DECISION The Case Number: 07/KPPU-L/2007 › docs › Putusan › putusan_temasek_eng.pdfSingapore...

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COPY DECISION The Case Number: 07/KPPU-L/2007 The Commission for the Supervision of Business Competition of the Republic of Indonesia hereinafter referred to as Commission that investigates the suspected infringement of the Law No.5/1999 on the Prohibition of Monopoly Practices and Unfair Business Competition, hereinafter referred to as the Law No.5/1999 conducted by: 1. Reported Party I: Temasek Holdings Pte. Ltd. Alamat: 60B Orchard Road, #06-18 Tower 2, The Atrium@Orchard, Singapore 238891; ------------------------------------------- 2. Reported Party II: Singapore Technologies Telemedia Pte. Ltd. Alamat: 51 Cuppage Road #10-11/17, StarHub Centre, Singapore 229469; ------------------------------------------ 3. Reported Party III: STT Communications Ltd.Alamat: 51 Cuppage Road #10-11/17, StarHub Centre, Singapore 229469; --------------------------------------------------------------- 4. Reported Party IV: Asia Mobile Holding Company Pte. Ltd. Alamat: 51 Cuppage Road #10-11/17, StarHub Centre, Singapore 229469; ------------------------------------------------ 5. Reported Party V: Asia Mobile Holdings Pte. Ltd. Alamat: 51 Cuppage Road #10- 11/17, StarHub Centre, Singapore 229469;------------------------------------------------------- 6. Reported Party VI: Indonesia Communications Limited. Alamat: Deutsche International Trust Corporation (Mauritius) Limited, 4th floor, Barkly Warhf East, Le Caudian Waterfront, Port Louis Mauritius;------------------------------------------------------- 7. Reported Party VII: Indonesia Communications Pte. Ltd. Alamat: 51 Cuppage Road #10-11/17, StarHub Centre, Singapore 229469; ------------------------------------------------- 8. Reported Party VIII: Singapore Telecommunications Ltd. Alamat: 31 Exeter Road Comcentre #28-00, Singapore 239732; ----------------------------------------------------------- 9. Reported Party IX: Singapore Telecom Mobile Pte. Ltd. Alamat: 31 Exeter Road Comcentre #28-00, Singapore 239732; ----------------------------------------------------------- 10. Reported Party X: PT. Telekomunikasi Selular. Alamat: Wisma Mulia lt. 15, Jl. Jend. Gatot Subroto No 42, Jakarta 12710;--------------------------------------------------------------

Transcript of DECISION The Case Number: 07/KPPU-L/2007 › docs › Putusan › putusan_temasek_eng.pdfSingapore...

Page 1: DECISION The Case Number: 07/KPPU-L/2007 › docs › Putusan › putusan_temasek_eng.pdfSingapore Technologies Telemedia Pte. Ltd. Alamat: 51 Cuppage Road #10-11/17, StarHub Centre,

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DECISION

The Case Number: 07/KPPU-L/2007

The Commission for the Supervision of Business Competition of the Republic of Indonesia

hereinafter referred to as Commission that investigates the suspected infringement of the

Law No.5/1999 on the Prohibition of Monopoly Practices and Unfair Business

Competition, hereinafter referred to as the Law No.5/1999 conducted by:

1. Reported Party I: Temasek Holdings Pte. Ltd. Alamat: 60B Orchard Road, #06-18

Tower 2, The Atrium@Orchard, Singapore 238891; -------------------------------------------

2. Reported Party II: Singapore Technologies Telemedia Pte. Ltd. Alamat: 51 Cuppage

Road #10-11/17, StarHub Centre, Singapore 229469; ------------------------------------------

3. Reported Party III: STT Communications Ltd.Alamat: 51 Cuppage Road #10-11/17,

StarHub Centre, Singapore 229469; ---------------------------------------------------------------

4. Reported Party IV: Asia Mobile Holding Company Pte. Ltd. Alamat: 51 Cuppage Road

#10-11/17, StarHub Centre, Singapore 229469; ------------------------------------------------

5. Reported Party V: Asia Mobile Holdings Pte. Ltd. Alamat: 51 Cuppage Road #10-

11/17, StarHub Centre, Singapore 229469;-------------------------------------------------------

6. Reported Party VI: Indonesia Communications Limited. Alamat: Deutsche

International Trust Corporation (Mauritius) Limited, 4th floor, Barkly Warhf East, Le

Caudian Waterfront, Port Louis Mauritius;-------------------------------------------------------

7. Reported Party VII: Indonesia Communications Pte. Ltd. Alamat: 51 Cuppage Road

#10-11/17, StarHub Centre, Singapore 229469; -------------------------------------------------

8. Reported Party VIII: Singapore Telecommunications Ltd. Alamat: 31 Exeter Road

Comcentre #28-00, Singapore 239732; -----------------------------------------------------------

9. Reported Party IX: Singapore Telecom Mobile Pte. Ltd. Alamat: 31 Exeter Road

Comcentre #28-00, Singapore 239732; -----------------------------------------------------------

10. Reported Party X: PT. Telekomunikasi Selular. Alamat: Wisma Mulia lt. 15, Jl. Jend.

Gatot Subroto No 42, Jakarta 12710;--------------------------------------------------------------

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has adopted a Decision as follows:---------------------------------------------------------------------

Council of Commission ; --------------------------------------------------------------------------------

Having read the documents of the case; ------------------------------------------------------

Having read the result of Preliminary Investigation Report; ------------------------------

Having read the result of Further Investigation Report; -----------------------------

Having read the answer of notice of Reported Parties; -------------------------------------

Having heard the testimonies of the witnesses;----------------------------------------------

Having read the Interrogation Official Report (hereinafter referred to as “IOR”);------

THE CONDITION OF THE CASE Considering that after scrutinizing and clarifying the report on 5 April 2007, Commission

Secretariat presented the Report of the Suspected Infringement at the Meeting of Report

Presentation on Suspected Infringement of the Article 27.a of the Law No.5/1999

conducted by Temasek Group and on the Suspected Infringement of Article 17 and Article

25.1.b of the Law No.5/1999

1. Considering that to the presentation of the Report on Suspected Infringement, the

Commission Meeting agrees to follow up the case to the stage of Preliminary

Investigation ;

2. Considering that the Commission issues Confirmation Number

13/PEN/KPPU/IV/2007 dated 9 April 2007 on Preliminary Investigation of the

Case Number: 07/KPPU-L/2007, to perform Preliminary Investigation as from 9

April 2007 to 22 May 2007;

3. Considering that after performing Preliminary Investigation, the Examiner Team

find a strong indication that there is an infringement of the Article 27.a of the Law

No.5/1999 conducted by Temasek Group and on the Suspected Infringement of

Article 17 and Article 25.1.b of the Law No.5/1999 conducted by PT

Telekomunikasi Seluler. Further, the Examiner Team recommends extended

investigation to the stage of Further Investigation ;

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COPYConsidering that based on the recommendation of the Examiner Team, the Commission

issues Confirmation Number 23/PEN/KPPU/V/2007 dated 23 May 2007 stated the

confirmation of extending the Case Number: 07/KPPU-L/2007 to be brought to the stage of

Further Investigation as from 23 May

4. Considering further that the Commission needs to extend Further Investigation, the

Examiner Team, for the matter of the purpose, issues Decision Number:

152/KEP/KPPU/VIII/2007 dated 16 August 2007 on the Extension of Further

Investigation to the Case Number : 07/KPPU-L/2007 as from 16 August 2007 to 27

September 2007;

5. That during the process of investigation, the Examiner Team has heard the

statements of Reported Parties, Witnesses and Government;

6. Considering that the identities and statements of Reporting Parties, Reported Parties

and witnesses have been recorded in IOR and signed by Reported and Witnesses ;

7. Considering that during the process of Preliminary Investigation, Further

Investigation, and Extension of Further Investigation, the Examiner Team has already

collected, examined, and evaluated a numbers of letters and/or documents and other

IOR’s and other convinced evidences;

8. Considering that after performing examination, the Examiner Team composes a

Report of Further Investigation consisting of:

I. Introduction; ----------------------------------------------------------------------------------

A. Basis; ---------------------------------------------------------------------------------------

1. The Confirmation of the Commission for the Supervision of Business

Competition No. 23/PEN/KPPU/V/2007 dated 23 May 2007 on the

Further Investigation of the Case Number 07/KPPU-L/2007; ----------------

2. The Decision of Commission for the Supervision of Business Competition

Number 152/KEP/KPPU/VIII/2007 dated 16 August 2007;--------------------

B. Examiner Team;---------------------------------------------------------------------------

1. Ir. M. Nawir Messi, M.Sc. (Chairperson); ---------------------------------------------------

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COPY2. Dr. Ir. Benny Pasaribu, M.Ec. (Member);---------------------------------------------------

3. Prof. Dr. Tresna P. Soemardi (Member);----------------------------------------------------

4. Didik Akhmadi, A.k., M. Comm (Member); -----------------------------------------------

5. Dr. Syamsul Maarif, S.H., LL.M (Member); -----------------------------------------------

C. Investigators; -----------------------------------------------------------------------------

1. Farid F. Nasution, S.IP., S.H., LL.M; ---------------------------------------------

2. Setya Budi Yulianto, SH;-----------------------------------------------------------

3. Abdul Hakim Pasaribu, SE, Ak; ---------------------------------------------------

4. Anang Triyono, S.E; ----------------------------------------------------------------

5. Elpi Nazmuzzaman, SE; ------------------------------------------------------------

6. Pakasa Bary, S.E; --------------------------------------------------------------------

7. Eva S Manalu, S.H;------------------------------------------------------------------

8. Aru Armando, S.H;------------------------------------------------------------------

D. Clerks; -------------------------------------------------------------------------------------

1. Arnold Sihombing, S.H. M.H; -----------------------------------------------------

2. M. Hadi Susanto, S.H; --------------------------------------------------------------

E. The Investigation Period of Time; -----------------------------------------------------

23 May 2007 to 27 September 2007; --------------------------------------------------

II. The Identities of Reported Parties ; ------------------------------------------------------

1. Temasek Holdings Pte. Ltd. Alamat: 60B Orchard Road, #06-18 Tower 2,

The Atrium@Orchard, Singapore 238891;----------------------------------------

2. Singapore Technologies Telemedia Pte. Ltd. Alamat: 51 Cuppage Road

#10-11/17, StarHub Centre, Singapore 229469;----------------------------------

3. STT Communications Ltd.Alamat: 51 Cuppage Road #10-11/17, StarHub

Centre, Singapore 229469; ----------------------------------------------------------

4. Asia Mobile Holding Company Pte. Ltd. Alamat: 51 Cuppage Road #10-

11/17, StarHub Centre, Singapore 229469; --------------------------------------

5. Asia Mobile Holdings Pte. Ltd. Alamat: 51 Cuppage Road #10-11/17,

StarHub Centre, Singapore 229469;------------------------------------------------

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COPY6. Indonesia Communications Limited. Alamat: Deutsche International Trust

Corporation (Mauritius) Limited, 4th floor, Barkly Warhf East, Le

Caudian Waterfront, Port Louis Mauritius; ---------------------------------------

7. Indonesia Communications Pte. Ltd. Alamat: 51 Cuppage Road #10-

11/17, StarHub Centre, Singapore 229469; ---------------------------------------

8. Singapore Telecommunications Ltd. Alamat: 31 Exeter Road Comcentre

#28-00, Singapore 239732;----------------------------------------------------------

9. Singapore Telecom Mobile Pte. Ltd. Alamat: 31 Exeter Road Comcentre

#28-00, Singapore 239732;----------------------------------------------------------

10. PT. Telekomunikasi Selular. Alamat: Wisma Mulia lt. 15, Jl. Jend. Gatot

Subroto No 42, Jakarta 12710;------------------------------------------------------

III. The Suspected Infringements; ---------------------------------------------------------------

1. Temasek Holdings Pte. Ltd (hereinafter referred to as Temasek) owns

majority of shares in two business activities of the same fields and relevant

market that violates Article 27(a) of the Law No.5 of 1999 ; -----------------

2. PT. Telekomunikasi Selular (hereinafter referred to as Telkomsel) remains

the airtime tariff high that violates Article 17 (1) of the Law No.5 of

1999 ;-----------------------------------------------------------------------------------

3. Telkomsel abuses its dominant posisition to restrain market and the

development of technology that violates Article 25 paragraph 1.b of the

Law No.5/1999 ; ----------------------------------------------------------------------

IV. The Relevant market ; ------------------------------------------------------------------------

4. Under Article 1 (10) of the Law No.5/1999, relevant market is a market

concerning specific coverage or marketing area of business actor over the

likeness or similar goods and/or services or the substitution of such goods

and/or services; -----------------------------------------------------------------------

5. Under the commission law, a market concerning specific coverage or area

of marketing is known as geographical market, while the likeness or

similar goods and/or services or the substitution of such goods and/or

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COPYservices is known as product market. Therefore, the analysis of relevant

market is performed by analyzing both product and geographical market;-

4.1 Product Market; ---------------------------------------------------------------------------

6. Principally, product market analysis is to mention kind of goods and/or services,

likeness or unlikeness, but their substitutions are to compete each other in a case.

To conduct the analysis, a product is treated from several aspects such as utility,

characteristics and price;----------------------------------------------------------------------

7. In general, the market of telecommunication industries can be classified into

network operating, telecommunication service operating and specific

telecommunication operating1. Network telecommunication operating is an

activity of providing and/or servicing network telecommunication to make

telecommunication possible. Specific telecommunication operating is a

telecommunication operating with its special characteristic, allotment, and

operation. Telecommunication service operating, as it mentioned above, is

provided in fixed and mobile networks; ----------------------------------------------------

8. The operating of fixed network or Public Switch Telephone Network (PSTN)

consists of PSTN for local area, PSTN SLJJ, PSTN SLI, Closed PSTN2, and

limited wireless of PSTN or FWA (fixed wireless access)3. Mobile network

operating consists of terrestrial, satellite, and cellular mobile network (cellular

telecommunication)4;--------------------------------------------------------------------------

9. Utility. In general, people are using PSTN telecommunication service, FWA and

cellular telecommunication5 much more than other network telecommunication

services. The cellular telecommunication, PSTN and FWA are provided to transfer

1 See Article 7 to 9 of the Law No. 36/1999 on Telecomunicación 2 Article 9.2 of the Government Regulation No. 52/ 2000 on Telecommunication Operating 3 The Ministrial Decree No. 35/2004 on the operating of fixed wireless access 4 Article 9 ayat (3) of Government Regulation No. 52/ 2000 on Telecommunication Operating 5 The Report of Directorate of Telecommunication-Director General of Posts and Telecommunications on the development of Fixed and Cell Phone (2004-2006)

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COPYvoices and data so that they are no significant differences one to another. From the

point of view of utilities, therefore, PSTN, FWA, and cellular telecommunications

are classified as substitution products; ------------------------------------------------------

10. Characteristic. The significant characteristic differences of “cellular

telecommunication” between PSTN and FWA are their mobile abilities. The

operating service of PSTN is fixed while FWA is moveable but limited only to

one area code and cellular telecommunication is fully moveable. Technologically,

cellular telecommunication can be compatible under the platform of both Global

System for Mobile Communication (‘GSM”) and Code Division Multiple Access

(“CDMA”) as it works as well for FWA. The difference of technology between

GSM and CDMA does not distinguish their service characters. The character of

fixed service is determined by the license owned by cellular operator or FWA.

Therefore, PSTN and FWA are not substitutions of cellular telecommunication

cellular apart from the kind of technology implemented by the operators of FWA

and cellular telecommunication (GSM or CDMA); ---------------------------------------

11. Price. Regarding to the tariff, there is a tariff coverage between services provided

by PSTN and cellular telecommunication in which the tariff coverage of FWA is

similar to those of PSTN’s, while the tariff coverage of service provided by

cellular telecommunication is higher than both of them. Concerning the tariff,

therefore PSTN and FWA are not substitutions of cellular telecommunication; ------

12. Consumer survey conducted by KPPU to the cellular phone users indicates that

service provided by FWA and PSTN are not substitutions of cellular

telecommunication services; -----------------------------------------------------------------

13. Although subscribers in specific segment concern on tariff, mostly concern on

network coverage (IOR of Telecommunication Society, dated 25 September

2007);--------------------------------------------------------------------------------------------

14. That FWA and full mobility cellular service competed only in one area code so

that FWA and full mobility cellular service are not a relevant market nationally

(IOR of Telecommunication Society, dated 25 September 2007); ----------------------

15. PT. Telkomsel provides 900/1800 dual band cellular telecommunication service

on the network of GSM, GPRS, Wi-Fi, EDGE, and 3-G Techonology (Kartu Halo,

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COPYSimpati, and Kartu As). While PT. Indosat Plc. provides mobile service (Matrix,

Mentari, IM3), telephony service (SLI, VOIP Telephony, StarOne), and

multimedia service (IM2 and Lintas Artha); -----------------------------------------------

16. As products of PT. Telkomsel telecommunication services, Kartu Halo, Simpati,

and Kartu As are categorized as cellular telecommunications. They are similar to

Matrix, Mentari, and IM3PT that are provided by PT. Indosat Plc.. PT. Telkomsel

does not provide SLI, VOIP Telephony, FWA, internet service, and other

multimedia as PT. Indosat Plc., does. Therefore, PT. Telkomsel and PT.Indosat

compete each other in the similar market product, cellular telecommunication

services; -----------------------------------------------------------------------------------------

4.2 Geographical Market; -------------------------------------------------------------------

17. Geographical market analysis intends to mention in which area the defined

product market competed one to another; --------------------------------------------------

18. In relation to the coverage or marketing area, there are no constraints on

technology and regulation are found by operators for marketing their products in

the regions all over Indonesia; ---------------------------------------------------------------

19. That not all cell phone operators have the same broad of coverage and it causes

one or two network cell phone operators available only in certain area.

Nevertheless, it does not mean that there is no competition in an area that only one

network cell phone operator operated. Still, there is a competition in such an area

although other cell phone operators do not operate in the pertinent area; --------------

20. It is explainable because all cell phone operators determine equal tariff to any

subscribers in whenever places they operated. As an illustration, Telkomsel never

charges tariff in areas beyond the reach of other telephone operator services higher

than those of the areas within the reach of other telephone operator services in

Indonesia. Telkomsel applies the same tariff in the areas which can be reached by

any operators whether other operators are operated or not in an area. It indicates

that in any areas in which Telkomsel operated, the competition with other cell

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COPYphone operator occurs, though it is possible that other cell phone operators are not

operated within the areas of Telkomsel’s reach;-------------------------------------------

21. Thereby, relevant market in this case is cellular telecommunication services in any

areas of Indonesia; -----------------------------------------------------------------------------

V. Facts;----------------------------------------------------------------------------------------------

5.1 The Development of Telecommunication Industry in Indonesia; ----------------

22. Initially, telecommunication activity in Indonesia was controlled by the state and

operated by State-Owned Company, PT. Telkom, Plc. Government owned the

shares for 51. 19% until 2006 and monopolized domestic telecommunication

service. In 1980 Government performed an acquisition of PT. Indosat, Plc..

(“Indosat“) and monopolized telecommunications service for international access; -

23. The revolution of telecommunication technology in Indonesia was started with the

inception of PT. Satellite Palapa Indonesia (“Satelindo”) in 1993 that owned a

license for International Access, cell phone, and an exclusive rights to control

some communication satellites. Satelindo introduced cell phone service in

November 1994. By 2000, Satelindo was a joint venture company with the

following structure of share ownerships:: --------------------------------------------------

i. PT Bimagraha Telekomindo (“Bimagraha”), 45%; -----------------------

ii. Detemobil Deustche Telecom Mobilfunk GmbH, 25%; -----------------

iii. Telkom, 22.5%, and -----------------------------------------------------------

iv. Indosat, 7.5%; ------------------------------------------------------------------

24. On 26 May 1995, PT. Telekomunikasi Selular (“Telkomsel”) was founded. PT.

Telekomunikasi Selular (“Telkomsel”) is a provider of cellular telecommunication

service as well as the first provider in Asia that provides prepaid card service. By

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COPY2000, Telkomsel was the subsidiary of Telkom and Indosat with the following

structure of share ownerships::---------------------------------------------------------------

i. Telkom, 42.5%; ----------------------------------------------------------------

ii. Indosat, 35%;-------------------------------------------------------------------

iii. PTT Telecom BV of Netherland, 17.28%, and ----------------------------

iv. Setdco Megacell Asia, 5%;---------------------------------------------------

25. As a volunteer of prepaid cellular telecommunications service provider, Telkomsel

has great amount of subscribers and market share s (see Table 3) and grow fast

which make it the biggest cellular telecommunication operator in Indonesia (see

Telkomsel: Financial Highlight); ------------------------------------------------------------

26. In October 1996, PT. Excelcomindo Pratama (“XL”) began to enter cellular

market and to take part in enlivening the competition of cellular

telecommunication operator in Indonesia;--------------------------------------------------

27. In May 2001, PT. Indosat Multi Media Mobile (”IM3”) was founded by Indosat

and began to enter cellular market in August 2001 and to take part in enlivening

the competition of cellular telecommunication operator in Indonesia; -----------------

28. In 1999, the Law No. 36/1999 on Telecommunication was published aiming at

promoting telecommunications industry under the principles of fair competition as

it stated in Article 10 and its elucidation6; -------------------------------------------------

29. To follow up the Ministerial Decree No.72/1999, on 3 April 2001 PT Indosat and

PT Telkom agree to divest their ownership at Telkomsel, Satelindo and Lintas

Artha. Such an agreement has changed the ownership structures in Telkomsel and

Satelindo. Telkom gained additional shares in Telkomsel from Indosat as high as

6 Article 10 of the Law No 36/1999 :(1) In operating telecommunication business, it is not permitted to conduct activities which lead to monopoly practice and unfair fompetition among the operators (2) The prohibition as it mentioned in (1) is prescribed by the regulation. The elucidation of the Article is: the Article is made it possible to create fair competition among operators. The valid Law for this purpose is the Law. No. 5/1999 on the Prohibton of Monopoly Practice and unfair competition along with its implementation regulation.

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COPY35%, while Indosat gained additional shares in Satelindo from Telkom as high as

22.5%7;------------------------------------------------------------------------------------------

30. Further, Indosat performs an acquisition of Bimagraha’s shares that owns as high

as 45% of Satelindo’s shares. In June 2002, Indosat gains 25% of Satelindo’s

additional shares that used to be owned by Detemobil. Since then, Indosat controls

100% of Satelindo’s shares -------------------------------------------------------------------

31. At the end of 2001, the shares of Telkomsel owned 17.28% by KPN Netherland

and 5% owned by Sedtco Megacell Asia are bought out by SingTel through

SingTel Mobile and followed then by the selling of 12.7% Telkomsel’s shares

owned by PT. Telkom to SingTel Mobile in 2002. Totally, the shares ownership of

SingTel Mobile in Telkomsel rises too 35%; ----------------------------------------------

32. In May 2002, the 8.1% shares of Government of Indonesia (GOI) in Indosat was

divested through global tender. Later, on 15 December 2002 the 41.9% shares of

the GOI in PT. Indosat was divested to Singapore Technologies Telemedia

(”STT”) and then owned by its subsidiary, Indonesia Communication Limited

(”ICL”), founded in Mauritius. Thereby, the shares of ownership structure of

Indosat are as follow:--------------------------------------------------------------------------

i. The GOI, 14.44%; -----------------------------------------------------------

ii. ICL, 41.9%;-------------------------------------------------------------------

iii. Public, 45.19%; --------------------------------------------------------------

33. Following the acquisition of STT, Indosat realized its plan to perform vertical

merger with its subsidiaries, Satelindo, Bimagraha and IM3 on 20 November

7 “The Blueprint [Transportation Ministrial Decree No. 72/1999] call for progressive elimination of these shareholdings to promote competition and avoid any actual or potential conflict of interest in more competitive telecommunication environment and the Proposed Transaction are consistent with this Blueprint…. Mobile phone service: Pursuant to the conditional SPA, the current joint-shareholdings by Telkom and the Company [Indosat] will be dissolved and the mobile market will be fully competitive as provided in the Blueprint, Indosat, 2000 Annual Report, Form 20-F, hal 41;

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COPY2003. It aimed at focusing its business in cellular telecommunication service. By

now, Indosat is the second leading cellular telecommunication operator in

Indonesia and possesses 25.15% of market share in 2006; ------------------------------

5.2 The Structure of Telecommunication Industry; ------------------------------------

General--------------------------------------------------------------------------------------------

34. By 2006, the market structure of telecommunication industry in Indonesia is

played by some business actors such as PT. Telkom, PT. Telkomsel, PT. Indosat,

Plc., PT. Excelcomindo, Bakrie Telecom, Mobile 8, Sampoerna Telekomunikasi

Indonesia, and NTS

35. By 2006, the performance of each business actor can be seen from the following

table that describes a number of their subscribers: ----------------------------------------

Table 1 The Number of Fixed Phone Subscribers and Their Segments

Number of Subscribers Subscriber Segment 2004 2005 2006 2004 2005 2006 Fixed Phone 8,703,218 8,824,467 8,806,702 PT Telkom 8,559,350 8,686,131 8,709,211 98.35% 98.43% 98.89%PT Bakrie Telecom (Ratelindo) 120,990 114,082 68,359 1.39% 1.29% 0.78%

PT Indosat (I-Phone) 20,000 21,724 26,632 0.23% 0.25% 0.30% Source: Directorate Telecommunication, Director General Posts and Telecommunication, 2007

Table 2

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COPYThe Number of Fixed Wireless Access Subcribers and Their Segments

Number of Subscribers Subscriber Segment 2004 2005 2006 2004 2005 2006 FWA

1,673,081 4,683,363

6,014,031

PT Telkom (Flexi) Subscibers

1,429,368

4,061,800

4,175,853 85.43% 86.73% 69.44%

Prepaid Subscibers 3,240,500

3,381,426 69.19% 56.23%

Postpaid Subscibers 821,300

794,427 17.54% 13.21%

PT Indosat Subscibers 52,752

249,434 358,980 3.15% 5.33% 5.97%

Prepaid Subscibers 40,854 229,726

338,435 2.44% 4.91% 5.63%

Postpaid Subscibers 11,898 19,708

20,545 0.71% 0.42% 0.34%

PT Bakrie Telecom (ESIA) Subscibers

190,961

372,129

1,479,198 11.41% 7.95% 24.60%

Prepaid Subscibers 176,453

351,826

1,414,920 10.55% 7.51% 23.53%

Postpaid Subscibers 14,508 20,303

64,278 0.87% 0.43% 1.07%

Source: Directorate Telecommunication, Director General Posts and Telecommunciation, 2007

Table 3 The Number of Cellular Phone Subscribers and Their Segments

Number of Subscribers Subscriber Segments 2004 2005 2006 2004 2005 2006 Cellular Phone 30,336,607 46,992,118 63,803,015 Telkomsel 16,291,000 24,269,000 35,597,000 53.70% 51.64% 55.79%Prepaid Subscribers 14,963,000 22,798,000 33,935,000 49.32% 48.51% 53.19%

Postpaid Subscribers 1,328,000 1,471,000 1,662,000 4.38% 3.13% 2.60%

Indosat 9,754,607 14,512,453 16,704,729 32.15% 30.88% 26.18%

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COPYPrepaid Subscribers 9,214,663 13,836,046 15,878,870 30.37% 29.44% 24.89%

Postpaid Subscribers 539,944 676,407 825,859 1.78% 1.44% 1.29%

Excelkomindo 3,791,000 6,978,519 9,527,970 12.50% 14.85% 14.93% Prepaid Subscribers

3,743,000 6,802,325 9,141,331 12.34% 14.48% 14.33%

Postpaid Subscribers 48,000 176,194 386,639 0.16% 0.37% 0.61%

Mobile-8 (Fren) 500,000 1,200,000 1,825,888 1.65% 2.55% 2.86% Prepaid Subscribers 1,150,000 1,778,200 0.00% 2.45% 2.79%

Postpaid Subscribers 50,000 47,688 0.00% 0.11% 0.07%

Sampoerna Telekomunikasi Indonesia

10,609 134,713 0.00% 0.02% 0.21%

Prepaid Subscribers 133,746 0.00% 0.00% 0.21%

Postpaid Subscribers 967 0.00% 0.00% 0.00%

Natrindo Telepon Seluler 21,537 12,715 0.00% 0.05% 0.02%

Prepaid Subscribers 10,155 0.00% 0.00% 0.02%

Postpaid Subscribers 2,560 0.00% 0.00% 0.00%

Source: Directorate Telecommunication, Director General Posts and Telecommunication, 2007

36. In Indonesia, cellular telecommunication industry is an industrial sector which

owns a biggest subscriber compared to the subscribers of fixed phone and FWA: ---

Table 4 The Number Telecommunication Subscribers Based on the Various

Operating Networks

Number of Subscribers Subscriber Segments 2004 2005 2006 2004 2005 2006 Fixed Phone 8,703,218 8,824,467 21.38% 14.59% 11.20%

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COPY8,806,702

FWA 1,673,081 4,683,363

6,014,031 4.11% 7.74% 7.65%

Cellular Phone 30,336,607 46,992,118 63,803,015 74.51% 77.67% 81.15%

Total 40,712,906 60,499,948 78,623,748 100% 100% 100%

Source: Directorate Telecommunication, Director General Posts and Telecommunication, 2007

Picture 1 The Comparative Graphic Subscribers based on the Various Operating

Networks

Source: Directorate of Telecommunication, Director General of Posts and Telecommunications 2007. (The data are processed)

Cellular -------------------------------------------------------------------------------------------

The Comparation of Subscribers based on the Various Operating Networks

4.11% 7.74% 7.65%

74.51% 77.67% 81.15%

21.38%11.20%14.59%

0.00%

10.00%

20.00%30.00%

40.00%

50.00%

60.00%70.00%

80.00%

90.00%

2004 2005 2006

Fixed Phone

Mobile PhoneFWA

Cell Phone

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COPY37. A Number of Business Actor: Based on the definition of relevant market as it

mentioned above, by the data year of 2006, there are 6 (six)8 business actors

which play as cell phone operators, there are: ---------------------------------------------

a. Telkomsel; ------------------------------------------------------------------------

b. Indosat; ----------------------------------------------------------------------------

c. Excelcomindo;--------------------------------------------------------------------

d. Mobile-8 / M-8 (Fren); ----------------------------------------------------------

e. Sampoerna Telekomunikasi Ind; -----------------------------------------------

f. Natrindo Telepon Seluler (NTS); ----------------------------------------------

38. A numbers of customers or subscribers. By 2006, a number of subscribers of the

six operators were:-----------------------------------------------------------------------------

Table 5 The Number of Cell Phone Subscribers

The Number of Subscribers Year

The Segment of Subscriber

The Accumulation of Subscriber Segment to n operator-n

Operators 2004 2005 2006 Year 2006

Year 2006

1. Telkomsel 15,101,000 24,269,000 35,597,000 55.79% 55.79%

2. Indosat 9,754,607 14,512,453 16,704,729 26.18% 81.97%

3. XL 3,791,000 6,978,519 9,527,970 14.93% 96.91%

4. M-8 500,000 1,200,000 1,825,888 2.86% 99.77%

5. Sampoerna - - 134,713 0.21% 99.98%

6. NTS - - 12,715 0.02% 100.00%

Source: Directorate of Telecommunications, Director General of Posts and Telecommunications (The data are processed)

8 Directorate of Telecommunication-Director General of Posts and and Telecommunications

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COPY39. The amount of subscribers from 2004 to 2006 increased twice, from 29 million in

2004 to 64 million in 2006. The operator with the biggest to the smallest

subscribers can be ordered as follow: Telkomsel, Indosat, XL, M-8, Sampoerna

and NTS and the position remain the same from 2004 to 2006;-------------------------

Ownership Structure ----------------------------------------------------------------------------

40. Temasek through SingTel performed an acquisition of 22.3% Telkomsel shares

from KPN Netherlands in 2001. Later in July 2002, SingTel increased its share

ownership by acquiring 35% of Telkom’s shares in Telkomsel and as its

compensation, PT. Telkom transfered the assets of Telkom Mobile to Telkomsel

including its license to operate DCS 1800. (The 2002/2003 SingTel Annual Report

p. 21);--------------------------------------------------------------------------------------------

41. On 15 December 2002, STT was awarded a tender of divestment of the 41.9%

Indosat’s shares which then owned through ICL. (Form 20-F of Indosat, 2005., p.

24);-----------------------------------------------------------------------------------------------

42. Thereby, the ownership structure from Temasek to Indosat and Telkomsel can be

seen in the following tree diagram:----------------------------------------------------------

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COPY 43. On 1 August 2004 and 1 Augstus 2005 Indosats launched Employment Stock

Owner Program (ESOP) which created dilution to its shareholders including STT

that rise its share ownership to 39.96%. Then, the STT through ICPL, bought

0.86% Indosat shares so that the whole shares of ICPL came out to 41.16%. The

buying process of the shares was reported to Bapepam (The Investment

Supervisory Board) on 4 May 2006. (Form 20-F Indosat, 2005. p. 89); ---------------

44. In 2006, STT established AMHC and along with Qatar Telecom controlled AMH.

The composition of share ownership of AMH is 75% for AMHC and 25% for

Qatar Telecom. The ownership of STTC over ICL was transferred in whole to

AMHC. (BAP AMH, ICL, and ICPL, dated 25 June 2007);-----------------------------

45. Thereby, the chart of Temasek ownership over Telkomsel and Indosat can be seen

as follow:----------------------------------------------------------------------------------------

54.15% 100%

100%

100%

41.9%

Temasek Holdings (Private) Limited

Singapore Technologies Telemedia Pte Ltd

STT Communication Ltd

Indonesia Communication Limited

PT. Indosat, Tbk.

Singapore Telecommunications Ltd

Singapore Telecom Mobile Pte Ltd

Telkomsel

100%

35%

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COPY

5.3 Tariff Regulation;--------------------------------------------------------------------------

46. The government regulations that regulate cell telecommunication tariff are:----------

a. The Law No. 36/1999 On Telecommunication; Article 27 and Article

28;

b. Government Regulation No. 52/2000 On Telecommunication Operating; --

c. Ministrial Decree No.21/2001 On Telecommunication Operating;-----------

d. Ministrial Regulation No. 8/2006 On Interconnection Tariff;-----------------

e. Ministrial Regulation No. 12/2006 On Cell Phone Tariff Station;------------

54.15% 100%

100%

100%

41.9%

Temasek Holdings (Private) Limited

Singapore Technologies Telemedia Pte Ltd

STT Communication Ltd

Indonesia Communication Limited

PT. Indosat, Tbk.

Singapore Telecommunications Ltd

Singapore Telecom Mobile Pte Ltd

Telkomsel

100%

35%

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COPY47. Such regulations regulate that the amount of cellular telecommunication tariff is

completely arranged by the operators and referring to the formula and tariff

regulation stated by Goverment as it is elucidated in Article 28 of the Law No.

36/19999 and the statements of Director General Posts and Telecommunication to

Examiner Team on 30 August 2007 (The Notes of Meeting with the Director

General Posts and Telecommunication on 30 August 2007); ---------------------------

48. Operationally, the fundamental law used by cellular operator to fix a recent

collection of cellular telecommunication service to public are: -------------------------

a. The Decree of Minister of Tourism, Post and Telecommunication No.

27/PR.301/MPPT-98 On Connection Service Tariff of Cell Mobile

Phone (hereinafter referred to as Ministrial Decree 27/98); ----------------

b. The Decree of Ministry of Transportation No. 79/98 On Service Tariff of

Prepaid Cell Mobile Phone (hereinafter referred to as Ministrial Decree

79/98);------------------------------------------------------------------------------------

49. The two regulations determine the accepted Ceiling Tariff or Price in Indonesia.

Both are part of regulation prior to the effectiveness of the Law No. 36/1999 on

telecommunication10;--------------------------------------------------------------------------

50. The list of maximum postpaid tariff regulation that is regulated by

Government in its two Decrees are available in the following table: -------------------

Komponen Biaya

Tarif (Rp.)

Satuan

A Biaya Aktivasi 200.000 /sambungan B Bulanan 65.000 /bulan C Air Time 325 /Menit D Biaya Jelajah 1000 / Panggilan

9 The tariff amount of telecommunication network and/or telecommunication service is fixed by the operators of telecommunication network and/or telecommunication service on the basis of formula that is stipulated by Government. 10 Article 6 of the Ministrial Decree 27/98:”On the amount of Service Tariff of Prepaid Mobile Phone Cellular is the maximum tariff as it stated in the Annex of this Decision.”

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COPY

Biaya Pemakaian Langsung

Waktu Ekonomi: Pukul 22.00-08.00 dan Minggu dan Hari Raya Tarif Mobile-Mobile 2 x airtime Mobile-PSTN 1 x airtime PSTN-Mobile 1 x airtime TUK-Mobile 1 x airtime + 41 %

Waktu Bisnis: Pukul 08.00-22.00 Tarif Waktu Ekonomi x 125%

Cost Component

Tariff (Rp)

Unit

A Activation Cost 200,000 /Connection B Monthly 65,000 /Month C Air time 325 /Minute D Roaming 1000 / Call

Direct Using Cost

Business Hour: At 08.00-22.00 Economical Hour x 125%

51. The maximum Prepaid Tariff is 140% of the business hour tariff of valid postpaid

subscriber; --------------------------------------------------------------------------------------

52. By the end of December 2006, the derivative regulation of the Law No. 36/1999

that regulates the amount of cellular phone conversing effectively the Ministerial

Decree No. 27/98 and No.79/98 had not been available; ---------------------------------

53. In fact, the regulation of the Minister of Communication and Information

No.12/Per/M.Kominfo/02/2006 on the Procedures of Tariff Fixing Conversion for

Basic Telephony Cellular Mobile Network (published in February 2006) is

considered to be a conversion of Ministerial Decree of 27/98 and 79/98.

However, government stated that the regulation is only a transitions regulation

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COPYbecause government has been arranging the revision of Ministerial Regulation of

12/200611;---------------------------------------------------------------------------------------

54. In accordance with Article 4 paragraph (1) of the Ministerial Regulation of

12/2006 that stated that ”The tariff conversion calculating formula is performed by

applying floor price”. The substance of tariff regulation in the provision does not

reenact ceiling price but interconnection tariff as a floor price; -------------------------

55. By now, Cellular Operator are awaiting further to the regulation of the basic tariff

calculation. The accepted prevailing tariff system is referring to the Ministerial

Decree of 27/98 and 79/98.12; ----------------------------------------------------------------

5.4 Operational Performances; --------------------------------------------------------------

Tariff Amount ------------------------------------------------------------------------------------

56. From 2002 to 2006, the postpaid tariff of any operators can be seen in the

following table: --------------------------------------------------------------------------------

The Postpaid Tariff of Any Operators in 2002

Operator Time To PSTN

To the Same Operator

To the Other Operators

Kartu Halo 1 unit = 20 seconds

Peak time (08.00 -20.00) airtime Rp 406 Off peak (20.00 – 08.00) airtime IDR 325 Sundays and Holidays

504 423 423

813 650 650

910 748 748

Satelindo Matrix 1 unit = 6 seconds

Peak time (08.00 -20.00) airtime IDR 406 Off peak (20.00 – 08.00) airtime IDR 325 Sundays and Holidays

503.75 422.5 422.5

812,5 650 650

910 747.5 747.5

Pro XL 1 unit = 6 second

Peak time (08.00 -20.00) airtime IDR 406 Off peak (20.00 – 08.00) airtime IDR 325

489 408 408

812 650 650

895 733 733

11The presentation of Hery Nugroho (Member of BRTI) in Jakarta, 15 June 2007 12 Indosat, 2006 Annual Report, page. 100

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COPYSundays and Holidays

IM 3 Bright 1 unit = 6 seconds

Peak time (08.00 -20.00) airtime IDR 406 Off peak (20.00 – 08.00) airtime IDR 325 Sundays and Holidays

504 423 423

812 650 650

910 748 748

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COPY

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COPY

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COPY

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COPY

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COPY

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COPY

57. From 2002 to 2006, the SMS tariff of any operators can be seen in the following

price list: ----------------------------------------------------------------------------------------

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COPYPrice list of SMS Tariff

Valid in 2002

Operator SMS for Domestic Access

SMS for International Access

Halo Card Telkomsel 250 250 Pro XL Postpaid 250 500 Satelindo GSM Indosat 300 300 IM Bright 250

To XL 350 500

Valid in 2003

Operator SMS for Domestic Acces

SMS for International Access

Kartu Halo Telkomsel 250 250 Pro XL Postpaid 250 500 Satelindo GSM Indosat 300 300 IM Bright 250

To XL 350 250

Valid in 2004 Operator SMS for Domestic Access SMS for International Access Kartu Halo Telkomsel 250 500 Pro XL Postpaid 250 500 Matrix Indosat* 300 300 IM Bright 250

Ke XL 350 250

*Satelindo change its brand to Matrix

Valid in 2005 Operator SMS for Domestic Access SMS for International Access Kartu Halo Telkomsel 250 500 Pro XL Postpaid 250 500 Matrix Indosat* 300 300 IM Bright 250

To XL 350 350

Valid in 2006

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COPYOperator SMS for Domestic Access SMS for International Access

Kartu Halo Telkomsel 250 500 Xplor Excelcomindo* 250 500 Matrix Indosat** 300 300

*XL launched new postpaid brand called Explor *XL launched new postpaid brand called Explor **IM3 Bright merged to be Matrix

58. The prepaid tariff of each operator from 2002 to 2006 can be seen in the following

price list: ----------------------------------------------------------------------------------------

The Table of Prepaid Communication Tariff

The Year of 2001-2002

Operator To PSTN

To the Same Operator

To the Other Operators Entry Call

Simpati Telkomsel* (off peak 23.00-07.00) (peak 07.00-23.00) Valid from 1 April 2002

700 910

1,200 1,500

IDR 910 IDR 1,600

Free for local zone Free for local zone 2500#, 3500## (neighboring zone) 3500#, 4000## (overseas zone)

Mentari ** Valid from 1 March 2002

1,013 1,499 1,713 Free

Pro XL** Valid from 15 July 2001

1,070 1,600 1,870 Free

IM3 Smart*** Valid from 2002

850 1,100 1,450 2500 (overseas zone)

*The tariff is included 10% added value tax, 1 unit = 30 second for local call and inter local call, 1 unit = 15 second for international call **Pre added value tax tariff, 1 unit = 30 second *** 10% Added value tax tariff, 1 unit = 30 second # off peak

The Year of 2002-2003 Operator To PSTN To the To the Entry Call

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COPYSame Operators

Other Operators

Simpati Telkomsel* (off peak 23.00-07.00) (peak 07.00-23.00) Valid from 1 April 2002

700 910

1,200 1,500

IDR 910 IDR 1,600

Free for local zone Free for local zone 2500#, 3500## (neighboring zone) 3500#, 4000## (overseas zone)

Mentari** Valid from 1 March 2002

1,013 1,499 1,713 Free

Pro XL** Valid from 8 February 2003

820 1600 1,870 Free

IM3 Smart*** (economical tariff 00-06.59) (economical tariff 07.00-23.59) Valid from 2003

590 890

500 1,390

1,290 1,550

3,000 (overseas zone)

* The tariff is included 10% added value tax, 1 unit = 30 second for local call and inter local call, 1 unit = 15 second for international call **Pre added value tax tariff, 1 unit = 30 second *** 10% Added value tax tariff, 1 unit = 30 second # off peak ##peak time

The year of 2004 (XL divides the prepaid services into two, called XL Bebas and Jempol)

Operator To PSTN

To the Same Operator

To the Other Operators

Entry Call

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COPYSimpati Telkomsel* (off peak 23.00-07.00) (peak 07.00-23.00) Valid from 1 May 2004

700 950

1,200 1,500

IDR 1,300 IDR 1,600

Free

Mentari** Valid from 1 Juni 2004

850 1,500 1,710 Free

XL Bebas** XL Jempol** (off peak 22.00-06.00) (peak 06.00-22.00) Valid from 18 August 2004

875 399 699

1,600 999 1,299

1,750 1,299 1,599

Free

IM3 Smart*** (economical tariff 00.00-06.59) (economical tariff 07.00-23.59) Valid from 21 June 2004

600 900

500 1,000

1,300 1,550

Free

* The tariff is included 10% added value tax, 1 unit = 30 second for local call and inter local call, 1 unit = 15 second for international call **Pre added value tax tariff, 1 unit = 30 second *** 10% Added value tax tariff, 1 unit = 30 second. The local call is imposed 20% for a call performed in the outside of original area.

The year of 2004 – 2005

Operator To PSTN

To the Same Operator

To Other Operator

Entry Call

Simpati Telkomsel* (off peak 23.00-07.00) (peak 07.00-23.00) Valid from 1 February 2005 The Kartu As Telkomsel** Valid from 22 September 2004

700 950 700

300 1,500 1,000 (to similar card) 1200 (to Halo and Simpati Cards)

1,300 1600 1500

Free Free

Mentari*** Valid from 1 June 2004

850 1,500 1,710 Free

XL Regular Free **** XL Free for the area of Sumatra **** XL Free for the area of Kalimantan**** Valid from 1July 2005 XL Jempol*** (off peak 22.00-06.00) (peak 06.00-22.00) Valid from 18 August 2004

875 743 656 399 699

1,360 1,360 1,190 999 1,299

1,650 1,485 1,303 1,299 1,599

Free Free

IM3 Smart*** (economical tariff 00.00-06.59) (economical tariff 07.00-23.59) Valid from 21 June 2004

600 900

500 1,000

1,300 1,550

Free

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COPY* The tariff is included 10% added value tax, 1 unit = 30 second for local call and inter local call, 1 unit = 15 second for international call **Pre added value tax tariff, 1 unit = 30 second *** 10% Added value tax tariff, 1 unit = 1 minute

The year of 2005 – 2006 (IM3 merges to Indosat)

Operator To PSTN Intraoperator Interoperator Entry

Call Simpati Telkomsel* (off peak 23.00-07.00) (peak 07.00-23.00) Valid from 1 February 2005 Kartu As Telkomsel** Valid from 11 April 2006

700 950 1800

300 1500 1200 (all products of Telkomsel)

1300 1600 2400

Free Free

Mentari*** Berlaku mulai 16 April 2006

900 1,500 freetalk*** 1,500 Free

XL Bebas Reguler**** Valid from 27 September 2006 XL Free for the area of Sumatra **** XL Free for the area of Kalimantan**** Valid from 1 July 2005 XL Jempol*** (off peak 22.00-06.00) (peak 06.00-22.00) Valid from 27 September 2006

837 743 656 399 699

1,248 1,360 1,190 500 1,000

1,537 485 1,303 1,299 1,500

Free Free Free

IM3 Indosat*** (economical tariff 00.00-06.59) (economical tariff 07.00-23.59) Valid from 21 June 2004

600 900

500 1,000

1,300 1,550

Free

* The tariff is included 10% added value tax, 1 unit = 30 second for local call and inter local call, 1 unit = 15 second for international call **Pre added value tax tariff, 1 unit = 1 second until December 2006

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COPY***Pre added value tax tariff, 1 unit = 30 second. Free talk starts from 00.00-05.00 with IDR 25,000 for minimum pulse **** 10% Added value tax tariff, 1 unit = 1 minute

59. In 2002 to 2006 the prepaid SMS tariff of each operator can be seen in the

following tables: -----------------------------------------------------------------------------

Table of Prepaid SMS Tariff Valid from 2002 Operator SMS for Domestic Acces SMS for International Access Simpati Telkomsel 350 500 Pro XL Prepaid 350 500 Mentari Indosat 350 350 IM3 Smart 350 500

Valid from 2004 (in 2003 the tariff was not increased) Operator SMS for Domestic Acces SMS for International Access Simpati Telkomsel Kartu As*

350 300

600 1,000

XL Bebas** XL Jempol**

350 99 (to the similar operator) 299 (other operators)

500 499

Mentari Indosat 300 300 IM3 Smart 350 350

*The Telkomsel prepaid new brand **The Pro XL Prepaid new brand

Valid from 2005

Operator SMS for Domestic Acces SMS for International Access

Simpati Telkomsel Kartu As

350 150 (to similar As Card) 300 (to Telkomsel and other operators)

600 1000

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COPYXL Bebas XL Jempol

350 149 (to XL Card) 299 (to other operators)

500 499

Mentari Indosat 300 300 IM3 Smart 150 (to Smart Card)

350 (to other operators) 350

Valid from 2006

Operator SMS for Domestic Acces SMS for International Access

Revenue ------------------------------------------------------------------------------------------

60. The following is a table of revenue of cellular telecommunication providers and

their market shares: ---------------------------------------------------------------------------

Table 6 The Revenue and Market share s of Cellular Telecommunication Providers (In Billion

Rupiah)

Telkomsel INDOSAT XL

Simpati Telkomsel Kartu As

350 150 ( to As Card ) 300 (to Telkomsel and other operators )

600 1000

XL Bebas XL Jempol

350 99 ( to XL Card) 299 (other operators )

500 499

Mentari Indosat 300 300

IM3 Indosat

150 ( to Smart Card) 350 (other operators )

350

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COPYYear Revenue Market

share Revenue Market share Revenue Market

share

The amount of Selling in Market share

2001 4,918.22 56.14% 1,770 20.20% 2,073.03 23.66% 8,761.15

2002 7,572.95 58.37% 3,272 25.22% 2,130.41 16.42% 12,975.01

2003 11,146.12

60.37% 5,118 27.72% 2,198.06 11.91% 18,461.76

2004 14,765.08

59.93% 7,342 29.80% 2,528.48 10.26% 24,635.63

2005 21,132.91

64.56% 8,645 26.41% 2,956.38 9.03% 32,734.25

2006 29,145.19

68.08% 9,228 21.55% 4,437.17 10.36% 42,809.89

Rata-Rata

14,780.08

61.24% 5,895.61 25.15% 2,720.59 13.61% 23,396.28

Source: Financial Higlight of Telkomsel, XL, Indosat for some years. The Data are proceeded.

Interconnected Charge--------------------------------------------------------------------------

61. The interconnected charge of SMS and vote are the followings: ----------------------

Table 7 Interconnected Charge

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COPY

Source: The Ovum Report of Director General of post and telecommunications , April 2005

62. The followings is interconnected revenue and expenditure of each operator:--

Table 8

Interconnected Revenue and Expenditure

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COPY(IDR 000,000)

TELKOMSEL INDOSAT XL Revenue Expenditur

e Revenue Expenditur

e Revenue Expenditur

e 2001 599,826 270,904 2002 1,772,909 1,435,710 2,107,312 1,213,492 644,437 287,844 2003 2,239,526 1,746,866 2,483,848 1,398,091 662,928 305,654 2004 2,955,576 2,173,333 2,129,847 1,107,256 768,927 359,826 2005 3,881,599 2,592,809 2,162,370 886,439 914,688 546,684 2006 4,444,779 2,822,602

Source: Financial Highlight

Network (BTS)-----------------------------------------------------------------------------------

63. The growth of BTS’s number of each operator is as follow:-----------------------------

Table 9 Number of BTS of Each Operator in the period of 2000-2006

Providers 2000 2001 2002 2003 2004 2005 2006 Telkomsel 1,411 1,995 3,483 4,820 6,205 9,895 16,507 INDOSAT 1,357 1,995 2,736 3,007 4,026 5,702 7,221 Excelcomindo 514 739 950 1,491 2,357 4,324 7,260

EBITDA -------------------------------------------------------------------------------------------

64. (Earning Before Interest, Tax, Depreciation, and Amortization) of each operator,

EBITDA of Margin and Industry are as follow: -------------------------------------------

Table 10 EBITDA of Each Operator

TELKOMSEL INDOSAT XL Year Amount % Growth Amount % Growth Amount % Growth

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COPY(IDR Million)

(IDR Million)

(IDR Million)

2001 3,499,000 2,842,400

1,202,205

2002 5,110,000 46.04% 3,661,700

28.82% 1,442,463 19.98%

2003 8,026,000 57.06% 4,385,900

19.78% 1,456,157 0.95%

2004 10,672,000

32.97% 6,016,700

37.18% 1,624,753 11.58%

2005 15,408,000

44.38% 6,732,100

11.89% 1,733,668 6.70%

2006 20,737,000

34.59% 7,051,900

4.75% 2,535,881 46.27%

Table 11 Margin of EBITDA of Each Operator

TELKOMSEL INDOSAT XL Amount Amount Amount 2001 71.14% 55.32% 67.40% 2002 67.48% 54.11% 67.44% 2003 72.01% 53.29% 65.34% 2004 72.28% 57.69% 62.71% 2005 72.91% 58.09% 56.67% 2006 71.15% 57.62% 54.17%

Table 12 EBITDA of Industry

Total of Industry Total of

Industry

Revenues (IDR 000)

Ebitda (IDR 000)

Margin of Ebitda

2001 11,839,990,340 7,543,605,000 63.71%

2002 16,478,718,136 10,214,163,000 61.98%

2003 21,604,441,548 13,868,057,000 64.19%

2004 27,785,881,759 18,313,453,000 65.91%

2005 35,781,844,531 23,873,768,000 66.72%

2006 46,066,260,578 30,324,781,000 65.83% Source: Financial Report of Telkomsel, Indosat, XL. The Data are procceeded

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5.5 Concerning Temasek

65. TEMASEK founded in 1974 is an investment company in Asia that is based in

Singapore. The amount of Temasek investment is S$ 129 billion (US$ 80 billion)

extending far apart in Singapore, Asia, and OECD countries covering

telecommunication sector and media, finance service, properties, transportation

and logistics, energy and resources, infrastructure, engineering and technology, as

well as pharmacy and bioscience; -----------------------------------------------------------

66. Since 2004, the amount of TEMASEK investment portfolio has kept on

increasing from about S$ 90 billion to S$ 103 billion in 2005. In 2006, the

portfolio investment increased rapidly to S$129 billion. The main focus of

Temasek investment is banking and finance as well as telecommunications and

media. In 2004, the investment in telecommunications and media were recorded

as high as 36% and 21% in banking and finance. In 2005, however, investment

in banking and finance began to increase higher than the investment in

telecommunications and media, for amount of 35%, while the investments in

telecommunication decreased to 26%. The data show that the major investment of

Temasek is focused on finance industry and telecommunications. The following

table show the description of Temasek investment portfolio on the basis of its

industry; -----------------------------------------------------------------------------------------

Table 13 Temasek Investment Portfolio Based on its Industry

2003-2006 (%)

Investment Portfolio 2003 2004 2005 2006

Telecommunication and Media 36 33 33 26 Financial Services 21 21 21 35 Transportation and Logistics 14 17 17 13 Infrastructure and Technology Engineering 10 10 10 9

Energy and Resources 7 8 8 6 Properties 6 8 8 7 Biopharmaceutical and others 6 3 3 4 Total 100 100 100 100

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COPY

67. Specially for telecommunications and media, Temasek owns its shares in

MediaCorp (100%), Singapore Technologies Telemedia (100%), Global Crossing

(71%), StarHub (57%), Singapore Telecommunications (56%), Shin Corporation

(44%), and PT Indosat (around 41%); ------------------------------------------------------

68. ST Telemedia was founded in 1994 and serves fully on information services,

telecommunication, and entertainment by applying fixed line, mobile, and internet.

The businesses of ST Telemedia are focused in two fields:------------------------------

a. Wireless telephony---------------------------------------------------------------

b. Global internet protocol (IP) services

69. Referring to SC 13D, a document submitted to US Securities and Exchange

Commission, ST Telemedia owns the whole shares of STT Communications Ltd.

and Indonesia Communication Ltd; ---------------------------------------------------------

70. On 15 December 2002, ST Telemedia through STT Communication and

Indonesian Communication Ltd. acquired the Indosat’s B-series shares for the

amount of 434,250,000 or 41.94 % of the total of B-series shares; --------------------

71. SingTel was founded in March 1992 and its initial public offering was in October

1993. SingTel provides voices and data service on fixed line, mobile and internet.

SingTel is a leading cellular telecommunication operator in Singapore by

controlling 43% of prepaid cellular telecommunication market; ------------------------

72. In 2001, SingTel performed a biggest acquisition to foreign company by buying

Optus, a second largest telecommunication operator in Australia, followed then by

buying Telkomsel (Indonesia), Bharti Group (India), Pacific Bangladesh Telecom

Ltd. (Bangladesh). SingTel also increased its share ownership at Globe Telecom

(Philipines). Since March 2006, SingTel and its affiliates had possed 85 million

cellular phone subscribers or the biggest Asian cellular operator outside China; -----

73. In 2005, Temasek investment portfolio in telecommunication sector developed

rapidly from four in 2004 to nine companies and in six of them, Temasek became

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COPYa majority shareholder. Temasek is only a minority shareholders in some

companies but it empowered the investment in its own existing companies;----------

Table 14 Temasek Investment Portfolio in Telecommunication and Finance Service

(Year 2004)

Telecommunication The Portion of Share (%)

Finance Service The Portion of Share (%)

SingTel 65 DBS 28 ST Telemedia 10013 Bank Danamon 53 Media Corp 100 ICICI Bank 9 Telekom Malaysia 5 Bank Internasional

Indonesia (BII) 26

Hana Bank 4 Fullerton Fund Management 100

74. According to SingTel Annual Report 2005/2006, in acquiring Telkomsel, SingTel

used SingTel Mobile, a SingTel’s subsidiary in which its 100% of the shares are

owned by SingTel;-----------------------------------------------------------------------------

75. In 2006, Temasek sold his share in several telecommunications companies like

Telekom Malaysia and Equinix, as well as sold some of his shares available in the

StarHub company and SingTel. Through Alpen Holdings, Temasek had the share

to the telecommunications company of Shin Corp. In 2006 also, Temasek erected

Asian Financial Holdings, a company that held was full of the control of the

company and banking of the financial service that were had by Temasek; -----------

------------------------------------------------

Table 15 Temasek Portfolio Investment in Telecommunication and Finance Service Companies

(2005)

Telecommunication Companies

Portion of Share (%)

Finance Service Firms Portion of Share (%)

SingTel 63 DBS 28 ST Telemedia 100 Bank Danamon 56 Media Corp 100 ICICI Bank 9

13 Through Singapore Technologies Pte Ltd

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COPYTelekom Malaysia 5 Bank Internasional Indonesia

(BII) 35

SingTel Optus 6314 Hana Bank 10 StarHub 6315 Fullerton Fund Management 100 Global Crossing 7116 Malaysian Plantations/Alliance

Bank 15

INDOSAT 4117 China Minsheng Banking Corporation

5

Equinix 3518 NDLC-IFIC Bank 25

Table 16 Temasek Portfolio Investment in Telecomunication and Finance Service (2006)

Telecommunication Companies

Portion of Share (%)

Finance Service Companies Portion of Share (%)

SingTel 56 DBS 28 ST Telemedia 100 Bank Danamon 59* Media Corp 100 ICICI Bank 8 StarHub 6319 Bank Internasional Indonesia

(BII) 35*

Global Crossing 7120 Hana Bank 10* INDOSAT 4121 Fullerton Fund Management 100 Shin Corporation 4422 China Construction Bank 6* E. Sun Financial Holding

Company 6*

Bank of China 5*

76. Regionally, Temasek controls most part of cellular telecommunication industry in

ASEAN region by possessing shares in many cellular telecommunication

companies of ASEAN countries. Totally, Temasek has more than 120 million

subscribers in India, Indonesia and Australia; ---------------------------------------------

14 Through SingTel 15 Through ST Telemedia and MediaCorp 16 Through ST Telemedia and MediaCorp 17 Through ST Telemedia and MediaCorp 18 Through ST Telemedia and MediaCorp 19 Through ST Telemedia and MediaCorp 20 Through ST Telemedia 21 Through ST Telemedia 22 Through Aspen Holdings * Asia Financial Holdings.

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COPY77. The authorities of Temasek, SingTel, SingTel Mobile, STT, STTC, AMHC,

AMH, ICL and ICPL over their subsidiaries are stated in their own statutes as it

mentioned respectively:: ----------------------------------------------------------------------

f. Under Article 59 (c), Article 96 (e), Article 102 and Article 103 of the SingTel

Statutes, Temasek as the shareholder of SingTel is authorized to appoint and to

dismiss Board of Director of SingTel; ------------------------------------------------------

g. Under Article 60 (c), Article 98 and Article 99 of the Statutes of STT, Temasek

as the shareholder of STT is authorized to appoint and to dismiss Board of

Director of STT; ---------------------------------------------------------------------------------

h. Under Article 92, Article 93 and Article 94 of the Statutes of SingTel Mobile,

SingTel Mobile as the shareholder of SingTel Mobile is authorized to appoint and

to dismiss Board of Director of SingTel Mobile;-----------------------------------------

i. Under Article 10 (1) of Telkomsel Statutes, SingTel Mobile as the shareholder of

Telkomsel is authorized to post two Directors in Telkomsel Board of Director, and

under Article 13 (3) of Telkomsel Statutes, SingTel Mobile as the shareholder of

Telkomsel is authorized to post two Commissioners in the Telkomsel Board of

Commissioner; -----------------------------------------------------------------------------------

j. Under Article 60 (c), Article 98 and Article 99 of the STTC Statutes, STT as the

shareholder of STTC is authorized to appoint and to dismiss Board of Director of

STTC;

k. Under Article 60 (c), Article 98 and Article 99 of the STTC Statutes, AMH as the

shareholder of ICPL is authorized to appoint and to dismiss Board of Director of

ICPL ;

l. Under Article 60 (c), Article 98 and Article 99 of the AMH Statutes, AMHC as the

shareholder of AMH is authorized to appoint and to dismiss Board of Director of

AMH ; -----------------------------------------

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COPYm. Under Article 60 (c), Article 98 and Article 99 of the ICPL Statutes, AMH as the

shareholder of ICPL is authorized to appoint and to dismiss Board of Director of

ICPL ;

n. Under Article 9 (a ) of the ICL Statutes, AMH as the shareholder of ICL is

authorized to appoint and to dismiss Board of Director of ICL; -------------------------

o. Under Article 10 (3) of the Statutes of Indosat, ICL and ICPL as the shareholders

of Indosat are authorized to appoint and to dismiss Board of Director of Indosat

and under Article 14 (2), to appoint and to dismiss Board of Commisioner;----------

78. With its authority, Temasek appoints managements of each company. The control

is in the Holding Company and in this matter is Temasek, that can be seen from

the double position in its companies, as it is seen in the following table: --------------

a. From Temasek to Telkomsel:

Temasek S. Dhanabalan (Chairman) Kua Hong Pak Kwa Chong Seng (Deputy Chairman) Sim Kee Boon Lim Siong Guan (Deputy Chairman) Teo Ming Kian

Goh Yew Lin Yong Siong Goh (Managing Director)

Ho Ching (CEO) Robert Lhong (Managing Director)

Simon Israel Vijay Parekh

Koh Boon Hwee Peter Seah (Advisory Panel)

Sing Tel Director Management

Chumpul NaLamlieng Chua Sock Koong

Graham John Bradley Francis Heng Hang Keong

Paul Chan Kwai Wah Lim Chuan Poh Chua Sock Koong Lim Eng Hee Sweng Keat Ng Yoke Weng Simon Israel Paul O'Sullivan Tommy Koh Lee Hsien Yang John Powell Morschell Kaikhushru Shiavax Nargolwala Deepak S Parekh

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b. The table shows a double position in Temasek Group. There are:---------

i. Simon Israel is a member of both Temasek and member of

SingTel Board of Director; -----------------------------------------------

ii. Chua Sock Koong is in both SingTel and SingTel Mobile

managements;

iii. Lim Chuan Poh is in Singtel management as well as a

commisioner of Telkomsel; ----------------------------------------------

iv. Leong Shin Loong is a member of Singtel Board of Director as

well as a commissioner of Telkomsel; ----------------------------------

c. From Temasek to Indosat: ------------------------------------------------------

Temasek S. Dhanabalan (Chairman) Kua Hong Pak Kwa Chong Seng (Deputy Chairman) Sim Kee Boon Lim Siong Guan (Deputy Chairman) Teo Ming Kian Goh Yew Lin Yong Siong Goh (Managing Director) Ho Ching (CEO) Robert Lhong (Managing Director) Simon Israel Vijay Parekh Koh Boon Hwee Peter Seah (Advisory Panel)

STT Directors (BAP 2706)

Lee Theng Kiat Ho Ching (Executive Vice President) Lim Ming Seong George Chow Yew Tong (Senior VP) Vincente Perez Richard Lim (Senior VP) Justin Weaver Lilley Pek Siok Lan (Legal Counsel) Chang See Hiang Lian Mae Ai (Legal Counsel) Sir Michael Perry Chia Wen See (Legal Cunsel)

Nicky Tang Ng Kuang SingTel Mobile

Leong Shin Loong Chua Sock Koong Telkomsel

Komisaris Direksi

Rinaldy Firmansyah Kiskenda Suriahardja (Dirut)

Leong Shin Loong Triwahyusari

Lim Chuan Poh Bambang Riadhy Oemar

Losso Judianto Yuen Kuan Moon Arif Yahya Ho Boon Teck Alan

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COPYPeter Seah Stephen Geoffrey Miller (CFO)

Sam Soon Lin (BAP 2706) Sio Tat Hiang (Executive Vice President)(website Indosat 25/09)

Tan Guong Ching STT Comm

Directors (BAP 2706) Lee Theng Kiat Ho Ching (Executive Vice President) Lim Ming Seong Stephen Geoffrey Miller (CFO) Vincente Perez Justin Weaver Lilley Chang See Hiang Sir Michael Perry Peter Seah Sam Soon Lin (BAP 2706) Tan Guong Ching

AMHC Directors

Lee Theng Kiat (BAP 2706) Stephen Geoffrey Miller (CFO) BAP 2706

Vincente Perez Pek Siok Lan (Company Secretary) Peter Seah Lian Mae Ai (Company Secretary) Tan Guong Ching (BAP 2706) Yap Boh Pin Edward Lee

AMH Directors

Lee Theng Kiat (BAP 2706) Pek Siok Lan (Company Secretary) Vincente Perez Lian Mae Ai (Company Secretary) Peter Seah Tan Guong Ching (BAP 2706) Yap Boh Pin Edward Lee Syekh Muhammed Nasser Marafih

ICL IC Pte. Ltd. Kek Soon Eng (Director) Kek Soon Eng Lee Theng Kiat Stephen Geoffrey Miller (CFO) Mark Sebastian Law Chia Wen See (Company Secretary)

Indosat Direksi Komisaris

Johnny Swandi Djam (President Director) Sum Soon Lin (BAP 2706) Kaizad B Herjee (Deputy President Director) Syeikh Mohammed Fadzri Sentosa (Jabodetabek & Corp Sales Director)

Lee Theng Kiat (BAP 2706)

Syakieb Sungkar (Regional Sales Director) Peter Seah Guntur S. Siboro (Marketing Director) Sio Tat Hiang Roy Kannan (IT Director) Setio Anggoro Dewo (Independen) Raymond Tan Kim Meng (Network Director) Roes Ariwidjaya

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COPYWong Heang Tuck (Finance Director) Soeprapto (Independen) Wahyu Wiijayadi (Corporate Services Director)

Setyanto P Santosa

Lim Ah Doo (Indenpenden) Temasek S. Dhanabalan (Chairman) Kua Hong Pak Kwa Chong Seng (Deputy Chairman) Sim Kee Boon Lim Siong Guan (Deputy Chairman) Teo Ming Kian Goh Yew Lin Yong Siong Goh (Managing Director) Ho Ching (CEO) Robert Lhong (Managing Director) Simon Israel Vijay Parekh Koh Boon Hwee Peter Seah (Advisory Panel) STT Directors (BAP 2706) Lee Theng Kiat Ho Ching (Executive Vice President) Lim Ming Seong George Chow Yew Tong (Senior VP) Vincente Perez Richard Lim (Senior VP) Justin Weaver Lilley Pek Siok Lan (Legal Counsel) Chang See Hiang Lian Mae Ai (Legal Counsel) Sir Michael Perry Chia Wen See (Legal Cunsel) Peter Seah Stephen Geoffrey Miller (CFO)

Sam Soon Lin (BAP 2706) Sio Tat Hiang (Executive Vice President)(website Indosat 25/09)

Tan Guong Ching STT Comm Directors (BAP 2706) Lee Theng Kiat Ho Ching (Executive Vice President) Lim Ming Seong Stephen Geoffrey Miller (CFO) Vincente Perez Justin Weaver Lilley Chang See Hiang Sir Michael Perry Peter Seah Sam Soon Lin (BAP 2706) Tan Guong Ching AMHC Directors

Lee Theng Kiat (BAP 2706) Stephen Geoffrey Miller (CFO) BAP 2706

Vincente Perez Pek Siok Lan (Company Secretary) Peter Seah Lian Mae Ai (Company Secretary) Tan Guong Ching (BAP 2706) Yap Boh Pin Edward Lee AMH Directors Lee Theng Kiat (BAP 2706) Pek Siok Lan (Company Secretary)

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COPYVincente Perez Lian Mae Ai (Company Secretary) Peter Seah Tan Guong Ching (BAP 2706) Yap Boh Pin Edward Lee Syekh Muhammed Nasser Marafih ICL IC Pte. Ltd. Kek Soon Eng (Director) Kek Soon Eng Lee Theng Kiat Stephen Geoffrey Miller (CFO) Mark Sebastian Law Chia Wen See (Company Secretary) Indosat Directors Commisioner Johnny Swandi Djam (President Director) Sum Soon Lin (BAP 2706) Kaizad B Herjee (Deputy President Director) Syeikh Mohammed Fadzri Sentosa (Jabodetabek & Corp Sales Director)

Lee Theng Kiat (BAP 2706)

Syakieb Sungkar (Regional Sales Director) Peter Seah Guntur S. Siboro (Marketing Director) Sio Tat Hiang Roy Kannan (IT Director) Setio Anggoro Dewo (Independent) Raymond Tan Kim Meng (Network Director) Roes Ariwidjaya Wong Heang Tuck (Finance Director) Soeprapto (Independen) Wahyu Wiijayadi (Corporate Services Director)

Setyanto P Santosa

Lim Ah Doo (Indenpenden)

d. The table shows the double position in Temasek Group. There are: ------

v. Ho Ching is a CEO of Temasek, Executive Vice President of

STT, and Executive Vice President of STTC; -------------------------

vi. Lee Theng Kiat is a Director of STT, STTC, AMHC, AMH,

and a commissioner of Indosat; ------------------------------------------

vii. Lim Ming Seong is a Director of STT and STTC;-------------------

viii. Vincente Perez is a Director of STT, STTC, AMHC, and AMH. -

ix. Justin Weaver Lilley is a Director of STT and STTC; -------------

x. Chang See Hiang is a Director of STT and STTC;------------------

xi. Sir Michael Perry is a Director of STT and STTC. -----------------

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COPYxii. Peter Seah is an Temasek Advisory Panel and a Director of

STT, STTC, AMHC, AMH, as well as a Commissioner of

Indosat.

xiii. Sam Soon Lin is a Director of STT, STTC, AMHC, AMH, and

aCommissionerof Indosat.------------------------------------------------

xiv. Tan Guong Ching is a Director of STT, STTC, AMHC, and

AMH.------------------------------------------------------------------------

xv. Steven Geoffrey Miller is a CFO of (Chief Financial Officer) of

STT, STTC, AMHC, and ICPL. -----------------------------------------

xvi. Pek Siok Lan is a Legal Counsel of STT and Company Secretary

of AMHC as well as AMH; ---------------------------------------------

xvii. Lian Mae Ai is a Legal Counsel of STT and Company Secretary

of AMHC as well as AMH. ----------------------------------------------

xviii. Chia Wen See is a Legal Counsel of STT and ICPL. ----------------

xix. Yap Boh Pin is a Director of AMH and AMHC. ---------------------

xx. Edward Lee is a Director of AMH and AMHC.----------------------

xxi. Kek Soon Eng is a Director of ICL and ICPL.------------------------

xxii. Syeikh Mohammed is a Director of AMH and a commisioner of

Telkomsel. ------------------------------------------------------------------

5.6 Concerning Telkomsel; -------------------------------------------------------------------

79. PT. Telkomsel is a cellular telecommunication operator founded in 1995. It

provides services of dual band 900/1800 GSM network, GPRS, Wi-Fi, EDGE, and

3-G Techonology;-----------------------------------------------------------------------------

80. When KPN Netherlands purchased Telkomsel’s shares, the status of Telkomsel

was converted to be a Foreign Investment company in 1996 with the agreement of

BKPM on 11 March 1996 (Under the Notary Act of Sutjipto SH. No 194 dated 21

June 1996); -------------------------------------------------------------------------------------

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COPY81. In 2001, SingTel took over PT. Telkomsel shares from KPN Netherlands

(17.28%) and Setdco Megacell Asia (5%). In the middle of 2002, SingTel

increased its ownership by buying 12.72% of PT. Telkom share, by now the shares

of SingTel are to 35%. The composition of Telkomsel shares can be seen in the

following table: --------------------------------------------------------------------------------

Table 18 The Composition of Telkomsel Shares

Shareholders Total of Shares Paid Up Capital (IDR)

%

PT Telekomunikasi Indonesia Plc. 118,677 118,677,000,000 65

Singapore Telcom Mobile Pte Ltd 63,893 63,893,000,000 35

Total 182,570 182,570,000,000 100

82. The main products of PT Telkomsel are: ---------------------------------------------------

a. Halo Card, a postpaid GSM card launched in 1995, has had 14.7 million

subscribers by 2005. It is a market leader in postpaid GSM card; ----------

b. Simpati, a first prepaid GSM card in Asia, was launched in 1997 and its

target market is middle class; ----------------------------------------------------

c. “As” card, a prepaid GSM card, was launched in 2004 and its target

market is low end; -----------------------------------------------------------------

83. The service coverage of PT Telkomsel is the largest in Indonesia. It covers the

whole districts (100% ) and 40% of sub districts in Indonesia;--------------------------

84. Under the Statutes of Telkomsel, the authorities of Shareholders General Meeting

(Shareholder meeting), Commissioners, Management and the procedures of

decision making of are as follows: ----------------------------------------------------------

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COPYa. Under Article 1.3.a of Telkomsel’s Statutes, the deeds of Board of Director

that must be approved by Shareholder General Meeting are:--------------------- 1. To amend share rights; to approve and to amend any scheme

option for employee; to issue shares or other equities; or to give option, warrant or other rights to buy shares or other rights that can be converted into shares; consolidation, conversion of repurchase limited company’s shares; or to perform initial public offering/IPO (it includes the possibility that the IPO covers a second component and a number of shares that are about to be sold by shareholders in the IPO). ----------------------------------------

2. To determine dividend or reserve fund, if: ----------------------------

a. The total of dividends or allotments that determined or paid in a fiscal year before second anniversary on the date of the Statutes approved by shareholders will exceed thirty five percents (35%) of the company’s profits after tax the fiscal year; or------------------------

b. The total of dividends or allotments that determined or paid in a fiscal year after second anniversary on the date of the Statutes approved by shareholders will exceed thirty percents (30%) of the company’s profits after tax the fiscal year; or ----------------------------

c. Dividend or allotments are determined or paid except the retained revenues; ----------------------------------------------------------------------

3. To amend the Statutes; ----------------------------------------------------

4. To convert core business of the company or to alter the main condition in the communication license issued to the company; ----

5. To liquidate, to disincorporate, to merge, to consolidate or to join

the company; ---------------------------------------------------------------

6. To perform company’s transaction under 10% of the revenues or 12.5% of the shareholder equities and it shall be reported in the last audited financial statement of the company; ---------------------

7. To appoint and dismiss public accountant for the company; -------

8. To approve shareholders audited financial statement of the company;--------------------------------------------------------------------

9. To release the company’s interest in one of its subsidiaries;---------

10. To arrange the incentive, including severance pay, for the commissioner;--------------------------------------------------------------

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b. Under Article 11.3.b of the Telkomsel’s Statutes, the deed of Board of Director must be approved by commissioners as long as there are 20% of company’s shares owned by shareholders: --------------------------------

1. To approve commissioner’s audited financial statement of the company;--------------------------------------------------------------------

2. To establish a subsidiary or joint venture; partnership or operational cooperation; and an acquisition of companies or capital investment;---------------------------------------------------------

3. To receive or to lend loans or guarantee separately or if in whole with other accepted loans or given guarantees in the common book year, that exceed US$ 5,000,000 (or its equivalent in other currencies) or giving exemption, guarantees, performance bond or release any bank securities by company that exceed one (1) year or lengthen commitment that exceed one (1) year that, in or if it is in whole, bigger than US$ 5,000,000 (or its equivalent in other currencies) in common book year in which exemption, guarantee, performance bond or bank security obtained or lengthened;

4. To approve amendment or performance inappropriately with the Statues of the company;---------------------------------------------------

5. To arrange the incentive, including severance pay, for the

Directors; -------------------------------------------------------------------

c. Under Article 11.3.c of the Telkomsel’s Statutes, as long as there are 20% shares owned by shareholders, the authorities of the managements are: ---------------------------------------------------------------------------------

1. To establish, to renew, to amend or to terminate an agreement or company’s transactions, with shareholders, subsidiaries that become shareholders, companies related to shareholders or member of Management or Commissioners, (i) value at higher than US$ 5,000,000 (or its equivalent in other currencies) or (ii) value at lower than the total of the above mentioned but the transaction is not under commercial customary condition or in daily business activities of the company;-------------------------------

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COPY2. To approve the management’s audited financial statement ;

3. To give loan or other prolongation of credits independently, or if it is jointly with other loans and other prolongation of credits by the company in the same year-end, value at higher than US$ 5,000,000 (or its equivalent in other currencies);----------------------

4. To amend accounting policies of the company; -----------------------

5. To arrange the incentive, including severance pay, for the management officer;-------------------------------------------------------

d. Under Article 10.1 of the Telkomsel’s Statutes, Telkom is entitled to dispose 3 personnel (President Director, Director of Finance, and Director for other positions while SingTel Mobile is entitled to dispose 2 personnel in the Telkomsel Board of Director of --------------------------

e. Under Article 11.6 of the Telkomsel’s Statutes, the allotment of tasks and authorities of each member of management are stated by Shareholders General Meeting, but it could be given to Commissioners; ------------------------------------------------------------------

f. Under Article 11.6 of the Telkomsel’s Statutes, the management meeting will be a quorum only if it is attended by four member of management and one member nominated by shareholders who had at least 10% of the company’s shares;--------------------------------------------

g. Under Article 12.6 of the Telkomsel’s Statutes, the decisions taken in management meeting are based on the agreement of the majority of the member of management attended in the meeting or those of represented. In case of the votes are even, then the decisions are determined in the commissioner meeting. If the decisions cannot be taken in the commissioner meeting because the votes are even, the decisions are determined in shareholders general meeting;-----------------

h. Under the Article 13 (3) of the Telkomsel’s Statutes, in the Board of Telkomsel commisioner, Telkom is entitled to dispose four personnel and two for SingTel Mobile;----------------------------------------------------

i. Under Article 22.1 (a) of the Telkomsel’s Statutes, the general meeting will be a quorum only if it is attended by at least 51% (fifty one) of the total shares and one represented shareholders that at least owned 10% (ten) of the shares issued by the company;------------------------------------

j. The decision of the commissioner meeting was taken based on the agreement of the majority of the commissioner's member that was present or was represented. In the matter of the same number of the

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COPYvoice did not agree and agree then this matter will be decided in Shareholder meeting. --------------------------------------------------------

k. The decision of the commissioner of the meeting was taken was based

on the agreement of the majority of the commissioner's member that was present or was represented. In the matter of the voice did not agree and agree was the same the number then this matter will be decided in Shareholder meeting

l. Shareholder meeting achieved the quorum if being attended by

representative shareholders at least 51 (fifty-one) percent of the number of shares with legal voting rights that were dismissed by the company including one representative of shareholders who had at least 10 (ten) percent of the share that was dismissed by the company.(the Article 22 articles 1 letter a Telkomsel Statutes);

m. The Shareholder meeting decision was taken was based on the

conference to mufakat and in the matter of the decision of the conference to mufakat was not reached, the decision was taken with the voting was based on the voice that agreed at least 51% (fifty-one percent) from the voice that was dismissed legitimately in being in a meeting;

n. Shareholder meeting achieved the quorum in the matter decided matters

that were arranged in the article 11,3 (a) if was attended by at least 80 (eighty) percent of all over the share of the company that was dismissed and stored was full was present or was represented and these matters it was decided with the voice agreed by at least 80 (eighty) percent of all over the company's shareholders who were dismissed and stored fully;

o. The Shareholder meeting decision was legal if agree to by at least 85% (eighty-five percent) from the number of legal voices in being in a meeting (the Article 22 articles 8 Telkomsel statutes);

p. The change in the Statutes including changing the name, the company's

place of residence, extended the company's period, changed capital of the foundation by reducing or enlarging capital of the company, united or dispersed the company only could be carried out with the decision from this unusual Shareholder meeting. Rapat must be represented at least 85% (eighty-five percent) from the number of shares that was dismissed by the company and must agree to by at least 85% (eighty-five percent) the number of legal voices in being in a meeting (the Article 25 articles 1 Telkomsel Statutes);

85. The structure of the Organisation of the Telkomsel Management was as

follows: --------------

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COPY

86. That since 2002 till at this time, the position of the director of the trade and

the director of the operation always dinominasikan by SingTel

Mobile.(Annual report 2002-2006 and BAP Telkomsel on May 2 2007)

87. That for the budget agreement was yearly related capital expenditure must

pass Capex Committee that had a membership of three people who

consisted of two people from Telcom, and one person from SingTel (BAP

SingTel on July 4 2007, BAP SingTel Mobile on July 4 2007, BAP

Telkomsel on July 11 2007). SingTel actively affected Capex Committee

through the staff who was assigned for this matter (BAP Telcom on July

24 2007) and Capex Committee could consult with the team that came

from SingTel, one of them of Mr. Widjaja Suki (BAP SingTel on July 4

2007);

88. Mr. Widjaja Suki helped Capex Committee in the matter to consider the

appropriateness of the proposal capex that was put forward. Mr. Widjaja

Suki in this matter carried out the evaluation towards the parameter that

was used in the proposal capex. In the matter of the mistake paramater was

PRESIDENT DIRECTOR

Directorate of Commerce

Directorate of Operations

Directorste of Finance

Directorate of Planning & Development

Corporate Planning

IT Operations & Services

IT Development

Technology & Business

Incubation

Procurement & Logistics

Synergy & Partnership

Corporate Account Management

Sales

Produk & Mobile Data Service

Marketing & CRM

Customer Service

Area

Radio Network Engineering &

Implementation Inner Java-Bali

Radio Network Engineering &

Implementation Outer Java-Bali

End o End Network Quality

Network Operation

Core Network Engineering

Business Control

Accounting

Corporate Finance

Internal Audio

Corporate Secretary

Human Resources

Management

Enterprise Risk

Management

Project Management

3G GroupRegional Network

Operation

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COPYcaused human error, then Mr. Widjaja Suki could at once carry out the

correction, but in the matter of the parameter mistake was caused by the

market situation, then Mr. Widjaja Suki will carry out consultations with

the member Capex Committee that was appointed by SingTel Mobile.

(BAP SingTel Mobile on July 4 2007)

89. The agreement was for the realisation of the budget given by Capex

Committee each quarter in accordance with the requirement that was put

forward by each department (BAP SingTel Mobile on July 4 2007);

90. Against annual of budget that was agreed , SingTel assigned his two staffs,

that is Mr. Widjadja Suki and Mr. Quah Kung Yang to monitor his

implementation and give the recommendation to Telkomsel Commissioner

who was appointed by SingTel Mobile. In the implementation of this task,

Mr. Widjaja Suki could communicate directly with Telkomsel

management staffs in the part business control, in part and that most often

that is with Mr Jaka Susanta (BAP SingTel Mobile on July 4 2007);

91. SingTel also actively gave advice to Telkomsel Commissioner who was

appointed by SingTel Mobile in relation to the efforts point of view and

business plan of Telkomsel (BAP SingTel on July 4 2007);

92. There is not joint procurement that was carried out by Telkomsel with the

other company that was afiliation with SingTel but was gotten sharing

information with these companies (BAP Telcom on July 24 2007);

93. The summary of the Telkomsel finance achievement was as follows:

TELKOMSEL: FINANCIAL HIGHLIGHTS

(in billion rupiah) 2001 2002 2003 2004 2005 2006

BALANCE SHEETS

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COPYCurrent Assets 1,995 1,856 2,676 3,859 3,048 3,971

Property, Plan and Equipment 5,321 9,034 12,695 14,967 21,993 31,706

Other Assets 143 49 39 723 706 1,624

Total Assets 7,459 10,939 15,410 19,549 25,747 37,301

Current Liabilities 2,212 1,152 2,790 3,306 6,545 10,588

Other/Long-term Liabilities 27 1,598 2,309 2,365 1,462 3,640

Stockholders' equity 5,220 7,189 10,311 13,878 17,740 23,073

Total Liabilities & Stockholder's equity

7,459 9,939 15,410 19,549 25,747 37,301

INCOME STATEMENTS

Operating Revenues (Nets) 4,918 7,573 11,146 14,765 21,133 29,145

Operating Expences (Inc. Depreciation)

1,932 3,444 4,800 6,744 8,772 12,836

EBITDA 3,499 5,110 8,026 10,672 15,408 20,737

EBIT 2,986 4,129 6,346 8,021 12,361 16,309

Net Income 2,044 2,787 4,237 5,473 8,647 11,182

CASH FLOWS

Cash Flows From Operation 2,756 4,517 6,610 8,913 12,892 16,335

Cash Flows From Investing Activities

2,626 4,531 5,311 5,470 8,438 13,144

Cash Flows From Financing Activities

763 671 475 341 936 2,678

Devidends 544 818 1,057 1,840 4,616 5,645

Net Cash In/Out Flows 349 161 717 1,262 1,098 224

FINANCIAL RATIOS

EBITDA Margin – gross 1) 57% 54% 58% 58% 59% 59%

EBITDA Margin - net 2) 71% 67% 72% 72% 73% 71%

Net Income Margin 3) 42% 37% 38% 37% 41% 38%

Return on Assets 4) 34% 30% 32% 31% 38% 35%

Return on Equity 5) 47% 45% 48% 45% 55% 55%

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COPYSource: Finance Report of Telkomsel

5.5 Concerning Indosat ---------------------------------------------------------------

94. PT. Indosat Tbk was established during 1967 as the PMA company to

serve continuation immediately was international in Indonesia. During

1980 the Indonesian Government took over the ownership whole of the

PT. Indosat Tbk share and since then PT. Indosat Tbk had operated as

BUMN. In 1994 PT. Indosat go public and registered his share in the

Jakarta Stock Exchange, Surabaya Stock Exchange, and New York Stock

Exchange;

95. In 2002 the Indonesian Government took divestation ownership of his share

in PT. Indosat of 41, 94% (forty-one point ninety-four percent) to St

Telemedia went through his subsidiary company namely Indonesia

Communication Ltd (ICL). and since that time the PT. Indosat Tbk status

had changed again became the PMA company that was agreed on

February 7 2003 to by BKPM (the Report on Konsolidasi Indosat Finance

th 2003, 2002, and 2001);

96. Shareholders's composition of PT. Indosat Tbk was as follows:

Table 19 Shareholders's composition of PT. Indosat

Number of Shares Capital deposited/ placed (Rp) Name of

Shareholders series A

Series B Rp 100 Rp 100

%

Republic of Indonesia Government 1 776,624,999 100 77.662.499.900 14.58

Indonesia Communication Limited

0 2,171,250,000 0 217.125.000.000 40.77

Public 0 2,377,330,500 0 237.733.050.000 44.65 Total 1 5,325,205,500 100 532,520,550.000 100.00

97. In 2003 Satelindo, IM3, and Bimagraha carried out the merger with PT.

Indosat Tbk and afterwards PT. Indosat Tbk became the company that

focussed itself in the business selular;

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COPY98. PT. Indosat gave the service in 3 categories, that is: mobile service (Matrix,

Mentari, IM3), telephony service (SLI, Voip Telephony, StarOne), and

multimedia service (IM2 and the Artha Passage);

99. The main product from PT. Indosat Tbk was:

a. Mentari, GSM Card prepaid for middle class as a target of market;

b. IM3, GSM Card prepaid for student and youth as a target of market;

c. Matrix, GSM Card pasca paid for middle to upper class as a target of

market;

d. Starone, pre and pasca card fix wireless access based on CDMA;

100. The service scope of PT Indosat Tbk covered all province in Indonesia and

included 410 regencies all over Indonesia;

101. The Share Purchase Agreement between the Government of Indonesia and

STT on 15 December 2002 stated that: --------------------------------------------

a. Article 5.8 EGM Resolution: The seller is about to use voting rights of the series of A and B shares in the extraordinary general meeting of shareholders to support the following matters: -------------------------------

i. To appoint additional director(s) and to appoint or to replace the commissioners of the management and the buyer’s appointed commissioners as its rights stated in Article 3.2 on Shareholder Agreement.-----------------------------------------------------------------

ii. To amend the document of company organization for exhibiting the amendments as it stated exhibit E ----------------------------------

iii. To approve principally the establishment of Employee Share Option Program (ESOP) -------------------------------------------------

102. The Share Purchase Agreement between the Government of Indonesia and

STT on 15 December 2002 stated that: --------------------------------------------

a. The Article 3.1.b: For the period of one year from the date of the

agreement signature, the Minister of State-Owned Company (BUMN) agrees to use the voting rights of shares as it is instructed in written by investors: --------------------------------------------------------------------------

i. The agreement of dividend sharing; ------------------------------------

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COPYii. The amendment of the Statutes;-----------------------------------------

iii. The agreement of merger, consolidation and acquisition; -----------

b. Article 3.2.a: The shareholders use their voting rights to elect a number of members of board of commissioner to make (i) a number of commissioners of the shareholders’ representatives simple majority within the board of commissioner; (ii) the two of the commissioners are nominated by Minister of State-owned Companies. It is only one commissioner nominated by the Minister if the shares are remitted, but it is series A shares; --------------------------------------------------------------

c. Article 3.2.b: The shareholders use their voting rights to elect a number of members of board of director to make (i) a number of directors of the shareholders’ representatives simple majority within; (ii) the two of the directors are nominated by Minister of State-owned Companies. It is only one director nominated by the Minister if the shares are remitted, but it is series A shares ----------------------------------

d. Article 3.3: Any shareholders have absolute rights to replace their own nominated director and commissioners and other shareholders vote are about to approve the replacement. ---------------------------------------------

e. Article 3.5: The Director and Commissioner meeting will be a quorum only if it is presented by the majority of Director and Commissioner or at least one Minister’s/investors’ appointed Commissioner or Director ;-

f. Article 4.1: Investors will not expropriate the shares to the third party for the period of three years as from the date of the agreement signature, except;-----------------------------------------------------------------

i. The party are international financial institutions that agree to be bided by and about to be a party in the agreement, and the form of the expropriation are mortgage, charge or grant;------------------------

ii. The allowed parties are those of parties agree to be bided by the agreement. --------------------------------------------------------------------

g. Article 4.2: Minister of the State-Owned Companies is not allowed to expropriate the outstanding share to the third party for the period of one year as from the date of the agreement signature -----------------------

h. Article 5.3: The parties will not expropriate the core asset for the period of three years as from the date of the agreement signature. The parties will seriously consider the commercial impacts of the divestment of Lintasarta and IM2 by noticing that Lintasarta and IM2 contribute significantly toward company’s annual revenues; --------------

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COPY103. It explains further in the Indosat statutes that the authorities of shareholder

general meeting, Commissioners, Board of Directors and the decision making procedures are as follow: ---------------------------------------------------

a. Under Article 10.2 of the Indosat Statutes, the Indosat Board of Directors consists of at least three with one of them appointed as a President Director; ---------------------------------------------------------------

b. Under Article 10.3 of the Indosat Statutes, the members of Board of Directors are elected and dismissed at the shareholder general meeting with at least 1 (one) member is nominated by the shareholders of series A; -----------------------------------------------------------------------------------

c. Under Article 11.7 of the Indosat Statutes, the distribution of duties and authorities of Board of Directors as well as edifice of the company shall be approved by Board of Commissioners;------

d. Under Article 12.2 of the Indosat Statutes, the meeting of Board of directors will be a quorum if it is attended by at least ½ (a half) of members of the Board of Directors; -------------------------------------------

e. Under Article 12.4 of the Indosat Statutes, the decisions at Board of Directors meeting are determined by deliberation to come to terms. If there is a deadlock, the decision is determined by majority votes. If the votes are even, the decision are determined by President Director; -------

f. Under Article 11.3 of the Indosat Statutes, the Board of Director shall have an agreement from the Board of Commissioners: ---------------------

1. to buy and/or to sell other companies’ shares in stock exchange higher than those of determined by the Board of Commissioner (The Amendment of Statutes, dated 30 September 2004 and approved by Ministry of Justice on 2 December 2004); ----------------

2. to perform an agreement on license, management, and other similar agreement with other corporations or parties for 1 (one) year or more;---------------------------------------------------------------------------

3. to buy, to release, to sell, to mortgage, or to cost fixed assets of the company higher than those of determined by the Board of Commissioner; ---------------------------------------------------------------

4. not to re-bill for and to write off debt from the book as well as to procure goods higher than those of determined by the Board of commissioner; ----------------------------------------------------------------

5. to abide company as guarantor resulted on the financial excessive reach certain amount stated by board of commissioner; ----------------

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COPY6. to borrow or to lend short or middle term debts for non-operational

purposes higher than those of arranged in work schedule and Company budget that are approved by Board of Commissioners; ----

7. to raise or to release equity capital of the company in other companies but it does not perform at stock exchange; ------------------

8. to establish subsidiaries; ----------------------------------------------------

g. Under Article 14.1 of the Indosat Statutes, the Board of Commissioner consist of at least 3 (three) people with one of them appointed as President Commissioner;--------------------------------------------------------

h. The members of Board of Commissioner are appointed and dismissed by the decision determined at the shareholders general meeting on condition that at least 1 (one) nominee of Commissioner member is nominated by the shareholder of series A; ------------------------------------

i. Under Article 16 of the Indosat Statutes, the Board of Commissioner is obliged;-------------------------------------------------

1. to pass opinions and suggestion on the Annual Report of Finance and other important matters during the shareholders general meeting;-----------------------------------------------------

2. to approve Work Schedule and Company Budget for at least 30 (thirty) days prior to the commencement of company fiscal year. In case of the Work Schedule and Company Budget are not approved over such period of time, the previous year’s Work Schedule and Company Budget will be valid; --------------------------------------------------------------

3. to monitor the progress of the company and to report immediately at the shareholder general meeting along with its suggestions for the improvement any time the company is in disadvantages; -------------------------------------------------

4. to pass opinions and suggestions any important problems concerning company’s management at the shareholder general meeting;-----------------------------------------------------

5. to suggest an appointment of accountant to audit financial account of the company to be reported at the shareholder general meeting;-----------------------------------------------------

6. to perform any other monitoring duties determined at the shareholder general meeting; --------------------------------------

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COPYii. Under Article 17.3 of the Indosat Statutes, the quorum of Board

of Commissioner meeting shall be at least attended by ½ (a half) of the members of company’s commissioners; ------------------------

iii. Under Article 17.5 of the Indosat Statutes, the decision on a plan at the meeting of the Board of Commissioner are determined by deliberation to come to terms. In case of the votes are even, the decisions are determined by majority votes. If the votes are even, the decision is deemed to be disapproved. The decision on the personal things are determined by President Commissioner; --------

iv. Under Article 19.3 of the Indosat Statutes, the quorum of shareholder general meeting shall be at least attended by ½ (a half) of the shareholders; -------------------------------------------------

v. Under Article 24.1 of the Indosat Statutes, the decision of a plan at the shareholder general meeting are valid if they are approved by majority votes of those in attendance or in representative. In case of the votes are even, the decision is deemed to be disapproved; ----------------------------------------------------------------

vi. Under Article 25.1 of the Indosat Statutes; in case of a merger, consolidation, and acquisition, the quorum of shareholder general meeting shall be at least attended by the shareholders of series A and other shareholders or their representatives that jointly represent ¾ (three fourth) of the authorized shareholders and approved by the shareholders of series A as well as other shareholders that jointly represent ¾ (three fourth) of the valid votes at the meeting;-------------------------------------------------------

vii. Under Article 28.1 of the Indosat Statutes, the amendment of the Statutes shall be determined at the extraordinary shareholder general meeting that at least attended by 2/3 (two third) of those in attendance. In case of amendment of the statutes that related to the right of shareholders of series A, the amendment shall be approved by the shareholders of series A;------------------------------

viii. Under Article 29.1 of the Indosat Statutes, the provision of special resolution is also applied in case of the dismiss al and liquidation;------------------------------------------------------------------

104. Under Article 29.1 of the Indosat Statutes, the provision of special resolution is also applied in case of the dismissal and liquidation; -------------

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COPY

105. After the acquisition of STT, the management edifice of Indosat is as

follow: ----------------------------------------------------------------------------------

PRESIDENT DIRECTOR

DEPUTY PRESIDENT DIRECTOR

Regional Sales

Director

Marketing Director

Information Technology

Director

Network Director

Finance Director

Corporate Services Director

Jabotabek Corporate

Sales Director

Group Head National Customer Service

Group Head Wholesale and

Carrier Relations

Head of West Java Region

Group Head National

Corporate Sales

Group Head Wireless Access Produks

Group Head Gaming & Content

Group Head Integrated Marketing

Group Head Fixed & MIDI

Produks

Group Head Vas Produks

Group Head Mail &

Messaging

Group Head IT Infrastructure

Group Head IT Planning

Head of Jabotabek

Region

Head of Kalimantan

Region

Head of Southern

Sumatera Region

Head of Northern

Sumatera Region

Head of Sulampapua

Region

Head of East Java & Bali

Nusra Region

Head of Central Java

Region

Group Head Human Capital Management

Group Head Legal

Group Head Accounting

Group Head Revenue

Assurance

Group Head Controlling

Group Head Treasury

Group Head Regulatory

Group Head Property & Facilities

Management

Group Head Risk & Compliance

Group Head CRM

Operation

Group Head Billing

Operation

Group Head Vas Operation

Group Head IT Project

Group Head Cellular Network Planning &

Engineeering

Group Head Cost Management &

Contract

Group Head Cost FTM Network

Planning & Engineeering

Group Head Project

Development

Group Head Cellular NOM

Group Head FTM NOM

Group Head Transmission

NOM

Group Head Jabotabek

Technical Operation

Group Head Network Quality &

Surveilance

Group Head Industry & Compeitive

Analysis

Group Head Enterprise

Information System

Operation

Group Head

Business

Strategy

Group Head

Corporate

Secretary

Group Head Intern

al Audit

Group Head

National

Card &

Channel

Management

Group Head

Procurement

Group Head Strate

gic Development &

Operation

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COPY

106. The diagram shows that the Deputy President Director heads an

operational directorate while the President Director heads directorates of

finance and corporate service; -------------------------------------------------------

107. That since the changes of the organizational structure, the position of

Deputy of President Director and Director of Finance are always occupied

by the representative of ICL; --------------------------------------------------------

108. That ICL is in consideration of an investor and Singapore is in

consideration of mastering technology better than Indonesia, the position

of Director of Finance and Director of Information are always occupied by

the representative of ICL (The IOR of Indosat, dated 27 August 2007); ------

109. Besides the changes mentioned above, there are also changes in

procurement mechanism in Indosat. Prior to the presence of STT, the

procurement process is open tender in which procurement performed by

procurement team of Indosat involving user in determining the

specification. After the presence of STT, the former open is not

implemented anymore (The Investigation Official Report, dated 22 August

2007); -----------------------------------------------------------------------------------

110. That since STT owns Indosat, the procurement function is under the

control of Deputy President Director that is currently occupied by Khaizad

B. Heerdje (The Investigation Official Report, dated 22 August 2007);-------

111. That prior to the control of Khaizad or under Hasnul Suhaimi as a

President Director, the method of network procurement is non turnkey and

it is performed by local company. Otherwise, Khaizad changes it into

turnkey and it is performed by foreign company (The IOR of Wimbo S

Hardjito, dated 25 September 2007); -----------------------------------------------

112. That Khaizad terminates the development method which previously

performed by Hasnul; it is a factor that make Hasnul resign from its

position as a President Director. The resignation of Hasnul had indicated

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COPYthat Indosat further controlled by the Deputy of President Director while

the President Director remains to be a figurehead of the company (The

Investigation Official Report, dated 22 August 2007);---------------------------

113. The termination caused the absence of decision on the network installment

and it lasted in the first nine months of 2006; consequently, Indosat

business activity was running slowly and falling behind to other cellular

telecommunication operators (The IOR of Wimbo S Hardjito, dated 25

September 2007); ---------------------------------------------------------------------

114. That the postponement of the network istallment is the reason for the 4

(four) Directors, Jhoni Swandy Sjam, Wahyu Widjajadi, S. Wimbo S.

Hardjito and Wityasmoro to meet Lee Theng Kiat (A Commisioner of

Indosat) in Singapore to inform that the postponement of the network

installment is able to inflict financial lost to Indosat. The 4 (four) Directors

of Indosat also judge that Khaizad is not competent to be a leader of

Indosat (The IOR of Wimbo S Hardjito, dated 25 September 2007); ----------

115. Lee Theng Kiat does not take any action in responding to the information

of the 4 (four) Directors (The IOR of Wimbo S Hardjito, dated 25

September 2007); ---------------------------------------------------------------------

116. The following is the financial highlights of Indosat: -----------------------------

INDOSAT: FINANCIAL HIGHLIGHTS (In billion rupiah) 2001 2002 2003 2004 2005 2006 Revenue Statement

Revenue 5,138.10 6,767.00 8,229.60 19,430.1

0 11,589.80 12,239.40

Financial Responsibilities 3,307.30 4,889.60 5,881.70 7,232.00 7,937.90 8,840.70

Income from Operation 1,830.80 1,877.40 2,347.90 3,198.10 3,651.90 3,398.70

Revenue (Load) Other-Nett 175.40 -599.40 -795.00 -876.8 -1,299.20 -1,375.80

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COPYNet income Association Company

132.30 72.3 33.80 61.50 0.10 -0.20

Income Before Tax 2,138.40 1,350.20 1,586.70 2,382.80 2,352.80 2,022.70

Net Income -412.20 -776.50 17.80 -724.60 -697.90 -576.10 The Profit prior to Extraordinary Post, Minority Right to the Nett Profit Subsidiaries and Profit Prior to Acquisition

1,726.3

573.80

1,604.5

1,658

1.654.9

1,446.60

Extraordinary Post 4,499.90

Minority Right to the Loss (Nett) Profit of Subsidiaries

-273.50 -27.20 -22.50 -25.00 -31.40 -36.50

Profit Before Acquisition -205.90

Nett Profit 1,452.80 340.70 6,082.00 1,633.20 1,623.50 1,410.10 Subscribed Capital (in millions of shares)

5,177.50 5,177.50 5,177.50 5,283.50 5,356.20 5,433.90

Profit per security (in Rupiah) 280.60 65.80 1,174.70 313.90 309.00 260.90

Dividend per share (in Rupiah) 112.20 29.20 145.50 154.23

EBITDA 2,842.40 3,661.70 4,385.90 6,016.70 6,732.10 7,051.90 Balance Receivable Balance Amount

22,348.70

21,852.20

26,059.20

27,872.50 32,787.10 34,228.70

Nett-Fixed Assets 9,468.90 11,759.30

14,093.10

17,243.20 21,564.80 24,963.00

Working Capital 3,323.90 1,805.30 4,034.50 2,080.30 2,095.60 -1,137.80 Total of Liabilities

11,370.00

11,285.40

13,872.20

14,523.40 18,296.10 18,826.30

Minority Rights 239.00 134.50 147.10 164.50 175.70 200.60 Total of Equity 10,739.7

0 10,432.30

12,039.90

13,184.60 14,315.30 15,201.70

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COPYRatio (%) Profit to Income 35.63 27.74 28.53 30.66 31.51 27.77 Profit to Total of Equity 17.05 18.01 19.50 24.26 25.51 22.36

Profit to Total Assets 8.19 8.59 9.01 11.47 11.14 9.93

EBITDA Margin 55.32 54.11 53.29 57.69 58.09 57.62 Net Profit Margin 28.28 5.03 73.90 15.66 14.01 11.52 Capital Return 13.53 3.27 50.52 12.39 11.34 9.28 Asset Return 6.50 1.56 23.34 5.86 4.95 4.12 Financial Ratio (%)

Current Ratio 160.31 155 217.74 146.3 138.58 83.28 Liability Ratio to Total of Equity 59.17 77.2 86.35 72.03 87.34 75.13

Total Liability Ratio to Total of Assets

50.88 51.64 53.23 52.11 55.8 55.00

Dividend per Share (Rp)

Final 112.24 29.23 145.55 154.23 149.32 Date of Payment 29/07/02 1/8/2003 20/07/04 15/07/05 8/8/2006 Cellular Prepaid Subscriber (unit subscriber)

1,736,064

3,341,072

5,600,882

9,214,663

13,836,046

15,878,780

Postpaid Subscriber (unit subscriber)

173,475 241,576 361,562 539,944 676,407 825,859

Total Customer (unit subscriber)

1,909,539

3,582,648

5,962,444

9,754,607

14,512,453

16,704,639

ARPU Prepaid (Rp) 359,477 368,330 90,459 78,681 58,054 52,713

ARPU Postpaid (Rp) 117,542 89,033 338,697 269,647 240,810 194,761

ARPU Blended (Rp) 148,951 111,817 106,386 89,489 67,113 60,023

Source: Indosat Financial Report

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COPY

5.6 Concerning Exelcomindo;----------------------------------------------------------------

117. PT. Exelcomindo Pratama (hereinafter referred to as XL) was founded in

November 1995 and came on the cellular telecommunication market in

October 1996.--------------------------------------------------------------------------

118. Until 31 December 2006, the shareholders of XL are:

a. Indocel Holding Sdn. (Subsidiary Telekom Malaysia) 59.63%; -----------

b. Khazanah Nasional Bhd. 16.81%; ---------------------------------------------

c. Rajawali Corpora 15.97%; ------------------------------------------------------

d. AIF (Indonesia) Limited 7.38%; -----------------------------------------------

e. Public 0.21%; ---------------------------------------------------------------------

119. Cellular telecommunication offered by XL is: ------------------------------------

a. Jempol, the prepaid card with the economical tariff for sms and call; ----

b. Bebas, the prepaid card for teenager; ------------------------------------------

c. Xplor, the postpaid card for young executives; ------------------------------

120. The following is the financial highlights of Exelcomindo: ----------------------

EXCELCOMINDO: FINANCIAL HIGHLIGHT 2000 2001 2002 2003 2004 2005

Gross Revenue 1,330.50 2,073.00 2,483.80 2,625.00 3,133.10 3,790.01

Net Income 1,062.00 1,783.60 2,138.70 2,228.70 2,590.70 3,059.13

Financial Responsibilities

688.3 1,088.00 1,385.70 1,645.30 1,931.90 2,489.07

EBITDA 708.8 1,210.50 1,444.00 1.457.5 1,622.50 1,735.01

Profit 373.7 695.7 753.00 583.40 658.80 570.06

Profit/(Loss) before Tax

-396.1 222.10 1,067.20 590.00 -50.20 -313.23

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COPYNett Profit/(Loss) -281.4 147.10 743.30 400.70 -50.10 -224.09

Per Share Nett Profit/(Loss) (in Rupiah)

-124,232

64,941 328,162 176,920 -22,120 -37.00

Balance Sheet (in billion rupiah)

Total Assets 2,632.90 3,895.60 4,746.60 5,514.10 6,474.50 9,353.95

Total Current Assets 155.7 257.7 401.1 888.1 802.7 1,370.85

Total Current Liability 1,112.70 749.7 880 1,089.20 895.9 2,292.22

Not Current Liability 1,722.70 3,201.30 3,178.70 3,336.20 4,540.00 3,432.42

Equity -202.40 -55.4 687.9 1,088.70 1,038.60 3,629.31

Ratios %

Selling Growth 84.20 55.8 19.8 5.70 19.4 21.00

Profit Growth 1,035.90 86.2 8.2 -22.50 12.9 -13.90

Nett Profit Growth nm nm 405.3 -46.10 nm nm

Nett Income Margin 79.8 86 86.1 84.90 82.7 80.7

Profit Margin 28.1 33.6 30.3 22.20 21 15

Nett Profit nm 7.1 29.9 15.30 nm nm

Profit Ratio to Total of Assets

14.2 17.9 15.9 10.60 10.2 6.1

Profit Ratio to Total of Equity

nm nm 109.5 53.60 63.4 15.7

Current Ratio 14 34.4 45.6 81.50 89.6 59.8

Asset Ratio to Equity (x)

nm nm 6.9 5.10 6.2 2.6

Liability Ratio to Equity (x)

nm nm 4.8 3.40 4.3 1.1

Liability Ratio to EBITDA (x)

2.4 2.6 2.3 2.60 2.8 2.4

Operational Data

Number of subscribers (000)

766 1,223 1,680 2,944 3,791 6,979

Prepaid 728 1,184 1,639 2,908 3,743 6,802

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COPYPostpaid 38 39 41 36 48 176

ARPU (IDR 000)

Prepaid 184 172 132 96 65 54

Postpaid 449 455 471 500 517 305

Blended 206 183 142 104 70 60

The Average of Monthly Chum Rate (%)

Prepaid 2.10% 2.50% 2.80% 3.50% 10.00% 5.60%

Postpaid 1.10% 2.00% 1.60% 2.90% 1.80% 0.30%

Number of BTS 514 739 950 1,491 2,357 4,324

Number of BTS 7 13 15 22 28 42

Number of BTS 5 10 11 12 12 10

Source: Excelcom Financial Report

5.7 Other Facts;---------------------------------------------------------------------------------

Concerning interconnection--------------------------------------------------------------------

121. That the current degree of competition of the cellular industry is less

caused by incumbent operators, in the condition that is able to threat

interconnection relationship to the operator which cut the degree of tariff

(The IOR of Witness: Telecommunication Society, dated 25 September

2007); -----------------------------------------------------------------------------------

122. That although since 2007 the regime of interconnection has been based on

tariff, to date there is no inter-operators PKS that cover the agreement (The

IOR of Witness: Telecommunication Society, dated 25 September 2007); ---

123. That in reality, the operators that search for interconnection do not have

balanced bargaining position with incumbent operator. Consequently, they

have to follow the will of incumbent operator to avoid disconnecting of the

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COPYinterconnection (The IOR of Witness: Telecommunication Society, dated

25 September 2007). It used to be an interconnection resistance to a new

arrival operator by Telkomsel. Telkomsel requires to meet a traffic for 48

erl that is hard to be accomplished by other operators (The IOR of

Witness: Hutchinson 21 June 2007);-----------------------------------------------

124. In one of an interconnection agreement between Telkomsel and one of

operators, it is arranged the loading expense, claim, and payment. They are

mentioned further in the paragraph of the Article that: --------------------------

“The tariff charged against the users of SMS services is subject to the authority of any party. Therefore, operators can fix their own tariff by condition that the tariff charged against the users by operator X shall not be lower than those of Telkomsel’s. As from tariff notification provided by Telkomsel, the tariff adjustment will be made by Operator X at the furthest of 3 (three) months, as a time for dissemination in case of Telkomsel amends its tariff.” ---------------------------------------------------------------------

However, the provision is revoked after the agreement is amended;----------

125. Another constraint are conditions that require the presence of third party,

appointed by Telkomsel, for developing interconnection link.

Consequently, the significant cost shall be paid by interconnection

searcher. The ownership and operating rights of the link also belong to the

third party and Telkomsel rather than interconnection searchers. (The IOR

of Witness: Hutchinson , 21 June 2007);------------------------------------------

Concerning Tariff -------------------------------------------------------------------------------

126. Related to the Indonesian purchasing power, per capita income is only

USD 700, the tariff of cellular phone in Indonesia is high in which it

consumes 10-20% of the income (The IOR of Witness:

Telecommunication Society, dated 25 September 2007); -----------------------

127. That incumbent operators are able to cut the prevailing tariff to 50% (The

IOR of Witness: Telecommunication Society, dated 25 September 2007); ---

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COPY128. That IDR 100 for tariff of SMS remains to give reasonable benefit to

operators (The IOR of Witness: Telecommunication Society, dated 25

September 2007); ---------------------------------------------------------------------

129. That the vote tariff for co-operator can be cut off 25% (The IOR of

Witness: Telecommunication Society, dated 25 September 2007); ------------

130. That telecommunication operator charged upon the costumers the

investment cost that lead to high tariff. In fact, operators can charge upon

the vendors rather than customers (The IOR of Witness:

Telecommunication Society, dated 25 September 2007); -----------------------

131. The report of Morgan Stanley Research Asia/Pacific on

telecommunication on 21 February 2006 showed that per minute

telecommunication tariff in Indonesia is higher compared to other

emerging markets, and it is only lower than Australia, as seen in the

following graphic:---------------------------------------------------------------------

Concerning EBITDA ----------------------------------------------------------------------------

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COPY

132. The report also states that among operators in Asia/Pacific, Telkomsel

enjoys EBITDA margin higher than other operators as it is seen in the

following graphic:---------------------------------------------------------------------

Concerning the comparison with other operators in other countries---------------------

133. The comparison of the structure of telecommunication industry and the

performance of finance in Indonesia and other countries are as follow:-------

Country

Mar

ket S

hare

of T

op

2 O

ps

Pene

trat

ion

Num

ber

of O

ps

HH

I

Mon

thly

Chu

m

AR

PU (U

SD)

Tar

iff R

egul

atio

n

Ran

ge O

f EB

ITD

A

Wei

ghte

d E

BIT

DA

Indonesia 79% 31% 9 3.337 8.6% 7.0 44% to 60% 65% Thailand 79% 70% 4 3.658 2.9% 8.0 21% to 41% 36% Philippines 95% 52% 3 4.170 3.1% 5.3 68% to 78% 71%

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COPYMalaysia 72% 76% 3 3.436 3.7% 18.7 43% to 54% 51% Pakistan 65% 37% 6 4.710 4.1% 4.0 NA 40% India 49% 14% 6 2.096 4.0% 8.9 NA 39% Bangladesh 76% 16% 6 3.739 2.1% 3.6 31% to 53% 42% China 96% 37% 3 5.194 2.7% 9.5 35% to 52% 47% Source: Merrill Lynch, June 2007

ANALYSIS ; -----------------------------------------------------------------------------------------

Legal;--------------------------------------------------------------------------------------------------

Concerning the Jurisdiction of KPPU

147. KPPU is established to supervise the implementation of the Law No.5/1999 as it

stated in Article 30 of the Law No.5/1999. The duties and authorities of KPPU is

elucidated further in Article 35 and 36 of the Law No.5/1999. Therefore, KPPU

acts along with its duties and assignments as it regulated by the Law No.5/1999; ---

148. The subject of the Law No.5/1999 is business actor as it defined in Article 1.5 of

the Law No.5/1999. KPPU can ask information not only the business actor that

become the subject of the regulation of the Law No.5/1999 but also to the parties

that are not qualified as business actors such as government and business

association.23. -----------------------------------------------------------------------------------

149. The authorities of KPPU imposed toward Temasek Holdings, STT, SingTel ,

STTC, SingTel Mobile, AMHC, AMH, ICL and ICPL (Temasek Group) depend

on whether Temasek Group is a business actor qualified as it is stipulation in

Article 1. 5 of the Law No.5/1999. The following is the analysis to the

accomplishment of substance of Article 1.5 of the Law No.5/1999 to Temasek

Business Group;--------------------------------------------------------------------------------

150. Article 1.5 of the Law No.5/1999 defines business actor as follows: ------------------

“Any individuals or corporations, in the form of corporate body or non corporate body , are established and domiciled or performing activities within

23 See Article 36.f and 36.h of the Law No.5/1999

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COPYthe territory of jurisdiction of the Republic of Indonesia, and; independently or jointly by an agreement perform any business activities.” ----------------------------

151. In order to recognize whether Temasek, STT, STTC, AMHC, AMH, ICL, ICPL,

SingTel , SingTel Mobile (hereinafter referred to as the Temasek Group) are

categorized as business actors or not, the accomplishment of the substances of

Article 1.5 of the Law No. 5/1999 shall be proved: --------------------------------------

a. The substance of ”any individuals or corporations” ---------------------------------

That Temasek Group, based on its Statutes, is corporation; therefore, this

substance is accomplished; --------------------------------------------------------------

b. The substance of ”in the form of body or non corporate body ” -------------------

Temasek Group is a corporate body and established under Singaporean law

not Indonesian law. This substance is an alternative substance in which

Temasek Group accomplishes the substance of non corporate body ; -------------

c. The substance of ”established and domiciled or performing activities within

the territory of jurisdiction of the Republic of Indonesia” ---------------------------

That the Group is established and domiciled in Singapore, but in its capacity

as Business Group, it performs activities within the territory of jurisdiction of

the Republic Indonesia as it is elucidated as follows: --------------------------------

1. The understanding of business actor in Article 1.5 of the Law No.5/1999

employ functional approach that emphasize on an economic activity

rather than legal24. In line with such an approach, the body of corporate

is considered to be a material in determining a business actor;---------------

2. The approach is employed in the theory of Single Economic Entity

Doctrine, seeing the relationship between holding company and its

subsidiaries, in which subsidiaries do not have independency in

determining company policy direction as a unity of economic entity.25

The degree of the independencies of the subsidiaries can be seen from

any factors such as the control of holding company toward the

24 Knud Hansen et al., Undang-undang Larangan Praktek Monopoli danPersaingan Usaha Tidak Sehat (The Law

on the Prohibition of Monopolistic Practices and Unfair Competition)n , Katalis, Jakarta, 2002, page 50 25 See Alison Jones and Brenda Sufrin, EC Competition Law, Text, Cases, and Materials, Oxford University Press,

New York, 2004 page 123

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COPYmanagement of subsidiaries, the benefit taken by holding company that

are contributed by the subsidiaries, and the pursuance of the subsidiaries

to the policies of holding company, on marketing and investment as

examples26; --------------------------------------------------------------------------

3. The consequence of the implementation of Single Economic Entity is

that a business actor can be asked for its responsibility over the conducts

of other business actors within a unity of economic entity although it is

performed in the outside of a state’s jurisdiction of a business actor.

Therefore the competition law is categorized as extraterritorial27; --------

4. The consideration of part “c” in the Law No.5/1999 stresses that anyone

who perform business activity in Indonesia shall be in fair competition.

As a general principle of a competition law, the Law No.5/1999 is vested

with jurisdiction over a competition condition within the territory of the

Republic of Indonesia, without any distinction to whom and where the

business actor causes impacts to the competition; -----------------------------

5. The expressions of “that perform an activity” or “that perform a business

activity” do not infer that a business actor shall be in the relevant market

. A corporation can perform a business activity in other country by

establishing a company or acquiring other existing companies in a

country without directly perform business activity in the relevant market

of the country. In other word, a business actor may influence competition

condition although it is absence in the relevant market ; ----------------------

6. The perspective is seen in the body of the Law No.5/1999 that the

terminology of “a business actor” or “a group of business actor” are

used frequently in its Articles. According to Knud Hansen, et.al., the

definition of business actor is28: --------------------------------------------------

Some independent corporations that are joined into an independent

economic unity. The independent corporations are under one

control, appearing outside as a holding company that make plans

standard for its subsidiaries; ------------------------------------------------

26 Ibid., page 135 27 Single Economic Entity Doctrine becomes a basic of European Community to implement competition law to the

business actor in the outside of the regions. EC, See Alison Jones and Brenda Sufrin, op.cit page 126 28 Knud Hansen et.al.,op.cit, page 52

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COPY

7. That from the fact founded, Indosat and Telkomsel are controlled by

Temasek through its subsidiaries. The control of Temasek is possible

because Temasek is not a passive investor of SingTel and STT as

SingTel and STT to Telkomsel and Indosat. Passive investor is defined

as investor that has no voting rights over its shares, has no

representatives in the management of the company, give no directives

for the company policies, no influences to company management, has no

access to sensitive information of the company.29 In European Union,

even a passive investment is claimed to be able to reduce competition,

especially in the concentrated market, and to infringe competition30;-------

8. The control occurs due to the position of Temasek as a Holding

Company of its subsidiaries. Holding Company concentrates the

ownership of shares in order to influence its specific subsidiaries or

branches aiming at controlling them31; ------------------------------------------

9. From the perspective of investment, Temasek Group is a foreign

investment in Indosat and Telkomsel. Under Article 1.1 of the Law No.

25/ 2007 on Investment, the definition of investment is:----------------------

any investment activity, foreign or domestic investment, that perform business activity in the territory of the Republic of Indonesia: ----------

10. Article 1.3 further defines that foreign investment is: ------------------------

an investment activity to perform business activity in the territory of the Republic of Indonesia that is conducted in a whole by foreign investors or jointly with domestic investors. -------------------------------

11. Referring to the provision, the investment of Temasek Group aims at

performing business activity in the territory of the Republic of Indonesia.

Analytically, the substance is accomplished ------------------------------------

d. The substance of ”independently of jointly by agreement” --------------------------

29 See Jon B. Dubrow, Challenging The Economic Incentives Analysis of Competitive Effects in Acquisitions of Passive Minority Equity Interests, Antitrust Law journal, 2001, page 120-121 30 See Ariel Ezrachi and David Gilo, EC Competition Law and The Regulation of Passive Investment Among Competitiors, Oxford Journal of Legal Studies, page 329 31 See Hasim Purba, A Review to Holding Company, Trust, Cartel and Concern, http://www. www.library.usu.ac.id

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COPYTemasek, as a business group, together by agreement with other parties

performs business activity in the territory of the Republic of Indonesia.

Temasek Group, along with other shareholders, control Indosat that their

rights and duties are arranged in the Statutes of Indosat. It also occurs to

Telkomsel, in which Temasek Group along with other shareholders, control

Telkomsel that their rights and duties are arranged in the Statutes of

Telkomsel. Thereby, the substance has been accomplished by Temasek Group:

e. The substance ”performing any business activity in the field of economy”--------

Telkomsel is the biggest cellular operator in Indonesia while Indosat owns

various business unit in the sector of telecommunication technology in

Indonesia, such as telephony, cellular services, and multimedia. Thereby,

Temasek Group has accomplished this substance. -----------------------------------

The Definition of Majority Shares; -------------------------------------------------------------

152. Under the provision of Article 46 of the Law No.1/1995 on the Limited

Company32, share is classified into some variants with the different rights one to

another. Article 27 of the Law No.5/1999 does not explain kind of share within the

term of “majority shares”. Therefore, the definition of majority shares in Article

27 of the Law No.5/1999 needs to be interpreted further33;------------------------------

Grammatical Interpretation;---------------------------------------------------------------------

153. According to Indonesian Completed Dictionary (KBBI); the third edition,

National Education Department, Balai Pustaka, Jakarta, 2005; share is (1) Part,

take part; stock. 2. Title deed of the ownership of company’s part of shares which

gives dividend and other beneficial rights on the basis of the amount of paid up

32 The detail of Article 46 of the Law on Limited Company is: (1)The Statutes states 1 (one) classification of share or more. (2)Any share in the similar classification provides the same rights to its shareholders. (3)In case of 1 (one) classification of share, the Statutes determines 1 (one) classification as an ordinary share. (4)Other than classification of share as it mentioned in paragraph 3, 1 (one) classification of share or more can be determined in the Statutes. a. With the exceptional of vote right, conditional, limited, or without vote right; b. Those that are revocable or changed with other classification of share over a particular period;

c. Those that give rights to its holders to receive dividend accumulatively or non accumulatively; and or, d. Those that give rights to its holders to receive dividend and after liquidation

33 Particularly, those related to the company which its shares are tradable and fluctuant daily in the stock exchange. The need of interpretation of the term ”majority share” is suggested by Knud Hansen et.al., in the book “Undang-undang Larangan Praktek Monopoli and Persaingan Usaha Tidak Sehat (The Law on the Prohibition of Monopoly Practice and Unfair Competition)”, Katalis, Jakarta, 2002, page 352.

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COPYcapital; 3. rights owned by individual (shareholders) over a company due to paid

up capital34; -------------------------------------------------------------------------------------

154. KBBI does not explain the definition of majority share but only the word majority,

that a numbers of people who show particular characters on the basis of specific

criteria are greater than those who do not35;------------------------------------------------

155. Based on the combined definition of the words share and majority as it is defined

in KBBI, majority share is an evidence of ownership of limited company’s capital

that are greater in number and show particular characters on the basis of specific

criteria than those that do not. The definition remains to be unclear in its

interpretation due to the definition of majority in KBBI refer only to people and to

the indefinite phrase “specific criteria”;----------------------------------------------------

156. In Black’s Law Dictionary, Shareholder is “one who owns or holds a shares in a

company, esp. a corporation”36 and majority shareholder is “a shareholder who

owns or controls more than half the corporation’s stock”37; -----------------------------

157. According to Black’s Law Dictionary, the definition of majority shareholder is a

shareholder who owns or controls more than half the corporation’s stock. Such a

definition is too limited if there is more than classification of share in a company; --

158. If the definition of Black’s Law Dictionary is employed to interpret majority share

in Article 27 of the Law No.5/1999, it will be simply biased by issuing more than

50% without vote right shares to be provided for other parties, while the rights to

control the company are on the less than 50% of extraordinary issued shares or

even only on one share; -----------------------------------------------------------------------

159. Therefore, other interpretations of “majority share” as it mentioned in Article 27

the Law No.5/1999 is more than just a linguistic interpretation; ------------------------

Systematic Interpretation; ------------------------------------------------------------------------

160. The term “share” is also found in the Law No.1/1995 on Limited Company.38 The

Law defined structures of a limited company, there are shareholder general

34 Kamus Besar Bahasa Indonesia Edisi Ketiga (The Third Edition of the Completed Indonesian Dictionary, Departemen Pendidikan Nasional (Department of National Education), Balai Pustaka, Jakarta, 2005 page 977 35 Ibid. page 725 36 Bryan A. Garner, Black’s Law Dictionary, Seventh Edition, page 1380 37 Ibid. page 1381

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COPYmeeting,39 Board of Commissioner40, and Management41. The supreme decision

maker in a company is a shareholder general meeting. The owner of a company

gives a company directive policies that further implemented by Management

under the supervision of Board of Commissioner in its implementation: --------------

161. Based on the regime of “one share one vote”42, a decision in shareholder general

meeting can be achieved by simple majority (the votes is to 50%). Thereby, the

control over a company is possible if a business actor owns to 50% of the shares;---

162. In the case of no shareholder owns to 50% of its shares in a company, there will be

no de jure control. De facto, the bargaining position of the biggest shareholders are

stronger than the other shareholders; therefore, the smaller ones tend to follow the

wills of the biggest; ----------------------------------------------------------------------------

163. Therefore, in the position as it mentioned in number 16, the company majority is

understood as the biggest shareholders in a company. The percentage of share

ownership is not a criterion in mentioning a company majority , but its distribution

of share ownership; ----------------------------------------------------------------------------

164. In details, the Law on Limited Company states the need of majority shares for

making decision to specific cases, the two third of majority shares for Statutes

amendment43 and three forth for business combination, merger, taking over,

dismissal and bankruptcy44; ------------------------------------------------------------------

165. Regarding to the decision making for problems as it mentioned in number 18, the

share ownership of above 25% is significant because it is able to veto the

decisions in shareholder general meeting (RUPS). It shows that no matter how

much are the shares owned by other shareholders as long as there are shareholders

with its ownership more than 25%, the shareholders are considered to be majority

shares; -------------------------------------------------------------------------------------------

38 Although the latest Law on Limited Company is available, the Law No.1/1995 is still become a reference

because the infringement was conducted in time of the Law No.1/1995 is still valid. 39 Article 1 paragraph (3) of the Law No.1/1995 40 Article 1 paragraph (5) of the Law No.1/1995 41 Article 1 paragraph (4) of the Law No.1/1995 42 Article 72 paragraph (1) of the Law No.1/1995 43 Article 75 paragraph (1) of the Law No.1/ 1995 44 Article 76 of the Law No.1/ 1995

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COPY166. The elucidation of shareholders’ votes, as it mentioned in number 15 to 19, shall

be assumed that the condition is normal in that there is no deal among

shareholders to use their votes in shareholder general meeting; -------------------------

Derivative Interpretation; ------------------------------------------------------------------------

167. According to memory of elucidation, the comprehensive elucidation on majority

shares is not provided, particularly during elucidating Article 27 of the Law

No.5/1999. The memory of elucidation explains nothing to the term “majority

shares” during the arrangement of the Law No.5/1999; ----------------------------------

The Interpretation of Teleology;---------------------------------------------------------------

168. The definition of majority shares shall be seen on the basis of its social aims. The

aims of the arrangement of the Law No.5/1999 are those mentioned in the

consideration of the Law45 and Article 346. The considerations and the aims of the

Law No.5/1999 are to avoid the concentration of economic power in the hand of

certain business actors47; ---------------------------------------------------------------------

45 The consideration of the Law No.5/1999 is:

a. that the development of economy shall be directed to the establishment of society’s wealth on the basis of Pancasila (The five basic principles of the Republic of Indonesia) and the Constitution of 1945;

b. that the democracy economy requires an equal chance of the citizen to participate in the production process and distribution of goods and/or services fairly, effectively, and efficiently in order to boost economic growth and normal market operation;

c. that anyone who perform business in Indonesia shall compete fairly in order to avoid the concentration of economic power to certain business actor by considering the convention ratified by the Republic of Indonesia over international agreements;

d. that to actualize to what it is mentioned in Article a, b, and c; the Law on the Prohibition of Monopoly Practice and Unfair Competition is arranged based on the initiative proposal of the House of Representative;

46 Article 3 of the Law No. 5/1999 states that the objectives of the Law arrangement is to: a. keep public interest and to boost national economic efficiency as one of efforts to increase people’s

wealth;

b. to accomplish conducive business climate through the regulation of fair competition for guaranteeing a certainty to perform business fairly for big, middle and small business actors;

c. to avoid monopoly practice and/or unfair competition conducted by business actor; and

d. to establish effectiveness and efficiency of business activity.

47 See Article c of the consideration of the Law No.5/ 1999 and Article 3.c of the Law No. 5/1999 juncto Article 1.2 of the Law No.5/1999 that elucidate that monopoly practice also requires a concentration of economic power.

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COPY169. Article 27 of the Law No.5/1999 is issued as a model to support the aims. The

Article states that it is forbidden to be a majority shares ownership in a number of

companies that operate in the same market if it leads to the control of to 50% of

market share s48; -------------------------------------------------------------------------------

170. The concentration of economic power as it mentioned in number 2 above is

realized by the centralization of economic decision making in the hand of one

business actor. A decision is achieved effectively if there is a real control of

business actor over a company that further perform the decisions. From the

perspective of Article 27 of the Law No.5/1999, such companies are deemed to

control market share to 50% so that a control conducted by a business actor will

impact to the relevant market ; ---------------------------------------------------------------

171. Thereby, the centralization of economic decision is accomplished when the control

over some companies is centralized in the hand of one party and under the context

of Article 27 The Law No.5/1999 it is interpreted as “majority shares.”;-------------

Majority Shares in Others Laws

172. The Law No.19/2000 on the Amendments of the Law No.19/1997 on the

Imposing Bill for Tax Collection, in its elucidation mentions “majority shares” but

not define majority shares. The elucidation of Article 10 paragraph (4.a) define

that: ----------------------------------------------------------------------------------------------

“Commissioner is commonly known as Board of Commissioner and its members are called member of commissioner. The specific shareholders are controlling shareholders or majority shareholders of a public limited company and the whole of shareholders of limited company.” ----------------------

48 The complete statement of Article 27 of the Law No.5/1999 is: A business actor is not allowed to own majority shares in some companies that perform similar business activities at the similar relevant market if such ownership causes:

a. a business actor or a group of business actor control to 50% (fifty percent) of a market share of one kind of certain goods or services.

b. two or three business actors or a group of business actor that control to 75% (seventy five percent) of a market share of one kind of certain goods or services.

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COPY173. There is no other legislations in Indonesia which defines majority share and some

existing laws defines only primary share or majority shares as it mentions below;---

174. The regulation of BAPEPAM No. IX.H.1 on the Taking Over of public limited

company mentions that:-----------------------------------------------------------------------

1) A party which possess 25% (twenty five percent) or more, unless the party is able to prove that it does not control public limited company; or ------------

2) A party which is capable, directly or indirectly, to control public limited company by:-----------------------------------------------------------------------------

a) Establishing the appointment and the dismiss all of directors of commissioner; or -------------------------------------------------------------------

b) Amending the Statutes of Public Limited Company --------------------------

175. The regulation of Central Bank of Indonesia No.8/16/PBI/2006 on Single

Ownership in Indonesian Banking defines Controlling Shareholders as a corporate

body and/or individual and/or a group of business that:

-

a. Possess 25% (twenty five percent) or more out of shares issued by Bank and have voting rights-----------------------------------------------------------------------

b. Possess 25% (twenty five percent) or more out of shares issued by Bank and have voting rights but it can be proved of controlling a Bank directly or indirectly. --------------------------------------------------------------------------------

Practices in Some Countries----------------------------------------------------------------------

176. In other countries, the cross ownership by one business actor is not regulated

specifically. The regulation of the share ownership is generally part of merger

analysis and acquisition which impact negatively to competition. The merger

exists when the first company acquires certain quantity of second company’s

shares and the impact of competition caused by the merger shall be further

analyzed; ----------------------------------------------------------------------------------------

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COPY177. In European Union, the percentages of acquired share are not relevant because the

focal of merger analysis is the inception of concentration49. The regulation of

merger in European Union states that concentration exists due to the taking over of

a control50. A control is known as any possibilities of performing decisive

influence within a company51. Therefore, European Union merger regime needs

no verification that the decisive influence is performed or not52;-----------------------

178. A concentration exists in two ways: de jure and de facto. De jure concentration

exists if a company takes over voting rights majority of other company (positive

control). In case of the taking over of voting rights is minority shares, the minority

shareholders is able to preclude a proposal needed to be endorsed by super

majority shareholders. Therefore, the taking over of minority shares also have a

control over the taken over-company (negative control)53; ------------------------------

179. De facto concentration happens if minority shareholders, referring to the presence

of shareholders at the shareholder general meeting of the previous years, owns

majority shares at the shareholder general meeting54; ------------------------------------

180. In European Union, the share acquisition that does not influence the control

change (passive investments) to a company of its competitor is also regulated in its

competition due to the possibility of creating unfair competition in that market55;---

181. In UK, the merger happened if two companies becomes one because it is

performed under one ownership and control56. A control is defined as an ability to:

(i) control directly or indirectly (ii) to influence substantially company policies

49 See recital 20 EC Merger Regulation that states the concept of concentration in relation with activities that creating permanent changes to a market structure. Further, Article 31(1)(b) ECMR states that the inception of concentration is caused by the taking over of control. 50 Article 31(1)(b) ECMR 51 Article 31(2) ECMR 52 See Commission Consolidated Jurisdictional Notice Under Council Regulation (EC) No.139/2004 on the Control of Concentration Between Undertakings (“ EC Consolidated Jurisdictional Notice”), par. 16 53 See EC Consolidated Jurisdictional Notice, par. 56-58 54 See EC Consolidated Jurisdictional Notice, par. 59-60 55 The regulation on passive investment is detailed by Ariel Ezrachi and David Gilo in their article “EC Competition Law and The Regulation of Passive Investment Among Competitors”, Oxford Journal of Legal Studies, 2006 56 A. Niger Parr, Roger J. Finbow, and Matthew J. Hughes, UK Merger Control: Law and Practice, Second Edition, Sweet & Maxwell, London, 2005, page 22

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COPY(without any controlling interests to the company) and based on the definition,

three levels of controlling are known, there are57:-----------------------------------------

a. Controlling interest (de jure control);---------------------------------------------------

b. Ability to control Policy (de facto control);--------------------------------------------

c. Ability to influence policies materially (material influence);------------------------

182. The control of merger in UK similar to those of European Union does not need

proof that the control has already been performed or even shown to perform58. ------

183. The controlling interest (de jure control) is widely understood as an ownership of

more than 50% of shares of company’s voting rights, so that enabling shareholders

to perform decisions on the basis of common majority59. In case of vetoing

decisions that need an agreement of specific majority, the controlling interest

owned by one shareholder does not block other shareholders to own a control over

the company60; ---------------------------------------------------------------------------------

184. The ability to control policies (de facto control) is interpreted by competition

agency in UK by referring to two situations61:-------------------------------------------

a. In case of the shareholders are able to veto decisions that need an agreement of supra majority (negative control) ----------------------------------------------------

b. In case of an entity is known vividly as company majority, for example the

policy of an experienced investor in his/her industry, the policy will be most certainly implemented in anyway. ------------------------------------------------------

185. In UK, the ability to influence policy materially (material influence) is not defined

clearly by competition agency; consequently it should be analyzed case by case.

The competition agency is to see factors that cause material influence such as

shareholder distribution, the pattern of presence and vote-given at the shareholder

57 See Ibid. page 23 58 See Ibid. page 23 59 See Ibid. page 24 60 If “A” owns 51% of shares in a company and “B” owns 25% of shares in the same company so that it is able to block the decision of specific majority, it is most certainly that “B” has material influence over the company. See Ibid. page 24 61 See Ibid. page 24

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COPYgeneral meeting, the existence of special vote or veto authority owned by specific

shareholders and extraordinary stipulation stated in the Statutes that enabling to

influence company policies62;----------------------------------------------------------------

186. Usually, competition agency in UK considers 25% voting rights ownership that

has ability to influence materially (material influence) over the company policies,

although the rest of voting rights are owned only by one party63; ------------------

187. In United States, Article 7 Clayton Act regulates not only share acquisition but

also an acquisition of other companies’ shares that potentially lessen a competition

or create monopoly.64 Article 7 Clayton Act give an exemption to the acquisition

for investment purpose only. Share acquisition intended to perform monopoly

practice is defined in the case of Crane Co. V. The Anaconda Co.65 : (1) Crane

cannot take over more than 22,6% of Anaconda’s shares (2) Crane does not have

representatives in the management of Anaconda, and (3) Crane is about to

comply with Article 7 Clayton Act by trying not to reduce competition; -------------

188. In other case, US Department of Justice (“DOJ”) forestall the take over of 19%

Columbia Picture’s shares by Tracinda. Tracinda is owned in whole by Kirk

Kerkorian, Tracinda and Kirk Kerkorian owned jointly 48% of MGM’s shares.

MGM and Columbia Picture compete each other and operate in the similar

relevant market . Prior to the takeover of 19% Columbia Picture’s shares by

Tracinda, Kirk Kerkorian has already own 5% of Columbia Picture’s shares.

