TELKOMSEL

TRANSFORMING AN EMERGINGMARKET STATE ENTERPRISE

Year : 2000

Syndicate 1 X47
Widya Wardani | 29112003 Gekan Purnama Zainal | 29112006 Eliandri S. Wulandari | 29112032 Imam Hudori | 29112098 An Am Ta | 29112114

Indonesia Macro Situation

POLITICAL, ECONOMY AND SOCIAL BACKGROUND

INDONESIA MACRO SITUATION

1965 1998 : The New Order Era (Suharto)

1982 - 1985 Proliferation of nottariff barriers in the form of restrictive licenses Reforms in the banking and tax system (to encourage growth in non-oil industries) Export restrictions of some unprocessed agricultural commodities (to ensure domestic availability and promote domestic processing capability) 1985 - 1993 Measures to increase private sector investment and introduce stimulate nonoil export Established reform to provide exporters with access to imported inpur 1994 - 1996 Liberalize Foreign investment/ownership Reduce average tariff Sign multilateral and regional trade reform Establish privatization plan for state-owned enterprise

Deregulated, liberalized, and debureaucratized economy

POLITICAL, ECONOMY AND SOCIAL BACKGROUND

INDONESIA MACRO SITUATION

1997 1998 : Indonesia Monetary Crisis

The IMF and World Bank agreed to help reconstruction, imposed condition form, incl. removing monopolies and setting independent regulatory agencies Effect : In 1999, 24 % of Indonesian Population is indicated as poor people

Start from 1998 : Reformation Era

Re-established IMF and donor-community support for an economic stabilization program Released several prominent political and labor-prisoners, initiated investigations into the unrest, and lifted controls on the press, political parties and labor unions.

Indonesia Cellular Telecommunication Industry

TELCO INDUSTRY IN GENERAL

INDONESIA CELLULAR-TELCO INDUSTRY

Domestic Telecommunication
Established in 1884 under the Dutch Indies Government Providing domestic telecommunication service (telephone, telex, telegram, satellite, leased lines, electronic mail, mobile communication and cellular services First IPO in November 1995 on JSX and SSX, next in NYSE and LSE, also traded on Tokyo Stock Exchange through POWL

International Telecommunication

Established in 1967 as a wholly-owned subsidiary of ITT Taken over by the Indonesian Government in 1980 In October 1994, held an IPO in JSX, SSX and NYSE

TELCO INDUSTRY IN GENERAL

INDONESIA CELLULAR-TELCO INDUSTRY

CELLULAR-TELCO OWNERSHIP

INDONESIA CELLULAR-TELCO INDUSTRY

Telkomsel

Satelindo

CELLULAR-TELCO MARKET

INDONESIA CELLULAR-TELCO INDUSTRY

Cell-Telco Players
Natiowide Service
Telkomsel

Regional Player
Excelcomindo Komeslindo
Metrosel Mobisel Telesera

Satelindo

Market Share
13% 12% 30% 45% Telkomsel Satelindo Excelcomindo Others

CELLULAR-TELCO MARKET

INDONESIA CELLULAR-TELCO INDUSTRY

Customer and Market Penetration

Telco Market Penetration Fixed-Line
68.40%

Customer Growth

Cellular

48.40%

21.30% 19.90% 3.10% 1.70% 9.20% 5.00% 4% 8.40%

Indonesia Malaysia Singapore Thailand Philipine

Investor
Impact of monetary crisis : Instability in politic made foreign investor didnt continue invest in Indonesia Telkom & Indosat became among the cheapest telecom stocks in Asia

INDONESIA CELLULAR-TELCO INDUSTRY

REGULATION

Before crisis, foreign company involvement in fixed-line services was limited and only 35 % 49 % foreign ownership was allowed After crisis, Full foreign ownership of cellular, paging, data and other valueadded services through foreign investment were allowed (although still limited in some case)

Government set maximum tariff limits for installation fees, connection and activation fees, airtime rates, and monthly subscription fee

BUSINESS CHALLENGE

INDONESIA CELLULAR-TELCO INDUSTRY

Ethical and Law Violation

Nepotism & Collusion
Telkomsel had access to install the antenna on top of the Telkoms building all over Indonesia as to minimize the cost of rent, while other operators do not have access to the same 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 spectrumn licenses were awarded. 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

