For Internal Purpose Only – LS-OK

ECHO International Cable Project

Market Impact Statementfor Indonesia’s
Telecommunications Sector

 XL Axiata Tbk (XL) has been selected as the preferred landing

partner for the Indonesian component of the new Singapore-
Jakarta-USA (ECHO) project.
 This USD500 million investment will result in new and strategic
national information infrastructure for Indonesia, providing high
capacity connectivity to both Singapore and Australia. This capacity
of 90Tb will triple Indonesia’s currently available international
bandwidth.
 The additional bandwidth facilitated by the market entry of ECHO will
have substantial benefits on wholesale pricing structures,
particularly on the underserved southern route that connects
Indonesia with Singapore and USA.
 In addition, the commissioning of an alternative routeto USA.
Against this background,this document also provides an assessment
of the economic valueof this geographic diversity for Indonesia
proposed under the ECHO project.

June 2020

June 2020 ECHO Indonesian Market Impact 1

For Internal Purpose Only – LS-OK

ECHO International Cable Project

Market Impact Statement for Indonesia’s
Telecommunications Sector

1. Background to the ECHO Project

1. XL and Google, Edge Network (ECHO) have signed a binding Landing Cooperation
Agreement for XL to be a Landing Partner, Administrator and Representative
of the proposed ECHO Submarine Cable System in Indonesia. This project will
provide high capacity links between the domestic network assets of both parties with
Singapore-USA and comprise:
a. The 15,000km of fibre optic backbone network and national cellular
network of XL across Indonesia; and

2. The ECHO project is now ready proceed and is fully:

a. Contracted through a turnkey agreement with NEC;

b. Designed with a completed end-to-end marine survey and technical

specifications; and

c. Licensed and permitted for landings and operation in both California USA
and Singapore.

3. The target Ready for Service (RFS) date is 2022.

4. The ECHO system will establish state-of-the-art, high capacity and dedicated
connection between Jakarta - USA and Jakarta-Singapore. Additionally ECHO
will be providing connection directly between USA and Singapore. This
activity will lead to the establishment of a 15,000km network connecting these
three (3) markets.

5. ECHO will land the cable further via a Branching Unit (BU) and Cable Landing
Station (CLS) established in Indonesian territorial waters at Tanjung Pakis, Jabar
And will be offering international services over this cable via XL network nodes.

6. This will create the shortest path with the lowest latency and highest capacity
between Indonesia and USA.

7. A broad overview of the route is provided in Figure 1 below:

June 2020 ECHO Indonesian Market Impact 2

For Internal Purpose Only – LS-OK

Figure 1: Route overview of the ECHO System connecting Indonesia with USA and
Singapore

8. XL submits that there are key design and technology advantages of the ECHO
project that MOCI should consider in evaluating its support for this activity.
These include the provision of:

a. Initial capacity which of 92Tb using a state-of-the-art with the latest 100Gb
wavelength technology significantly increasing Indonesia’s international
bandwidth inventory;

b. Route diversity and redundancy for traffic protection on Indonesia’s critical

information infrastructure through an alternative path to the USA directly reducing
the reliance and technical risk associated with legacy Singapore links

c. Downward pressure on wholesale bandwidth pricing

i. In an orderly way on the competitive Jakarta-Singapore route; but

ii. Introducing disruptive tariffs on the underserved Jakarta-USA route

d. Will have the only POP to POP solution that seamlessly links Singapore-
Jakarta-USA with major global players such as Google, Facebook,
ready to take up services on the system driving inward ICT investment
to Indonesia.

June 2020 ECHO Indonesian Market Impact 3

For Internal Purpose Only – LS-OK

9. Through its relationship with XL, ECHO is expecting to establish long term
strategic and network linkages with Indonesia through the operation and
maintenance of world class infrastructure assets.

2. ECHO Expands the Scale and Reach of the Indonesian

International Bandwidth Market
1. The economic benefits of broadband bandwidth and the supply of international
capacity to a country market are closely tied. Within this context any limitations
on the availability and cost effective pricing of international bandwidth inhibit
economic growth prospects.

2. By 2014 Mastel have projected that there will be 17 million broadband

subscribers in Indonesia. It already has significantly more broadband
subscribers than a market such as Australia, but has to service these users
with much less installed international capacity.

