Telcos could afford to cut charges, says study

Andi Haswidi, The Jakarta Post, Jakarta

Research by Bandung's Padjadjaran University (Unpad) on the mobile telecommunications industry has found cell phone operators' high earnings mean they could afford to lower their charges.

At present, industry players boast an average EBITDA (earning before interest, taxes, depreciation and amortization) of more than 60 percent, according to Ina Primiana, the head of Unpad's Economic Faculty Management Laboratory (LMFE).

"Seen from revenue, Telkomsel gained Rp 20 trillion (about US$2.2 billion) in 2006, or about 63.15 percent of the total market share, and that has translated into an EBITDA of roughly 60 to 75 percent.

"This means that the investment cost was fairly small," Ina Primiana said in a seminar held last week by the Centre for Strategic and International Studies (CSIS).

"Since half the EBITDA was profit there is clearly still plenty of room for lower charges," Ina said.

The research was carried out from April to July, following research on the same topic by the University of Indonesia's Institute for Economic and Social Research (LPEM-UI).

The earlier report found there was a possibility that some industry players were involved in price fixing.

As the second largest market shareholder, with total revenue of Rp 8.87 trillion, Indosat was found to have an EBITDA of Rp 5 trillion over the same period, followed by Exelcomindo (XL) with total revenue of Rp 3.33 trillion and an EBITDA of Rp 1.87 trillion.

All operators, the research said, have made modest adjustments to their charges between 2002 and 2007.

"The biggest was by XL and the smallest was by Telkomsel, despite it having the most subscribers in the market," Ina explained.

The research found that the change to rates for calls outside each network (off net) from 2002 to 2007 had dropped by 20.59 percent for XL, 8.56 percent for Indosat and 2.52 percent for Telkomsel.

Commenting on average charges in Indonesia, the second highest in Asia, Ina said international comparisons were difficult because each country had a different cost structure.

LPEM-UI chairman Chatib Basri agreed, saying that cost structures were difficult to compare because of their complexity.

"I am familiar with other research that says, compared to other countries in South Asia, our (charges) are very high. But I think the matter is not as simple as that, since we have to measure the cost structure and the economic scale," he said.

Chatib said the research did not suggest price fixing by industry players, despite the suggestion in some media reports.

"The executive summary of our research clearly says that similarities in charge patterns provided by operators cannot always be seen as an indication of price fixing," he said.

"An independent and unilateral price adjustment as a response to tariff adjustments by competitors cannot be seen as violating the antitrust law, even in the U.S.," Chatib concluded.
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