Singapore's Temasek told to give up stakes in one of two telcos

Singapore investment company and related firms fined $3.88m for 'anti-competitive' practices

By Azhar Ghani, Indonesia Bureau Chief & Salim Osman, Indonesia Correspondent
The Straits Times, November 20, 2007

JAKARTA - JAKARTA yesterday said Singapore's Temasek Holdings had violated anti-monopoly laws and ordered it to sell its shares in one of the two top Indonesian mobile telcos in which it has indirect stakes.

Indonesia's competition commission also fined Temasek and eight linked companies 25 billion rupiah (S$3.88 million) each for unfairly dominating and manipulating the cellular communications market, and said the share sale had to be completed within two years.

The eight affiliated companies include SingTel and its mobile subsidiary. SingTel, which is 54 per cent owned by Temasek, in turn has a 35 per cent stake in Indonesia's biggest mobile telco, Telkomsel.

The other six are Singapore Technologies (ST) Telemedia and companies linked to it. ST Telemedia is wholly owned by Temasek and owns 75 per cent of Asia Mobile Holdings, which in turn has a 40 per cent stake in Indonesia's No. 2 mobile telco Indosat.

Under Indonesian law, businesses cannot own majority shares in more than one firm in the same sector if it gives them more than half the market share. They are also barred from owning majority stakes in more than one firm in the same sector.

The commission said a controlling stake could be treated as a 'majority stake' and classed Temasek and its affiliates as a single business group, a classification Temasek said after the verdict has 'no basis'.

It has been left up to Temasek to decide which of the two companies it wants to sell its stake in.

But in a move observers say is likely to drive down the value of the sale, the commission also ruled that no more than 5 per cent of the shares can be sold to any one party, and buyers cannot be affiliated to each other or to Temasek.

And, creating a further headache for Temasek, it claimed price fixing has cost consumers up to 30.8 trillion rupiah in excessive charges, an accusation observers say opens up the possibility of a future class action suit.

The verdict delivered by the Commission for the Supervision of Business Competition (KPPU), also included a fine of 25 billion rupiah for Telkomsel. The company has also been ordered to reduce its phone tariffs by at least 15 per cent within two years.

All the parties have up to 14 days to appeal before the sanctions kick in.

The verdict - marking the end of a year-long saga which began when a union accused Temasek of monopolistic behaviour - was read out to a packed audience of reporters and lawyers.

It was delivered after a lengthy four-hour preamble in which the KPPU panel sought to take apart arguments that Temasek and the other accused parties had submitted in their defence.

These covered the merits of the case, including whether Temasek was an active player in Indonesia or just a passive investor, as well as alleged procedural lapses.

But panel chairman Syamsul Maarif concluded that Temasek and its affiliates 'are legally and convincingly proven to have violated Article 27 of the anti-monopoly law'.

He said: 'If they don't file their objection within the stipulated period, the ruling will take immediate effect.'

Both Temasek and ST Telemedia plan to contest the verdict, which analysts say will have been closely watched by foreign investors concerned about the risks of doing business in Indonesia.

University of Diponegoro law professor Joko Priyono told The Straits Times: 'It's shocking that Temasek can be found guilty of cross-ownership when the purchases of the stakes in Indosat and Telkomsel had been cleared by the government.

'This doesn't augur well for the future of foreign investments in the country.'