INDONESIA’S ICT: EVERYTHING IS IN TRANSITION

Eddy Satriya *)

ABSTRACTS

As one of the most dynamic and lucrative sectors, Information and

Communication Technology (ICT) has been believed to have ability to foster
country’s economy. By establishing a new Department of Communication and
Information (Depkominfo) in January 2005, the Government of Indonesia has
sent positive signals to make ICT sector ready for a real take off.
However, there are much bigger challenges and constraints ahead in
reshaping ICT industry. Among others are: revision on local autonomy laws;
transition in internal organization; deadlock in the newly proposed regulation
on Information and Electronic Transaction; less independence of regulatory
agency and slow progress in competition; lack of innovation in selecting key
application and content; and less transparent in licensing process.
Therefore, in the future, the development of ICT sector in Indonesia has to
be carefully and thoroughly done in order to make use of all potential in the
sector for the benefit of economy and Indonesian people. In a short term, it can
be achieved by refocusing job description in the new Depkominfo, preparing a
new comprehensive and concise ICT regulation, improving the independence of
regulatory agency, smartly choosing best-suit application for national
programs, and introducing tariff differentiation to boost up Internet use.

Keyword: ICT, Telecommunication, IT, Internet, Indonesian Economy.

INDONESIA’S ICT: EVERYTHING IS IN TRANSITION

1. INTRODUCTION

Once I had a discussion with practitioners on Indonesia’s ICT development. After a long debate
and spending a couple of hours we ended up with the question “Why cannot Indonesia take
advantages on ICT as India and China did?“ Yet, the advancement on ICT sector achieved by
China, and India - which contributed significantly on their economy - has made Italian Prime
Minister Silvio Berlusconi to invite these two populous countries to the next G-8 meeting 1 . My
colleagues and I underlined that if Indonesian authorities had successfully set up priorities on the

*)
Ir. Eddy Satriya, MA is a Staff Member of the Directorate of Energy, Telecommunication and Informatics National
Development Planning Agency (BAPPENAS). This paper has been presented in “e-Indonesia Initiatives” Conference, held by
Department of Electrical Engineering-ITB and ICT Institute, Bandung, 3-4 May 2005. Views on this paper is personal, do not
necessarily reflect Bappenas’ policy where the author is currently working with.

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development program on ICT sector in the last five years, we should have reached the level
where China and India have enjoyed robust growth both for ICT industries and better
employment. Then, we also agree that there is a lack of awareness on authority and society
across the country about the potential of ICT in economy.

In fact, advancement in ICT has had a profound impact in country economy, thus the quality of
human life. ICT revolution has opened up new possibilities of economic and social
transformations from which both developed and developing countries can potentially benefit. As
Saunders (1994) noted that in general ICT has helped, among others, to reduce the transaction
cost, to provide cheaper access to information, to increase efficiency, to provide better service,
and to speed up the diffusion of ideas. 2

Thus, taking lesson learnt from China and India on how they mapped out ICT industry on total
economy prospective, then, Indonesia has to be very clear first of ICT’s role on the national
economy. This paper explores existing condition and challenges on the development of ICT
sector in Indonesia. After discussing the transition periods that might confront the decision
makers and practitioners in setting up the industry, the final remarks suggest important steps
towards a better ICT industry to improve maximum contribution for national development and
for the benefit of all Indonesian people.

2. WHAT DO WE REALLY EXPECT FROM ICT?

As a member International Telecommunication Union (ITU), Indonesia has been engaging in
many international and regional activities in ICT sector. Indonesia has also committed to
improve the development of ICT sector in order to be able to provide access to as many
Indonesian as possible. One of commitments is to pave the road to establish Information Society
as defined in the last World Summit on Information Society (WSIS) in December 2003. Linkage
between Information Society and the use of ICT is well defined in “Tokyo Declaration” prior to
WSIS as the following:
“... a primary aim of Information Society must be to facilitate full utilization of ICT at all
levels in society and hence the sharing of social and economic benefits by all, by means of
ubiquitous access to information networks, while preserving diversity and cultural heritage.” 3

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Following the international pattern on economic development, Indonesia also imitates
international trend. Indonesia has proceeded from traditional economic pattern to agricultural
economics prior to 1970s. Then, the national development process enjoyed robust growth from
1970s to the mid of 1990s at annual growth rate of 6-7 percent in average resulted from the
aggregation of agricultural and industrial economics activities. While Indonesia was preparing to
welcome information economy in the mid of 1990s supported by the expansion of
telecommunication networks across the country and IT industry, then the financial crisis halted
economic activities in many sectors. As to other sectors, many development targets on
telecommunication and IT sector, then, had to be revised and adjusted.

