Temasek adjudged to have broken competition law; must sell Indosat or Telkomsel

20 Nov 2007

Indonesia’s anti-trust agency, the Business Competition Supervisory Commission (KPPU), reported yesterday it had found evidence that Temasek Holdings had broken local competition law and ordered the Singaporean government’s investment arm to sell off either its Telkomsel or Indosat stake within two years. In addition, the KPPU said it was looking to fine Temasek Holdings and its telecoms units USD2.7 million each for breaching competition rules. It also says that anyone buying Temasek’s shares must not own more than 5% of the total shares on sale and must not have a link with the investment arm or other buyers.

Temasek’s wholly owned ST Telemedia (STT) unit currently owns 75% of Asia Mobile Holdings, which itself has a 41.9% interest in Indosat, owner of mobile network operator Satelindo. STT acquired the stake in 2002 for USD634 million, but has seen the equity’s value soar to USD2.2 billion today. Temasek also holds 54.15% of Singapore Telecom which itself has a 35% interest in Telkomsel. Together, the two Indonesian companies control more than 80% of the domestic mobile market. ‘Temasek’s cross ownership structure has been causing a price leadership in Indonesia’s telecommunications industry. Telkomsel as the market leader has been setting prices for cellular communications services excessively,’ the KPPU said in a statement. In its ruling, the KPPU said that the Singapore government’s investment vehicle had breached Article 27 of a law on anti-monopoly practices and uncompetitive behaviour, which had adversely affected competition and resulted in excessive pricing. Although Indonesia has some of the highest mobile phone tariffs in the world, some industry watchers have warned that forcing Temasek to sell one or other of its assets might scare off foreign investors. For its part, the investment vehicle says it is not guilty and that it plans to contest the ruling. ‘Temasek will fight this decision … the decision makes no sense. It ignores the facts,’ said Simon Israel, executive director of Temasek. ‘Temasek holds no direct stake in the two companies and plays no role in their business decisions and operations’, he added.