Mobile Telecommunication Monopoly in Indonesia
I was in Medan for more than 1 week. One of the most enjoyable entertainment was "The Dream Republic" or "Republic Mimpi" shown on Metro TV.
In one of the segment, the topic being discussed was again, the monopoly of the Mobile Telcom business in Indonesia. The issue was about a company T from Singapore owned, directly and indirectly, share in two of the biggest mobile telcom company in Indonesia, namely Telkomsel (35%) and Indosat(42%).
From the show, I came to know that both Telkomsel and Indosat makes up to 90% and more of the mobile users in Indonesia. Regardless of what company T says, they controlled the major share in Indonesia's Mobile business, and through their internal policies, have caused Indonesia's mobile phone bills to be one of the highest in the world.
I am glad, that the Supreme Court in Indonesia has passed down the verdict to company T, that they must pay some fine, and relinquish the share in one of the company. One the other hand, Telkomsel as the leader of the Mobile supplier need to adjust the fee to 15% lower than its current rate. Other operators will follow to adjust in a healthy competitive market, rather than the current 'fake' competition.
Indeed, leader in the market (Telkomsel) sets the trend. You control the two leaders, you control the whole market.
Let's zoom in to Singapore. There are 7 taxi companies in Singapore. But in effect, all except one of the 7 companies are under the umbrella of the same company T. Ignorant public may see that it is great, 7 companies form a good competitive market, but hey.. it is the same mother who controls the different children.
Recently, one of the companies has raised the taxi fare. Flag down price is now $2.8 from previous $2.5, and other rates are adjusted as well. That company, comfort delgro, which controls 3 taxi companies, are quickly joined by the other 3 companies who say that they will adjust their price accordingly.
The move is a response due to the rise of oil price. However, the way that it is being carried out, uncontested, and quickly followed by everyone, is a good indication and prove that the move is an orchestrated move, directed by the single command center.
Whatever happen in Singapore, it is the other country that I cannot care more. I only hope that KPPU will maintain its stand and kick the a$$ of the company T out of Indonesia.
In one of the segment, the topic being discussed was again, the monopoly of the Mobile Telcom business in Indonesia. The issue was about a company T from Singapore owned, directly and indirectly, share in two of the biggest mobile telcom company in Indonesia, namely Telkomsel (35%) and Indosat(42%).
From the show, I came to know that both Telkomsel and Indosat makes up to 90% and more of the mobile users in Indonesia. Regardless of what company T says, they controlled the major share in Indonesia's Mobile business, and through their internal policies, have caused Indonesia's mobile phone bills to be one of the highest in the world.
I am glad, that the Supreme Court in Indonesia has passed down the verdict to company T, that they must pay some fine, and relinquish the share in one of the company. One the other hand, Telkomsel as the leader of the Mobile supplier need to adjust the fee to 15% lower than its current rate. Other operators will follow to adjust in a healthy competitive market, rather than the current 'fake' competition.
Indeed, leader in the market (Telkomsel) sets the trend. You control the two leaders, you control the whole market.
Let's zoom in to Singapore. There are 7 taxi companies in Singapore. But in effect, all except one of the 7 companies are under the umbrella of the same company T. Ignorant public may see that it is great, 7 companies form a good competitive market, but hey.. it is the same mother who controls the different children.
Recently, one of the companies has raised the taxi fare. Flag down price is now $2.8 from previous $2.5, and other rates are adjusted as well. That company, comfort delgro, which controls 3 taxi companies, are quickly joined by the other 3 companies who say that they will adjust their price accordingly.
The move is a response due to the rise of oil price. However, the way that it is being carried out, uncontested, and quickly followed by everyone, is a good indication and prove that the move is an orchestrated move, directed by the single command center.
Whatever happen in Singapore, it is the other country that I cannot care more. I only hope that KPPU will maintain its stand and kick the a$$ of the company T out of Indonesia.
posted by Suhandy Yao Wei Xuan @ 9:37 pm
11 Comments:
At 12:09 pm ,
the_rabin said...
i cant help commenting on this issue again.
