Telecom Company Economic Analysis Essay

ME assignment 1

Roll no. 12-04-0006

About the company1 Established in 1995, Telkomsel is the largest mobile telecommunications operator in Indonesia with a 49% market share at end of 2009. It ended 2009 with 81.64 million subscribers, an increase of 25% over 2008. Its portfolio of services includes cellular telephony, wireless internet and broadband, Blackberry services, international voice-over-IP (VoIP), and mobile banking, to name a few. Telkomsel performed well in 2009 despite tough global economic conditions and an increasingly competitive market at home. It returned to double digit growth and its key financial performance indicators were positive: operating revenues increased by 12% to IDR2 41.58 trillion (~ USD 4.4 billion), EBITDA grew by 14%, and net profits saw a 15% increase. Its total debt balance at end of 2009 was somewhat high at IDR 11.38 trillion (almost 25% of total revenues). The company intends to continue its performance and growth in 2010 and beyond. Two of its strategic objectives include crossing the 100 million subscribers mark and readying 24 major cities for broadband. Both these expansion objectives will require, among other things, significant financing, whether from existing sources or new ones. A major part of Telkomsel’s capital expenditure is spent on infrastructure (telecom & non-telecom equipment, civil works, etc). Most of the telecom equipment is purchased from international vendors. Major challenges that Telkomsel is expected to face in achieving its objectives include depleting ARPU (average revenue per user) linked to price wars, a slowing voice telephony market, possible consolidation in the industry, and expected changes in regulation. Telkomsel does not have any international operations of its own. Its shareholders are TELKOM, Indonesia (65%) and Singtel Mobile, Singapore (35%). Moody’s, S&P, and Fitch have predicted a “stable” outlook for the company. Economic and business environment of Indonesia The Republic of Indonesia is located in the East Asia & Pacific region, comprising of more than 17,500 islands. With a population of around 238 million, it is the fourth most populous country in the world. The population is a mix of different ethnic, religious and linguistic groups. Indonesia’s economy is classified under the lower middle income group3. Agriculture, industry and services account for 15%, 47% and 38% of the GDP respectively4. Indonesia is Southeast Asia’s biggest economy and had a GDP of USD 514.9 billion in 20094 (USD 968.5 billion in terms of purchasing power parity). Because of the large population, this translates into a relatively low GDP per capita (PPP) of USD 4,000. Indeed, Indonesia has seen consistent GDP growth in recent years: 6.3% in 2007, 6.1% in 2008, and 4.4% in 2009, with 6.0% predicted for 2010 and 20115. Despite the slowdown in 200809, it is one of the few economies that survived the global crisis relatively unscathed. Much of this has been attributed to reliance on domestic consumption (62% in 20083), a positive trade balance, and continuing foreign investment. Inflation rates in Indonesia have seen much fluctuation over the years3, which is cause for concern since it makes economic forecasting difficult and raises questions about the credibility of monetary policy. For example, inflation increased from 6.2% to 10.5% in 2005, increased to 13.11% in 2006, decreased to 6.3% in 2007, increased again to 10.1% in 2008, and decreased again to an all time low of around 5% in 2009, reflecting the growth deceleration. Going forward, one can expect this 5% inflation rate to continue well into 2010, increasing once the predicted GDP growth kicks in, since the growth will likely trigger an increase in consumption, which in
Most of the information has been obtained from the company’s website (www.telkomsel.com) and 2009 annual report. Indonesian Rupiah. 1 USD = IDR 9,346 (31 Dec 2009; ref:

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