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Digital potential: Rethinking 5G spectrum prices in Indonesia

The cost of spectrum in Indonesia has risen significantly the last decade and this poses a major threat to future development of mobile services.

Julian Gorman
Hong Kong, China
Wed, November 15, 2023

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Digital potential: Rethinking 5G spectrum prices in Indonesia This aerial photo shows a worker checks a base transceiver station (BTS) tower in Kutai Kartanegara regency, East Kalimantan on June 8, 2023. (Antara/Fakhri Hermansyah)

W

ith new mobile spectrum auctions fast approaching in Indonesia, Indonesia’s digital transformation could be held back, unless the country rethinks how it prices 5G mobile spectrum.

Indonesia is among the largest and fast-growing digital economies in the Asia-Pacific region. The government’s digital roadmap for 2021-2024 recognizes information and communication technology (ICT) infrastructure as a key enabler of digital transformation in Indonesia and the priorities include the completion of 4G infrastructure and development of 5G networks.

However, realizing this vision is only possible if the country’s mobile operators have access to the right amount and type of affordable spectrum. The speed, reach and quality of 4G as well 5G services depend on that, and there are no shortcuts for a country that wants to build a digital economy that leaves no one behind.

Today, while 4G coverage in Indonesia stands at an impressive 97 percent, the nation’s 5G network roll out is at the start of the journey, currently reaching only 15 percent of the population.

This situation is exacerbated by a current shortage of mobile spectrum, particularly in mid-bands (1-7 GHz) for delivering high-speed mobile broadband services in densely populated urban areas, and low bands (below 1 GHz) for improved, more affordable connectivity in rural areas.

This is why, to boost the country’s digital ambitions, the Communication and Information Ministry (Kominfo) is planning to award several frequency bands over the next two years including 700 MHz, 2.6 GHz and 3.5 GHz, as well as mmWave frequencies in the 26 GHz band. This additional spectrum will more than double the current total supply of mobile spectrum and put Indonesia on the right track.

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However, to maximize the benefits from these awards, a new approach to spectrum pricing is again needed. Expensive spectrum negatively impacts the quality of mobile networks.

High burden of ongoing spectrum cost means reduced investment and slower deployment of the latest network technologies. This, in turn, means lower availability of mobile connectivity, decreased adoption, and a missed opportunity to benefit from the economic growth unlocked by advanced mobile use cases.

In Indonesia, GSMA Intelligence research highlighted in a new report entitled “Sustainable spectrum

pricing to boost Indonesia’s digital economy” shows that since 2010 estimated total annual spectrum costs for mobile operators have increased more than five-fold in the country, because of auction-related payments and spectrum fees associated with license renewals.

In summary, the report’s key findings are.

First, over the 2024-2030 period, 5G is projected to contribute more than US$41 billion in gross domestic product (GDP) to the Indonesian economy.

Second, for a 1 percentage point increase in spectrum cost to revenue ratio, there is a corresponding 2.8 percentage point slower network rollout.

Third, if spectrum cost to revenue ratio continue to grow, coverage could be more than 20 percentage points lower by 2030 and 5G adoption could fall behind by over 2 years (11 percentage points lower by 2030)

Fourth, for the highest spectrum cost scenario, around one-third of the socio-economic benefits of 5G – some $14 billion (cumulative over 2024-2030) in GDP could be lost.

So, what should happen next?

First, lower reserve prices. The GSMA recommends setting more conservative reserve prices for upcoming auctions of new spectrum bands. The cost of spectrum in Indonesia has risen significantly the last decade and this poses a major threat to future development of mobile services.

By setting reserve prices below estimates of market value, the government can allow room for price discovery and reduce the risk of unsold spectrum. Where there are coverage or other obligations, the associated costs must be factored into the reserve price and annual fee.

Second, review annual spectrum fees. A further critical step is the evaluation of the formula governing annual spectrum fees. The government should consider how the parameters in the current formula could be adjusted to provide the right long-run incentives and avoid disproportionate increases in costs that are not aligned with evolving market conditions.

Third, ensure a clear spectrum roadmap that considers not only current bands under planning but also long-term needs for Indonesia, especially for mid-bands in the 2025-2030 timeframe.

Greater certainty on the availability of spectrum and associated conditions is crucial for operators to prepare investment plans, secure financing and develop strategies for network deployment and service delivery.

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The writer is head of Asia-Pacific at GSMA.

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