Su, there are few important details that are still overlooked:
1. This business deal is above-the-board. Seller sells the companies to a buyer. Seller had control what's "for sell", did they not?? Buyer will buy anything that's profitable (buyer would buy an island if it's "for sale"). The deal had been finalised years ago, now then the seller screams that this is an illegal transaction and penalise the buyer. What about the seller ?
Consider this common "fairy-tale" we often heard in Indonesia:
Policeman P is a friend of another policeman M. M approached a shop run by a Chinese** C with some (new) goods. M offers to sell C the goods way below market price. M explains that the goods belongs to a friend who also own a shop but now in need of quick-cash. Stupid C buys the goods thinking it's safe as the seller is a policeman and the huge profit C could earn. A day later, P comes to the shop and conduct a raid. P finds the goods and accuses C as buying illegal/contraband/stolen goods. P confisticate the goods and fine C.
What about M ?? ...simply, no longer in the story.
**Note: The word "Chinese" may have some importance.. since we know if it's "Angmoh" (read: American), the story is rather different. "Angmoh" (read: American) can buy Gold (read: TemabagaPura/Freeport) and pay copper price. Nothing happens, just some mumble/disgruntle.
2. The size of profit-sharing shares do not necessarily reflect the size of control. Company T has the majority control in both company in terms of profit-sharing share, but NOT decision-making share. The government of Indonesia retains a VETO right in one company and golden-shares (multiple vote per share) which makes it the controlling party of both companies.
If the price is too high, the government of Indonesia can simply excercise their controlling rights/shares in the boardroom to adjust it.
As such, this case gives a nuaces that it is not about the consumer price too high. This is simply about kicking the company T out of Indonesian Telco. NOTHING to do with consumer price that's too high (it's just an excuse).
3. Pricing is a matter of business/economic decision. I do not remember that Indonesian telco was cheap before company T comes into the picture (before privatisation). This is simply because Telco is not about day-to-day running cost (which is cheap!).
Telco is about technology and infrastructure. A huge chunk of cost will be the depreciation cost of the cables, computers and satellites, NOT the cashiers or maintenance engineers. This explains why the cost in doing telco in Indonesia is so big... simply because telco has to cover a huge land area.
This is also the irony of such business, the more user .. the cheaper the cost per-user. If the company shrinks down their coverage to only Jakarta (or maybe, Java).. I'm sure the price can be a lot cheaper. But in this case, both companies cover also Borneo and Papua.. it's no rocket science to tell that such coverage is money-losing simply because there's not enuf customers on both island (not to say .. err.. the huge no-man-land/sea in the middle).
On the side note, we cannot look at just the bad things. Taxi business in singapore is always in an oligopoly environment. Much like OPEC controlling oil price.
Since we are talking about telco, why not comment about telco in singapore. Company T also controls M1, Starhub, and SingTel. Have the customers not benefit from competition of these 3 companies???
At 12:46 pm ,
Suhandy Yao Wei Xuan said...
Well said.
The business was done deal years ago, by some party, who undoubtedly benefited from the deal. Let's just assume that the party involved in the deal from Indo side is guilty, similar to the T company. Does that mean that the wrong done by them cannot be 'corrected' later?
In this case, KPPU is certainly a new board that is formed to address the issue. You cannot just compare KPPU as the same entity with the previous indo partner who sealed the deal. They are two different groups of people with their own agendas.
I do agree with you, that Indo govt has the power to force the telco to push down the price, since they control most of the shares. Which is probably what they will do. But, this is just one of the necessary action. The other necessary action is to kick the company T out of one of the telcos.
why is it necessary to kick T out? because, directly or indirectly, it is controlling the telcos. Forget about the mistakes done by the earlier indo govt. It is time to correct the mistake now. For that I am with KPPU.
