To control or not to control the Net

By Hasan Yahya

JAKARTA (JP): Facing the future in a hyper-competitive global market where information technology (IT) plays an increasingly important role, a regulatory framework would be a key element in determining how far the industry could develop.

Although the IT industry has been riding on the backseat of the wider national economy, the recent boom of Internet businesses, sparked by the rise and influx of investment into Internet portals and other Internet businesses, it is reasonable to expect, as in many other countries around the world, that technology can play a significant role in preparing Indonesia for a future in the new economy.

Anticipating this exciting future, the government has prepared a set of regulatory instruments that will help direct this growth industry, while nurturing it in its infancy. A tough environment to control, Internet regulation sparks debate whenever the issue is raised. Rapid technology development, dynamic and volatile markets as well as shifts in the economical balance often make regulation a very tricky issue. Many times over, defining the subject of this regulation is difficult, let alone trying to figure out how to go about it.

In regards to this matter, it is worth taking a closer look at the government regulation No. 52/2000 on telecommunications, under which most issues in the telecommunications industries are regulated. Probably what is most peculiar about this piece of regulation is the fact that apart from regulating telecommunications services such as network and value-added services, it also extends to multimedia services.

By this definition, the regulations would encompass almost everything that we do over the Internet, including voice over Internet protocol, Internet and Intranet, data communication and video conferencing. While regulation No. 25 is very vague in referring to multimedia elements and leaves most of the details to be regulated by a ministerial decree, it also leaves enough room for interpretation or misinterpretation on what issues should be regulated, and thus the more important issue of how to regulate it.

Inclusion of these various types of services raises some questions on where the government would like the industry to go. Requirements for operating licenses for these various services, for example, can severely limit the growth potential, especially when considering the bureaucratic hurdles involved in dealing with various agencies (Article 57).

While license requirements for a telecommunication network are acceptable, inclusion of Internet/Intranet services within the same category would force even a simple website to deal with a whole set of new challenges, this handicap could thus hurt the competitiveness within the industry.

It would seem somewhat extreme to put an entrepreneur running a five-computer network open for commercial use -- as with the ever so popular Warnet establishments -- in the same category as long distance telephone services.

Another equally important matter is the reference to tariff structure for these services. Originally devised to avoid price fixing and non-competitive practices, this usually makes for a valid argument.

But looking at a different angle in an industry that is changing as fast as the Internet industry, where the market dynamic shifts from one to another in a short period of time, and along creating a continually changing price and cost structure, regulating a tariff structure can become extremely harmful to the competition.

Internet business, at heart, is about creating value for customers. Many times over, development of new technology allows for new types of revenue stream, or even the possibility of a new revenue stream.

At the center, there's the demand for innovation, to continually improve and explore the possibility of delivering more for the benefit of the market, spurring rapid and unprecedented demand for even more services and circling back to discoveries of new possibilities.

In an industry where most of the investment has yet to reach maturity and see its first dime of profit, a regulated pricing structure for Internet services seems unnecessary.

Another piece of regulation that sparked a lot of controversy is the presidential decree No. 96/2000 regulating foreign investment into the "multimedia services sector" as well as the telecommunications sector, this would practically close the inflow of capital into the local Internet industry.

The argument is that this would protect local players from foreign raiders. How would you regulate Yahoo from translating the content into Indonesian and attacking Indonesia from several hundred kilometers to the north? With the interconnected nature of the Internet, it's very uncertain how the authorities are expected to achieve this. At best, it scares off much needed investors.

The idea of regulating the Internet has always been a provocative issue, or at least a debatable one. From its earliest infancy, it has been left alone to regulate itself. In many cases, Internet users chose to agree on various principles and, by common consensus, established a basic foundation for future regulations. In most cases, it is a world that more or less takes care of itself.

In several countries, the United States being the most exemplary case study, the government decided to step back and watch, involving themselves once in a while only to make sure the mechanism works for the benefit of the future. Infrastructure issues aside, the availability of the new medium raised more immediate issues to be addressed quickly to ensure growth and public acceptance so it can bring even more benefits.

It seems that the most needed regulatory framework for the industry is the extension of the existing laws to cover the Internet environment. Customer protection, privacy concerns, information dissemination - as in the case of pornography - cross-boundary trading and distribution mechanisms are among some of the most critical issues.

Ensuring its continued growth and development, however, is achieved mostly by creating a sensible market environment and assisting the process of innovation and discovery in terms of business; establishing a workable economic model, to allow the businesses to grow through the Internet's unique culture and unpredictable nature.

In these regards, the most critical regulations are those that deal with tax incentives, inviting foreign input both financial and intellectual, the education system and knowledge transfer processes, entrepreneurships and open market mechanisms, monopolies and competition issues as well as corporate governance and clear future government initiatives.

In comparison to other countries that are hurrying to capitalize on these opportunities such as India, Singapore, Taiwan, Ireland, Norway, Malaysia and the Philippines, to name just a few, Indonesia seems to be very slow to adapt to this environment. While none have a comprehensive set of regulations, it is understood to be a work in progress.

Driving in a fast car in a featureless landscape, most are anxious to figure out the exact point of destination, and determine the next gas stop. Racing through an unknown environment, few would have the luxury of spending valuable time and gas in trying to draw up a road map; finding the finish line certainly takes a higher priority.

The writer is an industry analyst with www.infoprima.com, an Indonesian IT industry newsletter from PT Sumberdaya Info Prima.