Recently, Government of Indonesia has already set up the target for Medium Term of National
Development Plan (5 year). Among others are: economic growth at 6.6 % in average; poverty
incidence at 8.2 % (2009); and manageable level of inflation and exchange rate. One of the
consequences is the need for about US$ 80 billion to finance the development of infrastructure
alone. 4

As to ICT sector, the huge amount of fund needed for the development is expected mainly from
the private sector, not from the state budget. Accelerating development process from private
money means also that the government has to provide positive climate for the investment. For
this purpose, as launched in Infrastructure Summit last January 2005, government has set up
three main policy initiatives. There are: (1) General Policy Environment to secure appropriate
guarantee framework for reducing uncertainty; (2) Entry Policy to reduce regulatory obstacle and
facilitate fair competition; and (3) Pricing Policy to conduct reliable procedure and institutional
set up for price determination.

Thus, as one of the main tools for accelerating the development in other sectors, better ICT
services is ultimately needed for economic activities. Modern telecommunication - fixed and
mobile telephones - has helped people in improving the quality and efficiency of business
arrangement. While high speed internet access provides people with faster data transfer and
abundant resources for research activities. Other progress in ICT technology such as
improvement in memory and data storage, software development, smarter and more practical

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appliances, digitalization and miniaturization of the equipment, has significantly create
opportunity for trade good and services in international markets.

In other words, ICT has created opportunity in today’s economy and formidable challenges as
well. For Indonesia, the use of ICT could accelerate the development process and help the nation
to achieve immediate target i.e.: (1) Creating a secure and peaceful Indonesia; (2) Establishing a
justice and democratic society; and (3) Improving social and economic welfare of the people.

Understanding the progress made by peer countries on ICT sector, the efforts made by the
government on recent Infrastructure Summit 2005, and public need on getting and disseminating
information for economic activities, then, Indonesian authority has also to start realizing all
potential benefits by implementing appropriate approaches.

Therefore, to put simply, the purpose of the ICT sector development in Indonesia has to be
directed to contribute to the optimum national development by providing ICT services to as
many people as possible and as cheaply as possible.

3. INDONESIA’S ICT TODAY

Latest development in Indonesia’s ICT sector has shown a positive signal to many parties. A
long- awaited department in charge has finally been established through the Presidential Decree
No 9/2005. Now, all related ICT matters is centrally governed under the Department of
Communication and Information (Depkominfo).

Although Indonesia has a new department to synchronize the development of ICT sector, the
challenges ahead would not be that easy. As the nation is now waiting for the result of various
reform agendas, almost ICT sector is now also under transition period.

To our knowledge ICT, as a matter of fact, consist of five big subjects: (a) Policy and Regulatory
Framework; (b) Infrastructure; (c) Human Resource Development; (d) Supporting industry; (e)
Content and Application for both government and private.

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In the new Depkominfo, then, the development process of telecommunication, IT and Internet
business, dissemination of related information of all government activities, and other related
broadcasting and multimedia such as television, public and commercial radio, have to be
coordinated in more transparent and creative way.

In terms of policy and regulatory framework, we have reached the ending period of existing
Telecommunication Law No. 36/1999. The existing law is now getting obsolete due to the rapid
changes in technology and business environment. The law was heavily burdened with regulation
on fixed telephony services. Existing policy and regulation is also favor the duopoly, while the
road ahead will address more competitive environment. In addition, the law regulates less
Information Technology and its application.