3. As indicated in Figure 2, Indonesia has less international Internet capacity than

the growth in its fixed and mobile broadband bandwidth requirements would
indicate:

Figure 2: Correlation between country broadband bandwidth and international

connectivity

Source: Telegeography, Business Case Analysis, Washington DC July 2011

June 2020 ECHO Indonesian Market Impact 4

For Internal Purpose Only – LS-OK

4. Telegeography has found that a country’s international backbone requirements

will grow 0.85 times of that country’s domestic broadband growth in the
previous year over and above what that international capacity would have
otherwise grown. Higher bandwidth at local level will always underwrite to
more international capacity growth.

5. Figure 3 indicates ECHO will remove international capacity constraints from

Indonesia.

Figure 3: Capacity audit of Indonesia’s international cable networks

Cable System RFS Distance Capacity Landing Points

PGascom 2010 264km 0.16Tb Jakarta-Batam-Singapore

Moratelindo 2012 1400km 0.62Tb Jakarta-Batam-Bintan-Dumai-
Melaka-Singapore
Dumai-Melaka 2005 159km 0.32Tb Dumai-Melaka
Sea-Me-We 3 1999 4800km* 0.18Tb Singapore-Jakarta-Perth
JAKABARE 2009 1330km 1.28Tb Jakarta-Sungai-Singapore
Matrix 2008 1053km 2.56Tb Singapore-Jakarta

National Total 9006km 5.12Tb

ASC 2015 4600km 16.0Tb Singapore-Jakarta-Perth
2022 Singapore-Jakarta-USA

*ECHO
For Southern route of Sea-Me-We 3 15000km 92.0Tb
relevant to Indonesia only

6. As indicated in the table above, and in its own right, the ECHO project
significantly enhances the scale and scope of Indonesia’s national information
infrastructure by increasing:

a. International installed fibre directly into Indonesia by 51%; and

b. Total international bandwidth servicing Indonesia by 312%.

7. To support local economic prospects, these step function improvements in

international connectivity represent key inputs to support national
competitiveness. According to the World Bank, a 10% increase in broadband
penetration will result in a 1.38% increase in Gross Domestic Product (GDP)
growth in developing economies such as Indonesia. Such an impact results
from:

a. Reduced transaction costs for business, government, and household

communications;

b. New business opportunities such as investments in e-commerce and

business process outsourcing facilities; and

June 2020 ECHO Indonesian Market Impact 5

For Internal Purpose Only – LS-OK

c. Improved public service delivery, in particular to support e-education and

e-health services.

3. Route Diversity to Support a More Robust National

Information Infrastructure

1. ECHO will provide a crucial alternative national information infrastructure path for
Indonesia

a. The alternate open-access route from Indonesia to the USA;

b. Provides redundancy options to the USA &

c. Singapore; dependency
Decreased and on the typical South East Asian route to the USA
through Singapore and the earthquake prone Luzon Strait.

2. In addition, ECHO is the only open access route between Jakarta and USA
and at least 30% faster than alternatives through Sydney with available capacity.
This will bring all major USA population centres on net for Indonesian
carriers and businesses.

3. APEC identifies three (3) especially vulnerable choke points that require
special attention1: the Strait of Malacca between Malaysia, Singapore and
Indonesia; the Strait of Luzon between Chinese Taipei and the Philippines; and
the South China Sea.

4. Indonesia is disproportionately exposed to all these locations, especially on the

key thick traffic routes to the USA.

5. An alternative route through Indonesai and on to the USA would be of

great strategic advantage to Indonesia.
.

1
APEC, Economic Impact of Submarine Cable Disruptions, Bangkok December 2012

June 2020 ECHO Indonesian Market Impact 6

For Internal Purpose Only – LS-OK

6. The Economic Model underpinning the APEC study shows the probability of
substantial economic losses arising from cable disruption and reflects the
increased likelihood of severe disruptions in some regions. An overall
recommendation is therefore to sharpen their focus on the issue of submarine
cable protection and risk mitigation.

