Slow opening of telecommunications sector

Slow opening of telecommunications sector

Winahyo Soekanto, Lawyer, Consumer Care Foundation,
Jakarta, winahyo@yahoo.com

More than a month has passed since the government liberalized
the telecommunication industry by issuing a policy that enables
PT Indosat to share PT Telkom's monopoly of the fixed line
telephone industry, beginning with Surabaya and Jakarta. This
ended the long-standing uncertainty in the industry, and
signified an attempt at bringing to life the 1999 blue print for
reform of the telecommunication industry.

Whether this liberalization (known locally as a "duopoly") is
to be followed by a healthy competition remains to be seen
because even today Indosat is only able to establish a network of
20,000 fixed telephone lines in four cities while Telkom's
consumers currently use up its 7.2 million lines. How would
Indosat break into the market with such capacity?

What is so special anyway, about the new policy? What added
values would it give to consumers, to the industry, or to the
establishment of healthy competition?

To give credit where it is due, the policy could not have been
taken up had the government not realized the importance of
opening up competition to ensure better telecommunication
service. What's lacking, however, is the government's best effort
to ensure that the policy accomplishes its mission.

Otherwise, the government would have spent the past three
years since it first announced its plan to liberate the industry
by preparing the infrastructure. Even up to the day that the
duopoly was announced, the government had not completed
calculation and negotiation for Telkom's compensation.

Further, the government has yet to complete various
regulations such as those on the numbering plan (which includes a
new access code number plan), inter networking interconnection
plan, guidelines to interconnection agreement which includes
performance of the network of individual operators, grading of
services, network interface system and signaling standard,
interconnection tariff, as well as regulation on modern licensing
and universal service obligation. All these regulations
ultimately influence the question of tariff.

The government also performed badly when it allowed in early
2001 the takeover of IV Division of Central Java (Telkom's Divre
IV) from Telkom and Indosat to flounder without strong reasons.
Had the deal gone through, Indosat would have by now had a strong
early customer base in order to better equip it in the
competition with Telkom.

Because of the botched transaction, not only has Indosat lost
the opportunity to enter full steam the local fixed telephone
industry, the government has also missed the momentum to foster
good competition. Further, the customers also lost the
opportunity to enjoy the fruits of healthy competition-such as
better service-as early as possible.

"Duopoly" is indeed a good step toward opening healthy
competition in the fixed industry, but rules and regulations
should have been put in place before its launching so all
stakeholders may enjoy its added values.

A good example can be found in the British telecommunication
industry when in 1982 it liberated the market and maintained the
policy for almost a decade, before full competition was
introduced in 1991 for both domestic and international lines.

Indonesia is more similar to South Africa in that it began
with opening competition in cellular telephone service (1994)
while maintaining monopoly in fixed line service until 2003/2004.
Switzerland, on the other hand, maintained monopoly up to 1998
before it allowed full competition in the "big bang approach".

A competitive market grows faster than a monopolized one, and
Indonesia has proven this with its cellular telephone service
where the market has been growing by leaps and bounds. Between
1998-1996, when cellular telephone with the NMT technology was
first introduced, the industry had only 567,000 customers. The
figure grew in late 2000 to 3.67 million customers, to 6.57
million in late 2001 and in the first quarter of 2002 to 7.4
million customers-exceeding the 7.2 million customers of fixed
line service of the same period.

This is far beyond the growth projected by Japan International
Cooperation Agency that in 1992 predicted that demands for
cellular line service would reach 479,000 in 2003. Another study
by Pyramid Research, predicted in the same period that Indonesia
would have by 2000 a total of 1.3 million cellular telephone
customers.

Indonesia's telecommunication industry also enjoys the
potential for growth provided by telecommunication related
resources owned by National Electricity Company (PT PLN) and
Indonesian Railway (PT Kereta Api Indonesia). The government
could actually endorse the two companies to also function as
telecommunication operators -- something that has been done in
China and Japan. This could help both the electricity and railway
companies overcome its chronic financial loss in their two core
businesses.

PLN at this moment has fiber optic network that covers Java
and Bali, and has since October 2000 actually been servicing
other companies through its subsidiary, PT Indonesia Comnets
Plus. The company has established and operated its own
telecommunication infrastructure including power line carriers,
microwave radio links and, since 1994, digital broadband fiber
optic network.

In the beginning, PLN's telecommunication system was used for
international communication and data transmission as part of its
operations distributing electricity throughout Java.

Responding to increasing demands for telecommunication,
however, PLN decided to put its huge capacity in
telecommunication network to wider use. Indeed, PLN service
covers areas that are four times greater than the reach of PT
Telkom. Today, it has more than 29 million customers across
Indonesia -- the captive market of PLN that could also be the
potential captive market of telecommunication industry.

Though not as big, the railway company has access to a
telecommunication network that covers the length of Java and a
part of Sumatra.

Why hasn't the government tapped into this huge potential and
endorse the two companies' involvement in the telecommunication
industry? An endorsement would prove that despite having the
controlling share of PT Telkom and Indosat and fully owning the
railway and electricity companies, the government is really
serious in its intention to liberate the industry. In addition,
it would also provide the public with more choices and greater
capacities of telecommunication service.

Indeed, the government -- as the regulator of the
telecommunication industry -- has yet to prove its ability to
cope with the liberalized market that it claimed to be its goal.
It is notoriously slow in responding to complaints or responds
only to publicized complaints. It has failed to install
transparent procedures such as in licensing.

If this continues, the government could de-motivate growth
rather than foster campaigns to close the telecommunication gap
and overcome poor tele-density, or the rate of availability of
telecommunication facilities in ratio to population, in
Indonesia.