Mobile phone industry shake-up

I.M. Dennis Pratistha ,  Jakarta   |  Mon, 08/11/2008 10:31 AM  |  Opinion

The announcement by the Business Competition Supervisory Commission (KPPU) relating to the guilty verdict for six operators engaged in SMS price-fixing was a major headline in The Jakarta Post on June 9.

The operators argued there were no regulations on SMS pricing because they had already agreed on an interoperator rate.

In the recent market, however, competition is intensifying as several new mobile phone operators try to gain entry into the market and to establish a reputable subscriber base. Price-fixing is no longer an issue.

Operators are now aggressively undercutting each other's prices to entice subscribers to switch providers.

With the mobile price war just starting to kick in, driving down prices to levels previously unimagined in this country, subscribers now face new difficulties -- initiating calls in overbusy networks, constantly dropped calls and poor reception -- which will probably become increasingly severe.

The importance and role of mobile phones in today's society and economy is undisputed; it increases and simplifies communication throughout the country and the world. Price reductions will further increase mobile phone penetration in Indonesia, bringing immeasurable benefits to the public and the economy.

The new operators initiated the mobile phone price war as a creative marketing strategy. Creating a buzz and disrupting the way incumbents conduct business was their strategy for gaining credibility, recognition and an increased subscriber base.

They also managed to shake up the entire industry in terms of pricing and bundling: call rates have declined and attractive packages (phone plus SIM cards) have been introduced.

Current marketing efforts are focused on low pricing. This is likely to evolve into other attractive packages such as unlimited plans (such as Rp 1 million to purchase unlimited credits), which could exacerbate the price wars and service quality could get even worse.

What are the effects of price wars? More affordable communication costs and increased usage benefit the customer, but customer dissatisfaction will most likely increase. Affordability and increased usage is due to the reduction in handset prices and phone rates. Customer dissatisfaction is due to the downgrading of service standards by operators. The existing infrastructure cannot handle the sudden influx of new subscribers, which will lead to network congestion and overloading.

Regulators are advised to be aware of the consequences of price wars and foresee the effects of operators' strategies. Reckless price undercutting may lead to the reduction of infrastructure improvements and maintenance as operators try to maintain their overall bottom line.

Regulators also should not overlook policies that protect consumers. Consumers currently have little bargaining position when dealing with operators. When dissatisfied with their service, their only course of action is to switch to a competitor. Switching operators, however, is generally not a viable solution for several reasons, such as loss of number and no guarantee of service improvement with another operator.

Developed countries introduce firm regulations to govern service quality, reliability and other issues. In Australia, for example, regulations are provided by the Australian Communications and Media Authority.

The regulations are made public on their website, which enables consumers to analyze their rights when service problems arise. Complaints regarding telecommunications services can be lodged with the telecommunications industry ombudsman.

Consumer protection measures are a necessity to protect subscribers from operators delivering substandard and unreliable service. A customer service guarantee regulation is required to enable consumers to claim compensation if carriers fail to meet the basic minimum service quality and reliability.

The regulation serves to reinforce obligations operators already have but currently ignore.

With cutthroat competition currently in place, to promote longer-term customer loyalty, one might wonder why operators are not prioritizing the delivery of reliable and quality service in addition to cutting prices.

The writer is the CEO of PT Demeta Telnet, a telecommunications contracting company in Jakarta. The article is the writer's personal view. He can be reached at dennis_pra@yahoo.com.au.

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