It’s been a common phenomenon if the cellular operators in Indonesia participate the war price for flattering customers to move in their operators. Honestly, I don’t like that climate since it possible to conduce many victim as many as crusades. The victims are players, civilians, until the weapon they use for.
Yesterday, I got from this website that the complain against cellular operator is getting more and more. One of the complain above is the advertising trap. The advertisement seems like trap the customers by providing a very low tariff (and free tariff). In the hang in time, suddenly it’s disconnected. My blogger friend from Jogjakarta has complained too, you can read her complain here. I just laugh since I ever underwent the same problem, a while ago.
That’s it, the story above is one of the negative effect caused by the price war. It can create a condition where the company will struggle to reduce cost of good sold (COGS) for pushing the production cost. An extreme impact of the COGS reducing is minimum quality control that can ignore the customers’ satisfaction level to the product. It’s been happened in aero-plane industry like Adam Air case, Lion Air case, etc.
So, what about the cellular industry? I saw the price war has been started when CDMA Esia claimed his ‘1 hour = Rp 1.000,-’. At that time, many people considered that the CDMA and GSM market is different. Many people have both cellular provider from the two networks above. Gradually, the Esia’s predatory pricing has a significant impact to GSM provider. If previously our mind said when we call someone, just use CDMA since GSM just for messaging, now that perception has been faded.
The GSM providers are piqued by Esia’s tricks in the marketplace. They make a counterattack by giving customers some discounts. But it’s failed. The price war can’t be averted. In this ‘crusade’, I saw Indosat and XL are the most reactive crusaders among the others. Why? you can see it at the TV commercial breaks. You should choose between Dian Sastro & Luna Maya.
I see it seems like a death ceremony for all crusaders. By conditioning the price war, consumer surplus is very high caused by a low price of each operators, although they gotta pay the trade-off such as decreasing of product quality. When those prices has moved to the lowest point of price, there’s no way to survive beside reducing the production cost. It has a big potency to reduce the quality. The intensive price war especially at fixed wireless access, indicated by BTL (Below the Line) and ATL (Above the Line) promotion can saturate the customers since they will not aware with the price differentiation. It seems like a condition where customers can’t distinguish a product to another product since the two products is quite cheap.
Telkomsel will be advantaged by the price war since they are market leaders supported by strong financing from Telkom to do the operational activities. Telkomsel isn’t too active at the war price competition, they just wait and see. May be they has have a special planning related to the price war.
They may not be cheapest compared with other competitors. However, with their own network, it’s difficult to other provider to shake Telkomsel 48% market share in 2007 lalu.[1] It’s needed some incentives for the customers to move to another operator. The incentive can be formed as the cheap tariff. That strategy is good for customers inside the Java island, for customers from the outside? I think need more time to reach them. The problem is, can the crusaders survive in this stage? I doubt.
As the big player Telkomsel expect the battle among their opponents. it will be completed, when the opponents are wounded so that Telkomsel can walk alone to the top. Is it possible in the industry with 40% – 55% growth in the last two years?[2] Why not. I’ve said ,above that customers can’t distinguish the product price since their price s are quite cheap, finally they choose the product with the best quality.
Therefore, I suggest to KPPU for looking back to the cellular industry. I don’t wish that Adam Air’s motto ‘flying is cheap, like your soul’ will repeat again.
Salam,
1 Market share data was taken from http://telkom.info/
2 Cellular industry growth data was taken from Bank Indonesia
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