Indonesia’s telcos hold back on 5G rollout plans

• Major telcos in Indonesia are delaying large-scale 5G deployments 
• A lack of demand and relevant use cases are holding the telcos back
• The focus instead remains on enhancing existing 4G networks in key urban areas

Despite growing demand for digital services and enhanced connectivity, network operators in Indonesia are delaying the large-scale deployment of 5G amid financial constraints and a lack of immediate demand, which is having an impact on the nation’s readiness for next-generation applications.

The challenges facing the country’s main mobile operators – Telkomsel, XL Axiata, Indosat Ooredoo Hutchison (IOH) and Smartfren – will be familiar to many of their peers around the world: There is not much of a case for investing in a broad, nationwide rollout of 5G for consumer customers as, currently, they can be adequately served by 4G connections. 

And while 5G is widely regarded as a technology with the potential to revolutionise the provision of connectivity-based services across multiple industrial verticals when combined with advancements in automation, internet of things (IoT) devices and applications, artificial intelligence (AI) and extended reality/virtual reality (XR/VR), these capabilities and technologies are not yet commonly available in Indonesia, meaning 5G deployments are less urgent.

In a report from The Jakarta Post, Vivek Sood, group CEO of Axiata, the parent company of XL Axiata, highlighted these issues. He stated there was little difference between 4G and 5G connections for individual users given that the main use of consumer connectivity is limited to social media and video streaming apps.

This sentiment is echoed by others. Steve Saerang, head of corporate communications at Indosat Ooredoo Hutchison, stated that a “4G connection [is] still reliable enough to meet customer demand in Indonesia, for now.”     

The country’s government has also recognised the sluggish development of 5G. Communications and information minister Budi Arie Setiadi pointed to low consumer demand as a major hurdle, despite the ministry’s plans to offer incentives for operators to develop 5G infrastructure. “5G is not only about speed but also about the demand that requires that kind of speed,” Setiadi said in an interview in April with Suara.com.

Jonghoon Won, research analyst at local brokerage Mirae Asset Sekuritas, sees a brighter future for 5G, albeit further down the line. “As the country reaches a certain stage of tech development, the demand for 5G will naturally increase. This will, in turn, drive more aggressive investments in the infrastructure,” Won told The Jakarta Post.

In terms of 5G investments, the focus remains on providing coverage in major cities and service areas, such as Jakarta, Surabaya, Makassar, and Bali, where potential demand is much higher, while also ensuring that the already widely available 4G services continue to meet customers’ needs.

The return on investment challenge for Indonesia’s operators is not new: While the country is the fourth-largest in the world in terms of population – with about 277 million inhabitants it is smaller only than India, China and the US – it comprises more than 17,000 islands, making the provision of high-speed connectivity services tricky and expensive outside the main urban areas. In addition, while Indonesia boasts a large and growing economy, it is still an emerging one that can support only low mobile tariffs, which puts a strain on the financial resources of the mobile operators. 

As TelecomTV reported recently, the parent companies of the third and fourth largest operators, XL Axiata and Smartfren, are in merger talks in the hope of gaining scale and creating a stronger rival to Telkomsel and IOH.  

- Joana Bagano, Contributing Editor, TelecomTV