Indonesia Country Report on Regulatory Framework

1. ADB/ITU Final International Workshop on Rural ICT Development ADB/ITU Project on “Rural Information and Communications Technology Policy Advocacy, Knowledge Sharing, and Capacity Building” Indonesia Country ReportonRegulatory Framework Mr ArifWismadi, ADB/ITU national consultant 30th Jun – 2nd July 2011 Sheraton Krabi Beach Resort, Krabi, Thailand

2. Content • The (r)evolution of regulatory framework: why does it necessary? • Important milestone and its impact • What are specific regulation applied for USO/rural? • Lesson learnt

3. The (r)evolution of regulatory framework: why does it necessary? • ICT is important for national integrity, therefore it should be considered as public domain, and to be manage by state (owner enterprise) SOE • Monopoly privilege was given to SOE with an obligation to connect rural and remote area • ICT is a lucrative industy, Indonesia is a big market, but under monopoly any new player is difficult to enter. • Monopoly privilege failed to realize rural and remote area connectity toward national integrity. • Globalization issues depress countries in the region to open the market: inefficient monopoly is the fact and it is the forcing factor for liberalization. • Monopoly, duopoly and market liberalism skewed ICT sector from public into ‘private’ domain.

4. The (r)evolution of regulatory framework: why does it necessary? • Private enterprise grown with little interest to serve rural, remote, non-economically viable. • Reinventing USO program to address rural connectivity and national integrity, led by Government. • ‘Pay’ or ‘play’ became the options, choice on ‘pay’ to provide equitable contribution and centralized resources management. • Collection and disbursement is new challange. • All regulatory intrument modified or formulated to support new program.

5. Important milestone and impacts

6. Rural Specific Regulations NATIONAL LAW 36:USO Contribution Government Regulation 52: USO definition 28: 0.75% 7: 1.25% Ministry Decree 34: USO operational definition Service Procurement Operational Plan Dir. General USO with USF: 38.471 vil internet 500 vil+5.748 IPoP SOE privilege and obligation to rural connectivity USO Pilot Project w Gov. Budget Deployment

7. Lesson Learnt • It takes 10 years to operationalized USO with sufficient regulary support • Some aspect in regulatory frameworks: public-’private’ domain, financing, asset ownership, procurement scheme, single-multiyears basis, institutional , decentralized systems. • Reform from monopoly to market economy grows commercial market rapidly. Further investigation on the impact for rural need to be studied.

8. ADB/ITU Final International Workshop on Rural ICT Development ADB/ITU Project on “Rural Information and Communications Technology Policy Advocacy, Knowledge Sharing, and Capacity Building” Indonesia Country Reporton Government’s Institutional Structure Mr ArifWismadi, ADB/ITU national consultant 30th Jun – 2nd July 2011 Sheraton Krabi Beach Resort, Krabi, Thailand

9. Content • What we want to achieve with this structure? • Structure, hierarchy, functions. • How does it support rural? • Lesson learnt

10. What we want to achieve • How: • Regulatory Instruments • Government roles Market economy while serving the unserved.

11. 5 key roles of the public sector in ICT • Policymaker: MCIT • Determining the public interest in infrastructure and translating these interests into the legal, institutional, and regulatory frameworks • Regulator: MCIT to BRTI (Independent Regulatory Body) • Administering conditions of market entry • Investigating the exercise of anti-competitive practice • influencing pricing and service levels • setting rules/standards to protect public safety and the environment. • Custodian: MCIT (resource management i.e. Frequency, Numbering etc) • Maintaining good stewardship of public assets (financing, operation, maintenance through state operators or private managers and concessionaires) • Constructor: MCIT (e.g. facilities for Frequency Monitoring) • Designing and constructing infrastructure • Customer: BTIP/BP3TI (service procurement of USO Operators) • Procurement of infrastructure works or services

12. Policy Maker: MCIT • Determining the public interest in infrastructure and translating these interests into the legal, institutional, and regulatory frameworks BRTI Permen No17/PER/ M.Kominfo/10/2010

13. Regulator: BRTI • Maintaining good stewardship of public assets (financing, operation, maintenance through state operators or private managers and concessionaires) • Administering conditions of market entry • Investigating the exercise of anti-competitive practice • influencing pricing and service levels • setting rules/standards to protect public safety and the environment.

14. Customer: BTIP/BP3TI • Procurement of infrastructure services KKPU is the USF. To use USF, the technical department (1) has to have authorization from Ministry of Finance (2), and as the implementation agency is the Office of Rural Telecommunication and Information (BTIP) (3). BTIP selects the operators (5) to provide USO service as required. Operators also sign contract with BTIP to provide service in certain time. In term of planning, The Local Government (4) and Community (6) propose the USO location and also harmonized the program with local program.

