World-class operators

World-class operators

PT Telkom, which for the past 25 years has been mired in
nearly every possible excess inherent in a state monopoly, is
being transformed not only into an efficient, competitive
national company but also into what the company's president,
Setyanto P. Santosa, calls a world-class telecommunications
operator.

The state monopoly of domestic telecommunications services has
successfully passed the most comprehensive, rigorous health
checks for initial public offerings of shares in Jakarta, New
York and London. Next month it will launch its triple listings to
raise about US$2.5 billion in fresh funds. Its offering through
the Jakarta stock exchange will total 1.16 billion shares -- the
largest-ever single issue.

Telkom also concluded a major deal on Friday to help speed up
the process of its transformation into a world-class
telecommunications carrier.

For the next 15 years, starting in January, telecommunications
users outside the greater Jakarta area and East Java will be
served by major foreign companies. These Indonesian-foreign joint
ventures will also install more than two million new phone lines
over the next two to three years. The additional capacity will
remove the supply-side constraints which are still quite severe
in many areas, notably in the eastern provinces. Telkom can now
concentrate its resources on accelerating the installation of
around three million lines in Jakarta and East Java.

The biggest benefit, though, is the entry of the foreign
operators, which will speed up the development of the
telecommunications industry -- one of the vital services needed
to make the country competitive in an increasingly globalized
economy. Now with a telephone density of only about 1.5 lines per
100 inhabitants, inadequate telecommunications is an obstacle to
economic development.

However, it is the low telephone density that makes the
country attractive to giant telecommunications companies. With a
population of almost 200 million and an economic growth projected
at more than seven percent a year, the potential demand for
phones and other telecommunications services is huge indeed.
Furthermore, the demand will continue to grow under the
government's export-led strategy of economic development.

The foreign technology and expertise in network installation,
marketing, customer service and other aspects of
telecommunications management and operations will surely bolster
the development of Telkom.

We think the transfer of technology and skills was one of the
government's primary objectives when it decided to allow Telkom
to conclude the joint-operation contracts with the joint venture
companies. Obviously, the US$15.3 billion in revenues Telkom will
get from the contractors will be an extra bonus.

The contracts, for example, require the contractors/operators
to devote a minimum of 1.5 percent of their gross revenues to
training Telkom employees in their respective concession areas.
In order to ensure that the aspect of equity is not ignored by
commercial considerations, the contractors are obliged to
allocate 20 percent of their respective network installations to
the rural areas.

At the end of the contract in the year 2010, Telkom will
inherit from the contractors well-managed networks with an
addition of at least two million phone lines and better-trained
staff. That will greatly help improve the overall capability of
Telkom to compete with other international telecommunications
carriers when the services sector opens up to free trade under
the World Trade Organization.