Strategic Management Analysis: PT Indosat Tbk.
Chapter I
Introduction
PT Indosat Tbk is one of the major players in the telecommunication industry among its rivals, namely Telkomsel, and XL Axiata. Indosat has a long history of operation with more than 50 years in the industry. Its name comes from its national identity and how it operates using international satellite, combining the name Indonesia with satellite into Indosat. The telecommunication industry has been relatively stable over the years perhaps due to existing competitors and the sheer amount of investment needed to operate such enterprises.
Just like its competitors, Indosat offers various services to diversify its brand and to cater many consumer’s needs and wants. Indosat mainly provide GSM services that includes pre-paid or post-paid phone plan. Indosat also provides e-finances services, home fiber network, cloud services, satellite leasing service, and IT services from its subsidiaries.
Ever expanding, Indosat strife to diversify their business along with product differentiation to establish stable ground for its operation. As the main fuel for its ambition, Indosat envision themselves to be the leading digital telecommunication enterprise. They regard values such as Trust, Care, Excellence, Speed, and Youthfulness in their operation whether in day-to-day operation, decision-making process, and strategic planning. Indosat’s main objective is to gain competitiveness by investing and improving their service quality to rival competitors. Not only through capital investment, Indosat also realized its internal weakness and circumvented the problem by building high performing teams which could bring innovation in its every ideation. By empowering such teams, it is hoped that Indosat can adapt to quick changes happening in the industry. Another objective Indosat wished to fulfil is that creating services that could gain consumer’s trust by delivering superior value at low cost. To achieve such goals, Indosat expanded to new segmentation and by investing in such segments, they aim to accelerate and maintain their growth in new B2B segments. By expanding their network infrastructure and maintaining it to such degree that Indosat could be relied on for critical processes.
Thus, Indosat bore and acquired many subsidiaries in its history to support their business processes. In the past, they were able to acquire their competitors, PT Satelit Palapa Indonesia, the first company to utilize GSM technology in Indonesia. This acquisition signifies Indosat domination in the industry. Its service for Mentari and Matrix eventually fully integrated to IM3 pre-paid and IM3 post-paid services respectively. PT StarOne Mitra Telekomunikasi is another subsidiary that has been fully integrated as well. Using CDMA technology, StarOne utilizes Fixed Wireless Access to operate its business model. Much to the same fate as Satelindo, their services are concluded when this model is deemed obsolete to much more mobile GSM technology.
Currently, Indosat still has several subsidiaries to assist them in the process of operation. To help with operational maintenance and information flow, PT Aplikanusa Lintasarta provides corporate solutions for data communications, internet and IT services. To cater specific consumer and commercial segments, PT Indosat Mega Media (IM2) offered several services to fulfill their needs in broadband connectivity. Using FTTP technology, IM2 is able to provide reliable, fast and stable multimedia, internet, and Data communication services that rival others such as IndiHome. To support established broadcasting services, Indosat joined venture with PT Pasifik Satelit Nusantara to form PT Palapa Satelit Nusa Sejahtera. This subsidiary is aimed to provide replacement for the current aging Palapa D communication satellite in orbit.
Headquartered in Jakarta, Indosat mainly operates in Indonesia but it also has a subsidiary in Singapore under the name of Indosat Singapore Pte Ltd. The purpose of this subsidiary is not only to connect current customers to Indonesia at a low-cost plan, but also open up the possibility of expansion to new consumer segmentation there and improving connection latency by branching out its international network expansion.
The history of this legendary enterprise runs back to 1967. formed as an initial effort to modernize Indonesia, Indosat became a crucial figure not only in the development of telecommunication, but also an entry for foreign investment. Joined by American Cable & Radio Corporation (ACR), Indosat led the charge in connecting people all over the region.
Along with the first communication satellite owned by Indonesia, Palapa A-1, Indosat has become a sort of national symbol for progress. In Soeharto’s administration, to ramp up the project for International communication network expansion, the government seized the majority of stocks from its partner ACR. This action is done in order to gain complete control over Indosat’s operation, hoping it could assist in accelerating telecommunication expansion done by the government.
Under Megawati’s administration however, the government decided to divest their stockholding in the company to cover the deficit in the government budget. This action made the company open for public offering where the majority of its stock was bought by Qtel, an international enterprise that operates in the same industry headquartered in Doha, Qatar. Qtel later renamed themselves as Ooredoo QSC which prompted Indosat to undergo Identity changes by renaming their brand into Indosat Ooredoo.
