Nokia Siemens Networks

Telkomsel wins higher revenue from rural regions

Rural mobile consumers are often typecast as low spending. Yet Indonesian operator Telkomsel has found that its rural customers expend more than expected, making the effort of providing coverage across difficult terrain well worthwhile.

When it comes to rolling out rural communications, Indonesia presents physical challenges far beyond those of most other countries. The sheer geographical inaccessibility of remote parts of the nation stretching 8,000 km across more than 17,000 islands makes Indonesia a tough test for extending mobile coverage to rural consumers.

And so it is for Telkomsel, Indonesia’s leading mobile operator with about 52 million subscribers. As part of its business growth strategy, Telkomsel is expanding into areas with no prior mobile communications coverage. Its expansion since 2002 has targeted the islands of Kalimantan, Maluku, Papua and Sulawesi, collectively known as Area IV.

“Area IV is especially challenging. We have to hire helicopters to bring installation engineers and equipment to remote locations. We also have to install generator sets to power base stations and use satellite transmission links, which together account for about 90 percent of our operational costs in rural areas,” explains Mr. Hendri Mulya Sjam, president of Marketing and Customer Relationship Management for Telkomsel.

Unexpected high spending

Yet the remoteness of Area IV has an upside for Telkomsel, revealed by average revenue per user (ARPU) figures for the region of 10-11 US dollars. This is significantly higher than other areas, such as Java which offers an ARPU of 5-6 US dollars. People in Area IV often lack other services, even television, and are hungry for communications, using their mobile devices to stay in touch with relatives in the big cities.

“Before we entered rural areas, we expected a limited ARPU. But this is not a low ARPU area. Much of the call traffic is long distance,” comments Sjam. “Local people benefit financially from the thriving fishing, agricultural and mining industries. Coal mining and gold mining are prospering. It is why the ARPU in Kalimantan is the highest in Indonesia. Churn is also lower than in Java because there are fewer operators in Area IV.”

Area IV subscribers are also receptive to marketing initiatives. Telkomsel managed to boost ARPU by 10-12 percent between 2005 and 2007 by promoting its Ring Back Tone (RBT) service.

“Currently around 30 percent of subscribers in Area IV use the RBT service, compared to just 15-20 percent in Java and even Jakarta,” says Sjam. “The service is so popular because people love music and because several top Indonesian singers are from Area IV. Tunes from a Sulawesi rock band called Ungu are the most popular RBT downloads.”

Further growth to come

The solutions provided by Nokia Siemens Networks have helped Telkomsel to achieve about 65% coverage of Indonesia’s rural areas. During the first six months of the expansion, the number of subscribers more than tripled, from 300,000 to one million.

Telekomsel is currently adding about a million new subscribers in Area IV every four months, and their total revenue has more than doubled since 2002. The operator aims to continue expanding within Area IV and beyond. It is a plan that benefits from official encouragement.

“While it can be difficult to get approval to expand in the big cities, we do not have any problems in rural areas. Sometimes the government requests that we develop coverage in a specific area and are really helpful, even donating land for equipment sites,” says Sjam.

For the people of Area IV, the benefits of mobile communications are compelling - justifying the time and effort taken to bring coverage to their door.

• Indonesia is a sprawling nation with difficult geographical barriers to rural mobile services
• Having invested in extended coverage, Telkomsel is reaping the rewards - with a growing subscriber base
• Rural users have embraced the convenience and fun of mobile communications
• Higher than expected revenues are helping Telkomsel to sustain its drive into new regions