Hengky Setiawan has built Telesindo into the top seller of prepaid phone cards. Now he’s preparing for the next stage of growth as a soon-to-be listed company.
Hengky Setiawan’s face smiles down from billboards promoting his Telesindo company and its signature TiPhone in more than 200 billboards across Indonesia. Print ads also use his image. “At first, the decision to use myself as a model was merely to save money but then I got used to it,” says Hengky, the founder and owner of Telesindo.
Hengky’s unabashed promotion of himself and his company is part of his success in building Telesindo group from a single, two-square meter stall selling prepaid phone cards in 1992 into a diversified group focused on cell phones with an expected Rp 6 trillion-plus in revenues this year and profits of Rp 200 billion. By far the largest part of the group is the stores selling prepaid cards under PT Telesindo Shop and PT Excel Utama Indonesia, which produce 90% of revenues.
These shops are the biggest distributor of prepaid phone cards in Indonesia, and the largest seller for market leader PT Telekomunikasi Selular (Telkomsel). “We have more than a 10% market share in prepaid cards for Telkomsel. The opportunity for us is huge,” says Hengky, 42. He also sells cards from Indosat and XL Axiata, a business that is managed by his younger brother Ferry Setiawan.
The two other businesses that make up the remaining 10% are the cellular phone distributor PT TiPhone Mobile Indonesia, selling major brands such Samsung, Apple and BlackBerry, and his own brand TiPhone. Then there’s the content developer PT Setia Utama Media Aplikasi.
While Telesindo’s growth has been rapid so far, Hengky is aiming to go to the next stage with a number of major initiatives. First off, he is planning to double the number of retail shops to 1,000 and add 50% more resellers, to 300,000, by next year. To boost sales of the TiPhone, he aims to grow the number of service centers to 142 from today’s 50.
All this expansion requires funds, and the second major step underway is a public listing to raise the money later this year. The first to list will be Tiphone Mobile Indonesia. He plans to sell 40% of this firm (now owned 100% by himself and family members) for a reported Rp 900 billion, valuing the company at Rp 2.3 trillion. The valuation seems conservative—a similar company in the same industry is the listed PT Trikomsel Oke, which last year had similar revenues of Rp 5.5 trillion and Rp 204 billion profits. It sells at about 14 times earnings, or a market capitalization of Rp 3.4 trillion, as of late September. Hengky has selected Sinarmas Sekuritas as the lead underwriter.
In order to expand, Hengky is also looking to move beyond cell phones. He sells an e-book reader, named James, after his first son, and a “TiPad” tablet named Justin, after his second son. He also has a suite of services and an Internet service. All come with the prefix of “T,” such as T-Internet Service, T-Mail and T-Messenger, available in various packages starting as low as Rp 5,000 a day. “We can not sell the TiPhone as a standalone product. It has to be a package of voice and data services since 70% of people now use their cell phone to access data and Internet,” says Chief Operation Officer Telesindo Lily Salim. As the Indonesian market reaches saturation point, all telecom firms will look to sell more value-added services over their phones rather than rely on new phone sales for growth. He also wants to morph his Telesindo shops from selling primarily phones into one selling a wide range of electronic gear.
Hengky has long had a knack for technology and business. His father had a business selling cars out of small showroom in Pontianak (Hengky also has a side business selling cars, mostly top-end brands such as Ferrari or Mercedes-Benz). While in college, young Hengky worked as a Mitsubishi spare parts courier for Istana Motor in Jakarta. He got his start in phones in 1989. He borrowed Rp 5 million from his boss at Istana Motor to buy a used Motorola mobile phone. To make it look newer, he repainted the outside of the phone, taking out a newspaper ad and finally selling it for Rp 6.5 million. With the profits on the sale, he became hooked, buying and selling mostly used phones through newspaper ads.
When GSM phones were first introduced in 1994, PT Satelit Palapa Indonesia (Satelindo) was the first operator to adopt the technology. Hengky took part by acting as a dealer for Satelindo. Later the operator, which was linked to the family of then President Suharto, failed to pay some commission on sales. That lack of funds pushed him to declare bankcruptcy. Fortunately, Hengky was able to switch to being a dealer for Telkomsel, which entered the cell phone market in 1995 (Satelindo was eventually absorbed into PT Indosat). After Singapore Telecom acquired a 35% stake in Telkomsel in 2002 he gained a reputation as a doer—someone able to meet the aggressive growth targets set by SingTel.
As competition rose in the market, operators started to ask their dealers for exclusivity agreements. Telesindo became a victim when Indosat ended its contract in 2004. Ferry Setiawan took over the Telesindo business with XL Axiata, and developed his own company, PT Excel Utama Indonesia.Ferry was able to develop the company into the largest prepaid card distributor for the second largest operator in the country. “Back then, I think it was a gamble for Hengky to choose which operator to continue the business with. But he’s a good gambler and he chose the right operator. Telkomsel now is the market leader,” says Iwan Setiawan, Chief Operating Officer at MarkPlus Consulting.
