The telecommunication sector in Indonesia was one of the first to be liberalized under the former Abdurrahman Wahid government in 2001 where investments by foreign players were protected by law and foreigners had the right to own equity of up to 100 percent in telecommunications service companies. But the telecommunication infrastructure is limited. Less than 20 percent of Indonesia’s 230 million inhabitants have landline phone access. Currently there are 9.1 million fixed telephone lines connecting people across the archipelago meaning only four out of 100 Indonesians have readily available access to telephones.
Growth in this sector is controlled by the duopoly of state-owned enterprises PT Telkom and PT Indosat, that has been hampered by the high cost of investment as well as the slow and low rate of returns, since fixed-line rates are determined by the government. However tariffs for fixed lines are expected to be raised in line with reducing state subsidies that has already been felt in the reduction of fuel subsidies. From 2005 to 2009, Indonesia will need as much as 6.8 billion US Dollars to grow its cellular subscriber base by an additional 25 million subscribers and 9.6 billion US Dollars to expand its fixed line subscriber base by an additional 13 million users. But the government has admitted that it can only support up to 20 percent of its telecom infrastructure budget. Most of the money will therefore come from foreign investors. The current government initiated a program to improve rural telecommunications: all telephone operators have a mandatory commitment to contribute up to 0.75 percent of their annual gross revenues.
Integrated IT solutions
Like the rest of the telecommunications industry, Telkom faced pressures on its bottom line from other telecom operators – such as second-place Indosat and third-pace Excelcom – especially after losing its monopoly. Hammered by increased competition and slimmer margins, it had to adopt greater accountability and corporate responsibility, as well as the best business practices of world-class telecommunication players. The company’s mission now is to give “one-stop infocom” service with high-quality, competitive pricing and technology, as well as qualified staff and synergistic relations with its business partners. Telkom is determined to become a full service and network provider and a strong regional information and communication player. To reach its goal, the company adopted a road map for its diverse business units in fixed line, fixed wireless, mobile, data and Internet, and network and interconnection services.
Since 2002, the Telkom IT enterprise development team located in Bandung has been drawing up the framework for deploying the best-of-breed technology that would accommodate all the rigorous demands of a rapidly evolving telecommunication market in Indonesia. The IT systems in place had to keep up with the increasing subscriber base for both fixed line and cellular users. It also had to be capable enough to roll out customer relationship management (CRM), as well as human resources and financial applications. PT Telkom decided to upgrade its legacy system, which needed to be overhauled, because it could not keep pace with the demands of the growing telecom operator. The new enterprise system had to be scalable, intuitive for users, and capable of maintaining a critical set of data that was secure and easily managed.
World-class benchmark system
According to Lukman Hakim, the head of Telkom’s regional division in Bandung, West Java, the company chose SAP R/3 as the de facto architecture to implement after a rigorous tender process. “The decision to deploy SAP R/3 was taken because we felt that SAP R/3 Enterprise offered the best price and performance and had a track record in the telecom industry,” says Lukman. “The other reason was the need to transform Telkom into a world-class operator running on a world-class benchmark system that offers quality enhancement to its existing IT infrastructure with a zero defect process.” According to Sahat Sitorus, general manager of the services sector of SAP Indonesia, SAP tipped the scale by offering an extensive list of reference customers worldwide and a strong support system.
The IT committee selected Magnus Consulting and Anderson Consulting (now Accenture) as its implementation partners. A project team was formed in early 2002 and a timeline was drawn up for a smooth implementation. The time to full deployment was two years and the project went live in the second half of 2004. “In the beginning we had a steep learning curve, and we had to overcome problems in integration. But our decentralized implementation team – each location was helped by its own information system unit – could adopt to its own flexible deadlines and so made the implementation less complex,” Lukman remembers. There was only a minimal downtime of several hours during the transition period. But in the end, it was worth then pain. “Now we can make better forecasts and estimates in terms of customer analysis and have greater integration with our corporate customers and vendors,” says Lukman.
What was an added advantage to Telkom was SAP’s comprehensive and integrated functionality and best practices as a buying driver. By using SAP Enterprise Buyer Telkom was able to backward integrate its ERP infrastructure with its own existing database. This in turn would assist Telkom in a dynamic procurement of indirect and direct goods, as well as automation and integration with the full range of business processes required for buying complex products, parts and supplies. Hence the function found in SAP Enterprise Buyer identifies the correct driver for any backend system.
Expand operations to more customers
To generate business reports, to evaluate vendors and channel partners across business divisions, and to paint a macro view of day-to-day operations, Telkom is considering deploying additional SAP R/3 Enterprise applications. Part of the problem was solved when Telkom decided to implement its SAP HR and Project Systems (PS) components, besides the core ERP functionalities in early 2004. By using the HR component, Telkom was able to streamline its organization and create costs centers and eventually reduce its employee headcount from above 35,000 employees to around a more manageable 27,000 employees by 2006. This employee reduction measure was initiated in 2003 and is still being carried out. Many of the employees that were retrenched however received early retirement packages. SAP HR also supported the HR department in fine tuning its HR policies while making it more transparent for users.
The PS component provides a strong collaborative tool in managing projects, meeting project deadlines and in short helps Telkom in planning, controlling and monitoring business projects on a regular basis. With a host of complex projects running concurrently in PT Telkom, SAP’s PS module, according to one end user adds a sense of perspective and creates a wide-angled vision for the project managers, so that they can plan ahead and constantly monitor their progress.
To improve the company’s operational bandwidth – especially in the remote areas of Indonesia – the company decided in 2005 to extend a 1GB fiber-optic wide area network (WAN) backbone to its smaller branch locations. In the next twelve months, PT Telkom intends to focus on the development of its asset management capabilities, improve its material management capabilities and CRM skills – as well as to address customers’ complaints quickly so that they would not switch to other operators.
According to an industry analyst with Frost and Sullivan, PT Telkom has an advantage as a first tier carrier in Indonesia. Despite its lead in Indonesia it has to be careful that it does not loose its comparative advantage over the other carriers. It has to pay special attention to customer service and in maintaining a high customer satisfaction index. This can only be done by having the right technology partner on hand to be able plan proactively in assisting it make the right business decisions. The analyst called it a start in a long journey to self discovery and self determination, not only as a local telco but as a world class carrier.