UPDATE 1-RESEARCH ALERT-CIMB downgrades Indonesian telecoms

(Adds details from report)

JAKARTA, April 29 (Reuters) - Malaysian investment bank CIMB has downgraded Indonesia's telecommunication sector to underweight from neutral on concerns about rising competition in the industry.

CIMB said in a report that it had also cut the recommendation on Indonesia's largest telecommunication company, PT Telekomunikasi Indonesia Tbk (Telkom)TLKM.JK to underweight from neutral and reduced its target price to 8,100 rupiah ($0.879) from 11,300 rupiah.

The investment bank also cut the target price for Indonesia's second-largest mobile operator, PT Indosat Tbk ISAT.JK, to 5,900 rupiah from 6,700 rupiah.

"We believe Indonesia's telecom sector is undergoing a structural shift from high tariffs-low usage to low tariffs-high usage," CIMB said in the report.

Telkom controls 65 percent of PT Telekomunikasi Selular (Telkomsel), the largest mobile operator in the country with a more than 50 percent market share.

"We believe Telkomsel and Indosat are not prepared for this, and there networks will be congested in the coming quarters," the bank added.

The number of cellular phone subscribers in Indonesia has been growing rapidly in recent years and is expected to reach 120 million by the end of this year from around 90 million in 2007.

Despite the strong growth, the penetration rate in the country is relatively low at only about a third of the population compared to regional peers like Malaysia which has around 80 percent penetration rate and 60 percent in Thailand.

But with around a dozen operators serving the market, the competition has intensified recently resulting in tariff cuts in recent months. ($1=9,215 rupiah) (Reporting by Harry Suhartono, editing by Ed Davies)