Mid Exam

Business Strategy & Enterprise Modelling

Case 2: Indosat Ooredoo and Cisco to Build 5G-Ready SRv6 in

Indonesia

By:
Ivander Edo / 29119365 / YP62C

Lecturer: Dr. Harry Patria

MASTER OF BUSINESS ADMINISTRATION PROGRAM

SCHOOL OF BUSINESS AND MANAGEMENT
INSTITUT TEKNOLOGI BANDUNG
2020
INTRODUCTION

PT Indosat Tbk, is one of the largest telecommunications provider company in Indonesia. The
company offers wireless services for mobile phones, and to a lesser extent, broadband internet lines for
homes. Then in 2013 most of Indosat's share ownership was acquired by Qtel and Qtel was become the
majority stakeholder in Indosat (Fig. 1). Qtel was established in 1987 and is based out of Doha, Qatar.
Then, Qtel rebranded itself as Ooredoo, this was followed by a renaming of all their subsidiaries across
multiple countries. As such, Indosat was renamed Indosat Ooredoo on 19 November 2015.

Figure 1. Shareholder Composition of Indosat (Source: Indosat Ooredoo Web)

Indosat Ooredoo also have some subsidiary entitiy like PT. Aplikanusa Lintas Artha (Indonesia),
PT. Indosat Mega Media, Indosat Singapore PTE Ltd, PT. Starone Mitra Telekomunikasi, and PT. Portal
Bursa Digital. The company have vision to become Indonesia’s leading digital telco by implementing
strategy to leap towards an empowered high performing team, accelerate B2B as new engine of growth,
establish a competitive video grade network, and deliver value for money and earn customer trust. Now,
Indosat is ready to build a 5G-ready transport network based on new converged Software-defined
Networking (SDN) and Segment Routing IPv6 (SRv6) architecture in Indonesia, powered by Cisco.

ANALYSIS
External Analysis
Many firms as also Indosat facing turbulent, complex, and global external environment, the
conditions that make interpreting those environments difficult. To cope with often ambiguous and
incomplete environmental data and to increase understanding of the general environment, Indosat should
complete an external analysis. External environment consist of some components which affect the
Indosat business. The components are political, economic, sociocultural, technological, environmental
and legal (PESTEL Analysis). Indosat Ooredoo Business always support in responding technology,
economic, and sociocultural by providing best ICT (Information Communication and Technology)
solution, best team that consist of many experts and provide services and it depth consultation thoroughly
to create more value company or business.
 PESTEL Analysis
1. Political Factor
Indonesia's political conditions are sometimes unstable which often have an impact on business
activities in Indonesia. Based on information from the Kominfo website[ CITATION Kom17 \l
1033 ], the government is always looking for technological advances, especially this 5G
technology, but they do not want to rush in its adoption, because it needs to be reviewed
regarding the readiness of the ecosystem in Indonesia. In fact, if this technology can be
implemented properly, it can also help the political system in Indonesia, such as providing
contributions for election.
2. Economic Factor
As a result of the unstable political conditions in Indonesia, it also makes difficult for
government to implement conducive economic policies, especially during conditions like this
where there is a pandemic. This could have a negative material impact for Indosat. In addition,
the competition conditions are also getting tighter where operators are fighting to get customers,
coupled with the possibility of a number of small operators also consolidating. In fact, the
implementation of 5G can have a significant impact related to increasing economic condition
which is estimated to generate revenue of up to $ 3.5 trillion.[ CITATION Kom17 \l 1033 ]
3. Sociocultural Factor
Indonesia citizen is one of the hardest in transforming to digital platform, especially the one who
lives in the countryside. This makes challenge for all stakeholder to concern about this problem.
However, due to this pandemic, even though it had a negative impact, there were also some
positive impacts. This pandemic encourages people to be able to transform to digital technology.
This has resulted in increased demand for online content and digital transaction. For sure, this
make a positive impact for Indosat.
4. Technological Factor
Technology sector has always been a challenge for every company, including Indosat, to be able
to carry out a full transformation to become a customer-focused company supported by
technology. Fortunately, this pandemic forces some industries to implement technologies, even
for financial industries, manufactures, constructions and many more. Indosat focus in improving
 and optimizing their digital technology especially for this 5G technology to improve Cloud and
IoT services in opening up new growth opportunities.
5. Environmental Factor
Environmental problems are often become focus in Indonesia, therefore most companies are
required to have CSR so that in running their business they are always able to protect the
environment. Indosat also focuses on environmental issues, it can be seen from Indosat always
providing innovations and solutions regarding energy savings by proclaiming the realization of a
smart city which bring environmental benefits. Indosat also committed to the implementation of
Occupational Safety and Health Management Systems in accordance with Government
Regulation No. 50 of 2012, OHSAS 18001:2008 and Environmental Management System ISO
14001:2015 by establishing HSE and Environmental policies.
6. Legal Factor
The government, as the regulator, determines, implements and enforces relevant regulations for
companies related to tariff setting. Apart from that, the government also issues licenses for
operators. The government regulates the telecommunications sector through the Menkominfo,
which is authorized to issue statutory decisions. Certain licenses require Indosat to pay
telecommunications service provision fees to the Menkominfo.

