Telkom, KSO partners aim to modify their contract

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.