Telco Disruption in Indonesia: Starlink and the Changing Landscape

The Competition Pool

The market of Indonesi Over the past three decades, Indonesia’s telecommunications industry has undergone significant transformations. These changes have closely followed the evolution of the GSM standard (later evolve to 3GPP standard). We’ve witnessed a cycle of technological advancements: 2G (GSM) in 1995, 3G (ushering in the smartphone era) in 2005, and 4G (LTE) in 2015. Looking at the 10 years cycle of 3GPP technology deployment in Indonesia, Indonesia should enter 5G era in 2025. However, the advancement of Fixed Technology and Satellite Technology has become a serious contender for Mobile Telco Operators make them to rethink whether 5G need to be deployed as massively as 3G and 4G did.

Wired to Wireless to Wired: Disruption Cycle

Over the past three decades, Indonesia’s telecommunications industry has undergone significant transformations. These changes have closely followed the evolution of the GSM standard (later evolve to 3GPP standard). We’ve witnessed a cycle of technological advancements: 2G (GSM) in 1995, 3G (ushering in the smartphone era) in 2005, and 4G (LTE) in 2015. Looking at the 10 years cycle of 3GPP technology deployment in Indonesia, Indonesia should enter 5G era in 2025. However, the advancement of Fixed Technology and Satellite Technology has become a serious contender for Mobile Telco Operators make them to rethink whether 5G need to be deployed as massively as 3G and 4G did.

Wired to Wireless to Wired: Disruption Cycle

However in the last 5 years, Indonesia have a surge of FTTH Internet Services which bring WiFi to the end user device. WiFi Internet has disrupt LTE Internet due to 'not so much different' internet feel between WiFi and LTE.

Looking ahead to 2025, we anticipate the deployment of 5G in Indonesia. However, what was disrupted 30 years ago—the wired PSTN infrastructure—by wireless technologies (2G/3G/4G) is now facing competition from wired FTTH (Fiber to the Home). In the last decade, FTTH infrastructure has surged in Indonesia, disrupting LTE usage deployed by mobile telco operators. Interestingly, the “feel” of LTE is not significantly different from that of “FTTH-WiFi,” leading to a cost-driven shift. Let's explore how this landscape is further impacted by the advent of Starlink.

Over the past three decades, Indonesia’s telecommunications industry has undergone significant transformations, closely following the evolution of the GSM standard (later known as the 3GPP standard). We've experienced cycles of technological advancements: 2G (GSM) in 1995, 3G (ushering in the smartphone era) in 2005, and 4G (LTE) in 2015. Looking ahead to 2025, we anticipate the deployment of 5G in Indonesia. However, what disrupted the wired PSTN infrastructure 30 years ago—wireless technologies (2G/3G/4G)—is now facing competition from wired FTTH (Fiber to the Home). Over the last decade, FTTH infrastructure has surged in Indonesia, disrupting LTE usage by mobile telco operators. Interestingly, the experience of LTE is not significantly different from that of “FTTH-WiFi,” leading to a cost-driven shift. Let's explore how this landscape is further impacted by the advent of Starlink.

The Evolution of Telco Services

Three decades ago, the telecommunications industry had a clear mission: to provide remote voice, text, and data services. Telco operators managed Mobile Switching Centers (MSCs) for voice, Short Message Service Centers (SMSCs) for SMS, and Gateway GPRS Support Nodes (GGSNs) for internet connectivity. However, the proliferation of smartphones and Over-The-Top (OTT) communication apps like WhatsApp rendered MSCs and SMSCs obsolete. In response, telco mobile operators adapted by transitioning into mobile internet service providers.

The Internet Infrastructure

The journey of internet service speed in Indonesia from 9.6 kbps (using Amateur Radio) to 1 Gbps per connection over 30 years has been remarkable. Indonesia’s internet infrastructure comprises three key networks: core networks, distribution networks, and access networks. While core and distribution networks are typically shared, our discussion centers on the access network. From a device perspective, users connect to the internet via LTE or WiFi. Variations include WiFi over LTE, LTE over WiFi, and WiFi over FTTH. However, only WiFi or LTE directly connects to end-user devices. Mobile ISPs (Telco Ops) deploy BTS (Base Transceiver Stations) with LTE, while non-mobile ISPs typically opt for FTTH. Interestingly, the experience of LTE and WiFi is quite similar, leading Indonesians to prefer WiFi over LTE when both options are available. Consequently, FTTH penetration has steadily eroded mobile data consumption over the past five years.

