Despite Strong Mobile Growth; Strong Competition and Regulatory Authority in Telecommunciations is Still Lagging

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Although Indonesia has allowed private and foreign investment into its telecommunications sector, competition remains limited. Telkom one of two incumbent telecoms is by far the most influential and biggest operator in the country. Indonesia partially privatized incumbent PT Indosat in 1994 and PT Telkom in 1995. However, the state still has controlling shares in both firms. The mobile market has the highest level of competition but it continues to be dominated by Telekomsel (PT Telkom) and PT Indosat the second largest GSM operator.

The establishment of a national telecommunications regulatory authority did not occur until 10 years after the issuing of GSM licenses--the reverse of the normal sequence of events in European countries. In fact, Indonesia has two regulatory bodies, neither of which possesses the power to provide an effective regulatory environment. Although the Telecommunication Law of 1999 provided the government the option to create an independent regulatory agency, that option was not exercised until 2003 when the Indonesian Telecommunications Regulatory Body (BRTI) was created. The BRTI has become a long serving ‘transitional’ body whose budget is allocated by the state’s second regulatory body, the state-run Directorate General of Post and Telecommunication (DGPT). This places into question the independence of the BRTI, as the state holds considerable influence on the country’s two major telecoms.

Ineffective policy making and regulation has been blamed for the slow progress of internet and telephony penetration. The lack of fixed infrastructure, which internet services are primarily dependent upon, is dominated by the state-owned PT Telkom, who along with PT Indosat, controls the international gateways. As referenced above both Indonesia’s geographical conditions and licensing policies have limited the introduction of new service providers willing to build new infrastructure. This has limited ICT development to major urban centers like Jakarta, Bandung, Bali and Surabaya.

In addition to limiting ISPs ability to develop backhaul and last-mile solution, the current licensing framework weakens the negotiating power of ISPs as they are dependent on a single fixed line services supplier. MASTEL, the Indonesian Infocom Society, has identified the current licensing framework and state monopoly on fixed line services as the main cause for the constraint of internet development.

(1) Kapugama, Nilusha, Juni Soehardjo, and Chanuka Wattegama. “Telecom Regulatory and Policy Environment in Indonesia: Results and Analysis of the 2008 TRE Survey.” LIRNEasia. 18 March 2008. Colombo, Sri Lanka. Accessed August 2009. http://www.lirneasia.net/wp-content/uploads/2009/07/TRE_Indonesia_2009Mar18.pdf.

(2) Iqbal, Tahani and Onno W. Purbo. 2008. “Geektivism.” ICT Infrastructure in Emerging Asia: Policy and Regulatory Roadblacks. Eds. Rohan Samarjiva and Ayeesha Zainudeen. Sage Publications: Thousand Oaks, CA.

(3) Ibid.