Regarding your comment on pricing. I think your knowledge on running a telco is about as much as mine. Depreciation of wear and tear is in all industry, not just telco. On top of that, there are connection charges, inter-connection charges between 1 operator to the others. Sure, Mobile charge in the past are expensive, but as time goes by, shouldn't it be cheaper? it doesn't. Singapore's phone charges has gone down over the past 10 years. Indonesia wise? consider inflation and other stuff, compare with indo percapita income, it is way too expensive.
1 packet of chicken rice = $3.00 = 20 global SMS to Indonesia.
1 packet of rice in Jakarta, average 10000 = 10 global SMS to Singapore.
1 packet of rice in Yogya, average maybe 3000 = 3 global SMS to Singapore.
Based on the illustration above, is it expensive?
At 1:37 pm ,
the_rabin said...
i think the business deal (or any deal) should be honoured, unless it is illegal. if it's illegal, BOTH parties, seller and buyer, must be punished.
This is totally not about corrected "the wrongs", but this is solely about "interpreting the law". We all know that indonesian people with authority loveeees to make own interpretation of laws, don't we ?
Why this case is about interpretation? **you may ask
Because, there's no clear indication of what monopoly means.
Monopoly is defined by: Percentage of (Profit-Sharing) Shares OR Percentage of (Decision-Making) Control ?
If it's about who gets the most money, then yes... T is in monopoly.
If it's about who has the biggest control, then nope ..Indonesian (directly or indirectly) firmly controls both companies.
Wear and tear for technology companies is different from service/manufacturing/etc. Simply because the depreciation cost is the main cost, not just one of the cost.
We cannot compare prices ..as in how affordable it is. Technology prices are way cheaper in developed countries, always! [for the reason i hope obvious by now]
Since long time ago, fixed line phone in Aussie (and US?) are per-call basis (not per-minute).
Internet/Broadband is free in many Angmoh countries (Singapore has also started SGWireless). etc. etc.
..and i am not strictly against KKPU ruling, but i've always questioned 2 things about the case:
1. If this is about price: where's the consideration of the fact that the current indonesian government has control of both boardrooms? has it come into play in the case ruling?
2. If this is about monopoly: what happen to "seller"? why there's no one (with authority) brought into the picture to answer about how the deal could have been cleared??
At 1:47 pm ,
the_rabin said...
..but then of course, one may argue that ...the deal had been cleared based on own/personal/customized interpretation of the law. =P~
..errr ... OR ... or .. was it.. err ????????
who made the law? wasn't it the same administration who sold the telco companies? ..if so, how come the one who make the law interpreted it wrongly ?
could it be that the previous administration was the one with correct interpretation? ..is it the current administration who customized/personalized the interpretation of anti-monopoly law for own gain/benefit?
how can we be sure the interpretation will not be changed again as the administration change the next time??
haiz, indonesian!!!!
At 2:42 pm ,
Suhandy Yao Wei Xuan said...
You are right in saying that the law is about who interprets it, or rather, who has the power to interpret it.
Bring the case over to Singapore, and you will see SG's way of interpreting their law. The case against the 3 or 4 opposition party leaders, isn't it about who is in control, or in control of the court?
So, the law is about where you stand, and you have to obey the law there.
Of course, what happen to the seller who did the selling during Megah's administration? (different administration, as different as Bush vs Clinton). The seller is the government under different administration. How do you punish the government? you can't. You can punish the people but who, and will it make any difference?
of course, interpretation of the law changes over time. Not only that, the law itself changes over time. A country, has the absolute authority to change its law, whenever it sees it fit, for the benefit of the citizens (and some personal interests), and the new law may or maynot conform to the old law. No other country should interfere and argue about it.
Of course, they can bring it to the international court.
At 4:26 pm ,
the_rabin said...
hehe ... this case is not about sovereignity of the government. this is about a business deal.. about Gentlement's Words .. more than that, this is about legal certainty. A deal has been finalised above-the-board. Signed, hands shaked, payment made. What happen now is simply that one party wants to un-do the deal. Go back on their words. Dis-honoured the agreeement.
