Indonesia case study Giga in collaboration with Boston Consulting Group (BCG) - September 2021 - ITU

Page created by Claude Howell
 
CONTINUE READING
Indonesia case study Giga in collaboration with Boston Consulting Group (BCG) - September 2021 - ITU
Indonesia case study
Giga in collaboration with Boston Consulting Group (BCG)

September 2021
Indonesia case study Giga in collaboration with Boston Consulting Group (BCG) - September 2021 - ITU
Country profile | Indonesia

                                           •    Population: 270 m                          •   Total population under 18 years: 31.1%
                                           •    GDP: $1139 B                               •   Secondary completion rate: 87.9%
                                           •    GDP per capita: $4,221                     •   Adult literacy rate: 95.7%
                                           •    GDP growth: 7.6%                           •   % of schools connected: 76.3%
          Key figures                      •    Investments/GDP: 31.3%                     •   Connectivity starting point: 76.84%
                                           •    Urban population: 57%                      •   Electricity penetration: 98.9%

                                           • # of schools in country: 218k         The proportion of              Low              GDP per capita            High
                                           • Average no. of students per           unconnected school is
                                                                                                                                              Challenge: Large
                                             school: 198                           much higher in the
                                                                                                                                              populations
                                           • Current % of schools with internet    sparsely populated
                                                                                                                                              separated by
                                             connectivity: 81%                     islands, like Papua (lowest
                                                                                                                                              islands with
       Demography of                                                               population density). The
                                                                                                                                              significant socio-
                                                                                   Ministry estimates 71% of
          schools                                                                  schools in Papua are not
                                                                                                                                              demographic
                                                                                                                                              differences
                                                                                   connected to the internet

                                                % GDP spent on education                       7.7   • Government debt: 43.5% of GDP
                                                                           6.1     6.3               • Government’s education budget on a per-student basis:
                                                                3.6                                    $87.6
                                                         3.1
                                                                                                     • Broadband a universal service: No
         Government                            0.4                                                   • Operational USF available: Yes
         involvement                                                                                 • Total amount allocated: $ 228m annually
                                          Nigeria    Rwanda Indonesia Honduras    Brazil       SL

Source: UNICEF, ITU, government websites, BCG analysis
www.gigaconnect.org | info@giga.partners                                                                                                             1
Indonesia case study Giga in collaboration with Boston Consulting Group (BCG) - September 2021 - ITU
Indonesia’s geography forms a barrier to be able to connect all schools,
different funding models apply for the less developed regions
Context: The mobile segment in Indonesia plays a major role. Mobile internet is widespread and penetration is over 130%. However, only 14% of households are
subscribed to the fixed segment, with the many islands being a major obstacle. ~19% of schools in Indonesia are not connected to the internet. 70% of these
unconnected schools covered by a base transceiver station, while 12,600 (30%) schools are not, meaning the schools are completely removed from connectivity.
Additionally, the unconnected school proportion is much higher in sparsely populated areas. A five-year plan made in 2019 aims to provide 20 Mbps service to
30% of the population, including 71% of urban households. Still, 13M people across 12,500 remote villages have no internet access

          Technology                                Cost structure                        Funding structure                        Operating model
To connect schools in Indonesia,           A total annualized investment of       Different funding models are             In terms of operating model, the
funding is required on the four            $168M is needed to fund school         considered for the well-developed        following is advised:
technologies. Given low                    connectivity in Indonesia.             versus less developed. For the             • Private company/consortium
penetration of fixed broadband in                                                 well-developed regions the                    for coverage as a service
the country, WISP, 4G and satellite        An additional $20 will have            following models are considered:              (revenue-sharing)
are expected to hold higher                to be spent per unconnected              • Demand-side subsidy                    • State/gov't driven for the
relevance. The share of funding is         student on an annual basis to            • Prerequisite in upcoming 5G               gov't budget increase
determined as follows:                     fund school connectivity.                   spectrum auction                      • Turnkey (+ Lease) for one-off
  • Fiber: 30%                             For an average school that is not        • Build, Operate and Transfer               gov't subsidies
  • WISP: 30%                              connected to electricity, $4,450 is         by BAKTI                              • Cooperative and
  • 4G: 38%                                required on an annualized basis          • Revenue-sharing                           Voluntary set-ups for
  • Satellite: 2%                                                                 For the less developed regions:               community contribution
                                                                                    • Demand-side subsidy
                                                                                    • USO financing
                                                                                    • Regulated advertising model
                                                                                    • Community contribution
                                                                                    • Govt co-invest alongside SPs
www.gigaconnect.org | info@giga.partners                                                                                                       2
Indonesia case study Giga in collaboration with Boston Consulting Group (BCG) - September 2021 - ITU
Multiple funding models (private, PPP, state and community) can be
used, thereby involving different stakeholders in the process of
improving connectivity
 Funding model                              Explanation                                                                                    Operating model
                                           The revenue-sharing model falls within the commercial-provided archetype. It is guided by
                                           the private company/consortium operating model. This model is more relevant for well-
        Coverage as a service –                                                                                                            Private company/
 A      revenue-sharing
                                           developed regions e.g., Java, Bali and Sumatra. Private individuals have already set up their
                                                                                                                                           consortium
                                           own networks covering ~20 households – a formal model connection local businesses and
                                           main operators must be established

                                           Falls within the government-contributed archetype and therefore the state/government
        Government increases               driven operating model is advised. As no new infrastructure would be needed in this model,
 B      school funding                     the operating model would be focused on optimal use of funding, rather than infrastructure      State/government
                                           development.

                                           Spectrum auctions and USF financing are (implicit) one-off subsidies. USF financing is gov't-
                                           driven, however can be conducted in a wide variety of methods (e.g., BAKTI owns
        One-off                            infrastructure, or outsources to commercial parties). The spectrum auction is an implicit PPP
 C      government subsidy                 model given the need for agreement both the gov't as well as commercial parties. Another
                                                                                                                                           Turnkey (+ Lease)
                                           subsidization model is Build-Operate-Transfer (BOT) where BAKTI licenses rights to operate in
                                           an auction, which includes a mandate subsidization of school connectivity
                                           The community contribution model builds on the community-based archetype. It is more
                                           appropriate for less-developed regions e.g., Kalimantan, Sulawesi, Nusa Tenggara and Papua.
                                                                                                                                           Cooperative
 D      Community contribution             Local ownership is based on supporting community-based micro-enterprises. Village
                                                                                                                                           and Voluntary
                                           ownership may be more successful, as the NPO or local gov't provides continuous guidance
                                           and training in addition to initial funding

Source: BCG analysis
www.gigaconnect.org | info@giga.partners                                                                                                              3
Indonesia case study Giga in collaboration with Boston Consulting Group (BCG) - September 2021 - ITU
Country & school overview
                                           Connectivity status & developments
Indonesia case study |                     Telco landscape
Table of contents                          Recommendations
                                           Funding models
                                           Financial impact of funding models
                                           Short-term next steps

www.gigaconnect.org | info@giga.partners                                        4
There are large
                                                  socioeconomic
                                                      differences
Significant regional                             between islands
differences in
socioeconomic status                         Meaning that several
in Indonesia lead to                          districts have weak
~20% of schools being                                or no mobile
unconnected                                   broadband signals

Deep-dives on
next pages                                 With an estimated 19%
                                           of schools that are not
                                                 connected to the
                                                      internet yet

www.gigaconnect.org | info@giga.partners                             5
Indonesia
Large populations separated by islands with
significant socio-demographic differences

    Aceh
                                                                                                                                                            270m inhabitants
             North                                                      East               Gorontalo
           Sumatera                                                 Kalimantan                                       North
                                                       West                              Central       North         Maluku
                      Riau
                                                    Kalimantan                          Sulawesi      Sulawesi
                                                                                                                                  West
             West                                            Central
                                         Bangka-                                                                                  Papua
                                                                                                                                                            74.0m total households
           Sumatera      Jambi                             Kalimantan
                                         Belitung                                                  Southeast
                                                                     Kalimantan
                               South                                                               Sulawesi
                                                                       Selatan
                             Sumatera                                                                             Maluku                         Papua
                  Bengkulu
                                 Lampung      Jakarta Raya           West Sulawesi
                                                                                      South
                              Banten                                                Sulawesi

