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.