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.