                                        West Central
                                        Java  Java
                                                        East Java
                                                                                 East Nusa Tenggara                                                         514 cities and districts
                                                                                                                                                            1 City with pop. >10 m
                                                                  Bali
                                                Yogyakarta
                                                                  West Nusa Tenggara

Kalimantan                                              Sulawesi                                                 Papua & Maluku
Population (%)                          6.1             Population (%)                         7.3               Population (%)                    2.8      1,139 U$ Bn 2021 GDP
GDP (%)                                 7.9             GDP (%)                                6.7               GDP (%)                           2.3      2021-24 + 3.2% y-o-y
Pop. density (people/km2)               30              Pop. density (people/km2)              105               Pop. density (people/km2)         15

Sumatera                                                Java                                                     Bali & Nusa Tenggara
Population (%)                      22.0                Population (%)                         56.2              Population (%)                    5.6
GDP (%)                             21.4                GDP (%)                                58.7              GDP (%)                           2.9
Pop. density (people/km2)            123                Pop. density (people/km2)              1,172             Pop. density (people/km2)        207
                                                                                                                                                            1,916,907 km2
                                                                           People/KM2                  0-100       101-500           501-1,500     >1,500
Source: Statistics Indonesia, EIU, BCG Analysis
www.gigaconnect.org | info@giga.partners                                                                                                                                      6
Indonesia is the world's largest island country, with significant
variances in connectivity set up

The world's largest island country, it consists over 17                           … and significant variances in connectivity set up, with the
thousand islands, with 4 distinct topographical regions…                          East being less connected
 One of the main challenges to developing ICT Infrastructure in Indonesia is       Due to the limited funding capability of both the government and the
 its geography. This includes the number of islands, size of the territory to      private sector, infrastructure development cannot fully meet the demand in
 cover, the numerous remote and difficult to reach areas, and the number of        Indonesia. Thus, isolated and impoverished parts of the country
 low-income and uneducated inhabitants                                             are unconnected

                        Jakarta

        Indonesia                                                                                       Indonesia
                                                                                           Fiber optic cable        Submarine cable

 Lowlands     Hills/Mountains                                                              Microwave

Sources: World Atlas, ITU Broadband maps, ITU digital regulation platform, GSMA
www.gigaconnect.org | info@giga.partners                                                                                                         7
Different economic set-ups of regions must be taken into
consideration in rolling out school connectivity
High labor force has made Java to
be the epicenter of manufacturing                              … which leads to higher GDP &
and economic development …                                     spending per capita …                                          … and lower poverty rates…
Labor force (m), split formal/informal labor (%),              GDP per capita (IDR m) and spending per                        Poor people to total population (%) and split
labor force/total population (%)                               capita (IDR m)                                                 urban/rural(%)

  52.4     50.6     51.9      50.3      50.5      54.1                                         Coal rich island with
                                                                                                 low pop. density
  79.4                                                                               76        leads to higher GDP                                                                77%
                                                                                                    per capita
                                                                61
  42%                                                                      57
                                                                                               53
                                                                                                         49
                                                                                                                                                                                  56%

                                                                                                                                                                       34%
           30.0                                                                                                     31
                                                                                                                                                                           6%
           38%                                                                                                                  21%     20%                 19%
  58%
                    8.5                  3.7                                                                                    8%       9%                 6%
                                                                     12         11        11        10                   10                       12%                  28%
                    43%       9.9      28%         8.2                                                        8
           62%                                                                                                                                    5%                              21%
                              35%      72%               31%                                                                    13%                         14%
                                                                                                                                        11%
                    57%       65%                  69%                                                                                            7%
  Java   Sumatra Kalimantan Sulawesi   Papua &     Bali &        Java      Sumatra Kalimantan Sulawesi   Papua &     Bali &     Java   Sumatra Kalimantan Sulawesi   Papua &      Bali &
                                       Maluku      Nusa                                                  Maluku      Nusa                                            Maluku       Nusa
                                                 Tenggara                                                          Tenggara                                                     Tenggara

                  Formal       Informal                                   GDP per capita       Spending per capita                                Urban        Rural

Source: Statistics Indonesia, BCG Analysis
www.gigaconnect.org | info@giga.partners                                                                                                                               8
Differences in population density leads to variances in school set up

Population is concentrated in two islands, with one                                           …leads to higher number of schools in the two islands
island having an extremely high population density                                            despite little variability in students per school
Total population (m), split urban/rural (%), and population density                           No. of schools per region ('000), split primary/secondary/high school (%)
(people/km2)                                                                                  and students per school

    1,172         123            30           105            15              201                  252         200             163              153              153                185

    151.7                                                                                         97.2

                                                                                                  14%
                                                                                                                               Schools have less students on average per
                                                                                                                                school in lower-density areas as there are
                                                                                                  17%                        relatively more schools. Number of schools is a
     67%                                                                                                                     key driver of costs. Therefore, logically, the low-
                                                                                                              53.6           density areas are also those that have a higher
                                                                                                              13%                              cost to serve
                   59.2                                                                                       19%
                                                                                                  69%
                   44%                                                                                                                          23.6
                                                                                                                              17.9                       11%                       15.8
     33%                                       19.8                                                           68%                       11%     20%
                                16.4                                                                                          20%                               10.2                          12%
                   56%                         41%                                                                                                                                 20%
                                   46%                       7.4              8.2                                                               69%       13%      21%
                                                                    33%                 14%                                   69%                                                  69%
                              54%              59%           67%             86%                                                                              66%
     Java        Sumatra      Kalimantan     Sulawesi   Papua & Maluku    Bali & Nusa             Java       Sumatra       Kalimantan         Sulawesi     Papua & Maluku       Bali & Nusa
                                                                           Tenggara                                                                                              Tenggara
                                   Urban      Rural                                                                  High School        Secondary          Primary

Source: Statistics Indonesia, BCG Analysis
www.gigaconnect.org | info@giga.partners                                                                                                                                    9
Many students still have limited or no internet access, making it
difficult to give online education

Although Indonesia has relatively smaller proportion of                                                                                         … studying from home is difficult for many
schools without connectivity …                                                                                                                  students across country …
School connectivity distribution (%)
                                                                                                                                                   More than a third of Indonesian students has
Quoted from Education
      Ministry                                                                                                                                  limited or no internet access [including at home]
                                                                                                                                                               Ministry of Education, Culture, Research,
              7%                                                                                                                    4%
  19%                                                       23%          19%
                                                                                              10%                                                                                       and Technology
              21%                  43%                                                                                34%
                                                                         16%
              14%                                                                  72%                  66%                                          There are 42,159 or ~19% of schools in Indonesia
                       94%                                                                    66%
                                             99%            52%                                                                     96%         still without access to internet, even though 70% of
  81%                              34%
              58%                                                        66%                                          65%                       these schools under BTS coverage
                                   23%                      25%                    28%        24%
                                                                                                        34%                                                    Ministry of Education, Culture, Research,
                       6%                    1%                                                                                                                                         and Technology
                                                            Mauritania
              Brazil

                                                                         Liberia

                                                                                                                      Kazahkhstan
                                                                                              Namibia
  Indonesia

                                    Rwanda

                                             Sierra Leone

                                                                                                        Philippines
                                                                                   Zimbabwe

                                                                                                                                    Palestine
                       Honduras

                                                                                                                                                  When the school ordered us to study at home I was
                                                                                                                                                confused because we don’t have a signal at home

        No data                   Poor connectivity (5 Mbps)
                                                                                                                                                                                            Central Java

Source: Regulatory Reports, Press news, BCG Analysis
www.gigaconnect.org | info@giga.partners                                                                                                                                                     10
Indonesia has a 99% electrification rate with almost equal access
for both urban & rural, however ~9,500 schools still operating with
no electricity
~99% of the Indonesian population                                 … with low variance between                     … however, electricity remains a
has access to electricity …                                       urban and rural …                               problem for ~9,500 schools
Access to electricity (% of population)                           Access to electricity (% of population)
                                                                                                                        Electricity rate
   99.8      98.9                                                            99.9
                                                                                                       97.5
                        92.8                                                                                            Bali                           100%

