Furor over Indosat sale

It is saddening to note that a strategic sale that was supposed to be the deal of the year and become a strong building- block for helping restore confidence in the country amid the gloomy economic outlook has been turned into a controversy by several narrow-minded politicians and misguided trade union leaders who resorted to fallacy to advance their vested interests.

Alleging that Singapore Technologies Telemedia Pte.Ltd (STT) had acquired almost 42 percent of publicly-listed PT Indonesia Satellite Corporation (Indosat) at a fire-sale price reflects complete ignorance of the rapid deterioration and vulnerability of Indosat market competitiveness.

Trumpeting the fear that the deal would result in Singapore's monopoly of Indonesian cellular phone business and threaten the security of the country's satellite system is either a total misunderstanding about the telecommunications industry or simply a blatant subterfuge to mislead the general public into sabotaging the transaction.

Questioning the business and economic rationale of the deal is nothing but simply an attempt to whip up narrow-minded nationalist sentiments at the expense of the economic recovery.

Just witness this equation.

On one side was debt-ridden Indosat, which before the sale was controlled by a cash-strapped government. Its mobile phone business, through its subsidiary PT Satelindo, which contributes more than 70 percent of its revenues has increasingly been losing out to the cash-rich PT Telkomsel, a subsidiary of state-owned PT Telkom that also controls the fixed line service. Indosat simply has no adequate investment capacity to match Telkomsel's rapid expansion.

Indosat's former core business as the mandated monopoly provider of international call services has been increasingly taken away by other much cheaper alternative communications means such as chatting facilities and Voice Over Internet Protocol. The monopoly itself will end in August. Worse still, the market share of its satellite service has increasingly been eroded by other satellites.

On the other side is STT, which is advancing to become a global communications service provider. It now offers a wide suite of services including fixed and mobile telephones, e- commerce solutions and services, paging, mobile-data communications, digital mobile communications network, satellite services and cable television.

It is crystal clear therefore that business and macroeconomic wise, the transaction will truly ensure Indosat's survival in the highly-competitive and capital and technology-intensive telecommunications industry. Put another way, STT will bring synergy to Indosat and help jump start the modernization of Indonesia's telecommunications industry, will heighten the competition, and at the same time inject US$630 million to the state coffers.

The more irrelevant and harmful have been the protests by Indosat employees against the deal because they are supposed to be the most apprised of the company's vulnerable condition and the most enlightened of the benefits of the synergy to the company's growth and their career development.

After all, none of their basic worker rights has been violated or harmed by the deal. The employees instead are ensured to own 5 percent of Indosat through an employee stock option and will get, in case of layoffs, allowances three times as much as mandated by labor regulations.

The office of the state minister for state companies cannot, however, escape the blame for the unnecessary uproar, even though STT won the 41.9 percent stake in Indosat through a competitive bid by paying a hefty 50 percent premium over its market price.

The government apparently has not learnt anything from the controversies over its previous transactions with private investors, seemingly refusing to acknowledge the imperative need for full transparency for such a major deal.

Since the government, perceived to be one of the most corrupt in the world, has very low credibility and therefore has always been a suspect in every major transaction with private businesses, it should have gone all out to broadly inform all stakeholders on all aspects of the strategic sale, fully disclosing the identities and background of the bidders and the step-by-step bidding process.

That the government seemed to have been caught off guard and failed to immediately come up with credible explanations about Indonesia Communication Ltd., the special purpose vehicle (SPV) used by STT in the bid, indicated a lack of transparency about the process.

Even though the use of SPV is normal in international business practices in asset acquisition, as attested by most analysts, and STT claims it wholly owns ICL, that still raised a lot of troublesome questions as to who are the real investors and what is the function of the SPV, besides those of getting lighter tax burdens and minimizing financial risks.

It is therefore most imperative for the government and STT to come up with credible explanations about the issue to remove the controversy and destroy any ammunition that could be used by ill- intentioned critics to attack the deal. An independent audit of the whole bidding process is even warranted to stop the uproar once and for all.