Finally, the court permits to a plan of the takeover on the basis of the shareholder

agreement of Columbia Picture that not allow Tracinda to control Columbia

Picture and to influence management of Colombia Picture, such an acquisition

therefore, is for investment purpose66; ------------------------------------------------------

189. In addition to the above litigation, DOJ achieves Consent Order in some share

transaction respectively as follow 67:--------------------------------------------------------

62 See Ibid. page 25 63 See Ibid. page 25 64 See Jon B. Dubrow, op.cit, page 116 65 See Ibid. page 117 66 See Ibid. page 118 67 See Ibid. page 119 to 126

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COPY- Rockwell/Serck. Rockwell, a company with the market share of 80% in the

United States, purchases 29.7% shares of Serck, its main world competitor and is about to enter the United States. The DOJ fights against the transaction and consent order is finally achieved with Rockwell to divest its shares to Serck for four years period of time. Within such period, Rockwell enact its shares ownership in Serck as a passive investor by not using its voting rights, not placing its representatives in management, and not keeping in touch with Serck to give policy directives.----------------------------------------------------------

- Gillette/Wilkinson Sword. Gillette agrees to purchase brand and assets of Wilkinson Sword and take over 23% shares of Eemland, a company that control Wilkinson Sword worldwide. The DOJ fights against the plan and consent order is achieved: Gillete cancels its plan to purchase Wilkinson Sword but is allowed to own 23% of Eemland’s shares with the condition that Gillete is not allowed to influence company policies, to nominate Eemland’s directors or to have Gillette’s directors or management to assist Eemland in whatever capacity it is.-------------------------------------------

- US West/Continental Cable Group. US West agrees to purchase Continental. At the time of agreement, Continental owns 20% shares of Teleport, two directors in Teleport, and access to confidential information of Teleport. Teleport is a competitor of US West in the United States. At the time of consent order achieved, the ownership of Continental in Teleport reduce to 11% and withdraw its directors in Teleport. The consent order is achieved and US West is obliged to divest its share in Teleport within two years to come and in that period US West is not allowed to appoint directors for Teleport or to participate in director’s meeting or to access sensitive company’s information.-------------------------------------------------------------------------------

- AT&T/TCI. TCI owns 24% shares of Sprint PCS, a company that competes

with AT&T in wireless communication service. AT&T intends to acquire TCI in whole but it is considered by the DOJ to reduce competition in the market. The DOJ finally achieves consent order with AT&T that is willing to release its ownership in Sprint PCS.-------------------------------------------------------------

Majority Share as a Controller; -----------------------------------------------------------------

190. Based on the description above, the closest meaning of the definition of “majority

share” to interpret Article 27 of the Law No. 5/1995 is a control possessed by a

business actor over other business actors; --------------------------------------------------

191. From the perspective of its values, there is no absolute value that can be counted

to determine the availability of a control. The share ownership with the voting

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COPYrights to 50% is almost certainly to give a control to its owner (positive control).

The share ownership under 50% and to 25% is almost certainly to give an ability

to its owner to defend against strategic decisions that need majority agreement

(negative control). Therefore, the share ownership of to 25% or more in one

company also gives significant control over the company, while those with the

share ownership under 25% does not mean that it automatically has no control

over the company because certain factors need to be taken into account to know

whether such shareholders own decisive influence (EU’s term) of material

influence (UK’s term) over company policies. The influence toward company

policy shows that such shareholders are able to control the company although their

shares are not controlling shares. ------------------------------------------------------------

Temasek as a Controller in Telkomsel and Indosat -----------------------------------------

192. Based on the accumulated facts, Temasek through its subsidiaries owns 35% of

Telkomsel shares which have rights to nominate directors and commissioners, as

well as an authority to determine company policy directives especially on budget

endorsement through and to veto general meeting decision on Statutes

amendment, to buy back company shares, to merger, to take over, to dismiss and

to liquidate a company; -----------------------------------------------------------------------

193. It occurs as well in Indosat, Temasek through its subsidiaries owns 41.94% of

Telkomsel shares which have rights to nominate directors and commissioners, as

well as an authority to determine company policy directives of Indosat. The other

shareholders are the Government of Indonesia 15% and public 43.06%. The shares

are sold in Indonesian and American stock exchanges that always be changing

ownership, therefore, it is almost impossible for the shareholders to perform

together as a result Temasek remains to become an active majority (positive

control) in Indosat;-----------------------------------------------------------------------------

194. Thereby, Temasek through its subsidiaries has a control over Telkomsel and Indosat. ------

Economy----------------------------------------------------------------------------------------------

Analysis Basis ;--------------------------------------------------------------------------------------

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COPY195. Cross-ownership gives not only direct impact to ownership changing structure but

also to industrial changing structure in which a company is located. In order to

count whether a cross-ownership that has been being analyzed gives a negative

impact to competition or not, competition authority usually observes the changes

of industrial concentration before and after an occurrence of cross-ownership. If

the level of industrial structure is getting concentrated after cross-ownership, it

indicates that the conduct of cross-ownership gives negative impact to

competition; ------------------------------------------------------------------------------------

196. It is assumed that a level of industrial concentration indicates market power of a

business actor in that industry. The acceleration of market power eases business

actor fixing tariff (tariff maker); -------------------------------------------------------------

197. Whether business actor uses or not its owned market power can be indicated by:----

i. its high selling price product; ----------------------------------------------------

ii. its relativity with substitution product; -----------------------------------------

iii. its relativity with production costs;----------------------------------------------

iv. its high profit margin gained by business actor in the relevant market; ----

198. The negative final impact of cross-ownership to competition is a disadvantage of

costumer or known as customer loss. Customer loss occurs when a selling price

of product is higher than those ought to be affordable in price or output quantity

costumers have is fewer than those of they should be;------------------------------------

199. In an oligopolistic industry, there are dominant players; therefore, an occurrence

of cross-ownership among dominant players in such industry impacts to not only

an acceleration of dominant players but also to the space of market power

acceleration; ------------------------------------------------------------------------------------

200. The high market power dominant player that is relative toward its competitor

eases dominant player determine output and fixe price without any influence from

the decision of its competitor. The decision of dominant player to charge a price

highly to optimize its market power will be a cover and incentive for its

competitor to enjoy the high price. Such phenomena are caused by price

leadership; --------------------------------------------------------------------------------------

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COPY201. Tariff leadership in an industry reduces costumer options to have lower prices.

The indication of the presence of tariff leadership is a relative homogeneity of

tariff changing pattern among operators, a high price of selling product, and a high

profit margin of business actor; --------------------------------------------------------------

202. An analysis scheme of cross ownership impact is in the following scheme: ----------

The picture 1 The Impact Scheme of Cross-Ownership

Harga TinggiHarga Tinggi

Cross Ownership

Konsentrasi Tinggi,Konsentrasi Timpang

Market PowerMenguat

Dominant Player:

Monopolis Profit Tingi:EBITDA Tinggi

Price Setter:Harga Menjauh Biaya

Consumer's Loss

- Produk Inelastis- Entry Barier

Industri Oligopoly:Price Leadersip

Oligopolis Profit Tingi:EBITDA Tinggi

Price Setter:Harga Menjauh Biaya

Derajat KompetisiMenurun

Struktur Industri

Dampak

Dampak Perilaku

Indikator

Dampak Akhir

Pola Perubahan Tarif

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COPY

METHODOLOGY: --------------------------------------------------------------------------------

THE CONCENTRATION MEASUREMENT -----------------------------------------------

203. The measurement of an industry can be conducted by using several methods. The

measurement of CRn and HHI is a method mostly used by competition agency;-----

204. Concentration Ratio (CRn) is defined as a sum of market share owned by n of a

highest company. An n means 2, 3, 4, 5, 6 (companies). Usually n that is used is 4,

so that Concentration Ratio is written as CR4. A value of CRn measurement is

around 0% to d. 100%. For example, an industry has a value of CR4 96.8%, it

means that there are four companies in such industry that control 96.8% of market

share of the industry; -------------------------------------------------------------------------

Herfindahl-Hircshman Index (HHI); --------------------------------------------------------------

205. Another measurement alternative is the one developed by Orris Herfindahl and

Albert Hirchsman. Such a measurement is based on the sum of quadrate of market

share in a relevant market that is owned by business actor; ----------------------------

206. The method is formulated as follows:-------------------------------------------------------

H Index = ∑ = )...,3,2,1()( 2 nisi

s is market share stated in percentage of i company while n is a number of companies within the industry. For example, if there are 4 companies with market of 5 %, 10%, 15%, and 70%, then upon the formula the value of HHI will be as follow

H Index = (5)2 + (10)2 + (15)2 + (70)2 = 5250

207. The value of HHI index is 0 to 10,000 and a value of 10,000 means the industrial

structure is monopoly;-------------------------------------------------------------------------

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COPY208. As a reference in determining a high and low of the industrial concentration, a

limit number of HHI, used in Horizontal Merger Guideline and published by US-

FTC and US-DOJ68, is suggested. The uses of the limit is also adopted by some

Competition Commission in several countries69; ------------------------------------------

209. The HHI value under 1000 is the lowest concentration of an industry, 1000 to

1800 is moderate and more than 1800 is high;---------------------------------------------

210. A serious investigation will be conducted to a merger with a high concentration

(HHI 1800) or around 1000 to 1800 by giving a value changing of HHI for 100

points;

Generalized Herfindahl Hirsman Index-----------------------------------------------------------

211. In the condition in which cross-ownership exists among business actors in the

relevant market , it is suggested to use Generalized Herfindahl Hirschman Index

(GHHI) to measure concentration. This method was firstly developed by Maxwell

et. al and later by Campos and Vega70;

212. Based on the derivation of the formula, GHHI’s formula is the following:------------

jkN

j

N

jk M

iijij

M

iikij

SSHHIGHHI ∑ ∑∑∑

= =

=

=+=1

1

1

βγ

βγ

in which:

n : A number of company

M : A number of Investors or group of shareholders

βij : The share ownership of investor i in the company of j

γij : A degree of investor’s control of i in company j

Sk : A segment market of k company

Sj : A segment market of j company

the equation can be written in the following matrix:

68 Http:www.usdoj.gov/atr/public/guideline/horiz_book/toc.html 69 Gilbreto Vega, Javier Campos; Concentration Measurement under cross-ownership. An Application to the Spanish electricity sector; Document to De Trabajo 2002-06; Foot Note 2, page 3 70 Gilbreto Vega, Javier Campos; Concentration Measurement under cross-ownership. An Application to the Spanish electricity sector; Journal of Industry, Competition and Trade, Bank Papers 313-315, 2003

SSGHHI φ'=

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COPYwhich

⎥⎥⎥

⎢⎢⎢

⎡=

NNN

N

φφ

φφφ

L

MOM

L

1

111

, gained from ∑∑

=

== M

iijij

M

iikij

kj

1

1

βγ

βγφ

S = Market share

Ф =Cross-ownership coefficient cross-ownership.

213. The degree of control used in analyzing changing structure as a result of cross-

ownership can be observed by the value of a number of shares owned by investor

in certain company as a representation of a simple control degree principle, one

share one vote. Therefore, control degree is more complex than only share on

vote;----------------------------------------------------------------------------------------------

214. Categorically, a value of GHHI follows HHI. Basically GHHI is a development of

HHI but it does not change a guideline of value category of industrial

concentration in which the value of GHHI <1000 indicates that the industrial

concentration is low, 1000<value of GHHI<1800 is moderate, and value of

GHHI>1800 is high;---------------------------------------------------------------------------

The measurement of Customer Loss --------------------------------------------------------------

215. Calculation METHOD; -----------------------------------------------------------------------

a. To calculate customer surplus in Indonesia for each year on the basis of price,

quantity, and a number of annual arch elasticity; ---------------------------------------

b. With the annual arch elasticity data, the quantity of calls are estimated if a

tariff enact as it does in a country to which simulation is referred;-------------------

c. To calculate customer surplus from second step in which customer surplus

occurs if a tariff enact as it does in other countries; ------------------------------------

d. To calculate a number of customer loss in which a difference between

customer surplus in Indonesia and in other countries;---------------------------------

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COPYII. THEORY: --------------------------------------------------------------------------------------------

A theory on Oligopolistic market71------------------------------------------------------------

216. Oligopoly is a model of market structure in which there are so few

producer/companies in a market. A number of companies within the structure of

oligopoly market are around 2 (two) until 10 (ten). The product in oligopolistic

market can be identical or differentiated. Cellular telecommunication market in

Indonesia is a form of oligopoly in which there are only 3 (three) dominant

companies; --------------------------------------------------------------------------------------

Picture 2 Kinked Demand Curve

217. In an oligopolistic market, the deed of a company is sensitively influence other

companies’ deed. In Kinked Demand Curve model, a company will also lower its

price if its competitors do the same thing, as a consequence demand curve is to be

inelasticity. On the other hand, competitors take opportunities to increase the

selling by giving no reaction when a company raises the price and as a result an

elasticity demand curve is above balance starting point; ---------------------------------

218. The analysis of oligopolistic market is able to be conducted by using a model of

interaction of business actor in oligopolistic market, namely Bertrand,

Stackelberg and Cournot model; ------------------------------------------------------------

71 See Robert S. Pindyck, Microeconomics Sixth Edition, Prentice Hall, New Jersey (2005), page 442-463.

Titik keseimbangan

Q

P

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COPY219. The Bertrand oligopolistic model describes a condition of companies which are

responding one to another toward a degree of price fixed by their competitor. A

number of outputs are resulted from a balance of business actor over a price fixed

by its competitor; ------------------------------------------------------------------------------

220. The Stackelberg oligopolistic model describes a behavior of business actor in

determining output value that are not produced at the same time but in a series of

time. With this model, the leader and follower are described; --------------------------

75. To the Cournot model, the company reacted pessimistically to the change output

his competitor. In other words, when the competitor lowered output, the company

will raise output him, but smaller was compared by the decline output his

competitor. Like that also was the reverse. In the long run, will be created

Cournot equilibrium (the A point), that the size was smaller compared with the

competitive balance (the B point) and bigger was compared by the balance kolusif

(the C point);

Picture.3 Balance Cournot Model

76. If oligopolistic companies cooperate each other, creating cartel as an example,

the consumers’ wealth will be low. Following Game Theory or The Prisoners’

Dilemma is also possible. If the companies do not cooperate, they will lose

consumers significantly as a risk due to their incorrect policies on price and

Company Reaction Curve 2

Company Reaction Curve 1

Q1

Q2

A

B

C

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COPYquantity. Consequently, the best way for them is to compete each other. If a

company cooperates/performs an agreement with its competitors, it can increase

price each other and increase their revenues gained from the increasing of

total revenue. In this way, collusive oligopoly causes price balance higher than

those of non-cooperative oligopoly, but the products are low in quality.

Therefore, collusive oligopoly will impact greatly on the consumers’ wealth; ----

77. In the theory of oligopoly, there is also Tariff Leadership model which describes

that dominant companies have power to be tariff setters. The price fixed by

dominant companies is followed then by other companies as tariff takers. In

this model, the correlation is only one way because the price change of non

dominant companies’ products will react over dominant companies’ products;----

78. Cournot equilibrium, a theory of oligopoly, is very consistent if the companies

are relatively big so that they own the same power in the market. On the

contrary, Price-Leadership Model is very consistent in describing company’s

behavior if there is only one dominant company in the market. Other companies

are very small so that they relatively have no power to compete with dominant

companies. Therefore, both models are suitable to be used in an extreme

condition;-------------------------------------------------------------------------------------

79. In cellular telecommunication industry, any company shall cooperate one to

another, especially on an interconnection agreement with other competitors. In

such condition, a collusion probably occurs such as on tariff fixing, marketing

and others in which they shall compete in the matters; --------------------------------

Determining Cross Ownership Period ------------------------------------------------------------

80. In the relevant market , it is known that SingTel , a subsidiary of Temasek,

purchased 35 % of Telkomsel’s shares in 2001; ----------------------------------------

81. On 15 Desember 2002, STT as a subsidary of Temasek also control the

ownership of Indosat that lead STT to control majority shares; ----------------------

82. The chronology shows that the effectiveness of cross ownership by Temasek

was valid from 15 December 2002;-------------------------------------------------------

83. The analysis of cross ownership impact in the relevant market used annual data

in which the impact of cross ownership would be seen in the data provided in

the end of 2003. The cross ownership period used in this analysis refer to the

2003-2006 data; -----------------------------------------------------------------------------

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COPYRevenues of Operators ------------------------------------------------------------------------------

84. The following is a based-revenue table of cellular operator’s market shares for

the period of 2001-2006 of PT. Telkomsel, PT. Indosat, Plc., dan PT.

Excelcomindo:-------------------------------------------------------------------------------

Table I

The Revenues and Market Share of Cellular Telecommunication Providers (In Billion Rupiah)

Telkomsel INDOSAT XL

Year Revenue Market share Revenue Market

share Revenue Market share

Total Value of Sales in Market share

2001 4.918,22 56.14% 1,770 20.20% 2,073.03 23.66% 8,761.15 2002 7,572.95 58.37% 3,272 25.22% 2,130.41 16.42% 12,975.01 2003 11,146.12 60.37% 5,118 27.72% 2,198.06 11.91% 18,461.76 2004 14,765.08 59.93% 7,342 29.80% 2,528.48 10.26% 24,635.63 2005 21,132.91 64.56% 8,645 26.41% 2,956.38 9.03% 32,734.25 2006 29,145.19 68.08% 9,228 21.55% 4,437.17 10.36% 42,809.89 AVERAGE 14,780.08 61.24% 5,895.61 25.15% 2,720.59 13.61% 23,396.28 Source: Finance Statement of Telkomsel, XL, Indosat for several years, proceeded

85. The table shows that PT. Telkomsel has owned the biggest market share in the

relevant market since 2001 respectively with the average of revenue Rp14.78

trillion in 2001-2006 and the market share average 61.24% annually;--------------

86. The market share of Indosat was fluctuated and tends to decrease after 2004.

The average of Indosat annual revenue in the period of 2001-2006 was IDR

5.895 trillion with the average of market share 25.15% annually;-------------------

87. The segment market of XL decreased after 2001 and fluctuated 9-11% in the

period of 2003-2006, 13.61% in 2001-2006. The annual revenue average of XL

is IDR 2.7 trillion;---------------------------------------------------------------------------

Market Concentration; ----------------------------------------------------------------------------

The Indicator of HHI; -----------------------------------------------------------------------------

88. Besides market share, the measurement of Herfindahl Index is able to show a

degree of company concentration in an industry. Based on the data of market

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COPYshare as displayed in Table III, the value of Herfindahl index is shown in table

IV as follow: ---------------------------------------------------------------------------------

Table 2 The Development of Market Share and Herfindahl Index (HI)

Of Cellular Operator 2001 – 2006 MARKET SHARE

QUADRATE (SKALE 1 – 10,000)

Telkomsel Indosat XL HHI Industry

2001 3151 408 560 4119 2002 3407 636 270 4312 2003 3645 768 142 4555 2004 3592 888 105 4586 2005 4168 697 82 4947 2006 4635 465 107 5207

Source: Table 1, data is proceeded

89. The HHI industry is a total of quadrate value of market share from each

operator. The value of HHI indicates the concentration degree of an industry.

The value of HHI that tends to close to 10,000 indicates that the structure of

such industry develop to be more concentrated; ----------------------------------------

90. The data show that the value of HHI industry in 2001-2006 tends to increase to

10,000 while the value of HHI 4119 in 2001 changed to be 5207 in 2006; ---------

91. According to value limit guideline of HHI in Analysis (number 63) and (number

64) above, the values of HHI cellular service industry shows that such industry

is very concentrated and creates a limitation of competition. In the period of

2001 to 2006, the concentration remains high and tends to concentrate annually; -

BTS Base Transceiver Station (BTS); ------------------------------------------------------------

92. In 2005, Telkomsel owned the biggest BTS in number for almost ten thousand

in all over Indonesia and followed then by INDOSAT and Excelcomindo

respectively; ---------------------------------------------------------------------------------

93. From 2004 to 2005 the growth of BTS INDOSAT was low. INDOSAT only

built 1000 BTS in 2005 while Telkomsel and Excelcomindo more than 2000; ----

Table 3

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COPYThe Number of BTS of Each Operator

Period 2000-2006

Companies 2000 2001 2002 2003 2004 2005 2006

Telkomsel 1,411 1,995 3,483 4,820 6,205 9,895 16,507

INDOSAT 1,357 1,995 2,736 3,007 4,026 5,702 7,221

Excelcomindo 514 739 950 1,491 2,357 4,324 7,260

Source: Finance Statement of Telkomsel, Indosat and Excelcomindo for several

years

94. In a network-based industry, an investment indicates a form of operator’s long

term commitment to perform market ownership. There are two stapes of

competition in this industry, capacity or network development and price. ----------

95. Therefore, the first step in analyzing competition in this industry is the

development of network. The control of network is a must in order to keep

market share, to widen market coverage and to increase network effects and

they are indicated from the growth of BTS development. ----------------------------

96. Based on the above data, it is seen that the growth of Indosat’s BTS

development is low compare to its competitor although Indosat is a closest

competitor to the dominant actor. The low aggressiveness of the closest

competitor will give a chance to dominant actors to optimize their market

power. ----------------------------------------------------------------------------------------

PRICE -----------------------------------------------------------------------------------------------

97. The retail selling price of cellular services is varied according to the kind of

cards (prepaid, postpaid), call time, (peak, off peak), destination (PSTN, same

operator, other operator) and others. The following is an average of retail selling

of cellular service (peak time) in 2002 to 2006: ----------------------------------------

Table 4

The average of retail selling price of cellular services (peak time) in 2002to– 2006

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COPY

PSTN Intra operator Inter operator

Tel

kom

sel

Indo

sat

XL

Tel

kom

sel

Indo

sat

XL

Tel

kom

sel

Indo

sat

XL

Postpaid 518,42 517,84 507,46 813 812,76 811,10 924,95 924,48 913,01

Prepaid* 932,47 942,37 890,41 1500 1499,54 1517,91 1600 1635,76 1772,26

The average of retail selling price of cellular service (peak time) in 2002 - 2006 *)The data of quarter II 2002 to quarter IV 2006. The available data is prices of regular prepaid card (not economic prepaid card such as As and Jempol). Source: The Data are proceeded

98. The following pictures describe the development of retail selling price of call to

PSTN, intra operator, and inter operator for three dominant operators:

Picture 5

The growth of retail selling price of call to PSTN

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COPYPascabayar - PSTN

460470480490500510520530540

1/1/

2002

7/1/

2002

1/1/

2003

7/1/

2003

1/1/

2004

7/1/

2004

1/1/

2005

7/1/

2005

1/1/

2006

7/1/

2006

TelkomselIndosatXL

Prabayar - PSTN

0200400600800

10001200

4/1/

2002

10/1

/200

2

4/1/

2003

10/1

/200

3

4/1/

2004

10/1

/200

4

4/1/

2005

10/1

/200

5

4/1/

2006

10/1

/200

6

Series1Series2Series3

Source: Data are proceeded

Picture 6

The development of retail price of inter-operator call

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COPY

Pascabayar - intraoperator

808.5809

809.5810

810.5811

811.5812

812.5813

813.51/

1/20

02

7/1/

2002

1/1/

2003

7/1/

2003

1/1/

2004

7/1/

2004

1/1/

2005

7/1/

2005

1/1/

2006

7/1/

2006

TelkomselIndosatXL

Prabayar - intraoperator

0200400600800

1,0001,2001,4001,6001,800

4/1/

2002

10/1

/200

2

4/1/

2003

10/1

/200

3

4/1/

2004

10/1

/200

4

4/1/

2005

10/1

/200

5

4/1/

2006

10/1

/200

6Series1Series2Series3

Source: Data are proceeded

Picture 7

The development of retail price of inter operator calls

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COPYPascabayar - interoperator

870880890900910920930940950

1/1/

2002

7/1/

2002

1/1/

2003

7/1/

2003

1/1/

2004

7/1/

2004

1/1/

2005

7/1/

2005

1/1/

2006

7/1/

2006

TelkomselIndosatXL

Prabayar - Interoperator

0200400600800

100012001400160018002000

4/1/

2002

10/1

/200

2

4/1/

2003

10/1

/200

3

4/1/

2004

10/1

/200

4

4/1/

2005

10/1

/200

5

4/1/

2006

10/1

/200

6

Series1Series2Series3

Source: Data are proceeded

99. The above pictures show a price-parallelism for postpaid card. Firstly,

Telkomsel changes the price, followed then by Indosat and XL. There is no

significant price-changing for prepaid card.

100. The following table shows price-changing, in quarter IV of 2006 and quarter I

of 2002:---------------------------------------------------------------------------------------

Table 5

The growth of retail selling price of cellular service (peak time) 2002-2006

PSTN Intra operator Inter operator

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COPY T

elko

mse

l

Indo

sat

XL

Tel

kom

sel

Indo

sat

XL

Tel

kom

sel

Indo

sat

XL

Prepaid 5,36% 5,41% 8,38% 0,00

% 0,06% -0,25% 3,08

% 3,08% 4,47%

Postpaid*

4,40%

-11,15%

-21,78%

0,00%

0,07%

-22,00%

0,00%

-12,43%

-17,81%

*) The data in quarter II of 2002 to quarter IV of 2006. The data show retail price of regular prepaid card (not economic prepaid cards such as As Card and Jempol). Source: The data are proceeded

101. Since quarter I of 2002 to the end of 2006, the retail price of prepaid cellular

service to PSTN has increased 5% for Telkomsel and Indosat, and 8.4% for XL.

Different with two other operators, the price of Telkomsel postpaid increased in

2002 – 2006 for calls to PSTN and intra-operators, while the two other operator

decreased their selling price. The changing shows that Indosat and XL tried to

narrow price differences between prepaid and postpaid services.

102. In general, the retail price of postpaid increases although its customer also

increase significantly. From the viewpoint of economic of scale, a high margin

growth is belong to operators. It is an interesting phenomenon because it seems

that no competition occurs to fight for consumers and to decrease price. If they

are competitive companies, each company will try to decrease prices as a

significant factor to fight for consumers from its competitors.

103. According to Price-Leadership Model, a dominant company plays apart in

fixing price while others come after such a price-fixing. It will happen if the

follower companies have no bravery to compete on price because the economic

scale is not relatively competitive. Price–Leadership is a form of tacit collusion

that look like cartel to consumers with the absence of agreement between the

two parties and it simply a strategy of follower company to gain optimum profit

by adjusting price with dominant company.

III. THE ANALYSIS OF CROSS OWNERSHIP IMPACT: -----------------------------

High concentration and Market Ownership Unbalances----------------------------------------

104. The acceleration of concentration and the unbalanced market share ownership

can be measured by market share value, HHI and GHHI.

105. With the single entity doctrine principle, cross ownership of Temasek in

Telkomsel and Indosat made the two operators be a single entity in the relevant

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COPYmarket . The following is a table of revenue and market share of the cellular

telecommunication providers:

Table 6

The Revenues and Market Share of Cellular Telecommunication Providers (In Billion Rupiahs)

Telkomsel INDOSAT XL

Year Revenue Market share Revenue Market

share Revenue Market share

Total Value of Sales in Market share

2001 4,918.22 56.14% 1,770 20.20% 2,073.03 23.66% 8,761.15 2002 7,572.95 58.37% 3,272 25.22% 2,130.41 16.42% 12,975.01

2003 11,146.12 60.37% 5,118 27.72% 2,198.06 11.91% 18,461.762004 14,765.08 59.93% 7,342 29.80% 2,528.48 10.26% 24,635.632005 21,132.91 64.56% 8,645 26.41% 2,956.38 9.03% 32,734.25

Period of Cross-Ownership: 2003-2006 2006 29,145.19 68.08% 9,228 21.55% 4,437.17 10.36% 42,809.89 Rata-

Rata 14,780.08 61.24% 5,895.61 25.15% 2,720.59 13.61% 23,396.28

TABLE 7 MARKET SHARE OF CELLULAR TELECOMMUNICATION SERVICES

THE PERIOD OF 2001-2006

Year

The Collected Market Segments of Telkomsel and Indosat

Total Revenues

Revenue of XL

Market share of XL

2001 76.34% 6,688 2,073.03 23.66% 2002 83.58% 10,845 2,130.41 16.42%

2003 88.09% 16,264 2,198.06 11.91% 2004 89.74% 22,107 2,528.48 10.26% 2005 90.97% 29,778 2,956.38 9.03%

Period of Cross-Ownership: 2003-2006 2006 89.64% 38,373 4,437.17 10.36% Average

2003-2006

89.61%

Source: Table III, The data are proceeded

106. The table shows that Telkomsel and Indosat jointly controlled 88.09% of market

share in the first year of cross-ownership, and increased to 89.64% in 2006 it.

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COPYThe value of market share in 2003 to 2006 (the cross-ownership period) is

always above the market share of Indosat and Telkomsel in 2001 to 2002

107. The average of market share of Indosat-Telkomsel in cross-ownership period

was 89.61%. It was higher than its second highest market share prior to cross

ownership in 2002 with 83.58%;

108. It is clearly seen that an increasing of Telkomsel and Indosat market share

occurs in the cross-ownership period compare to those prior to cross ownership;

109. The HHI is used as a measurement of market share unbalancing and its

calculation result the values as it described in the following table:

Table: 8 The Value of HHI in the Period of 2001-2006

Telkomsel Indosat XL HHI Industry

Delta HHI

2001 3151 408 560 4119 2002 3407 636 270 4312 193 2003 3645 768 142 4555 243 2004 3592 888 105 4586 30 2005 4168 697 82 4947 361 2006 4635 465 107 5207 260

The Period of Cross-Ownership:2003-2006

The Index Value Average in Cross-Ownership Period

4010 704.5 109 4823.75

110. Based on the index value, the HHI values have increased highly since the croos-

ownership. The values changed from 4312 in 2002 to 4555 in 2003.

111. The value of HHI tends to increase from year to year. It is indicated by delta

value of HHI which is always positive.

112. The average value of HHI in cross-ownership period (2003-2006) was around

4823.73. It is higher than the indicator limit of horizontal merger guideline

published by US-FTC and US DOJ72. The value of HHI above 3000 is stated as

an industry that causes a limitation to competition73---------------------------

72 72 Http:www.usdoj.gov/atr/public/guideline/horiz_book/toc.html 73 Gilbreto Vega, Javier Campos; Concentration Measurement under cross-ownership. An Application to the Spanish electricity sector; Documeeto De Trabajo 2002-06; Foot Note 2, Page 3

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COPY113. The value of HHI will be greater and higher in the concentration if cross-

ownership is taken into account to measure concentration in the analysis----

114. The high concentration shown by HHI has not described in whole that the

changes of industrial concentration is caused by cross-ownership. The result can

be measured by using GHHI method---------------------------------

115. The control degree in the measurement of GHHI is approached by the degree of

share ownership as it is mentioned below: ---------------------------

Year 2001 Cellular Operators Telkomsel Satelindo Exelcomindo

INDOSAT 35% 75%* 0 TELKOM 65% 0 0

The Business Actor which Become Shareholder:

Other Business Actors 25% 100%

*Consist of 7.5% that was owned before 2000, 22.5% was from the swap of Telkom’s shares, 40% was through Bimagraha Year 2002 Cellular Operator

Telkomsel Indosat (Satelindo & IM3) Exelcomindo

INDOSAT 0 100% 0 TELKOM 65% 0 0 Temasek Group 35%* 0 0

The Business Actor which Become Shareholder: Other Business Actors 0 0 100%

*Through SingTel Year 2003 Cellular Operator

Telkomsel Indosat (Satelindo & IM3) Exelcomindo

Telkom 65.00% 0 0 Temasek Group 35.00%* 41.94%** 0

The Business Actor which Become Shareholder:

Other Business Actors 0.00% 43.06% 100%

*Through SingTel ** Through STT Year 2004 Cellular Operator

Telkomsel Indosat (Satelindo & IM3) Exelcomindo

Telkom 65.0% 0 0 Temasek Group 35%* 41.94%** 0

The Business Actor which Become Shareholder:

Other Business Actors 0 43.06% 100%

*Through SingTel ** Through STT

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COPY Year 2005 Cellular Operator

Telkomsel Indosat (Satelindo & IM3)

Exelcomindo

Telkom 65% 0 0 Temasek Group 35%* 41.07%** 0

The Business Actor (Shareholders): Other Business Actors 0 44.26% 100%

*Through SingTel ** Through STT

Year 2006 Cellular Operator Telkomsel Indosat

(Satelindo & IM3) Exelcomindo

Telkom 65% 0 0 Temasek Group 35%* 40.37%** 0

The Business Actor (Shareholders): Other Business Actors 0 45.19% 100%

* Through SingTel ** Through STT

116. Based on market share and information of the control degree, the method of

measurement of GHHI produce the following values: ----------------------

Table 9 The Comparison of HHI and GHHI Values

Year HHI Delta HHI GHHI Delta GHHI 2001 4120 5142 2002 4313 193 4313 -829 2003 4555 242 5484 1172 2004 4585 30 5577 93 2005 4947 362 5872 295 2006 5207 260 5987 115

Source: Data Processing 117. Annually, the value of GHHI is getting bigger than its previous year. It indicates

that a structure of cellular industry is being concentrated from year to year and

market share ownership being unbalanced.-------------------

118. Annually, the value of GHHI is bigger than HHI and tends to increase. The total

value of GHHI to HHI indicates that cross-ownership make the industry be

more concentrated compare to the absence of cross-ownership

Picture 2 The Graphic of the Annual HHI and GHHI Value

(The Period of 2001-2006)

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COPY

119. The exception occurred in 2002, in which the value of HHI was same as the

value of GHHI that is 4313. Besides, the value of GHHI decreased to -829 at

that year so that the value of GHHI, 5142 in 2001, decreased to 4313 in 2001--

120. --- From the viewpoint of competition, cellular industry was in a better structure in

2002 as it indicated by the decreasing of GHHI’s value, lower than those of the

previous year. It is caused by cross-ownership [between Telkom and Indosat in

Telkomsel and Satelindo] in cellular industry as it stated by the Blue Print of

Government Policy on Telecommunication in Indonesia. According to the

formula, the absence of cross-ownership causes GHHI’s value and HHI’s

remain the same.-----------------------------

121. In 2003, the value of GHHI increased high, from 4313 in 2002 to 5484 in 2003.

The increasing value of GHHI for amount of 1172 was caused by the beginning

of cross-ownership period by Temasek Group with its purchase of Indosat

through its subsidiary, STT. The purchase had Temasek Group controlled 35%

of Telkomsel’s shares and at the same time Temasek Group also controlled

41.94% of Indosat’s shares------------

122. The values of GHHI, annually tended to increase in the cross ownership period,

vividly provides a conclusion that cross-ownership have brought a structure of

43134555 4585

494752075142

4313

5484 55775872 5987

4120

750

1750

2750

3750

4750

5750

6750

2001 2002 2003 2004 2005 2006

HHI

GHHI

Equal Size

Batas Highly Concentrated

Batas Moderat Concentrated

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COPYcellular industry to be getting concentrated. It is disadvantage to fair

competition. The increasing of concentration will boost market power to its

business actor or other dominants business actors ---------------

Degree of Competition Analysis----------------------------------------------------------

123. The measurement of competition degree conducted by examiner team applies a

model developed by Parker & Roller (1997) that adopt a model of market power

measurement of Bresnahan (1989) . The degree of competition measurement is

a function of demand and cost. The measurement result indicates that

company’s behavior in Indonesia cellular industry in non competitive. (See: An

analysis of competition degree of Cellular Industry in Indonesia).-------------------

An analysis of Network Competition---------------------------------------------------- 124. The decreasing of competition degree can be seen from the decreasing of

competition power in developing network. As a network-based industry,

competition in this industry consists of two stapes, competition in network

development and price. -------------------------------------------------------------

125. Business Actor that focuses in gaining the competition in the first step will have

market power to control competition in the second stage, competition in price.

The advantage of the winner of the first step is called first mover advantage as it

described in the model of Stackelberg’s oligopoly ------------------------------------

-

126. Model Stackelberg explains that there is an advantage for first mover in

oligopolistic industry. For example, the demand in the market is explained by

the function of QaP −= , where P is price and Q is demanded product

quantity, and a>0. In line with Cournot reaction curve, the reaction curve for

company 2 is 12 21

2QaQ −= --------------

127. By considering profit maximization condition, the revenue of company 1 is

122

1111 QQQaQPQTR −−== . Because TR depends on Q2, company 1 has to

anticipate the quantity produced by company 2. Company 1 knows that

company 2 will produce with the condition of 12 21

2QaQ −= , so the revenue of

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COPYcompany 1 is 11

21111 2

12

QQaQaQPQTR ⎟⎠⎞

⎜⎝⎛ −−−== , or 2

111 21

2QQaTR −= .

Therefore, the marginal revenue o company 1 is 11 2QaMR −= .

128. With the condition of MR1=0, so 21aQ = , and

42aQ = . In other words, the

quantity produced by company 2 is fewer than those of company 1 as a first

mover -----------------------------------------------------------------------------------------

129. Based on the Stackelberg model, the company that fall behind in producing its

product, shall consider the quantity produced by company of its competitor as

given in determining its own production quantity. If that company increase its

production quantity as it should be, the price will decrease. Consequently, the

two companies will be loss. --------------------------------------------------------------

130. In the context of cellular industry in Indonesia, Telkomsel is first mover in this

industry because Telkomsel is an incumbent operator and having dominant

position, and having wide infrastructure development. It is detailed by the

comparison data of the number of BTS cellular in which Telkomsel owns BTS

much more than its competitors -----------------------------------------------------------

131. The building of BTS is very crucial in cellular market because it will influence

the quality of cellular service and area coverage. Without having competitive

BTS in number, an operator will not have power of compete with other

operators. The building of BTS is a significant capital expenditure because a

completed and ready to use BTS will cost for about IDR 1 billion.------------------

132. Telkomsel is a first mover in building BTS and consistently being dominant

company in cellular industry. In accordance with Stackelberg model, Indosat

and XL produce limited quantity only in conformity with its reaction function

and a given character of Telkomsel’s production quantity value. --------------------

133. In order to reduce independency to Telkomsel’s production quantity, XL and

Indosat, in their capacities as non first movers, are asked to be more aggressive

in building BTS. Annually, Indosat and XL have to build BTS more than

Telkomsel to balance a number of BTS among operators. By doing it, the

convergences will occurs in cellular industry, decrease Stackelberg’s first-

mover effect and competition close to Cournot’s pattern. ----------------------------

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134. The explanation of Stackelberg’s model and characteristic of competition in

cellular market that are related to the availability of BTS is able to give some

important points: ----------------------------------------------------------------------------

• Dominant company in oligopolistic market take part in fixing price.--------------

• Follower company determine production quantity by considering the quantity

of dominant company as a given variable.

• According to Stackelberg model, an operator that has more BTS significantly

will have power to be a first mover. ----------------------------------------------------

• Follower operators have to be more aggressive in building BTS so that market

share will be convergence. ---------------------------------------------------------------

• If follower operators are not aggressive in building BTS, the dominant

company remains to be stronger in market.--------------------------------------------

135. Indosat investment pattern in building BTS is not aggressive. If Indosat keeps

on doing the same, Telkomsel will dominate cellular industry and it would be

possible to see market share divergence in the years to come.------------------------

136. It can be seen from the market share battle of Telkomsel, Indosat and XL in

three aspects: Revenue, Subscriber, and BTS -------------------------------------------

Picture 3

Market Share of Telkomsel based on Revenue, Subscriber, and BTS

Picture 4

Market Share of Indosat based on Revenue, Subscriber, and BTS

Market Share of Telkomsel

40%

45%

50%

55%

60%

65%

70%

2001 2002 2003 2004 2005 2006

Revenue of Telkomsel

Subscrier of Telkomsel

BTS of Telkomsel

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Picture 5 Market Share of Indosat based on Revenue, Subscriber, and BTS

137. It is seen in the diagram that Telkomsel is always consistent in keeping its

market share of BTS for around 50-55% during cross-ownership period.

Ironically, at the same period Indosat decreased drastically, started from 2004.

Consequently, Indosat markets share of revenue and a number of subscriber

tends to decrease, while XL kept on increasing its BTS markets share and as a

result its revenue also increased. ----------------------------------------------------------

138. The weakening of Indosat’s performance in keeping BTS market share had been

enjoyed by first mover, Telkomsel rather than XL. First mover only keep its

Market Share of XL 2001-2006

5%

10%

15%

20%

25%

30%

35%

2001 2002 2003 2004 2005 2006

Revenue of XL

Subcriber of XL

BTS XL

Market Share of Indosat (2001-2006)

20%

25%

30%

35%

40%

45%

50%

2001 2002 2003 2004 2005 2006

Revenue of Indosat

Subcriber of Indosat.

BTS of Indosat

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COPYvalue of BTS’s market share value at the same level but Telkomsel enjoyed the

increasing of revenue market share. XL that has been more aggressive in

increasing its BTS market share since 2003, enjoyed its revenue market share

only in 2006. ---------------------------------------------------------------------------------

139. It shows that the aggressiveness of follower to directly chase after first mover is

hard to be done. It takes long time to create a condition of head to head

competition between first mover and follower that become a determiner of fair

competition.----------------------------------------------------------------------------------

140. The needs of huge investment and time to compete with first mover had caused

significant entry barrier in cellular industry. The strategy of government to

create competition and minimize entry barrier by new entrant does not mean

something. The new entrant cannot chase after first mover in a short time. The

number of competitors in this business cannot seen as a presence of competition

in this business because time is a crucial factor in this case. --------------------------

141. A long time needed by new entrant makes first mover to gain dominant position

with its market power that is easily to accumulate monopolistic profit.. ------------

142. It is in accordance with the empiric research conducted by Nunn and Savari

2002 to any cellular industries around the world. Both states: ------------------------

…..We examine and test the effect of four market factors: (i) number of competing

firms in the country, (ii) severity of the country’s anti-trust policy, (iii)

monopolist’s lead-time before competition has been introduced and (iv) market

growth rates. The results indicate that the average tariff for cellular services

across international markets significantly exceeds competitive level and may even

exceed cournot-nash oligopolistic prices. Surprisingly, we find that the number

of competitors in the market does not seem to affect firms’ market power….74 ----

143. Under such condition, the most appropriate strategy to create competition is by

keeping closest rival and first mover to compete in fighting against controlling

network. In this case the closest rival is Indosat ----------------------------------------

144. The closest rival has to be kept to avoid decreasing competition performance to

first mover. The presence of cross-ownership between first mover and closest

74 Savari and Nun, 2002, ibid

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COPYrival will decrease incentive to the owner to keep closest rival remains to be

aggressive in a competitive condition.75 -------------------------------------------------

145. The decreasing of Indosat’s aggressiveness as a closest rival to Telkomsel is

indicated by the decrease of control to BTS’s market share, as it is seen in the

graphic. ---------------------------------------------------------------------------------------

146. Temasek’s cross ownership has weaken Indosat’s competition performance and

it can be proven. In December 2006, four directors of Indosat reported the

inabilities of Kaizeed, Deputy President Director (as a highest leader of Indosat

at that time) to Commissioner Lee Teng Kiat in Singapore. Unfortunately, the

report was not followed up by replacing Kaizeed or perform no action over 9

months delay of BTS’s building in 2006. ------------------------------------------------

147. It can be concluded that cross-ownership in cellular industry is far behind

from fair competition because it weakens a competition between Indosat as

a closest rival to Telkomsel as dominant player and Telkomsel.

Tariff Pattern Analysis ----------------------------------------------------------------------------

Tariff pattern indicate a presence of Tariff Leadership. ----------------------------------------

148. Tariff pattern is implemented in order to examine the consistency of conclusion

and to show that there is a tariff leadership in cellular industry. Tariff leadership

in oligopolistic industry harms consumers although such an industry show an

elasticity demand. Tariff leadership will cause consumers who move to other

operators remain to face high price compare to the price they have in

competitive market;-------------------------------------------------------------------------

149. The testing to tariff leadership was conducted by examining an average tariff-

changing of prepaid Indosat and Telkomsel from 2002 to 2006 and the result is

as follow:-------------------------------------------------------------------------------------

75 See David Gilo, “The Anticompetitive Effect of Passive Investment”; Michigan Law Review, Vol. 99, No. 1. (Oct., 2000)

,547E-05 ,477E-03 ,547E-05 3,41E-05 ,050E-04 1,000 1734 ,317INDOSAT -TELKMSEL

Pair 1Mean

Std.Deviation

Std. ErrorMean Lower Upper

95% Confidenceterval of the Differenc

Paired Differences

t dfSig.

(2-tailed)

Paired Samples Test

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,0000 ,1045 509E-03 4,92E-03 920E-03 ,000 1734 1,000INDOSATTELKMSE

Pair 1Mean

Std.Deviation

Std. ErrorMean Lower Upper

95% Confidenceerval of the Differen

Paired Differences

t dfSig.

(2-tailed)

Paired Samples Test

150. The testing of an average postpaid tariff changing of Indosat and Telkomsel,

daily from 2 April 2002 to 31 December 2006 is as follow:

Ho:µΔI = µΔT

Ha:µΔI ≠ µΔT------------------------------------------------------------------------------------

,0000 ,1045 509E-03 4,92E-03 920E-03 ,000 1734 1,000INDOSATTELKMSE

Pair 1Mean

Std.Deviation

Std. ErrorMean Lower Upper

95% Confidenceerval of the Differen

Paired Differences

t dfSig.

(2-tailed)

Paired Samples Test

151. Based on the measurement above, it is seen that test of t-Statistic to the average

of postpaid tariff-change of Indosat and Telkomsel to the destination of PSTN,

intra-operator and inter-operator are 0.007, 1.0, and 1.0 respectively and the

degree of significances are 0.995, 0.317, and 1.00 (not significant) respectively

with degree of trust for about 95%. If we do not refuse hypothesis (Ho) means

that statistically we conclude that the average of postpaid tariff-changing of

Indosat is the same with the average of postpaid tariff-changing of Telkomsel

for a given period. --------------------------------------------------------------------------

,547E-05 ,477E-03 ,547E-05 3,41E-05 ,050E-04 1,000 1734 ,317INDOSAT -TELKMSEL

Pair 1Mean

Std.Deviation

Std. ErrorMean Lower Upper

95% Confidenceterval of the Differenc

Paired Differences

t dfSig.

(2-tailed)

Paired Samples Test

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COPY

-8,42E-03 ,4247 1,020E-02 -2,84E-02 1,158E-02 -,826 1734 ,409INDOSAT -TELKMSEL

Pair 1Mean

Std.Deviation

Std. ErrorMean Lower Upper

95% ConfidenceInterval of the Difference

Paired Differences

t dfSig.

(2-tailed)

Paired Samples Test

3,845E-05 1,602E-03 3,845E-05 -3,70E-05 1,139E-04 1,000 1734 ,317INDOSAT -TELKMSEL

Pair 1Mean

Std.Deviation

Std. ErrorMean Lower Upper

95% ConfidenceInterval of the Difference

Paired Differences

t dfSig.

(2-tailed)

Paired Samples Test

152. The testing of an average prepaid tariff changing of Indosat and Telkomsel,

daily from 2 April 2002 to 31 December 2006 is as follow: --------------------------

Ho:µΔI = µΔT

-8,42E-03 ,4247 1,020E-02 -2,84E-02 1,158E-02 -,826 1734 ,409INDOSAT -TELKMSEL

Pair 1Mean

Std.Deviation

Std. ErrorMean Lower Upper

95% ConfidenceInterval of the Difference

Paired Differences

t dfSig.

(2-tailed)

Paired Samples Test

Ha:µΔI ≠ µΔT

-7,18E-03 ,2949 7,079E-03 -2,11E-02 6,705E-03 -1,014 1734 ,311INDOSAT -TELKMSEL

Pair 1Mean

Std.Deviation

Std. ErrorMean Lower Upper

95% ConfidenceInterval of the Difference

Paired Differences

t dfSig.

(2-tailed)

Paired Samples Test

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COPY3,845E-05 1,602E-03 3,845E-05 -3,70E-05 1,139E-04 1,000 1734 ,317

INDOSAT -TELKMSEL

Pair 1Mean

Std.Deviation

Std. ErrorMean Lower Upper

95% ConfidenceInterval of the Difference

Paired Differences

t dfSig.

(2-tailed)

Paired Samples Test

153. On the above measurement, it is seen that test of t-Statistic to the average of

postpaid tariff-changing of Indosat and Telkomsel to the destination of PSTN,

intra-operator and inter-operator are -0.826, 1.0 and -1.014 respectively and the

degree of significances are 0.409, 0.317, and 0.311 (not significant)

respectively with degree of trust for about 95%. If we do not refuse hypothesis

(Ho) means that statistically we conclude that the average of prepaid tariff-

changing of Indosat is the same with the average of postpaid tariff-changing of

Telkomsel for a given period. -------------------------------------------------------------

Market Power Acceleration Analysis : ---------------------------------------------------------

154. The high market power, assumed to be caused by concentrated structure as a

result of cross-ownership, can be described by several indications such as

high profit margin measured by EBITDA, high selling price compare to

other countries, and the high differences between selling price and

production cost. -------------------------------------------------------------------------

155. According to the Finance Statement of each company, it is seen that the

value of EBITDA is as follow: -------------------------------------------------------

Table 11

The Number of EBITDA and its Nominal Growth of Each Operator

TELKOMSEL INDOSAT XL

Year Value (In % growth Value

(In % growth Value (In % growth

-7,18E-03 ,2949 7,079E-03 -2,11E-02 6,705E-03 -1,014 1734 ,311INDOSAT -TELKMSEL

Pair 1Mean

Std.Deviation

Std. ErrorMean Lower Upper

95% ConfidenceInterval of the Difference

Paired Differences

t dfSig.

(2-tailed)

Paired Samples Test

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COPYmillion rupiah)

million rupiah)

million rupiah)

2001 3,499,000 2,842,400 1,202,205 2002 5,110,000 46.04% 3,661,700 28.82% 1,442,463 19.98% 2003 8,026,000 57.06% 4,385,900 19.78% 1,456,157 0.95% 2004 10,672,000 32.97% 6,016,700 37.18% 1,624,753 11.58% 2005 15,408,000 44.38% 6,732,100 11.89% 1,733,668 6.70% 2006 20,737,000 34.59% 7,051,900 4.75% 2,535,881 46.27%

Source: Finance Statement of Telkomsel, Indosat, XL

156. The EBITDA Margin of each company is as follow: -------------------------------

Table 12 EBITDA Margin of Each Operator

Ebitda Margin TELKOMSEL INDOSAT XL Value Value Value 2001 71.14% 55.32% 67.40% 2002 67.48% 54.11% 67.44% 2003 72.01% 53.29% 65.34% 2004 72.28% 57.69% 62.71% 2005 72.91% 58.09% 56.67% 2006 71.15% 57.62% 54.17%

Cross-Ownership Period

Average Period Cross-Ownership

72.09% 56.67% 59.72%

Source: Finance Statement of Telkomsel, Indosat, XL. Data proceeded

Table 13

EBITDA Industry Total Industry Total Industry Value Revenue

(IDR 000) Ebitda (IDR 000)

Ebitda Margin

2001 11,839,990,340 7,543,605,000 63.71% 2002 16,478,718,136 10,214,163,000 61.98% 2003 21,604,441,548 13,868,057,000 64.19% 2004 27,785,881,759 18,313,453,000 65.91% 2005 35,781,844,531 23,873,768,000 66.72% 2006 46,066,260,578 30,324,781,000 65.83%

The Period of Cross-Ownership

Average Cross-Ownership Period

32,809,607,104 21,595,014,750 65.66%

Source: Finance Statement of Telkomsel, Indosat, XL. Data proceeded

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COPY

157. Based on the two tables above, it is known that EBITDA of cellular

telecommunication service operators are always 50% and above. It indicates

that companies’ operating are able to contribute the companies 100% more

than the cost to create cellular service.-----------------------------------------------

158. The EBITDA margin of cellular telecommunication industry is around 64-

66% in cross-ownership period with the average of 65.66%;---------------------

159. Based on the table, Telkomsel is an operator that is able to have a biggest

EBITDA in cross-ownership period with the average of 72.09%. ---------------

160. In average, the EBITDA margin of XL within the same period was in

second place for amount of 59.72%; -------------------------------------------------

161. Indosat is standing in the last place in having an average of EBITDA margin

in cross-ownership period (56.67%);------------------------------------------------

162. The high value of EBITDA in cross-ownership period, 50% and above,

shows that business actors in the industry of telecommunication service

have great market power. It is used to create monopolistic profit, twice

higher in number than the production cost ------------------------------------------

163. The high EBITDA finance indicator indicates that there is an excessive

pricing of cellular tariff. In fact the high EBITDA give a change to cellular

operator decreasing tariff. -------------------------------------------------------------

164. In order to prove whether an excessive pricing occurs or not, there are many

ways to prove it such as tariff comparison for the same product in the

market and cellular tariff in other countries. It also can be done by

comparing with the significant component cost in any call, interconnection

tariff (call to other operator and PTSN) ---------------------------------------------

165. According to the study conducted by LPEM76, there are differences

between average tariff in Indonesia and other countries. The study of LPEM

compares the average of three various kind of tariffs (PSTN, Intra Operator,

inter-operator) for peak time prepaid tariff of three cellular operators in

Indonesia with the cellular tariff of comparative countries that is

extrapolated from the data of International Telecommunication Union (ITU)

76 LPEM, Final Report: Studi Mengenai Kerugian Konsumen Akibat Persaingan Usaha Tidak Sehat di Industri Telepon Seluler di Indonesia (A Study on the Consumer Loss Due to Unfair Competition in Cellular Phone Industry), LPEM, Jakarta, 2007.

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COPYfor the period of 1996-2002. In order to have data of 2002-2006,

extrapolation was conducted by assuming constant growth per year by using

the quantity of the average tariff growth in 1996-2002. The assumption of

rate of exchange Rp/US $ is IDR 9100, and the tariff comparison is as

follows,-----------------------------------------------------------------------------------

Table 14 Cellular Tariff Comparison in 2002-2006 based on the Study of LPEM (US $)

Countries/Operators 2002 2003 2004 2005 2006Telkomsel 0.16 0.15 0.15 0.15 0.14 Indosat 0.15 0.15 0.15 0.15 0.15 XL 0.17 0.16 0.15 0.14 0.14 Asia Selatan 0.22 0.21 0.19 0.18 0.17 ASEAN 0.38 0.38 0.38 0.38 0.38 Korea 0.30 0.28 0.26 0.25 0.23 Hong Kong 0.18 0.14 0.11 0.09 0.07 East Europe 0.09 0.07 0.05 0.04 0.03

Source: LPEM – FEUI, Data Proceeded. Details: 1. In regional level, tariff is an average tariff; in country level, tariff that is

valid in the country. 2. South Asia is represented by India and Sri Lanka 3. ASEAN is represented by Malaysia and Singapore 4. East Europe is represented Belorussia, Estonia, Latvia, Lithuania, Moldova

and Russia.

It can be seen from the table that tariff of Telkomsel, Indosat and XL is higher

than those valid in Hongkong and East Europe. If it is compared to South Asia,

ASEAN, and Korea, the tariff of Telkomsel, Indosat and XL are cheaper.

Nevertheless, the study could be bias because of the extrapolation conducted

toward the comparative ones. If there was a significant efficiency changes in 2002

to 2006 to the cellular operator in that countries, the data could be different in a

whole with the extrapolated data. ----------------------------------------------------------

166. As a comparison, the tariff of Telkomsel, Indosat, and XL can be compared with

the data of Directorate General of Posts and Telecommunication on cellular tariff

in ASEAN countries. The following is the intra operator tariff: ------------------------

Table 15

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COPYTariff Comparison–intra operator (Rp)

Countries Operator Peak Off Peak Indonesia Telkomsel 1500 300 Indonesia Indosat 1500 1500 Indonesia XL 1248 1248 Malaysia Celcom 1493 978 Brunei B-Mobile 289 Thailand DTAC 524 India BSN 475 Singapore SingTel 924 462 Vietnam Mobifone 737

Source: Directorate General of Posts and Telecommunication. Data Proceeded

As seen in the table, the cellular tariff for intra operator call (on-net) in Indonesia

is higher than those of other ASEAN countries. The only country which are

different slightly with Indonesia is Malaysia. At peak-time, tariff in Indonesia is 4

times higher than the tariff in Brunei, twice than Thailand and India, 1.2 times

than Singapore, and 1.5 than Vietnam. The comparison is conducted by comparing

with the lowest tariff in Indonesia, XL cellular telecommunication provider. If it

compares with the highest tariff in Indonesia, the differences can be wider. ----------

167. Based on the data of Ditjen Postel, the comparison of inter operator tariff is as

follow: ------------------------------------------------------------------------------------------

Table 16

Tariff Comparison – inter operator (Rp)

Countries Operator Peak Off Peak

Indonesia Telkomsel 1600 1300 Indonesia Indosat 1500 1500 Indonesia XL 1537 1537 Malaysia Celcom 1493 978 Brunei B-Mobile 577 Thailand DTAC 524 India BSN 518 Singapore SingTel 924 462 Vietnam Mobifone 819

Source: Directorate General of Posts and Telecommunication . Data Proceeded

The inter operator tariff comparison affirms the high tariff charged by cellular

operators in Indonesia. Different with intra operator tariff, inter operator tariff

charged by cellular operators in Indonesia is higher than those in Malaysia even

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COPYif it compares to other countries, inter operator tariff in Indonesia is the highest.

At peak time, tariff in Indonesia is more than 2.5 times higher than those in

Brunei, Thailand and India, and 1.5 times higher than it in Singapore and

Vietnam. --------------------------------------------------------------------------------------

168. The comparison of intra operator and inter operator tariff between Ditjen

Postel and LPEM is quite the contrary. It is stated that tariff in Indonesia is

lower than ASEAN countries. In fact, cellular operator tariff in Indonesia is

higher than those of ASEAN countries. ---------------------------------------------

169. In order to fix normal tariff of inter operator, interconnection cost among

operator shall be considered. In connection with that, cellular tariff in

Indonesia shall refer to the interconnecting recommendation of OVUM.

The following is the description of effective tariff along with the amount

recommended by OVUM--------------------------------------------------------------

Table 17

Tariff Comparison and the Recommendation of Interconnection Tariff

PSTN Other Cellular Operator

Tariff % to OVUM

Tariff % to OVUM

Telkomsel 950 151.03% 1600 178.17%

Indosat 900 143.08% 1500 167.04%

XL 837 133.07% 1537 171.16%

OVUM 629 898

Source: OVUM, Data is proceeded Details: The amount recommended by OVUM is total of origination and termination costs.

According to the description of the data, it can be concluded that the tariff charged

by cellular operator to consumers is higher than the amount of interconnection

recommendation. The worst occurs in the amount of inter operator tariff. For

inter operator tariff, the operators that have highest tariff differences compare to

the amount of interconnecting tariff recommendation are Telkomsel, XL and

Indosat respectively. --------------------------------------------------------------------------

170. From the viewpoint of efficiency, cellular phone is the most interested stuff

and the increasing number of customer of GSM card within the last few

years has proved the evidence. With the concept of economies of scale, it

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COPYcan be explained that it should be efficiency in a company which bring it an

ability to decrease price but the actual price does not reflect it. If it is

observed from the growth of EBITDA, the efficiency of a company

increases significantly but not in price because the efficiency is used to

highly raise margins. Although the EBITDA increase significantly, the

cellular tariff charged by operator does not reflect costs from year to year

does. In other words, there is an excessive pricing in the tariff charged by

cellular operators in Indonesia. -------------------------------------------------------

171. From the side of per capita income, Indonesia is smaller than Singapore,

Malaysia, or Brunei but its cellular tariff is higher than those countries.

Comparing to Brunei, intra operator call is more than 4 times and 2.5 times

for inter operator call. The normal tariff shall be in favor with per capita

income of a country. It is concluded that there is excessive pricing in

cellular tariff in Indonesia. ------------------------------------------------------------

Analysis of Telkomsel Market Power--------------------------------------------------------------

172. The ability of Telkomsel to use market power is seen from its capacity to

gain high value EBITDA. It is described by the value of EBITDA which

reaches for the average of 71.16% between 2001-2006. As a leading

company, the value is 6.44% above EBITDA o the Margin Industry. ----------

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COPY173. Besides, Morgan Stanley’s estimation on 21 February 2006 (Exhibit 3)

shows that the value of Telkomsel’s EBITDA Margin is above several

cellular operators of the Asian countries. -------------------------------------------

The potency of Telkomsel’s tariff decreasing in its capacity as a leader ---------------------

174. The high tariff and its EBITDA margin, as it described above, had

Telkomsel potentially decreased cellular service tariff in its capacity as a

leading operator in telecommunications cellular industry in Indonesia. It is

measured by static simulation over the normal value of ROE of a company. -

175. The 2006 Telkomsel’s report showed a high ROE, to 55%. It indicates an

excess profit. By the benchmark of ROE 20%-35%, an acceptable value of

ROE of a company, and by assuming that some variables are fixed, an

amount of potential effective tariff quantity can be obtained. The following

table display it : -------------------------------------------------------------------------

A Simulation of Telkomsel Finance with the ROE 20%, 25%, 30%, and 35%

Potencies Detail Actual ROE=20% ROE=25% ROE=30% ROE=35%

Equity 23073 23073 23073 23073 23073 ROE 55% 20% 25% 30% 35% Net Revenue 11182 4614.6 5768.25 6921.9 8075.55 Tax 0.314366 0.3143663 0.3143663 0.3143663 0.314366 EBIT 16309 6730.416 8413.02 10095.624 11778.228 Operating cost 12836 12836 12836 12837 12838 Gross revenue 29145 19566.416 21249.02 22932.624 24616.228

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COPYPrice reduction 32,87% 27,09% 21,32% 15,54%

Details: Actual Data of 2006 The italic are assumed as fixed variables

176. As it described in the table, with an assumption of an equity amount is fixed,

if ROE of Telkomsel is only 20%, net income will reduce from IDR 11,182

billion to IDR 4,614.6 billion. If an assumption of tax percentage to EBIT is

fixed, the value EBIT will decrease also from IDR 1,630.9 billion to IDR

6,730.416 billion. By assuming consistently that the value of operating cost

is fixed, gross revenue will also decrease from IDR 2,914.5 billion to IDR

19,566.42 billion. By assuming that cellular usage structure is fixed, the

value of gross revenue will be 67.13% of the actual gross revenue, so that a

value of potential tariff is 67.13% of the actual price which will gain

potential tariff reduction for 32.87%. ------------------------------------------------

177. By implementing the same method, if ROE of Telkomsel is only 25%,

30%, and 35%, the price reduction over actual price will be 27.09%,

21.32%, and 15.54% respectively ----------------------------------------------------

Telkomsel Financial Analysis

OPREV

Sequence

76543210

40000

30000

20000

10000

0

Observed

Quadratic

Exponential

178. The graphic above shows a relationship of revenue achievements of

Telkomsel Operating revenue in 2001 which only around IDR 5,000 billion

and IDR 29,145 billion in 2006. It shows multiple improvement following

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COPYquadratic and exponential pattern. The growth of operating revenue follows

quadratic pattern with its equation of Y=a+bX+cX2, in which Y is

operating revenue, X is year, with the value of a=4564.10, b=-18,939, and

c=677,946. It follows exponential pattern with its equation of Y=aebx, in

which Y is operating revenue, X is year, and value of a=3663.10, b=0.3502.

---------------

179. The picture above shows a relative constant and fixed in price. Under a

circumstances of out of date GSM telecommunication technology and the

newly sophisticated telecommunication technology, Telkomsel develops

harvesting policy in which it optimizes the revenue of the existing

technology. ------------------------------------------------------------------------------

180. In a condition in which revenue increase is exponential and quadratic, the

concerns shall be focused on price that consumers have to pay. Although a

policy of price reduction has been implemented by a company but it remains

to be superficial due to the high value of Telkomsel ROE. For instance, the

ROE of Telkomsel in 2004 is 45%, 55% in 2005 and 55% in 2006. ------------

181. The picture above shows a relation of total assets in the frame of time

function. In 2001 the total asset of Telkomsel was only IDR 9,000 billion

and IDR 37,301 billion in 2006. It showed multiple growth s following

quadratic and exponential pattern with equation its equation: Y=a+bX+cX2,

in which Y is total asset, X is year and the value of a=7503.20, b=-259.09,

TOTAL ASSET

Sequence

76543210

40000

30000

20000

10000

0

Observed

Quadratic

Exponential

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COPYand c=844.250. The growth of asset follows exponential pattern with its

equation: Y=aebx, in which Y is total assets, X is year and the value of

a=5720.87, b=0.3101. ------------------------------------------------------------------

182. The available data show that the total asset of Telkomsel had grown 4 times

from 2001 to 2006. The growth is boosted by the revenue improvement and

revenue and the Telkomsel bargaining reinforcement with the third parties

that resulted in easing Telkomsel to have finance facilities. The asset

component of Telkomsel are property, plant and equipment. In 2006, the

amount of them was for amount of IDR 31,706 billion.---------------------------

183. In such a condition, Telkomsel is able to adapt an advance of

telecommunication technology and strengthening its position as a leader in

cellular telecommunications sector, consequently its competitors will be

getting hard to chase.-------------------------------------------------------------------

STOCK

Sequence

76543210

30000

20000

10000

0

Observed

Quadratic

Exponential

184. The picture above shows a relation of shareholders’ equity in the frame of

time function. The shareholders’ equity of Telkomsel in 2001 was only

IDR 5,000 billion and IDR 23,073 billion in 2006, increasing double

following quadratic pattern with its equation: Y=a+bX+cX2, in which Y is

shareholder’ equity, X is year, and the value of a=3750.00, b=1084.21, and

c=353.214 and exponential pattern with its equation: Y=aeb, in which Y is

shareholders’ equity, X is year, and the value of a=4015.13, b=0.2982. --------

185. The growth of shareholders’ equity increased 4 times from 2001 to 2006.

The growth is increased by an accumulation of the net income. Although

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COPYTelkomsel had paid dividend for amount of IDR 1,3976 billion from 2002

to 2006, the amount of its shareholders’ equity also increased IDR 15,684

billion from the initial amount IDR 7,189 to IDR 23,073 billion.----------------

The Market Power Empowerment of Telkomsel in Restraining its Competitors-------------

186. The huge power of Telkomsel is used to restrain its competitors in the

relevant market that decrease competition level. Telkomsel owns power to

threaten other operators that decrease their tariff by delinking the

interconnection relation. ---------------------------------------------------------------

187. The interconnecting searcher operators have unbalanced bargaining position

with Telkomsel and to follow the will of Telkomsel in order to avoid

delinking of interconnection relation. -----------------------------------------------

188. Such constraints are stated in the agreement between Telkomsel and other

operator on interconnection that arrange SMS tariff of interconnection

searcher not to be lower than SMS tariff of Telkomsel. Although the

agreement has already revoked it indicates that by its market power

Telkomsel restraints its competitor and arranges SMS tariff.---------------------

189. There is an interconnection constraint conducted by Telkomsel to new

operator to fulfill the traffic as high as 48 Erls, a requirement that is hard to

be accomplished by new operators. Another constraint is the obligation to

hire third party that is appointed by Telkomsel in building interconnection

link. As a result, it significantly increases an expense for interconnection

searcher. The ownership and operating the link will be possessed by the

third party and Telkomsel and not possessed by interconnection searcher. ---

Final Impact: Customer Loss -----------------------------------------------------------------------

190. The tariff, higher than other countries and cost as well as a high EBITDA

has created fewer actual customer surpluses than customer potential surplus,

the condition recognized as customer loss.------------------------------------------

191. To measure customer loss is by estimating elasticity or slope quantity from

demand function. Industrial demand elasticity is obtained from amount of

tariff that is an average of three types of tariff type (PSTN, intra operator,

inter operator) and weightened average of any tariff charged by operators

and amount, a number of call estimated from total revenue.----------------------

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COPY192. The following is a prediction of tariff and quantity represented by cellular

industries within 2002-2006,----------------------------------------------------------

A prediction of price and market quantity

TR P1wa P2wa P3wa P Q

2002 12,975.01 1172.062 1250.48 1334.994 1252.512 10.95792

2003 18,461.76 1155.699 1231.061 1176.942 1187.901 16.6864

2004 24,635.63 1172.702 1172.559 1167.9 1171.053 22.70211

2005 32,734.25 1153.957 1112.646 1083.231 1116.611 31.0301

2006 42,809.89 1135.922 1091.517 1043.633 1090.357 41.41704

Where TR is total revenues of cellular, P1wa is a weightened average of PTSN

tariff, P2wa is a weightened average of intra operator, P3wa is a weightened

average of inter operator tariff, and P is mean value with the same amount of the

average of P1wa, P2wa and P3wa. Q is a value of cellular service quantity

counted by considering the condition of TR = P X Q. -----------------------------------

193. Based on the value of P and Q, demand elasticity can be predicted as

follows:

Elasticity of average price, tariff of PSTN, intra operator and inter operator

Year Elasticity e PSTN e intra e inter

2003 -10,13 -31.7327 -28.6754 -5.18575

2004 -25,42 21.41552 -8.43809 -44.8707

2005 -7,89 -21.9165 -7.83397 -5.96713

2006 -14,24 -21.0233 -17,542 -9.7775

Average -14,42 -13,3142 -15,6223 -16,4503

194. In average, the demand elasticity is -14.42 that means very elastic but it

could be higher than the actual one due to annual data only available.

Whereas, there could be a demand-shifting caused by the fluctuation of

economics condition or public income. As a result, the actual elasticity

could turn to be far more inelastic. ---------------------------------------------------

195. With this elasticity number, customer loss can be predicted by comparing

tariff and other price of competitive quantities Indonesia that are acceptable

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COPYto be a benchmark (prices in other countries, recommendation quantity of

OVUM). The study of customer loss uses an average price of 2006 as

primary data. Nevertheless, the actual elasticity could be far more inelastic

from those of predicted with annual data. The result of customer loss

suffered by consumer is higher than those of counted by using elasticity.------

196. Based on intra operator tariff, comparing to other countries the consumer

loss is as follow: ------------------------------------------------------------------------

Country P Q Customer loss (Billion)

Indonesia 1091.517 39.22054

Brunei 289 448.8093 195826.1183

Thailand 524 328.8699 104448.8089

India 475 353.8786 121176.1478

Singapore 924 124.7179 13731.23928

Vietnam 737 220.159 45977.22768

The annual Indonesia costumer loss is IDR 195.8 if the competitive price is as it

valid in Brunei, IDR 104.4 Trillion in Thailand and IDR 121.2 Trillion in India

respectively. ------------------------------------------------------------------------------------

197. Based on inter operator price, comparing to other countries the consumer

loss is as follows: -----------------------------------------------------------------------

Country P Q Customer loss (Billion)

Indonesia 1043.633 41.02005

Brunei 577 301.5362 79924.07284

Thailand 524 331.1255 96689.60795

India 518 334.4752 98686.41018

Singapore 924 107.81 8902.51204

Vietnam 819 166.4303 23300.12651

The annual Indonesia costumer loss is IDR 79.9 trillion if the competitive price is

as it valid in Brunei, IDR 96.7 trillion in Thailand and IDR 98.7 Trillion in India

respectively. The lowest Indonesian consumer loss is only 89 Trillion if it is

compared to the valid price in Singapore. -------------------------------------------------

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COPY198. If it is compared to the price of PSTN interconnection as it recommended by

OVUM, the consumer loss will reach to IDR 11.9 trillion annually, and if it

is compared to the price of to price of interconnection as it recommended by

OVUM, the consumer loss will reach to IDR 76.8 Trillion

199. A weighted mean value of any tariffs cannot be considered because there is

no data of “competitive” price which is equivalent to a weighted mean value

used as benchmark. Considering that the mean value is in accordance with

central limit theorem, the result of customer loss calculation with a weighted

mean value produce a value between customer loss calculation and other

prices, not too high or too low. -------------------------------------------------------

200. Based on the calculation by using some scenarios and benchmarks, from

2003 to the end of 2006, the excessive pricing of cellular service market in

Indonesia caused consumer for at least IDR 35.6 trillion or IDR 783.3

trillion at the farthest. ------------------------------------------------------------------

201. As another comparison, the research conducted by LPEM 77 described a

customer loss over the excessive pricing charged by cellular operators in

Indonesia. The study compares the retail price of cellular service in

Indonesia with those in neighboring countries that are assumed to have

economic condition equal to Indonesia. The calculation is conducted by

comparing price as it is demand curve that its inclination represented by

arch elasticity. ---------------------------------------------------------------------------

202. The calculation result in the research also shows customer loss in cellular

telecommunication service industry in Indonesia. ---------------------------------

203. Through financial analysis that is based on an acceptable quantity of ROE,

Telkomsel potentially reduce its price as it previously described. Based on

the potency of price reduction counted by the same method, the customer

loss of Telkomsel in 2003 to 2006 can be gained by measuring the

difference between actual revenue and potential revenue:

Table of Customer Loss of Telkomsel from 2001 to 2006

Customer loss (In Billion rupiah) The Value of ROE

2003 2004 2005 2006 Total

77 LPEM, Final: A Study on Consumer Loss Due to Unfair Competition in Celular Phone in Indonesia (Studi Mengenai Kerugian Konsumen Akibat Persaingan Usaha Tidak Sehat di Industri Telepon Seluler di Indonesia), LPEM, Jakarta, 2007.

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COPY20% 3257.32377 3953.197 7289.087 9578.584 24078.19 25% 2485.15471 2936.246 6021.109 7895.98 19338.49 30% 1712.98565 1919.295 4753.131 6213.376 14598.79 35% 940.816592 902.3442 3485.153 4530.772 9859.086

204. With the value of ROE 20% and 25%, from 2002-2006 the total customer

losses of Telkomsel were more than IDR 24 trillion and IDR 19 trillion

respectively. With the value of ROE 30% and 35%, the total customer loss

of was more than IDR 14.5 trillion and IDR 9.8 trillion.--------------------------

The Prediction of Cellular Industry with the absence of Temasek Cross-

Ownership

205. The cross-ownership has weaken closest rival from dominant player to

compete tightly. It decreases a competition. With the absence of cross-

ownership, it is predicted that cellular market industry will be more

competitive. It can be seen from many aspects, such as the building of BTS,

market concentration, price fixing, competition, degree of customer loss and

finance performance. ------------------------------------------------------------------

206. Without building BTS, the closest rival of Telkomsel cannot grab market

share of Telkomsel as a dominant company. --------------------------------------

207. The more closest rival company grab market share of dominant company,

the lower market concentration occurs.----------------------------------------------

208. The more un-concentrated industrial structure, the lower dependency of

companies to the decision of dominant company. Companies will grab

market share and keep its position so that market price will become lower. ---

209. If companies within oligopolistic market own similar market shares, they

will compete by approaching better to Cournot-Nash pattern. The influence

will decrease price because the function of industrial demand and industrial

demand is getting wider.---------------------------------------------------------------

210. The absence of Cross-Ownership will automatically decrease GHHI to the

lower concentration. As it is shown by the value of GHHI in 2002 in which

cross ownership was absent. The low concentration, caused by competition,

will bring values of HHI or GHHI go down to lower values.---------------------

211. Since companies’ behavior are equal with Cournot-Nash, competitive in

oligopolistic market, the level of GHHI or HHI will go down close to “equal

size” as it described in the picture above, go down to level 3333 if the

amount of the companies are 3. With the model of Parker & Roller, the

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COPYvalue of θ decrease from 0.61 to equal 1/N, or 1/3 because the competition

is in accordance with Cournot-Nash -------------------------------------------------

212. The more competitive, the lower price will be created because of the

changes of structure and behavior. ---------------------------------------------------

213. The lower market price will increase consumer surplus and decrease

customer loss significantly. It automatically influence the consumption of

Indonesians because it improve public consumption toward other goods that

in macro increase economic growth in other sectors and improve public

utilities; ----------------------------------------------------------------------------------

IV. Conclusion; -------------------------------------------------------------------------------------------

1. The structure of cross-ownership between Telkom and Indosat in cellular

telecommunication industry in Indonesia has been cancelled by government as a

follow-up of Ministerial Decree No.72/199 in the form of ownership swap

between Telkom and Indosat to Telkomsel and Satelindo in 2001;---------------------

2. The divestment of Indosat by government in the end of 2002, lead a cross

ownership of Indosat to STT, a subsidiary of Temasek. The result of the analysis

has proved that Temasek has a capacity to control Telkomsel and Indosat, inviting

cross ownership at market of cellular telecommunication in Indonesia formed

[again]; ------------------------------------------------------------------------------------------

3. Cross-Ownership creates high concentration of industrial structure and market

power as well as decrease competition. The deed of cross-ownership conducted by

Temasek violates Article 27.a of the Law No.5/1999 ; -----------------------------------

4. Although it keep on under tariff cap fixed by government, however, the tariff fixed

by Telkomsel is excessive; -------------------------------------------------------------------

5. The use of market power by Telkomsel, decreasing competition and creating

excessive pricing in cellular telecommunication service in Indonesia violates

Article 17 paragraph (1) and Article 25 paragraph (1) of the Law No.5/1999 ; -------

19. Considering that there was a Examiner Team member, Dr.Ir.Benny Pasaribu that

expressed his opinion. ------------------------------------------------------------------------------

1. Concerning Cross Ownership; ---------------------------------------------------------------

a. I do not find any evidence that Reported Party II, Reported Party III, Reported

Party IV and Reported Party V performed cross ownership because they are

not shareholders of PT. Indosat and PT. Telkomsel; ---------------------------------

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COPYb. I do not find any evidence that Reported Party IV and Reported Party V

performed cross ownership because they only have share of PT. Indosat and

PT. Telkomsel but they are not shareholders of PT. Telkomsel;--------------------

c. I do not find any evidence that Reported Party VII performed cross ownership

because they are not shareholders of PT. Telkomsel and in PT. Indosat;-------

d. I do not find any evidence that Reported Party IX performed cross ownership

because they I do not find evidence that Reported Party IX conducts cross

ownership because they only have shares in PT. Telkomsel, but not in PT.

Indosat; ------------------------------------------------------------------------------------

e. I do not find any evidence that Reported Party I performed cross ownership

because they do not have share of PT. Telkomsel and PT. Indosat;----------------

2. Concerning majority share ownership (in this case ownership of majority share is

above 50 percents in accordance with the Law No. 1/ 1995 on Limited Company

Article 15 of the Law No. 8/ 1995 on Capital market, Jurisprudence of the case

No. 05/KPPU-L/2002 on Cineplex, and Expert as it is in Annex):----------------------

a. I do not find evidence of majority share ownership by Reported IV and

Reported VII in PT. Indosat because its share ownership is under 50%, the

Reported Party VI has only 39.96% and Reported Party VII 0.86%; --------------

b. In my opinion, if the understanding of majority share is the ability of

shareholders to control a company, then I do not find that Reported Party VI

and Reported Party VII control PT. Indosat. In fact, the Government of

Indonesia (represented by State Minister of BUMN) still has shares of A serial

with a Veto right as it is mentioned in the Statutes of PT. Indosat and it is

also a fact that the composition of Board of and Board of Directors are the

proposal of the Government of Indonesia, including the President Director of

PT. Indosat;

c. I do not find evidences of majority share ownership by Reported Party IX in

PT. Telkomsel because its share ownership is under 50%, that is 35%; -----------

d. In my opinion, if the understanding of majority share is an ability of

shareholders to control a company, then I do not find that Reported Party IX

controls PT. Telkomsel. The fact is that PT. Telkom controlled PT. Telkomsel

because PT. Telkom owns majority share, 65% and it is also a fact that the

composition of Board of commissioner and Board of Directors facts its also

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COPYthat composition and Board of Director PT. Telkomsel are the nomination of

PT Telkom, including its President Commissioner and Managing Director of

PT. Telkomsel; ----------------------------------------------------------------------------

3. Concerning Business Actor and Group of Business---------------------------------------

a. In my opinion, the Law No. 5/1999 on the Prohibition of Monopoly

Practice and Unfair Competition clearly defines Business Actor as it is

regulated in Article 1.5 that it has no legal basis to use Group of Business

and/or ultimate parent. Therefore, Group of Business is not Business Actor as

it mentioned in Article 1 of the Law.5/199. It also clearly expressed by

Hikmahanto Juwana, PhD on page 13-14 in its article dated 30 August 2007

on Legal Statement legalized by Notary and submit to KPPU office; -------------

b. I do not find any evidences that PT. Telkomsel is a subsidiary a company

owned by Reported Party IX. In fact, PT. Telkomsel is a subsidiary and

controlled by PT. Telkom as a majority shareholders . So, PT. Telkomsel and

PT. Indosat are not a group of business as it stated in Article 27.a of the Law

No.15/199 ----------------------------------------------------------------------------------

c. “I do not find any evidence that Reported Party I to IX are business actors as

referred to Article 1 item 5 of the Law No.5/1999. The fact is, the Reported

Parties are corporate bodies that are founded and domiciled not in the

territorial jurisdiction of the Republic of Indonesia. Several Reported also do

not perform business activity or business transaction in the area of cellular

telecommunication in Indonesia. Although Reported Party VI and VII own

shares in PT. Indosat and Reported Party IX owns shares in PT. Telkomsel,

they are improvable to conduct transaction of cellular telecommunication

goods and/or service in Indonesia. The shareholders are un-provable to

conduct and/or take cellular business decision. The fact, its market also

differs: stock exchange activities in capita market and cellular business in

goods and service market – often called also as “real sector”. There are also

fact that board of commissioner and board of director of PT. Telkomsel and

PT. Indosat that conduct operational activity and take decision on cellular

telecommunications business in Indonesia, not shareholder or the Reporteds.”

4. Concerning Cellular Concentration Industry; ----------------------------------------------

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COPYI do not find any evidence that the high industrial concentration of cellular in

Indonesia caused by share ownership of Reported Party VI and Reported Party

VII in PT. Indosat and share ownership of Reported Party IX in PT. Telkomsel.

The fact, in 2004-2006, market shares of PT. Indosat continues to decrease while

market share of PT. Telkomsel controlled by PT. Telkom improves (see item 60

the Report of Case Follow-up Investigation Result No. 07/KPPU-L/2007). The

high industrial concentration of cellular is calculated on the basis of HHI

(Herfindahl Hirschman Index) exists also in most part countries in the world,

including Asia (data at item 133 the Report of Case Follow-up Investigation

Result). The Indonesian HHI is lower than other countries such as Thailand,

Philippines, Malaysia, Bangladesh Pakistan, and China. It is normal because

almost all cellular telecommunication industry around the world is highly

regulated. Even several government in most countries in West Europe limit a

number of cellular telecommunication company that make the industrial

concentration high. (see page 41-42 Legal Opinion of Cr. Cento Veljanovski that

sent to KPPU date 27 August 2007). The Government of Indonesia has given

permission to at least 9 companies, the biggest in Asia; so it is relative

competitive in the world; ---------------------------------------------------------------------

5. Concerning Tariff; -----------------------------------------------------------------------------

a. I do not find any evidence that the high tariff fixed by PT. Telkomsel and PT.

Indosat as a infringement to Article 27 (a) U No. 5 /1999. If tariff is suspected

as a result of cartel, it shall be proven whether or not cartel is. To prove it,

other Articles that regulate cartel such as Article 4, Article 5 and/or any other

Articles can be applied; ------------------------------------------------------------------

b. I do not find any evidence that movement of a common tariff fixed by PT.

Indosat and PT. Telkomsel is a result of cartel or price fixing. In a tight

competition if one company decrease its tariff, of he companies will follow it

in order not to be abandoned by its customer. Chatib Basri, PhD (Director of

LPEM University of Indonesia) also ever states similar thing in mass media

(see Bisnis Indonesia, 25 September 2007, page TI and Rakyat Merdeka, 24

September 2007); -------------------------------------------------------------------------

c. I do not find any evidence that the high tariff fixed by PT. Telkomsel and PT.

Indosat is caused by share ownership of Reported Party VI and Reported

Party VII in PT. Indosat and by Reported Party IX in PT. Telkomsel. The

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COPYfacts, in 2002 when Reported Party VI and Reported Party VII purchased PT.

Indosat’s shares and Reported Party IX purchased PT. Telkomsel’s shares, the

tariff decreased (See Result Study of LM-FE Padjajaran University Year 2007

on the Development of Telecommunication Industry I in Indonesia, on page

10, Tables 5.10, Enclosed). The research was conducted by LPEM UI an also

concluded that from 2002 to 2006 the tariff in Indonesia decreased; --------------

d. I do not find any evidence that the high mentioned tariff results to consumer

loss (CL). Its facts is on the contrary. The decrease of tariff and the increase

of a number of customer in 2002-2006 have produced consumer surplus. In

order to calculate materially, sufficient data are needed to depict demand

function and supply function. Its fact, the existing power is very limited make

it not applicable to calculate intended demand function and supply function.

The extrapolation of CL in the Report of Case Follow-up Investigation Result

No. 07/KPPU-L/2007 by adopting research result of LPEM UI is wrong. In

the research conclusion of LPEM UI, it clearly expressed that in 2002-2006

consumer surplus increase. It is mentioned further that if it uses tariff that

valid abroad, it cannot be concluded that CL occurs in Indonesia. The word

“if” is equal to “in case of” or “assumption”. So it will never be concluded that

CL occurs in Indonesia. The usage of other country tariff data in calculating

CL is wrong. Tariff in other country is formed by 2 (two) economic

instrument, the first is demand function/curve and the second is function/curve

supply; both are influenced by expense structure, technology, public

purchasing power and geographical position of each country. Secondly, the

fact that high or low tariff in other countries is influenced by l by government

as a regulator, that shall consider tariff in other countries. The similar opinion

is also suggested in the study conducted by LM-FE UNPAD, dated 30 August

2007 and by Sri Adiningsih, PhD from UGM, dated 10 August 2007; ------------

e. I do not find any evidence that movement of a common tariff fixed by PT.

Indosat and PT. Telkomsel infringe the Government law because it is within

ceiling and floor price fixed by Government under the formula fixed by

Government. When a tariff is too high, government with its authority

Government decrease it, it is not an authority of KKPU RI; ------------------------

6. Concerning the Authority of KPPU of the Republic of Indonesia;----------------------

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COPYI have a notion that KPPU RI unqualified to cancel or take different decision from

and/or law action or policy that have been taken by government when conduct

divestment PT. Indosat through tender is opened that won by Singapore

Technologies Telemedia (STT) in 2002, Because, process early divestment is to

scratch government initiative state's finance at that moment (Read Article 50

items a and Article 51 UU Nos. 5 /1999 arrange exemption); --------------------------

19. Considering that after completing the Extended Follow-up Investigation, Council

session needs to be performed. Therefore, commission issues the Decision of Business

Competition Commission Number: 60/PEN/KPPU/IX/2007 on session of Council

Case Commission No: 07/KPPU-L/2007 at the furthest of 30 (thirty) workday as from

28 September 2007 to 14 November 2007 and issues Commission Decision No:

169/PIECE/KPPU/IX/2007 on Assignation of Commission Member as Council of

Commission in the Session of Case Council of Commission Number:07/KPPU-

L/2007; ------------------------------------------------------------------------------------------------

19. Considering that in regard of referring to Eid al-Fitr 1428 H, then on 2 October 2007,

Commission issues Decision Number: 61/PEN/KPPU/X/2007 on the Adjustment of

Case Filling and Handling in KPPU by determining the adjustment of case filling and

handling Number: 07/KPPU-L/2007 on the suspected Infringement of Article 27 (a)

the Law 5 /1999 that jointly conducted by Business Group Temasek and the suspected

Infringement of Article 17 and Article 25 (1.b) the Law 5 /1999 conducted by PT

Telekomunikasi Seluler, in the stage of Council of Commission Session, that initialy

from 28 September 2007 to 08 November 2007 are adjusted to become 28 September

2007 to 19 November 2007; -----------------------------------------------------------------------

19. Considering that further, on the basis of Follow-up Investigation Report, Council of

Commission has accepted responses of Temasek on 31 October 2007 that in essence

state the following things: ---------------------------------------------------------

INTRODUCTION;---------------------------------------------------------------------------------

1. First of all, this answer is written under the law of Indonesian law and not under

international law as well as Article in international agreement. To avoid

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COPYhesitation, Temasek wants to clarifies that he reserve all existing rights, inter alia,

in the Articles of an agreement between the Government of Singapore and the

Government of the Republic of Indonesia concerning Promotion and Protection of

Investments and Articles in an agreement between the Government of Brunei

Darussalam, Republic of Indonesia, Malaysia, Philippine Republic, Republic of

Singapore, and the Kingdom of Thailand on Promotion and Protection of

Investments or in other international stipulation and the plea of is submitted

without prejudicing to that matters; ---------------------------------------------------------

2. Secondly, this plea refers to several documents and not to the whole existing

documents and submit to KPPU by other Reported Parties, or other witnesses of

third parties whoa re summoned by KPPU to submit evidences upon them. The

case document of this lawsuit of KPPU is publicly to be accessed Indonesian

law consultant of Temasek (Lubis Santosa & Maulana Law Offices) for the first

time in October 2007, and available only in a couple days. Further, the lawsuits

are great in number and mostly written in Indonesian, therefore translator is

needed because Temasek does not have much time to discern and refer to the

lawsuit of KPPU, Temasek reserves all its rights over the documents in time and

after the forum dismissed; --------------------------------------------------------------------

3. Thirdly, the plea is without prejudice over the objection of Temasek on the

Jurisdiction and complaint on the basis of ultra vires, the violation of due process,

the law and regulation, and fundamental values in Indonesian law including

Indonesian Constitution. The further description in the part of (The absence of

Shareholders of Majority Shares and (Abuse and Due Process) is as follow; ---------

THE FACTS AS BACKGROUND;-------------------------------------------------------------

4. Different with those of accused by KPPU, Temasek, directly of indirectly or

through its subsidiaries, does no any activities in the relevant market . In this part,

the history and business of Temasek as well as the investment of Reported Party 2

to 9 in the sector of Telecommunication perform or have capacity to control

whatsoever on Indosat or Telkomsel; -------------------------------------------------------

Temasek and Reported Parties 2 to 9;----------------------------------------------------------

5. Temasek is an Asian Investment company that was founded and has a headquarter

in Singapore. Temasek is state-owned company of the Government of Singapore

through Minister of Finance (Incorporated), an entity of “subject (persona)” of

law, separated form the functionary of Minister of Finance; ---------------------------

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COPY6. It is founded in 1974, Temasek manages by itself any various portfolio investment

s globally with the values of more than S$160 billion (USD 100 billion),

especially in Singapore, Asia and OECD countries. Temasek’s investment s are in

any various industries such as telecommunications and media, finance service,

property, transportation and logistic, energy and resources, infrastructure,

engineering and technology, and pharmacy and bioscience. Although Temasek is

state-owned company, it perform its business independently under commercial

basis; --------------------------------------------------------------------------------------------

7. With the various type of industries in which Temasek invests to and also a

number of its subsidiaries, it is impossible for Temasek to give directives or to

coordinate commercial and operational decisions to direct or indirect subsidiaries,

the things that has never performed by Temasek; -----------------------------------------

8. STT is a company founded in Singapore and owned entirely by Temasek. STTC is

a subsidiary that is owned entirely by STT, it is also founded in Singapore;----------

9. AMHC is founded in Singapore and a subsidiary that is owned entirely by STTC.

The objective of establishing AMHC is to conduct a joint venture with Qatar

Telecommunications QSC (“Qatar Telecom”), an exclusive telecommunications

operator in Qatar in which 55% of its shares owned by the Government of Qatar.

Qatar Telecom is enlisted at Kuwait Stock Exchange, Abu Dhabi Securities

Market, Bahrain Stock Exchange, Doha Securities Market and London Stock

Exchange;---------------------------------------------------------------------------------------

10. The joint venture company is founded in Singapore by the name of AMH. Qatar

Telecom controls 25% of AMH shares, while the rest 75% of its shares owned by

AMHC; -----------------------------------------------------------------------------------------

11. AMH has ICL and ICPL. ICL is a company founded in Mauritius and ICPL in

Singapore. ICL and ICPL jointly own 41.94% shares in Indosat. The picture

describing shareholder structure of Indosat is passed to Evidence A; -----------------

12. In this plea, STT, STTC and AMHC is about to be referred to as “STT Group A”.

AMH, ICL and ICPL will be conceived of “STT Group B”; --------------------------

13. SingTel is company that founded and has main office in Singapore. SingTel

enlists in Singapore Exchange and Australian Stock Exchange, and also is biggest

company that enlisted there with market capitalization (market capitalization)

more than S$40 billion. Temasek owns 54.15%

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COPY14. SingTel Mobile is a company founded in Singapore and owned entirely by

SingTel . SingTel Mobile controls 35% shares in Telkomsel. The picture

describing shareholder structure of Telkomsel will be passed to Evidence B; -------

15. In its third report, KPPU alleges Temasek, together with Reported Parties 2 to 9

forming “Temasek”. In particular, KPPU states in its allegation that: -----------------

(a) The Statutes of Reported Parties 2 to 9 show a control of Temasek to

Indosat and Telkomsel. It is based on the authority given to each company

as it stated by their related Statutes to appoint and to dismiss directors of

its subsidiaries;------------------------------------------------------------------------

(b) In the case, Temasek as a holding company controls its other subsidiaries

through STT and SingTel. It is seen by double position, occupied by director

and management of Temasek and Reported Party 2 to 9; -------------------------

16. All KPPU’s allegations are unreasonable. The companies, suspected to be part

“Temasek Business Group” is a separated corporate body that is managed

independently and no other “Business Group” at all;-------------------------------------

17. STT Group A and STT Group B have submitted “Commentary on the

Competition Law, the Law Concerning the Prohibition of Monopolistic Practices

and Unfair Competition)” (2nd edition, 2000) written by Knud Hansen

(“Hansen’s Comments”). According to Hansen’s Comments, under the Law of

Indonesia there must be a certain characteristic of a company prior to be stated as

a group.; ---------------------------------------------------------------------------------------- ;

18. The characteristics have been concluded in the plea of STT Group A and Group

B dated 14 September 2007, paragraph 46 and 27, cited as follows: -------------------

(a) The presumption that subsidiary shall be under the same management of the

holding company, in which plans are arranged connectively with all

subsidiaries;------------------------------------------------------------------------------

(b) The plan of holding company for its subsidiaries must cover center of

subsidiaries’ economic activity of the suspected company, and; -----------------

(c) There must be a prohibition for the presumed subsidiary to refuse its

management policies; ------------------------------------------------------------------

19. The copy of the pleas of STT Group A and STT Group B can be seen in The

lawsuit of KPPU ; -----------------------------------------------------------------------------

20. In other word, the ownership of the same shares is insufficient evidence to state

that a company is part of a Business Group. There must be an evidence that the

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COPYmanagement is under the same policy including a coordination of central

economic activities of the Business Group;------------------------------------------------

21. Previously, to state that a Business Group exists, KPPU undergirds its suspicion only

on “ownership relationship” among entities in “Temasek Business Group”. In part B of

the Second Report, KPPU states that: -------------------------------------------------------------

“This ownership relationship is considered as ‘Temasek Business Group’ by investigator. The Business Group included are Temasek Holdings Pte Ltd and all subsidiaries as well as Telkomsel and PT Indosat Plc.;------------------- Although Temasek Holdings Pte Ltd always answer back that it has control over the decision-making and diary management of its subsidiaries … Temasek does not deny that Temasek Holdings is the owner of all subsidiaries. Later, rational business actor will always try to maximize its profits including the profits of its subsidiaries. In this context, Temasek Holdings Pte Ltd has significant interest to the performance of its subsidiaries to gain maximum profits; ----------------------------------------------- The management of Temasek subsidiaries shall realize to such interests and perform their obligation to shareholders. Therefore, , the interests of shareholders automatically become a main focus of management in its business activity. This condition constitutes an opinion that shareholders represent its economic interest in whole; therefore, the anti-trust law sees ownership structure as it illustrated above a single economic entity; ------------

22. The understanding of KPPU on Business Group is not true. If the requirement of a

separated corporate body to be considered as Business Group is only “ownership

relationship” (and, according to KPPU, even need no majority ownership), then

all companies that have the same shares of a company will be considered to be

part of Business Group. In logic and in principle, it is also not true; -------------------

23. The affirmation of KPPU that a view of a subsidiary to the interests of its

shareholders in maximizing profits as an evidence of “common economic

interests” is also a mistake. It is admitted by KPPU that all rational business

actors will try to maximize profits from its subsidiaries. All companies will

calculate its the interests of shareholders. If KPPU is right and “shareholders

represent common economy interests”, all companies will be a part of other

Business Groups. In logic and in principle, it is also not true;---------------------------

24. As it is stated in Hansen’s Comments, a Business Group needs an evidence

concerning common management including central economic plan;-------------------

25. In this case, there is no evidence indicating that Reported Parties 2 to 9 under the

same management of Temasek or forming a single economic entity with it

centralized economic activities coordinated by Temasek. The only relationship

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COPYbetween Temasek and Reported Parties 2 to 9 are share ownerships STT and

SingTel by Temasek; -------------------------------------------------------------------------

26. Furthermore, the entity that is suspected as “Temasek Business Group” has

submitted evidences that Temasek does not control, manage, influence or

coordinate its policy and operational decisions. The Board of Directors and

management of the companies perform their businesses separately from Temasek; -

27. Mr. Goh has stated in written to KPPU on 15 May 2007. It is stated by Mr.Goh in its statement in paragaraf 33 to 35 that:

“In its policy and practices, Temasek does not direct commercial and operational decisions of the companies in which Temasek owns their shares. - Articles of faith and the policies of Temasek concerning such matters has been recognized and confessed by international high reputed institutions that take parts in scrutinizing the steps of Temasek. They acknowledge the policies and performances of Temasek. Take as an example the Report Rating Standard & Poor 2006, it states that: ---------------------------------------- “Temasek continues to effort its performance and to establish fair competition among its companies [related to Temasek] by appointing qualified board of directors …. Temasek keeps on staying away from the decision-making of diary policies ---------------------------------------------------- In line with such a statement, the Report of Moodys Investor Services Rating also state the same thing about Temasek that: ----------------------------- “In any company in which Temasek has its investment, it is managed by its management guided by Board of Directors. Temasek stays away from any commercial and operational decicions of the companies Temasek invests;-----

28. The copy of Mr. Goh’ statement can be found in The lawsuit of KPPU .

29. In the session of KPPU on 13 August 2007, KPPU expresses some questions aiming at

affirming that Temasek controls or influences board of directors and management of

STT and SingTel as well as its subsidiaries. It is denied by Mr.Goh and testifies as

follows: ------------------------------------------------------------------------------------------------

“Q. Does Temasek involve in the decision-making and management of STT and SingTel ? -----------------------------------------------------------------------

A. No. Temasek does not involve in business operation and decision making conducted by board of directors and its management--------------------------

Q. Do STT and SingTel report their investment growth to Temasek annually? ----------------------------------------------------------------------------

A. No, they do not report to Temasek----------------------------------------------- Q. As a business actor and Temasek as an owner of SingTel and STT. What

is the obligation of SingTel and STT to Temasek----------------------------- A. SingTel and STT treat Temasek as the same as other shareholders . ------- Q. Logically, Temasek as an owner has privileges rights to SingTel and

STT. Would you please help us in giving the explanation to this? ----------

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COPYA. SingTel and STT have obligation to Temasek as the as the obligation of

other shareholders. ----------------------------------------------------------------- Q. Would you please describe the rights of Temasek as an owner of

SingTel and STT ------------------------------------------------------------------ A. I want to reiterate that both companies treat Temasek the same as other

shareholders, our rights is the same as other companies’ rights ------------- Q. Would you please explain the rights of Temasek as an owner of 100%

STT shareholders? ----------------------------------------------------------------- A. As I have already reiterated, STT is a company in which we invest. We

see our investment from the perspective of finance. We do not get involved in the operation and decision of the companies, conducted by board of directors and management of STT. Our rights does not differs from other shareholders’ rights. We have rights to attend shareholders general meeting RUPS and have voting rights. --------------------------------

Q. Among other names who are already mentioned, do they work for STT and SingTel ? -----------------------------------------------------------------------

A. There is no name mentioned who serve in board of directors of STT, but one, Simon Israel. He serves as board of directors of SingTel . However, he has been serving as board of directors of SingTel before joining Temasek. ----------------------------------------------------------------------------

Q. Does one of them work for STTC? ---------------------------------------------- . A. No ----------------------------------------------------------------------------------- Q. Are they working for AMH? ------------------------------------------------------ A. No ------------------------------------------------------------------------------------- Q. Are those mentioned working for AMHC?-------------------------------------- A. No ------------------------------------------------------------------------------------- Q. Are those mentioned working for ICL? ------------------------------------------ A. No ------------------------------------------------------------------------------------- Q. Are those mentioned working for Indosat? -------------------------------------- A. No ------------------------------------------------------------------------------------- Q. Are those mentioned working for SingTel Mobile? --------------------------- A. No ------------------------------------------------------------------------------------- Q. Are those mentioned working for Telkomsel? ---------------------------------- A. No ------------------------------------------------------------------------------------- Q. Is it correct that Ho Ching is currently serving as Executive Vice

President in STT and STTC? ----------------------------------------------------- A. No ------------------------------------------------------------------------------------- Q. Do the management of SingTel and STT assigned by Temasek?------------ A. No ------------------------------------------------------------------------------------- Q. Who does assign its director? ----------------------------------------------------- A. Any of the RUPS-------------------------------------------------------------------- Q. The shareholders of STT none but Temasek, it means Temasek appoint

the director of STT?--------------------------------------------------------------- A. No. STT is an independent company, in which the election of director

conducted by the RUPS of STT. These directors are elected by an election committee of STT and not by Temasek. Temasek only have voting right in the RUPS ----------------------------------------------------------

The copy of the session of Temasek in KPPU on 13 August 2007 can be seen in The

lawsuit of KPPU . ------------------------------------------------------------------------------------

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COPY30. Thereby, Temasek performs no coordination in any decision and policy (on

economy or others) in the company/entity that is assumed as“Temasek Business

Group”. This companies are not under Temasek’s management and central

economic activities directed a guideline of company’s activities. ----------------------

31. On the contrary, there are a lot of evidences that show the fact STT and SingTel

compete each other in Singapore and other countries around the world. It indicates

that Temasek does not have ability to coordinate with the activities of STT,

SingTel and its subsidiaries to gain economic advantages. -----------------------------

32. It can be seen in paragraph 58 of the plea of STT Group A and paragraph 34(d) of the

plea of STT Group B, STT and SingTel have already compete each other:-----------------

The fact that Temasek conduct no coordination on central economic activities as it suspected as part of “Temasek Business Group” is seen clearly from the tight competition of the companies as well as a the two chains as it suspected as “Temasek Business Group”. The good Example is competition between STT Group A and SingTel : -------------------------------- (a) The indirect telecommunications interest of STT Group A in Singapore

consist of 50% its share (through AMH) in StarHub Ltd. (“Starhub”) and indirect telecommunications interests in Indonesia that consist of its share (through AMH/ICL/ICPL) in Indosat. SingTel , listed subsidiary of Temasek, is a telecommunication operator in Singapore its indirect telecommunication interests in Indonesia consists of indirect shares in Telkomsel. Therefore, STT compete with SingTel not only in Indonesia but also in Singapore --------------------------------------------------------------

(b) In Singapore, SingTel competes with StarHub. The evidences concerning their competition are: ------------------------------------------------ (i). In 2005, SingTel brought a lawsuit against StarHub Cable Vision

Ltd (“StarHub Cable”), a subsidiary of StarHub. SingTel alleged StarHub Cable conducting non accomplishment with a network lease agreement in which SingTel has agreed to lease its optical network infrastructure to StarHub Cable. According to SingTel , the company had lost its profits because StarHub Cable had not deliberately complied the agreement by using the infrastructure to supply properties that exempted from the agreement. The litigation process between the two parties is conducted and SingTel submit the lawsuit to Court of Appeal, the Highest Court of Appeal in Singapore. An amount of damage StarHub has to pay to Starhub to SingTel is determined by the court. The nature shows the bitter competition between SingTel and no out-of-court settlement performed by SingTel and StarHub.

(ii) There is also a regulative intervention in the competition between SingTel and StarHub. Since liberalization of telecommunication regime Singapore, Info-communications Development Authority (“IDA”), the independent telecommunication regulator in

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COPYSingapore, has intervened at least 30 disputes reported cases between SingTel and StarHub concerning allegation and disputes on the interconnection appealed by the parties. The number of reported disputes, indicates the presence of fair competition. To the present time, as far as our knowledge, there is no allegation on anti-competition in which SingTel and StarHub alleged to cooperate each other shall be considered by IDA.-----------------------

(iii) The above description on jurisdiction and regulation process show there are tight competition between the companies to which Temasek has interest on the two companies. In the plea of STT Group A, it is stated that such a nature is real facts of the reality from separateness and differences of economic interest of the companies---------------------------------------------------------------------

(iv) The competition between SingTel and StarHub varies, depending on the spectrum of the parties’ business. At this time, SingTel has already include pay television market to compete directly with business of cable television that has been operated by StarHub since 1995. No collusive practices between the two operators” -------

33. In paragraph 56 of STT plea, it has been stated that STT Group A operates

independently separated from SingTel and had no interests in SingTel or its

subsidiaries.-------------------------------------------------------------------------------------------

“Director of and management of STT/STTC/AMHC (if relevant) are not directors or employee of SingTel , SingTel Mobile, Telkomsel or PT Telkom because of the independency of the company. STT does not own shares or indirect interest at all to SingTel , SingTel Mobile, PT Telkom or Telkomsel. -------------------------------------------------------------------------------

34. In Paragraf 34 of the plea of STT Group B, it has been stated that there is no similar

policies between STT Group B, SingTel and its subsidiaries :--------------------------------

“The activities of STT Group B and the companies that own its investments, Indosat and StarHub, do not have the same and similar management or plans, unity of objectives between STT Group B and Temasek as well as its interests in SingTel , SingTel Mobile, and Telkomsel. --------------------------- (a) STT Group B has neither shares nor rights in Telkomsel, PT Telkom,

SingTel , dan SingTel Mobile. Thus, STT Group B does not have interests in trying to boost up cellular market share of Telkomsel or to improve the performance of Telkomsel by sacrificing Indosat. -------------

(b) STT Group B firmly denied an assumption that Temasek has used STT Group B as an instrument to coordinate its economic activities in cellular industry in Indonesia or other countries. The denial is supported by the facts that the tight competition between Indosat and Telkomsel in Indonesia occurs as it is between StarHub and SingTel in Singapore.------

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COPY

35. Widya Purnama (“Mr. Purnama) as the President Director of Indosat in 2002 to

2005 gives his statement to KPPU (combined with the written plea of STT Group

A). In paragraph 14 and 20 of the statement, he confirms that Indosat and

Telkomsel had never colluded each other and oppressed by Temasek to regulate and

to fix price: ---------------------------------------------------------------------------------------

“I understand if there are many questions concerning whether or not collusion in fixing price between Indosat and Telkomsel. In my whole career in Indosat, there is no collusion between Telkomsel and Indosat. There are no directives from ICL, STT or Temasek concerning price fixing. I have never been asked to cooperate with Telkomsel in my whole career in Indosat. We compete each other in running business.”----------------------------

The copy of the statement of Mr. Purnama can be found in the lawsuit of KPPU .

36. In paragraph 24 and 26 of Mr. Goh’s statements, he also confirms that Temasek has

never and had capacity to instruct or to coordinate with the operational decisions s of

STT, SingTel , Indosat and Telkomsel. -----------------------------------------------------------

“Temasek does not instruct or coordinate commercial and/or operational decisions of SingTel and/or STT, especially those of Indosat or Telkomsel. By all means, Temasek does not have capacities or ability to establish anti-competition in relevant market .”

37. Temasek even does not supervise individual investment s performed by STT and

SingTel . Temasek only concerns on the financial performance of STT and

SingTel as a whole. Temasek does not have rights and deserve to accept detailed

reports from STT, SingTel or their subsidiaries concerning company’s status to

which Temasek had invested such as Indosat and Telkomsel. --------------------------

38. During a session in KPPU on 13 August 2007, Mr Goh explained that Temasek apply

“Total Shareholder Return” to evaluate performances of companies to which Temasek

holds their shares. The performance of a company becomes a basis for Temasek to

invest. In this case, Temasek as a shareholders of STT and SingTel evaluates the

performances of both company by applying Total Shareholder Return without

concerning to the details of individual investment performed by each company.

“Q. In general, does Temasek satisfy with the performance of SingTel and STT? ---------------------------------------------------------------------------------

A. Yes, we do. --------------------------------------------------------------------------

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COPYQ. What are the reasons? -------------------------------------------------------------- A. The criteria applied to evaluate is Total Shareholder Return (TSR). The

performance of the companies is more than the criteria we qualify --------- Q. Are there any other criteria? ------------------------------------------------------ A. No ------------------------------------------------------------------------------------- Q. Does a value of TSR 20% reflect the investment of SingTel and STT in

telecommunication sector?-------------------------------------------------------- A. The value of TSR represents the result of business activity of SingTel

and STT as well as business activities of STT. For example, SingTel has already invested in Australia, India and Thailand. In addition to invest in Indonesia, STT does it in United States. Thus, the value of TSR is an accumulated amount of SingTel ’s investment s and separately, an accumulated amount of STT’s investment. We only see final TSR and not the detailed investment performed by SingTel and STT.” --------------

STT Group A; ----------------------------------------------------------------------------------------

39. The evidence provided by STT Group A also support the facts that Temasek does

not control, manage or influence the operational policy and decision made by STT

Group A----------------------------------------------------------------------------------------

40. In paragraph 51 to 55, and 57 of the written plea of STT Group A provided for KPPU,

STT Group A has given the following evidences that Temasek does not control,

manage or influence operational policy and decision made by STT Group A: -------------

Although STT is a subsidiary owned in whole by Temasek, the shares of Temasek in STT is only part of diversified portfolio of Temasek as an investment holding company. Temasek does not have control over business and/or operational decisions of STT. The decisions are made by Board of directors and team management of STT/ STTC ---------------------- It is proved by acquiring the shares of Indosat by STT. Acquisition is authorized by STT Board of director without any agreement conditions from the shareholders ---------------------------------------------------------------- In line with its Statutes and Singaporean Law (the State law in which every entity we mentioned as STT was founded), business and STT’s affairs and STTC are managed or at the directives of their own directors. Directors perform their authorities on behalf of company unless for those that require approvals from shareholders. ----------------------------------------- Any companies we called STT Group A is an entity/corporate body separated from Temasek, while STT/STTC has independent business and operational activity-------------------------------------------------------------------

Directors and management of STT/STTC and director of AMHC (if relevant) are not directors or employees of Temasek. ------------------------------------------------------ Directors of STT, STTC and AMHC are obliged to conduct independently and in good will for STT, STTC and/or AMHC (appropriate for each company) under the law of Singapore in which STT, STTC and AMHC were founded. STT and STTC

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COPYhave their own Board of directors, from all over the world that consist of respected and reputed members. ---------------------------------------------------------------------------

41. During the session in KPPU on 18 June 2007, KPPU asked many questions aiming at

affirming that Temasek is a final decision-maker of the policy for STT, STTC and

AMHC. Such an opinion has been clarified. STT Group A gives the following

testimonies: -------------------------------------------------------------------------------------------

“Q. To whom you make performance evaluation report of each company under STT and who is a final decision maker of STT?

A. The final decision maker is STT Board of Director ----------------------- Q. So, the main policy maker in STT is Temasek?---------------------------- A. No. Temasek is a passive investor. Temasek does not involve in

plans, operating and management of STT. --------------------------------- Q. Does it mean that Temasek has no voting rights in STT? does not involve in operational plan and management of STT.

Nevertheless, under the law of Singapore, Temasek has voting rights in STT. There is no Directors or employees of Temasek in Board of Director and management of STT, STT Communications and Asia Mobile Holding Company.”--------------------------------------------------

The copy of the session official report of STT Group A in KPPU on 18 June 2007

has been available in the lawsuit document of KPPU ------------------------------------

42. The representative of STT Group A, Mr.Stephen Geoffrey Miller (“Mr. Miller”),

has also submit its written statement to KPPU on 18 June 2007, in which he stated that STT, STTC and AMHC perform their activities separated from Temasek: --------

“Temasek, STT, STTC and AMHC are managed by Boards of Director and/or their own managements. The member of Board of Director and management of STT, STTC and AMHC are not directors or employees of Temasek. Temasek (in one side) and STT, STTC and AMHC (in the other side) are operated and managed unconnected. -------------------------------------- STT is a substantive company with its authority, investment and business interest separated one to another in the regions and all over the world. Temasek does not control the decision on business, planning and operating of STT, STTC or AMHC. The decisions are made entirely by Boards of Director and/or managements of STT, STTC or AMHC. STT, STTC and AMHC have their own boards of director with their worldwide respected and reputed members.------------------------------------------------------------------

The copy of Miller’s statement has been available in the lawsuit document of KPPU

43. During the session in KPPU on 27 June 2007, STT Group A testified that there are no

directors or employees of Temasek served as directors of STT, STTC and AMHC: -------

“Q: Is there any directors of STT, STTC and AMHC serving in Temasek Holding?

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COPYA: There is no directors of STT, STTC and AMHC serving in Temasek

Holding?----------------------------------------------------------------------------- Q: Is there any employees of STTC out of nine directors of STTC who are

also employees of Temasek Holding?------------------------------------------- A: As long as I know there is no employees of Temasek who are stationed in

STTC” ------------------------------------------------------------------------------- The copy of the session official report of STT Group A in KPPU on 27 June 2007

is available in the lawsuit documents of KPPU. ------------------------------------------

44. It is important to note that in the follow-up investigating session of Mr. Goh on 13

August 2007, he has been specifically asked on whether it is correct or not that

Ms. Ho Ching concurrently serves as Chief Executive Officer of Temasek and

Vice President of STT and STTC. The answer of Mr. Goh is “no”. Although the

evidences have been gained and they are unarguable, KPPU in its third report

keeps on accusing Ms. Ho Ching for concurrently serving as Executive Vice

President STT. It is an effort of KPPU, in its desperation, to provide “facts” for

the shake of justifying its allegations concerning the “control” on the basis of

allegation on crossed ownership. ------------------------------------------------------------

STT Group B; ---------------------------------------------------------------------------------------

45. The evidences provided by STT Group B to support a summation that Temasek

does not control, arrange, or coordinate operational policies and decisions of STT

Group B through STT Group A, directly of indirectly ----------------------------------

46. As it is stated in paragraph 25 above, AMH is a joint venture company between

AMHC and Qatar Telecom. Qatar Telecom owned/controlled independently by

Qatar and it is by any means correlated or controlled by Temasek. --------------------

47. According to the decision of AMH, board of director that consists of representatives

from Qatar Telecom and independent director, is responsible to arrange AMH’s

activities AMH. Temasek and its companies in STT Group A do not control or arrange

such operational activities of AMH . In paragraph 63 and 64 plea of STT Group A, has

been expressed matter as follows: -----------------------------------------------------------------

“AMH has its own board of director that is responsible to manage and to operate AMH. Qatar Telecom has senior representatives in Board of Director of AMH. At present, the Qatar Telecom Chief Executive Officer is the Vice Chairman of AMH Board of Director. There are also several independent directors in AMH Board of Director or those who do not serve as directors or employees of STT, STTC or AMHC. AMH Board of Director does not make decision benefited for STT Group A. The

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COPYrepresentative of Qatar Telecom and independent directors within AMH Board of Director will not let it happen.--------------------------------------------- The board of director is also assisted by Management Committee and Monitoring Committee. Management Committee is responsible to take care of AMH diary management and to make recommendation to AMH Board of Director on strategic planning, financing, treasury and merger and acquisition. Monitoring Committee is responsible to review regular report from every company that invested by AMH which this condition are include also StarHubdan Indosat. Qatar Telecom has representative (representatives) in both this committee and active members(active participant) in business AMH”--------------------------------------------------------

48. In paragraph 32 and 33 the plea of STT group B, STT Group B has testified or given

the following fact that Temasek does not control, arrange or influence policies and

operational decisions:--------------------------------------------------------------------------------

“Temasek does not control to business and/or operational decision from STT Group B, directly of indirectly (through STT, STTC or AMHC) ---------- AMH is an independent company which Temasek does not control.------------ (a) AMH is not owned fully (wholly-owned) by Temasek and/or STT. More

or less 25% its share is owned by Qatar Telecom, Qatar Telecom enlisted in London Stock Exchange and other Mid-east Stock market, which 55% of its share is owned directly and also indirectly by Qatar. At present AMH is a provider of communication service in Qatar, and operates as well in Kuwait, Saudi Arabia, Tunisia, Algeria and Maldiva through 51% of its subsidiaries. Wataniya (a company that enlisted in Kuwait Stock Exchange), and in Oman through 55% its subsidiary , Nawras. Qatar Telecom is an independent corporate body with its substances and various interests abroad. As long as I am concerned, Temasek does not have share at all in Qatar Telecom. ----------------------------------------------

(b) AMH has its own board of director separated from those of Temasek, SingTel and SingTel Mobile. Particularly, Qatar Telecom has senior representatives at AMH Board of Director. Chief Executive Officer Qatar Telecom and Board of Director Vice Chairman Qatar Telecom is its representative in AMH Board of Director. There are also some directors in AMH Board of Director that not director or employee Temasek and/or STT, STTC or AMHC. The decision making in AMH is taken by its board of director. The Director, as it is a director in other companies in STT Group B, has an obligation to perform a good will and for the sake of AMH under the law of Singapore, in which AMH is founded. Board of Director has to put forward the interests of its shareholders and not for the advantageous of STT, STTC or AMHC only. The Director, appointed by Qatar Telecom, has to be prudent to

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COPYensure that the decision made by board of director of AMH is advantageous to AMH, not only to its shareholders .--------------------------

(c) Board of Director is assisted by Management Committee and Monitoring Committee . Management Committee is responsible to the daily management of AMH and recommends to the AMH management board concerning strategic plan, financing, treasury and merger and acquisition. Monitoring Committee is responsible to review regular report of each AMH investee companies, including Indosat. Qatar Telecom has its representatives in the two committees and they are active participantw in the business of STT Group B. --------------------------

(d) Temasek does not make plan for central economic activities of STT Group B. Such plans are made by Board of Director STT Group B. Furthermore, Qatar Telecom, which have representatives in the management of STT Group B and have veto rights relating to certain decision, will object to any decision that made for benefiting the interests of Telkomsel on the expense of Indosat. Besides, Qatar Telecom does not have interests at all in Telkomsel or PT Telkom. Qatar Telecom takes part actively in the business of STT Group B and there are no indications as it alleged/suspected by KPPU in the business activities of STT Group B. -------------------------------------------------------------------------------------

49. During the session in KPPU on 25 June 2007, STT Group B also provided the

following facts and testimonies stated that AMH operates separated from AMHC unless for the approval of shareholders: ----------------------------------------------------------------------------------------------------

“Q. Are all AMH decisions consulted with AMHC? ----- A. No. The decisions are made by AMH without consulting with AMHC

and Qatar Telecom.-------------------------------------------------------------- Q: In what case does AMH contact AMHC? --------------------------------------- A. The contact with AMHC is conducted in case of an acquisition and new

investment performed by AMH. The bank loans by AMH shall consult AMHC and Qatar Telecom------------------------------

Q. Is there any contact between AMH and AMHC in case of asset disposal? - A. If AMH wants to sell its material assets, AMH will consult Qatar

Telecom and AMHC as its shareholders. The copy of the session official report of STT Group A in KPPU on 25 June 2007 can be seen in the lawsuit documents of KPPU.------------------------------------------

50. The representative of STT Group, Mr. Anupam Garg (Senior Vice president of

International Business Development STT) (“Mr.Garg”), has submitted his written

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COPYstatement to KPPU on 25 June 2007. In paragraph 9,10 and 15 he stated that AMH, ICL

and ICPL operate independently: ------------------------------------------------------------------

AMH/ICL/ICPL is managed by their own Board of Directors separated from

Temasek. The members of Board of Director of AMH/ICL/ICPL are not

directors or employees of Temasek. Temasek (in one side) and

AMH/ICL/ICPL (in other side) are managed independently each other. ------

----------------------------------

Business decisions, planning and operating of AMH/ ICL/ IPL are made independently by Board of Directors of AMH / ICL/ ICPL, free from the influence of Temasek. The Board of Director of AMH, ICL and ICPL consist of respected and reputed parties worldwide. There are 2 members of AMH board of director who are not directors or employees of Temasek, STT, STTC, AMHC or Qatar Telecom. --------------------------------------------- AMH through its board of directors, also consisted of candidates from Qatar Telecom, make its own decision. AMH Board of Director does not and cannot make decision benefiting STT, STTC and AMHC only. Such a deed is contradictory with the law of Singapore and Qatar Telecom will not allow such a thing happen.”-------------------------------------------------------------------

The copy of Mr.Garg’s statement can be found in the lawsuit documents of

KPPU.

51. Mr. Guy Norman (The Manager of Business Development of Qatar Telecom) (“Mr.

Norman”) has submitted his written statement to KPPU representing STT Group B on

25 June 2007. In paragraph 9 to 14 he stated that director of AMH make decisions for

the interest of AMH and for STT Group A or Temasek:---------------------------------------

“Qatar Telecom has its representatives in AMH Board of Director. Chief Executive Officer Qatar Telecom and Vice Chairman of Qatar Telecom Board of Director are its representatives in AMH Board of Director---------------------------- The important decisions are made by AMH Board of Director. The Board of Director is obliged to prioritize the interest of AMH higher than those of shareholders’ per head. The director assigned by Qatar Telecom carefully ascertains the decisions of AMH and its benefit to AMH, not only to STTC.-- The AMH Board of Director, in performing its jobs, is assisted by Management Committee and Monitoring Committee. Management Committee is responsible to take care of AMH diary management and to recommend AMH board of management on (a) the strategy of company financing and treasuring; (b) Merger and acquisition of company; and (c) company strategic plan, including any strategic issues of shareholders. Monitoring Committee is responsible to review regular report of each AMH’s investee company (one of them is Indosat), to evaluate the financial

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COPYand operational performances of investee companies and to observe strategic issues and shareholder that possibly appear in relation with any investee company --------------------------------------------------------------------------------- Qatar Telecom has had representatives, either in Management Committee or Monitoring Committee. --------------------------------------------------------------- It is clear that Qatar Telecom is an active member in the business performed by AMH. Qatar Telecom is sure that AMH is manageable. ---------------------- I want to affirm that Qatar Telecom invested its funds for amount of US$635 millions in this joint venture. The composition of Management Committee and the management of AMH provide Qatar Telecom with a certain protection that the decisions are made independently without any directives from STTC” -----------------------------------------------------------------------------

The copy of Mr. Norman’s statement is available in the lawsuit documents of

KPPU.

Singtel; -----------------------------------------------------------------------------------------

52. The operational policies and decisions of SingTel are not controlled, managed or

influenced by Temasek. ----------------------------------------------------------------------------

53. During the session in KPPU on 4 July 2007, SingTel testified that SingTel and

Temasek only have one same director (Mr Simon Israel – “Mr. Israel”), and when he

was appointed to be part of management of SingTel , he served for no position in

Temasek. ---------------------------------------------------------------------------------------------

“Q. How many directors of SingTel that served for Temasek? ---------------- A. Only one, and it after he took hold a position in management borad of

SingTel . Nominations Committee proposed some candidate for electing appropriate one precise. At that moment, Simon [Israel] was not in Temasek. He used to be a citizen of New Zealand and at present a citizen of Singapore.”--------------------------------------------------------------

Q: When did he work for SingTel ? ------------------------------------------------- Q. To Temasek?------------------------------------------------------------------------ A. I thing in 2005. Q. Are there any other management boards who serve in Temasek? ----------- A. Not in the last 3 years. I will check it out later.” -------------------------------

The copy of SingTel ’ official report in KPPU on 4 July 2007 can be found in lawsuit documents of KPPU. -------------------------------------------------------------------------------- 54. Mr. Israel is only 1 of 10 SingTel board of directors and Mr.Israel is not a

candidate proposed by Temasek. The truth is, when Mr. Israel was appointed as

Director of SingTel , at the same time he was not a director Temasek. ----------------

55. During the session on 23 July 2007, in its testimonies SingTel explains that SingTel

board of director is responsible to Temasek as to other shareholder of SingTel :----------

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COPYQ: To whom does CEO of SingTel give report?------------------------------------- A. Board of Director Q. To whom does Board of Director give report?------------------------------------ A. Board of Director does not give report to certain party, but they are responsible to the whole stakeholders such as creditor and shareholder . --------- Q. What does an accountability look like? ------------------------------------------- A. I do not feel that there is specific thing of the shareholders but the form of the accountability is to make a company running well.------------------------------ Q. How do shareholders ask accountability from SingTel Board of Director? -- A. There is an annual shareholder general meeting (RUPS) and the performance is informed to shareholders previously. It is the time to ask the performance. Usually after RUPS, the director arrange management agenda for a year to come. ----------------------------------------------------------------------- Q. Is there any meeting agenda with shareholders apart from RUPS? ------------ A. There is a quarter report, but as long as I know there is no other meeting outside annual RUPS. -------------------------------------------------------------------- Q. If there is any important issue faced by Board of Director; how is it lifted to the shareholders? ---------------------------------------------------------------------- A. It it is an important thing, Board of Director will be able to summon up Extraordinary RUPS.--------------------------------------------------------------------- Q. Who are shareholders? --------------------------------------------------------------- A. The total is around 1 million shareholders. SingTel has already been listed company in Singapore and Australia. There is also an institution as shareholders ------------------------------------------------------------------------------- Q. What are the institutions? ------------------------------------------------------------ A. I do not know exactly; it look like a funding institution in America. Majority Shareholder can be seen in annual report of SingTel by 3 May 2007, on page 174 -175. ----------------------------------------------------------------- Q. Is Temasek a shareholder? --------------------------------------------------------- A. Yes”-------------------------------------------------------------------------------------

The copy of the official report session of SingTel in KPPU on 23 July 2007 can be found in lawsuit of KPPU.----------------------------------------------------------------

SingTel Mobile; ------------------------------------------------------------------------------------

56. Through SingTel , Temasek does not control, arrange or coordinate operational policies

and decisions of SingTel Mobile, directly or indirectly. ---------------------------------------

57. SingTel Mobile is a subsidiary that its shares wholly owned by SingTel . However,

SingTel Mobile is a separated corporate body in which its operating is managed by its

own board of director for the interest of SingTel Mobile. -------------------------------------

58. During a session in KPPU on 4 July 2007, SingTel testified that SingTel Mobile and

Temasek does not have the same director (Mr Israel does not hold a position of the

management of SingTel Mobile) ------------------------------------------------------------------

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COPY“Q. Is it right that Mr. Simon Israel, Board of Directors SingTel , also has

double A. Yes, as a member of Board of director. ------------------------------------------ Q. Is there any other Board of Directors that have double position in SingTel

? -------------------------------------------------------------------------------------- A. Ms. Cuah, a member of Board of Director and CEO in SingTel , and member of the Board Director (as it is Board of Commissioners in Indonesia) in SingTel Mobile” -------------------------------------------------------

59. During the session, SingTel also states that Ms.Chua, in its capacities as SingTel

Mobile director, is acting for the interest of SingTel Mobile, not SingTel : ----------------

“Q: What are the responsibilities of Ms. Cuah in SingTel Mobile? --------------

A. She has voting right in SingTel Mobile Board of Directors in making decision. The Board must take decision in accordance with the interest of SingTel Mobile---------------------------------------------------------------------

Q. It can be said that Ms.Cuah brings the interest of SingTel and SingTel Mobile?------------------------------------------------------------------------------

A. No, in its capacity as SingTel Mobile Board of Director, Ms. Cuah must

prioritize the interests of SingTel Mobile and not only the interest of

shareholders, but also creditor and other stakeholders” -----------------------

60. Furthermore, SingTel also testified and provided facts that SingTel Mobile has

corporate services of SingTel . Concerning final operational decisions, corporate

service is not controlled and influenced by SingTel : -------------------------------------------

“Q. You said that you give recommendations/guidelines to [SingTel Mobile] monthly, do you continue giving recommendations to [SingTel Mobile], while you are hired also by SingTel ? -------------------------------

A. Yes, I am employed by SingTel . I provide management recommendation as it is asked by [SingTel Mobile]-----------------------------------------------

Q. Is it right that you are paid by SingTel and had fees from giving consulting services to SingTel Mobile? ----------------------------------------

A. Yes, I am employed by SingTel . The fee of consulting services are paid by SingTel Mobile to SingTel .--------------------------------------------------

Q. Is the service fee given to SingTel Mobile paid monthly?-------------------- A. I do not know whether it is paid monthly, but it is periodically given by

SingTel Mobile to SingTel over the services I have given to SingTel Mobile. ------------------------------------------------------------------------------

Q. Does it mean that you do not get fee directly from SingTel Mobile? ------- A. Yes, as I told it previously that I am an employee of SingTel and paid by

SingTel .----------------------------------------------------------------------------- Q. How many percent are your recommendations implemented by SingTel

Mobile?------------------------------------------------------------------------------ A. I do not know exactly, but around 50% my recommendations are

followed up by SingTel Mobile.-------------------------------------------------

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COPYQ. Can you explain? Which recommendation that are not implemented by

SingTel Mobile?------------------------------------------------------------------- A. We have ever recommended SingTel Mobile to improve its capital

structure by recover ratio debt to equity but SingTel Mobile does not follow up my recommendation . -------------------------------------------------

Q. Do the recommendations you suggest related to investment of SingTel Mobile are not followed by Telkomsel? ----------------------------------------

A. We ever give recommendation on the potency of dividend and business plan of Telkomsel. -----------------------------------------------------------------

Q. Can you elaborate, what kind of recommendation you suggest at that time? A. Telkomsel pays dividend. We have ever given recommendation that company’s capital structure is inefficient due to abundant cash. -------

Q.How do you know that SingTel Mobile do not want to follow your suggestion?--------------------------------------------------------------------------

A. SingTel Mobile told it verbally -------------------------------------------------- Q. Why does SingTel Mobile reluctant to implement your suggestion? ------- A.SingTel Mobile does not always inform me the reason. -----------------------

61. During the session in KPPU on 23 July 2007, SingTel Mobile has given

testimonies/facts that SingTel Mobile Board of Director is acting for the interest of

SingTel Mobile, and not the interest of SingTel or Temasek: --------------------------------

“Q. What is the obligation [SingTel Mobile] to SingTel ? Does [SingTel Mobile] have to conduct all by request of SingTel ? --------------------------

A. No, Board of directors has obligation to [SingTel Mobile], it means that they conduct the best for the interest of [SingTel Mobile]-------------------

Q. Does [SingTel Mobile] have obligation to SingTel ?------------------------- A. Under the Law of Singapore, our company does not have obligation to

other company, but every company has its own management board, consequently the obligation is the responsibility of company management board. ----------------------------------------------------------------

Q. Do you think that [SingTel Mobile] as a company must act for the benefit of SingTel? ----------------------------------------------------------------

A. No.[SingTel Mobile] must act for the best of its own, and the interest all stakeholders ------------------------------------------------------------------------

Q. What are the interests of shareholders ?----------------------------------------- A. The Board of director is acting for the best interest of [SingTel Mobile],

including all its stakeholders”-----------------------------------------------------

The copy of the official report session of SingTel in KPPU on 23 July 2007 can be found in lawsuit of KPPU.----------------------------------------------------------------

Share Acquisition in Indosat and Telkomsel; -------------------------------------------------

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COPY

62. Telkomsel is a company that was founded under the law of the Republic of Indonesia.

Telkomsel is also the biggest operator of cellular telecommunications in Indonesia. ------

63. In 2001, SingTel Mobile acquired 17.28% of Telkomsel’s shares from KPN Royal

Dutch Telecommunications and 5% from PT Setdco Megacell Asia (The founder of

Telkomsel). -------------------------------------------------------------------------------------------

64. In 2002, SingTel Mobile acquired again 12.72% of the shares of PT Telekomunikasi

Indonesia (“Telkom”), so that the total of the shares were 35% in whole. The rest of

Telkomsel’s shares at that moment until present time were owned by Telkom, company

that was founded in Indonesia time. Telkom is enlisted in Jakarta Stock Exchange,

Surabaya Stock Exchange, New York Stock Exchange and London Stock Exchange, in

which 51.19% of its shares are owned by the Government of Indonesia.

65. Indosat is a company established under the law of the Republic of Indonesia. In 1980,

the Government of Indonesia got 100% of shares in Indosat that make it State-owned

Enterprise (BUMN). In 1994, Indosat enlisted its shares in Stock Exchange of Jakarta,

Stock Exchange of Surabaya and Stock Exchange of New York. Indosat is the second

biggest cellular operator - ---------------------------------------------------------------------------

66. In the end of 2002, as a result of the tender, the Government of Indonesia divested its

41.94% Indosat’s shares to STTC. STTC acquired the shares through two special

purpose vehicles, ICL and ICPL. ------------------------------------------------------------------

67. In 2006, in order to establish a joint venture with Qatar Telecom, STTC transferred its

ownership over ICL and ICPL to AMH under an internal agreement. As it is previously

explained, Qatar Telecom controls 25% of the shares in AMH while AMHC controls

75%. AMHC is wholly owned by STTC.---------------------------------------------------------

68. During the process of taking over of shares in Telkomsel and Indosat, Temasek did not

involve in whatever form. Temasek also never involved in deciding to perform the

investment . It has been confirmed by Mr.Goh in its facts/testimonies during the session

in KPPU on 13 Augusts 2007: ---------------------------------------------------------------------

“Q. Would you please affirm? Who did perform investment in the Indonesian telecommunications company?-------------------------------------

A. STT and SingTel . These companies invested globally. Temasek did not involve in the decision-making of STT and SingTel to perform investment at Indosat and Telkomsel. ------------------------------------------

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COPYQ. Does Temasek get involved in the decision making for the investment

and management activities of STT and SingTel ? ---------------------------------------

A. No. Temasek did not involve in the operational and decision of the business of the two companies. The decision on investment is made by board of commissioner and management of each company. -----------------

Q. How is the investment planning of Temasek in telecommunication field in Indonesia?

A. I will never answer it --------------------------------------------------------------- Q. Is there any person who knows it from investment committee? ---------- A. Invesment in Indosat and Telkomsel are performed by SingTel and STT

not by Temasek. -------------------------------------------------------------------- Q. It is preposterous for us that as Managing Director you do not know the

investment plan. I think that you are stashing away in this investigation. I request the attorney-in-fact to explain it. -------------------------------------

A. With due respect, I want to explain that investment in Indonesia is performed by by SingTel and STT and Temasek does not know the consideration of the companies performing investment in Indonesia. I want to say that no one is responsible over the telecommunications investment in Indonesia.“---------------------------------------------------------

69. During the session in KPPU on 4 July 2008, SingTel has given testemonies/facts that

Temasek did not take part in the decision to perform investment in Telkomsel: -----------

“Q.Does Temasek also get involved with the decision to invest in Indonesia? ---------------------------------------------------------------------------

A. No. The decision is approved by [SingTel Mobile] with the support of SingTel , Temasek is not involved” ---------------------------------------------

70. During the session in KPPU on 27 June 2007, STT Group A also provided the

facts/testimonies that the investment in Indosat was performed by STTC, not STT or

Temasek: ----------------------------------------------------------------------------------------------

“Q. What is the motif of establishing STTC? -------------------------------------- A. To achieved company’s vision and mission. To be a global player and to

invest in telecommunication fields all over the world. ------------------------ Q. Thus. Are STTC and STT under one management?---------------------------- A. STT and STTC are 2 different corporate. STT only has investment s in

STTC…. Historically, the reason of creating this structure is to have STTC arranged an IPO one day. -------------------------------------------------

Q. Thus, there is no bureaucracy behind the policy making between STTC and STT? ----------------------------------------------------------------------------

A. STT and STTC are 2 separated corporate. STTC is a corporate that

makes a decision to have investment s for STTC“ -----------------------------

71. In line with the testimony, STT Group B also gives the same testimonies in the session

in KPPU on 25 June 2007:--------------------------------------------------------------------------

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COPYQ. Can it be said that investment policy in Indonesia not from AMH? A. The initial decision on investment in Indosat comes from STTC”-----------

White Paper tahun 2003;--------------------------------------------------------------------------

72. On 4 February 2003, the State Ministry of State-owned Enterprise (“Meneg BUMN”)

published white paper that describe share divestment of Indosat to ICL/ICPL (“white

paper ”). The copy of White Paper is in the lawsuit case document of KPPU. White

paper particularly consider the question of whether, referring to the shares of SingTel

Mobile in Telkomsel, the plan of taking over the Indosat’s shares by ICL and ICPL

infringe the Law No.5/99. Its final conclusion is “No!” ----------------------------------------

“E. The rumors of Monopoly. -------------------------------------------------------- Telecommunication is regulated tightly --------------------------------------------- The telecommunication industry in Indonesia is tightly regulated. The industry is not only subject unto the Law No.36/1999 and its implementation regulation No.52 and 53/2000 on telecommunications industry but also the Law No.5/1999 Prohibition of Monopolistic Practice and Unfair Competition. --------------------------------------------------------------- STT and SingTel are independent in Telecommunication Industry ------------ Temasek owns 67% shares of SingTel and indirectly owns STT. SingTel owns 35% of Telkomsel’s shares with the limited management representatives in which Telkom controls the majority (shares) of Telkomsel. Telkom is owned in majority by the Government of Indonesia. SingTel and STT are managed independently and competed in Singapore and other markets. It should be noted that as a listed company the shareholders of Indosat are the Government of Indonesia, foreign and domestic investors.

73. White Paper continuously states as follows: -----------------------------------------------------

“2. Monopoly ---------------------------------------------------------------------------------- • Under the Law No.5/1999, there is a prohibition to own share majority

in some companies that operate in the same field. The ownership of STT over Indosat through ICL is not majority (less than 50% out of the whole shares of Indosat). In addition, the ownership of Singaporean company in Telkomsel is also less than 50%. Furthermore, Mennen BUMN considers that the regulation is on prohibiting monopolistic practices and not on majority ownership. -------------------------------------------------------

• Prior to the awarded announcement, there is no objection from public although government has announces the attendance of STT in divestment program. ---------------------------------------------------------------

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COPY• Telecommunication Industry has already been tightly regulated and

operators may not determine certain policies include in tariff fixing.-------

• For the purpose of divesting Indosat’s shares, Mennen BUMN established an intradepartmental team that consists of the Minister of Communication and Indosat management to ascertain that any inputs have been responded”--------------------------------------------------------------

74. The conclusions of White Paper argues all KPPU’s allegations under Article 27(a).

Provisional People’s Consultative Assembly/House of Representatives (MPR/DPR) of

the Republic of Indonesia has clearly concluded that: ------------------------------------------

a. Telecommunication industry in Indonesia has been tightly regulated and operators cannot determine the policies including tariff fixing.

b. Telkom controls Telkomsel. SingTel only has 35% of Telkomsel’s shares with few number of voting rights. In majority, Telkom is controlled by the Government of Indonesia. ------------------------------------------------------------------------------------

c. STT and SingTel are managed in independently and they compete in Singapore and other markets.-----------------------------------------------------------------------

d. The phrase “majority share” in Article 27 (a) of the Law No.5/99 shall be interpreted literally that means more than 50% of shares (in numerical sense). -------

e. The ownership of STT over Indosat through ICL is not majority because it is less than 50% of Indosat listed shares. -----------------------------------------------------------

f. SingTel also has less than 50% of Telkomsel’s shares-----------------------------------

75. The conclusion of Menneg BUMN is relevant, not only to the interpretation of

Article 27 (a) of the Law No.5/99(See part (E) below) but also to claims of

Temasek that the lasted jurisdiction process at is ultra vires and infringe legal

procedure. (See part (H) below) -------------------------------------------------------------

76. It is also important to be noted that on the basis of other documents in the lawsuit

of KPPU entitled “Goverment’s Elucidation in the Meeting of the Joint

Commission of the House of Representatives in 2003, that KPPU has consulted

Menneg BUMN on its views. As it is elucidated below, KPPU “need no further

information from Government/Indosat concerning Indosat’s divesting settlement”.