                                                                                                                        Java                           100%

                                                                                                                    Sumatra                        96%

                                                                                                                    National                       95%

                                                                                                                    Sulawesi                       92%

                                   37.9
                                                                                                               Nusa Tenggara                      89%

                                             22.7                                                                 Kalimantan                     88%

                                                                                                                     Maluku                      85%

                                                                                                                      Papua                68%

  Brazil   Indonesia Honduras Rwanda        Sierra                          Urban                      Rural
                                            Leone
Source: Giga school data, Worldbank, MECRT, Press search, BCG Analysis
www.gigaconnect.org | info@giga.partners                                                                                                   11
Java, Bali & Sumatra also have the best 4G coverage in schools, and
are relatively closer to nodes which would allow them to connect
more easily
The three well-developed islands have relatively better 4G                               And in Java and Bali nearly all schools are within
coverage                                                                                 25 km of a node, thus within easier connection reach
            3G/4G coverage in schools                                                             Percentage of schools withing x distance to node
                                                                                                                                                                        79%
                                                                                  100%
            Java                                                            85%
                                                                                                  Java     4%          17%
                                                                                                         1%
                                                                                                                                                                              91%
                                                                                  100%                          9%
             Bali                                                     76%
                                                                                                  Bali
                                                                                                                           20%
                                                                70%                                                                           37%
        National                                    54%
                                                                                              National
                                                                                                                                       31%
                                                                                                                 12%
                                                                                                                                   29%
                                                     56%
        Sumatra                            35%
                                                                                              Sumatra                            25%   34%
                                                                                                                 12%
                                                                                                                                 25%
                                                   51%                                                                 17%
     Kalimantan                       31%
                                                                                            Kalimantan                                   33%
                                                                                                                              25%
                                                                                                                                                     48%
                                           35%
        Sulawesi                                                                              Sulawesi                             28%
                                     28%             To achieve meaningful                                 4%
                                                                                                                           20%

                                    26%                connectivity, a 4G                                                                           46%
 Nusa Tenggara                                                                           Nusa Tenggara                             29%
                          9%                         connection is required                                     9%
                                                                                                                      16%
                                                                                                                               25%                  46%
                           9%
          Papua                                                                                 Papua
                         6%                                                                                                   24%
                                                                                                           4%
                                                                                                                                        32%
                    0%                                                                                                       22%
         Maluku                                                                                Maluku                                  31%
                         6%
                                                                                                                     14%
                                Strong 3G Signal         Strong 4G Signal                                            0-25 km           25-50 km       50-100 km   100+ km
Source: Giga school data; BCG Analysis
www.gigaconnect.org | info@giga.partners                                                                                                                           12
Increasing the school connectivity might face major structural
challenges in the sparsely populated islands

                                                                               … while no connectivity is
School connectivity varies between islands, it's estimated that ~19% schools   more intense in the sparsely
across Indonesia are not connected to internet …                               populated islands …
                                                                                • According to MECRT, there are ~42,000 or
                                                                                  19% schools across Indonesia that are
                                                                                  not connected to internet
                                                                                • 70% of these unconnected schools
                                                                                  covered by a base transceiver station,
                                                                                  while the 12,600 (30%) schools are not,
                                                                                  which means the schools are completely
                                                                                  removed from connectivity
                                                                                • The unconnected school proportion is
                                                                                  much higher in the sparsely populated
   School connectivity                                                            islands, like Papua where it has the
   percentile
                                                                                  lowest population density, the Ministry
        0.0 to 16.5
        16.5 to 33.0
                                                                                  estimates 71% of schools in Papua are
        33.0 to 49.5                                                              not connected to the internet
        49.5 to 66.0                                                            • Moreover, in the sparsely populated
        66.0 to 82.5                                                              islands, where overall connectivity
        82.5 to 99.0                                                              coverage is low, schools have more
                                                                                  structural challenges to connect and
MECRT– Ministry of Education, Culture, Research and Technology                    higher cost to serve
Schools – Include primary, secondary and high school
Source: Unicef, Press search, BCG Analysis
www.gigaconnect.org | info@giga.partners                                                                     13
Example | Inside Java, the most connected island, connectivity gap
still exist in rural areas, with limited device available to connect
                                               Kenalan village, Central Java

       Students check for school assignments                                           … while some students study
       on a smartphone, studying from                                            from the side of a road in Kenalan
       home with limited devices available …                                   village, due to weak signals at home

Source: Press news, BCG Analysis
www.gigaconnect.org | info@giga.partners                                                                         14
The multilayer administration structure with its own autonomy
might bring more complexity for project coordination and funding
set up
                                                                                                                                                    • Since the early 2000s,
                                                                                                                                                      Indonesia has implemented a
                                                                                                                                                      decentralization policy by
                                                                                                                                                      giving regional govt more
                                                                                                                                                      power in determining the uses
   Central govt                                                                                  National           • President and legislative       of budget and agenda
                                       Central govt            Central                                                                              • However, the administration
  non-tax & tax                                                                                 Legislative           members elected by open
    revenues
                                         budget              Government                           Body                election                        and fiscal viability of
                                                                                                                                                      decentralized governance are
       Direct transfer; Funds to be                                                                                                                   restricted by its social capacity,
       managed by provincial govt
                                                                                                                                                      resource base, investment and
                                                                                                                                                      infrastructure
  Provincial govt                                                                               Provincial          • Province governor and
                                      Provincial govt         Provincial                                                                            • More autonomy also brings
  non-tax & tax                                                                                 Legislative           legislative members elected
    revenues
                                         budget              Government                           Body                by open election                more complexity to align the
                                                                                                                                                      strategic national agenda and
      Direct transfer; Funds to be                                                                                                                    its implementation
      managed by city/district govt
                                                                                                                                                    • Minister of Education stated
                                                                                                                                                      that, only 15% of IDR ~550 Tn
    City/district                                                                                                   • City mayor and legislative
                                       City/District         City/District                    City Legislative                                        education budget is managed
  govt non-tax &                                                                                                      members elected by open
   tax revenues
                                       govt budget           Government                            Body
                                                                                                                      election                        under the ministry, while the
                                                                                                                                                      rest is managed by local
                                                                                                                                                      government and other ministry
 Central govt non-tax and tax revenues – VAT, income tax, luxury tax, share profits from SOE, oil & gas, etc.
 Provincial govt non-tax and tax revenues – Vehicle tax, fuel tax, share profits from regionally-owned ENT., etc.
 City/district govt non-tax and tax revenue – Hotel, restaurant, entertainment taxes, other retribution, etc.
Source: Ministry of Finance, Press search, BCG Analysis
www.gigaconnect.org | info@giga.partners                                                                                                                                  15
Country & school overview
                                           Connectivity status & developments
Indonesia case study |                     Telco landscape
Table of contents                          Recommendations
                                           Funding models
                                           Financial impact of funding models
                                           Short-term next steps

www.gigaconnect.org | info@giga.partners                                        16
Costs of a mobile broadband data basket are below affordable level,
yet income spent on fixed broadband is still considerably high
1.3% of GNIpc spent on 1.5 GB mobile broadband data                         … on the other hand, fixed broadband costs are still
basket, which is below ITU recommendation for                               considerably high, with 10.9% of GNIpc spent on a 5
affordable internet …                                                       GB FBB data basket
Spent on data-only mobile-broadband (1.5GB) as % of
                                                                            Spent on fixed broadband (5GB) as % of gross national
gross national income per capita-2020
                                                                            income per capita-2020
25                                                                          180

                                                                            160
20                                                                          140

                                                                            120
15                Even though 1.3% is affordable
                  according to ITU's definition, for                        100
               27.5m (10.2%) Indonesia's population
                 who live below poverty line, MBB                            80                                                     GNIpc
10             costs are still too high to be affordable
                                                                             60

