New law to reform telecoms sector

By M. Suwarso

The House of Representatives recently passed a new telecommunications bill. This article describes the changes in telecommunications that led the government to enact the new law. This is the first of two articles.

JAKARTA (JP): Due to the global nature of telecommunications, a national policy on telecommunications is always international in context, but to a large extent national in responsibility. The underpinning of a national policy will also reflect fundamental changes in telecommunications, which are driven by phenomena of global dimensions.

The role of telecommunications as a public utility has been superseded by its increasingly dual role as a distinct sector of economic activity and as the underlying means of transport for other economic activities. As a consequence, telecommunications services falls under the world trade regime that pushes all countries to multilaterally liberalize their goods and services markets, especially telecommunications services.

Information has become the key element in maintaining competitiveness in the global economy as well as alleviating poverty. No country can escape this trend. Those that fail to develop adequate telecommunications as the infrastructure of information will increasingly fall behind.

Meanwhile, rapid technological change enables the offering of all kinds of innovative services that could bring real benefits to users, particularly businesses, in reducing costs, increasing supply flexibility and gaining advantages in the market place.

However, to maximize these benefits by making all these services available to users and adequately expanding the network is largely outside the capability of a single firm, especially if it is a state telecommunications monopoly in developing countries, like Indonesia.

It is a fact that the state resources of developing countries available for investment in telecommunications are mostly under severe pressure by the burden of debts. Opening the telecommunications market to private providers has been proven to be the single most promising factor for accelerating telecommunications development. This is because new private providers can increase the total resources available for telecommunications development.

Competition and private participation through market liberalization would thus be the main objectives of reform, as it would free up the market at all levels of network and services. Yet, competition will not automatically take place by liberalizing the market.

In a liberalized industry, the role of regulation to encourage and steers development toward healthy and fair competition assumes a crucial position. As a case in point, regulation should ensure that new entrants can compete fairly with major suppliers or incumbents, like PT Telkom or PT Indosat, who have a decades- long head start.

Furthermore, in a competitive environment, regulations should ensure the attainment of the public policy goal of reasonably providing access to basic telecommunications to most members of society at affordable prices. This framework of universal service obligation (USO) is a key element of regulation.

In short, practically every country -- including Indonesia -- is today in the process of reforming or has reformed its telecommunications sector with the same objective: to promote economic development. Not only is there a common goal, the main ingredients of reform seem to be universal. They are: * competition * private participation * regulation

Even though the main ingredients of telecommunications sector reform are reasonably universal, the proportion of the mix of ingredients in each national policy differs from county to country.

It obviously depends on unique national specificities that include the overall level of economic development, the state of development of the national telecommunications network, the historical framework of public institutions, constitutional provisions, the legal system, the national tradition of public administration and the role of interest groups.

This diversity is reflected in the divers flavors of a country's telecommunications law that provides the legal foundation for national policy. The new Indonesian telecommunications law is no exception.

Like any modern telecommunications law, it clearly promotes competition, private participation and effective regulation, but at the same time it has to take into account existing constraints and limitations.

This is exemplified by the seemingly contradictory antimonopoly and transitional provisions in the new law. The former clearly prohibits monopolies and any form of unhealthy competition in the telecommunications sector, but at same time the latter temporarily retains the exclusivity rights granted to PT Telkom and PT Indosat.

This apparent contradiction is caused by the obligation to honor commitments made by the government under the old telecommunications law.

These commitments were made to boost the value of both state companies when they initially offered their shares on the stock exchange in 1994 for Indosat and 1995 for Telkom.

The government granted a 10-year exclusivity right in offering international service to Indosat, while it gave Telkom a 10-year exclusivity right in offering national long-distance services. As indicated by the transitional provision of the new law, these exclusivity rights could be terminated earlier if such a termination would not cause economic harm to the state-owned companies.

Given these seeming inconsistencies, it is not surprising that some people view the new law as just "new signposts to old roads". They believe that basically the old roads of telecommunications are still very well intact, even if decorated with new paraphernalia. Yet to many, the new telecommunications law is the most progressive and realistic legislative product that Indonesia could expect.

While the new telecommunications law clearly adopted a procompetition stance, it realistically subscribed to a policy of gradual liberalization. The transition from monopoly to competition could not be achieved by simply opening the door and allowing everyone to come in.

To enter a new field of play, proper preparation is needed by old and new players, as well as by the government which has to regulate the competition.

The author is a member of the Indonesian Telecommunications Society (MASTEL).