No question about sovereignity. The government can nationalised all foreign assests LEGALLY.. should they want to do so. All they need to do is just to pass such law.
This case is about honouring a finalised contract.
In anycase.. there's no monopoly case.. as far as the Price-Fixing argument goes. Indonesian still has firm control of telco sector through Golden-Share and Veto right. It's impossible for T to make any decision what-so-ever without approval of Indonesian.
Btw, what's the rationale of penalising T ..but not the 2 companies directly?
should the accusation of price-fixing true ..isn't the Board of Directors (BoD) of the 2 companies also responsible?
i really cannot see the logic of stretching the case to T ..while the BoD of the two companies are not implicated at all.
well ..perhaps, because there are governement representatives in the BoD ?
At 7:47 pm ,
Suhandy Yao Wei Xuan said...
The solution for the incident will depends on what law that they use. For this case, they use the anti-monopoly law, stated that company T indirectly controls a certain percentage of telco shares in Indonesia.
Therefore, the punishment is for them to relinquish one of the company, so that according to that particular law, company T owned less than the one prohibited by the mentioned law.
is the board of director implicated? the issue being raised here is not the 'price' but about the argued 'monopoly'. Therefore, I guess the BoD will not be implicated.
the argued monopoly may or may not refer to real monopoly act by company T, I guess. But on the paper, through their subsidiaries, they do own the share, regardless whether they can be overruled, or have the saying power or not.
Another point that I just thought of is this. Initially the shares brought by company T from the two telcos may still be within the allowed limit. But along the time, they may purchase more or more from open market, or by approaching individual major shareholders. This is a hypothetical analysis which may not be true.
At 2:47 am ,
the_rabin said...
well .. this case is all about price fixing. BoD is definitely must be involved.
the accusation is that T prices the telco service too high because it monopolises the market.
so the rulings are:
1. to bring down the price by 15% (as if the judge a financial expert ?!!)
2. to ensure it doesnt happen again, T should let go it stakes in one company entirely. (not just enuf to make it under 50% market share!!)
this case is about interpretation of the law. not at all about buying shares from open market.
the Golden Shares and Veto right was a special arrangement to ENSURE that Indonesian still control the telco market... as such, no foreign entity control telco sector.
T MUST obey Indonesian law when doing business in Indonesia. no question about that!!
the question is ..whose/what interepretation of the law is used?
the current administration? ..or the next one? ..or the next next one?
..is it possible NOW to adhere to interpretation of law according to FUTURE administration ??
this case is absurd.!
At 3:24 am ,
the_rabin said...
hehehe ... i need to highlight with little ammendment on typo.
"the Golden Shares and Veto right WAS a special arrangement to ENSURE that Indonesian still in control of the telco companies... as such, no foreign entity control telco sector."
that was exactly the stand of previous administration... on why the deal was cleared.
..and the rulings:
1. to bring down the price by 15% (as if the judge a financial expert ?!!)
2. to ensure it doesnt happen again, T should let go it stakes in one company ENTIRELY. (NOT just enuf to make it under 50% market share!!)
i suggest foreign investors to wait investing in indonesia only at the beginning of an administration... and better plan to ROI in 5 years (one administration term) ... because one could only wonder if there's such thing as "Indonesian Government" when it comes to interpreting law and honouring a deal.
..from this case, there is only "Administration".. no such things as "consistency" to be able to say "Indonesian Government".
mananged to finds article written by indonesian in indonesian newspapers that support my statements of:
This is about Price Fixing.
Telkomsel & Indosat BoD controls the company.
Golden Share and Veto right was the measure to avoid monopoly by foreign entity.
again, this case is absurb.!!
At 12:40 pm ,
Suhandy Yao Wei Xuan said...
