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  1. interconnect the most difficult issue for a new operator ?(Indonesia’s Experience)1997 Cannes, FranceKoesmarihati SugondoPresident Director -TelkomselFebruary 1997 2 W O R L D 6 CONGRESS 1 + 1 8

  2. INDOSAT : INDONESIAN INTERNATIONAL TELECOMMUNICATION CARRIER TELKOM : NATIONAL TELECOMMUNICATION CARRIER KPN : DUTCH TELECOMMUNICATION CARRIER SETCO : INDONESIAN QUALIFIED PRIVATE COMPANY KPN SETCO 17.28% 5.00% INDOSAT TELKOM 35.00% 42.72% TELKOMSEL COMPREHENSIVE INTEGRATED SUPPORT • GSM OPERATOR IN INDONESIA • POSITIONING AS “GSM SPECIALIST” AND “MARKET LEADER IN QUALITY & SERVICE” • TOTAL COMPANY VALUE : US$. 2 BILLION

  3. current : 215.000 customers in less than 2 years of operation • aggressive growth : > 1.100.000 customers in the year 2000 INDONESIA TELKOMSEL’S COVERAGE 5200 kms 2000kms ALL 27 PROVINCIAL CAPITAL CITIES 200 DISTRICT CAPITALS 306 TOTAL CITIES COVERAGE &CUSTOMERS

  4. TELECOMMUNICATION SECTOR OF INDONESIA TELESERA METROSEL KOMSELINDO regional cellular TELKOMSEL GSM SATELINDO GSM nation-wide cellular EXCELCOMINDO GSM MOBISEL NMT-450 regional fixed-tel DIVRE II DIVRE V KSO MGTI KSO ARIAWEST KSO ASTRATEL KSO DATA MALINDO KSO BUKAKA SINGTEL RATELINDO long-distance operator DIVNET LONG-DISTANCE GOVERNMENT : - FUNDAMENTAL TECH. PLAN - INTERCONNECT - REVENUE SHARING - TECHNOLOGY - TARIFF - LICENSES & FREQ. ALLOC. - SUPERVISION FIXED-TEL MOBILE/CELLULAR FUTURE * 2 INT’L GATEWAYs * NATION WIDE * PHSs * REGIONAL OPR. ~ RBOC’s - 3 GSMs * DCS 1800s - 2 TELKOM’s - 1 NMT-450 * GMSSs - 5 KSOs * REGIONAL - 1 Fixed Cellular - 3 Analog AMPSs * LONG DISTANCE - 1 Div. NET

  5. MAIN ISSUESINTERCONNECT PHYSICAL PRICE INTERCONNECT SYSTEM

  6. WHY INTERCONNECT IS DIFFICULT ? “BIG BROTHER” (PSTN OPERATOR) “LOOSING SHARE” “COMPETITION” “LOOSING TRAFFIC” “IMAGE CHALLENGED” NEW ENTRANCES ARE SEEN AS “THREAT” INSTEAD OF “PARTNERS” WHICH CONTRIBUTE (BRING & CREATE) MORE REVENUE TO PSTN OPERATOR

  7. THE MONEY GO BACK TO FIXED-OPR NEW OPERATOR LEASED LINES PSTN OPERATOR NEW OPERATOR TRAFFIC NEW OPERATOR MARKET DEVELOPED ORIGINAL TELECOMMUNICATION MARKET PSTN OPERATOR SHOULD NOT SEE NEW ENTRANCES AS “THREAT” BUT AS “BIG CUSTOMERS” AND “PARTNERS” WHO CONTRIBUTE (BRING & CREATE) MORE REVENUE TO PSTN OPERATOR

  8. EVOLUTION OF INTERCONNECT ARRANGEMENT 1. INTERCONNECT WITHIN MONOPOLISTIC MARKET 2. INTERCONNECT BETWEEN LIBERALIZED & MONOPOLISTIC MARKET PSTN CELLULAR MOBILE A. PT. TELKOM INTRA PRICING TELKOM PSTN TELKOMSEL CELLULAR MOBILE A. CELLULAR MOBILE B. RS A CELLULAR MOBILE B. RSA CELLULAR MOBILE C. CELLULAR MOBILE C. 3. INTERCONNECT BETWEEN TWO LIBERALIZED MARKETS A PSTN A CELLULAR MOBILE A. B PSTN B CELLULAR MOBILE B. C PSTN C CELLULAR MOBILE C.

