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.