 5                                                                           40
                                                           Ø 2.9 average
                              1.3                                            20                                      10.9
                                                           2% ITU                                                                    Ø 9.4 average
 0                                                         recommendation     0                                                      2% ITU
                           Indonesia                       for affordable                                          Indonesia         recommendation
                                                           internet                                                                  for affordable
     Countries (N = 206)                                                          Countries (N = 206)                                internet

Source: : ITU, BCG analysis
www.gigaconnect.org | info@giga.partners                                                                                             17
Many districts still have weak or no mobile broadband signal, while
fixed broadband penetration is considerably low at 0% for some
provinces
Despite mobile broadband costs being below                    … while fixed broadband penetration only
affordable level, many districts still have weak or           reaches 15% of HH, with 13 provinces having a
no signals …                                                  0% rate
Villages with weak or no signal (%)                           Fixed broadband access to total households (%)

                                                                                       Jakarta Raya

                                                             Only Jakarta has >50%
                                                             HH access to FBB, with
                                                                   82.6% rate

                    0-20%         20-45%     45-80%   >80%                            0-5%            5-20%   20-50%   >50%

Source: Statistics Indonesia, BCG Analysis
www.gigaconnect.org | info@giga.partners                                                                                 18
Solutions are required to improve coverage quality to reach better
(school) connectivity

    29% primary schools                             … and 56% of Indonesian districts still receiving low                           … showing we need a clear
    remain without internet …                       quality networks …                                                              focus on 2 topics
                                                    The mobile internet coverage by no. of districts

                                                       83,937           Connectivity access Needs
                                                        7%              Coverage Gap               •    Fund internet
                                19%
           29%                                                          No signal                       coverage                                Fund internet
                                                        24%                                                                                     coverage
                                                                        Investment Gap              •   Upgrade
                                                                        Weak signals on all             network quality
                                                        32%             network
                                81%
           71%                                                          Investment Gap              •   Upgrade to allow
                                                                        Strong signal on                for meaningful                          Upgrade network
                                                                        2G/3G                           connectivity
                                                        38%                                                                                     quality and
                                                                        Connected                   •   Fuel the digital                        connectivity
                                                                        Strong signals on 4G            economy
     Primary schools        Total schools

          No connectivity
          Connected to the internet                No signals      Weak signals       Strong signals 3G/2G      Strong signals 4G

Note: Strong signals split 4G/3G/2G using BTS types proportion from the top 3 telco operators; Telkom, XL, Indosat
Source: Statistics Indonesia, Company Data, MECRT, BCG Analysis
www.gigaconnect.org | info@giga.partners                                                                                                                   19
Country & school overview
                                           Connectivity status & developments
Indonesia case study |                     Telco landscape
Table of contents                          Recommendations
                                           Funding models
                                           Financial impact of funding models
                                           Short-term next steps

www.gigaconnect.org | info@giga.partners                                        20
Indonesia

Overview of telco landscape in Indonesia

            Characteristics                                                                                Description

                                              •   Despite the high penetration of mobile services in Indonesia, there is still a connectivity gap between sparsely populated island and
                                                  densely populated island in Indonesia, mainly outside Java
                                              •   In 2019, Statistics Indonesia reports that only 41.8% out of ~84,000 districts in Indonesia have BTSs, and ~30% of districts in Indonesia
                                                  having weak/no signal
       Current status of fiber and            •   Significant improvement in connectivity has been shown in the last 3 years after the Indonesian government initiated the Palapa Ring
        4G, WISP, and of satellite                project under national strategic agenda in 2016. The goal was to lay 36,000 km of fibre optic cable connecting from the west to the east
          coverage in country                     part of Indonesia to provide high-speed internet
                                              •   The number of fixed broadband connections remains relatively low, with penetration only ~18% of households. The country’s geography,
                                                  consisting of 17,000 islands, is an obstacle for operators’ deployments that have focused on fiber
                                              •   The regulator launched different initiatives to improve the capacity and reach of fixed-broadband services. The five-year plan, publicized
                                                  in 2019, aimed at providing a 20 Mbps service to 30% of the population, including 71% of urban households

                                              •   Indonesian telecommunication sector has been increasingly competitive after the removal of monopoly regimes in the early 2000s and
                                                  increase of the 49% foreign ownership cap to 95%
                                              •   Currently there are 5 major players in mobile services, with Telkom as market leader covering almost 50% of total ~355m mobile
         Competitive landscape                    subscription in 2020
                                              •   In fixed broadband, where there is even lower penetration, market share concentration is more pronounced with Indihome (part of
                                                  Telkom) accounting ~85% of total ~ 11.8m fixed broadband subscriptions in 2020

                                              •   3 blocks of 2.3GHz frequency auction that will be used for 5G networks has been conducted this year and won by 2 telco player,
            Spectrum auction
                                                  Telkomsel (2 blocks) and Smartfren (1 block)
         for 5G won by 2 players              •   The 2.3GHz frequency auction was divided into three blocks in the range 2360-2390 MHz with a capacity width of 10MHz each

Source: Press search, Kominfo, BCG Analysis
www.gigaconnect.org | info@giga.partners                                                                                                                                       21
Indonesia

Overview of major upcoming changes in telco landscape and
resulting school connectivity expected
            Major changes                                                                                  Description

                                              •   In June 2021, the Telecommunication and Information Accessibility Agency (BAKTI KemKominfo) opened a joint service operation (JSO) for
                                                  telco operators to participate in providing 4G mobile services in remote/underdeveloped regions across Indonesia, to alleviate some of
     Joint Service Operation (JSO)                the financial burdens.
     to provide 4G mobile services            •   Under this JSO, BAKTI will be responsible to provide base transceiver station (BTS) and other supporting infrastructure including the land
            in remote areas                       site for the BTS that can be used by telecom providers to provide 4G cellular services.
                                              •   This arrangement will incentivize telco operators to penetrate the low economic scale regions with lower capex. As a result, there will be
                                                  wider network coverage to the regions and more schools will be connected

                                              •   Ministry of Finance Indonesia stated that Indonesian government allocates IDR 17 Tn ($ 1.2 Bn) of 2021 state budget to improve
    IDR 17 Tn of 2021 state budget                connectivity across Indonesia mainly for ~9,000 remote / underdeveloped villages
         to improve internet                  •   This budget is a part of government 5 year agenda to improve Indonesia's connectivity inclusion especially in Indonesia's outermost,
             connectivity                         frontier, and underdeveloped areas (3T)
                                              •   Together with improving the connectivity, it will allow more equalization of internet access to schools and the community

       Next frequency auction to              •   Another frequency auction to be set in 2022 for mmWave (26 – 28 GHz) and 700 MHz after the expiry from the current band usage in TV
                                                  services
      increase available spectrum             •   KemKominfo also plans to offer 3.3 GHz and 3.5 GHz in 2023, and possibly 2.6 GHz in 2025
                 for 5G                       •   These additional frequencies will help telco providers roll out 5G services as currently there is limited spectrum for it

                                              •   The Omnibus Law allows telecommunications operators to share and transfer spectrum with prior approval from the central government.
    2020 Omnibus Law to increase                  This flexibility could potentially pave the way for mobile industry consolidation
        telco sector efficiency               •   Sharing passive infrastructure with other telecommunications operators became mandatory under the new law. This potentially will allow
                                                  smaller players in the industry to expand networks at slightly lower capex

Source: Press search, Kominfo, BCG Analysis
www.gigaconnect.org | info@giga.partners                                                                                                                                       22
Penetration levels of fixed broadband has room for improvement,
whilst increasing uptake in fixed broadband subscribers
Mobile broadband (MBB) declined post identity                                               Increasing fixed broadband subscribers driven by the
registration requirement; fixed broadband (FBB) needs                                       rollout of infrastructure by Telkom, which currently has
wider infrastructure deployment                                                             ~85% FBB market share
Mobile broadband penetration to population (%) and Fixed broadband                          Fixed broadband subscriptions (in m)
penetration to households (%)

