DIGITAL VIDEO CONFERENCE ON TELECOMMUNICATIONS
USA — INDONESIA

The Role of the Regulator in a Convergence Era
April 13, 2000

PRESENTATION BY S. ABDULRACHMAN, President of MASTEL

A short description will be given about the current state of affairs of the infocom industry, followed by information on current issues related to regulatory affairs of the sector.

A.	THE INFOCOM INDUSTRY

1.	Indonesia is an archipelago country, cast stretches of seas, big distances both over land and over water. Population is dispersed. The country is divided into 27 provinces; each province is subdivided in districts (kabupaten) and municipalities (kotamadya). Districts and municipalities are further divided into counties (kecamatan). There are about 400 districts and municipalities, a few thousand counties and some 70,000 villages. Population in each province is very varied, from 25 million to less than 3 million populations.

2.	Indonesia is not completely backwards in telecommunications, thanks to significant investments since the early ‘70s up to the economic crisis (1998). These investments include the operation of a domestic satellite communication system since 1976. Although the density of telephones is still quite small, that is approximately 6 million lines for 210 million population (or 2.8 per 100 people), penetration is such that most county capitals have automatic telephone service. Assuming that 5 persons in average use one telephone line, 30 million out of Indonesia’s total population of 210 million have basic access in their homes or offices/ workplace. About 30% of all villages have access to basic services, at least through a public phone or a public telecommunications service center.

3.	This is a special feature in Indonesia: the availability of more than 100.000 public telecommunications service centers, small “shops” or “stalls” operated by small private companies, catering for the need of those who do not have telephones installed in their homes. In all those centers basic telephone is available, many of them have also facsimile machines, and since recently Internet Access is available on an hourly basis in a fast growing number of these centers. Internet cafes are mushrooming in many parts of Indonesia.

4.	The first mobile public telephone network was established in the late ‘70s, but real progress was achieved only after this segment of the telecommunications industry was deregulated in the early ‘90s.
Competitive services by private analog and digital operators now service about 2.2 million lines I subscribers.
5.	Other, so-called non-basic services are operated in Indonesia on a competitive basis by private companies, ranging from about 76 radio-paging companies to 8 pubic VSAT operators, 45 licensed Internet Services Providers and a host of other types of services as well (1998

6.	figures)
The exclusiVe operator for nationwide local and long-distance fixed service is a public company, since 1997, partly owned by the government. To obtain funds for building out the infrastructure for local service, a BTO scheme is in place in 5 of the 7 so-called regional divisions. The operators in the BTO scheme are joint venture companies between Indonesian private interests and world class PTOs (example: France Telecoms, USWest, Telstra). The contractual right to operate within each regional division is up till the year 2010. The longstanding monopoly of the state owned PTO would come to an end in the foreseeable future. Year 2005 for domestic long distance and 2010 for local service.

7.	Two operators for international services have been competing with each other since early ‘90s. Because previous to competition, the government Istate owned operator was the incumbent and single operator is this field, that company still dominates the market. This so-called duopoly can be terminated after 2004, opening the possibility of new entrants.

8.	The new telecommunications Law of 1999 allows bringing forwards the termination of exclusivity and duopoly, a step to be decided upon by the government.

9.	4 or 5 GMPCS licenses were so far issued in resiionse to application received by the regulator.

10.	The population of PCs (Personal Computers) is still very low -. about 3 million nationwide, so that the people using Internet is also still very limited. The total number of Internet subscribers is about 250,000.

11.	Television and radio broadcast using various frequency bands are carried out competitively. Television broadcasting licenses are nationwide. Cable television has not developed in the past, but one cable-TV license has been granted so far, for Jakarta, the capital city. Indonesian can also watch national programs besides the many international video channels through satellites owned by offshore or Indonesian companies.

12.	There exist a very weak domestic manufacturing industry, producing telecommunications equipment and cables.

B.	REGULATORY REFORM AND ISSUES (AS PERCEIVED BY THE
PRIVATE SECTOR)

1.	A short description about the recent developments in the regulatory framework of the infocom I telecommunications sector. A number of issues
related to regulatory aspects of the sector will be presented as a start for discussion.

2.	The legal framework in Indonesia consists of Laws (Acts), formulated by or presented to Parliament for discussion and approval by Parliament. Based on each Law, government regulations and Ministerial Decrees and Regulations shall be issued.

3.	Indonesia has just enacted the new telecommunications act (Law No. 36 I
1999) to replace Law No. 3 I 1989, considering that many developments have rendered the earlier act out of date and inadequate. The new act will become effective one year after enactment, i.e. on September 8, 2000. As is still the practice in Indonesia, the act is quite general and gives only the broad outlines and principles of the new directions that the national telecommunications policy has to take. The Act is intended also to govern the broadcast as well as IT based services, such as Internet service provision and multimedia services. There is currently some confusion as to how Law No. 36 11999 and another act, namely the Broadcast Act of 1997 relate to one another.

