Indosat enhances its performance

JAKARTA (JP): As the primary provider of international telecommunications services in Indonesia, PT Indonesian Satellite Corporation (Indosat) is working to strengthen its market leadership in the country while developing a global presence through increased international initiatives.

Indosat was established in 1967 as a wholly-owned subsidiary of American Cable & Radio Corporation (ACR), an affiliate of the International Telephone and Telegraph Corporation (ITT) of the United States. It was selected by the Indonesian government to build, transfer and operate for a period of 20 years an Intelsat earth station in the country to provide access to Intelsat's satellites covering the Indian Ocean region. Intelsat is an international consortium of global international satellite communications organizations which owns and operates a number of telecommunications satellites.

In 1980, ITT sold Indosat to the Indonesian government for US$43.8 million and Indosat, since then, has become a state-owned company providing international telecommunications services in Indonesia.

Columnist Bondan Winarno, in his book The Transformation Management of State-owned Enterprises, the Experience of Indosat depicted the acquisition process in vivid retrospection.

On Sept. 19, 1980, Minister of Finance J.B. Sumarlin, on behalf of the government, sent a letter to ACR's president, informing him that Indonesia planned to buy Indosat. Indosat's managing director, Jonathan L. Parapak, now secretary-general of the Ministry of Tourism, Post and Telecommunications, acted as a "go between" for the two parties.

The first round of negotiations was held on Oct. 13, 1980, in Jakarta, followed by a second meeting in November 1980 and a final session in December 1980.

Before agreeing on the $43.8-million price, ITT first offered Indosat for $200 million. It later lowered the price to $150 million, then to $93 million, to $72 million and finally to $55 million. Meanwhile, Indonesia began bargaining at $30 million before raising its offer to $40 million at the second meeting.

The final price agreed upon was $43.8 million.

Executives

According to Bondan, soon after the acquisition, Indosat was getting solid under its three top executives -- the company's president, Parapak, the director of operation, Cacuk Sudarijanto, and the director of finance, Johannes Djajadi.

In early 1991, Indosat had Tjahjono Soerjodibroto as its new president when Parapak was appointed secretary-general of the Ministry of Tourism, Post and Telecommunications. Tjahjono, who began his career at Indosat as a manager responsible for public relations, marketing and personnel affairs, was just 39 when he was appointed as Parapak's successor.

Since then, Indosat's management has been restructured several times. In 1978, the company was led by a managing director, who was assisted by a comptroller as well as a director for operations and engineering. After restructuring in August 1982, the company had a president assisted by two directors -- for operations and finance.

Another restructuring was introduced in 1991, with the establishment of four directorates in the areas of operations, development, finance as well as administration & personnel. After another restructuring in 1994, the company, in addition to the president, retained its four directors, modifying their responsibilities to cover commerce, technical, finance and administration & personnel.

Indosat's annual shareholder meeting in April 1996 agreed to retain Tjahjono as the company's president for the 1996-2001 period. Three former directors -- Herman Simandjuntak, Safwan Natanagara and Bambang Sulistyo -- were reappointed with responsibilities in finance & administration, business development and commerce, respectively. Meanwhile, Achmad Rivai, an Indosat executive who had been assigned to serve PT Satelindo, was elected as the new director for operational & technical affairs.

The meeting also agreed to allow Indosat's former finance director, Johannes Djajadi, who started his career in the company in 1973, to resign. Djajadi admitted that he first asked to resign in 1991.

Throughout the restructuring programs, the management has maintained the motto of Kretartha Karya Samuha (success through teamwork).

Indosat reported a net profit of Rp 459.4 billion ($235 million) in 1995, a 59 percent increase over 1994. It reported Wednesday an 8.62 percent increase in its net profit to Rp 114.6 billion in the first quarter of this year over the same period last year.

Indosat, whose shares were floated on the New York and Jakarta stock exchanges in October 1994, is now 65 percent owned by the government, 32 percent by overseas investors and 3 percent by domestic investors.

Indosat raised $799 million from the sales of 25 percent of its ordinary shares on the New York Stock Exchange (NYSE) and around Rp 650 billion (about $278 million) from the sales of another 10 percent on the local capital market.

The government used the $799 million raised from the sale of Indosat's shares on the NYSE to speed up the repayment of its high-interest loans from the World Bank and the Asian Development Bank.

The company's shares on the Jakarta Stock Exchange closed yesterday at Rp 8,325, down by Rp 25.

Monopoly

Indosat enjoyed a monopoly in overseas calls until January 1993, when the government licensed another carrier, PT Satelindo, a private firm, to also handle international telecommunications. Both Indosat and Satelindo have been granted a monopoly over international telecommunications services until 2005.

Indosat expects its only competitor to control no more than 5 percent of the market this year.

Indosat, whose shares are predicted by J.P. Morgan to be among the best performing telecommunications stocks in Asia this year, currently has several subsidiaries.

Among the leading subsidiaries are PT Telkomsel, an operator of the Global System for Mobile (GSM) cellular telephones with state-owned PT Telkom; PTT Telecom of the Netherlands and Setdco Group, which began business in Jakarta in May; PT Aplikanusa Lintasarta, which operates data communications; PT Patrakomindo, a petroleum satellite communications provider; PT Mitra Global Telekomunikasi Indonesia, the telecommunications concession holder in Central Java; and PT Sisindosat, a value added telecommunications provider.

Indosat also has several overseas affiliates, including Camintel, which handles the rehabilitation, expansion, operation and maintenance services of telecommunications networks in Cambodia; Acasia, a Malaysian-based telecommunications operator jointly established by telecommunications operators of the members of the Associations of Southeast Asian Nations (ASEAN); Astel, a Personal Handy-phone System operator in Japan; and I-CO Global Communication, an operator of satellite-based telecommunications services.

Indosat is currently considering setting up a joint venture in Kazakstan with a local partner to provide telecommunications services. Indosat plans to invests $5 million in this project until 2000.

Indosat now links Indonesia with 243 other countries worldwide. In addition to international calls, Indosat, which plans to invest Rp 1.7 trillion in the 1996-2000 period, currently serves facsimiles, telex, telegrams, private circuits integrated system digital networks (ISDN), data communications, telecasting and Inmarsat services, as well as the recently launched Internet service.

Through its basic "1+3" strategy -- defined by a single core business complemented by three strategic initiatives -- Indosat will continue to expand and improve the scope and quality of its international telecommunications services while seeking to participate in domestic, regional and global telecommunications. (icn)