Indonesia's digital infrastructure sector is poised for significant growth, presenting a dynamic landscape of opportunities and challenges. As the archipelago nation continues to embrace digital transformation, the data centre market, fibre networks and tower industries are witnessing rapid expansion. However, navigating this evolving market requires a nuanced understanding of the complex realities shaping its development.
A data centre industry in transition
Indonesia's data centre industry is at an inflection point, with industry experts projecting a rapid expansion from the current installed base of 150MW to a potential 1GW by 2030. This growth trajectory presents a substantial opportunity for investors and operators alike but also underscores the need to navigate a complex web of challenges.
One of the key hurdles identified is the latent nature of demand, with many Indonesian enterprises still in the nascent stages of cloud adoption. An estimated 200MW of demand from local companies, largely from start-ups, is currently being serviced by hyperscale data centres in Singapore, highlighting the untapped potential within Indonesia's borders. However, unlocking this demand will require overcoming several barriers, including a scarcity of local information technology partners to support enterprise cloud migration and the need for hyperscalers to establish in-country data centres to comply with data residency requirements.
The outlook for the Indonesian data centre market is further complicated by the concentration of digital infrastructure in the eastern part of the country, which could impede the development of a truly interconnected digital economy. Additionally, while Jakarta is witnessing significant development activity, concerns have been raised about the potential for oversupply in the medium term, particularly given the slower-than-anticipated pace of demand growth.
Despite these challenges, the long-term potential of Indonesia's data centre market remains compelling. With the right strategies and investments, operators can tap into the country's burgeoning digital economy and rising demand for localised data storage and processing.
Fibre infrastructure: From sparse networks to digital highways
Indonesia's fibre market is on the cusp of a major expansion, driven by the projected investment of $8 billion to $10 billion in fibre-to-the-home infrastructure over the coming years. The market's attractive economics, with average revenue per user for connected homes significantly higher than in many developed markets, has piqued investor interest and set the stage for a market share grab.
However, the fibre market's development is still in its early chapters, and significant white space remains in intercity and metro networks. While this presents an opportunity for operators to establish a strong foothold, it also underscores the need for strategic partnerships and innovative approaches to navigate the archipelago's unique geographical and regulatory landscape.
Adding to the momentum, Indosat Ooredoo Hutchison is considering a $1 billion sale of its fibre assets, which presents a significant fibre carve-out opportunity in Indonesia and could attract substantial investor interest.
As fibre connectivity expands, it will play a critical role in enabling Indonesia's digital transformation, supporting the growth of data-intensive applications, high-speed internet access and emerging technologies like 5G and edge computing.
Towers: A maturing market with room for growth
Indonesia's tower industry has long been a beacon for investors, attracted by the market's robust fundamentals and potential for continued growth. With tower companies reporting strong tenancy additions and a relatively high tenancy ratio of 1:9, there is evident momentum in the sector.
However, as the traditional tower market matures and growth moderates to around 4% annually, industry players are increasingly looking towards adjacent opportunities to sustain their expansion. The installation of fibre optics at tower sites is expected to be largely completed within the next three years, paving the way for tower companies to explore new avenues for value creation, such as edge computing and small cell deployments.
To capitalise on these emerging opportunities, tower operators will need to evolve their business models and develop new capabilities, forging strategic partnerships with fibre providers, telecom operators and technology vendors. By doing so, they can position themselves to capture a larger share of the value chain and support Indonesia's ongoing digital transformation.
Nurturing the start-up ecosystem
Indonesia's vibrant start-up ecosystem has captured the attention of investors and industry leaders alike. While many start-ups are embracing cloud services, the broader enterprise migration to the cloud is still in its early stages, presenting a significant growth opportunity for digital infrastructure providers.
As the start-up ecosystem matures and more businesses embark on their digital transformation journeys, the demand for reliable, scalable and secure digital infrastructure will only continue to grow. By investing in the necessary connectivity, data centre and edge computing capabilities, infrastructure providers can play a pivotal role in nurturing Indonesia's start-up ecosystem and supporting the growth of the country's digital economy.
Conclusion
Indonesia's digital infrastructure market stands at a crossroads, with immense potential for growth and transformation but also significant challenges to overcome. Success in this dynamic market will require a combination of strategic vision, local market expertise and a willingness to adapt to rapidly evolving circumstances.
L.E.K. Consulting is a registered trademark of L.E.K. Consulting. All other products and brands mentioned in this document are properties of their respective owners. © 2024 L.E.K. Consulting
06072024130636