The Internet Infrastructure

Internet infrastructure involves three main things: coverage, capacity, and capability. Imagine having one LTE base station that covers all of Jakarta by placing it 10 km above the ground. However, limited equipment capacity and spectrum bandwidth can still result in poor internet connections. Additionally, mobile ISPs often have complex billing systems, leading to intricate product offerings. In contrast, FTTH ISPs keep it simple with straightforward products. Whether it’s FTTH or LTE infrastructure, various components like fiber, BTS, towers, routers, and switches need to be deployed on the ground. Telcos and ISPs invest money to build and maintain these essential infrastructures. The economic impact extends to local workers, governments, and other industries in Indonesia.

The Innovation

Let’s break down the concepts of innovation according to Professor Clayton M. Christensen in simpler terms:

1. Disruptive Innovation: This type of innovation introduces new products or services that disrupt existing markets. It often starts small and gradually gains momentum, eventually overtaking established players.
2. Sustaining Innovation: Sustaining innovation focuses on improving existing products or services. Companies continuously enhance their offerings to keep up with customer demands and market trends.
3. Efficiency Innovation: Efficiency innovation aims to optimize processes within a company. It involves streamlining operations, reducing costs, and maximizing resources.

Now, let’s see how these innovations play out in the telecommunications industry:

• Mobile Operators: They’re currently focused on efficiency innovation. With mobile services already widespread (penetration beyond 95%), they’re implementing strategies like moving away from indoor building systems, troubleshooting only high-revenue base transceiver stations (BTS), and minimizing tower space rental costs. New technologies like eSIM and vSIM make it easier for customers to choose internet packages.
• FTTH (Fiber to the Home) Operators: They’re working on sustaining innovation. Since over 50% of Indonesian homes lack FTTH connections, these operators are scaling their business across the country. As they expand, they’ll capture more data usage share from mobile operators. Some mobile operators are even evolving into both mobile and FTTH providers.
• Starlink: This disruptive innovation addresses the challenge of serving unserved or difficult-to-reach internet customers. Starlink’s technology offers cheaper installation and monthly fees compared to incumbent satellite providers. Starlink’s superior coverage is limited by spectrum bands and beam capacity, especially in densely populated areas.

Infrastructure Strategy

An operator's infrastructure strategy can be simplified into the 3Cs:

1. Coverage: For mobile operators, this means deploying BTS in areas without LTE signals. For fixed operators, it involves deploying fiber for home passes. Satellite/Starlink doesn't require this groundwork, as they provide signals from above. Currently, urban and suburban areas are covered by LTE signals.

2. Capacity: For mobile operators, this involves deploying BTS in areas where existing BTS are congested due to heavy traffic, typically in urban areas.

3. Capability: This includes the ability of operators to charge different rates for various internet applications. For example, operators might offer free access to YouTube but not to other applications.

Indonesia, with its extensive landmass, is home to diverse populations in need of internet connectivity. To address this, we can categorize the areas based on their unique characteristics.

To provide internet connectivity, three competing technologies are currently in use: FTTH, LTE, and Starlink/Satellite. Each technology comes with its own set of advantages and disadvantages.

The Investment and Cost

The top three mobile telco operators allocate approximately 15-20% of their revenue for investment.

For each mobile telco operator, the investment allocation is divided into several categories, with the largest percentage dedicated to the radio network, which is used to extend coverage and capacity.

Starlink, as a new player, offers a more logical choice for internet connection in rural and 3T (Terdepan, Terluar, Tertinggal) areas due to its affordability and speed. From a telecom perspective, these regions rarely show positive ROI, so investment there has not been very serious. Consequently, the Ministry of ICT, through BAKTI, is deploying signal infrastructure as part of the Universal Service Obligation (USO).

Considering the investment allocation for rural and 3T areas and Starlink's current leading advantage in these regions, the entry of Starlink services is unlikely to significantly impact telecom investments. Starlink will primarily serve unserved markets rather than competing for the major operators' market share.

Starlink to disrupt Billions Dollar Telco Indonesia investment ?

The answer is both yes and no.

1. Yes, Starlink will disrupt satellite and HTS providers in Indonesia by offering lower-cost internet connections in rural and 3T (Terdepan, Terluar, Tertinggal) areas compared to current satellite and HTS providers.
2. No, Starlink will not disrupt mobile and fixed operators because the cost of Starlink in urban areas is higher than LTE or FTTH services. Even if the prices were comparable, Starlink cannot meet the density requirements that LTE and FTTH can provide in urban areas.

It's inevitable that technology will continue to improve, bringing constant change to the industry. The strength of LTE lies in its standardization, which supports a thriving vendor ecosystem. However, this standardization can also be a weakness, as all players must agree on standards before they reach the market. For example, in telco history, IMS and 3G video calls, once standardized, are hardly used today.

Telecom providers in Indonesia have evolved from offering traditional telecommunications services (voice calls, texts, video calls) to becoming internet service providers, both mobile and fixed. In the future, new technologies like terahertz transmission, super-sharp beam forming, and light-based transmission might become commercially available. When this happens, Starlink could potentially disrupt all players in the internet connection business.