Telkom may start overseas expansion next year to help boost revenue

Rendi A. Witular, The Jakarta Post/Jakarta

Despite a huge untapped market domestically, PT Telkom plans to expand its overseas market next year to help achieve greater revenues.

Telkom president director Kristiono said the company might acquire smaller telecommunications firms abroad next year, as it could no longer expect higher revenue growth from the local market due to stiff competition with other players in the sector.

"We cannot depend anymore on "organic growth" to support our businesses. In order to grow by more than 25 percent, we need to shift to non-organic growth by acquiring smaller firms overseas," said Kristiono at a media gathering on Monday.

Kristiono said the regional expansion would be centered in countries that were still lagging behind in the cellular business but had a potential market.

"We haven't decided the (size of) funds (needed) for the expansion nor the firms that we are after. But we will certainly target countries that lag behind in their cellular business development," he said.

Telkom finance director Rinaldy Firmansyah said that the company was currently eying two overseas firms for acquisition, with the funds for the plan to be allocated from the company's capital expenditures in next year's budget.

Publicly listed Telkom has previously said it would allocate some Rp 14 trillion (US$1.55 billion) in capital expenditures for 2005, in which some 50 percent of the allocation would be spent on expanding its cellular businesses.

Kristiono and Rinaldy, however, refused to elaborate further on the plan, saying that the management was currently still studying the targeted companies.

But Telkom president commissioner Tanri Abeng said the company was currently in negotiations with the companies, which were located outside Southeast Asia, possibly in India, China and Latin America.

"There is indeed a plan for acquisition. Currently, the board of management is still negotiating with several companies. But at present, we cannot name the companies yet," said Tanri, who is a close friend of Vice President Jusuf Kalla.

Telkom's plan for overseas expansion next year, would be sooner than it had initially planned. In a previous report, Kristiono said the company would have the capability to expand abroad in 2007 after it had completed its major network expansion in the domestic market.

Currently, only about 4 percent of the country's 220-million population have access to fixed telephones, including fixed-line and fixed wireless phones. Telkom controls some 97 percent of the domestic fixed-line business this year, or about 9.5 million users.

The government has urged local phone operators to build 10.7 million fixed telephone lines by the end of 2008. This year alone, the operators are obliged to build at least 1.4 million lines.

Critics have said that the low penetration of fixed lines, mostly in rural areas, is primarily because Telkom is reluctant to implement its public service obligation as mandated by the government due to the low proceeds gained in the fixed-line business, while the investment needed is quite large.

Next year, Telkom is obliged to install 400,000 fixed lines.

Telkom shares ended unchanged at Rp 5,000 on the Jakarta Stock Exchange on Monday.