It is seen that KPPU does not raise any issues or objections to the plan of the

acquisition which then the acquisition was performed under the stipulation of the

Law in Indonesia. -----------------------------------------------------------------------------

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COPY

77. Relevant Paragraph on this matter in the document:

“In accordance with the Law No.5/1999 on the Prohibiton of Monopolistic Practices and Unfair Competition, especially Article 27 and 28 paragraphs 3, it can be elucidated that STT is not an owner of 50% Indosat’s shares. The regulation on acquisition in Article 28.1 of the Law No.5/1999 has not been regulated in the Government Decree. The State Minister of BUMN in 23 January 2003 have completed an invitation of KPPU for consulting meeting and theretofore KPPU does not need further information from Government/Indosat relating to Indosat’s divestment. Without keeping aside the discussion, telecommunication industry is industry that tightly regulated by Government”

78. In this case, KPPU cannot change its mind. There are reasons to believe that

ICL/ICPL had approvals not only from MPR/DPR of the Republic of Indonesia

but also government institutions and fullfil legislative regulation required to

perform acquisition of Indosat’s shares. KPPU does not have the power or any

basis to start investigation after 4 years the acquisition performed. KPPU tries to

cancel the approval of government institutions and law and regulations obtained

previously by ICL/ICPL using suspected infringement of Article 27(a), although

significant changes had never happened in the shareholders structure of Indosat

and Telkomsel.---------------------------------------------------------------------------------

Ther is no control in Indosat and Telkomsel; -------------------------------------------------

79. The principal allegation in the case of KPPU versus Temasek and Reported

Parties 2 to 9 is that Temasek (directly or through Reported Parties 2 to 9) and

Reported Parties 2 to 9 controls Indosat and Telkomsel. Without these claims, all

legal cases to Temasek and Reported Parties 2 to 9 are nun and void. -----------------

80. The claim [of KPPU] is not entirely true. --------------------------------------------------

81. From the viewpoint of Telkomsel, SingTel Mobile is only a minority

shareholders that has right to appoint 2 out of 6 members of Commisioner board

of Telkomsel and the rests are appointed by Telkom. At this time, there are only 5

Commissioners, Telkom remains to entitle to the sixth commissioner. Similar to

this, SingTel Mobile only entitles to appoint 2 out of 5 board of directors of

Telkomsel. Again, Telkom is a right party to appoint the rest. All decisions of

management board of Telkomsel must be made with majority votes, therefore it is

impossible for Temasek, by itself or through Reported 2 to 9, to control

Telkomsel.--------------------------------------------------------------------------------------

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COPY82. Out of 9 Director of Indosat, there are only 4 appointed by ICL/ICPL. On the

contrary, the Government of Indonesia has A series of shares in Indosat that make

it owns special voting right and veto right to certain things as stated in the

Statutes. Besides having A series of special shares, the Government of Indonesia

also owns rights to appoint at least one director and commissioner in

management board of Indosat. By usage, the President Director of Indosat is

appointed by the Government of Indonesia. At present, 5 of 9 directors of Indosat

(including President Director) are the representatives of the Government of

Indonesia.

83. The facts are the same reason as stated by Mr. Pasaribu when he said that

Temasek and Reported Parties 2 to 9 do not control Indosat and Telkomsel----------

84. Without considering the facts, KPPU submits surprisingly allegations that

Temasek is able to control Telkomsel and Indosat through Reported 2 to 9. The

evidences used by KPPU as its guidance are bizarre and irrelevant.

85. Whereas, the evidences passed to KPPU in the preliminary investigation and

follow-up investigation are enough to prove that Temasek and also Reported

Parties 2 to 9 do not control, manage, or influence the operational policies and

decisions of Indosat. --------------------------------------------------------------------------

The evidences submitted by Temasek; ------------------------------------------------------------

86. During the session in KPPU on 13 May 2007, Mr. Goh states that Temasek does not

have shares in Indosat and Telkomsel, and TEmasek does not also instruct or

coordinate operational policies and decisions of the both companies. ------------------------

“Temasek does not have shares in Indosat or Telkomsel. These companies are managed and observed by its own management team and management board. Temasek does not instruct or coordinate commercial decision and company operating or to take part in their business activity or any other business activity in the relevant market ” -------------------------------------------

The copy of the session official report in KKPU on 13 May 2007 can be found in the lawsuit of KPPU.

87. In paragraph 22 and 23 of Mr. Goh’s statements he gave testimonies/facts that

management board of Indosat and Telkomsel performed their activities separated from

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COPYTemasek, and Temasek does not have any rights to appoint nominees to be in

management board .---------------------------------------------------------------------------------

“Indosat and Telkomsel are managed and observed by their own management board and management team. Temasek does not have representative or nominee in this management board or management team of the companies.

88. In addition, Temasek has already got independent certificationfrom Mr.Tham Sai Choy

(“Mr.Tham”), a partner in KPMG Singapore (External Auditor of Temasek), and also a

partner that lead statutory audit of Temasek. Mr.Tham has confirmed in its letter dated

11 October 2007 to KPPU that no single agenda as well as official report of

management board meeting of Temasek and RUPS has carried out during the last 3

years discussing the performance, management, or operational of Indosat or Telkomsel.

The certificate is quaoted as follows:--------------------------------------------------------------

“I have read all agendas and the board of director official report and annual RUPS that hold from date 1 August 2004 to 31 August 2007 (“Agenda and official report)”.------------------------------------------------------------------------- No agenda and official report I read discuss performance, management or operating of PT Indosat Plc. and PT Telekomunikasi Indonesia”----------------

The copy of Mr. Tham’s certificate is enclosed in Annex C ----------------------------- The evidence submitted by STT Group A and STT Group B; --------------------------------

89. In Paragraf 68 to 76 of the plea of STT Group A, it has been confirmed that Indosat

board of director perform its duty without any influences from STT Group A and STT

Group B, but in reality the Government of Indonesia has significant influenceto

Indosat: ------------------------------------------------------------------------------------------------

“The Indosat Board of directors is responsible fully concerning management and operational Indosat. According to Article 11(1) in relation with Article 3 (1) of the Indosat Statutes, the key task of Directors including obligations to: (a) lead and manage the company to keep it in track with the company’s objectives that is to carry out network and/or telecommunication services and to run business information; and (b) to try continuously boosting efficiency and effectiveness of the company.---------------------------- The decisions of Indosat board of director are made by deliberation for general consensus. The Indosat Statutes mentions that anytime an agreement is unattainable then the decision making is obtained by voting in which every member of board of director is entitled to releases one vote. Managing director has an authority to determine a decision in the case of the votes is even. Written circulating decision need animity from all members of board of director ------------------------------------------------------------------------------- The representatives of AMH nominated through ICL, are not a majority in Indosat board of director. Those nominated by the Government of Indonesia

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COPYare majority in Indosat board of director, its including managing director. Under the Statutes of Indosat, the member of Indosat board of director are elected and dismissed by RUPS with normal majority. AMH (vote it through ICL and ICPL) can fall behind in votes than other shareholders in RUPS and AMH cannot act unilaterally. -------------------------------------------- The responsibility of Board Commissioner is observing management of Indosat: see Article 15 (1) the Statutes of Indosat. --------------------------------- The decisions of Indosat board of commissioner are conducted by deliberation to reach a general consensus, if fails, the decision will be determined on the basis of majority votes in which every commissioner is entitled to have one vote. The prominent commissioner has no authority to determine decisions in the case of the votes are even. In performing observing activities, Board of commissioner represent shareholders’ interests and it accounts for the whole shareholders. ------------------------------ Board of directors and other representatives from AMH are not majority in Indosat Board of commissioner. Considering the authority of the Government of Indonesia, based on the Indosat Statutes, the member of Indosat commissioner board are elected and dismissed by RUPS. Five of 10 members of Indosat commissioner board are nominated by the Government of Indonesia or Independent Commissioner. As the company enlisted in Jakarta Effect exchange, Surabaya Effect exchange and New York Effect exchange, Indosat is obliged to have Independent Commissioner. -------------- In the level of shareholders, the indirect ownership of AMH (through ICL and ICPL) in Indosat is only 41%. As a consequence, STT/STTC/AMHC only has indirect shares around 31% (75% of 41%) in Indosat. The Indosat Statutes required that the decision of Indosat RUPS Indosat is conducted through normal majority vote of the shareholders. In such cases, the Statutes required a decision to be made through majority of 66 2/3 or 75% and/or only through the votes of shareholders that hold Seri A shares of “Special” shares owned by the Government of Indonesia. Therefore, whether it is AMH, ICL or ICPL cannot unilaterally control decision-making processes in Indosat shareholders level. --------------------------------------------------------- The allegation that Indosat is part of “Temasek Business Group” is also inconsistent with the significant influence of the Government of Indonesia in Indosat.-------------------------------------------------------------------------------- (a) The Government of Indonesia still has more than 14% common shares

in Indosat. -------------------------------------------------------------------------

(b) Apart from its significant ownership over common shares in Indosat, the position and authority of the Government of Indonesia in Indosat is strengthened farther with its ownership of “Series A” shares in Indosat. The A series shares give the Government of Indonesia special voting right, including veto right to: (a) merger, consolidate, acquire, disband and liquid Indosat; and (b) to amend the Statutes, including its purposes and objectives of Indosat, and to improve its capital stock improvement without having pre-emptive rights.----------------------------

(c) Besides, series A shares also gives the Government of Indonesia rights to appoint one Director of and one commissioner of Indosat. At this

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COPYtime, 5 of 9 Director of Indosat (including managing director) are the representatives of the Government of Indonesia. The major representatives of the Government of Indonesia in Indosat board of director (apart from 14% of ownership over common shares in Indosat), indicate that AMH does not use its rights that usually owned by majority shares in a company. ----------------------------------------------

(d) Since the divestment to the present time, the managing director in board of director of Indosat are always nominated by the Government of Indonesia, including Mr. Widya Purnama, Mr. Hasnul Suhaimi and Mr. Johny Swandi Sjam. After the divestment, some articles in the newspapers report that the Government of Indonesia affirms its rights to appoint Indosat managing director and indicates all managing director candidates to pass fit and proper test. It is a significant influence of the Government of Indonesia to place its candidate as a managing director of Indosat. Judicially, there is no rights for the government of Indonesia to appoint managing director Indosat unilaterally.

(e) The half of Indosat Board of commissioner consists of two people who are nominated by the Government of Indonesia and three independent comminisoners. The number of representatives of the Government of Indonesia in Board of commissioner passes its special rights as the shareholders of A series shares. ------------------------------------------------

90. Mr. Purnama, a former president director of Indosat, confirms in its statement in

paragraph 13 that: -----------------------------------------------------------------------------------

“STT/ICL has never intervened when I managed Indosat. STT/ICL has never visited me to direct management of Indosat“ --------------------------------

91. In the session in KPPU on 18 June 2007, STT Group A gives testimonies/facts that

Temasek does not have any involvement in every evaluation and monitoring of the

Indosat’s performances: -----------------------------------------------------------------------------

“Q. What kind of STT policies to STTC, AMHC, ICL and [ICPL] when Indosat management does not run properly?” ----------------------------------

A. The Indosat performance is the responsibility of Board of Directors and Board of Commissioner. At the end, the performance will be evaluated by its shareholders.-----------------------------------------------------------------

Q. Can it be concluded that as a Chief Finance Officer of STT you release your authority to observe STTC, AMHC, ICL and (ICPL) by entrusting Indosat management ------------------------------------------------------

A. In our opinion, the current performance of Indosat is better. If the performance of Indosat is bad, STT can do nothing. STT must cooperate with other shareholders including the Government of Indonesia to find the best way to benefit shareholders.

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COPYQ. With whom STT discuss the performance of Indosat management? -- A. The answer is the same with the previous one.”

92. During an investigation conducted in KPPU on 25 June 2006, STT Group B

submits evidence that AMH (not STT Group A or Temasek) make decision to

whom Indosat board of director nominated :

“Q. Do the two directors of AMH and Qatar Telecom get involved in the elction of Director in Indosat? -------------------------------------------------

A. The representative from Qatar Telecom and AMHC who are also Directors of AMH involved in the discussion but the decision itself, applying collective consensus, is made by board of director. ----------------------------------

Q. Actually, where (in which level) is the decisions made? AMH or AMHC? -----------------------------------------------------------------------------

A. The decision is made by AMH. ---------------------------------------------------- Q. Can it be concluded that in electing Indosat board of director by AMH,

AMHC involve in it? --------------------------------------------------------------- A. The decision on Indosat board of director is made by AMH. AMHC may

nominate a candidate but the final decision is on AMH board of

director.”

93. During the investigation, STT Group B submits evidence that only AMH (not STT

Group A or Temasek) get involved in observing the performance of Indosat:

“Q. Concerning monitoring of Indosat, does AMH consult AMHC? --------- A. As long as I know, AMHC monitor the performance of AMH, but in

the level of monitoring is only AMH. Q. How does AMHC monitor the performance of Indosat? A. AMHC does not monitor the performance of Indosat. There is no

compulsion for AMH to give report to AMHC or Qatar Telecom on the

performance of Indosat.” --------------------------------------------------------

94. During the investigation, STT Group B submits evidence that AMH does not

arrange, manage or influence operational policy and decision of Indosat:

“Q. Does AMH monitor the policy on procurement and tariff in Indosat?----- A. There is no interference or involvement from AMH. It is a responsibility

of Board of Director Indosat. ---------------------------------------------------- Q. The investigation team gets an information that there is an active

involvement from AMH regarding procurement process in Indosat. ------- A. We are very sorry to hear misled news informed by Investigating Team.

As a matter of fact, all are the responsibility and the authority of Board of Director without any interferences of AMH.

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COPYQ. (We even have been asked) What about if procurement regulation is

conducted along with the shareholders, in this case AMH. Will the price be cheaper? -----------------------------------------------------------------------

A. Whether Indosat or Starhub is listed public corporation. There is a rule to obey, including Good Corporate Governance. Therefore, the involvement of Indosat Board of Director is in everything. ------------------

Q. Is the rumour true? ----------------------------------------------------------------- A. No. That’s not true. ----------------------------------------------------------------- A. Is the procurement of prepaid voucher from Singapore? ---------------------- A. I will never give answer, but it already confirms that shareholders never

purchase goods to sell to Indosat or to recommend them to procure. All are in the hand of Indosat Board of Director. There is no AMH’s interference.-------------------------------------------------------------------------

Q. Who does form the work division of the Indosat Board of Director? ------- A. The duty of board of director is determined by shareholders based on the

Statutes of Indosat.----------------------------------------------------------------- Q. Does Director of Marketing have to be from Singapore? --------------------- A. The Director of Marketing is not always from Singapore, the incumbent

Director of Marketing is from the Government of Indonesia ------------------------

Q. Does Director of Finance have to be from Singapore? ------------------------ A. Director of Finance of Indosat is not always from ICL.----------------------- Q. Where does the Director of Research and Development come from? ------- A. I have never heard the position .-------------------------------------------------- Q. Is General Manager (“GM”) that works under Director of Marketing is

from Singapore?-------------------------------------------------------------------- Q. I do not know. GM of marketing is part of Director of Marketing

appointed by the Government of Indonesia. Q. Who does arrange organization structure of Indosat? Why is ICL only

interested in filling the position of Vice President and not President Director? ----------------------------------------------------------------------------

A. The form of Board of Director structure has already been available prior to he presence of ICPL and ICL as shareholders of Indosat. -----------------

Q. Why is Khaizad B Herjee not appointed to be a President Director? -------- A. In reality, the position of President Director is always peoposed by the

Government of Indonesia and be an Indonesian Citizen. --------------------- Q. Does such condition create a vacuum in Indosat Board of Director? -------- A. We must await the decision from the Government of Indonesia

concerning President Director’s election. Q. Does ICL understand that the position of Vice President is more

authoritative than President Director in determining a policy? -------------- A. No. President Director has greater role compare to Vice President

because President Director has casting vote in case of a deadlock. The

decision of board of director meeting is also decided by President

Director.

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COPY95. In paragraph 16 and 17 of Mr. Garg’s statements and the submitted evidences, it

is described that Indosat Board of Director independently separated from from STT

Group A&B:

“PT Indosat is operated and managed independently by AMH. The Board of Director or Manajemen of PT Indosat is different with those of AMH/ICL/ICP -------------------------------------------------------------------------- Therefore, the operating and management of AMH/ICL/ICP and PT Indosat are performed separately. They do not form an institute or company group for their single interest. They are not part of “Temasek Business Group”. -----

96. ---- In paragraph 18 and 19 of Mr. Miller’s statement who submits evidences that

Indosat Board of Director is operated independently apart from STT Group A&B:

---

“PT Indosat is operated and managed independently by AMH, therefore the Board of Director or Management is different. ------------------------------------ Therefore, we want to affirm that operation and management Temasek, STT/STTC/AMHC, AMH/ICL/ICPL and PT Indosat are separated one to another. They do not form an institute or company group for their single interest. They do not form an institute or company group for their single interest. They are not part of “Temasek Business Group” in which there is no dependency one to another. -------------------------------------------------------

The evidences provided on behalf of SingTel and SingTel Mobile--------------------------

97. The policy and operational decision of Telkomsel are not controlled, managed or

influenced by Temasek, SingTel and/or SingTel Mobile.

98. During an investigation conducted in KPPU on 4 July 2007, SingTel submit

evidences that SingTel Mobile (not Temasek) that monitor Telkomsel

performance:

“Q. Does monthly financial statement submitted by SingTel Mobile also reflect Telkomsel performance? -----------------------------------------------

A. Yes ---------------------------------------------------------------------------------- Q. So, Telkomsel Management reports to SingTel Mobile and they deliver the

report to you? ----------------------------------------- A. SingTel Mobile gets report and they ask my suggestion and

recommendation for anything they may conduct and SingTel Mobile then. Q. To whom you report your job result? ------------------------------------------------ A. SingTel Mobile is a party that appointed by Telkomsel. ------------------------- Q. I am getting mixed up. Do you give recommendation or do they report? -----

----------

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COPYA. I accept the reports. On the basis of it, I give recommendations.----------------

-- Q. To whom are you responsible for? --------------------------------------------------- A. I give report to SingTel Mobile a party that is appointed by Telkomsel. My

Supervisor is CEO. --------------------------------------------------------------------- Q. To whom the CEO report to? --------------------------------------------------------- A. I report to internal CEO and internal CEO report to CEO of SingTel .” --------

99. During investigation, SingTel also submit evidences that Telkomsel does not

consult SingTel in determining operational policy, including procurement

agreement: ----------------------------------------------------------------------------------------

“Q. Does SingTel consult if Telkomsel want to procure? ----------------------- A. No. ----------------------------------------------------------------------------------- Q. Who is Widjaja? Director of? ----------------------------------------------------- A. Management team. He helps keeping the investment of SingTel in

Indonesia. --------------------------------------------------------------------------- Q. Is it right that he gives recommendation on procuring to Telkomsel? ------- A. Usually not. There is division instead of Board of commissioner, Cap Ex

committee with its member 2 form Telkoms and 1 from SingTel . If Telkomsel wants to perform acquisition, then required approval from Cap Ex is needed. SingTel Board of Commissioner is enabled to ask and clarify problems. --------------------------------------------------------------

Q. Can you specify what Cap Ex is? ------------------------------------------------- A. As far as I know, its member consists of 3 people, 1 from SingTel

Mobile and 2 from Telkom. It is a sub-committee of Board of commissioner. They responsibility is approving capital expenditure.------

Q. Thus, Cap Ex has 3 commissaries, 2 from Telkom and 1 from SingTel Mobile?------------------------------------------------------------------------------

A. Exactly.------------------------------------------------------------------------------- Q. Its duty is to approve Cap Ex? ---------------------------------------------------- A. That’s right. -------------------------------------------------------------------------- Q. Including procurement?-----------------------------------------------------------

-------- A. It is not at actual process. The amounts are approved by Board of

Commissioner and then Telkomsel Board of Director performs actual procurement. ------------------------------------------------------------------------

Q. Does Cap Ex committee consult you?------------------------------------------- A. No. Widaja is part of my team. If Board of Director has an affairs they

will ask my opinion.---------------------------------------------------- Q. Do committee member of Cap Ex consult SingTel ? -------------------------- A. No. Cap Ex does it by itself. If they need an assistant, they will ask may

team /Widjaja to get information and we will give re-information to SingTel Mobile a party appointed by Cap Ex and, if agree they decide it. -------------------------------------------------------------------------------------

Q. Will he consult your team before the member of Cap Ex make decision? ----------------------------------------------------------------------------------------

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COPYA. No. We only provide information they need and then Cap Ex decide it by

itself. We only help parties assigned by SingTel Mobile. Telkom has its own aid.” ----------------------------------------------------------------------------

100. During the investigation on 23 June 2007, SingTel also submits evidences that

Telkomsel do not consult SingTel in determining operational policy, including

procurement agreement:

“Q. Has ever Did SingTel consulted when Telkomsel want to conduct

goods acquirement?---------------------------------------------------------------- A. No. SingTel does not involve. If a question appear, it will be brought to

Telkomsel Board of commissioner ---------------------------------------------- Q. Who does arrange handset procurement? --------------------------------------- A. Decision is made by CEO of the whole companies.-------------------- Q. In your opinion, is there any possibility of Telkomsel to follow

agreement if it is not a subsidiary. ----------------------------------------------- A. Yes. That’s right. Telkomsel is not a subsidiary of SingTel or SingTel

Mobile because it owns only 35%. But usually in telco industry telco, Vodafone for instance, has many affiliated company and public can join to procure. It same as alliance in which is no shareholders, they join for the sake of economic scale. -------------------------------------------------------

Q. Such as those which you spelled out members mentioned on procurement handset? -----------------------------------------------------------------------------

A. Exactly. This is the question on economic of scale. We are not a majority shareholders, and surrendered to CEO and the boards to determine do they want to participate. -----------------------------------------------------------

Q. Does SingTel or SingTel Mobile agree to the probation of the cooperation?

A. If it gives profits to many parties, I think they will like. ----------------------- Q. Are there any specific written permission? -------------------------------------- A. The direct discussion between CEO’s as business partners. Finally,

procurements are performed by individual companies and so do the contract but the negotiation is done jointly among them.---------------------

Q. I worry that there is a possibility of pressure from SingTel pressure, assure or force others to perform it.

A. No. We are minority investor. And public realize that it is a good idea for their profits. They see this from their point of view. --------------------------

Q. For your notes.This procurement agreement is not always bad. Telkomsel gets good price. It will be regretted if SingTel Mobile gets better price than Telkomsel.---------------------------------------------------------------------

A. In its implementation, it does not happen. If Telkomsel gets profit, they approve it. ---------------------------------------------------------------------------

Q. Prove that there is no transfer pricing. A. But Telkom as a majority shareholder never object it. Q. Frankly speaking, we get information that SingTel Mobile is minority

but it controls Telkomsel which lead to a question, what is the profit of

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COPYTelkomsel and does this operation benefit to SingTel and does SingTel make decision on procurement and tariff or even transfer pricing. ---------

A. Information that you got is not true. We are not in a controlling position. Telkomsel board of commissioner controls it. Procurement is performed by Board of directors and it is the responsibility of the party assigned by Telkomsel.” -------------------------------------------------------------------------

101. During an investigation conducted in KPPU on 4 July 2007, SingTel

Mobile submitted evidences that the involvement of SingTel Mobile with

Telkomsel is limited only to nominate boards in Telkomsel and monitor Telkomsel

performance:

“Q. What does SingTel Mobile do to Telkomsel apart from nominating someone to be member of Board of commissioner/Board of Director?-----

A. Only that. --------------------------------------------------------------------------- Q. Is it true that to nominate a person conducted only toward the Telkomsel

Annual General Meeting? The general meeting is once in a year and not every year you can nominate your candidate. Thus, it seems that you do not do other things?

A. SingTel Mobile as a shareholder has interests in Telkomsel. SingTel can nominate 2 of 5 people to be member of Board of Director and 2 of 6 people for Board of commissioner. But SingTel Mobile is committed to Telkomsel daily work performance. ---------------------------------------------

Q. Does SingTel Mobile monitor the performance of Telkomsel? A. That’s right. ------------------------------------------------------------------------- Q. How many times are you committed? ------------------------------------------- A. The function is bought from SingTel . I am so sure but not many. ---------- Q. What is the work procedure standard of monitoring and evaluating

Telkomsel? A. We monitor upon the basis of approved budget agreed by Telkomsel

Board of commissioner from and if there are differences, we inform SingTel Mobile that is appointed to be in Board of commissioner, and it within the discretion of SingTel Mobile.

Q. Who does conduct tender? Do you monitor it? --------------------------------- A. Tender is conducted by using Telkomsel as intermediary. The director in

charge is not a party assigned by SingTel Mobile.---------------------------- Q. In deciding intermediary, does SingTel Mobile have role? The selection

of most favorable vendor? -------------------------------------------------------- A. No. SingTel Mobile does not have role. Telkomsel does it and they use

their way. ---------------------------------------------------------------------------

102. During an investigation conducted in KPPU on 23 July 2007, SingTel Mobile

submitted evidences that SingTel Mobile (through corporate service agreement of

SingTel , not Temasek) monitor the performance of Telkomsel: -------------------------

Q. What kind of services from SingTel to Telkomsel?-----------------------------------

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COPYA. The service from SingTel to SingTel Mobile is performing monitoring in the

investment . -------------------------------------------------------------------------------- Q. What are things included in investment monitoring ? ------------------------------- A. Including observes SingTel Mobile party appointed in Board of commissioner.

To check/analysis, to report/problem and, giving recommendation to SingTel Mobile appointed in Board of commissioner. The final decision is made by SingTel Mobile and its views depend on balloting result of the boards. ----------

Q. Can you be more specific on the report accepted by SingTel Mobile from Telkomsel? --------------------------------------------------------------------------------

A. Annually, Telkomsel Board of Director gives report. Report check and analyzed by me and I last give recommendation to party that is appointed by SingTel Mobile at Board of commissioner. And also ad hoc affairs submitted by Board of commissioner. The matter will be studied and recommended. ------

During the investigation, SingTel Mobile also submits evidences that

SingTel Mobile is staying away from determining tariff policy of Telkomsel: --------------------------------------------------------------------------

“Q. If we analysis economically, the tariff of Telkomsel is high. Does

SingTel Mobile realize it?-------------------------------------------------------- A. No. SingTel Mobile does not involve in tariff fixing. It is fixed by

Telkomsel Board of Director .---------------------------------------------------- Q. So it is fixed by Board of Director? ---------------------------------------------- A. Exactly. The Director of commerce has a flexibility to perform short-

term advertising, but it is delivered to the policy of President Director assigned by Telkom. --------------------------------------------------------------- Q. Is there any SingTel boards from the parties appointed in Telkomsel Board of commissioner? ----------------------------------------------------------

A. No. ------------------------------------------------------------------------------------ Q. Is there any Temasek boards from the parties appointed in Telkomsel

Board of commissioner? ---------------------------------------------------------- A. No. ------------------------------------------------------------------------------------ Q. We limit Temasek Group as a company that owns shares, directly or

indirectly. Thus, how do you know that they are not in one company mentioned in this definition? -----------------------------------------------------

A. Since the very beginning we disagree with the term Temasek Group. ------- Q. We do not ask your agreement. We believe that among the companies

where Temasek directly or indirectly hold shares it is part of a group.---- A. We disagree but however the people are our employee. ----------------------- Q. We don not care whether you agree or not. Do they serve as boards in

one of Temasek Group? ----------------------------------------------------------- A. No. They are SingTel employee. -------------------------------------------------

Q. To the 2 people appointed in Telkomsel Board of Director, the questions is the same. Is one of them or both in Temasek Boards or related to Temasek?----------------------------------------------------------------------------

A. No. They are employees of Telkomsel nominated by SingTel Mobile.----- Q. In your opinion, is one of them or both employee to a company related to

Temasek, apart from a company that hire them-------------------------------- A. No. ----------------------------------------------------------------------------------- Q. SingTel Mobile does not worry with Telkomsel tariff ?------------------

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COPYA. SingTel Mobile is not committed to the daily performance. The Board of

Director fixes the tariff. ----------------------------------------------------------- Q. Is there any SingTel Mobile policy concerning dividend from

Telkomsel?-------------------------------------------------------------------------- A. There is no SingTel Mobile policy concerning Telkomsel dividend. ------- Q. What do you mean?----------------------------------------------------------------- A. SingTel Mobile does not determine policy for Telkomsel. ------------------- Q. So, what is your policy? Are all dividends are paid or the profits

obtained are re-invested?---------------------------------------------------------- A. We have no special policy. -------------------------------------------------------- Q. Shall be the whole dividends paid? ----------------------------------------------- A. We have no policy for Telkomsel to pay all profits as dividend or to be

kept to be re-invested. ------------------------------------------------------------- Q. It means that you never ask whether the dividend will be re-invested or

not?----------------------------------------------------------------------------------- A. Dividend is determined by Board of commissioner and it depends on

GM. ---------------------------------------------------------------------------------- Q. Thus. T can be concluded that if there is no policy you never ask whether

the dividend will be kept by Telkomsel to be re-invested or not? ----------- A. As far as I know, It’s correct. But we also never ask on the profits paid as

dividends. It is decided by Board of commissioner.--------------------------- Q. Thus. What is your opinion on your appointment about that? ---------------- A. Our Minority is only in Board of commissioner. ------------------------------- Q. But you have big influences here. You have 35% shares and you appoint

2 people in Board of commissioner. --------------------------------------------- A. We are only minority and out appointing relied on Telkomsel interests.” --

103. ----------------------------------------------------------------------------------------------------A

s it mentioned in paragraph 53-55, Temasek and Reported Parties 2 to 9 do not get

involved in monitoring or evaluating of Indosat or Telkomsel performances. The

evidences indicate that Temasek and Reported Parties 2 to 9 have no information on

the performance or management policy of Indosat and Telkomsel, therefore the

debate on the cooperation of Temasek (direct or through Reported Parties 2 to 9)

and Reported Parties 2 to 9 to manage operational policy and decision of Indosat

and Telkomsel is groundless. ------------------------------------------------------------------

THE ABSENCE OF JUSRISDICTION;-------------------------------------------------------

104. Based on Article 1 (18) of the Law No.5/99, KPPU is given an authority to

monitor only “business actor that perform its business activity so that they do not

practice monopoly and/or unfair competition .”

Pasal 1 (5) Undang-Undang No.5/99 menjelaskan apa itu “pelaku bisnis” : ---------------------

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COPY

105. Article 1 (5) of the Law No.5/99 defines “business people” :

“Business actor is an individual everyone or corporate, whether it is corporate body or corporate body founded and domiciled or conduct activities in the territory of jurisdiction of the Republic of Indonesia, either its own or together through agreement, carry out various of business activities in the field of economy.” ---------------------------------------------------

106. It is contradictory with the statement of KPPU in part A.1 on analysis of the third

report, none of Temasek or Reported Parties 2 to 9 are business actors as it is

described in Article 1 (5) of the Law No.5/99. Temasek is not in a jurisdiction of

KPPU.

107. As it is known that Temasek and Reported Parties 2 to 9 are founded and

domiciled in Singapore (ICL is founded in Mauritius), not in Indonesia.

108. Therefore, in order to have Temasek accorded with the definition of business

actor in as it is in Article 1 (5), KPPU in third report, put it only in economic

doctrine stated that the activity of Temasek Business Group is bounded in the

territory of Indonesia.

109. Meanwhile, the argument of KPPU on this matter is far beyond the truth. A series

of KPPU’s reasons are as follows:

(a) Temasek and its subsidiaries called “Temasek Business Group” considered as a single economic entity. With this reason, according to Article 1 (5) UU No.5/99 any deed of Temasek’s subsidiaries can be justified to Temasek --------

(b) Temasek Business Group is committed with its activities in Indonesia due to its control over Indosat and Telkomsel. ------------------------------------------------

(c) Another alternative from part (b) above is the reason why Temasek Business Group is committed with its activities in Indonesia simply because Temasek Business Group invest in Indosat and Telkomsel. ------------------------------------

110. The three statements are groundless.

111. It needs to be concerned that Mr. Pasaribu has concluded that “business actor” is

clearly defined in Article 1 (5) the Law No. 5/99, therefore the usage of “business

group” or “ultimate parent” in determining jurisdiction is not clear. -------------------

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COPY112. In an expert report on 27 August 2007, Professor Hikmahanto Juwana (“Professor

Hikmahanto”), a jurist that is proposed by STT Group A, has a notion that the

doctrine of single economic entity is unknown to the law of Indonesia. According

to Professor Hikmahanto, even if the concept exists, it can be accomplished only

by the following requirements: (i) there is common management between ultimate

holding company and subsidiaries ; (ii) the plan of holding company also covers

economic activities of its subsidiaries; and (iii) subsidiaries are not allowed to

argue to the action set in company management. The fact of share ownership is

not enough to accomplish the requirement. The copy of Professor Hikmahanto’s

testimonies can be found in the lawsuit of KPPU. ---------------------------------------

113. Besides, by referring to the performance of anti monopoly authority in other

countries, KPPU has indirectly agreed that the Law No. 5/99 shall be assumed to

be in line with the law principle internationally and the standard applied by the

more sophisticated system of competition law.

114. Temasek has submitted an expert opinion of Dr Frank Montag (“Dr Montag”), a

partner in antitrust, competition and trade (ACT) group in Freshfields Bruckhaus

Deringer, one of the biggest business law firm in the world. Having its residence

in Brussel, Dr Montag focuses its practices on the law of competition in Europe

and Germany. For years, Dr Montag considered to be one of competition expert in

Europe by Chambers Global, European Legal 500, Global Competition Review,

Global Counsel magazine and Juve. The copy of Dr Montag’s opinion is enclosed

as an evidence D. -----------------------------------------------------------------------------

The application of single economic entity doctrine;-----------------------------------------

115. As it is stated by Dr. Montag that under the law of European Union and Germany,

the holding company and its subsidiaries remains to be a single economic entity

only if the subsidiaries do not have freedom to act and to get absolute economy.

When a subsidiary has an economic independency supported by its holding

company, the two must be considered to be separated economic entity. -------------

116. Dr Montag states that the problem of economic independency, or autonomy, can

alter certain fact in every case. Specially, the relevance of share ownership in

subsidiaries, board of directors the composition of both companies, and how far

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COPYholding company influences policy or instructs its subsidiaries. Particularly, in the

case of joint venture. The company is not called common economic entity as one

of the holding company, unless the holding company enjoy certain rights enabling

to control, or unless both holding company coordinates their decision relating to

joint venture. So, joint venture in fact is not autonomous -------------------------------

117. As it is mentioned in item 88 to 91 above, Minister of BUMN has considered (and

agree) with the structure of share ownership of Indosat and Telkomsel concerning

to acquisition by ICL/ICPL to the share of Indosat. It is important to know that in

its consideration Minister of BUMN does not assume that Temasek and Reported

Parties 2 to 9 are Business Group. The white paper clearly mentions that “SingTel

and STT are managed independently and compete in Singapore and in other

markets.” The presupposition of KPPU about “Temasek Business Group” does

not only fight against fact but also disagree with the previous conclusion stated by

other government institution and hearings before member of parliament

(MPR/DPR). -----------------------------------------------------------------------------------

118. In such a condition, KPPU failed to prove the assumption that Temasek is a single

economic entity with Reported Parties 2 to 9. --------------------------------------------

The pretext of the control taking over of Indosat and Telkomsel; -----------------------------

119. Although there is a contradiction to the fact that Temasek and Reported Parties 2

to 9 considered as single economic entity, the problem is that Temasek or

Reported Parties 2 to 9 do not control Telkomsel and Indosat.--------------------------

120. KPPU tries to prove the presence of control based on fact that SingTel and STT

are not passive investor in Telkomsel and Indosat, and Temasek is acting as

controlling company.--------------------------------------------------------------------------

121. However, such factors are not adequate supportive evidences to prove the

allegation that Temasek and/or Reported Parties 2 to 9 controls Indosat and

Telkomsel. The fact that the shareholders are not passive investors cannot be

compared to company control in whatever reasons. -------------------------------------

122. KPPU supports its consideration from the article written by Ezrachi and Gilo that

written “in European Union, even passive investments is considered to minimize

competition, especially in a concentrated market that infringe the law of

competition.” First of all, it is not relevant related to Indosat and Telkomsel that

are controlled by ICL/ICPL and later by SingTel Mobile. This article does not

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COPYjustify an assumption expressed by KPPU, either on page of reference or in any

other parts. The conclusion of the article states that passive investment can cause

anti-competition effect when the relevant market is concentrated. Such effects do

not always occurs in the competition law of European Union. Indeed, the main

purpose of the article is to identify similar transaction that is not argued under the

regulation of competition law in European Union, as it is expressed clearly in the

article’s abstract: “The article identifies a coverage of transactions that potentially

affect competition; however they remain unchallenged under current regulation.” 78 -------------------------------------------------------------------------------------------------

123. It is seen that the assumption of KPPU on effect of minority investment at Indosat

and Telkomsel based on article is (i) not relevant at all, and (ii) the statements and

the assumption of KPPU is contradictory. -------------------------------------------------

124. Holding company is not automatically having a control over its direct and indirect

subsidiaries. Additionally, the indirect subsidiary is able to decide to perform its

own investment. -------------------------------------------------------------------------------

125. Therefore, KPPU cannot easily assume that minority investment in Indosat and

Telkomsel give by itself a control to such companies. The available evidences

show the facts; especially those relating the amount of share ownership and

shareholders involvement or holding company are under the management of

subsidiary and investee companies. ---------------------------------------------------------

126. In aquo case: -----------------------------------------------------------------------------------

(a) ICL and ICPL only control 41.94% of Indosat shares, whereas SingTel Mobile only owns 35% of Telkomsel shares; ICL/ICPL and SingTel Mobile are only minority shareholders in the two companies. ----------------------------

(b) The statutes of Telkomsel and Indosat do not give SingTel Mobile and ICL/ICPL veto right to influence the business strategy decision of the both companies. There is no agreement between SingTel Mobile and ICL/ICPL, and also other shareholders in Telkomsel and Indosat to let them possess veto rights. ------------------------------------------------------------------------------

(c) Out of 9 members of Indosat board of directors, there are only 4 nominated by ICL/ICPL. ICL/ICPL only nominates 6 of 10 members of Indosat commissioner board which the rest are accomplished by one independent commissioner and one by Qatar Telecom through ICL. Temasek nominates none for the Indosat board of directors and commissioner, and none of the directors and commissioner become members of Temasek board of director --

(d) Out of 5 current members of Telkomsel board of directors, there are only 2 nominated by SingTel Mobile. SingTel Mobile only nominates 2 of 5 members of Telkomsel commissioner board. Temasek nominates none for

78 ibid p. 327.

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COPYthe Indosat board of directors and commissioners, and none of the directors and commissioner become members of Temasek board of director -------------

(e) The fact is that neither Temasek nor Reported Parties 2 to 9 controls, manages and influences the policy and decision made by Indosat and Telkomsel one way or another. ------------------------------------------------------

127. The facts conclude that ICL/ICPL and SingTel Mobile do not have control to

Indosat and Telkomsel. -----------------------------------------------------------------------

128. In fact, there is a body that control Indosat and Telkomsel, It is not Temasek but

the Government of Indonesia ----------------------------------------------------------------

(a) In addition to its share ownership in Indosat, the Government of Indonesia holds A series shares in the companies, as a consequence it has special voting and veto rights over the strategic problems as it stated by the Statutes. The Government of Indonesia also has rights to select at least one director and one commissioner in Indosat. At this time, 5 of 9 Indosat directors (including president director) and two of board of commissioner of Indosat are the representatives of the Government of Indonesia. In 2002, when the divestment of Indosat shares to STTC, President Director of Indosat agreed to be always appointed by the Government of Indonesia under the agreement with STTC. -----------------------------------------------------------------

(b) Related to Telkomsel, the majority shareholders (65% shares) is Telkom. Telkom appoints 3 of 5 Telkomsel directors and 3 of 5 Commissioner Telkomsel. The majority shareholder of Telkom is the Government of Indonesia. --------------------------------------------------------------------------------

129. The facts that the Jakarta Post Newspaper on 25 October 2007 wrote an

awkwardness in the investigation of KPPU: ----------------------------------------------

“The government controls PT Telkom, which in turn owns 65% of Telkomsel, the country's largest cellular operator, and consequently appoints the majority of its directors and commissioners. ------------------------------------------------------ Temasek, through its subsidiaries, owns only 18.9% of Telkomsel. ---------------- On the other hand, Temasek, also through its subsidiaries, holds 30.61% of Indosat, the country's second largest mobile operator, with 14.29% owned by the Indonesia government, 10.20% by the Qatari government and 44.89% by the investing public, including foreign institutional investors. ----------------------- Even though the Indonesian government owns only 14.29% of Indosat, it succeeded in appointing five of the nine members of the board of directors, including the president director. More than half if its nine-member board of commissioners were either representatives of the government or independent commissioners. ----------------------------------------------------------------------------- The government holds a golden share (A share) in Indosat which gives it veto power over important corporate decisions.----------------------------------------------

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COPYWhat then is the logic of the KPPU findings? Wouldn't those allegations also insult the intelligence of the investing public, including foreign institutional portfolio investors, who own 44.89% of Indosat and 47.77% of Telkomsel? ------ If the conclusion of the investigation team is true, which theoretically should be the case because, as the vanguard and defender of fair business competition, the KPPU is supposed to come out with an assessment that has logic and makes economic sense, that would be worrisome indeed. ------------------------------------ But the question then is how could Temasek, despite its cross-ownership at Indosat and Telkomsel, control both companies and dictate their prices while the Indonesian government simply sat back and relaxed, acting as a seemingly innocent bystander.------------------------------------------------------------------------- What then is the function of government-appointed directors and commissioners at both cellular operators, and why did the Telecommunications Regulatory Body close its eyes to the alleged price fixing? -------------------------- Has the government been ignorant or grossly incompetent in recruiting and appointing directors and commissioners? ----------------------------------------------- Is the way the government treats and oversees Indosat and Telkomsel typical of its management and supervision of the other 128 state companies?----------------- It is Telkomsel, which is 65% controlled by state-owned Telkom, that would benefit the most if Temasek deliberately hampered Indosat's business growth, as the KPPU team concluded. What is the logic of this? It simply insults the intelligence of even the man on the street, because Temasek indirectly holds only 18.9% of Telkomsel. ----------------------------------------------------------------- These are just some of a layman's questions about the logic of the most important conclusions of the KPPU report.”

The copy of this article is enclosed as an Evidence E ------------------------------------

130. Mr. Pasaribu also finds that Telkomsel is a subsidiary of Telkom (and not SingTel

Mobile).-----------------------------------------------------------------------------------------

131. Therefore, either Temasek or Reported 2 to 9 excluded from the definition of

performing activities in Indonesia, as it is mentioned in Article 1 (5) of the Law

No. 5/99., on the presence of control over Indosat and/or Telkomsel.

The fact concerning investments in Indosat and Telkomsel;-------------------------------

132. Another KPPU’s arguments is on controlling Indosat and Telkomsel. KPPU bases

its argument on the ties of Temasek Business Group with the activities in

Indonesia due to its investment in Indosat and Telkomsel. ------------------------------

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COPY133. The allegation is groundless. According to Professor Hikmahanto Juwana, law

expert that propossed by STT Group A, states in its report delivered to KPPU:----

“I want to affirm that explanation KPPU on term “business actor” during preliminary investigation is wrong. In my opinion, foreign corporations cannot be qualified as business actor because they have to perform their activities directly in Indonesia. ------------------------------------------------------- STT, STTC,AMHC,AMH, ICL and ICPL only have shares in Indosat Plc., directly or indirectly, and KPPU cannot prove that they get involved in any operational decision. Under Competition Law, such companies cannot be qualified as performing activities and be mentioned as business actor.”--------

134. If KPPU interprets correctly “managing activities in the territory of the Republic

of Indonesia”, the Article 1 (5) cannot be implemented and make any investors (in

any form of investment) to be “business actor”, under the requirement of Article

1(5). The result is illogical caused by KPPU’s complicated interpretation.-----------

135. In its dissenting opinion, Mr. Pasaribu concludes that shareholders in Indonesian

company cannot be compared to the deeds of performing business activities. The

first investment in Indosat and Telkomsel is activities in capital market not in

cellular market. To find a jurisdiction, the evidences of Temasek and/or Reported

2-9 in the business activity or business transaction of cellular telecommunication

in Indonesia. In this case, the evidences are not found. ----------------------------------

136. In the third report, citing the definition of “Investment” in the Law No.25/2007 on

investment is defined in Article 1 (1) as follows: ----------------------------------------

“Investment is any kind of activities on investing, either by domestic or foreign investors to perform business in the territory of the Republic of Indonesia.” -----------

137. The third report also cites Article 1 (3) of the Law No.25/2007 on investment:------

138. “Foreign investment” is an activity of investing to perform business in the

territory of the Republic of Indonesia by foreign investor, either foreign capital in

whole or joint venture with the domestic investor.’---------------------------------------

139. KPPU bases on this rule to conclude that “The Investment of Temasek Business

Group aims at creating business acess to the territory of the Republic of

Indonesia.” (See paragraphs 9-11 of the Analysis of Third Report) --------------------

140. The conclusion of KPPU: --------------------------------------------------------------------

(a) The two stipulation cited by KPPU depicts a clear difference between

“investing activity” in one side and business implementation in Indonesia on

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COPYthe other hand. However, KPPU has already concluded both different concepts without explaining why the allegation to the investment of “Temasek Business Group” “intended” to perform business in Indonesia. -----

(b) The description of KPPU is in the contrary on its own. In one side, there is clear differences between passive and active investors, and on the other it implicitly state that any investment will be automatically classified as business activities in Indonesia. ------------------------------------------------------

(c) The Law on Limited Corporation (the Law No.1/1995 amended with the Law No.40/2007) and the law on Investment does not recognize controlling company as a form of businesses. Investment Coordinating Body (“BKPM”) has clearly positioned in this problems. In 2004, BKPM canceled a regulation (THE DECREE OF THE HEAD OF INVESTMENT COORDINATING BODY NUMBER57/SK/2004 YEAR 2004 ON THE GUIDELINE OF INVESTMENT APPLICATION THAT FOUNDED IN ORDER TO BOOST DOMESTIC INVESTMENT AND FOREIGN INVESTMENT) that permit establishing holding company under the law of investment. Further, as it is cited by Ratnawati Prasodjo, former Director of General Corporate Body department of justice (now Department of Law and Human Rights) and one drafter of the Law of Corporation. The Law of Corporation does not recognize share ownership or investment in other company as a form of business.-------------------------------------------------------

141. In accordance with that, it is clear that Temasek and also Reported Parties 2 to 9

are not business actors under the meaning of Article 1 (5). Due to the reason, the

statement of KPPU has already been null and void since its inception-----------------

THE ABSENCE OF MAJORITY SHAREHOLDERS ; --------------------------------------

142. Although, it opposes against the opinion above, Temasek can be considered as

business actor under Article 1 (5) of the Law No.5/99; its facts shows an

infringement of Article 27 (a) of the Law. -------------------------------------------------

143. Article 27 (a) of the Law No.5/99 states:--------------------------------------------------

“Business actor is prohibited to have majority shares at some similar companies that conduct business activity in the common field at the commone relevant market , or establish some companies that have business activities at common relevant market , if the ownership resulted: -------------- (a) one business actor or one group of business actor control more than

50% (five percents) market share of one goods or certain service.” ----

144. Article 27 (a) only prohibits ownership of majority shareholders in some

companies, under certain conditions. This Article does not prohibit an ownership

from other type of majority shares. ---------------------------------------------------------

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COPY145. As it told previously, Temasek or one of Reported Parties 2 to 9 have “majority

shares” in Indosat or Telkomsel. ICL/ICPL only has 41.94% of majority shares in

Indosat and even SingTel Mobile has smaller majority shares in Telkomsel, 35%.

Precondition is important in applying Article 27 (a) not accomplished. ---------------

146. State Minister of BUMN has clearly stated that the interests of shareholders

ICL/ICPL and SingTel Mobile at Indosat and Telkomsel does not meet

qualification as majority shareholders. As it is stated in paragraph 90 and 91

above, the White Paper states clearly that “Telkom controls the majority of

Telkomsel” and “The ownership of STT in Indosat through ICL (ICPL) is not

majority (less than 50% from the enlisted shares in Indosat). The ownership of

Singaporean company in Telkomsel also less than 50%.” In other word, MENEG

BUMN and also parliament in Indonesia has taken into consider to choose the

word for Article 27 (a) and interpreted majority shareholders in number (less than

50%). --------------------------------------------------------------------------------------------

147. ICL/ICPL and SingTel Mobile do not have more than 50% of share in Indosat

and Telkomsel. Therefore, it does not accomplish Article 27 (a).----------------------

148. In order to avoid problem, KPPU defines “majority share” in Article 27 as

“majority ” of a company. Besides, KPPU also interprets “majority” widely

including de facto control to a company’s policy. KPPU states that any ownership

more than 25% of the majority shares inflict problems to its majority shareholders

below 25%.-------------------------------------------------------------------------------------

149. There are two reasons why the conclusion is not true. First, the description of

KPPU on “majority share” is not consistencies at all either its source definition or

the intention of its form. It is not also supported by argument that KPPU trusts.

Second, in KPPU’s broad construction, Indosat and Telkomsel are not controlled

by Temasek or one of the Reported Parties 2 to 9. ---------------------------------------

The Fair Forming of “majority share” in Article 27;-----------------------------------------

150. The interpretation of KPPU on “majority share” is indefensible, either from the

perspective of Indonesian of from anti-trust law in other jurisdictions. ----------------

151. Based on Indonesian law, Professor Hikmahanto Juwana, the law expert proposed

by STT Group A, states in its report delivered to KPPU: -------------------------------

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COPY“The conclusion I can take from the meaning of “own majority shares” is majority shareholders must have more than 50% (fifty percent) of company’s sold shares and paid up capital. ----------------------------------------- Under Article 27 of Competition Law, ICL and ICPL (direct shareholders in Indosat) only have 40.8% of Indosat shares, STT, STTC, AMHC, AMH, ICL and ICPL. Therefore, they cannot be called “own majority shares” of Indosat. ......... The concept of significant influence is not recognized in Indonesian corporation law and for this reason, the meaning of “own majority shares” cannot be determined by using the concept. The KPPU’s approach on majority share in Second Report is inaccurate and it is not applicable judicially. In my opinion, as t mentioned in the beginning of the paragraph, “majority shares” is majority shareholders above 50% (fifty percent) of company’s sold shares and paid up capital. It is importance to be underlined that significant influence is not relevant test according under the law of Indonesia in determining whether majority share exists, and it is judge’s fault that to determine a decisions is part of KPPU.” ---------------

152. The conclusion of Professor Hikmahanto Juwana is based from the definition of

“majority share” in Indonesian corporation law. He explains laws in its report as

follows: -----------------------------------------------------------------------------------------

“Pivotal reference laws are as follows: ---------------------------------------------- a. The Law No. 1/ 1995 on Limited Corporation (“UUPT”)---------------------- b. The Law No. 8/ 1995 on Capital Market (“UUPM”) c. The Law No. 19/2003 State-Owned Company (“the Law of BUMN”) ------ “Usable reference Law are as follows:----------------------------------------------- a. The Law No. 1/ 1995 on Limited Corporation (“UUPT”)---------------------- b. The Law No. 8/ 1995 on Capital Market (“UUPM”) c. The Law No. 19/2003 State-Owned Company (“the Law of BUMN”) ------ a. Based on UUPT, the definition of “own majority shares” is not found.

b. Based on UUPM, elucidation Article 15 paragraph 2 explained: ----------

“Share Majority is shareholders that have more than 50% (fifty percent) of company’s subscribed capital and remit.” ------------------- The explanation of UUPM is interpreted that majority shareholders is shareholders that have more than 50% of sold share and paid up capital.---------------------------------------------------------------------------

c. Based on the Law of BUMN , the meaning of “own majority shares” is not used. Nevertheless, there is an equal meaning. In the meaning of “a large part of” can be seen in Article 1 number 1 and 2 of the Law of BUMN .-----------------------------------------------------------------------------

Article 1 (1) is:--------------------------------------------------------------------- “State-owned Enterprise, hereinafter referred to as BUMN, is a corporate with its capital owned by state through direct equity of dissociated national wealth.” ---------------------------------------------------

In which Article 1 (2) further states: -------------------------------------------

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COPY“Company, hereinafter referred to as Persero, is a limited company of BUMN with its capital divided into shares owned in whole or at least 51 % (fifty percent) by the Republic of Indonesia aiming at having profits.”----------------------------------------------------------------------------

153. It is common that words in law are not ambiguous. As it expressed by Prof Dr Jimly

Asshidiqie, the Chief of Constitution Court, in Concerning Laws, if its legal

requirement is clear, a court must apply the rule in accordance with existence

whatever result it is. If law is clearly showed (express verbis) there will be no space

for the court to interpret inversely. In this case, the term of majority share has been

self explanatory and not ambiguous that make ti no space for other interpretation. ----

154. There is a similar perspective with international law on anti-trust. The most

acceptable interpretation of “majority shares” is the percentage of majority

shareholders. Dr. Frank Montag in his capacity as an expert said in his report that

irregularity and exclusion of prohibition in Article 27, by comparing to the

antimonopoly Law in other jurisdictions, requires an understanding of majority

shares”. Based on international anti-trust regulation and the scheme of the Law

No.5/99 as a whole, the function of creating this Article is to have a similar

perception on Indonesian law such as the obligation of shareholders to have more

than 50% of paid up capital in the sense of controlling. ------------------------------------

155. The KKPU’s argument is based on the grammatical, systematical and teleological

perspective of Article 27. The same goes for understanding regulation and practices

in other countries:--------------------------------------------------------------------------------

a) KPPU admits that “grammatical” understanding of Article 27 interprets “majority shares” as a holder of more than half of company’s shares. Yet, KPPU refuses such an understanding. Relating to a number of more than one share classifications in a company, the understanding is too narrow79. The understanding is applicable if it needs de facto statement on whose controls a company. The problem is on the understanding of majority shareholder. The rejection of KPPU on the grammatical interpretation is a test for lawmaker bodies. -------------------------------------------------

b) The systematical and teleological interpretation of KPPU in Article 27 relied on wide understanding of company80 decision maker. The interpretation is its own willingness and relied on the intention to refuse to what has been gauged clearly in

79 Third report, Analysis, paragraph 7 -13 80 ibid, paragraph 14-20 and 22 -25

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COPYthe regulation. Legislative Body can select to put “majority shares” as a de facto control but it is not conducted.-----------------------------------------------------------------

c) Based on the discussion and observing other regulation on majority shareholder, KPPU conclude that no available legislative regulation defining majority shareholder but controlling shareholders81. If it happens, Article 27 of the Law No.5/99 supports Temasek in control of the shareholder and not a percentage of shareholders. Therefore, it is better to write it as the existence of “controlling shareholding” in some companies rather than majority shareholder. ---------------------

d) KPPU gives coherent statement that in European Union, share acquisition that does not cause control changing in competitor’s company is arranged by an “unfair competition law” 82. The statement is imprecise because there is no such a law. There are also no such Ezrachi and Gilo Artcile, which then directed by KPPU regarding to such a law. It is true that cases of share acquisition and the effect of its consequences might be regulated by Article 81 and 82 of European Union agreement in which the conditions of the Article have been accomplished but it gives no clues for the interpretation of Article 27 of the Law No.5/1999 that has different stipulation. The Law No.5/1999 contains wide stipulation as it Article 81 and 82: it is regulated (particularly) in Article 4-16 and Article 25. The conclusion is that the Articles in Ezrachi and Gilo resemble to with the Law No.5/1999 on the kernel of the problem and not different regulation of Article 27 that has no similarity with Article 81 or Article 82. ----------------------------------------------------

e) The discussion of KPPU on controlling merger in other territory of jurisdiction83 is very irrelevant, because it discusses other competition issues. Since the very beginning it leads to share acquisition: they then apply ex ante regulation. As early as 2001 to 2002, Article 27 was exercised as ex post to shareholders. Every jurisdiction on merger prohibition is only applicable to a company that has performed merger or the company to merger infringes competition.84 Anti-competitive effects in Article 27 is not explicitly found, and KPPU also does not mention such conditions in its legal analysis. The different perspective on law and the different implementation, no supportive understanding on “majority shares” in Article 27 cannot be found. Finally, Dr Montag states that the understanding illustrated at extraordinary occurrence in Article 27 by comparing to stipulation of modern anti-trust system, then it is suggested to adapted original understanding in arranging shareholding requirement.

81 ibid, paragraph 26-29 82 ibid, paragraph 34 83 Ibid, paragraph 30-22 and 35-43 84 In UK, merger is allowed only if Competition Commission determine that the merger “result of expected to result

the decrease of competition in any market of goods and services in UK.” (Part 35(2)(a) Enterprise Act 2002). Under the merger regulation of European Commission, merger is prohibited if “intentionally disturb the effectiveness of market competition especially if it results strong dominant position” (Article 2(3) of Regulation 139/2004/EC.

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COPY156. KPPU intend to justify its interpretation to Article 27(a) of the Law No.5/1999 by

stating the following reasons: ------------------------------------------------------------------

(a) If Article 27(a) applied literally only when there are majority shareholders, it will not prevent loss to competition and public interest caused by a conspiracy among minority shareholders that control some companies. --------

(b) The elucidation of the Law. No.5/1999 determines that one the objectives is to prevent economic concentration. Therefore, Article 27 (a) must be read as a measurement to economic concentration.

(c) The legislative banking regulation and capital market depict “controlling” company/shareholders as a unity with shares ownership of less than 50% in company.---------------------------------------------------------------------------------

157. The following proposed reasons are groundless -----------------------------------

(a) If minority shareholders conspire to lessen competition in the market, this conspiracy can create cartel. It can be attacked by Article 11, a trust by Article 12 or Article 4 of the Law No.5/1999.------------------------------------

(b) The Law No.5/99 does not prohibit market concentration. The Law No.5/99 prohibit abuse of the concentration. It elucidated in Article 25 of the Law No.5/99.----------------------------------------------------------------------------------

Article 25 permit a group of business actor to hold 75% or more of available market without any abuse. In its own case of KPPU, group of business actor may control of 75% or more of the market through its ownership of minority shares in some companies. In the case, Article 27 must be read as an exemption to public freedom regulation that is specifically regulated in Article 25 – in which Article 25 allow group of business actor control 75% or more of the market, Article 27 (a) prohibit such control, if is is performed by group of business actor (literal understanding) with majority shareholders in separated competitor’s company.---------------------------------------------------------------------------------

(c) First, legislation delivers to KPPU to use word “owner of majority shares” and not “majority shareholders”. Second, the statute is used in the different purpose from the Law No.5/99 and the usage is not proper even it can be made as analogy. In so many activities, KPPU does not concern to Indonesian legislation as it mentioned by Professor Hikmahanto in its report (see above); the legislation intend to be in line with the Law No.5/99 and clearly illustrates that “majority shareholders ” must be interpreted as the share owner 50% bigger in a company.---------------------------------------------

158. The discussion of KPPU has already been misdirection in its effort to implement

Article 27 as a stipulation of retroactive controlling merger. As a whole it is null

and void. The Law No.5/99 consists of the rule of controlling merger: as it

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COPYregulated in Article 28 and 29. Article 27 is not available as law that regulate

controlling merger, and this stipulation basically differs from the stipulation of

controlling merger. It highlights problem that any effort to put on the concept of

controlling merger is irrelevant with the construction that is prohibited to some

different types, in the framework of structural condition of ownership of majority

share. Furthermore, the implementation of Article 27 by KPPU retroactively to

replace Article 28 and 29 boost basic problems on justice and legal insecurity------

159. Mr Pasaribu also has already (dispassionately) agreed in its statement that oppose

against the statement of KPPU that literal interpretation must be given to the

phrase “majority share”. ---------------------------------------------------------------------

There is no de facto control of any Indosat or Telkomsel activities----------------------------

160. Even if KPPU implements correctly the meaning of “majority shares” in Article

27. KPPU remain to show de facto controlling of Indosat and Telkomsel by

Temasek.----------------------------------------------------------------------------------------

161. Temasek and Reported Parties 2 to 9 do not control Indosat or Telkomsel. As it

mentioned in paragraph ## above [shareholders that control Indosat is the

Government of Indonesia and even Telkomsel is not controlled by Temasek or

one of the Reported Parties 2 to 9. Telkom is controlling PT Telkomsel with its

65% of shares]. --------------------------------------------------------------------------------

162. Based on the reason, Mr Pasaribu in its opinion adversatively with KPPU, refuses

allegation of KPPU that base on Article 27. Temasek states that Mr. Pasaribu is

entitled to state his opinion. -----------------------------------------------------------------

THERE IS NO MARKET SHARE CONTROL IF MORE THAN 50%----------------

163. If KPPU disagree with the opinion submitted by Temasek that Temasek does not

have “majority shares” in Indosat and Telkomsel, component in Article 27 (a) of

the Law 5/99 that must beproven later is: --------------------------------------------------

“a business actor or a group of business actor control more than 50% (fifty percents) market share of the type of certain goods or services.” ---------------

164. In the First Report, KPPU rely on the study of Research Institute of LPEM-FE UI

“Study on the loss of customer to the business competition in cellular telephone

industry in Indonesia, 2007” (“Report LPEM”) concluded that “Telkomsel and

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COPYIndosat control more than 50% (fifty percent) of market cellular

telecommunication in Indonesia.”-----------------------------------------------------------

165. The Second Report states that “Telkomsel and PT Indosat, Plc., jointly control 89%

market share or more or less 50% from compartment psar cellular

telecommunications in Indonesia.”------------------------------------------------------------

166. The Second report mention that compartment of alliance market of Indosat and

Telkomsel is more than 50%. Further investigation must be conducted to determine

whether or not Temasek infringed Article 27 (a) the Law No. 5/99. --------------------

167. In the Third Report, KPPU found that in 2006, on the basis of customer amount,

Telkomsel controls 57.79% of the relevant market while Indosat 26.18%. Based on

the business revenues of the same year, Telkomsel controlled 68.08% of the

relevant market and Indosat 21.55%. The allegation of KPPU mentions that

Temasek through Telkomsel and Indosat control more than 50% of the relevant

market in 2006. 85 --------------------------------------------------------------------------------

168. There is some dissociated assumptions in allegation of KPPU: ---------------------------

a) The definition of KPPU on relevant market is true;-------------------------------

b) The calculation of KPPU on market share of Indosat and Telkomsel is true;

and

c) Temasek controls Indosat and Telkomsel and also their market share .---------

169. The assumption is not true. Each of them handles its own business. ---------------------

The Untrue of Market Definition --------------------------------------------------------------------

170. KPPU defines relevant market as “service of cellular telecommunications in any

regions of Indonesia.” --------------------------------------------------------------------------

171. Temasek does not agree with definition in which it is too narrow and keeping aside

the substitution of cellular service, especially fixed wireless access (“FWA”). ---------

85 It is clearly seen that the Table number 3 and 6 provided by KPPU in paragraph 35 and 60 of the Third Report

mentioned that since 2004, alliance market segment of Telkomsel and Indosat is more than 50%.

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COPY172. Based on the report prepared by Spectrum Strategy Consultants on 27 August 2007

(“Spectrum Report”), the definition of KPPU on relevant market is not true.

Paragraph 2.1 of Spectrum Report states: ----------------------------------------------------

We believe that relevant market in this case should be interpreted as market for service basic technology combined mobile and fixed wireless access (“FWA”) if not combined fixed and mobile market itself.”-----------------------

173. Spectrum Report gives some reasons for supporting its statement. -----------------------

174. Firstly, FWA service is a direct subtitusition of GSM service from customer’s point

of view. Although FWA service provides only limited coverage (in which mobile

service provides fully national coverage full [of]), FWA service can consider as

the replacement for mobile service, its reason shall be as follows: -----------------------

a) Area distribution of limited mobility will be bigger and determined by area

code. Area with enormous number of customer of limited mobility in Jakarta and its area is using one area code. It means that mobile service has a little bit benefit in this area.

b) The recognition of service call-forwarding of FWA operator allow customer to receive call outside the coverage area of FWA service. The FWA service is similar to the previous mobile service in which it is only going into effect to limit call-forward outside restricted area, usually area low-usage.-----------------

c) In Indonesia, for an exemption of “Mudik (Going hometown annually, its performed prior to Eid al-Fitr)” period, it is less than 1% of people perform interregional by land, ship, and air monthly. Besides, there is no real need for most Indonesian people performing full mobility, especially since the customers have a call-forwarding to contact its relatives in the area outside their residence.

175. Secondly, most analyse and industry actor consider TWA as part of mobile market,

either in Indonesia and other regional market area: -----------------------------------------

a) The comment and analysis on Indonesian market mostly describe the influence of FWA service in mobile services market competition. The FWA operators offer great discount at standard mobile tariff with low capital expenditure and interconnection costs as well as license.

b) There is a similar regulation perspective in other global markets. The regulation in India and China (in which FWA service has similar market share with Indonesia) implicitly treat FWA service as part of mobile services market in any regulation announcement. ----------------------------------------------

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COPYc) The operators in Indonesia treat mobile service and FWA in common market

share . An operator, Bakrie for instance, prefer not to change their FWA license to full mobile service for the shake of profits, low interconnection bill, and license expense. Operators do not see the limitation of mobility offered by FWA service will put them in advantageous position.

176. Responding to the reason, Spectrum Report concludes:------------------------------------

“Some analysis have been offered concerning relevant market, including fixed services such as in mobile market and fixed service tends to be concentrated by the awareness of fixed-mobile products and mobile substitution. In order to have single definition on fixed and mobile service market, the discussion of inter-states needs to be arranged -------------------------------------------------------------------------- Therefore, the exact market analysis on mobile market shall also involve service of FWA and mobile.” -------------------------------------------------------------------------

177. The report of Dr Cento Veljanovski in Case Associates on [10 August 2007]

(“Report CA”) takes similar conclusion. According to CA Report, there are

differences between service of cellular telecommunications and FWA: -----------------

“We do not find that the difference is a basis for not putting telecommunications FWA service into relevant product market, or an exemption remains to be consistence with the evidence on hand.” ---------------------------------------------------

178. The reason stated in CA Report CA for this conclusion is:-----------------------------------

a. Some coverage area of FWA are not nationwide coverage therefore, most operators of FWA have area codes consisting of significant population proportion, Jakarta as an example.------------------------------------------------------

b. The limitation of area code for most FWA operators that provide the service latter and it enables them to have larger geographical coverage area. -------------

c. The regulation is feasible and included through Mobile Virtual Network Operator in which regulation can be made with other cellular operators to put in the way of FWA operator covering nationwide service.--------------------------

179. Report CA stated that KPPU has failed to justify its statement on the intention of

competition assessment of crossed-ownership regulation. FWA and cellular

telecommunication service are not in common relevant product market. The reasons

stated in CA Report are: ------------------------------------------------------------------------

a) The facts indicate that FWA operators compete directly and tightly with other cellular operators. In an area consisting 2 network types, the FWA operators provide effective and competitive cellular price. It is considered by consumer as a substitution of cellular service. Cellular operator and industrial analyst have explained publicly.-------------------------------------------------------------------

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COPYb) There are evidences that prove that FWA service has captured many

customers in certain areas. Jakarta as an example. The customers of FWA reach to 50% or more than the whole customers of cellular services.

c) For cellular user in Indonesia, mobility is not an important assessment. In 2007, more than 80% cellular calls in Indonesia are local calls, 90% to 95% in urban and rural areas. There is even no national roaming.

180. It has been explained in report of Analysis Consulting Limited on 19 September

2007 (“the First analysis Report”) that FWA service is a potential competition for

cellular operators (on page 6): -----------------------------------------------------------------

“KPPU considers to define market as not only operator of cellular but also Public Switched Telephone Network operator (PSTN) and fixed wireless access (“FWA”) for limited mobility service. KPPU defines economic market as “service of cellular telecommunication within the areas of Indonesia,” on the analysis basis of benefit, characteristic and service price along with the geographical region offering from operators. We adopt this market definition to discuss a competition to take part. It must be noted that FWA service becomes a potential competition to cellular service operator with 2 reasons to state. Firstly, a few years ago in India a regulator was able to change license structure to allow FWA operator provide full mobility service to compete directly with cellular service. Secondly, although there is no change in license structure, improving investment on the current FWA operator is important. The marketing also increase because it attracts customer to enjoy limited mobility service.” ------------------------------------------------------------

181. If KPPU defines relevant market wrongly, the decision KPPU will be null and

void.

“ In defining relevant market, KPPU must have reasons and analysis by attaching evidences. By following international custom, KPPU has wrongly define relevant market and any decisions will be null and void.” -----------------------------------------

182. KPPU makes mistake in defining relevant market. If KPPU fails to amend the

mistakes and to give opportunity to the parties answering and providing claimed

evidence to amend, the decision of KPPU will be null and void at High Court level

or Supreme Court. -------------------------------------------------------------------------------

The calculation mistake of Indosat and Telkomsel’s market shares -----------------------

183. In the First Report, KPPU states that market share of Indosat and Telkomsel (based

on business revenues) are 26.79% and 63.15%. According to the First Report taken

from the report of LPEM. If KPPU bases on the description of LPEM in taking

conclusion, (in the Second Report) that Indosat and Telkomsel “jointly control 89%

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COPYmarket share or at least more than 50% of the of market share of cellular

telecommunications” To the common effect, the Third Report states that the

average of market share of Indosat and Telkomsel during the period of 2003-2006

was 89.61%. Since it is controlled by Indosat and Telkomsel in 2002, their market

share improve from only 83.58%. ------------------------------------------------------------

184. Yet, KPPU fails to explain of why business revenues of Indosat and Telkomsel are

used to calculate their market share when at the same time acceptable and fair way

to calculate market share on the basis of customer domicile in market share and the

number of customers can be conducted. 86 ---------------------------------------------------

185. By using available information in Third Report on the customer basis, the average

market share of Indosat and Telkomsel (based on the number of customer) for the

period of 2004-2006 was only 83.54%. In fact, the Third Report indicates clearly

that market shares of Indosat and Telkomsel (based on the number of customer)

have decreased slowly from 85.85% in 2004 to 81.97% in 2006.-------------------------

186. Even in the case of revenues, market share stated in the Report of LPEM is different

with those in the First Analysis Report), Spectrum Report and CA Report. The three

Reports determine that alliance market share of Indosat and Telkomsel is smaller

than the Report of LPEM. It can be said that allocation of market share in the

Report of LPEM is not suitable with the allocation of market share stated by the

three notable international telecommunication companies. --------------------------------

The incorrect assumption to Temasek concerning market share of Indosat and

Telkomsel

187. The market shares of Indosat and Telkomsel cannot be assumed as Temasek market

share -----------------------------------------------------------------------------------------------

188. As it mentioned above, Temasek will not control neither Indosat nor Telkomsel.

Therefore, there is no basic assumption able to state that market share of Indosat or

Telkomsel are also Temasek market share .--------------------------------------------------

189. Maximally, the assumption that market share of Indosat or Telkomsel is the same as

Temasek’s limited only to a proportional number of its indirect share ownership in

86 See paragraph 106 Analysis part of Third Report

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COPYIndosat or Telkomsel. The method is a calculating method used frequently in the

last research that refer to one of paragraph entitled “Temasek does not running

monopoly: Study” published by Jakarta Post on 3 August 2007: -------------------------

“To nail to the counter to recent allegation provided by KPPU, the last research concludes that Singapore’s Temasek Holdings does not practice monopoly to mobile telecommunication market in Indonesia. ------------------------------------------ “Concerning opinions from many point of views that Temasek does not infringe Article 27 of anti-trust law,” Centre for Strategic and senior economist of International Studies (CSIS), and also former member of KPPU, Pande Radjasilalahi express it in the seminar on competition law in Jakarta. ----------------- The Study, headed by Pande and uses the latest data and calculation of mobile telecommunication industry, states that market share of State-owned Enterprise of Singapore (seen from the viewpoint of operating revenues) valued only 20.12% of the total industries in 2006, and tended to decrease since 2004. --------------------- “Market share of Temasek in industry of mobile telecommunication Indonesia, with the operating revenues, decreased from 21.56% in 2004 to 21.11% in 2005 and then to 20.12% in 2006,” he said. ------------------------------------------------------ He also mentions that gross added value of the company including variable, such as employee’s salary, Temasek holds 19.79% of segment market. “Viewpoint of gross added value also used by KPPU and concerning to this, I find that Temasek does not have market share majority,” he said. ------------------------------------------- Meanwhile, based on a number of customers as the most used variables in determining whether monopoly practices occur or not, Temasek only controlled for around 19.18% of market through its subsidiaries in 2006.” ----------------------- The copy of this article is in Annex F.------------------------------------------------------

190. Under such condition, it is clear that Temasek does not have “more than 50% (fifty

percent) of market share” of relevant market. The substance of Article body 27 (a)

of the Law No.5/99 is not accomplished, the allegation to Temasek is null and void --

THE ABSENCE OF ANTI-COMPETITIVE EFFECTS

Allegation OF KPPU -----------------------------------------------------------------------------------

191. In the three of reports, KPPU concludes that Temasek crossed ownership to Indosat

and Telkomsel have negatively influence to competition nature in the relevant

market. Referring to this condition, KPPU claims a number of important matters: ----

(a) The claim that relevant market is highly concentrated and continued

increasing in the last few time --------------------------------------------------------

(b) The variation of claim of Telkomsel finance statement is good. -----------------

(c) The claim that the performance of Indosat is bad since the share acquisition by ICL/ICPL ----------------------------------------------------------------------------

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COPY(d) The claim stated that Telkomsel has caused bad performance of Indosat. -----

(e) The claim that market characterized by the price leadership of Telkomsel. ----

(f) The claim that the tariff of Telkomsel is excessive --------------------------------

(g) The claim that the absence of “crossed ownership” makes better competition nature in the market --------------------------------------------------------------------

192. Any assumption is not true and in turned it will be handled. Initially, it must be

performed an observation on the development of cellular telecommunication market

in Indonesia to put the discussion of KPPU in the appropriate factual context. ---------

The competition of cellular telecommunication market in Indonesia ------------------------

193. It is stated in the First Analysis Report that there is evidence proving “mobile

market in Indonesia is fair”. In achieving this conclusion, the consideration of First

Analysis Report shall be as follows:----------------------------------------------------------

(a). This Market has 4 active actors and 3 actors that have permit and plan to

widen the market. This is competition resistance to the market power by

Indosat and Telkomsel.

(b). The mobile customer basis in Indonesia has decreased 871% since 2001 and

increase double since 2004. For the year of 2007, Goldman Sachs predicts

that 26 million of new customers will be capture. The growth rate is fair

compare to other countries. It means that Indosat and Telkomsel do not boost

their market power aiming at constraining other operators capture new

customers. The high growth rate is evidence that market power is not

mobilize. So far, it has no loss impact for the growth.

(c).The tariff of three-minute call in peak time is lower than neighboring

countries. Philippine and Vietnam have seen the decrease of tariff in

Indonesia. The price rate in Thailand and Malaysia increased although US

dollar price exchanges decreased. Last year, Goldman Sachs also mentioned

that vote tariffs decreased to 20-30%. Consequently, customers in Indonesia

have enjoyed the low mean value for a number of years that bring to the

improvement of market penetration.

(d). Since 2002, the users of cellular phone have grown stably, except in 2005.

The evidence indicates that the industry in Indonesia gives its advantage for

the customers, especially new users. Yet, the new users are not as enthusiastic

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COPYas the establish users, Indonesia does not see the decrease of user. It estimates

the existence of stable growth in the market penetration. This decrease has

been experience by other country.

194. In the First Analysis Report also found an evidence of aggressive competition

among operators in Indonesia. The followings are factors used as consideration in Analysis Report: ---------------------------------------------------------------------------------

(a) The market share of Indosat has decreased in the last two years. Most of Indosat market share has been lessen and moved to Excelcomindo and Mobile-8. The Indosat collective market shares of Indosat and Terkomsel have been decreased 3% in 2005 to 2006. Market share of Telkomsel is leading boosted by its superior network coverage. If other operators implement their plans to expand coverage power, it is possible to capture new bigger customers. ----------------------------------------------------------------

(b) The users of Indosat and Telkomsel usually overpay for each minute local call during peak hours in weekdays. It is charge only by established operators while the newcomer operators offered lower tariff to convince new customers. With the lower tariff, the newcomer operators not only persuade customers to leave their previous operators but also capture market. The tariffs reflect value and broad covering operators (in the sense of coverage and customers) could obtain more value for the usage and offer on-net calling to largest base. --------------------------------------------------------

(c) Excelcomindo and Mobile-8 have introduced promotions and offers to heighten a number of customers and users. As a matter of fact, Excelcomindo and Mobile-8 aggressively target new customers. It shows that there is a growth barrier in the market. -----------------------------------------

195. Spectrum Report provides common conclusion that “The last condition of mobile

market in Indonesia is competitive, at least compared to other market.” The

following are factors considered in the Spectrum Report:

(a) A number of mobile operators in Indonesian market are bigger than emerging and regional markets. The number of established operators indicates a competition rate in the market. ----------------------------------------------------------

(b) The combination of Indosat and Telkomsel market share, two powerful operators in Indonesia, could be compare to market share of other two big operators in a different market. The combination of market share of the two leading-edge operators in Indonesia shall not generate worriedness over the

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COPYanti-competitive practice compared to other more competed market as assumed. ------------------------------------------------------------------------------------

(c) HHI of Indonesian market is lower than comparable markets and it means that competition level in Indonesian market is higher. Particularly, HHI of Indonesian market is lower than HHI of Chinese and the Philippines market. The degree of comparison in both markets is considered reasonable competitive by analyst. HHI also reflects the improvement of competitive market since STT has shares in Indosat. -----------------------------------------------

(d) Indonesian market is highly developed compare to other markets of the same growth. It indicates that mobile operators in Indonesia aggressively develop their market and its market and no anti-competitive conduct in the market. ------

(e) The extrapolation conducted in the Report of LPEM on consumer loss is not true, the following are the reasons:------------------------------------------------------

(1) The Report of LPEM use data extrapolation of pricing from THAT fly by night; ---------------------------------------------------------------------

(2) The Report of LPEM has inconsistent data source;-----------------------

(3) The Report of LPEM uses unweighted average of PSTN, on-net and off-net tariff; --------------------------------------------------------------------

(4) The Report of LPEM uses comparison that disagree with market majority post-paid; -------------------------------------------------------------

(5) The Report of LPEM uses comparison that disagree with developed market;---------------------------------------------------------------------------

(6) The Report of LPEM is made ineffectively by using headline pricing as a comparison with other markets; and-----------------------------------

(7) The Report of LPEM leans on inaccurate market data. -------------------

The whole extrapolation of customer loss of the Report of LPEM is not true and no other evidence that prove consumer loss.----------------------------------------------- (f) The average revenue per user (“ARPU”) from mobile operators as a

percentage of gross domestic product (“GDP”) per capita in Indonesia is the lowest in the region. It proves that Indonesian GDP per capita is lower than other markets. It indicates a competition in which ARPU describe the percentages of GDP per capita. It is clearly that Indonesian customers are spending comparable or lower proportions of GDP per capita in service mobile than customers in other markets. --------------------------------------------------------

(g) Indonesia has the higher churn rates than its regional peers. It shows a strong indication of a competition in the market and a substantial movement from

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COPYcustomers among operators possibly caused marginal price changes or ongoing promotions.---------------------------------------------------------------------------------

(h) The operators in Indonesia receive a comparison or low return over their assets than operators in other markets. Although operators in Indonesia obtain high margin revenues before interest, taxes, depreciation and amortization (“EBITDA”), the margin EBITDA in Indonesia increases because the method of calculation implemented. EBITDA is not a benchmark in counting profitability for the capital-intensive in Indonesian mobile market. The other measurement is better as a consideration in return on assets (“RoA”) of Indonesian market. Significantly, mobile market in Indonesia is less beneficial than other country. A few profits expected because Indonesia has sovereign rating for foreign currency long-term debts. Therefore, the higher RoA is needed to assure reinvestment, high quality service and sustainable expansion of the network. -----------------------------------------------------------------------------

196. Consider the degree of price competition in the market. The CA Report found

“evidence of past and increasing price competition)” on the basis of following

facts:

(a) The high ARPU indicated by a high tariff and/or a high usage by customer. The ARPU of the three main cellular operators in Indonesia decreased significant in 2002 to 2006 – Telkomsel 42%, Indosat more than 50% and Excelcomindo 65%. The price competition excitement identified as a main reason of the decrease of ARPU. The data source is the finance statements of the two operators and comment of industrial analysts. ----------------------------

(b) The decrease of price showed by other benchmark, Average Revenue per Minute (“ARPM”). ARPM is more specific indicator on average prices of ARPU. The research conducted by Deutsche Bank found that in 2005 and first quarter of 2006, ARPM three cellular operators in Indonesia decrease in significant. Research concludes that there are “more than 20% accumulated vote tariff reductions in 2004-2006” on the calculation of ARPM. At this moment, The ARPM of Indonesia is below the average and among the lowest in Asia.--------------------------------------------------------------------------------------

(c) In fourth quarter of 2006, Indonesia was one of countries that has the highest monthly churn rate among other countries in Asia. The churn rates is not counted explicitly, either customers rotate to select various tariff offered by one mobile operator or among available mobile operators. There is no constraint for customers to move from one operator to another. --------------------

(d) The three operators adopt different pricing strategies such as Indosat IM3 with flat tariff, As Card Telkomsel with differential tariff for daily different time,

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COPYExcelcomindo with differential tariff for different free tariff area. The financial statement of the operators indicate the introduction of new price is always connected to the parameter of wide coverage including the introduction of new single national tariff, flat tariff, starter packs, free subscribing expense, lengthen off-peak period and special offer. The evidence indicates that cellular operators tightly compete one to another by cutting price. Between June 2004 and September 2005, Credit Suisse reports that there is a cutting under of ten-fold for starter package aiming at increasing customer, penetrating mobile, and responding to shrinkage of customer caused by competition among operators. --

(e) There are other growths toward the shrinkage of price: ----------------------------

• In 2004, Excelcomindo perform re-branded and re-positions itself. Excelcomindo used to consider as an operator that provide high tariff.

• In the end of 2005, cellular operators introduced off-peak tariff as the result of decreasing substantial price.----------------------------------------------

• Cellular operators decrease monthly subscription expense or even freeing it.----------------------------------------------------------------------------------------

• Cellular operators introduce flat tariff. --------------------------------------------

(f) There is evidence that main operators respond to the price and package change. For example, in 2005, Telkomsel responded within a month to the offer of Indosat and Indosat respond to the offer made by Telkomsel.-------------

(g) The peak tariff for well establish and predefine packages is hard to change dramatically in mobile market development but in mid 2006, the peak tariff of starter pack decreased. One of the reasons is competitive pressure conscription from FWA operators cut the tariff nearly to fix cellular. The competition predicted to be tense as FWA recently allocate a better spectrum and lower price in structure than 2G and 3G-operator Some FWA operator also has strengthened their financial position. Bakrie Telecom, as an example, obtained huge credit syndications in June 2007 and used the liquid to start its service in Indonesia.-----------------------------------------------------------------------------------

(h) The 3G Hutchinson Service was launch in March 2007 and Hutchinson has adopted aggressive pricing strategy that fixes its prices close to those of FWA. Other operators respond to Hutchinson price by arranging promotion. ------------

(i) There is a regulation for maximum prepaid tariff. Minister of Tourism and Post and Telecommunication Department establish the tariff of airtime, subscribing expense and interconnection price. Regulator body can prevent price competition. For example, marketing strategy of Mobile-8 has encumbered by BRTI. BRTI does not allow Mobile-8 to case document

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COPYmobile. The FWA service in Mobile-8 is unable to offer excitement coverage with FWA in local area and mobile outside local area.-------------------------------

197. It is understandable that market for service of cellular telecommunication compete

tightly one to another in Indonesia. Since 2001, the growth has been high and

operators compete aggressively. Comparing to proportional regional market,

Indonesian market is not concentrate anymore by the presence of many licensed

operators. Pricing competition has led into lower and innovative tariff for the

consumers. The fluctuant price indicated a competition. Based on these facts and

market evidence allegations of KPPU must be considered

Market Concentration -----------------------------------------------------------------------------

198. The starting point of KPPU is a claim on the calculation of HHI in certain market

(cellular telecommunication market), market structure turns to be more

concentrated since 2001. 87

199. In fact, it has explained in the report of Consulting Limited analysis on 24

October 2007 (Second Analysis Report), KPPU get the calculation result by

releasing one of operators from the market, Mobile 88. If Mobile market 88 is

included in the calculation of HHI, the result indicates that HHI does not increase

significantly for the last years. It remains to be stable. The result emerges

particularly from the calculation of HHI by using a number of customers with the

0.407 for tn 2002 it is almost identical 0.405 for 2006. According to the comment

of Second Analysis Report, KPPU has already justified the choice with revenues

by measuring market concentration. The copy of Second Analysis Report is

enclosed as Written Proof G

200. Mr. Pasaribu also finds that HHI rate in Indonesia is normal and in fact, it is lower

than other countries.

201. KPPU tries to support analysis HHI by using other calculation, Generalized

Herfindahl-Hirschmann Index (GHHI) 88. This method is not commonly used in

economic field as well as in the countries that regulate antitrust and anti-

monopoly. As it is described in the Second Analysis Report, the calculation of

87 Third Report, Analysis, paragraph 109-113 88 Ibid paragraph 115-122

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COPYKPPU or GHHI is incorrect because the calculation is using ownership percentage

of ICL/ICPL and SingTel Mobile in Indosat and Telkomsel that have power to

control company. It disregards writer’s comment on Second Analysis Report, the

article to which KPPU refer to that share ownership does not reflect control to a

company. In the aquo case, the certain case of share ownership structure in

Indosat and Telkomsel indicate that the controlling party is the Government of

Indonesia (due to its share ownership, A Series shares and its special right) and

Telkom. The factors should be considered to have competent value of GHHI.

202. This condition indicates that the conclusion taken by GHHI KPPU result nothing.

Telkomsel Financial Performance --------------------------------------------------------------

203. As an additional claim to the whole market, KKPU continues providing a number

of claims that Telkomsel has EBITDA higher than its closest competitor, Indosat

and Exelcomindo89 and has high Return on Equity (ROE)90. The operational

revenues, total assets and the capital shareholders increase multiply since 2002.

91 The claims seem to support the statement on Telkomsel’s market power and its

involvement in a high tariff.

204. As a matter of fact, this statement is absolutely incorrect for the reason detailed

explained in Second Analysis Report. The Report explains:

a. The high margin of EBITDA is not an indication of market share controlling but it simply means a company in an industry with a high upfront requirement of capital expenditure, in which it is normal for telecommunications cellular operator around the world. Furthermore, EBITDA margin of Telkomsel did not increase in 2001 -2006. However, it shows market stability rather than market power within the period---------------------------------------------------------

b. ROE does not give indication whether a tariff is high or not because it only considering company’s influence. The claim of KPPU that “applicable ROE” is 20-35% is not supported by precedent or economic analysis. It is only a raw statement. As it is written in the analysis, it is impossible to mention a standard of ROE for company enlisted in international capital standard with those Telkom, a holding company of Telkomsel.

c. The improvement of Telkomsel operational revenues, total assets and shareholders capital are not caused by anti-trust of Telkomsel (especially by

89 Ibid paragraph 159-161 90 Ibid paragraph 174-177 91 Ibid paragraph 178-185

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COPYTemasek) but they are boosted by exponential growth of cellular telecommunication market in Indonesia which move to the fast improvement of investment and the high growth of customer. The claim of revenues growth is based only to a crude rate and avoiding inflation rate 58% by that time. Price can only be stated excessive if it is related to expense. Not only operating expenses are considered in a number of expense calculations, but also customer growth and usage and for that reason, decision making on price rate cannot be conducted.

205. In such a situation, the finance performance of Telkomsel during the period of

2001-2006 does not support KKPU’s statement on competitive condition in the

market of cellular telecommunication in Indonesia.

Indosat Market Performance

206. Turning from Telkomsel to Indosat, KPPU states [suspect] that the performance

of Indosat had been decreased during the period of 2001-2006.92

207. Nevertheless, the existing evidence indicates the fluctuation of Indosat’s

performance during that period caused by the merger of Satelindo with IM3 in

2003. Johnny Swandi Sjam, President Director of Indosat, for and on behalf of

board of director of Indosat wrote in paragraph 4 of his letter dated 13 August

2007:

“The following is an explanation concerning to Indosat’s performance. Since 2001, Indosat has gone through several structural changes, whether it is in business activity or company structure. By the year of 2001, the main business activity of Indosat is international telecommunication. Responding to the growth of technology, the integration of mobility and bandwith, Indosat changed its vision by becoming integrated telecommunication operator focusing on cellular. Indosat obtained the ownership of Satelindo in 2002 and established celluler subsidiary in 2001. Another significant change is a merger of Satelindo, IM3 and Indosat in the end of 2003. As a rule of merger, the changes of Indosat business activity take several years to be able to be implemented in some aspects of business activity such as a structure of business activity, network integration, organization and corporate culture. ------------------------------------------------------------------------- Since merger agreement was signed in the end of 2003, the changing process in the structure of organization, corporate culture, identity/company’s name, legal agreements/contractual, especially in network and infrastructure finished in general around 2006. It has influenced sale service of Indosat and had the performance of Indosat fluctuated to the middle of 2006. During that period, no operator but Indosat went through significant changes. ----------------------

92 Ibid, paragraph 130-147

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COPYApart from the condition mentioned above, concerning the business scale and company of Satelindo, IM3 and Indosat that have wide business coverage, such a changing process is smoothly and short in time. The intended business scale is in the sense of a number of customers which remains increase significantly amid the tight of competition. Comparing to other provider that do not perform structural changes as Indosat does, their performances should be better.-------------------------------------------------- Since the middle of the 2006, Indosat started to get a momentum to capture its customer and revenues. The improvements of its performance are reflected in the selling price of Indosat shares IDR 7.650 in July 2007 or hit a ceiling price since its IPO.”-------------------------------------------------------------------------------

The result Analysis of KPPU does not clearly mention the significant changes in

evaluating Indosat. The copy of Johnny Swandi Sjam’s letter can be seen in

KPPU.-------------------------------------------------------------------------------------------

208. The Spectrum Report also shows good Indosat performance, especially in the last

period. In Chapter 4 of Spectrum Report, it is written that:

“The performance of Indosat has varied since 2003. Some challenges occured as from the merger of Satelindo and IM3 although it was anticipated in the Memorandum of Information of Indosat. It was published prior to acquisition process. Furthermore, Indosat has improved its involvement in an area of CDMA competition in the side law and coverage network, if it is competed with Telkomsel------------------------------------- Apart from the time of Indosat’s weakening performance, it is relative fast for Indosat to reach a turning point and significantly improves its operational performance and finance. It can be seen as follows: • EBIT • BITDA • Earnings Improvement • Share price performance --------------------------------------------------------------- It needs to be keeping in mind that the improvement was obvious before the presence of anticompetitive report. The rating agents have also been revised their rating and Reported Party positive estimation to Indosat. ------------- The decrease of market share after the acquisition is actually smaller than those prior to the acquisition process beside competition improvement in the end of 2002. ---------------------------------------------------------------------------- The turning point of Indosat is to finish a large part of network integration, adaptation, and the recovery of weakening performance in time of integration

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COPYperiod, is shorter than Celcom in Malaysia. The case study of Celcom illustrates that a dynamic market of a similar nature and with fewer resistance from those faced by Indosat, Indosat has shorter time to be in a turning point as it happens in the stronger position of a market.”--------------

209. Besides facing various challenges, Spectrum Report indicates that, after STT

acquires Indosat shares, the combination of market share of Satelindo and IM3 do

not decrease drastically and even increase in the last quarter: Part 4.6.

210. Spectrum Report in Part 4.5 states that Indosat does not have bad performance, on

the contrary Indosat won some awards in good innovation and majemen including

“Best Managed Company, Indonesia” from Euromoney in 2004 and “Best

Managed Companies” and “Best Corporate Governance” from Finance Asia in

2005.

211. Based on CA Report, the allegation of KPUU that Indosat have bad performance

comparing to other operators is not acceptable, because:

a) The bad finance statement of Indosat results tight capital restriction and disability to perform investment in proportion to Telkomsel. Specifically, the finance statement of Indosat in 2002 could not respond the market changing nature by developing its network or responding by introducing its operating result due to big debt obligation. Besides, there are agreements defined for Satelindo as part of its debt restructuring.

b) Indosat has operated two separated networks, IM3 and Satelindo. These networks are integrated into one network to increase a number of customers and to improve service quality and, to lessen operating cost. Unfortunately both networks do not run well result on the decrease of service quality, revenues, market share and, consumer perception.

c) Apart from it, Indosat’s performance is better than Excelcomindo for rollout network. The performance of Indosat increases caused by the introduction of high speed 3G/HSDPA in which Indosat is the first operator that operates it.

212. The First Analysis Report also admits the series of event. In page 29-30 it is

expressed:

“Many explanations are available concerning the result of the operator at the

moment. The division of Indosat mobile cellular is slower than a broad market

in the recent that make Indosat loses its market share due to the problems on

network integration after the merger of Satelindo and IM3. Since 2005

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COPYIndosat find it difficulties to run its integration plan in key area, Java island.

As a consequence, Indosat is unable to launch nationwide marketing activities

until first quarter of 2006, make it left by 1.5 million customers in the first

quarter of 2006. Based on the company’s data, the problem was over in 2006

and some nationwide marketing campaign launched to capture new customer.

The marketing cost increase significantly, from IDR 360,05 billion in 2005 to

IDR 468,92 billion in 2006, increase 30% compare to the previous year that

only 3%. It is related to the improvement of capital expenditure and also to

state that this expenditure would not be conducted if the suspected

infringement was true, quod non, that the performance of Indosat was

sacrificed for Telkomsel.” --------------------------------------------------------------

213. It is clear that the performance of Indosat is not bad. Remembering structural

reform that been done, Indosat have a good performance and have won some

award.

The allegation of the involvelment of Temasek in the Performance of Indosat

214. Furthermore, if Indosat has bad performance during 2001-2006, KPPU provide

either evidence that Temasek give permission to Indosat for not competing in the

market nor the relationship of Temasek ownership in STT and SingTel with the

allegation of Indosat’s bad performance. Without any crucial matters, the

allegation to Temasek will be null and void.

215. It’s stated in the CA Report (page39-40)

“In my opinion, KPPU is not only obliged to prove that the things (for example the bad performance of Indosat and less competitive) really happen in relation with capital ownership of Temasek and/or its subsidiaries in both cellular operators. Specifically, KPPU is obliged to prove: 1. That there is directly a joint control to Telkomsel and Indosat by Temasek

and/or its subsidiary or simultaneous control to commercial strategy of both cellular operators. -------------------------------------------------------------

2. That there is prima facie evidence concerning the coordination between Telkomsel and Indosat causing an anticompetitive as it is intended, and----

3. It is especially a direct result of the indirect ownership by Temasek and/or its subsidiaries in Telkomsel and Indosat. ---------------------------------------

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COPY216. KPPU cannot provide evidence on the relationship between Temasek indirect

ownership in Indosat and Telkomsel and allegation of less competitive by Indosat.

Without any crucial relationship, the allegation of KPPU is meaning nothing. The

CA Report, page 40, states:

“The main weakness of the allegation of KPPU is its failure to give analysis or to provide evidence on the direct relationship between ownership structure in Indosat and Telkomsel and allegation of anti-competitive consequence as it explained above.”------------------------------------------------------------------------

217. KPPU states that Vice President Director of Indosat Mr Khaizad B. Heerdje (“Mr

Khaizad”), nominated by ICL, allegedly break procurement policy arranged by

Mr. Hasnul Suhaimi (“Mr. Hasnul”) President Director (at that time) influences

Indosat operating while Mr. Lee Theng Kiat is assumed to do nothing although

there are complain from 4 (four) Directors of Indosat concerning the policy and

leadership of Mr Khaizad.

218. The statement of KPPU is inconsistent with the evidence, Mr. Sjam is one of 4

(four) Directors who propose complain to Mr. Khaizad and President Director of

Indosat. He give evidence on 27 August 2007 that procurement above

USD5.000.000 must be approved by President Director and below it must be

proposed to the meeting of board of director and as it prescribed by the rule The

statement of KPPU that Mr. Khaizad unilaterally displaces and changes

procurement policy Mr. Hasnul is groundless.

219. The evidence that Mr. Sjam is supported by evidence given by the representative

of MSOE, Mr. Roes Ariwidjaya (“Mr. Ariwidjaya”), by then a commissioner of

Indosat. During the session in KPPU on 19 July 2007, Mr. Ariwidjaya gave

evidence that procurement policy of Mr. Hasnul is not applied due to some

different opinion in board of director and not the taking control over the

procurement policy by Mr. Khaizad. The copy of investigation of Mr. Roes

Ariwidjaya is in the official report document of KPPU.

220. Apart from unproven claim, KPPU give no result or progress but raw allegation

that Temasek constrained Indosat to optimize its performance. 93 It is

insufficient to accomplish verification of obligation on the suspected infringement

of anti-trust to Temasek. 93 Ibid paragraph 146

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COPY221. That, the available evidence in general shows the opposite that Telkomsel and

Indosat have already competed and been competing dynamically each other.

Therefore, Spectrum Report concludes that “in cellular mobile market, Indosat

has already compete aggressively with Telkomsel in operating area.”, with the

following evidence:

(a) Indosat has already competed aggressively with Telkomsel in the case of pricing including certain PSTN, and off-net tariff, Indosat, even tariff offered by Indosat is lower than Excelcomindo. It proves that Indosat have competed aggressively with Telkomsel in the case of a number of customers and it is not intentionally fix high tariff. The Report of LPEM concluded that there is a regulation on tariff between Indosat and Telkomsel. It is not true considering that there are many weaknesses in the analysis. -------------------------------------

(b) Since 2002, there were several innovative products introduced to market. It includes larger and cheaper package, lower denomination of refill voucher for prepaid customer, micro prepaid scheme and, promotion various bonus as it is for SMS. The overflow innovative product launched by Indonesian operators is one of competition result in the market. The tight competition has provided various product for consumers and triggered new product innovation offering better direct access for middle to low market share ---------------------------------

(c) Indosat and Telkomsel have improved amount of money amount they spent substantially for marketing and advertising since 2003in which the expense of marketing cost of Indosat also improves profits percentage. It indicates that both operators acknowledge tight competition in the market. Every expense spent for marketing produce customer’s improvement. Although the sale economically states that marketing cost of Telkomsel for every customer improvement should be decreased, it is clearly an improvement trend. It means that Telkomsel capture customers aggressively through marketing. Indosat also obtains big improvement in the sense of marketing expense for every customer improvement in 2006; increase treble for every customer improvement. The facts that both operators have already performed huge investment in marketing prove that cellular market is very competitive.---------

(d) Indosat and Telkomsel also perform marketing campaigns as competitive tools. In so many cases, Indosat nearly always respond to the marketing campaign of Telkomsel. It is extraordinary concerning resistances of network and IT to which Indosat has to deal with.---------------------------------------------

(e) Indosat and Telkomsel have launched various initiatives to maintain their old customer including loyal customer program related to refill system and new voucher purchasing. As an example, Telkomsel launches Telkomsel Point in

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COPY2006 later Indosat shortly responds it competitively to counterbalance the offer of Telkomsel. ----------------------------------------------------------------------

(f) Indosat capital expenditure is relatively big in percentage from its profits and it significantly higher than Telkomsel. It indicates that Indosat competitively develop its network coverage counterbalance the network of Telkomsel. Although Excelcomindo spend larger percentages from its profits for capital expenditure than Indosat, it remains fair considering that Excelcomindo is relatively new player.--------------------------------------------------------------------

(g) Indosat and Telkomsel have maintained high capital expenditure since 2002. It indicates that every operator performs huge investment in the market. Especially, Indosat keeps on margin quantity in capital expenditure as the profit percentage to Telkomsel since 2002 when it has taken over by STT. -----

222. Thereby, the statement of KPPU is not only based on speculation but also raw

statement that is directly opposite with the evidence in the market.

The allegation of Price Leadership by Telkomsel ------------------------------------------------

223. In its Third Report, KPPU depicts a situation that in oligopoly theory known as

Price Leadership. According to KPPU, when a market actor has very dominant

position to market and relatively to its competitor, relevant market actor can

determine unilaterally market price avoiding a price given by its competitor. 22

224. KPPU then accuses Telkomsel for being a price leader. In its conclusion KPPU

states the following reasons:

(a) Since 2001Telkomsel owns (i) the biggest market in the relevant market ; (ii) the widest BTS network; and (iii) the biggest average profits among Indosat, Excelcomindo and Telkomsel for period the period of 2001-2006.23--------------

(b) Price comparison of Telkomsel, Indosat and Excelcomindo in one side and the analysis of tariff pattern in the other show that the two has price-parallelism, Indosat and Excelcomindo in particular. Both operators are following price change fixed by Telkomsel for in the postpaid market . 24 --------------------------

(c) Telkomsel is a price leader in which Indosat and Excelcommindo have no ability to compete in price. Effectively, there is a collusive conducts among

22 ibid, paragraph 148-153 23 ibid, paragraph 85, 92, 178-180. 24 ibid, paragraph 99-101. In paragraph 99,analysis, KPPU admits that “For the prepaid card, price change is not

significant at all.” KPPU can explain nothing although prepaid and postpaid customers depend on BTS network (in which Telkomsel has wide network), the suspected/allegation price-parallelism occurs only in postpaid market not the prepaid on.

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COPYthe three operators to create a look-like cartel condition in order to dominate market. 25--

225. The analysis and logic of KPPU are obviously wrong. In its inception, the

evidence of KPPU is opposed against the statement mentioning other operators

come after the price fixing of Telkomsel. Table 5 shows the growth of cellular

service retail price at peak-time in 2002-2006. This table indicates the differences

of pricing strategies arranged by the pertinent operators, Telkomsel, Indosat and

Excelcomindo. It is confirmed by the following comments:

“As it is seen since first quarter in 2002 to year-end of 2006, the retail price of postpaid cellular service for a call to PSTN is around 5% for Telkomsel and Indosat, and 8,4% for XL. Difference from two other operators, Telkomsel postpaid selling price increased during 2002 – 2006 for a call to PSTN and other operators, in the contrary both other operators decrease their selling price. From this change, it is seen that Indosat and Excelcomindo try to thin price differences between prepaid and postpaid products.” ---------------------------

226. It confirms well (a) that Indosat and XL keeps off in following the price; and (b)

that it opposes against the statement of KPPU, the two companies in reality

involved in price competition with Telkomsel.

227. Secondly, the tariff pattern analysis of KPPU in Analysis section, paragraph 148-

153, only show statistically significant correlation of price proving nothing about

price-leadership by Telkomsel.

228. Thirdly, the similarity of price change really occurs so far resulted not from price-

leadership, but rather from different sources. Later, the analysis of KPPU cannot

indicate that Telkomsel always leads price. As it shown in the Second Analysis

Report:

“Though KPPU admits that the price pattern is not homogeneity between

documented service of prepaid and postpaid. The record is not available on

whether operators spend similar cost to cut price to the same direction. For

instance, operators face similar changes in the sense of labor and material

expense in Indonesia in which goods cost affects capital expenditure cost (i.e.

equipments cost) and operational expenditure cost (i.e. cost electricity and 25 ibid, paragraph 102-103.

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COPYenergy). Thereby, by the cost changes, they coincidently go through similar

impacts and it will be burden for consumers at various level from time to

time.” Furthermore, the analysis of tariff pattern in paragraph 148-153 (Third

Report) only indicates significant statistic and price correlation but not

indicate a position of Telkomsel as a leader in improving tariff. To depict

price leadership, KPPU has to conduct regression analysis that will control

variable effects such as expenses that affected any goods and indicate a

relationship between tariff improvement by Telkomsel and other operators.”

229. That it is proven per se as it is in the EU anti-trust regulation that “conduct

parallelism can not be considered as verification of an argument unless the

argument is the only elucidation of the conduct (The Case C-89/85 Ahlstroms v

Commission [1993] ECR I-1307).” Thereby, if KPPU can prove the collusion that

it is the only possible elucidation of the price change similarity, KPPU cannot

maintain its statement on price leadership (or logically on “following tariff” by

Indosat and Telkomsel).

230. At its fact, Mr Pasaribu in his dissenting opinion states that price parallelism per

se cannot prove the collusion. According to Pasaribu:

“In a competitive nature, if a company decrease tariff, other company must follow it to prevent consumer loss.”

231. KPPU also fails to consider the differences of price strategies conducted by

Telkomsel, Indosat and XL that have their own key aspects such as peak period,

calling prices, roaming rates, SMS, MMS, and expense of GPRS. Such a different

strategy is inconsistent with those of alleged by KPPU on collusive conducts and

market failure in general.

232. Therefore, the allegation of KPPU on the position of Telkomsel as a price leader

in a relevant market is unacceptable, considering that it opposes against the case

of KPPU per se and no objective evidence available to support the fact.

The Suspicion on Excessive Tariff -------------------------------------------------------------------

233. Starting from the incorrect conclusion that Telkomsel is a price leader, KPPU

then accuses Telkomsel unilaterally for maintaining excessive tariff in Indonesian

market. KPPU alleges that price for postpaid service has increased between in

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COPY2002 and 2006 although a number of customers increase significantly.

Considering it from the concept of economic scale, it illustrates high margin

growth for operators and lack of competition in the relevant market. 26

234. The claims also weakened by an elementary fault in which KPPU does not

consider inflation. Tariff adjustment for reflecting inflation is, in the contrary,

opposing against the claim of KPPU, in fact the price is significantly decrease

since 2002. It is seen in the Second Analysis Report:

“KPPU states that the price has increased since period 2002 to 2006. Economy grew in the scale of customer’s growth along with the increase of prices that is considered to be lack of competition by KPPU. KPPU uses nominal price but it is real price paid by consumer annually. During the period 2002 to 2006, inflation increased higher than the price increase. It means that price of telecommunication service has been decreased significantly over the inflation. For example, since Telkomsel increased postpaid cellular call retail price to PSTN for 5% during the period of 2002-2006, the flat rate measured by price of consumer index (consumer price index) increased 5% in that period. Since the price of cellular service price increase fewer than the level of goods price in general its real price actually decrease much during that period.”-------------------------------------------------------------------------------------

235. KPPU is also incorrect when it compares the price in Indonesia with it in other

country and it is baseless to conclude the high tariff in Indonesia. The Second

Analysis Report states:

“In general, international price comparison is hard to be applied for some reasons. Firstly, total cost of cellular service has several components such as activation fee, handset cost, monthly fee (for postpaid service), termination expense of calling-party-pays countries, and expense difference charged against the country of calling-party-pays countries for call in the different time and network Operator in every country may select to get back at expense that has been spent in many ways such as subsidizing handset cost and obtain through investment, offering significant discount on-net etc. Considering such differences, the comparison of one element of service fee such as fee obtained from one minute peak-hour call might be disproportionate comparison.---------- To explain tariff differences, international comparison usually compares monthly fee and a service package expense such as a number of certain minutes for every call plus activation portion and equipments. The comparison process of package price also generates its own problems such as determining a pattern to compare. Nevertheless, KPPU does not try to

26 ibid, paragraph 102-103.

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COPYcompare a package expense of a number of countries and merely focuses on the comparison of one certain tariff and as it mention above that it cannot be used to base a comparison.” -------------------------------------------------------------

236. The following illustration is to show the difficulties of implementing the adopted

method:

“KPPU makes comparison by referring to the price made by Directorate General of Post and Telecommunication that relatively high for Indonesia. As it mentioned above, the comparison of an element of cellular service expense has not yet completed because it does not consider the whole expenses. As an example Indonesia, that becoming a calling-party-pays country where there is part of expenses given to other operator used to terminate call. Singapore is a country of calling-party-pays that getting the call expense from caller party and call receiver party. Therfore, the tariff that charged to Singapore is only expense paid by the caller party. The fact is that the operator of caller party will charge it to the call receiver party with a common number of expenses. Basically, it has duplicated of total call expenses in Indonesia, where the call receiver party does not pay to receive a call.” ----------------------------------------

237. In fact, based on the Second Analysis Report, KPPU has used not only unclear

conceptual method but also providing data that cannot be used by KPPU itself.

“KPPU cites several numbers in the Report of LPEM to make international tariff comparison in Indonesia from 2002 to 2006. As it is noted by KPPU, LPEM does not have actual data of international price for those years which then the price is extrapolated based on the price, higher than it should be, in several countries from 1996 to 2002. As it expressed by KPPU, it may be changes happened from 2002 to 2006 that will affects to actual price compare to those of projected ones. We conclude that the changes means projected price is not better than price estimation during those years. Consequently, the price cannot be used as a basis of inter-states comparison.” ------------------------

238. Lastly, KPPU does not satisfactorily consider the fact that tariff in Indonesia is

strictly regulated and none of the regulation infringed by Telkomsel and other

operators.

239. Although KPPU admits that tariff in Indonesia is regulated under the Decree of

the Minister Post and Telecommunication No. 27/PR.301/MPPT-98 on Service

Tariff for Prepaid Mobile Phone Service (“KM 27/98”) and the Decree of the

Minister of Transportation No. 79/1998 on about Service Tariff for Prepaid

Mobile Phone Service (“KM 79/98”). KPPU then vaguely states that the decision

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COPYis not persisted any longer and that “cellular operator is waiting for regulation on

the calculation of tariff rate.”

240. Nevertheless, something that KPPU has overruled is the fact that the regulation

already available, there are KM 27/98 and KM 79/98. The regulation is competent

to be use. The KM 27/98 and KM 79/98 regulate admissible maximum tariff in

cellular industry that are established by Ministers in their consideration. Based on

the regulation, there is no statement that Telkomsel or other operator have

exceeded maximum tariff as it regulated in KM 27/98 and KM 79/98. Without

any infringement to the regulation, how does KPPU allege that the tariff charged

by Telkomsel excessively?

241. During the arrangement of the allegation, KPPU actively try to take over an

authority delegated by the Government of Indonesia to the ministers by

determining admissible tariff. The conduct of KPPU is not admissible. The fact is

opposed against what KPU has alleged. Temasek has a notion that the ministers

are authorities to determine fair and competitive price for market in Indonesia.

242. In this case, the plea of Temasek is confirmed by CA by concluding (page 67) that

“cellular price/tariff of Indonesia is not excessive compared to international

standard”.

243. The Report of CA is based on the following things for coming to the first

conclusion:

(a) The research supported by International Development Research Centre Canada and applied International Telecommunications union (“ITU”) approach indicates that cellular tariff in Indonesia is lower compared to cellular other tariff in its vicinities countries. In 2005, ITU data show three-minute off-peak call of cellular tariff in Indonesia is the cheapest among Asian and East European countries. Latvia is the only country with lower tariff. It also occurs in 2004.

(b) Research conducted by World Bank concludes that cellular tariff in Indonesia is far from the average of low-middle income countries and under the average of East Asia/Pacific. In 2006, the price of the Indonesian basket of mobile services is USD 5.9 lower compared to the average price of the basket for low-middle income group and USD 0.7 lower compared to the average applied in East Asia/Pacific countries. -------------------------------------------------

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COPY(c) Research Merrill Lynch shows that ARPU in Indonesia is under the average

number of the developing Asian markets. ---------------------------------------------

244. That the allegation of KPPU on the excessive tariff in the relevant market has

made based on distrusted data and incorrect conceptual method. The objective

evidence display it clearly that the price in Indonesia has decreased is since the

crossed ownership of Temasek in Indosat and Telkomsel. None of operators in the

relevant market have infringed effective tariff regulation. Thereby, an allegation

of KPPU on the excessive cellular tariff is groundless and unacceptable.

245. That on 13 July 2003, Telkomsel gave evidences that tariff determined by board

of director in which SingTel Mobile is not a majority in board of director. The

fact is that SingTel Mobile as a shareholder only supervise business performance

of Telkomsel as a whole.

Question : Does SingTel have role to determine price?

Answer : Something to recall is the differences between price and tariff

where tariff is always determined by prevailing regulation and policy. Tariff is

fixed by board of director while commissioner and shareholders only agree to the

result of business performance achieved by management team.”

The copy of official repot of Telkomsel’s investigation is in document of case of

KPPU.

246. It is confirmed by Pasaribu found that KPPU has failed to causality prove

between crossed ownership in Indosat and Telkomsel and an allegation of high

tariff. The facts, according to Pasaribu, tariff in Indonesia has been decreased

since the crossed ownership period.

The Allegation on Consumer Loss --------------------------------------------------------------

247. In paragraph 190-204 in the Analysis Article of the Third Report, KPPU

compares tariff in Indonesia to “competitive tariff” in other countries. Combined

with the KPPU previous finding in paragraph 175 in the Analysis Article that the

ROE of Telkomsel is 55%, the conclusion is taken:

“With the average of ROE 20%-25%, the entire consumer loss of Telkom from

2002 to 2006 is more than Rp24 Trillion and Rp19 Trillion. With the ROE 30%

and 35%, the entire consumer loss of Telkom from 2002 to 2006 more than

Rp14.5 Trillion and Rp9.8 Trillion.”

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COPY

248. Nevertheless, the calculation method of KPPU on consumer loss is incorrect and

the result shall be disqualified. The Second Analysis Report states:

“Consumer Surplus is counted from the differences between price consumer

pay and the price that ought to be paid by consumer and counted with the

numbers under demand curve (symbolizes the willingness to pay) and the paid

price. As it used in this context, it reflects consumer deposit realized by

consumer that the price is lower. It is expressed that consumers in Indonesia

spend much more than they have to if there is no crossed ownership and it is

determined on the basis of price paid by consumer in other countries. There

are two mistakes in the analysis of (KPPU) that leads to the disqualified

conclusion.

Firstly, as it explained above that comparing price with other countries is difficult to be done due to many elements of tariff such as intra-operator peak rate. Secondly, in order to perform consumer surplus analysis, tariff comparison could not explain whole of it, KPPU shall consider competitive differences, inflation rate and especial costs in any country. It is difficult to conclude that if there is no crossed ownership in Indonesia, consumer will have price in the same amount as it in Thailand or Singapore. No factual indication that the competition in those countries are higher than in Indonesia. Therefore, competition is only one factor to consider tariff differences. -------------------------------------------------------------------------------- Finally, the statement basis of KPPU is also arguable by the fact that price varies in certain countries caused by some specific industrial factors that cannot represent contra factual condition in Indonesia. The example of industry specific factors includes mobile termination rate, network development cost, and revenues and the gain and usage of spectrum. It is true, according to Mastel, that cellular service quality in Indonesia is better than Thailand, Philippine, Cambodia, and Laos. A better quality service increases the cost. Example of specific factor of a country is company capital cost and labor condition in each country. Thereby, it is no reason to say that price level in other country is able to represent the price level in Indonesia which has more competed as a result the count of consumer surplus means nothing.” -----------------------------------------------------------------------------------

249. That there is no evidence of consumer loss caused by the deed of anti-trust in

Indonesian cellular market.

250. In accordance with the statement of Mr. Pasaribu in his dissenting opinion that the

findings of KPP on the costumer loss are not acceptable. Firstly, the calculation in

the LPEM Report is marked up in number. Secondly, the use of other countries’

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COPYtariff to calculate Indonesian consumer loss is not permissible. Thirdly, the tariff

in Indonesia is in the coverage of valid regulation.

Contra Factual Case

251. The statement of KPPU on the absence of cross ownership in Indosat and

Telkomsel creates better competition. Such a statement is supported by no

evidence.

252. That Second Analysis Report states:

(a) The allegation of KPPU that the absence of Tease’s cross ownership will create a more competitive market (especially the development of Indosat network will not be constrained) has ignored the evidence on the problem of network integration faced by Indosat.--------------------------------------------------

(b) Indosat investment give a significant positive impact toward share price and market become more competitive apart from the allegation of cross ownership. It opposes against the statement alleged by KPPU.

(c) The allegation of KPPU that the absence of cross ownership of Temasek will lead market to be more competitive under Cournot-Nash method (creating competitive prices as the consequences) is a complicated theory to predict a result. ---------------------------------------------------------------------------------------

(d) The allegation of KPPU that Cournot-Nash competition method causes the three operators control equal market share (for instance one third of market) has ignored the fact that the three operators (the old and the new ones) perform investment in the market to develop their market portion. There is no evidence proving that the absence of cross ownership lead to equal possession of market share. Considering that any operator in the same country tend to focusing in different market share, indicated by price, network launching with different speed, the different step of implementing new technology will come to different results and it cannot be denied. ------------------------------------------

253. The CA Report also concludes the following things:

a. KPPU implicitly assumes that Indosat substantially performs higher investment to create lower tariff for Indosat and Telkomsel only if there is no indirect ownership of Temasek. Yet, it is impossible to occur.Whether Indosat or Telkomsel is the biggest operators that have same incentive to coordinate their activities. Both of them will face similar or even bigger problems on capital limit and finance. That the risk of coordination and collusive conducts will be increase if there is no indirect of cross ownership by Temasek.-----------

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COPYb. The momentum for Telkomsel to develop and to keep its highest standing has

little impact in the problem of ownership and suspected of jointly practices. The possession of wide coverage telecommunication network has put Telkomsel to be a biggest operator. The fact supported by accurate economic theory and empirical proof of the cellular structure not only in already developed Asian market but also in the developing ones. ---------------------------

c. The research conducted to European and Asian cellular market concludes that if Indonesian cellular market developed without indirect cross ownership of Temasek, market growth remains the same as it is today. -------------------------

d. KPPU states that its notion is the finding of theory and the commercial explanation. Yet, the competition consideration basis is inconsistent with the commercial pressure on the base of cellular operator ownership. It is illogical to state that the shareholders are about to invest their money in the biggest operators in Indonesia by sacrificing one of them in one side and let another develop in the other side. The rational strategic do the opposite, using Telkomsel to capture a market share for high class and Indosat for other market shares in order to increase revenue. The theory proposed by KPPU reduces the prospective growth of Indosat and Telkomsel as well as increasing competitive threat from other operators.-----------------------------------------------

e. The most possible contra factual case is that the release of Temasek and/or its subsidiaries will not boost competition or have Indosat to change its expenditures and to develop network. The effect of cross ownership of Temasek is de minimis and it has no relationship with the decrease of competition in the relevant market.-----------------------------------------------------

254. Thereby, there is no evidence to support KPPU’s statement on contra factual case.

KPPU states that there will be higher competition in the relevant market. On the

contrary, economic analysis shows any possibility of no difference to the

competition in the market, with or without cross ownership in Indosat and

Telkomsel. No evidence is provided by KPPU to argue the analysis in the CA

Report and make it fails to prove a notion of cross ownership of Indosat and

Temasek. The decrease of competition in the relevant market is also not proved.

THE ABUSE AND VIOLATION OF DUE PROCESS -------------------------------------

255. The verbal process of Temasek and its procedures is ultra vires. It violates the

Law No.5/1999, stipulation of due process reserved by Article 28 D (1) UUD

1945 (“Constitution”), ICCPR and Regulation of KPPU NO.1/2006. KPPU bases

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COPYits improper evidence to come to the conclusion in the First, Second and Third

Reports. The verbal process is improper and come to the incorrect decision.

The verbal process is Ultra vires and it abuses verbal process ----------------------------

256. KPPU alleges Temasek to infringe Article 27 (a) the Law No.5/99 means the case

is proposed, discussed, and approved by the Government of Indonesia.

257. As it described in paragraph 88-91 above, in 2003 the Government of Indonesia,

in White Paper, decided that the ownership of SingTel in Telkomsel and

acquisition of ICL or ICPL in do not infringe the Law No.5/99. Prior to the

acquisition, Minister of BUMN (MENEG BUMN) had learned and verified that

the acquisition was in line with the valid law including the Law No.5/99. There is

no basis at all for KPPU to have the structure of share ownership retroactive or

conversely since the substance has not change since 2003. KPPU is inconsistent

in interpreting the Law No.5/99 on acquisition differs from government’s

interpretation such as on “majority share” that literally means the ownership of

more than 50% share of a company.

258. As it stated above, the conclusion in White Paper has argue the element proposed

in the allegation of KPPU:

(a) Telecommunication Industry in Indonesia is highly regulated and operator can’t determine tariff policy. ------------------------------------------------------------

(b) Telkom is controlling Telkomsel. SingTel only owns 35% of Telkomsel’s shares with the limited authority. In majority, the dominant share of Telkom owned by the Government of Indonesia. ----------------------------------------------

(c) STT and SingTel managed independently and enable them to compete each other in Singapore and other markets. -------------------------------------------------

(d) The understanding of majority shares in Article 27 (a) the Law No.5/1999 shall be interpreted literally namely “the ownership of more than 50% shares”.-------------------------------------------------------------------------------------

(e) The ownership of STT in Indosat through ICL is not majority ownership in which its shares are under 50% of Indosat’s shares enlisted in stock exchanged.---------------------------------------------------------------------------------

(f) SingTel only owns less than 50% of Telkomsel’s shares. ---------------------------

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COPY259. Further and the most important thing is that MENEG BUMN consulted KPPU in

2003 on the implementation of the Law No.5/99 (Article 27 and 28 in particular)

related to the plan of Indosat’s shares divestment to ICL/ICPL. See the paper

dated 2003 entitled “Government’s Elucidation in the meeting with DPR” that is

available in case document of KPPU, as it is mentioned in paragraph 94 above.

KPPU states no ojection at all. If an investigation is conducted on the basis of the

infringement of Article 27 (a) it is ultra vires and it is an abuse of verbal process

and law in Indonesia. Especially it is regarding to the facts trelated to Article 27

(a) on “majority shares” and “cross ownership”. It does not change since 2003. ---

260. In his opinion Mr. Pasaribu state that KPUU has no authority to revoke the

decision of the Government of Indonesia concerning Indosat’s shares divestment

through open tender that it finally awarded to ICL/ICPL. He stresses that the

decision is a Government’s initiatives and political decision concerning finance

condition at that time. -----------------------------------------------------------------------

261. It is true, there is no basis for KPPU to deviate the decision of the Government of

Indonesia by starting an investigation to the acquisition on the same basis because

the acquisition itself has been considered, calculated and supported by the

Government. The acquisition is possible to be performed by ICL/ICPL with the

approval of government and the accomplishment of the Law as well as cryptic

approval of KPPU through the consultation of government with its competition

commission.-----------------------------------------------------------------------------------

The infringement of the Law No. 5/99

262. Article 38 No.5/1999 states:----------------------------------------------------------------

(1) Anyone who knows a conduct or properly suspected conduct that infringe the Law may report writtenly to the Commision with clear information about the infringement by enclosing identity of the reporting.

(2) The party suffered financial loss caused by the infringement of the Law may report in written to the Commission along with clear information about the infringement by enclosing identity of the reporting.

(3) The Reporting identity as it meant in (1) must be kept confidentially. (4) The procedures of proposing a report as it meant in (1) and (2) is arranged

furthermore by the Commission.

263. Article 39 (1) No.5/1999 states:------------------------------------------------------------

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COPY “Based on the report as it meant in Article 38(1) and (2), the Commission is obliged to perform Preliminary Investigation for the furthest of 30 (thirty) days after receiving the report, the Commission is obliged to determine whether it is necessary or not to perform Follow-up Investigation.”

264. In the letter of Arief Poyuono, Chairperson of FSP-BUMN (The Labor Union of

State-owned Company) dated 4 April 2007 published in

http://bumnbersatunews.shoutpost.com, states:-----------------------------------------

“On 18 October 2006, FSP BUMN submitting a report to KPPU for the suspected monopolistic practices (tender conspiracy) suspected to be conducted by Temasek Holding, Indosat, STT, SingTel in telecommunication business in Indonesia.”

265. Therefore, the decision of KPPU to perform preliminary investigation to

Temasek, as it proved by the Convocation No.112/KPPU/TP-PP/IV/2007, issued

after 6 (six) month since the date of submittal of FSP-BUMN Report.---------------

266. Further, the decision to perform follow-up investigation to Temasek, as it is

proved in Second Report issued on 22 May 2007, after 7 (seven) months since the

date of submittal of FSP-BUMN Report.--------------------------------------------------

267. Thereby, it is clear that there is an infringement to Article 39 (1) of the Law

No.5/1999 states that KPPU has to decide the need of follow-up investigation for

a time of 30 (thirty) days after receiving the Report. ------------------------------------

268. http://bumnbersatunews.shoutpost.com also states:-------------------------------------

“Therefore, on 2 April 2007 FSP BUMN United revoked the Report to KPPU on the suspected monopolistic practice conducted by Temasek Holding. It also revokes any propositions, the evidence argumentation related to the Report” -----

269. The revoke of FSP BUMN Report was on 2 April 2007 and on 26 April 2007

KPPU kept on deciding to perform preliminary investigation.------------------------

270. Although under Article 40 of the Law No.5/1999 KPPU has an authority to

perform an investigation in its own initiatives, the clarification on whether the

process is in the initiative of KPPU or the Report of FSP BUMN is not necessary.

If it is a follow up of the FSP BUMN report, we have a notion that KPPU is

obliged to stop its investigation since the report has been revoked. If the process is

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COPYin the initiative of KPPU, KPPU shall explain why the number of case is the same

as the number registered to FSP BUMN.--------------------------------------------------

271. As an addition, Temasek received the Third Report from KPPU overshooting the

mark of time period that states in the Law about the time period of report delivery.

Article 43 of the Law No.5/99, states:-----------------------------------------------------

(1) The Commission is obliged to complete follow-up investigation at the furthest of 60 (sixty) days since the conduct of follow-up investigation as it meant in Article 39 (1). ----------------------------------------------------------------

(2) When it is needed, the time period of follow up investigation as it meant on (1) is lengthen at longest 30 (thirty) days.------------------------------------------

(3) The Commission is obliged to decide whether the infringement to the Law occurs or not at longest 30 (thirty) days as from the completion of follow-up investigation as it meant in (1) and (2). ------------------------------

272. Article 48 of the Regulation of KPPU No.1/2006, states:

“(1) Prior to the end of Follow-up Investigation, the team of Follow-up Investigation conclude whether the evidence of infringement is available or not.” --

273. Article 49 of the Regulation of KPPU No.1/2006, states:

“The conclusion, as it meant in Article 48, is composed in the form of The Report of Follow-up Investigation Result” ---------------------------------------------------------

274. KPPU should issue Third Report before the stage of follow-up investigation

completed. The last day of the follow-up investigation is 27 September 2007.

KPPU should issue its decision at the latest on the date. Yet, Temasek was only

informed while Third Report accepted on 3 October 2007. The copy of letter of

Lubis Santosa & Maulana No.452/LSM-PC-TR/L/X/2007 dated 4 October 2007

shows that Temasek submit an objection to the delay and the non-compliance of

KPPU Regulation No.1/2006, enclosed as Written Proof H.---------

275. Further, the Third Report is supposedly confidential until it officially announced

publicly and informed to the Reported Party. It is mentioned clearly by Article of

the Law 43 No.5/99:

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COPY(3). The Commission is obliged to decide whether the infringement to the law

occurs or not at the furthest 30 (thirty) days as from the completion of follow-up investigation as it meant in (1) or (2). -----------------------------------

(4). The decision of Commission as it meant in (3) has to be read in a session

open for public and informed later to the business actor.”-----------------------

276. However, prior to the decision of follow-up investigation, the Third Report has

been disclosed publicly before it is officially informed by the Reported Party

Party. An article in Singapore Starits Times reports:

“JAKARTA - IN the latest twist to the long- running Indosat saga, an Indonesian regulatory body is citing the sudden resignation of a top company executive to back up its claims that Temasek Holdings broke the country's antitrust laws. ------------------------------------------------------------------------------ It is alleging this even though the executive, Mr Hasnul Suhaimi, has denied it. The resignation of Mr Hasnul was the latest in a series of leaks splashed in the Indonesian press from a supposedly confidential report that alleges Temasek Holdings has broken laws. --------------------------------------------------- … The anti-monopoly watchdog Business Competition Supervisory Commission (KPPU) raised the issue of Mr Hasnul's resignation in its case against Temasek, which has stakes in two telephone companies, Indosat and Telkomsel, in an arrangement that the KPPU said violates Indonesia's anti-monopoly laws. … The KPPU is Reported Party party to be using Mr Hasnul's resignation to prove that Temasek interfered in the running of Indosat and thus breached the anti-monopoly law. ------------------------------------------------------------------------ Quoting the team's confidential report, the Kontan newspaper said that Mr Hasnul stepped down because his Singapuraan deputy, Dr Kaizad Heerje, was in fact running the company. ------------------------------------------------------ 'The president director is only acting as a symbol while the deputy president director controls Indosat,' it said, quoting the report which has not been officially released.------------------------------------------------------------------------- Dr Kaizad was also said to have changed Indosat's procurement systems, something previously handled by Mr Hasnul. ----------------------------------------- Dr Kaizad, who was appointed deputy president director of Indosat in December 2005, is a former senior vice-president of ST Telemedia. --------------- Mr Hasnul, who is now the president director of another telco, was not available for comment but he told Kontan that he did not resign because of his deputy. --------------------------------------------------------------------------------------

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COPY'I left the company because I felt that I could no longer offer any contribution that would be of value to the company's needs,' he said. ----------------------------- … Indonesia's media has been reporting the details of the KPPU investigation with excerpts from its official report even though it has yet to be officially released. ------------------------------------------------------------------------------------ According to the reports, Temasek has been found to have breached regulations and has been summoned to appear before a five-man council to respond to the findings. ------------------------------------------------------------------- The KPPU is not expected to issue a ruling before next month.--------------------- 'If, after that, Temasek does not accept the decision, they can take the case to a district court,' commission chairman Mohamad Iqbal was quoted as saying by AFP on Monday.--------------------------------------------------------------------------- If a district court ruled against it, Temasek could then appeal to Indonesia's Supreme Court, he added.” --------------------------------------------------------------

The copy of article in Singapura Straits Times dated 24 October 2007 is enclosed

as Written Proof I. -----------------------------------------------------------------------------

277. The report in Bisnis Indonesia dated 23 October 2007 also confirmed that KPPU

alone leaked the information of related verbal process to press:

“In the follow-up investigation document, KPPU conclude that Temasek has infringed the Law No.5/99 regarding cross ownership in Indosat dan Telkomsel. ---------------------------------------------------------------------------------- The Chairman of KPPU, Mohammad Iqbal expressed the follow up investigation conclude that there is indication of infringement conducted by Temasek.------------------------------------------------------------------------------------ “The essence of its conclusion is that we find indication of the infringement to the Law of Anti-trust in Indonesia conducted Temasek and it potentially inflicts financial loss to Government and consumers,” he told to Bisnis Indonesia yesterday.---------------------------------------------------- The conclusion is recently sent by Commision Asembly to the Reported Party. ---------------------------------------------------------------------------------------

The data revealed by KPPU show that there are ten Reported Party Party in the case concerning nine business group under Temasek and Telkomsel.---------------------------------------------------------------------------------- The chairperson of Indonesian Telemetics Society (Mastel), Wigrantoro Roes Setiyadi have seen that the indications are insufficient. ------------------------------

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COPYKPPU shall display evidence that Temasek infringes the regulation and not only give Temasek indication.”----------------------------------------------------------

The copy of the article dated 23 October 2007 is enclosed in Evidence I.-------------

278. The following up illustration of the public statement arranged by KPPU can be

read in paragraph 331-374 as follows.-----------------------------------------------------

279. Therefore, the verbal process of Temasek is improper and it opposes the Law No.

5/99. Consequently, whatever decision resulted through this verbal process will be

invalid. KPPU shall close down verbal process of Temasek.

The infringement to Due Process of Articles in Constitution and KPPU Regulation No. 1/2006 -----------------------------------------------------------------------------------------------------

280. The in time progress process is also infringe the guarantee of due process

promised by Temasek under the Cosntitution and KPPU Regulation No. 1/2006.--

281. According to Professor Hikmahanto:-----------------------------------------------------

“Not considering the due process of law may have the consequences of nullifying the Preliminary Examination Decree and all other following examinations decree. Of course, the nullification has to be done by a court. Consequently, any Business Actor who is suspected of violation has to be notified and given an opportunity to defend itself, failing which the KPPU’s Preliminary Examination to which the Preliminary Report relates and all other following examinations should be nullified.”------------------------------------------

282. Article 28D(1) of the Constitution states:-------------------------------------------------

“Every person shall be entitled to the acknowledgment, guarantee, protection and certainty of law in a just manner and shall be entitled to equal treatment before the law.” --------------------------------------------------------------------------

283. Article 2(1) of KPPU Regulation No. 1/2006 also guarantee that due process of

the law will be monitored and also transparent:------------------------------------------

“The Chairman of the Commission has the task to facilitate all activities in handling cases based on the principles of transparency, effectiveness, and due process of the law.”----------------------------------------------------------------------

284. Something than cannot be separated is the condition of two essences for security,

justice and certainty (1) whether the party is informed about the case (2) and

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COPYjudges in this case is impartial. The two fundamental securities have been

violated.----------

Right to watch over allegations ----------------------------------------------------------------

285. The aim of establishment of judicial body or quasi-judicial worldwide is the

same-to guarantee the enforcement of law certainty. In the end, the strict

mechanism (laws in particular) is put in the space for guaranteeing any parties

present before judicial body and watch over allegations.

286. The assumption of right has an important role in which administrative partay

and/or crime sanction can be force to the parties in the end of a process. The

fundamental right is in Article 28D(1) of the Constitution and KPPU Regulation

No. 1/2006. It depends on the first task of prosecuting authority which is to

guarantee the party alleged, understanding what are they alleged for, so that the

party is able to watch over allegations.----------------------------------------------------

287. KPPU as a prosecuting authority and Temasek as a party alleged for violating

law, the two are very bewildering. Temasek has never been informed on its

allegation or on the evidence to support the allegation. To this day, Temasek has

never known a number of its allegations, a party who submits the allegation, and

the contenr of the allegation. ---------------------------------------------------------------

288. Further, we understand that there are allegations coincided with those to

Telkomsel, which have same number as in on going process. Yet, with the

acceptance of the Third Report, Temasek finds that there is no information on the

allegation of Telkomsel or other supporting evidence although the information

has a relationship with the on going process. --------------------------------------------

289. Without such a vital information, Temasek, remorsefully cannot help KPPU in its

investigation. It comes to the interesting conclusion that the decision of KPPU is

made on the basis of incomplete information, we said it incomplete, therefore, it

will be easily revoke in the appeal.---------------------------------------------------------

290. Basically, the deed of KPPU’s verbal process is not only opposed against the

objective awareness of justice and morality but also against KPPU Regulation

No.1/2006.-- -----------------------------------------------------------------------------------

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COPY291. Article 65 (2) of KPPU Regulation No.1/2006 guarantee two things: (1) law

enforcement monitoring (2) procedural transparency. It is stated:--------------------

“ In any stage of investigation and the session of Council of Commission , the Reported Party Party is entitled to:----------------------------------------------------------

a. obtain an information on the Suspected Infringement Report; -------------------

b. obtain an information on the determining of Preliminary Investigation;--------

c. obtain an information on the status of Reported Party Party, agreement and/or activities suspected to infringe and the laws suspected to be infringed by the Reported Party Party; ----------------------------------------------------------

d. obtain an information on the determining of the case to be continued or discontinued to Follow-up Investigation;--------------------------------------------

e. perform an investigation to the written proof used as a basis of Investigation Conclusion;------------------------------------------------------------

f. submit answer over a suspected infringement allegation ;--------------------

g. change upon the behavior in Preliminary Investigation; --------------------------

h. have a copy of Decision;---------------------------------------------------------------

i. accompanied by legal adviser or attorney-in-fact in every stape of investigation and the Council Session.-----------------------------------------------

292. The usage of “In any stage of investigation and the session of Council of

Commission” in Article 65 (2) clarify that the rights mentioned in Article 65 (2)

given to the Reported Party since the report was made. Yet, the Reported Party

party has rights to, inter alia, “obtain information of Suspected Infringement

Report” and “obtain information on the determining of Preliminary

Investigation.” Any interpretation stating that the rights, as it mentioned in Article

65 (2), given only to the Repoted after Follow-up Investigation completed is

inattentive to Article 65 (2) as it is mentioned and as it is meant.----------------------

293. Article 65 (2) (e) and (f) give the Reported Party rights to “perform and

investigation to the written proof used as a basis of Investigation Conclusion” and

to “submit answers over a suspected infringement”. Nevertheless, although KPPU

has issued First Report and Second Report to Temasek, Temasek is not (to the

issue of Third Report and investigation on important case document of KPPU

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COPYdocument) given an access to the “written proof used as a basis of Investigation

Conclusion”. It violates Article 65 (2) (e).------------------------------------------------

294. Without having any chance to observe written proof that weigh against itself, it is

impossible for Temasek to understand the characteristic meaning of the suspicion

that alleged on it or to submit evidence to fight against the allegations. Article 65

(2) (f) has also been violated.---------------------------------------------------------------

295. In fact, KPPU itself is not sure with the allegation alleged to Temasek and

Reported Party 2 to 9. It can be seen from the effort of KPPU to pick fault to

Temasek during investigating process of Follow-up Investigation. KPPU asked

illogical questions on 27 (a) of the Law No.5/99 that enable it to have information

used then as a basis to prosecute in the future. The following is the questions of

KPPU to Mr. Goh during Temasek investigation on 13 August 2007: ---------------

Question 7-8 -------------------------------------------------------------------------------------- “Q. Could you explain the development of investment of Temasek in Indonesia in

the last three years and its future development? -------------------------------------- A. Could you explain the relevance of the question?------------------------------------- Q. It is very relevant. Investigation team needs such an information to

comprehend whether Temasek investment is success or not? Does the success of Temasek give an impact to the competition?” -------------------------------------

Question 10 ------------------------------------------------------------------------------------- “Q. What is the plan of Temasek investment in telecommunication field in

Indonesia and other regions for three years to come? -------------------------------- A. I am about to explain one by one. Temasek does not have investment in

telecommunication field in Indonesia. With all respects, to my understanding the investigation is to explain telecommunication and not investment of Temasek in other regions.”

