Telkom: Planning for Healthy Development

Telkom is the largest telecommunication services company in Indonesia. It provides fixed wireline and wireless connections, mobile communications, networking and interconnection services, and internet and data services. Recently, ZTE Technologies interviewed Joddy Hernady, senior vice president of Synergy Department at Telkom Indonesia. He talked about Telkom’s investment strategy, development priorities, smart city deployment and main challenges in Indonesia. He also shared with us his expectations for the future cooperation between Telkom and ZTE and his views on global telecom trends.

Q: What is your new role at Telkom?

A: I am currently the senior vice president of the Synergy Department at Telekom Indonesia. I ensure synergy between Telkom Group members in order to increase the overall revenue of the Group. In addition, I help reduce costs and minimize cash out by maximizing the Group’s internal transactions; I resolve the conflicting portfolios in the implementation; I manage the Group’s business portfolio by monitoring subsidiaries performance and giving recommendation for their improvement; and I manage post deal integration on acquisition and alliance projects.

Q: How would you characterize the Indonesian telecom market?

A: The Indonesian telecom market is basically a mobile market. Our mobile penetration is already 112% across 90% of Indonesia. Our fixed telephone penetration is less than 4%. For the broadband, currently the broadband penetration is still as low as 1.1% (fixed broadband) and 22.2% (mobile broadband).
However, for digital business, Indonesia is a potential market. There are already around 75 million internet users, which is around 30% of the population. Accessing social media represents the highest proportion of internet activity. Indonesia has the fifth largest number of social media users in the world. From the top ten active users for example, Jakarta is the number one city for active twitter users in the world and Bandung is the sixth.
About 58% of internet users are between 12 and 34 years old, and are online for five hours by laptop or personal computer and about two hours through mobile devices. As many as 62 million people are active on social media. 52 million of them access social media through mobile devices for about three hours per day. Other activities include searching for information and emailing (48%), downloading or viewing and chatting (47%), while game playing and other activities account for less than 35%.

Q: What is Telkom’s investment strategy? What are your medium-to-long term investment targets?

A: Based on market situation, the current and future business potentials are in broadband market and building digital ecosystems. These are all driven by the development of the internet. Therefore, now we are investing aggressively in broadband by deploying fiber, Wi-Fi and LTE for mobile broadband. We will continue investing in broadband for next several years as our current broadband penetration is still low.
For the short term target, Telkom has an initiative to deploy optical transport network to 446 cities (90% of total) in Indonesia in 2015. This is true broadband capability covering 18.7 million home pass (up to 100 Mbps).
In addition, for medium and longer term, we will invest in the area of IT and Media and preparing the company to be a digital company by investing in both organic and un-organic investment such as data centre, cloud, big data, digital advertising, OTT platform, payment platform, and video.

Q: What are Telkom’s priorities for the next three to five years?

A: Over the next five years, our portfolio objective will consist of the following three aspects.
First, we will defend and shape the traditional legacy ecosystem by sustaining our leading position in mobile and developing broadband nationwide.
Second, we will grow our digital portfolio to build value premium over legacy business by providing digital services to enterprise, government and consumer as well as building the smart enabler “hub” platform for the digital services.
Third, we will enter overseas markets to drive scale synergies and import digital ecosystems into Indonesia by developing major oversea digital and telecoms foothold and investing into new emerging businesses and technologies.

Q: How do you create synergy between fixed and mobile business?

A: Synergy between fixed and mobile starts with infrastructure sharing. We are driving this synergy from the planning. We plan the infrastructure together and make sure that the implementation is running smoothly; we also change our organization in both sides by adding some key functions related to the synergized areas to make coordination run smoothly and more responsive so both parties will feel the value and benefit from this synergy.
In addition, we also have the Synergy Department, which is now led by me to manage and orchestrate all synergy programs amongst Telkom Group. This is very important for us to create the belief between both parties that synergy can create values to both sides.
In addition to infrastructure we also create more synergy activities in other areas such as integrating the video platform for fixed and mobile.

Q: How will Telkom support the national broadband project?

A: Telkom initiated the Indonesia Digital Network 2020 Program to support the national broadband project. It is the extension of our previous program called IDN 2015. The program of IDN contains three major sub-programs.
The first sub-program is Indonesia Digital Access (id Access), which involves deploying true broadband access and mobile broadband access. The goal of this program is to cover 30% of households with true fixed broadband and 200 cities with mobile broadband in 2020.
The second sub-program is Indonesia Digital Ring (id Ring), which involves achieving Indonesia Express Super Core, Always ON transport backbone and creates International Gateway & CDN enhancement. Telkom is also in a preparation of launching new Telkom Satellite 3S in upcoming 2016. The target is to cover 100% of sub-districts by broadband in 2020.
The third sub-program is Indonesia Digital Convergence (id Con), which involves building a 50,000 m data center by 2020, and creates convergence services and meaningful services through digital ecosystem, including providing Smart City solutions. The target is to provide a nationwide cloud computing for government, business and individual use. This program also includes building a nationwide Cyber Security System by 2020.