  9. MOBILE OPERATOR’S TRAFFIC PROFILE • (MINUTES) • TRAFFIC INDONESIA GERMANY • - MOBILE-MOBILE 10 % 5 % • - MOBILE-FIXED 90 % 95 % BIG PORTION OF CELLULAR TRAFFIC REVENUE STILL GOES TO PSTN OPERATOR TOTAL TRAFFIC/USAGE REVENUE LEASED LINES 17% NET. REV.-USAGE INTERCONNECT 23% 60% MOBILE OPR CONTRIBUTION TO PSTN-OPR • MARKET IS SUPPORTED BY • ATTRACTIVE CUSTOMER GROWTH • CELLULAR MOBILE TELEPHONE • DEMAND FORECAST (‘2000) • - JICA (‘92) : 230,000 CUSTs. • - BOOZ ALLEN (‘94) : 600,000 CUSTs • - GOVERNMENT • - ORIGINAL (‘94) : 400,000 CUSTs • - REVISED (‘97) : 1.200.000 CUSTs • - TELKOMSEL : 4.000.000 CUSTs

  10. HOW SHOULD THE GAME BE PLAYED ? INTERCONNECT SHOULD BE TREATEDAS “SERVICE” SERVICE BUYER (BULK PURCHASE) SUPPLIER (BIG STOCKS) THE PLAYERS PSTN OPERATOR NEW ENTRANCES “WHOLESALE TREATMENT”

  11. RESPONSIBILITY, RIGHT & OBLIGATION “SERVICE” SHOULD APPLY “RIGHT & RESPONSIBILITY” DEAL COMMON BUSINESS PRACTICE INTERCONNECT SHOULD BE TREATEDAS “SERVICE” BUYER (NEW ENTRANCE) SUPPLIER (PSTN OPERATOR) SERVICE DELIVERY * QUALITY/ RELIABILITY * CAPACITY * PRICE * AVAILABILITY

  12. 4 MAIN REASONS TO BUILD OWN OVERLAY NETWORK COMMON BUSINESS PRACTICE OWN OVERLAY NETWORK IS JUST LIKE A COMMON INVESTMENT WHICH REQUIRES “HUGE FINANCE” & COSTS“OPERATION & MAINTENANCE HEADACHE” OWN OVERLAY NETWORK OTHER NETWORK 1. QUALITY/ RELIABILITY 2. CAPACITY 3. PRICE 4. AVAILABILITY IF THE SERVICE IS NOT SATISFACTORILY DELIVERED, IT WILL ENCOURAGE THE DEVELOPMENT OF EXCLUSIVE OVERLAY NETWORK WHICH BECOMES IN FACT, A LONG DISTANCE OPERATOR

  13. INTERCONNECTION NEED A PRICE INDONESIA'S SITUATION : INTERIM SOLUTION X X X X REVENUE SHARING IS APPLIED AS EACH PARTIES ARE NOT ABLE TO DETERMINE THE PRICE OF EACH “INTERCONNECT BUILDING BLOCK” PSTN CELLULAR

  14. 800 900 X X Customer base Customer acquisition Cost of revenue-collection (RISK) REVENUE SHARING DOES NOT INCORPORATE ALL SERVICE ASPECTS X X Mobile operator is eligible for 15 % of long distance tariff ALL KIND OF VALUE ADDED SERVICES AND PREMIUM MAKE REVENUE SHARING EVEN MORE DIFFICULT REVENUE SHARING IS APPLIED ON “USAGE CHARGES” NOT ON DELIVERED ADDED VALUE

  15. RECOMMENDED INTERCONNECT SYSTEM INDONESIA INTERCONNECT ARRANGEMENT ? MOBILE-PSTN PHYSICAL POINT OF INTERCONNECT USER TARIFF BASIS COST BASIS VIRTUAL POINT OF INTERCONNECT

  16. HOW TO MEET THE GOAL INTERCONNECT PRICE BASIS : USER TARIFF RETAIL BASIS : COST BASIS (ADDED VALUE) COMPONENT OF BUILDING BLOCK “WHOLESALE”

  17. INTERCONNECTION ENVIRONMENT Australia Finland Japan New Zealand UK US Negotiated/Determined N/D N D N N/D D Tariff/Cost based C T C/T T C/T C Historic/Current cost H - H - H H Marginal/Fully allocated costs M - F - F F Actual/Model costs A - A - A A Return on capital allowed (%) 16.80 - 5 - 15 11.25 Source : “Interconnect”, Ovum, London, 1994

  18. CONCLUSION HOW TO COME TO “WIN - WIN” SITUATION • STEP 1. The connecting parties should see each other as customer and supplier • > PROVIDING BEST SERVICE • STEP 2. The network development plan of each parties should be well coordinated • > TO ENSURE DELIVERY • STEP 3. The regulator must set “clear rule of the game” and play as “referee” • > TO SUPPORT EQUAL TREATMENT • STEP 4. The ”interconnect building block” of the service must be priced • > COST ALLOCATION

  19. T E L K O M S E L I N D O N E S I A THANK YOU ... for your attention TELKOMSEL Landmark Center Bld. Tower A, 19th Fl. Jl. Jend. Sudirman No. 1 Jakarta 12910 - Indonesia Tel. +62-21 5200811, 5272930 Fax. +62-21 5712672, 5711324 kartuHALO +62-811100908

  20. TELEKOMUNIKASI SELULAR INDONESIA