Questions 59-61 -------------------------------------------------------------------------------- “Q. What is the plans of Temasek investment in telecommunication field in

Indonesia?---------------------------------------------------------------------------------- A. I cannot answer it. ------------------------------------------------------------------------ Q. Is there anyone able to answer the question? ----------------------------------------- A. With all my respects, I see no relevance with your question. ---------------------- Q. It is very relevant because it is an investment plan impacted to

telecommunication industry in Indonesia.”-------------------------------------------- Questions 98-100 ------------------------------------------------------------------------------- “Q. Is there any previous discussion concerning the investment plan discussed

through government access related to the last visit of Lee Kuan Yew to Indonesia. --------------------------------------------------------------------------------

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COPY A. No. ------------------------------------------------------------------------------------------ Q. Is there any possibility of Temasek to move its investment from

telecommunication to banking? ------------------------------------------------------------ A. We do not have investment in telecommunication sector in Indonesia. ------------ Q. It is very important question because we have to map any investment sector. ---- A. It notes further that investing decision is based on their own will. If there is a possible investment in banking, it shall be separated from telecommunication investment. It is a separated decision.”----------------------------------------------------

Questions 114 ------------------------------------------------------------------------------------ “Q. Is it possible to hire a same auditor for the last five years? -------------------------

A. I do not know.”----------------------------------------------------------------------------

296. During Follow-up Investigation of SingTel Mobile, KPPU ask some irrelevant

questions as follows:

(a) Questions on the investment profit of SingTel Mobile in Telkomsel:---------------- (i) What is the satisfied percentage of SingTel Mobile’s performance namely a

reference to re-investing? (Question 17) --------------------------------------------

(ii) What does Telkomsel gain from the investment? ----------------------------------

(iii) Does it repay your investment? (Question 19)--------------------------------------

(iv) If you sell the investment, what did you get?

(v) Compare to other investments, how is the performance of Telkomsel? (Question 23)----------------------------------------------------------------------------

(vi) Does SingTel Mobile realize that there is EBITDA tariff? (Question 28) -----

(vii) Are you satisfied with the investment? (Question 33) -----------------------------

(viii) How much is the revenue percentage of SingTel that is gained from SingTel Mobile? (Question 50) ------------------------------------------------------

(ix) How much is the revenue percentage of Telkomsel from the total revenue of SingTel Mobile? (Question 56)---------------------------------------------------

(b) Questions of pricing strategy of Telkomsel: -----------------------------------------------

(i) Can I say that commissioner of SingTel Mobile never join issue with tariff? (Question 42)----------------------------------------------------------------------------

(ii) Is SingTel Mobile discussing only on profit? (Question 35)---------------------

(c) Questions on the history of acquisition of SingTel Mobile’s shares from Telkomsel.--------------------------------------------------------------------------------------

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COPY(i) Are there any documented evidence that KPPU initiate selling shares to

SingTel ? (Question 121) --------------------------------------------------------------

(ii) Why did you buy KPN’s shares? (Question 135) ----------------------------------

(d) Questions on profit re-investment to Telkomsel: -----------------------------------------

(i) Does SingTel Mobile propose re-investing profits? (Question 140) ------------

(ii) Is there any SingTel Mobile’s policy on dividend of Telkomsel? (Question 135)---------------------------------------------------------------------------------------

297. It is not surprising that none of the questions and the answers above are matching

and find a way to enter Third Report.

298. Further, the objective of Third Report is to report completely to evidence gathered

by follow-up investigation team and how they accomplish element of Article 27

(a) of the Law No.5/99: Article 48 and 49 of KPPU Regulation No.1/2006.

299. That (a) Reported Party must have equal opportunity to self defence and (b) equal

the principle of process and transparency as it mentioned in KPPU Regulation

No.1/2006. It is clear that Third Report shall consist of sufficient information

enabling Reported Party to deny allegations to it. Third Report must also describe

why Article 27 (a) has been accomplished and provided comprehensive

conclusion of the material facts so that Reported Party is able prepare its. Third

Report should be able to identify sources of whole information to rely on. In fact,

Third Report has been failed in proving the case.

300. Third Report does show material facts in whole or asymmetrical including those

facts supporting and not supporting KPPU. In some cases, Third Report is failed

in providing facts that support its statement. The following is the lack of Third

Report:

(a) Anything but in some cases, Third Report is failed in mentioning the sources of information to rely on, the references to be cited, and the cross-references correspondence to case document up important documents of KPPU. ----------

1. In paragraph 17-21 Part IV of the Third Report, KPPU does not state an authority that support the statements in order to come to conclusion that appropriated geographical market is the region of Indonesia.----------------

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COPY2. In paragraph 104-105 Part V of the Third Report, KPPU does not state

an authority that support the statements on the organizational structure of Indosat before and after acquisition of STT. --------------------------------

3. In paragraph 182 Analysis Part of the Third Report, KPPU state “available data” but KPPU cannot identify the form of the data. ------------

4. In paragraph 188 Analysis Part of the Third Report, KPPU state “the document of agreement between Telkomsel and one of the operator regarding interconnection” but KPPU cannot identify kind of the document. ---------------------------------------------------------------------------

5. In paragraph 189 Analysis Part of the Third Report, KPPU does not state an authority that support the statements “there are many constraints concerning interconnection faced by new operators because Telkomsel creates a condition to make operators get difficulties to meet one to another”. KPPU also attents to the fact that there is a newly business actor entering telecommunication sector in Indonesia.------------------------

6. In paragraph 200 Analysis Part of the Third Report, KPPU state a scenario and benchmark based calculation but KPPU cannot identify the kind of calculation.-----------------------------------------------------------------

(b) Third Report fails to identify the facts or evidence to support the statement that Temasek control Indosat and Telkomsel. --------------------------------------

(c) Third Report (anything but Mr. Pasaribu’s rejecting statements) does not obviously consider Analysis, Spectrum and Case Associate Reports. ----------

(d) Third Report is failed in identifying any supporting facts and evidences that Temasek through Reported Party party 2 to 9 has been fixed Telkomel’s tariff. -------------------------------------------------------------------------------------

(e) Third Report does not consider pricing strategy implemented by Telkomsel, Indosat and Excelcomindo but conclude that the tariff charged is excessive, avoiding cap on tariff regulated by government. ----------------------------------

301. KPPU obviously neglects protective process offered to Temasek that stated in the

Constitution and KPPU Regulation No.1/2006. As the lack of transparence in a

series of process, any decisions of KPPU shall be revoked.----------------------

Bias and its Form---------------------------------------------------------------------------

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COPY302. A crucial question appears concerning the properness of process and the behavior

of certain KPPU’s members who influence the result investigation. The bona fides

process and individuals as well as their fairness and integrity are doubtful.----------

303. To start with, the investigation seems to be started from the information on 18

October 2007 by the State-owned Enterprise Worker Union (“FSP-BUMN”).

Apart from the fact that FSP-BUMN withdrew its report on Temasek, on or

around 2 April 2007, KPPU kept on deciding on 26 April 2007 to continue an

investigation to Temasek. Although the deadlines admitted by Article 39 (1) of

the Law No.5/99 to perform preliminary investigation has been overdue: See

paragraph 282-287 above. -----------------------------------------------------------------

304. Although KPPU gave no reason over its decision to continue an investigation to

Temasek, it was reported that Mr. Poyuono withdrew its report on Temasek as he

did not want FSP-BUMN to be used by Altimo (subsidiary of Alfa

Telecommunications JSC). Altimo is a telecommunication division of Alfa Group

Consortium (“Alfa”), a Russian corporate owned by Russian conglomerate that

has a plan to control telecommunication shares in Indonesia. An article entitled

“Project Indosat” in Strait Times, 5 Mei 2007 edition wrote: ---------------------

“The complaints against Temasek were filed last October by the Federation of State-Owned Enterprises Employees' Union (FSP).--------------------------------- IA-ITB coordinator Musarman told The Straits Times: 'That is why they'll press on with the investigations even though the FSP has withdrawn their complaints.”

FSP withdrew its complaints on April 2. At that time, its president Arief Poyuono had said that it had a weak case and could not prove that Temasek had violated anti-trust law. More recently, he disclosed to The Straits Times that the move was made because he had heard about Altimo's alleged plans and did not want to be made use of. ---------------------------------------------------------------------------------

He asked: “What is the point of buying back Indosat only to give it away to another foreign company?” -----------------------------------------------------------------

305. This is not the first time this allegation making bow. The Jakarta Business Times

reported on 4 May 2007:---------------------------------------------------------

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COPY“Some light has been shed on the recent media and public siege on ST Telemedia over its stake in Indosat, Indonesia’s second largest telecommunications company. According to various sources, the Singapore company may be the target of a pressure campaign by parties keen to edge it out of Indonesia’s lucrative telecom turf.

The Indonesian daily Koran Tempo has, in fact, named Russian conglomerate Alfa Group as the company behind the campaign. The paper this week ran several reports detailing come of its aggressive lobbying of key government and political leaders aimed allegedly at pressuring ST Telemedia to sell its stake, either directly to the Russian group indirectly through the Indonesian government. ------------

The group is said to be eyeing the 42 per cent stake in Indosat held by Asia Mobile, a subsidiary of St Telemedia.---------------------------------------------------

According to some sources, the detailed maneuver behind Alfa has been started since the last two weeks prior to thought of publishing completed report to selected mass media by non government parties.------------------------- In accordance with what a source suggested, an institution for information analysis and business technology called Alfa as a party behind the effort of obtaining Indosat’ shares. ... In early November, Russian newspaper called Tribuna wrote that an internal document from Alfa called “Project Indosat has been obtained. The report, in which part of the article was translated into English by Russian media monitoring agent WPS, stated that Alfa planned to take over 42% of ST Telemedia shares in Indosat. The project was involving Indonesian politician and bureaucrats. ... Last month, FSP-BUMN suddenly cancelled its plan to submit the allegation by reason of FSP was lack of evidence to prove its allegation and even the President of FSP admitted to make mistakes in this case. Mr. Arief stated later that the changes occurred soon after FSP found that a pressuring campaign had be done by Altimo. Athough it was not stressed that there was no other parties outside FSP boosting to submit its initial allegation, Mr. Arief admitted that FSP had no intention to have itself used by other parties.”

306. The suspicion appeared when Mr. Poyuono was willing to testify that Mohammad

Iqbal (“Iqbal”), Chairperson of KPPU, had any contact with Altimo Group. The

report of The Jakarta Post on 24 May 2007:

“The KPPU’s apparent zeal in pursuing the case has sparked speculation that the KPPU could have been bribed, especially after copies of a purported KPPU

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COPYproposal to Altimo, a subsidiary of Russia’s Alfa Group, seeking money to support the Temasek investigation, were widely distributed this month. Altimo has been reported to be interested in acquiring a stake in Indosat. … Another document setting out an apparent master plan, called the “Indosat Project”, to wrest control of the Telcom from Temesaek, has also been circled among journalists. This document details a purported Altimo plan to offer a loan to the government to enable it to buy back all of STT’s shares in Indosat in return for a portion of the shares. The document proposes a black propaganda campaign against Temasek. Earlier this month, Altimo vice president for corporate communications Kirill Babaev denied all the allegations and claimed he was a victim of a smear campaign. Altimo opened a representative office in Jakarta in December and plans to invest US$2 billion in the country’s telecoms industry. [FSP]-BUMN chairman Arief Poyuono said the investigation by the KPPU had been tainted by the involvement of Altimo, and added that he could prove this. ‘I will report the bribed to the Corruption Eradication Commission, and I’m ready to testify under oath. I can prove beyond a shadow of doubt that Altimo has been communicating with Iqbal,’ he said.” “KPPU was enthusiastic to continue the case with the speculation that KPPU could be bribed. The suspicion was supported by the existence of a copy of KPPU’s proposal to Altimo, a subsidiary of Russian Alfa Group, to have some money for financing investigation to Temasek. The copy is about to be circulated this month. Altimo expressed its interest to have Indosat’s shares. ... Other document states the arrangement of detail master plan, called “Indosat Project”, to take the control of Telkom from Temasek. The document has been circulated among journalists and it explained the plan of Altimo offering government debts for taking over the whole shares of STT in Indosat and Altimo deserves to have some portion of shares in return.--------- The document proposed a black campaign to Temasek. The document proposes that there is a black campaign to Temasek. At the early of this month, Vice President of Altimo for corporate communication, Kirill Babaev denied the entire allegation and claimed that he was the victim of destroying campaign.-------------- In December, Altimo opened its representative office in Indonesia and planned to invest US$2 billion in telecommunication industry. ------------------------------------ The Chairperson of FSP-BUMN, Arief Poyuono states that the investigation of KPPU has been sullied by the involvement of Altimo. He is even able to prove it.

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COPY ‘I will report to Corruption Eradication Commission (KPK) the bribery and I am ready to testify under oath. I can prove unhestatingly that Altimo had a contact with Iqbal,”he said”. --------------------------------------------------------------------

307. So far, it was seen when FSP BUMN wrote to KPPU in July 2007 on the reason

of the withdrawal. The letter was found in the document of KPPU. The letter is

begun, inter alia as follows:---------------------------------------------------

“In the early of April 2007, the Chairperson of FSP BUMN Union and its legal representative met with Suharto (Regional Director strategic & business development of Altimo Central and South East Asia) in Suharto’s office in GKBI building Jalan Sudirman Jakarta.------------------------------------------------------- There were many problems to be solved in that meeting.------------------------------- - Suharto asked Chairperson of FSP BUMN Union to cancel press conference

proposal regarding the withdrawal of FSP BUMN Report to KPPU.

- At that time, Suharto asked someone to come, according to Suharto he is Muhamad Iqbal (the Chairperson of KPPU), and hesitated the formation of preliminary investigation. Suharto stated that he prefers Nawir Messi to Benny Pasaribu as a chair of preliminary investigation team.”

308. In other words, if the allegation in the letter is correct, there is a conspiracy

between Alfa ans senior member of KPPU (including at least one of the members

of investigation team) to manipulate the investigation result of KPPU.----------

309. It is a serious allegation to KPU. If the allegation is correct, the ongoing process

of Temasek in KPPU is wholly improper and it has to be brought to a close

promptly. At least, KPPU shall have to investigate the allegation but there is no

evidence proved and an effort to discuss it with Mr. Puyono to clarify the

allegation. There is no public or media statement performed by KPPU to

straighten the note.-----------------------------------------------------------------------

310. To make the situation getting worse, a series of bias statement made by Iqbal

alone to mass media to add fuel to the flame.----------------------------------------

311. In early February 2007, Iqbal stated a statement to prove his preconceived

judgment that Temasek was guilty. In the report in Investor Daily, 6 February

2007, Iqbal said:--------------------------------------------------------------------------

“To date, there are many dirty competition indications in telecommunication sector, cross ownership as an example. ---------------------------------------------------

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COPY As an evidence telecommunication tariff in Indonesia, it is higher than other countries.” -----------------------------------------------------------------------------------

312. The statement was made prior to the implementation of preliminary investigation

to Temasek. It is ridiculous for a Chairperson of KPPU to publicly states that

there is “a cut throat competition in telecommunication sector”, before a formal

investigation being conducted. KPPU should be impartial and Iqbal in his

capacity of the chair of the on going investigation may not states such a

statement.----------------------------------------------------------------------------------

313. In Rakyat Merdeka, 25 March 2007, Iqbal said:” We [KPPU] has accepted reports

on the illegal competition of Temasek with its cross ownership in Indosat and

Telkomsel.” ----------------------------------------------------------------------------

314. Only two days before the first report sent to Temasek and preliminary

investigation to Temasek started, Iqbal stated that KPPU has calculated the loss

that has to be paid by Temasek. Thereby, it indicates implicitly that the guilty of

Temasek has been decided and the investigation performed was only a formality.

In Rakyat Merdeka, 24 April 2007, Iqbal said:-------------------------------------

“As a result of our examination, there is a suspicion of unhealthy competition. We are currently calculating the loss of the state. There is an impact on the price that consumers have to pay. Our telephone rate is higher than those of Singapore and Malaysia.” -----------------------------------------------------------------

315. Iqbal kept on stating harmful statements to Temasek in time of follow up

investigation process was on going.---------------------------------------------------

316. In Koran Tempo, 24 May 2007, Iqbal said: “In the preliminary investigation, our

team has found sufficient evidence of infringement indication that Temasek

practiced monopoly.” ------------------------------------------------------

317. The same statement goes for in Indo Pos, 24 May 2007. Iqbal was reported to

state “after preliminary investigation, we accumulate sufficient evidence that there

is a monopolistic practices performed by Temasek.”-------------------------------

318. It is also in the Jakarta Post, 24 May 2007, Iqbal was reported to state:----

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COPY“There are evidences discovered, including the fact that there is a cross ownership by Temasek in Indosat and Telkomsel, which violates article No.27 of the 1999 Antimonopoly Law”. -------------------------------------------------------------------- We have also found indications of lack of competition between Telkomsel and Indosat. This is reflected by the similarity of the rates of their mobile telecommunication products. This indicates a possibility of strategic control by their parent company, Temasek.” --------------------------------------------------------

319. On 26 May 2007, Bisnis Indonesia reported that Iqbal said:-------------------

“The suspicion has become more intense. It is a fact that there is a cross-ownership of Temasek in two Indonesian telecommunication companies: Indosat and Telkomsel”. ----------------------------------------------------------------------------

KPPU reckons that there’s no healthy competition between both telecommunications companies yet.”------------------------------------------------------

320. On 7 June 2007, Rakyat Merdeka reported that Iqbal said: “I am sure by

removing cross ownership, competition will be fairer.” ---------------------------

321. According to Koran Tempo, 8 June 2007, Iqbal said:“Crossownership has created

conflict of interest among the shareholders.”-------------------------------

322. In Trust on 11-17 June 2007, Iqbal was reported that “KPPU finds an

infringement of the Anti-trust Law by Temasek.”----------------------------------

323. In Gatra 20 June 2007, Iqbal said : -----------------------------------------------

“The cross ownership of Temasek Holding through its subsidiaries: STT in Indosat and SingTel that owns 35% of Telkomsel’s shares has violated Article 27 of Law No. 5/1999 with regard to Prohibition of Monopoly and Unhealthy Competition. That is why we will summon SingTel and STT for further clarification.”------

324. Wall Street Journal on 21 June 2007 reported that Iqbal said “there is indication

of the lack of competition between Telkomsel and Indosat.”---------

325. Bisnis Indonesia on 6 September 2007 reported that Iqbal said:----------------

“The [KPPU] team has found sufficient evidence of monopoly practice and unhealthy competition committed by Temasek Group in Indonesia’s telecommunication industry.”---------------------------------------------------------------

326. In Iqbal’s opinions, the indications of monopolistic practice has been obviously

seen and some evidence are needed to ratify the allegation. The statement was

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COPYpublished by Kontan on 12 September 2007: “there is a negative indication, and

we just need to ratify it with evidence.” It is clearly a priori judgement and

classical example of reversely conduct, finding evidence from a conclusion.---

327. In Indo Pos on 12 September 2007, Iqbal openly stated his choice that KPPU will

not change its mind on the guilty of Temasek: --------------------------------

“Early November is the deadline for us to make the verdict. I hope there will not be any changes.”-----------------------------------------------------------------------------

328. His opinion was re-stated in Rakyat Merdeka on 16 September 2007: ---------------

“After that, we went through the commission hearing, So, we can expect the verdict to be made in early November 2007. I hope there will be no changes.”----

329. Recently, on 22 October 2007, in Thomson Financial Iqbal stated that the last

thing to be done by KPPU is to determine sanctions for Temasek; the guilty of

Temasek has been decided.-------------------------------------------------------------

“A panel of investigators is planning to decide on sanctions against Temasek in mid-November, [Iqbal] said.---------------------------------------------------------------- ‘If, after that, they [Temasek] do not accept the decision, they can take the case to a district court,’ said Iqbal.”-----------------------------------------------------------------

330. The fact that Iqbal stated such comments before an investigation to Temasek

being conducted has put the case in trouble. Iqbal is a Chairperson of KPPU and

his statements are able to influence the performance of KPPU’s investigation

team. Besides, it also omits presumption of innocence.-----------------------------

331. Mr. Nawir Messi (“Mr. Messi”) is a chair of follow up investigation team on

Temasek. He made a statement depicting an opinion that has been previously

created, suspicion that Temasek is guilty. The New Straits Times on 7 June 2007

stated:--------------------------------------------------------------------------------------

“Nawir Messi, vice chairman of the Business Competition and Supervisory Commission (KPPU), said last month the body had found ‘strong suspicions to bring this case to an advanced investigation’.” --------------------------------------

332. Such a statement made by Mr. Messi is surprising concerning his capacity as a

chair of preliminary and follow up investigation teams of Temasek. He shall not

discuss and report a meeting report publicly before it is concluded.------------

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COPY333. Iqbal also spoke distinctly about the type of sanction imposed to Temasek.

Although under the Law No.5/99 KPPU has right to decide wide coverage of

sanction, Iqbal has focused only to certain sanction ---- an order to have Temasek

released its shares in Indosat and Telkomsel. It is perfectly embedding with

Altimo that has a plan to buy at bargain the shares in telecommunication sector.

There is no explanation stated by Iqbal on why releasing shares is the only

effective sanction.------------------------------------------------------------------------

334. Iqbal has made his own decision, as it has been known since early February 2007.

In Investor Daily on 6 Februari 2007, Iqbal said:----------------------------

“KPPU does not want to lessen Temasek’s ownership [in either company]. Instead, (Temasek) should choose between Telkomel or Indosat.”--------------------

335. Again, in Tempo May 2007, Iqbal was reported that he said:-------------------

“It’s to them whether they want to sell the shares of Telkomsel or Indosat.”--------

336. In Koran Tempo on 16 May 2007, Iqbal said:-------------------------------------

“If Temasek is proven guilty, Temasek should let go one of its ownerships in the biggest telecommunication companies in Indonesia, Telkomsel and PT Indosat.”

337. On 26 June 2007 Kontan reported that Iqbal said:-------------------------------

“If Temasek proven guilty, Temasek should sell one of the companies.”-----------

338. In Warta Ekonomi, July 2007 Iqbal said: ----------------------------------------

“If the suspicion is proven, Temasek should let go one of its shares, either Indosat or Telkomsel.”---------------------------------------------------------------------------------

339. In Investor Daily on 22 August 2007, Iqbal said:---------------------------------

“If it were proven that a violation took place, Iqbal said, the commission has the authority to put a stop to the anti-competition behavior. In doing so, KPPU will ask Temasek to let go one of its shares in the cellular company, i.e. PT Telkomsel or PT Indosat.”-------------------------------------------------------------------------------

340. In Kontan on 10 August 2007, Iqbal said that it Temasek found guilty,-------

“Temasek will have to let go one of its shares.”------------------------------------------

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COPY341. In an article of Trust Magazine, dated 24 – 30 September 2007, Iqbal expressed

such a following statement:-------------------------------------------------------------

“The directive of KPPU’s decision lead to two possibilities namely violates a law or not. If there is a violation to the law, KPPU may impose administrative fine. An imposing of fine can be valid for another business actor for not conducting the same deed. Concerning that the case is crossownership, its order is divestment of one of the company. KPPU may also impose financial fine. Whether it is punishable or not and however much a number of money will be, it depends on the decision of extraordinary commission.”------------------------------------------

342. In his statements, as it cited above, Iqbal ignores the facts that Temasek does not

have shares at all in Indosat an Telkomsel. Besides, Temasek is also not a party

that decide to invest in both companies.----------------------------------------

343. The “solution” suggested by Mr. Iqbal is also awkward due to its similarity with

the suspected plan of Altimo. It is the only sanction enabling Altimo obtain part

of shares of Indosat and Telkomsel.---------------------------------------------------

344. When the three facts are combined with the suspected conspiracy of KPPU with

Altimo, it is plausible to wonder the independency and impartiality of part of

members of KPPU. They are in their capacity as members of investigation team

that are able to influence investigation result. --------------------------------------

345. The conclusion is also supported by the incidents recently blow up by mass media

that Mr. Iqbal and Mr. Messi has been reported to the Police. The news describes

a tape of phone call between Mr. Iqbal and the representative of Altimo.

346. An article in Detik Newspaper on 23 August 2007 mentioned the following

things:----------------------------------------------------------------------------------------

“The Chairperson of KPPU, Muhammad Iqbal, will be reported to police headquarter. Iqbal is alleged for abusing his authority in during the investigation toward a case of cellular communication monopoly by Temasek Holding.”--------- ”KPPU has been used by Altimo Alfa Group, a Russian telecommunication company that intends to have Temasek’s shares in Indosat,” the Coordinator of Sates Commission Watch, MA Husein said in Menteng Hotel UI, Central Jakarta. Thursday (23/8/2007).”------------------------------------------------------------------ “According to Husein, Iqbal compels to investigate Temasek and then alleges for conducting monopolistic practice. “Tomorrow, Iqbal and another member of KPPU, Nawir Messi, will be reported to police headquarter by us,” he said.---- Husein admits to have a tape of phone call between Iqbal and Suharto (Altimo representative). The record tells an arrangement to be applied during an

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COPYinvestigation performed by KPPU on the suspected monopolistic practice conducted by Temasek. Unfortunately, Hussein cannot sound off the record to journalists.------------------------------------------------------------------------------------- ”We do apologize for not having informed yet the report publicly before our report is verified in the police headquarters.” Husein said. Husein also alleges Iqbal and Nawir to have been bribed by Altimo. He said that each of them receives IDR 5 billion. The fee will be added if the investigation is over and Temasek is stated guilty. Husein added that an injunction of KPPU required by Altimo is to punish Temasek to release its shares in Indosat at the latest of one month.”-----------------------------------------------------------------------------------------

347. In the same day, State Commision Watch performed press release concerning

suspected bribery received by Mr. Iqbal and Messi. Consequently, they should be

reported to body authority:--------------------------------------------------------------

• In this case, it is suspected that KPPU has been used by Altimo Alfa Group, a Russian telecommunication company intended to purchase Temasek’s shares in Indosat.--------------------------------------------------------------------------------

• The decision of KPPU Chairperson to insist conducting follow up investigation to Temasek is a strong evidence that KPPU, or at least its Chairperson, has prioritized the business interest of Altimo. The investigation to Temasek itself is ended with the conclusion that Temasek is found guilty for conducting monopolistic practice.-------------------------------------------------

• At the moment, Muhammad Iqbal is trying hard to prove the guilty of Temasek by presenting a series of discussion and seminar to propagandize that Temasek has conducted monopolistic practice in cellular telecommunication industry in Indonesia. The deed of Iqbal is unethical because KPPU’s investigation team has not issued any decision at all.--------

• Muhammad Iqbal tries to create public opinion prior to the issuance of KPPU’s decision in order to obtain public support when KPPU decides to find Temasek guilty.---------------------------------------------------------------------------

• On Friday 24 August, we are about to report to the Police KPPU’s chairperson, Muhammad Iqbal and his member Nawir Messi. The report will be submitted concerning a strong indication of bribery conducted by Altimo to Muhamad Iqbal and Nawir Messi for amount of IDR 5 Billion (around US$555,000) each, plus “success fee” if Temasek is found guilty.---------------

• One of initials evidence we are going to submit is a tape phone call between Muhammad Iqbal and Suharto (the representative of Altimo in Indonesia) on the plan to investigate suspected monopoly practice conducted by Temasek. The phone call occurred around March or April 2007.---------------------------

• The record cannot be sounded off to the media prior to be officially verified by the Police.------------------------------------------------------------------------------

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COPY• Based on our on hand information, the details of decision expected by Altimo

are as follows:----------------------------------------------------------------------------- • Temasek is found guilty for monopolistic practice in cellular

telecommunication industry in Indonesia.--------------------------------------- • The monopolistic practice has caused consumer loss of GSM for amount

of USD 5,000,000.------------------------------------------------------------------- • Thereby, KPPU sanctions Temasek to pay fine for amount of USD

5,000,000 (KPPU does not sanction Indosat to pay fine because Altimo is about to purchase Indosat’s shares soon after Temasek is found guilty).----

• KPPU sanctions Temasek and compel it sell its shares in Indosat at the latest of one month. -----------------------------------------------------------------

348. Further, in an article of The Strait Times daily on 5 September 2007, it was stated

that Mr. Iqbal and Mr.Messi have been reported to the Police:------------

“A NON-GOVERNMENTAL organization has filed a police report accusing the head of Indonesia's anti-trust watchdog of corruption and conspiracy in connection with his probe against Singapore's Temasek Holdings.”----------------- In its report filed late last week, State Commission Watch , alleged Mr Muhammad Iqbal, the head of the Business Competition Supervisory Commission (KPPU), of underhanded dealings with Russian conglomerate Alfa Group in his efforts to investigate Temasek for allegedly breaking anti-monopoly laws.---------- Mr Iqbal's probe against Temasek, the NGO said in its report, was intended to help Alfa get hold of shares in Indosat.--------------------------------------------------- KNW coordinator Ahmad Hussein told The Straits times that his group has evidence of a recording of an alleged conversation between Mr Iqbal and Alfa's representative in Indonesia, Mr Suharto.---------------------------------------------- He said: 'The conversation was about KPPU's investigation of Temasek. We feel this is improper and we want the police to investigate the matter.’--------------- Mr. Ahmad alleged that the Alfa group, whose telecommunications subsidiary Altimo, has an office in Jakarta, had bribed KPPU officials to probe Temasek for allegedly breaking anti-monopoly laws.”--------------------------------------------------

349. Further, in a media report in Trust dated 24-30 September 2007, Iqbal said:

“It is a matter of competition; a public case. When the case has passed a process of clarification, bundling and so on, the process then finished. It it not a civil suit, it is a competition case. The allegation is the infringement of the Law No.5/99. If a reporting party withdraws its report, there must be something wrong with its report. The reporting party reports something and then withdraws it, it is useless. The reporting party (FSP BUMN) is not serious or there are other things behind it. Besides, they have been withdrawn. It is ridiculous to say that a party has compelled KPPU to accelerate a process and it is asked to cancel it now. What’s

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COPYwrong? It because of one party closes its relationship with Altimo and takes side to Temasek, it does not mean that KPPU can be a scapegoat.”------------------------

350. Based on the news above, it is a firm reason for Temasek to question the

imparsiality of Council of Commission in the aquo case.---------------------------

351. Temasek also questions over the decision of KPPU to expel Mr. Pasaribu, as the

only member of team who disagree with the decision taken by follow up

investigation team, from the the Council of Commission that investigate the aquo

case. In our knowledge, the expression of dissenting opinion and the expel of

member of follow up investigation team are groundless and KPPU does not ever

state its decision to expel its member.------------------------------------------------

352. An article in the Jakarta Post daily newspaper on 25 October 2007 also drew

attention to the decision of KPPU expelling Mr. Pasaribu from the follow up

investigation team and also the fact that Iqbal has been been uncharacteristically

vocal in the press about his views on Temasek’s “guilt” in the course of the

investigation:------------------------------------------------------------------------------

“The events that led to the KPPU investigation of Temasek, Indosat and Telkomsel were controversial and full of political intrigue right from the outset. The KPPU also seemed to have departed from its standard procedures and practices in handling the case.-------------------------------------------------------------- Departing from the KPPU’s normal practice, Benny Pasaribu, a member of the KPPU investigation team who disagreed with the conclusions of the team, was not included in the five-member panel of judges.----------------------------------------Very rarely has the KPPU chairman talked to the media about a case still under investigation. But over the past few months Muhammad Iqbal has often been quoted in the media about the case even though he was not a member of the investigation team.”--------------------------------------------------------------------------

353. Besides, KPPU has not expressed any decision at all to focus its investigation

only to Temasek, and not to the Government of Indonesia, that in fact, controls

over Telkomsel owns significant share in Indosat (A series shares that has right to

control company significantly). It triggers public protest such as comes from

university students and worker union of Indonesia, as it reported by Channel

News Asia on 24 October 2007 as follows:---------------------------------------------

“JAKARTA: An alliance of Indonesian university students and a labor union have jointly sent a petition to Indonesia's president and parliament calling for the removal of the head of the anti-trust watchdog the KPPU.----------

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COPYThe petition also called for the replacement of all members of the KPPU, also known as the Business Competition Supervisory Committee. ---------------- It alleged that KPPU members have created uncertainties in the business environment by wrongfully prosecuting state-owned enterprises for alleged anti-competition practices.------------------------------------------------------------ … The groups listed three recent cases of mishandling by the KPPU. One of them is the current probe on Singapore investment company Temasek Holdings and its subsidiaries, Singapore Technologies Telemedia and Singapore Telecom.------ The KPPU has alleged Temasek of violating Indonesia's anti-monopoly laws through its two subsidiaries, which have stakes in Indonesian telecom operators Indosat and Telkomsel.------------------------------------------------------- As the Indonesian government has stakes in both Indosat and Telkomsel, the petition said the KPPU should investigate the government along with Temasek Holdings for cross-ownership.”------------------------------------------

354. The copy of the whole article cited above is also enclosed as Written Proof J.---

355. Although various allegations and speculations have been expressed by many

parties and reported by mass media, therefore KPPU that is involved in this case

seems to be indifferent and to keep quiet as well as to give no clarification at all

toward its suspected involvement in this case.---------------------------------------

356. Whether it is correct or incorrect that there is bias in the settlement of this case,

basically KPPU’s investigation has biased. Therefore, whatever decision

aggrieving Temasek will be spoilage. In this case, KPPU shall discontinue the

investigation of the case promptly.---------------------------------------------------

KPPU consider improper evidence--------------------------------------------------------

357. That KPPU has considered improper evidence in its First and Second Reports that

arises a question on the validity of the KPPU’s Reports.---------------------

358. In the verification of case document of KPPU on 4 to 18 October 2007, it can be

seen that the Report of LPEM to which KPPU refer to is not signed and published

only on 10 May 2007. Yet, the First Report has been issued by KPPU on 26 April

2007.---------------------------------------------------------------------------------------

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COPY359. Thereby, KPPU bases its consideration only to the draft of LPEM Report.

Concerning that the draft is not a newly version of LPEM Report, the findings in

the documents cannot be used as the lattest or official version of LPEM Report.

360. In fact, in a public discussion performed by Centre for Strategic and International

Studies (CSIS) on 20 September 2007, Mr.Chatib Basri, the Director of LPEM-

FEUI clarified that LPEM-FEUI has never conducted special research on

telecommunication sector in Indonesia. The Draft of LPEM Report referred by

KPPU is a research that is not projected to become a report because it has not

been finished or completed. Further, Mr. Chatib Basri also stated that two

paragraphs in the draft of LPEM Report referred by KPPU have been ignored or

not enclosed by a certain party. He also said that if the draft of LPEM Report has

finished or completed, the report might conclude no tariff fixing among operators.

361. The interpretation of the draft of LPEM Report by KPPU inits First Report is

incorrect so that its conclusion is null and void.---------------------------------------

362. Besides, there is no indication that KPPU has based its consideration of Second

Report issued on 22 May 2007 on the different LPEM Report. With the same

reason, the conclusion in Second Report is also null and void.------------------------

363. In this case, it needs to be mentioned that State Commission Watch expressed its

report on Mr. Iqbal, Messi and several KPPU members around 12 September

2007 concerning “false evidence” for the case, namely the draft of LPEM Report

as it enclosed as Written Proof K, in the copy of report to the Police submitted by

State Commission Watch.---------------------------------------------------------------

364. The suspicion of the usage of “false evidence” by KPPU is supported by the fact

that the document of LPEM Report mentioned above, although it is enclosed as

document C13, there is no date available in the Report of LPEM as well as in the

acceptance of the document by KPPU, as for the whole documents in the same

list. --------------------------------------------------------------------------------------------

365. Referring to this condition, the consideration taken from the draft Report of

LPEM by KPPU is misleading and the conclusion of First and Second Reports are

null and void. Thereby , the case to Temasek shall be discontinued.-------------

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COPYThe Law No.5/99 and KPPU Regulation No. 1/2006 violate the principle of due

process of law as it guaranteed by the Constitution 1945.

366. In the hierarchy of laws in Indonesia, the Constitution of 1945 is the fundamental

laws of the Republic of Indonesia. In Article 28D of the Constitution 1945 it is

stated that the state guarantee the enforcement of due process of law including the

enforcement of judicial power and quasi-judicial in Indonesia. Yet, some

stipulations in the Law No. 5/99 and KPPU Regulation No. 1/2006 as well as its

implementation are opposed against human rights although they are guaranteed

by the Constitution 1945, such as in the following things:---------------------------

(a) Article 38(3) of Law No. 5/99 states that the identity of the reporter (i.e. complainant) must be kept secret from a reported party. However, the copy of report from the Reporter Party has been kept as a secret too from the Reported Party.---------------------------------------------------------------------------------------

(b) Article 43(3) of the Law No. 5/99 obligates the Commission to decide whether an infringement occurs or not at the latest of 30 (thirty) days since follow up investigation has been completed. Therefore, in such a shortest time, Reported Party is expected to be able to observe the whole document in the case document of KPPU, to interpret it (if necessary), and to prepare answers over the suspected infringement. The Commission shall divide the 30 (thirty) days so that there will be sufficient time for the Commission to consider the case and to state a decision before the 30 (thirty) days stated by the Law is overdue. ------------------------------

(c) Article 45(2) The Law No. 5/99 obliges District Court to issue a decision on the objection to the decision of KPPU in as from the illogical time that only 30 days since the start of the examining of the objection.--------------------

(d) Based on the interpretation of Commission to the Article 65 of the KPPU Regulation No. 1/2006, the reported party is entitled to observe the documents and to check through evidence for prosecution after follow up investigation completed.---------------------------------------------------------------------------------

(e) Based on the interpretation of Commission to the Article 65 of the KPPU Regulation No. 1/2006, the reported party is given only a short time that makes it impossible to observe and check through the whole documents or evidence in the case document of KPPU. The copy of the letter sent by Temasek on 4 October 2007 to KPPU on the objection of KPPU to the short period of time given by KPPU has been enclosed as Annex H.-------------------

(f) Article 5 (4) of MA Regulation No.3/2005 on the Procedures of Submitting Objection toward KPPU’s Decision, indicates that Reported Party that submits objection to the Court cannot add further evidence if it is not previously submitted to KPPU.----------------------------------------------------------------------

367. Any pointers mentioned above are the examples of deeds that is opposed to the

principle of due process of law as it guaranteed its enforcement by the

Constitution of the Republic of Indonesia. Thereby, the Law No.5/1999 cannot be

implemented basically so that any decision issued has to be revoked since it has

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COPYviolated the basic principle of justice and moral as it is guaranteed by the

Constitution.------------------------------------------------------------------------------

CONCLUSION------------------------------------------------------------------------------

368. The case of KPPU against Temasek does not have strong foundation.--------

369. The Allegation of KPPU do not have legal basis and facts.--------------------

370. The most important thing is that KPPU has ignored the fact that the Government

of Indonesia and other regulatory bodies (including MSOE?) as well as People’s

Consultative Assmbly (MPR) have agreed to the acquisition of Indosat, therefore

the cross ownership has been in line with Indonesian laws (including the Law No.

5/99).--------------------------------------------------------------------------------------

371. In particular, the White Paper/Indonesian Parliament (MPR/DPR) considers that

“majority shares” as it meant in Article 27 (a), means the ownership of more than

50% of the whole shares. Thereby, the shares owned by SingTel Mobile and

ICL/ICPL in Telkomsel and Indosat are not majority shares, considering that the

number of shares are less than 50%. The White Paper/Indonesian Parliament also

admits and accepts that SingTel /SingTel Mobile and STT/ICL/ICPL are

managed independently. They are entities separately one to another and even

SingTel and STT compete each other in Singapore and other markets.----------

372. KPPU also significantly gets involved in the process of consultation with

government and proposed no objection at all to the process of acquisition. Under

the approval of Government and other regulatory bodies, the acquisition is

performed and caused then to the changes of share ownership structures that

actually remains the same until today. Therefore, the on going investigation under

the Law No. 5/99 has been beyond the authority (ultra vires) and reflecting abuse

of an investigation process.------------------------------------------------------------

373. Further, the investigation conducted is opposed against the justice and law as it

guaranteed by the Indonesian laws including the Constitution 1945. Besides, the

investigation has been contaminated by the allegation of impropriety conducted

by the Chairperson of KPPU and at least one other members of KPPU who

involve in follow up investigation process. The process has been tarred by biased,

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COPYill-considered and rely on premature statements made by the Chairperson of

KPPU and his member which then lead to the previously predicted decision.-------

374. Based on such matters above, Temasek is hereby begging the investigation to be

discontinued.----------------------------------------------------------------------------------

19. Considering that further, on the basis of Follow-up Investigation Report, Council of

Commission has accepted responses of AMH, ICL, ICPL on 1 November 2007 that in

essence state the following things:-----------------------------------------------------------------

References

I.

INTRODUCTION

1. We are acting for and on behalf of Asia Mobile Holdings Pte Ltd

(“ST Telemedia”), STT Communications Ltd (“STTC”) and Asia

Mobile Holding Company Pte. Ltd. Indonesia Communications

Limited (“ICL”) and Indonesia Communications Pte Ltd (“ICPL”)

to submit answer to the allegations stated in Follow up

Investigation Report (“LPL”) of the Commission for the

Supervision of Business Competition (“KPPU”) that has already

been accepted on 3 October 2007. For writing fluency, STT, STTC

and AMHC henceforth jointly will be conceived as “STT”.

2. This defense statement submitted (“Second statement of STT”) is

addition of, and must be concurrently read with defense statement

that has been beforehand submitted by STT, STTC and AMHC to

KPPU on 13 September 2007 (“First statement of STT”), and the

content of both defense statements used by STT as part of the

whole defenses to the allegations of KPPU. All references used in

First statement of STT will also be into effect in Second statement

of STT, unless it expressed on the contrary.

II. THE BACKGROUND OF CASE INVESTIGATION

PROCEDURES

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COPY3. On 18 October 2006 the Federation of State-owned Enterprise

Worker Union (“FSP BUMN”) submitted a report to KPPU that

suspects a monopolistic practice conducted by Temasek Holdings

(Private) Limited (“Temasek”).

A letter

from FSP

BUMN to

KPPU,

dated 18

July 2007,

is available

in the case

document

of KPPU

4. The report was then withdrawn by FSP BUMN on 2 April 2007

with the reason of as it elaborated in the letter sent to KPPU on 18

July 2007.

A letter

from FSP

BUMN to

KPPU,

dated 17

July 2007,

is available

in the case

document

of KPPU

5. STT knows that KPPU summons Temasek to attend preliminary

investigation referring to the suspected infringement of the Law

No. 5/1999 on the Prohibition of Monopolistic Practices and Unfair

Competition (“the Law on Anti-monopoly”).

6. Further, KPPU issued Preliminary Investigation Report (“LPP”),

dated 23 May 2007. The following parties are called the Reported

Parties, apart from Temasek:

(a) ST Telemedia

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COPY(b) STTC

(c) AMHC

(d) Asia Mobile Holdings Pte Ltd (“AMH”)

(e) Indonesia Communications Limited (“ICL”)

(f) Indonesia Communications Pte Ltd (“ICPL”)

(g) Singapore Telecommunications Ltd (“SingTel ”);

(h) Singapore Telecom Mobile Pte. Ltd. (“SingTel Mobile”);

and

(i) PT Telecommunications Selular (“Telkomsel”).

7. Nevertheless, LPP was not delivered to STT on that date. On 5

June 2007, STT accepted peremptory writ to meet Investigation

team of KPPU. It is for the first time STT accepted a notification

from KPPU that STT was suspected to infringe the Law of Anti-

monopoly. Afterwards, around 7 or 8 June 2007, the LPP was

delivered to STT.

8. On 18 and 27 June 2007, Mr. Stephen Geoffrey Miller (“Mr.

Miller”) met KPPU represented STT. Mr. Stephen Geoffrey Miller

occupied an office as Chief Financial Officer and Senior Vice

President of STTC. Mr. Miller also submitted a brief statement is

written.

9. On 13 September 2007, STT submitted First Statement of STT,

submitted a letter to KPPU to be permitted to check through the

KPPU case document in the end of Preliminary Investigation stage.

The request was rejected by KPPU by reason of it is permitted only

in the end of Follow-up Investigation.

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COPY (a) The statement of Mr. Widya Purnama. He was Managing

Director of PT Indosat Plc. (“Indosat”) from 2002 to 2004.

(b) The report from an expert of Spectrum Strategy Consultants

(“Spectrum”) entitled “Independent Review of Competition

in the Indonesian Mobile Market and Indosat’s

Performance.”

(c) The opinion of an expert, Professor Hikmahanto Juwana,

Ph.D (“Professor Hikmahanto”). He is from University of

Indonesia.

10. Follow Up Investigation should have been completed and issued

the Report of Follow Up Investigation (“LPL”) on 27 September

2007. On 27 September 2007, the attorney-in-fact of STT

submitted a letter to KPPU to ask checking through the case

document of KPPU.

11. It was newly on 3 October 2007 that KPPU delivered the Report of

Follow up Investigation (RFI). The RFI decided that the Reported

Parties is part of “Temasek Business Group” that conducted

collusion to lessen competition in the relevant market through PT

Indosat Tbk (“Indosat”) and Telkomsel by keeping the tariff high.

The RFI did not consider at all the statements, answers and

evidences submitted by STT during the step of Follow up

Investigation.

12. On 5 October 2007, the attorney-in-fact s of STT checked through

the case document of KPPU.

III. THE SUBMISSION OF ANSWER/EVIDENCE BY STT

DURING THE STAPE OF FOLLOW UP INVESTIGATION

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COPY A. The Summary of KPPU’s Allegations after the step of

Preliminary Investigation

13. The followings are KPPU’s allegations after the stage of

Preliminary Investigation completed:

1. “Temasek Holding (Private) Limited, through Singapore Telecommunication Ltd, Singapore Technologies Telemedia Pte. Ltd., STT Communication Ltd., Singapore Telecom Mobile Pte. Ltd., and Indonesia Communication Limited own shares of 35% in Telkomsel and 40.77% in PT. Indosat, Plc.

2. Telkomsel and PT. Indosat, Plc., jointly control 89% of market shares or at least more than 50% of market shares in market of cellular telecommunication service all over Indonesia.

3. Based on economic data, it is seen that the performance of PT. Indosat, Plc, is not good as other operators’ performances.

4. The crossed ownership of Temasek Business Group in Telkomsel and PT. Indosat, Plc., has caused lack of competition among Telkomsel, that owns the biggest market shares and PT. Indosat, Plc., as the second biggest shares in market of cellular telecommunication service all over Indonesia.”

B. The Summary of Answers/Evidences of STT in the stage of

Preliminary Investigation

14. The first allegation is incorrect because STT only owns 75% of

AMH’s shares and AMH’s ownership to Indosat is 40.77%. It

means that the indirect ownership of STT in Indosat is only around

31%. As it is affirmed by KPPU that SingTel ’s ownership in

Telkomsel is 35%. The ownership of STT in Indonesia’s

telecommunication operator is only indirect ownership (through

AMH, ICL and ICPL). STT does not have any interest or rights in

PT Telkom or Telkomsel. Therefore, the ownership of Temasek

First statement of STT

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COPYand/or SingTel in Telkomsel cannot be related to STT. The

fundamental thing to consider is that STT not part of what it called

as “Temasek Business Group”, because STT is not under Temasek

management and its main economic activities is not controlled by

Temasek.

15. The second allegation cannot be proven because the only STT’s

investment in Indonesia’s telecommunication operator is regarding

their indirect ownership (through AMH, ICL and ICPL) in Indosat.

STT does not have any interest or rights in PT Telkom or

Telkomsel. Furthermore, Indosat does not have control (in any

way) in more than 50% of market shares in cellular

telecommunication market. KPPU has also failed to explain how

did they determined the relevant market or measured the market

share of Indosat, though the measurement is inconsistence with the

existed market definition.

First

statement

of STT

16. The third allegation is incorrect, because all objective indicators

showed the increase of Indosat performance since 2002.

17. The fourth allegation is not based on fact because all indicators

show a high competition between Telkomsel and Indosat in any

aspect, such as price competition, high “churn rate” and product

innovation. Further, a lot of evidence showed in a whole the high

competitiveness of telecommunication market in Indonesia.

18. The report made by independent expert from Spectrum finds no

allegation basis of KPPU and concludes that Indosat and

Telkomsel competing directly in many ways. The tariff fixing at

the present time is also competitive.

19. In its expert report, Professor Hikmahanto concludes as follows:

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COPY (a) STT does not have majority share in Indosat.

(b) STT cannot be considered as business actor under Anti-

monopoly Law.

(c) KPPU has to show the abuse of dominant position to prove that

Article 27 of Anti-monopoly Law has been infringed. Further,

KPPU must also prove the causality between ownership of

majority shares and the domination of market shares.

(d) The analysis of KPPU on “relevant market” in the Report of

Preliminary Investigation is incorrect.

20. Concerning the allegations to STT, KPPU cannot prove that the

elements in Article 27 (a) of Anti-monopoly Law have been

accomplished:

a. KPPU can not prove that STT has “majority share” in Indosat – STT does not have more than 50% of Indosat’s shares.

b. KPPU is also incorrect in concluding that STT “controls more than 50% of market shares.” The only ownership of STT in Indosat is its indirect ownership (through AMH, ICL and ICPL). STT does not hold an ownership or rights in PT Telkomsel. Indosat, in whatever ways, does not control more than 50% of cellular telecommunication market in Indonesia.

c. Article 27 of Anti-monopoly Law only applies to “business actor” and STT is not a business actor as it is defined in Anti-monopoly Law. A business actor shall be founded or domiciled in the Republic of Indonesia, and STT was not founded or domiciled in the Republic of Indonesia. STT also does not perform economic activities in Indonesia.

21. KPPU does not comply with valid regulation in conducting its

investigation. KPPU is negligent to inform or involve STT in the

preliminary investigation process. By doing it, KPPU has omitted

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COPYthe opportunity of STT to arrange comments and to submit answers

during preliminary investigation step. Further, KPPU should start

its investigation within 30 days since the report is accepted and

discontinue its investigation when the report was withdrawn. In

this case, KPPU starts its investigation several months after the

first reports completed and continue its investigation even though

the report has been withdrawn.

22. Further, the investment of STT in Indosat has been conducted

transparently, approved and executed by the Government of

Indonesia. ST Telemedia even has been invited by the

Government of Indonesia to take part in an open tender of the sales

of Indosat’s shares. The sales is observed by functionaries of the

Government of Indonesia and IMF. The process has been

accomplished wholly the procedures stated by the Government of

Indonesia, in this case acted through the Ministry of State-owned

Enterprise of Indonesia (“The Minister of BUMN”), as it is proven

in the Divestment Document of the Minister of BUMN on the

Indosat divestment process on 4 February 2003 (”Divestment

Document”). Based on an independent evaluation to the submitted

documents tender, the Government of Indonesia itself appointed

ST Telemedia as a new investor of Indosat.

23. At that moment, SingTel has held an ownership in Telkomsel. The

Government of Indonesia has considered it and concluded that the

divestment would not infringe Article 27.

IV. THE ALLEGATIONS IN THE REPORT OF FOLLOW UP

INVESTIGATION

24. In LPL, allegations of KPPU change in sudden:

“1. Temasek Holdings Pte. Ltd (hereinafter referred to as Temasek) owns a majority share in two companies that

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COPYconducting business activity in the same field and in common relevant market that make it infringes Article 27(a) of the Law No.5/1999.

[“Allegation 1”]

2. PT. Telecommunications Cellular (hereinafter referred to as Telkomsel) maintains its high cellular tariff that make it infringes Article 17 (1) of the Law No.5/1999.

[“Allegation 2”]

3. Telkomsel abuses its dominant position to limit market and technology development that make it infringes Article 25 (1.b) of the Law No.5/1999.

[“Allegation 3”]

25. Although there is no allegation specifically addressed to STT, the

allegations seem to state that:

(a) The first to the ninth Reported Parties are “Temasek

Business Group” as a “single economic entity”.

(b) KPPU has a jurisdiction toward STT because Temasek

Business Group performs its business in Indonesia through

Indosat and Telkomsel as its control.

(c) Temasek Business Group has “majority share” in Indosat

and Telkomsel with its control as a shareholder.

(d) Temasek Business Group controls more than 50% of market

shares in the relevant product market, a cellular market.

(e) The cross ownership of Temasek Business Group has

decreased competition in the market which then causes

consumer loss.

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COPY26. In its defense statement, STT will conclude expressly that:

(a) There is no corporate body known as Temasek Business

Group legally or economically.

(b) STT, STTC and AMHC are not “business actors” and

KPPU does not have jurisdiction on them;

(c) STT does not have “majority share” in Indosat in whatever

bases.

(d) Fundamentally, the conclusion of KPPU is incorrect

because KPPU has stated wrongly that relevant product

market is not competitive.

(e) STT does not control more than 50% of relevant product

market.

(f) There is no evidence indicating that crossed ownership

causes the decrease of competition between Indosat and

Telkomsel.

(g) The conclusion of RFI that Temasek through SingTel and

STT controls economic activities of Indosat and Telkomsel

is illogical. It fully disregards the Government of Indonesia

the ownership of majority share owned in Telkomsel and

the control to Telkomsel and Indosat. If the RFI states that

Temasek controls these companies, it means that the

representatives of the Government of Indonesia in

Telkomsel/Indosat do not work properly. It is surprising to

know that KPPU comes up with such conclusion without ay

single evidence.

(h) KPPU does not have an authority to make allegations as it

described in RFI because it has been considered previously

by DPR and KPPU. It also comes up with a conclusion that

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COPYthere is no infringement to the Article 27 of Anti-monopoly

Law.

(i) The RFI has intentionally disregarded plenty of evidences

in the case document of KPPU that actually it is opposed

against its conclusion. In fact, the RFI is a deviation of law

and prevailing evidence.

(j) The RFI is very partial and KPPU seems to have

intentionally deviated from the evidences to come to its

conclusion. The consideration to the evidence in the case

document of KPPU is conducted partially.

(k) KPPU has made STT a subject of unfair treatment,

infringed legal process and the principles of justice under

the Indonesian laws.

V. THERE IS NO TEMASEK BUSINESS GROUP

27. STT will show in the defense statement that KPPU cannot prove

the elements of Article 27. Nevertheless, before discussing it STT

will show beforehand that all basic cases of KPPU concerning the

existence of a single economic entity known as Temasek Business

Group is simply fictitious.

A. KPPU is careless in considering legal condition to define

“Business Group"

28. The Statutes of each company, AMH and Indosat in one side, and

Sing Tel and Telkomsel in other side, arranges shareholders’ rights

to nominate director in board of directors. As a consequence,

KPPU concludes in item 77 to 84 in the RFI that Temasek has an

‘authority” to its subsidiaries. According to KPPU, there are some

directors who also take hold as a member of board of directors in

LPL, Facts,

Paragraph

77 to 84

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COPYmore than one subsidiary. KPPU has diverted an evidence to be

able to reach a conclusion as what it wants by mentioning that

there is a Business Group known as.

29. There is no law to be infringed or no impropriety if shareholders

with their significant ownership deserves to have right to nominate

directors in its subsidiaries.

30. Paragraph 5(c)(6) of the Analysis Article in the RFI cited Hansen’s

opinion in coming to the conclusion of the existence of Business

Group Temasek, as it mentioned below:

“Some self-supporting corporations that join into one self support economic unity. The self-supporting corporation is under one common head that shows outside as a holding company that makes similar plans for its subsidiaries.”

31. Yet, the RFI really disregards First Statement of AMH that

encloses the citation of Knud Hansen on the requirements to be

fulfilled by a group of entity, known later as Business Group. The

requirements are:

First statement of STT, item 46

(a) The so-called subsidiary, it must stay in an integrated

management of holding company, arranges an integrated

plan for all its subsidiaries;

(b) The plans of holding company to its subsidiaries must cover

main economic activity of the so-called subsidiaries; and

(c) The so-called subsidiary is prohibited to disobey the rules

arranged by the management of holding company.

32. In LPL, the only clue of KPPU to support its opinion on Temasek

Business Group is the capacity of Temasek as a shareholder of

STT and SingTel . KPPU does not have evidence to prove that

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COPYeither STT or SingTel (or their subsidiaries) stay in the same

management of a holding company. The holding company controls

the main economic activity and its subsidiaries are prohibited to

digress from the rules of the holding company’s management.

33. Further, Professor Hikmahanto, in its second expert opinion

clarifies that there is no legal basis for KPPU to treat the Reported

Parties as an entity known as Temasek Business Group:

The Second

opinion of

an expert,

Professor

Hikmahant

o

“I concerned about that KPPU gives reference to Temasek Business Group as one entity including: Temasek Holdings, Pte. Ltd., Singapore Technologies Telemedia, Pte. Ltd., STT Communications, Ltd., Asia Mobile Holdings Company, Pte. Ltd., Asia Mobile Holdings, Pte. Ltd., Indonesia Communications Limited, Indonesia Communications, Pte. Ltd., Singapore Telecommunications, Ltd., Singapore Telecom Mobile, Pte. Ltd. In my opinion, under Indonesian law, it is judicially incorrect because I comprehend that each of corporate body above is separated one to another that cannot assumed as an entity. Indonesian Law will treat each of corporate bodies as a separated of independent corporate body.

Therefore, all references cited by KPPU to Temasek Business Group is judicially incorrect. I do not find any evidence that support the Report of KPPU on the existence of Temasek Business Group. KPPU should treat and mention each of the corporate body as a separated corporate or independent corporate body.”

B. KPPU Ignores the evidence that Temasek does not control

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COPYSTT

34 In the First Statement of STT, respond statement and evidence

have been in detail submitted to indicate that Temasek does not

control directly or indirectly business and/or operational decision

of STT. None of the evidence is mentioned in RFI and none of

the team members of KPPU Follow-up Investigation, but Dr. Ir.

Benny Pasaribu, M.Ec, has disregarded all evidence and response

statement submitted by STT.

The First

Statement,

item 49 to

58

35. Although ST Telemedia is a subsidiary of Temasek, the Temasek’s

share in ST Telemedia is only part of portfolio diversification.

Temasek does not perform business operation and/or operational

decision STT. The decisions are made by board of director and

management team of ST Telemedia/STTC.

36. It is seen by the way of ST Telemedia acquires shares of Indosat.

The acquisition approved by board of director STTC, without any

approval from shareholder.

37. In accordance with its Statutes and the law of Singapore (the law

which is valid in the country where any entity of STT is founded),

the business and affairs of ST Telemedia and STTC are managed

by its own directors. This Directors perform their authorities on

behalf of company, unless if there is specific requirement for the of

shareholder approval

38. Members of STT are corporate bodies separated from Temasek and

ST Telemedia/STTC. They have their own business and substantial

operation. For example, ST Telemedia/STTC also has significant

number of shares in Global Crossing Limited, a network operator

of integrated global IP-based that is based in the United States and

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COPYin Tele Choice International Limited, a company listed in

Singapore Exchange Limited. Under independent management, the

corporate bodies have been listed themselves in various stock

exchanges and subjected to transparent regulation of corporate

governance of capital market.

39. There are no directors and management team of ST

Telemedia/STTC/AMHC (as they are related) and director of

AMHC who serve as directors or employees of Temasek.

40. There are also no directors and management team of ST

Telemedia/STTC/AMHC (as they are related) and director of

AMHC who serve as directors or employees of Temasek SingTel,

SingTel Mobile, Telkomsel or PT Telkom due to the

independency of the companies. STT does not have share or

indirect ownership in SingTel , SingTel Mobile, PT Telkom or

Telkomsel. Therefore, STT does not have interest to prefer

increasing cell phone market shares of Telkomsel to Indosat. The

only investment of STT in Indonesian telecommunication cellular

operator is (through AMH, ICL and ICPL) in Indosat,

consequently STT has to boost the performance and value of

Indosat for its own interest.

C. KPPU is neglecting the Representatives of STT

41. On 18 June 2007, Mr. Miller appeared before KPPU and his

written statement clearly states that STT is separated from

Temasek:

The

Statement

of Mr.

Miller in

the case

document

of KPPU

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COPY

“8. We also emphatically deny the existence of “Temasek Business Group” as it is alleged. Temasek does not control business decision, plans and the operation of STT, STTC and AMHC. 10. And more importantly, we do not have any shares at all in Telkomsel. Thus, we really do not prefer enlarging market share of Telkomsel to PT. Indosat. The only investment we have in Indonesia is in PT. Indosat and our single interest is to improve the performance and value of PT Indosat. What is called “Temasek Business Group” is actually absent.

(a) STT, STTC and AMHC

11. There is no entity called “Temasek Business Group”. Each of Temasek, STT, STTC, and AMHC is an independent corporate body. Each of us is not part of “Temasek Business Group” as it is alleged. (a) STT, STTC and AMHC

12. Temasek, STT, STTC and AMHC are managed by their own board of directors and/or management teams. The members of board of director and management team of STT, STTC and AMHC are not director or employees of Temasek. Temasek (in one side) and STT, STTC and AMHC (in the other) are managed separately one to another.

13. STT is an independent company with its various investments and business interests all over the world. Temasek does not control the business decisions, plans and operating of STT, STTC or AMHC. The decisions are drawn fully by board of director and/or management team of STT, STTC or AMHC. Each of STT, STTC and AMHC has its own board of director stuffed by worldwide reputed members.”

D. KPPU is neglecting the presence of competition between

StarHub and SingTel

42. The RFI is wholly neglecting the evidence of the presence of

competition between StarHub and SingTel, as the current

telecommunication operators in Singapore.

43. In 2003, SingTel sued StarHub Cable Vision Ltd. (“StarHub The

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COPYCable”), a subsidiary of StarHub. The litigation process was

running severely and ended with the submittal of appeal by

SingTel to Court of Appeal, the highest court of appeal in

Singapore.

Highlight

of Finance

Statement

of StarHub

and Straits

Times’

article,

dated 4

September

2007,

exhibited in

the First

Statement

of STT

44. The RFI also entirely disregards an evidence of the existence of

intervention of policy making institution in the dispute of SingTel

versus StarHub. Since the period liberalization of

telecommunication regime occurred in Singapore, Info-

communications Development Authority (“IDA”), a Singaporean

independent telecommunication regulating agency, has to intervene

at least 30 dispute cases of SingTel and StarHub. A number of

disputes reflected a level of fair competition.

E. The deviation in LPL

45. Firstly, KPPU is incorrect in mentioning that Ms.Ho Ching of

Temasek is an Executive Vice President of STT and STTC

LPL, Facts

Paragraph

78 (d)

46. It is absolutely wrong because Ms. Ho Ching serves no single

position in either STT or STTC. Furthermore, it has be asked by

KPPU in one of sessions with the representatives of Temasek,

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COPYMr.Goh Yiong Siang (“Mr Goh ”):

“Question: Is it true that Ho Ching serves as an Executive Vice President in STT and STTC at the moment?

Answer: No.”

The Follow

Up

Investigatio

n over Mr.

Goh that is

available in

the

document

case of

KPPU

47. Secondly, it is more general. Mr Goh expresses a statement

referring to the policy of Temasek that Temasek does not ever

instruct or coordinate the commercial and operational decisions

with its subsidiaries:

“35. “It is a policy of Temasek for not instructing or coordinating commercial or operational decisions s with the companies to which Temasek has its shares. Thus far, the policy remains to be implemented.

36. Such strong and firm principles have been acknowledged by reliable international institution. The institutions are carefully monitoring the deeds of Temasek by confirming the policy and practices of Temasek. The Rating Report 2006 issued by Standard & Poor’s stated as follows:

“Temasek seeks to ensure good governance, performance, and competitiveness at each TLC through ensuring a high quality board of directors…Temasek refrains from involvement in day-to-day decision-making.”

37. The same goes for the Rating Report of Moodys Investor Services:

“Each [Temasek] investee company is managed by their respective management team and guided by their board of directors. Temasek is not involved in the

The

Statement

of Mr. Goh

in

paragraph

33 to 35 in

the case

document

of KPPU

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COPYdaily commercial or operational decisions of its investee companies.”

48. In his investigating, Mr.Goh Yiong Siang categorically explains

that Temasek does not interfere in the decision making of Temasek

investee companies, including STT.

“14. “Question: Does Temasek get involved in the investment decision making and management activity of STT and SingTel ?

Answer: No, Temasek does not involve in operational fields and business decision in both companies. The decision on investment is taken by board of commissioner and management of each company.”

“27. Do STT and SingTel report their investment development to Temasek annually?

Answer: No, they do not report to Temasek.”

“30. It is important for us to have a copy of Temasek’s Statutes. Would you please explain the rights of Temasek in its capacity as an owner of SingTel and STT?

Answer: I want to repeat. Both companies treat Temasek as they do to other shareholders, our rights is the same as our rights in investee companies. We reserve rights as it is conducted by other shareholders to buy more shares or to sell or to maintain our shares.

“31. Question: Would you please explain the rights of Temasek in its capacity as 100% shareholders to STT?

Answer: As I have already told. STT is our investee company. We see our investment from financial point of view. We do not involve in the making and operational decision of the company because they have been performed by the board of directors and management of STT. Our Rights is not different with other shareholders. We are entitled to attend shareholder meeting and to have voting right.”

83. Question: Are there any names serving to STT and SingTel ?

Answer: None of them serves as member of STT

The Follow

Up

Investigatio

n over Mr.

Goh that is

available in

the

document

case of

KPPU

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COPYBoard of Director STT, but Simon Israel. He is a member of board of directors in SingTel. Yet, he has been there before joining Temasek.

84. Question: Is one or the other serving for STTCom?

Answer: Nobody.

85. Question: Is one or the other serving for AMH?

Answer: Nobody.

86. Question: Is one or the other serving for AMHC?

Answer: Nobody.

87. Question: Is one or the other serving for ICL?

Answer: Nobody.

88. Question: Is one or the other serving for Indosat?

Answer: Nobody.

89. Question: Is one or the other serving for SingTel Mobile?

Answer: Nobody.

90. Question: Is one or the other serving for Telkomsel?

Answer: Nobody.

49. Although the evidences are contended with, the RFI does not show

them that make it conceals the truth

50. Thirdly, in its meeting with KPPU on 19 July 2007, Mr.Roes

Aryawijaya (“Mr.Roes”), the Commissioner of Indosat who is

nominated by Minister of BUMN, clearly confirmed that ST

Telemedia and SingTel competes each other:

Meeting

Official

Report

between

KPPU and

The

Ministry of

State-

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COPYOwned

Enterprise

(BUMN)

page 3 that

is available

in the case

document

of KPPU

“21. Question: Is Temasek influencing the decision in Indosat?

Answer: As far as I know. It is negative.

22. Question: Do you mean the institution?STT or ICL?

Answer: STT is very influencing, STT competed tightly with SingTel , concerning the capacity of SingTel as a becomes shareholder in Telkomsel.”

51. Mr. Roes also shows evidence on the selection of director in

Telkomsel. It is fully transparent process:

“41. Question: How is the mechanism of electing board of director in Telkomsel?

Answer: The proposal to elect board of director is arranged inn Shareholder General Meeting (RUPS), in this case the commissioner of Telkomse., Tantri Abeng proposed several candidates to State Minister of BUMN, at that time, Mr. Sugiharto.”

52. Fourthly, in item 78 of RFI also incorrect in mentioning that Mr.

Peter Seah, Mr. Sum Soon Lim and Mr. Vincent Perez are the

Director on AMHC, that (ii) Mr. Sum Soon Lin is one of the

directors in AMH, that (iii) Mr. Miller is the CFO of AMHC and

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COPYICPL. Furthermore, there is no person by name George Chow

Yow Tong inside the board or management of ST Telemedia,

STTC and AMHC. It was very surprising that the RFI has done

some fiction in the effort to get a wrong conclusion.

53. Finally, the allegation of KPPU concerning the influences of

Temasek Business Group to Indosat and Telkomsel by

coordinating their actions is inconsistent with the evidence

accumulated by KPPU from Dr. Ir. Bambang P. Adiwiyoto, M. Sc.

(member BRTI), in his meeting with KPPU on 10 July 2007:

Meeting

Official

Report

between

KPPU,

BRTI and

Directorate

General

Posts and

Telecommu

nication

that is

available in

the case

document

of KPPU

“Nevertheless, Telkomsel and Indosat is competed, if it is seen from the perspective of technology”

54. Practically, Mr.Hasnul Suhaimi (“HS”), the CEO of

Excelcommindo (“Excel”), informed by KPPU to have leaved

Indosat in an unfavorable condition, also confirmed in the follow-

up investigation of KPPU on 9 August 2007 that:

The

Official

Report of

Follow Up

Investigatio

n to

Suhaimi,

on page 5

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COPYthat is

available in

the case

document

of KPPU

“Marginally, the market in Indonesia is still more competitive compared to the market abroad. In my opinion, the condition of cellular phone in Indonesia is over competitive. To my prediction, tariff will be in consumers’ side.”

F. It is understandable that shareholders propose to name

directors

55. In LPL, KPPU also states in item 102 to 109 that it is possible for

ICL have any control to Indosat with its authority to nominate

directors in Indosat, Deputy managing director, Director of Finance

and Information and Director of Information and Technology (IT)

in particular.

56. Once again, KPPU diverts the evidence for the sake of coming to

its conclusion. Although ICL is entitled to nominate director and

commissioner of Indosat, the appointment of both positions shall

be approved by shareholders of Indosat. Deputy Managing

director also has to report to managing director, a Chief Executive

of Indosat, and in reality the managing director is always

nominated by the Government of Indonesia.

57. Further, Managing director of Indosat, Mr.Johnny Swandi Sjam who is nominated by the Government of Indonesia, mentions that is nothing wrong with ICL to nominate director. It has also nothing to do with the nominated directors including Director of Finance and Director of Information and Technology:

“45. Question: Which post does ICL remain to hold?

The

Official

Report of

Follow Up

Investigatio

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COPYAnswer: Deputy, Director of Finance and IT.

46. Question: To whom the position of ICL is given when the Director of Network is occupied by an Indonesian citizen?

Answer: Director of Operation.

47. Question: Why should Director of Finance always be taken by ICL?

Answer: As long as I know, the finance management generally held by the investor.

48. Question: Why IT Director always held by ICL?

Answen: For all I know, Singapore is dominant in IT.’’

n to

Swandy

Sjam,

dated 27

August

2007,

available in

the case

document

of KPPU

58. In displaying the facts, the RFI does not refer to the statement of

Mr. Johnny Swandi Sjam. It disregards the fact that nomination is

approved through the transparent balloting by the whole

shareholders during RUPS

59. There is no law infringing or improper for a shareholder with its

significant ownership nominating director for its subsidiary. Under

the Statutes of Indosat, any shareholder that has at least 25% of

share may propose to be included in the agenda of annual RUPS

(including the proposal to nominate Board of commissioner and

board of director in Indosat). It is untrue to tell that the

shareholders of Indosat (other than the Government of Indonesia as

the owner of dwiwarna shares) are able to appoint directly board of

directors or commissioner. Shareholders have rights to nominate

candidate to be members of Board of commissioner or board of

director and appointed then by an agreement of shareholders during

RUPS. STT does not have more than 50% ownership in Indosat,

therefore STT cannot do it alone and it is possible to be defeated

during RUPS.

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COPY G. The deviation of KPPU over the evidence concerning the

procurement in Indosat

60. The evidence held by KPPU to prove ‘a control’ allegedly

conducted by STT is by relating it with procurement. The evidence

is wholly misinterpreted and it is clearly unable to prove a form of

domination at all.

61. In item 104 to 115 Part IV of LPL, the Deputy of managing

director who perform operational activities of Indosat, procurement

included is alleged, in this case to Mr.Khaizad B. Heerjee

(“Mr.Heerjee”). Hereunder we cite:

111. Prior to the management led by Khaizad, the method of procuring network is non turnkey under the management of Hasnul Suhaimi (Managing director) and it is that conducted by local company. It changes to become turn key and conducted by foreign under Khaizad management (IOR of Wimbo S Hardjito date 25 September 2007);------------------------------------------------------------

112. That cancellation (by Khaizad) to the development method applied by Hasnul, is one of the factors that make Hasnul resigned. It also indicates that the control of Indosat is in the hand of deputy managing director, let the managing director be a symbol. (IOR dated 22 August 2007);

113. The Cancellation leads to the absence of procurement decision to develop network. Such a condition was taking place in the first 9 (nine) month of 2006. It caused the business activities of Indosat is constrained and felt behind other operators. (IOR of Wimbo S Hardjito date 25 September 2007);

114. That the delay of network development is the basis of 4 (four) board of director of Indosat, Jhoni Swandy Sjam, Apocalypse Widjajadi, S. Wimbo S. Hardjito and Wityasmoro to meet Lee Theng Kiat (Commissary Indosat) in Singapore to explain the

LPL, Part

IV,

Paragraph

111 to 114

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COPYdelay of network development that will be detrimental Indosat. In other hand 4 (four) board of director of Indosat their assessments that Khaizad is incompetent to become a leader in Indosat (IOR of Wimbo S Hardjito date 25 September 2007);

115. To the information given by 4 (four) board of director, Lee Theng Kiat does not take action at all (IOR of Wimbo S Hardjito dated 25 September 2007).”

62. In the first place, there is a suspicion that Mr.Heerjee is a party

appointed by ICL to control procurement process and to overrule

the managing director. When the four Indonesian went to

Singapore to submit their objection, Mr.Lee Theng Kiat

(“Mr.Lee”) is suspected to do nothing. All of the facts are

provided by Mr.Wimbo S Hardjito (“Mr.Wimbo”).

63. The RFI absolutely fails to use evidence that directly and clearly

submitted by STT, from Mr.Widya Purnama and one of the four

“dissatisfied” directors. Mr.Johnny Swandi Sjam told very

different information.

64. Mr.Widya Purnama worked in Indosat in 1983-2004 and assigned

by the Government of Indonesia and served as managing director

of Indosat from June 2002 to September 2004. The relevant parts

of his written statement to KPPU are as follow:

“8. Since June 2003, majority member of board of directors are Indonesians (5 of 7 directors are Indonesians). Director of Finance is more international, including some Singaporean people and Independent Commissioner.

…The directors from Indonesia are majority when I was a Managing Director; the deputy director was from Singapore as well as Director of Finance. Nevertheless, all the Directors report to me. I lead a meeting every Mondays where we hold a consultation prior to the

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COPYapproval of my direction and everything to be performed.

10. This is effective structure. Our Indonesian directors covers the areas that need local understanding such as sales and marketing, business development, regulation, legal and human resource. The directors from Singapore submit their newest business understanding and finance aspects of reorganizing Indosat. I remember the successful package of refinancing our loan. The assessment/rating of Indosat loan increased and we reach the biggest transaction ever in Indonesian market since Asian financial crisis. The most important thing is Indosat find a way to boost.

13. STT/ICL does not ever take part in how I run Indosat. STT/ICL never dictate me on how Indosat shall be managed or controlled”

65. Referring to Mr.Johnny Swandi Sjam, in his view, the board of

director as a whole decides whether a certain program shall be

performed in turn key or non turn key. The deputy of managing

director does not control the procurement and the board of director

work in collegial way:

33. Question: Who does make the policy program of changing it to turnkey project?

Answer: As far as I know board of director through board of directors meeting in 2006.

34. Question: How about procurement?

Answer: For procurement above USD 5 million, the approval of managing director is needed.

35. Question: What about procurement under USD 5 million?

Answer: There is a rule on it concerning its authorization.

36. Question: Since 2007, are there any procurement above USD 5 million?

Answer: Since June 2007 (I have been a managing director), at least there were 2

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COPYprocurements above USD 5 million. .Network Procurement, which is for filter and CDMA.

37. Question: The procurement that only need Deputy’s approval?

Answer: As I recall, the procurement around USD 1million to USD 5 million. But I am not sure the exact number.

38. Question: Shall Managing director know or approve procurement proposal?

Answer: To approve a procurement above USD 5 million

39. Question: In other hand, what is the authority of Deputy that need no approval from managing director?

Answer: All the things usually conducted in Collegial, in the sense of discussed in the meeting of board of director

The testimony of Mr.Jhonny Swandi Sjam that cited above are

conducted in collegial, in line with the Statutes of Indosat, for

example, stating that all decisions of the board of director meeting

conducted by deliberation for general consensus, and otherwise

succeed by majority votes

66. The RFI also really disregards that this evidence is justified by Mr.

Roes, who were and who are an Indosat Commissioner:

“28 Is it true that after Mr.Hasnul retiring the position is automatically occupied by Mr. Khaizad, but the proposal of Bapak Hasnul is refused? Is it true?

No. There are many different opinions. The proposal of Mr.Hasnul was tried to be applied in the company; nevertheless, in field, in managerial level, there were many oppositions against him. The board of director prefer to low

The

Official

Report of

Follow Up

Investigatio

n to Mr.

Roes, dated

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COPYpricing to consumer.

19 July

2007,

available in

the case

document

of KPPU

67. Further, Mr. Roes explains that the long vacuum position left by

Hasnul is not caused by STT:

An

interview

with Mr.

Roes, on

page 7 of

the case

document

of KPPU

30. Question: As a commissioner, according to Mr. Roes, is the atmosphere in the mid manager level is such bad that the vacuum for the position is far too long?

Answer: It due to the lack of Minister of BMN to take action. Besides, it is also caused by the resistance of mid level manager, 750 people.

31. Question: Does it happen due to the refusal of STT?

Answer: No

68. The opinions of Mr. Widya Purnama, Mr.Johnny Swandi Sjam and

Mr.Roes Aryawijaya differ much with those given by KPPU.

Although it has been mentioned that Mr.Johnny Swandi Sjam is

one of directors who is suspected of expressing his complaint to

Mr Lee, RFI is really negligence in explaining why RFI only rely

on the evidence provided by Mr.Wimbo and not from Mr.Johnny

Swandi Sjam.

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COPY69. Although Mr.Heerjee is possible not to agree with managing

director in a certain problem it does not mean that AMH controls

board of director of Indosat. Directors can be in a regular way

agreeing or not agreeing with something, and that it does not mean

that just because one director is insistent on a certain problem, such

a director control board of directors.

70. KPPU prefers to consider the evidence provided by “a management

staff of PT. Indosat (who was asked not to disclose the identity)” to

those from Mr.Johnny Swandi Sjam. It is surprising that KPPU

based its report on the evidence from an eyewitness who wish not

disclose the identity. Without mentioning identity in the official

report, such a witness is unreliable because he/she cannot explain

the fact owned of opposes it from the evidence. Such evidence is

null and void.

71. Concerning to the resignation of Mr. Hasnul, an article in

Detik.com on 5 July 2006 stated that he resigned for a personal

reason without any pressure on him. Further, officially Mr.Hasnul

is appointed as managing director of Excelcomindo on 1

September 2006 during RUPS of Excelcomindo. Although STT

does not know the private reason of Mr.Hasnul behind his

resignation, the evidence submitted by Mr.Roes Aryawijaya

indicates that Mr.Hasnul did not resign but it was caused by the

intervention of Vice Managing Director.

Article

dated 5

July 2006

in

Detik.com

“Why should be a vacuum in top management of Indosat, is caused by the refusal of STT?

No. The problem is in Indonesia itself.

The

Official

Report of

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COPY

Investigatio

n of Mr.

Roes that is

available in

the case

document

of KPPU

72. The failure of KPPU in evaluating relevant evidence in its case

document, clearly indicate that RFI was prepared to come to a

conclusion of the infringement of Article 27 by ignoring existing

evidence. It is regrettable that there is no serious effort shown by

KPPU to evaluate evidence in LPL.

Letter from

the

Ministry of

BUMN,

Annex 1

73. As it is reported in annual report of Indosat for a fiscal year ended

on 31 December 2006, the revenues of Indosat within nine months

respectively (since April 2006) recorded to reach two-digit growth

to 30%.

“The revenues of Indosat within nine months respectively (since April 2006) recorded to reach two-digit growth to 30% after passing slow growth for almost five quarters. Operating income of Indosat in 2006 was around IDR 12.2 trillion, rose to 5.6% to those of the previous years. The margin of Indosat’s EBITDA within a year remained to be healthy and framed in the previous market guidance between 57%-59%. In the end of December 2006, Indosat recorded almost 16.7 million cellular customers, raise to go up to 21%, although the churn rate was high and compulsory abolition as an enactment of prepaid registration compulsory in early year.”

74. Caused by the problems mentioned above, the statement of

KPPU in item 145 of RFI describing that the decrease of

Indosat’s performance due to the nine-month delayed of BTS in

2006 is incorrect.

H. The Conclusion of Follow-up Investigation is Illogical

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COPYBecause the Decision State that the Government of

Indonesia is not competent

75. STT always appreciate the active role of the Government of

Indonesia either in Indosat’s board of director or commissioner.

The managing director is usually a representative of board of

director. Mr. Roes Aryawijaya, used to be a Indosat

commissioner in 2003, is a Deputy of Minister of BUMN at the

moment. In this case, if RFI states that STT controls Indosat for

the sake of Temasek, it automatically indicate that the

Government of Indonesia and its representative do not have any

influence at all to STT. It is an aspersion to the Government of

Indonesia.

76. KPPU realizes fully that the Government of Indonesia is a

significant shareholder either in Indosat or Telkomsel.

Unfortunately, the facts are ignored in LPL. Another interview has

ever been conducted by KPPU and the result of the interview with

Deputy Minister of BUMN, Mr.Roes Aryawijaya that should be

cited:

“2. How are the composition of board of director and commissioner in each company, Indosat and Telkomsel?

Indosat : 4 board of directors are from STT, 5 from Telkom, 4 commissioners are from Telkom and 6 from STT. While in Telkomsel there are 3 board of directors from SingTel and 2 from Telkom.

3. Is STT dominant during decision making?

In the decision making we always concerns good corporate governance and avoids implementing voting mechanism. We do that in the meeting of Indosat board of director and commissioner.

The

Official

Report of

Investigatio

n of Mr.

Roes that is

available in

the case

document

of KPPU

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COPY77. In the part where KPPU discusses allegation on ‘”authority”

Temasek, KPPU has eliminated the fact that Deputy Minister has

explained not only in selecting a number of director and

commissioner in Telkomsel and Indosat by the Government of

Indonesia but also in becoming active participant to control

initiatives and to attend a numbers of meetings

78. If the ability to elect director and commissioner as well as double

position people is the evidence of “controlling of the holding

company”, it means that the Government of Indonesia not only

controls either Indosat or Telkomsel but also infringe Article 27 of

Anti-monopoly Law. The facts show that (i) the Government of

Indonesia (acted via Minister of BUMN) is a shareholder either in

Indosat and Telkom (that has more than 50% of Telkomsel’s shares

and control it); (ii) the higher officials from the Minstry of BUMN

serve as commissioner in Indosat and Telkom; (iii) people assigned

by Ministry are those serving as member of board of directors.

79. STT always appreciates the active role of the Government of

Indonesia and its representatives in management Indosat. The

conclusion of RFI, that Temasek (that only has indirect minority

ownership in Indosat or Telkomsel) “controlling” either Indosat or

Telkomsel is unreasonable. Logically, it concludes that the

directors and commissioners appointed by the Government of

Indonesia are subject to Temasek. It is surprising that KPPU has

come to conclusion without any evidences to support.

80. It is opposed against the fact, between evidence in the case

document of KPPU and the “Government’s Elucidation”. It is

stated that, on page 14 of the case document of KPPU, the

“majority” share of Telkomsel “owned and controlled” by PT

Telkom Plc., and Further, that STT and SingTel are separated each

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COPYother.

SingTel has 35% of Telkomsel’s shares with the limited management representation, in which the majority share of Telkomsel is owned and controlled by PT Telkom Plc. SingTel also is a public corporation that bring interests not only for Temasek as a shareholder but also public interest. Either SingTel or STT is managed by separated management team and competed freely in fixed access of cellular area, and internet service in Singapore. Concerning STT and Indosat, it is important to recall that that Indosat is also a public corporation, bring interests not only to STT but also to shareholders (government with 15%, overseas public shareholder/NYSE 30%, and domestic shareholders less than 13%).

STT and SingTel are owned by Temasek with their own independency. The competition between them must be subject to law and legislative regulation that go into effect in Indonesia either in the field of telecommunications, business competition, or capital market.

81. From the Government’s Elucidation, it is clear that the divestment

in Indosat has been considered carefully by member of House of

Representatives (DPR) in Indonesia. The more importantly, DRY

has obviously seen that there is no problem concerning cross

ownership because the majority shares in Telkomsel are owned and

controlled by the Government of Indonesia.

82. It shows that RFI is partial. The RFI does not take well-balanced

approach, in which RFI considers and conducts an evaluation to

the evidence that explained and advocated the position of STT. On

the contrary, RFI even disregards the evidence provided by DRY.

KPPU does not consider this as fairly and precisely.

VI. THE ALLEGATIONS OF THE INFRINGEMENT TO

ARTICLE 27 ANTI-MONOPOLY LAW

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COPY83. Article 27 of Anti-monopoly Law states:

“business actor is prohibited to have majority share in several same kind of companies that conduct perform business in the same relevant market, if the ownership causes:

a. One business actor or a group of business actor controlling more than 50% (fifty percent) of market share of the certain similar goods or services.”

84. KPPU can not prove the whole elements of Article 27:

(a) STT is not a business actor.

(b) STT does not have majority share in Indosat or Telkomsel.

(c) STT does not control more than 50% of the relevant market.

(d) STT does not abuse dominant position.

85. Firstly, KPPU thinks that the whole Temasek Businesses Group

has to be considered as a single economic entity. Secondly, the

Temasek Business Group is suspected “to control” some entities in

Indonesia, Indosat and Telkomsel. Thirdly, Business Group

Temasek is suspected to use its influences in Indonesia, therefore

KPPU has an authority to apply jurisdiction extra-territorial to

Temasek Business Group, in accordance with practices suspected

implemented by European Union.

RFI,

Analysis,

page 5

86. The following defense statement indicates that KPPU has not only

distorted evidence but also legal interpretation in its effort to come

to groundless conclusion in LPL.

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COPY A. STT is not a business actor

87. RFI is intentionally not to mention defense statement of STT that

companies within STT are not entities under the jurisdiction of

KPPU.

88. The definition of jurisdiction is a fundamental condition to start

investigation of KPPU.

89. Jurisdiction scope of KPPU as it is stated in Article 1(18) of Anti-

monopoly Law, mentioning that KPPU will, for example, “monitor

business actor who perform their business activity” (enhanced to

emphasis).

90. In consequence, an entity is only under jurisdiction of KPPU if the

entity is ”business actor” as referred to Anti-monopoly Law. The

term ”business actor” is defined explicitly in Article 1 (5) of Anti-

monopoly Law as, ”individual or corporate body ... that is founded

and is domiciled or to conduct activity in the territorial jurisdiction

of the Republic of Indonesia, either by itself or jointly under

agreement, carrying out various business activities in the field of

economy.” (enhanced to emphasis)

91. During Preliminary Investigation, the Reported Party is identified

as ”Temasek Business Group”. Although LPP, further jointly refer

to the Reported Party as ”Temasek Business Group”, STT note that

LPP clearly defines any entity suspected to form ”Business

Group” as separated ”Reported Party”.

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COPY92. In LPL, the companies to which we refer to as STT is conceived as

the Reported Party. Nevertheless, as it is mentioned above, there is

no certain allegation addressed to them. At the moment, the

allegation is addressed to Temasek. It is obvious that even KPPU

“confuse” to which party the investigation is conducted to.

93. Under Article 1(5) of Anti-monopoly Law, STT clearly excluded

from the definition of “business actor”.

94. First of all, STT is not “founded” or “domiciled” in Indonesia.

95. Further, the most important thing, as it is intended by Article 1(5),

STT does not “perform any activity” in Indonesia. All “activities”

in Indonesia are performed by Indosat. STT is couldn’t considered

to “conduct” activities because the business of Indosat is managed

by its own board of directors for benefitting Indosat, therefore STT

does not take any operational decision in the business of cellular

telecommunication of Indosat. Based on the above reason, the

status of STT toward Indosat limited only as indirect shareholder

of 30% Indosat’s shares.

96. The Follow-up Investigation of KPPU is relied on bias

interpretation of Article 1(5) Anti-monopoly Law. After referring

to the definition of “business actor” in Article 1(5), RFI further

states (in item (A)(2)) that:

The Report

of

Preliminar

y

Investigatio

n

…Any activity of business actor that are not founded

and not domiciled in the territorial jurisdiction of the

Republic of Indonesia but its activity impacted the

competition in the territorial jurisdiction of the

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COPYRepublic of Indonesia is subjected to the stipulation in

the Law No. 5/1999.

(enhanced to emphasis)

97. With all respect, this statement deviates from the definition of

“business actor”, according to Article 1(5). The concept of

“activity that have impact to the competition in… Indonesia” is

broader than the condition of “performing activities in …

Indonesia,” according to Article 1(5). The last sentence signifies

an active involvement in Indonesia, but not for the first. The

conduct of equalizing the two different concepts has distorted the

actual meaning of Article 1(5) Anti-monopoly Law, therefore, it

has unfairly extended its jurisdiction that actually beyond its

authority.

98. Our analysis above is supported by the evidence of Professor

Hikmahanto in his first expert statement. It is stated that :

“In my opinion, foreign corporate to qualify as Business Actor shall perform “business activity”. This activity shall be seen in the context of direct capital investment (direct investment) that not simply indirect capital investment (indirect investment), due to another sentence to follow of Article 1(5) that state “carry out

4. Is foreign corporate body that only possessing shares in Indonesian company and has no involvement in whatever activity or operational decision can be assumed to conduct “business activity”?

In my opinion, it is not. It simply owns shares and not performs any business activity or operational decision in the sense of indirect investment. For this reason, such a foreign corporate body can not be considered as business actor under Anti-monopoly Law.

5. Can a foreign corporate body that is not founded

and domiciled in Indonesia and only has for around

41% of the entire shares in Indonesian company be

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COPYconsidered as Business Actor under Anti-monopoly

Law ?

In my opinion, such foreign corporate body cannot be

considered as Business Actor. There are four things

constituting my opinion. Firstly, such a foreign

corporate does not perform “business activity in the

field of economy” as it is required by Article 1(5) Anti-

monopoly Law. Secondly, the activity conducted is only

limited to own shares and not to conduct direct capital

investment (indirect investment). Thirdly, it is Indosat’s

board of director with its member that have obligation

to Indosat to conduct based on Indosat’s best interests,

that perform operational cellular telecommunications

(see Article 11 (1) and (2) AD). As it is determined in

the Statutes of Indosat that the decision of board of

director is taken with the deliberation to agree. In this

case it is null and void. It must be noted that board of

director that nominated by ICL is few in number or

minority. The majority of director’s members’ board,

including managing director, is whom nominated by

the Government of Indonesia. Fourthly, the

corporation was not founded or domiciled in

Indonesia.

6. Can STT, STTC, AMHC, AMH, ICL and ICPL be considered as Business Actor, when they are not founded and domiciled in Indonesia?

I have a notion that the definition of KPPU on “Business Actor” in its Report on the Result of Preliminary Investigation94 is incorrect. In my opinion, in order to consider foreign corporate body a Business Actor, such a corporate body must directly conduct “business activity” in Indonesia.

STT, STTC, AMHC, AMH, ICL and ICPL hold shares directly or indirectly in Indosat and KPPU does not prove that the companies do not make operational decisions for Indosat. In consequence, this companies can not be assumed to conduct business activity, and it is not Business Actor under Anti-

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COPYmonopoly Law.

99. RFI has ignored the evidence from Professor Hikmahanto. Its

failure in considering evidence shows the RFI is partial.

100. The conduct of equalizing the two different concepts of “activity”

and “impact” in RFI is distorting an actual definition of Article

1(5) of the Law and it is unfairly extended the jurisdiction scope of

KPPU.

101. The Item (A) (2) of LPP refers to consideration of (c) of the Law

and it emphasizes that “anyone who perform business in Indonesia

must stay in healthy and fair competition nature” (enhanced to

emphasis). The reference “to perform actual business in

Indonesia” has supported the interpretation of STT, and those of

KPPU to the term of “business actor”.

102. The term “to perform business in Indonesia”, is similar to

“performs activity in … Indonesia”, it requires a positive

involvement in business/activity in Indonesia. The two concepts is

narrower than those offered by KPPU on “activity that impacted

competition nature in Indonesia.”

103. In Indonesian law interpretation, there is only one member of

KPPU, Dr. Ir. Benny Pasaribu that seems to consider the evidence

in the case document of KPPU:

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COPY “I do not find any evidence that Reported Party I to

Reported Party IX are business actors as referred to Article 1 item 5 of the Law No.5/1999. The fact is, The Reported Parties are corporate bodies that are founded and domiciled not in the territorial jurisdiction of the Republic of Indonesia. Several Reported Parties also do not perform business activity or business transaction in the area of cellular telecommunication in Indonesia. Although Reported Party VI and Reported Party VII own shares in PT. Indosat and Reported Party IX owns shares in PT. Telkomsel, they are improvable to conduct transaction of cellular telecommunication goods and/or service in Indonesia. The shareholders are improvable to conduct and/or take cellular business decision. The fact, its market also differs: stock exchange activities in capita market and cellular business in goods and service market – often called also as “real sector”. There are also fact that board of commissioner and board of director of PT. Telkomsel and PT. Indosat that conduct operational activity and take decision on cellular telecommunications business in Indonesia, not shareholder or the Reported Parties.”

104. Further, there is no international law principle that permitted KPPU

to use extraterritorial jurisdiction to STT. As it is mentioned by

Professor Hikmahanto in his second expert statement:

The Report

of expert,

Professor

Hikmahant

o, page 2

In international law theory, there are 4 principles in applying a jurisdiction; first, territorial jurisdiction; second, personal jurisdiction; third, jurisdiction according to the protective principle; and fourth, jurisdiction according to the universal principle.

105. KPPU cannot use territorial jurisdiction because Indonesian law

does not admit single economic entity. In whatever case, there is

no evidence that Temasek Business Group is a single economic

entity. The previous evidence indicates that so-called companies in

The Second

expert

Statement

of

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COPYTemasek Business Group have their own management separately

one to another and competed one among them.

Professor

Hikmahant

o

106.

KPPU also cannot use personal jurisdiction because STT is not founded

under Indonesian law and not an Indonesia entity. KPPU can not use

universal jurisdiction because the jurisdiction is only enforced to

international crime such as hijacking and humanity crime. It cannot to

enforce jurisdiction to protect the interests of a country because the

enforcement must be based on the suspected action conducted

intentionally certain targeted country. Furthermore, this action must

results remarkable impacts to certain targeted country. In this case,

KPPU can not show any single evidence showing that STT (or other

Reported Parties) intentionally conduct to cause remarkable impacts to

Indonesia as a country.

B. STT does not have “Majority Shares”

107. The objective of allegation 1 is that Temasek owns “majority

share” in 2 providers of telecommunication services in Indonesia

through its subsidiaries. It is incorrect.

(i) KPPU equalizes the term “Minority” shareholder and

“Majority” shareholder

108. The actual understanding of “majority share” is an ownership more

than 50% of shares in a company. In general, the words ‘majority’

and ‘minority’ are exclusive. It means one only can hold majority

ownership of share. In the expert statement, exhibited in the

The expert

Statement

of

Professor

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COPYdefense of STT, Professor Hikmahanto emphasizes that in the Law

No. 19 /2003 on State-owned Enterprise (“The Law of BUMN”)

and the Law No. 8/1995 on capital market, the two laws define the

term of majority shareholder and they could be a best guidance in

determining the definition of the term in this context.

Hikmahant

o page 2,

item 4(c)

exhibited

as First

STT

Statement

109. The elucidation of Article 15 (2) of the Law No.8/1995 on Capita

Market defines “majority shareholder” as:

“Majority share is shareholder that has more than 50% (fifty percent) of subscribed and paid-up capital.”

The expert

Statement

of

Professor

Hikmahant

o page 2,

item 4(b)

exhibited

as First

STT

Statement

110. Article 1 (1) of the Law of BUMN mentions as follows:

“1. “State-owned Enterprise, hereinafter referred to as BUMN, is a corporate with its capital owned by state through direct equity of dissociated national wealth.”.

The expert

Statement

of

Professor

Hikmahant

o page 2,

item 4(c)

exhibited

as First

STT

Statement

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COPY111. Article 1 (2) of the Law of BUMN mentions as follows:

“2. “Company, hereinafter referred to as Persero, is a limited company of BUMN with its capital divided into shares owned in whole or at least 51 % (fifty percent) by the Republic of Indonesia aiming at having profits.”

The expert

Statement

of

Professor

Hikmahant

o page 2,

item 4(b)

exhibited

as First

STT

Statement

(ii) “Grammatical” misinterpretation of KPPU toward Article 27

112. The first “interpretation” of KPPU, a grammatical interpretation. It

consults two different dictionaries but only the second dictionary,

Black’s Law Dictionary provides a term of “majority shareholder”:

“shareholder that has or controls more than half of company share”

LPL,

Analysis,

item 10

113. STT as a whole agrees with this definition due to its consistency

with the interpretation rules in Indonesian Civil Code. It is defined

that if a meaning of a statement is clear, then the simple and clear

meaning that must be applied. As it is mentioned in the second

expert statement of Professor Hikmahanto:

Furthermore, under the regulation of interpretation (Article 1342 of Civil Codes), if the intention of a statement is clear, then

LPL,

Analysis ,

item 18

The Second

expert

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COPYthe simple and generally accepted interpretation shall be applied. In this case, the meaning of “majority” is clear, consequently it has to be applied in which its meaning “more than 50%”. Therefore, “majority shareholder” must be interpreted as a shareholder of more than 50%.

Statement

of

Professor

Hikmahant

o

114. Nevertheless, RFI refuses the approach arguing that there is

“different type of share”. It is possible that someone may controls

more than 50% of voting right in a company without controlling

more than a half of the same shares. RFI does not cite any

evidence that indicate that Temasek controls more than 50% voting

right either in Telkomsel or Indosat. The content of RFI in

whatever reason is illogical. The definition wants to say that

Temasek is able to control voting rights of other important

shareholders such as the Government of Indonesia.

115. Although someone approaches the definition of “majority

shareholder” in voting rights is not in the sense of amount of

shares, it must be noted that STT remains not to hold majority

either in voting rights or in a number of shares in Indosat. Thus,

any definition applied, STT remains to be under 50%. STT is only

an indirect shareholder and has no voting rights in Indosat.

116. RFI ignores the fact that mostly used words in Article 27 do not

prohibit a shareholder to increase its level of “domination”. Article

27 mentions majority ownership. Even when lawmaker refers to

controlling, the lawmaker has already conducted using simple

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COPYlanguage, for example in Article 17 and 18 of Anti-monopoly Law.

CHAPTER IV

PROHIBITED ACTIVITIES

First Part

Monopoly

Article 17

(1) Business actor is prohibited to conduct a domination to the production and/or goods marketing and/or service that can result the creation of monopolistic practices and/or unfair business competition.

(2) Business actor is suspected or assumed to conduct domination over the production and/or marketing of goods and/or service as referred to in (1) if:

a. the relevant goods and/or service do not have their substitution; or

b. causes entry barrier to other business actors in the competition of common goods and/or service; or

c. One business actor or one group of business actor control more than 50% (fifty percents) of market shares in one type and/or certain of goods and/or services.

Part Two

Monopsony

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COPYArticle 18

(1) Business actor is prohibited to control acceptance supply or become a single buyer to the goods and/ or service in the relevant market that possible to cause the creation of monopolistic practices and/or unfair business competition.

d. Business actor is suspected or assumed to control acceptance supply or to become a single buyer as referred to in (1) if one business actor or one group of business actor control more than 50% (fifty percents) of market shares in one type and/or certain of goods and/or services.

(iii) “Disorganized” interpretation of KPPU toward Article 27

117. The “systematic interpretation” of KPPU toward Article 27 has

created ambiguity to the concept of ‘majority’ that is able to

influence decision making in a company. For example, in its

“systematic interpretation”, KPPU tells that a share ownership of

25% is able to consider as share majority ownership because with

such an ownership it is able to veto certain decisions. This is

absolutely incorrect. It does not mean that if one party has ability

to restraint certain decision making in a company, the party is

considered to be a “majority shareholder” in company.

118. Further, if the statements of KPPU in paragraph 18 and 29 of RFI

are applied, it will come to illogical conclusion with the following

reasons:

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COPY (a) In the case of Telkomsel, Sing Tel (that only has indirect

ownership for 35% in Telkomsel) will be considered a “control holder” in Telkomsel. If it is true, the “control holder” shall be Telkom and Sing Tel due to their positon as “majority shareholders” in Telkomsel.

(b) In the case of Indosat, KPPU is negligence to reckon Dwiwarna shares as the ownership of the Government of Indonesia in which the shares give the Government of Indonesia rights to veto certain things that require special majority.

119. Although in certain level the whole shareholders are possible to be

influencing shareholders in a company by performing their voting

rights, such an ‘influence’ is not understood as ‘majority share’.

Each of this concept is different, and the regulation will use one of

the this words to submit a different thing. RFI intentionally brings

the word “majority share” to an ambiguous meaning that make

KPPU ignores the actual meaning of a rule.

120. The second expert statement of Professor Hikmahanto is:

“Such an interpretation cannot be implemented in this case because in PT Indosat, there is one special share called dwiwarna shares. It is indicating that the owner of the shares. If the biggest shareholder is majority share (controlling shareholder), it cannot be stated that the Government of Indonesia as the shareholder of dwiwarna shares is the biggest shareholder/majority shareholder.”

The Second

expert

Statement

of

Professor

Hikmahant

o

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COPY

(iv) Derivative Interpretation

121. KPPU admits by itself that such an interpretation is unhelpful in

defining the term “majority share”.

(v) The teleological misinterpretation

122. The interpretation of teleology of Article 27, as it meant by KPPU

in paragraph 22 to 23 of LPL, is to avoid a concentration of

economic power in a single entity. The test of power concentration

is in paragraph 24 of LPL:

“Concentration of economic power, as it referred to number 2 above, is implemented through the centralization of economic decision making in the hand of one particular business actor. A decision can be effectively obtained if there is a real control owned by a business actor in a company. The company will implement the decisions. In the context of Article 27 of the Law No.5/1999, such a company has more than 50 % of market shares so that a control conducted by a business in it will affect to the relevant market.”

RFI,

Analysis

123. It is seen from paragraph 47 of RFI that KPPU has already

concluded that Temasek positively control Indosat on the basis of

(i) Temasek’s ownership of 41.94% Indosat’s shares; (ii) the rights

of Temasek to nominate directors and commissioners; and (iii) the

authority of Temasek to specify the corporate policy of Indosat. It

is to be informed that the conclusion of KPPU above is wrong and

groundless for the following reasons:

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COPY124. In accordance with the statement of KPPU in LPL, the ownership

of more than 50% voting means give the owner a control or in

KPPU’s word, an active control. STT (and Temasek) does not have

more than 50% voting right in Indosat. STT only has 31% of

indirect ownership in Indosat. Thereby, it is incorrect if KPPU said

that Temasek has 41.94% of shares in Indosat. Even if it is true that

Temasek has 41.94% of ownership in Indosat (that is not true), the

assumed ownership of Temasek is still below 50%.

125. Further, it is untrue to say that Temasek has rights to nominate

director and commissioner in Indosat. Under the Statutes of

Indosat, the only Indosat’s shareholders with voting right that may

nominate Indosat’s directors or commissioners. Consequently,

neither Temasek nor STT can nominate directors or

commissioners. Out of 10 Reported Parties there are ICL and ICPL

that have right to nominate directors and commissioner in their

capacity as direct shareholders in Indosat. Nevertheless, the right to

nominate director or commissioner is also available for every

Indosat shareholder Indosat that meet minimum requirement of

total shares on hand but it is not exclusively valid to ICL and ICPL.

The whole share ownership of ICL and ICPL is less than 50%,

therefore their votes can be defeated and have no ability to act

unilaterally.

126. KPPU really ignores to consider that the Government of Indonesia

(as another and significant shareholder in Indosat) has right to

nominate director and commissioner in board of director and

commissioner. The Government of Indonesia, as the single and

special holder of Indosat’s dwiwarna shares, has not only to

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COPYnominate but also to appoint at least one board of director and

commissioner of Indosat. Further, the current majority of Indosat

board of director is nominated by the Government of Indonesia

(including the managing director). The Government of Indonesia is

able to use its extensive veto right to the things that need special

majority. The Government of Indonesia also has ability, in certain

level, to perform a significant control to Indosat (refer to the

opinion of KPPU on the term controlling), while STT (with its

indirect ownership of 31% shares) cannot act unilaterally to

determine corporate policy of Indosat.

127. The second expert statement of Professor Hikmahanto states that

there is no evidence to be proved concerning the concentration of

economic power.

”I do not agree with teleological interpretation in the Report because the concentration of economy power cannot be implemented to determine who the majority shareholder is according to Article 27. The economic power concentration differs in determining who the majority shareholder is. ... Further, I do not find single evidence in the Report on concentration of economy power in STT.”

The Second

expert

Statement

of

Professor

Hikmahant

o

(vi) The confidence of KPPU over an irrelevant law

128. The first regulation cited by KPPU is the elucidation of Article 10

(4) of the Law No.19 /2003. It actually supports the opinion that it

is different between controlling concepts and ownership of

majority share. The sentences cited by KPPU are:

“The understanding of commissioner adhere in the sense of human and of corporate, both known as commissioner member and commissioner council respectively. What is meant by certain shareholder is a controlling shareholder or majority shareholder of a

LPL,

Analysis,

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COPYlimited, public and the whole shareholders of limited closed company”

Point 26

129. It is not necessary to use the both phrase “controlling shareholder”

and “majority shareholder” if they are same in meaning. It seems

that the regulation gives broader meaning for the phrase of

majority shareholder by placing specifically majority shareholder

and controlling shareholder into one concept. Nevertheless, they

are different concept in reality, and Article 27 is limited only to

relate to ”majority shareholder ” and not to “controlling

shareholder ”.

130. Article 1 (1) and Article 1 (2) of the Law No. 19 /2003 on State-

owned Enterprise also further indicates that “majority” mean more

than 50%. As it is expressed by Professor Hikmahanto in his first

and second expert statements :

The Second

Expert

Statement

of

Professor

Hikmahant

o

“The Law No.19 /2003 on State-owned Enterprise (“the Law of BUMN”) using no term ”majority share”. Yet, it is found in the Law of BUMN an interpretable similar term, “a large part of”. The term “a large part of” can be found in Article 1 (1) and (2) of the Law of BUMN.

Article 1 (1) states as follow: “State-owned Enterprise, hereinafter referred to as BUMN, is a corporate with its capital owned by state through direct equity of dissociated national wealth.”

Meanwhile Article 1 (2) states as follow: “Company, hereinafter referred to as Persero, is a limited company of BUMN with its capital divided into shares owned in whole or at least 51 % (fifty percent) by the Republic of Indonesia aiming at having profits.” ------------------------------------------------------------------ Based on aforementioned explanation, the conclusion I can

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COPYtake on meaning of the phrase “have majority share” in Article 27 is to have more than 50% (fifty percent) of share of subscribed and paid-up capital of a company.”

131. Two other regulations cited by KPPU is BAPEPAM Regulation

No. IX.H.1 and Central Bank (Indonesia Bank) Regulation No.

8/16/PBI/2006 that define specifically ‘controller shareholder’

(both definition are little bit different), and not define ‘majority

shareholder’. This not at all relevant. The irrelevant law cited by

KPPU is described in the second expert statement of Professor

Hikmahanto:

”9. Do you agree with Report that refer to BAPEPAM Regulation No.

IX.H.1 (item 28) in identifying the meaning of majority share?

I disagree with that. The BAPEPAM Regulation No. IX.H.1

to define meaning of “majority share” particularly

formulates the meaning of “controlling party” in public

company in the sense of taking over of public company. The

meaning of “have majority share” as referred to Article 27

differ from the meaning of “the party of controller”.

Therefore, BAPEPAM Regulation No. IX.H.1 is not

relevant to be implemented in finding the meaning of

”majority share”.

10. Do you agree with the Report that refers to Central Bank

(Indonesia Bank) Regulation No.8/16/PBI/2006 (item 29) in

identifying the meaning of majority share?

As it is mentioned above, the regulation defines meaning of

the term ”controller shareholder” differ from meaning of the

term ”have majority share” as it is elaborated in Article 27

of Competition Law.

LPL,

Analysis ,

item 28 to

29

The Second

Expert

Statement

of

Professor

Hikmahant

o

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COPY132. RFI states that there is no the Laws and regulations that define

majority shareholder. It is untrue. The Law No. 8 /1995, shown by

Professor Hikmahanto, explains what the meaning (of) “majority

share” is?

“The Law No. 8 /1995 on Capital market (“the Law on Capital market”)

The elucidation of Article 15 paragraphs (2) of the Law on Capital market states that “share majority” is:

“Share majority is shareholder that has more than 50% (fifty percents) of subscribed and paid-up capital of a company.”

Based on the elucidation of Capital market Law, mentioned above, it can be interpreted that “have majority share” to have more than 50% (fifty percent)of subscribed and paid-up capital of a company.”

LPL,

Analysis,

item 27

(vii) The misapplication of foreign law and regulation by KPPU

133. Concerning merger regulation, the references used in RFI are the

laws of European Union (“EU”), UK (“UK”) and the United States

(”US”) that discuss about share acquisition. It is different with the

way KPPU enforce Article 27, in this case, to punish the existing

shareholders.

134. No single law regulation in the foreign law cited by in RFI defines

“majority shares. It is surprisingly that KPPU deviate the foreign

law in its effort to bias the actual meaning in Indonesian laws.

135. EC Merger Regulation cited by KPPU, (a basis of UK Merger

Regulation) for example, defines ‘concentration’ and not majority

LPL,

Analysis,

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COPYownership.

Paragraph

30

“Without lessen the intention of Article 4 (5) and Article 22, the Regulation goes into effect to all concentrations in a sense of community dimension as referred to in this Article.”

136. A concentration is defined in Article 3 of EC Merger Regulation as:

“A concentration is assumed happened where there is change of defense control as consequence of:

(a) merger from two or more independent and previous effort or part of effort; or

(b) Acquisition, that conducted by one people or more that has controlled at least one effort, or by one effort or more, either by effect purchasing or asset, by contract or by different way, with direct or indirect domination from all or some of a or more other effort.”

137. It is absolutely different with the ownership concept of ‘majority

share’. It discusses a merger or taking over rather than on existing

ownership and it is measured by “controlling” and not by

’majority’ ownership.

138. Part 7 of Clayton Act in United States, another regulations cited by

KPPU, is very different with Article 27. The regulation states:

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COPY “Nobody that conduct commerce or another activity that

influence commerce can acquired , directly or indirectly, all or every part of share or capital other share and nobody that at one's feet of Federal Trade Commission can acquired all or every part of asset owned by others that also conduct commerce or other activity that influence commerce, that in line with commerce or activity and giving influence in any country part, effect of acquisition are lessening competition in substantial, or tend to result monopolies.”

LPL,

Analysis,

item 41

139. Once again, there are two important differences. First, Clayton Act

discusses on share acquisition, and not existing ownership. Second,

Clayton Act uses the phrase ‘all or any particular part of share’, a

concept wider than ’majority share’. Concerning this, it is

ridiculous to implement regulations that sounded differently in its

effort to interpret the meaning of Article 27 of Anti-monopoly

Law. And so do all cases that interpret this Law will apply

different testing from the testing of “majority share”. Therefore, it

is irrelevant for the purpose.

140. KPPU shall realize that Article 28 and 29 (in Part IV of the Law

No.5) discuss on merger, consolidation and taking over. Article 27

is found in Part III of the Law No.5 and in relation with the

existing share ownership. Nevertheless, RFI remains to make it

unclear for the actual meaning of “majority”:

”By implementing the concept of “controlling”, KPPU seems to apply Article 28 and 29 of Competition Law that have not be implemented yet, await for the Government Decree to enforce the Articles (Article 28 and 29 of the Competition Law). The Article 28 and 29 will be interpreted differently from Article 27. It can be seen from the following facts : a. Article 27 is put under Part Three entitling “Share

Ownership”, while Article 28 and 29 is put under Part Four entitling “Merger, Acquisition, and Taking Over.”

b. Article 28 and 29 are addressed to anticipate monopolistic

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COPYaction that are proved by the fact that government must be informed beforehand on merger of corporate body or share acquisition. Nevertheless, the application of Article 27can be triggered after majority shareholder causes the taking over of more than 50% market share.

Second

Expert

Statement

of

Professor

Hikmahant

o

(viii) KPPU has ignored the facts that the definition of majority

shares has been considered by KPPU and DPR in 2003

141. The Government of Indonesia, in the Divestment Document on

divestment process of Indosat, dated 4 February 2003, conducted

special consideration to Anti-monopoly Law and concluded that:

Divestment

Document

of the

Governme

nt on the

divestment

of Indosat,

in the first

Statement

of STT

Under Anti-monopoly Law No. 5/1999, a majority

ownership in many companies that conduct common

business activity is prohibited. The ownership of STT

I in Indosat through ICL and not a majority

shareholder (less than 50% of the listed Indosat’s

shares). In addition, the ownership of a Singaporean

company in Telkomsel is also less than 50%. Further,

Minister of BUMN is sure that the law prohibits

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COPYmonopolistic practices, and not majority ownership

…Telecommunications Industry is arranged tightly and

operators cannot determine policies including on tariff.

(enhanced to emphasis)

142. STT also notes that there is another important document on share

divestment of Indosat in the case document of KPPU, a document

entitling “Government Elucidation in the hearing with DPR’s

Commission” on the share sales.

143. This is a follow-up meeting on Indosat’s shares sale. The date of

the document was 2003. The most importantly is on page 11 that

states:

“Concerning the Law No.5/1999 on the Prohibition of Monopolistic Practice and Unfair Competition, particularly Article 27 and 28 (3), it can be elucidated that STT is not a shareholder of more than 50% of Indosat’s share. While the stipulation on the Taking over in Article 28 (1) of the Law No.5/1999 has not bee regulated in the Government Regulation and Government Decree. Furthermore, the Ministry of BUMN on 23 January 200 has meet the invitation of consultative meeting with the Commission for Supervision of Business Competition (KPPU), and until present KPPU need no further information from the Government/Indosat concerning the divestment f Indosat. Without keeping aside the information above, telecommunication industry is “highly regulated” by the Government.”

The

Elucidation

of

Governme

nt in the

Commissio

n Joined

Meeting of

the House

of

Representa

tives,

available in

the case

document

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COPYof KPPU

144. From the citation, it is clear that KPPU is not only knows the

divestment process but also firmly invited to present its opinion

whether the process infringe Article 27 or not. KPPU states that

there is no problem concerning the STT’s interests in Indosat.

Unfortunately, it has not been four years yet, KPPU takes a

different position. It shows that KPPU is inconsistent.

145. It must be noted that the participation of ICL (a subsidiary that

entirely owned by ST Telemedia) in Indosat divestment is also

approved by Indonesia Investment Coordinating Body (BKPM) in

its decision No.14/V/PMA/2003 dated 7 February 2003. By

offending to the decision of the investment at the moment, KPPU

has gone far beyond its authority. As it is expressed by Dr. Ir.

Benny Pasaribu:

“I have a notion that KPPU RI does not have the power or competency to cancel, to take different decision, to take a legal action or to make a policy over the decision that had been taken by the government concerning the divestment of PT. Indosat, through open tender and awarded given to Singapore Technologies Telemedia (STT) in 2002. Because, the initial process of divestment was initiated by Government and the policy was a political decision of Government relating to the financial condition at that time. (Read Article 50 items a and Article 51 of the Law No.5/1999 that regulate the exemption”

Approval

of BKPM

dated 7

February

2003

The

different

opinion

with the

majority

members of

Commissio

n Council

with Benny

Pasaribu

146. By offending the investment of ST Telemedia, under Article 27,

particularly the first statement of the Government of Indonesia

mentioning that Article 27 was infringed, it will create a serious

worry among international investors.

C. There is no evidence of controlling more than 50%

market share

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COPY

147. The only evidence given by KPPU about market share is in

paragraph 105 of its analysis part. The followings are the market

shares of Telkomsel and Indosat:

148. The table shows that Indosat has less than 50% of market shares of

cellular telecommunication, and the ownership of STT is possibly

less than that. Due to the position of STT that does not have an

ownership in Telkom and/or Telkomsel, the further analysis

concerning STT does not need to be done. It is because STT cannot

control more than 50% of the cellular telecommunication market

unilaterally.

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COPY

D. KPPU does not find an evidence of dominant position

abuse

149. Professor Hikmahanto states in his first expert statement that is

presented along with the first Statement of STT that it is not an

infringement of the Law of Anti-monopoly simply because of its

dominant position resulted from the ownership of several

companies. The abuse of dominant position that causes an

infringement of the Anti-monopoly Law. KPPU has ignored to

consider such a condition.

The First Report of Expert Opinion, Prof. Hikmahanto, page 7, paragraph 1, in the First Statement of STT

150. According to Professor Hikmahanto, Article 27 (a) of the Anti-

monopoly Law shall be read on the basis of Rule of Reason of

Article 27 (a) of Anti-monopoly Law is a part of Dominant

Position and in this case; Article 27 (a) of Anti-monopoly Law

must be read together with specific abuse of Dominant Position

prohibited by Article 25 of Anti-monopoly Law. Wide perspective

reading of Article 27 (a) of Anti-monopoly Law that the existence

of Dominant Position merely breaking the law lead to

misinterpretation an ambiguity of Article 25 of Anti-monopoly

Law because Article 25 of Anti-monopoly Law enforced only if

Dominant Position is abused.

The First Report of Expert Opinion, Prof. Hikmahanto, page 8, paragraph 1, in the First Statement of STT

151. Therefore, KPPU shall prove its allegations that STT has obviously

utilized its ownership to lessen a level of competition in the

market. Majority ownership itself is not an infringement to the

Law. KPPU shall prove the existence of dominant position abuse.

KPPU must also prove the causality between share ownership of

STT and allegation of lessening competition. The misused of

dominant position could be seen as infringement. It is stated that

KPPU has not proved this case yet.

152. Besides, the mandate of KPPU is only to investigate to the abuse of

dominant position and not the existence of dominant position itself.

The First

Report of

Expert

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COPYOpinion,

Prof.

Hikmahant

o, page 9 to

10in the

first

Statement

of STT

(a) Article 4 of the Presidential Decree No. 75 /1999, a legal regulation that define mission of KPPU. It is stated that the tasks of KPPU is to conduct an assessment whether it abuses dominant position or not, as it regulated by Article 25 to Article 28 of the Anti-monopoly Law .

Presidentia

l decree

number 75

year 1999,

item 4, in

the First

Statement

of STT

(b) Article 1 (9) of KPPU Regulation No. 1/2006, that arrange the Procedures of Case Handling in KPPU, states that ”An infringement is an agreement and/or activity of dominant position abuse that cause monopoly practice and/or unfair competition.”

the

regulation

of KPPU

No.1/ 2006,

Article 1

(9), in the

first

KPPU’s

statement

KPPU -1

153 The allegation of abuse in RFI is only Allegation 2 and Allegation

3, but the two allegations are concerning the Telkomsel policy of

price structure. There is no allegation of abuse to Indosat as well

its shareholders. With the absence of the allegation, there is no

infringement to Article 27(a) of the Anti-monopoly Law.

Therefore, there is no basis fro KPPU to follow up the

investigation.

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COPY

VII. ECONOMIC ANALYSIS AND FINANCE

154. In this part we will discuss economic analysis and finance of

KPPU and then we have a notion that:

(a) The definition of market by KPU is incorrect. (b) Competing Market. (c)

(i) The BTS Investment is not an indication of competition level in the market

(ii) Price charged by operator is a competitive price (iii) The increase of concentration is not caused by STT (iv) STT does not enjoy the expanding of market power. (v) KPPU ignores to prove that Indosat and Telkomsel are

competed each other. (d) The allegation of abuse by Telkomsel is not related to STT (e) The calculation of KPPU on consumer loss is untrue.

A. The Wrong Definition of Market by KPPU.

(i) KPPU applies wrong definition on Market

155. RFI concludes wrongly that product market shall be limited to

GSM, excluded CDMA (wireless fixed) or limited access. The

geographical market shall be defined as the entire area all over

Indonesia.

.

LPL,

Analysis,

Part IV,

Paragraph

6 to 16

(market

product)

and 17 to

21

(Geographi

cal market)

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COPY

156. RFI ignores clear expert statement that geographical market is

defined correctly as Indonesia and product market is covering

FWA service. In a developing country like Indonesia, wireless and

FWA is actually substituted each other. The expert statement is

available in Spectrum Report presented by STT, the Study of CSE

is presented by AMH and the Analysis Study presented by

Temasek. KPPU does not discuss the single reports in coming to

the conclusion. KPPU comes to its conclusion that market shall be

treated separately.

The report

AMH,

Paragraph

65 to 77;

Paragraph

2.1 the

First

Statement

of STT

157. In checking through the case document of KPPU, STT also obtains

a report from Institute of Economic and Social Research, Faculty

of Economic University of Indonesia (“LPEM Study”). The study

of LPEM is also used by KPPU in other part of LPL.

158. Nevertheless, KPPU does not mention the fact that Report of

LPEM also finds an existence of competition between technology

CDMA and GSM, and the two products are substituted each other.

We cited and underlined the relevant parts of the LPEM Report of

LPEM as follow:

“Market structure in this industry is also determined by a platform used. An old operator like TELKOM develops TelkomFlexi that based on CDMA and INDOSAT with StarOne. Thereby, in cellular operator industry, CDMA and GSM competing each other to capture consumer. Such competition is called competition for market that is followed then with competition in the market. It means, determining the most used platform and then capture

The report

of LPEM

Chapter 2,

paragraph

2.1 in the

case

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COPYconsumers as many as possible.

Document

of KPPU

159. The opinion is also confirmed by the team of Follow- up

Investigation of KPPU to Mr.Mas Wigrantoro from

Telecommunication Community (Masyarakat Telekomunikasi):

28. Question: In your opinion, are FWA and GSM competitor?

Answer: Yes, within an area code. It is inconsistent. How can be FWA mobile?”

The official

report of

Investigatio

n to Mas

Wigrantor

o date 25

September

2007

KPPU’s

case

document

160.

Professor Hikmahanto states in his first expert statement:

”In determining relevant market, KPPU must conduct evidence based and logical analysis. Under international best practices, if KPPU is wrong in defining relevant market, then its decision can be revoked.”

161. RFI has made mistake in defining market. It is defined on baseless

evidence. It is a severe fault because it influences entire process of

investigation.

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COPY

(ii) KPPU has calculated wrong market share

162. If the market does not define precisely, the market share calculated

to market player will also be different.

163. There are some references for calculating market shares, and it

varies along with the product (for example CDMA/GSM),

geography and set of measurement (such as revenue/a number of

customers).

164. As it is explained above, STT does not have any control or

ownership to Telkom and/or Telkomsel, that is why calculating any

part of Telkomsel’s market shares to STAT is incorrect.

165. It is incorrect to calculate market shares of STAT to Temasek for

instance, since Temasek has no influence in any form in the way

ST manage its indirect investment in Indosat.

(iii) KPPU only takes 3 Operators in it Analysis

166. Finally, it must be noted that KPPU only calculate market shares of

three operator, reckon market share from 3 operators, Telkomsel,

Indosat and Excelcomindo:

The RFI,

Analysis,

Paragraph

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COPY 105

The RFI,

Analysis ,

item 105

167. Nevertheless, according to Spectrum Associates there are nine

operators in Indonesian market:

“The number of cellular telephone in Indonesian market is bigger than the newly established and equalized regional market. The operators are (written in descending order of consumer market shares) Telkomsel, Indosat, Excelcomindo, TelkomFlexi, Mobile 8, Bakrie, StarOne, Hutchison 3 and NTS (used to be Lippo).”

The Report

of Case

Associates,

Paragraph

2.2, in the

First

Statement

of STT

168. It is higher than other regional market:

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COPY

The Report

of Case

Associates,

Paragraph

2.2, in the

First

Statement

of STT

B. The Competitive Market

169. RFI develops its analysis, in part B of Analysis, on the basis of the

fact that cellular communication market in Indonesia in reality is

not competitive.

170. In the following sub heading, C to G, we discuss some facts and

arguments cited by KPPU to support its assumption. We also

emphasize a number of indicators that miscalculated by KPPU.

They are about to conclude that relevant market, even if it is

limited to cellular phone, is very competitive.

C. BTS Investment is not an indicator of competition level

in the market

171. RFI concludes that Indosat’s investment in BTS is not as

aggressive as its competitors. KPPU observes the data until the

year of 2006 and conclude:

“Based on the above data, the growth of Indosat BTS is sluggish compare to its competitor. Actually, Indosat is in the closest position to a dominant player. The sluggish growth of

The RFI,

Analysis,

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COPYthe closest competitor had made dominant player optimize its market power.

item 96

172. There are important problems regarding this argumentation:

(i) The number of BTS station is not automatically a best indicator of competition; and

(ii) It is untrue to say that Indosat investment in BTS is not as aggressive as its competitors.

(i) The number of BTS station is not automatically a best

indicator of competition

173. Firstly, it is not clear whether a number of BTS stations is a

indication of competition in market. Finally, customer usually

more interests in service level from an operator than a number of

its BTS stations.

174. The analysis in Spectrum Report displays a number of competition

indicators and they are compared with the regional reference in

order to determine whether the market is competitive or not. These

portions are also explained in the First Statement of STT. None of

the evidence is discussed by KPPU.

175. First, there are some mobile telephone operators with significant

market share (more than 1%) in Indonesia. The neighboring

countries that have 3 to 6 operators with significant market shares,

Indonesia has 9 and 6 of them have more than 5% market shares.

Spectrum

Report ,

Paragraph

2.2, The

First

Statement

of STAT

176. Market power concentration between two most topmost operators

are not different significantly with other regional markets. In China

and Philippine, two most topmost operators control 96% and 95%

of market shares each. In Indonesia, the two most topmost

operators enjoy only 75% market shares. Therefore, there is

Spectrum

Report ,

Paragraph

2.2, The

First

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COPYnothing special concerning industrial structure or distribution of

market shares between market leading operators. Industrial

structure does not relate at all to share ownership.

Statement

of STAT

177. There is no evidence that Indonesian operators conducts “price

increase”, a classic abuse from market force that permit operators

to enjoy advantage above normal advantage. A good way to

measure price increase is by identify percentage from the average

of earnings that expended by Indonesia consumers in mobile

telephone service. This condition can be measured with ratio

Average Revenue per User (“ARPU”) to Gross Domestic Product

(“GDP”) per capita. In an analysis to India, Bangladesh, Chinese,

Indonesia, Philippine, Thailand and Malaysia by Merrill Lynch in

2007, ARPU to GDP per capita from India is the very top at 17%

while Indonesia only expends 7% from GDP per capita they in

mobile telephone shop. Growing low comparison ARPU in

percentage to GDP that means consumers do not expend more

compared to to their earnings. Consumers Indonesia so accept

advantages from competition in [the] market as it is shown in

numbers above.

Spectrum

Report ,

Paragraph

2.2, The

First

Statement

of STAT

178. According to Spectrum, since 2002, Indonesia market has sprang

up with significant from 11 million customers become 66 million

customers. Compared to other markets by penetration level of a

similar nature, Indonesia market has grown in line with or faster

than markets is, although has been required from operators in

Indonesia to extend network in more islands / in all Indonesia. This

condition means that operators in Indonesia have been in

aggressive develop market. It’s explained that Indonesia market

operates in competitive way.

179. Indonesia has sprung up quicker compared to other market which

was in growth step in common. This condition explains that mobile

telephone operators in Indonesia have been in aggressive

Spectrum

Report ,

Paragraph

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COPYdeveloping their position in market compared to operators in other

markets. Speed of market growth also makes old player fact less

important – customer amount that has been owned by an operator

less important with obtainable new customer amount by operator in

market that expands.

2.2, The

First

Statement

of STAT

180. Finally, if monopolies exist, not will happen that consumer will

often change cellular operator on a regular basis. Nevertheless, in

Indonesia, commutation level is the very top (even till fold

duplicate in comparison with country by next level of the very top

commutation) in comparison with 51 countries around the world,

that mean consumer in Indonesia often change operator:-

181. Enclosure 10: Churn rate monthly in markets that just emerge,

Kuartal 1 Tahun 2007 (%)

8 .6 %

4 .1 % 4 .0 % 3 .7 %3 .1 % 2 .9 % 2 .7 %

2 .1 %

Indo

nesi

a

Pak

ista

n

Indi

a

Mal

aysi

a

Phili

ppin

es

Thai

land

Chi

na

Bang

lade

sh

Mon

thly

Chu

rn

Source: Merrill Lynch

Spectrum

Report ,

Paragraph

2.2, The

First

Statement

of STAT

182. Furthermore, for period after 2002 (2002 is year where ST

Telemedia takes over first ownership in Indosat) churn rate

Indonesia quicker level are compared to its other country in

regional, that growing clarify that consumer has choice among

operators and they are execute its choice:

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COPY183.

Enclosure 11: Churn rate monthly in markets that just emerge, 2001-2007

2007

0%

2%

4%

6%

8%

10%

2001 2002 2003 2004 2005 2006 2007

Year

Mon

thly

chu

rn ra

te %

Indonesia

Malaysia

India

Philippines

Thailand

China

Pakistan

source: Merrill Lynch, 2005, 2007

Report

Spectrum,

paragraph

2.8

184. All indicators that cited above discussed how operators struggling

to get customer. It was very surprising when all of those indicators

haven’t considered by KPPU, which even more interested to use

investment at BTS as [the] indication from competition level.

(ii) The Decision of Indosat Investment referring to the

investment of BTS is valid and sensible

185. Nevertheless, data expresses as follows:

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COPY

The RFI,

Analysis,

Paragraph

93

186. It's clear here that a number of invested BTS of Indosat increased

from 2000 to 2006, from 1,357 to 7.221. In an absolute term, the

growth is more than 5 times. In such condition it is hard to say that

the investment is low.

187. Further, there is a strong business reason for not extending network

carelessly. BTS is a huge investment and it causes company’s

profit reduction due to its depreciation. In one side, the directive

question of KPPU is a criticism to Indosat for its low profit and on

the other hand KPPU criticizes it for its low investment. In reality,

high investment is paid by low profit in the short-term. It is stated

by Mr.Johnny Swandi Sjam in the Official Report of Follow-Up

Investigation on 14 September 2007:

”25. Question: Why did Return on Equity of Indosat decrease in 2006?

Answer: In 2006, we were developing, there was a depreciation cost that reduces net income, but after finishing the integration, the net incomes increased. The decrease is caused by high depreciation cost caused by integration.”

The official

report of

Follow-Up

Investigatio

n to

Johnny

Swandi

Sjam dated

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COPY

14

September

2007 in the

case KPPU

188. The analysis of RFI is insufficient due to the ignorance that

Indosat is planning to invest 3.500 BTS in 2007:

”19. Question: How is the method of BTS

procurement Indosat?

Answer: Up to 2006, the program implemented

is separated programs; most of them are turn-

key. Usually, the building of BTS is performed

by vendor and the radio is installed by big

vendors such as Siemens, Alcatel, Ericsson, etc.

Considering that we have been developing

huge networks (around 3,500 BTSs) since

2007, we decided to perform some of the works

under turn-key project.”

The official

report of

Follow-Up

Investigatio

n of

Johnny

Swandi

Sjam dated

14

September

2007 in the

case

document

KPPU

189. Regarding the criticism of KPPU that Indosat does not have

enough BTS to compete, it must be noted that Indosat has

already had 7,221 BTS and its competitors, Hutchison one of

them, thought that they are able to compete by targeting to

have 2,100 BTS in 2011:-

”33 Question: How many BTS PT Hutchison CP

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COPYTelecommunications has been built?

Answer: Around 1,000 BTS. We have built them

since the end of 2005 and we are targeting 2,100

BTS until 2011.”

190. All evidences accepted by KPPU in step of its Follow-Up

Investigation are not reflected in LPL. If the fact is included,

description will be more well-balanced that Indosat has

invested much for BTS but it is equilibrated by the investment

for gaining more profit. Indosat also has planned to expand

greatly in 2007. The addition of 3,500 BTS has increased its

network for about 50%. The absence of consideration to the

important evidence has shown that KPPU comes to its

conclusion without considering the proofs.

D. The Price Charged by Operators is competitive price

(i) The basic measurement of KPPU is incorrect.

191. The defense of STT is also harmed by the negligence of KPPU

to present the data sources so that it makes STT hard to verify

and to defend. For instance, there are more than 20 detailed

diagrams in paragraph 56 to 59 in Part V relating to cellular

tariff of the operators but the sources are not mentioned.

Concerning the allegation of monopolistic practices in fixing

high tariff, Telkomsel in particular, it is necessary for STT to

know data sources presented by KPPU. According to STT, the

tariff is not high; KPPU could make mistakes in referring to

the incorrect tariff rate.

The RFI,

Analysis,

Paragraph

56 to 59

192. The prices cited by KPPU are as follows:-

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COPY

The RFI,

Paragraph

165

193. The table is an average tariff. Nevertheless, the table is not

reliable to be a comparison because there are two tariff types,

“on-net” and “off-net”. The “on-net” tariff refers to price level

paid by cellular users who perform a call to other cellular users

within the same network. On the contrary, “off-net” tariff

refers to price level paid by cellular users who perform a call

to other network. The basic difference is in a call to other

network in which interconnection fee shall be paid.

Interconnection fee is arranged tightly by government, and

service providers have less authority on this. Thus, if

significant comparison is going to be made, the “on-net” tariff

is suitable. Furthermore, there are various discount packages

offered by service providers. To comprehend the price paid by

consumer, the right basic comparison is not based on ”on-net”

tariff but the average of “on-net” tariff paid by customer after

all discounts are calculated.

(ii) The mistake made by KPPU concerning Price Analysis

194. The tables provided by KPPU in paragraph 97 to 101 do not

show whether KPPU compares tariff or price. Tariff is not a

price indicator due to the discount and free minutes call

offered in all tariff packages.

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COPY

195. The only fraudulence touched by KPPU referring to the price

is in two following paragraphs:

“In general, the retail price of postpaid increases although its customer also increase significantly. From the viewpoint of economic scale, a high margin growth belongs to operators. It is an interesting phenomenon because it seems that there is no competition to capture consumers through price decrease. If there are competitive companies, each company will try to decrease price as a significant factor to capture consumers from its competitors.”

“According to Price-Leadership Model, a dominant company fixing price while others comes after such a price-fixing. It will happen if the follower companies have no bravery to compete on price because the economic scale is not relatively competitive. Price–Leadership is a form of tacit collusion that looks like a cartel to consumers with the absence of agreement between the two parties and it simply a strategy of a follower company to gain optimum profit by adjusting price with dominant company."

196. It must be attended that in reality there is no basis to tell that

there is no competition in capturing consumers or decreasing

price. The replacement rated cited above shows a competition

to grab customer.

197. The Spectrum Report also submits evidence to the existences

of price competition by comparing wide range of tariff

between prepaid and postpaid segments indicating that the

tariff of Indosat is lower than Telkomsel, even in some cases

more than 50%.

Spectrum

Report,

Paragraph

3.1, the

First

Statement

of STAT

198. There are no evidences submitted by Spectrum that are

considered by KPPU in its report. It clearly shows that the

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COPYanalysis of the case is incorrect.

199. The judgment of KPPU is that the choice of Indosat to follow

the price fixed by Telkomsel remains to be a tacit collusion.

Suppose it is true, it has nothing to do with STT. The decision

is from Indosat board of director.

200. In this case, it is only a matter of logic that Indosat cannot

compete with Telkomsel in price without decreasing its profit.

It also strengthens other KPPU’s complaints concerning low

profit of Indosat. Concerning its allegations, KPPU shall be

consistent whether accusing Indosat for imposing high price

(in line with the price of Telkomsel) or for gaining low profit.

KPPU cannot accuse both at the same time.

201. It must be attended further that although the price fixed by Indosat

and Telkomsel is the same, it does not mean that it is an anti

competition behavior. According to Dr Chatib Basri, the Head of

LPEM FE UI, the price uniformity is not concurrently a pricing

indication:

“In a discussion hosted by Centre for Strategic and

International Studies last Thursday, the Head LPEM,

Mr. Chatib Basri, refuses the report that the studies

conducted by his researchers strengthen the

allegation of KPPU to Temasek.

‘Our executive research summary clearly tells that

equation in price pattern fixed by operators is not

always interpreted as an indication of price fixing,’

he said.”

Singapore

Institute of

Internation

al Affairs

Webpage

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COPY202. The same opinion suggested by Dr. Chatib Basri in is interview

with Tempo Magazine. He said that the price similarity is only an

indication of competition and not a conclusive evidence anti

competition behavior:

“Chatib explains that similar tariff pattern is not always interpreted as price fixing or collusive result. In the United States, the price fixing independently, unilaterally, and considering consensus parallelism is not assumed as Antitrust. .

Therefore, he affirms that statistic movement of mobile tariff between Telkomsel and Indosat cannot be concluded as cartel of the two companies.

The similar tariff Movement is possible to occurs due to the competition in the industry, so that it shall be seen carefully whether Telkomsel and Indosat formulating cartel tariff in telecommunications industry,” said Chatib in the public discussion entitled “Enforcing Business rule in the Globalization Era: The Case of Telecommunications Sector in Indonesia” in Centre for Strategic and International Studies.

Chatib admit that he does not know why KPPU comes to such a conclusion. “We do not for sure conclude that there is price fixing (or cartel) conducted by both company," he said.”

Article

Tempo,

20 Septemb

er 07

203. STT has also assessed an independent report compiled by Dr Sri

Adiningsih (“Dr Adiningsih”) dated August 2007, in the case

document of KPPU, concluding that although its industrial

structure is benefiting incumbent players, there is no indication of

collusion and price competition:-

“Although many new entries are entering market, the incumbent operator that have dominant position remain to have big market share either in fixed line wireless or cellular because incumbency advantage is going into effect in telecommunication industry in which incumbent has wide network and infrastructure

The Report

of Dr.

Adiningsih,

on page 8

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COPYas an advantage. Therefore, it is hard for new entries to compete in the relevant market. Considering the geography and huge population of Indonesia that have not been served by the telecommunication service, it attracts new operators to enter fixed line wireless and cellular market. Low price is a common platform offered by new entries to capture consumers which leads then to the price war. It can be seen from the various advertisements in mass media. The new operator, tight competition makes the service vary, increasing consumers and quality of services. Under such condition, public gain advantages from the new development and competition among operators. It indicates that the market structure of telecommunication in Indonesia is tight oligopoly but price war among operators is possible to occur. The worries to the existence of collusion in this industry are invisible in the market.”

in the

Letter of

AMH

dated 25

September

2007

204. Dr Adiningsih also emphasizes its evidence that in reality there is a

price competition in any level among business actors:-

“In other hand, tariff promotion also conducted by operator, for example PT Exelcomindo Pratama decreasing its tariff for about IDR 149 per 30 second, while Simpati (PT Telkomsel) impose IDR 300 per minute for a call about 23.00 to 07.00. PT Indosat (Mentari) even gives free call from 00.00 to 05.00. It indicates that today, telecommunication industry in fixed wireless network and cellular in Indonesia is in ‘tariff war’ and operators just maximize their network capacities. Consequently, tariff war remains to keep on going until network capacities are fully used (Nathan & Atmira). The recent growth shows intensive tariff war among operators through the offering of various advantages such as free roaming, the same price of inter local and local call, pulse bonus, and others. Compare to the previous condition, tariff war among operators has made the decrease of cellular tariff as it is described in Table 7. The tendency of the decrease of cellular tariff indicate that the competition among cellular operators is growing tightens.”

The Report

of Dr.

Adiningsih,

on page 5

in the

Letter of

AMH

dated 25

September

2007

E. The Development of Concentration

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COPY (i) The size of concentration

205. Referring to concentration, KPPU seems to use two different

measurements, Concentration Ratio (“CRn”) and Herfindahl-

Hirschman Index (“HHI”).

