Phone rate hike unlikely: Official

Phone rate hike unlikely: Official

JAKARTA (JP): The next government will most likely delay a
planned increase of telephone tariffs in a bid to win the
people's hearts, a senior government official said here on
Thursday.

Director General of Post and Telecommunications Sasmito Dirdjo
said that under the existing formula, telephone tariffs were set
to increase in 2000 by up to 75 percent.

"But, I'm not sure whether the new government will have the
guts to apply the rise. They probably won't do it because they
don't want to make an unpopular policy that will harm their image
as a new government," he said.

Sasmito acknowledged that the planned increase was too high,
but insisted that the fare increase was necessary to offset
higher investment and operational costs.

The country's telephone tariff is adjusted every year based on
a formula set by the government.

According to a source in the telecommunications industry, the
Forum for Telephone Tariff plans to propose to the government to
cut the tariff increase from 75 percent to 30 percent. The forum
groups officials of state local telecommunications operator PT
Telkom and its Joint Venture (KSO) partners.

"The ideal rise, according to the real calculation based on
the existing government's price cap, is about 75 percent. The
amount was considered by forum members as being unrealistic, so
they finally came up with 30 percent," said the source, who spoke
under condition of anonymity.

Gatot S. Kahrmadji, vice president of Ariawest International,
one of Telkom's five KSO partners, said the increase was
necessary to enable Telkom and its partners to build new lines.

"We really need to build more new lines to meet the demand.
But a new investment or a bank loan is just impossible at the
moment. The rise is the only hope," he said.

Telkom's president A.A. Nasution claimed late September that
his company was in good financial condition and suggested the
government put off increasing the local phone call tariff in
2000.

"Based on the Activity Based Costing calculation, Telkom's
rate of return in 2000 without any tariff rise will be 19
percent, meaning Telkom will still be able to fulfill its short
and long-term obligations," Nasution stated in a letter to
Minister of Communications Giri Suseno.

He added that given the low demand for new lines and the down
turn in economic conditions following the prolonged crisis, a
tariff increase should be avoided.

Sasmito acknowledged that raising the telephone tariff during
the ongoing crisis would attract heavy criticism from the public.

He said however that the tariff increase was necessary, not
only to help operators obtain more funds to support the
improvement of facilities, but also to attract investors to re-
enter the country's telecommunications industry.

"Tariffs are a very important factor taken into account by
foreign investors when they intend to invest in (the
telecommunications sector in) a country. How can we expect
investors to come here if we offer them a low tariff, which is
good for customers, but will not guarantee a rapid and easy
return for foreign investment?" Sasmito said.

Telkom data reveals that the current rate of return for
investment in the Indonesian telecommunications sector of about
11 years fails to compete with the six to seven year rate of
return in many other countries.

The data also reveals that Indonesia's phone call tariff is
the lowest in Asia. It charges 2.1 US cents per minute, compared
to Singapore's 2.3 cents, Korea's 2.5 cents, Malaysia's 3.4 cents
and Sri Lanka's 2.5 cents.

The monthly subscription fee in Indonesia is $2.88, compared
to Thailand's $4.18, Singapore's $7.66 and the Philippines'
$8.53. (cst)