Established in 1967 to provide international telecommunication services, PT Indosat officially began operations in 1969.
In 1980, the government acquired all of the company's shares and turned it into one of Indonesia's most successful state-owned firms. Indosat and state-owned PT Telekom, which held the exclusive rights to provide domestic call services, controlled the telecommunications sector until the government deregulated the industry in the early 2000s.
Since then, Indosat has been busy consolidating its business. The company, which began offering mobile telephone services in the mid-1990s through its subsidiary PT Indosat Multi Media Mobile (IM3), acquired the entire stake of PT Satelit Palapa Indonesia (Satelindo) as part of efforts to eliminate all cross-ownership with Telkom.
Indosat's ownership underwent a major change following the purchase of a 41.94 percent share of the government's stake in the company by Singapore Technologies Telemedia in 2002. This sale turned the government into a minority shareholder, with the other 40 percent of the company's shares held by the investing public.
IM3 and Satelindo were merged into Indosat in 2004, making it the second largest cellular operator in the country after Telkom subsidiary Telkomsel. In the mobile phone business, Indosat provides pre-paid Mentari, Matrix, IM3 and CDMA-based StarOne services, among others.
Today, Indosat has become a full-fledged telecommunications operator, with integrated networks and services in information and communication solutions. To maintain its market share amid tighter competition, marked by the entry of several new players, Indosat will invest about US$1 billion this year to expand its networks and improve services.
During the first nine months of 2006, Indosat's net income dropped by 9 percent to Rp 927.2 billion (US$101.8 million), compared to Rp 1.01 trillion in the same period of 2005.
Indosat increased its revenue by just 1.4 percent to Rp 8.87 trillion in the first nine months of 2006, despite a 12 percent rise in the number of its cellular subscribers to 14.2 million.
The following are excerpts of an interview with Indosat Vice President Kaizad B. Heerjee, about the company's business outlook and its strategies for responding to the growing competition. Competition, particularly in the mobile phone industry, is much fiercer than before. What will Indosat do to respond to the situation? If you look at the industry's macro-view, the big cities in Java already have lots of competitors. There are eight to nine players in Greater Jakarta and Surabaya. So competition there will always be tough, and everyone will be fighting for customers. Luckily, we have expanded nationwide.
And a lot of our new areas have no coverage (by competitors) at the moment, especially outside Java. So we expect to see a greater growth percentage outside Java, but in terms of real numbers Java will still be our biggest piece. What are the real strengths of Indosat in facing the growing competition? The first, our brand is very well recognized. We are one of two brands that are recognized nationwide. Second, our network coverage. We have the second largest network coverage in the country. Customers who want to roam and go from place to place should choose us, in that sense.
The third is the innovation we offer in products and services, like free talk, SMS, low-cost vouchers and affordable handsets. Particularly if we target markets outside Java, which will require more of these services.
I think we are very well positioned because we have begun to understand those requirements. So again, all together, we will expand our coverage and double our marketing spending. The larger part of Indosat's revenue comes from the cellular business. Do you have plans to further boost mobile phone services? Our focus remains on GSM, 3G and beyond 3G technologies. Even if the competition is fierce, you'll win if you focus. We have decided that our focus is GSM. We have seen great growth with GSM technology, from 2G to 3G to 3.5G to beyond 3.5G.
We are very comfortable with the roadmap that we see with the GSM technologies. Why don't you also focus on CDMA, as your StarOne has covered more than 20 big cities around Indonesia?
For a simple reason, we have to expand our coverage and reach out to more provinces. In a competitive environment, you have to focus on one main thing.
It doesn't mean we will de-focus from StarOne. We will still invest in it. Today (the number of) our GSM customers is up to 16 million, while the number of our CDMA customers is 300,000. You can see where the investment should go. You have mentioned a $1 billion investment plan this year. What is the focus of the new investment? Almost 85 percent will go to the cellular business, including $500 million for developing 3,500 new Base Transceiver Stations. Any plans to expand the fixed-line telecommunication services? Actually, our fixed telecommunication is our secret weapon. Our fixed data and fixed voice communications are quite promising, with market shares of over 20 percent. And we hope to see double-digit growth.
I think in the third quarter, growth was already about 14 percent. We hope to see even greater growth in 2007. The reason is that today you are not just making phone calls, but you begin to use a lot of multimedia services, download ring tones, send images, sometimes watch videos, all of which require capacity and the backbone that we own. You have mentioned that Indosat saw 5 to 10 percent revenue growth in the second half of 2006. Why did net profit slightly decline during this period? Our first half performance in 2006 showed some decline. However, our performance started to turn around in third quarter. That's why the first nine months did not look so good. In the second half, our performance was quite good, in line with the industry's growth. And if you add that and compare with the previous year, you will also see growth. What actually caused the decline in the first half of 2006? It was primarily due to what we called a swap exercise. Satelindo and IM3 were merged into Indosat back in 2004. That year, Satelindo had the Alcatel network in Java, and the company then made a decision to put Nokia into Java.
The swap exercise took almost one and a half years. And that caused some service disruptions. Now the swap is over and we are reaping the benefits of that decision. How about financial targets for 2007? We hope to book double-digit growth for our cellular and fixed business, with the number of subscribers increasing by five to six million. And if we do that, we will actually be growing faster than the industry.
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