The RFI,

analysis,

item 57

206. Therefore, these measurements are not choices due to the same

variable used, market share. CRn is a total of market share

controlled by the ‘n’ top companies. HHI is a square of market

share of all business actors in the industry. In this case, CRn and

HHI actually do not give the real choice of concentration

measurement. The main indication shown by CRn and HHI is

huge market shares.

The RFI,

Analysis

item 58

to59

207. Therefore, as it has been mentioned previously that a big market

share will not automatically show losses. It could be caused by the

characteristic of its industry. The losses arise only if there is

collusion among the actors. In this case, the only loss shown by

HHI is as follows:

“Oligopoly theory, as it is cournot equilibrium, is very consistent only if companies in the market are the same in size which also have the same market power. On the contrary, Price-Leadership Model is very consistent to explain company behavior if there is a dominant company in the market. Other companies are small and have no power to fight against dominant company. Both model is actually compatible to be used in the extreme situation.

In cellular telecommunication industry, every company must have agreement, especially concerning interconnection agreement with other company (competitor). It tends to create collusion in the field in which competition shall occur such as price fixing

The RFI,

Analysis ,

Paragraph

78 to 79

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COPY(tariff), marketing, and others.”

208. It must be noted that all judgments of KPPU are based on market

structure. Telkomsel owns the biggest market share and other

companies must sign interconnection agreement. There is a

tendency of collusion. In fact, KPPU does not identify the

evidence collusive behavior.

209. Indosat does not have power to face the reality that Telkomsel

owns the biggest market share. It is a characteristic of an industry

that anytime a party enters an industry; it will do the best to

compete. The same goes for the interconnection agreement. KPPU

seem to argue that Indosat operates in an industry as it mentioned

above and all shareholders have to be responsible to the allegation

of infringement of Anti-monopoly Law by Telkomsel. It is

illogical.

(ii) The increase of concentration

210. KPPU has a notion in its analysis that market concentration have

increased from 2002 to 2006. It is based on the observation of

KPPU that there was an improvement of generated HHI and HHI

(“GHHI“). STT cannot prove the accuracy of HHI and GHHI

measurement conducted by KPPU because the sources are not

mentioned as “data processed“. There are no clues where does the

raw data come from. Although we refer to the numbers provided

by KPPU, it does not mean that we us agree to its accuracy.

The RFI,

Analysis,

item IV,

item 104 to

121.

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COPY211.

The argument of KPPU in this matter is available in item 122:

“The values of GHHI that tend to increase annually in the cross ownership period give a conclusion that cross-ownership have concentrated the structure of cellular industry. It is unprofitable to the fair competition. The concentration increases in the oligopoly structure”

The LPL,

Analysis,

Chapter

IV, item

122

212. KPPU states that there is equality in the crossed ownership period

and the increase of GHHI, the crossed ownership has caused the

increase of GHHI. It is illogical. In the same period, the

Government of Indonesia has also ownerships in both companies

and the representatives in Board of commissioners. Consequently,

it is illogical for KPPU (without any evidence as a basis) to suspect

Temasek crossed ownership as a cause of the increase of

competition and not the ownership of the Government of

Indonesia.

213. Because HHI is controlled by market share, then it is seen that the

only player increases its market share at that moment is Telkomsel:

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COPY

The LPL,

Analysis ,

Chapter

IV, item

105

214. The HHI is not related to Indosat. The increase of HHI is

controlled fully by the increase of Telkomsel market share. In fact,

the contributions of Indosat to HHI actually decrease from 888 in

2004 to 465 in 2006:

The LPL,

Analysis,

Chapter

IV, Item

109

215. If Indosat itself contribute nothing in the increasing of HHI, the

shareholders cannot be asked to get involved in the increasing of

HHI in by whatever reasons.

216. The most important thing is that KPPU has ignored the fixed

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COPYevidences that STT has played insignificant role in Indosat’s main

decisions. The agenda of Indosat is controlled more by board of

director and board of commissioner (See evidence from Mr.Roes

Aryawijaya as cited above). If the illogical conclusion of RFI is

trusted, the Government of Indonesia is the only party to be

responsible.

(iii) The concentration rate is put in a perspective

217. KPPU states that concentrated industry must be placed in its

perspective. When it is compared to the regional countries, the HHI

is not so high:

The Report

of 1CA,

Paragraph

2.3 in the

First

Statement

of AMH

218. In paragraph 112 of LPL, it must be noted that according to the

diagram above, the HHI for Indonesia is 3,337 differs from the one

LPL,

Analysis,

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COPYsuggested by KPPU, 4823.73. It is caused by other mistakes done

KPPU in defining market because KPPU only considers 3 service

providers (see above) KPPU will have larger market share each of

them, and the HHI resulted from the square of market share will

express the mistake.

item 112

F. The increasing of Market Power

219. In item 154 to 171, KPPU analyzes the increase of market power

improvement, as it is measured by the increase of EBITDA.

Again, without any elucidation on how the data “is proceeded”,

STT is harmed because STT cannot give opinion concerning the

data provided by KPPU.

220. The first problem is that Indosat is a diversified business in which

Telkomsel and Excelkomindo focus on cellular services. The

EBITDA number of Indosat expresses the EBITDA of all its

businesses namely junction fixed, cellular, wireless junction and

MIDI, while the numbers Telkomsel and Excelkomindo only

express cellular business. As far as this numbers are used as a

comparison, there will no accurate comparison. In this case,

statement of KPPU saying that EBITDA of cellular operators is

always more than 50% is not accurate entirely.

221. The arguments of KPPU can be summarized as follows,

”The high market power that is suspected caused by concentrated structure because cross-ownership can be addressed by some indications. For example the height of the rate of profit margin measured by EBITDA. The high selling price compared to other country, and the difference of the selling price and expenditure cost.”

The RFI,

Analysis,

part IV,

item 154

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COPY222. According to KPPU, the operators are getting high EBITDA, they

must t have high profit, and the high profit achievement is

compared to other countries.

223. The mistake of the argument is the assumption of EBITDA as a

good measurement of profit rate. EBITDA is Earning Before

Interest, Tax, Depreciation, and Amortization. In the other hand,

profit refers to earnings after interest, tax, depreciation and

amortization. Finally, profit represents to what is obtained by

company after all expenses are reckoned, whereas EBITDA does

not reckon all expenses.

224. KPPU ignores in reckoning depreciation in stating profit rate.

Indonesia is a big country and many BTS shall be built to provide

sufficient coverage networks. In general, one BTS symbolizes a

very huge investment and the depreciation must be reckoned to

assess the profit rate of a company.

225. The important differentiation between EBITDA and profit has have

been explained in Follow up Investigation of KPPU to Hasnul

Suhaimi, the Managing director of Excelcommindo:

15. Question: What is your opinion about excessive profit caused by the high tariff?

Answer: The cellular industry is growing fast. I am sure that the operator cash flow is still negative and the only operator that has positive cash flow is Telkomsel due to its USD 1.5 billion investment. The cash flow of XL is negative because its investment, minus 3 trillions. In the year of 2007 as an example, the Ebitda of XL is 3.3, while our investment is 6.3 trillions. It is a plan of XL to have long term investment. It is not sweet as it imagine, I wonder why many operators enter cellular market in Indonesia.

Official

Report of

Hasnul

Suhaimi

dated

9 August

2007 in the

case

document

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COPYof KPPU

226. The expensive investment of BTS stations has caused negative

cash flow. The profit seems to be plenty if it is seen only from

EBITDA. Such a measurement is misleading because substantial

operating cost invested in BTS is not reckoned and it will be

reckoned by every investor. Excelcomindo clearly states that its

investment ‘is not as good as imagined’, and it proves that the

request of KPPU to have business actor build BTS is not a wise

suggestion. Once again, KPPU has already ignored to attach the

evidences in its LPL.

227. It shall be noted as well that the real measurement on whether

excessive profit shall be based on business income. The business

income is recognized also as ‘super-normal profit’ or profit outside

what are usually expected from a business. In consequence, in

order to measure business income, KPPU has to determine first the

normal rate of return of mobile cell phone operator in Indonesia.

There is no measurement conducted for that.

228. KPPU states in paragraph 162 of RFI:-

”The high values of Ebitda in the cross-ownership period that is always above 50% indicating that business actors in telecommunication service industries have big market power. The market power owned are for creating monopolistic advantages that exceed double than the costs.”

The RFI,

Analysis,

item 162

229. Such a statement is groundless because (i) the EBITDA margin is

based on inconsistent input among business actors, (ii) there is no

reason to state that 50% of the EBITDA margin indicating

“sufficient” market force (iii) there is no measurement of

monopolistic profit (business income) as it is explained above.

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COPY230. In consequence, the conclusion of KPPU stating that there is

excessive profit in the mobile cell phone sector in Indonesia

groundless. At least, KPPU ignores to reckon two important

factors, depreciation and normal profit, the two factors reckoned

prior to conclude that business income available in an industry.

G. The allegations of an abuse by “Telkomsel”

231. The item 172 to 189, KPPU discusses market force of Telkomsel

and its abuse allegation. The market force of Telkomsel is seen

from the height of EBITDA (the mistake of this analysis has been

explained above).

232. Initially, we will show that Mr. Roes Aryawijaya in its meeting

with KPPU on 19 July 2007 state that the performance of Indosat is

getting better after the investment of STT in Indosat. Therefore,

Indosat cannot be sacrificed for Telkomsel.

The

Meeting

Report of

the

Ministry of

BUMN on

page 4 of

the case

document

of KPPU

47. Question: Which company performance is better, before or after the purchasing STT in Indosat? Answer: For Ebitda, it was 53% before and 57 % after acquisition. The increase of Ebitda margin is supported also by the technological development of MIDI.

233. Another serious allegation is that Telkomsel has used its market

power for “constraining” its competitors by misusing its bargaining

The RFI,

Analysis,

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COPYposition on interconnection fee. part IV,

item 185 to

189

234. It has nothing to do with Indosat. It has been expressed clearly in

the Follow up Investigation of KPPU to Mr.Lioe Phan Koen, the

General Manager of ICR PT Hutchison CP Telecommunications

(“Hutchison”):

1. Question: According to the information we have, initially

PT Hutchison CP Telecommunications find interconnection resistance? Answer: Yes, but it has already finished by the mediation of BRTI.

2. Question: Would you tell me more detail? Answer: When we would have an interconnection, we had to sign an agreement that must be approved by BRTI. The rules on interconnection should be done by fulfilling certain requirements such as 48 ERL for its traffic.

3. Question: Is the requirement made by incumbent company? Answer: Yes, the requirement is made in its DPI by incumbent company.

4. Question: As long as the requirement is wholly conducted, there will be no new entry operating? Answer: Yes.

5. Question: So, is it impossible for new business actor or companies to pass the requirement? Answer: Yes.

6. Question: Do you think that the requirement constraint new business actors? Answer: Yes.

7. Question: Does the requirement have a technical justification? Answer: There is a technical quantification but actually there is no single business actor is able to fulfill it. As long as I know, there is no such a requirement in Ministerial Decree.

8. Question: So, if the requirement cannot be fulfilled the interconnection is not approved?

Answer: It does not mean that it is unapproved but delayed until the business actor fulfills the requirement.

9. Question: Do all incumbent operators require such a requirement? Answer: Such a requirement is asked by PT Telekomunikasi Selular and in my opinion XL also leads to the same policy as it is done by PT Telecommunications Cellular.

The

Official

Report of

Follow up

Investigatio

n to Lioe

Phan Koen

dated 21

June 2007

that is

available in

the case

document

of KPPU

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COPY20. Question: How about Indosat?

Answer: Indosat does not require such requirement.

235. The involvement of Indosat has been clear denied by Hutchinson in

an interview with KPPU. Therefore, KPPU does not only ignore

such important evidence in the RFI but also KPPU keeps on

defending its argument that the abuse conducted by Telkomsel

should be controlled by Temasek through its crossed ownership.

H. Inaccuracy of consumer loss quantification

236. In paragraph 205 to 213 of RFI, KPPU states its argument that

Temasek crossed ownership has caused consumer loss. The

quantification conducted by KPPU is doubtful.

237. As it is explained in the part that discussing excessive profit, KPPU

shall conduct correct development from the curve of margin costs

of each supplier, and it covers the measurement of depreciation and

normal profit.

238. Further, KPPU has to understand the excessive profit resulted from

the allegation of Temasek’s crossed ownership. KPPU need to

establish a clear causality between crossed ownership of Temasek

and consumer loss. It is not conducted by KPPU. It is difficult to

be done because at least, there must be two factors (based on RFI)

contribute to the consumer loss (with the assumption that there is

consumer loss):-----------

(a) The unilateral anti-competition of Telkomsel; and

(b) The industrial structure that tends to be monopolistic. (It is

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COPYthe elucidation of Dr. Adiningsih on the current condition).

239. It is reflected from RFI that KPPU uses tariff rate of other

countries as references in determining consumer loss in Indonesia.

In this case, KPPU relies much on the report of LPEM.

240. Therefore, the use of mobile cellular phone structure in other

countries as a comparison is only possible under the condition that

the supply and demands can be compared. In facts, it is not. In a

small country, for example, the lower price is possible by reducing

marginal cost for not investing in BTS.

241. In this case, it must be noted that Dr. Chatib Basri, the Head of

LPEM FE UI qualifies the Report of LPEM only in the following

things:

Commenting to the price rate in Indonesia as a second highest in Asia, he said that international comparison is hard to perform due to the different cost structure of each country.

The Head of LPEM-UI, Chatib Basri, agrees that it is hard to compare due to its complexities.

“I know other research concluding that comparing to other countries in South Asia, our price is higher. Nevertheless, the problem is not as simple as that because we have to quantify its cost structure and economic scale," he said.

Chatib tells that the find no price fixing conducted by industrial actors although it is reported by media.

An article in

Jakarta Post

dated

24 September

2007

242. In this case, the Report of LPEM as a reference of KPPU to

quantify consumer loss is not reliable. Therefore, as it is

predicted, the, RFI relies on the Report of LPEM without any deep

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COPYobservation to include it as an evidence.

VIII. THE INFRINGEMENT TO THE LAW

243. STT also finds some important evidences in the case document of

KPPU concerning the termination of report by FSP BUMN in

which it is not discussed or mentioned in the report of KPPU. The

termination of report by FSP BUMN is initiated by Arief Poyuono,

the chairperson of FSP BUMN. The letter to KPPU is about the

worries, truth and integrity of the whole investigation of the case.

A. The investigation of KPPU is stained

244. The most worrying thing is the statement of Arief Poyuono in the

meeting with Suharto, an Altimo’s representative, describing that

the investigation process of KPPU is influenced by Altimo:

“1. That in the beginning of April 2007, the Chief of United FSP BUMN with his Attorney-in-fact met Suharto (Regional Director Strategic & Business Development of Altimo Central and South East Asia) at the office of Suharto in Wisma GKBI at Jalan Sudirman Jakarta. There were some thing come out from the meeting:

-That Suharto asked the Chairperson of United FSP BUMN to cancel press conference plan on the withdrawal of United FSP BUMN’s report to KPPU.

-At that moment, Suharto called someone, Muhamed Iqbal (the Chairperson of KPPU) and ask the forming of Preliminary investigation team. Suharto prefers Nawir Messi to Benny Pasaribu as the Chairperson of Preliminary Investigation Team.”

The letter

of FSP

BUMN to

KPPU date

18 July

2007

245. The meeting is also reflected in the media report and read by STT

stating that the investigation of KPPU is influenced by Altimo.

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COPY246. The most surprising is that the election of Nawir Messi is

influenced by Altimo. Therefore, there is no explanation

concerning the election of Nawir Messi as a chairperson of

Preliminary Investigation of KPPU. According to Altimo, Dr. Ir.

Benny Pasaribu as a member of KPPU, cannot be influence. In 3

October 2007, Benny Pasaribu is the only member that has

different opinion with the Council Commission when RFI released.

247. It is strange that RFI does not discuss this evidence questioning the

credibility and integrity of the investigation

B. KPPU keeps on continuing the investigation although

the report has been withdrawn

248. It must be noted also that in the different part of the letter, the

affirmation of STT is stated that KPPU continues its investigation

long after the report is withdrawn.

249. FSP BUMN submitted the report on 18 October 2006 and the

report is accompanied by two additional reports on 17 November

2006 and 22 December 2006.

250. According to Anti-monopoly law, in 30 days since the acceptance

of the report, KPPU is obliged to specify whether the investigation

must be conducted or not. The period has to end on 30 November

2006.

251. According to Article 43(3) of the regulation of KPPU, the step of

Follow up investigation must be finished in 60 days since the

acceptance of the report and it is possible to be extended for the 30

days to come.

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COPY252. However, as it is known that RFI is issued on 3 October 2007, a

year after the early report.

C. KPPU has constrained the defense of STT

(i) STT is not given a chance in the Preliminary Investigation

253. KPPU also has constrained the efforts of STT to advocate during

investigation process. It was started when STT was summoned for

the first time for a session in the Follow-up Investigation on June

2007, without any Preliminary investigation at all previously.

254. Based on Article 1, Item 14 of the KPPU regulation:

“Preliminary investigation is a couple of activity that conducted by Preliminary investigation team to report the suspected infringement and to conclude whether Follow up Investigation needs to be performed or not.”

255. Therefore, based on the Regulation of KPPU, the Preliminary

Investigation shall be performed in order to decide whether Follow

up Investigation shall conducted or not for our client. Our clients is

not given a chance to get involved in the Preliminary Investigation

so that their important rights has been neglected. The rights to

mentioned are:

a) To have the result of Preliminary investigation (Article 34

of KPPU Regulation)

b) To inform the mistake and to be given opportunity to

changes its behavior before stipulating Follow up

Investigation (Article 29 paragraph (2) of the Regulation of

KPPU)

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COPY256. The negligence of the rights of our client has resulted to the

important implication of STT. Firstly, STT has no information

concerning the allegation to STT prior to be a party in the Follow

up Investigation. Secondly, it means that STT has no opportunity

to discuss special deed KPPU wants from STT. Thirdly, STT shall

be displayed evidences that are owned by KPPU in order to make

STT write appropriate defenses.

(ii) STT is not given a suitable access to observe the case

document of KPPU

257. The case document of KPPU consists of many materials needed by

STT to be learnt in order to be able to advocate correctly. It is

important because the RFI intentionally eliminates or not discuss

all relevant evidences that there is no infringement to Article 27.

258. In this case, STT objects strongly to the procedure used by KPPU

to in refusing to the material in the case document of KPPU. It has

been submitted to KPPU on 27 September 2007.

259. It can be seen clearly in Article 65 paragraph (2) of KPPU

regulation that our client should be given a permit to scrutinize the

evidences from KPPU in each step of investigation:

“In any step of investigation and the session of Council Commission, the Reported Party is entitled to:

e. scrutinize evidences used as the Investigation Summary.”

260. On the contrary, KPPU refuses the request of STT on 20 July 2007

to give an access to case document of KPPU by stating that STT is

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COPYonly permitted to see case document of KPPU in the step of “Final

Investigation”. Even if the opinion of KPPU is correct (in which

we cannot accept it), KPPU ought to consider that there are many

documents that shall be learnt, therefore KPPU must give enough

time to STT.

261. The situation is worsened by the fact that KPPU has summarized

its Follow up Investigation on 27 September 2007 and KPPU

delivers it to STT on 3 October 2007. KPPU finally permits STT to

study the evidences in case document of KPPU on 5 October 2007

for only 2 hours. Further, upon our request KPPU then permits

STT to check its document for 2 following day.

262. The situations in which STT is permitted to study the case

document of KPPU shows that KPPU is not serious in giving

opportunity to STT for advocating itself.

(a) Firstly, the evidences are huge in number. The evidences

consist of 4 document boxes and 17 document folders.

Most of the documents are written in Indonesian. All

Reported Parties (unless Telkomsel) are foreigners,

therefore the documents shall be translated and give it to

clients before giving instructions concerning to the case.

(b) Secondly, the access to the case document of KPPU is

passed on the dates on the eve of Eid al-Fitr that make it

impossible to find translators.

(c) Thirdly, most of the evidences are related to economy and

law. The expert consultants on anti-monopoly and economy

are needed in order to have STT comprehend KPPU’s case

document.

(d) Fourthly, STT asks an access to certain documents

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COPYmentioned by KPPU in its footnotes of the report. The

documents are articles from journal (such as Tinjauan

terhadap Holding Company, Trust, Cartel dan Concern by

Hashim Purba) and the passages of other textbook (for

example UK Merger Control: Law and Practice). However,

KPPU refuses to give access to STT by saying that there

are ‘public document’. Although STT can find documents

is if there are much times, STT does not see the reason of

KPPU to refuse a direct access of STT, unless to lessen the

available time of prepare its defense.

(e) Finally, STT cannot translate the whole documents because

of the limitation of time, and KPPU refuses to give

opportunity to STT to defense further after 2 November

2007. There is no reason for KPPU to confine the Reported

Party to check the case document.

(iii) KPPU has collided with the obligation of keeping the

confidentiality.

263. STT also very worries to the fact that some members of KPPU,

including its Chairperson have informed journalists that the

Reported parties are responsible prior to hearing to the defense of

the Reported Parties. It violates KPPU’s Ethical Conduct and the

deniable to the justice of the Reported parties.

264. The neutrality of KPPU is questioned. The media have reported

sue to the Chairperson of KPPU. Indonesian Development

Monitoring Group alleges that the Chairperson of KPPU is

influenced by Altimo to investigate Temasek. The deeds of the

Chairperson has generated problem on the neutrality of KPPU. In

a statement to The Jakarta Post on 21 March 2007, the Chairperson

states openly that he disagrees with the decision of the Government

Refer to

Press

Reports in

the First

Statement

of STT

An article

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COPYof Indonesia to divest Indosat because it is one of the important

state’s assets. The statement of Chairperson, along with bias

allegations to Chairperson, clearly expresses the problem of

KPPU’s neutrality. The complaint toward the neutrality of KPPU

keeps on going based on mass media report on 29 August 2007 to

the activity and influence of Altimo.

Hukumonli

ne.com

date 28

Augusts

2007 in the

First

Statement

of STT

An Article

in Jakarta

post date

29 August

2007Article

the Jakarta

Post in the

First

Statement

of STT

265. Since the investigation is started, the open statement of KPPU is

public consumption, and all express its opponent to STT and other

Reported Parties.

(a) On 6 February 2007, in Investor Daily dated 6

February 2007, the Chairperson of KPPU stated:

“Today, there are many indication of unfair competition in telecommunications sector, crossed ownership as an example. It is proved that telephone tariff in Indonesia at this time is more expensive than those of other countries.”

(b) On 24 May 2007, the Chairperson of KPPU told

journalist that KPPU had found “the lack of

competition between Telkomsel and Indosat”. All

An article

date 6

February

2007 in

Investor

Daily

An article

date 24

May 2007

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COPYthe statements were made before Temasek is

contacted for being interviewed in the investigation.

(c) On May 2007, Nawir Messi, the Vice Chairperson

of KPPU told Reuters that KPPU has “strong

suspicions to bring this case to higher

investigation.”

from

Agency

France-

Press in the

First

Statement

of

An article

date 7 June

2007 in

Business

times in the

First

Statement

of

266. The statements to journalist oppose Article 5 (4) of KPPU’s Decree

No. 8/KPPU/Piece/XI/2000 on ethical conducts and working

mechanism KPPU:

Code of

Conduct of

KPPU

“The Commission Member is prohibited to give information to the public because it is able to influence the decision of Commission over the case that is being handled.”

267. The statements of KPPU to journalist is premature and able

influence KPPU’s neutrality that is in charge to decide a case. Even

a head of District Court in Indonesian has never stated opinions on

the substances of ongoing legal process.

268. In fact, even Dr. Ir.Benny Pasaribu, a team member Follow up

investigation has questioned a legitimization of the legal process

and hesitated RFI:

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COPY (a) In an article of Seputar Indonesia on 24 October

2007, a former Chairperson of KPPU, Sutrisno

Iwantono states that in this case, “monopoly is not

proved because the share ownership is less 50%.”

He also suggested that KPPU has implemented

inappropriate rules of law.

(b) An article in AntaraNews on 25 October 2007, a

member of Commission VI of House of

Representative (DPR), Hasto Kristianto reacted to

the “strong controversy related to the decision of

KPPU” and the process of KPPU is not

“transparent”.

(c) In article AntaraNews on 25 October 2007, a

member of Follow up investigation team, Dr. Ir.

Benny Pasaribu states that the substance of RFI is

“irrelevant and not rely on the objective idea.” He

also comments that the procedure of KPPU “is not

favorable” and questions the premature statements

of KPPU to media.

An article

date 24

October

2007 from

Seputar

Jakarta

An article

date 25

October

2007 from

Antara

News

D. KPPU does not investigate Evidences

269. We are worrying to the objectivity of KPPU investigation from the

beginning. We are considering the reports in some media referring

to RFI that make us hesitate to the objectivity of the team.

(i) KPPU is negligent to scrutinize the study conducted by

LPEM

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COPY270. One of the studies cited by KPPU is a study conducted by LPEM.

KPPU relies on the measurement of LPEM concerning consumer

loss.

271. As it is mentioned in Part VII above that the study of LPEM is

used by KPPU to determine consumer loss. Dr. Chatib Basri also

indicates that the study does not support an opinion that price

uniformity among operators is an indication of anti-competition

behavior because such behavior is consistent with the condition of

competition. He also criticize the way KPPU omitted some

significant substances in summarizing the report of LPEM:

“In his opinion: currently the sentence used from executive summary is “an indication of tariff uniformity is an early step to identify price fixing". But, there is another sentence following it, “nevertheless, it does not identify price fixing". The last sentence is omitted by KPPU.”

An Article

in tempo

dated 20

September

2007

272. STT is very surprised to know that KPPU tries to make a statement

describing wrongly the report of expert in order to strengthen the

allegation to STT by eliminating some part of the content. It

indicates that the investigation process is not neutral but preparing

a conclusion previously.

(ii) The criticism of Dr. Ir. Benny Pasaribu to the Follow up

Investigation

273. The severe criticism from Dr. Ir. Benny Pasaribu is on the

appropriate investigation. There is an obligation among members

for not discussing the investigation openly but the Chairperson of

KPPU breaks it by informing to mass media:-

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COPY “He also questions the attitude of the Chairperson of

KPPU for frequently exposed it to media, as if there

has been guilty parties.

Benny said that the result of the meeting agrees for not

exposing publicly before there is a decision.

Article

AntaraNew

s dated 25

October

2007

274. Intentionally, KPPU seems to backdates its report to make it as if

fulfill the regulation of KPPU although the fact is the opposite:

“He said, in other hand conclusion making has been done beyond permitted boundary. Nevertheless, after the conclusion is agreed, the date of the conclusion is backdated. “Judicially, it is forbidden. The same goes for the forming of Commission Council, in which it is also backdated.”

Article

AntaraNew

s dated 25

October

2007

275. If it is true, such dishonesty is worried. The dissenting opinion of

Dr. Ir. Benny Pasaribu is not backdated. It was 29 September 2007

or the deadline.

276. Finally, it is seen that the members of Follow up Investigation has

no enough time to observe the evidences:

“Benny said that the discussion of RFI is limited. Due to

the limitation of time, the members of RFI only revise

the draft of the conclusion. “In my opinion, the

substance is irrelevant and no objective rationale. It is

better for me to have dissenting opinion than to revise and

sign it.”

Article

AntaraNew

s dated 25

October

2007

277. The comment of Dr. Ir. Benny Pasaribu affirms many worries of

STT such as a suspicion to its members, especially Chairperson of

KPPU for not conducting properly. The team of Follow up

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COPYInvestigation does not consider objectively all evidences submitted

to them during Follow up investigation.

E. KPPU has treated STT discriminatively

278. Finally, it must be noted that KPPU treats STT discriminately. It is

seen in the way KPPU interpret the phrase “majority” differ from

the its allegations to Sing Tel in one side and STT on the other.

279. Referring to SingTel indirect ownership in Telkomsel, 35%,

KPPU has an argument that SingTel conducts ‘negative

operation’ for enabling them to restrain certain decisions that

require special majority approval although their shares is less than

50%.

LPL,

Paragraph

46

280. Nevertheless, if the testing of ‘negative operation’ is misused to

Indosat, it is clearly then that through ” Dwiwarna Share” the

Government of Indonesia also is able to “restrain” important

decisions requiring majority approval. If we apply “negative

operation” parameter, the Government of Indonesia ought to

become majority shareholder of Indosat.

281. Concerning Indosat, KPPU thinks that Temasek has ‘positive

control’ because Temasek has 41.94% of shares while other

shareholders that purchase the share in public stock exchange have

no power to act collectively.

282. Nevertheless, if “positive control” parameter applied in the case of

Telkomsel, Telkom should be the majority shareholder in

Telkomsel with its 65% of shares.

283. The clearest indication of the discriminative behavior is in the

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COPYimplementation of different benchmark of justice to different

parties. KPPU has been wrongly applies law just for getting a

conclusion that “Temasek” is a majority shareholder in Indosat and

Telkomsel. But, if KPPU tests it correctly, it will come up with the

conclusion that the Government of Indonesia and Telkom are the

majority shareholders of Indosat and Telkomsel. In fact, there is

only Temasek that is being investigated and not the Government of

Indonesia or Telkomsel. It is a clear indication of discriminative

treatment.

IX. CONCLUSION

284. The biggest problem in RFI of KPPU is:

(a) KPPU consistently and intentionally does not cite and

consider all evidences that have been already available for

this case; there are evidences oppose against the opinion of

KPPU concerning the investigation of STT and other

Reported Parties

(b) KPPU does not intentionally cite the evidence or facts

correctly

(c) KPPU does not implement applicable and proper law.

285. The unconsidered evidences are very important and the brief

summary on our defense statement, based on the evidences shall be

as follows:

(a) There is no Temasek Business Group. (Part V)

(b) The substances of Article 27 are not fulfilled. KPPU does

not apply Article 27 properly. (Part VI)

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COPY(c) Minister of BUMN has consulted KPPU on 23 January

2003 on the early divestment and other things referring to

the implementation of Article 27. At this time, KPPU does

not have right to question again the divestment. (Part VI)

(d) The business and economic Analysis of KPPU is incorrect..

(Part VII)

(e) There is an evidence of mistakes and partisanship

conducted by the Follow up Investigation Team and

Commission Council, including the criticism of Dr. Ir.

Benny Pasaribu, a member of KPPU. (Part VIII)

286. This defense statement depicts STT implemented defense

considering that KPPU has restrain STT to advocate properly such

as the delay of issuing RFI for more than one week, the rejection of

accesses to case document of KPPU up to the eve of Eid al-Fitr

(concerning the difficulties of finding translator at that time) and

the rejection of mentioning the information sources in its report

clearly.

287. STT asks all investigation to be terminated. There is no evidence in

RFI that show the fault of STT. The investigation processes is an

abuse of law process.

288. If the investigation of STT is not terminated, STT is entitled to

submit further defense statement if needed, because STT cannot

observed thoroughly all documents in the case document of KPPU

that have not entirely translated yet.

289. This defense Statement is relied on Indonesian law and not be

based on international law or related international agreement. STT

maintains all its rights under international law or any valid

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COPYinternational agreement.

16. Considering that further, on the basis of Follow-up Investigation Report, Council of

Commission has accepted responses of AMH, ICL, ICPL on 2 November 2007 that in essence state the following matters: ----------------------------------------------------------------------------------------------

References

I. INTRODUCTION

1. We are acting for and on behalf of Asia Mobile Holdings Pte.,

Ltd (“AMHPL”), Indonesia Communications Limited (“ICL”)

and Indonesia Communications Pte., Ltd (“ICPL”) to submit

answer to the accusations stated in Follow up Investigation

Report (“RFI ”) of the Commission for the Supervision of

Business Competition (“KPPU”) that has already been accepted

on 3 October 2007. For writing fluency, AMHPL, ICL and ICPL

henceforth jointly will be conceived as “AMH”.

RFI

2. This defense statement submitted (“The Second Statement of

AMH”) is addition of, and must be concurrently read with

defense statement that has been beforehand submitted by AMH

to KPPU on 10 September 2007 (“The First Statement of

AMH”), and the content of both defense statements used by STT

as part of the whole defenses to the accusations of KPPU. All

references used in the First Statement of AMH will also be into

effect in the Second Statement of AMH, unless it expressed on

the contrary.

3. AMHPL is a joint venture of Qatar Telecom (Qtel) Q.S.C.

(“Qatar Telecom”) that owns 25% of shares, and STT

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COPYCommunications Ltd (“STTC”) that, through Asia Mobile

Holding Company Pte Ltd (“AMHC”), owns the rest for about

75%. ICL and ICPL are subsidiaries of AMHPL

II. THE BACKGROUND OF CASE INVESTIGATION

PROCEDURES

4. On 18 October 2006 the Federation of State-owned Enterprise

Worker Union (“FSP BUMN”) submitted a report to KPPU that

suspects a monopolistic practice conducted by Temasek Holdings

(Private) Limited (“Temasek”).

A letter

from FSP

BUMN to

KPPU,

dated 17

July 2007, is

available in

the case

document of

KPPU

5. The report was then withdrawn by FSP BUMN on 2 April 2007

by reason of as it elaborated in the letter sent to KPPU on 18 July

2007.

A letter

from FSP

BUMN to

KPPU,

dated 17

July 2007, is

available in

the case

document of

KPPU

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COPY6. AMH knows that KPPU summons Temasek to attend

preliminary investigation referring to the suspected infringement

of the Law No. 5/1999 on the Prohibition of Monopolistic

Practices and Unfair Competition (“the Law of Anti-trust”).

The Report of KPPU dated 26 April 2007 was also exhibited.

7. Further, KPPU issued Preliminary Investigation Report (“LPP”),

dated 23 May 2007. The following parties are called the

Reported, apart from Temasek:

(i) Singapore Technologies Telemedia Pte Ltd (“STT”)

(ii) STTC

(iii) AMHC

(iv) AMHPL

(v) ICL

(vi) ICPL

(vii) Singapore Telecommunications Pte Ltd (“SingTel”);

(viii) Singapore Telecom Mobile Pte Ltd (“Singtel Mobile”); and

(ix) PT Telekomunikasi Selular (“Telkomsel”).

8. Nevertheless, LPP was not delivered to AMH on that date. On 5

June 2007, AMH accepted peremptory writ to meet Investigation

team of KPPU. It is for the first time AMH accepted a

notification from KPPU that AMH was suspected to infringe the

Law of Anti-trust. Afterwards, around 7 or 8 June 2007, the LPP

was delivered to AMH.

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COPY9. On 25 and 11 July 2007, Mr. Guy Norman and Mr. Anupam

Garg met KPPU. Mr. Guy Norman represented Qatar Telecom

while Mr. Anupam Garg is a representative of AMH. Each of

them submitted a brief statement is written to KPPU.

10. On 20 July 2007, the attorney-in-fact of AMH submitted a letter

to KPPU to be permitted to check through the KPPU case

document in the end of Preliminary Investigation phase. The

request was rejected by KPPU due to it is permitted only in the

end of Follow-up Investigation.

11. On 14 August 2007, the attorney-in-fact of AMH submitted a

letter to KPPU with the objection that there is an infringement to

Article 39 of KPPU Regulation No.1 that obliges KPPU starts its

investigation within 30 days as from the acceptance of the

objection.

12. On 14 September 2007, AMH submitted a written statement and

evidence to KPPU concerning the refusal of all suspicions. AMH

also submitted an independent expert statement prepared by

CASE Associates entitle “A Competition in the Cellular

Telecommunication Market in Indonesia”, as well as a letter from

Indosat board of director (“BOD”) to AMH on the accusation in

LPP and independent expert statement, Dr. Sri Adiningsih,

entitled “Persaingan dalam Industri Telepon Selular di Indonesia

(A Competition in the industry of Cellular phone in Indonesia)”.

13. Follow-up Investigation has to be completed, and RFI (“RFI ”)

has to be issued on 27 September 2007. On 27 September 2007,

the attorney-in-fact of AMH submitted a letter to KPPU ask a

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COPYpermission to check through the case document of KPPU.

14. On 3 October 2007 KPPU delivered RFI . RFI decided that all

Reported Parties are part of “Temasek Business Group”

(“Temasek Business Group”) that through PT Indosat Tbk

(“Indosat”) and Telkomsel, has cooperated to lessen competition

in the pertinent market by pressing the performance of Indosat in

maintaining high tariff. RFI did not consider at all any response

and evidences submitted by AMH during the phase of Follow-up

Investigation.

15. On 5 October 2007, an attorney-in-fact AMH checked through

the bundle of case document of KPPU.

III. THE SUBMISSION OF ANSWER/EVIDENCE BY AMH

DURING THE PHASE OF FOLLOW UP

INVESTIGATION

A. The Summary of KPPU’s Accusations after the phase of

Preliminary Investigation

16. The followings are KPPU’s accusations after the phase of

Preliminary Investigation completed:

“1. “Temasek Holding (Private) Limited, through Singapore Telecomunication Ltd, Singapore Technologies Telemedia Pte. Ltd., STT Communication Ltd., Singapore Telecom Mobile Pte. Ltd., and Indonesia Communication Limited own shares of 35% in Telkomsel and 40.77% in PT. Indosat, Plc.

2. Telkomsel and PT. Indosat, Plc., jointly control 89% of market shares or at least more than 50% of market shares in market of cellular telecommunication service all over

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COPYIndonesia.

3. Based on economic data, it is seen that the performance of PT. Indosat, Plc., is not good as other operators’ performances.

4. The crossed ownership of Temasek Business Group in Telkomsel and PT. Indosat, Plc., has caused lack of competition among Telkomsel, that owns the biggest market shares and PT. Indosat, Plc., as the second biggest shares in market of cellular telecommunication service all over Indonesia.”

B. The Summary of Answers/Evidences of AMH in the phase

of Preliminary Investigation

17. The first accusation is based on the assumption that AMH is part

of Temasek Business Group predicted to have 35% of

Telkomsel’s shares and 40.77% of Indosat’s shares. It is

incorrect to treat AMH as part of Temasek Business Group, even

if it exists AMH is not under the common management of

Temasek as well as a concentration of economic activity

controlled by Temasek. The companies of AMHPL’s investees,

Indosat and StarHub Ltd (“StarHub”), the two

telecommunication operators in Singapore, compete tightly with

other competitors in Indonesia and Singapore, Telkomsel and

SingTel (the leading telecommunication operator in Singapore),

as well as other competitors.

The First

Statement of

AMH

18. The second accusation cannot be proven because Indosat does

not have more than 50% of market shares in cellular

telecommunication market. Indosat does not jointly control 89%

of market shares with Telkomsel because AMH does not have

portion in the alleged Temasek Business Group, only if the entity

exists. Further , KPPU provides no clear definition of the market

The First

Statement of

AMH

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COPYin which KPPU thinks uncompetitive.

19. The third accusation is groundless as the performance of Indosat

is getting better. The investment of AMH in Indonesia is only in

Indosat, therefore its interests are to boost the performance and

value of Indosat.

The First

Statement of

AMH

20. The fourth accusation is groundless as KKPU does not

accomplish the stipulation in Article 27.

The First

Statement of

AMH

(i) KPPU cannot prove that AMH is a “majority

shareholder” in Indosat. ICL and ICPL jointly hold only

41% of Indosat’s shares. Therefore, AMH does not have

more than 50% of shares in Indosat.

(ii) KPPU is incorrect in concluding that Indosat “controls

more than 50% of market shares.”

(iii) In whatever case, the majority ownership of Indosat’s

shares alone does not cause the infringement of Anti-

trust Law, due to the findings required to show that there

is an abuse od Indosat’s dominant position and causal

relationship between the ownership of market shares by

Indosat with the abuse of dominant position. KPPU

cannot prove that there is an abuse of dominant position.

(iv) KPPU has only an authority to ‘business actor’ and its

relationship with the infringement investigation of Article

27 of Anti-trust Law and none of corporate body in AMH

is business actor under Anti-trust Law. A business actor

shall be founded or domiciled in the Republic of

Indonesia, and AMH does not fulfill even one of the

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COPYelements. AMH also does not perform economic

activities in Indonesia. AMH is only a shareholder and it

does not make operational decision in Indosat.

21. In whatever case, KPPU failed to inform and to involve AMH in

the preliminary investigation as well as not to give chance to

AMH to prepare a defense at all in the phase of a session. Under

Article 65 (2) of KPPU Regulation No.1/2006, the failure is

absolutely a serious infringement to the rights of Reported Parties

to receive an information concerning its status and to prepare a

defense. KPPU is obliged to determine the need or not follow up

investigation performed within 30 days as from the acceptance of

the report. In this case, KPPU start its investigation for months

prior to the acceptance of the firs report and even kept on

performing investigation although the report had been

withdrawn.

22. The independent expert’s statement prepared by CASE

Associates consists of a detailed economic analysis and the study

on the accusation in LPP. It finally concluded the followings:

(a) KPPU gives no direct or indirect evidence that lack of

competition existed due to the interest of Temasek

ownership and/or its subsidiaries in Telkomsel and

Indosat.

(b) KPPU gives no direct or indirect evidence that the

different performance of Indosat toward Telkomsel is

relatively caused, if any, by the interest of Temasek

ownership and/or its subsidiaries in Telkomsel and

Indosat.

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COPY23. The statement of Indosat board of director Indosat which in

major appointed by the Government of Indonesia is also difficult

to be understood, that AMH does not involve in Indosat

management and that the severe competition between Indosat and

Telkomsel is present.

IV. THE ACCUSATIONS IN THE REPORT OF FOLLOW UP

INVESTIGATION

24. In RFI , accusations of KPPU change in sudden:

1.”Temasek Holdings Pte. Ltd (hereinafter referred to as Temasek) owns a majority share in two companies that conducting business activity in the same field and in common pertinent market that make it infringes Article 27(a) of the Law No.5/1999.”

2. “PT. Telekomunikasi Selular (hereinafter referred to as Telkomsel) maintains its high cellular tariff that make it infringes Article 17 (1) of the Law No.5/1999.”

3. “Telkomsel abuses its dominant position to limit market and technology development that make it infringes Article 25 (1.b) of the Law No.5/1999.”

25. Although there is no accusation addressed to AMH in particular,

the accusations seem to state that:

(f) The first to the ninth Reported Party are “Temasek

Business Group” as a “single economic entity”.

(g) KPPU has a jurisdiction toward STT because Temasek

Business Group performs its business in Indonesia

through Indosat and Telkomsel as its control.

(h) Temasek Business Group has “majority share” in Indosat

and Telkomsel with its control as a shareholder.

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COPY(i) Temasek Business Group controls more than 50% of

market shares in the pertinent product market, a cellular

market.

(j) The cross ownership of Temasek Business Group has

decreased competition in the market which then causes

consumer loss.

26. In its defense statement, AMH will conclude expressly that:

a) There is no corporate body known as Temasek Business

Group legally or economically.

b) AMHPL, ICL and ICPL are not “business actors” and KPPU

does not have jurisdiction on them;

c) In whatever case, AMH does not have “majority share” in

Indosat.

d) Fundamentally, the conclusion of KPPU is incorrect because

KPPU has stated wrongly that pertinent product market is

not competitive.

e) AMH does not control more than 50% of relevant product

market.

f) There is no evidence indicating that crossed ownership

causes the decrease of competition between Indosat and

Telkomsel.

g) RFI is illogical to come up with its conclusion, due to the

ignorance in a whole the ownership of the Government of

Indonesia in Telkomsel, and its level of control to both

Telkomsel and Indosat.

h) KPPU does not have an authority to make accusations as it

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COPYdescribed in RFI because it has been considered previously

by DPR and KPPU. It also comes up with a conclusion that

there is no infringement to the Article 27 of Anti-trust Law.

i) RFI has intentionally disregarded plenty of evidences in the

case document of KPPU that actually it is opposed against its

conclusion. In fact, RFI is a deviation of law and prevailing

evidence.

j) KPPU has made AMH a subject of unfair treatment,

infringed legal process and the principles of justice under the

Indonesian laws.

V. THERE IS NO TEMASEK BUSINESS GROUP

27. AMH will show in the defense statement that KPPU cannot

prove the elements of Article 27. Nevertheless, before discussing

it AMH will show beforehand that all basic cases of KPPU

concerning the existence of a single economic entity known as

Temasek Business Group is simply fictions.

A. KPPU is careless in considering legal condition to define

“Business Group"

28. The Statutes of each company, AMH and Indosat in one side, and

Sing Tel and Telkomsel in other side, arranges shareholders’

rights to nominate director in board of directors. As a

consequence, KPPU concludes in item 77 to 84 in RFI that

Temasek has an ‘authority” to its subsidiaries. According to

KPPU, there are some directors who also take hold as a member

of board of directors in more than one subsidiary. KPPU has

diverted an evidence to be able to reach a conclusion as what it

wants by mentioning that there is a Business Group known as.

RFI , Facts,

Paragraph

77 to 84

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COPY29. There is no law to be infringed or no impropriety if shareholders

with their significant ownership deserves to have right to

nominate directors in its subsidiaries.

30. Paragraph 5(c)(6) of the Analysis Article in RFI cited Hansen’s

opinion in coming to the conclusion of the existence of Business

Group Temasek, as it mentioned below:

“Some self-supporting corporation that join into one self-supporting economic unity. The self-supporting corporation is under one common head that shows outside as a holding company that makes similar plans for its subsidiaries.”

31. Yet, RFI really disregards First Statement of AMH that encloses

the citation of Knud Hansen on the requirements to be fulfilled

by a group of entity, known later as Business Group. The

requirements are:

The First

Statement of

AMH,

paragraph

27

(d) The so-called subsidiary, it must stay in an integrated

management of holding company, arranges an integrated

plan for all its subsidiaries;

(e) The plans of holding company to its subsidiaries must

cover main economic activity of the so-called

subsidiaries; and

(f) The so-called subsidiary is prohibited to disobey the rules

arranged by the management of holding company.

32. In RFI , the only clue of KPPU to support its opinion on

Temasek Business Group is the capacity of Temasek as a

shareholder of AMH and SingTel. KPPU does not have evidence

to prove that either AMH or SingTel (or their subsidiaries) stay

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COPYin the same management of a holding company. The holding

company controls the main economic activity and its subsidiaries

are prohibited to digress from the rules of the holding company’s

management.

B. KPPU ignores the evidence that Temasek does not

control AMH

33. In the First Statement of AMH, respond statement and evidence

have been in detail submitted to indicate that Temasek does not

control directly or indirectly (through STT, STTC or AMHC)

business and/or operational decision of AMH. None of the

evidence is mentioned in RFI and none of the team members of

KPPU Follow-up Investigation, but Dr. Ir. Benny Pasaribu,

M.Ec, has disregarded all evidence and response statement

submitted by AMH.

The First

Statement of

AMH ,

paragraph

34. AMHPL is not owned in whole by Temasek and/or STT.

Around 25% of its shares are owned by Qatar Telecom. Qatar

Telecom is listed in London Stock Exchange, Bahrain Stock

Exchange, and Abu Dhabi Stock Exchange. Further , the 55% of

its shares is owned directly or indirectly by the Government of

Qatar. Qatar Telecom is a leading provider of

telecommunication service in Qatar. It operates as well in

Kuwait, Saudi Arabia, Tunisian, Algeria, and Maladewa through

their subsidiaries with 51% of shares, Wataniya (a listed

company in Kuwaiti Stock Exchange), and Nawras in Oman with

55% of shares. Qatar Telecom is an independent company and

has absolute authority and interest worldwide.

The

Statement of

Mr.Guy

Norman to

KPPU

exhibited in

the First

Statement of

AMH

35. AMHPL is a joint venture and invests its capital in

telecommunication fields in East Asia-Pasific. AMHPL (through

ICL and ICPL) controls around 41% of shares in Indosat and

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COPYaround 49% in StarHub. On 25 July 2007, also acquired 49% of

Shenington’s shares (Shenington Investments Pte Ltd) with its

investment in Cambodia and Laos. It shows a sustainable

investment of AMHPL.

36. In May 2007, AMHPL obtained loan facility for amount of

US$1,160,000,000 from the bank syndication in the form of

external fiduciary loan. AMHPL also obtained financial support

from shareholders. It indicates further the absolute authority of

AMH.

Article on

page 36, 2

June 2007

Issue of

Ifrasia

(Internation

al Financing

Review

Asia)

exhibited in

the First

Statement of

AMH

37. AMHPL has its own board of director, separated from Temasek’s

and/or SingTel, SingTel Mobile’s board of directors and

employee. Qatar Telecom has a senior representatives in

AMHPL’s board of director. The Chief Executive Officer is from

Qatar Telecom while the Vice-Chairman of Qatar Telecom board

of director is its representatives in the AMHPL board of director.

The

Statement of

Mr.Guy

Norman to

KPPU

exhibited in

the First

Statement of

AMH

38. The decision making of AMHPL is done by its own board of

director. The directors, as other directors within AMH’s

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COPYcompanies, are responsible to AMHPL by performing their job

fairly and for the interests of AMHPL under the law of Singapore

in which AMHP was founded. The board of director is obliged to

prefer AMHPL’s interests to the interests of head per head’s

shareholders. They have to make decisions only for benefitting

STT, STTC or AMHC. The director appointed by Qatar

Telecom, in due diligence exercise, has to make sure that the

decision made by AMHPL board of director benefit AMHPL, not

only shareholders.

39. The board of director is backed up by Committee of Management

and Monitoring. Management Committee is responsible to the

daily management of AMH and to make recommendation to

AMH board of director on planning, finance, treasury, as well as

merger and acquisition activities. The Monitoring Committee is

responsible to monitor regular report of any investee companies

of AMH, Indosat included. Qatar Telecom has its representatives

in the two Committees and an active player in the business o

AMH.

The

Statement of

Mr.Guy

Norman to

KPPU in

paragraph

11 to 15 and

exhibited in

the First

Statement of

AMH

C. KPPU is neglecting the presence of competition

between StarHub and SingTel

40. RFI is wholly neglecting the evidence of the presence of

competition between StarHub and SingTel, as the current

telecommunication operators in Singapore.

41. In 2003, SingTel sued StarHub Cable Vision Ltd. (“StarHub

Cable”), a subsidiary of StarHub. The litigation process was

running severely and ended with the submittal of appeal by

Singtel to Court of Appeal, the highest court of appeal in

Highlighted

from

Finance

Statement of

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COPYSingapore. StarHub

and Straits

Times’

article,

dated 4

September

2007,

exhibited in

the First

Statement of

STT

42. RFI also entirely disregards an evidence of the existence of

intervention of policy making institution in the dispute of

SingTel versus StarHub. Since the period liberalization of

telecommunication regime occurred in Singapore, Info-

communications Development Authority (“IDA”), a Singaporean

independent telecommunication regulating agency, has to

intervene at least 30 dispute cases of SingTel and StarHub. A

number of disputes reflected a level of fair competition.

D. KPPU is neglecting the evidence provided by AMH

representative, Anupam Garg

43. KPPU is neglecting the existence of AMHPL, whether as a

separated corporate body or as substantive company with its own

rights. AMHPL’s shareholders, Qatar Telecom and AMHC, even

are not drawn in the organizational structure as it is seen in

paragraph 45 of RFI .

44. RFI is also ignoring a written statements made by Anupam

Garg, a AMH representative, during investigation:-

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COPY “AMH/CL/ICPL is managed by its own board of

director separated from Temasek. The member of board of director AMHIICLICPL is neither director nor employee of Temasek. Temasek (in one side) and AMH/ICLIICPL (in the other) are managed separately one to another.

The business, planning, operational decisions are drawn fully by board of AMH/ICL/ICPL director and/or management team and separated from Temasek. Each of AMH, ICL and ICPL has its own board of director stuffed by worldwide reputed members. There are 2 member of AMH board of director who are not director or employee of Temasek, STT, STTC, AMHC or Qatar Telecom.

AMH decides its own decision through the board of director, in which its members area the selective people of Qatar Telecom. The board of director of AMH does not make decisions that not only STT, STTC and AMHC. IT opposed against the law of Singapore and consequently Qatar Telecom does not it happen.”

The

Statement of

Anupam

Garg that is

available in

the

document

case of

KPPU

E KPPU is ignoring the evidence of Qatar Telecom and

its representative, Guy Norman

45. KPPU is ignoring the existence of Qatar Telecom as a

shareholder of more than 25% of AMHPL’s shares, a company

that is unseen in the organizational structure in paragraph 45 of

RFI.

46. The statement of Mr. Guy Norman, a Qatar Telecom

representative, described the independency of AMH. It is ignored

in RFI :

“Qatar Telecom has a representative in the AMH board of director AMH. The Chief Executive Officer of Qatar Telecom and the Vice-Chairman of Qatar Telecom board of directors are its senior representatives in the AMH board of director.

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COPYThe strategic decisions are made through AMH board of director and obliged to carry the interest of AMH and not the interest of head per head’s shareholder. The directors appointed by Qatar Telecom, in due diligence exercise, make sure to the decisions made by AMH will be benefitting not only STTC but also AMH.

The board of director is backed up by Committee of Management and Monitoring. Management Committee is responsible to the daily management of AMH and to make recommendation to AMH board of director on (a) financing, and company treasury strategy; (b) merger and acquisition activities; and (c) company strategic planning including any problem concerning shareholders’ strategy. The Monitoring Committee is responsible to monitor regular report of any investee companies of AMH, (one of them is Indosat), to analyze finance and operational of company performance as well as any problem concerning shareholders’ strategy that probably occurs in any investee companies.

Qatar Telecom has its representatives in both Management and Monitoring Committee.

It is cleat that Qatar Telecom is an active player in AMH business. Qatar Telecom is sure that AMH is managed well.

I just want to show that Qatar Telecom has invested US$635 million in this joint venture. The composition of Management and AMH board of director enable Qatar Telecom an insurance that the decisions are made independently and not dictated by STTC.”

F The deviation in RFI

47. Firstly, KPPU is incorrect in mentioning that Ms.Ho Ching of

Temasek is an Executive Vice President of STT and STTC.

RFI , Facts

Paragraph

78 (d)

48. It is wrong because Ms. Ho Ching serves no single position in

either STT or STTC. Furthermore, it has be asked by KPPU in

one of sessions with the representatives of Temasek, Mr.Goh

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COPYYiong Siang (“Mr Goh ”):

“Question : Is it true that Ho Ching serves as an Executive Vice President in STT and STTC at the moment?

Answer : No.”

The Follow

Up

Investigatio

n over Mr.

Goh that is

available in

the

document

case of

KPPU

49. Secondly, it is more general. Mr Goh expresses a statement

referring to the policy of Temasek that Temasek does not ever

instruct or coordinate the commercial and operational decisions

with its subsidiaries:

“35. “It is a policy of Temasek for not instructings or coordinating commercial or operational decisions s with the companies to which Temasek has its shares. Thus far, the policy remains to be implemented.

36. Such strong and firm principles have been acknowledged by reliable international institution. The institutions are carefully monitoring the deeds of Temasek by confirming the policy and practices of Temasek. The Rating Report 2006 issued by Standard & Poor’s stated as follows: “Temasek seeks to ensure good governance, performance, and competitiveness at each TLC through ensuring a high quality board of directors…Temasek refrains from involvement in day-to-day decision-making.”

The

Statement of

Mr. Goh in

paragraph

33 to 35 in

the case

document of

KPPU

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COPY37. The same goes for the Rating Report of Moodys Investor Services:

“Each [Temasek] investee company is managed by their respective management team and guided by their board of directors. Temasek is not involved in the daily commercial or operational decisions of its investee companies.”

50. In his investigating, Mr.Goh Yiong Siang categorically explains

that Temasek does not intervere in the decision making of

Temasek investee companies, including AMH.

“14. “Question: Does Temasek get involved in the investment decision making and management activity of STT and SingTel?

Answer: No, Temasek does not involve in operational fields and business decision in both companies. The decision on investment is taken by board of commissioner and management of each company ...”

“27. Do STT and SingTel report their investment development to Temasek annually?

Answer: No, they do not report to Temasek.”

“30. It is important for us to have a copy of TEmasek’s Statutes. Would you please explain the rights of Temasek in its capacity as an owner of SingTel and STT?

Answer: I want to repeat. Both companies treat Temasek as they do to other shareholders, our rights is the same as our rights in investee companies. We reserve rights as it is conducted by other shareholders to buy more shares or to sell or to maintain our shares.

“31. Question :. Would you please explain the rights of Temasek in its capacity as 100% shareholders to STT?

Answer: As I have already told. STT is our investee company. We see our investment from financial point of view. We do not involve in the making and

The Follow

Up

Investigatio

n over Mr.

Goh that is

available in

the

document

case of

KPPU

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COPYoperational decision of the company because they have been performed by the board of directors and management of STT. Our Rights is not different with other shareholders. We are entitled to attend shareholder meeting and to have voting right.”

83. Question: Are there any names serving to STT and SingTel?

Answer: None of them serves as member of STT Board of Director STT, but Simon Israel. He is a member of board of directors in SingTel. Yet, he has been there before joining Temasek.

84. Question : Is one or the other serving for STT Com?

Answer: Nobody.

85. Question : Is one or the other serving for AMH?

Answer: Nobody.

86. Question : Is one or the other serving for AMHC?

Answer: Nobody.

87. Question : Is one or the other serving for ICL?

Answer: There is no.

88. Question : : Is one or the other serving for Indosat?

Answer: Nobody.

89. Question : : Is one or the other serving for SingTel Mobile?

Answer: There is no.

90. Question :: Is one or the other serving for Telkomsel?

Answer: Nobody.

51. Although the evidences are contended with, the RFI does not

show them that make it conceals the truth.

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COPY52. Thirdly, in its meeting with KPPU on 19 July 2007, Mr. Roes

Aryawijaya (“Mr.Roes”), the Commissioner of Indosat who is

nominated by Minister of BUMN, clearly confirmed that ST

Telemedia and Singtel competes each other:

Meeting

Official

Report

between

KPPU and

The

Ministry of

State-

Owned

Enterprise

(BUMN)

page 5 that

is available

in the case

document of

KPPU

“21. Question: Is Temasek influencing the decision in Indosat ? As far as I know. It is negative. To make it sure, would you please ask Mr. Setianto.

22. Do you mean the institution? STT or ICL? STT is very influencing, STT competed tightly with SingTel, concerning the capacity of SingTel as a shareholder in Telkomsel.”

53. Mr. Roes also shows evidence on the selection of director in

Telkomsel. It is fully transparent process:

“41. How is the mechanism of electing board of director in Telkomsel? The proposal to elect board of director is arranged in Shareholder General Meeting (RUPS), in this case the commissioner of Telkomse., Tantri Abeng proposed several candidates to State Minister of BUMN, at that time, Mr. Sugiharto.”

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COPY54. Fourthly, RFI in item 78 also incorrect in mentioning that

Stephen Geoffrey Miller is CFO of AMHC and ICPL and that

Sheikh Mohammed is a Commissioner of Telkomsel. Sheikh

Mohammed is nominated by Qatar Telekom as an Indosat

Commissioner, and Qatar Telecom does not have any interest at

all in Telkomsel.

55. Finally, the accusation of KPPU concerning the influences of

Temasek Business Group to Indosat and Telkomsel by

coordinating their actions is inconsistent with the evidence

accumulated by KPPU from Dr. Ir. Bambang P. Adiwiyoto, M.

Sc. (member BRTI), in his meeting with KPPU on 10 July 2007:

Meeting

Official

Report

between

KPPU,

BRTI and

Directorate

General

Posts and

Telecommu

nication

that is

available in

the case

document of

KPPU

Nevertheless, Telkomsel and Indosat is competed, if it is seen from the perspective of technology”

56. Practically, Mr.Hasnul Suhaimi (“HS”), the CEO of

Excelcommindo (“Excel”), informed by KPPU to have leaved

Indosat in an unfavorable condition, also confirmed in the

follow-up investigation of KPPU on 9 August 2007 that:

The Official

Report of

Follow Up

Investigatio

n to

Suhaimi, on

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COPYpage 5 that

is available

in the case

document of

KPPU

“Marginally, the market in Indonesia is still more competitive compared to the market abroad. In my opinion, the condition of cellular phone in Indonesia is over competitive. To my prediction, tariff will be in consumers’ side.”

G It is understandable that shareholders propose to name

directors

57. In RFI, KPPU also states in item 102 to 109 that it is possible for

ICL have any control to Indosat with its authority to nominate

directors in Indosat, Deputy managing director, Director of

Finance and Information and Director of Information and

Technology (IT) in particular.

58. Once again, KPPU diverts the evidence for the shake of coming

to its conclusion. Although ICL is entitled to nominate director

and commissioner of Indosat, the appointment of both positions

shall be approved by shareholders of Indosat. Deputy Managing

director also has to report to managing director, a Chief

Executive of Indosat, and in reality the managing director is

always nominated by the Government of Indonesia.

59. Further , Managing director of Indosat, Mr.Johnny Swandi Sjam

who is nominated by the Government of Indonesia, mentions that

is nothing wrong with ICL to nominate director. He has also

nothing to do with the nominated directors including Director of

Finance and Director of Information and Technology:

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COPY “45. Question : Which post does ICL remain to hold?

Answer: Deputy, Director of Finance and IT.

46. Question : To whom the position of ICL is given when the Director of Network is occupied by an Indonesian citizen?

Answer: Director of Operation.

47. Question : Why should Director of Finance always be taken by ICL?

Answer: As I known, investor usually handle the finance

48. Question : Why IT Director are always hold by ICL?

Answer: For all I know, Singapore is dominant in IT.’’

The Official

Report of

Follow Up

Investigatio

n to

Swandy

Sjam, dated

27 August

2007,

available in

the case

document of

KPPU

60. In displaying the facts, RFI does not refer to the statement of Mr.

Johnny Swandi Sjam. It disregards the fact that nomination is

approved through the transparent balloting by the whole

shareholders during RUPS.

61. There is no law infringing or improper for a shareholder with its

significant ownership nominating director for its subsidiary.

H. The deviation of KPPU over the evidence concerning

the procurement in Indosat

62. The evidence held by KPPU to prove ‘a control’ allegedly

conducted by STT is by relating it with procurement. The

evidence is wholly misinterpreted and it proves a form of

domination at all.

63. In item 104 to 115 Part IV of RFI , the Deputy of managing

director who perform operational activities of Indosat,

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COPYprocurement included is accused, in this case to Mr.Khaizad B.

Heerjee (“Mr.Heerjee”). Hereunder we cite:

“111. Prior to the management led by Khaizad, the method of procuring network is non turn key under the management of Hasnul Suhaimi (Managing director) and it is that conducted by local company. It changes to become turnkey and conducted by foreign under Khaizad management (IOR of Wimbo S Hardjito date 25 September 2007); --------------------------------------------

112. That cancellation (by Khaizad) to the development method applied by Hasnul, is one factor that make Hasnul resign. It also indicates that the control of Indosat is in the hand of deputy managing director, let the managing director be a symbol. (IOR dated 22 August 2007);

113. The Cancellation leads to the absence of procurement decision to develop network. Such a condition was taking place in the first 9 (nine) month of 2006. It caused the business activities of Indosat is hindered and felt behind other operators. (IOR of Wimbo S Hardjito date 25 September 2007);

114. That the delay of network development is the basis of 4 (four) board of director of Indosat, Jhoni Swandy Sjam, Apocalypse Widjajadi, S. Wimbo S. Hardjito and Wityasmoro to meet Lee Theng Kiat (Commissary Indosat) in Singapore to explain the delay of network development that will be detrimental Indosat. In other hand 4 (four) board of director of Indosat give their assessment that Khaizad is incompetent to become a leader in Indosat (IOR of Wimbo S Hardjito date 25 September 2007);

115. To the information given by 4 (four) board of director, Lee Theng Kiat does not take action at all (IOR of Wimbo S Hardjito dated 25 September 2007).”

RFI , Part

IV,

Paragraph

111 to 114

64. In the first place, there is a suspicion that Mr.Heerjee is a party

appointed by ICL to control procurement process and to overrule

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COPYsuccessfully the managing director. When the four Indonesian

went to Singapore to meet Mr.Lee Theng Kiat (“Mr.Lee”), he is

suspected to do nothing. All the facts are provided by

Mr.Wimbo S Hardjito (“Mr.Wimbo”).

65. RFI absolutely fails to use evidence that directly and clearly

submitted from one of the four “dissatisfied” directors,

Mr.Johnny Swandi Sjam which told very different information.

In his view, the board of director as a whole decides whether a

certain program shall be performed in turnkey or non turnkey.

The deputy of managing director does not control the

procurement and the board of director work in collegial way:

21. Question : Who does make the policy program of changing it to turnkey project?

Answer : As far as I know board of director through board of directors meeting in 2006.

34. Question : How about procurement ?

Answer : For a procurement above USD 5 million, the approval of managing director is needed.

35. Question : What about a procurement under USD 5 million?

Answer : There is a rule on it concerning its authorization.

36. Question : Since 2007, are there any procurement above USD 5 million?

Answer : Since June 2007 (I have been a managing director), at least there were 2 procurements above USD 5 million. Network Procurement, filter and CDMA.

37. Question : The procurement that only need Deputy’s approval?

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COPY Answer : As I recall, the procurement around USD 1million to USD 5 million. But I am not sure the exact number.

38. Question : Shall Managing director know or approve procurement proposal?

Answer :To approve a procurement above USD 5 million

39. Question : In other hand, what is the authority of Deputy that need no approval from managing director?

Answer : All the things usually conducted in Collegial, in the sense of discussed in the meeting of board of director

66. The testimony of Mr.Jhonny Swandi Sjam that cited above are

conducted in collegial, in line with the Statutes of Indosat, for

example, stating that all decisions of the board of director

meeting conducted by deliberation for general consensus, and

otherwise succeed by majority votes.

67. RFI also really disregards that this evidence is justified by Mr.

Roes, who were an Indosat Commissioner:

“28 Is it true that after Mr.Hasnul retiring the position is automatically occupied by Mr. Khaizad, but the proposal of Bapak Hasnul is refused? Is it true?

No. There are many different opinions. The proposal of Mr.Hasnul was tried to be applied in the company; nevertheless, in field, in managerial level, there were many oppositions against him. The board of director prefer to low pricing to consumer.

The Official

Report of

Follow Up

Investigatio

n to Mr.

Roes, dated

19 July

2007,

available in

the case

document of

KPPU

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COPY68. Further, Mr. Roes explains that the long period of vacuum

position left by Hasnul is not caused by STT:

An

interview

with Mr.

Roes, on

page 7 of the

case

document of

KPPU

30. Question : As a commissioner, according to Mr. Roes, is the atmosphere in the mid manager level is such bad that the vacuum for the position is far too long?

Answer: It due to the lack of Minister of BMN to take action. Besides, it is also caused by the resistance of mid level manager, 750 people.

31. Question : Does it happen due to the refusal of STT?

Answer : No

69. The opinions of Mr. Widya Purnama, Mr.Johnny Swandi Sjam

and Mr.Roes Aryawijaya differ much with those given by KPPU.

Although it has been mentioned that Mr.Johnny Swandi Sjam is

one of directors who is suspected of expressing his complaint to

Mr Lee, RFI is really negligence in explaining why RFI only

rely on the evidence provided by Mr.Wimbo and not from

Mr.Johnny Swandi Sjam.

Although Mr.Heerjee is possible not to agree with managing

director in a certain problem it does not mean that AMH controls

board of director of Indosat. Directors can be in a regular way

agree or not to agree with something and that it does not mean

that just because one director is insistent on a certain problem,

such a director control board of directors.

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COPY70. KPPU prefers to consider the evidence provided by “a

management staff of PT. Indosat (who asks not to disclose the

identity)” to those from Mr.Johnny Swandi Sjam. It is surprising

that KPPU based its report on the evidence from an eyewitness

who wish not disclose the identity. Without mentioning identity

in the official report, such a witness is unreliable because he/she

cannot explain the fact owned of opposes it from the evidence.

Such evidence is null and void.

The Official

Report of

Investigatio

n, date 22

August 2007

in the case

document of

KPPU

71. That the Government of Indonesia has replaced Mr.Wimbo as

one of Indosat directors based on the proposal of Ministrial of

BUMN. AMH give a same comment with Ministrial of BUMN.

Therefore, Mr. Wimbo may be not carrying well to AMH in this

case, and KPPU should not enters such a consideration in its

proof.

A Letter

from the

Ministry of

BUMN,

Annex 1

72. Concerning to the resignation of Mr. Hasnul, an article in

Detik.com on 5 July 2006 stated that he resigned for a personal

reason without any pressure on him. Further, officially

Mr.Hasnul is appointed as managing director of Excelcomindo

on 1 September 2006 during RUPS (AGM) of Excelcomindo.

Although STT does not know the private reason of Mr.Hasnul

behind his resignation, the evidence submitted by Mr. Roes

Aryawijaya indicates that Mr.Hasnul did not resign by the

intervention of Vice Managing Director.

An Article

on 5 Juyi

2006 in

Detik.com,

Annex 2

73. Even if Hasnul has resigned, the Government of Indonesia can

use its right under Article 20(3) or Article 21(1) of Indosat

Statutes, to nominate the appointment of new Managing Director

or asks to perform RUPS regarding to the problem. The

following is the Investigation Official Report of Roes:

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COPY “Why should be a vacuum in top management of

Indosat, is caused by the refusal of STT?

No. The problem is in Indonesia itself.

The Official

Report of

Investigatio

n of Mr.

Roes that is

available in

the case

document of

KPPU

74. The Government of Indonesia does not nominate for Managing

Director until the date of Annual RUPS of Indosat on 5 June

2007. The proposal for the nomination is enclosed.

Letter fro

the Ministry

of BUMN,

Annex 1

75. The failure of KPPU in evaluating relevant evidence in its case

document, clearly indicate that RFI was prepared to come to a

conclusion of the infringement of Article 27 by ignoring existing

evidence.

I. The conclusion of RFI is illogical because the decision

conclude that the Government of Indonesia is

incompetent

76. KPPU realizes fully that the Government of Indonesia is a

significant shareholder either in Indosat or Telkomsel.

Unfortunately, the facts are ignored in RFI. Another

investigation has ever been conducted by KPPU was

investigation with Deputy Minister of BUMN, Mr. Roes

Aryawijaya that should be cited:

“2. How are the composition of board of director and commissioner in each company, Indosat

The Official

Report of

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COPYand Telkomsel?

Indosat : 4 board of directors are from STT, 5 from Telkom, 4 commissioners are from Telkom and 6 from STT. While in Telkomsel there are 3 board of directors from SingTel and 2 from Telkom.

3. Is STT dominant during decision making?

In the decision making we always concerns good corporate governance and avoids implementing voting mechanism. We do that in the meeting of Indosat board of director and commissioner.

Investigatio

n of Mr.

Roes, dated

19 July 2007

in the case

document of

KPPU

77. In the part where KPPU discusses accusation on ‘”authority” of

Temasek, KPPU has eliminated the fact that Deputy Minister has

explained not only in selecting a number of director and

commissioner in Telkomsel and Indosat by the Government of

Indonesia but also in becoming active participant to control

initiatives and to attend a numbers of meetings.

78. If the ability to elect director and commissioner as well as double

position people is the evidence of “controlling of the holding

company”, then the facts show that (i) the Government of

Indonesia (acted via Minister of BUMN) is a shareholder either

in Indosat and Telkom (that has more than 50% of Telkomsel’s

shares and control it); (ii) the higher officials from the Ministry

of BUMN serve as commissioner in Indosat and Telkom; (iii)

people assigned by Ministry are those serving as member of

board of directors, shown that Government of Indonesia control

both Indosat and Telkomsel.

79. The conclusion of RFI’s stating that Temasek (that only has

indirect minority ownership in Indosat or Telkomsel) “control”

either Indosat or Telkomsel is unreasonable. Logically, it

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COPYconcludes that the directors and commissioners appointed by the

Government of Indonesia. It is surprising that KPPU has come

to conclusion without any evidences to support.

80. It is opposed against the fact, between evidence in the case

document of KPPU and the “Government’s Elucidation”. It is

stated that, on page 14 of the case document of KPPU, the

“majority” share of Telkomsel “owned and controlled” by PT

Telkom Plc., and further, that STT and SingTel are separated

each other.

SingTel has 35% of Telkomsel’s shares with the limited management representation, in which the majority share of Telkomsel is owned and controlled by PT Telkom Plc. SingTel also is a public corporation that bring interests not only for Temasek as a shareholder but also public interest. Either SingTel or STT is managed by separated management team and competed freely in fixed access of cellular area, and internet service in Singapore. Concerning STT and Indosat, it is important to recall that that Indosat is also a public corporation, bring interests not only to STT but also to shareholders (government with 15%, overseas public shareholder/NYSE 30%, and domestic shareholders less than 13%).

STT and/or SingTel are owned by Temasek with each part are independence and competition between them must be subject to law and legislative regulation that go into effect in Indonesia either in the field of telecommunications, business competition, or capital market.

81. From the Government’s Elucidation, it is clear that the

divestment in Indosat has been considered carefully by member

of House of Representatives (DPR) in Indonesia. The more

importantly, DPR has obviously seen that there is no problem

concerning cross ownership because the majority shares in

Telkomsel are owned and controlled by the Government of

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COPYIndonesia.

82. It shows that RFI is partial. RFI does not take well-balanced

approach, in which RFI considers and conducts an evaluation to

the evidence that explains and alleviates the position of AMH.

On the contrary, RFI even disregards the evidence provided by

DPR. KPPU does not consider this case fairly and precisely.

VI. THE ACCUSATIONS OF THE INFRINGEMENT TO

ARTICLE 27 ANTI-TRUST LAW

83. Article 27 of Anti-trust Law states:

“Business actor shall be prohibited from owning majority shares in several similar companies conducting business activities in the same field on the same market, or establishing several companies with the same business activities on the same market, if such ownership causes

a. One business actor or a group of business actor control more than 50% (fifty percent) of the market share of a certain type of goods or services.”

84. KPPU cannot prove the whole elements of Article 27

(e) AMH is not a business actor.

(f) AMH does not have majority share in Indosat or Telkomsel.

(g) AMH does not control more than 50% of the relevant market.

(h) AMH does not abuse dominant position.

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COPY85. Firstly, KPPU thinks that the whole Temasek Businesses Group

have to be considered as a single economic entity. Secondly, the

Temasek Business Group is suspected “to control” some entities

in Indonesia, Indosat and Telkomsel. Thirdly, Business Group

Temasek is suspected to use its influences in Indonesia, therefore

KPPU has an authority to apply jurisdiction extra-territorial to

Temasek Business Group, in accordance with practices suspected

implemented by European Union.

RFI ,

Analysis,

Paragraph 5

86. The following defense statements indicate that KPPU has not

only distorted evidence but also legal interpretation in its effort to

come to groundless conclusion in RFI.

A. AMH is not a business actor

87. RFI is failing to mention defense statement of AMH that

companies within AMH are not entities under the jurisdiction of

KPPU.

88. The definition of jurisdiction is a fundamental condition to start

investigation of KPPU.

89. Jurisdiction scope of KPPU as it is stated in Article 1(18) of

Anti-trust Law, mentioning that KPPU will, for example,

“monitor business actor who perform their business activity”

(enhanced to emphasis).

90. In consequence, an entity is only under jurisdiction of KPPU if

the entity is a”business actor” as referred to Anti-trust Law. The

term ”business actor” is defined explicitly in Article 1 (5) of

Anti-trust Law as, ”individual or corporate body ... that is

founded and is domiciled or to conduct activity in the territorial

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COPYjurisdiction of the Republic of Indonesia, either by itself or

jointly under agreement, carrying out various business activities

in the field of economy.” (enhanced to emphasis)

91. During Preliminary Investigation, the Reported Party is identified

as ”Temasek Business Group”. Although RPI, further jointly

refer to the Reported Party as ”Temasek Business Group”, AMH

note that LPP clearly defines any entity suspected to form

”Business Group” as separated ”Reported”.

92. In RFI, the companies to which we refer to as AMH is conceived

as the Reported. Nevertheless, as it is mentioned above, there is

no certain accusation addressed to them. At the moment, the

accusation is addressed to Temasek. It is obvious that even

KPPU “confuse” to which party the investigation is conducted to.

93. Under Article 1(5) of Anti-trust Law, AMHPL, ICL and ICPL

clearly excluded from the definition of “business actor”.

94. First of all, AMHPL, ICL and ICPL is not “founded” or

“domiciled” in Indonesia.

95. Further, the most important thing, as it is intended by Article

1(5), AMH does not “perform any activity” in Indonesia. All

“activities” in Indonesia are performed by Indosat. AMH is

unutterable “conduct” activities because the business of Indosat

is managed by its own board of directors for benefiting Indosat,

therefore AMH does not take any operational decision in the

business of cellular telecommunication of Indosat. Based on the

above reason, the status of AMH toward Indosat limited only as

indirect shareholder of 30% Indosat’s shares. .

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COPY96. The Following up Investigation of KPPU is relied on bias

interpretation of Article 1(5) Anti-trust Law. After referring to

the definition of “business actor” in Article 1(5), RFI further

states (in item (A)(2)) that:

The Report

of

Preliminary

Investigatio

n

…Any activity of business actor that are not founded and not domiciled in the territorial jurisdiction of the Republic of Indonesia but its activity impacted the competition in the territorial jurisdiction of the Republic of Indonesia is subjected to the stipulation in the Law No. 5/1999.

(enhanced to emphasis)

97. With all respect, this statement deviates from the definition of

“business actor”, according to Article 1(5). The concept of

“activity that have impact to the competition in… Indonesia” is

broader than the condition of “performing activities in …

Indonesia,” according to Article 1(5). The last sentence signifies

an active involvement in Indonesia, but not for the first. The

conduct of equalizing the two different concept has distorted the

actual meaning of Article 1(5) Anti-trust Law, therefore, it has

unfairly extended its jurisdiction that actually beyond its

authority.

98. The Item (A)(2) of LPP refers to consideration of (c) of the Law

and it emphasizes that “anyone who perform business in

Indonesia must stay in healthy and fair competition nature”

(enhanced to emphasis). The reference “to perform actual

business in Indonesia” has supported the interpretation of AMH

and those of KPPU to the term of “business actor”.

99. The term “to perform business in Indonesia”, is similar to

“performs activity in … Indonesia”, it requires a positive

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COPYinvolvement in business/activity in Indonesia. The two concepts

is narrower than those offered by KPPU on “activity that

impacted competition nature in Indonesia.”

100. In international law theory, there are 4 principles in applying a

jurisdiction:-

(a) territorial jurisdiction,

(b) personal jurisdiction,

(c) jurisdiction according to the protective principle and

(d) jurisdiction according to the universal principle.

Ian Brownline, Principles of Public International Law (Edition

ke-5: 1998) page 303-7

101. The two basic are not applicable because AMH is not Indonesian

or in its region. Jurisdiction Universal are also not applicable

because AMH does not conduct any international crime resulted

on this.

102. Causality Doctrine only goes into effect in particular limited

circumstance, that is if it can be indicated that

(a) its application must be relied on the deed that is suspected

to conduct intentionally to the visited.

(b) The cundact must have extra ordinary visited country

103. KPPU cannot prove even on of these conditions. KPPU does not

affirm any evidence of AMH's deeds addressed to Indonesia.

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COPYSecond, KPPU also does not prove “any extraordinary

consequences” for Indonesia.

104. In Indonesian law interpretation, there is only one member of

KPPU, Dr. Ir. Benny Pasaribu that seems to consider the

evidence in the case document of KPPU:

“I do not find any evidence that Reported Party I to Reported Party IX are business actors as referred to Article 1 item 5 of the Law No.5/1999. The fact is, The Reported Parties are corporate bodies that are founded and domiciled not in the territorial jurisdiction of the Republic of Indonesia. Several Reported Parties also do not perform business activity or business transaction in the area of cellular telecommunication in Indonesia. Although Reported Party VI and Reported Party VII own shares in PT. Indosat and Reported Party IX owns shares in PT. Telkomsel, they are improvable to conduct transaction of cellular telecommunication goods and/or service in Indonesia. The shareholders are improvable to conduct and/or take cellular business decision. The fact, its market also differs: stock exchange activities in capita market and cellular business in goods and service market – often called also as “real sector”. There are also fact that board of commissioner and board of director of PT. Telkomsel and PT. Indosat that conduct operational activity and take decision on cellular telecommunications business in Indonesia, not shareholder or the Reported Parties.”

B. AMH does not have “Majority Shares”

105. The objective of suspicion 1 is that Temasek owns “majority

share” in 2 providers of telecommunication services in Indonesia

through its subsidiaries. It is incorrect.

(i) KPPU equalizes the term “Minority” shareholder and

“Majority” shareholder

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COPY106. The actual understanding of “majority share” is an ownership

more than 50% of shares in a company. In general, the words

‘majority’ and ‘minority’ are exclusive. It means one only can

hold majority ownership of share. In the expert statement,

exhibited in the defense of STT, Professor Hikmahanto

emphasizes that in the Law No. 19 /2003 on State-owned

Enterprise (“The Law of BUMN”) and the Law No. 8/1995 on

capital market, the two laws define the term of majority

shareholder and they could be a best guidance in determining the

definition of the term in this context.

The Report

of expert,

Professor

Hikmahanto

, page 2, 4(c)

exhibited in

the First

Statement of

STT

available in

the case

document of

KPPU

107. The elucidation of Article 15 (2) of the Law No.8/1995 on

Capita Market defines “majority shareholder” as:

“Majority share is shareholder that has more than 50% (fifty

percent) of subscribed and paid-up capital.” The Report

of expert,

Professor

Hikmahanto

, page 2, 4(c)

exhibited in

the First

Statement of

STT

available in

the case

document of

KPPU

108. Further , there is no international law principle that permit KPPU

to use extrateritorial jurisdiction to STT. As it is mentioned by

The Report

of expert,

Professor

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COPYProfessor Hikmahanto in his second expert statement:

In the expert report of Professor Hikmahanto attached in the

statement of STT in the case document of KPPU, Professor

Hikmahanto emphasizes that the law on BUMN defines State-

owned Company (“BUMN”) as a corporate law which part or in

a whole capital owned by the state.

Hikmahanto

, page 2, 4(c)

exhibited in

the First

Statement of

STT

available in

the case

document of

KPPU

109. Article 1 (1) of the Law of BUMN mentions as follows:

“1. State-owned Enterprise, Further referred to as BUMN, is a corporate with its capital owned by state through direct equity of dissociated national wealth.”

The Report

of expert,

Professor

Hikmahanto

, page 2, 4(c)

exhibited in

the First

Statement of

STT

available in

the case

document of

KPPU

110. Article 1 (2) of the Law of BUMN mentions as follows:

“2. Company, hereinafter referred to as Persero, is a limited company of BUMN with its capital divided into shares owned in whole or at least 51 % (fifty percent) by the Republic of Indonesia aiming at having profits.”

The expert

Statement of

Professor

Hikmahanto

page 3, item

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COPY4(c)

exhibited as

First STT

Statement

(ii) “Grammatical” misinterpretation of KPPU toward Article 27

111. The first “interpretation” of KPPU, a grammatical interpretation.

It consults two different dictionaries but only the second

dictionary, Black’s Law Dictionary provides a term of “majority

shareholder”:

“a shareholder who owns or controls more than half a corporation’s stock”

RFI ,

Analysis,

Paragraph

10

112. AMH as a whole agrees with this definition. Nevertheless, RFI

refuses the approach arguing that there is “different type of

share”. It is possible that someone may controls more than 50%

of voting right in a company without controlling more than a half

of the same shares. Even if this definition can not be

implemented because of differentiation of share class, the reason

was that it can not be implemented if one of share holder has less

than 50% of all shares and has special right, or share holder that

has more than 50% of share, but has rights that removed. Basic

of this thing is that ‘the majority’ is not reflection of voting right.

AMH aim to highlight that its all share in Indosat is common

share that has same right with other share that belong to other

share holder, except A series share that belong to Government of

Indonesia. Because of AMH doesn’t have bigger right, this is

show that AMH can not be a majority share holder. RFI does not

cite any evidence that indicate that Temasek controls more than

RFI ,

Analysis,

Paragraph

18

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COPY50% voting right either in Telkomsel or Indosat. The content of

RFI in whatever reason is illogical. The definition wants to say

that Temasek is able to control voting rights of other important

shareholders such as the Government of Indonesia

113. Although someone approaches the definition of “majority

shareholder” in voting rights is not in the sense of amount of

shares, it must be noted that AMH remains not to hold majority

either in voting rights or in a number of shares in Indosat. Thus,

any definition applied, AMH remains to be under 50%. AMH is

only an indirect shareholder and has no voting rights in Indosat.

114. RFI ignores the fact that mostly used words in Article 27 do not

prohibit a shareholder to increase its level of “domination”.

Article 27 mentions majority ownership. Even when lawmaker

will refer to the those of concerning controlling, the lawmaker

has already conducted using simple language, for example in

Article 17 and 18 of Anti-trust Law.

” CHAPTER IV

PROHIBITED ACTIVITIES

First Part

Monopoly

Article 17

(3) Business actor is prohibited to conduct a domination to the production and/or goods marketing and/or service that can result the creation of monopolistic practices and/or unfair business competition.

(4) Business actor is suspected or assumed to conduct domination over the production and/or marketing of goods and/or service as

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COPYreferred to in (1) if:

a. the pertinent goods and/or service do not have their substitution; or

b. causes entry barrier to other business actors in the competition of common goods and/or service; or

c. one business actor or one group of business actor control more than 50% (fifty percents) of market shares in one type and/or certain of goods and/or services

Part Two

Monopsony

Article 18

(2) Business actor is prohibited to control acceptance supply or become a single buyer to the goods and/ or service in the pertinent market that possible to cause the creation of monopolistic practices and/or unfair business competition.

(2) Business actor is suspected or assumed to control acceptance supply or to become a single buyer as referred to in (1) if one business actor or one group of business actor control more than 50% (fifty percents) of market shares in one type and/or certain of goods and/or services

(iii) “Disorganized” interpretation of KPPU toward Article 27

115. The “systematic interpretation” of KPPU toward Article 27 has

created ambiguity to the concept of ‘majority’ that is able to

influence decision making in a company. For example, in its

“systematic interpretation”, KPPU tells that a share ownership of

25% is able to consider as share majority ownership because with

such an ownership it is able to veto certain decisions. This is

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COPYincorrect. It does not mean that if one party has ability to hinder

certain decision making in a company, the party is considered a

“majority shareholder” in company.

116. Further, if the statements of KPPU in paragraph 18 and 29 of RFI

are applied, it will come to illogical conclusion with the

following reasons:

(c) In the case of Telkomsel, Sing Tel (that only has indirect ownership for 35% in Telkomsel) will be considered a “controlling holder” in Telkomsel. If it is true, the “controlling holder” shall be Telkom and Sing Tel due to their positon as “majority shareholders” in Telkomsel.

(d) In the case of Indosat, KPPU is negligence to consider A series share of the Government of Indonesia in which the shares give the Government of Indonesia rights to veto certain things that require special majority.

117. Although in certain level the whole shareholders are possible to

be influencing shareholders in a company by performing their

voting rights, such an ‘influence’ is not understood as ‘majority

share’. Each of these concepts is different, and the regulation will

use one of the words to submit a different thing. RFI

intentionally brings the word “majority share” to an ambiguous

meaning that make KPPU ignores the actual meaning of a rule.

(iv) Historical Interpretation

118. KPPU admits by itself that such an interpretation is unhelpful in

defining the term “majority share”.

(v) The teleological misinterpretation

119. The interpretation of teleology of Article 27, as it meant by KPPU in paragraph 22 to 23 of RFI, is to avoid a concentration of economic power in a single entity. The test

RFI,

Analysis,

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COPYof power concentration is in paragraph 24 of RFI :

“Concentration of economic power, as it referred to number 2 above, is implemented through the centralization of economic decision making in the hand of one particular business actor. A decision can be effectively obtained if there is a real control owned by a business actor in a company. The company will implement the decisions. In the context of Article 27 of the Law No.5/1999, such companies have more than 50 % of market shares so that a control conducted by a business in it will affect to the pertinent market.”

page 63 of

RFI

120. It is seen from paragraph 47 of RFI that KPPU has already

concluded that Temasek positively control Indosat on the basis of

(i) Temasek’s ownership of 41.94% Indosat’s shares; (ii) the

rights of Temasek to nominate directors and commissioners; and

(iii) the authority of Temasek to specify the corporate policy of

Indosat. It is to be informed that the conclusion of KPPU above

is wrong and groundless for the following reasons:

121. In accordance with the statement of KPPU in RFI, the ownership

of more than 50% of voting rights aims at give a control through

its owner and it is appointed by KPPU as positive control. AMH

(and Temasek) does not have more than 50% voting right in

Indosat. Temasek only has 31% of indirect ownership in Indosat.

Thereby, it is incorrect if KPPU said that Temasek has 41.94% of

shares in Indosat. Even if it is true that Temasek has 41.94% of

ownership in Indosat (that is not true), the assumed ownership of

Temasek is still below 50%.

122. Further, it is untrue to say that Temasek has rights to nominate

director and commissioner in Indosat. Consequently, neither

Temasek nor STT can nominate directors or commissioners. Out

of 10 Reported Parties, there are ICL and ICPL that have right to

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COPYnominate directors and commissioner in their capacity as direct

shareholders in Indosat. Nevertheless, the right to nominate

director or commissioner is also available for every Indosat

shareholder Indosat that meet minimum requirement (10%) of

total shares on hand but it is not exclusively valid to ICL and

ICPL. The whole share ownership of ICL and ICPL is less than

50%, therefore their votes can be defeated and have no ability to

act unilaterally.

123. In mentioning that AMH has an ability to determine corporation

policy of Indosat, KPPU has failed at all to consider that the

Government of Indonesia (as other shareholder of Indosat) also

has an ability to influence Indosat. The majority of Indosat board

director are assigned by the Government of Indonesia (including

Managing Director) and the Government of Indonesia is a holder

of A Series Shares that give it veto right to things that need

special majority, the Government of Indonesia (KPPU's

definition) also has an ability to execute control in the significant

level to Indosat, and AMH will not be able to act in unilaterally

to determine the corporation's policy of Indosat.

(vi) The implementation of irrelevant law by KPPU

124. The first regulation cited by KPPU is the elucidation of Article

10 (4) of the Law No.19 /2003. It actually supports the opinion

that it is different between controlling concepts and ownership of

majority share. The sentences cited by KPPU are:

“The understanding of commissioner adhere in the sense of human and of corporate, both known as commissioner member and commissioner Council respectively. What is meant by certain shareholder is a controlling shareholder or majority shareholder of a limited, public and the whole shareholders of limited closed company”

RFI ,

Analysis,

Paragraph

26 page 64

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COPY125. It is not necessary to use the both phrase “controlling

shareholder” and “majority shareholder” if they are same in

meaning.

Nevertheless, they are different concept in reality, and Article 27

is limited only to relate to ”majority shareholder ” and not to

“controlling shareholder

126. Two other regulations cited by KPPU is BAPEPAM Regulation

No. IX.H.1 and Central Bank (Indonesia Bank) Regulation No.

8/16/PBI/2006 that define specifically ‘controller shareholder’

(both definition are little bit different), and not define ‘majority

shareholder’. This not at all relevant.

RFI ,

Analysis,

Paragraph

28-9 page

64

127. RFI states that there are no Laws and regulations that define

majority shareholder. It is untrue. RFI wholly ignores the

evidence cited above by Professor Hikmahanto:

RFI ,

Analysis,

Paragraph

27 page 64

(vii) The misapplication of foreign law and regulation by

KPPU

128. Concerning merger regulation, the references used in RFI are the

laws of European Union (“EU”), UK (“UK”) and the United

States (”US”) that discuss about share acquisition. It is different

with the way KPPU enforce Article 27, in this case, to punish the

existing shareholders.

129. No single law regulation in the foreign law cited by in RFI

defines “majority shares”. It is surprisingly that KPPU deviate

the foreign law in its effort to bias the actual meaning in

Indonesian laws.

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COPY130. EC Merger Regulation cited by KPPU, (a basis of UK Merger

Regulation) for example, defines ‘concentration’ and not

majority ownership.

RFI ,

Analysis,

Paragraph

30

“Without lessen the intention of Article 4 (5) and Article 22, the Regulation goes into effect to all concentrations in a sense of community dimension as referred to in this Article.”

131. A concentration is defined in Article 3 of EC Merger Regulation

as:

“A concentration is assumed happened where there is change of defense control as consequence of:

(a) merger from two or more independent and previous effort or part of effort; or

(b) Acquisition, that conducted by one people or more that has controlled at least one effort, or by one effort or more, either by effect purchasing or asset, by contract or by different way, with direct or indirect domination from all or some of a or more other effort.”

132. It is absolutely different with the ownership concept of ‘majority

share’. It discusses a merger or taking over rather than on

existing ownership and it is measured by “controlling” and not

by ’majority’ ownership.

133. Part 7 of Clayton Act in United States, another regulations cited

by KPPU, is very different with Article 27. The regulation states:

“Nobody that conduct commerce or another activity that influence commerce can acquisition, directly or indirectly, all or every part of share or other capital share and nobody that at one's feet of Federal Trade Commission Jurisdiction can acquisition all or every

RFI ,

Analysis,

Paragraph

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COPYpart of asset owned by others that also conduct commerce or activity other that influence commerce, that in line with commerce or activity other that influence commerce in any country part, effect of acquisition can lessen competition in substantial, or tend to result monopolies.”

41

134. Once again, there are two important differences. First, Clayton

Act discusses on share acquisition, and not existing ownership.

Second, Clayton Act uses the phrase ‘all or any particular part of

share’, a concept wider than ’majority share’. Concerning this, it

is ridiculous to implement regulations that sounded differently in

its effort to interpret the meaning of Article 27 of Anti-trust Law.

And so do all cases that interpret this Law will apply different

testing from the testing of “majority share”. Therefore, it is

irrelevant for the purpose.

135. KPPU shall realize that Article 28 and 29 (in Part IV of the Law

No.5) discuss on merger, consolidation and acquisition. Article

27 is found in Part III of the Law No.5 and in relation with the

existing share ownership. Nevertheless, RFI remains to make it

unclear for the actual meaning of “majority”:

(viii) KPPU has ignored the facts that the definition of majority

shares has been considered by KPPU and DPR in 2003

136. The Government of Indonesia, in the Divestment Document on

divestment process of Indosat, dated 4 February 2003, conducted

special consideration to Anti-trust Law and concluded that:

The White

Paper of the

Government

of Indonesia

on

Divestment

of Indosat

exhibited in

the First

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COPYStatement of

STT

Under Anti-trust No. 5/1999, a majority ownership in many companies that conduct common business activity is prohibited. The ownership of STT in Indosat through ICL and not a majority shareholder (less than 50% of the listed Indosat’s shares). In addition, the ownership of a Singaporean company in Telkomsel is also less than 50%. Further , Minister of BUMN is sure that the law prohibits monopolistic practices, and not majority ownership

…Telecommunications Industry is arranged tightly and operators cannot determine policies including on tariff.

(enhanced to emphasis)

137. AMH also notes that there is another important document on

share divestment of Indosat in the case document of KPPU, a

document entitling “Government Elucidation in the hearing with

“the Commission and House of Representatives” on the share

sales.

138. This is a follow-up meeting on Indosat’s shares sale. The date of

the document was 2003. The most importantly is on page 11 that

states:

“Concerning the Law No.5/1999 on the Prohibition of Monopolistic Practice and Unfair Competition, particularly Article 27 and 28 (3), it can be elucidated that STT is not a shareholder of more than 50% of Indosat’s share. While the stipulation on the Taking over in Article 28 (1) of the Law No.5/1999 has not be regulated in the Government Regulation and Government Decree. Furthermore, the Ministry of BUMN on 23 January 2003 has meet the invitation of consultative meeting with the Commission for Supervision of Business Competition (KPPU), and until present KPPU need no further information from the

The

Elucidation

of

Government

in the

Commission

Joined

Meeting of

the House of

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COPYGovernment/Indosat concerning the divestment of Indosat. Without keeping aside the information above, telecommunication industry is “highly regulated” by the Government.”

Representat

ives,

available in

the case

document of

KPPU

139. From the citation, it is clear that KPPU is not only knows the

divestment process but also firmly invited to present its opinion

whether the process infringe Article 27 or not. KPPU states that

there is no problem concerning the STT’s interests in Indosat.

Unfortunately, it has not been four years yet, KPPU takes a

different position. It shows that KPPU is inconsistent.

140. It must be noted that the participation of ICL (a subsidiary that

entirely owned by ST Telemedia) in Indosat divestment is also

approved by Indonesia Investment Coordinating Body (BKPM)

in its decision No.14/V/PMA/2003 dated 7 February 2003. By

offending to the decision of the investment at the moment, KPPU

has gone far beyond its authority. As it is expressed by Dr. Ir.

Benny Pasaribu:

Dissenting

Opinion of

Dr. Ir.

Benny

Pasaribu

“I have a notion that KPPU RI does not have the power to be competent to cancel, to take different decision, to take a legal action or to make a policy over the decision that had been taken by the government concerning the divestment of PT. Indosat, through open tender and awarded given to Singapore Technologies Telemedia (STT) in 2002. Because, the initial process of divestment was initiated by Government and the policy was a political decision of Government relating to the financial condition at that time. (Read Article 50 items a and Article 51 of the Law No.5/1999 that regulate the exemption”

141. Although AMH was absence when the divestment exist¸ AMH is

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COPYrights router of ST Telecommunications and joint venture with

the Government of Qatar. The agreement was signed by

expecting that it will be protected. By offending the investment

after the initial statement told it so, a serious problem will be

faced by Indonesia concerning the uneasiness of foreign investor

to the legal security in Indonesia.

C. There is no evidence of controlling more than 50%

market share

142. The only evidence given by KPPU about market share is in

paragraph 105 of its analysis part. The followings are the market

shares of Telkomsel and Indosat:

143. The table shows that Indosat has less than 50% of market shares

of cellular telecommunication, and the ownership of AMH is

possibly less than that. Due to the position of AMH that does not

have an ownership in Telkom and/or Telkomsel, the further

analysis concerning AMH does not need to be done.

D. KPPU does not find an evidence of dominant position

abuse

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COPY144. Professor Hikmahanto states in his first expert statement that is

presented along with the first Statement of STT that it is not an

infringement of the Law of Anti-trust simply because of its

dominant position resulted from the ownership of several

companies. The abuse of dominant position that causes an

infringement of the Anti-trust Law.

The First

Report of

Expert

Opinion,

Prof.

Hikmahanto

, page 8,

paragraph

1, in the

case

document of

KPPU has

ignored to

consider

such a

condition.KP

PU

145. According to Professor Hikmahanto, Article 27 (a) of the Anti-

trust Law shall be read on the basis of Rule of Reason of Article

27 (a) of Anti-trust Law is a part of Dominant Position and in this

case; Article 27 (a) of Anti-trust Law must be read together with

specific abuse of Dominant Position prohibited by Article 25 of

Anti-trust Law. Wide perspective reading of Article 27 (a) of

Anti-trust Law that the existence of Dominant Position merely

breaking the law lead to misinterpretation an ambiguity of Article

25 of Anti-trust Law because Article 25 of Anti-trust Law

enforced only if Dominant Position is abused.

The First

Report of

Expert

Opinion,

Prof.

Hikmahanto

, page 8,

paragraph

1, in the

case

document of

KPPU

146. Therefore, KPPU shall prove its accusations that Temasek has

obviously utilized its ownership to lessen a level of competition

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COPYin the market. Majority ownership itself is not an infringement to

the Law. KPPU shall prove the existence of dominant position

abuse. KPPU must also prove the causality between share

ownership of Temasek and accusation of lessening competition.

If the dominant position is abused, it is an infringement. It is

stated that KPPU has not proved this case yet.

147. Besides, the mandate of KPPU is only to investigate the abuse of

dominant position and not the existence of dominant position

itself.

Report

Hikmahanto

, page 8 - 10,

in case

document

KPPU

The Report

of

Hikmahanto

, page 8 to

10 in the

case

document of

KPPU

(a)) Article 4 of the Presidential Decree No. 75 /1999, a

legal regulation that limited mission of KPPU. It is

stated that the tasks of KPPU is to conduct an

assessment whether it abuses dominant position or

not, as it regulated by Article 25 to Article 28 of the

Anti-trust Law .

Presidential

Decree No.

75/1999.

Article 4, in

the case

document of

KPPU

(b))Article 1 (9) of KPPU Regulation No. 1/2006, that arrange

the Procedures of Case Handling in KPPU, states that ”An

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COPYinfringement is an agreement and/or activity of dominant

position abuse that cause monopoly practice and/or unfair

competition.”

148. The accusation of abuse in RFI is only Accusation 2

and Accusation 3, but the two accusations are

concerning the Telkomsel policy of price structure.

There is no accusation of abuse to Indosat as well its

shareholders. With the absence of the accusation,

there is no infringement to Article 27(a) of the Anti-

trust Law. Therefore, there is no basis from KPPU to

follow up the investigation.

VII. ECONOMIC AND FINANCIAL ANALYSIS

149. In this part we discuss economic analysis and finance of KPPU

and then we have a notion that:

d. The definition of market by KPU is incorrect.

e. The market is competitive

(i) The BTS Invesment is not an indication of competition

level in the market

(ii) Price charged by operator is a competitive price

(iii) The increase of concentration is not for AMH

(iv) AMH does not enjoy the expanding of market power

(v) KPPU ignores to prove that Indosat and Telkomsel compete each other.

f. The accusation of abuse by Telkomsel is not related to AMH

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COPYg. The calculation of KPPU on consumer loss is untrue.

150. As a starting point, KPPU keeps on assuming that there is

coordination between Telkomsel and Indosat that is “engineered”

by Temasek. Unfortunately, KPPU has failed to identify the

concrete incentives for Temasek to get involve to such deed.

Paragraph

2.1 of the

2CA

Report,

Annex 3

151. It is stated as well by DR. Cento in his second opinion that has

evaluated carefully RFI in his second Report. (“Report 2CA”).

AMH uses the independent conclusion from Dr. Cento as part of

its defense.

A. The Wrong Definition of Market by KPPU

(i) KPPU applies wrong definition on Market

152. RFI concludes wrongly that product market shall be limited to

GSM, excluded CDMA (wireless fixed) or fixed access. The

geographical market shall be defined as the entire area all over

Indonesia.

RFI ,

Analysis,

Paragraph 6

to 16

(Product

Market) and

17 to 21

(Geographic

al Market)

153. RFI ignores a clear expert statement that geographical market is

defined correctly as Indonesia and product market is covering

fixed wireless service (FWA). In a developing country like

Indonesia, wireless and fixed wireless is actually substituted each

The

Statement of

AMH,

Paragraph

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COPYother. The expert statement is available in Spectrum Report

presented by AMH; the Study of CSE is presented by AMH and

the Analysis Study presented by Temasek. KPPU does not

discuss the single reports in coming to the conclusion. KPPU

comes to its conclusion that market shall be treated separately.

88 to 96;

Spectrum

Report

Paragraph

2.1 that is

available in

the case

document of

KPPU

154. In checking through the case document of KPPU, AMH also

obtains a report from Institute of Economic and Social Research,

Faculty of Economic University of Indonesia (“LPEM Study”).

The study of LPEM is also used by KPPU in other part of RFI.

Report of

LPEM in

the case

document of

KPPU

155. Nevertheless, KPPU does not mention the fact that Report of

LPEM also finds an existence of competition between

technology CDMA and GSM, and the two products are

substituted each other. We cited and underlined the relevant parts

of the LPEM Report of LPEM as follow:

“Market structure in this industry is also determined by a platform used. An old operator like TELKOM develops TelkomFlexi that based on CDMA and INDOSAT with StarOne. Thereby, in cellular operator industry, CDMA and GSM competes each other to capture consumer. Such competition is called competition for market that is followed then with competition in the market. It means, determining the most used platform and then capture consumers as many as possible.

The Report

of LPEM,

Chapter 2,

paragraph

2.1 in the

case

document of

KPPU

156. The opinion is also confirmed by the team of Follow- up

Investigation of KPPU to Mr.Mas Wigrantoro (“Mr. Mas”) from

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COPYTelecommunication Community (“MASTEL”)

28. Question: In your opinion, are FWA and GSM competitor?

Answer: Yes. Within an area code. It is inconsistent in a policy, how can be FWA mobile?”

The Official

Report of

Follow Up

Investigatio

n of KPPU

to Mr. Mas

dated 25

September

2007 in the

case

document of

KPPU

157. Professor Hikmahanto states in his first expert statement:

”In determining relevant market, KPPU must conduct evidence based and logical analysis. Under international best practices, if KPPU is wrong in defining pertinent market, then its decision can be revoked.”

158. RFI has made mistake in defining market. It is defined on

baseless evidence. It is a severe fault because it influences entire

process of investigation.

(ii) KPPU has calculated wrong market share

159. If the market does not define precisely, the market share

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COPYcalculated to market player will also be different.

160. There are some permutations for calculating market shares, and it

varies along with the product (for example CDMA/GSM),

geography and set of measurement (such as revenue/a number of

customers).

161. As it is explained above, AMH does not have any control or

ownership to Telkom and/or Telkomsel that is why calculating

any part of Telkomsel’s market shares to AMH is incorrect.

162. It is incorrect to calculate market shares of AMH to Temasek for

instance, since Temasek has no influence in any form in the way

AMH manage its indirect investment in Indosat.

(iii) KPPU only takes 3 Operators in its Analysis

163. Finally, it must be noted that KPPU only calculate market shares

of three operators, reckon market share from 3 operators,

Telkomsel, Indosat and Excelcomindo:-

164. RFI ,

Analysis,

Paragraph

105, page 82

165. Nevertheless, according to Spectrum Associates there are 6

cellular operators with CDMA permit and 6 with 2G/2G permit

in Indonesian market:

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COPY

The Report

of Case

Associates,

Paragraph

3.3, in the

First

Statement of

AMH

166. KPPU does not consider market shares of the player. The

calculation of KPPU is based on the assumption that the whole

market is shared only to three players and it is wrong.

B. The Competitive Market

167. RFI develops its analysis, in part B of Analysis, on the basis of

the fact that cellular communication market in Indonesia in

reality is not competitive.

168. In the following sub heading, C to G, we discuss some facts and

arguments cited by KPPU to support its assumption. We also

emphasize a number of indicators that miscalculated by KPPU.

They are about to conclude that relevant market, even if it is

limited to cellular phone, is very competitive.

C. BTS Investment is not an indicator of competition level

in the market

169. RFI concludes that Indosat’s investment in BTS is not as

aggressive as its competitors. KPPU observes the data until the

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COPYyear of 2006 and conclude:

“Based on the above data, the growth of Indosat BTS is sluggish compare to its competitor. Actually, Indosat is in the closest position to a dominant player. The sluggish growth of the closest competitor had made dominant player optimize its market power.

RFI ,

Analysis,

Part IIIA,

Paragraph

96

170. There are important problems regarding this argumentation:-

(iii) The number of BTS station is not automatically a best indicator of competition; and

(iv) Indosat’s decision concerning the BTS investment was legal and logical.

(i) The number of BTS station is not automatically a best

indicator of competition;

171. Firstly, it is not clear whether a number of BTS stations are an

indication of competition in market. Finally, customer usually

more interests in service level from an operator than stations

amount BTS

172. The report of Case Associates is related to some competitive

indicator, and none of them used by KPPU.

173. ARPU (Average Revenue Per User) of the three main cellular

operators in Indonesia decreased significant in 2002 to 2006. It

was because of aggressive effort to develop of their basis

costumer by offering low prices

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COPY

The Report

of 1CA,

paragraph

6.4, in the

First

Statement of

AMH

174. Indonesia was one of countries that has the highest monthly

churn rate among other countries in Asia

The Report

of 1CA,

paragraph

6.4, in the

First

Statement of

AMH

The Report

of 1CA,

paragraph

6.4, in the

First

Statement of

AMH

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COPY175. Finally, if there is a monopolistic power, it has to be proved with

the high income of users, reflecting premium price that may be

imposed by abuse of such a position. However, a comparison of

Indonesia’s ARPU rates with other countries in the region shows

that it is on the lower end of the spectrum:

F ig u re 6 .9 : A v e ra g e re v e n u e p e r u s e r, Q 1 2 0 0 7

$3.58$4.00

$5.57

$6.91

$8.17$8.85 $9.09

$9.55

$15.51

$18.43

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

$18.00

$20.00

Bangla

desh

Pakist

an

Philipp

ines

Indone

sia

Russia

Thaila

ndInd

iaChin

aBraz

il

Malays

ia

S o u rc e : M e rrill L y nc h .

1CA,

paragraph

6.4, in the

First

Statement of

AMH

176. Based on these three measures alone, it is clear that prices in the

cellular market have declined since 2002, mobile subscribers

have a choice between operators and exercise this choice

regularly, and finally there is no indication that Indonesian

operators enjoy larger revenues per customer than other countries

in the region. 1CA goes even further and explores a number of

other metrics that reflect the competition on the Indonesian

market. Thus competition is alive and well in the Indonesian

Cellular Market and there is no indication whatsoever of any

abuse of market position.

(ii) Indosat’s decisions in relation to BTS investments are

legitimate and sensible.

177. Despite KPPU’s claim that Indosat is not investing sufficiently in

BTS, the data itself reflects the following:-

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COPY RFI ,

Analysis,

Paragraph

93

178. It is clear that a number of BTS invested by Indosat certainly

increase from 2000 to 2006, grew from 1,357 to 7,221. In the

absolute term, the growth of more than 5 times is not a low

investment.

179. Further, there is a powerful business reason for not extending

network carelessly. BTS is a huge investment and reduce great

profits resulted from the depreciation result big reduction to

advantage [of] a company because of its deprived measurement.

The objective of KPPU’s investigation, in one side, criticizes

Indosat for getting lower profit and on the other hand, for having

low investment. In reality, high investment produces low profit,

at least for a short term. It is explained by Mr.Johnny Swandi

Sjam the official report of Further Investigation on 14 September

2007:

”25. Question: Why did Return on equity of Indosat decrease in 2006?

Answer: In 2006, we were developing, there was high deprivation that reduced income net but after the integration was performed the net income increased. The decrease was caused by high deprivation cost from the integration.”

180. The analysis of RFI is insufficient and it ignores evidence that

Indosat planned to invest for 3,500 BTS’s in 2007:

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COPY ”19. Question: How did the procurement pattern

of BTS in Indosat?

Answer: Until 2006, we applied separated program, but we used turn-key project for BTS at the moment. It usually the development/procurement of BTS Tower are performed by vendor tower and then the radio is installed by big vendors such as Siemens, Alcatel, Ericsson, etc. Concerning that, we have been developing huge network (around 3.500 BTSs) since 2007, we decide to perform the work by turnkey project.”

The Official

Report of

Follow Up

Investigatio

n to

Mr.Johnny

Swandi

Sjam, l

181. Concerning KPPU’s criticism toward Indosat that has no

sufficient BTS so that Indosat cannot compete, It must be noted

that Indosat possesses 7,221 BTSs and other competitors such as

Hutchison thinks of being ready to compete by targeting 2,100

BTSs in 2011:-

33 Question: How many BTS have been built by PT Hutchison CP Telecommunications?

Answer: Around 1,000 BTS. We have been developing them since the end of 2005 and we target them for about 2,100 BTS until 2011.”

The Follow

Up

Investigatio

n of LPK,

dated 21

June 2007 in

the case

document of

KPPU

182. Finally, even if we continue with the assumption that (i) that the

growth of Indosat’s BTS development is low compare to its

competitor (ii) that it has a bad effect to the performance of

Indosat, KPPU has failed to explain that it is a best interest for

Temasek, with the assumption that Temasek tries maximize its

profit.

Paragraph

2.1 Report

2CA, Annex

3

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COPY183. The building of BTS is the best way maximizing operator profit,

Temasek’s interest to ensure that either Indosat and Ttelkomsel

build as much station as can, because to benefiting Temasek as in

direct investor.

184. All evidences accepted by KPPU in step of its Further

Investigation are not reflected in RFI. If the facts are included,

description will be more well-balanced that Indosat has invested

much for BTS but it is equilibrated by the investment for gaining

more profit. Indosat also has planned to expand greatly in 2007.

The addition of 3,500 BTSs increases its network for about 50%.

The absence of consideration to the important evidence has

shown that KPPU comes to its conclusion without considering

the proofs.

185. The seriousness of Indosat (as it is proved in the statement of

Mr.Johnny) on the development of BTS to boost its network is in

line with improvement of capital expenditure of the company.

D. The Price Charged by Operators is competitive price

(i) The basic measurement of KPPU is incorrect.

186. The defense of AMH is also harmed by the negligence of KPPU

to present correctly the sources of its data so that it makes it

difficult to verify and to defend. For example, there are more

than 20 detailed diagrams and in paragraph 56 to 59 in Part V

relating to cellular tariff of the operators without mentioning

sources. Concerning the accusation is on monopolistic practices

in fixing high tariff, Telkomsel in particular, it is necessary for

AMH to know data sources of KPPU. According to AMH, the

tariff is not high and it probably KPPU is making mistake in

RFI ,

Analysis,

Paragraph

56 to 59

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COPYreferring the data sources.

187. The prices cited by KPPU are as follow:-

RFI,

Paragraph

165,

188. The table is an average tariff. Nevertheless, the table is not

reliable to be a comparison because there are two tariff types,

“on-net” and “off-net”. The “on-net” tariff refers to price level

paid by cellular users who perform a call to other cellular users

within the same network. On the contrary, “off-net” tariff refers

to price level paid by cellular users who perform a call to other

network. The basic difference is in a call to other network in

which interconnection fee shall be paid. Interconnection fee is

arranged tightly by government, and service providers have less

authority on this. Thus, if significant comparison is going to be

made, the “on-net” tariff is suitable. Furthermore, there are

various discount packages offered by service providers. To

comprehend the price paid by consumer, the right basic

comparison is not based on ”on-net” tariff but the average of

“on-net” tariff paid by customer after all discounts are calculated.

(ii) The mistake of KPPU in Price Analysis

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COPY189. The KPPU tables in paragraph 97 to 101 do not show whether

KPPU compares tariff or price. Tariff is not such a price indicator

due to the discount and free minutes call offered in all tariff

packages.

190. The only fraudulence touched by KPPU referring to price is

in two following paragraphs:

“In general, the retail price of postpaid increases although its subscribers also increase significantly. From the point of view of economic of scale, a high margin growth is belonging to operators. It is an interesting phenomenon because it seems that no competition occurs to fight for consumers and to decrease price. If they are competitive companies, each company will try to decrease prices as a significant factor to fight for consumers from its competitors.”

“According to Price-Leadership Model, a dominant company plays apart in fixing price while others come after such a price-fixing. It will happen if the follower companies have no bravery to compete on price because the economic scale is not relatively competitive. Price–Leadership is a form of tacit collusion that looks like cartel to consumers with the absence of agreement between the two parties and it simply a strategy of follower company to gain optimum profit by adjusting price with dominant company."

191. There is no basis to say that there is no competition to capture

customers or to decrease price. The price change level cited

above shows a competition to grab customers.

192. The Report of Case Associate 1CA also gives an evidence to

show that there is no reason to trust that the price in Indonesia is

fixed by anti-competitive. (See pa. 46 to 64). It is not considered

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COPYby KPPU.

193. Firstly, compare to the international rate, the average price of

cellular in Indonesia is the lowest among OECD.

Report

1CA,

Paragraph

6.4 in the

First

Statement of

AMH

194. The Report of Case Associate 1CA also learns tariff changing

and general evidence of tariff competition based on the acts of

competitors are:

“Operator financial statement indicates that there

have already happened several times new price

offering refer to the level of price parameter

including new price launching, tariff fixed, starter

pack, free for registration expense, lengthening off

peak hour and other interesting offers for example

Indosat Mentari double free-talk (table 6.16).”

Evidence indicates that operator cellular is tightly

competing by to decrease price, especially starter

Report

1CA,

Paragraph

6.4 in the

First

Statement of

AMH

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COPYpacks 84 The Credit Suisse reports that in the period

of June 2004 and September 2005, there were 10 (ten)

time of decreasing price from IDR. 50.000 to IDR

5.000 for starter pack. 85

It is designed to boost a number of customers and

cellular penetration and to respond the lost customers

in the competition with other operators. Telkomsel is

reported launched new edition of starter pack called

“Sympathy 10HOKI” offered new ten advantages’ on

15 March 2005, aiming at speeding up the growth of

SimPATI and to boost up the rate of movement

(churn rate).’86.”

195. KPPU’s opinion stating that Indosat chooses to follow

Telkomsel’s price independently without any discussion

among them, Indosat remains to be accused for “conducting

collusion”. Firstly, such argument was not logically

supported. If it is true, it has nothing to do with AMH. It is a

decision made by Indosat board of director.

196. In this case, Indosat cannot compete in price with Telkomsel

without lessening its profit. It strengthen the accusation of KPPU

to Indosat that Indosat gains low profits. KPPU shall be

consistence in its accusation. One of them is on KPPU’s blame to

Indosat for imposing high price (in line with price Telkomsel) or

KPPU alleges it for making insufficient profit. KPPU cannot

accuse simultaneously to Indosat with two contrary accusations.

197. AMH has also assessed an independent report compiled by Dr

Sri Adiningsih (“Dr. Adiningsih”) dated August 2007, in the case

The Report

of Dr.

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COPYdocument of KPPU, concluding that although its industrial

structure is benefiting incumbent players, there is no indication

of collusion and price competition:-

Adiningsih,

on page 8 in

the Letter of

AMH dated

25

September

2007

“Although many new entries are entering market, the incumbent operator that have dominant position remain to have big market share either in fixed line wireless or cellular because incumbency advantage is going into effect in telecommunication industry in which incumbent has wide network and infrastructure as an advantage. Therefore, it is hard for new entries to compete in the pertinent market. Considering the geography and huge population of Indonesia that have not been served by the telecommunication service, it attracts new operators to enter fixed line wireless and cellular market. Low price is a common platform offered by new entries to capture consumers which leads then to the price war. It can be seen from the various advertisements in mass media. The new operator, tight competition makes the service vary, increasing consumers and quality of services. Under such condition, public gain advantages from the new development and competition among operators. It indicates that the market structure of telecommunication in Indonesia is tight oligopoly but price war among operators is possible to occur. The worries to the existence of collusion in this industry are invisible in the market.”

198. Dr Adiningsih also emphasizes its evidence that in reality there is

a price competition in any level among business actors:

“In other hand, tariff promotion also conducted by operator, for example PT Exelcomindo Pratama decrease its tariff for about IDR 149 per 30 second, while Simpati (PT Telkomsel) impose IDR 300 per minute for a call between 23.00 to 07.00. PT Indosat (Mentari) even gives free call about 00.00 to 05.00. It indicates that today, telecommunication industry in fixed wireless network and cellular in Indonesia is in

The Report

of Dr.

Adiningsih,

on page 5 in

the Letter of

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COPY‘tariff war’ and operators just maximize their network capacities. Consequently, tariff war remain to keep on going until network capacities are fully used (Nathan & Atmira). The recent growth shows intensive tariff war among operators through the offering of various advantages such as free roaming, the same price of inter local and local call, pulse bonus, and others. Compare to the previous condition, tariff war among operators has made the decrease of cellular tariff as it is described in Table 7. The tendency of the decrease of cellular tariff indicate that the competition among cellular operators is growing tightens.”

AMH dated

25

September

2007

(iii) The failure of presenting the relationship of high tariff with

cross ownership

199. Concerning the allegations of KPPU on excessive tariff

conducted by Telkomsel, KPPU limits only to Telkomsel, and

not to other providers. For this case, KPPU's arguments fail

prove to find the relationship between Temasek's cross-

ownership and price.

Paragraph

2.4, 2CA,

Enclosure 3

200. Dr. Cento sees the fact that it is seldom to find anti-trust

behaviour intending to create excessive price. Broader analysis is

needed more than what has conducted by KPPU. Dr. Cento

mentions that by using EBITDA and selective comparison with

other countries as a benchmark is incorrect.

Paragraph

2.4, 2CA,

Annex3

201. It is due to reciprocal evidence, affirmed in the Report of Case

Associate 1CA indicating that Indonesia is one country among

other low income countries that has the lowest cell phone price, it

is ignored by KPPU. When KPPU uses other countries as

comparison, there are no adjustment on other structural factors in

Indonesia made by KPPU that have no relation with the cross-

Paragraph

2.4, 2CA,

Annex3

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COPYownership of Temasek.

E. The Increase of Concentration

(i) The concentration measurement

202. Concerning to concentration, KPPU seems to use two different

measurement, Concentration Ratio (“CRn”) and Herfindahl-

Hirschman Index (“HHI”).

RFI ,

Analysis,

Paragraph

57

203. Such measurement is not a good choice actually because they use

common variable, market share. CRn is a total of market shares

controlled by ‘n’ topmost companies; HHI is a square of market

share for all business actors in industry. In this case, CRn and

HHI actually do not give truthfully choice of concentration

measurement. Posed at main Indication by CRn and HHI is big

market share.

RFI ,

Analysis,

Paragraph

58 to 59

204. As it is stated before that big market share will not bring

disadvantages. It happens because of its character of the industry.

The advantages appear only if there is collusion among business

actors. The only loss shown by HII is as follow:

“Oligopoly Theory that like cournot equilibrium very consistence if companies in market have big that relative same, so also have strength that relative same in market. On the contrary, Price-Leadership Model very consistent explains company behavior if there has been only one dominant company in market is... very small other company till relative powerless to vie with dominant company. In consequence, both model actually compatible used in the situation that extreme.

“In cellular telecommunication industry, each

company must establish an agreement,

RFI ,

Analysis,

Paragraph

78 to 79

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COPYinterconnection agreement with other company

(competitor). Such condition tends to open an

opportunity to conduct collusion in the fields to

which it should be a competition such as pricing,

marketing and others.”

205. It must be noted that according to KPPU, the presence of

collusion is possible to happen because of its market structure.

There is only one dominant company, Telkomsel that has the

biggest market shares. The collusion is suspected to occur when

telecommunication companies shall sign an interconnection

agreement. Unfortunately, KPPU cannot identify the evidence of

collusive behavior.

206. Indosat has no power to compete with Telkomsel relating to its

market shares. Yet, it is normal in an industry because it shows

that any parties that enter into an industry have to do the best by

itself to compete. An interconnection agreement is also normal in

an industry. The argumentation of KPPU is that Indosat is

operating in an industry as it mentioned above and the

shareholders have to responsible to the suspected infringement of

Anti-trust law by Telkomsel.

(ii) The increase of Concentration

207. KPPU performs market research and the result shows that market

concentration increase in 2002-2006. It occurs due to the

improvement of HHI and GHHI. Unfortunately, AMH cannot

analyze the accuracy to the measurement of HHI and GHII

because KPPU does not state the data source, raw and proceeded

data. In this part, we refer to the KPPU’s statistic data but it does

not mean that we agree to the result of the analysis.

RFI ,

Analysis,

Paragraph

104 to 121.

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COPY208. Arguments of KPPU can be summarized as follows:

The values of GHHI, annually tended to increase in the cross ownership period, vividly provides a conclusion that cross-ownership have brought a structure of cellular industry to be getting concentrated. It is disadvantage to fair compatition. The increasing of concentration will boost tor oligopolistic structure.

RFI , Part

IV,

Paragraph

122

209. KPPU states that there is a similarity between the period of cross-

ownership and the increasing of GHHI. The cross ownership has

increased GHHI. Such an opinion is hard to understand. At the

same period, the Government of Indonesia had also ownership in

two companies.

210. HHI is controlled by market share and it will be seen that the

only market player that increase within that period was

Telkomsel:

RFI ,

Analysis,

Paragraph

105

211. It means that the increase of HHI does not relate to Indosat. The

increase of HHI was controlled wholly by the market share of

Telkomsel. In reality, the contribution of Indosat to HHI actually

decreased from 8888 in 2004 to 465 in 2006.

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COPY

RFI , Part

IV,

paragraph

109

212. If Indosat does not give any contribution to the enhancement of

HHI, the shareholders cannot be entangled in any way to increase

this HHI.

213. The most important thing is that KPPU has ignored confirmed

evidence that AMH plays insignificant roles in the major

decision of Indosat and its agenda Control much Indosat by

board of director and commissioner Indosat. (See the evidence

from Mr. Roes Aryawijaya). If the illogical conclusion is trusted,

the Government of Indonesia is the only party that is responsible

for it

(iii) The level of concentration is placed in one perspective

214. Finally, the high intended concentration numbers must be placed

in its perspective. The Report of Case Associate 1CA has

underlined that the market shares combined of Telkomsel and

Indosat equal to matured markets in Europe and the different

phase markets in Asia.

The Report

of Case

Associates

of 2CR in

paragraph

2.5, Annex 3

215. The mature markets, as in Europe, it usually has biggest operator

controlling for 40% of all customers, and in most matured market

in Europe, it reaches 80%. The second largest operator in this

The Report

of Case

Associates

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COPYcountry has 20% of market shares or less. of 2CR in

paragraph

2.5, Annex

3

216. It also happens in Asian developing markets. In China,

Philippine and Korea for example, the biggest operator have

more than 80% of market shares. In Thailand, Bangladesh and

Malaysia, the two biggest operators have more than 70% of the

market shares combined.

The Report

of Case

Associates

of 2CR in

paragraph

2.5, Annex 3

217. It indicates that a high HHI is caused by the structure of the

industry itself. Although it is probably a little bit pushed by

cross-ownership of Temasek to Indosat and Telkomsel, it tends

to structure than industry itself.

(iv) The use of HHI Generalized

218. KPPU also uses GHHI to equip its HHI's based analysis. The

main difference between the two measurement is that GHHI

considers market concentration

2 CR,

Paragraph

3.1, Annex

3

219. Therefore, the main problem of measurement is the difficulties of

measuring correctly the control reflection of shareholders to a

company. The equation in RFI uses an assumption that control is

measured by the principle of “one share one vote” and based its

assumption on the shares predicted to be owned by Temasek but

it opposes with the fact that the Government of Indonesia has

shares with special votes in Telkomsel and Indosat that giving

the special control in both companies.

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COPY220. The main criticism of Dr. Cento to the GHHI is that GHHI fails

to calculate the definition of law and institution that determine

the real control. Therefore, the other dimension given by this

measurement to HHI that usually has doubted values.

F. Market Power Improvement

221. On items 154 up to 171, KPPU analysis of market force

improvement, as it is measured from improvement EBITDA.

Again, without existence of explanation on how data “to

process”, AMH is harmed without can pass an opinion to the

accurate calculation or data extraction that presented by KPPU

222. The first Problem is that Indosat is business that diversified,

where Telkomsel and Excelkomindo focus at cellular services.

That is why, EBITDA numbers for Indosat express EBITDA

from its all businesses, that is junction fixed, cellular, wireless

junction and MIDI, whereas numbers of Telkomsel and

Excelkomindo will only express cellular business. If this

numbers used as the comparison, the comparison will not be

accurate. In this case, statement of KPPU that EBITDA of from

cellular operators always exceed 50% it is not accurate entirely,

as elementary from unequal comparison.

223. It must be noted that Dr. Cento has underlined that EBITDA

could have limited value in comparing to operators profitability.

It is various depend on the maximum phase that companies stay

in its investment cycle, and tend to be higher in the developing

markets where investors ask higher capital return for their

investment. Therefore, relying only on this numbers is wrong.

The Report

of Case

Associate

2CR,

Paragraph

3.4, Annex 3

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COPY224.

Arguments of KPPU can be summarized as follows:

”The high market power that is suspected caused by concentrated structure because of cross-ownership can be addressed by some indications. For example the height of the rate of profit margin measured by EBITDA. The high selling price compared to other country, and the difference of the selling price and expenditure cost.”

RFI, Part

IV,

Paragraph

154

225. KPPU thinks that if operators obtain high EBITA, it

automatically the profit gained is also high and the profit is

higher compare to other countries

226. The argumentation of KPPU on EBITDA is incorrect. KPPU

assumes that EBITDA is a good measurement to count profits.

EBITDA is earning before Interest, Tax Depreciation, and

Amortization. Profits represent what a company has gained after

all costs are calculated while EBITDA does not calculate costs at

all.

227. KPPU ignores to calculate deprivation in fixing profit rates.

Indonesia is a huge country and many BTS shall be built to have

sufficient network coverage. A BTS reflects huge investment and

it has to be calculated to find the deprivation in order to calculate

company profits rate.

228. The most important differences between EBITDA and profits

have been clearly explained by Hasnul Suhaimi, the Managing

Director of Excelommindo during KPPU’s Follow up

investigation.

15. Question: How is your opinion about excessive profit

gained from the high tariff? The

Investigatio

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COPYAnswer: Cellular industry is developing faster. I am

sure that the cash flow of each operator is still

negative. The only positive cash flow is Telkomsel for

its USD 1.5 billion investment. The cash flow of XL is

negative due to its 3 trillion investments. In 2007 for

example, EBITDA of XL was 3.3, while our

investment was 6.3 trillion. It is long-term investment

of XL. It is not a beautiful as people thought. I wonder

why many operators enter cellular market in Indonesia.

n Official

Report

Hasnul

Suhaimi

terdate 9

August

2007i in case

document

ofKPPU

the

Investigatio

n Official

Report

Hasnul

Suhaimi 0nl

9 August

2007i in case

document of

KPPU

229. The expensive investment in BTS stations causes negative cash

flow. The profits seem to be high if it is calculated from

EBITDA, and it is misleading. The substantial cost invested in

this business is in the development of BTS, and it is carefully

calculated by investor. Excelcomindo clearly states that its

investment “is not good as it is thought”. It shows that KPPU

suggestion to Indosat, for building BTS in order to be able to

compete, is not a wise suggestion. Once again KPPU has ignored

to consider the evidence in its RFI.

230. KPPU states in paragraph 162 of RFI:-

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COPY ”The high values of EBITDA in the cross-ownership

period that is always above 50% indicating that business actors in telecommunication service industries have big market power. The market power owned are for creating monopolistic advantages that exceed double than the costs.”

RFI,

Analysis ,

item 162

231. Such a statement is groundless because (i) the EBITDA margin is

based on inconsistent input among business actors, (ii) there is no

reason to state that 50% of the EBITDA margin indicating

“sufficient” market force (iii) there is no measurement of

monopolistic profit (business income) as it is explained above.

232. In consequence, the conclusion of KPPU stating that there is

excessive profit in the mobile cell phone sector in Indonesia

groundless. At least, KPPU ignores to reckon two important

factors, depreciation and normal profit, the two factors reckoned

prior to conclude that business income available in an industry.

G. The allegations of an abuse by “Telkomsel”

233. In item 172 to 189, KPPU discusses market force of Telkomsel

and its abuse allegation. The market force of Telkomsel is seen

from the height of EBITDA (the mistake of this analysis has been

explained above).

234. Initially, we will show that Mr. Roes Aryawijaya in its meeting

with KPPU on 19 July 2007 state that the performance of Indosat

is getting better after the investment of STT in Indosat.

Therefore, Indosat cannot be sacrificed for Telkomsel.

The Meeting

Report of

the Ministry

of BUMN

on page 4 of

the case

document of

KPPU

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COPY

47. 47. Question: Which company performance is better, before or after the purchasing STT in Indosat?

Answer: For EBITDA, it was 53% before and 57 % after acquisition. The increase of EBITDA margin is supported also by the technological development of MIDI.

235. Other big Allegation is that Telkomsel has used its market force

for “hinder” the competitors, specially by misuse offer strength

that the of referring to interconnection expense

The RFI,

Analysis,

part IV,

item 185 to

189

236. It was not have connection with Indosat. It explained clearly in

KPPU’s interview with Mr. Lioe Phan Koen, General Manager

of ICR of PT Hutchison CP Telecommunications

(“HUTCHISON”)

1. Question: According to the information we have, initially

PT Hutchison CP Telecommunications find interconnection resistance? Answer: Yes, but it has already finished by the mediation of BRTI.

2. Question: Would you tell me more detail? Answer: When we would have an interconnection, we had to sign an agreement that must be approved by BRTI. The rules on interconnection should be done by fulfilling certain requirements such as 48 ERL for its traffic.

3. Question: Is the requirement made by incumbent company? Answer: Yes, the requirement is made in its DPI by incumbent company.

4. Question: As long as the requirement is wholly conducted, there will be no new entry operating? Answer : Yes.

5. Question: So, is it impossible for new business actor or companies to pass the requirement? Answer : Yes.

6. Question: Do you think that the requirement constraint new business actors? Answer : Yes.

7. Question: Does the requirement have a technical justification?

Of follow-up

investigatio

n to LPK

date 21 June

2007 in case

document of

KPPU

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COPYAnswer: There is a technical quantification but actually there is no single business actor is able to fulfill it. As long as I know, there is no such a requirement in Ministerial Decree.

8. Question: So, if the requirement cannot be fulfilled the interconnection is not approved?

Answer: It does not mean that it is unapproved but delayed until the business actor fulfills the requirement.

9. Question: Do all incumbent operators require such a requirement? Answer: Such a requirement is asked by PT Telekomunikasi Selular and in my opinion XL also leads to the same policy as it is done by PT Telecommunications Cellular.

20. Question : How about Indosat ?

Answer : Indosat does not require such requirement .

237. Involvement Indosat has been in clear denied by Hutchinson in

an interview that conducted by KPPU. Although, KPPU not only

already negligence to load this important evidence in RFI , but

KPPU even fixed with its argument that abuse that conducted by

Telkomsel must be in anyway controlled by Temasek crossed

ownership allegation.

H. Inaccuracy of consumer loss quantification

238. In paragraph 205 to 213 of RFI, KPPU states its argument that

Temasek crossed ownership has caused consumer loss. But

KPPU didn’t mentioned numbers of consumer loss.

(i) Inaccuracy of theoretical approach

239. The main basis used by KPPU in measuring consumer loss (in

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COPYparagraph 190 to 200 of RFI) is to use other countries prices as

benchmarks and the Report of LPEM FE UI (in paragraph 201 to

203 RFI).

240. The first problem is whether the theoretical approach

implemented to determine consumer loss is true or not. The

report of LPEM uses framework of ‘Structure-Conduct-

Performance’ (“SCP”) as an analysis and it is one of Report used

by KPPU to quantify consumer loss.

Report of

LPEM in

case

document of

KPPU;

RFI,

Analysis,

paragraph

201.

241. According to the Report of LPEM, the task is to:

“Analyze Structure-Conduct-Performance cellular telecommunication sub-industry in Ind

onesia.”

Report of

LPEM,

paragraph

1.2, in case

document of

KPPU

242. The model is criticized internationally by Chicago School of

Economics. Dr. Adiningsih writes a newly report on it and we

cite as well. The report analyzes theoretical approach in the

context of our case.

The opinion

of an expert

Dr.

Adiningsih,

Enclosure 4

243. According to theory of SCP, the industrial structure will form

business actors’ conducts that influence later to their

performances. It is a theory benefiting regulator because it

expresses that industrial structure is not perfect. Like in

oligopoly, the players probably conduct collusion which gives

The opinion

of an expert

Dr.

Adiningsih,

paragraph

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COPYthem super- normal profits (known as business income or

monopolistic profits) but causes consumer loss. This theory is

usually used to support a proposition that a presence of economy

is a presence of economic loss. In this case, the conclusion of

KPPU that high EBITDA claimed by cellular operators is a proof

of their market shares (paragraph 162 RFI) is based on this

theory.

2.1,

Enclosure 4

244. This Theory has been criticized sharply by Chicago School with

the reason that in many industries, what is described as

‘monopolistic profit’ is usually a company that enjoys efficiently

competitive excellence over the less efficient producers. In

reality, such companies cannot use their power to fix real price

due to competitive treatment. Such a company shall keep on

innovating to make it a leader. In this case, there is no ‘real

wealth loss, because all companies get ‘normal’ profit and not

‘economic’ profit.

The opinion

of an expert

Dr.

Adiningsih,

paragraph

2.1,

Enclosure 4

245. Dr. Adiningsih compares a great number of price and non-price

competitions among player, and concludes:

• The liberalization of telecommunication industry has

brought to a dynamics business competition in cellular

phone industry in Indonesia. The tight competition leads

to price war directly and indirectly (converted). Such a

price competition, for a long term will direct to perfect

competition balance, or more known as Bertrand balance.

• In addition to price competition, competition is also

tightening by the developing of innovative product. The

tight competition results to intensive promotion and the

changing of life style. It creates then a need of mobile

phone for the consumer who previously does not need it.

Therefore, the consumer develops faster and market scale

The opinion

of an expert

Dr.

Adiningsih,

Part

Conclusion,

Enclosure 4

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COPYbigger than those of other countries.

• The monopolistic structure does not always produce

welfare loss. Monopolistic market with high potential

entrant pressure could perform like a perfect competition

market. In this case, some indicators show that industrial

structure of cellular market in Indonesia tends to be

directed to contestable market structure. In such market

structure, this Structure known by the name of contestable

market structure. In such market structure, the

government's duty is to keep market access open as wide

as possible. Besides, the Government needs to evaluate

any producer strategy, using rule of reason approach.

246. KPPU does not seem to have ever considered the mistake of the

theory. By assuming market shares per se shows that there is

consumer loss. It is absolutely possible to consider that the

market is ‘contestable market’, then there will be no consumer

loss produced since there is no single player is able to influence

price significantly. Dr. Adiningsih has a notion that Indonesian

cellular market has such kind of characteristic. The evidence,

either mentioned in her Report or the Report of Case Associates

1CA and 2CA, are taken from public sources and it supports the

statement.

(ii) Inaccurate calculating method

247. The starting point of KPPU is to determine correctly contra-

factual problems. The problem has to consider possible market

structure to prospectively exist without a cross-ownership of

Temasek.

The Report

2CR,

paragraph

2.2,

Enclosure 3

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COPY248. The first assumption of KPPU in its calculation is that without

Temasek’s cross-ownership, the price tends to decrease to the

competitive level. Yet, the assumption is not accurate if the main

actor of the claimed unbalancing is the market structure itself

The Report

2CR,

paragraph

2.2,

Enclosure 3

249. The second mistake is to identify consumer loss exactly, liable to

the conduct of claimed anti-competitive. The accurate data to

exercise is to calculate exactly consumer loss (an it depends on

contra-factual, and not merely price in other market) and put it

into which part of consumer loss caused by cross-ownership and

the imperfect of other markets (such as market structure) and

other abuses (such as anti-competitive pricing by Telkomsel as it

is alleged). As it is underlined by Dr. Cento, this is an analysis

that is backed up by part of abundant data that is not included by

KPPU in RFI .

The Report

2CR,

paragraph

3.4,

Enclosure 3

250. Finally, the method used by KPPU, to compare price with other

market in Asia, has been criticized by Dr. Cento. It includes:

• assuming implicitly that the differences between

fixation of price and actual price (keeping aside the

problem in its calculation) can be wholly liable to the

cross-ownership of Temasek (that is not a problem

here );

• ignoring facts that omitting Temasek’s cross-

ownership will not omit excessive price in the

market that remains to be very concentrated; ;

• ignoring facts, that interconnection costs or termination

will be influenced by the changing or ownership because

it depends on the ending of monopoly.

