Syahrial Ali's Blog

In the airline world, we knew budget airlines such as Valuair. It is a cheap airline company. The cheap airlines as such cut many costs from promotion fees, administrative costs and reduced several services. With such prices, the company still earns valuable profits.

A similar thing also happens in Indonesian telecommunication industry. Many cellular operators (both GSM and CDMA based technology) currently offer very cheap tariff for communication services (Value Communication/ Budget Communication). The tariff war is happening. They have changed the tariff regime that was initially based on the distance and time into flat tariff, one tariff for one call. They still distinguish the On-Net tariff (tariff inside their network) and the Off-Net tariff (tariff across networks).

Does the community get benefit with such condition?

Truthfully said, consumers indeed receive advantages because their conversational cost descended drastically. They could speak for a long time with one tariff which amount is also very cheap. However, on the other side, like cheap airline, it definitely sacrifices something.

Firstly, let’s check the network quality. Have you ever contrasted the quality of the network at this time with time before this new tariff was launched? The experience proved that successful call ratio dropped drastically. You must dial many times before being connected to the destination number. This is because the number of traffic reaches its peak while the networks remain the same. The network is overloaded.

The low-class customers who are previously fond of sending short messages now switch to voice communication and enjoy it for a long time. The customers will prefer to make a call rather than send short message not only because of new tariffs cost only two times of SMS tariff, but also the information to be sent is clearer. Therefore the cheap tariff was not matched by the network capacity. Hence the quality of the service was very low.

Secondly, very low tariff could endanger the continuity of telecommunication industry in this country. Investor won’t be interested in the industry when the margin so small. Thus, snow ball effect comes to the area where no cellular services available yet. There will be no massive expansion as operators have very limited capabilities.

The same thing also happens for new comers in this industry. With a limited number of subscribers, they have to compete with incumbents which have plenty of subscribers along with low tariff. Moreover, with better coverage, the prospective subscribers will prefer the incumbents. We will see in the future that several cellular operators will merge in order to remain exist.

So what do we really want?

Actually we want a win-win solution. Subscribers want a cheap tariff and telecommunication operators provide it along with good quality of services. The cheap tariff should remain beneficial enough to the operator (and investor as well) so that they still be able to make expansion to the whole country.

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