Apparently the Indian legal system is not the only one capable of throwing the occasional spanner in the telecommunications works. (See “Telenor, Etisalat, Sistema and India's License Debacle: A Harsh Reminder About Risk and Return.”)
In Indonesia, a long awaited auction of two additional channels of 2.1 GHz 3G spectrum was halted last week when state-controlled mobile operator Telkomsel was declared bankrupt and therefore ineligible to bid.
Telkomsel, which is by a considerable margin the market share leader in Indonesia, ended 2011 with assets of US$6.1 billion against liabilities of US$2.1 billion. It had a profit margin of 26% on revenues of US$5.1 billion.
We should all be so bankrupt.
Why is this apparently solvent and profitable behemoth bankrupt? Because the Central Jakarta District Court says it is.
And this is not because the court has no basic accounting skills or because it is corrupt – it is actually one of the better regarded courts in Indonesia. It’s because Indonesian bankruptcy law says that a company can be declared bankrupt if it has at least two creditors and has an unsettled debt to at least one of them.
Needless to say, a company of Telkomsel’s size has a lot more than two creditors. In this case, the one with the unsettled debt is a distributor of prepaid cards, which says it is owed about US$ 557,000, a claim that Telkomsel disputes.
As a non-Indonesian and non-lawyer, I am not in good standing to say that this law seems odd, but I’m going to say it anyway: this law seems odd. Nevertheless, it is the law and the legal process must continue until things get sorted out, which could take months.
Meanwhile, a relatively minor commercial dispute is keeping the capacity-constrained 3G networks of Indonesia from getting a little bit of much-needed spectrum relief, frustrating consumers and depriving operators of revenue and the government of auction proceeds.
The impasse will be resolved, the spectrum will be auctioned, and life will go on. However, the lesson to be learned is that failing to reckon with all the possible sources of uncertainty in developing market telecommunications can be very costly. (See “Why Mongolia is a Better Bet than Algeria: Digital Investment Attractiveness Index Highlights Strengths and Weaknesses of Developing Countries”).