Rising public demand for internet and mobile phone service in Indonesia, coupled with the government’s liberalization of its foreign direct investment rules, has created an encouraging environment for phone tower construction in the nation.
Indonesian Telecom Players
Currently, the five major operators in descending order are Telkomsel, the market leader over the past decade; Indosat, majority owned by Ooredoo, the Qatari telecom giant; Excelcomindo, part of Axiata from Malaysia; 3 Indonesia, part of the Hutchison Asia Telecom Group; and PT Smartfren Telecom, owned by Indonesian conglomerate Sinar. The three largest providers control almost 80% of the market.
Data is becoming the major revenue source for these firms, accounting for almost 70% of revenue in the case of Telkomsel and about 85% for Excelcomindo and Indosat. Because Indonesia lags other Southeast Asian countries in mobile connectivity in proportion to the population, the need for telecom towers is great. So too is the opportunity for telecom tower providers, especially as the nation more fully implements 4G capabilities, where it is lagging other Southeast Asian countries, and starts its migration to 5G.
Telecom Tower Types
All types of towers are needed. The first is the macro tower, which stands between 42 and 92 meters high and leases for $700 to $100 per month (all figures in U.S. dollars). These require an investment of about $50,000 to $70,000 per tower. Rooftop towers, between 12 and 20 meters high, lease for $60 to $70 per month and require an investment of about $30,000. Untethered monopole towers, up to 42 meters high, lease for about $75 a month and require about a $50,000 investment. And finally, there are the small-cell towers, which vary greatly in terms of lease revenue and cost.
The leaders in the Indonesian tower market currently are Profesional Telekomunikasi Indonesia (Protelindo), with about 22,500 towers; Mitratel, with about 21,500 towers; Tower Bersama, with about 16,000 towers; and Solusi Tunas Pratama, with about 6,500 towers. By law, they are prohibited from marketing their towers directly and must use a reseller.
The Telecom Tower Business
What makes the tower business especially attractive is that a tower company need not construct a tower until it has an order from an operator. This arrangement, coupled with growing demand and the ability to rent a tower to more than one operator, produces high EBIDTA margin and profitability. To top it off, there is potential for additional future revenue from mobile network operators as those services grow. What’s more, history shows that tower valuations have increased with every transaction.
Of course, no business is without risk. The tower business in Indonesia has a few key ones. First, there are the risks involved in getting local government approval for a tower. Many communities wish to restrict towers, and aesthetic concerns are an issue as well. If the land under the tower is to be leased, there is also the risk that the rate upon expiration of the initial lease — usually 10 years — will be much higher. I have seen rates double upon expiration of the initial lease.
Finally, there is the risk of operator consolidation, which would put tower owners with contracts from competing telecom companies at risk should the two merge.
Despite these risks, the overwhelming opportunities available to tower operators in Indonesia make this an attractive area.
About Dr. Leonardus W Wasono
Dr. Leonardus W Wasono, currently a freelance financial professional, was most recently Chief Financial Officer at PT Telekomunikasi Selular. Earlier, he was Chief of Finance and Business Operation at Telin (PT Telekomunikasi Indonesia International) and Commissioner at PT Infrastruktur Telekomunikasi Indonesia (Telkominfra). He holds a master of engineering degree in telecommunication engineering, with distinction, from RMIT University and received a doctor of philosophy in management science from BINUS University.
This telecommunications industry article is adapted from the GLG Remote Roundtable “Investments into Indonesia’s Telecom Towers.” If you would like access to events like this or would like to speak with telecommunications industry experts like Dr. Leonardus W Wasono or any of our more than 900,000 industry experts, contact us.
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