This report profiles Indonesia’s telecommunication industry, discussing market trends through 2013 and outlook for 2014 and beyond. The report also highlights leading players in the sector including Telkom Indonesia, Indosat, and XL Axiata.

The telecommunication industry has played an important role in the development of Indonesia’s economy over the last few years. Not only has it increased connectivity across the country, but it has also helped in stimulating other sectors of the economy like banking, finance, software, hospitality, and trade. The telecommunication sector in Indonesia comprises several segments, namely cellular mobile, fixed-line, Internet and broadband, mobile valued-added and telecommunication infrastructure services. As of 2013, Indonesia was the world’s fourth-largest telecommunication market in terms of cellular mobile subscribers.

After registering a strong financial performance in FY12, Indonesian telecommunication players witnessed mixed results in FY13. The sector was not able to repeat its performance due to subdued growth in voice and other non-data segments. Double-digit growth in data revenues was able to offset the decline in voice revenues to some extent but the large weight of voice revenues resulted in low growth in overall revenues.

The three big mobile service players—namely Telkom Indonesia, Indosat, and XL—continued their dominance in FY13 as well. Increased competition in the industry has led to an ongoing price war, which is driving down the revenues and profit margins of almost all operators. Going forward, the industry is expected to go into consolidation mode as a result of growing debt and consistent losses reported by the fringe players, particularly the CDMA operators.

The next round of growth in the industry will most likely come from data, Internet, and broadband services. Internet penetration in the country is expected to grow at a double-digit rate for at least the next five years. GSM players, backed by their better network infrastructure and data transmission capabilities, are expected to be the prominent beneficiaries of this round of growth.

Key Points:

• The report includes detailed financial information and a comparative matrix of three leading players in Indonesia’s telecommunications market: PT Telekomunikasi (Persero) Indonesia Tbk (Telkom Indonesia), PT Indosat Tbk (Indosat), and PT XL Axiata Tbk (XL).

• The communication sector, consisting of postal services, information technology services, and telecommunication services, accounted for 6.8% of total GDP (~USD 18bn) as of FY13. The total output of the communication sector grew at a CAGR of 21% during 2004–12.

• The Indonesian rupiah (IDR) lost around 25% against the US dollar during FY13. It was one of the world's worst-performing emerging market currencies in 2013. Interest expenses on foreign debt saw a jump in the second half, while telecommunication companies suffered hedging losses as a result of this steep depreciation.

• The cellular mobile or wireless segment is the biggest segment in the Indonesian telecommunication sector. During 2007–12, cellular mobile subscriptions grew at a CAGR of 25%. However, after the penetration rate surpassed 100% in FY11, the growth has softened. In FY13, it recorded year on year growth of only 8%.

• The Internet, data, and broadband segment is the fastest-emerging segment in the sector, seeing high growth rates in the last few years both in terms of number of subscribers and gross revenues. Internet penetration in Indonesia grew at a CAGR of 21.6% during 2007–12.