Wi-Fi “Innovation” in Indonesia: Working around Hostile Market and Regulatory Conditions
by Divakar Goswami & Onno Purbo
Available for download [PDF]
With their low-cost and quick deployment time, wireless Internet technologies like Wi-Fi offer last-mile access network solutions to developing countries with limited network infrastructure. Among developing countries, Indonesia is unique for the extent of Wi-Fi that has been deployed by Internet Service Providers (ISPs) and private entrepreneurs in more than 40 towns and cities across the archipelagic nation. However, the findings from the current study finds that 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.
The research objectives were to determine the conditions that gave rise to Wi-Fi becoming an access technology of choice for Indonesian ISPs; the lessons that can be abstracted from Indonesian Wi-Fi innovations; and the steps that must be taken for the next stage of Internet growth in Indonesia. Despite having two regulatory bodies, DG Postel and BRTI, the Indonesian telecommunication sector lacks credible, independent regulation. DG Postel is embedded within the Ministry of Communication & IT and BRTI is nominally independent being understaffed, lacking teeth and being chaired by a DG POSTEL representative. A poor regulatory environment is compounded by a non-competitive telecommunication sector dominated by PT Telkom and Indosat who were given exclusive licenses by the Indonesian government for fixed telephony and international gateways, respectively. In the absence of regulatory requirement to unbundle the local loop, PT Telkom’s monopoly over the last mile facilities that are critical to all local telecommunications services especially Internet service means that Internet Service Providers (ISPs) needed to build their own last mile infrastructure to reach customers. However, license conditions for Network Service Providers, the category that ISPs fall into, forbid them from building their own infrastructure—last mile or backbone. The ISPs used Wi-Fi in the access network as a workaround solution for their inability to build or buy last-mile infrastructure. Until recently (January 2005), the unlicensed use of 2.4 Ghz for Wi-Fi was illegal and the use of 5.8 Ghz continues to be. However, that has not prevented ISPs from using those parts of the frequency because Wi-Fi is cheaper and easier to deploy compared to wired infrastructure and has lower sunk costs at risk if caught by the authorities. As is well documented in the literature of economics, monopolists do not invest the full amounts required for economic efficiency when they are provided with monopoly returns on their investments. This is the case in Indonesia with backbone infrastructure that is scarce outside the islands of Java and Sumatra and unevenly deployed even in those two islands. The inadequate supply of backbone and lease line infrastructure and the high monopoly prices for leased lines that exceed benchmark prices in other countries by as much as 48 times, has forced ISPs to use Wi-Fi as low-capacity backhaul networks to carry Internet traffic. These cost saving strategies by ISPs have not been able to keep retail Internet prices from being three or four times the price in benchmarked countries. This has resulted in a multi-tiered retailing of Internet service, where large customers like schools act like ISPs using Wi-Fi to connect to neighbourhood networks, other schools and businesses to recover high Internet costs that can be as much as US$4000 per month for a 2Mb link. It is evident from the research findings that ISPs in Indonesia have used Wi-Fi “innovations” to circumvent market & regulatory barriers. Until credible regulatory reform is carried and the telecom market is liberalized, the gains in the telecom sector generally and Internet specifically will be limited and unsustainable. For quickest results for high Internet growth in Indonesia, the regulator must reduce leased line prices as a number of studies in different countries have shown.
The silver lining for Indonesia is the inherently lower costs of Wi-Fi compared to wired last-mile access technologies, providing the country with potentially explosive Internet growth if conducive regulatory and market conditions are created.
The findings from this research project have been presented at the following events:
- Catalyzing Change: Strategies to Achieve Connectivity and Convergence, 10th LIRNE.NET/LIRNEasia training course on telecom reform, 25-30 September 2005, The Elizabeth, Singapore
- WDR Expert Forum, 30 September 2005, The Elizabeth, Singapore
- LIRNEasia Networking Meeting, 2 October 2005, Jakarta Hilton, Indonesia
- Pro-Poor, Pro-Market ICT Policy and Regulation forum at the WSIS, 17 November 2005, Kram Center, Tunis, Tunisia |
- Usable Knowledge for Growing the Sector: ICT Policy and Regulation Research from LIRNEasia, 19 December 2005, Galle Face Hotel, Colombo, Sri Lanka
- Usable Knowledge for Growing the Sector: ICT Policy & Regulation Research from LIRNEasia, 6 March 2006, The Park Hotel, New Delhi, India
- Concluding remarks at Leased Lines Seminar at the 33rd APEC TEL meeting in Calgary, Canada, April 2006.
Dissemination and media coverage of findings of this study are available here .