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.