Foreign firms still barred from fixed line telecom service

By Christiani S.A. Tumelap

JAKARTA (JP): Foreign companies will still be barred from directly providing fixed line telecommunications service in Indonesia until the monopoly is lifted in 2010, according to the newly launched Indonesian telecommunications blueprint.

Until then, foreign players may only enter fixed line service by becoming strategic partners of state domestic telecommunications provider PT Telkom.

Becoming strategic investors in the publicly listed state telecommunications provider is quite possible because the government will likely further divest its stake in the company.

Alternatively, they may enter mobile telecommunications, paging, multimedia, satellite-based communications and other value-added services as these sectors are declared fully open to foreign participation by the blueprint.

The blueprint in telecommunications, approved by Minister of Communications Giri Suseno in September, basically highlights the government's plan and commitment for the development of Indonesia's telecommunications sector until the year 2011.

The blueprint underlines the government's commitment to turn the currently restricted telecommunications sector into an open competitive sector gradually so that it will not cause any harm to Telkom and Indosat, which at present enjoy government protection in the form of exclusive rights.

Consequently, the government will allow Telkom to keep its domination in local fixed line and fixed wireless telecommunications services nationwide until 2010 and domestic long distance services until 2005. Indosat will keep control of international long distance service until 2004 together with its joint venture PT Satelindo.

The blueprint also indicates the government's ambition to reserve its clout in the sector, especially on fixed line network facilities, through its plan to transform Telkom and Indosat from their current status as fragmented service providers into fully integrated telecommunications operators.

According to the plan, Telkom will be awarded with the license to operate in the international line service as soon as Indosat ends its exclusive rights in 2005. Indosat may have to wait until the end of 2010, when Telkom finishes its exclusive rights, to enter the promising fixed line network.

The government's strong intention to retain full support and protection of the state firms was also confirmed by a high- ranking official at the Ministry of Communications, who recently said that the government had no intention in the near future to invite any foreign operators to enter the fixed line sector, which currently is the backbone facility for the country's telecommunications network.

Instead, the government intends to promote a more active and competitive environment in the currently open nonfixed line telecommunications network and service sectors. Many companies have showed interest in providing these services to benefit from the relatively lower costs and investment compared to the fixed line sector.

There are currently seven active operators of mobile telecommunications services, at least four operators of data communications services using the very small aperture satellite (VSAT), three satellite transponder lessors and at least five paging operators.

At present, foreign investors who are interested in entering the nonfixed line telecommunications sector should form a joint venture or acquire up to a 35 percent stake in existing operators.

Direct participation by foreign companies is prohibited by a law which categorizes telecommunications as a sector still closed to full foreign participation.

Foreign companies are currently allowed to be involved in the fixed line sector through the Joint Operation Scheme (KSO) with Telkom.

There are currently five consortiums of foreign and local firms -- PT Ariawest International, PT Pramindo Ikat Nusantara, PT Mitral Global Telekomunikasi Indonesia (MGTI), PT Cable & Wireless Mitratel and PT Bukaka Singtel (BSI) -- which were appointed by the government in 1996 to finance, build and operate domestic fixed line telephone service across the country on behalf of Telkom under a revenue-sharing scheme through 2010.

Ariawest is responsible for West Java, Pramindo for Sumatra, MGTI for Central Java, Cable & Wireless for Kalimantan and BSI for eastern Indonesia.

Under the revenue-sharing scheme, partners pay Telkom a tri- monthly fixed amount, known as Minimum Telkom Revenue (MTR) and Distributable Telkom Revenue (DTR) based on their revenue.

Under the initial contracts, KSO partners were required to install a total of two million new access line units (ALU) from 1996 to 1999. The figure was revised to only 1.2 million last September due to the economic crisis.

Cooperation between Telkom and its partners has come under fire since they signed the memorandums of understanding (MOU) in 1995.

Much of the criticism was leveled at the five partners, with questions centered on their performance in meeting the terms of their contracts and allocation of profits to Telkom.

In addition to the government's plan to fully open the telecommunications sector after 2011, there is also an intention to gradually release its current domination in regulating and monitoring the sector and the players operating in it.

The blueprint says the government will in the future form a stronger and more capable body to regulate and monitor the sector. It says the body can include individuals from concerned nongovernmental institutions, but they must not be related to telecommunications operators in order to maintain its objectivity.

Regulatory and supervisory functions are currently carried out by the Directorate General of Telecommunications at the Ministry of Communications.

Experts, vendors and operators, however, said they, as well as customers, should also be involved in the body to ensure the protection of every parties' rights and responsibilities and to supervise the open and full competition among local and foreign operators in the future.