                                                                                                                                                 11.8        Divided by
  200                                                            MCIT announced
                                                                                                                                                               7 FBB
                                                                   prepaid SIM                                                            10.5
                                                 167                                                                                             15%         operators
                                                                registration policy
                                                                                                                                          14%
                                       149                                                                         +19% CAGR
  150                                                                                                                              8.5
        131      127        132                                                       131
                                                          121              127                                                     15%
                                                                                                                           6.6
             Many telco operators offered aggressively priced mobile
  100                                                                                                              5.4    21%
            plans on new SIM cards prior 2018, making the inhabitants
              buy multiple sim cards, thereby inflating the no. of total                                    4.7                                  85%
                                                                                                                   20%
               subscribers. However, this practice stopped after the                                 4.0   16%                            86%
                                                                                              3.5
             government required subscribers to link SIMs to IDs, and                               15%                            85%
   50                                                                                        13%
                 limited 1 ID to a maximum 3 different SIM cards                                                          79%
                                                                                                           84%     80%
                                                                           16         18     87%    85%
                                        8          10        13
        6          6         7
    0
    2013         2014       2015      2016       2017       2018       2019       2020       2013   2014   2015   2016    2017     2018   2019   2020
                                         MBB        FBB                                                       Telkom     Others

Source: Omdia, BCG analysis
www.gigaconnect.org | info@giga.partners                                                                                                                23
60% mobile broadband subscribers have access to 4G, with three
telco players controlling 80% of market share
~97% internet subscription using mobile
broadband, while nearly ~40% MBB                                          Telco industry has consolidated from ten
subscribers still cannot access 4G                                        operators in 2013 to five operators in 2020
2020 internet subscribers (in m)                                          Mobile broadband subscriptions (in m), split by market share (%)                      • Mobile subscriptions
                                                                                                                                                                  declined in 2018 after
                                                           # of              7% of “Others” market                                                                the government
         367.3            367.3             355.5        operators         share in 2013 consists of 5                                                            imposed the
                                                                                                                       439.0
                                                                                   operators
                          3.2%                                                                                          3%                                        requirement that
                                           12.8%            4                                              387.5
                                                                                                                                           342.6                  prepaid SIM card users
                                                                                                                       15%
                                                                             329.1      324.1               3%                                     355.5
                                                                              7%           13%
                                                                                                   341.0                                    7%                    need to register their
                                                                                                    3%     18%         12%       323.3              8%
                                           26.5%
                                                            4                            4%                                        4%                             SIM with their national
                                                                               3%                  19%                                      9%     11%
                                                                                                           12%                  10%                               identity
                                                                            11%
                                                                                                   12%                 25%        17%      17%     16%          • Telco industry has
                                                                             18%         18%
                         96.8%                                                                             22%                                                    undergone
                                                                                                                                           17%     17%
                                                                                         20%       20%                            18%                             consolidation process in
                                                                             18%
                                                                                                                                                                  the last ten years; from
                                           60.6%
                                                                                                                                                                  ten operators to now
                                                                                                                       45%
                                                                                         45%       45%     45%                    50%      50%     48%            five key players, with
                                                                             42%
                                                            5                                                                                                     three players controlling
                                                                                                                                                                  ~80% of market share
       Internet       Internet type     Mobile                               2013      2014       2015     2016        2017      2018      2019    2020
     subscribers                      broadband
    Fixed broadband      Mobile broadband           2G     3G        4G         Telkom         Indosat     XL Axiata         3 Indonesia     Smartfren     Others
Source: Omdia, BCG analysis
www.gigaconnect.org | info@giga.partners                                                                                                                                    24
Significant difference in 4G download speeds observed across
operators despite similar 4G availability

Smaller players continue increasing their network
quality to compete with the market leader …                                                        … While increasing the availability of 4G over time
4G Download speed (Mbps)                                                                           4G Availability (Mbps)
     12.9               12.7                                                                                            90.5                         90.1                          92.1
               12.0                                                                                            86.7                         87.0                         86.3
                                                      11.3
                                                                                   10.7                                           76.2
                                                                                                     69.6                                                      70.8
                                   8.9       8.7

                                                                          6.6

                                                                4.8

     2018     2019      2020      2018      2019      2020     2018      2019      2020             2018      2019      2020     2018      2019      2020     2018      2019       2020

   4G Download speed – This metric shows the average download speed for each operator on LTE connections as measured by users
   4G Availability – The proportion of time users have an LTE connection available to them on each operator's network. It's measure of how often users can access the 4G network
Source: Open Signal, BCG Analysis
www.gigaconnect.org | info@giga.partners                                                                                                                                    25
Telkom leads in terms of size and as a result of its scale advantage
manages to have higher profitability levels
Telkom leads by controlling the largest market share both in MBB and FBB, followed by Indosat and XL whose
revenues are mainly driven by mobile broadband services; Telkom managed the scale, yielding higher EBITDA margin
compared to peers
Revenue and EBITDA (IDR Bn), EBITDA margin (%)

    50.3       49.2       45.0       47.4       48.1         43.0     38.0     37.0       39.5     35.2            44.2    42.8     28.0     30.6        33.1

                        131         136         136
             128
 116

                   63                      64          66
       59                     59

                                                                              23         25        26         29          30        23       26          28
                                                            21       23
                                                                 9        9         8         10          9         13         13                 8             9
                                                                                                                                         6

   2016       2017        2018        2019       2020       2016     2017      2018       2019      2020      2016        2017      2018     2019        2020

                                                                          Revenue       EBITDA
Source: Company Data, BCG Analysis
www.gigaconnect.org | info@giga.partners                                                                                                            26
Telkom capex has remained constant, with smaller players investing
slightly more to expand their 4G network

Telco players aggressively increased their capex in 2019 to expand 4G base stations nationwide; Capex/revenue intensity
higher in the smaller players as they are trying to increase network coverage & quality
Capex (IDR Bn)                                                                                                                • XL and Indosat to
                                                                                                                                continue 4G network
                                                                                                      41%                       expansion, especially
                              35
             33                                                                                                                 outside Java and
                     32                                           36%                                                           increase the network
                                       30
   28                                                                    30%                                                    quality
                                                    29%    27%                                                                • While Telkom has an
           26%               26%             26%                                              24%                               established mobile
  24%               24%                                                         25%                          26%       Ø 27
                                      22%                                                                                       network outside Java
                                                                                       19%                                      already, its CapEx
                                                                                                                                remain constant to
                                                                                                      11                        expand its fixed
                                                                   9
                                                     7                    8      7                                 7
                                              6              6                          6       5                               broadband network
                                                                                                                              • Passive infrastructure
                                                                                                                                sharing requirement
                                                                                                                                in new Omnibus Law
 2016     2017     2018      2019     2020   2016   2017   2018   2019   2020   2016   2017    2018   2019    2020              provides long-term
                                                                                                                                positive for the
                                                                                                                                industry capex
                                                                                                                                efficiency
     Capex        Capex/Revenue (%)
Source: Company Data, BCG Analysis
www.gigaconnect.org | info@giga.partners                                                                                                 27
Several interesting partners exist in Indonesia to reach school
connectivity, either in terms of funding potential, or in terms of
operating model

IdREN                                                          Universal Service Obligation Fund                                     BAKTI
                                                                 Indonesian USF to fund network coverage in                            A MCIT's arm to bring digital infrastructure
 A dedicated network infrastructure that
                                                                 the outermost, frontier, and under-developed                          and ecosystems in areas that are not
 connects research and dedication
                                                                 areas. USO is likely to be the main source of                         commercially viable, BAKTI is a good
 institutions, IdREN could be an operational
                                                                 fund to help govt co-invest alongside service                         candidate to work with as operational
 partner for connecting schools
                                                                 providers in remote areas                                             partner for connecting school

                                                                               Deep-dives on next pages
Note: BAKTI is the sole government agency that manages the USO. There is however a case in which the ministry of education could indirectly get
support from the USO fund (for connecting schools). BAKTI is working with the MoE to connect schools using the USO fund. Therefore, contacting only
BAKTI is the most logical route. However, as theoretically another option does exist, both have been highlighted here
www.gigaconnect.org | info@giga.partners                                                                                                                               28
IdREN brings better connectivity for education and research,
providing potential operating model for wider coverage
  IdREN initiated close collaboration between stakeholders for     … and provides potential operating model to reach wider
  better connectivity in education and research …                  coverage into primary and secondary schools across country …

