Indonesia’s WiFi Access InnovationUsable Knowledge for Growing the Telecom Sector Park Hotel, New Delhi, March 6, 2006

Divakar Goswami & Onno Purbo

Research Objectives

1. Why does Indonesia have more Wi-Fi deployed to connect to the Internet than most developing countries?

2. What lessons can we learn from WiFi innovations in Indonesia for other developing countries?

3. What steps must be addressed for hastening Internet growth in Indonesia?

What is WiFi? Wi-Fi is based on a family of standards that allow data to be

transmitted at high speeds wirelessly up to 15 kilometres away. 802.11 (2Mbps); 802.11b (11Mbps); 802.11a (54Mbps); 802.11g (54Mbps).

Where wired infrastructure is poorly developed (rural regions) wireless technologies like Wi-Fi, can be a viable solution to bridge digital divide.

Many countries, including USA, EU, India, Indonesia etc. have unlicensed portion of 2.4 Ghz band necessary for Wi-fi.

Advantages: Quick deployment time, low-cost, minimal rights of way needed, “free” bandwidth.

Disadvantages: Prone to interference, weather conditions, steep range/bandwidth tradeoff, doesn’t offer carrier class reliability.

Why WiFi?

Has WiFi deployment in Indonesia led to higher Internet access compared to other developing countries?

Internet penetration

1.03 1.75 3.76 9.64 6.86 34.53 60.97 47.17 50.88

- 0.01 0.02 0.07 0.02 0.44 23.3 18 10.1

InternetUsers

Broadband users

0.17 0.39 0.4 2.4 3.81

11.95

23.32

33.89

52.49

0

10

20

30

40

50

60

Per 100 inhabitants

Internet Subscribers 2003

Internet growth rate comparison

India’s CAGR for an eight-year period between 1998-2005 was 58.4% in comparison with Indonesia’s CAGR during the same period of 35%.

Per capita: Indonesia-$3500, India-$3100

Internet Subscriber Growth: Indonesia & India

10

900

30003300

3800

5550

400 581 667.002 865.7061087.428

1500

5450

0

1000

2000

3000

4000

5000

6000

Year1995

Year1996

Year1997

Year1998

Year1999

Year2000

Year2001

Year2002

Year2003

Year2004

Year2005

India

IndonesiaTh

ou

sa

nd

s

Why Study WiFi in Indonesia?

There is more WiFi deployment in Indonesia than most developing countries: 40 towns and cities in different islands have WiFi

deployed by entrepreneurs WiFi deployment in other developing countries

(Cambodia, Costa Rica, India, Bhutan etc.) small-scale, experimental basis, non-commercial.

Compared to developed countries, WiFi uniquely deployed in Indonesia

Typical ISP Network

Infrastructure Network

Access Network

Twisted copper pair

ADSL

Dialup

Fiber optic

Link to higher tier ISP

ISP A

ISP B

ISP C

Coax cable

Cable modem

Network Characteristics-Indonesia

Infrastructure NetworkAccess Network

Neighbourhood Network 50 houses+ $35/pm

Corporate Customer $200/pm

UTP Cable

ISP A

WiFi 2.4

IIX

Ethernet Ring

Microwave

ISP B

ISP C

Ethernet

School B

School C

Wifi 5.8WiFi

5.8

HouseSchool A$4000/pm (Internet link+ international bandwidth)

ADSL

UTP Cable

Uniqueness of Indonesian WiFi

WiFi deployed in Indonesia in unique manner:Not inside home; not available for free. Blurring of access and infrastructure

network; used as low-bandwidth backhaul; up to curb WiFi, last mile aerial cable.

Many tiered retailing of Internet service.

Innovations Around Constraints

Inadequate supply of network infrastructure-”backbone” & leased lines WiFi fills “missing link”

High price of last mile infrastructure, i.e., domestic leased lines WiFi provides service at substantially lower costs

High price of international bandwidth “Unlegal” use of satellite for international link

High retail price of Internet Service Unlicensed reseller-ISPs using WiFi to recoup high price

Annual Leased Line Prices-Domestic & International2Mbps link 2km 200km

Indonesia US$18,000 US$45,000

India US$376.00 US$7,603

EUBenchmark

US$4,802 US$9,219

Data compiled from Lokanathan, lirneasia.net, EU 10th report, interview with Indonesian ISP & Network Service Provider

