Reaching Out over the Net

Telekomunikasi Indonesia, or Telkom, may be on the verge of having it all. The Indonesian state-controlled company enjoys a virtual monopoly over 8 million phone lines strung across the vast Southeast Asian archipelago, which stretches 3,000 miles from Singapore to Australia. Its cellular subsidiary, Telkomsel, has 51% of the wireless business in the world's fourth most populous nation. But one area remained tantalizingly out of Telkom's reach: international calls, the territory of state-owned rival Indonesian Satellite Corp., or Indosat.

Until last year, that is. That's when Telkom started offering international service. At the same time, new rules took effect, giving Indosat the green light to build local-phone lines so it could compete on Telkom's home turf. In a telecom market long divided between two companies, competition is beginning to take root. "We are on our way into a new era," says Kristiono, president-director and CEO of Telkom.

The new era is starting off with a bang. Over the past year, Telkom's revenues have soared 56%, to $2.6 billion, while net income nearly doubled, to $981 million. The biggest reasons were a 15% increase in local-phone rates and an 85% increase in the number of wireless subscribers. The market is far from saturated: Only 3.7% of the country's 220 million people have fixed lines, and 4.5% have cell phones.

Telkom also is starting to make progress in the international market against Indosat. In May, 2002, the company dove into the market with Internet technology that required customers to dial a lengthy code before making a call. The service was 60% cheaper than Indosat's rates, but customers found it cumbersome. Then, last December, Telkom introduced a more user-friendly version of the service, requiring only a three-digit access code. Although the discount from Indosat's rates is only 40%, customers are biting. Revenues from international calls totaled $6 million in the first quarter, compared with just $324,000 in the year-earlier period. "With this new technology, Telkom may have the opportunity to grab more of the pie," says analyst Alistair Scott of Merrill Lynch & Co. in Hong Kong. Telkom soon will be allowed to sell regular international phone calls, too. Then it may start eyeing the whole pie.

By Michael Shari in Singapore

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