Anti-Monopoly Law in Indonesia
Do you ever wonder why it is cheaper to call from Singapore to Indonesia, than to call from Indonesia to Singapore? Indonesia has much more phone users, lower labour rate, but why is it more expensive? Better phone services and quality? ... I don't think so...
Let us consider a typical Indonesian worker wanting to choose which mobile provider to subscribe to. Assuming the coverage and service qualities of different providers are about the same, the worker will choose the one that is cheaper.
Now, let's assume a free market, where perfect competition exists. Any company will want to earn more money, and hence they can choose to increase their rate. But what will happen afterward? People will choose the other company which is cheaper. Of course, cannot continue to push down their price, because they need to have minimum profit to run the company. So, under perfect competition, the users will choose a company which is cheap, yet the company will not suffer.
Now, let's see the price of phone usage in Indonesia nowadays and compare to Singapore. The cost for a local sms in Indonesia is the same or more expensive than Singapore. The cost for mobile-to-mobile communication is much higher. Same thing for IDD call. A standard engineer in Singapore with average salary will be able to send more sms in Singapore, a country with high living standard, compared to an engineer in Indonesia. We arrived at the conclusion that the price to use mobile services in Indonesia is much higher than Singapore.
Let's just say, the price set in Indonesia is unfair. But why is there no competition from other company, to present a cheaper solution, yet still profitable?
The reason is very simple, there is no other company. Or I should have said, there is other company, but the other company is also owned, or largely controlled by the same person, who controlled the first company also. Worse still, the two company formed the majority marketshare, therefore other smaller companies need to follow suit in order to survive.
The current situation in Indonesia is exactly as what I have described. The mobile company A is largely owned by a huge company overseas (though I don't know why an overseas company could become the major stakeholder in the first place). The mobile company B is largely owned by another huge company overseas. Both huge companies overseas are under an umbrella of an even bigger company.
On the outside, it looked as if the mobile market is still in free competition. In reality, it is a monopoly. The issue was raised by some economists some times ago, and thankfully, under the Anti-Monopoly business law, the government finally probed into the issue and reached a verdict that the overseas company should be fined and release ownership of the stake of one of the company. The overseas company, of course, will deny that they are in the wrong, and even suggested that they will go for international court.
I hope that Indonesia Government will stand firm and the leaders will stand clean, meaning, leaving no chance for this overseas company to bribe their way out.
After all, telecommunication is such a vital and much profitable commodity of a nation, why sell it to overseas companies?
Let us consider a typical Indonesian worker wanting to choose which mobile provider to subscribe to. Assuming the coverage and service qualities of different providers are about the same, the worker will choose the one that is cheaper.
Now, let's assume a free market, where perfect competition exists. Any company will want to earn more money, and hence they can choose to increase their rate. But what will happen afterward? People will choose the other company which is cheaper. Of course, cannot continue to push down their price, because they need to have minimum profit to run the company. So, under perfect competition, the users will choose a company which is cheap, yet the company will not suffer.
Now, let's see the price of phone usage in Indonesia nowadays and compare to Singapore. The cost for a local sms in Indonesia is the same or more expensive than Singapore. The cost for mobile-to-mobile communication is much higher. Same thing for IDD call. A standard engineer in Singapore with average salary will be able to send more sms in Singapore, a country with high living standard, compared to an engineer in Indonesia. We arrived at the conclusion that the price to use mobile services in Indonesia is much higher than Singapore.
Let's just say, the price set in Indonesia is unfair. But why is there no competition from other company, to present a cheaper solution, yet still profitable?
The reason is very simple, there is no other company. Or I should have said, there is other company, but the other company is also owned, or largely controlled by the same person, who controlled the first company also. Worse still, the two company formed the majority marketshare, therefore other smaller companies need to follow suit in order to survive.
The current situation in Indonesia is exactly as what I have described. The mobile company A is largely owned by a huge company overseas (though I don't know why an overseas company could become the major stakeholder in the first place). The mobile company B is largely owned by another huge company overseas. Both huge companies overseas are under an umbrella of an even bigger company.
On the outside, it looked as if the mobile market is still in free competition. In reality, it is a monopoly. The issue was raised by some economists some times ago, and thankfully, under the Anti-Monopoly business law, the government finally probed into the issue and reached a verdict that the overseas company should be fined and release ownership of the stake of one of the company. The overseas company, of course, will deny that they are in the wrong, and even suggested that they will go for international court.
I hope that Indonesia Government will stand firm and the leaders will stand clean, meaning, leaving no chance for this overseas company to bribe their way out.
After all, telecommunication is such a vital and much profitable commodity of a nation, why sell it to overseas companies?
posted by Suhandy Yao Wei Xuan @ 11:17 pm
3 Comments:
At 5:45 pm ,
the_rabin said...
..but Su, you have completely ignore 3 absolutely important details:
1. the sale of company A and B were previously cleared by indonesian government.
(telco was out of reach for foreign investor, until privatisation started during Megawati's era)
if anything, now there are more players then the time of sale. which means.. if now A&B illegally monopolise the market.. it was even mroe so at the time of sale.
2. the indonesian government, although minority shareholder, controls the running of company A&B.
in company A they have Veto power, in company B they have golden share which gives them largest voting rights despite their smaller share.
3. Telco business, although privatised, is heavily regulated. In such a way that it's impossible for any player to monopolise or remain able to do so if the government has not allowed it. For example, the government can simply issue more license or regulate the area coverage (withOUT having to resort to current legal action).
Furthermore, in reference to current case, there is an important question to ask:
What is exactly the responsibility/position of Indonesian government for having Veto power and the largest Voting rights ? Howcome they are not implicated at all ??
At 6:40 pm ,
the_rabin said...
really a problematic government.
..if the ownership makes the owner the law-breaker, the government should not have sold it.
..if the price for consumer too high, the government representative in the board of directors of those company should have said something.
the foreign investor has turned telco into a profitable business from ever-losing one all along before privatisation.
..so, opposite to what u suggest, i think we should not let private interests to bribed their way through the legal system and have all their way with the ever messy-n-complicated-n-apprear_strong_yet_available_for_sale indonesian regulations/regulators.
At 12:36 am ,
Suhandy Yao Wei Xuan said...
Yusak,
Never know that you are actually one of my faithful reader.
Honestly, I just want to present my opinion on the issue.
Regarding point no.1 that you have said, I can give a very logical reply to it. At the point of buying or investing, it is very reasonable that company A and company B were regarded as two separate entities. They would not come and say, I am the son of this Mother Company. No, it takes time for investigation. Similar case has happen in China as well. The Mother Company tried to use different 'son' to buy up certain amount of share of a bank, and finally china gahmen step in.
So, in this case, I agree, and yet I disagree. There is a high chance that it was a mistake. Yet, even if it was known at the point of transaction, such big company with $$$ will know how to buy their way in, without much difficulty.
As for the unfair way that Indo Gahmen treated the foreign investor, I agree with what you say.
The foreign private sector has improved the running of the telco? maybe. How about letting local investor to run? I believe the improvement is all due to the privatization and not due to the 'foreign' factor. If you are monopolizing the market like microsoft, it is easy to bundle a stupid product and force the market to buy it.
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