Based on PESTEL's analysis, the conclusion is that the influence of political, economic, social,
technological, environmental and legal activities has an important impact on PT. Indosat, Tbk. Basically,
Indonesia has an opportunity in industrial development, especially in the telecommunications industry,
because communication is a primary need so indirectly its development is a necessity that must always be
done.
Besides analyzing the global environment of telecommunication services in Indonesia,
furthermore we must see deeper about competitive pressures that affect to the company. Framework used
is Porter’s 5 Forces. In Porter's opinion, he considered that companies in real terms were not only
competing with other companies in the industry today. In five forces model, it illustrates that company are
competing with potential competitors, new entrants, suppliers, buyers or consumers, and products
substitute.
 Porter’s 5 Forces Analysis
1. Threat of New Entrants (Low)
The telecommunications business is a dynamic, attractive, multi-faceted business and a
pioneer in global expansion. Telecommunications is a business sector that is most in demand
by multi-national companies in the framework of expansion and globalization. The capital
 required to enter this industry is very large, given the high technology used and the cost of
building an extensive network. So that those who can enter this industry are entrepreneurs
with large capital or established giant companies. So with this conditions, it is unlikely that
newcomers will be able to enter this industry, due to the large number of barriers to entry,
which are intentionally made so as not to destroy existing players.
2. Bargaining Power of Buyers (Low)
The number of telecommunication consumers has increased from year to year, especially in
Indonesia. Customers in Indonesia generally do not have sufficiently strong bargaining power
over basic telecommunications services, because they do not have the choice of
telecommunications facilities, only limited to certain choices. So, it is clear that the market
potential for telecommunications services is quite large and is increasing from year to year,
especially in Indonesia and with this 5G technology, there are many potential customers that
have not been tapped.
3. Bargaining Power of Suppliers (Medium)
The telecommunications industry uses a lot of fiber optic cables, not only for land networks,
but also at sea. However, almost 90% of domestic fiber optic cable demand is still imported
from abroad, so it depends on foreign producers. This has made the bargaining power of the
Indonesian telecommunications company, especially PT Indosat, quite weak, because their
suppliers consist of many foreign companies. However, if there is a fluctuation and a
weakening in the exchange rate of the domestic currency, this will effect on communication
service providers such as Indosat.
4. Threat of Substitutes Products (Low)
Telecommunication is facilities that connects humans to one another through various
telecommunication media. Over time, the development of these telecommunication facilities
has also grown, starting from the emergence of the internet which produce social media and
until now which is already at the stage of 5G technology which increasingly supports this
telecommunication facility. Therefore, it will be very difficult for other products to replace
this telecommunication technology because there is a tendency for customers to continue to
use telecommunications services in terms of speed and ease of communication.
5. Competitive Rivalry (Medium)
Currently, in Indonesia, there are several strong competitors for Indosat, who are also
working on developing this 5G technology. There is PT. Telkom and PT Smartfren Telecom.
Even now there are those who are already using 4.5G technology, namely PT Excelcompindo
 Pratama. Therefore, there are several companies that have decided to cooperate with each
other in facing this competition.

Based on the analysis using Porters 5 Forces, it can be seen that Indosat has advantages and
competitiveness, besides that there are still many things that can still be developed and opportunities to be
more competitive in the Indonesian market. After an external analysis is done, Indosat also needs to
analyzing the internal analysis.