Meanwhile, infrastructure for about 215 million population in Indonesia is still short to
accommodate the progress made by the sector. Recent infrastructure availability is summarized
in Figure-1. 5

Figure-1 Infrastructure Availability

Some of Available Infrastructures

(Existing Condition- April 2005)

„ 9.2 millions of telephone lines

„ 0.35 million public phone (2/3 at wartel/net)
„ 30 millions of cellular subscribers
„ PC penetration : 5-8 million
„ TV penetration : 35 million
„ The Telecom Services reach:
- 80 % of kecamatan.

- 40 % of desa or villages.
Source: Ditjen Postel and PT.Telkom
Indonesia in waiting,
still.. satriyaeddy@yahoo.com 28

I am in the opinion that Indonesia is also blessed by talented human resources, especially in the
area of computer science and math. Two of Indonesian students have just won the championship
on “Google India Code Jam 2005” held in Bengalore on 28 March 2005. The awards prove that

5
most of Indonesian students are as smart as students from China and India. However, existing
national education system addresses less opportunity to explore and maximize these given
talented people to take part in ICT sector. Yet we have had some progress recently on some new
private universities such as Universitas Pelita Harapan and Universitas Bina Nusantara. In those
universities, students have been introduced from an early stage to realities on ICT application in
their daily activities supported by sophisticated technology environment such as wireless LAN
connection and integrated class system.

On the other hand, domestic electronic and communication industries have been aging to cope
with today’s technology and business setting. Many telecommunication industries are now
already closed down their operations. Some of them are already on “RIP” status. While PT. INTI
and PT.LEN - both are state owned enterprises - need government support to keep them stay on
track. The crisis that severely hit Indonesia from 1997 also weakens the capability of local
companies in consultancy services. Rarely can we find now a strong consultant companies on
ICT sector as we ever had in early 1990s.

In terms of application, some government funded programs have already on the right track, but
some have not. Many local governments have made progress on improving their services to
public by using various electronic government applications, for example in Takalar, Kebumen,
and Surabaya. Others, unfortunately, still have to catch up with classical financial, lack of
human resources and technical problems

Yet, the appearance of Bali Camp, a software company, in early 2001 and other content
providers have pulled the trigger to keep local industry alive from fierce competition in ICT
sector in regional market. ICT professional has also shown unbelievable endurance to keep
Indonesia Internet business exists despite of fragile and changing regulation made by regulator.
Professionals and groups such as APJII (Internet Service Provider Association) and ICT Watch
have made valuable contribution to the development of ICT sector.

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4. ICT IN TRANSITION
As mentioned in the previous chapter, Indonesia’s ICT sector is now in the transition period.
Firstly, Indonesia is still in the consolidation state of the decentralization process. The
government has just recently issued new laws No. 32/2004 and 33/2004 to amend the previous
laws on Local Government and related aspect for Balancing Financial Arrangement. Thus,
synchronizing the development process between central and local government on ICT sector is
still a crucial challenges. Licensing, frequency spectrum allocation, and construction permits are
predicted to be the main issues to be synchronized.

Secondly, the new Depkominfo is now setting up its institution and staffing. In the past,
accommodating staff member from ex-Ministry of Information (Deppen) had not been an easy
task. Today, the office has to accommodate Directorate General of Post and Telecommunication
(DG Postel), National Information Agency (LIN), and others. The need to recruit young and
talented persons for new ICT technology has to be compromised with enlisting some aged staff
from various offices.

Next is the unclear market structure and regulation in telecommunication. Industry is now on
transition from regulated duopoly into more pro-competitive business environment. Dispute on
the blocking of Indosat’s long distance call facility, re-sale on 3G licensing process, unclear
development target of telephone lines for every carrier, long delay on interconnection regulation,
difference of opinion on numbering plan on long distance call, and others have somehow
hampered investor and public trust on future telecommunication direction. Unclear market
structure also inhibits Internet penetration. In so far, Internet charges in Indonesia is far more
expensive compared to other developing country countries, while the quality is poor.

Fourthly, transition from fully government regulation into an independent office. Government
still cannot adopt the principle of “competition wherever possible, regulation where necessary” 6 .
The reluctance to giving up full regulation aspect to newly established BRTI (Badan Regulator
Telekomunikasi Indonesia) has resulted in “toothless” telecommunication regulator. To some
extent, BRTI function has been eroded by other newly established Commission for Anti

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Monopoly Practices (KPPU-Komisi Pengawas Persaingan Usaha). This complicated nature of
Indonesian overlapping authorities has been other main concern in restructuring ICT industry.

