KPPU vs TEMASEK about Telkomsel and Indosat

It's finally decided as my presentation topic for Business ethics, About KPPU vs TEMASEK, I've tried to find real case situation to convince my teacher, While brainstorming myself to find such case, desperately i tried to relax a bit..checking for soccer news, fortunately I saw a pop out news about KPPU decision to Temasek, and thats it..everything suddenly comes out, just the case I needed. I never thought I could find the nice side of this long story of Telkomsel and Indosat Acquisition by Temasek-group..It's nice only for my discussion material to get through this course.., for other reason there is no more good side about this situation.


I do aware its such controversial things happen about the acquisition..first thing first is national security, Imagine that probably around 80% of Indonesia GSM user are probably tracked by Another Country..Amazing..what is the reason of Indonesia Government did this..., Anyway.. I didnt propose to do this discussion to the teacher..but more into ethical perspective of doing such acquisition (Since it is class about Business ethics of course..)..moreover discussion of National security in a class on another country is inappropriate and embarrass me as well.., although that is the truth..but still..


Here is the Proposal detail, I will probably discuss my result on early January:

Proposal

September 2006, data shown that Mobile user In Indonesia reach 38 million users or about 17.28% of Indonesia Population, and this number increasing rapidly every year. This number represent GSM (Global Satelite Mobile) Technology, CDMA (Code Digital Multiple Access) technology Is not considered yet, since it is relatively new implemented in Indonesia and share much smaller market share compare with GSM.

Nearly 80% of market share dominated by 2 biggest cellular operators, respectively by Telkomsel(49%) and Indosat(30%). Before tide of acquisition, Telkomsel as the biggest cellular operator owned by the government through state telecommunication company PT Telkom, it share is not listed in market. Second Biggest, Indosat listed in market and it shares owned by Government and Public.

Today, after acquisition, Temasek-Singapore based telecommunication company owns a 54.15 percent stake in SingTel Group which holds a 35 percent stake in Telkomsel, while Singapore Technologies Telemedia (STT) -wholy owned by Temasek- owns 75 percent of Asia Mobile Holdings which owns 41.9 percent of Indosat.

Domination and cross ownership make it possible for both operators to apply monopoly such as fixed higher price which is too high and operators enjoyed excessive profit, far above it basic/interconnection cost. Data also shown the fact for Telkomsel that Ebitda Margin (profit after tax, depreciation, and amortization) reach average of 72.09%, second highest after Philippine among 52 countries in the world, 56.7% for Indosat.

Based on laws of business competition or monopolistic practices to ensure sound business competition, The Business Competition Supervisory Commission (KPPU) found Singapore`s Temasek Holdings guilty of cross-ownership in domestic mobile telecommunication companies PT Telkomsel and PT Indosat leading it to abuse its dominant position in the marketplace and to pratice monopoly.

Given Above information, we want to analyze ethical issues related with the approval of acquisition execution, there are several points we want to discuss:

1. Initially, before the acquisition, it is not realized that SingTel Group and STT, both are backed up by a same bigger group, Temasek. From law perspective it is SingTel and STT concern to consider about law consideration regarding cross ownership and ownership of majority shares in companies which work in the same area (telecommunication in this case).However, it is also shareholders concerns (TELKOM) to take care of acquisition process so in the future no such thing happened like today, ethically shareholder have a responsibility to be sure that management is looking after their interest. In other words, shareholders responsibility is not only moral obligation, it may be smart investment as well-reference from Two Ethical Issues in Mergers and Acquisitions-Patricia H. Werhane.
2. Based on current situation, it turns out that the acquisition can be categorized into Hostile Takeover/ Acquisition, Hostile Acquisition can be describe as (from wikipedia): A takeover would be considered "hostile" if (1) the board rejects the offer, but the bidder continues to pursue it, or (2) if the bidder makes the offer without informing the board beforehand. The second imply our reasoning. There is also some ethical aspects from this situation we would like to discuss.-ref Ethical Dimension of Hostile Takeover, Lisa H.Newton.

Questionable Situation: Why the government approved this hostile acquisition, especially when they have already seen the monopoly possibility behind this acquisition? Have they ever followed their responsibility of monitoring and keeping the health of the market?

