Cellular operators and antimonopoly law

Cellular operators and antimonopoly law

Winahyo Soekanto, Lawyer, Consumer Care Foundation, Jakarta,
winahyo@yahoo.com

Indonesia has again proven to be the fastest growing cellular
market in Asia Pacific, with its 2002 market share exceeding 25
percent and 2003 growth projected to be twice as high with a
market share exceeding 40 percent.

Statistics show that the number of cellular telephone users in
the country reached 6.5 million in 2001, with this number
expected to reach 10 million by the end of 2002. This growth is
taking place in Indonesia, a country where millions of people are
still reeling from the 1997 economic crisis and unemployment is
calculated to exceed 40 million people.

Indeed, consumption rates in the country remain high as
evidenced by the mushrooming of newly opened, bustling
supermarkets and the fervor with which credit card companies are
expanding their services.

Cellular telephone operators, too, have continued to increase
their development budgets. Telkomsel, for instance, has allocated
US$700 million for 2002, Satelindo $250 million and Excelcomindo
$150 million.

All these signs of robust growth are welcome, as they imply
better access to telecommunications services for the public,
which could be compensation for the slower-growing fixed-line
telephone communications services.

This growth, however, has to be taken with a grain of salt as
it has the potential to violate Law No. 5/1999 on monopolies and
unfair trade practices.

Let us study the first case, that of Telkomsel's control of
the market. The company controls 51 percent of the market share,
far exceeding Satelindo with its 25 percent share of the market
and Excelcomindo with 16 percent. This gap, certainly, is already
reflected in the gap in the companies' development budgets.

With the lion's share of the market under its control,
Telkomsel is at risk of violating the antimonopoly law. Chapter
17, Paragraph 2, of the law stipulates that business entities can
be suspected or accused of controlling the production or the
marketing of a good or service if their share exceeds 50 percent
of the market.

The Anti-Monopoly Commission (KPPU) is authorized to take
punitive measures, either by halting an activity that is
classified as a monopoly or unfair trade practice, or by imposing
a fine of Rp 25 billion. Other punitive measures on the books
include a maximum fine of Rp 100 billion and a jail term of up to
six months, as well as additional measures in the form of
business closure and/or a prohibition on the entrepreneurs to
become directors or commissioners of the company for up to five
years.

The second case is the national agreement on the "roaming
facility" between Satelindo and IM3 (a mobile cellular brand of
Indosat), which came into effect on Sept. 19, 2002. This
agreement benefits IM3 in such a way that it is now able to
provide services to consumers without having to build its own
network. This is certainly unfair to the other operators such as
Lippotel, which does not have a national "roaming capacity".

Despite Satelindo and IM3 being the subsidiaries of one group,
agreements on the use of a telecommunications network must be
carried out in accordance with the existing commercial
regulations. Satelindo must, therefore, offer the same access it
accords IM3 to other operators wishing to enjoy the same
facility. Otherwise, the agreement would be a violation of the
antimonopoly law.

It is true that Indosat, as the holding company of Satelindo
and IM3, launched a publicity drive prior to the agreement. The
company has openly stated the agreement was meant as an
efficiency measure, enabling it to save 20 percent of the capital
expenditure (capex) that would have had to been spent had
Satelindo and IM3 built their own infrastructure. The two
companies also promised that they would concentrate on different
segments of the market.

The KPPU, however, should study whether the agreement can be
classified as a violation of the Chapter 11 of the antimonopoly
law on cartels, Chapter 12 on trust or Chapter 20 on providing
services with very low prices. These chapters stipulate against
forging cooperations by forming cartels with the aim of
maintaining the existence of the original company by controlling
production and/or marketing of goods and services which lead to a
monopoly and/or unfair trade practices.

The Telkomsel case presents a dilemma for Indonesia, where the
market penetration rates for both cellular and fixed-line
telephone services are still very low. This difficult situation,
however, was brought about by the failure of the existing
mechanisms designed to prevent unfair business competition.

For instance, only one of the seven holders of a regional
operator license for DCS 1800 (Digital Celluar System), namely
Lippotel, is now operating commercially. And it is operating with
limited capacity because it does not have access to a national
roaming facility.

In the meantime, the existing AMPS operators, namely
Komselindo, Metrosel and Telesera, have now lost the momentum to
enter the digital Code Division Multiple Access (CDMA) service
market.

No wonder that the three national GSM operators -- Telkomsel,
Satelindo and Excelcomindo -- have been racing full-speed ahead
and are now in control of more than 93 percent of the entire
market share.

Some may have interpreted the situation as market
consolidation, with the end result only a limited number of
surviving operators. Among these are the proponents for a
limitation on the number of operators in order to create a good
economic scale for investment in the sector.

For the sake of consumer interest, however, it is better to
open the market to more, new operators because that could help
ensure better rates and services. Take Hong Kong, for example,
which as of 2001 had issued 31 licenses for various services in
the cellular telephone industry, despite having a population of
only 10 million people. Their stated guideline is to provide
consumers with good services and rates.

Why limit licensing, as long as licenses are being given in a
transparent manner and in compliance with the principle of public
accountability?

However, the two cases involving Telkomsel, Satelindo and IM3
are indeed a cry for a firm hand from the government. The
regulator of the telecommunication industry, in this case the
government, has to show leadership and an ability to tread the
fine line between an act that could be misconstrued as curbing
growth, and another that could lead to violations of the
antimonopoly law.

The regulator should make haste and do its homework for its
masters, namely the consumers, whose taxes pay the regulators'
salaries.