Telkom, KSO partners aim to modify their contract

By Christiani Tumelap

JAKARTA (JP): State-owned telecommunications company PT Telkom and its five partners in a joint operation (KSO) scheme are seeking changes in their contract in a bid to save their troubled relations.

Telkom's operation and marketing director Komarudin Sastrakoesoemah said Telkom and the five partners were currently formulating new formats for some important provisions in the contract, such as a revenue-sharing arrangement and a future investment program.

"We (Telkom) hope to come up with a fair solution on the matter. Thus, some changes in the provisions relating to future investment and the development of new lines are needed," he told The Jakarta Post over the weekend.

He said the arrangements on investment and network development must be changed to anticipate Telkom's plan to provide similar services in regions within KSO partners' responsibilities.

At present, Telkom concentrates its investment and phone line development on its own work areas in Jakarta and East Java. Other places are under the jurisdiction of the five KSO partners. PT Pramindo Ikat Nusantara, for example, operates in Sumatra, PT AriaWest International in West Java, PT Mitra Global Telekomunikasi Indonesia in Central Java, PT Cable & Wireless Mitratel in Kalimantan and PT Bukaka SingTel International in eastern Indonesia.

The partners were appointed in 1996 to finance, build and operate domestic fixed-line telephone services across the country on behalf of Telkom under a revenue-sharing scheme through 2010.

Komarudin said Telkom had proposed a revision in the revenue- sharing scheme with KSO partners to anticipate a possible change in the company's business focus.

Under the existing contract, KSO partners are required to pay Telkom a monthly fee based on a progressive basis, known as minimum telecommunication revenue (MTR) and distributable telecommunication revenue (DTR) amounting to 30 percent of their total revenues.

"We want to simplify the scheme by scrapping the MTR and keep the DTR. The distribution arrangement in the DTR must be changed. It will no longer be 30:70. If Telkom has the bigger investment in the region then we must receive most of the revenue," Komarudin said.

KSO partners have complained about the current scheme, calling it flawed and ambiguous. They also have accused Telkom's management of taking advantage of the vague provisions to interfere in the operations and management within the KSO areas.

On the other hand, the KSO partners have been subject to criticism from Telkom, experts and legislators, who have accused them of failing to fulfill their responsibilities in developing the lines.

Under the 1996 agreement, the KSO partners were required to install a total of two million telephone lines from 1996 to 1999.

However, the government revised the figure to only 1.2 million in 1998 after the KSO partners said they would not be able to meet the target due to the economic crisis, which hit the country in mid-1997.

The partners eventually installed 2.82 million lines-in- service as of Dec. 1999.

Bugi Sjahrazad, vice president of Bukaka, confirmed that Telkom and the KSO partners had proposed revising some of the provisions in the contract, including on revenue sharing, to make it more favorable.

However, the partners are concerned that the current negotiations will not come up with a "long-term" resolution, he said over the weekend.

He said Telkom told the partners it needed to first clear up its own situation with the government and Indosat before it could make arrangements for a long-term plan on KSO.

Apart from the KSO problem, Telkom is also trying to come to terms with the government's plan to abolish in 2002 or 2003 the monopoly it has as sole fixed-line telephone operator until 2010 and in long distance calls until 2005.

The government will award Telkom a new licenses for mobile telecommunications, which is expected to be announced in August, and in international telephone service to offset the early termination of the company's monopoly.

Komarudin said Telkom was aware that the early termination of its monopoly would affect the KSO partners' businesses since they had already been given the rights to operate Telkom's business in five regions of the country until 2010.

"We'll try to maintain the commitment given to the KSO partners regarding operation rights. But if the monopoly is lifted earlier than 2010, we will certainly ask for compensation from the government," he said.

Irawan Santoso, vice managing director of Pramindo, said that in order to anticipate the change in the business structure following the expected abolishment of Telkom's monopoly, the KSO partners had suggested that Telkom transform the scheme of their cooperation to a joint venture.

"A joint venture is definitely a far more clearer concept for business compared to the current one. Things would be clearer in a joint venture, no more mess in management," he said.

Komarudin said Telkom was open to the possibility of changing the format of cooperation into a joint venture.

"A joint venture can be included in the scenario. We're open to such an alternative as long as we hold the majority stake in each of the joint ventures," he said.

He said Telkom was also open to the opportunity of working with new companies outside the KSO partners.

"If there are other firms interested in us and offer an excellent deal, we may as well cut out ties with a certain KSO partner, compensate them ... But we have not got any new partner, we're still shopping around," he added.