Despite a drive to develop the communications market, market movements require government sanction (which includes interconnection, ownership, and scope of operations), and we foresee this trend continuing. However, the regulator has taken several bold steps to promote development of the communications and technology sector, including measures that assign a spectrum for wireless broadband development, an e-commerce law to govern internet-based businesses and transactions, and the establishment of a universal services obligation (USO) fund to help finance the build-out of telecoms services in Indonesia’s vast rural areas.

Clearing Up Spectrum

  • The new 3G allocations showed a determination by the government for increased transparency and defending its credibility to the market—especially as Indonesia is one of the world’s fastest and potentially largest communications markets. The regulator cleared up the issues surrounding 3G spectrum allocation by re-awarding spectrum to the original 3G licensee holders, PT Natrindo Telepon Seluler (NTS) and PT Hutchison CP Telecommunications (Hutchison Telecom Indonesia), at YE2005, after their 3G licenses had been rescinded at mid-year. They hold 2x15MHz and 2x10 MHz in the 2GHz band. The regulator also vacated an extra 30MHz space in the 3G band (for additional licensees) which it auctioned in early 2006. The three GSM giants of the market, Telkomsel, Excelcomindo, and Indosat, all successfully secured 2x5MHz in 3G band, outbidding the fixed mobility players who bid in the auction. The 3G licenses expire after ten years. Given the limited timeframe and the amount of frequencies, Pyramid Research expects rapid but limited deployment from the established players, thus effectively keeping the high-end market segments away from the original 3G licensees which are now faced with rolling out their networks.

  • The regulator has also defined the 1900MHz band to be 3G and has asked current occupiers of the band—PT Telkom and PT Indosat—to vacate the 1900MHz one, as these frequencies were subsequently awarded to UMTS-based operators. In return, these companies will receive extra frequency in the 800MHz band to use for their wireless local loop operations as well as financial compensation (amounts are yet to be determined). There had been debates about the financial consequences of reallocating operator use of the 1900MHz to the 800MHz band, but Pyramid Research is convinced that this will not be detrimental to the growth of the fixed mobility market.

Interconnection Rates to Be Determined Based on Cost

  • The current revenue-sharing-based interconnection rates will be shifted to a cost-based interconnection rate system within this year. The regulator has given the players a deadline to report on their interconnection before the regulator finally approves these interconnection regulations. This policy is aimed at promoting fair competition in the market, which is not currently supported by the existing framework. Previously, this was based on a revenue-sharing scheme which had contributed to higher tariffs. We expect this cost-basing to be a good step up for the regulator to promote competition in the market.