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The Telecommunications Industry in Indonesia

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XL Axiata: Overturning Indonesia’s Telco Industry

In February 2011, Hasnul Suhaimi, President Director of PT XL Axiata Indonesia (From here on referred as “XL” or “XL Axiata”) walked into Axiata Group Berhad headquarter’s meeting room in Kuala Lumpur, was excited to present XL Axiata’s achievements to the shareholders: four years of work starting from 2006 when he first joined the company, to 2010. Four years previously, XL Axiata had pioneered strategic changes in the telecommunications industry by changing its “high-price, low-volume” strategy to a “low price high volume” one. Under Suhaimi’s direction, XL Axiata became Indonesia’s second largest cellular provider in terms of revenue growth and profits. Prior to that, it was always number three, with a market share of less than 15 percent. In addition, while major competitors were experiencing decreasing market share in 2010 compared to 2006, XL enjoyed a remarkable growth in market share. But, the shareholders in Kuala Lumpur challenge Suhaimi to develop a strategy to sustain performance and continue the company’s gains in the nearly saturated telecommunications market in Indonesia.

The Telecommunications Industry in Indonesia

Brief History

Since 1961

  • A succession of state-owned companies had provided telecommunications service in Indonesia. As in other developing companies, the expansion and modernization of the telecommunications infrastructure were vital to Indonesia’s general economic development.
  • Two telecommunications service providers reigned: PT Telekomunikasi Indonesia Tbk (TELKOM), the only company that provided fixed-line telephones, and PT Indosat, which provided International call service.

In 1995

  • Indonesia liberalized the cellular telecommunications business.
  • Private companies were allowed to operate cellular telecommunication businesses in open competition.
  • Wireless communication was expensive and mobile phones were limited in stock and variety.
  • Communication rapidly grew in importance as well as in demand.

In 2005

  • Mobile phones were popular.
  • Younger users were attracted by the multitasking capabilities of cell phones such as text messaging and voice call.
  • The growth of internet as information and entertainment provider took an important part in the growth of the telecommunications Industry in Indonesia.

The Players


  • Jakarta-based PT Telekomunikasi Selular was incorporated in 1995. It was a subsidiary of PT Telekomunikasi Indonesia Tbk. Telkomsel’s operations in Indonesia had grown significantly since the company launched its post-paid services on May 26, 1995.
  • In November 1997, Telkomsel became the first cellular telecommunications operator in Asia to introduce rechargeable GSM pre-paid services.
  • In September 2006, Telkomsel became the first operator in Indonesia to launch 3G services. Telkomsel two prepaid cards: simPATI and kartu As and also the postpaid kartuHALO service.
  • By the End of June 2010, Telkomsel customer base reached 88.32 million, about 47% of the full-mobility cellular market.
  • In Last 5 years, Telkomsel’s operating revenues grew from IDR 29.15 trillion in 2005 to IDR 45.57 trillion in 2010. Over the same period, Telkomsel’s customer base increased from about 35.6 million by the end of 2006 to 94 million by the end of 2010.


  • PT Indosat Tbk was established in 1967 as a foreign capital company. It started operations in 1969, providing cellular services, International telecommunications services and satellite services for broadcastservice providers.
  • PT Satelit Palapa Indonesia (Satelindo) was establishes in 1993 under PT Indosat, Satelindo was established as a subsidiary of Indosat to operate GSM for the first time, as well as to issue prepaid cards (Mentari) and postpaid (Matrix).
  • In 2001, Indosat had full control of Satelindo. Indosat established PT Indosat Multi Media (IM3) to pioneer GPRS and multimedia services in Indonesia.
  • In 2003, Indosat became a major cellular operator after acquiring three subsidiaries: PT IM3, PT Satelindo, and Bimagraha.
  • Compared to 2006, Indosat’s profits fell by more than 50% in 2010. However, revenues were up 62% compared to 2006 revenues.

Intra-Industry Rivalry

  • Indonesia’s telecommunications industry was ruled by three forerunners of GSM service providers: Telkomsel, Indosat, and Excelcomindo (XL).
  • Telkomsel was dominating about half of the market, Indosat offered the good prices, had a loyal customer base, and held about 25% of the market share. Third ranked, XL was known for great sound quality and high price.
  • As telecommunication industry grew so with the competition. CDMA technology and new GSM providers entered the market with low prices and more services that attracted lower-income market segments.
  • In 2005, a phone call cost USD 0.15 per min. By 2008, it cost only USD 0.015 per min due to tougher competition.
  • The declining in monthly average spending on voice calls were driven by two factors: decreasing tariffs and lower income earners entering the market. These two factors contribute in increase in mobile subscriptions.

Newcomers to the Telco Industry

  • In 2005, new companies offered lower-cost cellular services to various market segments.  CDMA service provider such as Esia of Bakrie Telecom and Telkom Flexi of PT Telkom attracted consumers, particularly from lower income brackets.
  • CDMA’s low price was possible because the cost of providing the network was lower than that of GSM, GPRS, or 3G.
  • On the other hand, CDMA-based services had limited network coverage. Most CDMA networks has limited mobility, subscribers must re-register whenever they are in areas where CDMA doesn’t provide roaming service.
  • Newcomers among GSM providers such as Three of Hutchinson and Axis of PT. Natrindo attracted the teenage market in Indonesia by offering fun brand personalities and affordable price.
  • Defeating the three forerunners was a great challenge to the newcomers. For over a decade, Telkomsel, Indosat, and XL had earned trust and the loyalty of most of their customers.
  • Newcomers such as Axis, Hutchinson, Esia, and Flexi had to penetrate expand their markets, and to woo subscribers from the established brands.
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