Internal Analysis
As already mentioned about brief explanation in the introduction section, PT Indosat Tbk. was
founded as a foreign investment company (PMA) in 1967, which is an international telecommunications
service company in Indonesia and only started operating in 1969. In 1980, the Indonesian government
took over all of Indosat's shares, making Indosat one of the state-owned enterprises (BUMN). which is
engaged in international telecommunications. In 1994, Indosat conducted an IPO by listing its shares on
the Jakarta Stock Exchange, the Surabaya Stock Exchange and the New York Stock Exchange (NYSE)
and made Indosat a state-owned company whose shares were listed on the Indonesian and United States
capital markets or also known as "Dual Listing".[CITATION IND20 \l 1033 ]
In 2002, Indonesia sold 8.10% shares in Indonesia to the public and 41.94% to Singapore
Technology Telemedia Pte. Ltd (STT), therefore the Indonesian government only owns 15% of shares
and public shares have shares of 43.06%. In 2008, Indosats shares were indirectly acquired and owned by
a foreign company, namely Qtel (Qatar Telecom) with a share ownership of 40.81 percent. In 2009 Qtel
changed its name to Ooredo after which Ooredoo bought Indosat shares again and became the majority
owner of Indosat with ownership of 65 percent. In 2010 Indosat started a more focused and efficient
corporate transformation with organizational restructuring and network expansion.
When looking at the organizational structure of PT. Indosat, there are a board of directors consisting
of Director & Chief Operating Officer, Chief Innovation & Regulatory Officer, Director & Chief
Financial Officer, and Independent Director & Chief Human Resources Officer. PT. Indosat makes its
organizational structure according to its respective fields, where each division can solve problems in its
field with good decision making. From making good decisions then will make this company can survive
until now from the president director is divided into several branch directors and divided according to
divisions who have duties in accordance with their fields.
Hereafter, in understanding the position of PT. Indosat, we have to evaluate PT. Indosat resources
dan capabilities. Resources known as input before company’s production process. This resource can
divided into tangible and intangible resources.
 Tangible resources consist of financial (Securities like stock, bonds, and cash) and other physical
resources. From financial resource in 2019, PT Indosat can generate funds from total assets of Rp. 62.813
billion, total revenue of Rp. 26.117,5 billion, and profit of Rp. 1.630,4 billion[CITATION Ind19 \l
1033 ]. Physical resources of PT Indosat consist of buildings, information technology equipment, office
equipment, leasehold improvements, vehicles, operation and maintenance center which is worth of Rp.
42.753,3 billion.
Intangible resources are non-physical assets that have a monetary value since they represent
potential revenue. In intangible resources exist goodwill, innovation, human resource, brand recognition
and intellectual property, such as patents, trademarks, and copyrights. PT. Indosat has made many
innovations in their business process, services, and product development. PT. Indosat also get award in
Innovation in Technology Development – 4G and most innovative data package[ CITATION Ind19 \l
1033 ]. Based on brand recognition, PT. Indosat have a strong brand name because many people are
already known it. PT. Indosat also has a good reputation about services and access from big cities until
rural areas in Indonesia. In statement of financial position, goodwill and other intangible assets is worth
of Rp. 1.666 billion. PT. Indosat have 2830 permanent employee which can grouped by level of education
and age. To develop their employee, PT. Indosat invest for Rp 2,2 million per employee for conduct
training programs through video & e-book learning which facilitate by experienced mentors[ CITATION
Ind19 \l 1033 ].
In evaluating capabilities, Human Resources Directorate continued to drive the company to ‘Leap
Towards an Empowered High Performing Team’ by expanding employee capabilities, creating an agile
organization and implementing efficient and effective ways of working. In technology sector, PT. Indosat
continued to invest in building digital and analytical capabilities both in terms of their customer offerings,
their organization and their technology. Their massive 4G roll out continued, and they are also starting to
prepare for 5G down the road. PT. Indosat also enhanced their Customer Value Management (CVM)
capabilities by developing artificial intelligence to drive personalized services and offerings. They
officially launched a chatbot called INDIRA, backed with machine learning algorithm and integrated to
their backend systems, giving more relevant and personalized capabilities to the chatbot interaction with
their customers. While maintaining focus on 4G deployment, they also maintaining focus for the future
with 5G. They have already begun preparing the ecosystem for 5G by connecting more and more sites to
fiber optic connection and increasing the number of physical sites. They have ensured that our radio
access network equipment that they built in 2019 is 5G-enabled, and have virtualized their core network
to enable smooth transition to 5G. In addition, they continue to explore how they we can take advantage
of the new technology by conducting trials with leading 5G suppliers[ CITATION Ind19 \l 1033 ].
 After know the resources and capabilities of PT. Indosat, we have to identified that this resources
and capabilities must possess in order to become a source of sustained competitive advantage by using
VRIO analysis. VRIO analysis stands for four questions that ask if a resource is: valuable? rare? costly to
imitate? And is a firm organized to capture the value of the resources? A resource or capability that meets
all four requirements can bring sustained competitive advantage for the company. For example, for
financial resources in PT. Indosat classified as Temporary Competitive Advantage because if we compare
the asset position with PT. Telkom in 2019, the gap of total assets value is near with PT. Indosat for Rp.
62.613 billion and PT. Telkom for Rp. 82.730 billion. Another resources & capabilities of PT. Indosat can
be seen in the VRIO analysis table below.
Table 1. VRIO Analysis of PT. Indosat
Resources & capabilities V R I O Result
Empowering and developing √ - - - Competitive Equality
employees
Developing Integrated √ - - - Competitive Equality
Management System
Implementing Integrating √ - - - Competitive Equality
Marketing Strategies
Financial Resources √ √ - - Temporary Competitive Advantage
Research and Development
on Technology by √ √ √ √ Long Term Competitive Advantage
Collaborating with Cisco

