The allocation of national frequencies and 3G development

Nuzul Achjar, Jakarta

The government's plan to relocate the frequencies currently controlled by TelkomFlexi and StarOne, namely 1900 MHz, which is commonly called the 3G (third generation) band, is similar to relocating a house from the land it was initially build on.

While relocating frequencies does not have the effect of relocating a home as the latter entails moving a physical building, the analogy nevertheless gives us a picture of how frequency allocation can have serious implications not only for telecommunications operators but also for the whole telecommunications industry.

Like land ownership and property titles, frequency-ownership licenses can be controlled for an unlimited time. As with the ownership of land and buildings, frequencies can also be sold to other parties. However, the ownership and the right to sell are not without limits. The size of the allocated lot and the spectrum of the frequency will never increase.

Consequently, frequencies can become scarce commodities that call for the government's involvement in regulating them. If the government needs a particular plot of land, which is not or has not been used for public purposes, it has the right to reclaim it. This should also be the case with frequencies. There must be restrictions that have to be adhered to in order to prevent frequency interference. In other words, the government can revoke or extend a license if the frequency is not optimally utilized.

Certainly, the problem does not merely concern the aspect of government intervention but more the reasons for the relocation having regard to the overall telecommunications industry blueprint. At least, all parties should know the direction taken by this frequency relocation. The government can do so by, among other things, clearing the 1900 MHz frequency of existing operators. Without transparency, however, the following uncertainties may arise:

First, the government so far only granted 3G licenses to two companies although they are still not operational. The Ministry of Information and Communications has ordered all CDMA (Code Division Multiple Access (CDMA) operators -- including Flexi and Indosat's StarOne -- to cease using their frequencies as the frequencies will be allocated to operators with the introduction of 3G technology to the country. The government is scheduled to open this month bidding for the frequencies and licenses for 3G bandwith. The government must ensure the transparency of this bidding.

Secondly, the allocation of 1900 MHz for W-CDMA development will only benefit people in big cities who have achieved telecommunications literacy. While the use of CDMA has not reached saturation point, the government is set to introduce W- CDMA without any information about a transition period, namely, whether it can directly move from CDMA 2000 1x to W-CDMA or it whether it must go from CDMA 2000 1X to CDMA 1X EVDO to W-CDMA. Also, whether the direction is towards CDMA 2000 3X rather than W-CDMA -- all this will have implications for operators and consumers.

If the main issue in Indonesia is low teledensity, many observers do not see W-CDMA as the solution to increasing it. Teledensity in Indonesia is relatively low (3.07 percent) compared to other developing countries in Asia, such as Malaysia (19 percent), Thailand (10.4 percent) and Vietnam (6.8 percent). The government has set a target of reaching 15 percent by 2010.

Even in its press release on Sep.26, the Directorate General of Posts and Telecommunications said that around 43,000 out of the 75,000 villages in Indonesia did not have access to any form of telecommunications. There is a need to accelerate telecommunications growth through new regulations in a bid to obtain greater funding and intensive interaction with various parties so that the Universal Service Obligation (USO) is not only dependent on government funding.

The two opinions stated above also have consequences in that on the one hand the government should be transparent in setting the directions for future telecommunications industry development, existing operators must be really serious about increasing teledensity.

On the government side, in addition to the aspect of where the telecommunications industry is heading, it will be necessary to be transparent about the allocation, allotment and assignment of the frequency spectrum.

If allocation is based on the distribution of the spectrum to frequency blocks for certain purposes, then the allotment will involve the distribution of frequency spectrum utilization to certain areas or territories, while assignment is the choice of potential users according to utilization and territory. Allocation and allotment, in particular, will be directed toward optimization, while assignment is related to the competition aspect.

From the operators' side, after the development of fixed-line telephones began to stagnate -- due to, among other things, the fact that operators being more interested in developing wireless telephony -- the introduction of fixed wireless access (FWA) using CDMA technology has given new hope that this technology will overcome the problems involved in increasing teledensity.

The cost of FWA per unit is relatively cheap compared to GSM and, therefore, the tariffs charged to subscribers will also be cheaper. The existence of FWA has also made GSM operators wary as its presence is considered to be a threat to the existence of GSM. However, the facts show that the development of GSM cellular has not been hampered by FWA development. The tariffs for FWA can actually be controlled.

We must not let the government's plan to manage the frequencies be used to increase Non-Tax State Revenue (PNBP), which would only lead to distortion of telecommunications tariffs, instead of resulting in telecommunications service charges becoming more competitive. This does not mean that revenue from frequency utilization is not needed, but rather it should be properly managed.

The relocation of CDMA operators to a new area should not hamper the development of teledensity, while the 3G bandwidth will only benefit a limited number of parties who do not have a direct involvement in the efforts to increase teledensity. Meanwhile, the low teledensity rate is the main issue that is likely to spur the development of the telecommunications industry in Indonesia.

The writer is a Research Associate at LPEM-FEUI and a lecturer in the post graduate studies program of the University of Indonesia's School of Economics (FEUI). He also has a keen interest in telecommunications issues.