INDONESIA CELLULAR-TELCO INDUSTRY

Ethical and Law Violation

Corruption
The Dutch firm KPN purchased its 17 percent stake in Telkomsel, worth $300 million, in 1996. Investigative journalists revealed in 1999 that as a condition to this purchase, KPN had been required to help Setiawan Djody, a business partner of Tommy Suharto (then-President Suhartos son), get financing for his company, Setdco, in order to purchase a 5 percent stake in Telkomsel. KPN had essentially guaranteed a bank loan to Setdco by granting a put option to the bank. KPN promised to buy the shares from the bank at a minimum price, assuring that the bank would not take a loss if the loan to Setdco turned sour. Crime (From Customer) Customers were giving fake names and addresses, and could not be tracked down when it came time to collect on bills.

TELKOMSEL BUSINESS REVIEW

COMPANY PROFILE

Established on 1995, owned by TELKOM and INDOSAT First service was Kartu Halo Post Paid Service

Share Ownership
BEFORE MONETARY CRISIS 1995 Telkomsel was established by Telkom and Indosat. 1996 KPN Netherlands (KPN) and PT Setdco Megacell Asia (Setdco) acquired stakes in Telkomsel of 17.3 % and 5%.

AFTER MONETARY CRISIS 2001 Telkom increased its ownership to 77.7% in an acquisition deal over Indosats shares. KPN and Setdco sold their shares to Singapore-based SingTel Mobile 2002 SingTel increased its ownership by 12.7%, bringing its total ownership in Telkomsel to 35% and leaving Telkoms ownership at 65%

BUSINESS ASSESSMENT
Capabilities and Competitive Assessment
Parameter Customer Service Marketing Mobile Data Service Result

TELKOMSEL BUSINESS REVIEW

Note

Perceived customer care had fallen behind the key competitors Satelindo and Excelcomindo lacked a systematic approach to designing and launching new products and services could either aggressively focus on the mobile data market, or consider it as an option play, selectively building capabilities and ramping up after the market grew Customers often had to try numerous times before a call would go through, and once connection was established, calls were frequently dropped mid-conversation Telkomsels billing systems, stretched to the limit, could not support service growth Problem in Organization Culture and Performance system

Network

Enabling Infrastructure Organization

- = Bad Result

+ = Prospective Result

? = depends on strategy

IMPROVEMENT STRATEGY
Strategy Objective :
Fulfill The Need of Market that has growth sustainably and rapidly

TELKOMSEL BUSINESS REVIEW

Strategy Recommendation : Build a service culture. Create a marketing innovation engine, to gain market share in mobile voice services. Set up a data incubator, in anticipation of long-term growth in the data services market. Invest in the network ahead of growth in demand. Build IT and billing-system structures to service the growth in demand. Build a high-performance organization.

IMPROVEMENT STRATEGY Financing Issues

Common Fund

TELKOMSEL BUSINESS REVIEW

Retain earning

Goverment subsidy

domistically Financing Method Issue bonds internationally

Partially Privatize Fully

IMPROVEMENT STRATEGY
Financing Method Finance Internally from Retained Earning Pros

TELKOMSEL BUSINESS REVIEW

Cons

- No change at company control

- Insufficient Fund

Finance Via Government Subsidy Issue Bonds Partially Privatize Fully Privatize

- Availability of fund is guaranteed -Large Amount of Available -Not affected control of shareholder - Large Amount will be Available - Large Amount will be Available

-Limited amount of Fund -More sophisticated system

- Increase amount of interest in period base -Decrease in company control -Loss all control of shareholder -National/Political Issue

Current Situation

TELCO INDUSTRY OVERVIEW

Southeast Asia Data Comparison Number of Population Indonesia Philipines Vietnam Thailand Malaysia Singapore

CURRENT SITUATION

: 240 Million : 103 Million : 96 Million : 67 Million : 28.7 Million : 5.14 Million

