"which is a violation of the country's anti-monopoly laws." ... If indonesia has Anti-monopoly laws why is it i can only go to one company for a land line?
Thu, 29 Nov 2007
JP/Concerns over domination in Indonesia's cellular Industry
The dominant position of Indonesia's two telecom giants in the market can be clearly defined. However, with companies free to engage in promotional campaigns, detecting price fixing is less straightforward.
Indonesia's Business Competition Supervisory Commission (KPPU) recently associated Temasek Holdings with monopolistic behavior in the Indonesian telecommunications market -- which is a violation of the country's anti-monopoly laws.
The liberalization of the telecommunications sector back in early 2000 indeed moved in favor of Singapore-based telecom operators, with the acquisition of partial stakes in two local prominent telecom operators; namely Telkomsel and Indosat in 2001 and 2002, respectively.
This was later followed by Malaysian telecom operators with their acquisition in 2005 of Excelcomindo and Natrindo Telepon Sellular (Lippo Telecom).
Currently, the Temasek group, through STT, owns a 41 percent stake in Indosat while at the same time owning a 35 percent stake in Telkomsel through SingTel. Although STT's ownership of Indosat is less than 50 percent, STT is the single majority shareholder in the company, as opposed to the government's 15 percent and the publicly floated 44 percent, respectively.
As both Indosat and Telkomsel control approximately 85 percent (in terms of subscriber base) and 89 percent (in terms of value) of the domestic GSM cellular industry, it is alleged that Article 27 (a) of the 1999 law on monopolies has been breached.
The article states that a business agent is prohibited from owning a majority share in a number of similar companies which conduct business activities in the same market, or from setting up a number of companies undertaking the same business activities in the same market, if this ownership results in one business agent or one group of businesses controlling more than 50 percent of the market share of one particular kind of good or service.
As a consequence, STT must let go of its ownership in either Telkomsel or Indosat within the next two years after the ruling takes affect. Other sanctions include fines of Rp 25 billion and compensation as a result of this unfair business practice.
Eight other subsidiaries and strategic investment partners in Telkomsel and Indosat under the Temasek group were also implicated.
In relation to this, Indonesian Vice President Jusuf Kalla responded positively and said all businesses must respect Indonesian laws. This statement has also been backed by the President, Susilo Bambang Yudhoyono.
However, the group has appealed the decision to the Central Jakarta District Court. The rosy outlook of the country's telecommunication sector seems to have encouraged the group to fight for its presence in the industry.
The group has also been alleged to have been actively involved in price leadership in cellular price fixing, which is not in accord with Article 17 of the 1999 law on monopolies.
The KPPU has therefore ordered Telkomsel to lower cellular tariffs by at least 15 percent. This tariff re-evaluation must be reviewed by the Indonesian Telecom Regulatory Agency (BRTI), which acts as a neutral referee (watchdog) to secure transparency, independency and fair practices in the telecommunications sector.
Note that members of the BRTI consist of the Telecommunications Regulatory Committee members and representatives of the Directorate General of Post and Telecommunications.
Let us observe the behavior of the market's tariff mechanism in relation to price leadership. Price leadership is an oligopolistic business behavior in which one company, usually the dominant competitor, leads the way in determining prices, while rivals are left to follow.
Although we notice that specific cellular tariffs have been set in accordance with the recent cost basis interconnection regime, cellular operators are free to carry out their own promotions, particularly for on-net service, to make their services more competitive.
This dynamic allows telecom operators greater flexibility in mapping their own services as opposed to following a certain tariff structure.
This mechanism allows some flexibility for competitors to repackage their tariff structure without being suspected of price fixing. The sad part, however, lies in the potential restrictions on promotional campaigns through the introduction of a floor and ceiling tariff structure.
This may trigger unfair business practices that contradict anti-monopoly laws. With the recent KPPU ruling, more careful steps must be implemented to prevent any bias or the perception of price leadership.
The writer is a senior analyst at PT Bahana Securities
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