Actors: Indonesian Government( regulator and market surveillant)、Temasek-Singapore(acquisitor)、Telkomsel and Indosat(local cellular operator)

Stakeholders: users、cellular operator、government、acquisitor

Dilemma： advanced managerial experience of cellular operation、foreign capital for expansion of local network、excess profit from monopoly、personal interest of the governor versus national telecommunication security、quality of service without competition、fixed high communication rate

Alternative reaction: introduce another tactical institutional investor which has no relationship with Temasek to avoid market monopoly or limit the number of board members form Temase to reduce its influence over the companies

Theoretical Reflection: To be discussed

Our view: government responsibility、third party regulator and monitor、perfection of legal system

___________________________________________________________________________

some references:

Perang Interpretasi Undang-undang - Senin, 26 November 2007
Indonesian Consulate Sydney - Temasek case not to undermine investment
ANTARA News :: Temasek Bisa Bawa Kasus Kepemilikan Silang ke Arbitrase Internasional
KPPU: Konsumen Seluler Dirugikan 14 - 30 Triliun Rupiah :: Media Konsumen :: Suara Konsumen Online

or for those who interested on some intelegent issues:

[pulsa] Re: Rebut Telkomsel & Indosat dari Temasek !!!

A little bit about interest rate movement

This blog is to support another article. Although, I hope it is will be interesting to read independently.

There are several factors drive the decision making of a government (central bank in this case) in raising or lowering their existing interest rate, intuitively every event in market will affect the decision, but there is some major events will be dominant factors in taking decision, some if its:

Inflation: Higher inflation tend to make currency is not attractive anymore, since the effective interest rate is calculated as the difference of interest rate and the inflation.
Example, Rupiah 8% interest rate with 6% inflation have 2% effective interest rate, if inflation rise into 6.3% then the effective interest rate become 1.7%, it makes the investor more likely to convert the Rupiah into some other currencies with higher effective interest rate.
For lower inflation attractiveness of related local currency work in the opposite way.
In short, higher inflation makes government likely to increase the interest rate and vice versa.

Country's risk: the riskier a country, the more effective interest rate should be applied. An equal 2% of effective interest rate between Indonesia and Singapore will make investor choose Singapore than Indonesia from this point of view. That's why safest country used as benchmark by other country in make their decision. So far, most country in world make decision regarding their central bank after decision from US central Bank.For example, Bank Indonesia(Indonesia's central Bank) keep the spread of interest rate and inflation wider than US spread.
However, there are already some changes in using US as benchmark by another country regarding latest situation.


Credit traffic: high interest rate make people unwilling to borrow money or make credit, and economic traffic will be significantly affected by this. The reason if this is more active money transferred, which is mean money circulation happen faster, more people could use the money, more active economy,in the end is higher economic growth. Also this is one reason why stable country, such as developed country have much lower interest rate compare with developing one. Japan, in fact has less than 1% interest rate and at some times hits deflation condition (interest rate less than 0), however there are also other factors explain this anomaly. One of it is Cultural behavior.


Note that, all list above based on my own conclusion so far from newspapers and some sources, and my intuition tell me its work that way, CMIIW. I mean it is not theoretical explanation, thats why clarification of issue above are highly appreciated.

Also note that in some circumstances there are some exceptions of contrary thing actually happen, for example, china government recently announced that it will help dollar not to fall further, from early thought low dollar value could make more power for china to spend, but since china income highly driven by its export, especially to US, lower dollar means lower income. also most of china reserve is in Dollar, 1 basis point(which is 0.01%) movement in dollar value will affect reserve of big country like china value of millions of dollar .

Another good news

It's an extension of my previous post regarding the Indonesia government strategy of handling some turbulences happen in world market, especially about weakening dollar and rising oil price.

I was wrong, but I'm quite happy because of that. previously, i worried about holding the foreign currency reserve in dollar because of trend that dollar tend to have higher probability to enter recession situation. Holding too much reserve in dollar will make us fall together with US if recession takes place.

But that is not the case. This morning I read news about government decision to lower local currency (rupiah) interest rates 25 basis point,0.25 %, from 8.25% into 8%.

Before we discuss about this further, I've provided one blog describes what factors affect central bank decision in raising or lowering interest rate.

in conclusion, one thing to describe almost all possible things is, Indonesia government gave signal that they are believe the economic growth in the future will be better. Negative effect of this decision is possibility in short term investor will take their fund abroad, make rupiah value lower than before, but taking decision of lowering interest rate should be also together with responsible to handle this kind of situation and I believe it is the case, Indonesia has higher reserve than before 1997, the year asian economic recession happened.

Another good news, the point which prove I was wrong, I though lower dollar and higher oil price will make reserve lower, but it works in contrary, it gains 800 million dollar for a month in government reserve because of those two situations. I believe the answer is a lot of reserve in Euro since the deputy governor of central Bank said: "decreasing value of dollar with respect to Euro make the foreign reserve value higher". moreover, Euro proportion must be higher than dollar since unfavorable movement in dollar make the reserve value higher. She also said :"Higher oil price give more income from Oil sector which directly add to reserve".

So far the central bank strategy has succeeded in hedging, prevention against unfavorable event, hopefully it will works in the future.