The rollout strategy involves a mix of FTTH and FTTC architectures. Telkom Indonesia is also facing competition from cable operator Link Net, which has upgraded to a DOCSIS 3.0 network. Link Net has been increasing its footprint, growing from 933,000 homes passed at the end of 2012 to 1.4 million at the end of 2014. Another player is MNC Kabel Mediacom, which is aiming to pass two million homes in at least ten cities with GPON FTTH. By the end of 2014 the company was already constructing the network for one million of the two million homes passed total.
There are a number of logical reasons for operators to invest in fixed next-generation access. For Telkom, investing in FTTx in the Jakarta area and in other large cities is a way of staying relevant in the market and attempting to win back customers that have already been lost to competitors, notably Link Net. Without investment in FTTx, Telkom would have run the risk of losing relevance amongst more wealthy social groups.
Telkom’s investments in FTTx also make sense as a strategy to counter the threat posed by mobile operators. As investments in LTE continue in Indonesia, there is the potential risk of more customers using cellular technologies as a home broadband connection. The drawback of cellular technologies is the capacity constraint, which leads to difficulties in offering consumers unlimited data allowances. However, because most of Telkom’s ADSL customers are signed to very low-speed offers, usage on the fixed-line network is also constrained, for example, because users are not able to stream video in real time. Investing in FTTx and significantly boosting speeds removes this bottleneck and will lead to a significant growth in fixed-line data traffic, making it more difficult for mobile operators to compete.
The incumbent’s FTTx investments also make it more difficult for mobile operators in Indonesia to deploy their own FTTx networks. This option might be attractive, given the intense price competition and stagnating revenues in the mobile market. For example, Indosat’s revenue grew by only 1% in 2014, down from 6.4% in 2013. However, rolling out FTTx where Telkom has already done so makes for a significantly more complicated business case.