The Report

2CR,

paragraph

3.5,

Enclosure 3

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COPY• Hereinafter, the prediction of consumer loss is very

controversial. It because KPPU does not adjust different

factor in the countries used as bench mark. The Analysis

of KPPU assumes:

• that demand in all comparative countries is the same as in

Indonesia . It is not realistic due to the difference rate of

income in that countries;

• that the cost to provide cellular telecommunication in

all countries are the same. Again, it is not realistic

due to the different step of the establishment of

network in any countries.”

251. Further, it depends on the estimation of market elasticity on

demand, by assuming that the supply and demand condition in all

comparative countries are equal to Indonesia. It includes the

assumption that the cost of provide cellular telecommunication

service in the comparative countries are equal to Indonesia.

The Report

2CR,

Paragraph

3.5,

Enclosure 3

252. The approach using the Report of LPEM is questionable. Based

on paragraph 1.4, in the research methodology:

“Starting from a hypothesis that a tariff of cellular phone service (GSM) in the market structure of national telecommunication service market is higher than it should be, it is suspected to be a consumer loss.”

The Report

of LPEM ,

case

document of

KPPU

253. The Report of LPEM is started with a premise that there is a

consumer loss. Further, the report uses SCP framework to

explain the loss that is predicted to exist. The fact, the report does

not describe contra factual approach to which price in Indonesian

market, and the conclusion cannot be used as a precise prediction

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COPYon consumer loss. The Head of LPEM FE UI comments on this

that is cited in part VIII below.

VIII.

THE INFRINGEMENT TO THE LAW

254. AMH also finds some important evidences in the case document

of KPPU concerning the termination of report by FSP BUMN in

which it is not discussed or mentioned in the report of KPPU.

The termination of report by FSP BUMN is initiated by Arief

Poyuono, the chairperson of FSP BUMN. The letter to KPPU is

about the worries, truth and integrity of the whole investigation

of the case.

A. The investigation of KPPU is stained

255. The most worry is the statement of Arief Poyuono in the meeting

with Suharto, an Altimo’s representative, describing that the

investigation process of KPPU is influenced by Altimo:

“1. That in the beginning of April 2007, the Chief of United FSP BUMN with his Attorney-in-fact met Suharto (Regional Director Strategic & Business Development of Altimo Central and South East Asia) at the office of Suharto in Wisma GKBI at Jalan Sudirman Jakarta. There were some thing come out from the meeting:

-That Suharto asked the Chairperson of United FSP BUMN to cancel press conference plan on the withdrawal of United FSP BUMN’s report to KPPU.

-At that moment, Suharto called someone, Muhamed Iqbal (the Chairperson of KPPU) and ask the forming of Preliminary investigation team. Suharto prefers Nawir Messi to Benny Pasaribu as the Chairperson of Preliminary Investigation

The letter of

FSP BUMN

to KPPU

date 18 July

2007

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COPYTeam.”

256. It is unusual that Follow-up Investigation Report does not discuss

the evidence that directly questioning the partiality and integrity

of the investigation. Surprisingly, when the document appears

from the Reporting party that its report starting this

“investigation”.

B. KPPU keeps on continuing the investigation although

the report has been withdrawn

257. It must be noted also that in the different part of the letter, the

affirmation of STT is stated that KPPU continues its

investigation long after the report is withdrawn.

258. FSP BUMN submitted the report on 18 October 2006 and the

report is accompanied by two additional reports on 17 November

2006 and 22 December 2006.

259. According to Anti-trust law, in 30 days since the acceptance of

the report, KPPU is obliged to specify whether the investigation

must be conducted or not. The period has to end on 30

November 2006.

260. According to Article 43(3) of the regulation of KPPU, the step of

Follow up investigation must be finished in 60 days since the

acceptance of the report and it is possible to be extended for the

30 days to come.

261. However, as it is known that RFI is issued on 3 October 2007, a

year after the early report.

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COPY C. KPPU has constrained the defense of AMH

(i) AMH is not given a chance in the Preliminary

Investigation

262. KPPU also has constrained the efforts of AMH to advocate

during investigation process. It was started when AMH was

summoned for the first time for a session in the Further

Investigation on June 2007, without any Preliminary

investigation at all previously.

263. Based on Article 1, Item 14 of the KPPU regulation:

“Preliminary investigation is a couple of activity that conducted by Preliminary investigation team to report the suspected infringement and to conclude whether Follow up Investigation needs to be performed or not.”

264. Therefore, based on the Regulation of KPPU, the Preliminary

Investigation shall be performed in order to decide whether

Follow up Investigation shall conducted or not for our client. Our

clients are not given a chance to get involved in the Preliminary

Investigation so that their important rights have been neglected.

The rights to mentioned are:

c) To have the result of Preliminary investigation (Article 34

of KPPU Regulation)

d) To inform the mistake and to be given opportunity to

changes its behavior before stipulating Further

Investigation (Article 29 paragraph (2) of the Regulation

of KPPU)

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COPY265. The negligence of the rights of our client has resulted to the

important implication of AMH. Firstly, AMH has no information

concerning the allegation to AMH prior to be a party in the

Further Investigation. Secondly, it means that AMH has no

opportunity to discuss special deed KPPU wants from AMH.

Thirdly, AMH shall be displayed evidences that are owned by

KPPU in order to make AMH write appropriate defenses.

(ii) AMH is not given a suitable access to observe the case

document of KPPU

266. The case document of KPPU consists of many materials needed

by AMH to be learnt in order to be able to advocate correctly. It

is important because the RFI intentionally eliminates or not

discuss all relevant evidences that there is no infringement to

Article 27.

267. In this case, AMH objects strongly to the procedure used by

KPPU to in refusing to the material in the case document of

KPPU. It has been submitted to KPPU on 27 September 2007.

268. It can be seen clearly in Article 65 paragraph (2) of KPPU

regulation that our client should be given a permit to scrutinize

the evidences from KPPU in each step of investigation:

“In any step of investigation and the session of Council Commission, the Reported Party is entitled to:

e. scrutinize evidences used as the Investigation Summary.”

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COPY269. On the contrary, KPPU refuses the request of AMH on 20 July

2007 to give an access to case document of KPPU by stating that

AMH is only permitted to see case document of KPPU in the

step of “Final Investigation”. Even if the opinion of KPPU is

correct (in which we cannot accept it), KPPU ought to consider

that there are many documents that shall be learnt, therefore

KPPU must give enough time to AMH.

270. The situation is worsened by the fact that KPPU has summarized

its Further Investigation on 27 September 2007 and KPPU

delivers it to AMH on 3 October 2007. KPPU finally permits

AMH to study the evidences in case document of KPPU on 5

October 2007 for only 2 hours. Further, upon our request KPPU

then permits AMH to check its document for 2 following day.

But there were no access toward document that that was given

after, although there were request from us.

271. The situations in which AMH is permitted to study the case

document of KPPU shows that KPPU is not serious in giving

opportunity to AMH for advocating itself.

(f) Firstly, the evidences are huge in number. The evidences

consist of 4 document boxes and 17 document folders.

Most of the documents are written in Indonesian. All

Reported Parties (unless Telkomsel) are foreigners,

therefore the documents shall be translated and give it to

clients before giving instructions concerning to the case.

(g) Secondly, the access to the case document of KPPU is

passed on the dates on the eve of Idul Fitri that make it

impossible to find translators.

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COPY(h) Thirdly, most of the evidences are related to economy and

law. The expert consultants on anti-trust and economy are

needed in order to have AMH comprehend contain of

KPPU’s case document.

(i) Fourthly, AMH asks an access to certain documents

mentioned by KPPU in its footnotes of the report. The

documents are articles from journal (for example

Tinjauan terhadap Holding Company, Trust, Cartel and

Concern by Hashim Purba) and the passages of other

textbook (for example UK Merger Control: Law and

Practice). However, KPPU refuses to give access to

AMH by saying that there are ‘public document’.

Although AMH can find documents is if there are much

times, AMH does not see the reason of KPPU to refuse a

direct access of AMH, unless to lessen the available time

of prepare its defense.

(j) Finally, STT cannot translate the whole documents

because of the limitation of time, and KPPU refuses to

give opportunity to AMH to defense further after 2

November 2007. There is no reason for KPPU to confine

the Reported Party to check the case document.

(iii) KPPU has collided with the obligation of keeping the

confidentiality

272. AMH also very worries to the fact that some members of KPPU,

including its Chairperson have informed journalists that the

Reported parties are responsible prior to hearing to the defense of

the Reported Parties. It violates KPPU’s Ethical Conduct and the

deniable to the justice of the Reported parties.

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COPY273. Since the investigation is started, the open statement of KPPU is

public consumption, and all express its opponent to STT and

other Reported Parties.

a. On 6 February 2007, in Investor Daily dated 6 February

2007, the Chairperson of KPPU stated:

“Today, there are many indication of unfair competition in telecommunications sector, crossed ownership as an example. It is proved that telephone tariff in Indonesia at this time is more expensive than Singapore and Malaysia.”

b. In article Harian Rakyat on 24 April 2007, Iqbal stated :

“There is a lot of indication on unfair competition in telecommunications sector, cross ownership as one of example. Telephone tariff in Indonesia at this time is much more expensive compare to Singapore and Malaysia.”

19. On 24 May 2007, the Chairperson of KPPU told journalist

that KPPU have found “lack of competition between Telkomsel

and Indosat”. Even, all statements are made before any

information to Temasek concerning investigation conducted to

Temasek.

a. On May 2007, Nawir Messi, Vice Chairman of KPPU

told Reuters that KPPU has “strong suspicions to bring

this case to a higher investigation level.”

Article

dated 6

February

2007 from

Investor

Daily,

Enclosure 5

Article date

24 May

2007 from

Agency

France-

Press in The

First

Statement of

AMH

Article date

7 June 2007

from

Business

times in the

First

Statement of

AMH

274. The statements to journalist oppose Article 5 (4) of KPPU’s

Decree No. 8/KPPU/Piece/XI/2000 on ethical conducts and

Ethical

Conduct

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COPYworking mechanism KPPU: and

Mechanism

of KPPU

Enclosure 6

“The Commission Member is prohibited to give information to the public because it is able to influence the decision of Commission over the case that is being handled.”

275. The statements of KPPU to journalist is premature and able

influence KPPU’s neutrality that is in charge to decide a case.

276. In fact, even Dr. Ir.Benny Pasaribu, a team member Follow up

investigation has questioned a legitimization of the legal process

and hesitated RFI:

1. In an article of Seputar Indonesia on 24 October 2007, a former

Chairperson of KPPU, Sutrisno Iwantono states that in this case,

“monopoly is not proved because the share ownership is less

50%.”

2. An article in Antara News on 25 October 2007, a member of

Commission VI of House of Representative (DPR), Hasto

Kristianto reacted to the “strong controversy related to the decision

of KPPU” and the process of KPPU is not “transparent”and had

potential to threaten the climate of investment.

3. In article in Ekonomi & Bisnis on 25 October 2007, a

member of Further Investigation team, Dr. Ir. Benny Pasaribu

states that the substance of RFI is “irrelevant and not rely on

the objective idea.” He also comments that the procedure of

KPPU “is not favourable” and questions the premature

statements of KPPU to media.

Article

dated 25

October

2007,

Enclosure 7

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COPY D. KPPU does not investigate Evidences

277. We are worrying to the objectivity of KPPU investigation from

the beginning. We are considering the reports in some media

referring to RFI that make us hesitate to the objectivity of the

team.

(i) KPPU is negligent to scrutinize the study conducted by

LPEM

278. One of the studies cited by KPPU is a study conducted by LPEM.

KPPU relies on the measurement of LPEM concerning consumer

loss.

279. It is interesting to note that the head of LPEM has publicly

inform that the proof of Oligopoly is very weak and need deeper

study on the structure of company cost prior to come to the

conclusion:

Commenting to the price rate in Indonesia as a second

highest in Asia, he said that international comparison is

hard to perform due to the different cost structure of each

country.

The Head of LPEM-UI, Chatib Basri, agrees that it is hard

to compare due to its complexities.

“I know other research concluding that comparing to other

countries in South Asia, our price is higher. Nevertheless,

the problem is not as simple as that because we have to

quantify its cost structure and economic scale," he said.

Chatib tells that the find no price fixing conducted by

industrial actors although it is reported by media.

Article

Jakarta Post

date 24

September

2007,

Enclosure 8

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COPY280. In one of public forum, he also abolished the view that LPEM

report supported the view that there is co-operation between

Indosat and Telkomsel. He also criticize the way KPPU omitted

some significant substances in summarizing the report of LPEM:

“In his opinion: currently the sentence used from executive summary is “an indication of tariff uniformity is an early step to identify price fixing". But, there is another sentence following it, “nevertheless, it does not identify price fixing". The last sentence is omitted by KPPU.”

“Chatib explains that similar tariff pattern is not always interpreted as price fixing or collusive result. In the United States, the price fixing independently, unilaterally, and considering consensus parallelism is not assumed as Antitrust. .

Therefore, he affirms that statistic movement of mobile tariff between Telkomsel and Indosat cannot be concluded as cartel of the two companies.

The similar tariff Movement is possible to occurs due to the competition in the industry, so that it shall be seen carefully whether Telkomsel and Indosat formulating cartel tariff in telecommunications industry,” said Chatib in the public discussion entitled “Enforcing Business rule in the Globalization Era: The Case of Telecommunications Sector in Indonesia” in Centre for Strategic and International Studies.

Chatib admit that he does not know why KPPU comes to such a conclusion. “We do not for sure conclude that there is price fixing (or cartel) conducted by both company," he said.”

An Article

in tempo

date 20

september

2007

281. KPPU cites the report without entering qualifications made by

the Head of LPEM FE UI. Particularly, one of KPPU’s

conclusions that the tariff similarity supports the suspect that

there is cooperation. In the assumption of KPPU, quantifying

consumer loss through the practice in other countries is valid.

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COPYTherefore, such propositions are those qualified by the

Chairperson of KPPU.

(ii) The criticism of Dr. Ir. Benny Pasaribu to the Further

Investigation

282. The severe criticism from Dr. Ir. Benny Pasaribu is on the

appropriate investigation. There is an obligation among members

for not discussing the investigation openly but the Chairperson of

KPPU breaks it by informing to mass media:-

Article

Antara

dated 25

October

2007,

Enclosure

10

“He also questions the attitude of the Chairperson of

KPPU for frequently exposed it to media, as if there has

been guilty parties.

Benny said that the result of the meeting agrees for not exposing publicly before there is a decision.

283. Intentionally, KPPU seems to backdates its report to make it as if

fulfill the regulation of KPPU although the fact is the opposite:-

“He said, in other hand conclusion making has been done beyond permitted boundary. Nevertheless, after the conclusion is agreed, the date of the conclusion is backdated. “Judicially, it is forbidden. The same goes for the forming of Commission Council, in which it is also backdated.”

284. If it is true, such dishonesty is worried. The dissenting opinion of

Dr. Ir. Benny Pasaribu is not backdated. It was 29 September

2007 or the deadline.

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COPY285. Finally, it is seen that the members of Further Investigation has

no enough time to observe the evidences:

“Benny said that the discussion of RFI is limited. Due to the limitation of time, the members of RFI only revise the draft of the conclusion. “In my opinion, the substance is irrelevant and no objective rationale. It is better for me to have dissenting opinion than to revise and sign it.”

286. The comment of Dr. Ir. Benny Pasaribu affirms several of

worries of AMH such as a suspicion to its members, especially

Chairperson of KPPU for not conducting properly. The team of

Further Investigation does not consider objectively all evidences

submitted to them during Follow up investigation.

287. E. KPPU has treated AMH discriminatively

288. Finally, it must be noted that KPPU treats AMH discriminately.

It is seen in the way KPPU interpret the phrase “majority” differ

from its allegations to Sing Tel in one side and AMH on the

other.

289. Referring to SingTel indirect ownership in Telkomsel, 35%,

KPPU has an argument that SingTel conducts ‘negative

operation’ for enabling them to restrain certain decisions that

require special majority approval although their shares is less

than 50%.

RFI,

Paragraph

46

290. Nevertheless, if the testing of ‘negative operation’ is misused to

Indosat, it is clearly then that through ” Dwiwarna Share”, the

Government of Indonesia also is able to “restrain” important

decisions requiring majority approval. If we apply “negative

operation” parameter, the Government of Indonesia ought to

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COPYbecome majority shareholder of Indosat.

291. Concerning Indosat, KPPU thinks that Temasek has ‘positive

control’ because Temasek has 41.94% of shares while other

shareholders that purchase the share in public stock exchange

have no power to act collectively.

RFI ,

Paragraph

47

292. Nevertheless, if “positive control” parameter applied in the case

of Telkomsel, Government of Indonesia should be the majority

shareholder in Telkomsel with its 65% of shares and has stronger

power to act collectively rather than SingTel.

293. The clearest indication of the discriminative behavior is in the

implementation of different benchmark of justice to different

parties. KPPU has been wrongly applies law just for getting a

conclusion that “Temasek” is a majority shareholder in Indosat

and Telkomsel. But, if KPPU tests it correctly, it will come up

with the conclusion that the Government of Indonesia and

Telkom are the majority shareholders of Indosat and Telkomsel.

In fact, there is only Temasek that is being investigated and not

the Government of Indonesia or Telkomsel. It is a clear

indication of discriminative treatment.

IX. CONCLUSION

294. The biggest problem in RFI of KPPU is:

i. The failure in quoting and showing proof that could be

accessed but went conversely towards the case against AMH

and other Reported Parties.

ii. KPPU does not consider factual evidence

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COPYiii. Law distortion occurred again.

295. The unconsidered evidences are very important and the brief

summary on our defense statement, based on the evidences shall

be as follows:

(f) There is no Temasek Business Group. (Part V)

(g) The substances of Article 27 are not fulfilled. KPPU does

not apply Article 27 properly. (Part VI)

(h) Minister of BUMN has consulted KPPU on 23 January

2003 on the early divestment and other things referring to

the implementation of Article 27. At this time, KPPU

does not have right to question again the divestment.

(Part VI)

(i) The business and economic Analysis of KPPU is

incorrect. (Part VII)

(j) There is an evidence of mistakes and partisanship

conducted by the Further Investigation Team and

Commission Council, including the criticism of Dr. Ir.

Benny Pasaribu, a member of KPPU. (Part VIII)

296. This defense statement depicts AMH implementable defense

considering that KPPU has restrain AMH to advocate properly

such as the delay of issuing RFI for more than one week, the

rejection of accesses to case document of KPPU up to the eve of

Idul Fitri (concerning the difficulties of finding translator at that

time) and the rejection of mentioning the information sources in

its report clearly.

297. AMH asks all investigation to be terminated. There is no

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COPYevidence in RFI that show the fault of AMH. The investigation

processes is an abuse of law process.

298. If the investigation of AMH is not terminated, AMH is entitled to

submit further defense statement if needed, because AMH cannot

observed thoroughly all documents in the case document of

KPPU that have not entirely translated yet.

299. This defense Statement is relied on Indonesian law and not be

based on international law or related international agreement.

AMH maintains all its rights under international law or any valid

international agreement.

19. Considering that further, on the basis of Further Investigation Report, Commission

Assembly has accepted responses of SINGTEL and ST Mobile on 30 October 2007

that in essence state the following things: -------------------------------------------------------

----------------------------------------

Introduction -----------------------------------------------------------------------------------------

1. Singapore Telecommunications Limited (“SingTel”) and Singapore Telecom

Mobile Pte Ltd (“ST Mobile”) under investigation of the Commission for the

Supervision of Business Competition (“KPPU”) Indonesia on the suspected

infringement of Article 27(a) of the Law No.5/1999 on (“Anti-trust Law”).

Based on the Report of the Follow-up Investigation team No.

60/PEN/KPPU/IX/2007 (“Report”) dated 27 September 2007, accepted by

SingTel and ST Mobile on 3 October 2007, KPPU concludes that Temasek

Holdings Pte. Ltd (hereinafter referred to as “Temasek”) has infringed Article

27(a) Anti-trust Law through “Temasek Business Group” in which the group

covers SingTel and ST Mobile. Further, the report concludes as follows: ----------

(a) KPPU has owns jurisdiction over Temasek as well as “Temasek Business

Group ” based on Article 1(5) of Anti-trust Law because the corporate

bodies perform their businesses in the territory of the Republic of Indonesia.

The party to be referred as “Temasek Business Group” covers SingTel and

ST Mobile;-------------------------------------------------------------------------------

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COPY(b) Temasek owns majority shares in two companies that operate in the same

field and in the common pertinent market that make it infringes Article 27

(a) the Law No. 5/1999 due to; -------------------------------------------------------

(i) Temasek owns and controls PT Indosat Plc., (“Indosat”) through

Singapore Technologies Telemedia Pte Ltd (“STT”) and owns and

controls PT. Telecommunication Selular (“Telkomsel”) through

SingTel and ST Mobile; and --------------------------------------------------

(ii) Such cross-ownership and control create high concentration of

industrial structure and market power as well as low competition in

cellular service in Indonesia. ---------------------------------------------------

Its fact, as it revealed in this plea, all accusations submitted and conclusion to be

taken to SingTel and ST Mobile do not have legal basis and facts. ------------------

2. The defense made based on Article 53 of KPPU Regulation No.1/2006 on the

Procedures of Case Handling in KPPU (hereinafter referred to as KPPU

Regulation No.1 / 2006). The main objective of submitting the defense is to

reaffirms the position of SingTel and ST Mobile before KPPU and to deny

assertively conclusion of the Report, none but. The main points can concluded

as follow: -------------------------------------------------------------------------------------

(a) The investigation process is null and void because KPPU does not hold in

respect to due process of law of SingTel and ST Mobile during the process

of investigation of the case ----------------------------------------------------------

(b) The Report does not provide a whole description on the facts of the case.

Conversely, the Report selectively presents and haphazardly relates facts,

assumption and, theory for benefitting the suspicion of KPPU; and

systematically keeps aside or distorts the whole evidences and analysis that

oppose against the suspicion. Thus, the Report significantly hinders the

ability of SingTel and ST Mobile to protect and to plead them. ---------------

(c) SingTel and ST Mobile are not under the jurisdiction of KPPU because

either SingTel or ST Mobile is not “business actor” in the understanding of

Article 1(5) of the Anti-trust Law; -------------------------------------------------

(d) Article 27 (a) of Anti-trust Law is not valid to SingTel and/or ST Mobile.

The Report fails to prove the elements in the Article infringed by

Temasek, for what is known as “Temasek Business Group”, SingTel and

ST Mobile;-----------------------------------------------------------------------------

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COPY(e) “Temasek Business Group” is never present. Temasek controls the

business and operation of neither SingTel nor ST Mobile.----------------------

(f) Besides, Telkomsel is not controlled by Temasek through SingTel and/or

ST Mobile, because SingTel and/or ST Mobile do not control Telkomsel.

Conversely, PT Telecommunication Indonesia Plc., (Telkom), a majority

shareholder, controls Telkomsel;

(g) Indonesian cellular market is competitive and no evidences at all showing

anti-competitive behavior of Telkomsel or Indosat or both of them; ----------

INVESTIGATION PROCESS IS NULL AND VOID BECAUSE KPPU DOES

NOT HOLD IN RESPECT THE BASIC RIGHTS AND DUE PROCESS OF

LAW OF SINGTEL AND ST MOBILE DURING THE PROCESS OF THE

INVESTIGATION OF THE CASE. ------------------------------------------------------------

3. SingTel and ST Mobile notice that Indonesia is a constitutional state

(Rechstaat), and not authoritative state (Machstaat) and that the Constitution

1945 of Indonesia (as it has been amended) obligates (i) the establishment of

independent judicial system to enforce law and justice. (Article 24 of the

Constitution), and (ii) anyone has rights to have legal security and to be equally

treated before law. (Article 28D Constitution), namely: -------------------------------

“The judicial power is an independent power to exercise judicature for enforcing law and justice.” (Article 24 of the Constitution) ---------------------- “Anyone is entitled to have acknowledgement, guarantee, protection, and fair legal security as well as equal treatment before law.” (Article 28D of Constitution)95 --------------------------------------------------------------------------

4. Besides, it is publicly admitted that to enforce law and justice and to protect

legal security, the entire legal process shall be exercised with the principle of

due process of law. Especially, International Covenant on Civil and Political

Rights (“ICCPR”), in which the Republic of Indonesia is a party96. Article 26

of ICCPR, particularly states:--------------------------------------------------------------

“All men shall be equal before law and without being discriminated is entitled to have equal legal protection. In this case, the law prohibits the presence of any kind of discrimination and guarantee equal protection across the board of discrimination based on race, skin color, sex, language, religion, ideology, citizenship or nationality or social, wealth, birth status or other status.

95 See the Constitution of the Republic of Indonesia, third and fourth Amendment. 96 It has been ratified by the Law No.12/2005

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COPY5. Especially, concerning foreign investor, Article 14.a the Law of Investment

Modal No. 25/2007 determine the right of investor over legal security as follow: -

“Any investor is entitled to have: a. right security, legal security, and protection;..”

6. Especially, as Singaporean entities that perform their investment in Indonesia,

the rights of SingTel and SingTel mobile to have due process of law is

assertively admitted in the agreement of the Government of Malaysia, the

Republic of Philippines, the Republic of Singapore and the Kingdom of

Thailand on Promotion and Investment Protection dated 15 December 1987 (as

it amended by protocol on 12 September 1996) (ASEAN Investment

Agreement) as follow: ---------------------------------------------------------------------

Article IV TREATMENT

1. Each Contracting Party shall, within its territory ensure full protection of the investments made in accordance with its legislation by investors of the other Contracting Parties and shall not impair by unjustified or discriminatory measures the management, maintenance, use, enjoyment, extension, disposition or liquidation of such investments.

2. All investments made by investors of any Contracting Party shall enjoy fair and equitable treatment in the territory of any other Contracting Party. This treatment shall be no less favorable than that granted to investor of the most-favored- nation.

Article VI EXPROPRIATION AND COMPENSATION

1. Investments of nationals or companies of any Contracting Party shall not be subject to expropriation nationalization or any measure equivalent thereto (in the article referred to as "expropriation"), except for public use, or public purpose, or in the public interest, and-under due process of law, on a non-discriminatory basis and upon payment of adequate compensation. Such compensation shall amount to the market value of the investments affected, immediately before the measure of dispossession became public knowledge and it shall be freely transferable in freely-usable currencies from the host country. The compensation shall be settled and paid without unreasonable delay. The national or company affected shall have the right, under the law of Contracting Party making the expropriation, to prompt review by a judicial body or some other independent authority of that Contracting Party in accordance with principles set out in this paragraph.

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COPY2. Where a Contracting Party expropriates the assets of a company which is

incorporated or constituted under the law in force in its territory, and in which nationals or companies of another Contracting Party own shares, it shall apply the provisions of paragraph 1 of this Article so as to ensure the compensation provided for in that Paragraph to such nationals or companies to the extend of their interest in the assets expropriated.

7. We note that as an independent state commission, KPPU shall be subject to the

principle of state governance as it detailed in the Law No.28/1999 on the

Governing of State that is free from Corruption, Collusion and Nepotism (as it

cited below). Especially, KPPU shall be subject to the principle of legal

security:---------------------------------------------------------------------------------------

Article 3 The General principles of governing of state: -------------------------------------- 1. The principle of legal security; ---------------------------------------------------- 2. The principle of well-regulated state governance; ------------------------------ 3. The principle of public interest; --------------------------------------------------- 4. The principle of openness; --------------------------------------------------------- 5. The principle of proportionality --------------------------------------------------- 6. The principle of professionalism; and -------------------------------------------- 7. The principle of accountability.----------------------------------------------------

8. KPPU itself has admitted that Anti-trust Law obliges the right of due process of

law. In Article 2(1) of KPPU Regulation No.1/2006, it is stated that: ---------------

“The Chairperson of Commission has tasks to facilitate all case handling activity under the principle of transparency, effectiveness and” [enhance to emphasize]-------------------------------------------------------------------------------

9. Besides, SingTel and ST Mobile refer to the expert’s statement on Article 27

of Anti-trust Law by Hikmahanto Juwana (“Hikmahanto”)97, the Professor of

Law at University of Indonesia who specialize himself in business and

competition law in Indonesia, is proposed on behalf of STT for this legal

process. According to Hikmahanto, an infringement to due process of law

conducted by KPPU had the findings and court decision been null and void. ------

10. Unfortunately, in any step of judicial procedure, the right to have due process of

law of SingTel and ST Mobile been contravened. So far, the legal process

conducted by KPPU is not transparent and fail to enforce due process of law,

professionalisms and proportionalities.---------------------------------------------------

SingTel and ST Mobile does not have an opportunity to have their opinion been

heard during preliminary investigation. -------------------------------------------------------

97 Registered in the KPPU case document No. C60

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COPY11. SingTel and ST Mobile are not summoned; therefore, their opinions are not

heard during preliminary investigation. There are only Temasek and Telkomsel

that have their opinion been heard. SingTel and ST Mobile have no chance to

have their opinion been heard in the preliminary investigation. ----------------------

KPPU does not give proper opportunity to SingTel and ST Mobile to deny the

suspicion to them during the process of further investigation. ----------------------------

12. SingTel and ST Mobile are not given proper time to prepare their reply over the

serious suspicion alleged to them and their defense over the Report. SingTel and

ST mobile noted that the early Convocation was received in the afternoon on 22

June 200798 to be invited for investigation on 4 July 2007. Further, SingTel

received Report on 3 October 2007 and the investigation before Assembly of

KPPU scheduled on 25 October 200799. SingTel and ST Mobile are

Singaporean corporate bodies that are not under jurisdiction of KPPU.

Therefore, most of the case document written in Indonesian language and the

allegations to them are dealing with the Law of Indonesia, we have to find a

legal adviser in Indonesia. Relating to Idul Fitri, most of Indonesian were in

holiday and we only had eight workdays (around 10 to 25 October, including

Eid-al Fitr on 12, 15 and 16 October) to examine the case of document before

submitting defense or opinion on 25 October 2007. We had already asked to

delay in a week to this investigation process but KPPU only agreed to replace

the date to 30 October 2007100, so that we had extended time for 3 workdays to

prepare our defense. We want to note that SingTel and ST Mobile cannot expect

to present their response to the evidence properly in such a short time.

Especially it considers that (i) the Report itself is not completed and distorted in

its content, as it is detailed in this defense, and (ii) the short time available to

examine case document, we are only able to copy less than 50% of the whole

existing case document (excluded case document that is unavailable for us). ------

SingTel and ST Mobile are not informed properly on their allegation ------------------

13. There is no transparency at all during the investigation on the allegation to

SingTel and ST Mobile. The first summons to them only mentioned that

SingTel and ST Mobile were about to be investigated for the possibilities to 98 Letter of KPPU No. 265/KPPU/TP-PL/VI/2007 (Document No. A87) and No. 266/KPPU/TP-PL/VI/2007 (Document No. A88) 99 Letter of KPPU No. 347/AK/KMK/X/2007 100 Letter of KPPU No. 368/AK/KMK/X/2007, dated 25 October 2007.

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COPYconduct infringement to Article 27(a) Anti-trust Law. The early enclosed Report

only analysis the infringement to Article 27 by Temasek, Telkomsel and

Indosat. The information on what and how SingTel suspected to infringe Article

27 is not completed. ------------------------------------------------------------------------

14. SingTel and ST Mobile do not engage at all in the Preliminary Investigation and

know nothing on the problem to be investigated or the summons addressed to

them. SingTel and ST Mobile have only what is stated in the Report of

Preliminary Investigation enclosed to Convocation101, that it unofficial

translation enclosed along with this letter in Annex 1, in which its related part

are as follow: --------------------------------------------------------------------------------

“Although Temasek Holdings Pte Ltd keep on denying to have a control of decision making and diary management of its subsidiaries as it is described in the diagram above, but its party cannot deny that Temasek Holdings Pte Ltd is the owner of entire subsidiaries. Besides, the rational, business actor yang, always try to maximize profits, including its subsidiaries. In this context, Temasek Holding Pte Ltd has significant interests to the performance of its subsidiaries in order to have maximum profits.-------------- The management of Temasek’s subsidiaries should know the interest and it a form of responsibility to the shareholders. On that account, the interest of shareholders is automatically a main focus of their diary management. It is a basis of the opinion that share ownership represents economic interest, so that the law of anti-trust sees that ownership structure, as it explained above, as a single economic entity.--------------------------------------------------- Therefore, further investigation needed to comprehend the influence of Temasek Holdings Pte Ltd to it entire subsidiaries102….-------------------------- SingTel and SingTel Mobile are very significant operators in cellular industry within Asia Pacific. It is seen from number customers in general and the revenues from gained from that areas. The information has been indeed by the management of Telkomsel and influenced to the policy of Telkomsel103… -------------------------------------------------------------------------- Meanwhile, based on what have been mentioned above, there are sufficient preliminary evidence show that Temasek through its subsidiaries control Telkomsel and PT. Indosat Plc. So that it creates lack of competition in the market of cellular telecommunication in all over Indonesia, in which Temasek Business Group, on the basis of such thing, is suspected to have infringed Article 17 (a) of the Law No. 5/1999104.”--------------------------------

15. As it is seen from the citation above, SingTel and ST Mobile are not informed

on what is suspected to be an infringement under the law of Indonesia. The

Report of Preliminary Investigation shows only “Temasek Business Group” that

101 Citation of KPPU’s Decision KPPU No. 23/PEN/KPPU/V/2007 102 Preliminary Investigation Report , part IV (b), page 5 to 7. 103 Preliminary Investigation Report , part IV (c), page 5. 104 Preliminary Investigation Report , part V.

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COPYhas infringed Article 27(a) of Law of Anti-trust, without any explanation on

how SingTel and/or ST Mobile are responsible to such infringement. Especially,

there is no clue at all on whom will be responsible or what kind of conducts or

ignorance that makes KPPU sure that they are infringement under the law of

Indonesia.-------------------------------------------------------------------------------------

16. The team of further investigation conducted lack transparency along with the

worst due process of law during the investigation to the case. The investigation

conducted in the way that makes SingTel and ST Mobile nearly give no correct

and completed response of the allegation addressed to their parties. During

investigation conducted on 4 July 2007105 and on 23 July 2007106, SingTel and

ST Mobile questioned on their roles in the business affair of Telkomsel. The

questions directed to how SingTel and/or ST Mobile generally engaged in the

business management of Telkomsel, with the targets mostly to be questioned

were board of commissioner and board of directors of Telkomsel. The questions

also on whether Temasek uses its control to SingTel, ST Mobile and/or

Telkomsel. However, KPPU does not tell exactly to the representatives of

SingTel and ST Mobile on what have been conducted by SingTel and/or ST

Mobile so that they infringe Anti-trust Law. --------------------------------------------

17. Besides, during the process of investigation, there were many questions

presented to the representative of SingTel and ST Mobile had no relationship at

all with Article 27. For instance, in the investigation on 23 July 2007 before

KPPU, the representative of SingTel were questioned whether there is an

opportunity of SingTel’s subsidiaries in India and Bangladesh arrange

something jointly, and in how much the price is. In a separated investigation at

the same date, the representative of ST Mobiles questioned with the following

questions that have no relationship with the allegations of Article 27(a): -----------

(a) The questions on the production share obtained from the investment of SingTel Mobile in Telkomsel:- ------------------------------------------------------- (i) According to ST Mobile, concerning the performance of Telkomsel,

how many percent does satisfy SingTel Mobile, return of investment for example? (Question 17) --------------------------------------------------

(ii) How much is the return on investment for Telkomsel?------------------- (iii) Is the investment having break even? (Question 19)---------------------- (iv) If you want to sell the investment, what will you get?--------------------

105 See Investigation Official Report SingTel (Document No. B21) and ST Mobile (Document No. B22) 106 See Investigation Official Report of SingTel (Document No. B34) and ST Mobile (Document No. B35)

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COPY(v) Compare to the investment of ST Mobile in other places, how is the

RoI of Telkomsel? (Question 23)-------------------------------------------- (vi) Does SingTel Mobile know on the value of EBITDA? (Question 28) - (vii) In your opinion, how is the performance of Telkomsel recently? Is it

satisfying or not? (Question 33) --------------------------------------------- (viii) How many percent are the revenue contributions of SingTel that

given by ST Mobile to SingTel? (Question 50) --------------------------- (ix) Can you explain a number of revenue of ST Mobile from the income

of cellular, how much are the share of Telkomsel? (Question 56) ------ (b) The questions on the price fixing strategy of Telkomsel:- ------------------------

(i) I can say that there is no concern at all on tariff. (Question 42) --------- (ii) Do you care with the consumer’s wealth?---------------------------------- (iii) Is ST Mobile simply concern on the RoI, not on other things lain?

(Question 35)------------------------------------------------------------------- (c) The questions on the story of acquisition of SingTel Mobile in Telkomsel:-

(i) Who did initiate to buy Telkomsel’s share in ST Mobile? (Question 121)------------------------------------------------------------------------------

(ii) What is the consideration of ST Mobile to buy KPN’s shares in Telkomsel? (Question 135)---------------------------------------------------

(d) The questions on the profit return investment to Telkomsel:- -------------------- (i) Is SingTel Mobile as a substantial shareholder 35% of share and an

authority to nominate two commissioner and director, through the two nominees have ever suggested investing the profit? (Question 140)------------------------------------------------------------------------------

(ii) We want to know, where does we can see the policy of ST Mobile on dividend of Tekomsel? (Question 146)---------------------------------

18. We note that it is not important for KPPU to place information on a single

problem mentioned above in the Report, in which it affirms that the questions

are not relevant at all and has no relationship with the decision-making on

Article 27(a). Respectfully, SingTel and ST Mobile think that such irrelevant

questions are not professional and null. -------------------------------------------------

19. Yet, SingTel and ST Mobile have cooperated as good as possible with KPPU,

expecting to be informed in the end on the allegations contends to SingTel and

ST Mobile. -----------------------------------------------------------------------------------

KPPU discriminatively treats SingTel and ST Mobile by not giving much time to

examine the case document of in the Further Investigation.

20. Instead of understand the problem they are dealing with, SingTel and ST Mobile

is entitled to know the basic of allegation accused to their parties. Before and

during investigation on 4 July 2007107, SingTel and ST Mobile had ever asked

access to KPPU to examine case document. Any request was always refused, as

107 See Letter from SingTel (Document No. A106) and ST Mobile (Document No. A107), both are on 29 June 2007.

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COPYit is described in document No.B31 of KPPU investigation case document; Asia

Mobile Holdings Pte. Ltd (Reported V), Indonesia Communications Limited

(Reported VI) and Indonesia Communications Pte. Ltd (Reported VII) was

given accesses to examine the case document on 16 July 2007 or during the

Further investigation was performed. Thus, KPPU has conducted

discriminatively to SingTel and ST Mobile during Further Investigation

performed.------------------------------------------------------------------------------------

21. Even after the Report was issued, SingTel and ST Mobile were not given an

access to part of the document in the investigation case document although they

had asked for it.108. It is an infringement of due process of law, causes improper

asymmetric information, and harms the preparation of SingTel’s defense. ---------

KPPU did not issue Report in the deadline as it is obliged by Anti-trust Law. --------

22. The ability of SingTel and ST Mobile to self defend is disrupted when KPPU

did not issue the Report in the deadline as it obliged by Article 43(1) to (3) of

Anti-trust Law. It states:--------------------------------------------------------------------

“(1) The Commission is obliged to complete further investigation at the latest of 60 (sixty) days since the conduct of further investigation as it meant in Article 39 (1). (1). -----------------------------------------------------

(2) When it is needed, the time period of further investigation as it meant on (1) is lengthen at longest 30 (thirty) days --------------------------------------

(3) The Commission is obliged to decide whether the infringement to the Law occurs or not at longest 30 (thirty) days as from the completion of further investigation as it meant in (1) and (2). ------------------------- [enhanced to

Together with Article 48 and 49 of KPPU Regulation No.1/2006 that states: ------ “(1) Prior to the end of Follow-up Investigation, the team of Further

Investigation conclude whether the evidence of infringement is available or not.” --------------------------------------------------------------- [enhanced to

(1) “The conclusion, as it meant in Article 48, is composed in the form of The Report of Follow-up Investigation Result”. ----------------------

(2) The further investigation team submits the Report of further investigation Result, along with letter, document or other written proofs to Commission “The conclusion, as it meant in Article 48, is composed in the form of The Report of Further Investigation Result” the infringement occurs and conducted by the Reported” [enhanced to emphasize]. --------------

Based on it mention above, KPPU shall have issued the Report of Further

investigation prior to Further investigation be completed. The last date of

Further investigation period was 27 September 2007. Thereby, KPPU shall have

issued report at the furthest of 27 September 2007. However, SingTel and ST

108 See a letter from Hadiputranto, Hadinoto & Partners No. RFB 69445-v1dated 10 October 2007 and No. MF 70388-v1 dated 22 October 2007.

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COPYMobile were only been informed and received on Report on 3 October 2007.

The delay of Report issue had been an infringement to the procedures of case

handling of KPPU and it harms our right to plead. Supposed the Report issued

on time, we should have three additional workdays to examine the case

document and prepare the defense prior to the holiday of Idul Fitri. -----------------

23. The reality is different with the statement made in the investigation on 23 July

2007109, KPPU decide that they would not summon the representative of

SingTel and ST Mobile to be questioned further and keep on arranging the

Report although SingTel and ST Mobile still need to know what they had

conducted or not conducted as infringement---- ----------------------------------------

24. In short, in the end of Follow-up investigation period, SingTel and ST Mobile

remain to be blank with the allegations contended to them, therefore they are not

in a position to prepare their defense accurately to reply the allegation.

Therefore, SingTel and ST Mobile make only general defense principally on the

element of Article 27 while waiting to the character and detail of the allegations.-

25. As it usually occurs, SingTel and ST Mobile are never been informed to the

allegations accused to them before they received Report. It is important for us to

repeat that, (i) if the Report was issued in the period of time as is proper, the

Reported should have three additional workdays to respond the Report, (ii) the

period of time available was 27 days in between of issuing the Report and at

that date our session cover Idul Fitri’s holidays for about 10 days, in time when

many offices closed (iii) KPPU refused to give extended time for at least one

week to prepare our response but 3 workdays only given. We assume that it is

not fair to give such a short time to SingTel and ST Mobile to prepare their

response to the investigation of KPPU that has been lasting for more than 120

days -------------------------------------------------------------------------------------------

26. Our capability to plead has been harm further during case document

investigation. SingTel and ST Mobile are only given one session (on 9 October)

to examine abundant case document. By the kindness of STT’s legal adviser,

STT, SingTel and ST Mobile are able to follow their investigation session,

SingTel and ST Mobile got two sessions to examine the case document.

Although they have additional time in the investigation, they cannot maximize it 109 See Investigation Official Report of SingTel ST Mobile (Document No. B35), Investigation statement No. 173.

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COPYbecause they spent their 90% of time to copy document and not to examine due

to huge of the case document. SingTel and ST Mobile are only able to copy not

more than 50% of the available documents.

27. It is more seriously. KPPU does not give access to part of the unrestricted

documents, as it mentioned in the letter of our legal adviser, Hadiputranto,

Hadinoto and Partners on 10 and 22 October 2007. Specially, KPPU does not

access to the references cited in the Report. The refusal had harmed the ability

of SingTel and ST Mobile to plead because, (i) to write this defense, SingTel

and ST Mobile had to work hard to find other documents that are not available

from other sources and, (ii) later, in the objection phase, KPPU would keep the

document not to be submitted, by reason of that document was excluded of

KPPU’s case document. Although SingTel and ST Mobile were able to obtain

the document from other sources, they would be restricted to use it during the

objection to the evidence. ------------------------------------------------------------------

The Chair of Investigation Team and the Chairperson of KPPU has conducted

against due process of law. ------------------------------------------------------------------------

28. We note that in the further investigation, Mr. Nawir Messi, the Chair of

Investigation team and Mr. M. Iqbal, Chairperson of KPPU, has reported to

press a statement that, (i) the allegation to Temasek and the other Reported has

been proved and further is simply accumulating other additional evidences or

(ii) there are strong prima facie to support the allegation110. Mr. Messi and Mr.

Iqbal do not ever withdraw or give a correction to their statements so that

SingTel and ST Mobile have to take a decision that the statements are correct

or in the meaning of the men. Under Article 2(1) of KPPU Regulation

No.1/2006, such statements show inconsistency of Mr. Iqbal because the

statements show a bias that is able to support that the allegation of the Reported

is true. Besides, the statements have created public opinion that the Reported are

guilty, that decreasing their chance to have fair judicature if the case is

submitted into Court. -----------------------------------------------------------------------

Improper Commission Assembly Composition ----------------------------------------------- 110 Indonesian anti-trust agency investigates Temasek, Business Times Singapore 7 June 2007, document C70, Indonesia’s watchdog probes Singapore’s Temasek, Agence France Presse, 24 May 2007, document C69. Temasek denies anti-competitive behavior in Indonesia, Strait Times, 7 June 2007, C70. There are also parties that do not agree KPPU investigates Temasek, Kontan Daily Kontan, 14 September 2007 (exhibited in the defence as Annex # 19), An interview of Muhammad Iqbal with Trust, 24 September 2007 ((exhibited in the defence as Annex # 20)

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COPY29. SingTel and SingTel Mobile note that from three of five Commission Assembly are

former member of Further Investigation team that approved theReport. The only

one team member who disagrees is Mr. Benny Pasaribu but he does not participate

in the Assembly. SingTel and ST Mobile herewith protest against the composition

of the Assembly. With such a composition, KPPU's decision will not be fair in this

case. It is because (i) Commission Assembly does not take part Benny Pasaribu who

give different opinion (ii) the commission assembly which support the Report are

the majority of Commission Assembly, it is clear that this composition has been

biased to strengthen the Report.---------------------------------------------------------------

----------------------------------

THE REPORT DOES NOT PROVIDE A WHOLE DESCRIPTION ON THE FACTS OF THE CASE. CONVERSELY, THE REPORT SELECTIVELY PRESENTS AND HAPHAZARDLY RELATES FACTS, ASSUMPTION AND, THEORY FOR BENEFITTING THE SUSPICION OF KPPU; AND SYSTEMATICALLY KEEPS ASIDE OR DISTORTS THE WHOLE EVIDENCES AND ANALYSIS THAT OPPOSE AGAINST THE SUSPICION. THUS, THE REPORT SIGNIFICANTLY HINDERS THE ABILITY OF SINGTEL AND ST MOBILE TO PROTECT AND TO PLEAD THEM ---------------

30. The objective of the Report is to give completed notes on the evidences

collected by further investigation team and how the evidences fulfill the

elements of Article in Anti-trust Law. In other hand, any written proof ought to

be consistent one to another (not opposed) and in line with adagium unus testis

nullus testis. Every fact ought to be supported at least by two evidences; in

which one evidence is not a fact. The requirement is generally known as due

process of law and it is particularly subject to the rules of Anti-trust Law of and

KPPU Regulation No.1/2006

“Before the terminations of further investigation, member team this investigation must conclude there is or not evidence that has resulted an infringement ...” (Article 48 of KPPU Regulation No.1/2006"-------------------“

The conclusion within the meaning of Article 48 is compiled in the form of Report of Further investigation ….team then submits this Report of Further investigation along with letter, documents or other written proofs to Commission. Afterwards, the decision is taken to identify whether or not an infringement conducted by Reported” (Article 49 of KPPU Regulation No.1/2006).------------------------------------------------

“Investigation written proof of Commission are:----------------------------------- a. witness’ statement -------------------------------------------------------------------

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COPYb. expert’s statement ------------------------------------------------------------------- c. letters and /or documents ----------------------------------------------------------- d. indication ----------------------------------------------------------------------------- e. business actor’s explanation” ------------------------------------------------------ (Article 42 of Anti-trust Law)--------------------------------------------------------- “Commission Assembly must decides valid or not a proof is, and decides its verification value based on at least (two) valid written proof” (Article 64 verse 2 of KPPU Regulation No.1/2006). -------------------------------------------

31. Besides, by considering that (a) Reported must have fair opportunity to argue

the conclusion Further investigation team during Commission Assembly

investigation takes place and (b) transparent principle and due process of law

such as those discussed above; it is clear that the Report must contain complete

information in order to have Reported argued the Report. Report must load

complete logic on the elements of Law that must be fulfilled in order to have

Reported Party tested it and, if needed, argue the elements. Report must give

complete and deep summary in order to have the Reported analyzed the facts for

defense purpose. The Report has to give correct identification on the sources of

the whole facts that used as basis of the argumentation in order to have the

Reported tested the sources. Unfortunately, the Report has failed to fulfill all the

requirements.---------------------------------------------------------------------------------

32. Firstly, the Report does not express completely and fairly all facts related to this

case. Systematically, the Report consists of advantageous fact and exempted

disadvantages ones. In some cases, the Report does not show a supportive fact

to what it is affirmed. This approach produces a bias to a case. Besides, it means

that the Reported, including SingTel and ST Mobile, must grope to find facts

that are exempted from KPPU's thick case document in the limited time

provided by KPPU. The following are examples on the lack of the Report. --------

(a) Generally, unless for a few things straggled in the Report, Report does not

mention its source correctly. The place where the source is cited, Report

does not give document code for this source, that is why it is difficult for

Reported to search a source in the case document of KPPU. For example: ----

i. Directorate General Post and Telecommunication is cited on page 8, 9,

10, 11 of the Report as data sources on cellular industry but the Report

does not mention document code in which Directorate General given

these data.

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COPYii. Report gives reference that refers to the report of OVUM, but it does not

identify document code of this report. When SingTel and ST Mobile

examine the bundle of KPPU, the Report is not filed in one of bundles of

KPPU and SingTel and ST Mobile has to ask the staff of KPPU to bring

the document to the investigation room.-----------------------------------------

(b) KPPU defines majority share as a control owned by a corporation to other

company, and that Temasek controls Telkomsel. Nevertheless, KPPU does

not show a fact or evidence for supporting allegation of the control. Thus,

SingTel does not know how to answer KPPU unless by answering and

negating simplistically; ----------------------------------------------------------------

(c) KPPU assumes that Indosat has the lowest roll-out Base Station Transceiver

(“BTS”) among its main competitor for years, this condition is considered to

be lack of competition that have Telkomsel consolidated its market power.

Nevertheless, the Report disregards different texts on rollout of Indosat that

is explained in the report submitted by Case Associates, a Consultants

analysis and Spectrum Consulting. In other hand, KPPU does not show

whether it occurs and, if it does, how Temasek influences the policy of

Indosat concerning the development of BTS;---------------------------------------

(d) KPPU postulates without paying attention that the tariff fixed by Telkomsel

is still under the price that determined by Government, and it is said that the

tariff is excessive. Nevertheless, KPPU does not give any reason on how or

why the tariff is assumed to be excessive, though it is under price

determined by government. In other hand, there is no explanation from

KPPU until now on how SingTel and/or ST Mobile and/or Temasek in any

case are responsible to the excessive tariff fixed by Telkomsel.

(e) In other hand, KPPU predicts pricecompetition in the market is not

acceptable and other market players follows the price fixed by a leading

market , this proposal does not consider various kinds of product. It can be

related to definition of top duration, market segment of prepaid and

postpaid, tariff roaming, tariff roaming SMS and MMS and GPRS – in

which they are different one to another as time goes by. The KPPU's

confirmation on a price equivalence is not supported by fact, KPPU cannot

display whether it occurs or not and, if it does, how can SingTel and/or

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COPYSingTel Mobile be responsible to the allegation of price equivalence by

Telkomsel and/or Indosat. -------------------------------------------------------------

(f) Besides, SingTel and ST Mobile surprised with the allegation stated by

KPPU that Telkomsel have anti-competitive behavior, such as through its

interconnectivity and network infrastructures. KPPU affirms that incumbent

operator is able to threat interconnection operator that decrease tariff.

Nevertheless, KPPU does not give any elucidation on where Telkomsel has

limited access to certain operator network infrastructure as it is alleged; and

KPPU does not show how Temasek and/or SingTel and/or ST Mobile has

influenced or control Telkomsel in a way as it is alleged. The most

importantly, KPPU's notes show that during the investigation take place, on

4 and 23 July, the representative of SingTel ands/or ST Mobile is never

been questioned on this problem.

The further elucidation on how the Report make mistake in presenting fact and

haphazardly relates facts, assumption and unprovable theory can be seen in

defiance

SINGTEL AND ST MOBILE ARE NOT UNDER THE JURISDICTION OF KPPU BECAUSE EITHER SINGTEL OR ST MOBILE ARE NOT “BUSINESS ACTOR IN THE UNDERSTANDING OF ARTICLE 1(5) ANTI-TRUST LAW;------------------------------------------------------------------- 33. Article 1(5) Anti-trust Law, define business actor as follows: ------------------------

“Any individuals or corporations, in the form of corporate body or non corporate body, are established and domiciled or performing activities within the territory of jurisdiction of the Republic of Indonesia, and; independently or jointly by an agreement perform any business activities.” ---

34. The elements of Article 1(5) are clear. As Hikmahanto states it, this Article 1(5)

only covers two possibilities: --------------------------------------------------------------

(a) Corporate body or not corporate body founded based on the law of Indonesia and domiciled or perform business activity in the legal territory of Indonesia --------------------------------------------------------------------------------

(b) Corporate body or not corporate body founded based on the law of Indonesia and domiciled or perform business activity in the legal territory of Indonesia111.-----------------------------------------------------------------------------

35. Based on the interpretation of one definition above, none of the element in

Article 1(5) met and therefore SingTel is not under the jurisdiction of KPPU, -----

111 Hikmahanto, Expert Statement on Article 27 of the Law No.5/1999 on the Prohibition of Monopolistic

Practices and Unfair Competition (“Expert Statement”), page 5 to 6.

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COPY36. SingTel is a company listed in stock exchange. It is founded under the law of

Singapore and domiciled Singapore. It is founded and domiciled in the

Republic of Indonesia. SingTel has no branches in Indonesia. As it is

mentioned below, we disagree that there is”Temasek Business Group”. We

must note that not all party suspected as member this group living in Singapore.

For example, Indonesia Communications Limited living in Mauritius and if we

follow the logic presented in the Report, Indosat and Telkomsel (that actually is

a corporate body Indonesia that is founded and domiciled in Indonesia) are

taken part in this group.

37. Besides, SingTel does not have share in a company actively participated in the

market. While ST Mobile owns only its minority share in Telkomsel. We note

Hikmahanto in which he states that share ownership alone is not a business

activity, even less is minority shares because business activity requires

operational decisions that is usually conducted by company management.

Therefore, KPPU does not have jurisdiction over SingTel or ST Mobile.-----------

38. We notes that KPPU’s insistent suggestions in its Report on the doctrine of

single economic entity that business actor is considered to be responsible over

the conducts of other business actor if the two are forming single economic

entity. KPPU try to state that Telkomsel and Temasek establish Temasek that

allegedly through SingTel and/or ST Mobile, controls single economic entity

due to Telkomsel. ---------------------------------------------------------------------------

39. In responding to this, the first thing SingTel and ST Mobile do is citing

Hikmahanto’s view that there is no doctrine of “single economic interest”112

under Indonesian law. Therefore, KPPU cannot depend on this unless KPPU can

prove that Indonesian law confesses this doctrine. -------------------------------------

40. Secondly, SingTel and ST Mobile note that Hikmahanto also said on the

concept of, if the concept exist, then under the Indonesian law, the test can be

completed only if, (i) there is a joint management of the holding company and

its subsidiaries; (ii) the holding company planning covers a centralized

economic activity of the subsidiary and; (iii) subsidiary is prohibited to disagree

with the decision of management. In short, there must be a total control of the

holding company toward a core economic activity of subsidiary as it is pointed

112 Hikmahanto, Expert Statement, page 12 to 14.

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COPYby Hikmahanto (it is true according to SingTel and ST Mobile), the share

ownership alone is not enough to completed this rule113. Besides, as it detailed

below,(1) the testing to verify “single economic entity” under Singaporean law

and jurisdiction that is tightly investigated and; (2) the testing is no completed. --

41. Apart from the fact, whether the testing is applied under Indonesian,

Singaporean or one of the investigated jurisdictions, the evidence in KPPU

displays that Temasek does not use its control or even material influence to

Telkomsel (as it is mentioned below, Telkomsel has testified that it is not

relevant to asked whether initiative to the policy is from SingTel or Telkomsel.

It is also mentioned below that Telkom stated the control to Telkomsel is in its

authority relating to the decision of Capex Committee) and ST Mobile does not

control or give influence material to Telkomsel. Thereby, KPPU cannot state

that its party owns a jurisdiction over ST Mobile, SingTel and/or Temasek under

Article 1(5) of the Anti-trust law. ---------------------------------------------------------

42. Besides, the cites the definition of “foreign investment” in the Law No. 40/2007

on Foreign Investment as states “an investment activity to perform business

activity in the territory of the Republic of Indonesia …”. Thus, “Temasek

Business Group” means to perform business in Indonesia (paragraph 10 and 11

on page 59-60). ------------------------------------------------------------------------------

43. In responding to that, SingTel and ST Mobile are sure that the Report has

provided misinterpreted Indonesian law on foreign investment by the reason

below:-----------------------------------------------------------------------------------------

a. Article 1.1 of the Law No. 40/2007 refers to separated conducts namely, “to

invest” and “to perform business in Indonesia”. The Article does not infer

that investment is the same as to perform business. Conversely, it infers the

objective of conduct namely to invest is to perform business. Thus, it is

incorrect if the Report states that the law implicitly equalizes to invest with

to perform business. --------------------------------------------------------------------

b. We have to note that the Report does not consider that the entire regulation

of foreign investment in Indonesia is valid only in direct investment.

Indonesian Investment Coordinating Body (BKPM) gives a permit and

monitor direct foreign investment. In this case, BKPM and the Law of

113 Ibid.

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COPYInvestment are valid to ST Mobile in Telkomsel. Yet, it is neither the

investment of SingTel in ST Mobile nor Temasek in SingTel.-------------------

c. Besides, it is inconsistent and contradictory if the Report equalizes to

perform business to investment, since the Report admits the difference of

active and passive investors. It is unlikely the Report admits the differences

if it is explicitly stated that the entire investment or in its eventual has on the

investor perform its own business. ---------------------------------------------------

d. The Law on Limited Company(No. 1/1995, replaced by No. 40/2007)) and

the Law on Foreign Investment does not admit company shareholders

(holding company) as a business field. As it stated by Ratnawati Prasodjo,

the former Director of Civil Department of Justice (at present: Department

of Law and Human Rights) and one of the lawmaker of the Law on Limited

Company, does not admit own share in other company as a business

activity. Even the Law No. 40/ 2007 is applied to clarify that the Law on

Limited Company does not admit the concept of holding company. ------------

ARTICLE 27(A) ANTI-TRUST LAW IS NOT VALID TO SINGTEL AND/OR ST MOBILE. THE REPORT FAILS TO PROVE THAT THERE ATE ELEMENTS IN THIS ARTICLE HAS BEEN INFRINGED BY TEMASEK, WHAT IS KNOWN AS “TEMASEK BUSINESS GROUP ”, SINGTEL AND ST MOBILE -------------------------------------------------------------------------------------

44. The position of SingTel and ST Mobile since their initial stages is KPPU does

not have jurisdiction over SingTel or ST Mobile to conduct the investigation.

The distinct reading of Anti-trust Law infers that KPPU does not have

jurisdiction over the party that only becomes shareholder. ----------------------------

45. Besides, there is no indication at all that SingTel and/or ST Mobile infringe

Article 27(a). A world notable expert of law competition, Professor Claus-Dieter

Ehlermann (“Ehlermann”), has proposed and unquestionable argument, to

SingTel and ST Mobile it is precisely, on the clear understanding of Article 27.

Ehlermann examines on how Article 27(a) of Anti-trust Law shall be

comprehended in accordance with the international law principle and

competition law standard regime of European Community (“EC”), Germany

England (“UK”) and the United States of America (“US”) (“the examined

jurisdiction”). According to Professor Ehlermann, in which his report enclosed

in this defiance in Annex 3, the majority of share ownership requirement in a

number of companies in Article 27(a) mustbe interpreted literally. Wilmer

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COPYCutler Pickering Hale and Dorr LLP (“WilmerHale”), one of notable anti-trust

law and competition practitioner in the United States of America and Europe,

has made an opinion, that enhanced in this letter in Annex 1 (“Opinion

WilmerHale”) supportin the view of Ehlermann114. Hikmahanto also supports

the interpretation of Article 27(a) fully. It is a simple truth that either SingTel or

ST Mobile do not have majority shares in Telkomsel and the fundamental

requirement of Article 27(a) is not fulfilled. The allegation to Singtel and ST

Mobile that be based on Article 27(a) shall be null and void. -------------------------

46. Furthermore, the Report ignores different opinions proposed by the Reported.

No less than three independent experts, Spectrum Strategy Consultants

(Spectrum), Case Associates (Case) and Analysis Consulting (Analysis) 115 have

given different analyzes to this case. The integrity and pointed analyzes of this

firms are unquestionable. Even the Report does not try respond to the different

views. -----------------------------------------------------------------------------------------

47. On the chance of Commission Assembly would repair the mistake of follow-up

investigation team, we herewith propose one independent expert statement from

NERA economic consulting (“NERA”) a reputed international economy

consultant firm. According to NERA, it seems that there is no evidence of anti-

competition behavior or loss of consumer in Indonesian cellular market in

Indonesia. Even the evidence indicates that market is competed and market

result is better than market in other 16 countries in the case of demography,

economy and Telecommunication (comparative countries) -------------------------

114 The opinion of Wilmer Hale, in page 2. 115 NERA Economic Consulting, an international economic consultant, has been hired by SingTel and ST

Mobile to express its independent expert statement to the mobile service market condition in Indonesia in general and its independent expert analysis to the allegation of the company and the suspected infringement to the Indonesian Anti-trust law. Spectrum Strategy Consultants, an outstanding management consultant focuses in the telecommunication sector and media worldwide, and has presented its independent study to the competition condition in the Indonesian mobile market; assigned by STT, STT Communications Ltd and Asia Mobile Holding Company Pte Ltd. Analysis Consulting, a company that provides consultation on strategy and management and information and initial support to any telecommunication sector, It and media. They submit its completed report asked by Temasek Holdings (“Analysis”). Case Associates is an international office of economist on economic competition and regulation based in England. They are hired by Asia Mobile Holdings Pte Ltd (“AMH”), Indonesia Communication Ltd (“ICL”) and Indonesia Communication Pte Ltd (“ICPL”) to perform its an independent assessment to the competition in telecommunication sector in Indonesia. This analysis is based in a whole on the publicly accepted information.

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COPY48. We also propose two additional reports, it has been also proposed by society and

we obtained from public forum, the Analysis of Mr. Pande Raja Silalahi, former

member of KPPU (Annex 6) and the Report of Lembaga Manajemen Faculty of

economics UNPAD (Annex 7). -----------------------------------------------------------

49. The incorrect enforcement of substantive law competition in the Report reflects

in the treatment of KPPU to the rights of SingTel and ST Mobile's due process

of law. Since the corporate body is summoned in the step of legal process, some

fundamental rights of SingTel and ST Mobile are unappreciated.--------------------

50. Shortly, the Report cannot provide evidence to support its allegations. The

whole stuffs, considered as evidence, are inconsistent one to another. The

Report also fails to consider facts to be in contradiction with its conclusion. -------

SingTel and ST Mobile do not have majority share in Telkomsel. -----------------------

51. The following part of this defense is submitted by assumption that KPPU, in

opposition to the early defense of SingTel and ST Mobile, find that its party has

jurisdiction over SingTel and/or ST Mobile. Article 27 Anti-trust Laws specify

as follows: ------------------------------------------------------------------------------------

“Business actor is prohibited to have majority shares at some similar companies that conduct business activity in the common field at the common pertinent market, or establish some companies that have business activities at common pertinent market, if the ownership resulted: ------------

(a) one business actor or one group of business actor control more than 50% (five percents) market share of one goods or certain service.” ------------------------------------------------------------------------

(b) two or three business actors or group of business actor that control more than 75% (seventy five percents) of certain goods type or service certain.” [enhance to emphasis] -----------------------------------

52. We note that the Report does not question whether ST Mobile has more than

35% of Telkomsel shares or not and that its remaining (65%) is owned by

Telkom. ---------------------------------------------------------------------------------------

53. It has reaffirmed that SingTel and ST Mobile is being investigated on suspected

infringement of Article 27(a). We submit that the understanding of Article 27(a)

is clear and interpretation is not need at all. The Article prohibits single business

actor to own majority shares in some companies where by the ownership

creating a control to more than 50% of market shares of certain goods or

service.----------------------------------------------------------------------------------------

54. Therefore, any investigation based on Article 27(a) shall concerned to three

main prerequisites: (i) share ownership majority; (ii) in some companies in the

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COPYcommon market; (iii) which companies control more than half pertinent market

shares. The three of the rules must be read concurrently in order to have Article

27(a) been applied. --------------------------------------------------------------------------

55. With all respect, we state that clear meaning of ‘majority share’ is an ownership

of more than 50% of shares issued by company. The understanding further, is

clear that business actor must own direct shares in a company and SingTel has

not any shares in Telkomsel. As the same manner as KPPU has already shown

it, ST Mobile only own 35% of shares in Telkomsel, while the 65% remaining

are owned by Telkom. Then, it is clear that Telkom own majority share of

Telokomsel. ----------------------------------------------------------------------------------

Majority share shall mean majority share. ------------------------------------------------------

56. Although the meaning of Article 27(a) has been clear, KPPU has tried to

interpret this Article extensively. It show by stating that the most appropriate

definition of “majority share” in Article 27 of Anti-trust Law is the presence of

control owned by one business actor to other business actors, so minority

ownership is possible to be entering the understanding of “majority”. We have a

notion that such creative interpretation is clearly in contradiction with the

principle of law..-----------------------------------------------------------------------------

57. We note that KPPU agrees that literal definition of majority shareholder is an

owner of share who has more than half of company's shares; it is the clear

meaning of the term. Nevertheless, KPPU postulates that non-literal

interpretation to the majority share in Article 27 of Anti-trust Law is needed if

the rule is comprehended literally, and then rule is easily to be infringed by

issuing shares without vote rights, in which more than 50% shares are given or

owned by other parties. While the whole control of the company given to the

special shares less than 50% of the shares of even given to just one share. 116. ----

58. We note that clear meaning of majority has been clear also for KPPU, as the

same manner as it is seen in its decision in the case Cineplex 21 where KPPU

contend that due to Reported own 98% and 70% of shares of two companies in

which both are performing cinema in the common pertinent market in Surabaya.

Then the party infringes Article 27(a) of the Anti-trust law117. This meaning is

116 Report, page 52, page 12. 117 KPPU’s Decision No. 05/KPPU/2002, paragraph 21.25 and 23.11.

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COPYalso clear in the views of former KPPU's members such as Mr. Pande Silalahi118

and Mr. Sutrisno Iwantono 119 and company law expert, Mr. Frans Winarta 120,

state publicly that 50% is not majority.. -------------------------------------------------

59. We also refer to the opinion of Mrs. Ratnawati Prasodjo, in expert's statement ,

on page 2 – 3 enclosed in this defense as Annex 5),in which Article 27(a) shall

be understood in accordance with its said meaning: the expression majority be

understood as control over more than 50% ownership shares -----------------------

60. We note that Hikmahanto support the position in which “majority share” in

Article 27(a) refer to more than 50% shares in a company. Concerning this,

Hikmahanto stand firmly to elucidation of Article 15(2) of the Law No.8 / 1995

on Capital Market, and Article 1(1) and (2) of the Law No. 19 / 2003 on

BUMN, where the two refer to “majority share” as more than 50% of company's

shares121. Hence 40.8% of share owned by Indonesia Communications Limited

and Indonesia Communications Pte.Ltd (become shareholders direct in Indosat)

is excluded the understanding of Article 27. On the basis of the definite

Analysis, we also states that there is a reason, even stronger, for a view that

share ownership as high as 35% of ST Mobile in Telkomsel cannot generate

Article 27. ------------------------------------------------------------------------------------

61. If the meaning a rule in Law is clear, it may not be any interpretation. In this

case, SingTel and ST Mobile refer to the opinion of Prof Dr Jimly Asshidiqie, a

Head of Judges of Constitution Court, in its book Perihal Hukum (Regarding

Law), page 252-254 (enclosed in as defense as Annex 27) that said if a rule of

law is clear, whatever decision made by the court shall be applied. If the law

has been verbally expressed (“expressis verbis”) there is no space in court to

interpret others.. -----------------------------------------------------------------------------

No Indonesian Law available to interpret “Majority” broadly ---------------------------

118 See Temasek does not practice monopoly: A Study, the Jakarta Post, Friday 3 August 2007, document C57, The integrity of KPPU is in the floating line in Indosat case, the Jakarta Post, Wednesday 15 Augustus 2007, document C62. 119 See The Former of KPPU’s chairperson: No Cross Shares of STT in Indosat and Telkomsel (Mantan Chairperson KPPU: Tidak ada Saham Silang STT di Indosat and Telkomsel), Investor Daily, 17 September 2007, exhibited in the defence as Annex # 26. 120 Slide No. 11 and 12 of the presentation of The Role of Law in Business: Recycling Market Structure to establish Fair Competition (Peranan Hukum dalam Usaha untuk Merekayasa Ulang Struktur Pasar Guna Menciptakan Persaingan Usaha yang Sehat), by Frans Hendrawinarta, exhibited in the defense as an Annex # 8. 121 Hikmahanto, Expert Statement, page 1 to 3.

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COPY62. Thus, the Report does not acknowledge that “majority” means majority. On the

contrary, the Report continuously copes agree that majority shall be interpreted

widely and creatively to cover minority (share) as well. In justifying its

interpretation, the Report misread or misstate the rule of law and other

regulations in Indonesia (they all are not related in this case at all) and the

standard of international anti-trust, as the same manner as SingTel and ST

Mobile is about to discuss hereunder: ----------------------------------------------------

(a) According to the Report if KPPU permits Article 27(a) remain to be limited

for share ownership majority, then its party cannot prevent detrimental

impact to competition and society due to conspiracy of minority

shareholders that actually control some company. We herewith state that

that the truth is conversely: Anti-trust Law gives KPPU sufficient rules to

offend such conspiracy, that is: -------------------------------------------------------

i. If minority shareholders keep on dominating through its subsidiaries,

it is logic that its party has to arrange its subsidiaries in order to be in

active conspiring to monopolize market. If minority shareholders

conspire to lessen competition in the market, this conspiracy can

create cartel. Article 11, a trust by Article 12 or Article 4 of the Law

No.5/1999, can attack it. ------------------------------------------------------

ii. The Report relies on illogical truth that if minority shareholders with

a control power want to dominate market through its subsidiaries

(for example two subsidiaries), it will dominate through one

subsidiary and intentionally destroys other subsidiaries. In a case

(that is impossible), as it is referred clearly be the Report, the first

and prioritized subsidiary is handled with Article 25, an article

prohibiting dominant abuse, or other articles of Anti-trust Law that

prohibit unilateral conduct such Article 17 to Article 21 of Anti-trust

Laws.. ---------------------------------------------------------------------------

(b) The Report cites Anti-trust Law to support its broad interpretation of

majority. The Article cited is Article 27(a) that shall be read as a way to

prevent an existence of economic power concentration. We, herewith state

that it is a misreading to read such an Anti-trust Law, because::-----------------

i. Anti-trust Law does not prohibit per se market share concentration in

a group or company. On the contrary, it prohibits concentration

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COPYabuse; if it is true conversely, the Law of Anti-trust shall prohibit in

per-se monopoly, oligopoly, cartel, trusts, monopsony, oligopsony,

and market domination.-------------------------------------------------------

ii. Article 25 of Anti-trust Laws allows a group of business actor to

control more than 75% of market shares of a product as long as no

dominant position abuse. The Law of Anti-trust does not define a

parameter of a group of business actor, nevertheless KPPU admit

that a group of business actor many ways is possible to use its

control over its subsidiaries although the share ownership of the

group is not majority. Thus, it clears in reality that Article 25 of

Anti-trust Law does not prohibit per ser a control of a group through

its minority shareholders. -----------------------------------------------------

iii. In the case, Article 27 must be read as an exemption to public

freedom regulation that is specifically regulated in Article 25 Anti-

trust Law. Article 25 permit a group of business actor to most of

market, but Article 27 (a) prohibit such control, if is performed by

group of business actor (literal understanding) with majority

shareholders in separated competitor’s company.-------------------------

(c) The Report cites the laws of Banking and Capital Market to support its

view. We states that such laws are not related with this case. Consequently,

it is improper to cite or even compare it. --------------------------------------------

i. BAPEPAM Regulation No. IX.H.1 on Acquisition of Listed

Company (Regulation IX.H.1) stated that to take over public

company, the new controlling public is obliged to bid to tender for

all remaining of public company share. Therefore, the objective of

the condition will be fundamentally different with those of Article

27(a). The Regulation IX.H.1 uses controlling that is defined as to

protect other shareholders for not obliging controlling shareholder

bid to tender other shares, in which the bid requires bidder to

disclose the plan of the company. If the controlling shareholder bid

to tender and other shareholders accept to agree to sell their shares,

the controlling shareholder will be a single shareholder. Thus,

Regulation IX.H.1 really permits controlling shareholders to become

majority shareholder.----------------------------------------------------------

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COPYThe objective limiting majority in Article 27(a) differs from

Regulation IX.H.1. The Party to be protected under Article 27(a)

really differs from a part protected under Regulation IX.H.1. The last

tries to protect investor and to boost market efficiency, market for

products of pertinent company. ----------------------------------------------

Besides, the Report does not mention the admittance of Regulation

IX.H.1 to have a company controlled by more than one controlling

shareholders. Point 2.d of the Regulation states that the tender bid

regulation is not valid to shares owned by “other controlling party”

in the same company. Thus, it is clearly that the expression of

controlling shareholders in Regulation IX.H.1 does not imply at all

to control a company. ---------------------------------------------------------

ii. Report does not mention at all that Regulation of Bank Indonesia

8/16/PBI/2006 is issued aiming at facilitating the smaller banks

restructure, merger and consolidation as examples. It is enough to

say that the objective of the regulation is in contradiction with

Article 27(a). In brief, the regulation is to promote concentration in

the market of banking services. ----------------------------------------------

In this case, we cited the introduction of the regulation; -----------------

Considering ----------------------------------------------------------- a. that to create health and solid Indonesian banking

structure banking consolidation steps is needed: b. that to boost banking consolidation the banking

ownership restructurings through the implementation of single ownership in Indonesian banking;..

iii. Besides, SingTel and ST Mobile need to note that the expression

controlling party in banking regulation is initially from the

regulation of Central Bank of Indonesia (BI) No. 5/25/PBI/2003

(Regulation No. 5/25/PBI/2003). Under the regulation, the party

nominates to be a controlling shareholder shall pass fit and proper

test of BI. Therefore, the objective of the requirement in this

regulation differs principally with those of Article 27(a). In the

Regulation No. 8/16/PBI/2006, using shareholder’s term that

controlled and its limitation protect the depositor's party from their

bank being controlled by the party that did not fill the condition with

requirement is that the party that controlled ought to passed fit and

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COPYproper test. Clearly, if the party that controlled could pass fit and

proper test, then they could continue to as shareholders. ---------------

-------------------

The aim of the threshold of the article majority 27 (a) really was

different from the Regulation IX.H.1. The party that make an effort

to be protected by the article 27 (a) really was different from the

party that made an effort to be protected by the Regulation No.

5/25/PBI/2003. The party that mentioned last, made an effort to

protect the suppliers and bank liquidity and the party mentioned first

made an effort to protect the competition in the relevant market that

is the market for the company's product involved.-----------------------

----------

Thus, SingTel and ST Mobile states that the regulation mentioned

above are specific regulations with specific objectives. The terms

can be overlapped one to another. -------------------------------------------

63. Once again, emphasizing literal definition of “majority share” shall be

consistently implemented along with the aim of Article 27(a) while broad

interpretation of KPPU deviates from the clear rule. As it is said by Ehlermann,

the expression of “majority share” is clear and not ambiguous, the authoritative

of anti-trust may not distort the plain language (’the expression”majority

shares” is clear and unambiguous: an antitrust authority should not distort

plain language, no matter what its purported aim might be”)122. WilmerHale

follows the views of Ehlermann that the approach used by KPPU is the

antithesis of established principle in the American anti-trust123. ---------------------

International Standard requires Literal Interpretation on the word Majority ------------

64. After failing to prove that Indonesian law support the interpretation of Article

27(a) extensively, the Report tries to indicate that the interpretation will be in

accordance under the standard competition law in the outstanding jurisdictions.

In this case, the report of Ehlermann is clear in interpreting literally the word

majority. -------------------------------------------------------------------------------------

122 Ehlermann, Expert Statement of SingTel and ST Mobile, page 84. 123 WilmerHale, page 3.

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COPY65. The detail Analysis of Ehlermann to the Article 27 as compared to several

jurisdictions of competition law and the principle of international law principle

bring it to some conclusion: 124: -----------------------------------------------------------

(a) Article 27 must be applied – as he written – as prohibition per se. If it does, then the requirement of Article 27, that is (i) “majority shares”; (ii) “some companies (iii) “common area in a pertinent market”; and (iv) structural market requirement jointly read literally. Based on this analysis, any allegation to Sing Tel or ST Mobile cannot be justified because no single entity has majority shares in some companies; -------------------------------------

(b) In case of non-literal interpretation to ‘majority shares” is applied, then Article 27 must be interpreted as entering actual loss impact requirement into competition. By reading it, KPPU shall prove the loss impacts; and-------

(c) Two approaches above are standing alone – namely, the prohibition per se of Article 27 cannot be combined by non-literal interpretation of the ‘majority share’. ------------------------------------------------------------------------

66. We think that Article 27(a) is infringement per se that need no testing on the

impact to the market. Yet, as Ehlermann argued, if KPPU insists to implement

broader and incorrect interpretation in the phrase “majority share”, then Article

27(a) shall be read as entering substantive test on the loss impact of competition.

Any other interpretations will infringe the principle of international law and

advance competition standard regime in the investigated jurisdiction. --------------

67. KKPU with its long analysis in Part B of the Report on, Economy, tries (and in

our opinion, fails) to show that cellular telecommunication market in

Indonesia is not competitive and the loss thrust to consumer. It is not crucial for

KPPU to indicate the loss against competition and to present economic analysis. -

68. Ehlermann notes that there is no equality between Article 27 and the European

jurisdiction to consider, the closest equality with the infringement per se in

Article 27 is Article 8 of US Act, corporate structure that apply strict liability of

the director or official of the competing corporate125. He notes that United Sates

court judicial does not want to read consistently a rule of law beyond its literal

expression. The refusal is justifiable due to such strict interpretation of a

provision entailing strict liability is a well-established principle of statutory

interpretation. The Courts do not add words to, or expand concepts in, statutes

just to make them more effective where strict liability is at issue. To do this

124 Ehlermann, SingTel and ST Mobile, Expert Statement, page 83 to 86. 125 Ehlermann, Expert Statement of SingTel and ST Mobile, page 34.

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COPYwould infringe the fundamental principles of separation of governmental powers

as well as the principle of legal certainty.’)126

69. Ehlermann has performed functional comparison of Article 27 with the relevant

law in his opinion in the examined jurisdiction. Ehlermann considers that

Article 27 is Part 3 of the Chapter V of Anti-trust Law, that covers “Dominant

Position”, and then the most relevant comparison is dominant position abuse

and the law on monopolization127. -------------------------------------------------------

70. Based on the functional comparison in which he has performed to the law in the

examined jurisdiction, Ehlermann concludes: -------------------------------------------

(a) That the laws only prohibit dominant abuse (in EC, England and Germany) or the implementation or acquiring monopolistic power by breaking the law (in the United States). Possessing high market position itself is not illegal in such jurisdiction128; --------------------------------------------------------------------

(b) That the law is on unilateral conduct, against the unification law, only to conduct abuse has occurred in the market. The authority has no jurisdiction to control the possible future abuse129. This prospective Analysis is possible based on the unification controlling law and to apply the same analysis to Article 27 is illogical. It because Article 27, from the perspective of function is different with unification controlling law in which Article 27 is applied ex post that is to the situation in which market ahs already existed, while unification controlling is ante; and -------------------------------------------

(c) Therefore, although the interpretation of majority share in Article 27(a) means controlling of even material influence is acceptable (in which we deny it) related to the competition law regime international standard in Europe and the United States of America, it is only possible if the control or influence has been abuse and loss the competition in the market. -----------

71. We note that KPPU in its Report has referred to the unification regulation if

European Union, England and the United States of America to support its

argument that “majority share” shall be read as control– particularly shareholder

can give determining influence (on the EU’s term) or material influence (on

UK’s term) on the directive policy of a company. Especially, KPPU refers to

Article 31(1) (b) of EC Merger Regulation that state that a concentration arises

because of controlling. KPPU insists that based on the law of EC, control means

capacity to use an influence to determine a company and no evidence

requirement that the decisive influence has been used or about to use130. -----------

126 Ehlermann, Expert Statement of SingTel and ST Mobile, page 35. 127 Ehlermann, Expert Statement of SingTel and ST Mobile, page 40. 128 Ehlermann, Expert Statement of SingTel and ST Mobile, page 49. 129 Ehlermann, Expert Statement of SingTel and ST Mobile, page 43. 130 Ehlermann, Expert Statement of SingTel and ST Mobile, page 54, page 31.

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COPY72. Ehlermann does not questions that controlling concept or material influence of

the holding company over subsidiaries exist and related in the law on

unification control in the examined jurisdiction. Di EU, England and Germany

one of many factors that trigger the requirements to report transaction to the

authoritative party based on the unification law is the changes or acquiring

“control” in a corporation. In this context, control in defined broadly and not

only covers acquiring shares ownership majority but also transaction that

produce ability to decisive influence of other corporations131-------------------------

73. As an example, Ehlermann refers to Article 37 of the German Law 1958 on Act

Against Restraint of Competition (“ARC”) that require an information in which

any corporation enables a corporation or some corporation use the “significant

competition influence” directly or indirectly to other corporation (Part

37(1)(No. 5) ARC)132. ---------------------------------------------------------------------

74. Yet, Ehlermann insists that it is a mistake to widen the meaning of “ownership

majority” in Article 27 so that it means significant competition influence or

material to Telkomesl because of some reason as follows:

(a) Firstly, he thinks that basically unification law is a mechanism of ex ante control, while Article 27 apply to any available situation. Unification law is true in determining that wider distance of transaction meet a requirements as unification, Article 27 shall be interpreted by way of depending more on similar functional rules.133; ------------------------------------------------------------

(b) Secondly, German unification law assertively defines acquiring significant competition as a punishable unification. The authoritative party shall have not of rewrite such a simple language of the law to come to such conclusion. There is nothing identical in Anti-trust Law (even less Article 27) that can be defined by KPPU134;----------------------------------------------------------------

(c) Thirdly, German Unification Law also defines between acquiring control, share ownership majority (defined as share ownership for at least 50%) significant influence. 135. --------------------------------------------------------------

(d) Finally, the facts do not support the allegation that SingTel and/or ST Mobile have a significant competition influence over Telkomsel. The existing indication show the opposite, namely: i) Ehlermann understands that management Telkomsel does not require shareholders to agree before Telkomsel enter new market (apart from material acquisition); and (ii) majority shareholders of Telkomsel is an incumbent of fixed line telephony

131 Ehlermann, Expert Statement of SingTel and ST Mobile, page 66. 132 Ehlermann, Expert Statement of SingTel and ST Mobile, page 70. 133 Ehlermann, Expert Statement of SingTel and ST Mobile, page 72. 134 Ehlermann, Expert Statement of SingTel and ST Mobile, page 73. 135 Ehlermann, Expert Statement of SingTel and ST Mobile, page 74.

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COPYoperator in Indonesia and, therefore it is experience in telecommunication sector.136. -------------------------------------------------------------------------------

75. As it is stated above and below, Ehlermann thinks that we all agree entirely that

Article 27 conceptually and functionally is different with the unification

controlling law. Therefore, It is illogical that material influence and decisive

influence is taken and inserted in the definition of “majority share” in Article

27(a). Significantly, Ehlermann also show that wider interpretation to Article 27

beyond its literal reading seems to be risky to be a substitute of an

implementation (postponed) of the rule Part IV, Chapter V entitled “Merger,

Consolidation and taking over” (Article 28 and 29). To the present time, the

rule of law have not been valid due to the regulation required by Article 28(3)

and 29(3) have not been available yet.137. We state retroactive implementation

of the law infringe legal certainty and give no justice to SingTel and ST Mobile. -

76. Continuing the analysis of Ehlermann on the invalidity of analogy on the rule of

unification control for the case, WilmerHale suggests that, in whatever thing, the

evaluation to unification control ex post facto by the Report is inconsistent with

the principle of unification control in UK and the United States of America. In

England, a study on ex post of unification is enabled to conduct for four months

since Office of Fair Trading (“OFT”) detects a transaction.138 It is not, OFT only

examines ex post transaction if during unification, the information is misleading

or fake in the sense of material document. ---------------------------------------------

77. After studying the report and the existing problems, WilmerHale concludes that

the report does not inform the impact of Temasek indirect investment in

Telkomsel and Indosat. The lack of competition in the market after the

investment is not proved. The Report only tells that the market structure and

performance of cellular telecommunication service in Indonesia has been more

concentrated since 2002. The market position of Telkomsel increased but not for

Indosat. Market becomes to be oligopolistic, with the price of cellular

telecommunications higher than those of price in some other countries are.

Report only finds that relevant market is oligopoly with consistent behavior with

136 Ehlermann, Expert Statement of SingTel and ST Mobile, page 75. 137 Ehlermann, Expert Statement of SingTel and ST Mobile, page 30. 138 WilmerHale, page 7.

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COPYoligopolistic market structure. WilmerHale furthermore said that such a market

structure has been formed before Temasek invest in Telkomsel and Indosat..139---

78. As it is shown further by WilmerHale, the Report does not result any findings

that competition in cellular telecommunication in Indonesia less strong than it

should be after the indirect takeover of Temasek on Telkomsel and Indosat. The

finding is very crucial based on Article 7 of Clayton Act. For example, the

Report does not get findings on the increase of price after the investment of

Temasek in Indosat on December 2002. At the same time, Indosat was unable to

compete to grab customer and even Indosat have conducted other way to lessen

its significant competition referring to investment of Temasek in Telkomsel.

For such reason, WilmerHale concludes that the analysis of KPPU does not

complete Article 7 Clayton Acts. Further, SingTel and ST Mobile describe

further KPPU's failure in determining causality relationship between allegedly

cross ownership and the substantive loss to competition in market. According to

us, market is really competitive, this conclusion is based on our research that

relied on related competition index and supported by empiric data. -----------------

79. “Majority Share” must be comprehended as control owned by a business player

to other business player. KPPU has acted (1) in opposite to Indonesian law

principles in interpreting rule of law(2) in opposition to principle and law

standard international in law of competition. WilmerHale concludes that

extension of Article 27 in the Report exceed its text.140.-------------------------------

Legal certainty forbid any interpreting Article 27(a) beyond its plain meaning-------

80. Furthermore, KPPU must obey to the legal principle and try not to add or extend

Article 27. By doing it KPPU will deserve to have crime sanction as Article 1.1

Code of Law concerned. -------------------------------------------------------------------

“A conduct cannot be sentenced by crime sanction, unless it is under existing regulation of law.” -------------------------------------------------------

81. In this case, although a crime rule may be interpreted, the interpretation shall be

strict; grammatical interpretation must first priority method. Furthermore, (i)

analogy, as it is applied in the Report by citing some article from other

regulations, capital market and banking regulation, is not admissible. (ii) if

extensive interpretation will be applied. it shall be limited and it does not deviate

139 WlmerHale, page 10. 140 WilmerHale, page 5.

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COPYgeneral understanding or which all individual shares in a society. In this case,

we share our opinion that the extensive interpretation of majority is inapplicable

since it is considered minority in its interpretation. It is biased from the concept

of majority which all individual shares in a society.------------------------------------

82. Although KPPU state on administrative sanction and not crime sanction, the

expression of "majority" shall be equal because, (i) KPPU shall be subject to the

principles of legal certainty as a state governing body; (ii) KPPU is not

legislative body that authoritatively make new law and; (iii) applying the

expression of “majority” contradictive between the regime of administrative and

crime law infringe the legal entities, justice and equal treatment before law.-------

83. In brief, it can be said that there is no fundamental thing to extend literal

definition of “majority shares” in Article 27(a) under Indonesia law or

competition law in the observed jurisdictions law. If Article 27(a) is not

interpreted literally, KPPU can say that SingTel and/or ST Mobile have created

loss in the competition. Unfortunately, there is no fact that Temasek through

SingTel or ST Mobile use its significant influence to the Telkomsel. Majority

shareholder of Telkomsel is PT Telkom and Telkom that has privilege to use its

significant influence. KPPU insist to read Article 27 in its own way and it give

bad precedence to the law in Indonesia.--------------------------------------------------

Either SingTel or ST Mobile do not have shares in several companies in Indonesia ----

84. Article 27 requires Reported that own shares in “several” company that run

business activity in the pertinent market. The bodies that operate in market are

only Telkomsel and Indosat. Thus, according to Ehlermann, Article 27(a) cannot

be applied to SingTel and/or ST Mobile because none of them runs business

activity in the relevant market.141 --------------------------------------------------------

85. SingTel does not have share in any company but Telkomsel, in the relevant

market and, it automatically cannot control any market shares. It can be seen

from the Annual Repot of Singtel and financial statement of ST Mobile that are

submitted to KPPU on 4 July 2007.142 ST Mobile only has minority share in

one company in the market. It is clear that KPPU has not yet and been able to

141 Ehlermann, Expert Statement of SingTel and ST Mobile, page 22 to page 25. 142 See Singtel Annual Reports of 2006/2007,2005/2006 and 2004/2005, 2003/2004 and 2002/2003 and Finance Statement of ST Mobile for the fiscal year ended on 31 March 2006, 31 March 2005, 31 March 2004, 31 March 2003 and 31 March 2002, submitted to KPPU on 4 July 2007.

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COPYprove the elements of Article 27(a) infringed by ST Mobile. Just from this

reason, the allegation to SingTel and ST Mobile have to revoked--------------------

Either SingTel or ST Mobile does not have shares in cellular market in Indonesia

86. KPPU must prove the control of more than 50% of market share in the relevant

market. Besides, the relevant market must be correctly defined. In the ongoing

case, the pertinent geographical market is limited only in Indonesia.

Consequently, telephony of ST Mobile in Singapore and in other place is

irrelevant, since Indosat and Telkomsel do not operate outside.143 -------------------

87. Case also shows obviously that PT Telkom has controlling share in Telkomsel

and its share market is between 50% to less than 60%. Even by taking a most

advantageous definition (for KPPU) maximum, market shares of Indosat,

around 25%. By having two reasons, it is impossible for Temasek to control

more than 50% of market share.144.

THERE IS NO “TEMASEK BUSINESS GROUP”. IF ANY, THEN SINGTEL AND ST MOBILE ARE NOT PART OF IT, BECAUSE EITHER SINGTEL OR ST MOBILE IS NOT CONTROLLED BY TEMASEK. --------------------------------------------------------------------------------------------- 88. We wonder to contain of the Report. In it, it is mentioned that SingTel, ST

Mobile and other Reported belong to what is so-called “Temasek Business

Group. ” “Temasek Business Group” is not a corporate body and it is groundless

to say the Reported are part of the single economic entity. ----------------------------

89. In this case, SingTel and ST Mobile refer to Annex 4 of KPPU's report. The

annex is repot on Singaporean company law and regulation (“Report of

Company Law”) written by C.R. Rajah, S.C. (“Rajah”), one of notable,

experienced and senior lawyers and expert of law company in Singapore. Rajah

states assertively that in this category under Singapore law, Temasek, SingTel

and ST Mobile (and his own corporation) is a separated body/operation. 145.-------

90. According to Rajah, “It is a fundamental principle of Singaporean law that after

it is founded, legally a company and those who own and/or manage it separated.

It also goes into effect although only one person owns and manages a

company.” In other hand, Rajah states that it is in a situation in which

Singaporean can assume that the responsibility of owners (or board of directors)

143 Ehlermann, Expert Statement of SingTel and ST Mobile, page 20 to 21. 144 Case, A Competition in the market of cellular telecommunication in Indonesia, Preliminary Economic

Assesment (Persaingan di Pasar Telekomunikasi Seluler Indonesia, Penilaian Ekonomi Awal )(“Case”), page 36 to 37.

145 Rajah, The Report of Enterprise Law , page 46.

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COPYvery limited. In deception, case or where company is run only as interest of

controlling party and it practically is not separated (appointed the veil of

incorporation), it can be considered. It is hard to prove it and it is rare in fact. -----

91. There is no deception conducted by SingTel and/or ST Mobile. The two

companies are also not run as a device of controlling party. Therefore, an

accusation to Temasek and SingTel or Temasek and ST Mobile as a single

economic entity is indefensible. -----------------------------------------------------------

92. We note that, on the assessment of Ehlermann to the observed jurisdiction law,

the relevant testing to prove that two companies is one body under competition

law is similar to those in Singapore, namely where a subsidiary is under the

control of holding company not freely performing its own behavior in the

market and in holding company and subsidiary company assumed to be a single

body.

93. Referring to the law that arrange multilateral behavior, Ehlermann notes that’s

in all observed jurisdictions, an agreement among corporation that limit

competition is prohibited146 Nevertheless he explains that, holding company

and subsidiary considered as single economic entity, an agreement among them

cannot be assumed to infringe the rule that arrange multilateral behavior

company --------------------------------------------------------------------------------------

94. Prof Ehlermann states that none of law system in observed jurisdiction assume

that minority ownership gives control or influence to holding company so that a

competition authority assume that market position and the behavior of

subsidiary must be investigated along with its holding company147. Based on

that, Ehlermann concludes that none of observed jurisdiction assumes Temasek

indirect ownership of minority share gives acceptable control to Indosat or

Telkomsel so that anti-trust authority considers Temasek Business Group as one

single economic entity that its market position and behavior are one.148.

95. As it is described above, Ehlermann indicates that “control” according to the

laws on unification controlling is defined broader and not only cover acquisition

of majority share ownership but also transaction that produce an ability of its

146 Ehlermann, Expert Statement of SingTel and ST Mobile, page 54, 57 and 58. 147 Ehlermann, Expert Statement of SingTel and ST Mobile, page 47. 148 Ehlermann, Expert Statement of SingTel and ST Mobile, page 49.

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COPYdecisive influence to othercorporations.149 Nevertheless, it is wholly

inappropriate to import this wider concept of control into other areas of

competition law. For example, if “control” for the purposes of the single

economic entity doctrine was understood in the same broad way as in merger

control, this would result in agreements between a parent and a subsidiary in

which it has a minority shareholding escaping fundamental competition law

rules designed to control the multilateral (anticompetitive) behavior of

companies..-----------------------------------------------------------------------------------

96. In consequence, under the law of Singapore and observed jurisdiction, there is no

fundamental allegation for Temasek and SingTel or Temasek and ST Mobile to

be considered as Single Corporation. The term “Temasek Business Group”

(seems to be created by KPPU) is never presence and have no significance at all.

All requester in this investigation are separated under the law and fact. . -----------

97. As the same manner as noted above, Hikmahanto affirms that there is no

doctrine of “single economy interest” in Indonesian law. In addition, if any, the

test shall be strictly conducted. ------------------------------------------------------------

98. In whatever case, all evidences before KPPU indicate that Temasek actually

using no control or even significant influence to SingTel or ST Mobile. Besides,

all existing evidences show absolutely that SingTel does not control or use

significant influence to Telkomsel and ST Mobile does not control or use

significant influence to Telkomsel. -------------------------------------------------------

TELKOMSEL IS NOT CONTROLLED BY TEMASEK THROUGH SINGTEL AND/OR ST MOBILE, BECAUSE SINGTEL AND/OR ST MOBILE IS NOT CONTROLLED TELKOMSEL. ON THE CONTRARY, PT TELECOMMUNICATION INDONESIA PLC (TELKOM), MAJORITY SHAREHOLDERS, CONTROL TELKOMSEL.------------------------------------------------

Temasek does not control or give no decisive influence to SingTel.

99. As it mentioned above, that there is no cheat or fraud conduct and to prove that

Temasek and SingTel is single economic entity, it shall be proved first that

SingTel is operated only as a device of Temasek's business and interest. As well

as to be proved, that SingTel does not have own existence/separated operation.---

149 Ehlermann, Expert Statement of SingTel and ST Mobile, page 68.

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COPY100. In the beginning it must be shown that, Temasek, apart from its ownership of

more than 50% to SingTel, Temasek does not control or does have important

and decisive influence to SingTel.. -------------------------------------------------------

101. The only fact owned by KPPU so-called in Report as evidence of the control of

Temasek to SingTel is as follows: --------------------------------------------------------

a. That Temasek, under the Statuettes of SingTel Article 59(c), Article 96 (a), Article 102 and Articles 103, Temasek, as a shareholder in SingTel has an authority to appoint and to dismiss members of SingTel board of director. The Report cites the Statutes without analyzing it in the framework of relevant law, Singaporean company law, and;--------------------------------------

b. That Mr. Simon Israel is a member of board of director of Temasek and SingTel. ----------------------------------------------------------------------------------

102. Referring to (a) the above mentioned, it must be affirmed that under the Statutes

of SingTel, the shareholders of SingTel, with normal decision of someone to be

a Director due to a vacant for the position (casual) or be an additional Director

(See Article 103 of SingTel Statutes ) (for example if a Director passed away

during his/her tenure). Normal Nomination to be a member of SingTel board of

directors is in accordance with Code of Corporate Governance) that determined

by Bursa Singapore (SGX) in accordance with Regulation 710 of Registration

Manual) (“Code”). According to Code, as it elaborated by Rajah, a Nominating

Committee (NC), consists of at least three directors (that its majority, including

Chairperson is required to be independent) propose suitable candidates for board

of directors (”Board of Directors”) SingTel, approves the nomination. The

Chairperson of NC shall be a director who are not direct or indirectly related to

shareholders substantial (those shareholders with the interest of 5% or more

with company voting right).150. Its fact, all members of NCCommittee are

independent.----------------------------------------------------------------------------------

103. Referring to (b) above, it shall be emphasized that Simon Israel is only one of

10 members of SingTel board of directors. SingTel board of director makes

decision based on majority votes.151 It is clear that Mr. Simon Israel is possible

to lose out nine other SingTel Directors. Further, Mr. Israel is not candidate

(nominee) from Temasek. In fact, when Mr. Israel nominated as a director of

SingTel on 4 July 2003, he is not a director of Temasek. He only nominated as

director Temasek on 1 August 2005 and directors executive Temasek as from 1 150 Rajah, The Report of Enterprise Law, page 41. 151 See part 106 of the Memorandum and New Statutes of Singapore Telecommunications Limited, submitted

to KPPU on 4 July 2007

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COPYJuly 2006. Therefore, structurally Temasek can not give material influence to

the board of SingTel,directors's decisions. It has been elaborated before

KPPU's Question and answer session. We do not know basically, but if any,

why does KPPU not mind to the facts. ---------------------------------------------------

104. Further, any allegation that Temasek conduct control to the SingTel or ST

Mobile is bias. Rajah affirms that Temasek does not have right legally to give

instruction to or to break the decisions of SingTel (or ST Mobile) director

relating to management (including operation and diary business policy) of

SingTel (or ST Mobile). KPPU does not indicate evidence that show it

conversely. For this reason, the finding of KPPU that Temasek give major effect

to the decisions of SingTel or ST Mobile board of directors are groundless and

ignores to examine the evidence before it. -----------------------------------------------

104. Further, any allegation that Temasek conduct control to the SingTel or ST

Mobile is bias. Rajah affirms that Temasek does not have right legally to give

instruction to or to break the decisions of SingTel (or ST Mobile) director

relating to management (including operation and diary business policy) of

SingTel (or ST Mobile).152 KPPU does not indicate that an evidence that show it

conversely. For this reason, the finding of KPPU that Temasek give major effect

to the decisions of SingTel or ST Mobile board of directors are groundless and

ignores to examine the evidence before it. -----------------------------------------------

105. Rajah states that in any matter the directors of SingTel have to work for the sake

of SingTel. The interest of company is not only limited to the interest of their

each shareholders in person and covers the interest of employees and

creditors.153 This is the barrier hereinafter at the instance of Temasek can

influence decision by board of directors of SingTel ------------------------------------

106. The obstacle of Temasek to influence SingTel, as Rajah affirms it, related to

limitation of votes that is required in Company Law (Chop 20) and the Statutes

of SingTel and also on diary management decision. 154 In fact, SingTel does not

consult Temasek and Temasek does not have an obligation to ask an approval to

the business strategy and invesment of SingTel. KPPU never states the

evidence conversely.

152 Rajah, The Report of Enterprise Law , page 20 and 45. 153 Rajah, The Report of Enterprise Law , page 45. 154 Rajah, The Report of Enterprise Law , page 24 and 26.

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COPY107. The allegation that Temasek control SingTel busines is groundless. KPPU fails

to prove that Temasek influences SingTel. KPPU also fails in proving that

SingTel does not have its own operation. It is a serious accusation to SingTel as

a biggest enlisted company in Bursa Singapore (“SGX”), SOX, and Bursa

Australia (“ASX”). It is annoying for SingTel to have such kind of allegation

and KPPU allegeds it without providing evidence.

Temasek does not control or influence ST Mobile -------------------------------------------

108. We mention our position as it written in paragraph 99, that there is no cheat or

fraud conduct and to prove that Temasek and SingTel is single economic entity,

it shall be proved first that SingTel is operated only as a device of Temasek's

business and interest. As well as to be proved, that SingTel does not have own

existence/separated operation. -------------------------------------------------------------

109. Temasek does not have share in ST Mobile that make Temasek is absent to

nominate members for ST Mobileboard of director. As it is mentioned above,

Rajah affirm that legally, Temasek does not have right to give instruction or

cancel the decision of ST Mobile directors relating to management (including

daily operation and business policy) of ST Mobile. Consequently, Temasek does

not stay in a position to influence the decisions of ST Mobile board of director

policy and operation of ST Mobile, including the investment of ST Mobile in

Telkomsel. There is no evidence for KPPU to state that conversely. It shall be

decided that Temasek does not control or influence ST Mobile and both

company because they are separated entities in legally and economically.----------

Temasek does not control and influent Telkomsel -------------------------------------------

110. Hikmahanto said on the concept of, if the concept any, then under the

Indonesian, the test can be completed only if (i) there is a joint management of

the holding company and its subsidiaries; (ii) the holding company planning

covers a centralized economic activity of the subsidiary and; (iii) subsidiary is

prohibited to disagree with the decision of management. In briefly, it must be

perfect domination by holding company to the operation of subsidiary. We note

that KPPU currently does not give any evidence about (i), (ii), (iii). We

hereinafter note that KPPU does not give evidence stating that Temasek

influences Telkomsel.

111. KPPU affirms in the Report that Mr. Simon Israel is member of Temasek and

SingTel board of directors. Mr. Lim Chuan Roh is management member of

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COPYSingTel. And candidates of SingTel to be post as board of commissioner

Telkomsel, Mr. Leong Shin Loong is commissioner of ST Mobile and member

of Board of commissioner of Telkomsel, Mrs. Chua Sock Koong is

management member of ST Mobile and SingTel155. This is not wholly correct

because Leong Shin Loon NOT MEMBER of ST Mobileboard directors.

However, this fact does not prove that Temasek controls Telkomsel and no

wonder if KPPU cannot explain explanation on how Temasek controls

Telkomsel. In fact none of them become director of Temasek and board of

directors member or board of commissioner Telkomsel, there is no overlap in

the management of both company referred.

112. Temasek does not have share in ST Mobile or Telkomsel. That is Temasek not

have voting right concerning policy and/or activity of Telkomsel. To avoid

hesitating, there is no contractual arrangement between Temasek and SingTel,

Temasek and ST Mobile and/or Temasek and Telkomsel related to performance

and/or business of Telkomsel. Further, Temasek is not in a position to and not

influence to any one policy or operation of Telkomsel. Once again, there is no

evidence for KPPU state it conversely.---------------------------------------------------

ST Mobile does not control or influence Telkomsel------------------------------------------

113. Is reality that test for verification that ST Mobile and Telkomsel is “single

economy entity” in Indonesian law, as the same manner as expressed by

Hikmahanto, not fulfilled. We note that KPPU does not give evidence even

states that (i) that the of plan ST Mobile including Telkomsel single economic

activity, or (ii) that Telkomsel is prohibited to challenge this management

policy. We state that KPPU even is not ready to give evidence that ST Mobile

influence Telkomsel.------------------------------------------------------------------------

114. The only fact owned by KPPU is as follows:--------------------------------------------

a. That ST Mobile as shareholders Telkomsel own authority to nominate two Telkomsel board of director under Article 10(1) Telkomsel’s Statutes and two Telkomsel board of under Article 13(3) of Telkomsel Statutes. ------------

b. That there are positions that are interconnected between ST Mobile and Telkomsel;-------------------------------------------------------------------------------

c. Since 2002 up to present, the position of Director of Commercial and Director of Operation are always nominated by ST Mobile.----------------------

115. We inform that the Report ignores evidences and facts that make it opposes

against its analysis, as follows: ------------------------------------------------------------ 155 Report , page 28.

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COPY116. Referring to (a) above, we state that actually there is an evidence that ST Mobile

does not influence Telkomsel. As minority shareholders, ST Mobile is entitled

to nominate only 2 of 6 members in Telkomsel’s Board of Commissioner

whereas Telkom is entitled to nominate majority (that is 4 from 6 members).

Currently, there are 5 Commissioner. That is, PT Telkom controls majority of

the member of Telkomsel Board of commissioner.. ------------------------------------

117. The same goes for ST Mobile. ST Mobile is only entitled to nominates 2 of 5

members in Telkomsel board of director. Again, PT Telkom controls majority

of members of Telkomsel board of director.---------------------------------------------

118. All decisions of Telkomsel Board of commissioner and board of director

(“Telkomse Council l”) are taken by voting from majority member of related

Council. Due to the candidates of ST Mobile are not majority of Telkomsel

council, structurally, ST Mobile is not in a position to control one of the

decision taken by the council such as PT Telkom, but based on its ability to lift

majority from member Board of commissioner and board of director.

119. Under Indonesia law, candidates of ST Mobile for Telkomsel Council is

required to perform their duties for the sake of Telkomsel and avoid placing

themselves in their position in which the duties for Telkomsel oppose against

other interests, Mr. Lim and Mr. Leong really know and ready to complete their

role each as director and commissioner of Telkomsel. There is no evidence that

the candidates of ST Mobile for Telkomsel Council ever abuse their duties.

120. Mr. Lim Chan Poh and Mr. Leong Shin Loon is only 2 of 5 commissaries in

Board of commissioner of Telkomsel, whereas Mr. Yuan Kuan Moon and Mr.

Mo Boon Teck Alan is only 2 of 5 directors in board of directors Telkomsel. As

the same manner as has been noted KPPU that at least 4 members are obliged to

fulfill quorum for board of directors meeting and board of commissioner. That

is, candidates of ST Mobile will always become minority cannot influence the

decision and policy made by board of directors or commissioner. -------------------

121. Concerning to material argument of KPPU that since 2002 up to present, the

position of Director of Commercial and Operation are always nominated by ST

Mobile, it is actually not true. ST Mobile is entitled to nominate two positions

in Telkomsel Management. In the beginning, ST Mobile nominates Director of

Planning and Development, and Director of Operation. Only recently, ST

Mobile nominates Director of Commercial and Director of Operation. SingTel

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COPYand ST cannot see how can it will be as evidence that ST Mobile has ability to

control Telkomsel. Telkomsel is managed by board of directors Telkomsel.

Board of director must approve all business policies, operation and strategy

before they are applied. As it is admitted by KPPU, Telkom own majority in

both Telkomsel council. --------------------------------------------------------------------

122. Hereinafter SingTel and ST Mobile note that ironically KPPU does not mention

that important posts of Managing Director and Director of Finance since 2002

up to present always occupied by candidates of Telkom as it are its rights as

majority shareholders to have it. Concerning to this condition, SingTel and ST

Mobile note that Article 11.3 of Telkomsels’s Statutes states that, if Managing

Director or if he/she absent or then two other Directors nominated by majority

shareholders that have rights and authority to act deputizing board of director

and to sign documents on behalf of Corporation and be representative of

Corporation in and extrajudicial of any kind and in all occurrence, binding

corporation with other party and perform all action, both on management or

ownership.------------------------------------------------------------------------------------

SingTel does not control and influence Telkomsel -------------------------------------------

123. The test to prove that SingTel and Telkomsel is “single economic interest” in

Indonesia law, such expressed by Hikmahanto, have not fulfilled yet. In fact,

SingTel and ST Mobile admit that KPPU even cannot propose evidence that

SingTel control Telkomsel

124 KPPU in its Report thinks that SingTel has authority for “deciding company

policy especially approval for budget through “Capex Committee” based on the

followings: -----------------------------------------------------------------------------------

That the approval of annual budget on, related to capital expenditure, shall pass Capex Committee that consisted of three personnel, from Telkom (2 personnel) and SingTel (1 personnel) (The IOR of SingTel, dated 4 July 2007, The IOR of SingTel, dated 11 July 2007). SingTel intervenes keenly Capex Committee through its staff posted for it (The IOR of Telkom, dated 24 July 2007) and Capex Committee may consult with the team of SingTel, one of them is Mr. Widjaja Suki (The IOR of Telkom, dated 4 July 2007);). Mr. Widjaja Suki evaluates the parameter applied in the proposal. In case of parameter error caused by human error, the correction is made immediately by Mr. Widjaja, but in case of parameter error caused by market situation, Mr. Widjaja Suki is to consult SingTel Mobile’s appointed members of Capex Committee (The IOR of SingTel Mobile, dated 4 July 2007); -----------------------------------------------------------------

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COPYThe budget realization is approved by Capex Committee quarterly in accordance with the needs submitted by any departments (The IOR of SingTel Mobile, dated 4 July 207); Mr. Widjadja Suki and Mr. Quah Kung, the personnel assigned by SingTel, monitors the implementation of approved annual budget. They later recommend it to the SingTel Mobile’s appointed commissioners of Telkomsel. In performing his assignment, Mr. Widjaja Suki may perform a communication with management staffs of Telkomsel’s business control such as Mr. Jaka Susanta to whom Mr. Widjaja Suki perform a contact and communication intensively (The IOR of SingTel Mobile, dated 4 July 2007); ----------------------------------------------------------------- SingTel intensively advises the SingTel’s appointed Commissioners of Telkomsel on business vision plan of Telkomsel (The IOR of SingTel Mobile, dated 4 July 2007);156----------------------------------------------------

Report has wrong Fact in telling the Fact on Telkomsel Capex Committee ------------

125 We firmly refuse the interpretation of KPPU on the evidence that given by

representative of SingTel before KPPU during investigation on 4 July 2007 and

23 July 2997 such cited above. Hereinafter in an Investigation Official Report of

Telkom on 24 July 2007, stating there is no told that Singtel’s staff assigns

actively to influence Capex Committee. It is not true. ---------------------------------

126. First of all, we must emphasize that budget for capital expenditure approved

along with annual budget is arranged. Annual Budget is first proposed by

management of Telkomsel to board of director for having until it finally

submitted by board of director to Telkomsel’s Board of Commissioner for an

approval. With the majority of in both board of director of commissioner of

Telkomsel, PT Telkom stays in the only one conducive position to control the

annual budget.--------------------------

127. Its fact, based on the Investigation Official Report of Telkom on 24 July 2007, it

is clear that if there is a party possessing an influence on the decision of Capex

Committee, is PT Telkom. We elaborate hereunder part of relevant Investigation

Official Report that relevant, in which its Managing Director, under oath,

answer the following questions: -----------------------------------------------------------

23

Question: How decision-making processes are taken in Capex Committee?

Answer: The initial proposal is from Telkomsel board of director.

24.

156 Report , page 35, page 87 to 92.

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COPYQuestion: How are about the existence of SingTel representatives?

Answer: In my Experience as a member of Capex Committee that the

decision remains to be in Telkom and as far as I know, currently Telkom

controls the decision of Capex Committee more.

25.

Question: Does SingTel ever influence the decision of Capex Committee,

directly or through staff of Capex Committee?

Answer: Naturally, it does not, of course.

26.

Question: I mean its effectivity?

Answer: Actually, if it is seen from its effectiveness, Telkom controlled more.

27.

Question: In your opinion how much are the influence of each party, between

the representative of Telkom and SingTel?

Answer: Formally, it is 65% and 35%.

28.

Question: If it focuses on the decision of Capex Committee, how many percent

is the influence of each party, between representative of Telkom and SingTel?

Answer: It maybe I am able to depict that Telkomsel is operated under the

directives of Telkom and for several strategic things Telkomsel shall be in

follow it. Although, there are sometimes different opinion exists such as

concerning SLI and Backbone.

29.

Question: For such things, is there any objection from SingTel?

Answer: Yes. SingTel object to that but the decision remain to be won by

Telkom. We want to affirm that for the things that are not strategic, Telkom

always wins it. Nevertheless, for the company operation I know much on that.

It is better to you to as Telkomsel board of director.

The same goes for part of the following interview, taken from Investigation Official Report of Telkomsel on 13 July 2007. It clearly indicates that Telkomsel is taking care of the policy proposal (if any) of SingTel. ---------------- 24.

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COPYQuestion: Is there any policy of SingTel adopted by Telkomsel? ------------------- Answer: Telkomsel, in arranging the policy, does not consider the source of

the policy whether it is from SingTel or Telkom. We emphasize on the professionalism and independency--------------------------------------

The position of SingTel and ST Mobile remain to be the same as SingTel

and ST Mobile submit it to KPPU during investigation, that either SingTel

or ST Mobile does not give big influence to the capital expenditure

ofTelkomsel. ----------------------------------------------------------------------------

128. We understand if KPPU alleges that Capex Committe must pass the approval of

annual capital expenditure 157. It is not true. The representative of SingTel or ST

Mobile tells the same thing even during investigation. In the investigation

session of SingTel on 4 July 2007, when the representative of ST Mobile are

questioned on whether all procurement proposal submitted to Capex

Committee, and the answers is ”yes” (see question 44 of Investigation Official

Reports of ST Mobile on 4 July 2007). Answer: It relates, not for having an

approval of the budget arrangement on capital expenditure by Capex Committe

but for the disbursement of per-in quarter of the proposal of capital expenditure

(the elucidation of Mr. Widjaja Suki, Deputy Director (Business

Management)of International Group, SingTel, in his investigation of ST Mobile

on 4 July 2007 affirming to this condition. Mr. Suki tells, ”There is a routine

thing, such as office stationary that need no approval of CAPEX Committee;

that need an approval of CAPEX Committee relates to implementation of annual

budget that has been approved related to network” (See question 49,

Investigation Official Report of ST Mobile on 4 July 2007). However, as the

same manner as mentioned hereunder, the approval of Capex Committe is not

final. The disbursement has to be approved by Board of commissioner. Capex

Committee------------------------------------------------------------------------------------

129. As the same manner as mentioned above, SingTel and ST Mobile refuses

KPPU's allegation that ”Capex Committee gives an approval for budget

realization quarterly based on the requirement submitted by each department

(Investigation Official Report of SingTel Mobile di on 4 July 2007)”158. The

quarter disbursement proposal for capital expenditure prepared by Director of

157 Report , page 35, page 87. 158 Report , page 36, page 89.

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COPYOperation in line with the fiscal year approved by Board of commissioner for

that year, and from the income of Marketing and Telkomsel's Sales and

personnel of working unit. The proposal is submitted further to be studied by

Capex Committee. Capex Committee gives recommendation to Board of

commissioner whether the proposal is approved or not. However, it is needed to

concern that, it is opposed to the allegation of KPPU, the final decision whether

it is approved or not, for the quarter withdrawal is conducted Telkomsel’s Board

of Commissioner and not by Capex Committee. During the investigation of ST

Mobile on 4 July 2007, the representatives of SingTel, Mr. Slattery has coped to

clarify this problem. The followings are question asked to and the answer.

70. Question: Is there any committee from Telkomsel apart from Capital

Expenditure Committee? Answer: Yes it is. There are several committees from Telkomsel, but the

decision is in board of director. It is also an example of resolution of Telkomsel Commissioner, that Capex Committee recommended, but the approval remains to be in the commissioner of Telkomsel. -------------------------------------------------------------------------------------------------

130. We refuse KPPU's allegation that “SingTel has actively influenced Capex

Committee through the staff assigned for that problems”. As the same manner as

it has been admitted by KPPU, Capex Committee consists of 2 Telkom's

candidates and 1 from ST Mobile. Capex Committee's recommendation is based

on the majority votes; the nomination of ST Mobile had much influence to the

material.

131. KPUU has alleged that”Capex Committee can consult team with SingTel; one

of them is Mr. Widjaja Suki. Mr. Quah Kung Yang and Mr. Widjaja Suki are

two of SingTel team members that always support candidate of ST Mobile to be

Capex Committee (see the objective of the conversation below). They do not

support member Telkom nominate. (See: IOR of SingTel on 4 July 2007). The

members nominated by Telkom have their own supporters. While ST Mobile's

candidates are able to ask Mr. Quah and/or Mr. Suki for information and/or

elucidation to all proposals of quarterly withdrawal, they made their own

decision. It is clearly told by Mr. Quah, during SingTel investigation on 4 July

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COPY2007. To refresh the memory of KPPU, hereunder SingTel and ST Mobile

specify questions and comments.-----

KPPU: Does the Committee of Ex Capex consult you? Answer: :No. Widjaja is part of team. When the document proposed to Board of commissioners by the team, the team can ask the opinion of SingTel and ST Mobile, if board of commissioner cannot do that. KPPU: Do members of Committee Cap consult SingTel? Answer: No. Chap Ex that mention it. If they need support, they may ask my team/Widjaja to get information, and SingTel and ST Mobile give feedback to candidate of STM about Cap Ex and they decide by themselves. KPPU: Thus, before the team member makes a decision, does he consult your team? Answer: No. We support it by giving them information they need. After that, it is up to Cap Ex to decide. We only support candidates of STM. Telkom's candidates have their own supporters.

The allegation of KPPU is as follows:----------------------------------------------------

“Mr. Widjaja Suki has helped Capex Committee in evaluating about the possible suggestions of capex. Mr. Widjaja Suki also conducts parameter evaluation used in capex proposal. If the measurement of the parameter is not true caused by human error, Mr. Widjaja Suki must immediately revise it, but if it is caused market condition, Mr. Widjaja Suki must consult member of Capex College nominated by SingTel Mobile (IOR of the SingTel on 4 July 2007) ” [enhanced to emphasis]. ----------------------------------------

The allegation of KPPU that Mr. Suki revises the measurement of parameter

used in the proposal of Capex is incorrect and gains no support in the

testimonies made by the representatives of ST Mobile to KPPU on 4 July 2007.

The following are questions asked by Chairperson of KPPU Mr. Suki

concerning capex's suggestion given to Capex committee to be learnt.--------------

62. KPPU: How often does the parameter not match with budget?

Answer: We often find parameter that does not match with the budget.

64. KPPU: What is the cause of inappropriate?

Answer: Sometimes it caused by human error but sometimes market

condition. 65. KPPU: What do you do if you find such mistakes?

Answer: If the mistake is caused by human error, they will revise it, but if it

is caused by market condition, I consult Mr. Leon Mr. Leong.

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COPY66. KPPU: Thus, if the mistake is caused market, it must be discussed with Mr.

Leong?

Answer: Yes, it has.

I do feel that I have authority for that, because if there is any deviation on it I

must inform commissioner of SingTel nomination to finish the problem.

Finally, the decision-making is in Mr. Leon (commissioner nominated by ST

Mobile) to be considered.

132. Base on what are mentioned above, it is clear that, where proposal capex

submitted by the staff of Telkomsel is not fulfilled the budget caused human

error in documentation, “they”, that is, Telkomsel's staff in charged, revise the

document, and not by Mr. Suki. -----------------------------------------------------------

133. KPPU also ever told that, “if the parameter is not true caused by market

condition, Mr. Widjaja Suki shall consult members of Capex Committee

assigned by SingTel Mobile (IOR of SingTel date 4 July 2007). It is untrue.

Based on the note above, it is clearly that proposal of capex does not meet the

budget because of market changes; Mr. Suki will advise the candidates of ST

Mobile about Capex Committee so they can make a decision by notification

about proposal of capex----

134. Further, Temasek, SingTel, or ST Mobile does not give major effect to the

decision of Telkomsel's daily expenditure. All daily expenditures are limited

arranged. IOR of ST Mobile on 4 July 2007). Board of Commissioner in which

ST Mobile has no majority vote agrees the limitations.

135. We understand that KPPU also alleged that “Based on the approved annual

budget, SingTel has assigned its two staff, Mr. Widjaja Suki and Mr. Quah

Kung Yang to monitor the implementation and give recommendation to the

commissioner of Telkomsel appointed by SingTel Mobile... SingTel also has

actively suggested Telkomsel's commissioner appointed by SingTel Mobile

concerning business vision and plan of Telkomsel (IOR of SingTel on 4 July

2007). SingTel does not ever have rights to assign its staff to monitor the

problem of Telkomsel, by itself and its facts. SingTel only perform part of the

agreement with ST Mobile concerning the purchasing of corporation service

limited to human resource management, finance and accounting, and investment

monitoring by ST Mobile from SingTel. The following is information given to

KPPU by SingTel and ST Mobile mention information that given by Mr. Quah

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COPYto KPPU during the investigation of the SingTel on 4 July 2007 until now. ------

----------------------------

30. Are there any other management teams and is it the same as management

team of ST Mobile?

Answer: The structure of SingTel for the purpose of efficiency is that certain

functions in subsidiary performed by SingTel as service provider, namely

services of subsidiary company purchasing perform the functions of like

customer service, law, human resource, finance and treasury.

31. KPPU: Can it be told that the function of STM performed by SingTel in

general is the function of corporation?

Answer: Yes. Such function can be called as the function of General

Corporation. In case of ST Mobile, cellular business is still performed by ST

Mobile but the Corporation Function, ST Mobile buys them from SingTel.

. 136. Regulation is accepted commercially. They avoid duplicating function,

economizing fare, and enabling role specialization. Mr. Suki and Mr. Quah

monitor Telkomsel annual budget implementation as part of function of

investment monitoring commissioned to them as agents of ST Mobile. They

also monitor the implementation of Telkomsel and recommend candidates ST

Mobile in Telkomsel's boards of director and commissioner. Mr. Quah and Mr.

Suki do not take part in making the decision in Telkom; it clearly that the

members are those who are in charge in making decision.

137. The members nominated by ST Mobile at the boards of Telkomsel can consider

the recommendation to Mr. Quah and Mr. Suki, but they make decision

independently. They are professional who are qualified and professional expert

required to make decision independently and perform their task for the interest

of Telkomsel. It is shown that the candidate of ST Mobile in the Board of

Telkomsel had ever refused the recommendation Mr. Quah and Mr. Suki. We

refer to examples that containing the letter submitted by SingTel to KPPU on 23

July 2007.

138. KPPU also alleges, “In getting tasks done, Mr. Widjaja Suki can directly contact

Telkomsel’s management member in business monitoring, one of them is Mr.

Jaka Susanta (IOR of SingTel Mobile date 4 July 2007)”. We inform that it is

not an action of SingTel in influencing Telkomsel. In a big business like

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COPYTelkomsel, candidates of ST Mobile at any times qualify and ask in order to Mr.

Suki getting the explanation from Telkomsel that enabling candidates make

decisions on the basis of sufficient information approved by Telkomesl boards.

In the context of gathering information, Mr. Suki contacts Telkomsel in

Division of Business Monitoring. Mr. Quah and Mr. Suki do not give instruction

or influence Telkomsel employees or board member. Mr. Quah and Mr. Suki are

in their capacity as consultants. There is no evidence in KPPU that suggest it

conversely. ----------------------------------------------------------------------------------

Especially, Temasek, SingTel, or ST Mobile does not monitor or influence the policies

and decisions of Telkomsel on procurement and pricing.---------------------------------------

Either Temasek or SingTel or ST Mobile does not influence the decisions of Telkomsel

to the joint procurement and joint procurement is not per-se anti competitive.

139. Temasek, SingTel or ST Mobile does not take part in the procurement process

for Telkomsel. Procurement is managed by Department of Research and

Development, head by Telkomsel nomination. -----------------------------------------

140. We comprehend that KPPU has concluded in its Report that Telkomsel does not

engage in joint procurement with a company affiliated to SingTel but only share

information with the company. KPPU does not allege that such conduct is null

and void or imprecise. In a matter, and because questions about joint

procurement takes much time during Investigation of SingTel on 23 July 2007,

NERA has submitted joint procurement and conclude that joint procurement is

conducted for getting the discount on the basis of volume in vies as long as

input in the production process is not anti competitive. On the contrary, discount

based on volume is the usual aspect and healthy to the process competed to the

prosperity of customer. 159.-----------------------------------------------------------------

Temasek, SingTel or ST Mobile do not influence the Telkomsel decision on tariff. ---------

141. Either Temasek or SingTel/ST Mobile cannot influence Telkomsel policy

including pricing policy. KPPU admit that cellular telecommunication tariff is a

policy of operator based on the main formula and tariff structure regulated by

government as it is stated in Article 28 the Law No.36/1999160. Under Article

28 Law No.36/1999, tariff of telecommunication network and

159 NERA, page 36 to 45. 160 Report , page 47.

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COPYtelecommunication service has to be regulated by network (“Telecommunication

Law”)161 and service operators by referring to the formula regulated by

government. The government regulated telecommunication industry through

Department of Transportation (“MOC”) and Department of Communication and

Information (“MOCI”). KPPU also admit that cellular telecommunication

operators have met the regulation in ceiling price and tariff. Both are part of

regulation in the Law No.36/1999 on communication 70.162. -------------------------

142. In formulating tariff, as it required by government, board of director in which

Temasek, and SingTel/ST Mobile have no significant votes, is determined. It

has been confirmed by the representative of ST Mobile, Mr. Sean Slattery,

during investigation of ST Mobile on 23 July 2007 and also Telkomsel

representative during Telkomsel its investigation on 13 July 2007, as it

mentioned below.----------------------------------------------------------------------------

Investigation of ST Mobile ----------------------------------------------------------------

27. KPPU: There is a trend that in analyzing economical tariff, Telkomsel keeps on being a Leader in this industry. Telkomsel keeps the tariff high, does SingTel Mobile know about it?----------------------

Answer: Telkomsel board of director fixes Tariff; SingTel Mobile does not take part ----------------------------------------------------------------

143. None of the management member of SingTel gives suggestion and

recommendation on pricing to anybody in Telkomsel, including those assigned

ST Mobile in board of director and commissioner of Telkomsel. PT Telkom as

majority shareholders elected majority of board of director in Telkomsel.

Therefore, none of party may have right to suggest material influence on

Telkomsel’s tariff, but PT Telkom, not Temasek, SingTel or ST Mobile. No

supporting suggestion that Temasek, SingTel or ST Mobile have material

influence to the pricing policy of Telkomsel.--------------------------------------------

CELLULAR MARKET IN INDONESIA IS COMPETITIVE AND NO EVIDENCE SHOW THAT THERE IS ANTI COMPETITION AND BEHAVIOR ANTI-COMPETITION BY TELKOMSEL OR INDOSAT OR BOTH OF THEM 144. It needs to be concerned that since SingTel and ST Mobile do not infringe

Article 27, level of competition evaluation in Indonesian market is not needed

161 See the Decree of Minister of Communication No. KM 20/ 2001 and the Decree of Communication Minister No. KM 21/ 2001on the Regulation of Communication Service as it has been amended (“Kep 21/2001”) (it is exhibited in the defence as Annex #35). 162 Report , page 12.

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COPYany longer. The following analysis is for completeness only and not to

emphasize the fault of the allegations addressed to the under investigation

parties. ----------------------------------------------------------------------------------------

145. Further, only if (as for an argument) KPPU is allowed to misinterpret plain

words (in which we deny), KPPU has to prove that ant- competition behavior

exist and such behavior relates to the allegation of cross ownership. ----------------

146. As it is stated in the defense, six expert’s statements issued or submitted before

the investigation, all indicate that there is no evidence of anti-competition

behavior, in Indonesian market of telecommunication service, whether in entry

barrier, market shares price, revenues and expenditures. 163. The following is the

findings of investigation indicator of the related competition: ------------------------

147. The Performance of Stock Exchange. The allegation of KPPU is not

supported by stock exchange performance. Analysis on average income of

Telkom and Indosat from 2 January 2003 to 15 August 2007 that Indosat, PT

Indosat (STT), gained higher majority shareholders than Telkomsel, and Telkom

(TLK), in NYSE and drew ahead the percentage performance growth in the

Dow Jones Industrial Average (INDU). If there is a fact that cellular operation

of Indosat decrease in its performance for the interest of Telkomsel, as it is

alleged by KPPU, the stock exchange shall reflect this strategy, and another

things assumed to be equal. The fact does not seem like that and it does not

throw by KPPU164. --------------------------------------------------------------------------

148. Entry Barrier. The entry barrier to enter market is high. It decreases the

possibility of collusive practice.165 The restraint is low to middle and cellular

service providers in have high churn rate based on international standard (an

indicator of significant number of flitting carrier)166. These factors indicate

competitive markets in Indonesia. --------------------------------------------------------

149. Market share. The trend of market shares in Indonesia is inconsistent with

market behavior but it does not show market failure.167 It is due to high monthly

churn rate that hits cellular service providers in Indonesia based on international

163 As an example, NERA, page 3. 164 NERA, page 34. 165 NERA, page 158. 166 NERA, page 7. 167 NERA, part 7.1.1.

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COPYstandard an indicator of significant number of flitting carrier,168 and it should be

seen as a positive indicator of competition.169. ------------------------------------------

150. Pricing. Telkomsel, Indosat and PT Excelcomindo Pratama Plc.,

(“Excelcomindo”) seem to implement different pricing strategy in some pivotal

aspects such as off peak period, calling prices, roaming rates, SMS, MMS, and

GPRS price in which they are inconsistent with the alleged collusive behavior or

market failure. Instead of price competition of the new operators, the pricing

trend and service offering are inconsistent with the observe behavior in

market.170. ------------------------------------------------------------------------------------

151. According to NERA, “mere parallelism of conduct among putatively competing

forms does not establish the presence of a conspiracy: in competitive, markets,

one would expect forms to respond similarly to common changes in their

environment”171. KPPU should see the better performance than to show the

behavior of the competitor. ----------------------------------------------------------------

152. Market Dedication: Based on the data, Telkomsel, Indosat and Excelcomindo

seem to be for their own market and do competition to maintain and to attract

new consumers because they invest bigger in network coverage and marketing,

indicating that market is competitive and inconsistent with collusion172.

Especially, either Telkomsel or Indosat has spent much more money in network

and marketing. Indosat improves a number of base stations with the average of

27% per year. In marketing cost, the two companies have increased drastically

since 2002173. --------------------------------------------------------------------------------

153. The trend is also observed by Spectrum. The capital expenditure of Indosat and

Telkomsel has remained high since 2002, indicating that the two companies

have invested consistently in the market174. In reality, the capital expenditure of

Indosat increases significantly higher than Telkomsel and relatively highest in

Indonesian market. Indosat widens its network coverage and it indicates

competition. High investment and keep on growing business shows that the

climate in competitive. New innovative products that give better access to low 168 NERA, page 7. 169 NERA, page 173. 170 NERA, part 7.2.1. 171 NERA, page 3 172 NERA, part 7.2.2. 173 NERA, page 102. 174 Spectrum, part 3.7.

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COPYincome consumer,175 also an indication of high competition level in the market.

Either Indosat or Telkomsel has improved marketing and advertisement costs

since 2003. -----------------------------------------------------------------------------------

154. It indicates that the two operators admit the high competition in the market.176 In

fact, Indosat has expended its revenues higher than Telkomsel, shows that

Indosat keeps on competing aggressively177. Indosat and Telkomsel has

launched some customer retentive initiatives that shows high competition of t

the two due to the awareness of the operators on the threat of their customer

basis in the market with the high churn rate178. The high churn rate is an

indicator the competition is high competition because of the success of market –

and cellular market in Indonesia has the highest churn rates this regions. ----------

155. Profitability: The profitability, as it is measured in which the income is higher

than capital expenditure, Telkomsel in this case is better than Indosat and

Excelcomindo. Therefore, the analysis reveals that the lower of Indosat

profitability is caused by high cost although per customer operational is close to

what has been spent by Telkomsel179. The new comers such as HCTP that enter

market by competitive pricing along with innovative offering service influence

the profitability in Indonesia. The ability of HCTP to enter market and compete

effectively with the incumbent operators is an indication of the competition in

the market180. Finally, SingTel and ST Mobile stress that KPPU does not give

any reasons explain how high profitability is caused by cross ownership. ----------

156. Benchmark Analysis. Based on the comparison between competition indicators

such as cellular price, rate of customer growth, market concentration, customer

churn, and margin (“EBITDA”) in Indonesia and 16 other countries, with

economic indicators such as, demography and Telecommunication, there is no

evidence indicating that market result in general lower than the comparative

countries. Its fact, for certain size----market concentration, changing of

concentration, cellular (3 minutes call in peak and off-peak, customer churn and

175 Spectrum, part 3.2. 176 Spectrum, part 3.3. 177 Spectrum, part 3.3. 178 Spectrum, part 3.5. 179 NERA, part 7.2.3. 180 NERA, page 6 and 145

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COPYrate of customer growth, the product market is better than comparative

countries181. ---------------------------------------------------------------------------------

157. Case sees the comparison of international price, direct and indirect evidence of

competition price, he concludes that fair competition between Telkomsel and

Indosat exist. --------------------------------------------------------------------------------

158. Based on the research by World Bank, cellular price in Indonesia is lower than

the average price in the middle countries and low average for the regions in East

Asia /Pacific. Secondly, common measurement of competition price is Average

Revenue per User (“ARPU”). The high ARPU indicates the tariff is higher

and/or that the usage of customer is high. Case shows that the ARPU of

prominent cellular operators decrease actually around 2002 and 2006 –

Telkomsel is around 42%, Indosat more than 50%, and Excelcomindo around

65%182. ---------------------------------------------------------------------------------------

159. As the evidence of price competition and non-price competition, Case writes

that there are different prepaid and postpaid provided to different group of

customer. The financial statement shows new prices offering concerning various

products. Besides, cellular operator has been competing to decrease in various

tariff, especially what they called as ‘starter-packs’183. -------------------------------

160. EBITDA. Indonesia has high EBITDA rate compares to other countries; it is

not an evidence of market failure and not also a competition concerned.184. -------

161. Comparing certain indicators among countries can create problem, as it is

EBITDA, the data are developed by using methodology and difference approach

so that the comparison cannot be conducted unless other important factors are

not measured which actually able to explain the differences. ------------------------

162. Indonesia has high EBITDA rate, comparing EBITDA either other countries can

come to the bias conclusion if we are not careful in comparing it. The

measurement of profitability, such as EBITDA, can be sensitive to different

standard accounting and tax in any countries. For example, some countries

permits tax abatement but for other are conversely. Tax treatment and other

support in investment also varies in some countries. -----------------------------------

181 NERA, part 7.2.3. 182 Case, page 50. 183 Case, page 60. 184 NERA, page 138.

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COPY163. Secondly, prepaid customer is a significant customer in Indonesia and it

produces higher average margin per customer, as it in Indonesia. The

phenomenon is usually called “low-ARPU high-AMPU”. -----------------------------

164. Therefore, the fact that margin of EBITDA in Indonesia is higher than

international standard, and it is not a market failure and evidence of market

failure and not also a competition concerned. The rate of profitability in

Indonesia is influenced by newcomer such as HCTP that enter market by

competitive pricing along with innovative offering service. The ability of HCTP

to enter market and compete effectively with the incumbent operators is an

indication of the competition in the market. ---------------------------------------------

KPPU Analysis is basically defected.------------------------------------------------------------------

165. Report Case and Analysis discuss two KPPU allegations KPPU – that cross-

ownership of Temasek has caused (i) Indosat performance in cellular market

decrease and (ii) lack of competition between Indosat and Telkomsel. To prove

the allegations, KPPU shall determines, (i) direct cross ownership by Temasek

to Indosat and Telkomsel in the sense of simultaneously control to the

commercial strategy; (ii) the clear evidence of the coordination between

Telkomsel and Indosat that causes anti competition product as is is alleged; and

(iii) the product of such anti competition is the direct result of Temasek indirect

and/or ownership to its subsidiaries, Telkomsel and Indosat185. ---------------------

166. The central flaw of the KPPU’s allegations is its failure to analyze or provide to

any evidence of a link between the ownership structure of Indosat and

Telkomsel, and the alleged anticompetitive effects described above.’186.’ ----------

167. KPPU cannot prove case hypothesis –if Temasek does not directly own the

shares in Telkomsel and Indosat, will it cause differences to the competitive

factors in the market? The postulate or argument of KPPU is illogical. The

shareholders will not invest and buying shares in two the biggest operators with

potential significant growth. 187. ----------------------------------------------------------

168. According to Case, the presence or absence of will not influence at all to such

factors. The momentum of Telkomsel growth currently has little issue on the

cross ownership and it can be explain by the effect of network. The theory and

185 Case, page 38 and 39. 186 Case, page 39. 187 Case, page 41.

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COPYempiric evidence of cellular market in developing or developed market

supported it.188. -----------------------------------------------------------------------------

169. KPPU does not try to explain the relevance of the element and issues needed to

decide infringement based on competition law and anti-trust. The certain

analysis aspect seems not to be relevant with the problem that is faced. ------------

170. Market Concentration. For one thing, market concentration that has been

described widely by KPPU in its Report is not something strange. In cellular

industry involving huge investment, market concentration is not extraordinary.

