New government to decide on Telkom-Indosat merger

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)