TEMPO.CO, Jakarta - Questions need to be asked about Telkom's decision to swap part of its stake in Dayamitra Telekomunikasi (Mitratel) for shares in Tower Bersama Infrastructure. This share swap could lead to the state-owned enterprise losing significant potential earnings. If the swap goes ahead pending the decision of the Finance Development Controller (BPKP) and the Attorney General's Office the government's dividend from Telkom runs the risk of declining.

Telkom will pass on its shares in Mitratel in stages to Tower Bersama as part of the share swap. After the process is complete, Tower Bersama will have full control of Mitratel. As compensation, Telkom will obtain 13.7 percent shares in Tower Bersama. Telkom will have the opportunity to increase its shareholding subject to certain conditions.

In the short term Telkom may benefit from this transaction. Significant funds will flow into the company's coffers. And this kind of share swap has the certainty of success that other methods lack because the prospective partner has been studied and determined. A share flotation was ruled out because of the uncertain state of the market. But because of the disadvantages, in the long run, the sale of Mitratel may make it difficult for Telkom to realize its dream of owning a major tower company.

Every time it wants to increase its stake in Tower Bersama, Telkom will have to expend a large amount of funds, possibly in trillions of rupiah. And the company's chances of acquiring more Tower Bersama shares will depend on other shareholders. By taking control of Mitratel, Tower Bersama will be a major force in the telecommunications tower sector. This strategic position will make shareholders reluctant to sell their shares to Telkom unless Telkom offers a very high price.

It turns out this share swap is not entirely beneficial. Telkom will have to pay a significant amount in capital gains tax, around Rp1.5 trillion. And it will not be a controlling shareholder because its stake is only 13.7 percent. This means that Telkom will not have an influential voice in determining company policy. It is by no means certain that the management of Tower Bersama will accommodate Telkom's interests.

A share flotation or an IPO would have been better. Telkom could have sold some of its Mitratel shares on the stock exchange. This would have positioned the company as a controlling shareholder in Mitratel because of its majority stake. It is relatively cheap to go public. Most importantly, in the long term, there is the increase in share price. For example, the market capitalization of Telkom when it went public in 1995 was only Rp20.5 trillion. At the beginning of this year, on the Indonesian stock exchange Telkom's market capitalization had reached Rp221 trillion, a rise of more than 10 times.

There is tremendous potential for greater profits in the future because in the next five years Telkomsel, a subsidiary of Telkom, plans to build 50,000 towers. With this large captive market from Telkomsel, Mitratel clearly has the potential to dominate the telecommunications tower business in Indonesia, overshadowing Protelindo and Menara Bersama.

Therefore it is very confusing to see the Telkom directors deciding to throw away this golden opportunity in the tower business. It would be far easier for Telkom to realize its ambition to become a major force in the tower sector by retaining Mitratel. After all, Telkom does not need massive funds right now. So why did the Telkom management 'cast aside' this opportunity and allow another company to dominate the tower business?

Telkom's new management has an opportunity not to go ahead with the decision of the old management led by Arief Yahya, especially since the State-Owned Enterprises Ministry has yet to appoint a permanent director following the appointment of Arief as minister of tourism. And the Telkom board of commissioners has not yet approved the share swap.

The directors should listen to the opinion of the commissioners, who represent the interests of the government as the largest shareholder because it is the government which will suffer the most from the transfer of the Mitratel shares, principally in lost dividends.

The government, via the SOEs minister, should also look into the planned corporate action by Telkom in case there is a hidden motive behind the plan to sell Mitratel. The investigation needs to find out why Telkom was so insistent on linking up with Tower Bersama even though in the long run it would be more beneficial not to sell Mitratel to a competitor. The implementation of this decision by the former management should await instructions from the government and the House of Representatives. (*)

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