STT's stake in Indosat under fire again

Temasek-owned firm runs ad after allegations of collusion and poor business decisions

By Azhar Ghani, Indonesia Bureau Chief
The Straits Times, June 30, 2007

JAKARTA - INDONESIAN President Susilo Bambang Yudhoyono made a speech at an investment forum last November in which he promised that his country would not go the way of Bolivia or Venezuela, where privately-held companies are deemed as important national assets.

At that time, some saw the speech as a sign that pressure to make Singapore Technologies Telemedia (STT) give up its stake of about 40 per cent in PT Indosat had receded. Indosat is Indonesia's second largest telecommunications company, after PT Telkomsel.

But, in recent weeks, STT has been in the hot seat again over its controlling stake in Indosat.

Things got so hot that STT dusted off its copy of Dr Yudhoyono's November 2006 speech and stamped it on the Indonesian public's consciousness by putting it in a full-page advertisement displayed prominently in local business newspaper Investor Daily last Wednesday.

That advertisement also stressed that STT operated 'independently with its own management team and a board that makes independent business decisions'.

Not making independent decisions and not competing aggressively were, of course, the charges that have been levelled against STT by its Indonesian detractors.

For some time now, allegations that STT's parent, Temasek, was behind a purported price-fixing collusion between Indosat and Telkomsel had been swirling about the country.

Temasek was able to do this, so the theory goes, because Temasek-linked SingTel owns 35 per cent of Telkomsel.

Such murmurs built to a roar late last year when a labour union took it upon itself apparently to champion Indonesian consumer rights.

Last December, the union filed a complaint against Temasek with the country's Business Competition Supervisory Commission (KPPU), claiming that Temasek had used its heft in Indosat and Telkomsel to fix prices and block rivals.

The union recommended that Temasek be made to divest its shares in the telcos to stop such alleged anti-competitive acts.

But, in April, it suddenly withdrew the complaint, saying it was doing so because it might have inadvertently been drawn into an alleged dirty-tricks campaign mounted by aggressive Russian telco Altimo to help its bid to take over STT's Indosat shares.

Altimo has denied the alleged plan,which included paying off the KPPU. But its interest in the Indonesian market is very real - in December last year, it announced a plan to enter the fray with a whopping war chest of US$2 billion (S$3 billion).

Indeed, KPPU's previously sputtering investigations have since continued apace.

Its vice-chairman Nawir Messi, who is heading the investigating team, told The Straits Times that the committee had already interviewed representatives of Temasek and STT, and that they would be summoned again along with SingTel executives.

He said: 'This process should end by September. If there's evidence of wrongdoing, a council would be formed to decide on sanctions.'

Meanwhile, Indonesia's Post and Telecommunications directorate-general had also indicated recently that it might probe the price-fixing allegations against STT.

Still, these allegations against Temasek beg the question as to how it could have masterminded a collusion right under the noses of the Indonesian government in the first place.

As economist Umar Juoro pointed out: 'After all, Telkomsel is majority-owned and controlled by (Indonesia's state-owned) Telkom, not SingTel or Temasek.'

As it was six months ago, the general consensus among neutral observers is that Temasek's minority role in Telkomsel is of little concern to its Indonesian detractors.

The end game from the outset, so they say, is to get STT out of Indosat, either by spooking it or revoking its stake for wrongdoings.

After all, STT's Indosat stake has been a lightning rod for problems from the start, given the underlying sentiment that it was sold too cheaply in a fire sale in 2002 to raise funds for political ends.

So what can STT do?

Its best response would seem to be a spirited defence against the allegations.

It might also highlight its long-term business plans as the incessant attacks on STT translate to uncertainty over Indosat's future, undermining investor confidence.