President Joko Widodo recently (11 December 2015) kicked off the launch of national 4G/LTE services in Indonesia, meaning that the facility has now been expanded nationwide. The 4G service, which was introduced commercially back in December 2014 at select locations, were expanded throughout the year to cover more number of cities, finally resulting in a nation-wide coverage.
The nationwide availability of 4G technology promises a much faster internet connection with speeds up to 100mbps compared to erstwhile 3G’s 14.4mbps speed. President Jokowi expects the faster internet connection to support the digital economy, particularly upcoming sectors such as e-commerce. The government aims to expand business revenues from e-commerce to rise to USD130 billion by 2020, from an estimated USD18 billion in 2015. However, a recent report from credit card service provider Visa Worldwide Indonesia said online shoppers left half of their transactions at the last minute, due to slow internet connections.
To that end, the national rollout of 4G service is undoubtedly a critical move as rising internet penetration and growing smartphone sales continue to support digital economy. Indonesia is one of the most mobile-friendly countries in the world, and social media usage is the highest in South East Asia.
Internet Access on Smartphones the Highest
According to data from MarkPlus Insight Youth, Women, Netizen Survey 2015, up to 95% of netizens (those who access internet for three hours or more per day) access internet on their smartphone devices, followed by 36.6% on their laptops; 12% on their tablets, and finally, up to 9% on their desktop PCs.
The survey included 3, 605 participants spanned across 18 cities in Indonesia, including Jabodetabek. The respondents included those aged between 15 and 59 years, and internet usage on smartphone was the highest among those aged 25-29 years, while those aged 45-49 years of age accessed internet the most on laptop, compared with other age groups.
Source: MarkPlus Insight Netizen Survey 2015, n=3605
*multiple answers, hence don’t add up to 100%
In view of the rising smartphone sales and greater internet penetration, telecom players are naturally upbeat about 4G prospects but one critical challenge facing the industry is the cost of access. Telecom players have already been reeling with declining ARPUs (average revenue per user) over the years, as revenue from calls and SMSes have plateaued. According to Telkomsel, average ARPU has steadily declined over the past decade, from IDR 50, 000 (US$3.70) per month in 2007, to IDR 30, 000 (US$2.20) in 2014.
Greater bandwidth, competitive pricing
It is not surprising therefore that expanding ARPUs from data has become telecom players’ top priority. With the launch of 4G services, telecom players are looking to significantly improve both data ARPUs from individual subscribers as well as businesses. For subscribers, 4G packages are available for as low as IDR60,000 (5GB) monthly, while premium pack by a telecom operator promises to offer speeds up to 150mbps at a cost of IDR100,000.
The pricing for 4G packs appears to be competitive, especially considering the existing 3G packs for equivalent quota cost around the same. Also, the netizen segment in Indonesia would likely be willing to pay a premium for faster and better internet connectivity. MarkPlus Insight Netizen Survey 2015 (including 2,825 respondents in this category) shows that up to 40% of netizens spend only IDR 50,000 on average on internet, while 35% of them spend 100,000 per month on internet. Only about 7% of them spend IDR 200,000 on internet per month.
Even as costs are expected to come down in the coming years – further aiding adoption – challenges remain with devices’ compatibility and educating consumers about the migration process. An uphill battle would be encouraging and facilitating migration among millions of 2G users, who continue to access the basic internet services on feature phones. According to GSMA Intelligence, 209 million of the country’s total 323 million mobile connections (based on Q1 2015 data) use 2G, compared to 113 million on 3G and just 1.34 million on 4G. The government is looking to push migration by some policy measures, including raising taxes on 2G feature phones as well as cutting taxes on 4G enabled hand phones. The government is also encouraging the industry to promote creation of a 4G ecosystem to help educate consumers about the new technology. That would be critical because switching to 4G, in some cases, requires changing SIM cards as well as switching to 4G-enabled devices.