Telkom, Indosat launch new GSM operator

Telkom, Indosat launch new GSM operator

JAKARTA (JP): Indonesia's two state-owned telecommunications
giants, PT Telkom and PT Indosat, launched a new company
yesterday to participate in the Global System for Mobile Phones
(GSM) cellular business.

"We expect the new firm, called PT Telkomsel, to be operating
within the next seven months," the new company's President
Director Kusmarihati Sugondo said at the launching ceremony at
the Telkom building in South Jakarta yesterday.

Telkomsel, which currently runs GSM operations on Batam and
Bintan islands in Riau, was formed with a basic capital of Rp 650
billion (about US$295 million). It is 51 percent owned by Telkom,
which has a monopoly over the domestic telecommunications market,
while the rest is owned by Indosat.

Indosat is listed on both the Jakarta Stock Exchange and on
the New York Stock Exchange. Telkom is scheduled to follow suit
by the end of this year, according to officials.

Kusmarihati, a former senior staff member at Telkom, also said
yesterday that Telkomsel would soon look for a foreign investor
"for the sake of technology transfer."

In Indonesian business circles there have been rumors that
Nynex of the United States, France Telecom or PTT Netherlands are
possible partners for Telkomsel.

Telkomsel is expecting to enter the GSM market in the Jakarta
area by next year, Kusmarihati said.

Compete

This means that Telkomsel will compete directly with PT
Satelit Palapa Indonesia (Satelindo), Indonesia's other existing
GSM operator, which also offers international telecommunications
services and controls the Palapa-C satellites.

To date Satelindo has controlled the GSM market for the
greater Jakarta area and some of West Java. It has also secured a
license to operate in Surabaya, East Java.

Satelindo, which started its GSM operations in September 1993,
is 45 percent owned by a subsidiary of the Bimantara Group, a
conglomerate chaired by one of President Soeharto's sons, 25
percent by DeTeMobil, a subsidiary of Deutsche Telekom of
Germany, 22.5 percent by Telkom and 7.5 percent by Indosat.

The government has not yet stipulated limitations on the
number of GSM operators in the industry. It has said only that
all foreign investment in the telecommunications sector must
involve either local partners or "the governing body", an
expression usually understood to refer to Indosat and Telkom.

A foreign-investment consultant familiar with the GSM sector
told The Jakarta Post yesterday that the government was seeking
to lure multinational companies to invest in Indonesia.

"The extend of interest is incredible, although the
regulations are still somewhat vague," said the consultant, who
requested anonymity.

In the meantime, another informed source in the GSM sector
told the Post yesterday that the government was processing the
proposal of yet another private consortium seeking to enter the
sector.

The source, who also requested anonymity, said the consortium
was made up of U.S.-based Bell Atlantic and PT Rajasa Hazanah
Perkasa, which is led by Hutomo Mandala Putra, President
Soeharto's youngest son.

Despite the apparent surge in foreign interest, which is
largely based on projections of economic growth and a fast pace
of infrastructure development, the immediate prospects of GSM are
unclear.

Analysts noted that the sales of GSM handsets could be
hindered by their high prices, currently ranging between Rp 2
million and Rp 6 million in Jakarta.

The main reason for such high prices is the fact that all GSM
handsets are imported. In addition, their prices in the Jakarta
area are practically controlled by the sole operator, Satelindo.

The prices of GSM handsets in Batam and Bintan, which are
located within a bonded area neighboring Singapore, are slightly
cheaper because imports into those islands are exempted from
duties and value-added tax.

Selling GSM handsets had proven more difficult than expected,
Satelindo executives have revealed.

Raymond Chatab, Satelindo's marketing director, said in
February that his company had failed to meet the target of
selling 30,000 units by the end of last year.

Raymond said that Satelindo expected to net only 60,000 GSM
subscribers this year, far lower than the initial target of
100,000.

In the meantime, Adi Rahman Adiwoso, Satelindo's commerce
director, said recently that his firm would cease to control the
prices of GSM handsets. Instead, it would allow the market to
determine prices in order to increase the number of subscribers,
he said. (hdj)