Telecom industry needs more foreign players

Vincent Lingga, The Jakarta Post, Jakarta

Five years after the conclusion of what was then dubbed a strategic deal that would help restore foreign investor confidence in Indonesia, the almost 42 percent Singapore shareholding in PT Indosat is still being whipped up by narrow-minded nationalists as a subterfuge to advance the vested interests of several businesspeople.

The issue of foreign ownership in Indonesian companies such as PT Indosat, PT Telkomsel and PT Excelcomindo surfaced again at a seminar on the future of the Indonesian telecommunications industry at the Centre for Strategic and International Studies (CSIS) here last week.

Last year, several trade unions at state companies issued a demand urging the government to buy back Indosat shares from Singapore Technologies Telemedia Pte (STT), expressing fears that Singapore interests would control the country's telecommunications industry, notably its mobile phone business.

There had reportedly been a tacit agreement between the government and the House of Representatives that the government would buy back STT's shares in Indosat.

However, several analysts suspected it was in the vested interests of several national businesspeople who had been eyeing the STT stake in Indosat.

Some misguided politicians at the House have naively trumpeted the fear that Singapore's presence at Indosat could threaten Indonesia's security as the island republic could easily access various data banks and the information system in the country.

Whipping up such an inordinate fear shows either a total misunderstanding about the telecommunications industry or is simply a blatant subterfuge to mislead the general public into an emotional opposition to foreign ownership of telecommunications companies.

Questioning the business and economic rationale of the STT-Indosat deal that was concluded in late 2002 is nothing but simply an attempt to whip up narrow-minded nationalist sentiments at the expense of our telecommunications industry.

Just a flashback to the STT-Indosat share transaction in 2002:

When the then cash-strapped government offered the then debt-ridden, state-owned Indosat to buyers through an international competitive bid, the mobile phone business of Indosat subsidiary PT Satelindo had been steadily losing its market share to PT Telkomsel, a subsidiary of state-owned PT Telkom.

Indosat's former core business as the mandated monopoly provider of international call services had increasingly been taken away by other much cheaper alternative communications means such as chatting facilities and Voice Over Internet Protocol. Worse still, the market share of Indosat's satellite service had been eroded by other satellites orbiting in Asia's outer space.

On the other hand, STT has been advancing as a global communications service provider, which offers a wide variety of services including fixed and mobile telephony, e-commerce solutions and services, paging, mobile-data communications, digital mobile communications network, satellite services.

It was then crystal clear that business and macroeconomic wise, STT's entry to Indosat as a major shareholder would ensure Indosat's survival in the highly-competitive and capital and technology-intensive telecommunications industry.

Put another way, STT brought a strong synergy to Indosat.

Indosat has since 2002 had a wide access to STT expertise and modern technology that is quite vital for the further development and competitiveness of Indonesia's telecommunications services. All this can now be seen in the dramatic growth Indosat has made over the past four years.

Yet most important, STT's presence at Indosat not only jump-started the modernization of Indonesia's telecommunications industry but also injected keener market competition to state-controlled PT Telkom, the country's largest telecommunications company.

True, the Singapore government-owned Temasek controls both STT and SingTel, which owns 35 percent of PT Telkomsel, the cellular phone subsidiary of Telkom. Indosat in turn controls PT Satelindo, the second largest mobile phone company after Telkomsel.

But it is inordinately irrational to allege that the STT-Indosat alliance would lead to a monopoly of the cellular phone business. There are too many players and too many choices of technology in this business to allow for a monopoly now. There is enough room for many players because the cellular phone market, though the fastest growing segment of the industry, is still very young in Indonesia.

An efficient telecommunications industry is key to economic development and a vital infrastructure, especially in a vast archipelago country as Indonesia.

Instead of buying back shares from foreign investors -- which means capital flight -- the government should invest in other basic infrastructures, which are less attractive to private investors such as water, ports, airports and roads.

Certainly, there is not any ban on Indonesian private investors buying Indosat shares or other telecommunications companies. They are free to buy the stocks, but at market prices. Both Indosat and Telkom are listed in Jakarta, New York and London.

But the blunt fact is Indonesia's telecommunications industry is still much less developed than those in other Southeast Asian countries. We therefore need easy access to foreign expertise, capital and technology to make the industry competitive and to expand telecommunications networks throughout the country.

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