Double Trouble

IN the coming weeks Nawir Messi will be very busy. This member of the Business Competition Supervisory Commission (KPPU) will start questioning a number of individuals suspected of unsound business practices in the cellular telephone industry. “We’ve decided to summons them,” he said Wednesday last week.

 

Those mentioned are names familiar to businessmen in communications, specifically cellphones—Temasek, Telkomsel and Indosat. Nawir Messi himself is appointed as the head of the team examining the monopoly case of the giant communications business.

 

The KPPU is indeed looking into the suspected violation of Law No. 5/1999 (banning monopoly and unhealthy business competition) by Temasek Holdings for double ownership of shares in Telkomsel and Indosat. Meanwhile, Telkomsel is under investigation because of its dominance over the market.

 

The case surfaced after the United State-Owned Enterprises Labor Union on October 18 last year lodged a complaint about a possible bidding conspiracy in the Indosat network development project in 2004 and 2005.

 

To verify the report, the Labor Union submitted additional data a month later. In the document submitted on November 17, 2006, the Union also questioned the monopoly practices of Telkomsel and Indosat. Instead of competing, both, according to the Union, made a deal on tariff uniformity.

 

To strengthen the argument, they submitted additional data on the origin of Temasek’s stock ownership in Indosat and Telkomsel. Temasek holds 41.9 percent of shares in Indosat through the subsidiary of STT Communication, i.e. Indonesian Communication Ltd. One hundred percent of STT Communication shares is held by Singapore Technologies Telemedia (STT). So, Temasek holds 100 percent of the shares in STT.

 

In Telkomsel, Temasek possesses 35 percent of the shares through Singapore Telecom Mobil Pte Ltd. This company belongs 100 percent to Singapore Telecommunication Limited (Singtel). In Singtel, Temasek holds majority stock, 56 percent. Under such a composition of ownership, the Union views Temasek as being the virtual king of the cellphone business in Indonesia, since Indosat and Telkomsel control some 80 percent of the cellular markets.

 

The Labor Union reinforced the report by subsequent submission of additional documents on December 22, 2006. However, the year 2006 having passed, the process of its investigation was not clear. Finally the Union revoked the report on April 2, 2007. According to the Union’s attorney, Habiburrohman, a final decision over the report should have been made last February. “The team was formed last April 9,” said Habiburrohman. Another reason: “Following our scrutiny, our suspicion is not proven,” said Union head Arief Poyuono.

 

Based on the scrutiny, said Arief, it turns out that Temasek cannot be said to have full control of the cellphone markets despite its share ownership in Indosat and Telkomsel. Temasek controls only 30 percent of the cell markets in Indonesia.

 

In addition, said Arief, the revocation was also due to the fact that the Union felt that some people were taking advantage of this issue. “The aim is to make STT uncomfortable and sell its shares.” The decision to withdraw the complaint, he said, was made by the Union presidium meeting in Bandung on March 29, 2007.

 

According to Arief, there would be danger if the shares were sold. “They are most likely to fall into foreign hands again, as the government has no funds,” he said, referring to the government’s plan to sell some 15 SOEs. When released to Temasek through Indonesian Communication Ltd, 41.9 percent of the Indosat shares were then worth Rp5.6 trillion.

 

As for the KPPU, the revocation of the complaint does not stop the case completely. According to Nawir, the process within the KPPU is different from a civil case. “Even without the report, we can still look into the matter,” he said.

 

It turns out that the KPPU has been monitoring the monopoly over the cell markets over the past five years. Following the process of verification, early in last April, the KPPU held a meeting. “The result is, there’s great suspicion of violation of Law No. 5/1999 committed by Temasek and Telkomsel,” said Nawir. “Therefore, we are doing the probe not purely because of the Labor Union’s report.”

 

Based on the KPPU’s initial data, Temasek is suspected of having violated the rules on double ownership in Telkomsel and Indosat. Article 27 of the Law on Prohibition of Monopoly forbids businessmen from holding majority shares in several companies engaged in the same line of business.

 

As for Telkomsel, this company is thought to have violated the clause concerning monopoly and dominance in the cell markets. Articles 17 and 25 are violated. These articles state that entrepreneurs must not control over 50 percent of production or the markets.

 

According to Dita Wiradiputra, Executive Director of the Institute for Studies of Business Policy and Competition of the University of Indonesia School of Law, the Law on Prohibition of Monopoly does ban double ownership of shares. “So, if the KPPU simply adheres to the articles, the perpetrator of double ownership is bound to be declared guilty,” said Dita.

 

Nonetheless, Dita is critical. According to her, double ownership should be banned in a sector with a limited number of businessmen. If there are many players, it could be permissible. In addition, there is need for an explanation of possible effects arising from double ownership. “This needs to be taken into consideration by the KPPU so that the investment climate is not disturbed.”

 

In the case of Temasek, said Di­ta, the KPPU should be able to prove that dual ownership renders Indosat and Telkomsel­ unable to compete sound­ly. According to Dita, there are already indications of monopoly in, among others, the prices set by Indosat and Telkomsel. “Whereas­ both have a dif­ferent cost structure,” she said. “Because, under healthy competition, the tariffs for a phone conversation could be lower.”

 

For Telkomsel, said Dita, the KPPU should prove that this company uses its dominant position. She said that the prevailing assumption so far was that controlling over 50 percent of the cell market share, Telkomsel is controlling the markets. As a result, its competitors will not dare fix tariffs beyond its tolerance. “Because, as a major operator, the company can drastically lower the prices, thus killing other operators,” said Dita.

 

The Singapore-based Temasek Holdings refused to comment on the KPPU probe. “That’s the business of Singtel and STT to give a response. Temasek is not directly responsible for the business and operational decisions of the companies,” said Serena Khoo, Director of Temasek Corporate Affairs.

 

As regards its business on the agenda of the KPPU meetings, Telkomsel chose not to make much comment. However, to Tempo, Telkomsel Corporate Communication head Azis Fuedi affirmed that his company had not practiced monopoly by using its dominant position. “Our aim is not monopoly,” said Azis. Even if his company controls over 50 percent of the cell markets, he said, it is merely because they have a new technology with a more extensive scope. Todung Mulya Lubis, the attorney of Singapore Technologies Telemedia, also chose not to comment on the KPPU probe. “I don’t want to make comments yet,” said Lubis.

 

Harsh punishment will befall Temasek’s companies if the suspected monopoly is proven. According to KPPU Chairman Mohammad Iqbal, if the KPPU is able to prove the existence of monopolistic practices, it will order Temasek to sell its entire stock in either one of the telecommunications companies. “It’s up to them whether they want to sell the shares of Telkomsel or Indosat,” he said. According to Iqbal, only in this way will healthy competition grow.

 

Abdul Manan, Riky Ferdianto

 

Tempo Magazine, No. 35/VII/May 01 – 07, 2007

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