RI telecom deregulation underway

Tantri Yuliandini, The Jakarta Post, Jakarta

Major adjustments in industry structure, shifts in business focus and serious disputes marked last year's developments in the telecommunications sector as the country braces for a more liberalized industry.

The government's plan to open up the telecommunications sector began last year and the departure from a monopolistic structure to one that is based on competition is being gradually introduced.

The stripping of state-owned telecommunications companies PT Telkom's and PT Indosat's exclusive rights, which began in 2000, was last year followed by readjustments to their cross ownerships in several subsidiaries.

A US$1.5 billion landmark deal was struck in May last year leaving Telkom with a majority ownership in the country's largest cellular operator, PT Telkomsel, and Indosat with the second largest, PT Satelindo.

The consideration behind this was that if the two companies were to be allowed to compete against each other, there should be no ties which could potentially inhibit them.

It was also done to provide a level playing field, giving the companies equal assets to start them off toward being full telecommunications service providers.

The early termination of Telkom's local telephone services to 2002 from the initial 2010 schedule, however, had induced difficulties in the company's negotiations with its joint operation partners.

The early termination was seen by the partners as another losing point, a loss of opportunity, as the partnership's claim of monopoly over local telephone services was cut short.

KSO contracts, a partnership intended to last until 2010, was forced to face major evaluations and alterations when the Asian economic crisis hit Indonesia in late 1997 and U.S. dollar-based operational costs soared while rupiah earnings became insignificant.

Of the five KSO partners only PT Bukaka SingTel International, operating in the eastern regions of Indonesia, agreed to continue the contract with modifications.

Mitra Global Telekomunikasi Indonesia's (MGTI) contract has been transferred to Indosat as part of the $1.5 billion deal for the dissolution of the cross ownership, and another two -- PT Dayamitra Telekomunikasi operating in Kalimantan and PT Pramindo Ikat Nusantara, which operates the Central Java and Yogyakarta areas -- have agreed to sell back their assets to Telkom.

Telkom's partner for the West Java and Banten areas, PT AriaWest International, however, was not so obliging.

Adamantly refusing to compromise on its buy-out price, the dispute between the two came to a head when Telkom finally unilaterally announced the partnership was dissolved.

Accusations flew back and forth and arbitration proceedings with the International Chamber of Commerce in Geneva were filed by both parties.

There seems to be no end in sight to the dispute in the near future.

In the meantime, the government was forced to consider privatization alternatives for the two state-owned companies as the country's Rp 6.5 trillion (about $619 million) privatization program to finance the state budget deficit still yielded nothing as the year drew to a close.

State Minister for State Enterprises Laksamana Sukardi had always said that the telecommunications sector was the only sector ready at the moment for privatization, saying that given the current economic slump investors have a relatively stronger appetite for telcos.

Besides that, foreign investor support was expected to again kick start telecommunications developments across the country after a long period of stagnation beginning during the economic crisis.

Desperately vying for foreign investment, the government promised that it would hike telephone rates up to 45.49 percent within three years, the first phase of the increase to begin lst year with 21.67 percent after delays in 2000.

The current telephone rate is considered unattractive to foreign investors as they could only expect a return on investment after seven years.

But yet again the voice of the House of Representatives and that of the Indonesian Consumers Foundation (YLKI) prevailed, saying that the public was not ready for such a steep increase.

The House backed down from its initial support and said it would only accept an increase in 2002, although not at the 21.67 percentage increase originally stated.

However, despite all that, last year was also one of the most exciting for the development of the most lucrative business of the telecommunications sector, the cellular services.

Indosat began its cellular service in the second half of this year with its Indosat Multi Media Mobile (IM3), which operates using the global system for mobile communications at 1800 Megahertz frequency (GSM-1800) and boasts higher transmission speeds and clearer voice.

Also holding the GSM-1800 license, Telkom decided to integrate its mobile service with that of its subsidiary Telkomsel.

IM3 would need to prove its worth and gain a niche in a market already established by the three existing operators Telkomsel, Satelindo and privately owned PT Excelcomindo Pratama.

The three -- listed here in descending order according to the number of subscribers -- have been building up a customer base for several years now and could now boast nationwide service coverage using the GSM-900.

Adding to the excitement of the development of cellular services, traditional voice services was now complemented by limited data transmission with the introduction of the short message service (SMS).

Various services sprung up from the SMS platform such as the mobile banking services and information services such as stock prices and movie schedules, increasing traffic for the operators.

The introduction of an inter-operator SMS service in May last year however was the rocket which brought SMS traffic sky high, increasing the number of subscribers and leading operators to upgrade to the DCS-1800 technology.

Telkomsel recorded 3.05 million subscribers as of November last year, surpassing its year end target of 3 million. Also for the same period, Satelindo recorded 1.5 million subscribers and Excelcomindo recorded 1.08 million.

This year, experts predict the number of subscribers to skyrocket to 11 million, surpassing the number of fixed-line telephone subscribers.

Telkom's director for planning and technology Kristiono said that the convergence and eventual overtaking of the mobile phone subscribers against fixed-line telephones was inevitable as annual growth for mobile phones was more than 50 percent, while fixed-line telephones only saw a growth of between 10 percent to 15 percent annually.

However, he said the stunted growth of fixed-line subscribers was not because of lack of demand but rather a decrease in supply caused by, among others things, a lack of investment.