New law to reform telecoms sector

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superseded by its increasingly dual role as a distinct sector of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).