The geographical composition of Indonesia, an archipelago of 17,508 islands, is a challenge per se for tower companies and their suppliers looking at expanding their footprint nationwide. But to date, the biggest obstacle to the development of the local tower industry has been the absence of 4G LTE auctions. While the number of mobile operators has decreased from eleven to seven over the past few years, tower companies are increasingly involved in BTS projects with over 6,000 new towers being built every year.
In this exclusive interview, Nobel Tanihaha, President of STP, Indonesia’s third largest tower company, offers a personal view of the local industry, its challenges and potential for the future. Listed on the Indonesian stock exchange in 2011, STP owns 3,500 cell sites, a little over 500 of which are shelters and indoor DAS, as well as 2,073km of fibre network.
TowerXchange: Please introduce STP and the role you play in the Indonesian tower industry.
Nobel Tanihaha, President Director, PT SOLUSI TUNAS PRATAMA (STP):
STP is one of four active tower companies of scale in Indonesia and is currently number three in the market after Protelindo and Tower Bersama. The fourth tower company is Mitratel, which is a subsidiary of Telkom, a government owned entity.
STP own and operate approximately 3,500 telecommunication sites. Our tower tenancy ratio to date is approximately 1.7, and has grown at a CAGR of over 45% since 2010. STP has been growing thanks to the acquisition of existing portfolios from local operators such as Axis, Bakrie and Hutch Telecom. Moreover, we have acquired tower portfolios from a few small tower companies in the past years: Nurama Tower (176 towers, 182 shelters and 100km of fibre), HCPT (200 towers) and ISP Group (493 towers and 287 shelters).
Since December 2012, STP has started building its own towers and, therefore, is now organically growing in addition to acquiring existing portfolios.
STP’s revenue and EBITDA are growing at a CAGR of around 40%, and our EBITDA margins remain over 80%.
TowerXchange: Can you give us a snapshot on the Indonesian telecom business?
Nobel Tanihaha, President Director, STP:
First of all, it is important to note that in Indonesia there are restrictions in terms of tower investments and companies need to be local in order to operate. To date, foreign companies aren’t allowed to enter the market.
Until a few years ago, Indonesia hosted eleven mobile operators but thanks to some consolidation and trading cessations, we now have seven. I would say that there isn’t room for that many operators in the country and I’d expect the number to decrease to four or five in the future.
The largest operators are Telkomsel, XL Axiata and Indosat, followed by a number of smaller companies such as Hutchinson and Axis.
ARPU in Indonesia has been declining steadily and is now reaching bottom rock at approximately US$2.27. Operators are struggling to increase ARPU worldwide and Indonesia is simply following the same global trend.
To date, operators have stopped building their own towers and tower companies have been involved in greenfield projects with a fairly constant deployment rate of approximately 6,000 new towers per year.
To date, operators have stopped building their own towers and tower companies have been involved in greenfield projects with a fairly constant deployment rate of approximately 6,000 new towers per year
TowerXchange: What is the status of 4G LTE network rollout in Indonesia?
Nobel Tanihaha, President Director, STP:
In Indonesia, the Ministry of Telecommunication and Information is still looking for a suitable frequency band for 4G LTE and there aren’t any auctions currently planned.
There are only two active TD-LTE licenses issued by the government which covers Jakarta. Auctions aren’t likely to happen anytime soon in light of the upcoming national elections. I believe that once the elections are over, the government will start planning spectrum licenses and I wouldn’t be surprised if that happens in 2015.
That said, I think that once 4G LTE licenses are awarded, operators that still own their towers will start divesting more assets in order to finance the network rollout. For example, PT Indosat sold 2,500 of its telecom towers to Tower Bersama for about US$519mn in 2012.
Just like everywhere else, the need for funding to finance 4G LTE investments will push operators to sell towers but as of now, there isn’t a lot of pressure on large operators to divest their assets.
TowerXchange: There have been rumours regarding the possible sale of Mitratel, is that likely to happen?
Nobel Tanihaha, President Director, STP:
The decision behind the sale of a government owned company such as Mitratel can be extremely difficult to be articulated in Indonesia as any sale of the company needs to receive the approval of the Parliament and other official bodies.
At one point, Mitratel was rumoured to be for sale but that has been denied as the government didn’t approve it.
TowerXchange: Is the cost of power ‘passed through’ to the tenants in your portfolio?
Nobel Tanihaha, President Director, STP:
Yes, operators that lease space on towers still pay their own power.
TowerXchange: STP has invested in fibre optic infrastructure through the acquisition of PT Platinum Teknologi – tell us about the drivers behind the acquisition and the company’s business model
Nobel Tanihaha, President Director, STP:
In light of the growing pattern of smartphone penetration in mature markets such as the United States and the subsequent need for microcells, we decided to follow that market trend and anticipate it. Fibre optics will boom once microcells are needed throughout the country.
We foresee microcells growing steadily as part of our business offering, especially with the future launch of 4G LTE. The largest mobile operators in the country will all request small cell installations in large cities
While we wait for a nationwide need, Jakarta is already a good market and we decided to acquire PT Platinum Teknologi after the company signed a twenty-year contract with the local government to install microcells throughout the city. PT Platinum Teknologi filled a gap in the market as it offers a service no one else is able to provide in Indonesia.
We foresee microcells growing steadily as part of our business offering, especially with the future launch of 4G LTE. The largest mobile operators in the country will all request small cell installations in large cities.
TowerXchange: What percentage of your business comes from Build-to-Suit projects?
Nobel Tanihaha, President Director, STP:
To date, all greenfield projects in Indonesia are handled by tower companies and we have been very active in building our own towers as well as developing BTS projects on behalf of mobile operators.
I’d say that 80% of our current business is generated by BTS projects.
Nobel Tanihaha is a member of the TowerXchange ’Inner Cirle’ Informal Advisory Board.