In their marketing effort, Indosat utilizes value-based pricing strategy in order to gain market share. Using a mix of strategies that made them able to offer internet bundles at competitive prices. By doing so, they seek to claim XL Axiata’s market share, another competitor with the same strategy and hopefully are able to shake Telkomsel dominance in the market. Indosat caters to the mobile network market and serves mostly specific consumer segments that requires huge amounts of data that also includes roaming, providing alternatives for consumers that have limited budget plans, consumers that frequently travel internationally, or consumers domiciled in regions that lack infrastructure and thus disable them from choosing fixed broadband options.
They had specific strategy in their services. for pre-paid segment, Indosat offered a bundle that they call “freedom” budget. In this bundle, customers are able to use their data plan for 90 days unlike their competitors which mostly implemented 1-month data plan cycle. This data plan is hoped to add leniency on customer perception in which it could bolster positive opinion towards the brand. Another extension of this product is Freedom U. this product emphasizes accessibility of apps like online streaming service, online learning & community service, social media, recreation, and e-commerce.
In geography, they focus both their infrastructure and marketing effort to specific segments. They understand that they are unable to compete with the current market leader, Telkomsel, in region such as Sumatra. Thus, they only focus on urban segments in major cities such Jakarta, Surabaya, and Denpasar for example rather than the suburban areas. This action subsequently decreased their maintenance cost for infrastructure and boosted the effectiveness of marketing due to increased focus on specific regions.
Chapter II
Analysis
Resources-based Model
Available Resources
Indosat’s resources can be divided into tangible and intangible assets. Tangible assets include physical infrastructure such as Base Transceiver Station (BTS) and operational communication satellite. Reported in their quarterly report, Indosat has accounted for 133,186 BTS in which 52.174 has been made to operate and cater 4G service. Although it is less than Telkomsel with total of approximately 189,000 BTS, it is concentrated in urban areas. On top of the transceiver station, Indosat also owns and operates a telecommunication satellite, Palapa D satellite. The satellite is not only essential for Indosat’s operation, but it also contributes to revenue stream with leasing service offered by Indosat. The satellite also inherits intangible value due to its positioning that covers the South-east Asian region.
Competency Capability
To sustain operation, PT Indosat as part of Ooredoo group is able to enrich its human resources by a global talent programme called Global Talent Mobility. Utilizing this programme to its advantage, Indosat employees are able to integrate their employee to the main Ooredoo group which will hone employee’s expertise and increase employee’s competency with the global learning environment set in the program.
Competitive Advantages
Using available resources and competency capabilities supported by Ooredoo group, Indosat should be able to increase its position under guidance of Ooredoo to gain market advantages in value for price products.
Attractive Industry
Although its standing has been degraded over the years, GSM segments is still an attractive industry. With increasing digital penetration, the market yields greater prospects that is still untapped by any competing firms.
With Government-backed Palapa Ring network project, this could not only increase Indosat’s reach, but also decrease investment cost significantly. While 4G technology is still not widespread in usage due to limitation of infrastructure, 5G technology is an open option for firms to gain traction in urban segment to then reach regional segment in Sumatra, Kalimantan and Sulawesi which hold great potential for growth.
Strategy Formulation & Implementation
To be able to achieve excellence, Indosat plans to expand its network which used to focus in Java to the outer island such as Sumatra and Kalimantan. This expansion will be done carefully as to not burden heavily on budget constraint and upgrade on obsolete technology to catch up and provide faster and better service for consumer.
FIVE BUSINESS LEVEL
Indosat currently focused on cost leadership to cater specific segment. With careful investment and recapitulation of assets, Indosat aim to reduced fixed cost associated with infrastructure maintenance. With current advanced technology implemented in the country being 4G, Indosat aim to convert their BTS to cater that particular services. This is of course aligned with Indosat positioning in becoming price leader in the market especially in internet bundling. Focusing to 4G only means that they need to slowly invest in the infrastructure while also slowly changing the customer base by means of marketing.
Competitive Dynamics
The dynamics of the industry has changed over the years. As a government-owned enterprise, Telkomsel has many advantages in establishing its foothold on the market. With a large majority of market share held by Telkomsel, every player in the market seeks to challenge Telkomsel’s domination by merger and acquisition. Interestingly, since 2018 talks about merger and acquisition have been in discussion between XL Axiata and Indosat but could not be confirmed as the regulation that governs merger between these two major players is still unclear.
Telkomsel as the market leader is expected to lead innovation in the industry. Its rivals such as Indosat and XL Axiata on the other hand seek to challenge Telkomsel by differentiating its product. For example, Telkomsel offers Kuota Ketengan which is a separate internet bundle that gives customers unlimited access to apps like Youtube, Facebook, Instagram, and TikTok on span for 1 or 3 days. Following the trend, XL Axiata offers Xtra Unlimited which operates the same as Telkomsel’s Kuota Ketengan but it has higher price tags and has added apps coverage such as Joox, WhatsApp, Line, Gojek, Netflix, and Viu. Unlike Telkomsel however, its activation timeline follows the main data plan, meaning that the services could possibly be online for more than 1 week. As for indosat, Freedom U combined its data plan with the product unlimited access plan offering. This product provides assorted bundles for apps that have various spans between 2 days, a week, and a month. With addition to unlimited access apps that XL Axiata offered, Freedom Include additional variety of in-demand applications such as Spotify, Grab, Twitter, Snapchat, Facebook Messenger, Facebook Gaming, Google Meet, Google Classroom, Zoom, Skype, Microsoft Teams, and Webex. Beside those popular apps, Indosat partners with e-commerce apps like Shopee and Traveloka while also creating additional value by providing cashback benefits in applications like Tokopedia and Bukalapak.
Competitive Rivalry
This domination in the market by Telkomsel could be explained by several factors. Formed in 1995, Telkomsel is conceived from joint-venture cooperation between PT Telkom and PT Indosat Tbk. Upon its creation, it has virtually no existing threats at the time and are able to quickly expand in domestic regions. XL Axiata started far later. As merging company between XL and Axis, it quickly became another major share holder in the fractured market.
Chart based on data from reconciliated by Indonesian telecommunication regulatory authority
Ministry of Communication and Informatics (KOMINFO) published a recapitulation of customers each company in the market has under the reconciliation of post-registration done by Indonesia Telecommunication Regulatory Authority (BRTI) in first quartal. Per 30 April 2018, Telkomsel led the market with roughly 151 million customers, trailing XL Axiata and Indosat with roughly 45 million and 34 million customers respectively.
External Analysis
Indonesia has shown significant growth in its ever-evolving telecommunications market. Having the most population in the South-east Asian region, Indonesia not only caught attention of domestic from foreign interest group who wanted to dominate the region. Take example of Qtel (now renamed Ooredoo) and Temasek group. Temasek group currently invested and controlled 35% of Telkomsel’ share through its subsidiary Singtel. They also used to hold significant share in the ownership of Indosat in government effort to divest from the enterprise. This divestment brought controversy and ignited several class rows which aim to shaken Temasek group stranglehold on two major market players. This legal action prompted Temasek to sell its share that eventually goes to Ooredoo group. Acquiring the majority of Indosat’ share, as part of its Asia region division, the group are set to expand its influence in the region.
This interest has driven economic and technological growth in mobile and fixed broadband services over the year. With the rising of nationalism spirit, telecommunication industry now also wields certain political significance. Telecommunication Industry has always been in great interest from the government. Connecting outermost Indonesia with the rest of the country is not only deemed important to promote regional economic growth, but also to ensure the safety of the nation. In part to solve this problem, the government began Palapa Ring Network project. This project aims to bridge the infrastructure gap between regions.
Illustration taken from Kominfo
By establishing reliable communication network in Natuna for example, Indonesia are able to exercise its authority over their righteous region and safeguard the sovereignty of the nation. With collaboration between government and private tender, this project expands the possibility of increasing market base and competition due to increasing coverage and reduction in investment required to implement service in certain regions.
Still on the topic of national defense, in 2018 the government implemented a registration policy as part to prevent terrorism. This policy enforces registration of SIM card with proper citizens’ ID, in which limit each citizen having no more than 3 Sim cards in their database. By implementing this policy, anonymity over the ownership of SIM card is reduced and criminal activities could be traced easily. Many players in the market suffer reduced costumer base from action taken by the government to block SIM card that is questionable. As the consequences, the growth in the industry slowing down considerably that year but is now projected to pick up stronger than ever. Fixed broadband services are also flourishing in many segments and is expected to increase in usage by common household as internet penetrates more into various demographics.
Competition in the industry intensify along with tariff wars between competitors. The event has certainly put a dent in profitability of some company which put them in less favorable position in the market. Service provider especially in the mobile segment are currently facing a problem where their internet plan no longer seen as viable as the amount of data used by consumer exponentially. The increasing smartphone penetration from low cost devices has suddenly increased consumer and corporate need for networking in order to fulfill evolving needs and to gain competitive advantages. Competing firms started to introduce mix and match in their services to fit consumer needs. Usually called combo bundles, this package usually comes in features certain freedom of access to several application. It is predicted that firms in mobile telecommunication sector will compete using similar model as the next generation 5G undergoes experimentation. Similar to what happened to 4G, it is predicted that superiority of 5G will enables many possibilities and push limit to what firms are able to gain competitive advantage from. it is indicated that 5G would be faster by tenth fold and would potentially cost less than 4G. With that promise, it could further transform our society and the way we connect with each other. For firms, Although it is still unknown how much they need to allocate capital to acquire the technology, many are doubling down on the investment of this technology as they believe it is the key to either maintain market leader position or grab the current title of market leader.
Five Forces
Threat of new entrants
In the industry, the capital requirements would be the major barrier for entry. For a company to perform well in the industry, they require the economies of scale to sustain operation. They also need constant flow of capital to ensure the company is able to keep up with current trends in technology and fully cover fixed costs needed to maintain crucial infrastructure. Considering switching cost and regulation related to ownership of SIM cards, it is apparent that switching costs between services from different firms are low and result in low consumer’s loyalty. This behavior put great importance in brand building and appropriate customer relationship management.
Many foreign investment enterprises have checked a lot of boxes for the requirements. Considering their experience in the industry, Companies such as Singapore’ Singtel and Qatar’s Ooredoo have made marks in the industry with Singtel owning 35% of Telkomsel Shares and Ooredoo holding the ownership of Indosat.
Bargaining power of suppliers
To expand and maintain their network, firms in the industry rely on third-party solutions and formed specialized subsidiaries. PT Solusi Tunas Pratama Tbk for example provides leasing services for base transceiver stations (BTS). The contract is long-term with many averaged at about 10 years. Their services are very influential in the telecommunication industry as they are also contributing to many firms’ network connection. Another example is PT Industri Telekomunikasi Indonesia (INTI) has been the main contractor for infrastructure and network integrity maintenance. They contribute to the market by manufacturing optical fibers as well installation of communication infrastructure along with maintenance services. On different infrastructure, PT Pasifik Satelit Nusantara provides satellite transponder leasing and other orbital infrastructure to support excellence internet coverage.
Although leasing companies for BTS and satellite services exist, Major players in the market still own and control their own infrastructure despite high fixed costs incurred. In change of strategy, Indosat sold their BTS to Telkomsel in a bid to reduce fixed cost and increase profitability. For maintenance and IT services needed to ensure smooth operation on a regular basis, Indosat took the advantage of its subsidiary, PT Aplikanusa Lintasarta.
Bargaining power of buyers
For the industry, diversification enables two kind of services offered to cater consumer needs by the means of GSM technology. for pre-paid SIM card, consumer’s bargaining power is higher than post-paid SIM card because of the different switching cost that could occur. For pre-paid SIM card, consumer could purchase the card with prices as low as Rp 10,000. -. Meanwhile, to be able to use post-paid services consumer needs to subscribe which costed them on the average Rp 100,000. – (estimate made by averaging prices on the market). Other important factor also takes place in consumer decision making process that different for each segment. Pre-paid SIM card consumer are less loyal than post-paid SIM card consumer due to low switching cost aforementioned. This preset thus underline the importance of price, and overall quality of services consumer experienced.
Threat of substitute products
It is considerably difficult to find substitute products for telecommunication industry as technological advancement further highlight their importance not only in economic growth, but also political, cultural, and other aspect of humanity. However, the industry is expected that the current superior GSM technology, 4G+ that is used by several major players in the market like Telkomsel, Indosat and XL Axiata would be met with another substitute due to technological advancement. With growing public interest and the promise it brings, 5G has become a threat to every competing firms as this technology could break the current market standing.
Rivalry among competing firms
In the past, PT Telkom and PT Indosat were granted monopoly over the industry. In accordance with legal ruling, UU No. 3 Tahun 1989 gave PT Telkom the rights to monopolize the market as every related sector must do business with them. Then in 1999 the ruling was overturned with UU No. 36 declaring prohibition on monopoly practices. However, with lack of competition, the industry still essentially remained uncontested. With the formation of PT Telkomsel as a joint venture by PT Telkom and PT Indosat, it has since quickly dominated and maintained their lead in the domestic market among. Indosat still held considerable power despite being overtaken by their former subsidiary, controlling third of the market portion and along with the rise of XL Axiata kept the competition inside the industry fierce.
With high investment needed to maintain day-to-day operation and expensive exit cost, we can expect competing firms fighting tooth and nails to keep their company afloat. Pre-paid segment has been the battleground for ages between rivalries. For many, Low consumers’ loyalty and the size of this particular segment is worth fighting for. This segment also has prompted many conflicts over the years. Notable example of this conflict is tariff war happening between competing firms. With overall half the share of the market, Telkomsel are not afraid to retaliate the action made by Indosat and XL Axiata. This contest of price might hinder growth as both revenue and investment rate is lowering down due to reduction in profitability.
Diversification
Indosat has moderate diversification in their business model. This is proven by the extensive existence of their subsidiaries and projects conducted to not only resulted in product differentiation, but also business model diversification. With decaying advantage in GSM segment, Indosat attempted to diversify their business in order to capture more customer base and support their struggle in retaining market lead. Indosat have branched into several segmentation. With projected rising popularity along with increased household income, its subsidiary, IM2 is ready to cater rising demand in fixed broadband services. IM2 offered GiG that provide home broadband service at low cost with the implementation of FTTP technology. Increasing economic growth has also brought demand for digital infrastructure such as Cloud services in which Indosat responded with its cloud application Incloud 2.0. Along with digitalization, seeing high smartphone penetration in Indonesia prompted indosat to reach into financial technology with creation of mobile application that act as digital wallet titled Dompetku. Now, with rebranding done in strategic collaboration with PT Solusi Pasti Indonesia, the service changed its name to Paypro and has revamped its model similar to existing digital payment services such as Gopay and Ovo.
Indosat also cooperates with experts in the industry to create a brand that hopefully delivers superior value than competitors at value price. Increasing internet penetration and widespread usage of mobile phones means that many could be directly exposed via mobile means. Foreseeing this trend and prospect of rapid growth in mobile advertising, indosat joined venture with Smaato, an in-app mobile advertising company that provides a platform for its users to monetize their apps. They collaborated and launched IMX, a mobile-first real-time bidding advertising exchange. This service will integrate with indosat’s existing advertising offering i-Klan under the care of PT Portal Bursa Digital.
Chapter III
Summary
Along with history, Indosat has significant impact in development of the Telecommunication industry. Its contribution in the industry helped paved way for digitalization and connectivity with the rest of the world. Although waning in power, indosat has proven its competency over the years. Acquisition by Ooredoo group has brought Indosat back onto its knees and promised growth in different sectors through diversification. Retaining many vital infrastructures, many that are under interest for acquisition by its rival, Indosat hold certain level of economics of scale that could sustain its operation to rival XL Axiata and Telkomsel. With many segments open for opportunity, Indonesia has a good ground for flourishing industry especially with internet penetration and network expansion enthusiasm. Ongoing technological changes might turn the table. 5G technology might open a way for market domination with its superior value proposition.
This analysis is flawed due to time and data constraint. However, hopefully this analysis could be used as in decision making particularly on its business model, operation strategies, inherited strength and possible expansion towards new segmentation.
References
https://investasi.kontan.co.id/news/registrasi-kartu-sim-menekan-indosat
https://www.telkomsel.com/en/simpati/paket-perdana-simpati
https://www.xl.co.id/id/mobile/prabayar/paket-dan-tarif/internet/xtra-unlimited-turbo
https://indosatooredoo.com/en/business/new/product/product
https://www.smaato.com/press/indosat-smaato-mobile-advertising-exchange-indonesia/
https://dailysocial.id/post/imx-launching
https://teknologi.bisnis.com/read/20180207/101/735595/indosat-perang-tarif-terlalu-berkepanjangan
https://teknologi.bisnis.com/read/20200731/101/1273495/indosat-pangkas-jumlah-bts-2g
https://investor.id/telecommunication/karyawan-indosat-bisa-tugas-di-group-ooredoo