15. Rural Specific Regulations BRTI BTIP USO with USF: 38.471 vil internet 500 vil+5.748 IPoP

16. Lesson Learnt • The rapid growing of ICT market is a fact that ‘market forces’ is more dominant than ‘planning’. • Planning aspect in ICT sector is one of key-success factor for serving the unserved.

17. ADB/ITU Final International Workshop on Rural ICT Development ADB/ITU Project on “Rural Information and Communications Technology Policy Advocacy, Knowledge Sharing, and Capacity Building” Indonesia Country Reporton Funding Mechanism Mr ArifWismadi, ADB/ITU national consultant 30th Jun – 2nd July 2011 Sheraton Krabi Beach Resort, Krabi, Thailand

18. Content • Why is it so diffult? • Option: play or pay? Pay. • Lesson learnt from pilot project • The transition of funding mechanism • Why do we need BP3TI? • Collection vs disbursement issue

19. Financing issues on rural ICT development • Investment on fixed line for rural ICT in remote areas needs high-capital with low RoI (Return on Investment) • Development of ICT in rural areas is much more expensive (not attractive in business point of view) • Affordable technology and service are required for the poor in rural area

20. Lesson learnt from pilot project • Pilot: government budget, CAPEX for last-mile • Asset ownership, operation and maintenance • Annual budgeting vs response time • Revenue management • Financial risk management

21. Evolution of USO policy PREVIOUS (2003 – 2004): • USO FUND ONLY FOR ONE YEAR BUDGET • BASED ON PROCUREMENT (LOWEST CAPEX SUBSIDY FOR LAST MILE) • ASSET OWNED AND MANAGED BY GOVERNMENT • THE PROCUREMENT ONLY FOR ONE YEAR BUDGET (SINGLE YEAR) • THE OPERATIONS AND MAINTENANCE ARE DIVIDED EVENTS • THE MAINTENANCE AND MANAGEMENT RISK ARE RESPONSIBLE BY THE GOVERNMENT • NOT ANY GUARANTE FOR SUSTAINABILITY ACCESS AND TELECOMMUNICATION SERVICES • NEW (2007 – NOW): • EARMARKEDTHE USO FUND ONLY FOR THE USO AND END YEAR CASH BECOME THE EARLY YEAR CASH FOR THE NEXT YEAR. • BASED ON SERVICE PROCUREMENT (LOWEST OPEX SUBSIDY FOR LAST MILE ACCESS) • ASSET OWNED/MANAGED BY PROVIDER/S • THE PROCUREMENT FOR 5 YEARS FOR TELEPHONE & 4 YEARS FOR INTERNET (MULTI-YEARS) • THE OPERATIONS AND MAINTENANCE ARE AN INTEGRAL PART OFTHE CONTRACT • THE OPERATION AND MANAGEMENT RISK ARE RESPONSIBLE BY THE PROVIDER • AVAILABILITY, ACCESSIBILITY, AFFORDABILITY TELECOMMUNICATIONS ACCESS AND SERVICES

22. Non-operational Revenue (USF) Operational Revenue Operational Expenses MANAGEMENT IFsurplus: IFdeficit: to improve the service subsidy Service Payment Operational Revenue Service Performance Operational Revenue Reral ICT 1 invoice Opex: Per Facilities Operational Rural ICT2 Revenue Operational Rural ICT- n Revenue Concept for New Rural ICT Financing Rural ICT Authority Non-operational Revenue The payment based on the performance

23. USF RISK FIXED OPEX DEFICIT USF Expenses SURPLUS REVENUE SUBSIDY: 00% DEVELOPMENT FUND DEPOSIT USF USF SUBSIDI 0% 100% SUBSIDI RISK x CONCESSION RISK MANAGEMENT PREMI OPEX Exit Strategy? CONCEPT: FINANCIAL RISK MANAGEMENT of Rural ICT Authority 3rd Party

24. MCIT + Interministrial Parlement/ Interministrial Board Civil Society Representative Rural ICT Knowledge Goverment /Contributor Golden share Concept: Roles and Responsibilities Budget Proposal & Reporting Budget Acceptance Poilicy and Planning & Financial Security Operational Planning Rural ICT Authority INDEPENDENT AUDITOR

25. Non-operational Revenue (USF) Operational Revenue Operational Expenses MANAGEMENT IFsurplus: IFdeficit: to improve the service subsidy Service Payment Operational Revenue Service Performance Operational Revenue Reral ICT 1 invoice Opex: Per Facilities Operational Rural ICT2 Revenue Operational Rural ICT- n Revenue Current Implementation Rural ICT Authority Non-operational Revenue USO Operator

26. Lesson Learnt • Option for revenue collection: gross contract (revenue goes to authority) requires certain capacity, net contract (revenue goes to operator) – current scheme • Service contract requires a robust information management to monitor the operator performance.

