Post on 15-Feb-2020
POLITECNICO DI MILANO
School of Industrial and Information Engineering
Master of Science in Management Engineering
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY
Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Supervisor: Prof. Giancarlo VECCHI
Master Thesis by: Lystio Ratna HUTABARAT
Matr: 833316
Academic Year 2017/2018
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The grace of our Lord, Jesus Christ, thank you for all these immeasurable
blessing.
My profound thanks to all the people who involved directly in the preparation
of this thesis. To my Professor Giancarlco Vecchi for giving me support, advice,
valuable comments, and suggestion during the completion of this thesis. To
Mr. Falatehan, Ms. Ruri Anindita Hapsari, and Mr. Oki Suryowahono from MCIT for
sharing their valuable experiences, advice, insightful comments and assistance about
OTT policy and regulation in Indonesia. To all my family and friends who always
support me to do the thesis.
I hope this thesis can be beneficial for anyone.
Jakarta – Milano, April 2019
Hutabarat, Lystio Ratna
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In memory of my Father, St. Firman Hutabarat
10.10.2018
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Acknowledgement .................................................................................................................................. ii
Table of Contents ................................................................................................................................... iii
Figures Index ........................................................................................................................................... vi
Table Index ............................................................................................................................................ viii
Acronyms .................................................................................................................................................. ix
Abstract ...................................................................................................................................................... xi
Abstract (Italiano) ................................................................................................................................ xii
Executive Summary............................................................................................................................. xiii
1 Introduction ...................................................................................................................................... 1
1.1. Digital Economy ................................................................................................................... 1
1.2. Perspective of Over-The-Top (OTT) ............................................................................ 3
1.3. Field of study ......................................................................................................................... 5
1.4. Methodology.......................................................................................................................... 5
1.5. Chapter of the study ........................................................................................................... 6
2 Literature Review ........................................................................................................................... 8
2.1. Policy Analysis ...................................................................................................................... 8
2.2. Regulation Impact Analysis ........................................................................................... 10
2.2.1. Identify the Problem and Policy Option ..................................................... 11
2.2.2. Define the Baseline Conditions ...................................................................... 11
2.2.3. Predict Responses to the Policies ................................................................. 12
2.2.4. Assess Benefits and Costs ................................................................................ 12
3 Indonesia Outlook ........................................................................................................................ 15
3.1. Government ......................................................................................................................... 18
3.2. Digital Growth .................................................................................................................... 27
3.3. Measuring Digital Development .................................................................................. 32
3.3.1. Network Readiness Index (NRI) .................................................................... 33
3.3.2. ICT Development Index (IDI) ......................................................................... 38
4 Digital Stakeholders .................................................................................................................... 44
4.1. Users ....................................................................................................................................... 45
4.2. Industry ................................................................................................................................. 45
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4.2.1. Telecommunication operators ....................................................................... 47
4.2.2. Over-The-Top (OTT) Providers ..................................................................... 51
4.2.3. Network Neutrality Principle ......................................................................... 54
4.3. Government ......................................................................................................................... 56
5 Regulatory Analysis ..................................................................................................................... 62
5.1. Description of Regulation and Necessity ................................................................. 63
5.1.1. Problems ................................................................................................................. 64
5.1.2. Objectives ............................................................................................................... 66
5.1. Options or Alternatives ................................................................................................... 67
5.1.1. Regulatory Proposal ........................................................................................... 68
5.1.2. Status Quo .............................................................................................................. 70
