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 The KPPU’s findings prove that Temasek Holdings violated anti-monopoly regulations in the cellphone business.

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AFTER a period of five years, Temasek’s business empire in Indonesia’s cellular industry has started to appear a little shaky. This is because of the Business Competition Supervisory Commission (KPPU) having stated that Temasek’s ownership of shares in both Telkomsel and Indosat violates the Anti-Monopoly State Decree. This decision from the agency, which has its offices in the Central Jakarta district of Harmoni, was in fact already signed off at the end of September, but only leaked to the media two weeks ago. As a result of this monopoly, Indonesian cellphone customers have lost Rp35 trillion between 2003 and 2006.

This is certainly a severe blow for this company owned by the Government of Singapore. Since 2002, when Singapore Technologies Telemedia (STT)—a subsidiary company of Temasek—purchased a 41.9 percent share in PT Indosat from the Government of Indonesia, Temasek has really had a quiet and calm time in Indonesia’s cellular telephone industry. The fact that Temasek also owns a 35 percent share in PT Telkomsel through Singapore Telecommunications Ltd (SingTel), has not caused any stir whatsoever. Several groups did question the sale of shares in Indosat because of the satellite business owned by Indonesia’s second-largest telecommunications business.

However, everything changed in May this year when the Employers Union of State-Owned Enterprises (SOEs) reported that there were indications of monopolistic practices in the cellular services business by Temasek through cross-ownership. Even though this report was later withdrawn, the KPPU continued its investigation because it involved public interests. In addition, the results of the follow-up investigation strengthened suspicions that the Anti-Monopoly State Decree had been violated. Now this case is under review by the KPPU Council and a decision will be handed down mid-November.

In investigating this case, the KPPU has certainly not been playing around. Many people have already been summoned, including several from Temasek as well as from its subsidiary companies. No less than 10 piles of cardboard boxes containing documents have been examined, one by one. Data and materials on the Internet have also been examined.

From May to September the KPPU team has worked marathon-style. Even Nawir Messi, head of the KPPU follow-up investigation team, seems not to have paid much attention to his bad medical condition. Even though he is ill with heart and liver problems, Nawir has worked hard to finish this case.

So that the findings can be held fully accountable, the team did not just gather up evidence. It also made use of several international scientific methods and analysis in measuring business competition. One of these, the Parker and Roller evaluation method from the US, is normally used to measure telecommunications business competition from the point of view of cross-ownership.

Maybe because cellular telephone services are an easy business worth trillions of rupiah, it would not be improper to refer to this case as being like a gold mine. The actual implementation of the investigation has seemed to be somewhat rapid, both within and outside the KPPU. The opinions of several observers in the media have also warmed up the situation. In addition, the arrival of Altimo, the Russian investment giant that is interested in purchasing Indosat shares, is also said to have really started heating things up.

Inside the KPPU itself, the investigation of this case has led to dissension. The members of the investigation team don’t all feel the same, something that happens very rarely indeed. However, as regards this case, Benny Pasaribu is the only member of the team who is of a different opinion. Having heard and reviewed much legal data and materials, Benny said that he has not come across any violations of the Anti-Monopoly State Decree.

However, Benny’s attitude itself has given rise to some suspicion, especially bearing in mind that he is not only a former member of the House of Representatives (DPR) from the Indonesian Democratic Party of Struggle faction but also a colleague of Laksamana Sukardi, a former SOEs State Minister. When the Indosat shares were sold in 2002, Laksamana was the SOEs Minister. However, when asked for confirmation, Benny answered: “This is too intertwined and tendentious.”

Benny is concerned that there is a plot behind the KPPU findings. He sees this as a bad precedent because it’s as if the investigation process has gone off the rails. This former Deputy to the SOEs Minister for the Telecommunications Sector cited that KPPU Chairman Mohammad Iqbal had often spoken to the public as if the findings had already become law. This is despite the fact that the KPPU Council will only hand down its decision in November.

What is also odd is why both Benny and Nawir Messi have been pushed aside in midstream. Neither of them has been appointed to the five-person KPPU Council team, and they actually have been replaced by Erwin Syahril and Syamsul Maarif. Benny was surprised at being pushed out. “What’s so important that I have to be replaced?” he asked.

However, according to a Tempo source, they were both replaced in order to avoid any conflicts of interest. Benny is considered to be pro-Temasek, while Nawir, who is a former Director of the Indonesian Institute for Economic & Financial Development (Indef), is also considered not to be neutral. However, when asked for confirmation of this, Nawir acknowledged not being replaced. “I withdrew because of my illnesses,” he said.

