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.