Q: “Smart city” is a buzzword in the telecom industry now. Where is Telkom now in terms of smart city deployment? What is the importance of smart city for Telkom’s overall strategy?

A: Broadband infrastructure is the foundation to build smart city. As the biggest telecommunication provider in Indonesia for both fixed and mobile, Telkom will provide comprehensive end-to-end solutions for smart city. Our concept is to develop an integrated city management above ICT infrastructure. The integrated city management will consist of smart government, smart citizen, smart healthcare, smart building, smart transportation, smart energy, and smart security, whilst in the ICT infrastructure will consist of smart infrastructure and smart technology as shown in the following page. 
With this concept, Telkom is creating a unique smart city framework that comprises nine key components as mentioned above. We have several technology partners to support us on providing those smart city components and ZTE is one of our partners.
In the implementation, currently we have a pilot project with Bandung government for Bandung smart city. The cooperation with government of Bandung started in 2014. As part of this pilot, we showed some solutions that have been commercialized during the Asia Africa Commemoration in Bandung in April 2015.
Smart city is very important for Telkom. This can be one of future potential markets for Telkom since it will involve some key technologies for the future in the digital era that Telkom has already started to invest such as cloud, big data, broadband, and M2M/IoT. The market is also promising because Indonesia has around 500 cities that could potentially become smart cities.

Q: What is the biggest challenge that you are facing in smart city project? How have you overcome it?
A: The biggest challenge for smart city development is funding from local government. To create a smart city, it is very important to develop a smart government first. Unfortunately, most of local government in Indonesia has a limited budget for building a smart city.
To overcome this, we need to create several options of business model including some breakthrough public/private partnership scheme. We have developed this model and now in the discussion with the local government of Bandung as the pilot project.

Q: OTT players are having a big impact on operators. How would you describe the relationship between operators and OTT players?

A: There are three models that we can play with OTT.
The first model is telco as a dump pipe. In this case, we only provide data connectivity while OTT players sell their OTT services on their own. Telco gets the benefit of increased data consumption and monetization (billing enabler). One of the cons is that the telco does not create customer stickiness and experience.
The second model is a hybrid model. In this case, we can create an exclusive partnership with OTT players and support the promotion to a target audience. In this model, we can get higher revenue share as an exclusive partner and promoter, but the cons is having limited monetization and dependent on OTT players to bring their services.
The third model is end-to-end or hard bundling. We create our own OTT services and hard bundles the product with its existing plans. We also own compression technologies, new device compatibility, digitization, etc., that cater to changing customer needs. This model can create customer retention and differentiation in the market, but the cons is we have to create better OTT services than services provided by OTT players, which is usually very difficult as it is not Telco’s DNA.
Which one is suitable for us will really depend on our strategy, market situation and our capability to develop OTT services.

Q: Could you comment on ZTE’s solutions and services? What is your outlook for future cooperation between Telkom and ZTE?

A: ZTE has a very wide range solutions and services. It has solutions for enterprise and government as well as for retail consumers. We have been using ZTE’s products so far mainly to support our infrastructure and some businesses for consumer services such as IPTV.
For enterprise and government market, especially in providing IT services, there are two ways for ZTE to enter the market.
First, ZTE can go to the market directly and compete with us as a telco head-to-head. Even though Telkom is a telco, the border between industries is blurring. Telkom has expanded its business portfolio to the adjacent industries such as IT, media, and entertainment. Therefore, our approach to enter the enterprise and government market now is not only providing telco infrastructure but also providing IT services, especially offering the connectivity bundled with IT services.
Second, ZTE supports Telkom as a technology partner to provide bundled solutions to enterprise and government. I think the second option would be better because this collaboration will benefit both of us, and we can capture a bigger market share. In term of market understanding, we have a better understanding especially for government markets as Telkom is also a state owned enterprise company.
In addition, for future cooperation, ZTE can also consider some budget to build a joint innovation and development for new enterprise and government services. I think this is very important for our future cooperation and to have a better understanding on new requirements of customers such as in smart city and to create our competitive advantages over the competitors. By doing this, we will be able to know Indonesian subscriber’s behavior better and develop products that will fit with the need of Indonesian market including finding out the right business model.

Q: How will the global telecom market develop over the next few years?

A: The biggest market of telco industry now is still traditional fixed and mobile services. However, traditional fixed and mobile business is declining everywhere. Globally, our voice and text messaging revenues have already declined by 9% with Europe and Asia being the most impacted. The next biggest market in telco industry is broadband. All telcos are entering broadband as the next frontier but in general, the broadband services are not able to compensate the decline in the legacy services.
We are living in the digital era and people’s lifestyle is also now shifting to digital lifestyle. Therefore, it is very important that telcos also transform themselves into digital companies as the biggest market both in consumer and enterprise side will be based on digital. We can also enter other industry by digital services.
   In terms of the telecom market, we believe that the future enterprise market will be the key market for telcos. In the consumer market, I think in general, OTT players will be more dominant than telcos. Therefore, digital enterprise market including smart city will be a key market for telcos over the next few years.