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.