PUC considers acquisition of GTA by Indonesia's largest telco - KUAM.com-KUAM News: On Air. Online. On Demand.

PUC considers acquisition of GTA by Indonesia's largest telco

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Telkom Indonesia is the company that is looking to acquire GTA TeleGuam. In a recent hearing held by the Public Utilities Commission, company representatives laid out a point-by-point presentation on why the PUC should approve the deal.

Indonesia's largest telco says it is a cash-rich, low-debt, high-growth company. Total group revenues for 2014 were US$7.2 billion, with gross income of $3.7 billion and net income of $1.7 billion. Telkom Indonesia would be the third owner of GTA since the former government phone company was privatized.  But there's one key difference.  It will be the first time GTA will be owned by a telecommunications company. GTA's current and previous owners, AP Holdings, and the Shamrock Group are private equity firms.   - they are primarily investors, not operators.

Telkom Indonesia's Honesti Basyir explains the difference, saying, "When we acquire the company we try to find how to improve the performance. The business performance of the company. This is different from the PE. THE PE they maybe just, they might think that when they get the return they will go out. But for the telcom, we cannot do that. when we buy the company we try to find how to improve the business performance. If we think we have to add some cap-ex, we will do that. While we believe the management team can maintain the performance, and always do the improvement for the company."

GTA's local management sees great benefit in having a telco as its parent company. There are the economies of scale in purchasing that it would provide , along with access to vast internal technical expertise and experience. GTA chief operating officer Andrew Gayle stated, "The management team is excited about the opportunity to work with the sixth-largest wireless carrier in the world, in terms of subscriber numbers. The resources that they have that will allow us to bring those improvements, network improvements to Guam."

Gayle continued, "Telekom Indonesia is very innovative in regards to what they do in the prepaid market. What they do in the multimedia market. Some of those things aren't 100% applicable to a US market but we are excited as a management team  to look at what can be applicable. What lessons we can learn from our new parent company as well as what lessons our parent company can learn from us as a small independent quad play operator."

But what may have ultimately attracted the Indonesian telco giant to this small independent operator is Guam's location. Telkom Indonesia is a highly diversified, global business employing more than 25,000, and expansion has been a key focus for the company. It has been investing in a vast international network of submarine cables, and in fact first began working with GTA on a cable that runs through Guam.

In its presentation, Telkom said GTA is perfectly situated for its regional growth strategy, and Guam is strategically located as a link between Southeast Asia and the US. "We deployed the submarine cable from Indonesia to the US, and also we deployed another link from Indonesia to the Middle East and Western Europe. So all around the world,  and finally we connect to Indonesia from the Middle East to Western Europe into the USA.   And Guam is a very strategic location. I think it can support the company to achieve the mission as the global hub services player," he said.

The PUC's administrative law judge, Fred Horecky, presided over the public hearing. He said he was pleased with the overall presentation, telling KUAM News, "The PUC really looks at two criteria, one is after the purchase occurs will there be a level of technical managerial, and financial support to maintain the operations of GTA. Secondly is the sale contrary to the public interest. Of course, there was no testimony tonight indicating that the sale would be contrary to the public interest, so main question becomes what is the managerial expertise of the purchaser. And tonight they submitted evidence showing that they do have managerial expertise."

The PUC also conducts annual reviews of GTA's capital expenditures. GTA's current plan calls for $120 million in spending over five years. Horecky says the Indonesians made it clear they are committed to the plan. Not surprising for a company that spends about $2.5 billion a year, groupwide, for capital improvements.

"There's a lot of effort I think to continuing to improve the fiber system on Guam, to make sure all areas of the island are covered. To expand the 3G and the 4G, longterm evolution services. And I think those things will continue. The company tonight really committed to continuing the cap-ex plans that exist now. As well as the five-year plan," Horecky speculated. Horecky says he will prepare a report for PUC members, who are scheduled to meet before the end of the month.

He says local PUC approval is conditional on the subsequent approval of the Federal Communications Commission.

While Telkom Indonesia is a private company, the Indonesian government still owns a little over 50%.  Horecky says that may mean a little more scrutiny from the FCC, noting, "There's no rule that a foreign company cant own an interest in a US telecom company or a Guam telecom company, but there are requirements under federal law, and rather stringent review process, so that will occur here, and that will likely take  considerably longer than the PUC review."

Telkom Indonesia says it has no plans to reduce the number of GTA employees, replace local management, or change local branding. And while executives say the immediate changeover will be transparent, COO Gayle says he hopes customers will soon notice an even better GTA.  

"Upon Day 1, they wouldn't see any changes; Day 180 and Day 360 an improvement in the services, the capability, the service delivery," said Gayle. "The reliability of the services all of those things that a large telecom operator can help us, as an independent operator, can help improve. Then introduce additional types of services in the future."

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