PT. Indosat has a long term competitive advantage in research and development on technology. This
competitive advantage is also supported by doing collaboration with cisco in developing 5G network.
This will provide the newest connection services which supports manufacture & industry 4.0,
transportation and logistics around the world especially in Indonesia. “Through this collaboration, we also
want to encourage our customers, partners and also the application developer community in every
industry in Indonesia to continue to innovate, provide new services, and get new revenue streams”, said
Director & Chief Business Officer Indosat Ooredoo, Herfini Haryono.

Strategy Formulation
Based on the article, Indosat Ooredoo announced its readiness to build a transport network that is
ready for 5G supported by technology from Cisco, namely Converged Software-defined Networking
(SDN) network architecture and IPv6 Segment Routing (SRv6). Meanwhile, from Cisco entity, Sanjay
Kaul as President of Asia Pacific and Japan Cisco Service Provider Business said together with Indosat
Ooredoo, we are ready to deliver a network that is ready for 5G, based on a converged IP and SDN
transport infrastructure, designed to exceed all expectations of retail and business segment customers. In
my opinion, Indosat's step in collaborating with Cisco is a good step, because by collaborating, each party
can combine capabilities to be able to produce long term competitive advantage.
By seeing customer perspective, I hope that PT. Indosat can implementing the integrative
differentiate & cost leadership strategy by satisfying its customer to fulfill their expectation (Figure 2)
[ CITATION Mic161 \l 1033 ]. If the customer can be satisfied, then the product from PT. Indosat will
made customer loyalty. In addition, the products that are on sale later to the market also need to have a
good quality. I realize that in implementing an integrative differentiate & cost leadership strategy, all
aspects may not be fulfilled optimally, for example it will be very difficult to produce products with good
quality, which are in accordance with customer expectations, but also at low prices. Therefore, my
opinion is in terms of cost leadership, PT. Indosat does not need to provide the cheapest product prices,
which are be worried affect the quality of production, but try provide the most affordable prices for
customers. When analogous to a car, I hope it can be like the Avanza or XPander where these products
have an affordable price and good product quality. It is proven that the sale of these cars has always been
the best-selling car in Indonesia.

