Indosat plans to invest US$1 billion to boost growth

Andi Haswidi, The Jakarta Post, Jakarta

The country's second largest phone company, PT Indosat, has set aside a minimum of US$1 billion in capital expenditure this year to bounce back from slower growth last year.

"This year's net profit growth will be somewhat equal to income growth which is around 20 percent," Indosat finance director Wong Heang Tuck told reporters last week.

Last year, the telecommunications company, which is 42 percent owned by Singapore Technologies Telemedia, suffered a 13 percent decline in net profit to Rp 1.41 trillion (approximately $154 million) from Rp 1.62 trillion in 2005.

This is despite the company's total revenue increasing by 6 percent from Rp 11.59 trillion in 2005 to Rp 12.24 trillion in 2006, with its cellular division contributing about 75.4 percent, its data division contributing 15.5 percent and its fixed phone division contributing 9.1 percent.

"In the first half of 2006, our performance was not good, affecting our overall result for the year," Wong said, adding that in the second half of the year the company entered a phase of recovery.

Wong explained that the weak performance in the first half of the year was due to problems in integrating the Satelindo and IM3 networks with Indosat's own network, after a merger in 2005.

"However, since mid 2006 Indosat resolved these problems and has devised several marketing initiatives that will make Indosat the most innovative company in the market and regain growth momentum."

To retain momentum, the company plans to allocate an aggressive capital expenditure budget of $1 billion, 50 percent of which will come from the internal budget and the remaining $500 million from loans.

"In the initial stage, we will issue bonds. After that, we will look for loans from bank syndications, dollar bonds or through other mechanisms."

Indosat marketing director Wahyudi Wijayadi said the company planned to use the fund to expand its telecommunications network, including building another 3,500 to 4,000 base transceiver stations across the archipelago.

"Through that, we aim to attract about five to six million new customers," Wahyudi said.

As of 2006, the company had a total of 16.7 million cellular phone subscribers.

Wahyudi said the target was sensible as growth in the country's cellular industry was far from reaching a plateau.

According to research conducted by Credit Suisse, Indonesia's cellular market, including fixed wireless phones, could grow by 24.8 million new subscribers in 2007.

The company also plans to remain focused on its unique positioning in the 3G market.

"Our 3G positioning is quite different to other operators. We are focused on wireless broadband since internet penetration in Indonesia is limited and such services are not widely offered," Wahyudi said.

"We have launched the service in Jakarta and Surabaya and plan to offer the service in eight more cities later this semester," he said.