                                                                   • Founded in 2017, IdREN is a dedicated network infrastructure that
                                                                     connects research and education institutions and community in
                                            Academy as
                                                                     Indonesia through national closed network that could bring faster
                                            ideator                  and more reliable connectivity
                                                                   • In this collaboration, telco providers help to provide network and
                                                   Business          communication services, colocation data center, and network
Government                                               as          backbone interconnected with Global Research & Education
as regulator                                       enabler           Network
                                                                   • Although this infrastructure still limited to universities and research
                                                                     institutions, it provides potential operating model to connect basic
                       Education and                                 education like primary/secondary schools. There is also no
                         research                                    indication that IdREN would not be open to it, therefore it has a
                                                                     potential to open for discussions
                         network                                   • Working together with IdREN in connecting schools would allow for:
                                                                       • Reliable connectivity, through national closed network that
                                                                           currently in place
                                                                       • Access to funding & expertise, as IdREN has connected many
    Media as                                                               institutions across country together with its partners from telco
                                                    Community as           industry
    expande
                                                    accelerator
           r
Source: IdREN, Press Search, BCG analysis
www.gigaconnect.org | info@giga.partners                                                                                     29
USO, Indonesian USF to fund network coverage in the outermost,
frontier, and underdeveloped areas
Funded by telco operators'
contributions to fund coverage in                               … with ongoing agenda to connect                              … and connecting schools and
underserved areas …                                             islands with fiber optic and BTS …                            increasing digital literacy …

               • A non-tax govt revenue                          • Palapa Ring is a 36,000 km fiber optic                       • In cooperation between MECRT and
                 (PNBP)                                            backbones project connecting the west,                         MCIT, government has connected ~1,500
               • 1.25% of gross revenues                           central and east Indonesia funded by USO                       schools in remotes area from 2015 –
                                                                 • In 2019, government has completed                              2018, funded by USO. The program
                 contributions from telco
                                                                   ~12,000 km with estimated cost of IDR
                 operators, paid quarterly                         ~7.7 tn. Another ~13,000 km is estimated                       including funding the device acquisition
               • IDR ~3.3 Tn ($ ~227,6m)                           to start the construction in 2022 - 2023                       for the usage of internet
                 annually                                        • From the ~12,000 km completed, 6,300                         • Besides physical infrastructure,
                                                                   km is established in the east region,                          government is expanding the agenda
               • Main uses to fund network                         connecting the highly unconnected                              into digital literacy through seminar and
                 infrastructure and OpEx                           regions such as Papua, Maluku, and                             other socialization methods
                 subsidy in underserved areas                      Nusa Tenggara                                                • Whether the government will allocate
               • Using regulated user tariff                     • As a result, remote regions like Papua                         USO to fund local start-ups is under
                                                                   saw a significant improvement of more                          discussion, but the decision is not
                                                                   than 80% in download speed in 2020
               • Managed by TIAA under MCIT                        compared to 2018.                                              clear yet
               • Criteria in utilizing USO is the                • ~7,900 BTS in the outermost, frontier,                       • USO money is spent via BAKTI (see next
                 region has no connection or                       and underdeveloped regions to be                               page)
                 the connection is less than                       built Previously, government has built ~
                 50% coverage                                      1,200 BTS in 2020 funded by govt
                                                                   budget and USO
 TIAA – Telecommunication and Information Accessibility Agency (BAKTI KemKominfo)
                                                                                    MECRT– Ministry of Education, Culture, Research and Technology
 MCIT – Ministry of Communication and Technology

Source: ITU, respective websites, BCG analysis
www.gigaconnect.org | info@giga.partners                                                                                                                     30
Bridging the connectivity gap and building digital ecosystems in not
commercially viable areas through BAKTI
                                                                              … with priority programs to build both the infrastructure and the ecosystem
                                                                              needed to better utilize the digital connectivity

                                                                              Building digital infrastructure:
  Vision                                                                       • Villages' connectivity using 4G BTS, building or upgrading 2G/3G site to 4G. Its focus
    • Bridging the digital divide for Indonesia's                                 mainly in the outermost, frontier and underdeveloped (3T) regions
      better future                                                            • Internet access for public services including in school, public health center, etc.
                                                                               • Provision of satellite capacity rental and high-throughput satellite to support providing
                 • BAKTI (TIAA) is an MCIT's arm on                               internet access in public services, using Satellite of Republic Indonesia (Satria). BAKTI
                   connectivity program, with main                                targets there will be 10,000 points that will be supported by Satria services in 2023
                   function to build digital                                   • Palapa Ring, connecting the outermost regions with fiber optic to provide high-speed
                   infrastructure and ecosystems in                               and reliable internet connectivity
                   areas that are not commercially
                   viable
                                                                              Building digital ecosystem:
                                                                               • Building ICT ecosystem to develop human resources capabilities and expand the
                 • Mainly funded by USO, with budget                              penetration of digital-based public services in unfeasible areas
                   of IDR ~3.3 Tn annually                                     • Working together with the Ministry of Villages, Disadvantaged Regions, and
                 • Direct allocation from state budget                            Transmigration to strengthen the digital economy ecosystem and grow economic
                   (size unknown)                                                 potential in villages
                                                                               • As a facilitator to develop digital literacy of the community

 TIAA – Telecommunication and Information Accessibility Agency (BAKTI KemKominfo)
 MCIT – Ministry of Communication and Technology

Source: Expert interview, MCIT, Press news, BCG Analysis
www.gigaconnect.org | info@giga.partners                                                                                                                    31
Country & school overview
                                           Connectivity status & developments
Indonesia case study |                     Telco landscape
Table of contents                          Recommendations
                                           Funding models
                                           Financial impact of funding models
                                           Short-term next steps

www.gigaconnect.org | info@giga.partners                                        32
Extreme regional differences exist between islands in Indonesia that lead to
                                                 large discrepancies in educational standards between regions

The key issue
                                                 While mobile broadband costs in GNI per capita is below the 2%
                                                 recommendation, taking into consideration the regional differences, being
                                                 online is unaffordable for many on the poorer islands because income levels
to be                                            are lower

resolved in                                      These differences lead to the regions being less attractive to commercial
                                                 parties, which exacerbates the problem. Low-hanging fruit, or the projects that
                                                 have slightly positive NPV, have already been invested in, leaving only the areas
Indonesia,                                       with the worst prospects

besides                                          Besides the relatively high costs in poor regions, digital literacy is likely to be
                                                 low because of low connectivity, meaning that demand would for connectivity

funding, is
                                                 would be low even if coverage was expanded by telco operators. Thus, telco
                                                 operators are again less likely to invest in these regions, as revenues will be low

regional                                         For example, after the completion of the Palapa ring near Papua, the least
                                                 densely populated island of Indonesia, mobile operators were still reluctant to
differences                                      broach the island because of low commercial viability

                                           Innovative funding models will help address these regional differences, but
                                                in order to become fully sustainable in the long run, these issues
                                                                        need addressing

www.gigaconnect.org | info@giga.partners                                                                               33
Country & school overview
                                           Connectivity status & developments
Indonesia case study |                     Telco landscape
Table of contents                          Recommendations
                                           Funding models
                                           Financial impact of funding models
                                           Short-term next steps

www.gigaconnect.org | info@giga.partners                                        34
Digitalization and school connectivity being top of mind of
Indonesia leaders …

                                                                                                                             • Under his administration,
     I hope that the 2021 Digital Connectivity program will become an important                                                Indonesia’s President Joko
                                                                                                                               Widodo, has launched several
     momentum that can connect Indonesian people with new technologies, new                                                    initiatives in bringing new era of
     mindsets, new global business opportunities, and a new future towards advanced                                            digital disruption to citizens
     Indonesia..                                                                                                             • One of the main agenda points
                                                        Joko Widodo, (current) President of Indonesia                          is bringing digital inclusive
                                                                          Launching of 2021 Digital Connectivity program       revolution, with three principles
                                                                                                          February 2021        of access, affordability,
                                                                                                                               and ability
                                                                                                                             • He emphasizes the importance
                                                                                                                               of equal distribution for
                                                                                                                               connectivity especially on the
                                                                                                                               outermost, frontier, and
     Those (in the outermost, frontier and undeveloped regions) who really need equal                                          underdeveloped regions
                                                                                                                             • By entering his second (last)
     distribution of internet access (in schools) like we have in the cities. This equalization                                period, the upcoming election in
     continues to be pursued by the government..                                                                               2024 would again determine
                                     Nadiem Makarim, (current) Minister of Education, Culture, Research, and Technology        whether this strategic agenda
                                                                                        Bringing digitalization to schools     still in place with the new
                                                                                                           February 2021       elected leader