Figure 2. Customer Expectations on 5G

If we see the progress, PT. Indosat did their progress gradually, started gradually from West and Central
Java, which consists of big cities and some of them are economic centers. But, I would give some
recommendations about several things related to this 5G technology. First, Indosat must always synergize
with the government as policy and regulatory makers to be able to support each other so that everything
can run well. This is because according to Bisnis.com, the government does not want to be rushed and
careful in implementing this 5G technology because it can have an impact on domestic economic
problems. It is feared that the application of 5G technology from the business side will be more profitable
for foreign vendors than domestic because foreign vendors can usually produce large and the market is
wide open. Therefore, I hope that the government can work together with industry players especially
Indosat, as an effort for both parties to determine a partnership model which, in fact, is the basis for
implementing 5G so that the investment made can be right on target and successful. This is also included
in cooperation to develop existing telecommunications infrastructure in rural areas in Indonesia.
Hopefully, PT. Indosat in collaboration with the central government (Kominfo) can provide facilities and
subsidies to local governments to make this realized.
Next, I recommend that it may take quite a long time for the development stage, especially until the
testing and application stages. Therefore, I hope that PT. Indosat can continue to be consistent in realizing
this. If we look at Japan and Korea, which are already developed countries, these countries also need a
long time to reach the launch stage.

Evaluation of Strategy Implementation

PT. Indosat has vision to be Indonesia’s Leading Digital Telco. In order to achieve this vision and by
looking at the company's external and internal conditions, PT. Indosat must be able to implement strategic
actions, namely the strategy implementation which I recommend using Strategic
Entrepreneurship[ CITATION Mic161 \l 1033 ]. I recommend this strategy because in the process, the
same is being done by PT. Indosat that firm tries to find opportunities in its external environment that it
can exploit through innovations which is developing 5G technology in Indonesia. Identifying
opportunities to exploit through innovations is the entrepreneurship dimension of strategic
entrepreneurship. Determining the best way to competitively manage the firm’s innovation efforts is the
strategic dimension.
In this strategy, from the internal analysis, firm seek to create value through internal innovation
processes. On general, model that show Creating Value through Internal Innovation Processes can be seen
in Figure 3 below. Entrepreneurial mind-set is foundational to the firm’s efforts to consistently identify
entrepreneurial opportunities that it can pursue strategically with and through innovations. Cross-
functional teams are important for promoting integrated new product design ideas and gaining
commitment to their subsequent implementation. Effective leadership and shared values promote
integration and vision for innovation and commitment to it. The end result of successful innovations is the
creation of value for stakeholders.

Figure 3. Creating Value through Internal Innovation Processes[ CITATION Mic161 \l 1033 ]
However, competitive rivalry affects the degree of success a firm achieves through its innovations. Thus,
firms must carefully study competitors’ responses to their innovations to have the knowledge required to
know how to adjust their innovation-based efforts. Therefore, we also see from external perspective.
From the external analysis that has been done above, actually the strategy that has been carried out
by PT. Indosat is well, by doing Innovation through Cooperative Strategies or Alliances with Cisco.
Alliances with Cisco can contribute to innovations in several ways. First, they provide information on
new business opportunities and the innovations that might be developed to exploit them. In other
instances, both firms use cooperative strategies to align what they believe are complementary assets with
the potential to lead to future innovations. Compared to other approaches to innovation, combining
complementary assets through alliances has the potential to more frequently result in “breakthrough”
innovations.

Business Model
After implementing the deliberate strategy, expected PT. Indosat can shifting in some aspects into
more dynamic related to the digital technology. After implementation, PT. Indosat will depend a lot to
property and automotive company. For property company, PT Indosat can become a vendor for realizing
smart city innovation that is more modern and more energy saving. Meanwhile, for an automotive
company, PT. Indosat is the vendor for the realization of self driving car technology. Key activities will
also shift from those previously activities which is to maintain with 4G technology to research &
development of this 5G technology. After implementing the strategy, the value proposition will change to
be more advance that give advantages of better technology facilities. To maintain customer relationship,
PT. Indosat can shifting to a more modern technology or platform so that it is more flexible for customers
(myIM3 & API). From key resources, there is important thing to maintain, it’s big data. It is become very
important because this data become processed, it can provide better information for decision making.
After implement the strategy, also expected to add revenue stream from 5G services and royalty from
entity that adopt the PT. Indosat technology. The business model canvas of PT. Indosat can be seen in the
next page.
 Table 2. Business Model Canvas PT. Indosat
Key Partner Key Activities Value Proposition Costumer Relationship
Before Implementation Before Implementation Before Implementation Before Implementation

