Indosat units merger plan approved

Indosat units merger plan approved

Rendi A. Witular, The Jakarta Post, Jakarta

The country's second largest telecommunications company, PT
Indonesian Satellite Corp. (Indosat), has secured approval from
its shareholders for a plan to vertically merge three of its
telecoms subsidiaries this year.

Indosat president Widya Purnama said that 98 percent of
Indosat's shareholders had approved the plan, which would pave
the way for the company to start the merger process on November
20.

"This approval is an important step forward for us. The next
step will be to sign the merger deed at the end of November,
after the Investment Coordinating Board approves the plan," said
Widya during a press briefing on Tuesday.

The three subsidiaries to be merged were two cellular
providers, PT Satellite Palapa Indonesia (Satelindo) and PT
Indosat Mobile Multi Media (IM3), and telecommunications operator
PT Bimagraha Telekomindo.

Indosat would integrate them as a division of the company
instead of separate subsidiaries, with the integration process
itself scheduled to be concluded in 2005, Widya said.

He explained that all business operations, assets and
liabilities would be transferred to Indosat as the parent
company, and that there would be no changes in capital or the
composition of the company's shareholders.

According to Widya, the merger will allow Indosat to save 15
percent on its operational costs and 20 percent on capital
expenditure over the next five years.

The merger would also allow Indosat to consolidate the debts
of its three units, help the company develop its cellular
business and integrate its marketing and sales strategy.

Analysts said the merger was part of Indosat's efforts to
catch up with its arch rival, PT Telekomunikasi Indonesia
(Telkom), in the cellular business.

They said Indosat was lagging behind in developing its
cellular business because of its huge debt, which prevented the
company from allocating adequate investment for its
telecommunication facilities.

As of September, Indosat's consolidated debt amounted to a
total of Rp 8.81 trillion (US$1.03 billion).

The merger was also part of Indosat's strategy for facing
increased competitive pressure with the entry of Telkom into its
international direct dialing market, which is expected by the end
of 2003 or early 2004.

International long distance is mostly controlled by Indosat,
while local and domestic long distance is controlled by Telkom.

Elsewhere, Indosat's cellular marketing director Hasnul
Suhaimi said that by the end of this year, the company's cellular
subscribers would reach around 5.5 million, up from 3.5 million
last year, with market share to reach around 31 percent.

Indosat was expecting its cellular subscribers to increase by
around 2 million next year, along with the company's plan to
allocate around $400 million for investment in its cellular
business, said Hasnul.

He explained that investment in the cellular business would
account for 75 percent of the company's total capital expenditure
next year. The remaining expenditure would be allocated to the
fixed line and multimedia business.

Meanwhile, Indosat shares ended down Rp 500, or 4 percent, at
Rp 11,950 on profit-taking by investors after the announcement of
the merger's approval. Indosat shares had risen as much as 57
percent since the company announced its merger plan in August.