Source: Press news, BCG Analysis
www.gigaconnect.org | info@giga.partners                                                                                                           35
… However, school connectivity gaps remain, especially in islands
with lower population density, thereby requiring different funding
solutions per region

Well-developed islands of Java & Sumatra with high        Less developed islands of Kalimantan, Sulawesi, Nusa
population density that are generally easier to connect   Tenggara & Papua with low population density and
or have already been connected                            that are harder to connect

www.gigaconnect.org | info@giga.partners                                                            36
Regional focus:
Java, Bali & Sumatra
Well-developed islands with good
connectivity for general population
and higher school connectivity levels

www.gigaconnect.org | info@giga.partners   37
Most of schools are connected already, despite Sumatra still
needing more equalization of internet access
High concentration of                                … and high variability in                            … and more schools are connected, although connectivity
population in Java …                                 economic set up …                                    gap still exist in Sumatra
Population (m)                                       Spending per capita (IDR thousands)                 Schools per region map

          West Java                          49.6            DKI Jakarta                          18.2
           East Java                   40.0                 Riau Islands                   14.2
        Central Java                  34.7                DI Yogyakarta                    14.0                 0-3500
   North Sumatera              14.8                                  Bali                  13.9
                                                                                                                3501-7000
            Banten             12.9                   B. Belitung Islands                12.8
                                                                                                                7001-15000
        DKI Jakarta           10.6                               Banten               12.0
                                                                                                                >15000
   South Sumatera         8.6                                   East Java            11.6
          Lampung         8.5                               Central Java             10.9
                 Riau     7.0                                  West Java            10.8
    West Sumatera        5.5                             West Sumatera              10.7                 School connectivity map

               Aceh      5.4                                        Riau            10.7
                                                                                                         School connectivity
                 Bali    4.4                            South Sumatera              10.7                 percentile
      DI Yogyakarta     3.9                             North Sumatera              10.4                       0.0 to 16.5
              Jambi     3.6                                        Jambi            10.4                       16.5 to 33.0

       Riau Islands     2.3                                    Bengkulu             10.4                       33.0 to 49.5

          Bengkulu      2.0                                    Lampung              10.0                       49.5 to 66.0

                                                                                                               66.0 to 82.5
 B. Belitung Islands    1.5                                        Aceh            9.5
                                                                                                               82.5 to 99.0

Source: Statistics Indonesia, Uniced, BCG Analysis
www.gigaconnect.org | info@giga.partners                                                                                                                  38
For the well-developed regions, we believe four funding methods
would be especially suitable to reach 100% school connectivity of a
meaningful standard
Funding method                                             Reason for suitability
                                                            • Suitable because: Government of Indonesia has shown high willingness to work with service providers to

                                           Overlaps with
                                                              connect unconnected regions. In addition, government has shown willingness to invest in education
             Demand-side

                                             region 1
                                                            • Reason for concern: Government funding on education already very high vis-à-vis neighboring countries.
             subsidy                                          Therefore, sustainability of solution in long-term likely not high. A combination of money from different,
                                                              relevant ministries could work, so long as the total amount funded is a small increase
                                                            • Suitable because: Commercial sector is most efficient in rolling-out connectivity
             Prerequisite in                                • Reason for concern: Commercial parties may have misaligned interests and provide lower quality service vs.
             upcoming 5G                                      intended government/project outcomes. In addition, making school connectivity for all of Indonesia a
                                                              prerequisite may lead to undesired responses to the RFP. Therefore, we would suggest to only include
             spectrum auction                                 slightly negative, break-even, and positive cases, but exclude those that are too hard-to-connect
                                                            • Suitable because: BOT where BAKTI is the procuring partner setting up the networks. Right to operate is
             Build, Operate &                                 licensed through an auction, which then includes a mandate subsidization of school connectivity.
             Transfer by BAKTI                              • Reason for concern: Same as for '5G spectrum auction'
                                                            • Suitable because: Private individuals are currently setting up their own networks that cover about 20
                                                              households. As this is technically illegal, a formal version of this is a revenue-sharing model where local
                                                              businesses set up their own network by connecting to the main operators. These entrepreneurs are more
             Revenue-sharing                                  flexible than operators, thus can cover areas where it is unviable for large players.
                                                            • Reason for concern: Licensing and upfront CapEx needs to remain affordable and not too complicated for
                                                              local businesses.

Note: USO funding was removed from consideration for well-developed regions due to the maximum 50% coverage requirement
Source: BCG analysis
www.gigaconnect.org | info@giga.partners                                                                                                                      39
Demand-subsidy | Government’s allocation to school funding is
already high, making an increase from moe unlikely to be
sustainable
Education spending allocation has
                                                                                                                       … but a 1% increase can already
been maintained at ~20% from                                        … which is considerably higher
                                                                                                                       make a large difference
total spending in the last 6 years …                                allocation than neighbor countries …
Government education spending (IDR Tn) and                          Govt education spending allocation to total
the allocation to total government spending (%)                     government budget (%)                               • In 2021, government allocates IDR ~7.4
                                                                                                                          Tn (1.3%) to support digitalization and
     19.9     20.2    19.5         19.9   20.0   20.0                                                                     building connectivity infrastructure for
                                                                       20
                                                                                                                          public education services
                                                                                                                        • Only 15% of education budget is
                                                                                                     17
                             +8%                                                 15        16                             managed by MECRT, while a huge
                                          548    550                                                           15         portion (54%) is directly managed by
                       432
                                   460                                                                                    local governments (including the IDR
              406                                                                                                         ~7.4 Tn budget), bringing more
      371
                                                                                                                          complexity in aligning the government
                                                                                                                          strategic agenda
                                                                                                                        • However, a 1% in education budget
                                                                                                                          would already mean an IDR 5.5 Tn
                                                                                                                          increase, which could be directly used to
                                                                                                                          pay
                                                                                                                          for connectivity
     2016     2017    2018     2019       2020   2021               Indonesia Thailand   Malaysia Philippine Vietnam

   MECRT– Ministry of Education, Culture, Research and Technology

Source: Ministry of Finance, Press news, BCG Analysis
www.gigaconnect.org | info@giga.partners                                                                                                             40
Prerequisite in upcoming 5G spectrum auctions : Upcoming
spectrum auctions could provide new possibilities for school
connectivity in
urban areas
Spectrum auctions can be used to sustainably connect                            Low frequency networks (e.g., 450 MHz) that are
schools, if regulator has enough mandate                                        currently empty can be used for school connectivity
                                                                                 • Although these frequencies cannot be received by handsets, the
          When new spectrum auctions come up, include in the bidding               frequency can be received by routers, which can then provide Wi-Fi
          process that winning party must connect a certain number of              connection for 20 Mbps on selected locations
          schools in certain regions                                             • This frequency can be received from 100 km, making it ideal for
                                                                                   remote locations and Indonesia's scattered geography.
          A fine system needs to be put in place to ensure that parties
          provide agreed service levels and maintenance

