Deregulation and the Indonesian telecom sector

Abstract

This comprehensive project was done with and for SSB Citi Asset Management, Singapore. In particular, it involved initiating coverage of the Indonesian telecom companies for SSB Citi's equity research department. The project was done in the context of the recent deregulation of the Indonesian Telecom sector. Deregulation implies two broad trends. • The increase in demand spurred by new and better services following the removal of techno regulatory barriers. • The increase in supply due to enhanced competition. These effects act in opposite directions when determining an individual firm's returns. The first part of the project, hence involved case studies of six sectors that underwent deregulation and the determination of the impact of deregulation on firm/industry's long-term returns. The second part of the project involved drawing inferences from these case studies for the telecom sector. The determination of the long term trend in returns is particularly important as more than 60% of the value in a telecom company rests in the terminal. The third phase of the project was modeling the Indonesian tel cos. This involved identifying the revenue and cost drivers, making assumptions regarding growth rates, market shares, apex and other critical variables and validating the assumptions by talking to company personnel and other industry experts. This report has 3 parts. • Case studies on the impact of deregulation in 6 sectors. (Chapter 1 to 5) • The implications of deregulation for the telecom sector. (Chapter 6) • Company reports on PT Indonesia and PT Telecom. (Chapter 7 and 8)