Summary of Market Demand and Capacity Indonesia Telco

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Summary of Market Demand And Capacity

1. SUMMARY

The paper on Palapa Ring Project is the best reference to give an overall picture of business opportunity over fiber optic backbone especially on the demand side of fiber optic backbone in Indonesia. Section 4 of this paper briefly describes the PowerTel project and its capacity, while section 5 addresses the supply side of fiber optic backbone in Indonesia, especially in Java island where the PowerTel fiber optic backbone project resides. 2. BACKGROUND

In late 2006, Indonesian the Government of Indonesia (GoI) was carrying out an event called Indonesian Infrastructure Summit where GoI was offering some potential infrastructure projects to both local and foreign investors. One of the projects offered by the GoI was Palapa Ring project which is, in essence, a Fiber Optic Backbone project wiring all major islands within Indonesia. All estimated costs to build the project, anticipated demand for bandwidth, and projected revenues are calculated for all major islands. Indonesia with around 220 millions of population, almost 70% of the population live in Java island. As a matter of fact, Java island is the most developed island among all major islands in Indonesia, and where about 85% of national spending power is within the Java island as well. Therefore, from demand and revenue sides, it is very straightforward to calculate approximately that at least 85% of demand and revenue estimated in the Palapa Ring paper come from the Java island. Predominantly, GoI offers Palapa Ring project as an entirety project (wiring all major islands within Indonesia) to develop less developed islands as well, so the lucrative market, such as Java island, will subsidize other less profitable islands. In contrast, PowerTel obtained its license to build the fiber optic backbone in Java island without any obligation to build such infrastructure outside Java island. In this manner, all the forecasted demand and revenue from Palapa Ring project can be used as a credible reference to elaborate PowerTel’s fiber optic backbone project

3. MARKET DEMAND IN INDONESIA Ministry of Communication and Information Technology forecasted that by 2010, the number of fixed phone users in Indonesia will reach 31.2 million with CAGR of 20.1%, while the number of mobile phone users will reach 122.1 million subscribers with CAGR of 26.7%. For internet users, the Ministry forecasted that the number of internet users in 2010 will reach 80.2 million

users with CAGR of 30.8%, and the broadband users will reach 2.5 million users with CAGR of 71.0%. Statistics show that penetration of both fixed and mobile phone users far exceeds the forecast, while penetration of both internet and broadband users is lower than the forecast. In fact, Indonesian internet users have to pay a 5 times higher internet access fee than their neighboring countries, indicating that bandwidth is being controlled by the incumbent telecommunication operators which makes the penetration of phone users far exceed the forecast, while penetration of internet users is low and internet access fee is expensive. According to World Bank case study for Palapa Ring Project (Indonesian Government project to build 34000 km fiber optic backbone all around the country), with a moderate scenario, the estimated demand of bandwidth by 2010 will value USD 575.6 millions and with a growth rate of 25% per year. Frost & Sullivan even forecast much higher demand and revenue then the case study. PT Telkom is one of the current telecommunication players who provides end-to-end services, hence, its revenue for “DATA and Internet Service” as stipulated in its Annual Reports (http://www.telkom.co.id), will be a credible reference to get a picture of the revenue generated from fiber optic backbone project. PT Telkom’s revenue, from “DATA and Internet” as of December 2006, is in the amount of IDR 9 trillion or approximately USD 0.9 billion, and reached IDR 14.6 trillion...
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