School and University Customer service and Experienced Internet Social Media
support Service
Devices Manufacturer Network Maintenance Lower Price Customer Service
Bank Consumer experience Personal Contact
Cargo After Implementation Consumer Education
Organization / Company Development of IoT After Implementation
hardware
Equipment suppliers Development of Faster Internet Speed After Implementation
embedded software
Research and Bigger Capacity Customer self-care
Development Better Spectrum applications called
myIM3
After Implementation Lower Latency Application
Programming Interface
(API)
Government More Capable Unified
Platform
Property Company Better Reliability
Automotive Company High Mobility
High energy efficiency
Key Resources Costumer Segment Channels
Before Implementation Before Implementation Before Implementation
Infrastructure Household Outlet Store
Financial resources Retail Costumer Word of Mouth
Manpower, Capital, Poster / Flyering
Asset
Websites
After Implementation After Implementation
IT Technology Company with advance After Implementation
Capabilities technology
Big Data Individual with high Social Media
mobility
Software/Hardware Application / Software
development teams
Revenue Streams Cost Structure
 Before Implementation
Fixed telecommunication services Maintenance Expense
MIDI & Cellular service R&D expense
After Implementation Operational Expense
5G Service Revenue
Royalty

Blue Ocean Strategy

Based on projected data of 5G penetration, for the Indonesian region in the next 1-3 years is still
very small and will only happen a significant increase in the next 4-5 years, in 2024 and 2025. Figure of
projected 5G subscription and penetration can be seen in figure below.

Figure 4. Projected 5G Subscription and Penetration

Based on my opinion and see the figure above, by collaborating with Cisco in developing 5G technology,
PT. Indosat sure will create the blue ocean environment, which will create new demand and new market
segment. This is because it will open up a lot of opportunities for development in the business sectors and
of course this development will also occur gradually. So, even though one of the technologies from 5G
has become Red Ocean, the development of this 5G technology can still be applied to other business
sectors. I think that the first product that will be red ocean is a SIM card, because SIM cards are the most
basic product in the development of this 5G technology, so competitors will definitely make this product.
So then this 5G technology can be applied to other industrial sectors such as the automotive and property
fields. Now this day, the development of the automotive industry is also very fast, where many hybrid
cars have been launched, of course with full electrical instruments that require modern technology. With
the presence of 5G technology, it is hoped that it can also contribute to the automotive industry, for
example, to improve the connection between the car dashboard and the driver's smartphone. For more
advanced stage is developing the self-driving car. Therefore, a new blue ocean environment will
definitely emerge with the development of this 5G technology. As with the property industry, the
development of 5G technology can also make the property sector develop, such as the smart city concept
by using modern technology. Therefore, I hope that PT. Indosat can always collaborate with various
stakeholders to develop this technology in order to make their business always develop.

Sustainable Competitive Advantage

In my opinion, the collaboration between PT. Indosat and Cisco in developing 5G technology that
will produce a Sustainable Competitive Advantage. This is because as previously explained, this 5G
technology will provide services that are more valuable and satisfying for every stakeholder. I also
estimate that the life time of this 5G technology will be quite long, if look at the lifetime of 4G
technology which is around 10 years, so this will provide a sustainable aspect for PT. Indosat, especially
if this technology can also be applied in various industrial sectors. In addition, if PT. Indosat can utilize
their resources and capabilities while also analyzing the external environment, and the last by
implementing the integrative differentiation & cost leadership strategy, which can produce quality
products at affordable prices, sure Indosat will not lose customers and instead make products from
Indosat increasingly grow.
References

Indonesia Investment. (2020). Retrieved from www.indonesia-investments.com: https://www.indonesia-

investments.com/id/bisnis/profil-perusahaan/indosat-tbk/item200
Indosat. (2019). Annual Report.
Indosat Ooredoo. (2020, November 13). Retrieved from https://indosatooredoo.com/:
https://indosatooredoo.com/en/about-indosat/corporate-profile
Kominfo. (2017). KOMINFO. Retrieved from kominfo.go.id:
https://www.kominfo.go.id/content/detail/10351/pemerintah-ekosistem-indonesia-belum-siap-
adopsi-5g/0/sorotan_media
Michael A, H. (2016). Strategic Management: Competitiveness & Globalization: Concepts and Cases.
Boston: Cengage Learning.