Telecom tangle for Singapore's
Temasek By Bill Guerin
JAKARTA - The recent decision of
Indonesia's anti-monopoly watchdog to sanction and
fine Singapore state-owned investment vehicle
Temasek Holdings for breaking local competition
laws has sparked new foreign investor concerns and
marks another setback for the Singaporean
government’s regional investment drive.
The Business Competition Supervisory
Commission (KPPU) on Monday ordered Temasek to
sell off its stake in either of Indonesia's two
largest mobile-phone companies - Telkomsel and
Indosat - claiming its
cross-ownership in both had enabled it to fix
prices and monopolize the market.
Telkomsel and Indosat together account for
75% of Indonesia's 80 million mobile users,
leaving eight other operators in the country's
fast growing telecoms sector battling for a mere
25% of the market. Apart from its role in
formulating and implementing industry regulations,
the KPPU investigates suspected violations of the
competition law and can issue binding decisions
and impose sanctions on ruled transgressions.
The regulatory body also said it would
fine Temasek and its eight telecommunication units
Rp25 billion (US$2.7 million) each for breaching
the competition law, under which a foreign company
or business group is barred from owning more than
50% of a local telecommunications operation.
Temasek has moved to challenge the decision
through an appeal, claiming that through
complicated shareholdings its ownership does not
transcend the law’s 50% limit.
Cash-rich
Singapore, looking to transcend the growth
limitations of the island state by seeking
opportunities elsewhere, particularly in Asian
financial and service companies, has with various
investments in recent years helped to pump up the
Indonesian economy. The latest clash over foreign
ownership of local assets casts a cloud over the
future of Singaporean capital commitments to the
country. Temasek warned before Monday's ruling
that any "flawed decision" would severely tarnish
Indonesia's reputation as an investment
destination.
Still, the decision marks the
latest setback for Singapore’s regional "Look
East" investment drive. Temasek became entangled
in Thailand’s political conflicts when in 2006 it
purchased a majority stake in then prime minister
Thaksin Shinawatra’s family-owned Shin
Corporation, a communications conglomerate. That
investment experienced a severe share price
decline after the military seized power later in
the year and de facto nationalized one of Shin’s
subsidiaries, iTV. The military government at one
point threatened to revoke the operating
concessions of Shin’s mobile telephone and
satellite subsidiaries. Temasek faced similar
competition law troubles in Malaysia last year
when it moved to purchase shares in a handful of
Malaysian financial institutions. Singapore Prime
Minister Lee Hsien Loong, the son of national
founder Lee Kuan Yew, previously headed Temasek
when he served as a deputy prime minister. The
investment vehicle now controls over US$100
billion in state investments and is headed by the
junior Lee’s wife, Ho Ching. Those holdings
include a 67% stake in Singapore
Telecommunications (SingTel) and 100% ownership of
Singapore Technologies.
In January 2002,
ST Telemedia, a subsidiary of Singapore
Technologies, bought a 41.94% stake in Indosat,
Indonesia's satellite-telecommunications company,
from the Indonesian government for US$650 million.
In 2003, SingTel paid US$1billion for a 35% stake
in Indonesia's leading mobile-phone operator,
Telkomsel.
According to the latest
shareholding structure, 40% of Indosat shares are
held by Asia Mobile Holdings, which in turn is 75%
owned by ST Telemedia and 25% by Qatar Telecom. So
it would appear that ST Telemedia holds only 30%
of Indosat’s shares, far from a majority. And even
if Temasek's indirect 30.6% ownership of Indosat
and its 18.9% stake in Telkomsel were combined,
its total share ownership in the sector is less
than 50% and hence apparently within the
competition law’s limits.
Moving
goalposts Back in 2002, the Indosat sale
was good news for Indonesia, representing at the
time the biggest sale of a major stake in a
state-owned company to a foreign investor since
the 1997-98 Asian financial crisis. The government
had invited more than 40 parties to bid on the
stake, including Australia's Telstra, British
Telecom, France Telecom's mobile unit Orange SA,
Hutchison Whampoa, Telekom Malaysia, as well as
SingTel. Of those, 16 companies had expressed
interest in the stake as of September 2002.
That was before the infamous Bali bombing,
Indonesia's biggest terrorist attack, which killed
202 people, mostly foreign tourists. By December
2002, only two foreign investors had submitted
formal bids. In the end, Telekom Malaysia, which
now holds almost 70% of Indonesia's third-largest
mobile-telecom operator, PT Excelcomindo Pratama,
lost out to ST Telemedia. Against all market
expectations, given Indonesia’s dismal economic
and political outlook at the time, the Singaporean
company paid a premium of more than 50% over the
market value for the Indosat stake.