Even though dealers can pocket at least Rp 1,000 for every prepaid card they sell, the dealer does better on selling new sim cards. Therefore, Telesindo pushes its 2,000 salesmen to make as much profit as possible for the company through selling new sim cards. On the prepaid business, Hengky says he could book up to an 8% gross profit since the prepaid business in pretty stable, increasing 15% per annum. “Its just like gasoline, every driver needs it,” says Hengky. To keep his market share high, he often acquires smaller dealers to expand his own network.
The next evolution came in 2009, when Chinese-made phones started to flood the market with their low prices but reasonably good quality. Hengky took advantage of the availability of these phones to make his own branded Chinese-made phone, the TiPhone. The TiPhone hit a sweet spot in the market. Many wanted a stylish, feature-packed phone even if they couldn’t afford a top branded phone such as a BlackBerry. Thus Hengky came along and offered them various TiPhones, packed with features but priced to sell. “The best selling TiPhones are within the price range of Rp 250,000 to 750,000 per unit. The cheaper the price, the more we can sell. The market is just like a pyramid, the mass is at the bottom,” says Hengky. Now he sells 100,000 TiPhones per month.
With the company growing larger, Hengky has had to learn to delegate, and has been bringing more professionals to help him manage the group. “He is no longer a one man show. It is good for someone at his age. Not to mention that his four sons are still too small to join the company [the oldest is 11 years],” says Alie Cendrawan, who is also the chairman of the cell phone importers and businessmen association, and often done business with Telesindo.
He is also investing in the staff. During the year, Telesindo conducts training meetings for 200 managers from across the country every quarter, and another training session for all resellers twice a year. The meetings are meant to provide networking opportunities, promote team spirit and explain company strategy and targets. He tries to inspire them with talks given by notable motivational speakers such as James Gwee or Forbes Indonesia columnist Hermawan Kartajaya. The meetings also feature award ceremonies where top performers receive recognition and rewards. On the flip side, Telesindo will also weed out the worst performers in the group, thus ensuring a high productivity and growth for the group as a whole.
One irony of Hengky’s career is his use of cell phones. Despite selling sophisticated smartphones, he admits that most of the time he only has time to use his own phones (two of them) for calls and SMS.
To sell its cards, Hengky’s Telesindo brand needs widespread recognition in a mass market, and thus any publicity is good publicity, whether paid or from outlets such as press coverage or an event. Hengky is proud of his various awards, such a recent “lifetime achievement” award that recognizes his work but he also is aware that such awards can also help build recognition and value of his Telesindo brand. Even real estate can help brand. Hengky already owns a four-story facing busy Jalan Hayam Wuruk, painted bright red, complete with a luxury car showroom on the ground floor. Across the street, he will make Telesindo even more visible, with a new 16-story building going up soon, dubbed the Telesindo Tower.
LARGER THAN LIFE
With his success, Hengky likes to live large. He recently purchased a corner lot home—complete with an elevator—in the exclusive Pantai Mutiara gated community with a view of the newly constructed Regatta complex. The four-story house has been expanded and renovated from its original design. He can swim in his pool or soak in a Jacuzzi in the backyard or easily drive one of several speedboats or other boats tied to his private dock. To add to the list he counts a yacht and even private islands among his playthings.
His car collection is especially impressive. He owns 73 Mercedes-Benzs including one each of every model year going back decades. He is especially proud of 2011 SLS AMG gull wing, complete with the carbon fiber aero kit option and custom painted in the factory with an identical silver gray of the original Mercedes-Benz 300SL. His non-Mercedes collection includes a Roll Royce Phantom, and a red Ferrari Enzo among others. Despite his huge house, he doesn’t have enough space to park all his cars in the garage, so they are lined up along the road in front of his house, even parked in the field across from it. Some are put in Telesindo’s headquarter and a garage lot in Bandung. “I will put them all into my new 16-story office tower,” he says. With the Jakarta’s traffic jam he doesn’t ride them all one by one. He only uses a white Lexus for daily ride to work. He also enjoys motorbike riding. He own two Harley Davidsons and has been to visit the famous annual motorcycle gathering in Sturgis, South Dakota. He also has dozens of vintage Vespas in his bike collection.
He is also fond of collecting smaller items as well, such as golf balls, refrigerator magnets, ashtrays, model Mercedes Benz cars and especially anything in the form of a rooster, his Chinese astrological symbol. Many of them can be found in his office on the top floor of his headquarters, where he also has a mini golf course set up, complete with artificial grass.
* This story appears as the cover story on October 2011 issue of Forbes Indonesia magazine. All photos in this article made by Ahmad Zamroni/Forbes Indonesia.