Telkom, Indosat annul $375 million deal

Telkom, Indosat annul $375 million deal

Fitri Wulandari, The Jakarta Post, Jakarta

State-owned telecommunications firms PT Telkom and PT Indosat
officially declared that a US$375 million planned sale of the
former's Central Java and Yogyakarta regional units to the latter
has been annulled as conditions to legally seal the deal were not
met by the deadline on Thursday.

"As agreed in the May 2001 shareholders meeting, the
transaction ... would be annulled if conditions are not met,"
Indosat director Hari Kartana told a media briefing at Indosat's
headquarters on Friday.

Separately, Telkom's director of operations and marketing
Komaruddin Sastrakoesoemah also confirmed the annulment.

"By the deadline we could only meet one out of eight
conditions, so the deal was automatically off," Komaruddin told
The Jakarta Post.

The sale of Telkom's fixed-line assets in Yogyakarta and
Central Java was part of a $1.5 billion deal to end the complex
crossholdings between Telkom and Indosat in a number of
telecommunication businesses. It was seen as a crucial step to
allowing Telkom, the domestic call operator, and Indosat, the
international call operator, to expand the range of their
services before the government liberalizes the industry in 2003
to attract new investments.

Under the asset swap deal, Telkom would receive 35 percent
interest in the country's biggest cellular phone operator, PT
Telkomsel.

In return, Indosat would take over Telkom's fixed-line assets
in Yogyakarta and Central Java, known as Divre (regional
division) IV which is operated under a joint-operation scheme
(KSO) with PT Mitra Global Telekomunikasi Indonesia (MGTI).

The eight required conditions for the transfer of the Divre IV
assets include the completion of the Telkomsel and Satelindo
transactions, the granting of licenses for local and long-
distance phone services to Indosat by the government, execution
of interconnection agreements and a letter of consent from MGTI.

Only the completion of Telkomsel and Satelindo transactions
had been met by Thursday.

Due to the collapse of the deal, Telkom is required to pay the
remaining crossownership payment of $375 million. Telkom had paid
$177 million in July 2001.

Both Telkom and Indosat are still discussing the terms of
payment.

Hari said that the money garnered from the failed deal would
be invested in fixed-line business using wireless and fiber optic
technology.

After losing the Yogyakarta and Central Java assets, Indosat
is eying Jakarta and East Java as their base market since the
regions are still managed solely by Telkom.

Elsewhere, Komaruddin said that Telkom would hold further
discussions with MGTI, regarding their KSO scheme.

"We will discuss whether to continue the KSO, buy out or do a
joint venture. But Telkom is committed to working with MGTI to
boost services and expand business in Yogyakarta and Central
Java," he said.

Meanwhile, in Semarang, Central Java, employees of Divre IV
were overjoyed with the decision and decided to stop their four-
day strike.

The workers oppose the sale of Divre IV for fear that they
could be laid off.