By Syndicate 3:NIENDY YUSFITASARI (TEAM LEADER)ANGGORO INDRO PRADIPTODEDY SURYAWANWAHDANI HAKIMPRANA SABDA PRABAWA

TELKOMSEL: TRANSFORMING AN EMERGING-MARKET STATE ENTERPRISE

The Case Issue

POLITICAL, ECONOMIC, AND SOCIAL BACKGROUND

REGULATION AND DEREGULATION

TELKOMSEL’S STRATEGY REVIEW

INDONESIA’S CELLULAR TELECOMMUNICATIONS MARKET

SPECIAL CHALLENGES OF DOING BUSINESS

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1997-1998 : Indonesia Monetary Crisis• 1997 Indonesia was hit by the Asian financial crisis, accompanied by the worst

drought in 50 years as well as falling prices for oil, gas, and other commodity exports.

• The rupiah plummeted from 2,500 to 17,000 to the US dollar, inflation soared, and capital fled.

• The IMF and World Bank, agreeing in 1997 to help reconstruction, imposed conditions for reform, including removing monopolies and setting up independent regulatory agencies.

• GDP growth was still very low at 0.8 percent in 1999, compared to 7.8 percent in 1996.

• In 1999 there were 48 million poor people, or 24 percent of the total population.

POLITICAL, ECONOMIC, AND SOCIAL BACKGROUND

INDONESIA’S CELLULAR TELECOMMUNICATIONS MARKET

Templates• Telco Industry In General

Nationwide Service

Telkomsel

Satelindo

Regional Players

Excelcomindo

Komselindo

Metrosel

Mobisel

Telesera

Customer and Market Penetration

INDONESIA’S CELLULAR TELECOMMUNICATIONS MARKET

Telco market Penetration 1999-2000

Customer Growth1996-2000

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INDONESIA’S CELLULAR TELECOMMUNICATIONS MARKET

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• InvestorImpact of monetary crisis :1. Instability in politic made foreign investor didn’t continue invest in

Indonesia.2. Telkom & Indosat became among the cheapest telecom stocks in Asia.3. Depreciation of the rupiah made it hard for operators to pay their US-dollar

denominated debts: Excelcomindo had US$400 million in debt, Satelindo US$250 million, and Telkomsel US$150 million.

Nationwide Service Cellular Ownership1999-2000

Cross Shareholding Among Telecom Companies (Exhibit 2)

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REGULATION

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• Before crisis, foreign company involvement in fixed-line services was limited and only 35–49 %.

• After crisis, Full foreign ownership of cellular, paging, data and other value-added services through foreign investment were allowed. (although still limited insome case)

• Government set maximum tariff limits forinstallation fees, connection andactivation fees, airtime rates, and monthly subscription fee.

BUSINESS CHALLENGE

• Nepotism & Collusion

o Telkomsel had access to install the antenna on top of the Telkom’s building all over Indonesia as to minimize the cost of rent

o Licenses to use the electromagnetic spectrum, without which cell phone companies could not operate, were awarded not by open auction. Telkomsel benefited from its government ties when spectrum licenses were awarded.

o Satelindo was given priority when the government initially gave out cellular service licenses as has been known that PT. Satelindo part owned by PT. Bimantara Citra, the holding company for ex-President Suharto's second son, Bambang Trihatmodjo.

BUSINESS CHALLENGE

• Corruption

In order to purchased 17% stake in Telkomsel, KPN had to guaranteed Sedtco’s bank loan to also buy 5% stake by granting a put option to the bank

• CrimeCustomers were giving fake names and addresses, and could not be tracked down when it came time to collect on bills.

PROBLEM

Market Analysiso Cellular market was set for rapid & sustained growth

Capabilities & Competitive Assestmento Customer Service: customer perceived of bad serviceo Marketing: lack of product & service innovationo Mobile data service: preparation for upcoming increasing

demand of mobile datao Network: poor network quality & perfomanceo Enabling Infrastructure: billing system not ready for service

growtho Organization: individual performance not reflecting

corporate’s performance

Ensure investment in network capacity in order to guarantee quality service to existing clients & to capture new clients and retain its dominant market share

Build a high-performance organization

Innovation in marketing

Invest in network ahead of growth in demand

Build a service culture

Set up data incubator

Build IT & billing system structures

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THANK YOU!

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