7. A ‘wait and see’ approach is possibly too risky as too much is at stake.

8. The following Figure 5 sets out the potential maximum economic damage of
Indonesia’s reliance on Singapore as a hub for its international bandwidth.
This analysis suggests that 4% of Indonesia’s GDP is exposed for the period of
any cable cut without adequate restoration paths being put into place.

June 2020 ECHO Indonesian Market Impact 7

For Internal Purpose Only – LS-OK

Figure 4: Value added by data connectivity in trade to GDP

Source: APEC, Economic Impact of Submarine Cable Disruptions, Bangkok December 2012

9. APEC recommends that geographically diverse cable routing – such as that

proposed under the ECHO project - is the most effective measure to prevent
traffic outages. Therefore, especially when certain choke points are identified
which are not sufficiently addressed via private initiative, member economies
should apply a cost-benefit-analysis to determine whether public spending can
be justified for a specific cable project. It may be prudent to invest and engage
in order to prevent worse things from happening.

10. In this instance, the geographically diverse cable routing that directly benefits
Indonesia is fully funded by private investment, with no capital contribution
required from either Government or the public sector.

4. Downward Pressure on Wholesale International Bandwidth

Pricing
1. ECHO will provide services on what is essentially a new route.

2. Though the existing cable connects Indonesia to USA and Singapore,

upgradeable capacity on this cable is exhausted and 10Gb/100Gb wavelength
sales are potentially not available. It may be possible to add more capacity
to this system, but it is understood that upgrades to the existing system is not
a long-term and viable solution for this route.

June 2020 ECHO Indonesian Market Impact 8

For Internal Purpose Only – LS-OK

3. Pricing on this broader route - as it impacts Indonesia - will reflect the following:

a. The addition of new capacity provided on a wholesale, open access basis

on a more mature link currently serviced by seven (7) competing
cables between Jakarta and Singapore; and

b. The removal of severe capacity constraints on the underserved link

between Jakarta and USA given the current limitations on the one (1)
existing cable.

4. As indicated in Figure 6, there are consistent global precedents for how market
pricing will respond under these scenarios. On this basis, it can be expected
that there will be incremental wholesale price erosion on the Jakarta to
Singapore link over time and steep wholesale price declines on the Jakarta to
USA Link.

Figure 5: Historical and Forecasted Price Declines on ECHO Proxy Routes (Unprotected
monthly lease pricing)

Source: Telegeography, Business Case Analysis, Washington DC July 2011

5. The pricing on the Tokyo-Los Angeles route is likely to be reflective of the price
erosion that can be expected on the Jakarta-Singapore route. Although this is
a competitive route characterised by multiple operators, a number of new
cables have deployed using the latest technology which fundamentally change
the economics of traffic delivery.

6. XL understands that the system utilised by ECHO will lead to similar efficiency
gains on the Jakarta-Singapore route. It is based on NEC

June 2020 ECHO Indonesian Market Impact 9

For Internal Purpose Only – LS-OK

Submarine Line Terminating Equipment (SLTE) which is capable of delivering

100Gb waves either in the form of native 100Gb or 10 x10Gb increments to the
wholesale market.

7. The wholesale pricing on the Indonesia-USA route is expected to be consistent

with the Jakarta-Perth link. The entry of the PPC-1 cable in October 2009 and
the effects of the Telstra Endeavour RFS in September 2008 helped to push
down Sydney-Los Angeles pricing by an estimated 46% CAGR between 2008
and 2010.

8. However, the extreme steepness of that price adjustment can be viewed as a

one-time phenomenon that signalled the end of monopoly arrangements of the
Southern Cross cable on that route.

9. On the Jakarta-Singapore it is proposed price in line with the market and

will be competing primarily on the basis of technical and service level
capabilities.

10. On the Jakarta to USA route we offer a unique value proposition to the
market in terms of:

a. An alternate southern path to the USA via a high quality, high capacity
route;

b. Improved latency due to a more direct path; and

c. Lower cost of around 30% below current market tariffs

11. Providing access to competitive wholesale international bandwidth provided by

ECHO is a critical business input for domestic retail fixed and mobile broadband
pricing.

