Some rival phone companies may merger: Telkom

Some rival phone companies may merger: Telkom

Bloomberg, Jakarta/Kuala Lumpur

PT Telekomunikasi Indonesia (Telkom), the biggest phone company,
expects some of its seven rivals in the country to merge as
rising competition erodes profits.

The company, which has 90 percent of Indonesia's fixed phone
lines and more than half of the cellular market, said most
countries have three to five operators. Telkom said it will find
ways to make its 29,000 employees more productive and cut costs.

"A price war is inevitable," Arwin Rasyid, Telkom's chief
executive, 48, said in an interview on Aug. 12 in Singapore. "The
challenge going forward is how to maintain this market share.
Going forward, I'm not surprised to see some consolidation in the
industry."

State-owned Telkom is preparing for increased competition from
operators such as Hutchison Telecommunications International Ltd.
and Telekom Malaysia Bhd., both of which have invested in
Indonesia in the past two months.

Indonesia is also preparing to introduce regulations which
will include the reallocation of frequencies given to
telecommunications companies. The move may hasten the mergers,
analysts said.

"I expect mergers of smaller phone companies and consolidation
in the sector within a year," said Katarina Setiawan, an analyst
at Kim Eng Securities in Jakarta. "The new regulation, expected
in January next year, will set out new requirements for the phone
operators. Those which are too small and can't compete will have
to merge to survive."

Setiawan has a "trading buy" recommendation on Telkom and PT
Indosat, Telkom's rival, because of "the potential for growth in
the industry," she said.

Telkom will increase spending to draw customers as more
Indonesians sign up for fixed-line and mobile phones. The company
will probably spend US$7 billion to $9 billion in the next five
years on equipment and developing its business, from $3 billion
in the past three years, Rasyid said.

Telkom also plans to expand overseas within the next five
years with partners such as Singapore Telecommunications Ltd.,
which owns part of the Indonesian company's cell-phone unit.

"We have to do our best to really transform the company," he
said. "We will be open to all kinds of options. We can come in
with other telecom operators who are our partners. We can learn
from our partners, and if we have the experience, we could do
something on our own."

Separately, Maxis Communications Bhd., Malaysia's biggest
mobile-phone operator, expects mergers among Indonesian phone
companies in the next few years, saying it wants to be a "major
player" in the consolidation.

The Indonesian industry "will consolidate in the next few
years," Maxis Chief Executive Jamaludin Ibrahim told reporters in
Kuala Lumpur on Monday. "We want to be a major player."

Competition in Indonesia's mobile-phone industry is increasing
as operators such as Hutchison Telecommunications International
Ltd., Telekom Malaysia Bhd. and Maxis invest in Indonesia, where
only 16 percent of the population own cellular phones, compared
with more than 90 percent in neighboring Singapore and 61 percent
in Malaysia.

Maxis announced plans in January to buy 51 percent of
Indonesia's PT Natrindo Telepon Seluler for $100 million, its
first overseas purchase.

Natrindo, which runs cellular services under the Lippo Telecom
name, got additional spectrum in September last year for offering
faster mobile-phone, or third-generation, services in Indonesia,
Maxis said in January.