Indonesia: Omnibus Law – Chasing Efficiency in the Telecommunications Sector

Key takeaways

Some of the key takeaways from the Omnibus Law for telecommunications and broadcasting sectors in Indonesia are:

• Sharing and transfer of spectrum: The Omnibus Law allows telecommunications operators to share and transfer spectrum with prior approval from the central government. Spectrum frequency holders are permitted to: (i) have collaboration of spectrum sharing for implementation of new technologies, and (ii) assign the use of spectrum to other telecommunication operators. The sharing of spectrum can pave the way for new technologies (e.g., mobile virtual network operators (MVNO), advance transportation/infrastructure communication system) to enter the Indonesian market. The transfer of spectrum would also provide certainty for M&A exercises between telecommunications operators, particularly on the status of spectrum after the M&A exercise is completed. To implement the sharing or transfer of spectrum, the central government must also amend/replace Government Regulation No. 52 of 2000 on the Implementation of Telecommunications and Government Regulation No. 53 of 2000 on the Use of Radio and Satellite Orbit Frequency Spectrum to remove any provision that may restrict sharing and transfer of spectrum between telecommunication operators.
• Infrastructure sharing: Prior to the Omnibus Law, telecommunications operators are encouraged to share passive infrastructure with other telecommunications operators. Under the Omnibus Law, sharing of passive infrastructure is mandatory for telecommunications operators. Construction of passive infrastructure, including towers, ducting and poles for telecommunications networks, has become significant expenditures for telecommunications operators. By sharing, this may bring efficiency for smaller telecommunications operators, as the infrastructure sharing would be less costly than expansion of their own networks, and also minimize the construction of new passive infrastructure (so the idea is to maximize the use of existing passive infrastructure). The Omnibus Law provides that the central government and regional governments may participate in the development of passive infrastructure for common use by telecommunications operators. The Omnibus Law also states that sharing of active infrastructure is permitted and would be based on mutual agreement between the parties.
• Upper and lower limit pricing: Under the current Telecommunications Law, pricing for the operation of telecommunications networks and services is based on a formula determined by the government. However, the government appreciates that pricing in certain areas still has a wide gap than others. To resolve this issue, the Omnibus Law now provides that the central government may also determine upper limits and lower limits of pricing for telecommunications networks and services. This limitation of pricing could prevent tariff wars between telecommunications operators and boost healthy competition in the industry. It is expected that the formula for upper limits and lower limits of pricing will be regulated in a future implementing regulation.
• Non-exclusive business line for broadcasting companies: Under the current Broadcasting Law, private television companies and pay television companies must specifically engage in the business activities of private broadcasting and subscription-based broadcasting. This exclusivity is eliminated in the Omnibus Law – creating possibilities for private telecommunication companies and pay television companies to provide other related services (e.g., IPTV, internet services) through a single company.
• Migration to digital technology broadcasting: The Omnibus Law mandates migration of terrestrial television broadcasting from analog technology to digital technology (i.e., analogue switch off or ASO) within two years after the Omnibus Law is enacted. Through this migration, the government expects efficiency of spectrum to enhance broadband internet access. The allocation of spectrum currently used for analog technology is taking up huge amount of resources. If the ASO is completed, the government can reorganize spectrum resources from analogue broadcasting and allocate them for other services, such as future technology of 5G network and high-speed wireless communications. On a separate note, we have also heard that the government is preparing a new broadcasting law that will regulate, among other things, the shift from analogue broadcasting to digital broadcasting.
• Foreign investment restriction in broadcasting sector: Although the Omnibus Law is intended to boost investments in Indonesia, we note that the foreign ownership limitation under the Broadcasting Law has not been amended by the Omnibus Law – therefore foreign individuals and entities can only hold up to 20% of shareholding ownership in broadcasting companies.

Actions to Consider

The Omnibus Law provides a regulatory basis for new practices in the telecommunications and broadcasting industry. Implementation of these new practices should observe implementing regulations of the Omnibus Law – expected to be issued around January 2021. Therefore, review of the implementing regulations may be required.