A Sleeping Giant Awakens: Telkom’s Reinvention

By webadmin on 10:05 pm Aug 23, 2010
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SK Zainuddin

Jakarta. When Rinaldi Firmansyah joined Telekomunikasi Indonesia as its chief financial officer in 2004, he soon learned that the task before him was enormous.

The company faced serious issues. Its financial report had been rejected by the Indonesia Stock Exchange and it was his job was to fix the problem.

An investment banker by training, Rinaldi rolled up his sleeves and got to work.

“It was a long first day and the days got longer in the first few months,” he said. “Sometimes I slept in the office, as we used to work through the night.”

State-owned Telkom, Indonesia’s largest telecommunications company, also faced rising competition from new and more aggressive rivals, and a battle for market share that has driven cell ular prices down.

Change was absolutely necessary if the company was to survive and grow.

Fast-forward six years and the need to sleep in the office is long past. Rinaldi is now Telkom’s president director and chief executive officer.

Over the past three years, he has slashed costs by reducing Telkom’s work force and has guided the company into new business areas such as cable television and data transmission.

He is now undertaking an even bigger challenge: transforming the company into a lean, competitive and innovative multimedia enterprise.

“About three or four years ago, we realized that telecommunications was just a commodity,” he said. “That is when we started our transformation from telecom to multimedia.”

Today, Telkom focuses on telecommunications, information, media and edutainment — a strategy the company calls “TIME.”

“This was a bold move for us but we knew we had to modernize our infrastructure or we would see our market position erode,” Rinaldi said.

Telkom, Rinaldi said, had no choice but to transform itself.

To compensate for the lost revenue from its fixed-line business, the company invested in a number of new businesses, and those investments are starting to pay off.

The company has spent Rp 2 trillion ($224 million) a year for the past four years upgrading its fixed-line networks and offering new services and products.

It spent another Rp 500 billion a year improving its information technology systems and Rp 1.3 trillion acquiring new businesses.

“Now the industry looks at us as a market leader and innovator instead of a lazy incumbent,” Rinaldi said.

This strategic push has caught the eye of investors and market players, particularly after the company enjoyed a strong first-half performance.

Telkom posted 7 percent higher revenue growth than expected on the back of impressive cellular growth.

Raymond Kosasih, a research analyst at Deutsche Bank Verdhana Indonesia, said cellular prices had bottomed out, meaning Telkom can look forward to improved performance.

“We like Telkom in general and we have put a buy recommendation on the stock,” Raymond said. “The TIME strategy makes sense as it will help the company maintain growth.”

Going forward, the key challenge for Rinaldi and Telkom will be to fully implement the TIME strategy and cost-efficiency programs, Raymond said.

Near-term revenue growth will still come from its fixed-line and cellular business, while in the longer term the company will reap the benefits of pushing into cable television and data, he said.

“Personnel costs currently make up the second largest cost for Telkom, so trimming staff numbers is important for the bottom line,” Raymond added.

Harry Su, senior vice president at Bahana Securities, said Telkom had little choice but to make the changes. “Its part of the natural transition of the company from fixed-line to cellular, and now to data and multimedia.”

He predicted the telecom sector would continue to post healthy growth over the next few years, even though penetration rates are already relatively high.

He said diversification would be the main challenge for all the large players in the industry.

Rinaldi understands this quite well: Telkom must change or die.

His next big undertaking will be to expand the new wave of businesses as quickly as possible. Content, he said, will be king in the future and Telkom must be able to compete on that front.

“The industry is moving toward content-based operations and we have to be able to provide content on our network,” he said.

Telecommunications providers are all facing this dilemma — they provide the network, but the growth is in content.

“Everyone is googling on our network but we earn nothing,” Rinaldi noted.

“Content is an industry with many small players while telecommunications is a capital-intensive industry with a few players, so we must find some way to cooperate.”
 

A longer version of this article appears in the September issue of GlobeAsia magazine, a sister publication of the Jakarta Globe.