ST
Telemedia clearly sensed an opportunity where
others saw a black hole. In 2000, the enactment of
Indonesia’s Law No 52 threw open the previously
closed telecommunications sector to foreign
investors by opening basic services to majority
foreign ownership and ending the monopoly of
state-owned telecom companies. It was reportedly
Indosat's controlling ownership of Satelindo, the
mobile-phone unit, that prompted ST Telemedia to
pay the hefty premium price and it later motivated
Indosat to buy back Deutsche Telekom AG's 25%
stake in Indosat at US$325 million a year earlier.
Jakarta had hoped liberalization would
help the country to develop a more efficient
telecommunications industry and attract other
strategic foreign investments that would have a
positive knock-on effect on the broad economy.
Meanwhile, regional telecom companies from
Singapore and Malaysia were attracted by the
market’s high growth potential at a time when
their respective domestic markets had approached
saturation. Indonesia still has one of the lowest
per capita ratios of mobile-phone subscribers
among Southeast Asian countries, although the
sector is now growing rapidly and expected to
reach 100 million users by 2010.
Singapore's Media Corporation, 100 % owned
by Temasek, described Monday's KPPU decision as a
"foregone conclusion that had left political
watchers, businessmen and international investors
shaking their heads over the unpredictable nature
of doing business in Indonesia".
The
decision inconveniently comes as President Susilo
Bambang Yudhoyono’s pro-business government’s
foreign investment promotion drive was starting to
pay dividends. Approved investment applications
have so far this year approached record levels,
soaring by 177% to a record US$36.75 billion
during the first 10 months of this year, compared
with US$13.29 billion over the same period last
year. Domestic investment in the same period
totaled US$19.51 billion, compared with US$15.96
billion for the same period in 2006.
State-owned new agency Antara reported
communications and information minister Muhammad
Nuh saying just hours before the decision was
announced that the government would not interfere
in the Temasek case – and apparently it did not.
Syamsul Maarif, chairman of the KPPU panel in
charge of the case, during the three hour reading
of the decision, said that "Temasek and its
affiliates, or the so-called the 'Temasek Business
Group', are legally and convincingly proven to
have violated Article 27 of the anti-monopoly
law."
Temasek has already said it will
appeal the ruling within 14 days through a
district court in Jakarta, which by law will have
30 days to make a final ruling. The appeal will
apparently be made on the legal argument that the
KPPU has no jurisdiction over Temasek as the
company is not based in Indonesia. The Singapore
company has also countered that its ownership does
not restrict competition because the Indonesian
government has majority stakes in both companies
and also that the Temasek Business Group referred
to by the KPPU does not exist.
Meanwhile,
Todung Mulya Lubis, Temasek's Jakarta-based
lawyer, has said that the KPPU had produced no
evidence of any market distortions caused by the
Temasek-invested telecom companies - let alone any
proof of anti-competitive conduct. Nor does
Temasek have majority ownership of either of the
two telecom concerns, lawyer Frans Winarta, a
member of the National Legal Commission, pointed
out while the KPPU’s probe was underway.
Yet earlier this year, Drajad Wibowo, a
member of the parliamentary budget commission,
warned that foreign dominance in the national
telecommunication industry could have dangerous
national security implications and urged the
government to buy back Temasek's Indosat shares.
Bakrie Telcom, the politically connected telecom
concern owned by the family business group of
Coordinating Minister for Welfare Aburizal Bakrie,
would likely benefit from any forced sale that
ensues from a final appeal ruling that goes
against Temasek, industry analysts predict.
Earlier this year the government
controversially granted Bakrie Telecom a license
to operate nationally, expanding on an original
concession that restricted it to the main island
of Java. While a court ruling that forces Temasek
to sell down its Indosat and Telkomsel stakes and
allows Bakrie to buy in would help that company’s
competitive prospects, it would also come at the
expense of Indonesia’s only recently revived
reputation as a safe foreign investment
destination.
Bill Guerin, a
Jakarta correspondent for Asia Times Online since
2000, has been in Indonesia for more than 20
years, mostly in journalism and editorial
positions. He specializes in Indonesian political,
business and economic analysis, and hosts a weekly
television political talk show, Face to Face,
broadcast on two Indonesia-based satellite
channels. He can be reached at
softsell@prima.net.id
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