T

he significant growth of Indonesian mobile telephony to over 211 million active SIM cards in 2010 (Directorate General of Post and Telecommunications, 2011), three and half times larger than the number in 2006, has been accompanied by an overwhelming number of products and prices, thereby making an informed choice by customers nearly impossible.

Eight mobile operators compete fiercely, whereas products and prices change frequently and the choice of discounts and specials are offered in the market.

The pricing structure of cellular services in Indonesia is unique. Besides conventional price discrimination between on-net (calling on the same network) and off-net (calling from one network to another) and peak and off-peak rates, accumulative discounts, friends and family discounts and cash (airtime) backs are being used. Prices differ also by region and distance. Billing is either in minutes or seconds. Flat rates for voice, SMS and data in any permutation compliment the product offerings.

The complexity of product design and pricing is amplified by misleading advertising. “Zero” or “free services” are advertised with the small print listing the limitations thereof and even in some circumstances stating that tariffs may change without prior notice.

Straight product comparison is hardly made for the layman, which inhibits customers from making an informed decision on which prepaid product best fits their income.

In relation to this issue, OECD (2002) developed a method to compare price plans between operators by creating a monthly basket of services and pricing baskets for each product. The methodology allows one to objectively compare product prices across operators and countries.

Following this framework, the likely prices of services can be assessed employing a low-bundle, middle or heavy user categorization depending on the number of SMS and calling with a particular threshold for each group.

Trying to apply the price basket following OECD framework to
Indonesia is, unfortunately, not suitable, as the discounts and specials are mostly on a daily basis.

Therefore, a new daily basket is required to compare prices in Indonesia. Given the complexities, an alternative framework to assess prices has been constructed in this simulation. All prepaid products are being priced for a basket constituting six calls each for every hour of the day and night (24 hours) – three calls of the length 35 seconds, 75 seconds and 200 seconds to the same network (on-net) and to another network (off-net). The daily basket also includes one off-net and one on-net SMS per hour.

The call length was determined to best reflect the complexity of billing and free callings for a certain time period (30 seconds in most cases), or free calling after a required period (usually one minute).

Figure 1 displays the cost of this basket for most prepaid product available in Indonesia in November 2011. Figure 1 does not show the actual cost users pay, but the cost for the defined basket. It serves to provide a neutral, objective look at the price and product differences.

The price comparisons show that despite operators claiming that their product is the cheapest, or even free, this may be misleading.

Indonesia’s Telecom Regulatory Body (BRTI) could, therefore, offer users an online tool that allows them to compare product prices for their actual usage, as has been done by regulatory authorities in Europe; for instance, in Sweden. Such a tool would also be able to factor the network because subscribers from large operators usually make more on-net and less off-net calls compared to subscribers of smaller operators.

This issue has a wider implication. It has been demonstrated that the development of telephony has an accelerated effect on GDP growth once critical mass has been reached. Roller and Waverman (1996) identified the critical mass of 40 percent as the threshold for voice telephony, whereas Torero, Chowdhury and Bedi (2002) found 5 and 15 percent use of the Internet enabled a 0.03 percent increase in GDP as a result of each 1 percent increase in the penetration rate.

In fact, Indonesians use multiple SIM cards to benefit from ever changing promotions and to avoid off-net calling. Off-net calling for some products is more than 10 times as expensive as on-net calling.

The survey conducted by the Institute for Economic and Social Research (LPEM-FEUI) together with LIRNEasia in 2011 found that among the Bottom of Pyramid users in Java based on the World Bank’s poverty expenditure of US$ 1.25 per person per day, multiple SIM cards is a common phenomenon. Around 20 percent of the users have multiple SIM cards as a result of seeking cheaper promotion prices. Consequently, neither the question of the actual penetration rate nor the actual impacts to economy can be identified.

This finding suggested the importance of price transparency to ensure that consumers are well-informed concerning the range of services and prices available. To do so, BRTI could use price baskets to create transparency and monitor price developments in the market.

BRTI may even prescribe that any product advertisement would need to carry a public interest notice indicating the cost for a specific user basket, similar to cigarette advertisements having to mention potential harm caused by smoking. This would allow ordinary people, regardless of their education level, to make sense of product offerings.

Ibrahim Kholilul Rohman is PhD candidate at Chalmers University of Technology, Gothenburg, Sweden and a researcher at the University of Indonesia’s Institute for Economic and Social Research University (LPEM-FEUI). Christophe Stork is senior researcher at Research ICT Africa and associate at LIRNEasia.