Govt on shaky ground in raising phone bills

Govt on shaky ground in raising phone bills

Winahyo Soekanto, Lawyer, Jakarta

Of late, the government has subjected its people to a new
brand of terrorism. It has not only been playing, as a cat would
a mouse, with people's fears about living costs soaring
uncontrollably but has in fact created a situation where prices
cannot help but increase.

The government had hinted at an impending increase in the
rates of a certain public service, then, in the face of the
resultant uproar, it denied any such plans while allowing prices
of commodities to increase automatically. Then it caught the
public unaware, pouncing on it with the actual increase.

This terror tactic has been applied in the government campaign
to increase fuel prices and electricity rates. By hinting on an
imminent fuel price hike but never saying when it would come into
effect, the government has subjected the public to uncontrollable
consequences such as the price increase of basic commodities and
the fuel shortages.

Another public service about to be turned into yet another
means of terror is telecommunications. For the past two years the
government has, with an unusual amount of support from the House
of Representatives, been campaigning for a telephone rate
increase.

The time lag and protracted process between the announcement
of an impending rate hike and the start of a half-hearted
dissemination of the plan, however, indicates the absence of firm
reasons for the government to implement an increase. Neither
state-owned telecommunication company PT Telkom nor the
telecommunication industry in general need a price increase.

Yet the government has provoked public outcry by initiating,
and later postponing, a ministerial decree on the adjustment of
Telkom rates. Through the director general of post and
telecommunications, Minister Agum Gumelar has come up with an
array of ever changing reasons for the planned hike.

These include one that says a new rate structure would attract
foreign investors into the industry, another that says it would
improve accessibility and increase teledensity, and finally one
that says greater funds are needed to keep up with maintenance
costs.

Strangely enough, the government has not only doggedly plodded
ahead with its plans but also, together with the House of
Representatives, has been much more outspoken than the Telkom
management in campaigning for the rate hike. The government has
pleaded with the public "to understand" that it simply has got to
have a price increase, despite the fact that millions of people
are currently buckling under the burden of living costs. What
does this stance say about the government and the House's
repeated claims that they are fighting for and defending public
interests?

If there is truth in the government's repeated claim that it
wants to foster competition in the telecommunication industry,
why then is it continuing to protect the existing monopoly? The
government is conveniently ignoring the fact that there are other
options to raising telephone rates. In fact, there are
irrefutable facts that should caution the government against a
rate increase.

First, there are grounds to argue that campaigns to woo
foreign investors to venture into the telecommunication industry
might not be needed now because of the existing poor investment
climate.

The arguments include the volatility of the currency exchange
rate (while most investment is carried out in U.S. dollars), poor
legal infrastructure especially with regard to the new
uncertainty introduced by President Megawati Soekarnoputri's
stance on regional autonomy, and poor security in some regions.
In addition, foreign investors do have the option of investing in
countries that offer better prospects such as Thailand, Malaysia,
Cambodia, Vietnam, China and India.

Telecommunication investors are at the moment also taking
steps to prepare giant investment in the latest cellular
technology known as G3 -- something that apparently cannot be
conducted in regions with poor regulatory regimes.

Second, if the reason for the planned increase in phone rates
is to increase the teledensity of the fixed telephone lines
(which is currently only 3 percent), then the government has been
helped out by the recent burst in the growth of cellular
telephone infrastructure. As of 2001 end, there were 6 million
users -- only one million fewer than the owners of fixed line
telephones. Industrial projection says that the number may grow
this year to 9 million, whereas the number of fixed line users is
expected to increase only to 7.8 million.

In addition, Minister Agum Gumelar's stated concern about
teledensity being only 3 percent of the whole population is not
completely accurate because even today Indonesia has
approximately 200,000 public calling centers (wartel). If each
center has two booths, with approximately 20 customers per month
per booth, the business is then serving some 8 million people.
Meaning, today's teledensity is about 7 percent.

In many developing countries such as India, calling centers
help ease the problem of telecommunication isolation. In
Indonesia, even areas that are not yet served by fixed lines such
as agribusiness centers and shrimp ponds in Lampung, villages in
Singaraja, Bali, and even certain remote areas in Central and
East Java, have started to enjoy the service of cellular
operators such as Telkomsel, Metrosel, Telesera and Mobisel.

Investment in this case is cheaper because it involves a
wireless network rather than a wireline network.

The next excuse offered by the government for its planned
phone rate increase is the soaring operational and maintenance
costs. This, however, is debatable given how the first logical
step -- namely improving efficiency within Telkom -- has not been
implemented. The recent audit by Price Waterhouse Coopers
revealed a host of cases of inefficiencies, including one in West
Java that led to the loss of hundreds of billions of rupiah.

It is true there is a constant increase in operational costs.
In 2001, costs increased by 33.4 percent as compared to 2000, but
even with such a steep cost increase, Telkom still recorded a
profit of Rp 2.5 trillion.

The following excuse indicates the government's wish to
increase the capacity of Telkom's network. Why place the burden
on consumers then? For the past six years, Telkom has been
recording profits and distributing dividends to its shareholders.
Maybe it is now time for the shareholders to share some of the
rewards with consumers and forego dividends from 2001,
reinvesting them instead on new Telkom networks and thereby
increasing their potential for even greater dividends next year.

Further, the government cannot claim that a price increase is
part of their commitment in the joint operating scheme (KSO)
between Telkom and foreign investors because the KSO agreement
has changed over the course of time. These changes included the
revised target of establishing 2 million SST (lines in service)
to only 1.2 million SST, thereby reducing the opportunity for the
public to enjoy the telecommunication service of 800,000 lines.

In addition, Telkom has not shown any difficulty in servicing
its debts. The government, therefore, does not have any strong
grounds to implement a price increase. It is strongly suggested,
instead, that the government take the following steps and prove
that it really is siding with the public:

* Focus its attention on developing a telecommunication
infrastructure that is based on cellular telephone technology,
which is the growing trend of the industry anyway. A great deal
of investors are indeed more attracted in this sector.

* Encourage the development of more wartel as a shortcut to
improve public's access to telecommunication service.

* Seek and develop a cheaper technology to increase
teledensity, such as fixed wireless technology.

* Withhold and reinvest dividends from 2001 for the extension
of Telkom services and enhancing its capacity.

In line with the Law No. 36/1999 on telecommunication, Telkom
is obliged to inform the public in a most transparent manner
about the structure of its operational costs. It should explain
why, if it has been making profit, it needs to increase its
rates?

A commission must be set up, to monitor all processes involved
in determining the rates of public services so the public no
longer has to be subjected to government terror through
conflicting and contradictory news reports.