4.	To be able to execute the new telecommunications Act, two Government Regulations are under preparations for approval and signing by the government (the President). One government regulation deals with telecommunications operations and the second one on the use of the radio frequency spectrum and satellite orbits. As usual, an inter ministerial committee was formed to discuss both drafts, where some inputs have been sought from the private sector, primarily from the industry. The industry, among others represented by MASTEL has found the government very reluctant to introduce into these two drafts some elements of reforms that were presented in the 1999 BluePrint on Government Policy concerning the telecommunications sector. This is a Ministerial Policy Paper on telecommunications, promulgated in July 1999, just prior to parliamentary discussions on the draft of the new telecommunications act.

5.	This is seen as a setback in the reform process that is one of the strong points of the current regime. Among the subjects not formulated in a sufficiently compelling manner is the subject of establishing an independent Regulatory Body for telecommunications. After the government regulations have been passed! issued, a number of Ministerial decrees and regulations need to be issued to give further details, basically on implementing various regulatory matters, such as licensing, rate setting, frequency allocations and many others.
6.	What is the main substance of the liberalization policy as contained both in the Law as well as in the Blueprint?

a.	As it stands now, following an announced time schedule, the operation of the fixed telecommunication network and services, formerly called “the basic services” will not be exclusive any more. On that account, from now until year 2010 there will be a transition period toward terminating exclusivity in the fixed (wireline) services to be replaced by
competition mode. The parliament, when debating the telecommunications bill was not fully satisfied with this solution and thus a paragraph in the Law makes earlier termination an option to be taken by government.

b.	In mobile telecommunications services, such competition already exists and will continue to be so. Currently, competition in services also exist in all other segments, among others in internet access services, value added services, trunking, paging, satellite transponder lease and so on.

c.	The new Law also takes a more liberal stand on the determination of rates (tariffs) for infocom services. However, much will depend on how the actual tariff formulas will look, among others what parameters will be used in these calculations.

d.	In another aspect of telecommunications reform, the Law and the policy are as yet not so clear. This concerns the establishment of a Regulatory Body, deemed also to be an option by the Law, and not an obligation. One obstacle could be the usability to find or the absence (so far) of a suitable form or model for an institution to take on the duties and responsibilities of an (independent) regulatory body, except the form of a normal government department or unit subordinated to the Minister. It seems that at least for some time to come, the Directorate General at the Ministry of Communications will take on the tasks and responsibilities of a regulator, be it in a rather “conventional and unreformed” fashion.

e.	A purely personal estimate. I estimate that within this year 2000, several factors, such as the progress of economic recovery, stability situation and readiness of the infocom sector to absorb new investments and or loans will develop positively. I further estimate that decisions on matters such as the termination of exclusively, longer-term solution for or transitions of the KSO I JOS schemes will also be taken this year.

7.	But other regulatory issues must be recognized as important ones, to be studied and decided upon fairly quickly:

a.	At approximately the same time that the New Telecommunications Law was promulgated, the Law on Autonomy for the Regions was passed by parliament. The anti-monopoly and prevention of unfair competition practices Law was passed before the new telecommunications Act. Also the new law on Customer Protection (covering all sectors) was enacted and becomes operational end of this month. These laws together with their respective auxiliary legal products will definitely influence the telecommunications sector. However, the telecommunications regulator seems not yet ready to translate these new policy directions into rules for telecommunications network and service provisions. There must be done something very urgently to keep the telecommunications sector functioning efficiently and effectively with these changes.
b.	It is also not clear, in what case the government or the regulator will decide on issuing national, nationwide, licenses, or choose “regional licenses”, and how to define a region — arbitrarily, based on population, administrative boundaries, or other parameters?

c.	Regulating in the era of convergence, including the training of manpower capable and competent to handle these new issues. Various problems such as VoIP, TV programs and video content distribution over cables (VoD) could become a pressing matter. Until the 1st of April 2000 two different government ministries were responsible (thus also becoming the regulatory body) for broadcasting and telecommunications / IT based services respectively. Now this responsibility is within one ministry, but rules on handling convergence are non-existing.

d.	It is as yet not clear whether the regulator (the government) wants to further deregulate the industry by defining “class licenses” for certain types of services or segments of the industry.

e.	Frequency management matters. Reasoning behind and arguments in favor! against Frequency Auctions;
f.	How to carry out transparency in implementing the regulatory mandate

g.	Other concerns of the industry are for instance:

•	Unclear path and time-schedule towards an “independent regulator” separate from political influences and interventions. And in the meantime how to strengthen the existing regulator, a government unit within the Ministry for Transport and Communications?

•	Proper interconnection regime, fit for Indonesian situation

•	Rates: Formulas for rates that have to be decided upon and published by the government (Law No. 36 11999)

Jakarta, April 2000