National Regulatory Authority (NRA) Case Study Indonesia

Taungoo, 1st October 2013

Koesmarihati Sugondo rohan@lirneasia.net

Regulatory Training Course, Taungoo, 01 October 2013

This work was carried out with the aid of a grant from the International Development Research Centre, Canada and UKaid from the Department for International Development, UK.

National Regulatory Authority (NRA) Case Study Indonesia

Background (1)

There has been paradigm shift in telecommunications:

Old Paradigm New Paradigm

As public Utility As commodity

Monopolistic Market Competitive Market

Basic and non-Basic Network and Services

Separate Network Convergence

Analog/Digital Digital

Circuit Switched Towards IP

Dominated Wire line Wireless Line

Distance Sensitive Distance Incensitive

Background (2)

In 2003, lowest telecommunications density in the region

– Telephone density of fixed line is about 4% and mobile is 8,5% ,

– 39% districts capital and 64% villages has not got telecommunications facilities

– Internet users is still under 8%

• Since 1996, telecommunications development is no longer receive state budget ;

• Indonesia Commitment globally : WTO and APEC

Background (3)

SIGNIFICANT EVENT IN THE TELECOM REGULATION AND INDUSRY,

Law No 36 year 1999, giving signal that telecommunications is entering the full multi-operator market;

Cellular mobile and Internet which are already competitive business shows remarkable growth;

Early termination of exclusivity right for PT TELKOM for domestic fixed local and long distance and exclusivity right for PT INDOSAT for international ; Local exclusivity right from originally Dec. 2010 to August 2002; Long distance exclusivity right from Dec. 2005 to August 2003*; International exclusivity right from Dec 2004 to August 2003* ;

*Note: In actual it was implemented in 2004

Background (4)

Consumers require choice of operators with variety of services with good quality and reasonable price

NEED REGULATORY BODY WHICH IS TRANSPARANT, INDEPENDENT AND IMPARTIAL TO ALL OPERATORS to GIVE HEALTHY COMPETITION.

REGULATORY BODY

• Stated in the Law No. 36/1999, article 4 (explanation)

– The Telecommunications Minister could delegate regulation function to a Regulatory Body

• Ministerial decree no 31 year of 2003

– Establishment of Badan Regulasi Telekomunikasi Indonesia

(BRTI) – Indonesian Telecommunications Regulatory Body;

– To secure transparency, independency and fairness in telecommunication Network and Service operations;

– Effective from 5 January 2004;

Organization Structure (1)

– BRTI consists of Telecommunications Regulatory Committee Members (of five) and Directorate General Posts and Telecommunications

– The Committee members consists of a chairman which is Director General of Posts and Telecommunications and 4 experts in technical (telecommunications & IT) , legal, economics and social.

Organization Structure (2)

– The 4 experts members were selected through independent selection team;

– The Committee Members are elected for two years term, which can be extended one more term if necessary

Decisions

The decision of BRTI is implemented by the Committee members collegially. In case no consensus reached, voting is taken by the Committee members with equal voting right In carrying out its task, Committee members is independent from power/influence of other interest.

Each Committee decision has to : go through process considering input in the form of opinion and thought which developed within the community ; To secure transparancy, independency and fairness.

– The BRTI’s decisions are in the form of Ministerial or DG decree.

– BRTI reports to Minister responsible for Telecommunications.

Working Mechanism

Problems listing - Rebalancing Tariff - Competition Safeguard - Operation Performance Standard - Quality Service Standard - Interconnection - Tools Standardization - Spectrum allocation - USO - International Standardization - Etc.

Method

- Data collection - Dialog - Feedback - Benchmarking - Public Consultation - Sozialisation

Product: - Regulation - Rules of The Game - Signed by Ministry/ Director General of Post & Telecommunication

• Weakness – The existing BRTI do not have strong legal based;

– BRTI is funded from State Budget which is part of DGPT’s budget, caused bureaucracy and less independency;

– The Chairman of BRTI is the Director General of Posts and Telecommunications, and BRTI consists of DGPT and Committees. Giving confusion on when as part of the Regulator (BRTI) or when is part of the Ministry.

– Often decisions is still waiting for signature from the Minister.

Weakness & Strength of

Indonesian Regulatory Body (1)

• Strength Four of five Committee Members were selected from various field of

expertise and sources (public, private, academics and practitioners)

Decision is made collegially among the five members

Do not have to work from a scratch, BRTI can collect the work already initiated by DG POSTEL

A start for ideal Independent Regulatory Body (IRB).

Even in Asia Pacific, not all countries have an IRB. There is no rules how is IRB should be structured

Weakness and Strength of

Indonesian Regulatory Body (2)

Our several Achievement …..

• Through many struggle through our bureaucracy , echo sectorial as well as the resistance of our incumbents ,

• We do not claimed that it is only because of us,

• Which we learned and understand that this challenges is not happened only in Indonesia, we achieved the followings:

Tariff Rebalancing

• Tariff rebalancing between the local and long distance,

• It was easy to say to public that the long distance decreased but is is very hard to convinced that local tariff is going up .

• As the Law no 36 year 1999 on the telecommunications stated that the tariff based on cost and the Government give the formula, and Operators themselves decided the tariff.

Interconnection (1)

• After a long journey, all network Operators agreed with the Government rules;

• Interconnection should be based on cost;

• Operators make agreement that the independent international Consultant which work with local consultant will do the calculation with all representatives from all network operators as counterparts;

• It was decided using Long Range Incremental Cost (LRIC) using bottom up approached.