According to NERA:189

“Specifically, the market concentration for mobile services in Indonesia is not atypical by international standards, although concentration is high relative to other industries. This, however, is not unexpected, as large fixed costs in the mobile sector limit the number of carriers that the market can support.” ---------------------------------------------------------------

171. Consumer wealth. Secondly, it is related to concentrated issue, the theory

presented by KPPU is advance, based on a diagram suggested by the Report, to

show that cross ownership causes loss consumer190, that the alleged cross

ownership has created consumer loss191.-------------------------------------------------

172. The theory is defected. This theory cannot explain how much cross ownerships

needed to cause consumer loss, even more if it is measured that Telkomsel has

owns around 65% of cellular service market shares in Indonesia before on 15

December 2002. The implication of the diagram that is each value of ownership

will cause consumer loss. ------------------------------------------------------------------

173. On page 86 of the Report, KPPU uses price elasticity estimation price elasticity

of demand in 2006 to measure consumer’s wealth added resulted to the

deduction of price hypothesis of price in Indonesia to price valid in other

countries “that is considered to be competitive”. NERA notes that there are a

number of problem with this analysis. ---------------------------------------------------

174. Firstly, the analysis does not indicate that consumer surplus consumer or

customer decrease in Indonesia in the same period. Analysis shows that what

kind of consumer surplus that will happen if the prices in other countries are

lower than Indonesia. Decreasing price will increase consumer wealth as it is

188 Case, page 40. 189 NERA, page 5. 190 Report , page 59. 191 NERA, page 27 and 51.

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COPYcited from NERA, (“unexceptional”)”192. It does not implicate that prices in

Indonesia is too high or the prices reflected power of market players.---------------

175. Benny Pasaribu in his opinion states (point 5d), customer surplus has increased

significantly since 2002 and tariff had decreased, from 9.6 million mobile

customers in 2002 to 63.6 million in 2006. Based on price and demand data in

the Report, NERA predict the changing of consumer surplus customer within

the same period is IDR. 17 trillion193.---------------------------------------------------

176. Thirdly, the elasticity predicted by KPPU is incorrect because within the period

of the research, demand curve of cellular service move outside due to many

factors such as developing of network, revenue growth, and preferences. The

prediction of KPPU assumes that the quantity change is caused by price change

and it is not true. Thirdly, as it shown by NERA, a realistic elasticity curves is

significantly different with the prediction of KPPU194. --------------------------------

177. Market concentration – The formula is engineered. KPPU assumes that

whatever high the concentration market is, it always relate to the increase of

market power. This assumption is incorrect – market power is not always

mentioned by concentration, but also elasticity of demand and supply. ------------

178. Secondly, GHHI is seldom used by anti-trust authority I US. The following is

the accuracy of the result of GHHI, cited from NERA:195-----------------------------

“In order to measure the GHHI one has to determine the “exact degree” of control exercised by the firm’s shareholders. Determining the exact degree of control exercised by a firm’s shareholders is a complex undertaking that requires detailed analysis of each firm’s governance rules and structures. The findings can vary significantly based on different methodologies to measure the degree of control. Hence, the GHHI results are unlikely to be robust and are sensitive to the underlying assumptions regarding the degree of control exercised by the firm’s shareholders.” -----------------------------------------------------------------------

We do not have evidence whether KPPU analyze in detail any rule and

regulation structure of the company and even examine accurately. ------------------

179. The usage of GHHI to show market concentration is the same as engineered the

results. The formula in GHHI add one component non-negative to HHI explain

cross ownership among common market. Considering that the component is

192 NERA, page 53. 193 NERA, page 52. 194 NERA, page 54. 195 NERA, page 82.

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COPYalways zero if there is no cross ownership, GHHI will automatically be same

size as HHI196. -------------------------------------------------------------------------------

180. The data of KPPU on HHI shows that a constant increase to concerned years

and it deviates from the statistic result of NERA. The differences are caused by

the method o measuring market shares. KPPU uses income while NERA uses

customer. The usage is theoretically able to defend and the problem is the most

suitable to be implemented present days. If the product is homogenous,

customer is preferred. It has been used by US Federal Trade Communications

Commission. European Court of Justice uses either customer or income197. -------

181. The most part of cellular market in Indonesia is prepaid package; such package

is homogenous. Income in this market does not slightly differ and the

competitor tends to compete based on customer. At least, market shares shall be

based on customer. --------------------------------------------------------------------------

182. A number of decisive competitors. According to KPPU, Telkomsel has profit

as first mover and only Indosat as its closest competitor may use competitive

pressure to take aside Telkomsel from its position. KPPU ascertain that a

number of competitors do not mention a wide area of competition in cellular

market. Such an opinion is wholly denied by NERA – because the empiric

evidence strongly state that a number of competitor and its wide area shows a

fairness of market competition level. All newer players give Telkomsel and

Indosat pressures. The empirical evidence from NERA also show that the newer

player is successful in the market.198.-----------------------------------------------------

183. Price parallelism is a trend of competitive market. Fact of price parallelism is

not by itself means anti- competition behavior. In one side, such behavior is a

price-fixing and in the other hand a consequences of effectively competitive

market in which companies are price-takers. Price market can be altered along

the time because of costs or demand. -----------------------------------------------------

184. We cite Bell Atlantic Corporation, et al. versus William Twombly, et al., United

States Supreme Court, , August 2006 as cited for the report of NERA: -------------

(“As a matter of substantive antitrust law, it has long been clear that mere parallel conduct, even consciously parallel conduct, does not violate Section 1. See, e.g., Theatre Enters., Inc. vs. Paramount Film Distrib.

196 NERA, page 85 197 NERA, page 124 198 NERA, page 38.

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COPYCorp., 346 U.S. 537, 541 (1954). Indeed, such conduct is commonplace and often efficient. Of course, parallel conduct can result from an agreement between competitors, and such an agreement could violate Section 1. However, an allegation of agreement under Section 1 must rest on something more than allegations of parallel conduct, lest commonplace and efficient economic behavior provide a sufficient basis for costly litigation over largely groundless claims. -----------------------------------------

While a showing of parallel “business behavior is admissible circumstantial evidence from which the fact finder may infer agreement,” it falls short of “conclusively establish[ing] agreement or . . . itself constitut[ing] a Sherman Act offense.” Id., at 540–541. Even “conscious parallelism,” a common reaction of “firms in a concentrated market [that] recogniz[e] their shared economic interests and their interdependence with respect to price and output decisions” is “not in itself unlawful.” Brooke Group Ltd. vs. Brown & Williamson Tobacco Corp., 509 U. S. 209, 227 (1993).”) -------------------------------------

185. According to KPPU, the sign of price parallelism is seen in the prepaid service.

It compares levels of price per minute average and not a number of competitive

differences between price-fixing plans of its operator. Although the operators

increase the prices at the same time it is not anti-competition behavior because

the increase of price could be a response to the increase to cost or changes in the

condition of common demand, cross company in the market exists.199. ------------

186. There is no price fixing. It is stated that the level of prices for Telkomsel,

Indosat and Excelcomindo are getting increase. With such a statement, KPPU

concludes that there is collusion because in the converse fact, a competition will

pressure prices. The postulate of the argument is defected. The postulate seems

to refer to the prices average per minute for the offer of car service, without

considering different unmeasured price based on minutes (such as data

download, customer fee, activation fee etc.) and many non-price attributes as it

in car plan (such as special tariff in busy or non-busy time) -------------------------

187. In measuring price average, KPPU also seem not to consider price plan for one

operator based on a number of its customer. It distorts further the analysis of

KPPU. Finally, the finding of collusion is inconsistent with the basic allegation

of collusion between Telkomsel and Indosat, because the allegation assumes the

participation of Excelcomindo in the alleged cartel. No evidence before KPPU

199 NERA, page 133 and 134.

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COPYabout the existence of any cartel, or any positive evidence from Excelcomindo

concerning it200. -----------------------------------------------------------------------------

188. To summarize how the position of SingTel and ST Mobile on the price fixing,

none is stating better than Benny Pasaribu: ----------------------------------------------

“I found no any evidence that tariff parallelism fixed by PT Indosat and PT Telkomsel was a result of cartel or price arrangement. In tight competition, it is normal if one company decrease tariff and followed by other companies for not the customers leave. Chatib Basri, Ph.D. (Director LPEM University of Indonesia) made a same statement in mass media (see Bisnis Indonesia, 25 September 2007, page T1 and Rakyat Merdeka September 2007)201. -------------------------------------------

189. Roll Out Base Transceiver Station. The rollout of Indosat is lower than

Telkomsel. Therefore, Indosat does not compete in the market. Firstly, Indosat’s

rollout can be compared with those of Excelcomindo. Excelcomindo is not

alleged guilty to its negligent202. Secondly, based on indirect share ownership,

Temasek perform rationally and tries to maximize its profit and it enlarge rollout

for the two companies or reduce Telkomsel competitiveness increase the

competitiveness of Indosat. The reducibility of competitiveness decrease

maximizing profit and it is in contrast with the theory of cross ownership. ---------

190. Further, the use of rollout of BTS as a benchmark of competition is no wholly

correct. Comparing rollout has no significant meaning statistically in

competition. According to the data of KPPU, Indosat owns customers higher per

BTS than Telkomsel in 2005 an 2006. Its fact, the roll-out BTS of Indosat and

Telkomsel cover the same geographical market, and KPPU seems to punish

Indosat because the that Indosat has fewer BTS. As NERA indicates, in this

context, Indosat is more efficient than Telkomsel203. Spectrum thinks that

Indosat spent capital expenditure in percentage higher than Telkomsel that

shows Indosat compete aggressively204.--------------------------------------------------

191. According to Case, the network of Indosat is smaller than Telkomsel, it is not an

evidence of the anti-competition behavior. The reason why Indosat’s rollout is

fewer because Indosat is in a financial crisis and it can change the market by

itself by enlarging its network and responding to its result. The lack 200 NERA, page 133. 201 Report , The opinion of Benny Pasaribu, page 2. 202 NERA, page 141. 203 NERA, page 142 204 Spectrum, part 3.3.

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COPYperformance of Indosat is also influenced by integration of IM3 and Saltelindo

into one network. This integration does not work well and the lack of services

influence market shares and customer perception. The market indicators in the

end of Q1-2007 show the increase of Indosat performance.205. ----------------------

192. The increase of the newest Telkomsel market shares (measured by income and

customer) less than the decrease of Indosat market shares, as it is shown in the

Written Proof 1, and Written Proof 2 on page 7 and 8 of the report Analysis

and Telkomsel does not have full profit from the lack performance of

Indosat. The percentage of indirect Temasek to Telkomsel is smaller than to

Indosat.206. ---------------------------------------------------------------------------------------

193. Telkomsel and interconnectivity. There is no constructive evidence that

Telkomsel abuses access in the network infrastructure. SingTel and/or ST

Mobile do not take part in such information and both of them are not questioned

on that during the Further investigation. Only when SingTel and ST Mobile

examined the notes of KPPU last week and SingTel and ST Mobile firstly

known from the theory of KPPU, once again it only bases on the anecdote

evidence of Mastel. The account of Mastel in this side is not vividly to SingTel

and ST Mobile, and Mastel is not investigated. 207.------------------------------------

194. The theory of KPPU irrational. The statement of SingTel and ST Mobile are

simple: Theory of KPPU does not imply economic meaning. The analysis of

NERA supports this position. If Temasek really control Telkomsel and Indosat

and think that one of the manage one company for benefitting other companies,

it will be an advantageous strategy, managing Telkomsel for the profit of

Indosat, in which it indirect208 is higher. Based on the Telkomsel profit rated

data in 2003 and 2006, it is shown that the increase of Temasek income, from

the increase of Telkomsel profit that is allegedly to be caused by the decrease of

Indosat income.209. Economically, it is nothing for Temasek to manage

Indosat210. As it indicate by NERA, another defected in KPPU theory of

collusion is an assumption that other Indosat investors, that own 66% in average

205 Case, page 42 and 43. 206 Analysis, page 10. 207 NERA, page 166 and 194 208 NERA, page 4. 209 NERA, page 32. 210 NERA, part 8.

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COPYwill tolerate the los. It is impossible, including established investors like Bank

of New York, than own around 8% of Indosat shares211. ------------------------------

195. Summarily, the theory of KPPU is groundless. The theory is improper under

Indonesian and international standard law. According to NERA, the allegation

is fights against economic principles and no evidence support.-----------------------

THE PUNISHMENT TO SINGTEL AND ST MOBILE AT ANY FORMS WILL INFRINGE INDONESIAN AND INTERNATIONAL LAWS ---------------------------------------------------------- 196. Firstly, (i) Temasek, SingTel and/or ST Mobile are not in the definition

suggested by Article 27(a), and (ii) the elements in Article 27(a) are not

completed. -----------------------------------------------------------------------------------

197. We have to note as well that the law of Anti-trust gives KPPU authority to

perform a divestment of share, merger and consolidation under Article 28 that is

not subject of the case. Therefore, any instruction regarding divestment is an

infringement to the law of Anti-trust that make it be appropriation, invalid under

international law. It would happen although Temasek, SingTel or ST Mobile is

responsible to the infringement of Article 27(a) (in which we deny)-----------------

198. Ehlermann explains in detail that any legal action to an infringement shall be

proportional. We do not have discussion unless if SingTel and/or ST Mobile are

responsible to the infringement of Article 27(a) (in which we deny), openly and

properly. It is because in the report stated that SingTel and/or ST Mobile have

infringed Article 27(a). Furthermore, SingTel and ST Mobile also do not have

an indication or understanding on the guidelines or consideration of KPPU to

consider potential sanctions under Anti-trust Law. It shows the difficulties of

SingTel and ST Mobile in discussing restoration of right.-----------------------------

199. Ehlermann notes that under the law of EC, England Germany and the United

States of America, under competition law, an instruction to take over to part or

in a whole of corporation unilateral has not ever happen previously212. Such an

authority has just submitted to European Commission under the newest

amendment of EC law and it is not used yet until present time. Based on

Germany law, expert argued on whether the edict on the divestment of share is

possible or not. In whatever reason, Federal Commission Office (“FCO”) has

not instructed an investment of share. It also happens in England. Only in

211 NERA, page 34. 212 Ehlermann, Expert Statement of SingTel and ST Mobile, page 48.

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COPYUnited States that an instruction to the investment of share, in a spectacular

situation, that the instruction of share had ever applied. -------------------------------

200. We note that the references in the Report (page 66 to 68) to show the divestment

minority ownership for some cases in the United States of America is

groundless and misleading and cannot be implemented in Indonesia, as it is

described below:-----------------------------------------------------------------------------

a) The cases cannot be applied at all. The single source in the report for the case is an article “Challenging the Economic Incentives Analysis of Competitive Effects in Acquisition of Passive Minority Equity Interest” by John B. Dubrow (enclosed in the Defense as Annex 9). This article and the case concerning the usage of Article 7 of Clayton Act (cited below) is different with Article 27(a) because (i) it does not look like Article 27(a), Part 7 applied for either minority share or majority (in part or I a whole ), and (ii) Part 7 is subject to rule of reason, while Article 27(a) is a prohibition per se: ----------------------------------------------------------------------

No person shall acquire the whole or any part of the stock or other capital share .. of one or more persons engaged in commerce or in any activity affecting commerce, where in any line of commerce or in any activity affecting commerce in any Article of the country, the effect of such acquisition, of such stocks or assets or the use of such stock by the voting or granting of proxies or otherwise, may be substantially to lessen competition, or to tend to create a monopoly. .-

b) Its fact, Mr. Dubrow uses these cases to postulate that the practice of DOJ and FTC in such cases is groundless. (Part 7 of Clayton Act,) as follows:-----

(While there are circumstances in which a truly passive, minority equity interest in a competitor can give rise to anticompetitive concerns, the agencies, in particular the DOJ, have challenged passive minority equity acquisitions in ways that ignore and effectively eviscerate the investment-only exemption contained the Clayton Act. This prosecutorial abandonment of the investment only exemption is troubling, especially because it has been effectuated through several consent orders, rather than litigated matters in which the theory of anticompetitive harm could be fully tested... (Pages 114-115)) --------------------------------------------------------------

c) If we analysis, for just an argument, the case cited by KPPU, cannot be applied analogically to the case all are related to divestment of share, directly or indirectly. SingTel and ST Mobile do not compete in the cellular service in Indonesia, it should be clear that there is no divestment can be applied in Telkomsel. ------------------------------------------------------------------

d) Mr. Dubrow is very critical to challenge share minority ownership. As it is mentioned in part C of his article (Tempering Economic Theory with Real-World Facts) the theory maybe failed because it does not reflect fact issues such as (i) uncompleted information that will restraint effectively cross ownership for competition (ii) incentive management that will fight against

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COPYthe objective (iii) other factor that make cross ownership cannot realize its profit.. ------------------------------------------------------------------------------------

201. According to Report, there no ground at all to guarantee or justify divestment in

this case against SingTel or ST Mobile, in the competition law jurisdiction. ------

202. It is important to emphasize that all regulation have been completed in acquisition

of ST Mobile to Telkomsel. Especially a letter of BKPM, dated 19 July 2002

informing to Telkomsel that BKPM approved the structure of Telkomsel

ownership regarding the acquisition of ST Mobile that have ST Mobile own

35% share and Telkom 65% shares .-----------------------------------------------------

203. STT has given statement as a response to KPPU, that STT has acquired

ownership in Indosat openly, advertised and transparent with the approval of the

Government of Indonesia, that consider and revoke potential infringement that

might happen from the perspective of competition. Its fact, STT has stated that

STT was invited by the Government of Indonesia to participate in open tender

of Indosat’s shares213. The selling was under the monitor of the officer of

Government of Indonesia IMF and had passed the procedures required by the

Government of Indonesia, through Department of BUMN, as it is proved in the

White Paper of Department of BUMN on the divestment of Indosat, dated 4

February 2003214.----------------------------------------------------------------------------

204. Based on the facts, it is not fair if KPPU alleges that the ownership structure of

Telkomsel and Indosat is not in accordance with Indonesian law. The result that

is not expected is destroying investment climate in Indonesia and restraint

foreign to invest in Indonesia. -------------------------------------------------------------

Conclusion--------------------------------------------------------------------------------------------

205. The investigation process conducted by KPPU ignores fundamental standard of

legal process. SingTel and ST Mobile were told that the two have been

investigated for infringing Article 27(a). Yet, the two companies were not

informed how they infringe of the mistake they made to the rule of competition

law. KPPU has not ever permitted to examine the completely case document. In

the session in KPPU, the representative of SingTel and ST Mobile have been

questioned irrelevant with the allegation and asked to reveal documents that are

213 The statement of STT, page 23. 214 The statement of STT, page 24.

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COPYnot relevant with the investigation. The right of SingTel and ST Mobile during

investigation and also legal process have been neglected. -----------------------------

206. According to the understanding of SingTel and ST Mobile, the allegation to

SingTel and ST Mobile is an infringement of Article 27(a). Article 27(a)

requires majority of share ownership in some companies control more than half

of pertinent market shares. SingTel and ST Mobile asked permission to remind

the fact in this case. Firstly, SingTel does not own shares in some company’s

shares in any relevant market. Secondly, ST Mobile owns minority shares in one

company. It should be clear even before investigation is started. For the reason

unknown by SingTel and ST Mobile, the investigation is not only started, but

also extended and the representative of SingTel and ST Mobile are obliged to

answer questions irrelevant with Article 27.---------------------------------------------

207. KPPU has read Article 27(a) by using the concept of material influence. We are

sure that the interpretation is wrong in law. There is groundless to read and to

interpret Article 27. The reading is a bias common norm or regulation

interpretation, and it is not in line with the international practice. The regulation

on absolute accountability shall be interpreted assertively. ---------------------------

208. The broad interpretation in whatever condition cannot be applied on SingTel

and/or ST Mobile. Even by taking a KPPU case sample – assuming that

influence material is irrelevant with the analysis of Article 27, then without any

single evidence show that Temasek and/or SingTel and/or ST Mobile is

materially influence Telkomsel or one to another. Regardless to Analysis, in

which it will be used, it is the tasks of KPPU to prove it. ----------------------------

209. The facts, the provisional report of KPPU fails or cannot prove the method of

any form showing that cross ownership by Temasek to Indosat and Telkomsel

is the cause of the loss endangering competition in the market. KPPU cannot

prove the anti-competitive behavior shown by Telkomsel and/or Indosat,

especially related to the allegation of Temasek ownership. The Report of NERA

shows that the basis used by KPPU to analyze economy is fundamentally

defected, and many international economists indicate that cellular market in

Indonesia is very competitive. Telkomsel and Indosat cannot be considered as

anti competition just because KPPU state and consider it so. -------------------------

210. In its conclusion: ----------------------------------------------------------------------------

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COPYI. SingTel and ST Mobile submit that the investigation on the infringement of

Article 27(a) of the Anti-trust Law is groundless, unfair and ask

Commission Assembly of KPPU to cancel this investigation. -------------------

II. Due to the absence of Temasek Business Group, SingTel and ST Mobile

state that the use of Article 27(a) to Temasek is groundless. ---------------------

III. SingTel and ST Mobile inform that the use of Article 27(a) to Temasek or

Temasek Business Group is able to harm the share of ST Mobile in

Telkomsel. If it happen, ST Mobile will fixed hold its rights as an investor

under Indonesian and international law, including the rights to submit

lawsuit.

19. Considering that further, on the basis of Further Investigation Report, Council of

Commission has accepted responses of Telkomsel on 23 October 2007 that in essence

state the following matters:

Description -------------------------------------------------------------------------------------------

1. Statement KPPU:

Temasek Holding has majority share in two operators that perform similar activity

that make it infringe Article 27 (a) the Law No. 5/1999

Statement Telkomsel:

The statement is untrue, because Temasek does not have share in two operators

(Telkomsel and Indosat). It proves that Singtel Mobile owns Telkomsel 35%.

The statement is backed up from the expert’s statement of, Hikmahanto Juwono

page. 12-13 on unified economic interest and ultimate parent

2. The Elucidation of Telkomsel:

It is untrue. In fixing tariff, Telkomsel always refer to the prevailing regulation.

Besides, in the Law 36/99 is also stated that the formula for calculating tariff is

determined by the Government.

In the following elucidations, we will elaborate further the statements above.

See Annex from UBS for revenue per minute, supported by the data and analysis

presented by Asia Mobile Holding by Dr. Cento Veijanovski page 46 to 71. And the

item of Telkomsel’s answer No. 126

That the suspected infringement of Article 17 paragraph (1) of the Law No.5/1999

conducted by Telkomsel, is in the process of verification of KPPU’s Investigation

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COPYteam, had used the principle of “Per-Se Illegal” that can be seen in the sentence “by

implementing/keeping high tariff, Telkomsel then has infringed Article 17

paragraph (1)”;

The usage of such principle of verification “Per-Se Illegal” is incorrect, because in

conducting an evidence to the suspected infringement of Article 17 paragraph (1),

the Law No. 5/1999 shall implement the principle of “Rule of Reason” in which

KPPU does not only prove, - quad non -, the existence of market control by

Telkomsel, but also monopolistic practice or unfair competition caused by market

control by Telkomsel.

Therefore, KPPU should, before concluding whether Telkomsel infringes the rule

of Article 17 paragraph (1), prove whether Telkomsel:

- Conducts unfair competition and restrains public interest (refer to Article 1

number 2 of the Law No. 5 /1999); or

- Conducts unfair or violates law or restrains competition (refer to Article 1

number 6 of the Law No. 5 / 1999).

Even in its conclusion KPPU states that Telkomsel does not infringes the valid rule

concerning tariff fixing.

Have conducted unfair competition/ violated law / restrained competition.

From the Report of Follow-up Case Investigation Result of KPPU No.07/KPPU-

L/2007 on 27 September 2007, KPPU cannot prove that Telkomsel has conducted

the intended activities. In fact, the Report of Follow-up Case Investigation Result

and investigation official reports used as one of reference to arrange a report,

Telkomsel concludes the following matters:

a. The competition of cellular telecommunication is fair and over competitive

(i) that many operator-cellular telecommunication operators newly emerge

in Indonesia such as Indosat, XL, Sampoerna, Hutchison, NTS, Mobile 8,

in which if citing the opinion of Benny Pasaribu (Dissenting Opinion item

4), a number of cellular operators in Indonesia is the highest in Asia and

more competitive in the world.

(ii) XL in its investigation in KPPU (IOR of XL on 9 August 2007) states

the following matters:

(a) that market in Indonesia is relatively more competitive than market

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COPYabroad, even over competition;

(b) that the competition to capture new customer is more aggressive

(c) that the competition in developing network performed by XL is good,

YLKI in its investigation in KPPU (IOR of YLKI on 24 September

2007) stated that cellular consumers in Indonesia are able to choose

available operators

(iii) Hutchison in its investigation in KPPU (IOR of Hutchison on 21 June

2007) stated that its growth prediction in which in the first quarter of

2007 was around 30-50 billion rupiah and new customers was around

300 thousands.

(iv) Based on the Notes of Meeting between KPPU and BRTI as well as

Directorate General Post and Telecommunication, it is presented by

BRTI/Ditjen Postel that in developing technology, Telkomsel and Indosat

competes each other.

b. Telkomsel is fair in performing its business and always comply and complete

the valid rule of law.

(i) The tariff charged by Telkomsel is prescribed by the rule of law in which

its formula is determined by government

(ii) Telkomsel does not treat discriminatively other operators concerning

interconnection. Interconnection bid document is prescribed by the rule of

law and approved by the competent authority.

(iii) Hutchison in its investigation in KPPU (IOR of Hutchison on 21 June

2007) stated that Hutchison does not have problem concerning

interconnection, although there was also insignificant difficulty.

(iv) XL in its investigation in KPPU (IOR of XL on 9 August 2007) stated

the following matters:

(f) that XL has never found an abuse behavior of Telkomsel such as

blocking a call from XL number to Telkomsel etc.;

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COPY(g) that XL has never been restricted by Telkomsel in having permit;

(h) that XL is given a freedom by Telkomsel to choose its own

technology with its own capacity.

(v) Mr. Widya Purnama, the Managing Director of Indosat for the period of

June 2002 to September 2004, in his statement on 9 August 2007,

declared that there is no collusion between Telkomsel and Indosat.

c. Telkomsel has created fair competition.

(i) Telkomsel does not only concentrate to build a network in big cities but

also remote areas which provide new market shares for other operators

that have been initially developed by Telkomsel.

(ii) Telkomsel does not treat discriminatively to other operators concerning

interconnection. Interconnection bid document is prescribed by the rule of

law and approved by the competent authority. It intends to have other

telecommunication operators same opportunities to develop/to compete

among them and Telkomsel alone with a result to maintain the level of

competition in the business of telecommunication.

(iii) Hutchison in its investigation in KPPU (IOR of Hutchison on 21 June

2007) stated that Hutchison does not have problem concerning

interconnection, although there was also insignificant difficulty. It proves

that Telkomsel, as a market leader, does not abuse its position to press

other operators in order to keep on competition running well.

(vi) XL in its investigation in KPPU (IOR of XL on 9 August 2007) stated

the following matters:

(a) that XL has never found an abuse behavior of Telkomsel such as

blocking a call from XL number to Telkomsel etc.;

(b) that XL has never been restricted by Telkomsel in having permit;

(c) that XL is given a freedom by Telkomsel to choose ots own

technology with its own capacity.

It proves that Telkomsel, as a market leader, does not abuse its position to

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COPYpress other operators in order to keep on competition running well.

(iv) Mr. Widya Purnama, the Managing Director of Indosat for the period of

June 2002 to September 2004, in his statement on 9 August 2007,

declared that there is no collusion between Telkomsel and Indosat. It

proves that Telkomsel want to keep fair competition among

telecommunication operators.

Restrain Public Interest

(i) the telecommunication service tariff of Telkomsel is prescribed by the

rule of law and approved by the competent authority, therefore it shall be

considered that the tariff charged by Telkomsel does not restrain public

interests.

(ii) the tariff of Telkomsel interconnection is prescribed by the rule of law.

Interconnection bid document is prescribed by the rule of law and

approved by the competent authority.

(iii) YLKI in its investigation in KPPU (IOR of YLKI on 24 September

2007) stated that no cellular consumers in Indonesia complain to the

service tariff.

(iv) Telkomsel tries to build a network until remote areas and even clear out

the forest in order to give advantage to public especially those who live in

remote areas to provide them with telecommunication access and to

develop economy in that areas (prime mover), as it is stated in the

document and submitted to KPPU.

(v) With the availability of telecommunication business network of

Telkomsel, it is able to provide ew job (alleviate unemployment) due to

multiplier effect of Telkomsel’s business;

(vi) Telkomsel permits the usage of its infrastructure as a means of national

security of tsunami early warning system that is useful for public.

3. The Elucidation of Telkomsel :

We deny the suspected infringement of Article 25 paragraph (1).b of the Law No. 5

/ 1999 reported by KPPU, by the reason of: KPPU Investigation team does not have

evidence at all (even early evidence) indicates a suspected infringement of Article

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COPY25 paragraph (1) conducted by Telkomsel. We can prove them by the following

descriptions:

The allegation in the conclusion Preliminary Report is different with those of

the allegation in the Result of Further Investigation.

The allegation that become a basis of conducting Further Investigation is different

with the conclusion of Preliminary Investigation, therefore the basic of conducting

Further Investigation is not clear , in which the differences are as follow:

The allegation in the Report of Preliminary Investigation (Especially on Suspected

infringement of Article 25 paragraph 1 . b of the Law No. 5 / 1999)

“Telkomsel with its dominant position has restrained the development and growth

of PT Indosat, Plc, as a result PT Indosat Plc., cannot maximize its investment and

slowing down the profit growth of PT Indosat Plc., It causes to the worsening of

market in the whole cellular telecommunication service industry .”

While the allegation in the Report of Further Case Investigation Result No.

07/KPPU-L/2007 (especially Article 25 paragraph 1 . b the Law No. 5 / 1999)

“Telkomsel abuses its dominant position to restrain market and the development of

technology that makes it infringes Article 25 paragraph (1).b of the Law No. 5 /

1999.”

“Certain Activities” (ic. Telkomsel restrains the development and growth of

Indosat), that used previously as a basis of allegation that Telkomsel has infringed

Article 25 paragraph (1) of the Law No. 5/1999, is not included in the Report of

Follow-up Case Investigation Result No. 07/KPPU-L/2007 (especially Article 25

paragraph 1. b). Consequently, the suspected infringement used as a basis of

conducting Follow-up Investigation is biased/obscured .

The changing of “suspicion” to biased/obscured, as it is described above, proves

that actually KPPU Investigation team is not sure with its accusation addressed to

Telkomsel (restrain the development and growth of PT Indosat). Therefore, it is not

overstatement that we conclude KPPU Investigation team does not have evidence at

all (even early evidence) indicates a suspected infringement of Article 25 paragraph

(1) conducted by Telkomsel (restrain the development and growth of PT Indosat).

“Certain Activities” that consider to infringe Article 25 paragraph (1) of the Law

No. 5 / 1999, is very important because it will be LITIS CONTESTATIO

(limit/focus of an investigation) of KPPU Investigation team, all at once it becomes

a limit/focus of defense of the Reported (Telkomsel). Litis Constestatio is a

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COPYrequirement in the due process of law in civilized countries.

Article 32, 33, 42 and 44 of the Regulation of the Commission for the Supervision

of Business Competition No. 1 / 2006 (“KPPU Regulation 2006”) regulate that the

Report of Preliminary Investigation is used in determining the needs of conducting

Follow-up Investigation and further in the Follow-up Investigation, the allegation in

Preliminary Investigation is found and proved. Therefore, according to KPPU

Regulation 2006, it shall be narrowed focus of investigation as it reflected in

suspected infringement as the basis of conducting Follow-up Investigation. Its facts,

as it is mentioned above, the focus of investigation in the process of Follow-up

Investigation is not narrowed but biased.

Telkomsel is not proven of abusing dominant position.

Telkomsel is not proven of abusing dominant position of market control and

technological development:

• From the viewpoint of legal aspect. Based on the expert’s statement of

Hikmahanto Juwono page 7 to 10, there is no evidence legally that Telkomsel

abuse dominant position for controlling market.

• From the viewpoint of business. Telkomsel is always subject to valid regulation

in Indonesia, from tariff fixing process, submitting report of regulator, the

commitment of the development of telecommunication infrastructure in

Indonesia as a license requirement had by Telkomsel.

• It can be concluded that the growth of Telkomsel business is resulted from fair

business practice and optimum performance as it is in line with Telkomsel

mission to actualize service leadership company (in coverage, quality, capacity

and service)

That before KPPU concludes whether Telkomsel has infringed Article 25 paragraph

(1) .b of the Law No. 5 / 1999, KPPU Investigation team shall prove that Telkomsel

as a Market Leader has restrained (i) market and (ii) technological development, in

which t it is not reflected in the Result Report of Follow-up Investigation of KPPU

Investigation team on 27 September 2007. Further, it can be described as follows:

(i) Telkomsel does not conduct market restriction even tries to develop market

cellular telecommunication.

a) XL in its investigation in KPPU (IOR of XL on 9 August 2007) states

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COPYthe following matters:

i. that XL has never found an abuse behavior of Telkomsel such as

blocking a call from XL number to Telkomsel etc.;

ii. that XL has never been restricted by Telkomsel in having permit

iii. that XL is given a freedom that XL by Telkomsel to choose its own

technology with its own capacity.

iv. that Telkomsel establishes working group with other operators to

give input so local government concerning tower sharing regulation

in the local area.

v. Telkomsel is not proven abusing dominant position to restrain

technological development (IOR of Hasnul Suhaimi, 9 August 2007,

item 22).

vi. Telkomsel is not proven abusing dominant position to control market

(IOR of Hasnul Suhaimi, 9 August 2007) item 10.

The statement above is spontaneous acknowledgement of Telkomesl’s

competitors in supporting market cellular telecommunication

development.

b) Mr. Widya Purnama, the Managing Director of Indosat for the period of

June 2002 to September 2004, in his statement on 9 August 2007,

declared that there is no collusion between Telkomsel and Indosat. It

proves that Telkomsel want to keep fair competition among

telecommunication operators.

It reflects that Telkomsel does not try to restrain market.

c) Telkomsel does not only concentrate to build a network in big cities but

also remote areas which is admitted by other operators that it needs high

cost. The statement above is spontaneous acknowledgement of

Telkomsel’s competitors in supporting market cellular telecommunication

development.

(ii) Telkomsel does not restrain technological development even try to develop

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COPYcellular telecommunication technology.

a) XL in its investigation in KPPU (IOR of XL on 9 August 2007) stated

the following matters

i. that XL has never been restricted by Telkomsel in having permit;

ii. that XL is given a freedom by Telkomsel to choose its own

technology with its own capacity.

The statement above is spontaneous acknowledgement of Telkomesl’s

competitors for the effort of Telkomsel in supporting development of

technology in cellular telecommunication by not restraining the

technology that will be used by XL.

b) It needs to express that Telkomsel is the first cellular telecommunication

operator that introduce:

i) Prepaid business in Indonesia that used IN technology;

ii) Services with GPRS and EDGE technology based;

iii) Certain value added services such as ring back tone;

iv) Electronic voucher;

v) 3G services that provides video call, video streaming;

The matters in which the technology used by Telkomsel an applied then

by other Telkomsel competitors those give positive contribution to the

development of market cellular telecommunication.

4. The Elucidation of Telkomsel :

It is in line with the definition of the intended Article namely Article 1 (10)

5. The Elucidation of Telkomsel:

The definition of KPPU states that geographical market is a market related to

coverage or certain marketing area in the competition law; it means market analysis

related to product that has to be based on per region approach because the

competition among regions are different one to another compare to analyze

geographical market within a national coverage.

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COPY6. The Elucidation of Telkomsel:

Goods is not only mentioned by its similar substitution but also its complementary.

7. The Elucidation of Telkomsel:

Comment is not available.

8. The Elucidation of Telkomsel:

It is in line with the references in the rule of laws, and in line with KM 35/2004 in

which FWA is part of fixed local accessed.

9. The Elucidation of Telkomsel:

Agree with the statement that PSTN, FWA, and cellular telecommunications are

classified as substitution products due to no significant differences in service.

10. The Elucidation of Telkomsel:

From the viewpoint of customer, the characteristic of FWA and cellular is

complementary. Customer uses the advantages of FWA from the viewpoint of tariff

for local communication and use the wide coverage for intensive communication.

Therefore, the characteristic of FWA and Cellular are complementary.

11. The Elucidation of Telkomsel:

KM (Ministerial Decree) 35/2004 determines the price of FWA service following

tariff pattern of PSTN; while other KM. Thereby regulates tariff pattern of cellular,

the price of FWA service and cellular will always be different. Nevertheless, the

difference can be complementary. FWA and cellular for consumer is

complementary.

12. The Elucidation of Telkomsel:

Similar to the statement above, is consumer not finding a cheaper one if the

facilities offered is the same. Can be the result shown? Data sampling of the survey

with 300 sampling cannot reflect the population in telecommunication market in

Indonesia.

13. The Elucidation of Telkomsel:

In our opinion, the information given by Mastel (Telecommunication Community)

in its IOR, cannot be used a reference, as it is known that Mastel

(Telecommunication Community) has never conducted research concerning cellular

tariff, therefore the information of Mastel (Telecommunication Community) in

irrelevant as a reference in item 13.

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COPYIt is opposed to the qualification of witness as it is regulated in Article 1 (22) of

KPPU Regulation, 2006.

Besides, advertisement and promotion performed by operators in the last period is

mere in discount rather than coverage. It can be concluded that the market

developed currently is sensitive to price.

14. The Elucidation of Telkomsel:

As a witness, Mastel (Telecommunication Community) is improper as we has

already mentioned in item 13.

It is needed to be noted that technological development nowadays has enabled FWA

operator offer services with the mobility of more than one coverage area.

15. The Elucidation of Telkomsel:

The product of Telkomsel are HALO card , simPATI and Kartu As. There are also

GSM, dual band and 3G.

Note: Wi-Fi is not a product of Telkomsel services.

16. The Elucidation of Telkomsel:

The cellular competition is not only Telkomsel and Indosat. All operators use their

own license power (including the license of Telkomsel that only limited in cellular

service) to capture available market shares.

17. The Elucidation of Telkomsel:

Indonesian market, as it is seen by KPPU, cannot be classified as single market

because every region has their own characteristic, challenge and potency that are

different one to another. The decision to serve in one region requires strategic and

various decision from the operators.

18. The Elucidation of Telkomsel:

The decision of operator to serve a certain area is mentioned by the purpose of long-

term business consideration rather than restriction on regulation and technology.

Telkomsel decides to have network or national coverage as its license it had.

It is untrue to say that there is no restraint in marketing products. It can be seen in

the GDP of the area and total population per region. The following is some

economic indicators and cellular service in the regions.

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COPY

19. The Elucidation of Telkomsel:

To serve a region is a risky business decision. The things to ponder are:

• Geographical challenge: Indonesia is a large archipelago country with a hard

topographical challenge.

• Insufficient infrastructures such as electricity or diesel fuel and highway to

ensure that coverage (BTS) coverage is able to work 24 hours a day within 7

days a week.

• Value chain challenge, it is an unavailability of distribution network to market

Telkomsel’s products directly.

• Transmission supply challenge

• Economic challenge: the potency of society, buying power, industrial maturity

etc.

Such challenges had made any operator with national license not ready to develop

in remote areas. The principle of Telkomsel is to put forward its superiority of

service quality (capacity, coverage quality) rather than narrow minded and short-

term business calculation. After operating for 12 years, such principles have put

Telkomsel be a prominent cellular service operator in Indonesia, in capacity, quality

coverage and financial performance.

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COPY20. The Elucidation of Telkomsel:

Up to present day, the tariff of Telkomsel is national tariff. The absence of other

operators in which Telkomsel operated has brought to certain consequences such as

building distribution network, educating society. In a region with high competition,

Telkomsel structurally implement policies such as discount and the changing of

POC that show the reaction of Telkomsel to competition.

Homogenous price is a general strategy implemented bay all operators. The same

goes for Satelindo as a first operator and a first mover in a region.

21. The Elucidation of Telkomsel:

Telkomsel thinks that Indonesian market is heterogeneous, very competitive, in a

big cities and developing market like small town or remote area. Therefore, it is

dangerous to analyze geographical market without considering local heterogeneous

market.

22. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

23. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

24. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

25. The Elucidation of Telkomsel:

Telkomsel as a service leader and subsidiary of PT Telkom intends to develop

telecommunication in Indonesia.

26. The Elucidation of Telkomsel:

With the presence of XL, in October 1996, currently cellular operators compete

tightly (Indosat, Telkomsel & XL) in the same period.

The different performance is determined by strategy of the operator and not history

of the operator.

27. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

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COPY28. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

29. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

30. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

31. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

32. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

33. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1) (b) to Telkomsel.

34. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1) (b) to Telkomsel.

35. The Elucidation of Telkomsel:

The accumulation of Telkomsel gained form regions in which there is no competitor

operates in the relevant market or no competitors enter the market after Telkonsel

operate for a long time in those regions. The market ownership of more than 50%

does not reflect the domination of Telkomsel and the competition level in those

regions.

36. The Elucidation of Telkomsel:

Comparing the CAGR between FWA and Cellular, that CAGR FWA is bigger than

Cellular. It indicates that public interest prefer FWA to cellular.

37. The Elucidation of Telkomsel:

Apart form the definition of pertinent market, the six operators is the densest in this

industry.

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COPYAccording to Benny Pasaribu, a number of players in Europe are determining only

to maximum 4 operators.

A number of players indicate level of competition.

38. The Elucidation of Telkomsel:

Market share per area in which Telkomsel enjoys rapid growth in any market is

based on the strategy of network development over IKC.

39. The Elucidation of Telkomsel:

Based on consumer the order of operators do not change from 2004-2006.

This statement does not indicate that market is not competing perfectly. Many

reason to consider concerning this condition such as marketing cost (grew 44% in

2005 to more than IDR 700 billion) and capex cost to Rp 13 trillion spent to keep

the position. Telkomsel keeps market shares through network and service quality

and proved by awards received by Telkomsel.

40. The Elucidation of Telkomsel:

The description above is untrue, especially in the sentence: ”Temasek through

SingTel performed an acquisition of 22.3% Telkomsel shares from KPN

Netherlands in 2001. …”

The acquisition of shares in 2001 was not conducted by Singtel but Temasek.

Concerning acquisition, all decision is in the management of Singtel. It is affirmed

by:

m. the information of Reported I (Temasek) as it is in the IOR on 13

August 2007 by KPPU Investigation team to Temasek that was

represented by Mr. Goh Yong Siang, in item 13:

“STT and Singtel. The company invests globally. Temasek does not

involve in the decision in STT and SingTel to acquired Indosat and

Telkomsel.”

n. the information of Reported VIII (Singtel) as it is in the IOR of

Further Investigation on 23 July 2007 by KPPU Investigation team

to Singtel that is represented by Quah Kung Yang. In item 85 and

86 are written:

The question of KPPU Investigation Team::

“Who did decide to buy Telkomsel’s shares?

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COPYSingtel’s Answer:

“Board of Singtel Mobile Director ”

The question of KPPU Investigation Team::

“Is the decision taken in RUPS or Extra ordinary RUPS?”

Singtel’s Answer:

“I think not in Annual Meeting.”

In line with the license of foreign investment Telkomsel had, one of Telkomsel’s

shareholders is Singtel Mobile. There is no reference at all that Singtel Mobile is

Temasek Business Group. We can inform you further that the law of investment, jo.

The law of Limited Corporation admits only foreign party in the form of foreign

corporate body or foreign individual. Therefore, the expression of “Business group”

is not acknowledgable.

41. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

42. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

43. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

44. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

45. The Elucidation of Telkomsel:

In line with the licence of foreign investment Telkomsel had, one of Telkomsel’s

shareholders is Singtel Mobile. There is no reference at all that Singtel Mobile is

Temasek Business Group. We can inform you further that the law of investment, jo.

The law of Limited Corporation admits only foreign party in the form of foreign

corporate body or foreign individual. Therefore, the expression of “Business group”

is not acknowledgeable.

46. 46 The Elucidation of Telkomsel:

Agree. It needs important to be added that the regulation of government on tariff is

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COPYKM No. 20/2001. KM No. 20/2001 has been amended twice, the first amendment

through KM No. 29/2004, and second amendment through KM No. 40/2006) on the

Telecommunication Network Operation.

And then for KM No. 21/2001, it is amended into KM No. 30/2004

47. The Elucidation of Telkomsel:

We agree with the description, but until 2006, there was not a further implementing

regulation yet on the formula of calculating tariff. PM (Government Decree) No.

12/2006, as a reference of KPPU Investigation team in item 46, was effectively

valid in early of 2007. During that period, the whole operators use KM No. 27/1998

and KM No. 79/1998 as references.

It was supported by the explanation of Ditjen Postel as it is stated in the Notes of

Meeting on 30 August 2007.

48. The Elucidation of Telkomsel:

Telkomsel implement existing regulation to fix price service.

49. The Elucidation of Telkomsel:

Telkomsel implement existing regulation to fix price service.

50. The Elucidation of Telkomsel:

Telkomsel implement existing regulation to fix price service.

51. The Elucidation of Telkomsel:

Telkomsel implement existing regulation to fix price service.

52. The Elucidation of Telkomsel:

Telkomsel implement existing regulation to fix price service.

53. The Elucidation of Telkomsel:

Telkomsel implement existing regulation to fix price service.

54. The Elucidation of Telkomsel:

As it is elucidated by KPPU in item 53, the item 54 cannot be implemented.

55. The Elucidation of Telkomsel:

KM No. 27/1998 and KM No. 79/1998 was arranged and applied by the

Government in 1998, in which the Law No. 3 / 1989 (the previous

telecommunication law) has a “monopolistic/duopolistic spirit”, differs from the

spirit” of the”Anti-trust” law No. 36/1999.

Both KM’s do not regulate further the limitation, the prohibition and permission of

Telecommunication service operators to charged tariff to the users of

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COPYTelecommunication service. The tariff regulation is only limited in “ceiling price”

that may not infringe the Ceiling Price stated in KM 27/ 1998 and KM 79/1998. It

also regulates the limit of competition area among operators and it has

accommodated the interests of consumer and operator (business actor) of

Telecommunication service. It is affirmed by Government through Ministry of

Communication and Information through Ditjen Postel (based on the rule of Article

1 number 1 and 2 KM 31/2003; Directorate General Post and Telecommunication

is part of BRTI assigned to monitor competition in Telecommunication industry) as

it was written in the Notes of Meeting between Directorate General Post and

Telecommunication with KPPU on 30 August 2007, in the third sheet, the last

paragraph is written as follows:

“The maximum tariff rate stipulated in KM No. 27 / 1998 and KM No. 79 /

1998 is a limit competition area among operators in which the rates are

tolerance between the interest of public and as consumers and operators to

keep their abilities to develop and to extend network including to outside

Jakarta. Therefore, if at field, the operators become followers of the

maximum tariff rates, the government cannot do anything.”

The monitoring function of Government is enforced by BRTI, especially in the

competition of telecommunication service operation, has a definite limit that no

operators may apply tariff more than competition area limit as it is determined in

KM 27 / 1998 and KM 79 / 1999;

The tariff applied by operator/business actors of telecommunication services

(including Telkomsel) – not more than competition area limit determined in KM 27

/ 1998 and KM 79 in 1998- is a kind of conduct that complies or implements

prevailing rule of laws. Therefore, the tariff implementation within a corridor of

a competition area is a conduct admitted of exception by the Law No. 5 / 1999

(refer to Article 50.a);

Under the law, BRTI cannot be blamed for doing nothing such as reprimanding,

warning or sanctioning to operators/business actors of telecommunication service

applying maximum tariff beyond competition area limit determined in KM 27 /

1998 and KM 79 / 1998. It is due to the position of both KM as part of previous

telecommunication law regime (the Law No. 3/1989) that sets price by

government rather than market mechanism. When tariff is set up and it has

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COPYconsidered: (i) a competition area limit, and (ii) the interest of consumer or

operators/business actors (refer to description of g above), a fairness is measured by

whether “the the tariff limit is passed or not”;

If operator/business actors implement a tariff, it shall be adjusted with the regulation

of its basis. The Km 27 / 1998 and KM 79 / 1998 is considered by KPPU

Investigation have caused unfair competition–quod non-, then the mistakes cannot

be blamed at all to operators/business actors, including Telkomsel.

56. The Elucidation of Telkomsel:

For the elucidation of postpaid tariff is on page 15:

The tariff of HALO card is presented based on the available data.

10% of Pre added value tax tariff

Local time unit = 20 second

For the elucidation of HALO card tariff is on page 20:

The tariff of HALO card is presented based on the available data

10% of Pre added value tax tariff

Local time unit = 20 second

Domestic Call1 and Domestic Call2 time unit = 15 second

Airtime Rp 325 (economy)

Airtime Rp 406 (business)

57. The Elucidation of Telkomsel:

For the elucidation of prepaid tariff on page 22:

The tariff table of HALO card SMS presented for the period of period of 2002 to

2006 accord with the available data.

58. The Elucidation of Telkomsel:

For the elucidation of prepaid tariff is on page 23:

The call tariff of Simpati prepaid Card in 2001 to 2002

to PSTN is accord with the available data

intra operator accord with the available data

to other operator Rp 1,300 (off peak), Rp 1,600 (peak)

Receiving call Rp 2,500, Rp 3,000 (neighboring zone)

The call tariff of Simpati prepaid Card in 2002 to 2003

to PSTN is accord with the available data

intra operator is accord with the available data

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COPYto other operator Rp 1,300 (off peak), Rp 1,600 (peak)

Receiving call Rp 2,500, Rp 3,000 (neighboring zone)

For the elucidation of prepaid tariff is on page 24:

The call tariff of Simpati prepaid Card and AS card in 2004 are accords with the

available data.

For the elucidation of prepaid tariff is on page 24:

The call tariff of Simpati prepaid Card and AS card in 2004 - 2005 are accords to

the available data.

For the elucidation of prepaid tariff is on page 25:

The call tariff of Simpati prepaid Card and AS card in 2005 - 2006 are accords to

the available data.

59. The Elucidation of Telkomsel:

For the elucidation of prepaid SMS tariff on page 25:

The tariff of prepaid SMS was valid in 2002 Simpati prepaid national Card is

accord with the available data.

The tariff of prepaid SMS was valid in 2004, Simpati prepaid Card Rp 350 and AS

card Rp 325 (AS), Rp 350 (Telkomsel), Rp 375 (OLO) domestic, Rp 1000

(international).

For the elucidation of prepaid SMS tariff on page 26:

The tariff of prepaid SMS was valid in 2005 Simpati prepaid Card Rp 350 and AS

card Rp 300 (AS,Telkomsel, OLO) domestic, Rp 1,000 (international)

For the elucidation of prepaid SMS tariff on page 26:

The tariff of prepaid SMS was valid in 2005 Simpati prepaid Card Rp 350 and AS

card Rp 150 (AS), Rp 300 (Telkomsel, OLO) domestic, Rp 1,000 (international)

60. The Elucidation of Telkomsel:

For the growth revenue of Telkomsel, in line with the business policy of the

company and not caused by monopoly practice. That Telkomsel in this matter

cannot avoid the decrease of share revenue, in 2004 decreased to 59% from 60% in

2003.

While in 2006, Telkomsel and XL successfully increased revenue share caused by

the weakening of Indosat’s operation.

61. The Elucidation of Telkomsel:

Agree, but there is a tariff change for termination from Mobile to Fixed either local

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COPY(268 →152) or SLJJ (659 →850) and local termination from Fixed to Fixed (157

→73) accord with the Notes of Finalization Meeting on Interconnection Tariff and

Collection Tariff on 24 July 2006 in which in the meeting it was agreed by General

Directorate of Post and Telecommunication as a Chairperson of BRTI and all

Telecommunication Operators .

62. The Elucidation of Telkomsel:

From the table of revenue and expenditure of interconnection, it is seen that the

expenditure mostly spent for BTS investment and marketing.

63. The Elucidation of Telkomsel:

From the available data of BTS growth, Telkomsel is always consistent to boost

BTS along with the directives of company policy “Invest Ahead of Growth”. The

financial data concerning revenue of cellular operator interconnection, comment is

not available.

64. The Elucidation of Telkomsel:

From the table of EBITDA, it is seen that in 2006 the growth of EBITDA is not big

as XL. The following data is from Morgan Stanley, 7 August 2007, shows that even

in 2006, Telkomsel gets into dynamic in EBITDA margin, showing that the market

is competitive.

The following table is from Deutch Bank, used to show that opex Telkomsel since

2004 is higher than the opex average of cellular, therefore it was getting better due

to Telkomsel’s business strategy in 2006.

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COPY

65. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

66. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

67. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

68. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

69. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

70. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

71. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

72. The Elucidation of Telkomsel:

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COPYThere is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

73. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

74. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

75. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

76. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

77. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

Therefore, there is something to be underlined in this item that (i) Telkom also

appoints 3 directors (managing director, director of finance, and one director for

other division) and appoints 4 commissioners with one of them is chief

commissioner.

78. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel, but then in 78 (d) (xxii) that Sheikh Muhammad is not a chief

commissioner of Telkomsel.

79. The Elucidation of Telkomsel:

Untrue. Wi-fi is not a Telkomsel service.

80. The Elucidation of Telkomsel:

Accord with company document.

81. The Elucidation of Telkomsel:

Accord with company document.

82. The Elucidation of Telkomsel:

Correction, that number of Telkomsel customers of Halo card is only 1.47 million.

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COPYThe market segment decision is only in the launching, but then in the

implementation there is no restriction for customer to choose.

83. The Elucidation of Telkomsel:

The correction for the data 100% in entire Regency, it should be Regency capital.

84. The Elucidation of Telkomsel:

It should be presented some revision to some stipulation in Telkomsel’s Statutes as

follow:

a. Item b.5, it should be: “to fix service fee (excluded salary, the decision is the

authority of RUPS) to and dismiss of (including severance pay) Director”

b. Item d: reference Article in Statutes should be Article 10. 2

c. Item i: reference Article in Statutes should Article 15. 7

d. Item n: incorrect, the description is correct as it is in the item l and m

e. Item o: reference of present quorum percentage and decision making shall be

80%

Apart from the stipulation of Statutes described in item 84, in Telkomsel there is

also an agreement among shareholders that control, among others are Business Plan

and Budget, that has to be submitted to Board of Director and board of

commissioner to be approved at the latest of the end of November.

From item 84 and the stipulation of shareholders’ agreement, it can be concluded

that PT Telkom as a majority shareholder in Telkomsel owns majority control to

Telkomsel. It can be seen from the authority to make decision in RUPS for a

general matters as it is mentioned in item 84, and the decision of board of

commissioner over Business Plan and budget. Nevertheless, it does not reduce the

protection to minority shareholders, as it is seen from the decision to the specific

material as it is mentioned in 84.

85. The Elucidation of Telkomsel:

Accord with the condition in 2006. See note in 86.

86. The Elucidation of Telkomsel:

In the very beginning of the joint ventures with SingTel, under the Statutes Telkom

has fixed right to appoint Managing Director, director of Finance and other

directors out of 5 available member of directors. The position of Director Marketing

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COPYand Director of Operation hold by SingTel Mobile is not a fixed position but a

result of the decision of general meeting of shareholders. It is needed to inform that

until the early 2003 the position of Director of Marketing is nominated by PT

Telkom.

It is needed to inform that Department of Procurement and Logistics under

Directorate of Planning & Development is nominated by PT Telkom since the

beginning of 2003.

87. The Elucidation of Telkomsel:

It is important to inform that Capex Proposal (for Capex above Rp.50 billion) is a

per-project detailed proposal arranged by Board of Director based on the approved

budget. In other words Capex Proposal is an implementation of Budget

Plan/Business Plan.

Routinely (monthly; along with the arrangement of quarter implementation

allocation), Board of Director submits Capex Proposal to Capex Committee to be

approved further by Board of Commissioner. Capex Committee is an organ that

assists Board of Commissioner to implement its monitoring asignment especially

Capex. Capex Committee will give recommendation to Board of Commissioner on

the decision to taken concerning the submitted proposal. Therefore, the final

decision of Capex proposal implementation is not in the hand of Capex Committee

but Board of Commissioner.

Currently, Capex Committee consists of 3 members: Chairperson Committee (In the

very beginning is hold by Commissioner nominated by PT Telkom), one other

members is from Board of Commissioner nominated by SingTel Mobile and a VP

or GM who are responsible to the plan of Capex Telkomsel (currently, the position

is hold by Mrs. Herfini Haryono).

It is needed to inform that Capex Committee Members are assisted by several staffs

of either PT Telkom or SingTel Mobile. Mr. Widjaja Suki is one of the staff from

SingTel Mobile. There is no different authority had by Mr. Widjaja Suki wih other

staffs from PT Telkom. Capex Committee has also an authority to appoint and ask

for assistances from external independent adviser to complete its assignments.

Each of Capex Committee Member has equal rights to give suggestion or input. The

involvement of the staffs from PT Telkom and SingTel Mobile (Widjaja Suki) are

limited only to give suggestion not to take decision or actively to influence Capex

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COPYCommittee Members. Within the internal structure of PT Telkom and SingTel

Mobile, the staffs are subordinated to Capex Committee Members. In this matter,

Mr. Leong Shin Loong is a member of Capex Committee of SingTel Mobile as well

as Director of SingTel Mobile, while Mr. Widjaja Suki is only a Deputy Director of

SingTel Mobile.

88. The Elucidation of Telkomsel:

The Capex Proposal submitted in the corridor of approved Budget Plan. The Capex

Proposal may not over the corridor of Budget Plan, unless there is a revision to the

Budget Plan (in which it is the right of Board of Commissioner).

The inputs and correction of Mr. Widjaja Suki are technical rather than strategy

concerning the Budget Plan. Other staffs of Capex Committee posted by PT Telkom

also possess the same authority. Mr. Widjaja Suki’s notes, inputs and corrections

are possible to be accepted with the approval and permit of Capex Committee since

Widjaja Suki as a personal or by its position does not have right to suggest or to

give correction directly on behalf of Capex Committee of SingTel or of Capex

Committee by himself.

89. The Elucidation of Telkomsel:

As it is mentioned previously that Capex Committee approval is a detailed

implementation of approved Budget Plan.

The Capex Proposal is submitted and responded monthly by Capex Committee and

Board of Commissioner but the plot of implementation plans are arranged quarterly

based on annual Budget Plan.

90. The Elucidation of Telkomsel:

As it is mentioned in item 87, Capex Committee Members are assisted by several

staffs of either PT Telkom or SingTel Mobile. Mr. Widjaja Suki is one of the staff

from SingTel Mobile. There is no different authority had by Mr. Widjaja Suki wih

other staffs from PT Telkom who assist Capex Committee, including to

communicate directly with the management staff of Telkomsel Business Control

such as Mr. Jaka Susanta.

91. The Elucidation of Telkomsel:

In performing the tasks, including taking decision on Business Plan and Budget

Plan, the Board of Commissioner members, either from SingTel or PT Telkom are

assisted not only by a number of committees such as Capex Committee and

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COPYAuditing Committee but also staffs from SingTel and PT Telkom assigned to assist

Board of Commissioner or Committee. In other word, SingTel does not have

special or bigger rights and authority than PT Telkom to perform the tasks

mentioned above. Each member of Board of Commissioner has equal rights to give

suggestion or input in line with the fiduciary duty as it is required by the law of

Limited Corporation.

92. The Elucidation of Telkomsel:

Agree; there is no joint procurement with Singtel

93. The Elucidation of Telkomsel:

Cited from Financial Highlight Telkomsel, No comment available.

94. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

95. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

96. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

97. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

98. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

99. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

100. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

101. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

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COPY(1)(b) to Telkomsel

102. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

103. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

104. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

105. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

106. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

107. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

108. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

109. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

110. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

111. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

112. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

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COPY(1)(b) to Telkomsel

113. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

114. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

115. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

116. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

117. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

118. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

119. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

120. The Elucidation of Telkomsel:

There is no direct relation with the suspected infringement of Article 17 (1) and 25

(1)(b) to Telkomsel

121. The Elucidation of Telkomsel:

In our opinion, the information given by Mastel (Telecommunication Community)

in its IOR, cannot be used a reference, as it is known that Mastel

(Telecommunication Community) has never conducted research concerning cellular

tariff, therefore the information of Mastel (Telecommunication Community) in

irrelevant as a reference. It is opposed to the qualification of witness as it is

regulated in Article 1 (22) of KPPU Regulation, 2006.

The interconnection has been controlled and regulated by government through

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COPYBRTI. In this case, Telkomsel and other incumbent operators had implemented non-

discriminative policy in the implementation of interconnection.

122. The Elucidation of Telkomsel:

In our opinion, the information given by Mastel (Telecommunication Community)

in its IOR, cannot be used a reference, as it is known that Mastel

(Telecommunication Community) has never conducted research concerning cellular

tariff, therefore the information of Mastel (Telecommunication Community) in

irrelevant as a reference. It is opposed to the qualification of witness as it is

regulated in Article 1 (22) of KPPU Regulation, 2006.

Besides, the changes of interconnection regime, from interconnection regime to cost

based regime, is performed gradually because there are many technical matters

needed to be adjusted since it cannot be performed all at once to have new DPI

permit in August 2007. The most significant thing is the change of interconnection

tariff under Memorandum of Understanding or amending previous PKS in which

the completeness of new PKS is also included in it. BRTI also knows about that and

approves it during the meeting of BRTI with the operator’s representatives on 19

December 2006 (the notes of meeting is enclosed).

123. The Elucidation of Telkomsel:

In our opinion, the information given by Mastel (Telecommunication Community)

in its IOR, cannot be used a reference, as it is known that Mastel

(Telecommunication Community) has never conducted research concerning cellular

tariff, therefore the information of Mastel (Telecommunication Community) in

irrelevant as a reference. It is opposed to the qualification of witness as it is

regulated in Article 1 (22) of KPPU Regulation, 2006.

Telkomsel in implementing interconnection policy bases on the Telecommunication

law, in which obligate network operator open interconnection access to other

network operators. Telkomsel accesses to numbering block of partner operators

(software) and connect interconnection link physically (Hardware).

Concerning the testimony of Hutchinson, we inform that the connection of

interconnection link can be performed directly or transiting through other networks

based on the economic calculation agreed by many parties. If the traffic of the

parties is < 48 Erlang, it will be economical transiting through other network

because it only pay transit fee subject to the traffic. It is cheaper than operating its

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COPYown interconnection. The decision of 48 Erlang as a limit to develop link

interconnection intends to reduce the cost. The rule is contained in DPI Telkomsel

approved and defined by BRTI (by the Decree of Directorate General Post and

Telecommunication No. 279/DIRJEN/2006 on 4 August 2006).

124. The Elucidation of Telkomsel:

There is a justification behind the policy, agreed as well by two parties that perform

an agreement. Justification: For SMS interconnection SMS, due to technical

limitation the billing statement is through SKA (sender keeps all) in which no

payment given to partner operators for intra SMS operator by assuming that sms

traffic is balance because usually the receiver of SMS will reply the SMS. Such

situation can cause a fraud by spamming SMS from sender operator to receiver

operator without any interconnection fee, while the receiver operator is overloaded.

A high increase of traffic is possibly to occur, if a retail price of SMS intra operator

is cheap. Therefore, the parties agree to avoid such situation because it is able to

restrain other parties. The price change of SMS to the same operator is possible to

be done. In fact, there a still a bad operator that assaults informal work ethic.

125. The Elucidation of Telkomsel:

Incorrect. Justification: In the DPI Telkomsel, approved and legalized by BRTI, it is

stated that concerning link interconnection partner operator can share transmission

of Telkomsel or other parties available in the Telkomsel’s premises with market

price or in line with KM. It has to be done because there is no other space for new

equipment if partner operator is about to develop its own transmission. The policy

will be revised if there is a space for the purpose. In the low capacity, cost for rent

is cheaper self-developing. Thereby, we inform that Telkomsel does not

implements restraint or forcefulness concerning interconnection policy.

126. The Elucidation of Telkomsel:

In our opinion, the information given by Mastel (Telecommunication Community)

in its IOR, cannot be used a reference, as it is known that Mastel

(Telecommunication Community) has never conducted research concerning cellular

tariff, therefore the information of Mastel (Telecommunication Community) in

irrelevant as a reference. It is opposed to the qualification of witness as it is

regulated in Article 1 (22) of KPPU Regulation, 2006.

Besides, the GDP of Indonesia in 2006 had reached US$ 1,280 per capita. It

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COPYassumes that the average of cellular cost is US$ 7 per customer then the cellular

consuming service is maximum around 7% and not 10%-20% as described by

Mastel.

127. The Elucidation of Telkomsel:

In our opinion, the information given by Mastel (Telecommunication Community)

in its IOR, cannot be used a reference, as it is known that Mastel

(Telecommunication Community) has never conducted research concerning cellular

tariff, therefore the information of Mastel (Telecommunication Community) in

irrelevant as a reference. It is opposed to the qualification of witness as it is

regulated in Article 1 (22) of KPPU Regulation, 2006.

Besides, in our opinion tariff is also a function of quality. Decreasing tariff is able

to decrease quality that finally lead to consumer loss, as it is stated in Analysis.

128. The Elucidation of Telkomsel:

In our opinion, the information given by Mastel (Telecommunication Community)

in its IOR, cannot be used a reference, as it is known that Mastel

(Telecommunication Community) has never conducted research concerning cellular

tariff, therefore the information of Mastel (Telecommunication Community) in

irrelevant as a reference. It is opposed to the qualification of witness as it is

regulated in Article 1 (22) of KPPU Regulation, 2006.

Besides, SMS has a principle of senders keep all. Consequently, the decrease of

tariff initiated by one operator can cause network trouble to other operator (see

elucidation in item 124). Telkomsel principally enjoys SMS tariff discount to 50%

for on net. We add that there is no regulation on SMS tariff.

129. The Elucidation of Telkomsel:

In our opinion, the information given by Mastel (Telecommunication Community)

in its IOR, cannot be used a reference, as it is known that Mastel

(Telecommunication Community) has never conducted research concerning cellular

tariff, therefore the information of Mastel (Telecommunication Community) in

irrelevant as a reference. It is opposed to the qualification of witness as it is

regulated in Article 1 (22) of KPPU Regulation, 2006.

Besides, as we have already mentioned that tariff is not mere a function of cost but

also quality.

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COPY130. The Elucidation of Telkomsel:

In our opinion, the information given by Mastel (Telecommunication Community)

in its IOR, cannot be used a reference, as it is known that Mastel

(Telecommunication Community) has never conducted research concerning cellular

tariff, therefore the information of Mastel (Telecommunication Community) in

irrelevant as a reference. It is opposed to the qualification of witness as it is

regulated in Article 1 (22) of KPPU Regulation, 2006.

Besides, the cost charge is a matter of business choice whether it is a cost charge to

vendor or customer. Every business has its own advantage and disadvantage.

Charging to vendor means high dependency of technology, decreasing of network

extension-- especially in the infeasible economic regions—and difficulties in

keeping standard quality. Telkomsel combines investment cost into business

strategy business on the basis of network and customer satisfaction.

131.

132. The Elucidation of Telkomsel:

The data of EBITDA result. The data is not “apple-to-apple” in which Telkomsel as

a pure cellular operator compare to other telecommunication operator. Therefore,

the result of Telkomsel is higher due to the absence of legacy for

telecommunication service. The EBITDA to be presented shall be consolidation

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COPYEBITDA with Telkom in which its EBITDA only 62%, so that the highest EBITDA

is Smart, a Philippine operator. Besides, EBITDA is a function of efficiency. Based

on the following item, Telkomsel operates efficiently.

133. The Elucidation of Telkomsel:

The data description of Merril Lynch per June 2007 is for Asian countries. The data

clearly show that Indonesian market is not in an extreme condition shown by the

absence of significant rate but churn market indicator is the highest. The churn

indicates the freedom of consumer to immigrate from one operator to another. From

the viewpoint of HHI, the competition degree is the second best after India. The

respond to the Preparation council of commission session based on the result of

Follow-up Investigation Case No. 07/KPPU-L/2007.

Analysis

A.

1

1.

Comments. Not available.

2. Comments. Not available.

3. There is no direct relation with the suspected infringement of Article 17 (1)

and 25 (1)(b) to Telkomsel .

4. Comments. Not available.

5. The analysis in item 5 of the Report of Investigation result. There is no direct

relation with the suspected infringement of Article 17 (1) and 25 (1)(b) to

Telkomsel. The shareholder of Telkomsel is Singtel and Telkom, in which

among them the agreement on investment are made as it is presented in item

84 in the presentation of the Report of Follow-up Investigation Result KPPU

(response to number 7 in number 5). In line with the license of foreign

investment Telkomsel had, one of Telkomsel’s shareholders is Singtel

Mobile. There is no reference at all that Singtel Mobile is Temasek Business

Group. We can inform you further that the law of investment , jo. the law of

Limited Corporation admits only foreign party in the form of foreign

corporate body or foreign individual. Therefore, the expression of “Business

group” is not acknowledgeable. (respond to number 9 in number 5).

2 6. There is no direct relation with the suspected infringement of Article 17 (1)

and 25 (1)(b) to Telkomsel.

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COPY 7. There is no direct relation with the suspected infringement of Article 17 (1)

and 25 (1)(b) to Telkomsel.

8. There is no direct relation with the suspected infringement of Article 17 (1)

and 25 (1)(b) to Telkomsel.

9. There is no direct relation with the suspected infringement of Article 17 (1)

and 25 (1)(b) to Telkomsel. Therefore, it needs to inform that the law of

Foreign Investment, the investment in Telkomsel is SingTel Mobile.

10. There is no direct relation with the suspected infringement of Article 17 (1)

and 25 (1)(b) to Telkomsel. Therefore, it needs to inform that the law of

Foreign Investment, the investment in Telkomsel is SingTel Mobile.

11. There is no direct relation with the suspected infringement of Article 17 (1)

and 25 (1)(b) to Telkomsel. Therefore, it needs to inform that the law of

Foreign Investment, the investment in Telkomsel is SingTel Mobile.

12. That the interpretation of majority share even based on Black Law is

indicating that Telkom is also majority shareholder because referring to

Telkomsel’s Statutes one share one vote is valid.

13. There is no other interpretation needed to know the meaning of majority

share.

14. The Telkomsel’s Board of Commissioner consists of 6 members, 4 members

are nominated by Telkom and 2 members by Singtel Mobile. The Board of

Director Telkomsel consists 5 members, 3 members are nominated by

Telkom and 2 members by Singtel Mobile.

15. Article 22. 9 of Telkomsel’s Statutes regulates that the whole decision of

RUPS are taken based on deliberation to come to general consensus but if

the meeting meets no agreement, the decisions are determined by voting with

at least 51% (fifty one percent) of the qualified votes.

16. The structure of Telkomsel shareholders is 65% for Telkom and 35% for

Singtel Mobile, therefore de facto, Telkom has stronger bargaining position

than Singtel Mobile.

17. Referring to 65% of Telkom’s shares in Telkomsel, then the majority

shareholder in Telkomsel is Telkom and not Singtel Mobile.

18. The regulation on bigger quorum concerning amendment of a Statutes,

merger, taking over, dismissal and bankruptcy is a form of protection to

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COPYminority shareholders by law in order to prevent it from the unfair conduct of

majority shareholders.

19. That the argument of KPPU Investigation team in item 19 on veto rights of

shareholders that possessed more than 25% as it is stipulated by the law of

Limited Corporation. Basing on this statement, KPPU then qualifies SingTel

Mobile as company controller is groundless. Under the law of Limited

Corporation, the veto rights of shareholders are given in relation to the

upholding of fair principles to any shareholders, besides KPPU Investigation

team has kept aside another important element that veto rights are only

concerning with the decision making on merger, taking over, dismissal and

bankruptcy (as it is stated in item 18 above), in which none of them has ever

occurred in Telkomsel. That based on the description above, it is incorrect

for KPPU to implement Article 76 of the law on Limited Corporation to

determine shareholder of company controller.

20. That in Telkomsel’s Statutes and agreement with shareholders, the rights of

each shareholders, including protection to minority shareholder, are

regulated in line with the law on Limited Corporation.

21. Based on the derivative interpretation, the lawmaker of Law No. 5/1999

examines that the meaning of majority share has already been understood

clearly, in which majority share refers to the highest number of shareholders.

The understanding of “Majority Share” in Article 27 of the Law No. 5/1999

is simple in fact, in line with the grammatical interpretation. It is concerning

“quantity” and/or “certain quantities” of shares owned by a shareholder.

Based on the composition of shareholders, Singtel owns 35% of shares in

Telkomsel and Telkom 65%. It is clearly understood that Telkom is a

majority shareholder in Telkomsel. Each shareholder owns one shares one

vote.

22. The teleological interpretation of majority share is not needed due to the

clearance and simplicity of majority share meaning that is to refer to the

highest number of shareholder.

23. There is no direct relation with the suspected infringement of Article 17 (1)

and 25 (1)(b) to Telkomsel. It is needed to inform that the rule in Article 27

of the Law No. 5/1999 is categorized as a prohibition based on ”rule of

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COPYreason”, and not ”per se illegal”.

24. Considering that Telkom owns 65% of Telkomsel’s share then the real

control of Telkomsel is Telkom.

25. The understanding of majority share is clear and understandable in which it

refers to the highest number of shareholder.

26. The interpretation of majority share is related to the Law No.19/1997 on the

Imposing Bill for Tax Collection is irrelevant, therefore it is ignored.

27. The understanding of majority share is clear and understandable, other laws

needed to interpret majority share are ignored because the understanding of

majority share is to refer to the highest number of shareholder.

28. The interpretation of majority share related to the regulation of BAPEPAM

on the Taking Over of public limited company is ignored due to the status of

Telkomsel as closed company.

29. The interpretation of majority share related the regulation of Central Bank of

Indonesia on Single Ownership in Indonesian Banking is ignored due to the

status of Telkomsel as non-bank corporation.

30. The description of KPPU on the understanding of majority related to the

practices in other countries is irrelevant with the condition of Telkomsel.

Based on the rule of Article 20 AB KPPU, it is stated that the case

investigation deserves to the rule of positive prevailing laws in Indonesia and

not to the rules of foreign laws.

31. The comments are the same as the elucidation in number 30 and up.

32. The comments are the same as the elucidation in number 30 and up.

33. The comments are the same as the elucidation in number 30 and up.

34. The comments are the same as the elucidation in number 30 and up.

35. The comments are the same as the elucidation in number 30 and up.

36. The comments are the same as the elucidation in number 30 and up.

37. Considering that Telkom owns 65% of Telkomsel’s share then Telkom is a

majority share in Telkomsel. The special quorum in the RUPS intends to

protect minority shareholders as it is ordered by the law of Limited

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COPYCorporation.

38. The comments are the same as the elucidation in number 30 and up.

39. The comments are the same as the elucidation in number 30 and up.

40. The comments are the same as the elucidation in number 30 and up.

41. The comments are the same as the elucidation in number 30 and up.

42. The comments are the same as the elucidation in number 30 and up.

43. The comments are the same as the elucidation in number 30 and up.

44. Based on our description above, majority share as it is in Article 27 of the

Law No. 5/1999 cannot be understood as a control of a business actor to

other business actors. A control to a company is simply determined by a

number of shares owned by a majority shareholder.

45. In the context of Telkomsel, Singtel Mobile cannot make strategic policy by

ignoring Telkom as a shareholder of 65% shares. Therefore, the description

of KPPU in item 45 in Analysis is unreasonable.

46. Based on Telkomsel’s Statutes and the practice in Telkomsel, Singtel cannot

force its wills by ignoring Telkom as a majority shareholder. It is a common

feature in a joint venture company.

47. The description of KPPU on in this item is related to the data of Indosat. No

comment is available. It is irrelevant with the suspected infringement of

Article 17 (1) and 25 (1) (b) conducted by Telkomsel.

48. Singtel Mobile is the owner of 35% of Telkomsel’s shares.

B 49. Cross-ownership is not the only cause of high concentration. Generally, the

cause of high concentration is vertical and horizontal integration rather than

cross-ownership. The industry in which Telkomsel resided does not admit

cross-ownership, as long as it concerned with Telkomsel.

50. The measurement of market power is (P-MC)/P, if this value reaches 1 then

market power possession is big and no market power for the value reaches to

0. Telecommunication industry in Indonesia, the tariff fixing is determined

by government regulation. It is noted further that in line with the existing

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COPYregulation, a tariff adjustment by dominant communication operator shall

get previously an approval from government authority (BRTI). The price

paid by customer is formed by a tariff minus discount (if any) in which

discount is influenced by a dynamic competition in the market.

51. According to the theory, market power is calculated by Price-Cost margin.

Currently, market power in price rate is equal and regulated by government

regulation. In the cellular industry of Indonesia, the products available is

complementary products that make the ability of determining market is not

high. The production is possible to be a factor of unfair competition because

the company with low production cost, generally has better market shares.

Competition occurs in obtaining production efficiency that give profit to

consumer as a return. The high value of profit margin is determined by the

different price and its margin cost that creates a price pressure competition

because price is determined by regulation.

52. Consumer loss does not automatically decrease social welfare. If it is

focused on the economic growth, the social welfare is a combination of

surpluses of consumer and producer. The description of this problem can be

seen in ‘Telkomsel Analysis as a cellular service leader in Indonesia (an

economic study relating to the infringement of Article 17.1 and 25.1. b of the

Law No. 5/1999), hereinafter referred to as whitepaper, that has been

submitted by Telkomsel to KPPU in July 2007.

53. In telecommunication industry of Indonesia, cross-ownership does not exist

and the leadership of Telkomsel in the market is caused by the acceptability

of public to service and tariff offered by Telkomsel.

54. As a service leader, Telkomsel tries to develop new market network, in

which other players are not interested. Tariff is fixed by regulation so that

output in the new market is not influenced by other players. The behavior of

Telkomsel does not cause anti-competition, protection and incentives to its

competitors.

55. Generally, the advantageous competition of the company is formed by three

elements namely price leadership, service leadership, and product

diversification Price leadership is the price offered by company is so low that

make other company get difficulty to enter market. Service leadership is the

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COPYservice offered is superior. Product diversification is the various products

offered to public. The competition in Indonesian telecommunication industry

is focused on service leadership. Therefore, the existing operator offer very

low price, especially the Telkomsel’s variant tariff that can be seen in the

enclosure.

56. Cross-Ownership schema is not valid in Indonesian telecommunication

industry due to its absence. According to the rates of HHI in Indonesia is the

lowest after India, it makes the high concentration is absent. Unbalanced

concentration occurred is caused by generalizing the analysis of market not

specified or through geographical factors. It will lead to bias conclusion. As

it is seen in the form of tight competition in JABOTABEK (Jakarta, Bogor,

Tangerang, Bekasi) Java and Bali, in which market shares of Telkomsel is

not more than 50%. From the data collected by LPEM, the market elasticity

value is elastic and getting higher annually unless in 2004. With the high

elasticity and the existing HHI, then the market power in this industry

(HHI/Elasticity) tends to decrease. Entry barrier in this industry is not caused

by the players but it depends much on the regulation performed by

government (BRTI) and the investment procedure facilities. In the case of

Oligopoly “Price Leadership” in which company leader determines the first

price, then other company fixes little bit lower than company leader. With

the Sequential Price Competition, in the end of equilibrium, other companies

is more benefitted than a leading company because there many opportunities

to capture much more customers. In the end, the position of the leader

changes and come back to the initial process to increase consumer surplus.

57. Such a measurement is used in measuring market concentration in an

industry. The measurement using HHI is better than CR but practically, CR

measurement is easier. The limitation of measuring market is market

definition (it shall be clear and specific), geography (it shall be accurately

observed to avoid of making mistake in comparing the players), the presence

of international trade, and the maturity of company (it shall be equal).

Therefore, calculating HHI in cellular telecommunication industry in

Indonesia shall define exactly the definition of market namely market that

gives similar service, coverage area (not nationwide) and equal maturity of

companies (in this case Telkomsel, Indosat and XL).

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COPY 58. CR needs not to see the whole players in the market but only identify a

player that has big market shares. CR4 means four companies with big

market shares. In the case in which there are only 5 companies with the

market shares that relatively equal, then its CR5 reaches 1. In this

measurement, carefulness in needed to interpret it.

59. The measurement of HHI requires to note the whole players in the specific

market as it is stated in response number 57.

60. The assumption in this case it there are 4 companies in the market. The

measurement is able to define market correctly as it is stated in number 57.

61. 10,000 is obtained only in one company in the market, then the market share

is 100%, and its HHI is 1002.

62. This method introduced by Farrel and Shapiro (1990). The analysis is

emphasized in merger horizontal or integration.

63. 1000 to 1800 of HHI cannot be commonly used, it depends on the number of

companies and their market shares. If there are 5 companies in the market

and each company has the same market shares, then the value of HHI is

2000; does it has high concentration? The answer is no because each

company has similar market shares so there is no concentration only in one

or two companies. In the case of telecommunication industry in Indonesia in

which 3 players has the same market definition, then the value of 1000 to

1800 is not valid anymore.

64. In their writing on horizontal merger, Farrel and Shapiro (1990) said that the

problem of HHI measurement is fundamental to see concentration rates. The

objective of the research is how big is the impact of merger to social welfare.

65. In the case of telecommunication industry in Indonesia the GHHI

measurement is ignored due to the absence of cross-ownership.

66. The formula of GHHI is not effective in market measurement of

telecommunication industry of Indonesia due to the absence of cross-

ownership.

67. Citing Campos and Vega (2003) in “Our version of the GHHI critically

depends on the exact definition of degree of “ownership” and “control”

attributed to the stakeholders. ... at least three alternative definitions: control

can be defined by the degree of ownership, by the capacity to form winning

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COPYcoalitions in the company’s voting game or by the relative number of

directors appointed by each group of investors in the Board of Director.”

Currently, there are 2 directors represented Singtel Mobile and the rest of 3

represented PT TELKOM.

68. In their original article, Gilberto Vega and Javier Campos (2003) do not

mention the limitation of high concentration from 1000 to 1800. The focal

pont is GHHI gives higher value than HHI as an impact of merger with the

same ownership.

69. To understand a better consumer surplus (CS), the utility function of cellular

public users and their demands shall be made. The price change will

influence CS. Theoretically and practically, CS shall be measured after

calculating Compensation Variation (CV) and Equivalent Variation (EV), in

which EV < ∆CS < CV. So, it is not easy to calculate CS accurately.

Consumer loss is a decrease CS due to the price change and not a

comparison of CS among countries because willingness to pay product is

different from one country to another, depending on the public taste, per

capita income or buying power, and the need rate of the service.

70. The Industry of telecommunication in Indonesia has its own oligopolistic

market structure because the limit of bandwidth frequency can be offered to

operator. Telkomsel has submitted the detail analysis in white paper to

KPPU.

71. Sweezy model has been broken by Bertrand model. Bertrand model is able to

show that in the end of price competition a balance exists in time of the price

is equal to its marginal cost. The analysis of Kinked Demand curve has not

been used for so long as a basis of analyzing industrial organization.

72. Based on model of Cournot, Bertrand and Stackelberg, there are three kind

of behaviors in non-cooperative oligopoly. Telecommunication industry in

Indonesia is more suitable to be approached by Stackelberg model in

competition quantity as an analysis basis as it is in the white paper that has

been submitted in July 2007.

73. With the equal price rate, Bertrand model is not suitable to be used as an

analysis basis in telecommunication industry in Indonesia as it is in the white

paper that has been submitted in July 2007.

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COPY 74. Stackelberg model is not mere for output but also for price but the strategy of

player determines price as leader give no profit to the leader itself.

Therefore, there are many leading companies play with their own output

strategy as it is in the white paper that has been submitted in July 2007.

75. In Cournot, the small and big change depends on the marginal cost (MC).

Each company has equal reaction function if its margin cost is equal.

Nevertheless, with the different MC, company that has lower MC will have

many quantities in the market. The price is determined after the quantity is

supplied to the market and it become parallel price for all players in the

market as it is in the white paper that has been submitted in July 2007.

76. Collusive Oligopoly in game theory is confronted with the difficulties to

coordinate and to prevent incentive to fraud. Cartel is possible only if there is

a regulation and fine among player that conducting Cartel. The deeper

analysis can be seen in the white paper that has been submitted in July 2007.

77. Price Leadership will not occur in Oligopolistic market but to the market that

tends to be Monopolistic in which there is only a dominant company fixing

price while others become “Residual Demand Curve” of other dominant

companies. Usually, the price fixed is low or close to the marginal cost of the

competitor’s company with the assumption that the MC of dominant

company is smaller than the competitor’s.

78. Comparing Cournot Model shall be with Stackelberg Model for quantity. In

quantity, Stackelberg Model gives Consumer Surplus bigger than Cournot

Model. While if we want to compare Price Leadership, it is better to use

Bertrand Model so that it will be the same due to a competition price. In

competition price condition, price is close to MC of each company in the

market. The same conclusion is that the lowest will have bigger market

shares. The deeper analysis can be seen in the white paper that has been

submitted in July 2007.

79. The agreement of interconnection is obliged, monitored and verified by

government through BRTI, and not a beginning of collusive agreement. In

an agreement of interconnection, the principle of non-discriminative is

applied to close the opportunity of collusion. Another problem to get out

form collusion is coordination and incentive. The deeper analysis can be

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COPYseen in the white paper that has been submitted in July 2007.

80. There is no direct relation with the suspected infringement of Article 17 (1)

and 25 (1)(b) to Telkomsel

81. Comment is not available. It has no relationship with Telkomsel’s business

82. There is no cross-ownership, so that 2003 cannot be used as a basic analysis.

83. There is no cross-ownership. The good performance of Telkomsel is mere a

result of business of Telkomsel that is performed with the accurate business

decisions.

84. The revenue of Telkomsel reflects the growth and role of Telkomsel in

developing national economy through multiplier effect in many sectors, in

line with the writing of “Telkomsel leads through service” in the white paper

that has been submitted in July 2007.

85. The market leadership of Telkomsel since 2001 has indicted the acceptability

of public to service and tariff offered by Telkomsel. Even customer has

many choices with services and various prices offered by many operators.

86. There is no direct relation with the suspected infringement of Article 17 (1)

and 25 (1)(b) to Telkomsel

87. There is no direct relation with the suspected infringement of Article 17 (1)

and 25 (1)(b) to Telkomsel

88. Generalizing the measurement of market shares will be misleading. The

measurement shall be based on the geographical coverage. The market

shares in the following table reflects dynamic competition among operators.

Jabotabek Central Java

Telkomsel 43.5% 46.8%

Indosat 34.8% 35.9%

XL 21.7% 17.3%

Total 100.0% 100.0%

89. 10,000 is obtained only in one company in the market, then the market share

is 100%, and its HHI is 1002.

90. If it is assumed that the marginal cost of Telkomsel, Indosat and XL are

equal and Telkomsel is a market leader, then the measurement of HHI will

reach to 4400 with model of Stackelberg. With the lower EBITDA margin of

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COPYTelkomsel, the MC of Telkomsel is lower than its competitor that make its

HHI value is more than 4400. Therefore, government and/or regulator shall

try to get efficiency from other company.

91. The limitation of HHI measurement as it is stated in number 57 shall be an

attention in analyzing telecommunication industry in Indonesia. Based on the

calculation in the table of item 90, the rate of HHI that reflect a dynamic

competition among operators. The condition in 2007 would be different

because a number of players increased and the two prominent competitors

increase their promo and reducing price to make them more efficient. The

value of HHI is possible to be small with the assumption that it is calculated

by using certain geographical factors.

92. In line with the vision and mission of Telkomsel to give as wide as possible a

telecommunication access to Indonesian people.

93. There is no direct relation with the suspected infringement of Article 17 (1)

and 25 (1)(b) to Telkomsel

94. For analyzing cellular competition, other factor than network and price as it

is mentioned by KPPU, shall be considered. Coverage is very important in

analyzing cellular competition in Indonesia because of geographical factor

and the low of PTSN penetration.

95. The growth of BTS is not the only analysis to win the competition in cellular

industry. Concerning the development of BTS, Telkomsel has to face many

external constraints such as the availability of power/electricity,

transmission, and the geographical factor, the huge area of Indonesia. Being

a volunteer in the regions, have obliged Telkomsel to build all value chain of

telecommunication business such as distribution network, dissemination of

cellular business to local people. The number of new BTSs will mean

covering market share, increasing market coverage, and developing network

effect. Each operator has their own decision to the development of BTS.

Developing BTS in volunteering time is a risky business decision related to

the challenges of geography, transmission, availability of power/electricity,

and business strategy, in this case Telkomsel always uses Invest ahead of

growth, a business strategy that has been implemented by Telkomsel in the

very beginning of its establishment. Other operators usually apply market

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COPYapproach to boost BTS growth.

96. The statement stating that the decreasing of Indosat (the closest competitor),

give a freedom to dominant player optimizing its market. The decreasing of

Indosat cannot be avoided and beyond the control of Telkomsel because

Telkomsel does not have control to Indosat. Furthermore, a certain condition

cannot be compared directly and come to conclusion as it is in 95 because

such a deed will lead to misinterpretation. The decreasing of performance of

Indosat has been distributed better to the whole players that make XL lowers

its gap for chasing to be No.2 and it is possible referring to a number of BTS

of XL. The growth of BTS is part of business plan that is arranged

consistently and not of the decrease of Indosat’s BTS growth.

97. The average price cannot be used as a reference in analyzing tariff. From

period to period, Telkomsel (and also other operator) often offering discount

or promo for giving lower price. Besides, Telkomsel is also adjustment Point

of Charging that give customer wider a local call zone.

98. The picture is full of simplification needed for coming to accurate

conclusion. See also the elucidation in item 97, in which Telkomsel price is

dynamic from time to time.

99. In the case of Oligopoly “Price Leadership” in which company leader

determines the first price, then other company fixes little bit lower than

company leader. With the Sequential Price Competition, in the end of

equilibrium, other companies is more benefitted than a leading company is

because there many opportunities to capture much more customers. In the

end, the position of the leader changes and come back to the initial process to

increase consumer surplus.

100. The Analysis shall be seen as trend and not based on growth average to see

competition change better in price.

101. The growth data of presented retail selling price cannot be compared due to

the references used by KPPU in processing data.

102. The statement concerning the significant increase of postpaid customer is

incorrect. The postpaid Telkomsel contributes only less than 5% (total

customers in 2006 was around 1.6 million) out of the whole customers. Even

the total customers of entire operators are 2.9 million. It is not true to say that

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COPYthe increase of operator‘s high margin is caused by postpaid customers. It

can be said that in general the users of postpaid are those who are not

sensitive with price because they are corporation customers not retail and

VVIP customers (being customers since the initial establishment of

operator).

103. Conceptually, Price Leadership model with the tacit collusion is hard to last

long due tot the problems of coordination and incentive, as it elucidated by

Nash Equilibrium in the case of Prisoner Dilemma. Generally, Price

leadership is conducted in the low price or tariff so that other players receive

residual demand curve.

104. There is no high non-cooperative or competitive concentrations in the

markets of cellular industry in Indonesia. The measurement of HHI shall

consider the limitation as it is stated in number 57. The explanation of GHHI

has been stated in number 65 and 66.

105. The expression of “single entity doctrine” is not acknowledgeable in

Indonesian legal system so there is no cross-ownership involving Telkomsel.

106. Although market control by Telkomsel and Indosat are up to 89.64% in

2006, it indicated no cross-ownership.

107. Although market shares average of Indosat-Telkomsel are 89.61%, it

indicates no cross-ownership

108. The increase of common market shares of Telkomsel and Indosat in the

whole years does not prove/relate to the existence of cross-ownership.

109. It has been stated in item 57. The general or national measurement cannot be

used as an exact measurement of HHI.

110. It has been stated in item 57. The general or national measurement cannot be

used as an exact measurement of HHI.

111. It has been stated in item 57. The general or national measurement cannot be

used as an exact measurement of HHI.

112. It has been stated in item 57. The general or national measurement cannot be

used as an exact measurement of HHI.

113. It is needed to note that with the same number of players, HHI value in

Stackelberg-Quantity model is bigger than in Cournot model. Nevertheless,

the high value of HHI does not make lower consumer surplus in Stackelberg

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COPYmodel than in Cournot. Even in Stackelberg-quantity model the consumer

surplus and social welfare is higher than in Cournot model, as it is in the

white paper that has been submitted in July 2007.

114. The method of GHHI cannot be implemented to explain cellular market

concentration in Indonesia. The elucidation of GHHI has been stated in

number 65 and 66.

115. The method of GHHI cannot be implemented to explain cellular market

concentration in Indonesia. The elucidation of GHHI has been stated in

number 65 and 66. The exact calculation is available as it is in number 57.

116. The method of GHHI cannot be implemented to explain cellular market

concentration in Indonesia. The elucidation of GHHI has been stated in

number 65 and 66. The exact calculation is available as it is in number 57.

117. The method of GHHI cannot be implemented to explain cellular market

concentration in Indonesia. The elucidation of GHHI has been stated in

number 65 and 66. The exact calculation is available as it is in number 57.

118. The method of GHHI cannot be implemented to explain cellular market

concentration in Indonesia. The elucidation of GHHI has been stated in

number 65 and 66. The exact calculation is available as it is in number 57.

119. The method of GHHI cannot be implemented to explain cellular market

concentration in Indonesia. The elucidation of GHHI has been stated in

number 65 and 66. The exact calculation is available as it is in number 57.

120. The method of GHHI cannot be implemented to explain cellular market

concentration in Indonesia. The elucidation of GHHI has been stated in

number 65 and 66. The exact calculation is available as it is in number 57.

121. The method of GHHI cannot be implemented to explain cellular market

concentration in Indonesia. The elucidation of GHHI has been stated in

number 65 and 66. The exact calculation is available as it is in number 57.

122. The method of GHHI cannot be implemented to explain cellular market

concentration in Indonesia. The elucidation of GHHI has been stated in

number 65 and 66. The exact calculation is available as it is in number 57.

123. The basic calculation of market power is Lerner Index (LI); the price is

reduced by weighted average of the marginal cost divided by the price itself.

In LI measurement, the interpretation shall be taken carefully because there

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COPYis a cost influence, especially sunk cost, and innovation. The innovation

automatically reduces marginal cost. The statement is true saying that the

measurement of competition degree is a demand function. It is incorrect to

say that the result of measurement indicates that the behavior of companies

in Indonesian cellular industry Indonesia is non competitive. In order to

create non competitive condition, it has to face the problems of coordination

and incentive of the players to gain higher profits.

124. The competition in the market is to have market shares as high as possible.

However, whatever products offered by producer can be received by

customers. The competition can be conducted in many ways such as

competition price, quality product, and channel distribution. The stages

presented is correct but it cannot be seen as geographical market

aggressiveness because there is a region in a competition price such as

JABOTABEK and Java. While in other regions, there is still in the stage of

network development. Such a production process shall be attended in

implementing HHI as it is stated in number 57 and 94.

125. First mover advantage is only possible if the cost average or the marginal

cost of first mover is always lower than other competitors. For example

Telkomsel, Telkomsel is not a first player in JABOTABEK but Telkomsel

currently leads the market in this region caused by precise strategy

implemented by Telkomsel in penetrating market. The statement saying that

in the first step that market power will be possessed is not true. It can be seen

from the new entrants who enter in the high competition regions. By

creating price war they immediately grab market shares. It means that Price-

Cost margin of new entrants are low so that their market power is not big.

126. The statement saying that first mover is benefitted in the Stackelberg-

quantity is incorrect. It should be market leader that previously determine

quantity and then followed by its followers. The pervious determination is

understood as first mover in Game Theory of the sequential game.

127. The calculation of maximizing profit of company 1 as a leader with the

function of follower’s reactions, as it is stated by KPPU.

128. The maximum profit of each company in the market is when margin

revenues (MR) is equal with its margin cost (MC). In the example here MC

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COPY= 0, then MR = 0, Q1 as leader is 1/2a. By entering Q1 value to the function

of follower’s reaction, Q2 becomes 1/4a. The conclusion stating that the

quantity produced by company 2 is smaller than company 1 as the first

mover is; the condition is valid if there are only two companies in the market

and the first mover is a market leader. In the case that there are three

companies with the demand function is similar to the example, then Q1 as a

leader will have quantity comparison 3:1:1 with its followers. In other words,

the market shares leader will be 3/5 and marginal cost 60%.

129. In the Stackelberg model, the follower only reacts after Leader determines its

products quantity. In other words, the follower tries to find a gap that cannot

be fulfilled by leader. The increase of product quantity by follower will

cause supply increase in the market; under market mechanism, if supply

increases price will decrease. The decrease of price results the profit

decrease of the whole players in this industry.

130. Telkomsel is not a first mover in Indonesian cellular industry. Nevertheless,

in 1996 the three existing cellular players, Telkomsel, Satelindo and XL,

have an equal opportunity to become Leader in the market. Concerning the

number of Telkomsel’s BTS, the Telkomsel’s business strategy bases on

coverage, capacity and quality, it is not mere a short-term financial business

calculation. The restraint of BTS’s development applied to Telkomsel is

able to establish distortion in the market. Each new entrant needs market

penetration to enable it becomes a competitor in the potential region such as

JABOTABEK and Java.

131. BTS is an important investment for the players in cellular industry but it is

not the only decisive factor in the competition, especially in the new area as

it is elucidated in 95.

132. In the low market penetration region, the chance of each player to boost the

capacity is widely open, along with the business plan that has been stated

and it is not mere a reaction function of the first mover in that region. To the

present time, market penetration for Indonesia is around 30%.

133. The statement saying that Telkomsel is a first mover is untrue. The restraints

of Telkomsel development is able to distort market development because

there is no guarantee that market mechanism and fair competition can be

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COPYestablished under such a situation. Besides, the implication of changing

behavior from Stackelberg model to Cournot model is not a good idea to the

development of Indonesian economy because social welfare and consumer

surplus is bigger than in the Stackelberg model.

134. In the Stackelberg model there is no dominant company but only market

leader. In the Stackelber-Quantity competition, market leader does not fixes

price but previously determines quantity and afterward the followers adjust

it. BTS is only concerning capacity and not giving power to become a first

mover. The right placement of BTS in a region is able to create a potency of

increased market share. The BTS placement strategy is very potential to

make a company market leader.

135. There is no direct relation with the suspected infringement of Article 17 (1)

and 25 (1)(b) conducted by Telkomsel. Besides, the Telkomsel analysis

considers not only competitor’s behavior but also market needs anticipation

and an adjustment of needed based services.

136. The market shares data of Telkomsel, Indosat, XL over the income of

customer, # Telkomsel BTS performs cellular business is based on three

pillars, widening coverage, improving capacity and quality, consequently

Telkomsel builds BTS significantly. The revenue and customer are outputs

of coverage, capacity and quality .

137. The consistency of Telkomsel in 50-55% is an accurate strategy of

Telkomsel in performing business while XL as an aggressive operator enjoy

the increase of its market share in 2006. Such a condition is a fair dynamic

market.

138. As a first mover, Telkomsel takes a higher risk than its followers do. It is

proved from the aggressiveness of Xl that begins to harvest significant crops

in which Telkomsel exists in that region.

139. The boost of capacity and the strategy of BTS’ placement are the

fundamental things to keep and to increase market shares. The rapid of

market penetration by other players does not depend on the budgeted

CAPEX but it depends on the precise of BTS placement itself.

140. Telkomsel is not a first mover in cellular industry in Indonesia, as it is

elucidated in item 130.

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COPY 141. Currently, the Indonesian cellular industry is non-cooperative Oligopoly

market, and there is a leader in the market so that Stackelberg model is

suitable to be implemented in analyzing this industry and the analysis shall

be based on the specific geographical market and it cannot be analyzed

nationally. Thus, there is no accumulation of monopolistic profits in

Indonesian cellular industry since competition occurs in the oligopolistic

market. The three prominent operators are relatively in the equal position.

The dominant position is obtained because of service and discount given as a

wish of market, as it is elucidated in item 140.

142. In other words, Nunn and Savari (2002) give an indication that the existing

cellular industry cannot be approached by Cournot model that state a number

of competitors in the market do no influence the market power of company.

Thus, in the world market cellular industry there are leader and follower, so

that the exact approach is Stackelberg model.

143. Telkomsel is not a first mover in cellular industry in Indonesia, as it is

elucidated in item 130 and the players in cellular industry in Indonesia keep

on competing one to another.

144. The performance decreases of competitors have nothing to do with

Telkomsel. In Indonesian telecommunication industry, cross-ownership is

absence and no high concentration in non-cooperative or competitive

markets of cellular industry. It indicates that competition occurs in this

industry

145. The indication of aggressiveness decrease of Indosat as the closest rival to

Telkomsel has nothing to do with Telkomsel because Telkomsel does not

have control over Indosat.

146. In Indonesian telecommunication industry, cross-ownership is absence and

the performance decrease of Indosat has nothing to do with Telkomsel.

147. In Indonesian telecommunication industry, cross-ownership is absence and

the performance decrease of Indosat has nothing to do with Telkomsel. The

high competition occurs in cellular industry and it can be seen from the value

of HHI as it is stated in 56, and the increase of new player.

148. In the case of Oligopoly “Price Leadership” in which company leader

determines the first price, then other company fixes little bit lower than

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COPYcompany leader. With the Sequential Price Competition, in the end of

equilibrium, other companies is more benefitted than a leading company

because there many opportunities to capture much more customers. In the

end, the position of the leader changes and come back to the initial process to

increase consumer surplus.

149. Methodologically, it needs to be analyzed whether the tariff change variables

is appropriate to test the existence of price leadership and fixed pricing.

By using tariff change variables, it will provide significant conclusion as it is

elucidated by sequential price competition in item 148.

150.

151.

The test of equal postpaid average tariff of Telkomsel and Indosat indicates

that there is a Sequential Price Competition for postpaid tariff. In the end of

equilibrium, other companies are benefitted more than a leader. As it is

elucidated in item 148

152.

153.

The test of equal prepaid average tariff of Telkomsel and Indosat indicates

that there is a Sequential Price Competition for prepaid tariff. In the end of

equilibrium, other companies are benefitted more than a leader. As it is

elucidated in item 148

154. According to the theory, market power is calculated by Price-Cost margin.

Currently, market power in price rate is equal and regulated by government

regulation. Business efficiency is an important factor in the high of EBITDA.

The telecommunication tariff in other countries presented by Morgan Stanley

and LPEM shall be proved whether the data have been passed through a

certain method. The presentation method will be an important issue because

the differences in taking retail tariff, regulatory, and the blended FWA total

operator & cellular will influence the result. Production cost can be a factor

of fair competition because company with a low cost production generally

has better market shares. Thus, the competition exists in finding production

efficiency in order to give consumer profits. The high value of profit margin

is determined by the different price and its margin cost that creates a price

pressures competition because price is determined by regulation.

155. Business efficiency is an important factor in the high of EBITDA. In table 11

it is seen the high of EBITDA and nominal growth of each operator in which

Telkomsel is more efficient than the existing competitors. See elucidation in

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COPY64 on presentation.

156. The EBITDA margin indicates a company that provides telecommunication

service is productive and very efficient. As a startup company with no

burden of legacy system along with the wide open market opportunity has

caused the average EBITDA of newly cellular industry grows above the

average EBITDA of industry in the saturated market. It is in line with the

survey conducted by UBS and Barkawi (date enclosed). Concerning to the

tariff, so far there is no such a statement from the regulator so that it can be

concluded that the statement saying, with the high EBITDA operators apply

tariff as high as possible following the tariff mentioned by regulator is

untrue. It needs to be noted that in the accounting record-keeping system,

the calculation of EBITDA margin in Indonesia uses the record-keeping of

EBITDA based on net revenue and not gross revenue (net revenue is added

discount and interconnection expenses), in which the calculation of EBITDA

margin in other countries is a comparison between EBITDA and gross

revenue. (Barkawi’s data). It is calculated based on gross EBITDA, the

EBITDA of Telkomsel is around 60%.

157. The EBITDA more than 50% is answered as in number 156. It does not

mean that a high EBITDA more than 50% will obtain 100% cash inflow

higher than the expenditure because there is a bad debt relating to record

keeping cash flow of a company. Historically, by implementing intensive

efforts and not mere getting from market, Telkomsel is able to optimize the

risk of uncollectible cash bill from the customers by improving billing

system in order to increase cash flow to the company. Thus, by installing a

newest billing system technology and attempting of a company to boost

productivity, an efficiency of company cash inflow can be improved.

158. Prior to cross-ownership, it was a company developing in which company

needed significant costs to develop its business. It was also a time when the

government has not stabilized price relating to O&M, Marketing and cost of

card. Learning from the instability of price after crisis and the increase of

productivity as a penetration responded by market has escalated the traffic

utility to the network of each operator which then increases productivity,

decreases high cost and in other side boosts network efficiency. It makes the

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COPYEBITDA after cross-ownership in average is over the EBITDA before cross-

ownership (See network utilization before and after cross-ownership).

159. Telkomsel is the first operator that is able to increase productivity by

escalating network utilization and optimizing company efficiency through

outsourcing, managed services and partnership with the third party (vendor,

dealer, and other partners). It is not surprising that Telkomsel is able to

reach 72% EBITDA or the net revenue.

160. Prior to cross-ownership, XL faced many internal problem relating to

positioning product company as premium services, financial capability,

internal share selling to strategic partner in order to optimize its resources for

getting optimum productivity and boosting efficiency. With such condition,

it cannot be denied that the EBITDA of XL is slightly under Telkomsel.

161. The EBITDA of Indosat is slightly under Telkomsel due to internal

consolidation resulting from internal merger of Indosat, IM3 and Satelindo.

After cross-ownership, Indosat cannot optimize immediately the opportunity

in the market, therefore the market acceleration is not fast as Telkomsel.

162. Market power is not calculated from EBITDA margin but a function of P-

MC/P. Therefore, the conclusion stating that high EBITDA margin means

creating high market power. EBITDA is a function of productivity (customer

base, minutes of usage, utilization) and function of efficiency (capex, and

opex efficiency). See the analysis of Deutch Bank by Raymond Kosasih.

163. Currently, tariff is regulated by regulator. An assumption concerning

excessive tariff shall be addressed o regulator not to operators, all this time

there is no indication that Telkomsel infringes regulation in Indonesia.

164. The comparison of cellular tariff and cost component in other countries is

irrelevant referring to the basic differences such as geography, public buying

power, the availability of infrastructure and regulation.

165. The assumption used to predict tariff growth causes bias analysis.

166. There is an impreciseness of time and data as well as the excluding of

discount element. The price paid by customer is formed by a tariff minus

discount (if any) in which discount is influenced by a dynamic competition

in the market. Besides, the comparison of cellular tariff and cost component

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COPYin other countries is irrelevant referring to the basic differences such as

geography, public buying power, the availability of infrastructure and

regulation

167. There is an impreciseness of time and data as well as the excluding of

discount element, as it is elucidated in 166.

168. Comments. Not available.

169. Incorrect. If the discussion is on interconnection tariff, then the table 17 shall

be:

Comparison of interconnection tariff and recommendation (local)

Operator PSTN Other Cellular Tariff % Tariff % Telkomsel 361 100 449 100 Indosat 361 100 449 100 XL 361 100 449 100 Recommendation in agreement July 24, 2006 361 449 Comparison of interconnection tariff and recommendation (long distance) Operator PSTN Other Cellular Tariff % Tariff % Telkomsel 471 100 622 100 Indosat 471 100 622 100 XL 471 100 622 100 Recommendation in agreement July 24, 2006 471 622

170. Comments. Not available.

171. Comments. Not available.

172. The answer is the same as Number 162, market power is not calculated from

EBITDA margin but by P-MC/P, because EBITDA margin is more a

function of productivity and efficiency.

173. The comparison is not valid because the calculation of EBITDA margin of

Telkomsel is a comparison of EBITDA and net revenue, while other

operators uses comparison between EBITDA and gross revenue. See the

valid result of Barkawi survey.

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COPY 174. The decrease of tariff cannot be correlated with ROE, because there are other

factors relating to policies dividend of each company in which the higher

policies dividend of a company, the lower equity recorded and the higher its

ROE.

175. In line with Duppont formula that ROE is a function of profitability

(NI/Sales), function of productivity (Sales/Asset) and function of leverage

(asset/equity), so that ROE reached by Telkomsel is a function of company

efforts to provide effect multifier services that enabling to make productivity

and to leverage business. Historically, it can be seen that the ROE average

of Telkomsel is always to maintain productivity and leverage that always

being stable with fixed ROE. Besides, ROE is also a comparison due to the

differences of operator’s policies dividend.

176. Defining tariff function of ROE cannot be conducted directly because with

the lowering price the traffic increase is compensated so that there is an

elasticity between tariff and different traffic. The traffic remains to be

different depend on the competition intensity. By decreasing tariff to, let say,

32% does not guarantee that the obtained ROE will be lower than the present

value since traffic increases and tariff decreases. Naturally, the higher

penetration the lower tariff for service barrier caused by increasing

competition and the more various choice for the customers. (Read article

UBS).

177. The statement is untrue, because there is an elasticity between price and

traffic that impacting no the return. Therefore, with the tariff decrease of 32

%, the ROE of Telkomsel is able to depend on the elasticity of traffic and

price. Is there something wrong with Telkomsel in such a condition?

178. The approach in seeing operating revenue growth with function of quadratic

and exponential indicates only existing trend pattern. Nevertheless, the

validity of the coefficient cannot be detected its testing statistical result.

179. GSM has a long road map. It is not true if GSM is out of date because GSM

is able to adapt 3G. Telkomsel does not implement harvesting strategy due

to the increase of CAPEX from year to year. In other words, Telkomsel also

develops technology by building overlay network and not only utilizing the

existing technology. Thus, it cannot be analyzed between a relationship

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COPYpattern of quadratic marginal cost exponential and harvesting policy as well

as the out of date of technology.

180. The ROE is calculated as it is elucidated in item 175. The high ROE depends

much on the asset development conducted by Telkomsel in performing

investment that is able to create high selling revenue. From the viewpoint of

profit margin, Telkomsel is challenged to boost efficiency so that total cost

production is low.

181. The approach in seeing total asset with function of quadratic and exponential

indicates only existing trend pattern. Nevertheless, the validity of the

coefficient cannot be detected its testing statistical result.

182. The third party trusts Telkomsel because Telkomsel’s ability to pay its debts

is indubitable supported by the trend of revenue growth of Telkomsel. Thus,

the readiness of third party is caused by Telkomsel performances.

183. Generally, company tends to keep its leadership in the market. The ability of

follower to chase a leader will depend on the follower’s efficiency.

184. The approach in seeing equity shareholder growth with function of quadratic

and exponential indicates only existing trend pattern. Nevertheless, the

validity of the coefficient cannot be detected its testing statistical result.

185. Generally, investors expect high return rate. The increase of dividend

payment attracts investor to invest in Telkomsel.

186. The statement is groundless. Telkomsel does not have capacity to restrain

other operators by threatening through interconnection link to the operators

that decrease tariff referring to interconnection as something that cannot be

ignored by all telecommunication operator in Indonesia (in line with the Law

36/99). Besides, BRTI als oblige all operator to reaches DPI as an official

business bid document that have to be approved and monitored by BRTI in

its implementation. We note that based on IOR of XL, it is stated that XL has

never been restricted by Telkomsel and XL considers that the cellular

condition in Indonesia is over competitive. We also note facts that, as it is

expressed by Benny Pasaribu (one of members of Investigation team of

KPPU) in his dissenting opinion that tariff rate is decreasing year by year,

increasing customer in number and increasing telecommunication operators

in Indonesia (until 2006 there were 10 Operators in INA and the biggest in

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COPYAsia)

Concerning the interconnection threat to the party that decrease tariff, it is

needed to know that retail tariff is not a subject to be included in the

agreement with interconnected party. Therefore, the policy of retail tariff and

interconnection is irrelevant. So far, Telkomsel does not have a complaint

from the telecommunication operators relating to the threat of disconnecting

interconnection to the operators that decrease tariff. Based on page 2 above,

it is untrue to say that Telkomsel has abuse its market leader position to

barrier market and to develop technology or practicing monopoly and/or

unfair competition. It is reflected from the increase of operators with their

positive performance growth.

187. In line with the valid regulation, Telkomsel is obliged to provide and ask

interconnection service to and from other operators. Concerning to this

matter, it is a compulsory of Telkomsel to submit and to have an approval

from the government authority (BRTI) over its DPI. Besides, the

interconnection agreement is vice versa, in which both parties have equal

bargaining position because the operators have duties to their customer to

the availability of interconnection service.

188. The justification of the clause of the availability is related to the usage of

SKA method in SMS interconnection so that each operator shall keep the

network performance and prevent SMS spamming. The parties involved in

the agreement have to agree with the clause in the PKS. The amendment of

the agreement has shown that Telkomsel as a market leader does not force its

wills or to discriminate other cellular operator although there is a possibility

of the menacing of spamming negative effect.

189. The demand of Telkomsel to have the traffic in 48 El is to optimize network

capacity and to avoid high cost idle capacity. It is also affirmed by XL in the

IOR of XL Witness on 9 August 2007 in which it is stated that if the

network is open and there is an El condition with the installed capacity but

the usage is only part of the capacity, it causes cost inefficiency.

190. The comparison of cellular tariff and cost component in other countries is

irrelevant referring to the basic differences between Indonesia and other

countries. The price paid by customer is formed by a tariff minus discount (if

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COPYany) in which discount is influenced by a dynamic competition in the market.

The EBITDA depends much on the efficiency of a company. Therefore,

related to the consumer loss in cellular industry in Indonesia the statement is

irrelevant. Besides, the opinions of Mr. Benny Pasaribu as a judge of council

of commission in this case, LM FE UNPAD and Sri Adiningsih, PhD from

UGM state that the high tariff does not cause consumer loss. The fact is the

opposite.

191. The process of consumer loss calculation can be seen in item 69.

192. Comments. Not available.

193. From the data proceeded by LPEM, the elasticity value of market is very

elastic. It means that if a bit of price change it causes public demand change

in a huge number to the opposite direction. It has made operators compete

one to another to decrease price for increasing revenue.

194. The elasticity rate presented is not a rate of own-price elasticity of demand

because it is possible that there is an influence of decisive variable of other

Quantity demanded so that it cannot be used as a basis of analysis by using

own-price elasticity of demand.

195. It cannot be analyzed because its elasticity number cannot be mentioned its

volume. Beside the comparison of cellular tariff and cost components in

other countries are not relevant, as it is described in item 164.

196. It cannot be analyzed because its elasticity number cannot be mentioned its

volume. Beside the comparison of cellular tariff and cost components in

other countries are not relevant, as it is described in item 164.

197. It cannot be analyzed because its elasticity number cannot be mentioned its

volume. Beside the comparison of cellular tariff and cost components in

other countries are not relevant, as it is described in item 164.

198. For the interconnection tariff, the whole operator reenact interconnection

tariff of the recommendation of OVUM and for retail tariff government

only regulates on the floor price and there is no clause obliges that retail

tariff shall be the same as floor price. The usage of price in other countries as

a calculation basis of consumer loss is irrelevant, as it it stated in item 164

199. Average is one of central calculation such as modus and median while

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COPYcentral limit theorem is an explanation that a normal distribution dispersion

will follow this theory and become a forming of distribution Z and student-t.

Therefore, it cannot be seen that there is a relationship between central limit

theorems with consumer loss.

200. Excessive pricing in Indonesia does not occur because Government regulates

price. Generally, operators in Indonesia reenact price under the government

regulation. The calculation of consumer loss by comparing with the price of

other countries is irrelevant referring to the basic differences such as public

buying power , willing to pay utility over cellular service and geography.

201. The similar economic condition cannot be automatically equalized because

of the function of marginal cost preferences utility of consumer influence

much consumer loss. The calculation of consumer surplus change shall be

seen on how Compensation (CV) and Equivalent Variation (EV) calculated.

Calculating CV and EV needs utility function/consumer preference. The

utility function/consumer preference among countries is different, so that it

cannot compare to other countries although the macroeconomic condition is

relatively the same. It cannot be analyzed because its elasticity number

cannot be mentioned its volume. Beside the comparison of cellular tariff and

cost components in other countries are not relevant, as it is described in item

164.

202. Consumer loss is a decrease CS due to the price change and not a

comparison of CS among countries because willingness to pay product is

different from one country to another, as it is described in item 69.

203. If a company leader decreases price until certain point in which it creates

residual demand under the average cost of the follower company. It causes

follower company keep out from the market, because there is no more

incentive for follower to produce because of the is under its production cost.

The complete elucidation is in white paper of Telkomsel.

204. The calculation of ROE can be seen in item 175. It clearly impossible to see

how is the relationship between consumer loss and ROE. The existing price-

cost margin is caused by Telkomsel’s ability to boost efficiently because

price is regulated by government .

205. In telecommunication industry in Indonesia, the cross-ownership is absence

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COPYand there is fair competition in this industry that can be seen from the high of

HHI competition in service, and discount war.

206. Telkomsel is operating in line with the business plan, and not influenced by

other competitors. Besides, by considering market in Indonesia—developing

in some regions, even exponentially—it will be risky for not take the chance

to boost company’s growth.

207. Market concentration is not caused by closest rival. Each competitor can

grab market shares of the dominant player which make the decrease of

market concentration.

208. The enormous market shares does not directly cause lowering market price.

The company of non-dominant player decrease price to attract public with its

products.

209. Comments. Not available. The pattern of Cournot-Nash does not influence

price rate but quantity.

210. In telecommunication industry in Indonesia, the cross-ownership is absence,

GHHI can be ignored.

211. It happens only if the cost structure of each company is similar.

212. The decrease of competition rate does not mean that consumer surplus and

social welfare is getting better. In the Stackelberg model, even if its HHI is

higher than Cournot model, the consumer surplus and social welfare is

better than Cournot model.

213. Stackelberg-Quantity model gives more on lower price than Cournot model.

With the lower price and the better consumer surplus, the consumer loss will

decrease significantly. Thus, Cournot model is not correct to be a basic

analysis of cellular industry in Indonesia.

Conclusion

1 We do agree with the conclusion of KPPU Investigation team in number 1. The

conclusion in number 1 principally states “the structure of cross-ownership

between Telkom and Indosat in cellular telecommunication industry in Indonesia

has been cancelled by government as a follow-up of Ministerial Decree

No.72/199 in the form of ownership swap between Telkom and Indosat to

Telkomsel and Satelindo”. Such a conclusion proves that actually the meaning of

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COPYcross-ownership (in the expression of Article 27 the Law No. 5 / 1999 mentioned

as ”own majority share in some similar companies that perform business in

the common field in the relevant market ”) shall be in the form of direct

ownership or share by business actor (in some similar companies that perform

business in the common field in the relevant market ). If it is implemented in the

inconcreto case under the investigation of KPPU, that has to be prove then is:

whether SingTel Mobile as shareholder of Telkomsel (marginal cost ICL and

ICPL as shareholder of Indosat) also have shares in other similar companies that

carrying out business in the common field with Telkomsel (marginal cost

Indosat) in the common relevant market with Telkomsel (marginal cost Indosat).

The reason why the swap between Telkom and Indosat to Telkomsel and

Satelindo shall be a benchmark to interpret cross-ownership” as it regulated in

Article 27 of the Law No. 5 / 1999, are as follows:

a. KPPU in its conclusion stated that the example of existing cross-ownership

in telecommunication business practice in Indonesia is the ownership of

Telkom and Indosat inTelkomsel and in Satelindo;

b. The share ownership of Telkom in Satelindo and in Telkomsel, as well as

the share ownership of Indosat in Telkomsel and in Satelindo (hereinafter

used as object of swap to enforce KM 72 / 1999) is ”direct” in the sense of

listed as share ownership of Telkomsel and Satelindo, it can be proved by

referring to Annex II on Profile of Operator Section II, principally states that

owner/shareholders of (i) Satelindo are Telkom with 22.5% and Indosat with

7.5%, and (ii) Telkomsel is Telkom with 42.72% and Indosat with 35%.

c. KM 72/1999 – that becomes a basis of the implementation of swap between

Telkom and Indosat to their share ownerships in Telkomsel and Satelindo-

is stipulated or issued in order to harmonize the Law No.5/1999, as it is

stated in Annex I (of KM 72/1999) on the Restructuring of BUMN of

Telecommunication Operator, section A on Objective number 1 to 3 that we

cite as follows:

”The comprehensive telecommunication reformation in Indonesia is

enforceable under the new Law on telecommunication, and in accordance

with the Law No.5/1999 on the Prohibition of Monopolistic Practice and

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COPYUnfair Business”

Furthermore, it is implemented with he policy as it is stated in section B

number 2 of the same Annex, it is said:

”in line with the policy to re-position and restructure PT Telkom and PT

Indosat as two competitive full fixed providers of telecommunication, then it

has need of internal restructuring in PT Telkom and PT Indosat in order to:

a. eliminate joint ownership of PT Telkom and PT Indosat in one affiliated

telecommunication corporation.

b. ...

c. ...”

d. Based on the description of item a, b, and c above, it affirms and clears that

the expression of “own share in the formulation of Article 27 of the Law

No.5/1999 shall be understood as “direct ownership”.

Based on the entire documents in KPPU related to the investigation process

in this legal case, in which we have examined in detail during the process of

examination (inzaghe), there is no single evidence that show (i) Singtel

Mobile as a shareholder of Telkomsel owns shares in other similar

companies or in the common relevant market with Telkomsel, and (ii) ICL

and ICPL as shareholder of Indosat owns shares in other similar companies

or in the common relevant market with Indosat. Thereby, the conclusion that

has been issued by KPPU regarding to ”Cross-ownership” is: NOT PROVEN

OF THE PRESENCE OF CROSS-OWNERSHIP.

e. Besides, we also add that the formulation of Article 27 of the Law No.5/1999

itself states ”Business actor is prohibited to have majority share in some

similar companies that performing business in the similar fields and in the

common relevant market ...”.The expression used is “own (ic. not ”to

dominate “or ”to control”) that legally means as a state of ”bezitter eigenaar”

or ”legal owner” so that it can treat directly anything over the goods that is

controlled (i.e. such as “to sell”, if it is related to share is “to have use of

votes in shareholder general meeting /RUPS”);

f. The expression of ”own share” in Article 27 of the Law No.5/1999 if it is

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COPYrelated to the Law of Limited Corporation, then ”ownership of the share” in a

limited corporation shall be proved by examining shareholder list issued by

the corporation, referring to the Article 48 (1) of the Law on Limited

Corporation (for instance. the Law No. 40/2007) it is stated that “the

corporation share is issued by the name of the holder” and in Article 50 (3) it

is stated that ”in the lists of shareholder is also noted any changes of share

ownership”.

g. The description of item e and f above, it affirms and clears that the

expression of ”own share” in the formulation of Article 27 of the Law

No.5/1999 it shall be understood as “direct ownership” that can be proved

by discerning to the List of Corporation Shareholders.

Based on the entire documents in KPPU related to the investigation process

in this legal case, in which we have examined in detail during the process of

examination (inzaghe), there is no single evidence that show (i) Singtel

Mobile as a shareholder of Telkomsel owns shares in other similar

companies or in the common relevant market with. Telkomsel, and (ii) ICL

and ICPL as shareholder of Indosat owns shares in other similar companies

or in the common relevant market with Indosat. Thereby, the conclusion that

has been issued by KPPU regarding to “Cross-ownership” is: NOT PROVEN

OF THE PRESENCE OF CROSS-OWNERSHIP.

2 That shareholder of Telkomsel is Telkom with 65% of shares and Singtel Mobile

with 35% of shares. Telkomsel. In line with the license of foreign investment

Telkomsel had, one of Telkomsel’s shareholders is Singtel Mobile. There is no

reference at all that Singtel Mobile is Temasek Business Group. We can inform

you further that the law of investment , jo. the law of Limited Corporation admits

only foreign party in the form of foreign corporate body or foreign individual.

Therefore, the expression of “Business group” is not acknowledgeable.

3 There is no cross-ownership involving Telkomsel

4 We do not agree with the conclusion of KPPU Investigation team in number ke-4,

by the reasons of the following:

Jurisdictionally, the implementation of recent collection of cellular

telecommunication service fixed by Telkomsel or other cellular operators cannot

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COPYbe impugned legally. It caused by the following condition and juridical fact:

a. Currently, all cellular operators is awaiting for the new regulation that

regulate of recent collection of cellular telecommunication service as it is

stated by the Law No. 36/1999 Jo. Government Decree No. 52/2000 Jo.

Ministerial Decree No. 21/2002. While awaiting for the new regulation, the

existing technical regulation used as legal basis in determining cellular tariff

– since 2002 up to the Follow-up Investigation of the case--- used by KPPU

Investigation team are (i) KM 27/1998 and (ii) KM 79/1998.;

b. The jurisdiction conditions are understood and admitted by KPPU

Investigation team as it is stated in the Report of Follow-up Investigation

Result on page 15 item 55 that also a conclusion of the description of part

5.3 on Tariff Regulation.

c. During our examination (inzaghe) to the documents related to Preliminary

Investigation, the understanding and admittance of KPPU Investigation team

is are based on:

(i) The Notes of Meeting with the General Director of Posts and

Telecommunication on 30 August 2007, in the third sheet, last

paragraph and ke-4 paragraph;

(ii) Investigation Official Report Indosat (represented by Johnny Swandi

Sjam) on 27 August 2007 on page 10 item 95;

(iii)Investigation Official Report to Excelomindo (represented by Hasnul

Suhaimi) on 09 August 2007 page 4 item 13;

(iv) Investigation Official Report Dewie Pelitawati R, on 14 September 2007

page 7 item 38;

d. KM No. 27/1998 and KM No. 79/1998 was arranged and applied by the

Government in 1998, in which the Law No. 3 / 1989 (the previous

telecommunication law) has a “monopolistic/duopolistic spirit”, it is very

different with the spirit” of the ”Anti-trust” law No. 36/1999. The technical

regulation is part of previous telecommunication law regime (the Law No.

3/1989) that sets price by government rather than market mechanism. The

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COPYoperator of telecommunication service (cellular in particular ) is only subject

to and implement the regulation.

e. KM 27/ 1998 and KM 79/1998. It regulates the limit of competition area

among operators and it has accommodated the interests of consumer and

operator (business actor) of Telecommunication service. It is affirmed by

Government through Ministry of Communication and Information through

Directorate General of Post and Telecommuniation (based on the rule of

Article 1 number 1 and 2 KM 31/2003; Directorate General Post and

Telecommunication is part of BRTI assigned to monitor competition in

Telecommunication industry) as it was written in the Notes of Meeting

between Directorate General Post and Telecommunication with KPPU on 30

August 2007, in the third sheet, the last paragraph is written as follows:

“The maximum tariff rate stipulated in KM No. 27 / 1998 and KM No.

79 / 1998 is a limit competition area among operators in which the rates

are tolerance between the interest of public and as consumers and

operators to keep their abilities to develop and to extend network

including to outside Jakarta…”

f. Concerning the description of item c and d above, when the new technical

regulation is valid –to regulate tariff by cellular operators--- is KM 27/1998

and KM 79/1999 that:

(i) part of previous telecommunication law regime

(ii) issued/applied after considering the interest of consumer and

operator/business actor and;

(iii) considered to be a limit competition area

then, fairness is measured by whether “the the tariff limit is passed or not” .

As long as the ceiling tariff is not passed by cellular operator (especially

Telkomsel), there will be no single reason to legally impugn cellular operator,

including the tariff applied by Telkomsel is excessive.

g. Based on the telecommunication technical rules as it is stated in :

(i) KM 31/2003 on the Stipulation of BRTI Article 1 number 1 and 2, and

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COPYArticle 6 .b ke-2, juncto:;

(ii) Annex KM 67/2006 on Work Relation Arrangement between Dephub

(Department of Transportation) and BRTI in section A, III, letter c item 2,

junctis ;

(iii)KM 33/2004 on the Monitoring of Fair Competition in the operation of

fixed network and the operation of basic telephone service.

Directorate General Post and Telecommunication as the supervisor of

Directorate General of Post and Telecommunication and part of BRTI

assigned to monitor the fair competition in Telecommunication industry

considers that there is nothing wrong with the implementation of collective

tariff of telecommunication service by cellular operators (including

Telkomsel) that so far based it on KM 27 / 1999 and KM 79 /1999, as it

reflected in the Notes of Meeting between Directorate General Post and

Telecommunication with KPPU on 30 August 2007, in the third sheet, the

last paragraph is written as follows:

“The maximum tariff rate stipulated in KM No. 27 / 1998 and KM No. 79 /

1998 is a limit competition area among operators in which the rates are

tolerance between the interest of public and as consumers and operators to

keep their abilities to develop and to extend network including to outside

Jakarta. Therefore, if at field, the operators become followers of the

maximum tariff rates, the government cannot do anything.”

”Cannot do anything” means there is nothing wrong with it because the

jurisdiction condition concerning collective tariff of telecommunication

service is as it is described in item f above.

h. Such a reality show that the profile and the condition of legal institution in

Indonesia is not ideal and perfect yet to support fair competition climate.

The profile of ideal telecommunication industry (i.e. in the sense of the

creation of ideal fair business competition) is predicted by the Government of

Indonesia to pass ”evolutional” stages (i.e. form the viewpoint of time) and

to be reached after 2011. Such a description refers to the Blueprint of

Government Policy on Telecommunication Industry as it is stated in the

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COPYMinisterial Decree of Transportation No. KM 72 / 1999 (stipulated on 17

September 1999 or 9 days after the Law No. 36/1999 on Telecommunication

being legalized [”the new Telecommunication Law” enacted on 8 September

1999] with the spirit of ”anti-trust”), in Chapter III on the Profile of the

Future Indonesian Telecommunication section III.1:

”The future telecommunication profile that want to be reached it shall be

ideally interpreted as a phase of time dimension, if there will be :

a. a fair, efficient, and sustainable competition in the operation of

telecommunication service and network;

b. a regulator that effectively enforce regulation and license requirement;

b) the distribution of the advantages of competition to customer in

accessing telecommunication service without any different in access

location, payment and the status as residential customer or business ;

and

c) consumer of telecommunication service that is protected in the sense of

service quality, price to paid and various choices.

Such depicted situation above, ideally, has been or able to be reached by a

few countries only and such condition can be reached after 2011...

Further, in the same Chapter, in section III.4 on the Evolution of

Telecommunication, it is stated as follows:

”2.1. The development of telecommunication keeps on going. As it is the

telecommunication regulation that will always change along with the

development of technology and the dynamic of economy. Competition in any

telecommunication operation is deemed important but not enough to be liberate

in whole. The quality of its competition remains to be a sustainable issue of

economic liberalization....”

Based on the description above, if the competition has not been perfect from the

viewpoint of law, it shall not impugn telecommunication service operators. The

telecommunication service operators (Telkomsel in particular) has tried as useful

as possible to implement and to comply with the valid government regulation

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COPYsuch as KM 27 / 1999 and KM 79/1999. The Republic of Indonesia is a

constitutional state (Rechtstaat), as it is stated in the Constitution of 1945. The

regulation of laws is the principles to create ideal condition, therefore law shall be

enforced and complied. If the effort of enforcing and complying with the

regulation is considered to violates against the law (anti-competition), it will

destroy the principles of law in the constitutional state.

Furthermore, as it is described above, the Telkomsel tariff fixing intends to

implements rule of law and in line with Article 50.a of the Law No. 5/1999, it is

a conduct admitted of exception by the Law No. 5 / 1999. If the tariff applied by

Telkomsel is considered too high, the government regulation on pricing shall be

revised and based on the revised law all operators shall adjust it, including

Telkomsel.

5 That the conclusion of KPPU Investigation team in number 5 stating that “The

use of market power by Telkomsel, decreasing competition and creating

excessive pricing in cellular telecommunication service in Indonesia violates

Article 17 paragraph (1) and Article 25 paragraph (1) of the Law No.5/1999” is a

conclusion that has no legal basis, by the reasons of:

1. The analysis on Market Power shall be used to analyze whether or not

Telkomsel has abused dominant position as it is regulated in Article 25 the

Law No.5/1999, and not used at all to prove: (i) decreasing competition, and

(ii) excessive tariff. In other word, the use of Market power Telkomsel does

not relate to the tariff fixing and decreasing of competition but to analyze the

allegation of abuse of power impacted in the market restriction and

technological development as it is regulated in Article 25 of the Law

No.5/1999 .

2. As it is presented by KPPU Investigation team on page 103 -104 on the

analysis of the use of market power by Telkomsel to restrain competitors,

KPPU Investigation team tries assertively to prove that there is a market

restriction conducted by Telkomsel to other operators. It indicates that the

analysis on the use of market power does not relate to the tariff fixing and

decreasing of competition. Thereby, the postulate of KPPU Investigation

team is not based on the relevant analysis.

3. We have described in number 4 above that the tariff fixing of Telkomsel is

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COPYin line with the regulation of Government in KM No. 27/1998 and KM No.

79/1998. Thereby, the postulate of KPPU Investigation team that the use of

Market Power Telkomsel causes decreasing of competition and excessive

tariff of cellular telecommunication.

4. That the suspected infringement of Article 17 paragraph (1) of the Law

No.5/1999 conducted by Telkomsel, is in the process of verification of

KPPU’s Investigation team, had used the principle of “Per-Se Illegal” that

can be seen in the sentence “by implementing/keeping high tariff, Telkomsel

then has infringed Article 17 paragraph (1)”;

5. The usage of such principle of verification “Per-Se Illegal” is incorrect,

because in conducting an evidence to the suspected infringement of Article

17 paragraph (1) the Law No. 5/1999 shall implement the principle of “Rule

of Reason” in which KPPU does not only prove, - quad non -, the existence

of market control by Telkomsel but also monopolistic practice or unfair

competition caused by market control by Telkomsel.

6 Therefore, KPPU should, before concluding whether Telkomsel infringes the rule

of Article 17 paragraph (1), prove whether Telkomsel:

- Conducts unfair competition and restrains public interests (refer to Article 1

number 2 of the Law No. 5 /1999); or

- Conducts unfair or violates law or restrains competition (refer to Article 1

number 6 of the Law No. 5 / 1999).

Telkomsel have not conducted unfair competition/ violated law / restrained competition.

7 From the Report of Follow-up Case Investigation Result of KPPU No.07/KPPU-

L/2007 on 27 September 2007, KPPU cannot prove that Telkomsel has

conducted the intended activities. In fact, the Report of Follow-up Case

Investigation Result and investigation official reports used as one of reference to

arrange a report, Telkomsel concludes the following matters:

a. The competition of cellular telecommunication is fair and over competitive

(i) that many operator-cellular telecommunication operators newly emerge

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COPYin Indonesia such as Indosat, XL, Sampoerna, Hutchison, NTS, Mobile 8.

(ii) Analysis Report on growth competitor

(iii)XL in its investigation in KPPU (IOR of XL on 9 August 2007) states

the following matters:

(a) that market in Indonesia is relatively more competitive than

market abroad, even over competition;

(b) that the competition to capture new customer is more aggressive

(c) that the competition in developing network performed by XL is

good,

(iv) YLKI in its investigation in KPPU (IOR of YLKI on 24 September

2007) stated that cellular consumers in Indonesia are able to choose

available operators

(v) Based on the Notes of Meeting between KPPU and BRTI as well as

Directorate General of Post and telecommunication it is presented by

BRTI/Ditjen Postel that in developing technology, Telkomsel and Indosat

competes each other.

(vi) Based on the Notes of Meeting between KPPU and BRTI as well as

Directorate General of Post and telecommunication it is presented by

BRTI/Ditjen Postel that in developing technology, Telkomsel and Indosat

competes each other.

b. Telkomsel is fair in performing its business and always comply and complete

the valid rule of law.

(i) The tariff charged by Telkomsel is prescribed by the rule of law in which

its formula is determined by government

(ii) Telkomsel does not treat discriminatively to other operators concerning

interconnection. Interconnection bid document is prescribed by the rule

of law and approved by the competent authority.

(iii)Hutchison in investigation in KPPU (IOR of Hutchison on 21 June

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COPY2007) state that Hutchison has not got problems dealing with

interconnection although there is a problem but it is not significant

(iv) XL in its investigation in KPPU (IOR of XL on 9 August 2007) stated

the following matters:

(a) that XL has never found an abuse behavior of Telkomsel such as

blocking a call from XL number to Telkomsel etc.;

(b) that XL is given a freedom by Telkomsel to choose ots own

technology with its own capacity.

(c) .that XL is given a freedom by Telkomsel to choose its own

technology with its own capacity.

(v) Mr. Widya Purnama, the Managing Director of Indosat for the period of

June 2002 to September 2004, in his statement on 9 August 2007,

declared that there is no collusion between Telkomsel and Indosat.

c. Telkomsel has created fair competition.

(i) Telkomsel does not only concentrate to build a network in big cities but

also remote areas which provide new market shares for other operators

that have been initially developed by Telkomsel.

(ii) Telkomsel does not treat discriminatively to other operators concerning

interconnection. Interconnection bid document is prescribed by the rule

of law and approved by the competent authority. It intends to have other

telecommunication operators same opportunities to develop/to compete

among them and Telkomsel alone with a result to maintain the level of

competition in the business of telecommunication.

(iii)Hutchison in its investigation in KPPU (IOR of Hutchison on 21 June

2007) stated that Hutchison has not got problem concerning

interconnection, although there was also insignificant difficulty. It proves

that Telkomsel, as a market leader, does not abuse its position to press

other operators in order to keep on competition running well.

(iv) XL in its investigation in KPPU (IOR of XL on 9 August 2007) stated

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COPYthe following matters:

(a) that XL has never found an abuse behavior of Telkomsel such as

blocking a call from XL number to Telkomsel etc.;

(b) that XL has never been restricted by Telkomsel in having permit;

(c) that XL is given a freedom by Telkomsel to choose its own

technology with its own capacity.

It proves that Telkomsel, as a market leader, does not abuse its position

to press other operators in order to keep on competition running well.

(v) Mr. Widya Purnama, the Managing Director of Indosat for the period of

June 2002 to September 2004, in his statement on 9 August 2007,

declared that there is no collusion between Telkomsel and Indosat. It

proves that Telkomsel want to keep fair competition among

telecommunication operators.

Telkomsel does not Restrain Public Interest (i) the telecommunication service tariff of Telkomsel is prescribed by the rule of

law and approved by the competent authority, therefore it shall be considered

that the tariff charged by Telkomsel does not restrain public interests.

(ii) the tariff of Telkomsel interconnection is prescribed by the rule of law.

Interconnection bid document is prescribed by the rule of law and approved

by the competent authority.

(iii) YLKI in its investigation in KPPU (IOR of YLKI on 24 September 2007)

stated that no cellular consumers in Indonesia complain to the service tariff.

(iv) Telkomsel tries to build a network until remote areas and even clear out the

forest in order to give advantage to public especially those who live in

remote areas to provide them with telecommunication access and to develop

economy in those areas (prime mover), as it is stated in the document and

submitted to KPPU.

(v) With the availability of telecommunication business network of Telkomsel,

it is able to provide new job (alleviate unemployment) as a multiplier effect

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COPYof Telkomsel’s business;

(vi) Telkomsel permits the usage of its infrastructure as a means of national

security of tsunami early warning system useful for public.

8 We deny the suspected infringement of Article 25 paragraph (1).b of the Law

No. 5 / 1999 reported by KPPU, by the reason of: KPPU Investigation team does

not have evidence at all (even early evidence) indicates a suspected infringement

of Article 25 paragraph (1) conducted by Telkomsel. We can prove them by the

following descriptions:

The allegation in the conclusion Preliminary Report is different with those of

the allegation in the Result of Follow-up Invetigation.

9 The allegation that become a basis of conducting Follow-up Investigation is

different with the conclusion of Preliminary Investigation, therefore the basic of

conducting Follow-up Investigation is not clear , in which the dirrences are as

follow:

The allegation in the Report of Preliminary Investigation (Especially on

Suspected infringement of Article 25 paragraph 1.b of Law No. 5/1999).

