Friday, November 30, 2007

Off with their head, or not?

What a thoughtful friend Rizal is. He remembers my favorite dialogue in the Alice in Wonderland. There is also another dialogue that I like very much from the story. It's between the Queen of Heart, who has a certain obsession of beheading people, and her card soldiers.

I forgot what the exact lines were, but it happened when the Queen ordered the soldiers to behead Cheshire Cat ("off with its head...!"). However, at that time, only Cheshire's head appeared. This confused the soldiers as a head without a body can not be beheaded. But the Queen insisted that anything that has a head can be beheaded.

I somehow recall this story after following the recent controversy over the KPPU (the Indonesian Competition Commission) ruling against Temasek group. The KPPU decided that Temasek group has violated the Law No.5/1999 by having a cross-ownership in two cellular phone companies, Telkomsel and Indosat. Together, both companies own 90% of the GSM cellular market share. The Law prohibits a "business entity to own the majority share in several companies within the same activity if the cross-ownership leads to the companies possessing more than 75% of the market share of the same product."

Here lies the controversy. According to Temasek, they are not the majority shareholder in both companies (in fact, they argued that the so-called 'Temasek business group' is not an entity). Temasek owns 40.8% share in Indosat, through Singapore Technologies Telemedia (STT), and 35% in Telkomsel through SingTel. So how come something that does not have a head can be beheaded?

However, KPPU's definition of majority shareholder seems to be broader than the portion of share owned. Collusive behavior, as indicated by the lack of price competition between Indosat and Telkomsel, and the dominance of Temasek in managerial decisions, are the basis to consider Temasek as the practically majority owner. Everything that has a head can be beheaded.

I'm not an expert on competition policy. So to be honest, I have no take on this issue, yet. But it's interesting to read our colleagues' take here and here. But somehow I agree with an old friend of mine: if Temasek if guilty, then so is the Government of Indonesia, via PT Telkom.


  1. The government has always been guilty in many counts -- from departmental procurement to "rice" procurement. I wish the law applies to the government too.

    Having said that, I think the problem lies in the definition of anti-competition. A benchmark of "ownership of 75% of market share" is nonsense. There are, after all, natural monopolies. The law should focus on anti-competitive behaviors, not market shares.

  2. Hi Arya,
    You are right that 75% (or 50%) as a benchmark of market share is non sense.

    However, we should be careful with the Article 25 Point 1 (Law Number 5/1999) that the concern of the law is abuse of dominant position not the dominant position. So, impact of dominant position is prohibited by the law not being monopolist (having 75% or 50%).

    Firms are never guilty having more than 50% or 75%. Only if they abuse their monopoly position, they will be guilty. The abuse could be collusive behaviors, predatory pricing, market restrictions, and so on. All is anti-competitive behaviors.

    Anyway, I curious with the role of government should be. Which one do you choose guys a bad government of no government?