5.2. Risk Assessment ................................................................................................................ 70
5.2.1. Risk Changing Current Situation ................................................................... 71
5.2.2. Risk Maintaining Status quo ........................................................................... 75
5.3. Identifying Impact of regulation.................................................................................. 77
5.3.1. Expected Impact from Changing Current Situation ............................... 78
5.3.2. Expected Impact from Remain Status Quo ................................................ 89
5.4. Identifying Benefits and Costs...................................................................................... 92
5.5. International Practices of Digital Policy Approach .............................................. 97
6 Conclusion ....................................................................................................................................... 99
Bibliography............................................................................................................................................ xv
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Figure 1. 1 The Industrial Revolution ............................................................................................. 2
Figure 1. 2 Digital Economy as Percentage of GDP .................................................................... 3
Figure 2. 1 RIA Components ............................................................................................................. 10
Figure 3. 1 Indonesia GDP Growth (%) ........................................................................................ 15
Figure 3. 2 Indonesia Inflation, GDP Deflator (%).................................................................... 16
Figure 3. 3 Indonesia GDP Components (% of GDP) ............................................................... 17
Figure 3. 4 Indonesia National ICT Roadmap 2005 – 2025 .................................................. 25
Figure 3. 5 Growth of Internet in the world................................................................................ 27
Figure 3. 6 Global ICT developments, 2001-2017* .................................................................. 28
Figure 3. 7 Indonesia Internet Users ............................................................................................. 28
Figure 3. 8 Indonesia Internet User and Penetration Rate per Region ............................ 29
Figure 3. 9 Indonesia Mobile Service Coverage ......................................................................... 30
Figure 3. 10 Palapa Ring Project ..................................................................................................... 31
Figure 3. 11 Indonesia Economic Digital Potential .................................................................. 31
Figure 3. 12 Most Active Social Platform in Indonesia ........................................................... 32
Figure 3. 13 Network Readiness Index ......................................................................................... 34
Figure 3. 14 Indonesia and ASEAN Countries Ten Pillars of NRI ....................................... 34
Figure 3. 15 ITU Stages in The Evolution Towards an Information Society .................. 39
Figure 3. 16 Indonesia IDI Growth ................................................................................................. 41
Figure 3. 17 ASEAN Countries IDI 2016 ....................................................................................... 41
Figure 3. 18 Indonesia IDI Indicators ............................................................................................ 42
Figure 4. 1 Global Mobile Subscription in 2018 (million) ..................................................... 48
Figure 4. 2 Global Data and Voice Traffic ..................................................................................... 49
Figure 4. 3 Digital Ecosystem ........................................................................................................... 52
Figure 4. 4 OTT Business Models .................................................................................................... 53
Figure 5. 1 Grand Design of OTT Policy Direction .................................................................... 67
Figure 5. 2 IoT Ecosystem .................................................................................................................. 76
Figure 5. 3 OTT Platform to Access the Content ....................................................................... 80
Figure 5. 4 OTT Business Model by OTT Regulation Proposal ............................................ 80
Figure 5. 5 Telco Operators and OTT Business Impact .......................................................... 82
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Figure 5. 6 Indonesia’s Unicorn Startups .................................................................................... 85
Figure 5. 7 Shopping Behaviour in Indonesian E-Commerce Market .............................. 86
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Table 3. 1 Indonesia Macro Economy Indicators...................................................................... 17
Table 3. 2 GDP Composition by Sector (%) ................................................................................. 18
Table 3. 3 Convergence of Nawa Cita, RPJM and SDG ............................................................. 21
Table 3. 4 Political and Regulatory Indicators ........................................................................... 35
Table 3. 5 Infrastructure Indicators ............................................................................................... 36
Table 3. 6 Government Usage Indicators ..................................................................................... 37
Table 3. 7 Social Impact Indicators ................................................................................................ 38
Table 3. 8 Weight used for the indicators and sub-indices in IDI ...................................... 40
Table 4. 1 Telecommunication Companies and OTT Players Comparison of Market
Condition .................................................................................................................................................. 47
Table 4. 2 Top 10 World’s Telecommunication and Internet Company’s Market Values
2019 ........................................................................................................................................................... 49
Table 4. 3 Indonesia Telecommunication Industry Overview 2016 ................................. 51