Ratios India EU1:48 1:4

RatiosIndia EU1:6 1:5

Full-circuit

INDOSAT(Incumbent)

DT Putra(Satellite link)

India (price ceiling)

EU (Denmark)Benchmark

2 Mbps US$108,528 US$146,400 US$29,555 US$36,868

India EU1:4 1:3

India EU1:5.0 1:4.0

Comparison of Internet Prices (monthly) for Business Users in Indonesia & India

0500

1000150020002500300035004000

64 kbps 128 kbps 256 kbps 512 kbps 1 mbps

Bandwidth

USD

$

Indonesia

India

Data from Indonesian ISP provider & BSNL, India

Bandwidth Indonesia India Ratio

64 Kbps US$393 US$128 3:1

128 Kbps US$639 US$230 3:1

256 Kbps US$1180 US$396 3:1

512 Kbps US$2596 US$612 4:1

1 Mbps US$3776 US$970 4:1

Data from PT Telkom, Indonesia & BSNL, India

Comparison of ADSL Retail Prices

(monthly) in Indonesia & India

Bandwidth Indonesia* India** Ratio

384 KbpsUsage limit: 1 GB* 2GB**

US$74 USD$23 3 : 1

512 KbpsUsage limit: 2 GB* 5GB**

USD$93 USD$41 2 : 1

Barriers to Market Participation

Telecom services Telecom operationsFixed wireline local Exclusive right 1996-2010 PT

Telkom

Fixed domestic LD Exclusive right 1996-2005 PT Telkom

Fixed wireless local Limited competition (PT Telkom & Indosat )

Fixed international Duopoly 1995-2004 (Indosat & PT Telkom)

Mobile Competitive (Satelindo, Excelkomindo, Telkomsel etc.)

Internet service provision (Quasi?) Competitive Currently 124 ISPs official, 54 unlicensed

No competitionLimited competition Competitive

Barriers to Internet Growth: Some Solutions Inadequate supply of network infrastructure

(a) introduce more players to extend network [policy] (b) government invests in rolling out network

High leased line prices (a) introduce more players in leased line market [policy] (b) regulator introduces access regime for leased lines (b) regulator compels operators to lower prices

High price of international bandwidth (a) introduce more players in international gateway market

[policy] (b) regulator issues price ceiling like in India

High Internet retail prices The above steps will take care of high retail price

Is Policy & Regulatory environment conducive to above solutions?

Regulatory environment

Minister of Communications and Information Technology

DGPTTelecommunications

Regulatory Committee (BRTI)

DDG of Adm. Affairs

DDG ofFrequency Manageme

nt

DDG ofTelecom

& IT

DDG ofStandardi

zation

DDG ofInternationa

l Affairs

Notes : BRTI (Indonesian Telecommunications Regulatory Body) Line of Command Line of Coordination Report to

DDG ofPos

DG POSTEL is an unit of the Ministry of Communication & IT Two regulatory bodies: DG POSTEL & BRTIBRTI under-staffed, powers under transition, chairman is DG of POSTEL

Regulatory environment Exclusivity clauses extending historical

monopolies Indonesian govt owns 51% share in PT Telkom & 15% in

Indosat plus “golden share”

Structure of licenses preventing ISPs from deploying infrastructure

Licenses for Telecom Network & Service providers

No local loop unbundling Exclusivity until 2015

No regulation of leased line prices Non-regulation of uncompetitive market

Lessons for the Indonesia Wi-Fi “innovations” in Indonesia are not a result of

enlightened policy designed to extend communication infrastructure to unserved areas but rather a workaround solution to hostile market and regulatory conditions.

Any sustainable development of Internet growth in Indonesia must address policy & regulatory environment-credible regulatory reform

For quickest results, regulator must reduce leased line prices. Number of studies have shown the correlation between lower leased line prices and rapid diffusion of the Internet (Petrazzini & Guerrero 2000; Fan 2005;)

Findings from this study are being used by stakeholders and media to pressure government to lower leased line and international bandwidth prices.

Lessons for India & developing countries Hastening of broadband Internet deployment in

India & developing countries if ISPs can use Wi-Fi in the access network to bypass incumbent’s local loop.

Wi-Fi can bridge digital divide by providing Internet connectivity leap-frogging difficult terrain and lack of wired infrastructure in rural areas.

Wi-Fi deployment can be commercially viable.