Furor over Indosat sale

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.