Sat, 04 Nov 2000

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.