Danareksa Analysis on Telecommunication

Danareksa Analysis on Telecommunication

Today, telecommunication operator in Indonesia compete each other with offering the cheapest tariff which advertise intensively.

On the surface, cheaper tariff means benefit for the customer but its need to pay an attention that the cheap tariff, is it  because of proper tariff or it means the industry more effecient or other factors?

The proper tariff is the tariff that guarantee sustainability of telecommunication business. it doesnt mean the tariff war among telecommunication operator that could bring them kill each other. if it happen, in the end the consumer will loose quality of the telecommunication service.

On the other side, costumer have a right to enjoy proper high quality telecommunication service. which mean customer have a right to enjoy cheap tariff without sacrificing the service quality.

For example, because the tariff very cheap it causing the conversation volume increase drastically until network capacity reach it peak.

Theoretically, to keep network quality, telecommunication operator had own capacity utilisation not more than 80 per cent. if the network utilisation close to 100 per cent, it could be a problem arise such as communication interrupted suddenly. If the operator not allocate additional investment, the customer would suffer lose because the low quality of telecommunication service.

It is important to pay close attention is it the telecommunication industry recently, head to proper tariff or not. need for remember that Indonesian telecommunication market is oligopolistic. around 90 per cent of telecommunication market controled by 3 big player namely Telkomsel, Indosat and XL.

With oligopolistic market form, there are two possibility of behaviour for the operator that is to say cooperate to exploiting market or compete to give the the cheapest tariff. But the most possible thing that would happen is number two, tariff war that happen at the moment in Indonesia.

Not Really Cheap at all

Is it true that the customer could enjoy very cheap tariff? the answer is not yet fixed because there’s always a small letter which stated condition and stipulation came into effect.

This small letter very important in determining the conversation tariff. the most important thing is cheap tariff just came into effect for customer with same operator (on net). but with different operator (off net) the tariff not change at all. its mean cheap tariff can enjoy with certain way and not apply in a whole.

Recently, telecommunication operator often put their advertisement in various media and claim themself as the most cheapest operator. on the other side cheap tariff would increase the teledensity because telecommunication service more reachable. but the other side  advertisement cost will increase, in consequence is it need to question, that in a whole telecommunication industry become efficient or not.

Clearly, we can see that tariff war reflected from the content of the advertisement which said that they offers the cheapest. the thing that go unnoticed are the cheap tariff come into effect for same operator calling (with certain condition) and for temporary period (promotion period). this means in any time the operator could increase the tariff to the level that more profitable.

Then the operator need to keep on guard if the tariff war use as a strategy to kill the competitor.

Regulator also need to keep the advertisement transparency and ethics. so far there are different various tariff structure, so its difficult to compare which is the most cheapest operator.

So, the regulator role to determine transparent regulation on tariff fixing or as an alternative could introduce portability number system that the customer doesnt need to change mobile phone number if they change the operator. but the important thing is tariff explanation should clear and transparent.

Cross Subsidy

Tariff differentation between on net and off net, in fact creating cross subsidy situation because off net tariff is expensive and on net tariff become cheaper. While, the cost for investment network not distinguish between the network for off net and on net. Operator could give very cheap on net tariff because there is no cost consequense to the third parties.

In fact, the lower bound of on net tariff is zero or free although operationally operator could get lose out. this strategy could be carry out for temporary to kill the competitor.

So, the regulator should keep on guard in decide regulation to promote fair competition.

Regulator role become important to create healthy competition climate to keep business sustainability of telecommunication operator.

Beside, the society also have a right of telecommunication service without sacrificing service quality.

Today advertisement war situation also reflected that tariff war is a proof that telecommunication industry had the real competition climate.

The thing that need to be maintain is that the competition should be in the corridor to the efficient industry.

(Translated From Kompas March 24, 2008)


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