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Indonesian telecoms boom lures
neighbors
By Bill Guerin
JAKARTA - Indonesia is the fastest-growing
mobile-telephone market in the Asia-Pacific region, with
its 2002 market share exceeding 25 percent and 2003
growth projected to be twice as high with a market share
exceeding 40 percent.
Main mobile-phone
operators in Jakarta are planning to invest some US$1
billion this year to expand their networks to meet the
surge in demand. Some of the spoils, however, may go to
corporate raiders from two neighboring countries to the
north.
The rush for a share of the market by the
top five, PT Telkomsel, PT Satelindo, PT Excelcomindo
Pratama, PT Natrindo and PT Indosat MultiMedia Mobile
(IM3), has caught the attention of Singapore and
Malaysia, whose small markets have reached capacity.
Though Indonesia has the lowest per capita ratio
of cellular subscribers among Southeast Asian countries,
the numbers and the potential are the attraction.
Cellular service was virtually non-existent in 1998,
used by only 0.5 percent of the population, with usage
concentrated in Jakarta. With the dire economic straits
brought on by the 1997 financial crisis the primary
barrier to entry then was the cost of the handset,
ranging from $225 to $1,100.
However, this has
changed dramatically. The number of mobile users has
grown at double-digit rates during the past few years,
and by the end of last year had reached almost 12
million users, up from 6.57 million the year before, and
well up on the projected 8 million for 2002.
This month Telekom Malaysia Bhd, Malaysia's
biggest phone company, announced it would bid for
Indonesia's third-largest cellular-phone operator, PT
Excelcomindo Pratama (Excelcomindo), which plans to
offer shares in the near future.
Acquiring
Excelcomindo, which has 1.8 million subscribers, would
give Telekom access to a market where a growing
proportion of a population exceeding 200 million owns a
mobile phone, against a third of the 24 million in its
home base.
Regional analysts warn that the foray
into neighboring Indonesia may take management's eyes
off the ball in the local market notwithstanding the
higher growth in subscribers that would result from
buying its way into Indonesia's fast-growing market.
Telekom Malaysia is busy at home merging its
mobile-phone unit with Celcom Malaysia Bhd, which will
drive it ahead of current market leader, Malaysia's
largest mobile company, Maxis Communications Bhd, which
holds a 40 percent market share. Malaysian Minister of
Energy, Communications and Multimedia Leo Moggie said
mobile penetration is 31 percent (7 million customers),
compared with 19.6 percent (4.7 million customers) for
fixed-line services.
Despite throwing the sector
open to competition in the early 1990s, incumbent
operator Telekom Malaysia still holds 95 percent of the
fixed-line market. The number of operators has fallen
from 10 to five, which, with the exception of Telekom
Malaysia, offer mainly cellular-phone services.
Malaysia, with a market of 23 million people had 8.3
million mobile subscribers at the end of last year.
Jakarta last week also announced plans to divest
its stake in Telkomsel, Indonesia's largest mobile-phone
company, through an initial public offering (IPO) in
September or October. The proposed size of the stake is
unclear as the government holding is not direct but
through its 51 percent ownership of PT Telekomunikasi
Indonesia (Telkom), the country's largest
telecommunications company,
Telkom owns 65
percent of Telkomsel, which it bought last year under a
landmark deal with Indosat to end cross holdings in the
telecommunications sector. Indosat then gained control
of No 2 cellular company Satelindo, while Telkom gained
control of Telkomsel.
Both companies were
quickly re-rated by analysts, and the value in the
cellular phone area that was previously hidden by their
cross-shareholding structure was freed up, hence the
ensuing interest from investors in Malaysia and
Singapore who were wired in to what happens in Jakarta.
Though Singapore flatly denies any designs on
monopolizing Indonesia's cellular phone business the
government-owned Temasek holding company controls both
Telemedia and Singapore Telecommunications Ltd
(SingTel).
SingTel, Southeast Asia's biggest
phone company, spent about $8 billion on investments
last year to build a regional telecommunications
network, amid the phenomenon of some of its rivals
writing down the value of purchases made at the height
of the earlier takeover fever.
Though analysts
have been skeptical about SingTel's regional expansion
strategy, as promised earnings fell far short of
matching acquisition costs, Singapore-government owned
companies paid more $1.7 billion over the past year and
a half to buy stakes in the Indonesia's No 1 and No 2
mobile-phone companies.
Temasek owns 35 percent
of PT Telekomunikasi Seluler (Telkomsel), the
cellular-phone subsidiary of Telkom that now dominates
more than 50 percent of the Indonesian mobile phone
market, with the remaining 65 percent held by Telkom.
Telekom Malaysia missed out in December on a
chance to buy into Indosat, the owner of the country's
second-largest mobile-phone company, when Jakarta
divested almost 42 percent of its stake in Indosat. ST
Telemedia, a subsidiary of Singapore Technologies, paid
Rp5.6 trillion ($653 million). The Indonesian government
still holds 15 percent.
Indosat's controlling
ownership of Satelindo was what prompted Telemedia to
pay a hefty premium price for its 41.9 percent shares
and also motivated Indosat to buy back Deutsche Telekom
AG's 25 percent stake in Indosat at $325 million earlier
last year.
