PT Bakrie Telecom Tbk , Indonesia's second-largest limited-mobility operator, is looking to buy or merge with a competitor telco in the next year, according to vice president Muhammad Buldansyah, as reported in the local media and cited in this Bloomberg report.

The company had not responded to Light Reading Asia's emailed questions at the time of publication, but the list of possible targets is limited, said Tae-Hyung Kim, Asia/Pacific analyst at Pyramid Research .

The top player in the limited-mobility, or Fixed Wireless Access (FWA), market is PT Telekomunikasi Indonesia Tbk. (Telkom) , "which could never be a target," Kim says. "The number three position is claimed by PT Indosat Tbk , which is number two in the mobile space and so will not be an easy target either. The other players are really small, so merging for the sake of adding subscribers is meaningless," he concludes.

That leaves the full-mobility players, which, Kim suggests, may be more attractive.

"If Bakrie is thinking of going full mobility someday -- which could be where the market is headed as mobile tariffs fall in line with limited mobility and the ability to roam becomes more and more important for locals -- they may get a head start by merging businesses with an upcoming cellular operator. However, this all depends on what kind of vision Bakrie has," he says.

Among those up-and-coming operators are Hutchison Telecommunications International Ltd. (NYSE: HTX)'s 3 and PT Smart Telecom , which, with their international backing, are growing faster than domestic challengers.

PT Mobile-8 Telecom is the largest of the domestic up-and-comers, with 4.7 million subscribers at the end of the first quarter of 2009, according to Wireless Intelligence. It is also a CDMA operator, which would make any merger far easier technically, and it has one of those small FWA operations. However, Mobile-8's cellular business has a more traditional cellular business model than Bakrie's.

Bakrie's business model is all about low cost. It labels itself a budget operator and has built its business on the ability of its limited-mobility CDMA network, operating at 800MHz, to deliver services more cheaply than its full-mobility and largely GSM competitors.

Bakrie's rapid development -- with a subscriber base growing at a compound annual rate of 147 percent over the last three years -- has been supported by its infrastructure vendors, Huawei Technologies Co. Ltd. and Nortel Networks Ltd. . Bakrie has secured, in vendor financing, 25 percent of its $600 million capital expenditure planned to the end of 2010.

Bakrie is also among the Asian customers of Nortel that would be passed to Nokia Networks in the proposed purchase of Nortel's CDMA and LTE business. (See Nortel to Sell Wireless Assets to NSN, Nortel: It's All Up for Sale, and NSN Misses Nortel's Key APAC Assets.)

Bakrie reached just over 8 million connections at the end of the first quarter of 2009, according to the company's figures. It is still building out its network and added five new cities in the first quarter of 2009 to cover 69 cities in total.

Bakrie predicts it will have 10.5 million connections by the end of this year and 14 million by the end of 2010. This may not sound like much compared to Wireless Intelligence's assessment of 144 million full-mobility subscribers in the country as of the first quarter of 2009, but it does represent a significant proportion of a fast-growing market.

De facto fixed lines
The FWA business is often ignored, as by giving mobile services within a fixed area it falls between the traditional mobile and fixed markets. In Indonesia as in many of Asia's emerging markets, it is a boom growth area and, like wireline, is connecting households as well as single subscribers.

"Limited mobility is now the de facto fixed-line service of Indonesia. We have a fairly bullish outlook on the service as not only does it fill up the empty PSTN market, it also serves as a mobile device," Kim says.

Pyramid predicts there will be 32 million FWA connections by the end of 2009, up from 20.8 million in 2008. Should Bakrie meet its targets, it would have 32.8 percent of the market in 2009.

Pyramid expects the FWA market to reach 50 million connections in 2011. After that, growth will slow to reach 64.7 million by 2014, which would be approximately equivalent to the total number of households in Indonesia.

This is not necessarily the end of the growth spurt, though, as Kim explains: "While the potential market size of traditional fixed lines are limited by the number of households, limited mobility is more personal. Thus the potential for it is huge, considering that Indonesia has one of the largest populations in the world, with about 240 million people."

The other long-term growth opportunity comes from data, which fits well with limited mobility and the positioning of FWA as a fixed alternative. Bakrie has a CDMA 2000 1x network and, according to the CDMA Development Group, has developed, although not yet launched, EV-DO. Therefore, moving into data is technically possible. However Kim warns that the regulator may not look at this proposition so favorably.

"Limited mobility was a hit because operators were able to argue that limited mobility equals fixed and hence could charge fixed rates for interconnection, which is how tariffs were able to be so low. Providing Internet access is another ball game," Kim says.

— Catherine Haslam, Asia Editor, Light Reading