Learning from Temasek Case

On 19 November 2007, the Commission for Business Competition Supervision (“KPPU”) declared that Temasek Holdings, a holding company owned by the Singapore Government, along with eight other firms namely Singapore Technologies Telemedia Pte. Ltd. (“STT”), STT Communications Ltd., Asia Mobile Holding Company Pte. Ltd, Asia Mobile Holdings Pte. Ltd., Indonesia Communication Limited, Indonesia Communication Pte.Ltd., Singapore Telecommunications Ltd. (“SingTel”), Singapore Telecom Mobile Pte. Ltd, breached the Anti Monopoly Law. Temasek Holdings is considered to have violated Article 27 of the Law No. 5/1999 regarding the Prohibition of Monopoly Practice and Unfair Competition (“Law No. 5/1999”). This Article prohibits business players from owning majority shares in several companies of the same type and the same market or to establish several companies owning the same type of business activity in the same respective market if these ownerships create a business player or a group of business players owning a total of more than 50% market share of a certain type of goods or services.

In 2002 STT, a 100%-subsidiary of Temasek Holdings, won the right to buy a 40,77% stake in state-owned telecommunications company, Indosat. Before its acquisition another Temasek subsidiary, SingTel, has bought a 35 % share in Telkomsel, the biggest cellular operator in Indonesia. Therefore, at the moment, Temasek Holdings owns 35 % of PT Telkomsel through its subsidiary SingTel and 40,77 % of Indosat through STT.

Even though Temasek Holdings is not the majority shareholder, KPPU was convinced that with this structure, Temasek Holdings had the capability to control both Telkomsel and Indosat and that this control caused unfair business competition. According to KPPU’s press release, this caused a slower development in comparison with Telkomsel and therefore the entire mobile telecommunications in Indonesia became uncompetitive. This condition is also shown by the development of Indosat’s Base Transceiver Stations (“BTS”) which, according to the KPPU, developed slower than Telkomsel and XL; the other two big operators in Indonesia.

Furthermore, KPPU found that Temasek’s’ ownership of shares violated Law No. 5/1999, which bars monopolistic practices and unfair business competition. In its decision, KPPU stated that the ownership structures owned by Temasek Holdings through its subsidiaries SingTel and STT in Telkomsel and Indosat respectively caused price leadership in the telecommunication industries. In KPPU’s opinion, Telkomsel, as market leader, had fixed the price of cellular telecommunication service at an excessive level, causing losses to the consumers between Rp 14.3 trillion and Rp 30.8 trillion during the period 2003 to 2006. Therefore, KPPU decided that Telkomsel had violated article 17 paragraph (1) Law No. 5/1999 regarding monopoly practices.

The KPPU decision has triggered controversy and some commentators believe that the decision will affect the investment climate in Indonesia. Potential investors believe that the KPPU decision shows that law enforcement is negatively biased against foreign investors in Indonesia. In addition, the decision still left some important questions for all stakeholders. Temasek, together with its subsidiaries, is stated to have violated article 27 (1) Law No. 5/1999 which states that a business player is prohibited from having majority shares in several companies of the same type which create market share control.

In this case actually, Temasek is not the majority share holder in Telkomsel. Temasek through SingTel has only 35% shares. Apparently, KPPU has interpreted majority shares as having control shareholdership even though the shareholdership is less than 50%. In the case of Indosat this interpretation is understandable because STT is the largest shareholder. However, in the case of Telkomsel this decision is difficult to understand since the majority shareholder in Telkomsel is PT Telkom. Temasek denies having control or influence or having any say in the policies, operations or decisions of Indosat or Telkomsel, whether directly or indirectly through STT and SingTel respectively. Temasek states that the Indonesian Government holds a Series A Share (commonly known as a golden share) in Indosat which gives it special powers including veto rights. The government’s interest in Indosat is only about 14.3%, but it nominates the majority of Indosat’s directors (including the President Director). STT states that it has no special rights or privileges.

Telkomsel is controlled by its majority shareholder Telkom, which has 65% of the shares and which nominates 3 out of 5 of the Telkomsel directors as well as 3 out of 5 of the Telkomsel commissioners.

Another interesting fact in this case is that Temasek is not the owner of the shares in either Telkomsel or Indosat. The owner of the 40,77 % shares in Indosat and the 35% shares in Telkomsel are subsidiary companies of Temasek, namely STT and SingTel. In running their business, STT and SingTel are technically independent, even though there are indications that they are acting in a coordinated way. Apparently, in this case the KPPU has considered that Temasek and its subsidiaries as 1 (one) business player. Temasek denies that it directs, controls, coordinates or materially influences STT and SingTel. It states that each subsidiary of Temasek is run and managed independently by its respective board and management.

The joint market share of both Telkomsel and Indosat is around 90% and has increased in the recent years as shown below. So has profitability. It is however still unclear what were the references of prices and profitability to determine that they are excessive.


Temasek argues Indosat’s market share in terms of subscribers has fallen by six percent since 2004, while Telkomsel's has gone up approximately two percent, with the remaining market share going to Excelcomindo and Mobile-8. Thus the joint market share of the two companies at the focus of the allegations is actually declining.

Temasek points at the fact that the other operators have been making significant investments in the market to deny that market power was being exercised by Telkomsel and Indosat. ‘Consumers, have been the beneficiaries of competition in the market, with falling prices, increased penetration and usage, increased coverage, and new services being made available’, says Temasek.

The KPPU has taken a stance at perceived efforts to exercise market control, even though its considerations appear somewhat difficult to understand from a legal point of view. The Indonesian anti-trust law also gives the opportunity to the investor to challenge the decision made by KPPU. The investor still has the right to appeal before the district court and the Supreme Court so there is still a long way for this case to a final and binding decision.

Based on this case, foreign investors that are willing to invest in Indonesia should be very careful not to go near situations that can be perceived as efforts to control the market. As the Temasek case shows, a substantial shareholding, even if it is not a majority shareholding, can be regarded a controlling share. If a company has two such stakes in two different big companies in the same market, each with large market shares, this can be considered an effort to exercise undue influence on the market. Therefore, a legal opinion from an Indonesian legal expert in anti monopoly law, taking into account this decision, is worth wile. The KPPU can give decisions which can annul any business transaction in Indonesia that violates Law No. 5/1999. The decision can however still be appealed , before the District Court and of course before the Supreme Court.

That is what will happen in the Temasek case. It will be very interesting to see whether the District Court, and ultimately maybe the Supreme Court, will uphold KPPU’s judgment of the facts and the alleged intentions of Temasek. It will define the legal framework for companies with large market shares.

Elmar Bouma, Muqthi Ali, Maria Ardyaningtyas.
Indonesia Netherlands Association Bimonthly Magazine