Indonesian Leased Line Prices to Fall by 50%

Posted on October 10, 2006  /  1 Comments

 Indo leased line by half.jpg

Leased Line Tariffs to be Regulated

Bisnis Indonesia, September 27, 2006
JAKARTA: The Indonesian Telecommunication Regulatory Body (BRTI) will regulate the tariffs for leased lines through a ministerial decree, which is expected to be signed end of this year. The regulator most likely will force network operators to lower leased line tariffs by more than 50 percent to push internet penetration in Indonesia.

BRTI said this in a public meeting with Mastel, internet service providers, and network operators yesterday. Heru Sutadi, a member of BRTI, expected a decline of more than 50% in the tariffs will increase ICT usage, internet interconnection, telephone penetration and increase the number of internet users in Indonesia.

“The regulator expects the decline in leased line tariffs will be followed by the acceleration of local internet content, so that bandwidth doesn’t get used outside the country and internet tariffs can drop significantly,” he said yesterday. Leased line is the network that connects internet service provider with retail customers, also called E1.

BRTI said investment estimate during the network construction 10 to 15 years ago had to include depreciation. Fifteen years ago, the price for each kilometer of E1 was about 90 million rupiah, which has drastically declined to about 3 million rupiah at present.

According to the post and telecommunication directorate general (DG POSTEL), Telkom, Indosat and Excelcomindo are the major operators in the sector.

Mastel estimated that the leased line tariffs in Indonesia is 48 times more expensive than India. Internet service operators have said that the high tariffs made internet costs for customers. The Association of Indonesian Internet Service Providers expects the decline in leased line tariffs will push for a healthy competition in providing internet to retail customers.

Heru said the decline in leased line tariffs will be followed by the plan to build domestic optic fiber network (Palapa ring), while the line to outside the country is currently being tendered. “The number of internet users will rise significantly considering that retail tariffs will surely fall,” he said.

According to data from the internet association, there are between 16 million and 20 million internet users in Indonesia, or about 8 percent of the population. Sarwoto Atmosumarno, head of long distance division at PT Telkom, said that the company basically approves of BRTI plan, especially in the era of multi-operators, when the prices for telecommunication services should be competitive.

“The regulator must see whether leased line service is a monopoly or not that needs to be regulated,” he said
to Bisnis yesterday. Sarwoto also said that regulator in determining the tariffs should not violate the law, which stipulates that BRTI has the right to establish the formula, and not the tariffs itself. Thus far, the regulator has not applied this rule, for example in the fixed telephone tariffs, he said.

1 Comment

  1. LIRNEasia can take some credit for this regulatory decison by BRTI which was triggered off by the preliminary findings from the Indonesia Wi-Fi Innovation study presented to the regulator and to the Indonesian media in October 2005. The study found leased line prices in Indonesia to be significantly higher than other benchmark countries, including 48 times the price for a comparable leased line link in India. LIRNEasia‘s partner MASTEL, the Infocom Society of Indonesia and representing a wide spectrum of telecom stakeholders, highlighted this issue of high leased line prices in a number of fora. This issue was also picked up widely in the Indonesian newspapers.

    At APECtel’s Leased Line Seminar in Calgary, Canada during April 2006, LIRNEasia researcher presented the Indonesian leased line case compared with other APEC countries. Although Indonesian leased line prices were lower than Singapore and Hong Kong, they were significantly higher than the rest of countries that were compared. The Indonesian regulator who was present at this presentation, remarked that LIRNEasia’s research got them to initiate a study to look into Indonesia’s high leased line prices. BRTI’s leased line study also took them to India where they explored whether India’s leased line prices were as low as reported. BRTI’s benchmark prices of other countries in the region also found that Indonesia’s leased line prices were high.

    In March 2006, Sofya Djalil, the Indonesian Minister of Communication and Information promised to implement a “revolutionary” policy to lower prices in two months time. Finally, after a year since LIRNEasia’s findings were made public, the regulator has started the process of bringing down leased line prices. BRTI held public consultation on leased line price regulation and details on the regulation that it is proposing are available here (in Bahasa Indonesia).

    More detailed description of how LIRNEasia’s research influenced leased line policy, can be found here.