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.