New government to decide on Telkom-Indosat merger

JAKARTA (JP): The decision on whether to merge state telecommunications firms PT Telkom and PT Indosat will be made by the new government, according to Sofyan Djalil, the assistant to the State Minister of the Empowerment of State Enterprises.

Sofyan said on Monday his office would submit the recommendation regarding the issue to the new government after it obtained results from a further study on the feasibility of the merger expected to be completed in two weeks' time.

"We're not going to make such a substantial decision in this very limited period. We'll only submit a recommendation based on the reports we got (separately) from the Boston Consulting Group and PT Telkom," he said.

He said the Boston Consulting Group was originally hired by the government to assist the plan to consolidate the state-owned companies, especially those in the telecommunications and media sectors.

The group submitted on Monday morning reports on the analysis of the consolidation plan featuring options of a merger or of keeping the two firms as separate entities, he said.

"Boston Consulting provided us with the matrix describing the costs and benefits of a merger or a status quo as well as the estimation of the value of assets under both options," he said.

Sofyan also confirmed that Telkom's board of commissioners and directors presented their proposal on the merger on Monday afternoon but declined to reveal the results.

However, he admitted that both the Boston Consulting Group and Telkom came up with a very similar analysis and recommendation on the merger issue.

He said the reports would be further studied to enable his office to have a more reliable perspective on the costs and benefits of each option.

The idea of merging Telkom and Indosat has so far been much aired by Telkom. Company president A.A. Nasution reiterated last week that a merger between two firms would definitely increase the country's telecommunications assets and fully integrate the firms' services and quality prior to the opening of the telecommunications sector to foreign operators.

The possibility of the merger, however, was dismissed by Minister of Communications Giri Suseno who said that the move was definitely not in accordance with the country's long-term plans for the telecommunications sector.

Giri emphasized that the country's telecoms blueprint clearly regulated Telkom and Indosat to stay as separate entities until 2011.

He added that Telkom would be given the license to provide international line services and Indosat to enter the local fixed line network so that both firms would have fully integrated services before the government liberalized the sector in 2011.

Sofyan said a merger or separate entities have their own advantages and disadvantages.

"Most of the potential barriers are so far related to the regulation and mechanism, which are handled by different ministries," he said.

Under the existing regulation, Telkom holds the exclusive rights to provide local fixed line and fixed wireless telecommunications services nationwide until 2010 as well as the right to provide domestic long distance services until 2004.

While Indosat and its joint venture with PT Satelit Palapa Indonesia (Satelindo) has the exclusive right to provide international long distance service until 2005.

However, the new telecommunications law, which will become effective in 2000, stipulates the possibility of early termination of the exclusive rights subject to the agreement made between Telkom or Indosat with the government and other telecoms providers interested in entering the restricted sector. The interested parties are required to compensate Telkom or Indosat for the early termination of the right. (cst)