Inadequate backbone infrastructure in Indonesia has been widely regarded as crippling its telecom sector. Uneven development of the backbone has meant that much of the East of the country has no fiber-optic based backbone network and those islands have to rely on more expensive satellite links. Poor long-haul domestic infrastructure has meant that many parts of the country do not have access to basic communication and those that are connected have some of the world’s highest leased line and Internet prices as my earlier study shows.
The Indonesian government’s ambitious Palapa Ring project to create a fiber ring connecting the major islands had been shelved post the 1997 Asian financial crisis. Recently, however, efforts have been made to revive a modified version of the earlier vision. In an earlier discussion on LIRNEasia (click here), we described as unviable the Indonesian regulator’s proposal to build backbone infrastructure funded primarily from government coffers: “From the outset, this proposal seems doomed. Although the intention is a noble one (to reduce Internet prices) the means are neither the most efficient nor feasible. For one thing, there is no budgetary support for this and under the tight financial constraints that the Indonesian govt is in, it seems unlikely that it will be supported.”
Hence, it is heartening to note that a few days ago (August 28, 2006), the Indonesian Communication Minister, Sofyan Djalil, has announced a proposal to open up the backbone market to private investment. The Ministry plans to use the mechanism of least-cost subsidy auction to encourage potential investors to roll-out backbone infrastructure throughout the country. LIRNEasian researchers have been involved in designing a similar auction for the eSri Lanka project to extend backbone in provinces of Sri Lanka that currently lack such infrastructure. A number of pitfalls and challenges of least-cost subsidy auction have been identified in earlier studies conducted by LIRNEasia researchers in India and Nepal. Generally, when necessary regulatory reforms have not been carried in a country, the auction results in sub-optimal outcomes that benefit the incumbent and other parties rather than the unconnected.
Although it is too much to hope for regulatory reforms to take place in Indonesia before auctions are held, incorporating certain safeguards in the auction design may mitigate some potential ill-effects. We would strongly recommend to have an access regime in place that specifies modailities for access to the new backbone infrastructure that would be rolled out. The license should also specify conditions and procedures for raising backbone access fees.
For news story, see below.
Indonesia to Ask Investors to Bid on Building Fiber-Optic Links
By Wahyudi Soeriaatmadja
Aug. 28 (Bloomberg) — Indonesia will ask investors to bid to lay fiber-optic cables in the world’s largest archipelago and
help reduce the cost of high-speed Internet connections, Communications Minister Sofyan Djalil said. The government is preparing tender papers and will ask companies to bid for the project in two months. Phone companies interested in bidding will be given incentives, including licenses for overseas calls, Djalil said. The government won’t charge any fee for allowing companies to lay the network.
“Information technology dominates almost all economic activities as it boosts productivity, improves education process,” Djalil told reporters in Jakarta today. “This project will help in reducing Internet and information
The government is trying to bring down Internet and phone costs for companies and individuals, which are among the highest in Southeast Asia. The fee for a high-speed Internet connection using cable television lines in Jakarta starts at about $55 a month, or 27 percent costlier than in Thailand. There were 1.5 million Internet users in Indonesia in 2005, according to the Indonesian Internet Service Provider Association.
“Those that offer the cheapest rates will win the tender,” Djalil said. “The cheaper, the better for Indonesian
–Editor: S. Collins