          Auction revenues will likely be lower using this method, but it
                                                                                 Net1 currently operates through a combination of low(450 MHz) and high
          creates incentives to connect schools in a reliable and sustainable
                                                                                                      (3.5 GHz) frequency networks
          way – given that there is an effective regulator.
                                                                                    They collaborate with a local partner in Indonesia to provide a 4G
          This is an urban, rather than rural solution, as 5G-enabled devices         network in remote areas (incl highlands and offshore areas)
          are more expensive and higher connectivity speeds are usually
          rolled out there first. Subsequently, funds from these auctions        Net1 Indonesia's network is currently available in 31 provinces, of which
          can be used in rural areas through cross-subsidization                 70% is located in remote and rural villages. The company is planning to
Upcoming spectrum auctions in 2022 (26-28 GHz and 700                            provide 4G LTE-450MHz network access on 14,000 islands to more than
                                                                                                         260 million Indonesians
MHz), 2023 (3.3-3.5 GHz), and 2025 (2.6 GHz)
 • Frequencies are suitable for 5G networks and therefore attractive             They offer end to end connectivity for local government units throughout
   for major commercial parties                                                                the Philippines, connecting schools through a
                                                                                                             turn-key solution
Source: Net1 Annual report; BCG Analysis
www.gigaconnect.org | info@giga.partners                                                                                                    41
Build, Operate & Transfer by BAKTI| Selling infrastructure for
expanding services into underserviced areas rather than money

                                                               BAKTI can make negative NPV areas more attractive by
                                                               selling infrastructure for payment in-kind

                                                                • The backbone infrastructure that is built through BAKTI
                                                                  often operates in underserviced areas, where large telco
                                                                  players have not expanded to yet due to large CapEx,
                                                                  Opex and lower demand.
            Fiber Optic Cable                                   • By offering to sell their infrastructure, BAKTI and MCIT
                                                                  provide these players with an opportunity to expand into
BAKTI has been investing in backbone infrastructure               these areas.
                                                                • Instead of asking monetary returns for the use of the
project such as the Palapa Ring
                                                                  fiber backbone of the Palapa ring, BAKTI can ask telco
 • Upon completion, the Palapa Ring project will span 36,000      players to expand into negative Net Present Value (NPV)
   km in on- and off-shore fiber optic network. BAKTI has         project areas and mandate school connectivity (payment
   invested in this project and MCIT owns the infrastructure      in-kind). This gives telco players the opportunity to
 • BAKTI also built BTS, which is then also owned by MCIT1        expand into areas at low CapEx and practically have a
                                                                  monopoly, as they are the first to service it.
 1   MCIT – Ministry of Communication and Technology

Source: BAKTI, MCIT, BCG analysis
www.gigaconnect.org | info@giga.partners                                                                       42
Coverage as a service - revenue sharing (I/II) | Though Indonesia is
used to sharing infra, formalized revenue-sharing provides
opportunity
for funding                                                  Subscribers, number plans,
                                                Formalized revenue-sharing in                                                    end-users remain in
Current situation exists in                     cooperation with official telco         For the formalized revenue-              ownership of mobile operator;
which informal players provide                  companies would allow for a             sharing model to work, certain           rural player owns
internet to other households                    potential solutions                     prerequisites must be met                last-mile infra

   In Indonesia, there are already many         •   In the formalized revenue-          •   Mobile operator must have            •   Rural operators do not have
   small informal players operating by              sharing method, the mobile              backbone infrastructure on the           their own spectrum, numbering
   setting up their own connectivity                operator owns backbone                  island in question                       plans or end users
   access point. This is not in line with           infrastructure but is not nimble    •   Mobile operator must be willing      •   Mobile operators must use the
   legal guidelines as they do not have             enough to expand into rural             to share their infrastructure with       assets of the rural operator in
   the proper licenses or formal                    areas or the pay-off is not large       smaller, local/regional players          case they want to expand to
   permission from large operators to               enough. They will earn a            •   One of the following must be             these areas
   commercialize                                    percentage of the rural                 true:
                                                    operator's revenue.                       • Rural operator has lower
                                                •   The rural operator builds on the              CapEx than mobile
        An individual can procure a                 backbone to provide last mile                 operator in the
                                                    connectivity. They market the                 rural/difficult to connect
     stand-alone package and
                                                    mobile operator's brand in their              areas
     franchise it to 20 households
                                                    local area                                • Rural operator has lower
     or so, then they collect fees.
                                                                                                  OpEx than the mobile
     This private procurement does
                                                                                                  operator in the
     not sit well with permits and
                                                                                                  rural/difficult to connect
     regulations
                                                                                                  areas
                    Sr. Advisor, ITU
                                                                                                                                            Mobile operator
                                                                                                                                            Rural operator
Source: Expert interviews, GSMA, BCG analysis
www.gigaconnect.org | info@giga.partners                                                                                                             43
Coverage as a service - revenue sharing (II/II) | There are many local
providers that could offer school connectivity at a fair price

                       Explanation of role                           Financial consequences                        Considered players
                       • Large player provides general network,      • In return for opening the network, large    • Main mobile players are Telkom
                         along main infrastructure and cities          player gets a share of the revenue            Indonesia, XL Axiata, and Indosat who
                       • Allows local player to add onto their         obtained by local player from connecting      have 4G coverage in most urban areas
                         network and provides access                   the community                               • Most of the fiber is owned by Telkom
                       • Large player does not have to provide                                                       Indonesia, the market leader in Indonesia.
  Large player           maintenance, which is a bottleneck in the
                         current system
                       • Local player provides local network,        • Local player obtains revenue from           • There are currently many (informal) local
                         connecting schools, households and other      providing connectivity to schools and         players that have a network in place but
                         important community buildings                 community                                     cannot compete for school connectivity
                       • Can add onto general network from larger    • Local player shares part of revenue with      because government usually offers
                         player, thereby reducing costs                large player in return for network use        nation-wide projects to firms
  Local player         • Local player is responsible for
                         maintenance and upgrades of network
                       • The schools and community get reliable      • Schools and community pay a fair price      • This model would be most effective in
                         connectivity through a player that knows      for connectivity                              rural areas with larger villages and
                         local needs and restrictions                • When community members provide                relatively close to 4G/fiber nodes
                       • Optional: local player trains community       training and maintenance, internet use
                         members to provide maintenance and            will go up and maintenance cost will go
      School             training to community                         down, leading to a more competitive price
                         (community collaboration model)               for connectivity

Source: Expert interview with Secretary of Education; BCG analysis
www.gigaconnect.org | info@giga.partners                                                                                                         44
Regional focus:
Kalimantan, Sulawesi,
Nusa Tenggara & Papua
Less developed islands with poorer
connectivity for general population and
lower school connectivity levels

www.gigaconnect.org | info@giga.partners   45
Majority schools have limited or no connectivity in the sparsely
 populated islands
Smaller size of population                            … and smaller size of economic                          … while schools are highly unconnected, with lower schools
across the islands …                                  contributions …                                         per region due to smaller population
Population (m)                                        Spending per capita (IDR' thousands)                    Schools per region map

      South Sulawesi                           8.9       South Kalimantan                           12.0
  East Nusa Tenggara                     5.5               East Kalimantan                          11.7
 West Nusa Tenggara                      5.2            Central Kalimantan                         11.2
                                                                                                                         0-3500
     West Kalimantan                     5.1                South Sulawesi                         11.1
                                                                                                                         3501-7000
    South Kalimantan                   4.3                  North Sulawesi                         10.8
      East Kalimantan              3.7                 West Nusa Tenggara                      10.4                      7001-15000

                 Papua            3.4                            Gorontalo                     10.0                      >15000

     Central Sulawesi            3.1                       Central Sulawesi                  9.3
  Southeast Sulawesi             2.7                    Southeast Sulawesi                   9.3              School connectivity map

   Central Kalimantan            2.7                         West Sulawesi                   9.2           School connectivity
                                                                                                           percentile
      North Sulawesi            2.5                       West Kalimantan                    8.9
                                                                                                                   0.0 to 16.5
                 Maluku     1.8                          North Kalimantan                    8.8
                                                                                                                   16.5 to 33.0
       West Sulawesi       1.4                                     Maluku                    8.7
                                                                                                                   33.0 to 49.5
        North Maluku       1.3                                 West Papua                8.1
                                                                                                                   49.5 to 66.0
           Gorontalo       1.2                               North Maluku                8.0
                                                                                                                   66.0 to 82.5
          West Papua      1.0                          East Nusa Tenggara               7.6
                                                                                                                   82.5 to 99.0
    North Kalimantan      0.7                                        Papua             7.0

 Source: Statistics Indonesia, Uniced, BCG Analysis
 www.gigaconnect.org | info@giga.partners                                                                                                                       46
You can also read