Fifthly, the uncertain role of National ICT Coordinating Team (TKTI) in the future. Integrating
the development process of IT with telecommunication and other aspects has not been
straightforward so far in Indonesia. Firstly established in 1997, up until today the TKTI has
already had 3 Presidential Decree (No. 37/1997; No. 50/2000; and No. 9/2003) and were run
from 6 different institutions (Menko Prodis; Menko Ekuwasbang; Menko Ekuin; Meneg PAN;
Meneg Kominfo; and Depkominfo). It is no clear picture yet on how the government will conduct
an integrated approach to handle inter-departmental activities on ICT development.

Finally, the transition on Universal Service Obligation (USO) policy. The government starts a
new scheme in financing and carried out USO program. USO project comprises of constructing
basic telephone services for the unserved areas in about 43.000 scattered villages and sub-district.
The fund needed to finance the project is now covered by state budget (RAPBN). In the future,
the USO project is planned to be financed by certain fees levied to all operators.

5. CONCLUDING REMARK
Understanding the transition period on ICT sector, we have to keep in line all the development
activities (projects) with the main goal of providing public services in ICT sector. A lot of
progress has been made for example the provision of mobile access to the people. However,
providing mobile phones services alone without improving accessibility to the poor will widen
the digital divide. Decision making process has to be more transparent and improve the public
and society’s participation. In addition to this wisdom, it is the time for the government to
reconsider whether the potential market in Indonesia is a plus or a minus for the national GNP.

In order to be able to manage the transition period in ICT industry, the following steps are
proposed.

First is the expediting process to complete new organizational structure and staffing in the new
Depkominfo. Delay in staffing will hamper ICT development process due to rapid changes in

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technology and high competition on investment with neighbor countries such as Malaysia and
the Philippines.

Second is to prepare a new ICT law in order to cope with policy and regulation aspects to cover
the convergence of telecommunication, IT, broadcasting, and multimedia. Having had a new law
on ICT would reduce the dispute on how the country will proceed with new technology and
application such as 3 and 4 G platform, IP telephony, IPTV, access network with new Ethernet
technology, security aspects and so forth.

Next is to choose and deploy a new application on ICT that will have wider economic impact and
in line with other Presiden Susilo B. Yudhoyono’s cabinet priority. I used to propose to
modernize and to establish a new single ID number which can be used for other administration
purposes such as tax, immigration, driving license, and food stamp and subsidy. 7

Fourth is to revitalize the new regulator (BRTI) to be more independent to pave the way for a
better competitive environment in ICT business. BRTI, then, is suggested to focus on making
real competition in place, both for telephony and Internet business with a breakthrough policy
such as flat local rate.

Finally but not least is to build public and leaders awareness on ICT potential through various
activities and programs such as campaign, ICT awards etc.

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REFERENSI

1
Satriya, Eddy, “G-8, Indonesia, dan Telematika”, Kompas daily, 16 August, 2004.
2
Saunders, et.all. Telecommunication and Economic Development. John Hopkins Univeristy Press, Baltimore, 1994.
3
Asia Pacific Telecommunity Year Book 2003, “Tokyo Declaration”, 2003.
4
Indrawati, Sri Mulyani, “Infrastructure Road Map: Strategic
Initiatives to Accelerate Infrastructure Develop-ment in Indonesia”, paper at Infrastructure Summit, 17-18, January 2005,
Jakarta.. Complete Medium Term Development Plan (RPJMN) is available online at www.bappenas.go.id
5
Satriya, Eddy, “Indonesian ICT: Where You’re Going To?”, materials presented in Informal ICT Talk , in University of Manchester,
UK, 10 December 2004.
6
Samarajiva, Rohan, “Competition in the Telecom Sector”, presentation made on BRTI Seminar, Jakarta, 9 March 2005.
(www.lirneasia.net)
7
Satriya, Eddy, “Agenda Besar Menanti Depkominfo”, Kompas Daily, Jakarta, 14 March 2005.

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