12. This is particularly relevant for Indonesia where only 10% of all internet traffic
originates locally. Although there may be other structural bottlenecks such as
national backhaul and access to broadband spectrum bands, it is clear that
greater choice and availability of international bandwidth supply - as proposed
under the ECHO project - will be beneficial to local retail broadband offerings.

5. Distributing Connectivity Throughout Indonesia, Singapore

and Australia

June 2020 ECHO Indonesian Market Impact 10

For Internal Purpose Only – LS-OK

1. Against this background, the relationship between XL and ECHO provides

unique access to more than 36,000km of domestic transmission assets,
significantly enhancing the reach and benefits of of the ECHO network well
beyond landing points in Jakarta, USA and Singapore.

2. In terms of Indonesia, McKinsey & Company estimate that after years of rapid
population and GDP growth, Jakarta’s GDP growth is not expected to expand
faster than the national average between now and 2030. It is expected that
Jakarta’s share of national GDP will remain stable at around 20%.2

3. Figure 6 suggests that the XL network will enable access to international

connectivity - through ECHO - to homes and businesses across Indonesia,
supporting and facilitating productivity and economic growth prospects outside
of the capital.

Figure 6: Other cities are now growing at a faster average rate than Jakarta

Source: McKinsey & Company, The Archipelago Economy: Unleashing Indonesia’s Potential,
September 2012

5. Cities between 2 and 5 million are growing at the fastest pace and are forecast
to account for 27% of national GDP by 2030 and up from 17% today. Without
investment in key economic infrastructure - such as telecommunications -
these rapidly growing cities run the risk of growth constraints.
2
McKinsey & Company, The Archipelago Economy: Unleashing Indonesia’s Potential,
September 2012

June 2020 ECHO Indonesian Market Impact 11

For Internal Purpose Only – LS-OK

6. The provision of international connectivity distributed beyond Jakarta will be a

critical factor in meeting key objectives of the National Mid Term Development
Plan which aims for 30% of the population has the opportunity to obtain
broadband access. Submarine cables such as ECHO have a leading role to play
with regards to interconnection and traffic, as do the terrestrial networks of
domestic operators such as XL.

7. The factors that converge to encourage the development of broadband in

Indonesia will benefit from the relationship between the ECHO connectivity and
the XL distribution capabilities, and include:

a. Over-riding a historic lack of investment in the updating and expansion

of basic fixed telecommunications infrastructure – fibre optics – the
building block of interconnection.

b. Reducing the negative impact of concentration of the market in only a

few companies, which means low competition in the different
downstream market segments.

c. Addresses the exponential growth in the usage of bandwidth in

Indonesia, and the pressure this brings to bear on the incumbents and
the large companies, who cannot keep up with this growth in demand

6. ECHO Underwrites Technology Opportunities for Economic and

Productivity Growth in Indonesia

1. Indonesia is well placed to take advantage of the opportunities presented by a

networked economy. Mastel report that there is:

a. Currently 220 million mobile phone subscriptions; and

b. An estimated 100 million Internet users by 2021.

2. Despite a rapidly expanding base of connected users, only about 5% of

subscribers in Indonesia engage in e-commerce. In addition providers of
online public services such as health and education lag significantly behind
peer economies.

3. It is noted that improving productivity - rather than an expanding workforce -

has been the most important driver of economic growth in Indonesia. Higher

June 2020 ECHO Indonesian Market Impact 12

For Internal Purpose Only – LS-OK

productivity has accounted for just over 60% of Indonesia’s growth over the last
two (2) decades. The majority of Indonesia’s productivity growth has come not
from a shift of workers from industries such as agriculture into more productive
sectors but from productivity improvements from within the sectors themselves.

Figure 7: Productivity enhancements to the economy remain critical to Indonesia’s

future

Source: McKinsey & Company, The Archipelago Economy: Unleashing Indonesia’s Potential,
September 2012

4. XL submits that a superior national information infrastructure will be a threshold

requirement to meet national economic and productivity growth objectives.

5. In securing a world class telecommunications asset for Indonesia that future

proofs national capacity requirements, provides genuine route diversity and
redundancy and is made available on a wholesale open access basis, it is
believed that the ECHO project will make a substantial and enduring contribution
to the economic prospects and digital future of Indonesia.

June 2020 ECHO Indonesian Market Impact 13