Telecommunications in Indonesia "WARNING LONG POST"
The Indonesian telecommunications industry is undergoing a period of rapid growth,
fueled by a rising standard of living as well as increasing liberalization of company
ownership and shareholding structure. It is anticipated that, over the next 10 years, the
industry will invest in excess of US15 billion in financing an increase in mainline
teledensity from less than the current 2% to almost 6%, and cellular teledensity from
0.2% to around 1.4%.
Indonesia is the only Southeast Asian country (except for Vietnam) which has a level of
teledensity (both cellular and fixed line) significantly below what is considered
"optimum". Indonesia has the world's fourth largest population with 193 million
people. However, there are currently less than 100,000 cellular subscribers. As a
reference, Thailand, one third of Indonesia's size, has over 800,000 cellular
subscribers. Telecommunications services in Indonesia are not yet at an acceptable level
when compared to other Asian countries. Indonesia has approximately 1.9 million line
units for a penetration of only 1.5 phones per 100 people.
The capital city, Jakarta, along with Surabaya, the country's second largest city, have
the greatest concentration of telephone lines- still very low at 11.2% and 8.5%,
respectively (1995)- while penetration in the rural areas goes down as low as 0.7%.
Progress in line buildout has been slow, and making a telephone call even when you
have a line can prove problematical. The call completion rate in 1996 stood at 52% for
domestic calls, and 45% for domestic long distance. This essentially means that a caller
can only get a call through the first time only half of the time. Of course, this is
expected to change rapidly as the industry enters a dynamic growth phase.
Indonesian Domestic Telecommunications Network
1991
1992
1993
1994
1995
Population (in
000s)
181,164
184,063
187,008
190,000
193,040
Total lines in
service
1,311,018
1,591,388
1,946,814
2,375,113
2,897,638
Lines per 100
inhabitants
0.72
0.81
1.03
1.23
1.46
Line capacity per
100 inhabitants
0.86
1.07
1.60
2.03
2.58
# of public
telephones
24,563
38,659
49,077
75,088
114,884
# of cellular
subscribers
9,450
29,348
48,546
73,139
97,490
Reasons for Investing in Indonesia's Telecommunications Industry
ú High credit rating by Standard and Poor's. Indonesia has never
rescheduled or defaulted on its debt repayments.
ú Government development programs towards continued deregulatory
reform, as well as greater focus on diplomatic efforts, and encouraging
foreign direct investment.
ú The Indonesian telecommunications industry is undergoing a period of
rapid growth, fueled by a rising standard of living, as well as increasing
liberalization of foreign private ownership. Furthermore,
telecommunications development is largely a function of economy
growth. The Indonesian economy has maintained steady growth of 7-8%
over the past 10 years, with middle and upper income classes rapidly
expanding.
ú It is the only economically efficient Southeast Asian country with
significantly below optimum levels of telecommunications for a
population of 190 million. Unlike Thailand, Malaysia, and the
Philippines, where there are increasing signs of saturation, Indonesia's
telecommunications industry can continue developing and expanding for
the next 5 years without encountering signs of any significant saturation
of demand.
ú Indonesia offers one of the most favorable regulatory and competitive
environments in the region. The government is adopting a very
co-operative approach, as well as limiting the number of players. The
main policy is to ensure the continuing development of Indonesia's
telecommunications industry, but not at the expense of profitability.
ú The development of the KSO concept (the Indonesian acronym for a
form of joint-venture), which restricts foreign ownership to holding
minority stakes in cellular ventures, is basically designed to inject foreign
capital and expertise into operations, without losing Indonesian control of
the industry and avoiding significant escalation of competitive pressures.
ú Industry experience curve has resulted in a decline in capital costs
associated with installation, operation, and distribution of
telecommunication products.
Telecommunications Structure and Regulatory Environment
As in the case of most other countries, Indonesia's telecommunication services were
traditionally provided via state owned or controlled corporations/bodies. Over the last
10 years, the emphasis has gradually shifted form the issue of control and national vs.
economic interests to the question of coverage and the ability of these bodies to deliver
teledensity rates in line with the underlying growth rates and even more importantly,
aspirations of individual countries and their governments. This has led to the gradual
relaxation of the restrictive ownership and operating requirements.
De-regulation Chronology
1989
Enactment of New Telecommunications Act
1995
Exclusive license granted to Telkom and
Indosat
1996
Establishment of KSO joint ventures
The net result of these changes was a significant increase in the number of providers
(both actual and potential) of telecommunication services.
There are 2 government ministries responsible for overseeing Indonesia's
telecommunications sector -
Ministry of Tourism, Posts and Telecommunications (MTPT) :
responsible for promoting growth and development, policy development,
regulation, and tariff setting.
Ministry of Finance (MOF) : responsible for large-level issues on
national economic policy, whose telecommunication interest comes from
its position as a majority shareholder in the national operator, Telkom.
Within the MTPT, the Directorate General of Posts and Telecommunications (DGPT)
is the licensing arm of the ministry. Its responsibilities lie in frequency planning,
standardization, licensing, and policy implementation.
Under the Telecommunications Act of 1989, the industry has been opened to limited
private sector participation under the guidance of and cooperation with state-owned
telecommunication companies, which were designated as industry organizing bodies.
The objective of the new rules is to accelerate the line installation program without
losing control of underlying assets. This is achieved by designating PT Telkom and
Indosat as coordinating bodies which directly or indirectly participate in the projects
and which have an ultimate ownership of underlying assets. Foreign investors and
telecommunication companies are there principally as financiers and managers.
According to MTPT decrees, PT Telkom, the national operator, was designated as the
organizing body for domestic phone services, while Indosat, the sister company to
Telkom, is designated as the organizing body for the international telecommunications
market.
According to current regulations, basic telephone services (whether domestic or
international) can be provided by private companies, but only in direct or indirect
cooperation with an organizing body. The Telecommunications Law permits such
cooperation in the form of:
ú joint-venture companies in which the organizing body has a direct or
indirect equity participation;|
ú joint operating schemes (i.e. PBH or KSO); and,
ú management contracts.
PT Telkom remains the primary provider of domestic telecommunication services. It
owns and operates the country's only backbone system and, with effect from 1996, it
has the exclusive right to provide domestic long distance telecommunication services
for a minimum period of 10 years (until the year 2005). The company also has
exclusive rights to provide local fixed wireline and wireless telecommunication
services, including services provided for and on behalf of Telkom pursuant to Joint
Operating Schemes, for a minimum period of 15 years (until the year 2010). Telkom
holds stakes in all 7 cellular operators in Indonesia
Indosat is the dominant provider of international telecommunication services. MTPT
granted Indosat and Satelindo an exclusive license on international telecommunications
services until December 31, 2004.
Most of the private participation in the development of the telecommunications industry
is made via 2 forms of Joint Operating Scheme (i.e.- Revenue sharing agreements,
known as "PBHs", and operating arrangements known as "KSOs").
At present, there is no such thing as a designated or independent regulator in Indonesia.
"Repelitas"
The government's long-term policies are set out in consecutive 5-year plans, known as
"Repelitas". To date, Indonsia has completed five Repelitas. The current Repelita VI
ends March 1999. As far as telecommunication services are concerned, Repelita VI sets
the target of adding another 5 million new telephone lines, of which 2 million are to be
installed by KSOs.
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