KPPU integrity on the line with Indosat case

Wednesday, August 15, 2007 Vincent Lingga, The Jakarta Post, Jakarta

The decision the Business Competition Supervisory Commission (KPPU) will soon make on the Indosat case will determine whether this supposed vanguard of fair market competition will be able to retain what little trust the public still has in its integrity and technical competence.

Already heavily criticized for wasting its valuable resources investigating cases with little merit, with most of its past rulings being thrown out by district courts, the KPPU risks another misstep in its judgment on the allegations that Singapore Temasek Holdings violated Indonesia's anti-monopoly law.

Right from the outset the KPPU seems to have been biased in handling this case. Most analysts expected the KPPU would close the case after making inquiries into complaints filed by the Federation of Trade Unions at state companies last October, especially after the federation itself withdrew its complaint last April for what it claimed to be a complete lack of evidence.

However, the KPPU stepped up its inquiry into a full investigation amid a seemingly endless wave of attacks against Temasek's investment in Indonesia's telecoms industry and a bout of subterfuge by domestic and foreign investors seeking to acquire Indosat's shares.

Temasek has been charged with violating Article 27 of the Anti-Trust Law by dominating the market and engaging in price-fixing, because the Singapore government-owned investment company indirectly holds shares in both PT Telkomsel and PT Indosat, Indonesia's largest and second largest mobile telecommunications operators.

The article in essence says a business actor cannot own majority shares in several similar companies operating in the same field in the same relevant market, if this cross ownership will give it control over 50 percent of the market for a certain type of good or service, or give two or three business actors, or a group of business actors, control over 75 percent of the market for a particular good or service.

Temasek owns 54.15 percent of the SingTel Group, which in turn owns 35 percent of Telkomsel. Temasek also wholly owns ST Telemedia (STT), which controls 75 percent of Asia Mobile Holdings which in turn owns almost 42 percent of Indosat.

According to Pande Radja Silalahi, a former KPPU commissioner, based on the ownership tree Temasek indirectly owns 30.6 percent of Indosat and 18.9 percent of Telkomsel.

This clearly shows that Temasek does not own majority stakes in Indosat or Telkomsel.
On the other hand, the Indonesian government owns 14.30 percent of Indosat, including a golden share which gives it special rights, and indirectly holds (through PT Telkom) nearly 33.30 percent of Telkomsel.

The government also regulates the main components of telecoms tariffs through decrees from the minister of information and communications.

There are also now simply too many players and too many technology choices in the mobile telecom business to allow for a monopoly. If both Indosat and Telkomsel still dominate the market, that is because they enjoyed such a long lead time within the industry.

The question then is how could Temasek have ordered both Indosat and Telkomsel to conspire in price fixing or other cartel-like practices? What about the government representatives who make up the majority of both the boards of directors and commissioners of Indosat and Telkomsel?
Then why has the KPPU not included the Indonesian government as a co-defendant in the price-fixing charges against Indosat and Telkomsel?

These issues only add to the doubts over the motive behind the KPPU investigation of Temasek.
A recent study by a team headed by Pande concluded that viewed from the operating-income perspective, Temasek's market share in the mobile telecommunications industry amounted only to around 20.12 percent in 2006, down from 21.11 percent in 2005 and 21.56 percent in 2004. The government market share in the same period totaled 24.85 percent, 24.20 percent and 23.05 percent.

In terms of gross value added, which includes such variables as employee salaries, Temasek's market share declined steadily to 19.80 percent in 2006 from 21.32 percent in 2005 and 21.84 percent in 2004.

These market share developments raise another question: If Temasek was able to order Indosat and Telkomsel to collude in price-fixing, why did its market share fall.

Why would Temasek or ST Telemedia or the SingTel Group risk their international reputations by engaging in cartel-like practices that instead of expanding, eroded their market share?

Even in terms of the number of customers, Pande said, Temasek, through ST Telemedia and SingTel, controlled only about 19.20 percent of the mobile telecom market.
The objective of the KPPU investigation seems to never have been about pinning guilt, whether real or imagined, on Indosat or Temasek.

Rather, it might have been part of a political and public opinion campaign designed to make the Singapore investors sell their stake in Indonesia's telecoms industry below market prices.

There are certainly many other domestic and foreign investors, among them Russia's Altim, waiting on the sidelines ready to snap up the Indosat stake. After all, mobile telecommunications service is one of the most promising businesses in the world's largest archipelagic country.

Last June, several politicians accused Indosat of making scandalous hedging transactions to evade taxes. These allegations were laughable, given the impeccable corporate integrity of Indosat -- a blue-chip company on the Jakarta Stock Exchange -- and seemed designed solely to smear the company to make Temasek restless.

Both the capital market watchdog and the taxation directorate general stated after examinations that the allegations of tax evasion and fictive derivative transactions were completely groundless.

The senior politicians, themselves seasoned business analysts, should have realized that the damage done to Indosat is not so much a ruined reputation as the uncertainty looming over foreign investors in Indonesia, and doubts about the integrity and technical competence of the KPPU as the watchdog of fair business competition.