27. ADB/ITU Final International Workshop on Rural ICT Development ADB/ITU Project on “Rural Information and Communications Technology Policy Advocacy, Knowledge Sharing, and Capacity Building” Indonesia Country Reporton Initiatives & Public Private Partnership Mr ArifWismadi, ADB/ITU national consultant 30th Jun – 2nd July 2011 Sheraton Krabi Beach Resort, Krabi, Thailand

28. Content • Obligation, Provision? • Financing and public, private and PPP • Some initiative and best practices • Where are we now? • Lesson learnt

29. Financing Scheme Options for USO Programs • FULL COST • INCREMENTAL COST • Incremental Cost • Reduce cost • Liability and Risk sharing • Public Private Partnership OE1 OE2 OE1 COST OPRT OE2 COST OPRT

30. operator USOFund Local government/community LAND BUILDING PROPERTY ELECTRICITY WATER Cost sharing in Rural ICT development

31. USO Standard Telecommunication Facilities Name Board Antena Internet Facility Sign Board Telephone Facility THE OFFICE FOR TELECOMMUNICATION AND INFORMATICS FINANCIAL PROVISION AND MANAGEMENT (BP3TI)

32. Mobile Facility

33. Road map USO Development 2015 2020 2025 2020 2025 2010 Ringing Villages Smart Villages I C T F U N D Smart District • Network Infrastructur • Backbone • IIX • Incubator • Radio Komunitas, dll 4 • Social Transformation • ICT Society 3 • Villagers to Villagers (Community) • ICT Bordeless through sectors 2 • Village to Village • E-Government : Single Identity Number/SIN • E-Education : Standard Buku Electronik/SBE – Depdiknas • E-Transportation/E-Ticketing • E-Business 1 • Basic Telephony (Voice); • Internet Access • SMS • BTIP as Enabling Sector • BTIP as Servicing Sectors • BP3TI as Promoting Sector

34. Some example of initiative and best practices Non-USF funded

35. CSR Program: CTC Jogloabang • Ananto Sulistyo Managing Community ICT Center : the important factors to scaling up the model

36. CSR: Private to community • Established in 2008 with funding and assistance from Microsoft Indonesia, the ASEAN Foundation in the form of 2sets of computers and 1printer, along with operational and dial up Internet connection. • Community leader resposible to develop the program

37. Community Internet • Community Selfhelp for affordable internet provision in their (urban) neighborhood

38. Local Government Initiative: Sragen • Teknologi Informasi & Komunikasi • VOICE • Tele Conference (VoIP) • (Telepon GRATIS antar SKPD) • VIDEO • Video Conference • CCTV (IP Camera) • DATA • Integrasi ‘Sistem Informasi Manajemen Daerah’ (misal : SIAK Online) • Internet (Email, Web dll) & Intranet (Pertukaran Informasi antar SKPD)

39. State Gov Initiative: E-Learning Infrastructure JARDIKNAS The amount of connected schools in 2010 (25.565 schools) INHERENT Provincial education office Universities Polytechnic Teachers/Lecturers University Schools Institutes

40. An Overview Where are we now?

41. 3 Ideological Values • Interorganizational- • relationships • Transnational-practices ICT for Socio-Cultural-EconomicTransformation ICT as enabler 2 State centred VALUES Function asinteraction & transaction 1 ICT for public service Pragmatics Values 0 1 2 3 SYSTEMS NETWORKS Simple networks Complex networks SYSTEMS NETWORKS and VALUES to determine three level of the objective of infrastructure utilization: public services, promoting transaction, transformation Motivations and (real) Actions Objectives of Infrastructure Development (Usman et al, 2010)

42. Lesson Learnt • How to scale-up the best practices? • Leader and leadership, champion, are urgently required • Infrustructure is only one part, it is very important but insufficient • Activity based (economic sectors) is important driving factor for the devopment. • Community development program is one of critical success factor • USF fund is commonly for infrastructure, often not eligible for ‘non-ICT sectors’ activities. Eligibility of USF funded activity should be redefined.

43. Thank You