“Telkomsel with its dominant position has restrained the development and growth

of PT Indosat, Plc, as a result PT Indosat Plc., cannot maximize its investment

and slowing down the profit growth of PT Indosat Plc., It causes to the worsening

of market in the whole cellular telecommunication service industry.” While the

allegation in the Report of Follow-up Case Investigation Result No. 07/KPPU-

L/2007 (especially Article 25 paragraph 1 . b the Law No. 5 / 1999) “Telkomsel

abuses its dominant position to restrain market and the development of

technology that make it infringes Article 25 paragraph (1).b of the Law No. 5 /

1999.”“Certain Activities” (ic. Telkomsel restrains the development and growth

of Indosat), that used previously as a basis of allegation that Telkomsel has

infringed Article 25 paragraph (1) of the Law No. 5/1999, is not included in the

Report of Follow-up Case Investigation Result No. 07/KPPU-L/2007 (especially

Article 25 paragraph 1. b). Consequently, the suspected infringement used as a

basis of conducting Follow-up Investigation is biased/obscured. The changing of

“suspicion” to biased/obscured, as it is described above, proves that actually

KPPU Investigation team is not sure with its accusation adressed to Telkomsel

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COPY(ic.restrain the development and growth of PT Indosat). Therefore, it is not

overstatement that we conclude KPPU Investigation team does not have evidence

at all (even early evidence) indicates a suspected infringement of Article 25

paragraph (1) conducted by Telkomsel (ic.restrain the development and growth

of PT Indosat). “Certain Activities” that consider to infringe Article 25 paragraph

(1) of the Law No. 5 / 1999, is very important because it will be LITIS

CONTESTATIO (limit/focus of an investigation) of KPPU Investigation team,

all at once it becomes a limit/focus of defense of the Reported (Telkomsel). Litis

Constestatio is a requirement in the due process of law in civilized

countries.Article 32, 33, 42 and 44 of the Regulation of the Commission for the

Supervision of Business Competition No. 1 / 2006 (“KPPU Regulation 2006”)

regulate that the Report of Preliminary Investigation is used in determining the

needs of conducting Follow-up Investigation and further in the Follow-up

Investigation, the allegation in Preliminary Investigation is found and proved.

Therefore, according to KPPU Regulation 2006, it shall be narrowed focus of

investigation as it reflected in suspected infringement as the basis of conducting

Follow-up Investigation. Its facts, as it is mentioned above, the focus of

investigation in the process of Follow-up Investigation is not narrowed but

biased.

Telkomsel does not abuse dominant position

1 That before KPPU concludes wether Telkomsel has infringed Article 25

paragraph (1) .b of the Law No. 5 / 1999, KPPU Investigation team shall prove

that Telkomsel as a Market Leader has limit (i) market and (ii) technological

development, in which t it is not reflected in the Result Report of Follow-up

Investigation of KPPU Investigation team on 27 September 2007. Further, it can

be described as follows:

(i) Telkomsel does not conduct market restriction even tries to develop market

cellular telecommunication.

a) XL in its investigation in KPPU (IOR of XL on 9 August 2007)

states the following matters:

i. that XL has never found an abuse behavior of Telkomsel such as

blocking a call from XL number to Telkomsel etc. ;that XL has

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COPYnever been restricted by Telkomsel in having permit

ii. that XL is given a freedom XL by Telkomsel to choose its own

technology with its own capacity.

iii. that Telkomsel establishes working group with other operators to

give input so local government concerning tower sharing

regulation in the local area.

The statement above is spontaneous aknowledgement of Telkomesl’s

competitors in supporting market cellular telecommunication

development.

b) Mr. Widya Purnama, the Managing Director of Indosat for the period

of June 2002 to September 2004, in his statement on 9 August 2007,

declared that there is no collusion between Telkomsel and Indosat. It

proves that Telkomsel want to keep fair competition among

telecommunication operators.

c) Telkomsel does not only concentrate to build a network in big cities

but also remote areas which is admitted by other operators that it

needs high cost. The statement above is spontaneous

acknowledgement of Telkomesl’s competitors in supporting market

cellular telecommunication development.

(ii) Telkomsel does not restrain technological development even try to develop

cellular telecommunication technology.

a) XL in its investigation in KPPU (IOR of XL on 9 August 2007)

stated the following matters:

i. that XL has never been restricted by Telkomsel in having permit;

ii. that XL is given a freedom by Telkomsel to choose ots own

technology with its own capacity.

The statement above is spontaneous aknowledgement of Telkomesl’s

competitors for the effort of Telkomsel in supporting development of

technology in cellular telecommunication by not restraining the

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COPYtechnology that will be used by XL .

c) It needs to express that Telkomsel is the first cellular

telecommunication operator that introduce:

i) Prepaid business in Indonesia that used IN technology;

ii) Services with GPRS and EDGE technology based;

iii) Certain value added services such as ring back tone;

i) Electronic voucher;

ii) 3G services that provides video call, video streaming; The matters

in which the technology used by Telkomsel an applied then by

other Telkomsel competitors that give positive contribution to the

development of market cellular telecommunication

19. Considering further that Council of Commission has sufficient evidence and evaluation

to take Decision; -------------------------------------------------------------------------------------

STATE OF LAW

Based on the Report of Follow-up Investigation Result (hereinafter referred to as “LHPL”),

Opinion and Defense Reported, letters, documents and other written proofs Council of Commission

examine and conclude whether or not an infringement conducted by the Reported in a quo case. In

performing the examination, Council of Commission describes several part namely, first, LHPL on

infringement; second, identities of Reported; third, relevant market; fourth, formal aspect; fifth,

material aspect; sixth, conclusion; seventh, other things to be considered; and eight, decision dictum

and closing. ------------------------------------------------------------------------------------------------------

1. LHPL State of Infringement----------------------------------------------------------------------------

1.1 To the infringement conducted by Reported, Investigation team in LHPL principally state

that Temasek Business Group has performed cross-ownership to Telkomsel and PT.

Indosat, Tbk., that make Telkomsel conduct monopolistic practice and abuse of dominant

position in relevant market in a form of excessive tariff fixing and hindering

interconnection so that causes consumer loss. By such things above, the Investigation

team conclude that Temasek Business Group has infringed Article 27 letter a and

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COPYTelkomsel has infringed Article 17 paragraph (1) and Article 25 paragraph (1) b of the

Law Number 5/1999 -------------------------------------------------------------------------------

2. The Identities of Reported Parties: -------------------------------------------------------------------

2.1 Reported Parties in this case are as follows: ----------------------------------------------------

2.1.1 Reported Party I is Temasek Holdings Pte. Ltd. (“Temasek”) a corporation that

was founded under the Law of Singapore and domiciled in Singapore by

addressed of 60B Orchard Road #06-18 Tower 2 The Atrium@Orchard,

Singapore 238891; (vide Evidence C15, C16) ----------------------------------------

2.1.2 Reported Party II is Singapore Technologies Telemedia Pte Ltd. (“STT”) a

corporation that was founded under the Law of Singapore and domiciled in

Singapore by addressed of 51 Cuppage Road #10-11/17, StarHub Centre,

Singapore 229469; (vide Evidence C77)-----------------------------------------------

2.1.3 Reported Party III is STT Communications Ltd, (“STTC”) a corporation that

was founded under the Law of Singapore and domiciled in Singapore by

addressed of 51 Cuppage Road #10-11/17, StarHub Centre, Singapore 229469;

(vide Evidence C78) ----------------------------------------------------------------------

2.1.4 Reported Party IV is Asia Mobile Holding Company Pte. Ltd. (“AMHC”) a

corporation that was founded under the Law of Singapore and domiciled in

Singapore by addressed of 51 Cuppage Road #10-11/17, StarHub Centre,

Singapore 229469; (vide Evidence C79)-----------------------------------------------

2.1.5 Reported Party V is Asia Mobile Holdings Pte. Ltd. (“AMH”) a corporation that

was founded under the Law of Singapore and domiciled in Singapore by

addressed of 51 Cuppage Road #10-11/17, StarHub Centre, Singapore 229469;

(vide Evidence C82) ----------------------------------------------------------------------

2.1.6 Reported Party VI is Indonesia Communications Limited (“ICL”) a corporation

that was founded under the Law of Mauritius and domiciled in Mauritius by

addressed of Deutsche International Trust Corporation (Mauritius) Limited 4th

floor, Barkly Warhf East, Le Caudian Waterfront, Port Louis Mauritius; (vide

Evidence C83)-----------------------------------------------------------------------------

2.1.7 Reported Party VII is Indonesia Communications Pte. Ltd. (“ICPL”) sebuah

corporation that was founded under the Law of Singapore and domiciled in

Singapore by addressed of 51 Cuppage Road #10-11/17, StarHub Centre,

Singapore 229469; (vide Evidence C84)-----------------------------------------------

2.1.8 Reported Party VIII is Singapore Telecommunications Ltd. (“SingTel”) a

corporation that was founded under the Law of Singapore and domiciled in

Singapore by addressed of 31 Exeter Road Comcentre #28-00, Singapore

239732; (vide Evidence C148) ----------------------------------------------------------

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COPY2.1.9 Reported Party IX is Singapore Telecom Mobile Pte. Ltd. (“SingTel Mobile”) a

corporation that was founded under the Law of Singapore and domiciled in

Singapore by addressed of 31 Exeter Road Comcentre #28-00, Singapore

239732; (vide Evidence C154) ----------------------------------------------------------

2.1.10 Reported Party X is PT. Telekomunikasi Selular (“Telkomsel”) by addressed of

Wisma Mulia lt. 15, Jl. Jend. Gatot Subroto Number 42, Jakarta 12710 is a

corporate body established under the Notary Act of Poerbaningsih Adi Warsito,

S.H. Number. 181 dated 26 May 1995 with the latest revision under the Notary

Act of Nelly Sylviana S.H. Number 3 dated 5 May 2003 that perform business in

the area of procuring and providing mobile telecommunication service including

mobile cellular network Global System For Mobile Communication (STBS-

GSM) in the legal territory of Republic Indonesia; (vide EvidenceC165) -------

3. Relevant market ------------------------------------------------------------------------------------------

3.1 Prior to the perform examination on whether or not an infringement conducted, Council

of Commission has to describe the definition of relevant market in this case as follow:

3.1.1 That in Investigation team of LHPL principally states that relevant market in this

case is a cellular telecommunication service all over Indonesia. The

determination is based on the product analysis, usage and price as well as

geographical coverage area; (vide Article 7 to Article 9 of the Law Number.

36/1999 on Telecommunication, Article 9 paragraph (2) of PP Number. 52/2000

on Telecommunication Operating, KM. 35/2004 on the Operation of Fixed

Wireless Access with limited mobility. Evidence B55) -----------------------------

3.1.2 To the definition of the relevant market above, in the opinion and defense of

Temasek, STT, STTC, AMHC, AMH, ICL, ICPL, principally disagree and state

that the Fixed Wireless Access (FWA) have to be entered to the definition of

relevant market by considering that mobility factor does not consider to be

important by most of Indonesian consumers as well as high cross elasticity

between FWA and Public Switched Telephone Network (PSTN) to the cellular

service; (vide Evidence C120, C58, C32, ) --------------------------------------------

3.1.3 To the definition of product market, Council of Commission has a notion as

follow: --------------------------------------------------------------------------------------

3.1.3.1 Although the usage of SLJJ is relatively smaller than a total cellular

call as cited by AMH, ICL, ICPL from the report of economic

consultant Case Associate (CA) year 2007 (vide Evidence C120), the

user of cellular examine that the cellular service is not only based on

the usage to call but to receive a call too, Council of Commission has

a notion that mobility factor is the important distinguishing factor for

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COPYthe cellular user that is not obtained from the service of FWA. The

character of the product is in line with the report of economic

consultant of Nera Consulting (Nera) year 2007 that its document

enclosed in the Annex of the defense and response of SingTel and

Singtel Mobile (vide Evidence C312). In the report of Nera, it is

assertively stated that consumers do not have mobility service of FWA

as the consumers gained from the cellular service, so that NERA does

not put FWA in the product market of cellular service; -----------------

3.1.3.2 Besides, Telkomsel states in its written defense in paragraph (10) that

FWA is a complement of cellular service ---------------------------------

“From the point of view of consumer, the characteristic of FWA and

cellular is complementary. Consumer can get the advantages of FWA

excellence from the tariff side for local call and utilize the wide

coverage for cellular for intensive call area. Therefore, the

characteristic of FWA and Cellular is complementary”. (par. 10)” ---

3.1.3.3 The consumer survey conducted by Follow up investigation team

stated in the Anne of LHPL shows that the increase of hypothesis price

5% and 10% do not cause respondent stop using GSM and immigrate

to PSTN and only 2.23% respondents who are willing to stop using

GSM and migrate to FWA. The rate shows that the understanding of

the migration of GSM to FWA and/or PTSN is inelastic or not

substitution; (vide Evidence B55) ------------------------------------------

3.1.4 Council of Commission does not find the mistake made by Investigation team in

defining product market in this case, namely cellular service that in it excluded

FWA and PSTN; --------------------------------------------------------------------------

3.1.5 In its report, the Investigation team determine that geographical market in this

case is nationwide, on the basis that there is a competition influencing price in

the territory of Indonesia; ----------------------------------------------------------------

3.1.6 That Temasek, STT, STTC, AMHC, AMH, ICL, ICPL, SingTel, and SingTel

Mobile does not disagree with the definition of geographical market proposed by

LHPL; --------------------------------------------------------------------------------------

3.1.7 That in the response and defense, Telkomsel basically state that geographical

market is not nationwide, but covering smaller area by the reason of any region

has different potency, character and challenge;---------------------------------------

3.1.8 Furthermore, Council of Commission has a notion that in defining geographical

market, it is based on competitive pressure and price in one place influenced by

the price of other regions. Such an influence brings two regions into one united

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COPYgeographical market. The influence can be seen from the price change pattern in

the two regions. It is in line with the view of Nera in her report on page 20 (vide

Evidence C312) as cited from Carlton, Perloff in the book Modern Industrial

Organization third edition page 40; ----------------------------------------------------

“The geographic limit of the market is determined by answering the question of

whether an increase in price in one location substantially affects the price in

another. If So, Then both locations are in same market” ---------------------------

Concerning to this, Council of Commission finds that cellular service standard

and price are similar nationally, (vide price list in LHPL par. 56-59) therefore the

rationale suggested by Investigation team in LHPL paragraph (20) is adequate to

ground that the geographical market in this case is nationwide; -------------------

3.2 Council of Commission conclude the definition of relevant market in this case is

cellular telecommunication service all over Indonesia . -----------------------------------

4. Formal Aspect ---------------------------------------------------------------------------------------------

4.1 Hereinafter, prior to conclude material aspect, Council of Commission examines in

advance formal aspects responded by the Reported on Jurisdiction, Case Handling

Implementation, Indosat Divestment Consultation, and an authority to interpret the Law

No. 5/1999 ------------------------------------------------------------------------------------------

4.2 On the Commission’s Jurisdiction----------------------------------------------------------------

4.2.1 That in LHPL Investigation team principally suggests that Commission is entitled

to investigate Temasek, STT, STTC, AMHC, AMH, ICL, ICPL, SingTel and

SingTel Mobile, due to the rule stated in the Law No. 5/1999 , although it is not

founded and domiciled in the territory of the Republic of Indonesia. Investigation

team has a notion that Temasek, STT, STTC, AMHC, AMH, ICL, ICPL, SingTel

and SingTel Mobile, jointly perform business activity in Indonesia under the

imposing of single economic entity doctrine which complete rules to be

considered as business actor as it is Article 1 paragraph (5) the Law No. 5/1999

concerned. The doctrine of single economic entity is a doctrine which perceive

holding company and its subsidiaries as a single economic entity. The Law No.

5/1999 recognizes an expression a group of business actor and on the ground of

that, the Investigation team has a notion to have Commission with its authority to

conduct an investigation to the Reported of the case;--------------------------------

4.2.2 To the opinion of the Investigation team, Temasek, STT, STTC, AMHC, AMH,

ICL, ICPL, SingTel and SingTel Mobile in their defenses disagree and state

principally that Commission does not have Jurisdiction to the Reported. The

Reported postulate that they were founded under the law of Singapore and

domiciled in Singapore, as well as performs no business activities in Indonesia.

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COPYWhile ICL is a body founded under the Law of Mauritius and domiciled in

Mauritius as well, perform no business activities in Indonesia. On the ground of

that, the Reported postulate that the Reported are not business actors as it is

Article 1 paragraph (5) of the Law Number 5/1999 concerned consequently

Commission do not have authority to investigate and to decide the Reported;---

4.2.3 To examine whether Commission do have jurisdiction to Reported or not,

Council of Commission ascertains, First, the rule in the Law No. 5/1999, Second,

from the perspective of judicature practice of Indonesia, Third, the judicature

practice in other countries that have ever enforced competition law;--------------

4.2.4 First, Council of Commission has a notion that under the rule of the Law No.

5/1999, Commission has jurisdiction although the Reported are not domiciled in

Indonesia, with the following description:--------------------------------------------

4.2.4.1 As it recognized that the Law No. 5/1999 intends to keep the market

mechanism running by forestalling from monopoly practices and unfair

competition. Market in this matter is Indonesian domestic market that

is openly to any party to participate, domestic or overseas. Yet, as a

sovereign state, Indonesia is equipped by law and institution to enforce

it to guarantee market mechanism proceed effectively, efficiently, and

fairly, the Law No. 5/1999 is one of the rule of law to create it. The

consideration (c) of the Law No. 5/1999 states: -------------------------

“anyone who performs business activity in Indonesia has to be in the

fair competition in order that it will create economic power

concentration to certain business actor”----------------------------------

4.2.4.2 The consideration is obviously a phrase “anyone who perform business

activity in Indonesia” elucidating that the Law No. 5/1999 can be

applied to “anyone” without noticing the origin either domestic or

overseas as long as they “perform business activity in Indonesia” ----

4.2.4.3 The spirit in the consideration is formulated further in Article 1 paragraph (5) of the Law No. 5/1999 the Law on the definition of

business actor:-----------------------------------------------------------------

“individual or corporate body, that is founded and is domiciled or to

conduct activity in the territorial jurisdiction of the Republic of

Indonesia, either by itself or jointly under agreement, carrying out

various business activities in the field of economy.”” -------------------

4.2.4.4 The phrase “founded and domiciled or performed business activity”

infers that business actor “founded and domiciled or performed

business activity” fours indicates that business actor that are not

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COPYfounded or domiciled in Indonesia can be applied for the Law

Number.5/1999, during they conduct business activity in the territory

of the Republic of Indonesia.------------------------------------------------

4.2.4.5 Second, from the practice or principal implementation those business

actors domiciled outside the territory of Indonesia are applied to the

rule of the Law No. 5/1999, the law that has been confirmed by

Supreme Court of the Republic of Indonesia. One of the case that

imposed this law is the Case Number 07/KPPU-L/2004 on tender

conspiracy of the sales of 2 (two) Very Large Crude Carrier (VLCC),

the property of Pertamina that which the case won by Frontline Ltd.

(hereinafter referred to as case of “VLCC Pertamina”). In the case of

VLCC Pertamina, the Commission sentence Frontline Ltd. A

corporation founded under the Law of Bermuda, based in di Norway,

and its central finance management in New York, the United States of

America. In its objection in the District Court, Frontline Ltd. Postulate

that Frontline is not a business actor as it is Article 1 paragraph (5) of

the Law No. 5/1999 concerned, because it was not founded and

domiciled or perform business activity in the legal territory of

Indonesia. The participation of Frontline Ltd. in VLCC tender

conducted by Pertamina represented by PT Liner Equinox, and all

activities during the tender process conducted by PT Liner Equinox.

There is no business activity of Frontline Ltd. performed within the

territory jurisdiction of Republic of Indonesia. ---------------------------

4.2.4.6 In case of VLCC Pertamina, Commission thought that all activities

conducted by PT Liner Equinox in the process of tender is for the

interest of Frontline Ltd. It is clear that business activity conducted by

PT Liner Equinox is also indirectly conducted by Frontline Ltd. It can

not be denied then that Frontline Ltd. has also conducted business

activity in Indonesia. It is meant by business actor within the meaning

of Article 1 paragraph 5 of the Law No. 5/1999;-------------------------

4.2.4.7 The decision of Commission to VLCC Pertamina revoked by District

Court but it reconfirmed by Supreme Court under the decision No. 04

K/KPPU/2005 dated 29 November 2005. At this rate, Supreme court

has same position with the Commission in implementing the

understanding of business actor to corporation that founded and

domiciled abroad as well as the understanding of performing business

activity in Indonesia, namely the intended activities is not understood

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COPYas it is directly performed by cooperation but it could be performed by

other party in Indonesia; ----------------------------------------------------- .

4.2.4.8 Hereinafter, considering that Indonesia is a part of global community

and Commission is actively participated in international forum related

to the development of competition law, then Council of Commission

also concerned on the jurisdiction applying extraterritorial competition

law in various countries that have in advance imposed in competition

law.

4.2.4.9 Council of Commission suggests that examining competition law

practices in other countries need to be conducted as an effort of

comparing or using as a reference to knumberw whether the validity of

the Law No. 5/1999 to business actors outside Republic of Indonesia

territory of jurisdiction is unique or in accordance with international

commonly standard and not at all to subdue or confess the

implementation of foreign law in the territory of jurisdiction of the

Republic of Indonesia like what is postulated by the Reported. Council

of Commission finds that such principles had been previously adopted

in some countries; ------------------------------------------------------------

4.2.4.10 The first case is on the implementation of extraterritorial in United

States in 1909 in American Banana Co. v. United Fruit Co., 213 U.S.

347 (1909) that was responded pretty minded initially. In the decision,

Supreme Court of the United States said: ”… the general and almost

universal rule is that the character of an act as lawful or unlawful must

be determined wholly by the law of the country where the act was

done” (See: Andrew I Gavil, William E. Kovacic, and Jonathan B.

Baker, Antitrust Law in Perspective: Cases, Concepts, and Problems in

Competition Policy, Thompson West, Washington DC, 2002, page

934). ----------------------------------------------------------------------------

4.2.4.11 The Supreme Court Doctrine of the United States was then expanded

as the same manner as seen in the next decision in the case of United

States v. Aluminum Co. of Am., 148 F.2d 416 (2d Cir. 1945) those who

refused the doctrine of American Banana, states that foreign party act

that affect to the United States' imports is included in the regulation of

Sherman Act. In its consideration, Judge stated: “… any state may

impose liabilities, even upon persons not within its allegiance, for

conduct outside its borders that has consequences within its borders

which the state reprehends” (See Andrew I Gavil, William E. Kovacic,

and Jonathan B. Baker, 2002, page 934). The decision was known as

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COPY“effect doctrine” in the implementation of extraterritorialities

competition law in the US. --------------------------------------------------

4.2.4.12 Commission Council finds that in 1982, the United States Congress

codified the principles of jurisdiction of competition law in the United

States in Foreign Trade Antitrust Improvement Act of 1982 (FTAIA)

and stated that the United States have jurisdiction to the act of anti-

competition conducted by foreign party if: “such conduct has a direct,

substantial, and reasonably foreseeable effect (A) on [domestic or

import commerce] or (B) on export trade or export commerce…” (See

Andrew I Gavil, William E. Kovacic, and Jonathan B. Baker, 2002,

page 935)-----------------------------------------------------------------------

4.2.4.13 In case of Hartford Fire Ins. Co v. California, 509 US 764 S.Ct 2891

(1993), The United States Supreme Court used “effect doctrine” and

principle of comity concurrently. In case of Hartford Fire, a company

reinsurence in UK had been assumed to conduct conspiracy with the

insurance company in the United States by limiting a form of insurance

protection. In this case, the principle of comity remained to be applied

tightly; although the Government of United Kingdom permitted the

US to take action to the company but gave no instruction to do that,

therefore the United States Supreme Court does not assume that it

would trigger a serious conflict between the interests of two

governments by keeping on respect the principles of comity for not

breaking it;---------------------------------------------------------------------

4.2.4.14 To explain more about the role of comity principles on

extraterritoriality jurisdiction of competition law in the United States,

in 1985 United States Department of Justice (US DOJ) and Federal

Trade Commission (FTC) issued Antitrust Enforcement Guidelines for

International Operation. The Guidance stated that the both bodies

would consider principles of comity when examining whether or not a

violation to the competition law (See: Alison Jones and Brenda Sufrin,

2004 page 1239); -------------------------------------------------------------

4.2.4.15 Hereinafter, Council of Commission found that effect doctrine is

always implemented in case concerning foreign party, as the same

manner as seen in case United States v. Nippon Paper Industries Co.

109 F.3d (1st Cir. 1997). In this case, the Japanese companies domicile

in Japan conducted all cartel activities in Japan was pricing a selling

price of fax paper to the United States. The companies were accused

by the Government of America under the United States jurisdiction

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COPYthat then strengthened by Appeal Court of the United States (See::

Alison Jones and Brenda Sufrin, 2004 page 1239-1240).---------------

4.2.4.16 In European Union, the case of extraterritoriality decided for the first

time in 1974 in the case of Béguelin (Case 22/71, Béguelin Import Co.

v. GL Import Export [1971] ECR 949, [1972] CMLR 81).

Nevertheless, the case was not merely discussed on the implementation

of extraterritoriality of competition law because of one of the parties in

the agreement domiciling in the European Union country, no sanction

imposed to other parties domiciling in Japan -----------------------------

4.2.4.17 Hereinafter, presumably that Council of Commission enhances

European Union principle of extraterritoriality under effect doctrine

that started to be discussed in 1972 in case of Dyestuff (Case 48/69, ICI

v. Commission (Dyestuff) [1972] ECR 619, [1972] CMLR 557. ICI

founded and had head office in UK (at that time it was not member of

European Union yet) was alleged for conduct concerted practices

(cartel) and infringed Article 81 EC Treaties by instructing its

subsidiary in Belgium. At European Court of Justice (ECJ), General

Counsel impose effect doctrine in his opinion toward the case: “… the

condition necessary for taking extraterritorial jurisdiction of

competition were that the agreement or concerted practice must create

a direct and immediate restriction of competition, that the effect of the

conduct must be reasonably foreseeable, and that the effect produced

on the territory must be substantial” (See: Alison Jones and Brenda

Sufrin, 2004 page 1249). In it decision, ECJ did not adopt effect

doctrine yang stated by General Counsel, ECJ based its jurisdiction to

the argument known as “single economic entity doctrine”. In the

argument ECJ stated that European Union law has developed doctrine

that thought holding company and its subsidiaries as a business actor

the context of competition law; then European Commission has

jurisdiction to the UK's company (See: Alison Jones and Brenda

Sufrin, 2004, page 1240);----------------------------------------------------

4.2.4.18 The next case was in European Union that adopted effect doctrine was

Wood Pulp I (Wood Pulp [1985] OJ L85/1, [1985] 3 CMLR 474). In

this case, European Commission performed a series of investigation to

the suspected price fixing conducted by 41 producers and 2 producer

associations that infringed Article 81 EC Treaty. All 43 parties in the

case domiciled outside European Union but almost all them owned

subsidiaries, agent or representatives within the region of European

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COPYUnion. 36 parties were fined by European Commission and most of

them submitted objection toward the decision of the European

Commission, on the basis of: first, on the jurisdiction and the second,

on their concerted practices. ECJ decided to conduct a session on the

jurisdiction problem (“Wood Pulp I”) by bringing the parties to trial

prior to have a second session to the second objection submitted by the

parties (“Wood Pulp II”). ----------------------------------------------------

4.2.4.19 In Wood Pulp I, General Counsel in his opinion readopt effect doctrine

to affirm European Commission jurisdiction to the conduct of cartel,

therefore ECJ came to the different conclusion by ignoring the

discussion on effect doctrine but turn it to its “implementation”. ECJ

stated that the place to which the agreement signed was not relevant,

but the most decisive one is the place where the agreement was

implemented; ------------------------------------------------------------------

4.2.4.20 The Singaporean competition law explicitly states extraterritoriality of

competition law in its body. Article 33 paragraph (1) of The

Competition Act 2004 explicitly state the prohibition of Competition

Act be effect on the agreement made or activities done outside

Singapore or by parties outside Singapore (See: Burtong Ong, The

Origins, Objectives and Structure of Competition Law in Singapore,

World Competition 29(2): 269-284 Kluwer Law International, the

Netherlands, 2006, page 283); ----------------------------------------------

4.2.4.21 Based on the whole description, Council of Commission has a notion

that whether in national or international system of law, competition law

can be valid extraterritorially as long as the condition in effect doctrine,

doctrine of implementation or single economic entity doctrine are

completed; ---------------------------------------------------------------------

4.2.5 Hereinafter, Council of Commission examine, whether extraterritoriality

principles can be imposed in this case, Council of Commission consider the

followings: ---------------------------------------------------------------------------------

4.2.5.1 Based on the fact that Temasek, STT, STTC, AMHC, AMH, ICL,

ICPL, SingTel, and SingTel Mobile (hereinafter referred to as

“Temasek Business Group”) were not founded under the law of

Indonesia and not domiciled in Indonesia as it elucidated in point 1.1

On the Identity of Reported; (vide Evidence C15, C16, C77-C79, C82-

C84, C148, C154) ------------------------------------------------------------

4.2.5.2 The jurisdiction of Commission to the Reported shall be tested on the

basis of several matters, namely: (i) whether the activities of Temasek

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COPYBusiness Group impact in the legal territory of Indonesia that make it

in line with effect doctrine, or (ii) whether Temasek Business Group

perform certain activities that its implementation is in legal territory of

Indonesia that make it in line with the doctrine of implementation, or

(iii) whether Temasek Business Group established single economic

entity with Indonesian business actor that make it in line with single

economic entity doctrine; ----------------------------------------------------

4.2.5.3 Either Investigation team of LHPL or Reported in their defenses has

describe the schema of Temasek ownership from Temasek to

Telkomsel and Indosat, Plc., as it can be seen in the following

diagrams:-----------------------------------------------------------------------

Indonesia Government

100%

100%

Public

45,85%

Singapore Telecom Mobile

Pte. Ltd

Singapore Telecommunications

Pte. Ltd

PT Telekomunikasi Indonesia Lts

PT Telekomunikasi Selular

Temasek Holdings (Private) Limited

100%

54,15%

100%

35% 65%

51,19%

25%

40,77%

Indonesia Communications

Limited Indonesia

Communications Pte. Ltd

Qatar Government

Q tel Investment Holdings BSC

Qatar Telecom (Q tel) Q.S.C

Government of Indonesia

PT Indosat Lts

100%

55%

100%

14,5 %

Singapore Technologies

Telemedia Pte. Ltd

Asia Mobile Holdings Pte, Ltd

Asia Mobile Holding Company

Pte. Ltd

STT Communications

Ltd

100%

100%

75%

Public

44,05%

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COPY4.2.5.3.1 Temasek Holdings is an owner of 100% of STT’s shares

and 54.15% of SingTel. ---------------------------------------

4.2.5.3.2 SingTel is an owner of 100% shares of SingTel Mobile;

4.2.5.3.3 SingTel Mobile is an owner of 35% shares of Telkomsel.

4.2.5.3.4 STT is an owner of 100% shares STT Communication.--

4.2.5.3.5 STT Communication is an owner of 100% shares Asia

Mobile Holdings Company-----------------------------------

4.2.5.3.6 Asia Mobile Holdings Company is an owner of 75%

shares Asia Mobile Holdings---------------------------------

4.2.5.3.7 Asia Mobile Holdings is an owner of 100% shares

Indonesia Communication Limited and 100% shares

Indonesia Commnication Pte. Ltd. --------------------------

4.2.5.3.8 Indonesia Communication Limited has 39.96% shares PT.

Indosat, Plc, and Indonesia Communication Pte. Ltd

memiliki 0.86% shares PT. Indosat, Plc. -------------------

4.2.5.4 A clear ownership shares of Temasek to Telkomsel and PT. Indosat,

Plc., that both are performing business activity in the legal territory of

the Republic of Indonesia ; --------------------------------------------------

4.2.5.5 Council of Commission has a notion that a company with 100% of

share ownership over other company’s shares shows automatically a

single economic entity between the holding and an investee company

(100% shares), without any other information to prove; ----------------

4.2.5.6 Council of Commission has a notion that a company with 50% of share

ownership over other company’s shares shows automatically a single

economic entity between the holding and an investee company, unless

if it can be proved that: (i) holding company has no management

representative in the subsidiary, (ii) holding company has no ability to

influence a directive policy of subsidiary, (iii) holding company has no

confidential and sensitive information access to subsidiary. Council of

Commission found that there things above are negative. ---------------

4.2.5.7 Based on the share ownership in 4.2.5.3 above and considering the

authority owned by holding company to its subsidiary as it is

elucidated by in LHPL by Investigation Team, Council of Commission

has a notion that Temasek Business Group is single economic entity.

4.2.5.8 Council of Commission has a notion that, it is true that a company with

less than 50% of other company’s shares cannot be automatically

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COPYcalled a single economic entity or it is not, but de facto the two

companies is a single economic entity if in realty they meet 3

condition: (i) holding company has no management representative in

the subsidiary, (ii) holding company has no ability to influence a

directive policy of subsidiary, (iii) holding company has no

confidential and sensitive information access to subsidiary. If the three

criteria are negative, the share ownership of less than 50% can be

considered as passive investor.

4.2.5.9 As it usually found in of share ownership through capital market. Yet,

if the three criteria are fulfilled, holding company obviously has

controlling influence to subsidiary and the aim of share ownership is

becoming an active investor. Therefore, a company that has subsidiary

shares is seen as single economic entity; ----------------------------------

4.2.5.10 That Temasek Business Group has 35% of Telkomsel’s shares and

41.16% of PT. Indosat, Plc. With the share ownership less than 50%,

the three criteria needs to be concerned whether Temasek Business

Group has control to Telkomsel and PT. Indosat, Plc;------------------

4.2.5.11 Council of Commission examines it from: (i) management

representation aspect, (ii) an ability to influence company’s decision,

and (iii) confidential information access----------------------------------

4.2.5.11.1 Management representation ----------------------------------

4.2.5.11.1.1. Concerning of management, Investigation

team in LHPL had elaborated management

representation owned by Temasek Business

Group to Telkomsel and PT Indosat, Plc,

and the fact that SingTel Mobile has rights

to post directors and commissioner in

Telkomsel. LHPL also shows that since

2002 two positions for directors are always

available for SingTel Mobile, Director of

Commerce and Operation (vide Evidence

C165, C168-C171, B1);----------------------

4.2.5.11.1.2. That LHPL also found that ICL is entitled to

post 8 (eight) of 9 (nine) position for

director and commissioner in PT Indosat,

Plc, while the Government of Indonesia as

the holder of A series shares only has 1

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COPYposition has 1 for director and commissioner

of PT Indosat, Plc, currently the 9 (nine)

directors, although in reality the

Government of Indonesia is given a chance

to nominate more than 1 director and

commissioner. LHPL also found that since

ICL become shareholder, Vice Managing

Director and Director of Finance are always

taken by ICL ; (vide Evidence C46, C54,

C80, C117, C238-C243) ---------------------

4.2.5.11.2 Decisive Influence to company policy ----------------------

4.2.5.11.2.1. Concerning the ability of Temasek Business

Group in influencing the company policy,

Council of Commission found that strategic

company’s policies must be approved by at

least ¾ shareholders, so that the

implementation of Limited Corporation law,

that the shareholder of more than 25% is

able co veto such decisions; -----------------

4.2.5.11.2.2. That LHPL deeply explain the authority of

SingTel Mobile as a shareholder of

Telkomsel and the authority of of ICL as a

shareholder of PT Indosat, Plc, shows that

the shareholder with votes as they have is

able to determine the approval to reach the

¾ of the whole company shares vide

Evidence C54, C117, C165, C208, C209);

4.2.5.11.2.3. Hereinafter, Council of Commission also

found that LHPL, Investigation team had

disclose the influence of SingTel Mobile to

Telkomsel in determining Capital

Expenditure (Capex). The Capex of

Telkomsel shall be approved by Capex

Committee that consists of 3 (three) people

and one of them is commissioner nominated

by SingTel Mobile. Besides, Council of

Commission found facts as it is elucidated

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COPYin LHPL, that SingTel, holding company

SingTel Mobile, also actively help Capex

Committee through Commissioner

nominated by SingTel Mobile, by providing

extra ordinary staff yang has direct access to

Telkomsel management; (vide Evidence

B22-23, B37)

4.2.5.11.2.4. Council of Commission has a notion tha the

determination of capex is one of the

important policy in developing Telkomsel

concerning service quality and coverage

provider;----------------------------------------

4.2.5.11.2.5. That in LHPL, Investigation team also show

the influence of ICL to PT Indosat, Plc, in

term of network procurement that is

controlled by the Vice Managing Director

nominated by ICL and as it made the delay

of network building of PT Indosat, Plc.;

(vide Evidence B44, B46 B51) -------------

4.2.5.11.2.6. Council of Commission has a notion that a

control to the network procurement method

and implementation is Indosat’s policy

relating to cost efficiency and business

development of Indosat in quality and

coverage service; (vide Evidence B44, B51)

---------------------------------------------------

4.2.5.11.3 Confidential Information Access ----------------------------

4.2.5.11.3.1. Concerning confidential information access,

Council of Commission has a notion that the

determination of Capex to Telkomsel and

the network procurement method of PT

Indosat, Plc, is a company confidential

information due to its vitality to each

company. Such an information cannot be

accessed by public; ---------------------------

4.2.5.11.3.2. Council of Commission found that in

LHPL, SingTel has an access to the

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COPYinformation concerning the plan of Capex

Telkomsel and ICL they also has

information on the delay of network

building of Indosat PT. Indosat Plc., due to

the fault of mentioning procurement method

that has been informed to one of Indosat

Commissioner, that also has position in the

management o ICL; --------------------------

4.2.6 That by fulfilling the three criteria, Council of Commission examine that

Temasek Business Group, besides owning number of significant shares, also has

decisive influence to control Telkomsel and PT Indosat, Plc., so it can be

considered as single economic entity.--------------------------------------------------

4.2.7 Council of Commission perceive that considering effect doctrine or

implementation doctrine to evaluate the jurisdiction of Commission to Temasek,

STT, STTC, AMHC, AMH, ICL, ICPL, SingTel, and SingTel Mobile is not

needed; -------------------------------------------------------------------------------------

4.2.8 That through the implementation of single economic entity, Council of

Commission examine that Temasek Business Group has performed business

activity in the legal territory of the Republic of Indonesia indirectly through the

activities of Telkomsel and PT. Indosat, Plc., thereby Commission has

jurisdiction to Temasek, STT, STTC, AMHC, AMH, ICL, ICPL, SingTel, and

SingTel Mobile for this case.. -----------------------------------------------------------

4.3 State of Case Handling-----------------------------------------------------------------------------

4.3.1 Hereinafter, it is still on formal aspect, Council of Commission examine whether

in this case handling, Commission infringe the principle of due process of law. In

their defense the Reported fundamentally states the followings:-------------------

4.3.1.1 Temasek states that the withdrawal of a report shall terminate

investigation process; --------------------------------------------------------

4.3.1.2 STT, STTC, AMHC, ICL, ICPL state that LHPL is issued in the long

period of time after the report is withdrawn;------------------------------

4.3.1.3 Commission gives no fair right to defense, in the form of --------------

4.3.1.3.1 Temasek, STT, STTC, AMHC, ICL, ICPL state that

Investigation team has ignored documents submitted by

the Reported; ---------------------------------------------------

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COPY4.3.1.3.2 Temasek, STT, STTC, AMHC, ICL, ICPL, SingTel, and

SingTel Mobile state only be given limited time to arrange

its written defense; ---------------------------------------------

4.3.1.3.3 4.3.1.3.3 Temasek, STT, STTC, AMHC, ICL, ICPL,

SingTel, and SingTel Mobile state for not being given

access to investigation document; ---------------------------

4.3.1.3.4 Temasek and Telkomsel state the allegations are unclear;

4.3.1.3.5 STT, STTC, AMHC, ICL, ICPL, SingTel, and SingTel

Mobile state for not being investigated in the Preliminary

Investigation; ---------------------------------------------------

4.3.1.4 Temasek, STT, STTC, AMHC, ICL, ICPL, SingTel, and SingTel

Mobile state the statements in mass media bay the Commission has

influence the independency of the investigation process and Council of

Commission ;------------------------------------------------------------------

4.3.1.5 Temasek, SingTel and SingTel Mobile state Council of Commission

in this case is not fair because it does not involve Commission member

of the Preliminary Investigation that has dissenting opinion in the

LHPL; --------------------------------------------------------------------------

4.3.2 To the point of opinion or defense of the Reported concerning due process of

law, Council of Commission suggest the following consideration: ---------------

4.3.3 Concerning Report Withdrawal ---------------------------------------------------------

4.3.3.1 Concerning the withdrawal of report, Council of Commission notice

that the withdrawal of report by Reporting Party does not make the

process to the case being terminated for the sake of justice concerning

the characteristic of the Commission case is not a pure civil case

namely a dispute between an individual and othe individuals.

Competition case consists of public dimension, means any case

handling in Commission is aimed for the interest of public and state.

Therefore, there is no crime by complaint in the case handling process

of the commission because no expression of withdrawing case in either

in the Law No. 5/1999 or Commission Regulation No. 1/2006 2006..

4.3.3.2 It is true that Commission in registration procedures or note case uses.

L and I. Letter L mean the case from report. Meanwhile . I mean the

case is the initiative case of Commission. The usage of. L and I as a

mean to know early process of case and only express early information

early owned by and for the sake of administrative case handling in

Commission; ------------------------------------------------------------------

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COPY4.3.4 The Time Period of Issuing LHPL -----------------------------------------------------

4.3.4.1 Concerning the period of time in issuing LHPL, Council of

Commission examine that Commission successively accept report

related to suspected infringement of the Law No. 5/1999 that

conducted by PT. Indosat, Plc., date 18 Octobers 2006 and date 17

November 2006. Based on investigation process and clarification

conducted by Commission, the reports is incomplete and the handling

was terminated; ---------------------------------------------------------------

4.3.4.2 Hereinafter, Council of Commission found that on 22 December 2006,

the Commission accept again the report concerning suspected

infringement of the Law No. 5/1999 conducted by PT Indosat, Plc.,;

4.3.4.3 That after receiving the report, under Article 16 of KPPU Regulation

No. 1/2006, Commission is able to clarify and to examine report

within 60 (sixty) days and can be extended for the furthest of 30

(thirty) days. Thereby, as from the report entered, Commission can

conduct investigation process and report clarification until 3 May

2007;----------------------------------------------------------------------------

4.3.4.4 That within the process, Commission further concludes that the report

state to be completed and clear to go to filing step for 30 (thirty) days

and followed by presenting report at the furthest of 14 (fourteen) days

after filling to be determined then whether it proper or not to go to

Preliminary investigation process. Thereby, as from the end of

investigation and clarification, on 3 May 2007, the filling process and

the presenting report have to end at the furthest on 6 July 2007; ------

4.3.4.5 That after the presenting of report and Commission decides to continue

to the process of Preliminary investigation, under Article 39 paragraph

of the Law No. 5/1999, at the furthest of 30 (thirty) days after the

report available. Thereby, since the end of presenting report,

Preliminary investigation shall be end at the furthest of 20 August

2007;----------------------------------------------------------------------------

4.3.4.6 That accomplishing Article 39 paragraph (1). jo Article 43 paragraph

(1) and paragraph (2) of the Law No. 5/1999, after Preliminary

investigation process, Follow up investigation conducted for the

longest 60 (sixty) days and can be extended for the longest of 30

(thirty) days. Thereby, as from the end of Preliminary investigation,

Follow up investigation end at 26 December 2007; ---------------------

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COPY4.3.4.7 That the time mentioned above is the maximum time needed for the

investigation. In the implementation the process is shorter than the time

provided. The following is the description of the time: ----------------

4.3.4.7.1 That the presentation of case report on date 5 April 2007

resulted, Commission decide to continue the case to the

process of Preliminary investigation; (vide Evidence A8)

4.3.4.7.2 That based on the decision of Commission No.:

13/PEN/KPPU/IV/2007, Preliminary investigation was

conducted from 9 April 2007 to 22 May 2007; (vide

Evidence A9) ---------------------------------------------------

4.3.4.7.3 That based on the decision of Commission No.:

23/PEN/KPPU/V/2007, Follow up investigation was

conducted from date 23 May 2007 to 15 August 2007;

(vide Evidence A30) -------------------------------------------

4.3.4.7.4 4.3.4.7.3 That based on the decision of Commission No.:

152/KEP/KPPU/VIII/2007, the Extended Follow up

investigation was conducted from 16 August 2007 to 27

September 2007; (vide Evidence A161) -------------------

4.3.4.7.5 That the Regulation Commission No. 1/2006 does not

specifically oblige Commission to submit LHPL to the

Reported and when it shall be submitted; ------------------

4.3.4.7.6 That after Follow up investigation completed on 27

September 2007, Investigation team submitted LHPL and

the whole files to the Commission, the Commission then

establishes Council of Commission and submitted LHPL

and all the files of the case (vide Evidence A216). Council

of Commission then prepared the council session and

deliver LHPL to the Reported. The process takes a couple

days so that LHPL will be received by the Reported later;

4.3.4.8 The timed needed for the investigation process has followed the rule

and completed the principle of due process of law in which they have

been strengthened by the some Supreme Court Decree (MA):---------

4.3.4.8.1 The decree of MA No. 01 K/KPPU/2004 in the case of

Commission against PT Perusahaan Penerbangan Garuda

Indonesia; -------------------------------------------------------

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COPY4.3.4.8.2 The decree of MA No. 02 K/KPPU/PDT/2004 in the case

of Commission against PT Jakarta International Container

Terminal;

4.3.4.8.3 The decree of MA No. 01 K/KPPU/2005 in the case of

Commission against PT Telekomunikasi Indonesia Plc.;

4.3.4.8.4 The decree of MA No. 05 K/KPPU/2005 in the case of

Commission against PT Perusahaan Umum Percetakan

Uang Republik Indonesia (Perum Peruri)/The Indonesian

National Mint; --------------------------------------------------

4.3.4.8.5 The decree of MA No. 01 K/KPPU/2006 in the case of

Commission against PT Carrefour Indonesia; -------------

4.3.5 Concerning Defense ----------------------------------------------------------------------

4.3.5.1 Concerning defense, Council of Commission examine that in

accordance with the task and authority regulated in the Law No.

5/1999 on the Prohibition of Monopoly practices and unfair business

competition, and Commission Regulation No. 1/2006 on the

Procedures of Case handling in Commission, gives the chance to

Reported to submit defense and consider all the case files including the

documents submitted by the Reported either in the step of investigation

or in the Council of Commission Session; --------------------------------

4.3.5.2 That the time conducted to defend, accomplishing to due process of

law, has been mentioned in the Law No. 5/1999 and Commission

Regulation No. 1/2006 Procedures of Case handling in Commission.

The limited time had by the Reported is also had by Investigation team

and Council of Commission in the period of time of each step of case

handling in Commission, and it has to be abided as a form of due

process of law and legal certainty;-----------------------------------------

4.3.5.3 Furthermore, it is dealing with the access to the whole documents.

Council of Commission examine that in this case, such an access has

been given in the phase of enzage. The Reported have time to get an

enzage with the following time table:--------------------------------------

4.3.5.3.1 Temasek conducted an enzage on 4 October 2007; (vide

Evidence B59)--------------------------------------------------

4.3.5.3.2 STT, STTC, AMHC conducted an enzage on date 5

October 2007; (vide Evidence B59) -------------------------

4.3.5.3.3 AMH, ICL, ICPL conducted an enzage on date 8 October

2007; (vide Evidence B59) -----------------------------------

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COPY4.3.5.3.4 SingTel and SingTel Mobile conducted an enzage on 9

October 2007; (vide Evidence B59) -------------------------

4.3.5.3.5 Telkomsel conducted an enzage on 10 October 2007;

(vide Evidence B59) -------------------------------------------

4.3.5.4 Concerning to the references to be referred by the Investigation team as

it asked by the Reported, Council of Commission thinks that the

references are public property;----------------------------------------------

4.3.5.5 Concerning the clearance of allegation that is postulated by Temasek

and Telkomsel, Council of Commission thinks that the suspected

infringement has been clear and consistent namely the infringement of

Article 27.a that has been conducted by Temasek Business Group and

suspected infringement of Article 17 paragraph (1) and Article 25

paragraph (1) b conducted by Telkomsel, with the following

description: --------------------------------------------------------------------

4.3.5.6 That the essence of suspected infringement conducted by

Temasek Business Group relating to cross ownership of

Temasek Business Group in Telkomsel and Indosat.; ---

4.3.5.7 That the essence of suspected infringement conducted by

Telkomsel either in the Report of Preliminary investigation

result or LHPL is the same, that it is emphasized on the

abuse of its dominant position. (vide Evidence A28, A215)

4.3.5.8 That accomplishing the regulation in Article 44

Commission Regulation No.1/2006, Follow up

investigation is conducted to find whether or not an

evidence of infringement based on the preliminary

evidence accumulated by Investigation team in the

Preliminary investigation and then stated in the report of

the result ----------------------------------------

4.3.5.9 Concerning the investigation of STT, STTC, AMH, AMHC, ICL,

ICPL, SingTel, and SingTel Mobile in the Preliminary investigation,

Council of Commission examines that it is justifiable because of the

status of STT, STTC, AMH, AMHC, ICL, ICPL, SingTel, and

SingTel Mobile as Reported are decided in the Preliminary

investigation. It needs to be added that in the phase of Preliminary

investigation, Investigation team performs an investigation to

Termasek as a group that cover STT, STTC, ICL, SingTel, and

SingTel Mobile; (vide Evidence A28) -------------------------------------

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COPY4.3.5.10 That the Commission Regulation No.1/2006 in Article 33 states that:

(2) If the Follow-up Investigation is needed to perform, the

Commission decide the status of Reported, agreement and/or activities

that is suspected to infringe or the rule of law that is suspected to be

infringed by the Reported, through the decision of Follow-up

Investigation. ------------------------------------------------------------------

4.3.5.11 That based on the descriptions related to the consideration documents

of the Reported, the period of time arranging defense, clearance of the

allegation, Investigation Team, and the status of the Reported of STT,

STTC, AMHC, AMH, ICL, ICPL, SingTel, and SingTel Mobile that

newly stated in the Follow-up Investigation, then the chance to arrange

defense from the Reported has been given properly and prescribed

by the regulations; ----------------------------------------------------------

4.3.6 Concerning the Independency of Council of Commission --------------------------

4.3.6.1 Concerning the independency Council of Commission, Council of

Commission examine that the statement of the Chairperson of Council

of Commission to the mass media relating to this case does not

influence the independency of Council of Commission in deciding this

case. The Council of Commission in deciding the decision is not based

on the structural of Commission so that anyone in the Commission

cannot be instructed and be responsible to no one. The council of

commission bases its decision simply on the document that are

scrutinized and legal consideration pronounced in the decision;-------

4.3.7 Concerning Member of the Council of Commission---------------------------------

4.3.7.1 Concerning the structure or composition of the Council of

Commission, Council of Commission thinks that the decision is the

authority of the Chairperson of Commission and it has accomplished

Article 2 paragraph (2) g jo Article 51 paragraph (4) Commission

Regulation No. 1/2006 on the Procedures of Case handling in

Commission -------------------------------------------------------------------

Article 2 -----------------------------------------------------------------------

(2) In performing the duty, as it mentioned in paragraph (1) the

Chairperson of Commission has authority to:----------------------------

g. appoint a Chairperson and members of Investigation team and

council of Commission. -----------------------------------------------

Article 51-----------------------------------------------------------------------

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COPY(2) The membership of Council of Commission as it meant by

paragraph (3) at least 1 (one) member of Commission handle a case in

Follow-up Investigation.

4.4 Concerning Divestment Consultation and Government ---------------------------------------

4.4.1 Concerning the government divestment shares in Indosat, Temasek, STT, STTC,

AMHC, ICL, ICPL, SingTel, and SingTel Mobile in its opinion and defense

principally states that the divestment of PT. Indosat, Plc., has been consulted with

Commission, and Commission observe that it does not infringe the Law No.

5/1999;--------------------------------------------------------------------------------------

4.4.2 That to the statement of the Reported as it meant above, Council of Commission

do not find evidence that the Commission has agreed to the divestment of

government shares of PT Indosat, Plc., and STT as an awarded. In the document

of Government’s elucidation in the hearing with House of Representative (DRY)

Republic of Indonesia, page 11 (vide Evidence C1) stated that: “Ministry of

BUMN on 23 January 2003, have completed an invitation of KPPU for

consulting meeting and theretofore KPPU does not need further information

from Government/Indosat relating to Indosat’s divestment. Council of

Commission thinks that such a statement cannot be interpreted as an agreement

of Commission to the divestment process of Indosat that then was divested to

STT. It is consistent with the opinion of Commission that has never agreed

with the divestment of Indosat which then divested to STT. -------------------

4.5 Concerning the authority of Commission to interpret -----------------------------------------

4.5.1 That AMH, ICL, and ICPL in their opinion or defense, principally state that

Commission does not have right to interpret the Article in the Law No.5 /1999,

in this matter Article 27 considering the Commission is not judicative or

legislative institutions; -------------------------------------------------------------------

4.5.2 Concerning the opinion or defense of the Reported, Council of Commission

thinks that the authority to interpret the Law No. 5/1999. The interpretation can

be conducted through the decision of the case of through the guidelines and other

written publications. It is in line with the Article 35.f of the Law No. 5/1999, that

Commission has tight to: ”arrange a guideline and/or other publications relating

to this law;” apart from the reality whether the commission is in an area of

executive, judicative or legislative;-----------------------------------------------------

4.5.3 Council of Commission perceives that the implementation of authority to

interpret the law can be observed in the Decision Commission No. 07/KPPU-

L/2004 on the case of VLCC Pertamina that has been reconfirmed by Supreme

Court in its decision No.04 K/KPPU/2005, dated 29 November 2005. In that

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COPYcase, Commission interpret the understanding of ”tender” by basing on the

Guideline Article 22 on the prohibition of conspiracy in the tender; --------------

4.5.4 That in the Decision of Commission No. 07/KPPU-L/2004 is stated that price

bidding “covers a bid of purchasing or of procuring goods or services” in other

words in the Decision, Commission has interpreted the meaning of tender in the

Article 22 of the Law No. 5/1999 as not only “contract of work for procuring

goods or services” but also “selling goods or services” in which it was

reconfirmed by” the decision of Supreme of Court; ---------------------------------

4.5.5 That the understanding of ”bid of selling a goods or services” has been included

in the Guideline of Commission regarding Article 22 on the Prohibition of

Conspiracy in a Tender. It shows that Commission has authority to interpret

Articles in the Law No. 5/1999; -------------------------------------------------------

4.6 Considering that based on the elucidations that have been described above, Council of

Commission observe that there is no formal infringement in the process of this case.-

5. Concerning Material Aspect----------------------------------------------------------------------------

5.1 Prior to examine whether or not an infringement conducted by the Reported, Council of

Commission has to explain standard analysis of an infringement the rule of the Law No.

5/1999 in general, and then explain the standard or elements of Article 27, Article 17,

and Article 25 respectively;----------------------------------------------------------------------

5.2 Council of Commission has a notion that in general the Law No. 5/1999 does not affirm

analysis approaches used for any Article or its stipulation, using rule of reason or per se

rule. Basically, rule of reason approach states that determining whether or not an

infringement is not sufficient to base on formal evidence of a business practice (conduct)

but it needs other evidence that such a business practice is able to cause

negative impact to competition and public interest. For this reason, in this approach an

impact analysis of the business actor’s behavior to competition. On the contrary, the per

se rule basically sates that whether or not an infringement can be based only to the

sufficient evidence that shows a conduct of a business actor. The approach requires the

absence of evidence that the conduct causes negative impact to competition due to a

legal presumption that the conduct of a business actor causes negative impact to business

competition; -----------------------------------------------------------------------------------------

5.3 Although it is not strictly regulated about the valid approach, in the perspective of its

formulation, the prohibition in the Law No. 5/1999 is classified at least into two group,

there are prohibition of rule of reason based analysis and per se rule based analysis. The

article with the sentences, “causes monopoly practice” and/or “unfair business

competition” is classified to be analyzed by rule of reason and it need an analysis of an

impact of competition or an activity is performed or an analysis that the business activity

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COPYis not fair. While for the rule with have no such sentences are classified into the rules that

is analyzed by rule per se rule; --------------------------------------------------------------------

5.4 The Infringement to Article 27.a of the Law No. 5/1999 ------------------------------------

5.4.1 The rule of Article 27.a of the Law No. 5/1999 is said in a whole as follows:: -

“Business actor is prohibited to have majority shares at some similar companies

that conduct business activity in the common field at the common relevant

market, or establish some companies that have business activities at common

relevant market, if the ownership resulted: -------------------------------------------

(a) one business actor or one group of business actor control more than 50%

(five percents) market share of one goods or certain service.”---------------------

5.4.2 Concerning to Article 27, Council of Commission has a notion that at least there

are two perspective to determine the infringement to Article 27 namely

minimalist and maximalist. According to minimalist perspective, it is an

infringement to Article 27 if at least two important evidences are completed

namely, firstly, there is a business actor who controls or establishes some

companies in a relevant market, and second, the control or the establishment

causes market control more than 50%. Thus, the prohibited behavior (conduct) is

to have control or to establish some companies, and the prohibited cause is

market control of more than 50%. The minimalist perspective also perceives that

there is an infringement to Article 27, it a business actor has majority shares in

two or more competed companies, and the ownership result to more than 50% of

market control. The approach applied is per se rule because Article 27, from its

formulation, excluded two sentences of “able to cause monopoly practices”

and/or “unfair business competition.” ------------------------------------------------

5.4.3 Differ from minimalist perspective, maximalist perspective sees that there is an

infringement to Article 27, besides completing 2 (two) elements (as it is in the

minimalist perspective), other elements have to be completed namely business

practice (conduct) that cause negative impact to competition. In this perspective,

the prohibited business practice (conduct) is the market control abuse that cause

negative impact to competition. The approach applied is rule of reason because in

general the tasks of Commission are to examine whether the negative impact of

business practice to competition exists or not. ----------------------------------------

5.4.4 Concerning the perspective to Article 27, Council of Commission in this case

applied maximalist perspective, that make the important elements in Article 27

are, first, business actor; second, to have shares in some companies; third; market

control; fourth, the behavior of dominant position abuse; and fifth, negative

impact to competition;--------------------------------------------------------------------

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COPY5.4.5 In the Investigation team of LHPL, it is stated that Temasek, STT, STTC,

AMHC, AMH, ICL, ICPL, SingTel and SingTel Mobile have infringed Article

27.a of the Law No. 5/1999. The Reported in their defenses disagree to the

opinion and conclusion of Follow up Investigation team; --------------------------

5.5 Further, Council of Commission examines whether elements in Article 27.a completed

by the following analysis: -------------------------------------------------------------------------

5.5.1 Business Actor-----------------------------------------------------------------------------

5.5.1.1 According to the previous limitation of jurisdiction of Commission to

Temasek, STT, STTC, AMHC, AMH, ICL, ICPL, SingTel, and

SingTel Mobile, Council of Commission has a notion that the

Reported are business actors as it completes the rule of Article 1. 5

No. 5/ 1999 with the following consideration as follows:--------------

5.5.1.1.1 That Investigation team of LHPL principally states

Temasek, STT, STTC, AMHC, AMH, ICL, ICPL,

SingTel, and SingTel Mobile establish a business group as

it is a doctrine of single economic entity. The doctrine of

single economic entity in this case is proved with the

existence of control conducted by Temasek Holdings to its

subsidiaries;-----------------------------------------------------

5.5.1.1.2 That the schema of the Temasek ownership to its

subsidiaries has been illustrated by Investigation team in

paragraph (40) to (45) LHPL; -------------------------------

5.5.1.1.3 That a share ownership grading from Temasek to its

subsidiaries is followed by the authority to appoint director

in any level as it is shown by Investigation team in

paragraph (77) LHPL; ----------------------------------------

5.5.1.1.4 That instead of shareholder, Investigation team also find

many double positions for the purpose of easing to

implement holding companies policies. The double

position is shown by Investigation team in paragraph (78)

LHPL;

5.5.1.1.5 That STT, STTC, AMHC, AMH, ICL, ICPL in their the

opinions or defenses state that the diagram of made by

Investigation team does not reflect an integrated ownership

schema. In the stage share ownership made by

Investigation team, it shall be added around 25% of

AMHC shares owned by Qatar Telecom through Qatar

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COPYInvestment Holding and 65% of Telkomsel’s shares

owned by PT. Telkom, Plc.; ----------------------------------

5.5.1.2 That to this matter, Council of Commission agrees with the opinions

and defenses of STT, STTC, AMHC, AMH, ICL, ICPL, that the

scheme displayed by Investigation team does not reflect an integrated

ownership schema, therefore Council of Commission is about to

consider the position of Qatar Telecom and PT Telkom, Plc., in the

analysis to the existence of Temasek Business Group in this part; ----

5.5.1.3 That in their opinions and defenses, Temasek, STT, STTC, AMHC,

AMH, ICL, ICPL, and Telkomsel state that the double positions in

some company shown by Investigation team in LHPL is not true in a

whole; --------------------------------------------------------------------------

5.5.1.4 That concerning to this matter, Council of Commission examines that

the information in the opinions and defenses of the Reported is true,

therefore Council of Commission revise the report of LHPL

Investigation team as follows: ----------------------------------------------

5.5.1.4.1 Ho Ching is not Executive Vice president STT and

Executive Vice President STTC; ----------------------------

5.5.1.4.2 George Chow Yew Tong is not Senior Vice President

STT;

5.5.1.4.3 Vincente Perez, Peter Seah, Sam Soon Lin, Yap Boh Pin,

and Edward Lee is not Director AMHC;-------------------

5.5.1.4.4 Steven Geoffrey Miller is not Chief Financial Officer

AMHC and ICPL;---------------------------------------------

5.5.1.4.5 Syeikh Mohammed is not Telkomsel Commissioner but

PT. Indosat Commissioner, Plc.;----------------------------- .

5.5.1.5 That in their opinions and defenses, Temasek, STT, STTC, AMHC,

AMH, ICL, ICPL, SingTel, and SingTel Mobile state that Temasek,

STT, STTC, AMHC, AMH, ICL, ICPL, SingTel, and SingTel Mobile

are separated corporate bodies that have their own and separated

management and asset;-------------------------------------------------------

5.5.1.6 That in its opinion and defense, Telkomsel particularly denies a control

conducted by shareholders to its company; -------------------------------

5.5.1.7 That in their opinions and defenses, STT, STTC, AMHC, AMH, ICL,

ICPL inform a legal action in Singaporean law between SingTel and

Starhub, both are subsidiaries of STT, and show that that SingTel and

STT do not include in the a group of business actor; --------------------

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COPY5.5.1.8 That in their opinions and defenses, AMH, ICL, ICPL state that AMH

in May 2007 obtained external loans for amount US$ 1.16 billion

without any involvement of shareholders, it shows that there is no

business group;----------------------------------------------------------------

5.5.1.9 That concerning to the points above, Council of Commission suggest

the following consideration:-------------------------------------------------

5.5.1.9.1 That Council of Commission thinks different concerning

an expression “business actor”, an expression of “a group

of business actor” is acknowledgeable although it is not

elucidated by the Law No. 5/1999. The expression of “a

group of business actor” in Article 1.1, Article 4

paragraph (2), Article 13 paragraph (2), Article 17

paragraph (2) . c, Article 25 paragraph (2), and Article

27 of the Law No. 5/1999; ------------------------------------

5.5.1.9.2 That Council of Commission thinks the expression of

“business actor” stated in the Law No. 5/1999 implies

different legal approach to legal subject as it is in other

law, especially corporate. The corporate law recognizes

two legal subject namely “natural person” and “corporate

body” of “legal body”. The last is usually to mention

limited company as an independent legal subject with a

legal personality under the legalization of Ministry of Law

and Human Right. In the business competition law, such

an approach is not always valid to be implemented. In

business competition, the most used approach is functional

approach to the subject. Such kind of approach is seen as

well in accounting field. Finance Accounting Guideline

Standard (PSAK) and Generally Accepted Accounting

Principle (GAAP) suggest that a subsidiary with more than

50% of its shares owned by holding company has to

consolidate its finance statement to the holding company

because the two companies are single economic entities

from the point of view of economy. -------------------------

5.5.1.9.3 That in the competition law, such a view is known as

single economic entity that is acceptable in other

jurisdictions. Council of Commission observes that such a

view has a strong foundation and argument to be

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COPYimplemented in Indonesian competition of law. Council of

Commission examines that such a doctrine can be

implemented to elucidate what is in the Law No. 5/1999

called as “a group of business actor” ------------------------

5.5.1.10 That based on such an opinion, then the fact that a group of business

has separated corporate body and assets is not relevant to conclude

the existence of business group. Under the same view, a business group

need not to have corporate body, such as the deed of establishment or

company statutes because as it mentioned above, a group can consists

of several independent corporate bodies. The share ownership is one

indicator indicating the existence of a group of business actor. Another

relevant factor that has to be considered is the existence of control of

holding company to its subsidiary. The biggest control had by holding

company to its subsidiary is an appointment of director and member of

company management in addition to the right as shareholder. The

absence of 100% share ownership enables it to have active control or

more than 50% of share ownership, and passive control to veto

strategic decision on General Meeting of Shareholders. The opinion of

Council of Commission to deny all at once the opinion and defense of

Telkomsel stating that Temasek through its subsidiaries has no control

to to Telkomsel. The fact shows that Temasek through SingTel Mobile

has 35% shares in Telkomsel enable to veto some shareholders’

strategic decision beside other facts as it revealed by Investigation

team in LHPL on the active intervention of shre holders in Capex

Committee Telkomsel; (vide Evidence C165, B23, B25, B34, B36)--

5.5.1.11 That fact concerning separated management as it is postulated by

Temasek, STT, STTC, AMHC, AMH, ICL, ICPL, SingTel, and

SingTel Mobile does not guarantee that they can communicate one to

another in deciding important decision. The data in LHPL shows that

there are many double positions in the organizational structures of

Temasek and its subsidiaries; -----------------------------------------------

5.5.1.12 That related to the legal dispute in Singapore between SingTel and

Starhub, Council of Commission thinks that the default legal dispute is

not an evidence of the absence of a group of business actor. The

default suit can even occurs between shareholders and directors or

between director and director in a similar company. The information

concerning legal dispute between SingTel and Starhub in Singapore

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COPYthat is submitted by STT, STTC, AMHC, AMH, ICL, ICPL, therefore,

is irrelevant with the examination on the existence of Temasek

Business Group;-------------------------------------------------

5.5.1.13 That the same opinion is valid to the whole facts submitted by AMH,

ICL, ICPL regarding the ability of AMH in obtaining external loans

without any involvement of shareholders. The fact is irrelevant to

examine the existence of a group of business actor since it cannot show

or deny either share ownership of control of holding company to ties

subsidiaries; -------------------------------------------------------------------

5.5.1.14 The relevant fact to observe the existence of Temasek, STT, STTC,

AMHC, AMH, ICL, ICPL, SingTel, and SingTel Mobile are (i) share

ownership grading from Temasek, STT, STTC, AMHC, AMH, ICL,

ICPL, SingTel, and SingTel Mobile and PT. Indosat, Plc, (ii) control

in any level or subsidiaries in the form of selection director and

managment member, (iii) veto rights owned by SingTel Mobile

to the decision of general meeting of sharesholders of Telkomsel,

(iv) share ownership of PT. Indosat, Plc., by ICL, (v) active

involvement of in assisting Capex Committee Telkomsel, (vi) the

inifluenceof STT to the policy of Indosat’s director in the method

of procurement;-------------------------------------------------------- ;

5.5.1.15 That based on the entire opinion of Council of Commission above, ,

Council of Commission examines that Temasek, STT, STTC, AMHC,

AMH, ICL, ICPL, SingTel, and SingTel Mobile is a group of business

actor that in this case is called Temasek Business Group ; -------------

5.5.2 Cross Ownership --------------------------------------------------------------------------

5.5.2.1 That Investigation team in LHPL states principally that the

understanding of “majority shares” need to be interpreted further and

in interpreting it Investigation team come to a conclusion that

“majority shares” in Article 27 of the Law No. 5/1999 shall be

understood as control. Further, Investigation team states that Temasek

Business Group owns “majority shares” of Telkomsel and PT. Indosat,

Plc..,;----------------------------------------------------------------------------

5.5.2.2 That in their opinions and defenses, the Reported principally state that

there is no majority shares in either in Telkomsel or in PT. Indosat,

Plc., because majority share ownership shall be understood as the share

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COPYownership of more than 50% while Temasek Business Group owns

less than 50% either in Telkomsel or in PT. Indosat, Plc.; --------------

5.5.2.3 That Council of Commission has a notion that majority shares in

Article 27 of the Law No. 5/1999 cannot be understood by other laws

due to the characteristic of Article 27 of the Law No. 5/1999 that

intends to prevent the existence of economic market concentration.

Besides, the rules of laws referred by either Investigation team or

Reported is not correct. Investigation team uses the Law No.19/1997

on the Imposing Bill for Tax Collection, the regulation of BAPEPAM

No. IX.H.1 on the Taking Over of public limited company, the

Regulation of Central Bank of Indonesia No.8/16/PBI/2006 on Single

Ownership in Indonesian Banking. The rules of laws above are not

implemented in the context of elucidated the aims of the Law No.

5/1999 which make the definition refer to the rules cannot support the

aim and final objective to be achieved by the Law No. 5/1999. The

same thing also applies to the Law No.19 /2003 on State-owned

Enterprise (“the Law of BUMN ”) and the Law No. 8 /1995 on Capital

market (“the Law on Capital market”) referred by STT, STTC, AMHC

in their opinion and defense based stated by Prof. Hikmahanto Juwana

(vide Evidence C62);---------------------------------------------------------

5.5.2.4 Council of Commission thinks that interpreting literally ‘majority

shares’ as it is done by STT, STTC, AMHC will negate or eliminate

the meaning of Article 27, because business actor will always to

ignore from the article. Therefore, in order to effect the rules in Article

27, the word ‘majority shares’ in the article shall be understood

essentially. The fundamental meaning of Article 27 is to prohibit

business actor controls some competing companies in the market. The

control exists through majority shareholder in both companies. If it

happens, de jure, it is a control. The significant share ownership in both

companies is de facto able to control management decisions’ of the

company. If Article 27 is not interpreted fundamentally, business actor

is able to ignore through the simple way. Business actor, for example,

owns majority shareholder in a company but keep on the number of

share ownership in other companies remain to be little bit lower than

the majority, although it de facto is still able to control an influence the

decision of a company A business actor implements a strategy to

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COPYcontrol a degree of competition of both companies although its

ownership is not absolute. ---------------------------------------------------

5.5.2.5 Further, Council of Commission examines whether there is a control of

Temasek Business Group in both competing companies, Telkomsel

and PT Indosat, Plc.;---------------------------------------------------------

5.5.2.6 That in the discussion on the Commission jurisdiction, Council of

Commission found that ICL as the shareholder of PT Indosat, Plc., has

a representative in the management of PT Indosat, Plc. Besides,

Council of Commission found an ability of ICL to influence. Indosat’s

policies such as the decision in procurement method and the rights to

have an access to confidential information of PT. Indosat. The three

things above shows an ability of ICL to control PT.Indosat, Plc., thus,

based on the Rule of Reason approach to Article 27 of the Law No.

5/1999, Indonesian Communication Limited is considered to have

majority shares of PT. Indosat, Plc..,. --------------------------------------

5.5.2.7 Regarding to control in Telkomsel, Council of Commission found that

SingTel Mobile as a shareholder that assigns its representatives in

Telkomsel management. Besides, SingTel Mobile has an ability to

control Telkomsel management by vetoing the decision of shareholder

general meeting that need an approval of ¾ shareholders of Telkomsel.

Council of Commission also found the privilege of SingTel Mobile to

access confidential concerning its active participation in Telkomsel

Capex Committee and it is shown that SingTel Mobile has an ability

to control Telkomsel;---------------------------------------------------------

5.5.2.8 That to clarify the concepts of company control, Council of

Commission need to elucidate that a company enables to have more

than one business actor with their ability control. The ability to control

a company owned by a business actor, in the different degree does not

eliminate an ability to control other business actors. It explains that

PT. Telkom, Plc., as an owner of 65% of Telkomsel’ shares has a

control to Telkomsel but it does not mean that it eliminates an ability

of SingTel Mobile to control Telkomsel as it has been previously

described namely in the form of management representation, influence

influential ability to the company policies and an access to confidential

information; -------------------------------------------------------------------

5.5.2.9 That in their opinion and defenses, Temasek, STT, STTC, AMHC,

AMH, ICL, ICPL state a similar legal construction to the definition of

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COPYmajority shares, then the Government of Indonesia The Government

of Republic of Indonesia also has majority shares in Telkomsel and

PT. Indosat, Plc., with the result that the Government of Indonesia

shall be investigated for infringing Article 27 of the Law No. 5/1999;

5.5.2.10 That responding to the statement, Council of Commission thinks that

the prohibition in Article 27 of the Law No. 5/1999 is valid only to

business actor. Council of Commission does not deny a fact that the

Government of the Republic of Indonesia has a control to Telkomsel

through PT. Telkom, Plc., and to PT. Indosat, Plc., because the

Government of Republic Indonesia is also an owner of A series shares

of PT. Indosat (vide Evidence C,54, C117), Plc., Nevertheless,

considering that the prohibition in Article 27 of the Law No. 5/1999 is

valid only to business actor, the Government’s cross ownership differ

from those of Temasek Business Group. The ownership of the

Government of Republic of Indonesia is not an prohibited cross

ownership as it is prohibited by Article 27 of the Law No. 5/1999.

Council of Commission thinks that the Government of Indonesia in

this case is not a business actor as it is elucidated in Article 1.5 of the

Law No. 5/1999; --------------------------------------------------------------

5.5.2.11 Council of Commission thinks that in this case the Government of

Republic of Indonesia does not “perform any activities in economic

field”. In general, the assignment of government is a regulator by

determining a frame of regulation for business actors during

performing their business activity. Council of Commission examines

that government share ownership to PT. Indosat, Plc., does not intend

to gain profits. PT. Indosat, Plc., is a business actor in the strategic

field and control strategic sector, controlling satellite. The presence of

the Government of Republic of Indonesia with its shares 14.58% and

shareholders of A series of PT. Indosat, Plc., intends to secure the

strategic sector and to ensure the availability of telecommunication

infrastructure for public for the sake of national interest and not profit

oriented;------------------------------------------------------------------------

5.5.2.12 In the Law model of Competition arranged by the United Nations

Conference on Trade and Development (UNCTAD) in 2007, it

principally state the rules of competition laws that cannot be applied to

government or government official. In Chapter II Part II (Scope of

Implementation) Part C, it is mentioned that: “...does not apply to

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COPYsovereign acts of the State itself, or to those of local governments, or to

acts of enterprises or natural persons which are compelled or

supervised by the State or by local governments or branches of

government acting within their delegated power” -----------------------

5.5.2.13 Based on such consideration, Council of Commission thinks that the

Government of Republic of Indonesia is not a business actor as it is

mentioned in Article 1. 5 of the Law No. 5/1999 with a result it does

not a subject in this case; ----------------------------------------------------

5.5.3 Market Shares -----------------------------------------------------------------------------

5.5.3.1 That in LHPL, Investigation team has described cellular market share

from 2001 to 2006; -----------------------------------------------------------

5.5.3.2 That in LHPL, the Investigation team uses only data of 3 biggest

operators in cellular industry namely Telkomsel, PT Indosat, Plc.,

(Indosat) and PT Excelcomindo Pratama, Plc., (XL) as an economic

analysis basis and measure competition condition in the relevant

market ; (vide Evidence C166-C171, C236-C243, C289-C294) -------

5.5.3.3 That based on LHPL, as it is seen in the following market share table

of Telkomsel, Indosat and XL below: ------------------------------------

Telkomsel Indosat XL

Year Business income

Market share

Business income

Market share

Business income

Market share

Total selling value

2001 4,918.22 56.14% 1,770 20.20% 2,073.03 23.66% 8,761.15

2002 7,572.95 58.37% 3,272 25.22% 2,130.41 16.42% 12,975.01

2003 11,146.12 60.37% 5,118 27.72% 2,198.06 11.91% 18,461.76

2004 14,765.08 59.93% 7,342 29.80% 2,528.48 10.26% 24,635.63

2005 21,132.91 64.56% 8,645 26.41% 2,956.38 9.03% 32,734.25

2006 29,145.19 68.08% 9,228 21.55% 4,437.17 10.36% 42,809.89

Average 14,780.08 61.24% 5,895.61 25.15% 2,720.59 13.61% 23,396.28

5.5.3.4 That Telkomsel has a biggest market share in the relevant market

straight year since 2001, by the average income of Rp

14,780,080,000,000.00 (fourteen trillion seven hundred billion eighty

million rupiah) and annual market share average was 61.24% for the

period of 2001-2006; ---------------------------------------------------------

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COPY5.5.3.5 Market share of Indosat fluctuated market control with tend to decrease

after 2004. The average of Indosat’s annual cellular income is Rp

5,895,610,000,000.00 (five trillion eight hundred ninety five billion six

hundred ten million rupiahs) and annual market share average was

25.15% for the period of 2001-2006; --------------------------------------

5.5.3.6 Market share of XL decreased after 2001 and fluctuated between 9-

11% for the period of 2003-2006, the average market share for the

period of 2001-2006 was 13.61%. The annual average revenue of XL

was Rp 2,720,590,000,000.00 (two trillion seven hundred twenty

billion five hundred ninety million rupiahs); -----------------------------

5.5.3.7 That in their defense, STT, STTC, AMHC, AMH, ICL, ICPL

principally state that Investigation team should include the data of

other operators rather than Telkomsel, Indosat and XL in analyzing

relevant market ; --------------------------------------------------------------

5.5.3.8 Council of Commission understand that based not eh definition of

relevant market mentioned in LHPL, the business actor in the market is

not only Telkomsel, Indosat and XL. Based on the calculation of

consumer shares it is known that Telkomsel, Indosat, and XL 97%

consumer in the relevant market (vide Evidence A174). Based on

revenues (vide Evidence C301,C302), market share of Mobile-8

operator in 2006 was only 1.72% if the relevant market consisted of 4

biggest operators (vide Evidence C166-C171, C236-C243, C289-

C294). The small market share and coverage operation of other

operators rather than Telkomsel, Indosat, and XL will not give

material influence in the analysis of competition condition in relevant

market ;-------------------------------------------------------------------------

5.5.3.9 That in its analysis, NERA Consulting (vide Evidence C312) also uses

the data of Telkomsel, Indosat, and XL;----------------------------------

5.5.3.10 Based on the descriptions, Council of Commission examines that using

the data of 3 biggest operators in analyzing economy and competition

condition in pertinent by Investigation team is sufficient; --------------

5.5.3.11 That based on the data of such market shares, it is seen that Telkomsel

and Indosat jointly control as it is depicted in the table below:: -------

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COPY

Year

Telkomsel Market share and Indosat collectively

Business income

Consolidated (in billion)

XL Business income

(in billion)

XL Market share

2001 76.34% 6,688 2,073.03 23.66% 2002 83.58% 10,845 2,130.41 16.42%

2003 88.09% 16,264 2,198.06 11.91%2004 89.74% 22,107 2,528.48 10.26%2005 90.97% 29,778 2,956.38 9.03%

Periode Cross-

Ownership: 2003-2006 2006 89.64% 38,373 4,437.17 10.36%

Average 2003-2006

89.61%

5.5.3.12 That based on the table it is seen that since the presence of cross

ownership, “the market share of Telkomsel and Indosat jointly

increased significantly by the average of 89.61%. It was always less

than 50%,; --------------------------------------------------------------------

5.5.4 Behavior------------------------------------------------------------------------------------

5.5.4.1 To the Network Procurement of Indosat ----------------------------------

5.5.4.1.1 That in LHPL, the Investigation team found facts that

cannot be argued by the Reported that the Vice Managing

Director of Indosat (Kaizad B. Heerjee) in his capacity as

an important person in a management, did not take

maximal action in deciding a method of network

development that caused nine-month delay of the Indosat

network development in 2006. (vide Evidence B44, B51)

5.5.4.1.2 The Investigation team found facts that cannot be argued

by the Reported that 4 (four) director of Indosat had

reported the delay of network development to STT asking

for action to the Vice Managing Director of Indosat, a

STT’s nomination. Nevertheless, there is no action taken

by STT as a shareholder that nominate Vice Managing

Director of Indosat. (vide Evidence B51)-------------------

5.5.4.1.3 That Investigation team found an important fact that the

development of BTS is very significant in networking

business. The directors of Indosat are aware of the delay,

unfortunately without the any decision taken by STT as a

shareholders that dealing with this matter, the development

of Indosat network has to be delayed; (vide Evidence B44,

B51)

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COPY5.5.4.1.4 The delay of the development can see from the graphic of

BTS market share. The market share of Indosat in this

field tended to decrease otherwise its competitor’s tended

to increase. In the end of 2006 the decrease of BTS

markets share of Indosat caused it reached by XL. As it is

depicted in the table and graphic below; (vide Evidence

C166-C171, C236-C243, C289-C294)----------------------

NUMBER OF BTS PERIOD 2003-2006

Business 2003 2004 2005 2006 Telkomsel 4,820 6,205 9,895 16,507INDOSAT 3,007 4,026 5,702 7,221Excelcomindo 1,491 2,357 4,324 7,260Total 9,318 12,588 19,921 30,988

Source: LHPL

Source: LHPL, proceeded

5.5.4.1.5 Based on the growth of BTS in each operators, it seems that

the aggressiveness of Indosat is lower its two competitors.

Although the growth is positive annually, its growth is

slower than other competitors are. Comparing to the year of

2005, the BTS growth lowering is seen in 2006;

Cellular Operator BTS Segments

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

2003 2004 2005 2006

Telkomsel INDOSAT Excelcomindo

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COPY

Source: LHPL proceeded

5.5.4.1.6 Council of Commission concludes that either STT’s

representative in Indosat or STT do not want to take

strategic action to the development of Indosat although the

steps are needed to compete in cellular market ; ----------

5.5.5 Impact --------------------------------------------------------------------------------------

5.5.5.1 Further, in order to examine whether the control of Temasek Business

Group and policy lowering of Indosat caused negative competition,

Council of Commission observes five matters namely: (i) competition

in cellular industry, (ii) price leadership, (iii) price level, (iv) profit

rate, and (v) consumer loss. -------------------------------------------------

5.5.5.2 Competition in the Cellular Industry in Indonesia -----------------------

5.5.5.2.1 That in LHPL, the Investigation team principally state that

the decelerated growth of BTS Indosat compare to its

competitors give a freedom to dominant player to optimize

its market power because Indosat is the closet competitor

to the dominant player. The decelerating of aggressiveness

of its dominant player in the relevant market in this case

caused market is not competitive depicted by high

concentration, excessive price, price leadership, and

excessive profit; ------------------------------------------------

5.5.5.2.2 That in their opinion and defenses, STT, STTC, AMHC,

AMH, ICL, and ICPL principally state that investment of

BTS is not an indicator of competition level. In their

BTS growth rate

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

2003 2004 2005 2006

Year

Telkomsel

INDOSAT

Excelcomindo

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COPYopinions and defenses, STT, STTC, AMHC and Telkomsel

principally state that cellular market is competitive by

basing on the evidence of a number of big mobile phone

with market shares more than 1%. In their opinion and

defenses, further, AMH, ICL, ICPL, SingTel, and SingTel

Mobile principally state that the evidences of competition

are based on (i) the decrease of Average Revenue Per User

of telephone operator in 2002 – 2006, (ii) The high

monthly churn rate of company of cellular network

provider in Indonesia on the basis of international standard

( it indicates a number of significant changing carrier) ---

5.5.5.2.3 To the opinion above, Council of Commission thinks that

cellular business is a network business in which consumers

concern about the availability of service or coverage and it

is directly proportional with a number of service BTS. As

a network effect industry, cellular industry will compete in

network effect for its consumers. Thereby, a growth of

BTS is an instrument to win competition among cellular

operators in increasing network effect. As one of evidence,

Telkomsel implements a strategy called “Invest Ahead of

Growth” (vide opinion or defense of Telkomsel),

Telkomsel implicitly considers that investment of BTS is

important for the company’s growth. BTS investment is

an important indicator of competition in the relevant

market.----------------------------------------------------------

5.5.5.2.4 That in stating large number of operator, STT, STTC,

AMHC, and Telkomsel includes operators in the outside of

relevant market of this case. Council of Commission

comprehends that quantitatively, business actor in many

markets often used as a low of entry barrier in an industry.

Therefore, a large number of operators in certain condition

cannot be used as an indicator of competitive market

without giving attention to decrease market power or

increase competitive pressure. It is proven by the market

share control of Mobile 8 which only 1.72% in 3 (three)

years

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COPY5.5.5.2.5 Responding to the postulate of Temasek, STT, STTC,

AMHC, AMH, ICL, ICPL concerning ARPU, Council of

Commission has a notion that the more decrease of ARPU

rate does not indicate the higher competition cellular

telephone industry, the decrease of ARPU rate could be

caused by a high number of consumers with small average

consumption due to high cellular phone tariff. ARPU or

Average Revenue Per User shows an income rate of

cellular operators per consumer; ---------------------------

5.5.5.2.6 Responding to the postulate of Temasek, STT, STTC,

AMHC, AMH, ICL, ICPL, Singtel, Singtel Mobile,

Telkomsel concerning ARPU, Council of Commission

thinks churn rate, expired card based on number of

consumer data. Currently, the definition of active and

passive consumer in Indonesia are different form one

operator to another. Besides, a high churn rate caused by

the low price of starter pack that added with high pulse has

make starter pack turned to be a calling card. Another

possibility is consumer may migrate from one number to

another number within the same operator. Considering to

such reasons, using churn rate as an indicator of

competition rate is inconsistent. As it has been reported by

NERA on page 52 paragraph (173) (vide Evidence C312):

“From Economic viewpoint, the correlation between churn

rates and competition is not very clear. For instance, high

average churn rate might be the result of one carrier’s

inferior quality of service and have nothing at all to do

with the level of competition.” -------------------------------

5.5.5.2.7 Council of Commission concludes cellular industry in

Indonesia is not competitive. -------------------------------

5.5.5.3 Price Leadership --------------------------------------------------------------

5.5.5.3.1 That in LHPL, the Investigation team principally state that

there is a movement of cellular service selling price that

indicates the behavior of anti-competition. The indication

is strengthened by the behavior of price fixing with the

minimum fluctuation. LHPL concludes the pattern of

price movement of Telkomsel, Indosat, and XL in

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COPYparagraph (97) to (103) of LHPL and analysis of price

pattern movement between Telkomsel and Indosat in

paragraph (148) to (153) of LHPL. --------------------

5.5.5.3.2 That in its opinion and defense, Temasek states that table 5

in LHPL should be used as an evidence that there is no

price leadership. ------------------------------------------------

5.5.5.3.3 That SingTel and SingTel Mobile principally state that

price parallelism shows there is a competition. ------------

5.5.5.3.4 That STT, STTC, AMHC, AMH, ICL, and ICPL

principally state price parallelism cannot be indicated as

price fixing------------------------------------------------------

5.5.5.3.5 That Telkomsel principally state that the conclusion

depends much on the usage and processing tariff data.

Thereby, Telkomsel does not present different result

analysis with LHPL. -------------------------------------------

5.5.5.3.6 Responding to the postulate of STT, STTC, AMHC,

AMH, ICL and ICPL, Council of Commission agreed that

tariff pattern does not always indicate price-fixing. In

LHPL, the tariff parallelism shown by the result of

measurement is not interpreted as price-fixing but a price-

leadership phenomenon as one indicator of the absence of

competition that shall be conducted by competitor.

Whether or not the presence of anti competition is not

simply shown as tariff parallelism. The conclusion stating

that price leadership is stated from the behavior of anti

competition is considered together with other indicator that

together come to conclusion consistently. ------------------

5.5.5.3.7 Responding to postulate of STT and STTC that price

parallelism indicates a competition, Council of

Commission thinks that by considering the condition of

price movement as it is reported in LHPL and Reported,

can be stated that there are different tariff for cellular

service offered by each operator. The different tariffs is

various and try to gain maximal profit in many market

shares. The movement of minimum selling price of

cellular service, especially price movement of Telkomsel

and Indosat that based on statistic process in LHPL can be

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COPYan initial indication of the presence of competition in

relevant market. By understanding that price can fluctuate

in the same direction of production cost, then in time of

tariff movement is less fluctuated, it can be stated that

there is no significant price fluctuation that should be in

the same direction of the fluctuation of component cost.

The rapid growth of consumer in the network effect

positive industry shall increase economic scale of each

operator and decrease average cost which lead to decrease

of cellular service significantly. If the price fixing is

nothing to do at all with the related cellular service cost

provided by operators, it indicates market power of certain

operator that boost to the absence of competitive price

strategy from its competitors. --------------------------------

5.5.5.3.8 Based on LHPL and the opinion and defenses of the

Reported, it is proven that Telkomsel in 2002 and 2006

had reached significant economic scale growth that should

be -if the owner want to be the best in this industry and to

place in a solid place to expect long term profits- arranging

aggressively competitive price strategy to minimize a

threat from the competitor. Coinciding with the financial

problems of Indosat, Telkomsel shall boost its

aggressiveness in price competition. Yet, it is not done by

Telkomsel. Therefore, it is proven that Telkomsel is only

decrease competitive pressure and does not try to create

competition in the market------------

5.5.5.3.9 That based on the description elucidated previously, it

indicates that Telkomsel does not see Indosat as a

competitor as a way to gain long term profits. -------------

5.5.5.3.10 Responding to the postulates of Temasek, Council of

Commission examines that price leadership is one of price

movement pattern parallel among business actor in the

relevant market. The parallel movement in the form of

price leadership will occurs if the follower responds to the

same direction with the price change done by the leader.

The understanding of table 5 in LHPL cannot be separated

from the graphic of price movement among operator in

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COPYparagraph (78) to (81) of LHPL. Table 5 is a tabulation of

the average of price rate in 2002-2006. Concluding data in

Table 5 alone without considering the graphics in the same

part, will lead to the wrong direction. Council of

Commission thinks that the annual average values does not

describe the whole pattern of price movement in each price

change done by the leader. The calculation showing that

averagely Telkomsel price for certain services increase but

Indosat and XL decrease. It strengthened an allegation

that Telkomsel as a leader has real market power that is

able to have strong price leadership. It is shown by the fact

that the price lowering done by follower is not followed

by Telkomsel. Besides, the absence of Telkomsel in price

lowering as it is done by other operators shows that there

is no price parallelism which come to conclusion that there

is a competition. ------------------------------------------------

The growth of Selling Price of Cellular Service (peak time) 2002-2006

PSTN Intra operator Inter operator

Telkomsel

Indosat XL Telkoms

el Indos

at XL Telkomsel

Indosat XL

Postpaid 5.36% 5.41% 8.38% 0.00% 0.06% -0.25% 3.08% 3.08% 4.47%

Prepaid* 4.40% -11.15% -

21.78% 0.00% 0.07% -22.00% 0.00% -12.43% -

17.81%

Source: LHPL

5.5.5.3.11 It is clearly seen that if Telkomsel increase the price,

operators will react by following the increased pattern. The

price lowering done by Indosat and XL is only conducted

by Telkomsel in the long period or fixing stable price. It is

see in the graphic of Prepaid Intra- operator (LHPL) -----

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COPY

Source: Picture of LHPL

In which Telkomsel as a leader does not follow price

lowering as it is done by XL, but when Telkomsel

increases price (Picture 7, LHPL Page. 80), it is seen that

Indosat and XL then follow the price increase done by

Telkomsel. -----------------------------------------------------

Source: Picture LHPL

Such a phenomenon is seen in picture 5 of LHPL Page 78

on postpaid tariff of PSTN the increase of Telkomsel tariff

is followed then by XL. --------------------------------------

Prepaid intra-operator

1.200

1.300

1.400

1.500

1.600

1.700

01/0

4/20

02

01/1

0/20

02

01/0

4/20

03

01/1

0/20

03

01/0

4/20

04

01/1

0/20

04

01/0

4/20

05

01/1

0/20

05

01/0

4/20

06

01/1

0/20

06

Telkomsel

Indosat

XL

Postpaid inter-operator

890900910920930940950

01/0

1/20

02

01/0

7/20

02

01/0

1/20

03

01/0

7/20

03

01/0

1/20

04

01/0

7/20

04

01/0

1/20

05

01/0

7/20

05

01/0

1/20

06

01/0

7/20

06

TelkomselIndosatXL

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COPY

Source: Picture of LHPL

In the tariff movement pattern of Prepaid of PSTN, it is

seen in the period of 4/1/2004 that the stable of Telkomsel

tariff is used Indosat and to decrease tariff ----------------

Source: Picture of LHPL

However, the price lowering of both operator does not

influence to the lowering price of Telkomsel. In 4/1/2004

when Telkomsel increased price, the conduct was followed

by the increase of Indosat on 4/1/2005 and XL on

10/1/2004.-------------------------------------------------------

5.5.5.3.12 In the movement pattern of tariff in postpaid intra operator,

it is clearly seen that Telkomsel is not influenced to

decrease price. Telkomel price stability is used by Indosat

to increase its price in the same level as Telkomsel. The

price lowering done by XL is not followed by Telkomsel

Postpaid - PSTN

TelkomselIndosat

XL

485

495

505

515

525

535

01/0

1/20

02

01/0

7/20

02

01/0

1/20

03

01/0

7/20

03

01/0

1/20

04

01/0

7/20

04

01/0

1/20

05

01/0

7/20

05

01/0

1/20

06

01/0

7/20

06

TelkomselIndosatXL

Prepaid - PSTN

700

800

900

1000

1100

01/0

4/20

02

01/1

0/20

02

01/0

4/20

03

01/1

0/20

03

01/0

4/20

04

01/1

0/20

04

01/0

4/20

05

01/1

0/20

05

01/0

4/20

06

01/1

0/20

06

TelkomselIndosatXL

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COPYand Indosat. In which it is alsi seen in prepaid inter-

operator above and below. ------------------------------------

Source: Picture of LHPL

5.5.5.3.13 There is a reaction of XL and Indosat to the increase to

price done by Telkomsel, but no reaction of Telkomsel to

the price lowering by XL and Indosat clearly indicates

that there is a price leadership in relevant market, in which

Telkomsel is a leader in price fixing.------------------------

5.5.5.3.14 Thereby, there is price leadership in relevant market

5.5.5.4 Concerning Excessive Price-------------------------------------------------

5.5.5.4.1 Than in LHPL, the Investigation team principally state the

cellular price in Indonesia is excessive based on: ---------

5.5.5.4.1.1. cellular price comparison in other countries.

---------------------------------------------------

5.5.5.4.1.2. interconnection fee comparison-------------

5.5.5.4.1.3. Telkomsel financial simulation. ------------

5.5.5.4.1.4. profitability rate measured by EBITDA in

which operator’s EBITDA are getting

increase but the price does not decrease. --

5.5.5.4.2 That based on the data of Ditjen Postel (vide Evidence

A174), the price cellular in Indonesia is higher than

Singapore, Thailand, Brunei, India, Malaysia, and

Vietnam.---------------------------------------------------------

Postpaid intra-operator

809

810

811

812

813

814

01/0

1/20

0201

/07/

2002

01/0

1/20

0301

/07/

2003

01/0

1/20

0401

/07/

2004

01/0

1/20

0501

/07/

2005

01/0

1/20

0601

/07/

2006

TelkomselIndosatXL

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COPYThe Comparison of prepaid cellular– inter operator

(Rp/minute)

Country Operator Peak Off Peak Indonesia Telkomsel 1600 1300 Indonesia Indosat 1500 1500 Indonesia XL 1537 1537 Malaysia Celcom 1493 978 Brunei B-Mobile 577 Thailand DTAC 524 India BSN 518 Singapore Singtel 924 462 Vietnam Mobifone 819

Source: Ditjen Postel.

5.5.5.4.3 That in peak-time, the Indonesian cellular price,

Telkomsel, Indosat, and XL are Rp 1,600, Rp 1,500, and

Rp 1,537 respectively. Differ from Indonesia, cellular

price of Celcom (Malaysia) only Rp 1493/minute,

cellular price of B-Mobile (Brunei) only Rp 577/minute,

cellular price of DTAC (Thailand) only Rp 524/minute,

cellular price of BSN (India) only Rp 518/minute,

cellular price of SingTel (Singapura) only Rp 924/minute,

and cellular price of Mobifone (Vietnam) only Rp

819/minute. -----------------------------------------------------

5.5.5.4.4 That Investigation team in LHPL indicates the high

cellular price and interconnection recommendation of

OVUM, that can be observed in the table below.(vide

Evidence C303 and in the tariff lit in LHPL paragraph 56-

59). --------------------------------------------------------------

The Comparison of Tariff and Tariff

Interconnection Recommendation

PSTN Other Cellular Operator

Price % to recommendation Price recommendation

Telkomsel 950 151.03% 1600 178.17%Indosat 900 143.08% 1500 167.04%XL 837 133.07% 1537 171.16%OVUM 629 898

Source: OVUM, data proceeded

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COPYDetails: The value of OVUM recommendation is an addition of origination and termination cost. In other words, the value of recommendation has covered whole cost.

5.5.5.4.5 That the value of OVUM recommendation is total of

origination and termination cost and interconnection cost,

then the value of recommendation has covered a whole

prediction of cellular cost per minute. ----------------------

5.5.5.4.6 That based on the table above, the cellular price is above

the cost.----------------------------------------------------------

5.5.5.4.7 That based on LHPL, the lowering price potency of

Telkomsel cellular service is as follow:---------------------

Telkomsel Financial Simulations with ROE 20%, 25%, 30%, and 35%

Potency Detail Actual

ROE=20%

ROE=25%

ROE=30%

ROE=35%

equity 23073 23073 23073 23073 23073ROE 55% 20% 25% 30% 35%Net Income 11182 4614.6 5768.25 6921.9 8075.55Tax 0.31436

60.3143663 0.3143663 0.3143663 0.314366

EBIT 16309 6730.416 8413.02 10095.624 11778.228Operating cost 12836 12836 12836 12837 12838Gross revenue 29145 19566.416 21249.02 22932.624 24616.228Lowering Price 32.87% 27.09% 21.32% 15.54%

Details: The Actual data was in 2006 The italic variable is assumed fixedly

5.5.5.4.8 As it can be observed in the table, with the assumption that

total equity is fixed, if ROE of Telkomsel is only 20%, the

net income will decrease from Rp 11,182,000,000,000.00

(eleven trillion one hundred eighty two billion rupiahs) to

Rp 4,614,600,000,000.00 (fourteen trillion six hundred

fourteen billion and six million rupiahs). Then, with the

assumption tax percentage to EBIT is fixed, the value of

EBIT will decrease from Rp 16,309,000,000,000.00

(sixteen trillion three hundred and nine billion rupiahs) to

Rp 6,730,416,000,000.00 (six trillion seven hundred and

thirty billion four hundred and sixteen million rupiahs).

Consistently, with the assumption of operating cost value

Page 652: DECISION The Case Number: 07/KPPU-L/2007 › docs › Putusan › putusan_temasek_eng.pdfSingapore Technologies Telemedia Pte. Ltd. Alamat: 51 Cuppage Road #10-11/17, StarHub Centre,

COPYis fixed, then the gross revenue will decrease from Rp

29,145,000,000,000.00 (twenty nine trillion one hundred

and forty five billion rupiahs) to Rp

19,566,420,000,000.00 (nineteen trillion and five hundred

sixty six billion four hundred and twenty million rupiahs).

With the assumption that cellular structure usage is fixed,

the value of gross revenue is 67.13% of actual gross

revenue, so that the potential tariff value is calculated for

amount of 67.13% of actual price, then the lowering price

rate potency is 32.87%. ---------------------------------------

5.5.5.4.9 With the same methodology above, if the minimum of

Telkomsel ROE rate that satisfied shareholders is 25%,

30%, and 35%, the lowering price will be 27.09%,

21.32%, and 15.54% respectively from the actual price.

5.5.5.4.10 That LHPL indicates excessive price based on the high

profit rate of cellular operators. The high profit rates is

shown by the value of huge Ebitda Margin and remain to

be in the long time. The value of Ebitda is shown in the

following table: (vide Evidence C166-C171, C236-C243,

C289-C294)-----------------------------------------------------

Ebitda Margin TELKOMSEL INDOSAT XL Value Value Value

2001 71.14% 55.32% 67.40% 2002 67.48% 54.11% 67.44% 2003 72.01% 53.29% 65.34% 2004 72.28% 57.69% 62.71% 2005 72.91% 58.09% 56.67% 2006 71.15% 57.62% 54.17%

The Period of

Cross-Ownership

The Average in the period of Cross-

Ownership

72.09% 56.67% 59.72%

5.5.5.4.11 The high Ebitda indicates that cellular operators still have

space to decrease price rate -----------------------------------

5.5.5.4.12 Responding to the finding of Investigation Team, Temasek

principally disagree with Investigation team and state that

Investigation team shall consider inflation factor.---------

5.5.5.4.13 That in their responses and defenses Temasek, STT,

STTC, AMHC, AMH, ICL, and ICPL principally stte that

Page 653: DECISION The Case Number: 07/KPPU-L/2007 › docs › Putusan › putusan_temasek_eng.pdfSingapore Technologies Telemedia Pte. Ltd. Alamat: 51 Cuppage Road #10-11/17, StarHub Centre,

COPYcellular service price in Indonesia is not higher than other

countries---------------------------------------------------------

5.5.5.4.14 That in their response and defenses, Telkomsel principally

state that the cellular price in Indonesia is still below

ceiling price as it is fixed in the Ministerial Decree, so that

it cannot be considered to be excessive. --------------------

5.5.5.4.15 Council of Commission has a notion that the excessive

price is a price higher than its predicted competitive price,

or higher significantly than its cost. Based on such

principles, Council of Commission examines that cellular

service price in the relevant market is excessive.----------

5.5.5.4.16 That the research of OVUM has indicated a lowering price

of interconnection fee nominally, therefore although the

cellular price decrease because of inflation, the price that

does not decrease nominally shows that the price is more

excessive than its interconnection cost. The elucidation is

a response of Council of Commission to the postulates

stated by Temasek concerning the importance of including

inflation value in the calculation. ----------------------------

5.5.5.4.17 That huge EBITDA is a logical consequence of higher

price than its cost, with a result then excessive margin. --

5.5.5.4.18 Responding to the postulate presented by Telkomel that

the price fixed by operator is within the ceiling price fixed

by the government on the basis of Ministerial Decree of

Tourism, Posts and Telecommunication No.

27/PR.301/MPPT-98 (KM 27/1998) and Ministerial

Decree of Transportation No.79/1998 (KM 79/1998),

Council of Commission examines that ceiling price fixed

by the government is maximum price. Such a price

limitation just restrain the increase of price over the ceiling

price but not to prevent lowering price through market

mechanism. Council of Commission has a notion that it is

an authority of Commission to examines whether the price

and the conduct in the market is in line with of opposes to

the Law No. 5 /1999. It is affirmed by the Law

No.36/1999 on Telecommunication that has determined

tariff through competition mechanism and let the

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COPYmechanism of monitoring of competition to the rule of the

Law No. 5 /1999.-----------------------------------------------

5.5.5.4.19 Although it is not over ceiling price fixed by KM 27/1998

and KM 79/1998, the price above competitive predicted

price remain to be categorized as excessive price ---------

5.5.5.4.20 Responding to the response on Temasek, STT, STTC,

AMHC, AMH, ICL, and ICPL stating that the tariff in

Indonesia is relatively lower than other countries, which

make the different conclusion with Investigation team in

LHPL, Council of Commission examines that cellular

price comparison with other countries is influenced by the

choice of the comparative countries and cellular price

evaluation technique resulted on different conclusion.

Therefore, Council of Commission examines the price is

not based on other countries. ---------------------------------

5.5.5.4.21 Council of Commission concludes that cellular service

price in Indonesia is excessive------------------------------

5.5.5.5 Concerning Excessive Profit ------------------------------------------------

5.5.5.5.1 That in LHPL, Investigation team state that “the high

market power alleged to be caused by concentrated

structure due to the presence of cross ownership can be

shown by some indicators. Among others are high margin

profit measured by EBITDA, high selling price compare to

other countries, and the different of between selling price

and cost spent. --------------------------------------------------

5.5.5.5.2 That in its opinion and defense, Telkomsel principally

states that market power is not calculated from EBITDA

margin but a function of P-MC/P, a formula of Lerner

Index, in which P is price rate and MC is marginal costs

marginal----------------------------------------------------------

5.5.5.5.3 Council of Commission thinks that it is true for market

power to be calculated based on (P-MC)/P of known as

Lerner Index formula, in which it philosophically

describes the ability of business actor to fix price far from

cost. Nevertheless, telecommunication industry with

network based will cause fixed cost value total cost value

which make Lerner index is hard to be used as an indicator

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COPYof competition in telecommunication sector. It is admitted

by Nera on page 23 paragraph (74) (vide Evidence

C312):.

”thus, we would not expect the Lerner to be a good

predictor of competitive conditions in

telecommunications”. -----------------------------------------

5.5.5.5.4 Council of Commission concludes that calculating by

using Lerner index cannot be implemented accurately to

measure market power in telecommunication industry, so

that other method shall be used as a reference to measure

market power, that is to use a method of profit rate value

that basically an ability of company to keep the price away

from its costs.. --------------------------------------------------

5.5.5.5.5 That it their opinions and defenses, STT, STTC, AMHC,

AMH, ICL, ICPL principally state that EBITDA is not a

good measuring instrument to measure profit rate value.

EBITDA is Earning Before Interest, Tax, Depreciation,

and Amortization. Profits represent what a company has

gained after all costs are calculated while EBITDA does

not calculate costs at all. -------------------------------------

5.5.5.5.6 That in their opinions of defenses, Temasek, Singtel,

Singtel Mobile, and Telkomsel principally state that high

EBITDA and ROE do not indicate market power or

excessive tariff.-------------------------------------------------

5.5.5.5.7 Council of Commission has a notion that the profit fates is

usually measured by EBITDA and Return on Capital

Employed (ROCE) that remains high and tends to grow for

mid and long term. Regulator and the monitoring

competition agency see the difference company profit rate

when conduct investment anti-competitive behavior or see

the level of competition as it is elucidated in the report of

NERA page 44 (vide Evidence 312).------------------------

5.5.5.5.8 Council of Commission found that LHPL has shomn

comparison of EBITDA margin of Indonesian cellular

operator compare to other countries that cite the report of

Morgan Stanley (vide Evidence C305) on EBITDA Margin

in 2005 in which Telkomsel has the highest EBITDA

Page 656: DECISION The Case Number: 07/KPPU-L/2007 › docs › Putusan › putusan_temasek_eng.pdfSingapore Technologies Telemedia Pte. Ltd. Alamat: 51 Cuppage Road #10-11/17, StarHub Centre,

COPYMargin compares to other operators in other Asian

countries and Indosat is the cellular operator with more

than 505 EBITDA Margin. -----------------------------------

Source: LHPL, Paragraph 132

5.5.5.5.9 That in describing the picture above, Morgan Stanley

states that EBITDA margin is 55% - 60% categorized as

the highest value. “Partly due to high prices and also due

to limited competitive intensity, Indonesian mobile

operators have enjoyed high EBITDA margin industry of

55% - 60%”. (vide Evidence C305). -----------------------

The high of EBITDA margin along with the high cellular

price compare to emerging market in other Asian countries

gives a space for business actors in Indonesia to lower

price. The space for decreasing such price describes that

profit margin of cellular industry remain high so that it

needs to be decreased;-----------------------------------------

5.5.5.5.10 Council of Commission also finds that NERA (vide

Evidence C312) compares EBITDA margin by using the

same measurement used by companies abroad. Nera gives

a picture that EBITDA margin of Indonesian cellular

industry is the highest in the world compare to other 52

countries in the world and the second after Philippines, as

is it shown by the following pictures. -----------------------

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COPY

Source: Report Nera for Singtel Page 48, 2007 (vide Evidence C312)

5.5.5.5.11 Council of Commission agrees with Nera stating that the

high profit also shown in the value of ROCE. ------------

The value of ROCE Cellular Industry Indonesia Year 2002 - 2006

2002 2003 2004 2005 2006 Average

Telkomsel 45 % 59 % 56 % 70 % 71 % 60 %

Indosat 6 % 13 % 14 % 13 % 10 % 11 %

Exelcomindo 22 % 14 % 13 % 9 % 12 % 14 %

Industri 23 % 29 % 30 % 35 % 36 % 30 %

Source: Report of Nera Page 45

Graphic of ROCE Cellular Industry Year 2002-2006

Source: Nera Data, proceeded

Return On Capital Employed in Relevant market

0%

5%

10%

15%

20%

25%

30%

35%

40%

2002 2003 2004 2005 2006

Year

IIndustry

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COPYBased on the value of ROCE cellular industry in the report

of Nera (vide Evidence 312) on page 45, it found that from

year by year ROCE industry shows the consistency of

value to grow from 23% in 2002 to 36% in 2006. It

indicates that the investment in cellular industry, year by

year, give bigger profits. The growth consistency of ROC

shows an increase of profit. ---------------------------------

5.5.5.5.12 Council of Commission concludes that from the rate of

profitability, shown by the value of high margin EBITDA

and the year-by-year growing consistency of ROCE,

proves that there is an excessive profit in the relevant

market.

5.5.5.6 Consumer Loss----------------------------------------------------------------

5.5.5.6.1 That in LHPL, the Investigation team principally states

that there is a consumer loss based on the analysis of price

comparison with other countries for amount of Rp

79,900,000,000,000.00 (seventy nine trillion and nine

hundred billion rupiahs) to Rp 195,800,000,000,000 (one

hundred and ninety five trillions eight hundred billion

rupiahs) per year. Based on the analysis of comparison

with the interconnection cost for amount of Rp

79,900,000,000,000 (seventy nine trillion and nine

hundred billion rupiahs) to Rp 195,800,000,000,000 (one

hundred and ninety five trillions eight hundred billion

rupiahs) per year. Based on the calculation conducted by

LPEM UI, Rp 504,000,000,000.00 (five hundred and four

billion rupiahs) to Rp 1,200,000,000,000.00 (one trillion

and two hundred billion rupiahs) in 2005 Mastel (vide

Evidence C13). And based on the financial analysis, the

consumer loss caused by Telkomsel is Rp

9,800,000,000,000.00 (nine trillions and eight hundred

fifty-nine billion rupiahs) to Rp 24,000,000,000,000.00

(twenty-four trillions and seventy-eight billion rupiahs) in

2003-2006. ------------------------------------------------------

5.5.5.6.2 That to such calculation, in its opinion and defense the

Reported do not agree and state that principally the

calculation of consumer loss mentioned in LHPL and

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COPYReport LPEM UI are in accurate. Therefore the Reported

do not give the result of calculation by using alternative

method in calculating consumer loss ----------------------

5.5.5.6.3 According to Council of Commission the calculation of

consumer loss determined by the difference between the

price paid by consumer and producer’s evaluation (cost

plus profit) received by consumer that is reflected in

competitive market of business actor to achieve fair ROE.

--------------------------------------------------------------------

5.5.5.6.4 That based on the approach above, Council of Commission

has a notion that the value of consumer loss is Rp

14,760,000,000,000 (fourteen trillion and seven hundred

sixty four billion nine hundred eighty billion rupiahs) to

Rp 30,800,000,000,000 (thirty trillion and eight hundred

eight billion seven hundred twenty million rupiahs) within

the four years (2003 to 2006). The calculation has

considered the balance interest of business actor and

consumer. -------------------------------------------------------

5.5.5.6.5 Further, Council of Commission describes the calculation

of such consumer loss as follows:---------------------------

5.5.5.6.5.1. That the consumer loss calculated based on

the financial analysis in LHPL is based on

the assumption of profit achievement rate to

the satisfied value of owners’ capital (ROE).

Consumer loss is calculated by the

difference of existing ROE with the

assumption of ROE minimum satisfaction

rate of shareholders. The existing Telkomsel

ROE from 2003 to 2006 is (vide Evidence

C166-C171):-----------------------------------

Year ROE

2003 48%

2004 45%

2005 55%

2006 55%

The assumption of rate of minimum

satisfactory ROE is 20%, 25%, 30%, and

35%. In line with the calculation of

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COPYInvestigation Team, the consumer loss of

Telkomsel customers from 2003 to 2006

was around Rp

9,859,000,000,000 (nine trillions and eight

hundred fifty-nine billion rupiahs) to Rp

24,078,000,000,000 (twenty-four trillions

and seventy- eight billion rupiahs); --------

---------------------------------------------------

---------------------------------------------------

5.5.5.6.5.2. That the calculation of consumer loss using

ROE above does not consider price decrease

potency of Telkomsel to the price decrease

of Indosat and XL. The consumer loss is a

price correction potency multiplied by the

revenue of PT Indosat. The consumer loss is

a price correction potency multiplied by the

revenue of XL. According to the assumption

calculation conducted by the Investigation

team, then the ROE 20%, ROE 25%, ROE

30%, and ROE 35% show that price

decrease potency is 15.54% (for ROE 35%),

21.32% (for ROE 30%), 27.09% (for ROE

25%), and 32.87% (for ROE 20%). ------- 5.5.5.6.5.3. If the price decrease for Indosat consumer is

valid with the decrease of 15.54% and

21.32% then the consumer loss yang for

Indosat customer in 2005 and in 2006 is: -

Year Revenue (billion

Rp)

Price down (ROE 30%)

Consumer loss

(billion Rp)

2005 11,589.80 21.32% 2,470.94

2006 12,239.40 21.32% 2,609.44

total 5,080.38

Year Revenue (billion

Rp)

Price down (ROE 35%)

Consumer loss

(billion Rp)

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COPY2005 11,589.80 15.54% 1,801.06

2006 12,239.40 15.54% 1,902.00

total 3,703.06

5.5.5.6.5.4. Based on similar calculation, consumer loss

of XL, on the basis of price decrease

potency, is 15.54% and 21.32% and it can

be calculated as follows: ---------------------

Year Revenue (billion

Rp)

Price down (ROE 30%)

Consumer loss

(billion Rp)

2005 3,059.13 21.32% 652.21

2006 4,681.67 21.32% 998.13

total 1,650.34

Year Revenue (billion

Rp)

Price down (ROE 35%)

Consumer loss

(billion Rp)

2005 3,059.13 15.54% 475.39

2006 4,681.67 15.54% 727.53

Total 1,202.92

5.5.5.6.5.5. Based on finance statement of Telkomsel,

Indosat and Excelcomindo, Council of

Commission found consumer loss for at

least Rp 14,764,980,000,000.00 (fourteen

trillion and seven hundred sixty four billion

nine hundred eighty billion rupiahs) to Rp

30,808,720,000,000.00 (thirty trillion and

eight hundred eight billion seven hundred

twenty million rupiahs) with the following

description: ------------------------------------

Loss (billion Rp)

Company

minimum maximum Telkomsel 9.859,00 24.078,00

Indosat 3.703,06 5.080,38

XL 1.202,92 1.650,34

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COPYTotal 14.764,98 30.808,72

5.5.5.6.6 That Council of Commission has a notion that the

Investigation team has pointed causality of between the

cross ownership of Temasek with the consumer loss as it I

elucidated in the Schema of Cross-Ownership in LHPL.

Temasek Business Group has restrained Indosat to

compete with Telkomsel, so it causes Telkomsel’s market

shares increase and the market share of Indosat decrease

in 2002-2006. Being more concentrated of the market the

market power of Telkomsel increase so that Telkomsel has

power to become a price determiner to keep the price high

and causes consumer loss. ------------------------------------

5.5.5.6.7 Council of Commission has a notion that cross ownership

Temasek Business Group has caused high consumer

loss in cellular industry in Indonesia from 14.7 trillion

to 30.8 trillion rupiah .---------------------------------------

5.6 Infringement to Article 17 paragraph (1) of the Law No. 5/1999 ---------------------------

5.6.1 The Follow-up Investigation team in its conclusion states that the usage of

market power Telkomsel decrease competition level and excessive pricing to the

cellular telecommunication service so it infringe Article 17 paragraph (1) of the

Law No. 5/1999. --------------------------------------------------------------------------

5.6.2 Article 17 of the Law No. 5/1999 is said completely as follows:------------------

(1) “Business actor is prohibited to have control to the production and /or goods and

/or services marketing that is able to cause monopoly practice and/or unfair

competition.”--------------------------------------------------------------------------------------

(2) “Business actor is deserving of alleged of considered to have control to the

production and /or goods and /or service marketing as it is intended by paragraph (1)

if: ---------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------

(a) there is no substitution for the related goods and/services; or ------------------------

(b) causes other business actor barrier cannot enter to the competition of common

related goods and/services; or------------------------------------------------------------------

(c) a business actor and/or a group of business actor control more than 50% market

share of certain goods or services.-------------------------------------------------------------

5.6.3 Council of Commission has a notion that to be said infringing Article 17, there

must be fulfilled the standards of some important elements namely, first, business

actor; second, controlling market; third the business actor implementing a

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COPYbusiness policy (practice and conduct) that causes negative impact to

competition.--------------------------------------------------------------------------------

5.6.4 Further Council of Commission examines whether the elements of Article 17

paragraph (1) of the Law No. 5/1999 has been completed by the following

analysis; ------------------------------------------------------------------------------------

5.6.5 Business Player----------------------------------------------------------------------------

5.6.5.1 That Telkomsel is a corporate body founded and domiciled in

Indonesia and perform business in economic field as it is eludicated in

the part of Reported Identity.; (vide Evidence C165) --------------------

5.6.6 Market Share-------------------------------------------------------------------------------

5.6.6.1 That in LHPL, the Investigation team has elucidated cellular market

share from 2001 to 2006. ----------------------------------------------------

5.6.6.2 Based on the data, Council of Commission examines that Telkomsel

has more than 50 % of market shares with the average of 61.24%;

(vide Evidence C166-C171, C236-C243, C289-C294) ------------------

5.6.7 Behavior------------------------------------------------------------------------------------

5.6.7.1 That Investigation team of LHPL principally states that there is

interconnection restraint conducted by Telkomsel in line with the

testimony of Mastel (vide Evidence B52), Hutchinson (vide Evidence

B14), and document cooperation document of Telkomsel and one of

operators -----------------------------------------------------------------------

5.6.7.2 That in the opinion of defense related to the verification of

infringement of Article 17 paragraph (1) and Article 25 paragraph

(1).b of the Law No. 5/1999, principally states: --------------------------

5.6.7.2.1 That the testimony of Hutchinson does not have strength

as written proof because Hutchinson is not a business

player in the telecommunication industry in Indonesia in

the period of 2002-2006. --------------------------------------

--------------------------------------------------------------------

5.6.7.2.2 That the testimony of is invaluable testimony -------------

5.6.7.2.3 That the Investigation team does not complete 2 (two)

principles written proof ---------------------------------------

5.6.7.2.4 That the Investigation team has engineered IOR ----------

5.6.7.3 Considering to the opinion and defense of Telkomse, Council of

Commission gives the following consideration:--------------------------

5.6.7.3.1 Concerning the Testimony of Hutchinson------------------

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COPY5.6.7.3.1.1. That in the period 2002-2006 in LHPL is a

period of analyzing economy conducted by

Investigation team and not a period of the

infringement happened in this case.

Therefore, the testimony of Hutchinson

include in LHPL is a relevant testimony that

has a strength as a valid written proof

although Hutchinson entered

telecommunication industry in Indonesia

only 2007. The testimony of Hutchinson is

valuable clue to the behavior in the period of

2002-2006.-------------------------------------

---------------------------------------------------

5.6.7.3.2 Concerning the Testimony of Mastel------------------------

5.6.7.3.2.1. That the testimony of Mastel is used by

Investigation team in LHPL as a party that

understand an occurrence. It is in line with

the criteria of witness as it is regulated in

Article 1 (22) of the Commission

Regulation No. 1/2006 on the Case

Handling Procedure in KPPU that states: -

”Witness is anyone of any party that that

sees infringement and gives information for

the interest of investigation” ----------------

5.6.7.3.3 Concerning Minimum 2 (two) Written Proof --------------

5.6.7.3.3.1. Council of Commission found that in the

verification of Telkomsel behavior in LHPL,

it bases on more than two valid and

supportive written proofs between one

written proof to another, namely the

testimony of Mastel (vide Evidence B52),

the testimony of Hutchinson (vide Evidence

B14), economic analysis as a clue, and

Cooperation Agreement between Telkomsel

with Hutchinson (vide Evidence C207).

Thereby, the verification conducted by

Investigation team has been based on

sufficient written proof. ----------------------

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COPY5.6.7.3.4 Concerning the engineering of IOR -------------------------

5.6.7.3.4.1. Concerning the postulate of engineering of

IOR, Council of Commission found as

follows: paragraph (126) of LHPL states:

“That the rate of cellular tariff in Indonesia

is considered higher related to the

Indonesian public purchasing power with

the income per capita is USD 700, in which

the expenditure for cellular service is 10-

20% of the income,” is a conclusion of

Investigation team to the investigation of

Mastel on 21 June 2007. IOR (vide Evidence

B52) as it is intended by point 4 states: --

“It is considered high compared by average

public purchasing power. I have ever seen a

research from Harvard on cellular tariff in

Bangladesh, the understanding of low and

high price are based on her average of

public majority in Indonesia. In Indonesia

the income per capita is USD”--------------

In addition, in point 7 states: ----------------

“There are groups of low class economic

income such as costermonger, pedicap

driver that has taken home pay a day is Rp

20,000.00 – Rp 30,000.00 After using

cellular phone, their income decrease in

average for Rp 5,000.00 around 10%-15%

of disposable income, but it spent

improperly.” -----------------------------------

5.6.7.3.4.2. Council of Commission examines that there

is a mistake in citing IOR on the portion of

usage that must 10%-15% but it is included

in LHPL 10%-20%. Yet, Council of

Commission examines that the mistake does

not eliminate the material validity of the

whole written proof. --------------------------

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COPY5.6.7.4 That based on the description above, Council of Commission examines

that the verification conducted by Investigation team has completed

two principles of written proof. ---------------------------------------------

5.6.7.5 That it is proved Telkomsel has conducted interconnection restraint,-

5.6.7.6 Price Leadership--------------------------------------------------------------

5.6.7.6.1 Based on the description as it is elucidated in 5.5.5.3 a

mutatis mutandis is valid in this part, then Council of

Commission concludes that price leadership has existed

and conducted by Telkomsel. ------------------------------

5.6.7.7 Concerning Excessive Price-------------------------------------------------

5.6.7.7.1 5.6.8.1.1 Based on the description as it is elucidated in

5.5.5.4 a mutatis mutandis is valid in this part, then

Council of Commission concludes that the price of

Telkomsel cellular service is excessive.-------------------

5.6.8 Impacts ----------------------------------------------------------------------------------

5.6.8.1 Competition in Indonesian Cellular Industry -----------------------------

5.6.8.1.1 Based on the description as it is elucidated in 5.5.5.2 that

mutatis mutandis is valid in this part, then Council of

Commission concludes that cellular industry in

Indonesia is not competitive. -------------------------------

5.6.8.2 Concerning Excessive--------------------------------------------------------

5.6.8.2.1 The consideration and explanation as it has elucidated in

5.5.5.5 mutatis mutandis valid to this part with the growth

as follows:-------------------------------------------------------

5.6.8.2.1.1. EBITDA margin of Telkomsel is always

around average rate of 72.09% in the period

of 2003 to 2006. (vide Evidence C166-

C171) -------------------------------------------

5.6.8.2.1.2. EBITDA margin of Telkomsel is the highest

compare to other cellular operator in Asian

countries, as it is elucidated in Report

Morgan Stanley dated 21 February 2006.

(vide Evidence C305) ------------------------

---------------------------------------------------

5.6.8.2.1.3. The value of ROCE increased from 45% in

2001 to 71% in 2006 as it is shown by the

graphic: (vide Evidence C312) --------------

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COPYNilai ROCE Telkomsel

40%

45%

50%

55%

60%

65%

70%

75%

2002 2003 2004 2005 2006

Source: Nera, proceeded

5.6.8.2.1.4. The growth of operational income per year

in the period of time 2001 to 2006 growth

follow multiple the pattern of quadratic and

exponential as it is shown by the following

graphic : ----------------------------------------

---------------------------------------------------

Source: LHPL

5.6.8.2.1.5. The diagram above shows the relationship

between revenue achievement and the

Sequence

76543210

40000

30000

20000

10000

0

Observed

Quadratic

Exponential

OPREV

Telkomsel ROCE Value

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COPYdouble growth, following the pattern of

quadratic and exponential. Telkomsel

Operating revenue in 2001 was Rp

4,918,000,000,000 (four trillion and nine

hundred and eighteen billion rupiahs), in

2002 was Rp 7,573,000,000,000 (seven

trillion and five hundred seventy three

billion rupiahs), in 2003 was Rp

11,146,000,000,000 (Eleven trillion and one

hundred forty six billion rupiahs), in 2004

was Rp 14,765,000,000,000 (fourteen

trillion and seven hundred sixty five billion

rupiahs), in 2005 was Rp

21,133,000,000,000,00 (twenty one trillion

and one hundred thirty three billion

rupiahs), and year 2006 amount to Rp

29,145,000,000,000,00 (twenty nine trillion

and one hundred forty five billion rupiahs),

the growth of operating revenue is following

the pattern of quadratic with is equation

Y=a+bX+cX2, when Y is operating revenue,

X is year, and the value of a=4564.10, b=-

18.939, and c=677.946. The growth of

operating revenue is following the pattern of

exponential when with the equation Y=aebx,

when Y is operating revenue, X is year, and

the value of a=3663.10, b=0.3502. --------

5.6.8.2.1.6. The growth of EBIT, EBITDA, and Net

Income of Telkomsel in the period of 2001

to 2006, if it is translated in a graphic, will

say that the growth following expontial or

quadratic is no simply a linier growth.-----

5.6.8.2.2 Based on the description above, Council of Commission

concludes that Telkomsel obviously gains excessive

profit in the relevant market. ------------------------------

5.6.8.3 Consumer Loss

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COPY5.6.8.3.1 According to Council of Commission the calculation of

consumer loss determined by the difference between the

price paid by consumer and producer’s evaluation (cost

plus profit) received by consumer that is reflected in

competitive market of business actor to achieve fair ROE.

--------------------------------------------------------------------

5.6.8.3.2 That based on the approach above, Council of Commission

predicts that Telkomsel’s consumer loss is Rp

9,859,000,000,000 (nine trillions and eight hundred fifty-

nine billion rupiahs) to Rp 24,078,000,000,000 (twenty-

four trillions and seventy- eight billion rupiahs) for the

period of four years (2003 to 2006). must prioritize the

interests effort perpetrator and consumer importance----

5.6.8.3.3 Further, Council of Commission describes consumer loss

rate as follows:---- ---------------------------------------------

5.6.8.3.3.1. That consumer loss measured by financial

analysis in LHPL is assumed profit

achievement rate to satisfied ROE

Consumer loss is measured from the

different of existing ROE with the

assumption of rate of ROE that at less

satisfy shareholders. The Telkomsel ROE

from 2003 to 2006 is: (vide Evidence C166-

C171 --------------------------------------------

Year ROE

2003 48%

2004 45%

2005 55%

2006 55%

5.6.8.3.4 The assumption of minimal ROE is 20%, 25%, 30%, and

35%. In line with a calculation LHPL, consumer loss of

Telkomsel from 2003 to 2006 was Rp 9,859,000,000,000

(nine trillions and eight hundred fifty-nine billion rupiahs)

to Rp 24,078,000,000,0000 (twenty-four trillions and

seventy- eight billion rupiahs);

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COPY5.6.8.3.5 That the high price of Telkomsel cellular service has

caused consumer loss from Rp 9,859,000,000,000 (nine

trillions and eight hundred fifty-nine billion rupiahs) to

Rp 24,078,000,000,000 (twenty-four trillions and

seventy- eight billion rupiahs). -----------------------------

5.7 The infringement of Article 25 paragraph (1) of the Law No. 5/1999 ----------------------

5.7.1 In its conclusion, Investigation team states that the usages of market power by

Telkomsel causes lack of competition level and excessive pricing in service

telecommunication so it infringes Article 25 paragraph (1). ------------------------

5.7.2 Article 25 paragraph (1).b is said as follows: ----------------------------------------

“business actor is prohibited directly or indirectly abuses dominant position --

b. limit market and technology development; ---------------------------------------

5.7.3 Prior to the completeness analysis of element of Article 25 paragraph (1).b,

Council of Commission has to describe previously an analysis approach to

Article 25 namely, according to Council of Commission, an analysis of Article

25 can be conducted by per se rule or rule of reason. The implementation of per

se rule approach is a minimalist approach because the formulation of Article 25

excludes one out of two sentences, “can cause monopoly practice” and/or “unfair

competition”. The implementation of rule of reason approach is maximalist. This

perspective bases its assumption on the policy of business actor as it is in

paragraph (1) letter a, b, or c that the policy is not surely caused negative impact

to competition, it could be potential only to cause, therefore, a test is needed. In

this case, Council of Commission implements maximalist perspektif, rule of

reason. --------------------------------------------------------------------------------------

5.7.4 Council of Commission has a notion that the important elements of Article 25

paragraph (1) letter b are (1), Business actor; (2), market ownership; (3), market

barrier and technology development restraint; and (4), negative impact to

competition. -------------------------------------------------------------------------------

5.7.5 Further, Council of Commission examine whether the element in Article 25

paragraph (1) letter b are completed by the following analysis;--------------------

5.7.6 Business Actor ----------------------------------------------------------------------------

5.7.6.1 That Telkomsel is a corporate body incorporated and domiciled in

Indonesia, performed business in an economic field as it is elucidated

in Identity of Reported; (vide Evidence C65) -----------------------------

5.7.7 Market Share-------------------------------------------------------------------------------

5.7.7.1 That in LHPL, the Investigation team has elucidated cellular market

share from 2001 to 2006. ----------------------------------------------------

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COPY5.7.7.2 Based on the data, Council of Commission examines that market share

of Reported X has been more than 50%, with the market share average

for 61,24% (vide Evidence C166-C171, C236-C243, C289-C294)----

5.7.8 Market Barrier and Development of Technology Restraint ------------------------

5.7.8.1 The Investigation team of LHPL states that there is an interconnection

restraint conducted by Telkomsel as an answer to the testimony of

Mastel (vide Evidence B52), Hutchinson (vide Evidence B14), and an

agreement document between Telkomsel and one of operator. --------

5.7.8.2 That in the opinion and defense, Telkomsel principally states not to

have restricted the development of technology, Telkomsel is a first

cellular telecommunication operator that introduce:---------------------

5.7.8.2.1 Pre-paid business in Indonesia using IN technology; -----

5.7.8.2.2 Service on the basis of GPRS and EDGE technology;---

5.7.8.2.3 Certain value added services such as ring back tone; -----

5.7.8.2.4 Electronic voucher; --------------------------------------------

5.7.8.2.5 3G service that provides video call, video streaming;-----

to which they are technological development implemented by

Telkomsel and applied further by Telkomsel’s competitors to

contribute positively market development of cellular

telecommunication.-----------------------------------------------------------

5.7.8.3 Council of Commission examines the insufficient evidence to state

that Telkomsel restricts technological development. The facts show

that Telkomsel develops new technology and followed further by other

cellular operators.-------------------------------------------------------------

5.7.8.4 Council of Commission examines that there is market barrier through

the restraint of interconnection but there is no restraint to the

development of technology. -------------------------------------------------

5.7.8.5 Due to the incompleteness of the elements above, Council of

Commission needs not to examine the impact causes by market barrier

and by development of technology restraint. -----------------------------

6. Conclusion--------------------------------------------------------------------------------------------------

6.1 Considering that based on the consideration and description above, the Council of

Commission come to conclusion as follows: ---------------------------------------------------

6.1.1 That Temasek Business Group has cross ownership in Telkomsel and Indosat

which causes anti-competition in the market of cellular telecommunication

service in Indonesia, with the result that Temasek Business Group infringes

Article 27 a, of the Law No. 5/1999. --------------------------------------------------

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COPY6.1.2 That Telkomsel has conducted interconnection restraint and kept a high price

which causes anti-competition in the market of cellular telecommunication

service in Indonesia, with the result that Telkomsel infringes Article 17

paragraph (1) of the Law No. 5/1999 --------------------------------------------------

6.1.3 That Telkomsel is not proven to restrict the development of technology in

cellular telecommunication service in Indonesia, with the result that Telkomsel

does not Article 25 paragraph (1) b of the Law No.5/1999 ------------------------

7. Considering that before deciding it, Council of Commission considers the followings ---------

7.1 That economic activity in Indonesia must be performed based on the principle of

democracy on economy accomplishing with Article 2 of the Law No. 5/1999, economic

activity that considers the balance of business actor's interests and public interest.-------

7.2 That any business activity in Indonesia intend to guarantee public interest and to boost

national-economy efficiency as one of efforts in improving people prosperity. -----------

---------------------------------------------------------------------------------------------------------

7.3 That government in conducting privatization in so many forms has to concerned the Law

No. 5/1999 -------------------------------------------------------------------------------------------

7.4 That any party in Indonesia has to perform hard to prevent economic power concentration

by certain business actor, including cross ownership. -----------------------------------------

7.5 That telecommunication sector is a strategic sector covering satellite, undersea fiber cable

network, and microwave links that control many people, so that government is entitled to

regulate in order not to violate Indonesian sovereignty rights in having international

telecommunication access. ------------------------------------------------------------------------

7.6 That telecommunication is important sector and gives substantial contribution to national

economic development although there are already a lot of operators but it has not shown

optimum competition performance; --------------------------------------------------------------

7.7 That the enforcement of the Law No. 5/1999 is an effort to guarantee rule of law for

business actor; ---------------------------------------------------------------------------------------

8. Considering that crossed ownership conducted by Temasek together with STT, STTC, AMHC,

AMH, ICL, ICPL, SingTel, and SingTel Since 2003 to 2006 caused costumer loss Rp

14,764,980,000,000 (fourteen trillions and seven hundred sixty-four (fourteen trillions and

seven hundrer sixty-four billion nine hundred eighteen billion rupiahs) and max Rp

30,808,720,000,000 (threaten trillions and eigh hundred eigh billion seven hundred twenty

billion rupiahs) of the Law Number 5 / 1999, Commission Committee ---------------------------

9. Consider that base on the fax and conclusion, to infringe considered 43 paragraph (3) of the

Law Number 5 / 1999, Commission Committee; ------------------------------------------------------

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COPY

DECIDED

1. To state that Temasek Holdings, Pte. Ltd., Singapore Technologies Telemedia Pte. Ltd.,

STT Communications Ltd., Asia Mobile Holding Company Pte. Ltd, Asia Mobile

Holdings Pte. Ltd., Indonesia Communication Limited, Indonesia Communication Pte.

Ltd., Singapore Telecommunications Ltd., and Singapore Telecom Mobile Pte. Ltd were

legally and convincingly violated Article 27 of Law No. 5/1999;

2. To state that PT. Telekomunikasi Cellular were legally and convincingly violated Article

17 (1) Law No. 5/1999; -----------------------------------------------------------------------------------

3. To state that PT. Telekomunikasi Cellular were legally and convincingly violated Article

25 (1) letter b Law No. 5 / 1999;------------------------------------------------------------------------

4. To instruct Temasek Holdings, Pte. Ltd., Singapore Technology Telemedia Pte. Ltd., STT

Communications Ltd., Asia Mobile Holding Company Pte. Ltd, Asia Mobile Holdings Pte.

Ltd., Indonesia Communication Limited, Indonesia Communication Pte. Ltd., Singapore

Telecommunications Ltd., and Singapore Telecom Mobile Pte. Ltd to stop their share

ownership in PT. Telekomunikasi Selular and PT. Indosat, Tbk. by divesting the whole

share ownership to one of the company, PT. Telekomunikasi Selular or PT.Indosat, Tbk.,

as from 2 (two) years since the decision final and binding; --------------------------------------

5. To instruct Temasek Holdings, Pte. Ltd., together with Singapore Technologies Telemedia

Pte. Ltd., STT Communications Ltd., Asia Mobile Holding Company Pte. Ltd, Asia

Mobile Holdings Pte. Ltd., Indonesia Communication Limited, Indonesia Communication

Pte. Ltd., Singapore Telecommunications Ltd., and Singapore Telecom Mobile Pte. Ltd

to decide the company want to divest its ownership and release voting right and rights to

nominate directors and commissioner in one of the company, PT. Telekomunikasi Selular

or PT. Indosat, Tbk., until the shares divest in a whole as it is instructed in dictum 4

above; -------------------------------------------------------------------------------------------------------

6. The divestment of share ownership as it meant in dictum 4 above shall be performed

under the following condition: -------------------------------------------------------------------------

a. to each buyer is limited to maximum 5% of the total divested shares;-----------------

b. the buyer may not associate with Temasek Holdings, Pte. Ltd. and or other buyers

in whatever form;----------------------------------------------------------------------------------

7. To punish Temasek Holdings, Pte. Ltd., Singapore Technologies Telemedia Pte. Ltd., STT

Communications Ltd., Asia Mobile Holding Company Pte. Ltd, Asia Mobile Holdings Pte.

Ltd., Indonesia Communication Limited, Indonesia Communication Pte. Ltd., Singapore

Telecommunications Ltd., and Singapore Telecom Mobile Pte. Ltd to pay fine each for

amount of Rp 25,000,000,000 (twenty-five bilion rupiahs) which have to be transferred

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COPYthat must be transferred to State Treasury as the Deposit Income of Violation Fine in

Business Competition Department of Trade, General Secretariat of Work Unit of

Commission for the Supervision of Business Competition, by government bank with the

acceptance code 423491 (Income of Violation Fine in Business Competition Field).

8. To instruct PT. Telekomunikasi Selular to stop practicing high tariff and decrease

cellular service tariff at least 15% (fifteen percent) from valid tariff at the date this

decision announce;----------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

9. To punish PT Telekomunikasi Selular to pay fine for amount of Rp 25,000,000,000

(twenty-five billion rupias) which have to be transferred that must be transferred to State

Treasury as the Deposit Income of Violation Fine in Business Competition Department of

Trade, General Secretariat of Work Unit of Commission for the Supervision of Business

Competition, by government bank with the acceptance code 423491 (Income of Violation

Fine in Business Competition Field).

IN WITNESS THEREOF, it was decided in the consultative meeting of Council of Commission,

on Monday, dated 19 November 2007 and announced in open council for public at the same day

and date, with Commission Council consist of Dr. Syamsul Maarif, S.H., LL.M as the Chairperson,

Prof. Dr. Tresna P. Soemardi, Didik Akhmadi, Ak, M.Comm, Erwin Syahril, S.H. and Dr.

Sukarmi, S.H., M.H respectively as Members, with Arnold Sihombing, S.H., M.H. and M. Hadi

Susanto, S.H. as Registrars.

The Chairperson of Council,

Duly Signed

Dr. Syamsul Maarif, S.H., LL.M.

Member of Council,

Duly Signed

Prof. Dr. Tresna P. Soemardi

Member of Council,

Duly Signed

Didik Akhmadi, A.k., M. Comm

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COPYMember of Council,

Duly Signed

Erwin Syahril, S.H.

Member of Assembly,

Duly Signed

Dr. Sukarmi, S.H., M.H.

Registrars,

Duly Signed

Arnold Sihombing, S.H., MH

Duly Signed

M. Hadi Susanto, S.H.

Copied

SEKRETARIAT OF COMMISSION FOR SUPERVISING BUSINESS COMPETIION (Ad interim) Law Enforcement Director,

Ismed Fadillah, SH, M.Si