Telemedia's alliance with Indosat is
also strategic as the Singapore company has majority
control of StarHub Pte Ltd, the third-largest
mobile-phone company in Singapore.
Telecom
analysts, though, believe it unlikely Indosat will be
ready to go after Telkomsel's share in the near future.
"We do not believe ST Telemedia is ready to
further dilute the Indonesian government's stake in
Indosat by launching a rights issue, especially since
its presence is being scrutinized by certain
nationalistic groups in Indonesia," noted a Merrill
Lynch analyst, underscoring the aftermath of the deal
which is now the subject of a lawsuit filed by 57
prominent politicians and religious leaders, cheered on
by state-owned enterprises workers and Indosat
employees, who have found enough common ground to join
hands and launch a class-action lawsuit aimed at
annulling the Indosat divestment.
The lawsuit
accuses the government of abusing its mandate from the
people and specifies countless laws that were
transgressed by the transaction.
SingTel last
year paid $429 million to increase its stake in
Telkomsel to 35 percent by buying a further 12.7 percent
from Telkomsel's parent Telkom, six months after it
bought out Royal KPN NV's 22.3 percent stake in
Telkomsel for $602 million.
Indonesia's
mobile-phone market has seen an average annual rate of
growth of more than 60 percent since 1998, with analysts
predicting strong growth prospects of some 30 percent
per year over the next five years.
Unlike in the
West, Southeast Asia and Asia as a whole are still in
the very early stages of deregulation and
liberalization, and major telecommunication companies in
the region, with the exception of those in Indonesia
itself, want to become pan-Asian operators. The
sustained bull market for Asia's mobile-phone industry
resulted in a frenzy of takeovers in the region in 1999
and 2000 because of tough competition in the
increasingly deregulated markets of the West.
In
the mobile-phone market, 17 Asia-Pacific countries are
now open to competition, up from eight in 1992.
There are other good reasons Singapore looks
farther afield. Though about 73 percent of Singapore's 4
million population own a cell phone, the competition is
so intense there is scarcely room to expand and, with
barely 3 million subscribers, saturation has been
reached, at least as far as mobile-phone-service
customers are concerned.
Mobile-phone operators
using the global system for mobile communication (GSM)
have gained 95 percent of the cellular-phone market in
Indonesia.
In July 2002, less than a year after
starting an operation on the island, Richard Branson's
UK-based Virgin Group pulled out of its joint-venture
mobile telecommunications network with SingTel.
Jonathan Marchbank, Virgin Mobile Singapore
managing director, described the feeling at the time.
"The Singapore mobile market is one of the region's
smallest and most mature - with a large number of
existing players relative to its population and very
little growth; as a new operator, we're feeling the full
impact from operating in a competitive environment
aggravated by the prolonged economic downturn,"
Marchbank said.
These main operators have plenty
of cash, but some will plump for the certain success of
floating shares on the stock market to raise fresh
funds.
Prospects are bright. Indonesian Cellular
Phone Operators Association (ATSI) chairman Rudiantara
predicts that the number of users will grow by about 55
percent this year, though he warns of a slowdown in
revenue growth because of the decreased purchasing power
of the public following the increase in living costs
occasioned by hikes in electricity tariffs, fuel prices,
and fixed-line telephone tariffs earlier in the year.
Nonetheless, he believes that cellular-sector
revenue could reach Rp20 trillion this year, some 60
percent of the projected earnings for the country's
telecommunications industry.
Voice services
contribute some 87 percent of total revenues, and
Rudiantara expects revenue from non-voice services,
mainly SMS (short message service), will increase by 50
percent this year and contribute some 20 percent to
mobile-service revenue.
Indonesia needs to
expand telecommunications networks throughout the
country. Foreign expertise, capital and technology are
needed to make the underdeveloped industry competitive.
The enactment of Law No 52 in 2000 literally
threw open the telecommunications sector to all comers.
The new law opened basic services to majority foreign
ownership and ended the monopoly of state-owned telecom
companies, but not until 2004. Telkom is allowed to
maintain its control of local fixed lines nationwide up
until 2010 and domestic long-distance services until
2005. Indosat lost its monopoly on international calls.
Cash-rich Singaporean corporates needing to
expand beyond their land limits have helped Indonesia
considerably over the past few years.
Should
Jakarta now succeed in developing an efficient
telecommunications industry following the liberalization
of the sector it would go a long way to attract other
strategic foreign investments and would have a positive
knock-on effect for the whole economy.
The
Indosat sale was good news indeed for Indonesia,
representing the biggest sale of a state company to a
foreign investor since the economic crisis hit in 1997
and also enabling Jakarta to claim success for its
stalled privatization program.
Last year, thanks
to the Singaporean money, a total of Rp8.02 trillion was
collected from privatization, much greater than the
Rp6.5 trillion target set for the year.
The jury
is still out though on whether the much-heralded
"injection of Singaporean talent at the top", as one
Singaporean journal said about the Indosat deal, will
bring most benefits to Indonesia or to Singapore.
(©2003 Asia Times Online Co, Ltd. All rights
reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
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