Road to telecoms liberalization<\/p>\n
By Winahyo Soekanto<\/p>\n
DENPASAR (JP): Djamhari Sirat, who replaced Sasmito Dirdjo as
\ndirector general of telecommunications in late January, is facing
\na great deal of homework in implementing the campaign to
\nliberalize the telecommunications industry.<\/p>\n
The outgoing official was responsible for some of the earlier
\nliberalization measures, including the drawing up of Law No.
\n36\/1999 on telecommunications, but much has yet to be done.<\/p>\n
The new director general, who holds a PhD in microprocessor
\napplication from a United States university, is an expert in
\ntelecommunications technology and should thus be fully aware of
\nthe imperative of consistent policies to attract investment.<\/p>\n
The new director general must respond to the parallel rapid
\ngrowth of telecommunications and information technology and
\nincreasing demands for independent, procompetition regulatory
\nbodies.<\/p>\n
Telecommunications regulatory bodies in Singapore, Hong Kong
\nand Australia have been commended by telecommunications and
\ninformatics industry players because of licensing policies that
\nfavor transparency, regulations that also encourage competition,
\nand because of good services to the industry players.<\/p>\n
The need for an independent regulatory body in Indonesia has
\neven been recognized by the International Monetary Fund in its
\neconomic reform prescription for Indonesia.<\/p>\n
The Directorate General for Post and telecommunications and
\nthe Ministry of Transportation and Telecommunications, as the
\nstate regulatory body, have displayed an intent to meet demands
\nfor an independent regulatory body, but various problems are
\nhampering the campaign.<\/p>\n
The liberalization process actually started in Indonesia in
\n1996 when state telecom company PT Telkom, as the incumbent
\nmonopoly power in the industry, invited investments through joint
\noperation schemes (KSO), the construction of fixed lines and the
\nlicensing of cellular operators.<\/p>\n
Before the 1997 economic crisis, Indonesia was able to attract
\nthe attention of investors to enter its telecommunications
\nindustry. When the economic crash turned into a multidimensional
\ncrisis, however, those investors pulled out.<\/p>\n
Even so, the existing growth propelled by Telkom's KSO
\nprojects and that maintained by the existing cellular operators
\nare a sign of how dynamic the industry is.<\/p>\n
Of special note is the growth of prepaid services for cellular
\ntelephone users to keep their costs under control, and which also
\nserves as the second line for the operator companies themselves.<\/p>\n
Meanwhile, the government continues its struggle to build the
\nnecessary legal infrastructure to keep up with the rapid
\ndevelopments in the telecommunications industry, to make it more
\nliberal and open.<\/p>\n
Law No. 36\/1999 stipulates a one year transition period before
\nit goes into effect. The year passed without the government
\nhaving produced adequate directive guidelines; during that period
\nthe regulations issued included Government Regulation No. 52\/2000
\non telecommunications management and No. 53\/2000 on the use of
\nradio frequency spectrum and satellite orbits.<\/p>\n
Many necessary regulations are yet to be legislated. One
\ncannot help but question whether our legislators drafting the
\nabove law had not thought about the required accompanying
\ndirectives.<\/p>\n
What regulations are still missing? This list is not
\nexhaustive but should give a general idea about the poor legal
\ninfrastructure in our telecommunications industry: regulations on
\nnew licensing for cellular operators and a review of existing
\nlicensing procedures, on interconnection of networks, on tariffs,
\non security of telecommunications and safety and privacy
\nmeasures.<\/p>\n
Prolonged absence of such regulations would slow down reform
\nin this sector, given the speed with which the industry grows and
\nthe technology develops.<\/p>\n
Despite the crisis last year both PT Telkom and cellular
\noperators were still committed to expansion.<\/p>\n
The government, the industry regulator, must race against time
\nand accommodate the companies' drive forward by drafting
\nfavorable policies and regulations.<\/p>\n
There are myriad ways by which the government could gradually
\napproach market liberalization. It could start with facilitating
\ncompetition in mobile telecommunications and value-added
\nservices, before commencing with campaigns to promote competition
\nin basic services. South Africa chose this approach in 1994.<\/p>\n
Other countries chose to introduce a \"duopoly\" in the sector,
\nbefore ushering in open competition: the UK took this route in
\n1982 before launching full domestic competition in 1991 and for
\ninternational services in 1996.<\/p>\n
Some countries such as Switzerland applied monopoly before
\njumping straight into full competition for all services.<\/p>\n
Indonesia has made a step in the right direction by first
\nintroducing competition in the mobile telecommunication industry;
\nit has also planned to end the monopoly of basic services in 2003
\nor 2004 and compensate the incumbent monopoly holder with mobile
\ncellular licensing and fixed-line services.<\/p>\n
The accelerated pace with which the government is ending the
\nmonopoly, however, is also causing a burden, such as indicated by
\nthe termination of joint operating schemes between Telkom and its
\npartners.<\/p>\n
This situation is adversely affecting the plan to restructure
\nTelkom, which is crucial for the industry's reform and
\nliberalization. The delayed restructuring of the monopoly holder
\nis also adversely affecting the flow of new investments.<\/p>\n
Over the past few months PT Telkom has been insistent in its
\ncampaign to acquire PT Indosat. Telkom officials and proponents
\nof the acquisition argued that once the value of the two
\ncompanies soared when the government launched its advance
\nprivatization program, the state coffers would really get filled
\nup.<\/p>\n
But Indosat has been fighting the notion tooth and nail,
\nlaunching every possible move to prevent merger including signing
\nnew ventures, purchasing new businesses abroad, and planning to
\nissue bonds, which would all mean additional burdens for Telkom
\nshould it succeed in its merger campaign.<\/p>\n
Officials of both companies have also been intensifying
\ncampaigns to garner support from various bodies including from
\nthe House of Representatives.<\/p>\n
What comes across to the public is that Telkom has been
\nneglecting its homework -- including the problem of termination
\nof joint operating schemes -- because it is too preoccupied with
\nthe acquisition plan.<\/p>\n
Telkom's above preoccupation possibly stems from a conviction
\nthat a merger of Telkom and Indosat would solve a number of
\nproblems concerning the joint operating schemes, some problems of
\ncross-ownership between the two companies, and would increase
\ntheir value for the government.<\/p>\n
But many have also observed that the campaign was a sign of
\nTelkom's defense against losing its monopoly rights as well as
\nfears of free competition.<\/p>\n
Yet Telkom's fears of losing out to competition are unfounded.
\nIts customer base of fixed lines consists of over seven million
\ncustomers inside and outside the joint operating schemes; it also
\nhas shares in healthy companies such as Telkomsel, Lintas, Artha
\nand Satelindo.<\/p>\n
Telkom is therefore most prepared for open competition with
\nanyone including its \"stepsister\" Indosat.<\/p>\n
No less strange are the indecisive-sounding statements of the
\nMinister of Telecommunications. Had he been consistent with the
\ntelecommunications industry's blueprint for development and with
\nLaw No. 36\/1999, he would have made it clear from the start that
\na merger of Telkom and Indosat would be against their
\nprocompetition policy.<\/p>\n
One cannot help but wonder whether these institutions are the
\nright ones to liberalize the industry and encourage
\nprocompetition.<\/p>\n
The writer is a lawyer based in Denpasar and an observer of
\nthe telecommunications industry.<\/p>",
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