Liberalization message in telecoms law

Liberalization message in telecoms law

By Winahyo Soekanto

DENPASAR (JP): The media recently raised again the issue of
possible acquisition of Indosat by state-owned telecommunications
company PT Telkom. The deal, if it comes through, could become a
significant financial source for the government as the value of
its 65 percent slice of Indosat shares could reach US$700
million.

PT Telkom commissioner Rahardjo Tjakraningrat recently
speculated about making the acquisition an option in the
restructuring of the company.

Post and telecommunications director general Sasmito Dirdjo,
however, opposed the option straight out, describing the move as
inappropriate to the sector's agenda of reform -- which put
emphasis on competition and a multi-operator and anti-monopoly
approach.

PT Indosat's manager for investor relations Eddy Hadiyanto
added that this is not in line with the letter of intent signed
by the government with the International Monetary Fund (IMF).

In fact, the foundation for the restructuring of the
telecommunication and multimedia industries has been laid with
the issuance of the new telecommunication law (Law No. 36/1999)
and the government regulation on the organizing of
telecommunications (Government Regulation No. 52/2000).

The foundation also includes the shortening of PT Telkom's
monopoly period to 2003, the granting of a national license GSM
1800 to Telkom and Indosat, the stipulation of both as full
network service providers, while the licensing procedure is
currently being modernized.

The government prepared a blueprint in September 1999 for the
development of the telecommunication sector, which consists of,
among other things, a campaign to establish a pro-competition
atmosphere, and to separate business development activities from
operational activities.

However, the controversy surrounding the possible acquisition
of Indosat has created the impression that the government was
merely reacting to the vested interests of various parties. It
might also steer the responsible parties away from the policies
envisioned in the blueprint.

The rapid technological development and the capital
accumulation among world telecommunication giants has highly
affected this industrial structure and compelled the government
to be sensitive towards the global trends.

Many observers are of the same opinion that the main trends
affecting the telecommunication and multimedia sectors are
competition, convergency, consolidation and globalization.

But the fast development often places the government in a
position of only reacting toward the powers of the economic
players, in particular in the forming and carrying out its
policies. This is especially true given the fact that the
government is also a shareholder in the state-owned
telecommunication corporations.

This is why the public believes Indonesia needs an independent
regulating body which is capable of effecting competition and
focusing its concern only on the growth of the industry and
improvement of services.

Leong Keng Thai, Director General of the Telecommunication
Authority of Singapore, who was chosen by the readers of Telecom
Asia magazine as 1999's Best National Regulator in Asia and
Australia, underlines that such an independent body should be
enhanced with an authority and clear mission to make fair
regulations.

Given the presence of multi-operators in the industry, we need
regulations that can keep up with principles such as "equal
access", "inter-operability" and "inter-connectivity", protection
in competing, security for interconnection with major suppliers,
the establishment of criteria and the granting of impartial and
transparent licenses. It is these principles that are emphasized
in the World Trade Organization (WTO) negotiations.

The promulgation of Law No. 36/1999 on Telecommunication in
lieu of Law No. 3/1989 provides a solid basis for developing this
industry if immediately followed by its implementing directives.

The two laws are factually part of the government's answer to
developments in the telecommunication technology and public
demands for improvement of services in this sector.

Private participations ranging from direct international
connections, satellite utilization to cell telephones including
fixed lines through operation cooperation have started soon after
the birth of Law No. 3/1989.

But they have been limited to concession sharing, slightly
taking Telkom's exclusive rights as organizing agency. Therefrom
emerged the industrial structure as we observe today, but there
is still a monopoly at the fixed telephone, 'duopoly' at the
direct international connection and oligopoly at the cell phone
services.

Whereas the new law sparks a strong liberalization signal.

With a softer outlook on the trends of regional and global
developments -- where the government's control is considered more
simplified -- there is a new meaning in the government's policy.

The new law provides arrangement, supervision and control by
heeding the views prevailing in the society and global
development.

The law also does away with discrimination between state-owned
and private telecommunication operators. This means that although
state operators still have their monopoly until a given time, now
any company can plunge into this industry as a full operator and
eventually as a full network service provider without involving
the shares of state operators.

The new law aims at transparency in granting licenses.
Previously the government tended to give priority to its cronies,
so there were groups of companies receiving more than one
operating license for different technology and their market share
became much bigger.

The new law also shows a strong mission in improving services
for clients, as indicated in provisions on the rights of claiming
indemnity by clients if inflicted by the operator and the
operators cannot prove that the client's loss is not due to its
mistake.

This burden of reverse proving can hurt the operators,
especially if the regulating body does not immediately establish
standards of service.

With the enactment of the Law on Consumers' Protection as of
April, 2000 it's quite possible that operators will encounter a
number of consumers' claims either on the basis of direct losses
or consequential damages.

The new law, however, must really be followed up by
implementing directives. We should not leave a vacuum which in
the past was often abused to enact policies that deviated from
the spirit of the law.

Among the needed directives are the government regulations
(PP) on licensing and requirements of telecommunication
operators, on the standard of services, on the procedure for
claiming and settlement of indemnity, and on the interconnection
of telecommunication networks. No less important is the
establishment of a regulation against unfair competition.

The directives are needed, without delay, in order to provide
legal certainty and incentives for foreign investors.

The writer is a Denpasar-based lawyer and observer of
telecommunication industry.