Interconnection (2)

The Cost Based Interconnect consists of Originating, Terminating and Transits;

Calculation using 2005 data , networks from major Operators and element cost from the lowest network Operators;

Completed in 2006 with all regulation put in Ministerial Decree no 6 year 2008, which consists of main body and 5 Annexes : formula to calculate interconnection cost ; Cost allocation and Guidance to make Financial Report to Regulator Guidance to make RIO ; Essential Facilities, Dispute Settlement

The Cost Based Interconnection implemented start from 1 January 2007

Interconnection (3)

• We received many comments, that the interconnect price was too high, but for a start a transparent and non discriminative regulation is implemented for interconnection.

• Within that year the traffic was rocketed , and we feel we have to do re-calculation using more recent network data and cost.

• In 2008, we announced the new interconnection formula which decreasing the cost by between 30-40 %

• Operators reacted by decreasing the tariff.

Spectrum Fee

Before 2006

• Allocation by First come first Serve , then Beauty Contest – Less transparent

– Do not reflect the scarcity of the frequency Spectrum

– Do not encourage efficiency

• Spectrum fee based on Pay as Use ( BTS and Power consumption)

After 2006 • Allocation by Auction

– Transparent – Assigned only for the company

which value the most ( market based) - Encourage Efficiency

• Spectrum Fee based on the width of the band allocated : – Encourage the most optimal us

of radio frequency – Reduce administrative coat – Predictable for the purpose of

the budgeting process

Leased Line reform

• Leased line is an essential facilities • Previously there is no cost based regulation applied • The Incumbent PT Telkom is the major operator control

the market and tariff of the leased line is high , compare with other countries

• Many Operators rather build themselves than buy from PT Telkom,

• Price of Leased Line stay high and occupancy of network is low - inefficient network and investment

• In 2006, Government issued new regulation for the leased line and major operator has to issue and get approval of their Leased line Price Offer

Indonesian ICT Status 2004 -2009 (1/2) CI

Availability

Infrastructure Rollout

Density

International Backbone

Domestic Backbone

Access

1 provider 2 optic fiber route

6 provider 9 optic fiber route

1 provider Coverage : Java

5 provider Coverage : Java,

Sumatera, Kalimantan, Sulawesi

PSTN, AMPS, GSM PSTN, GSM, CDMA, 3G,

ADSL, BWA

USO

PSO

43000 blank spot from 72000 villages

Tele density : 18%

7000 blank spot from 82000 villages

Tele density : 75%

2341 PSO 2350 PSO

Affordability

Telco industry

Interconnection Leased line

Additional Infrastructure

License without commitment

License with commitment and

penalty

US 18 cent / minutes Source : Deutsche bank

US 1.8 cent / minutes Source : Deutsche bank

Internet : IDR 9.000 / hour

Internet : IDR 15.000 / week

Competition

Tariff policy

3G, BWA, FWA, ADSL

2004 2009

Indonesian ICT Status 2004 - 2009 (2/2) MCI

Tariff Situation :

Quality

Quality of Service

Penalty policy

Not available 5 regulation for local, long distance,

international call, , cellular and FWA services

Not available Government Act 7 Year 2009

2004 2009

Security

Policy

Facility

Security on Telco Network

(Gov Reg 52 Year 2000)

Security on Internet Infrastructure (Ministry Regulation26 Year 2007)

Cyberlaw (Electronic &Internet Transaction Act)

Not available ID-SIRTII as (Indonesia National CSIRT/CC)

2004 2005 2006 2007 2008 2009 2010 (Q-2)

Cellular 30,336,607 46,992,118 63,803,015 93,386,881 140,578,243 163,676,961 178,778,531

Fix Wireless Access 1,673,081 4,683,363 6,014,031 10,811,635 21,703,843 26,385,654 27,319,069

PSTN 8,703,218 8,824,467 8,806,702 8,717,872 8,674,228 8,423,973 8,429,180

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50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

Sub

scri

be

r

Fixed and Mobile Telephone Subscriber

Fixed and Mobile Telephony

Cellular

Fixed Wireless Access

PSTN

Internet

2004 2005 2006 2007 2008 2009

Internet Service Provider 28 48 84 114 165 178

Network Access Provider 2 10 17 22 36 39

Mobile Internet Subscriber 656,578 1,110,945 1,429,121 3,137,634 5,538,262 14,059,137

Fix Internet Subscriber 689,746 742,049 884,320 1,594,385 1,745,235 1,937,942

0

20

40

60

80

100

120

140

160

180

200

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

Inte

rnet

Su

bsc

rib

er

ISP NAP

Fix Internet

Mobile Internet

Internet Subscribers

2004 2005 2006 2007 2008 2009 2010 2011 2012

Cellular 30,336,607 46,992,118 63,803,015 93,386,881 140,578,242 163,676,961 211,145,429 247,923,000 283,492,000

FWA 1,673,081 4,683,363 6,014,031 10,811,635 21,703,843 26,383,654 31,773,988 29,102,306 29,707,001

PSTN 8,703,218 8,824,467 8,806,702 8,717,872 8,674,228 8,423,973 8,400,000 8,400,000 8,400,000

Internet 11,200,000 16,000,000 20,000,000 20,000,000 25,000,000 30,000,000 42,000,000 55,000,000 63,000,000

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

300,000,000 Su

bsc

rib

er

Cellular

Internet

FWA

PSTN

Thank You

koesmarihati@gmail.com