Telecommunication Industry Outraged at Ruling

By : Muhamad Al Azhari | on 7:55 AM July 10, 2013
Category : Business, Corporate News, Featured

indosat_006-1_preview Hundreds of employees at telecommunications firm Indosat in February protested charges against the company in Jakarta. The company was on Monday found to have corruptly sought discounted access to 3G mobile phone frequency. (JG Photo/Safir Makki)

Hundreds of Internet service providers say they face an uncertain future after a court ruling this week undermined their business model and sent shockwaves through the industry.

The Jakarta Anti-Corruption Court on Monday convicted an executive at Indosat Mega Media (IM2) over his company’s leasing of 3G telecommunications spectrum, finding the company had illegitimately gained discounted access through an affiliation with a company partly owned by the government.

The case caused particular angst for the industry because the company had received official correspondence from the Ministry of Communications and Information and from the Indonesian Telecommunication Regulatory Body (BRTI) confirming that its 3G practices complied with the law.

Setyanto Santoso, chairman of the Indonesian Telecommunication Society (Mastel), which represents telecommunications companies, condemned the court for disregarding the official clarifications.

“This could trigger loss in confidence from the public as well as investors in the sector,” he said, adding that the sector’s contribution to the national economy was great.

Chief judge Antonius Widijananto told the court on Monday that Indar Atmanto, the president director at IM2, had signed a letter in 2006 regarding a partnership agreement with IM2’s holding company, Indosat, which acquired the right to use frequency radio band 2.1 GHz at a discounted rate because it was partially owned by the Indonesian government.

Indosat, the country’s second-largest mobile phone operator, in which the state retains a 14 percent holding, extended the use of the frequency to IM2, which prosecutors alleged caused the state to lose Rp 1.36 trillion ($136 million) it would otherwise have received in fees. Indosat’s majority stake is controlled by Ooredoo, previously known as Qatar Telecom.

Same business model

Semuel Pangerapan, chairman of the Indonesian Internet Service Providers Association (APJII), on Tuesday explained the impact the ruling would have on his group’s members.

“If IM2 was declared to be guilty, then there are more than 200 Internet Service Providers that also apply the same business model that have to be declared guilty,” he said.

APJII represents more than 280 companies that provide about 90 percent of all Internet service providers in the country.

Antonius convicted Indar of corruption and sentenced him to four years in jail. He was also ordered to pay a Rp 200 million ($20,000) fine, or serve an additional three months in jail. IM2 was ordered to pay Rp 1.36 trillion in compensation within one year. Prosecutors of the case had requested a 10-year jail sentence for Indar and Rp 500 million in fines.

Indar said he “objected” to the verdict and would file an appeal, while the Attorney General’s Office said it was yet to decide whether to appeal against the sentence.

In the 2012 letter at the heart of Indar’s defense, Minister of Communications and Information Tifatul Sembiring said that IM2 was not obligated to pay a frequency fee, nor did it need to secure additional permits, as Indosat had already acquired the necessary permits.

Over the apparent disregard of this evidence, Setyanto said Mastel planned to take the panel of judges to the Judicial Commission, which has responsibility for ensuring legal rulings are honest, transparent and professional.

‘We are all in grief’

Turin Farouk, vice president of corporate communication at XL Axiata, the third-largest mobile phone operator in Indonesia, said the court’s verdict was regrettable, adding that efforts by telecommunication professionals to explain the case “have failed.”

“We are all in grief. Why did things get so complicated?” she said.

Nonot Harsono, a member of the BRTI, said the judge’s decision appeared to entrench a misunderstanding over Indonesian telecommunications regulation.

He said a 2000 government regulation stated that Internet service providers were required to form cooperation agreements with network operators, including in regard to extending their service via the 2.1 GHz spectrum.

The case drew the attention of legal experts after the Attorney General’s Office took it over from the West Java prosecutor’s office and Indar was declared a suspect.

Asep Warlan Yusuf, a law professor from Universitas Katolik Parahyangan, said the case reflected poor coordination between government agencies.

“When there is no coordination, then it means there is no legal certainty,” he said, in minutes of a Coordinating Ministry for Political, Legal and Security meeting held in April obtained by the Jakarta Globe.

Investment jeopardized

Eddy Satria, a deputy at the Coordinating Ministry of Economic Affairs who attended April’s meeting, said he was concerned the government’s ICT investment target may be jeopardized by a ruling against Indosat.

At the meeting, Eddy said that the ICT investment was expected to rise to Rp 545.76 trillion in 2013, up 157 percent on last year’s figure.

He added that the government’s goal of achieving an Internet penetration rate of 50 percent next year would also be endangered by an unfavorable ruling on the Indosat case.

On Monday, prosecutor Fadil told reporters after the hearing that former Indosat president director Hari Sasongko was now a suspect in the case, after new evidence was found allegedly incriminating him. The AGO earlier named Johnny Swandi Sjam, another ex-Indosat president director, as a suspect.

Telecommunication and information technology contributed to around 10 percent of Indonesia’s economy last year and Minister of Communications and Information Tifatul Sembiring has set a target to grow the number to 11.8 percent this year.

In 2012, Indonesia’s $850 billion economy expanded by 6.23 percent.

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