A

em>Alexander Rusli: (Courtesy of PT Indosat)The thirst of mobile phone users for data has compelled telecommunication companies to invest heavily to improve their networks. Alexander Rusli, the new CEO and president director of PT Indosat, spoke with The Jakarta Post’s Mariel Grazella on how the firm’s drive for data has realigned its investments and team focus with mobile operators.

Question: Telecommunications firms have been pouring large sums to upgrade their data networks to keep pace with demand. How much financial pressure has this exerted on Indosat, given narrow profit margins?

Answer: Indosat’s networks are going through a modernization process. Telcos have to be able to invest with the right size in the right place. Previously, we could experiment more because the margins were large. Ten years ago, Indonesia was one of the most profitable markets for telcos in the region, as the ARPU [average revenue per user] soared to Rp 100,000 (US$10.3). But the price war in 2007 sent ARPUs tumbling to the lowest in the region.

However, investments and capital expenditures in new technological equipment have not been that big a deal. Although technology is becoming obsolete faster, the unit cost of equipment is cheaper.

When we went from 2G [second generation] to 3G [third generation], telcos had to purchase totally new equipment. But with 3G itself, many of the upgrades, including those from 3G to long term evolution (LTE), have merely been increments of the previous technology.

How is modernization commercially driven?

Modernization should always be commercially driven. The philosophy in the past was that the technical crew drove the technology roll out, which the marketing crew was later responsible for selling. Once again, this changed in 2007 as telcos were forced to think commercially. Now, the commercial crew are the ones telling the technical crew where to go and why, because the commercial crew are the ones with a strong knowledge of market conditions.

These changes in organization, including the way telcos budget for capital expenditures, did not happen overnight. But we have been moving in the right way since 2007 and in the last two years, we have been more rational in investing.

What is effect the on customers, who, at the end of the day, want great prices for fast service?

The customer base has started to plateau now that everyone has mobile phones, so growing the customer base will be less an aim than preventing them from switching to another operator. Implicit in the modernization process is to provide a smoother platform for customers to get them to like your offering, thus preventing them from churning out. Upgrades are also about increasing network capacity, and hence, generating more revenue.

Allocating capital expenditures for network upgrades might be more of a challenge for smaller telcos with a fraction of the user base of the big three. Will this prompt more mergers?

Throughout the years, the government has released a plethora of licenses that transformed this sector into one with 10 operators. Competition became fierce, causing the market’s dynamics to shift. Consolidation, like the one taking place among television stations, has to happen because players are hardly making money. Although we have moved away from price wars, revenues have never recovered.

The problem in Indonesia is that many of the smaller operators are run by entrepreneurs who use their free resources to play in the telco industry. They have a lot of free resources because their telco business is part of a bigger portfolio. Hence, these entrepreneurs cross subsidize between their business units, causing consolidation to become tough. We are waiting for consolidation, but this process will take a long time because these entrepreneurs’ pool of resources is limitless, judging from the way they have placed money in their telcos.

However, the exploration of consolidation has become part of our daily conversation, just because the market is competitive.

What is the impact of this lack of consolidation and what factors will catalyze consolidation?

There are short term and long term impacts. If the sector continues this way, the customer receives inexpensive service, but the quality is compromised because telcos, with limited resources, are reluctant to engage in trial and error in the business.

But for CDMA [code division multiple access] players, the death of the ecosystem — which will occur when handset makers and equipment vendors stop selling CDMA-based equipment — will force them to consolidate if they want to switch their networks to a new platform.

At the end of last year, Indosat was revamped by the entrance of new chiefs, including you. How is this affecting the organization and effort to spur business?

After the entrance of Qatar Telecom, the first generation of board members had specific tasks, including putting financial procedures in place, reducing the fat in human resources as well as taking on what Singapore Technologies Telemedia (STT) has built and integrating that with different parts of the organization. They faced many structural changes and did so by sacrificing the ability to execute faster externally.

After that was completed, the group desired to form a team that could execute. Our mandate — as the second generation of board members — is to execute faster and better. There is no secret formula to that but everything does have to be put in its place so that work can be executed faster.