Indonesia’s Telco Future Depends on Regulatory Reform, Not Just Market Strategy

By Teguh Anantawikrama *)

INVESTORTRUST - Indonesia’s telecommunications sector stands at a critical crossroads. Demand for data continues to surge, digital adoption is accelerating, and the promise of 5G is within reach. Yet beneath this momentum lies a structural constraint that cannot be solved by market strategy alone: the cost architecture imposed by regulation.

For too long, we have focused on commercial innovation—pricing strategies, digital ecosystems, and operational efficiency—while overlooking a more fundamental truth. Profitability in telecommunications is not merely a function of competition; it is shaped, decisively, by regulatory design.

The Weight of Structural Costs

At the core of the issue is spectrum. Telecommunications operators in Indonesia face significant financial burdens from both upfront auction payments and recurring usage fees. These are not marginal costs that decline with competition. They are fixed, or at best quasi-variable, obligations that persist regardless of pricing pressure.

This creates a structural reality: operators must maximize spectrum utilization simply to sustain profitability. Subscriber growth alone is no longer sufficient.

Layered on top of this are regulatory levies—Universal Service Obligations, licensing fees, and interconnection requirements—which effectively act as implicit taxation on revenue. These obligations compress margins further, limiting the sector’s ability to reinvest and innovate.

Infrastructure adds another dimension. Permits, local government fees, and compliance requirements increase the cost per site, particularly in the era of 5G, where network densification is essential. The result is slower, more capital-intensive deployment.

Why Current Strategies Are Not Enough

The industry’s response has been logical, but insufficient.

Operators are shifting from volume to value, seeking to increase ARPU (Average Revenue Per User). However, this strategy carries its own paradox. Higher-value users consume more bandwidth, driving up spectrum and network costs. The result is that higher revenue does not necessarily translate into higher margins.

Digital ecosystem development offers a more promising path. Platform-based services can generate revenue streams less dependent on spectrum, with potentially higher margins. Yet even here, fragmented regulatory frameworks—across financial services, data governance, and digital platforms—limit scalability.

Efficiency improvements, particularly through AI, are helping operators optimize networks and reduce energy consumption. But these gains are incremental. They cannot offset the fundamentally fixed nature of spectrum-related costs.

The 5G Monetization Dilemma

Indonesia has invested an estimated US$ 6–8 billion in 5G. Yet returns remain constrained. Spectrum costs per MHz are high, consumer willingness to pay is limited, and pricing flexibility is restricted by competition policy. At the same time, infrastructure duplication across operators further erodes efficiency.

Under current conditions, 5G risks becoming a high-investment, low-return proposition.

The Missing Piece: Regulatory Cost Engineering

What is absent from our national strategy is a deliberate effort to redesign the cost structure itself.

If we accept that profitability is shaped by regulation, then regulatory reform must become a central pillar of industry transformation.

A New Policy Direction

First, spectrum policy must evolve. Active sharing models such as MORAN and MOCN, along with dynamic spectrum pooling, can significantly reduce effective costs and improve utilization.

Second, we must transition toward usage-based spectrum economics. Reducing reliance on large upfront payments and aligning fees with actual utilization would create a more sustainable financial model, particularly during early deployment phases.

Third, infrastructure sharing must go further. Passive sharing is no longer enough. We must enable sharing at the RAN and fiber levels to reduce duplication and accelerate nationwide rollout.

Finally, it is time to reclassify telecommunications. This sector is no longer merely a utility. It is the backbone of a digital economy. Recognizing telcos as digital infrastructure platforms would unlock fiscal incentives, support cross-sector integration, and encourage innovation.

Indonesia’s Strategic Choice

Without reform, the outlook is clear. ARPU gains will continue to be absorbed by spectrum costs. Ecosystem expansion will be constrained by regulatory fragmentation. Efficiency improvements will plateau against fixed cost structures.

With reform, however, the trajectory changes. Operators can achieve sustainable operating leverage. Returns on 5G investments can improve. And Indonesia can accelerate its transition into a true digital platform economy.

A Final Reflection

Indonesia’s telecommunications sector is not constrained by demand. It is constrained by the structural economics embedded in policy.

If by 2026 operators continue to compete primarily on price, remain burdened by high spectrum costs, and do not actively engage in regulatory reform, then they will remain trapped in a low-return infrastructure model—despite the immense opportunities of the digital age.

The path forward is not just about competing better. It is about designing better.

*) Vice Chairman for MSME Technology Transformation and Digitalization, Kadin Indonesia