Indosat's strategic partner

Indosat's strategic partner

The significance of Singapore Technologies Telemedia Pte Ltd's
acquisition of almost 42 percent of PT Indonesia Satellite
Corporation (Indosat) at Rp 5.6 trillion (S$630 million) is far
larger and wide-ranging than the hefty 51 percent premium price
paid by the Singapore company.

The hefty premium price made the transaction the largest sale
of a state company to a foreign investor since the 1997 economic
crisis and enabled the government to collect a total of Rp 8.02
trillion from privatization, a much larger amount than the Rp 6.5
trillion target set for the current fiscal year.

Much more important than the sale proceeds was the great
benefit the deal will generate for the future development of
telecommunications in Indonesia with the injection of keener
market competition in PT Telekomunikasi Indonesia (Telkom), the
country's largest telecommunications company, and an increase in
investor confidence.

The transaction provided Indosat, the country's second
largest, with a strategic partner to further develop its fixed
line and mobile phone businesses and other telecom-related
services, and this will force Telkom, which until August had
monopolized the domestic call market, to improve its efficiency.

It's no wonder then that the strategic sale of Indosat had
encountered strong opposition from vested-interest groups early
this year through worker demonstrations and strong lobbying to
list Satelindo on the Jakarta Stock Exchange or to break the
company apart into several small independent subsidiaries.

An efficient telecommunications industry would benefit the
whole economy and make the world's largest archipelago more
attractive to investors. Another similarly great benefit of the
deal is Indosat's access to Telemedia's expertise and modern
technology, which is vital for the further development and
competitiveness of Indonesia's telecommunications services, in
view of the rapidly developing technology in this industry.

Even though Telekom's monopoly on domestic call services ended
in August, this company still dominates more than 90 percent of
the fixed-line business and 60 percent of the Internet service
market.

So far, many consumers have suffered the brunt of Telkom's
virtual monopoly as in the absence of meaningful competition the
company can afford to simply dismiss public complaints and
threats of boycotts, knowing that consumers, most notably those
outside Java, have nowhere else to turn.

But competition under the duopoly system, which emerged after
Indosat also lost its monopoly on international calls, is now
forcing both Indosat and Telkom to steadily improve their
services and to become much more oriented toward customer
satisfaction.

We don't share the great concern of the Business Competition
Supervisory Commission that Telemedia-Indosat alliance will
enable Singapore's Temasek holding company to monopolize
Indonesia's cellular phone business.

It is true that the Singapore government-owned Temasek
controls both Telemedia and SingTel, which owns 35 percent of PT
Telekomunikasi Seluler (Telkomsel), the cellular phone subsidiary
of Telkom that now dominates more than 50 percent of the mobile
phone market. Indosat, which is almost 42 percent owned by
Telemedia, controls PT Satelindo, the second largest mobile phone
company.

Telemedia's alliance with Indosat will instead contribute to
strengthening Satelindo's competition as the Singapore company
also has majority control of StarHub Pte. Ltd., the third largest
mobile phone company in Singapore.

In fact, it is Indosat's controlling ownership of Satelindo
that makes it attractive to investors and prompted Telemedia to
pay a hefty premium price for its 41.9 percent shares. It was
also this factor that prompted Indosat to buy back Deutsche
Telekom AG's 25 percent stake in Indosat at $325 million earlier
this year. This move is seen as rational because cellular phone
services have become the fastest growing segment of the
telecommunications industry.

The Business Competition Supervisory Commission should be wise
in assessing the Indosat-Telemedia alliance with regard to
competition within the telecommunications industry.

Indonesia's telecommunications industry is still less
developed than those in other Southeast Asian countries. We
therefore need easy access to foreign expertise, capital and
technology to make the industry competitive and to expand
telecommunications networks throughout the country.