Telco regulators need to keep up with changes

Andi Haswidi, The Jakarta Post, Jakarta

With its high population but low telephone penetration rate, Indonesia remains among the most lucrative telecommunications markets in the world.

However, the lack of clear regulations has created confusion among operators and the public. The controversial anti-monopoly ruling recently issued by the Business Competition Supervisory Commission (KPPU) indicated that there are some things wrong in the business.

The KPPU found Singapore investment firm Temasek Holdings guilty of violating the anti-trust law by having ownership in two mobile phone operators, Telkomsel and Indosat, which jointly controlled more than 50 percent of the market.

The ruling also found the largest mobile phone operator, Telkomsel, guilty of abusing its dominant market position through a price-leadership arrangement involving Indosat that led to the excessive pricing of mobile communication services. The high prices cost consumers between Rp 14.7 trillion (about US$1.56 billion) and Rp 30.8 trillion between 2003 and 2006. The court told the company to lower tariffs by a minimum of 15 percent.

The ruling has yet to be tested in the courts, but appeals are on their way. The KPPU blamed the government in part, saying that the abuse of power would never have happened if the government had exercised its authority to safeguard competition.

The government's power in the telecommunications industry is two-sided. First, it is a market player through state-owned PT Telkom, which holds 65 percent of Telkomsel's shares, and through a golden share ownership in Indosat, which entitles it to veto power over all major decisions by the company. Second, it is a market regulator through the Communication and Information Ministry, the Directorate General for Post and Telecommunication and the Indonesian Telecommunication Regulatory Body (BRTI).

As a player, the government has been blamed for its inability to act in the interest of the public, generally by turning a blind eye to possible abuses of dominant power.

On the other hand, as a regulator, it has been known for adapting slowly to changes in the market, and often being trapped by its interest in the industry when implementing regulations.

Speaking as an analyst, Telkom's independent commissioner Arif Arryman recently raised his voice, urging the government to act faster so as to put the right policies and rules in place to prevent abuse of dominant market positions.

"The available policies and regulations have failed to keep pace with the development of services and equipment," Arif said.

For him, there is nothing wrong with companies such as Telkom having a dominant position as long as the government exercises tight control so as to avoid abuses. He said such control was currently lacking.

Also echoing Arif's concern, Indonesian Telecommunications Society (Mastel) chairman Mas Wigrantoro said that the government had made a mistake by failing to introduce a floor price for mobile phone services.

"A new player entering the industry usually seeks to grow its subscriber base by setting the lowest price possible, while ignoring the question of profitability. If minimum prices are not set, this could destabilize the industry," he said.

On the implementation front, the government has issued various warning letters to industry players this year, including to Telkom for the delay in opening its exclusive rights over long-distance calling to other players, especially Indosat, which has also entered into fixed telephone services.

Indosat received a warning for the late development of its fixed telephone network, but the government could not impose any sanctions due to a loose network development contract.

The government's weakness as a regulating body also shows in the fact that operators get away with misleading TV commercials, which, in some cases, offer cheap rates without making the terms and conditions clear.

The one piece of good news for the public this year was when the BRTI said last month that it would introduce a new set of rate formulas to cut the average cost of mobile telecommunication services by 20 to 30 percent as soon as Jan 1.

BRTI member Heru Sutadi explained that call rates here were the second highest in the Asia-Pacific region due to the variable interconnection cost for calls between operators. After considering the performance of the operators, he said, it was time to adjust rates.

Another noteworthy move by the government this year was the launch of a consortium for the ambitious Palapa Ring project in November that consists of seven companies: Telkom, Indosat, Excelcomindo Pratama, Bakrie Telecom, PT Powertek Utama Internusa, PT Infokom Elektrindo and PT Macca System Infocom.

The project, estimated to involve $300 million for the first of two implementation phases, aims to link the entire archipelago through a fiber optic network in order to bridge the digital divide in 40,000 villages that are yet connected to the country's telecommunication networks.

One setback in the effort to bridge the digital gap came when the Directorate General of Post and Telecommunication announced earlier this month that none of the tender participants for a Universal Service Obligation (USO) project surpassed the required criterion.

The USO projects, which mostly include the development of telephone networks in remote areas, are financed by funds raised from existing telecommunications operators' contributions.

The program was introduced at the World Summit on the Information Society (WSIS), held by the United Nations in 2003, which aimed to increase Information and Communication Technology (ICT) penetration by 50 percent globally by 2015.

The country's telecommunication sector has rapidly developed during the past several years with the entry of new operators in the highly competitive mobile phone market.

The government therefore needs to review existing policies keep up with the rapid changes in the industry.