Why they need to remove the shares entirely from one company? I am sure that it has some basis in the law as well.
this is a similar situation as what happened in China. A local Company D, which is linked with company T, have invested in Bank of China. Later on, it tries to invest in Industry and Commerce Bank of China or ICBC. While it was being processed, the negotiation was cancelled. The law there stipulates that a foreign investor cannot have shares in more than one government run companies in the same industry.
At 2:58 pm ,
the_rabin said...
if the law forbid foreign entity to own more than one company.. then it's a clear as the sun during the day that T is in the wrong. BUT it is not the case. the anti-monopoly law has not changed since the deal was sealed. as such it is definitely not illegal to own more than one company (at least.. it used to be interpreted that way).
what has changed is the interpretation. monopoly was interpreted as "percentage of control", but now.. it is "percentage of profit-sharing".
we start this whole with a fact that Telco services in indonesia is too expensive. So, lets develop a funny Q&A from there.
A: Telco service prices in indonesia is too expensive. un-affordable for many. this is because of price-fixing.
B: Who set the prices ?
A: The BoD of Telco companies, of coz.
B: Who control the BoD ?
A: Indonesian Government
B: I see. So.. what has the Indonesian Government do to correct the high prices?
A: Punish T. Force T to sell one of 2 telco companies it inderectly own, and order T to bring the price down by 15%.
B: T????? ...but T is not the controlling BoD who set price, rite?!!! Why T??
A: Yupe, T doesn't control BoD who set the price, but they profit the most from the high price.
B: Isn't the BoD more relevant party to be punished should the price-fixing allegation be true?
A: While it is true that BoD set the price, we must look at this issue in full perpective. The guilty party may not be the one who set the price, but it is definitely the one who profit the most from the price-fixing. In this case, the money ends at T.. so T is guilty regardless whoever set the price in the first place.
B: I see. Howcome T was in the picture anyway?
A: Oh T owns shares, as biggest shareholder, in 2 telco companies. T bought the 2 companies from Indonesian government last time. so u see, T is biggest shareholder in biggest 2 telco companies in indonesia. T is in the monopoly.!! that's why they must be responsible for high price!!
B: ..err ...i tot.. u say that Indonesian Government control the BoD ?? howcome now T is in the monopoly???
A: Yes, Indonesian Government control the decision making of the companies through Golden Shares and Veto right, not through share ownership.
B: I see. So, in terms of number of shares, T is in the monopoly. Why did the Indonesian Government allow that, sold the companies to T in the first place? Has the anti-monopoly law changed recently??
A: No no no... anti-monopoly law has not changed. It is the way of interpreting the law that has changed.
B: How so?
A: Indonesian Government used to interpret monopoly as controlling the market. So it was defined in terms of percentage of control over decision-making. That's how Golden Share and Veto rights came about.. to safeguard competition and ensure there's no monopoly. However, now.. Indonesian Government views that monopoly should also include percentage of profit-sharing.
B: Orh.. okay. So, to get out of monopoly.. all T needs to do is to reduce its market share to be below 50% then, yes?
A: NO !! ..T must sell one of the 2 companies it owns.
B: Heh ???
A: Yeah, that's how legal system works in Indonesia, err.. at least for T.... u noe.. T is owned by Singapore (read: Chinese). If only T is owned by Angmoh (read: American), not only we'll sell telco companies ..we'll even sell to them Gold with Copper-price. **wink
*wishper: we have a russian buyer waiting, **smirk.. we're talking about big transaction commision, here. **smirk again.
B: anyway.. side track abit. is the price of telco services that expensive in indonesia??
A: not really.. err.. i mean.. a lot of other things are also expensive. Telco is, no doubt, still a luxury.. same as: university education (xxx% of per-capita-income), housing (xxxx%), health insurance? ..**dont event think about it!!!
B: well, but at least other telco services are cheap.. i mean, those that is still 100% firmly in the hand of government-owned Telkom, i presume? fixed line for example?
A: hahahaha ... u dont want to know.
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