RI telecom deregulation underway

RI telecom deregulation underway

Tantri Yuliandini, The Jakarta Post, Jakarta

Major adjustments in industry structure, shifts in business
focus and serious disputes marked last year's developments in the
telecommunications sector as the country braces for a more
liberalized industry.

The government's plan to open up the telecommunications sector
began last year and the departure from a monopolistic structure
to one that is based on competition is being gradually
introduced.

The stripping of state-owned telecommunications companies PT
Telkom's and PT Indosat's exclusive rights, which began in 2000,
was last year followed by readjustments to their cross ownerships
in several subsidiaries.

A US$1.5 billion landmark deal was struck in May last year
leaving Telkom with a majority ownership in the country's largest
cellular operator, PT Telkomsel, and Indosat with the second
largest, PT Satelindo.

The consideration behind this was that if the two companies
were to be allowed to compete against each other, there should be
no ties which could potentially inhibit them.

It was also done to provide a level playing field, giving the
companies equal assets to start them off toward being full
telecommunications service providers.

The early termination of Telkom's local telephone services to
2002 from the initial 2010 schedule, however, had induced
difficulties in the company's negotiations with its joint
operation partners.

The early termination was seen by the partners as another
losing point, a loss of opportunity, as the partnership's claim
of monopoly over local telephone services was cut short.

KSO contracts, a partnership intended to last until 2010, was
forced to face major evaluations and alterations when the Asian
economic crisis hit Indonesia in late 1997 and U.S. dollar-based
operational costs soared while rupiah earnings became
insignificant.

Of the five KSO partners only PT Bukaka SingTel International,
operating in the eastern regions of Indonesia, agreed to continue
the contract with modifications.

Mitra Global Telekomunikasi Indonesia's (MGTI) contract has
been transferred to Indosat as part of the $1.5 billion deal for
the dissolution of the cross ownership, and another two -- PT
Dayamitra Telekomunikasi operating in Kalimantan and PT Pramindo
Ikat Nusantara, which operates the Central Java and Yogyakarta
areas -- have agreed to sell back their assets to Telkom.

Telkom's partner for the West Java and Banten areas, PT
AriaWest International, however, was not so obliging.

Adamantly refusing to compromise on its buy-out price, the
dispute between the two came to a head when Telkom finally
unilaterally announced the partnership was dissolved.

Accusations flew back and forth and arbitration proceedings
with the International Chamber of Commerce in Geneva were filed
by both parties.

There seems to be no end in sight to the dispute in the near
future.

In the meantime, the government was forced to consider
privatization alternatives for the two state-owned companies as
the country's Rp 6.5 trillion (about $619 million) privatization
program to finance the state budget deficit still yielded nothing
as the year drew to a close.

State Minister for State Enterprises Laksamana Sukardi had
always said that the telecommunications sector was the only
sector ready at the moment for privatization, saying that given
the current economic slump investors have a relatively stronger
appetite for telcos.

Besides that, foreign investor support was expected to again
kick start telecommunications developments across the country
after a long period of stagnation beginning during the economic
crisis.

Desperately vying for foreign investment, the government
promised that it would hike telephone rates up to 45.49 percent
within three years, the first phase of the increase to begin lst
year with 21.67 percent after delays in 2000.

The current telephone rate is considered unattractive to
foreign investors as they could only expect a return on
investment after seven years.

But yet again the voice of the House of Representatives and
that of the Indonesian Consumers Foundation (YLKI) prevailed,
saying that the public was not ready for such a steep increase.

The House backed down from its initial support and said it
would only accept an increase in 2002, although not at the 21.67
percentage increase originally stated.

However, despite all that, last year was also one of the most
exciting for the development of the most lucrative business of
the telecommunications sector, the cellular services.

Indosat began its cellular service in the second half of this
year with its Indosat Multi Media Mobile (IM3), which operates
using the global system for mobile communications at 1800
Megahertz frequency (GSM-1800) and boasts higher transmission
speeds and clearer voice.

Also holding the GSM-1800 license, Telkom decided to integrate
its mobile service with that of its subsidiary Telkomsel.

IM3 would need to prove its worth and gain a niche in a market
already established by the three existing operators Telkomsel,
Satelindo and privately owned PT Excelcomindo Pratama.

The three -- listed here in descending order according to the
number of subscribers -- have been building up a customer base
for several years now and could now boast nationwide service
coverage using the GSM-900.

Adding to the excitement of the development of cellular
services, traditional voice services was now complemented by
limited data transmission with the introduction of the short
message service (SMS).

Various services sprung up from the SMS platform such as the
mobile banking services and information services such as stock
prices and movie schedules, increasing traffic for the operators.

The introduction of an inter-operator SMS service in May last
year however was the rocket which brought SMS traffic sky high,
increasing the number of subscribers and leading operators to
upgrade to the DCS-1800 technology.

Telkomsel recorded 3.05 million subscribers as of November
last year, surpassing its year end target of 3 million. Also for
the same period, Satelindo recorded 1.5 million subscribers and
Excelcomindo recorded 1.08 million.

This year, experts predict the number of subscribers to
skyrocket to 11 million, surpassing the number of fixed-line
telephone subscribers.

Telkom's director for planning and technology Kristiono said
that the convergence and eventual overtaking of the mobile phone
subscribers against fixed-line telephones was inevitable as
annual growth for mobile phones was more than 50 percent, while
fixed-line telephones only saw a growth of between 10 percent to
15 percent annually.

However, he said the stunted growth of fixed-line subscribers
was not because of lack of demand but rather a decrease in supply
caused by, among others things, a lack of investment.