The allocation of national frequencies and 3G development

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.