Source : Mobile Southeast Asian Report 2012

Indonesia Mobile Users

Source: Forst & Sullivan 2012 Report Indonesia Telecom Outlook

Source: http://redwing-asia.com/context/telecoms-industry-structure/

CHANGING IN TELCO INDUSTRY AFTER 1999

CURRENT SITUATION

In August 2001, government abolished the exclusive rights of TELKOM in providing fixed line services and Indosat in providing fixed line services Improved overall interconnection between incumbent and new operators Commitment to eliminate all of forms of monopoly in 2010 led to more than registered operators / service providers Commitment to increase transparency of regulatory led to establishment of Indonesian Telecommunication Body (BRTI) in July 2003. In August 2005, the government announced the usage of 1900 MHz spectrum for 3G and 800 MHz spectrum for CDMA 3G License tendered by the government in 2006 and 2013 is won by TELKOM/Telkomsel, Indosat, Excelcomindo, Hutchison, and Lippo Telekom.

TELKOMSEL
POST CASE ANALYSIS

POST ANALYSIS
140,000 120,000 100,000 80,000 60,000 40,000 20,000 Base Station 2000 2001 2002 2003 2004 2005

PT TELEKOMUNIKASI SELULER (2000-2012)

BTS and Customer Growth

2006

2007

2008

2009

2010

2011

2012

Customer (In Million) 1,687

3,252 1,995

6,011 3,483

9,589 4,820

16,291 24,269 35,597 47,890 65,300 81,644 94,010 107,017 125,146 6,205 9,895 16,057 20,858 26,872 30,992 36,557 42,622 54,297

1,411

Customer (In Million)

Base Station

In the year of 2000, PT Telkomsel only have 1.411 BTS with 1.687 mill Customer Base. After using the Investment Strategy to put more in Infrastructure, the number of BTS growth continously in line with the number of Customer. In the end of 2012, the BTS that telkomsel have is 54.297 with the Customer Base growth to 125.146 mill

POST ANALYSIS

PT TELEKOMUNIKASI SELULER (2000-2012)

Call Success Rate

100.00%
97.84%

The effect of improvement in PT Telkomsel infrastructure, such as addition in BTS, was the improvement in Call Success Rate. In the year of 2000, the Call Success Rate only in level 88.22%. After the investment and improvement has been made, in 2009, the rate in growing up to 97.84%

90.00%
88.22%

80.00% 2000 2009

POST ANALYSIS

PT TELEKOMUNIKASI SELULER (2000-2012)

In the year of 2012, PT Telkomsel received total of 27 awards from their peers, consumers, industry observers and the goverment. One of which is Indonesia Service to Care Award 2012 The Best Cellular Operators from Marketeers & Markplus. This is the prove that service culture already pervaded in PT Telkomsel.

POST ANALYSIS
Net Income
16,000 13,160 12,000

PT TELEKOMUNIKASI SELULER (2000-2012)

15,715

In the end, all the Invesment that PT Telkomsel made in improving the infrastructure, building service culture, etc, are successfully increasing the Net Income In the year of 2000, Net Income of PT Telkomsel in Rp.1.345 billion and in the year of 2009, Net Income jumped to Rp.13.160 billion. In last annual report of Telkomsel (2012), Net Income reached Rp.15.715 billion

8,000

4,000 1,345 2000 2009 2012

 2013, Syndicate 1 - X47

STRATEGY BEHAVIOR & GAME THEORY

LITERATURE REVIEW

Strategy behaviour
Its refer to the plan of action or behavior of an oligopolist, after taking into consideration all possible reactions of its competitors, as they compete for profits or other adventages.

Game Theory
It was the breakthrough in the study of oligopoly. It is concerned with the choice of the best or optimal strategy in conflict situations.

Game theory shown how an oligopolistic firm makes strategy decisions to gain a competitive adventage over a rival or how it can minimize the potential harm from strategic move by a rival .

STRATEGY BEHAVIOR & GAME THEORY

LITERATURE REVIEW

Pay-off Matriks

STRATEGY BEHAVIOR & GAME THEORY

LITERATURE REVIEW

COMPETITORS
current service handling current service handling
improve the service improve the service

(2-5 days , 24 hours)

(24 hours, 24 hours)

( 2-5 days,less than 24 hours)

(24 hours, less than 24 hours)

Both TELKOMSEL and its competitors have their dominant strategy of business stream while telkomsel stand along with its ways of services (ex.managing their customer complains) and its competitor tried to improved their services based on international standard.