Indonesia's Satellite of Love
But despite recent attempts at deregulating Indonesia's telecom market, the two state-controlled wireless companies say they are likely to have the edge in the future. Sites for towers and antennas are getting harder to come by, and demand will likely rise as the country gets ready for 3G service. But Indosat and Telkomsel can easily rely on their own existing sites at less cost than can new competitors.
Both companies are also investing hundreds of millions in their expansion plans this year. Indosat has budgeted as much as $900 million in capital spending this year, a 33% increase over the 2004 budget. The spending is earmarked largely for cellular equipment to expand its coverage, which reaches 70% of the country's population, to more potential customers. For its part, Telkomsel -- which already reaches 90% of Indonesia's population -- is planning to spend $700 million.
Indosat is expected to sell between $200 million and $250 million this week in a seven-year bond offering. Moody's rated the proposed bonds B1, saying the outlook for the company was positive provided it can stave off an eroding market share amid rising competition and leverage its investments into strong growth.
To some degree, the bond offering will repay the hefty dividend that Indosat's shareholders demanded for themselves. Half of the company's $176 million net profit in 2004 was paid in the form of a disclosure, despite Indosat's need to spend on new equipment. That prompted one research firm, BNI Securities, to consider downgrading its rating on the stock last week.Indonesia is the fifth most populous country and larger than such growing economies as Brazil and Russia, as well as industrialized nations such as Japan. According to Merrill Lynch, Indonesia's wireless penetration rate is 13%, compared with 25% in China and 41% in the Philippines. Indonesia telecom officials project that wireless subscribers will grow by 40% this year. Despite that anticipated growth, both companies are seeing less money per subscriber as competition drives down pricing. Indosat and Telkomsel have been seeing average revenue-per-user rates fall 10% to 17% from year-ago levels. But with GDP, which is equal to about $3,500 per capita and growing about 5% a year, more middle-class customers may be willing to subscribe to wireless service. And if the economy doesn't grow fast enough to keep Indosat and Telkomsel signing up new customers, you know to whom you should complain. The country's president can be reached by dialing 62-811-109-949.
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