Table 4. 4 Telecommunication Regulation Timeframe .......................................................... 57
Table 4. 5 Telecommunication Market Structure based on Telecommunication
Regulation Framework ....................................................................................................................... 58
Table 4. 6 Government Concerns on Digital Society ............................................................... 60
Table 5. 1 Risk Identification of Changing Current Situation ............................................... 72
Table 5. 2 Risk Identification of Maintaining Status Quo ...................................................... 76
Table 5. 3 Creative Economy Contribution to GDP .................................................................. 84
Table 5. 4 Summary of Effect from Changing Current Situation ......................................... 88
Table 5. 5 Summary of Effect from Remain Status Quo ......................................................... 92
Table 5. 6 Benefits and Cost for User ............................................................................................ 93
Table 5. 7 Benefits and Cost for Telco Operators ..................................................................... 94
Table 5. 8 Benefits and Cost for OTT Operators ........................................................................ 95
Table 5. 9 Benefits and Cost for Government ............................................................................. 96
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APJII Indonesia Internet Provider Association
AR Augmented Reality
ASEAN Association of South-East Asian Nations
ATSI Association of Telecommunication Operators in Indonesia
BEKRAF Indonesian Agency for Creative Economy
BEPS Base Erosion and Profit Shifting
BI Bank of Indonesia
CBA Cost-Benefit Analysis
CDN Content Delivery Network
CEA Cost-Effectiveness Analysis
ES Electronic System
GATT General Agreement on Tariffs and Trade
GDP Gross Domestic Growth
GPN National Payment Gateway
ICT Information and Communication Technologies
IDI ICT Development Index
IMF International Monetary Fund
IoT Internet of Things
ITU International Telecommunication Union
LTE Long Term Evolution
Mbps Megabytes per second
MCA Multi-Criteria Analysis
MCIT Ministry of Communication and Information Technology
NRI Network Readiness Index
OECD Organization for Economic Cooperation and Development
OTT Over-The-Top
PE Permanent Establishment
PoP Point of Presence
PT Private company
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QoS Quality of Service
RIA Regulatory Impact Analysis
RPJMN National Medium-Plan Development
SDG Sustainable Development Goals
SME Small and Medium Enterprise
SMS Short Message Services
Tbk Terbuka (public company)
UN United Nations
VR Virtual Reality
WEF World Economic Forum
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Internet network has boost globalization and contributes to invasion of a new
era of digital industry and massive OTT services. OTT business impact other digital
stakeholders, namely telco operator, government and user. The recognition of how
OTT, particularly global OTT, operate, scales and sizes to their advantage compare to
telco operators gives a different perspective to the level playing field and user
protection. OTT took Indonesian government attention where the government has
openly discussed the strategy and action to accommodate the growth of OTT against
industrial development. Indonesian government through the Ministry of
Communication and Information Technology (MCIT) released the public discussion
of Draft of Ministry Decree on Provision on Application Service and/or Content over
the Internet (OTT). Therefore, this thesis tries to assess the OTT regulatory proposal
set by the MCIT. The assessment will try to find the benefits and costs of the proposed
regulation to the digital stakeholders. This study will be a normative study with the
site of study at MCIT. The approach for the assessment will concentrate on Regulatory
Impact Analysis. Furthermore, this study will discuss whether the proposed OTT
policy and regulation is necessary and justified and if so, it will identify the regulatory
option that provides the most substantial benefits to society.
Keywords: Digital Industry, Digital Stakeholder, Over-The-Top (OTT), Ministry of
Communication and Information Technology (MCIT), Policy and Regulation, Level
Playing Field, Regulatory Impact Analysis.
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La rete Internet ha potenziato la globalizzazione e ha contribuito all'invasione
della nuova era dell'industria digitale e dei massicci servizi OTT. Impatto del business
OTT ad altri stakeholder digitali, l’operatore di telecomunicazioni, il governo e
l’utente. Il riconoscimento di come OTT, in particolare OTT globale, funziona, scala e
dimensioni a proprio vantaggio rispetto agli operatori di telco offre una prospettiva
diversa rispetto alla parità di condizioni e alla protezione dell'utente. L'OTT ha preso
l'attenzione del governo Indonesiano laddove il governo ha discusso apertamente
della strategia e dell'azione per favorire la crescita di OTT rispetto allo sviluppo
industriale. Il governo Indonesiano attraverso il Ministero della Comunicazione e
dell'Information Technology (MCIT) ha rilasciato la discussione pubblica sul progetto
di Decreto Ministeriale sulla Fornitura di Servizi e / o Contenuti su Internet (OTT).
Questa tesi, dunque, tenta di valutare la proposta di regolamentazione OTT impostata
dal MCIT. La valutazione cercherà di individuare i vantaggi e i costi della proposta di
regolamento per gli stakeholder digitali. Questo studio sarà uno studio normativo con
il sito di studio presso il MCIT. L'approccio per la valutazione si concentrerà
sull'analisi dell'impatto normativo. Inoltre, questo studio discuterà se la politica e la
regolamentazione OTT proposte siano necessarie e giustificate e, in caso affermativo,
identificherà l'opzione normativa che fornisce i maggiori benefici alla società.
Parole chiave: Industria Digitale, Stakeholder Digitali, Over-The-Top (OTT),
Ministero della Comunicazione e dell'Information Technology (MCIT), Politica e
Regolamentazione, Parità di Condizioni, Analisi dell'Impatto Normativo.
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Indonesia is home to more than 265 million people, the fourth largest
population in the world. It is a very vibrant country with a diversity of culture. It
proclaimed its independence on 17 August 1945. After 73 years of its independence,
many things have changed with Indonesia. It has been experiencing financial and
economic crisis, riots, revolution, democracy, corruption, and economic growth
alongside seven leaders from Soekarno to Joko Widodo. