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It’s been a long waiting. They’ve promised to commercially launch in April, then August. Regulators had given end of July as deadline, but Smart said they need more time until September to roll out network. Can the CDMA operator keep their promise to launch before the end of this year ?

Smart had sent a letter of commitment to Indonesian Telecommunications Regulatory Body (ITRB) to extend the deadline. Apparently, rolling out networks is more difficult for new operator. In a report by Bisnis Indonesia, Smart blamed strict permits engaged by local administrations that caused much delay. Nevertheless, Smart had no problem arranging interconnection agreement with incumbents that includes Telkom, Telkomsel, Indosat, Excelcomindo, and Bakrie Telecom. Smart are still working with Mobile-8 and Hutchison CP Telecommunication, though.

Capex and subscribers

Initial capex for rolling out the network is up to three trillion rupiah (US$3,1 million) to build two million lines in Greater Jakarta, Bandung, Semarang, Solo, Surabaya and Malang. From the six cities, Smart expect to grab 1,4 million subscribers by the end of this year.

As an affiliation of Sinar Mas Group, they are quite optimistic to scale up subscriber base easily. Sinar Mas Group founded by Eka Tjipta Widjaja is one of the largest conglomerates in Indonesia with businesses scattered from pulp and paper, agribusiness, property, financial services, and now telecommunication. Sinar Mas Group employed more than 400.000 people, which are, yes, each along with family members, are captive market for Smart Telecom.

Primasel - WIN merger

Smart Telecom was formed after merger between PT Indoprima Mikroselindo (Primasel) –owned by PT Inti, PT Global Nusa and PT Mobilindo Telekom- with Sinar Mas subsidiary PT Wireless Indonesia (WIN) in October 2006. The merger is the aftermath of 3G frequency license auction in early 2006.

Primasel was holding personal handy phone system (PHS) license for East Java. Then economic crisis hit Indonesia which forced Primasel to abandon development projects. Primasel decided to switch to CDMA2000-1X operating in 1.980MHz band. But unfortunately for Primasel, after building 300.000 lines in 2004, they have to get out because regulator decided to use the band for third generation cellular (3G).

Primasel was not alone, three fixed-wireless operator Telkom’s Flexi, Indosat’s StarOne and WIN were operating in the same band. Of the four operators, only WIN -founded in 2004- had not commercially launched despite holding the more modern, 3G capable license CDMA2000-1X EVDO. Later, WIN was acquired by Sinar Mas Group which has been eyeing telecommunication business.

Both Primasel and WIN did not participate in 3G frequency auction in January - February 2006. Seven operators took part in the action: Telkom, Telkomsel, Indosat, Excelcom, Bakrie Telecom, Mobile-8 (Komselindo), and Sampoerna Telecom (Mandara). The opening bid for each block (5MHz) was Rp100 million (US$110.000) with up front fee 200% from auction price, way to expensive for regional operator such as Primasel and start up company like WIN.

Nonetheless, Primasel and WIN have to get out the band. Regulator came up with solutions for both of them. Primasel only have to pay frequency rights at the same amount with the lowest 3G auction bidder, which was Indosat. Although Primasel’s 1.980MHz frequency is not used for 3G, it still inside the International Mobile Telecommunication 2000 band (IMT-2000).

As for WIN, since they had not launch commercially, their licensed spectrum will be converted from code divison multiple access to Time Division Duplex (TDD). Later, WIN returned the license.

In addition, regulator suggested the two operators to merge, which they did in late 2006 through stock acquisition. Although details were no disclosed, Sinar Mas Group had taken control over Primasel through WIN. Post merger, regulator added two more frequency blocks and Primasel upgrade their technology to CDMA2000-1X EVDO.

But this is not a permanent solution. Regulators had allocated the 1.980MHz for satellite communications. Primasel must once again get out of the band one day without any compensation. But Primasel’s management dare to take the risk, they were confident satellite communication will not be around in Indonesia for a long time.

Sinar Mas Group logo from Jobstreet.com

Topik: Infrastructure, Operator, Telco