While the likes of Australia, Macau, Singapore, and South Korea account for four of the top seven nations worldwide for smartphone adoption, Indonesia, along with China and India, has been responsible for driving growth in take up across the Asia Pacific region.
Indonesia alone added almost 75 million smartphone connections in 2017, while the total for the three countries combined was 348 million, accounting for 55% of global new connections.
However, there remains a considerable digital divide between urban and rural citizens in Indonesia. Nearly 45% of people live in rural areas, which is considerably higher than in the more developed Asia Pacific countries, while the archipelagic nature of Indonesia can make expanding coverage costly and difficult. Still, the number of unconnected Indonesians presents a huge opportunity for economic growth and social development over the next decade.
Indonesia is currently in a transitional phase away from a basic voice and SMS-based mobile market towards a more advanced digital society. Also, 2G and 3G combined represented 69% of total connections as of H1 2018. Still, despite being considered a laggard 4G market, Indonesia is now beginning to see an accelerating migration to superfast wireless broadband. This is driven for the most part by ongoing network investment and spectrum refarming by operators locked in fierce competition and by a growing consumer appetite for higher speed mobile services.
4G is not yet the dominant technology in Indonesia, while the 3G lifecycle is not expected to reach maturity for a couple of years. However, against a backdrop of favourable spectrum and investment policies from the government, 4G will continue to rise out to 2025, accounting for 361 million connections (74% of total connections) by that point in time. Looking further ahead, while commercial deployments of 5G services will have occurred in China, Japan, and South Korea before the end of 2020, the market for this next-generation technology will still be at a nascent stage in Indonesia five years on.
While DVDs of the latest films and television series are often available in shopping malls and markets across Indonesia, and typically at very low prices, the over-the-top (OTT) market expected growth is expected to be worth $40 million (IDR 576 billion) in 2019, with a forecast subscriber base of nearly 10 million. This growth may be driven largely by the likes of Netflix. Although, as Indonesian consumers also have strong preferences for local-language content, OTT market growth will also materialise as a consequence of domestic players like iFlix and Hooq – which are less expensive than Netflix.
Meanwhile, free-to-air television consumption per user has fallen in recent years. The average citizen’s daily use of the internet via a mobile phone (3 hours 55 minutes) and the use of social media via any device (3 hours 16 minutes) both now eclipse their daily television viewing time (2 hours 23 minutes). Television viewership has been in particular decline among the younger demographic who are increasingly inclined to rely on press websites and social media platforms for news content, and to stream non-linear programming. As advertising consumption and revenues shift away from traditional broadcasting and into digital channels (such as social networks), it is therefore important the country maintains the pace of digitalisation and that spectrum policy supports the demands and needs of the mobile industry.
Despite the evolution of free-to-air television to digital platforms (which has transitioned from a nearly 60-year old analogue technology), analogue TV has not been phased-out yet in Indonesia. Digital TV is much more efficient and its video quality is superior. It uses less spectrum to broadcast content, multiplying in dozens of times the amount of programmes available to viewers. Indonesia has still to complete the TV Digital Switch-Over process (DSO), and is therefore yet to allocate the resulting spare spectrum in 700 MHz (the “digital dividend”) to 4G mobile services.
The combination of a large (young) population, expanding 4G coverage, and relatively inexpensive mobile services and handsets means that Indonesia has the scale and market characteristics to stimulate unique innovation, which has the potential to be exported. Go-Jek, for example, is Indonesia’s first unicorn start-up and, according to a recent survey, the country’s most popular ride-sharing or hailing application. Launched in 2016, Go-Jek’s Go-Car and its widespread motorbike service have quickly become popular with the country’s significant addressable market and are competing very successfully with Grab and Uber – Grab has, in fact, agreed to acquire Uber’s South-East Asian assets. Go-Jek’s Chief Marketing Officer also claims that the company has helped lower Indonesia’s unemployment rate by 0.5 of a percentage point in 2016 and put back $1 billion (IDR 14.4 trillion) into the economy by its drivers and merchants.
Indonesia’s digital economy is, for now, still in its infancy, although one estimate of the potential impact of digital technologies in the country suggests an increase in gross domestic product (GDP) of $150 billion (IDR 2,160 trillion, which translates to a 16% growth on current GDP) by 2025 and 3.7 million additional jobs.
Better national connectivity through superfast wireless broadband will provide the impetus for economic acceleration and mobile operators are uniquely positioned to play a critical role in this process through infrastructure investment projects and the delivery of digital services. Good connectivity is equally crucial to support effective digital citizenry and to offer the ability to fully utilise government services. Around the world, governments are increasingly using digital channels to deliver social welfare, provide healthcare, and expand online education to the most vulnerable communities.
For example, digital platforms are improving access to education and becoming an important pillar in building knowledge-based societies. E-learning can increase up-skilling opportunities and act as a platform to promote human development in rural and remote areas. This can lead to an improved quality of life for individuals and their families, which in turn can fuel a virtuous cycle that boosts economic growth, creates more jobs and reduces poverty.
M-education solutions already allow thousands of students in countries such as Indonesia to access course content through SMS and audio lessons. In 2015, Telkom, the MCIT, and Indonesia’s Ministry of Education and Culture embarked on a new initiative, which aims to replace physical textbooks in schools, which can be expensive and difficult to obtain and distribute, with tablets and ebooks.
The 700 MHz spectrum is the most cost-effective way to achieve widespread coverage of 4G mobile broadband for the benefit of Indonesian citizens Frequencies in lower spectrum bands, such as 700 MHz, can reach longer distances – providing much better coverage in comparison to higher frequencies above 1 GHz and thus reducing infrastructure costs.
While some Asia Pacific countries, including Indonesia, have launched 4G networks at frequencies below 1 GHz, only a fraction of the available spectrum in the region is in this range. This highlights a need for more spectrum to be allocated in coverage bands for wider adoption of mobile broadband services. Coverage decreases with higher frequencies, requiring more towers, sites and related infrastructure to replicate the achievable coverage of the 700 MHz band.
By gaining access to 700 MHz spectrum, operators will be well-placed to tackle – and reduce – the prevailing coverage gap, resulting in higher mobile penetration and improved access to services, such as education and healthcare, in rural areas. Mobile operators, other ecosystem companies, governments, and regulators all have a role to play in ensuring that Indonesia reaps and maximise the benefits of the 700 MHz digital dividend as soon as possible.