Iqbal acknowledged that there were differences of opinion within the investigation team. However, according to him, this was quite proper because there have been similar occurrences at the Attorney General’s Office as well as at the Supreme Court. When accused that he as chairman had a special mission, he avoided answering by saying: “It is clear that our work is based on facts.”

The animated atmosphere outside the commission is no less fierce. KPPU member Erwin Syahril was surprised at the amount of discussions and opinions being made apparent outside of the commission. He said he suspected that several outside opinions were connected to certain interests.

Ever since the Indef think tank released its review of monopoly practices by Temasek in May of this year, the Center for Strategic & International Studies (CSIS) held a discussion that rejected there having been any monopolistic practices. “Temasek does not control majority shares in Indosat and Telkomsel,” said CSIS economist Pande Raja Silalahi on one occasion.

And it seems as if it’s not just economists who are being kept busy because of this case. Members of the communication team from STT Singapore have also made hasty visits to Jakarta during the last few months. They have spoken with members of the press on less than three occasions, all saying basically the same, that Temasek has not violated the Anti-Monopoly State Decree. This week the STT team will once again visit the KPPU in order to lodge a complaint.

However, the findings of the KPPU cannot be considered lightly, especially bearing in mind that the investigation results have been astonishing. In a leaked copy of the 113-page KPPU report obtained by Tempo, it is proved that the cross-ownership of Temasek has made it possible for the Singaporean investment company to be able to control Telkomsel and Indosat. This cross-ownership structure indicates the industry concentration and market domination by Telkomsel, while Indosat’s competitiveness has weakened.

According to facts gathered by the KPPU, Temasek has nomination rights for the boards of directors and commissioners as well as setting policy direction at these two largest cellular operators in Indonesia. At Telkomsel, it has passive control (the right to veto decisions made at general meetings of shareholders), while at Indosat it has active control.

As a result of this control, Singapore rules over Indonesia’s cellular services business. Indirectly, it controls more than 80 percent of cellphone users who now total 63.8 million customers. Last year, it had a 56 percent market share through Telkomsel and 26 percent through Indosat.

Ironically, this market domination that has been accompanied by a significant jump in the total amount of customers has not had a positive effect in terms of price reductions. Between 2002 and 2006, Telkomsel’s tariffs for connections to fixed-line telephones or to other cellular operators have increased continually. This phenomenon is a real invitation for the KPPU because there are indications there has been no competition in fighting for customers through price cuts.

In addition, the EBITDA—earnings before interest, taxation, depreciation and amortization—has rapidly increased from year to year. The KPPU is suspicious because cellular tariffs do not reflect this in terms of costs. “Proof of this is indicated by the fact that cellular tariffs in Indonesia are the most expensive when compared with other ASEAN member countries,” said Iqbal.

Unfortunately, Indosat, which it was hoped would become Telkomsel’s closest competitor, has in fact greatly weakened. According to the KPPU, this second largest cellular operator in Indonesia was late in expanding its network when it was being led by Keizeed, the deputy managing director appointed by Temasek. When this delay was reported by four members of the board of directors to commissioner Lee Teng Kiat in Singapore in December last year, there were no efforts made to replace him, nor any action taken whatsoever as regards the delay in the network expansion.

In spite of all this, the KPPU Council will hear objections from the accused parties. If their arguments are convincing, according to Erwin, then a decision could be made that is different to the findings. However, if Temasek is considered to be in violation of the Anti-Monopoly State Decree, then the consequence will be that it will have to release or reduce its shares in cellular operators.

However, it seems that Singapore will continue to resist. According to Kuan Kwee Jee, a Senior Vice President at STT, the company is not the majority shareholder at Indosat. In addition, Temasek and STT are two different institutions. Plus, there are no representatives from Temasek on the board of directors. “They have also not intervened,” he said.

If the KPPU does rule that there have been violations, then Temasek will submit an appeal to the Jakarta court. Until now, according to Kwee Jee, STT has not intended to release any shares because this was meant to be a long-term investment. The reason for this is that the business prospects in Indonesia are bright.

If the shares were to be sold off now, according to Trust Securities analyst Didi Kurniawan, it should be pointed out that Indosat’s market capitalization has already reached Rp39 trillion. This means that if the 41.9 percent shares were to be sold off, then they would fetch a minimum of Rp16.5 trillion, equivalent to US$1.8 billion. This is almost three times the US$627 million paid for the shares five years ago. “So, they have already made a large profit.” However, who would want to sell off the goose that’s laying golden eggs?