S&P assigns B+ to Indosat on stable telecom industry

The Jakarta Post, Jakarta

Global rating agency Standard & Poor's Ratings Services (S&P) assigned a "B+" rating to the country's second largest telecommunication company PT Indonesian Satellite Corp. (Indosat) on Friday, amid a stable outlook in the telecommunications industry.

In a press statement, S&P said that it had also assigned its "B+" rating to Indosat's proposed seven-year US$200 million senior unsecured notes maturing in 2010, issued by Indosat subsidiary, Indosat Finance Company B.V., and guaranteed by Indosat and its subsidiaries, P.T. Satelit Palapa Indonesia and P.T. Indosat Multimedia Mobile.

S&P said the rating reflects material country risks, growing competition in the wireless and international markets, regulatory uncertainties and the risk of further rupiah depreciation.

However, these factors were offset by a degree of insulation from sovereign debt risks, Indosat's position as one of the leading telecom operators in Indonesia, and robust domestic wireless growth prospects, the agency said.

"Cellular operators are now facing new competition from the fixed wireless services, which have similar mobility and features to local cellular services, but are offered at local call rates," said S&P's credit analyst Greg Pau, director in the Corporate and Infrastructure Ratings Group.

"Although the rollout of fixed wireless service remains limited, S&P is concerned about the potential degree of cannibalization, given its low rates," he added.

As well as competition in the wireless sector, the country's international call business is in transition as it is open for limited competition between Indosat and state-owned incumbent P.T. Telekomunikasi Indonesia (Telkom) following early termination of their exclusive rights to operate in each other's segments. The international call service is still controlled by Indosat, while local and domestic long distance service is controlled by Telkom.

Indosat is facing increasing competitive pressure with the entry of Telkom into its international direct dialing market expected by the end of 2003 or early 2004.

S&P expects pricing competition to be more intense as both attempt to grab a market share.

The agency said that although the direction of telecommunications policy in Indonesia was largely positive, there were key regulatory issues to be resolved, particularly in interconnection agreements and rate-setting mechanisms.

In addition, regulations on the range of use and service pricing in fixed wireless would be the key issues determining the service's future expansion and the competitive landscape of the cellular market, it said.