The Polemic of Operators Versus OTT is the Endless Impact of Data Infrastructure Investments

What is be delivered by XL Axiata (XLL) CEO Hasnul Suhaimi about OTT on the sidelines of the Indotelko Forum is actually nothing new. Association of Indonesian Telecommunications Operators (ATSI) clearly stated that menolak net neutrality because it is considered unfair to network builders, namely cellular operators. In my opinion, this polemic will never end if we don't solve the root of the problem.

Hasnul in the event said, “Cook, we are the ones who build (network) but they get the money. If we don't invest OTT also cannot access. Even though we made all kinds of roads, eh placing ad (interstitial ads) even scolded. That Google is not scolded."

The root of the problem is clear. The costs incurred by cellular operators to improve the quality of Internet speed have not yet been covered. Commissioner of the Indonesian Telecommunications Regulatory Agency (BRTI) Nonot Harsono mention the investment made for 3G since 2006 has not yet "returned on", although Nonot does not include supporting data.

With the demands of LTE implementation that must be carried out in 2015, cellular operators inevitably have to invest again in order to remain competitive. Each operator must incur trillions of Rupiah in costs, usually through debt, in order to improve the quality of its network. No wonder if the financial reports of most operators show a red report card.

The tariffs provided by cellular operators in Indonesia are indeed quite cheap. The investment spent to deliver one MB of data should be higher than the tariff charged, especially if infrastructure development is based on loans in foreign currencies due to the continued weakening of the Rupiah exchange rate. All of this is done so that more cellular subscribers register and use data packages.

Chart that showed TeliaSonera, a Scandinavian cellular operator, is interesting to watch. In reality, data infrastructure development requires five times investment costs than telephone call infrastructure development (voice call). The problem is the income earned from Mobile Data, for the same investment cost, is five times less than Voice.

The 2014 global trend shows that globally, revenue from data accounts for 2/3 of operator's revenue, meaning that in fact, to obtain relatively the same revenue as 4-5 years ago, operators must invest in infrastructure that is many times larger.

To cover this revenue deficit, operators started racking their brains. One of the results is the implementation of interstitial ads controversial for accessing various sites.

Actually, operators' creative ideas in utilizing their network are not always bad. Customer data collected anonymously and packaged into a big data analysis, as is done Telkomsel M-Sight, is an interesting breakthrough, as long as it doesn't offend customer privacy.

Returning to the issue of operator vs OTT, operators are indeed faced with a difficult choice. On the one hand, if they impose the proper tariff for data packages, which are expensive in most people's pockets, they will be abandoned by customers. Can you imagine if the monthly cost of a data package alone reaches Rp. 500 thousand a month? On the other hand, if they don't increase or expand their sources of income, the bloody financial story story will not end.

The telecommunications business tends to be said to be uneconomical in the era of data-hungry mobile applications and platforms. This is a global carrier problem, but they have to survive.

One example of an operator that has successfully survived in difficult times like today is Japan's Softbank. Even though marketsize they have fewer subscribers than Docomo or KDDI, it turns out that revenue and profit (operating income and net income) earned in the last year shows a rapid spike. One of the drivers is Softbank's involvement in investing in the OTT business. Softbank, through its subsidiary Softbank Internet and Media (SIMI), has even become a major investor in investment $100 million horrendous for service marketplace Tokopedia.

There are many roads to Rome, it's just a matter of which route the cellular operator wants to take to remain competitive in this era of selling data.