The Leading Lights of Telecoms - PT Telekomunikasi
New opportunities will open up for the company as PT Telekomunikasi (Telkom, www.telkom.co.id) contemplates its new role as a growing service provider. With Indonesia’s new regulations in anti-monopoly (UU No. 5/1999) and telecoms sector restructuring (UU No. 36/1999) taking effect, Telkom has to be nimble in both the local and domestic long-distance telecoms services markets. Telkom’s CEO Muhammad Nazif speaks his mind on the company’s future with its new strategy.
Which areas of your business requires greater attention next year? Why?
All five business area, Telkom-Phone, Telkom-Mobile, Telkom-Internet, Telkom-View, and Telkom-Service, will be developed next year.
For example, in Telkom-Phone, if tariff adjustment is agreed upon, we plan to build another 800,000 circuit/telephone lines. Meanwhile, in Telkom-Mobile, through Telkomsel, we already signed an agreement with four major vendors—Nokia, Ericsson, Siemens, and Alcatel—to build up infrastructure to fulfil projected five million customers in 2002, compared to 2.45 million in recent days.
To support all five business areas, we will build a US$275 million back-bone fibre-optics network with up to 48 cores, each link will carry capacity of 10 Gbps and are about 10.000 km long. These national and metropolitan backbones are fully provided by vendors like Fujitsu, Alcatel, Siemens, Pirelli, NEC and Lucent.
We will also pay attention in building up our VoIP (voice-over-IP) network based on the fact that VoIP traffic growth is about 300% a year. Seeing the business trend, we have to prepare our infrastructure for it.
Who are your main technology/equipment partners?
We have many partners, each for different types of businesses. For example, our Multimedia access service, named Telkom Multimedia Access, assigned Siemens to provide the system with xDSL technology. Siemens also provides switching products in fixed telephone, and is the main vendor for our mobile business through Telkomsel.
Meanwhile, we assigned Lucent and Ericsson to provide multimedia access, worth US$25 million. Lucent is also the main vendor for our US$17.5 million intelligent network in Jakarta region. Other vendors include NEC for personal handyphone system (PHS) in the Jakarta region, and Alcatel for our TV cable business, which also supports our VoIP products.
Can you give us an indication of the Asia-Pacific telecoms scene in 2002. What do you expect it to be like?
Within 2000–2004, we will see a change in the telecoms environment. The convergence of technology shall open a large opportunity on infocommunications businesses. This trend shall shift services from POTS to multimedia and mobility businesses. And we have anticipated the change with a new approach, and a focus on our five core businesses as mentioned earlier.
Telkom wanted to acquire PT Indosat in order to protect the country’s telecoms sector. But that would work against the new regulations. What was your reason?
The major reason was that telecoms, finance, and transportation services are the three most vital infrastructure that protect both national and public interests. These three services are also important to support a national competitive advantage. Moreover, in other countries, the provision of telecoms services is still largely held by their governments, such as Germany’s Deutsch Telecom, France Telecom, Nippon Telephone & Telegraph, UK’s BT, and Singapore’s SingTel. Based on that reason, we felt that in order to protect national interests, our government should act carefully in releasing its shares to the private sector.
In addition, the government should assess the effectiveness of the split between two state-owned telecoms operators (Telkom for domestic and Indosat for international service) that happened almost two decades ago. This is important to strengthen local players in facing global competition so that Indonesia has an integrated state-owned telecoms company that is solid by the next free-market era. According to the policy of reformed telecoms sector, there are two choices: the existence of two state-owned telecoms companies and a proposal that Telkom should acquire Indosat. We assessed that the second choice has more advantages than the first one in the case of facing the free market, since it has better national champion value creation. Furthermore, it will solve cross-ownership issues between Telkom and Indosat in some other national telcos. But now, the government has decided against the second option, even though Telkom and Indosat were determined to compete in domestic and international services.
How is Telkom preparing itself for IP-based services?
We have already assigned PT Datacraft Indonesia, PT NEC Nusantara, and Stimec Alita Nasional to build a VoIP network across the country.
In the beginning phase, our VoIP network will service 19 cities with 137 E-1 net capacity. By 2004, we will expand to 27 cities with 1527 E-1 for domestic coverage, and overseas point of presence in nine countries.
How will Telkom raise the necessary funds for its infrastructure buildout?
We have both internal and external sources of funding. Our concern is that the source must go through keen assessment, considering the company’s efficiencies and ability to fulfil its obligations. We also have developed and improved existing joint-operation schemes based on win-win solutions.
In relation to our five business areas, we need approximately Rp3.63 trillion (US$320.95 million) to support our business development. A sum of Rp1.73 trillion (US$152.96 million) has been allocated for infrastructure developments in access networks and data backbone, Rp144.36 billion (US$12.76 million) for PSTN, Rp594.45 billion (US$52.56 million) for cellular networks, and Rp2.99 billion (US$264,368) for cable television. In addition, multimedia, business, and supportive investments will take up Rp129.64 billion (US$11.47 million), Rp273.87 billion (US$24.25 million), and Rp752.33 billion (US$66.65 million), respectively.
Our internal funding will provide up to Rp3.184 trillion (US$282.07 million), while the rest (Rp442.25 billion, or US$39.19 million) will be available through government loans.
Frost & Sullivan’s take on: PT Telkom
PT Telkom is Indonesia’s state-owned domestic phone operator. The company and its JSO partners (joint operating scheme which is a build, operate and transfer arrangement with private operators in Indonesia) operate about 6.7 million lines as of Mar 31, 2001. There are an estimated 3.7 million lines in service in the Telkom regions, and over three million lines in service in KSO regions.
In what is a major move, the government decided that PT Telkom and its partners would lose their monopoly in 2003 instead of 2010 as was previously agreed. This has resulted in a dispute between PT Telkom and its KSO partners. PT Telkom will face competition from Indosat, which will be given a permanent licence for local services in Aug 2002 and domestic long distance services in Aug 2003. To offset the potential impact on PT Telkom, the government decided to provide it a permanent licence for IDD in Aug 2003.
PT Telkom recorded positive growth of 20.35% in its total operating revenues to about US$976 million in 2000, and a positive growth of 15.4% in EBITDA to US$638 million in the same year.
PT Telkom is also the leading investor in PT Telkomsel, Indonesia’s largest cellular operator with an estimated 2.2 million subscribers and marketshare in excess of 45%. The low teledensity presents tremendous opportunities for growth and is the biggest competitive advantage for the company.
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