Another sign that the mobile phone market of Indonesia is saturated is that the number of (active) mobile phone numbers has only grown by 1 percent between the end of 2015 and the end of Q1-2016. Previously, we reported that the attractiveness of Indonesia's telecommunications market has been weakened due to sharp competition between operators, slowing profit margins and a saturating voice and SMS services market. However, there remains room for growth in data services and value-added services given Indonesia's still relatively low smartphone penetration (as well as low Internet penetration).

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Samsung Electronics Co Ltd, the multinational electronics company headquartered in Suwon (South Korea), said that it plans to establish a factory in Indonesia to produce mobile phones for Indonesia’s domestic market. Samsung Electronics, subsidiary of the Samsung Group (a leading global information technology company), wants to set up the factory in West Java and production is expected to start later this year. Samsung Electronics already owns factories in China and Vietnam.

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Both Indonesia's Ministry of Industry and Trade propose to impose a luxury goods sales tax (PPnBM) of 20 percent on all imported mobile phones. Previously, the Ministry of Industry said the new tax rule - if approved - would only apply to cellular phones with a price tag of at least IDR 5 million (USD $442). Now, however, all imported cell phones will be affected. This new tax policy aims to curb imports of mobile phones (thus impacting positively on the trade balance) and to support the development of a domestic mobile phone industry.

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Starting from January 2017, 4G smartphone manufacturers in Indonesia will be required to use at least 30 percent of local content in domestically-sold smartphones and at least 40 percent for base transceiver stations (BTS). Earlier this year the Indonesian government had issued a draft regulation on this subject and last week it was signed by Indonesia’s Communications and Information Minister, the Trade Minister and the Industry Minister. What is the impact of this new rule on Indonesia’s smartphone industry?

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The government of Indonesia targets to see 35 million domestically-produced mobile phones (per year) starting from 2017. Meanwhile, Indonesia’s wireless network is to be upgraded to 4G speeds by the same year (a 4G network is the new necessity for those with smartphones or tablets) although currently the country’s telecommunication operators are still in the middle of building receivers to boost 3G utilization. The government hopes to see a total of USD $4.5 billion investment in the telematics sector.

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