FLOURISHING BUSINESS: An Indosat booth attracting a crowd at an exhibition in Jakarta last week. The drive to buy back Indosat shares gathered momentum yesterday with Hipmi, an association of young entrepreneurs, saying that it could raise 20 trillion rupiah to buy the shares from ST Telemedia. -- PHOTO: BLOOMBERG

It said the government should have exercised its veto rights over top mobile phone operator Indosat to prevent the Singapore company's dominance in the telco.

The State Enterprises Ministry failed to live up to its promise to control Temasek's 'dominance' when it sold the government's 41.9 per cent stake in Indosat to ST Telemedia (STT) in 2002, Mr Syamsul Maarif, chairman of the judging council of the Business Competition Supervisory Commission (KPPU), told the Jakarta Post in an interview published yesterday.

'The State Enterprises Ministry assured us back then that there would be no adverse consequences from the sale to STT as the government still held a veto with its A shares, and special voting rights,' he said.

However, the KPPU's 'constant monitoring' from 2002 to 2006 showed that the government was not exercising any control over Indosat, he said. 'It was this failure which led to the abuse of market position, and ultimately to our decision,' he said.

The KPPU ruled last Monday that Temasek and its eight linked companies had breached the anti-trust law through cross-ownership in Indosat and Telkomsel, and ordered the companies to sell off stakes in one of the telcos.

Temasek's stake in Telkomsel is held through SingTel's 35 per cent share in the telco.

Under the anti-monopoly law, no company is allowed to own two or more companies in the same sector with a market share of more than 50 per cent. Telkomsel and Indosat jointly control more than 80 per cent of the mobile phone market.

Temasek has denied KPPU's charge that the company, which does not operate in the country, and its eight linked companies belong to a single entity called Temasek Business Group.

The Jakarta Post quoted State Enterprises Ministry secretary Muhammad Said Didu as saying he was baffled by Mr Syamsul's reasoning.

Referring to the KPPU man's claim that the government failed to use its power to prevent Indosat from abusing its market position, he said that outside of the shareholders' meeting, it was legally prevented from intervening in the telco's day-to-day operations.

Meanwhile, state-owned Telkom Indonesia, which has a majority stake in Telkomsel, yesterday denied it had issued a press statement about a purported offer by local telco Bukaka Teknik Utama and Altimo - the telco arm of Russian conglomerate Alfa Group - to buy shares in Telkomsel.

Altimo's regional director, Mr Soeharto, said the purported press statement was part of a smear campaign against his company.

Separately, the drive to buy back Indosat shares gathered momentum yesterday with Hipmi, an association of young entrepreneurs, saying it could raise 20 trillion rupiah (S$3 billion) to buy the Indosat shares from STT.

salim@sph.com.sg