Executive says Telkom, Indosat should merge to maintain dominance

JAKARTA (JP): PT Telkom and PT Indosat should merge if they want to retain their dominance in the country's telecommunications sector, a Telkom executive said.

Telkom's operational director John Welly said here over the weekend that the merger of the companies would boost their strength and competitiveness to allow them to compete with foreign telecom giants.

"As an individual entity, we are too small for those foreign operators. We should join forces so that we can compete head-to- head with them," he told a seminar on the impact of liberalization in the telecommunications sector on local operators.

Telkom currently holds exclusive rights to provide local fixed line and fixed wireless telecommunications services nationwide until 2010 and domestic long distance services until 2005.

Indosat and its joint venture PT Satelit Palapa Indonesia (Satelindo) hold exclusive rights for overseas long distance services until 2004.

The new telecommunications law, which will be effective next year, allows early termination of the rights subject to agreement between Telkom or Indosat, the government and the new local or foreign players. The latter should compensate Telkom or Indosat for the premature end to the agreement.

John said the merger would be the most feasible alternative for Telkom and Indosat to survive in the era of free competition.

"Without forging a business alliance, Telkom and Indosat will be too small to compete with the world's telecom giants in the era of free competition," he said.

PT Telkom and PT Indosat respectively booked total assets of Rp 24 trillion (about US$2.8 trillion at the current exchange rate) and Rp 4.8 trillion as of December 1998.

Their assets are far lower than those of Singapore Telecom, which has total assets of $17 billion, the Malaysian telecom with total assets of $9 billion and the Philippine telecom with $4 billion.

Telkom has long been prepared to enter the era of free competition, he said, noting that preparations were made to enable the company to enter international markets.

"Expanding into overseas markets does not necessarily mean that we are certainly going to launch a direct expansion there." He said Telkom would prefer to use an "indirect" strategy to penetrate overseas markets.

Separately, general manager of investors relation for Indosat, Budi Prasetyo, told The Jakarta Post on Saturday that Indosat had studied the cost and benefits from a merger with Telkom.

However, he declined to reveal whether it was judged feasible.

He said preparations for a merger would be more complicated for Indosat than for Telkom.

"Telkom is far more ready to either merge or compete by itself. It has nothing to lose ... the situation is different for us."

He said Indosat submitted the report of the study to the company's shareholders.

"Whether or not Indosat merges with Telkom will be decided by our stakeholders," he said, adding that Indosat's next shareholders meeting was set for Oct. 14.

Concerning the company's strategy on open market competition, Budi said that Indosat would concentrate on strengthening its position and competitiveness in the local market.

"It's impossible to go global and compete with those giant global operators. We're too small." He believed the best way to penetrate overseas markets was through strategic alliances with foreign operators.(cst)