Indonesia requires digital connectivity

Indonesia requires digital connectivity

Craig Warren Smith and Idris F Sulaiman, Jakarta

Now that election is over, Indonesia can at last deal address
its single most important issue. No, not the terrorist threat.
Not creating jobs for the poor. Not reversing Indonesia's slump
in foreign investment. Those issues are important, but the matter
that underlies those problems is to devise a business model for
extending digital connectivity to all of Indonesia's 220 million
citizens. This rather complicated issue was ignored amid the
populist furor of the presidential campaign. Now it must be faced
squarely.

Within the next few months, the new Susilo government will be
putting together its own team to work out this issue. Rather than
wait to see which individuals fill key slots and then try to
curry favor, the investors should formulate their own vision of a
connected Indonesia. Though they are locked into cut-throat
competition at the affluent end of the market, they all stand to
gain from historic collaboration at the low end.

There is room for all -- different operating systems such as
Linux and Windows, GSM plus CDMA, broadband plus dial-up
connection. Most importantly, there can be room for both big
international players and small local entrepreneurs. Rather than
wait for governments to invite them to the table, these private
sector warriors should bring their best thinking and their most
innovative technology to the table to address how even the most
remote Indonesians could be connected -- and uplifted -- in the
digital age.

Indonesia is behind its Neighbors in IT and
Telecommunications Indicators

Indonesia Malaysia Thailand Philippines Singapore

Computer: 1.01% 12.6% 2.78% 1.93% 47%

Telephone: 3.11 % 20.5% 12.6% 8.91% 47%

Internet: 1.82% 27.31% 6.7% 4.27% 48%

Source: Digital Review of Asia Pacific, Asia-Pacific
Development Information Programme (APDIP-UNDP), IDRC-CRDI Canada
and Orbicom Network, 2003.

The stakes are high. If investor coalition fails to shape new
collaborations, the government and the private sector will surely
back off from each other once again. Cynicism will set in. The
numbers-crunchers within investment banks will once again set
their sights on only the most affluent Indonesian IT customers.
Government bureaucrats, for their part, will once again return to
a fantasy world -- setting "targets" for spreading the internet
into the countryside that cannot be fulfilled, launching "pilot
projects" that quickly disappear, and creating telecom policy
reforms that never get really implemented.

Such business/government dysfunction explains why Indonesia
has become Asia's most significant failure in the effort to close
the digital divide. Each year Indonesia ranks lower and lower in
"e-readiness" indicators. This may seem an arcane matter but
the implications are clear: Angry and more isolated, more
Indonesians will sympathize with terrorists. Without jobs, fewer
will have a stake in the economy. One cannot simply generate
sustained job growth in the country, secondary towns and in the
rural areas without addressing this problem. More than half
Indonesia's 70,000 villages (or about 43,000 villages) don't even
have access to a single public telephone.

The Warnet or public Internet kiosks are thinly distributed
are declining partly because the authorities are constantly
harassing them and partly because there is regulatory
mismanagement. Only a tiny percentage of the Indonesian
population that have fixed phones (3.8 percent) and mobiles
(9.8 percent) pay among the highest world's rates, explaining why
markets are only slowly being created for Internet service
providers.

The basis of the digital divide is acute here. In the Eastern
Indonesia provinces, only 0.02 percent of the population has
fixed-line phones. The cell-phone revolution, a bright light in
Indonesian economy, pales behind Indonesia's Asian neighbors,
with only an estimated 20 million mobile numbers, many owned by
affluent Jakartans with more than one phone number. The PC
(0.9 percent) and Internet (0.4 percent) penetration rate is
among the lowest in Asia -- a tenth of Thailand's rate, a
fiftieth of South Korea's. Indonesian schools have fewer
computers per capita than obscure countries like Mongolia.
Indonesia has hardly any citizen services from e-government, e-
health and e-education -- all preconditions for making government
work smoothly and transparently.

Dramatic reforms in regulatory policies could reverse these
facts. Despite a few years of liberalized telecom policies, the
government still protects vested interests while honest ISP and
Warnet entrepreneurs, such as those affected by the recent
"sweepings" in Yogyakarta, are shut out. It was very good news
this year when the country's "universal services obligation"
(USO) tax of 0.75 percent of telecom revenues were announced. The
plan is to create a fund to extend telecom to the poor in the
remote and rural areas. But it is unclear where funds will go,
who will benefit, or whether non-incumbent telecom operators will
be able to bid for the build-out.

How to change this circumstance? The key lies in the
formation of powerful strategic alliances that combine reformers
in government with commercial providers armed with the latest
wireless technologies. Lacking a Thaksin-like strong man, many
think that Indonesia will be forever stuck with a poor regulatory
regime. But investor coalitions that project a united view of
Indonesias economic transformation can become a powerful lever
for change.

The good news is that investors are no longer skittish. A few
years ago, at the end of the Soeharto period, foreign telecom
investors like France Telecom, NTT, Australia's Telstra and AT&T
got burned after being invited into to help build a new telecom
infrastructure of Indonesia. The mood began to shift two years
ago when Singapore's Singtel and STT showed that significant
profits could be made by opening up mobile markets in Indonesia
in partnership with PT Telkom and PT Indosat. Now the mood is
more upbeat still.

"There is a new willingness among investors to work this out,"
says Lai Yit-Loong, Managing Director of Intel-SE Asia, sponsor
of an upcoming Oct. 5, Harvard Club Jakarta meeting for ICT
Investors that will focus on this issue. "For businesses it about
bringing at least 100 million Indonesians into established
markets. Finding the right formula for doing so can help the poor
and boost security at the same time."

Tomorrow, in the second part of this series, we will consider
four new trends that make possible new strategic alliances that
can extend the benefits of information and communications
technology to all Indonesians.

Craig Warren Smith (craigwarrensmith@hotmail.com), a visiting
scholar with the Fairbank Center for East Asian Studies, Harvard
University, helped created the UN ICT Task Force. Idris F
Sulaiman (idriss@indo.net.id), international affairs advisor to
the Indonesia IT Federation.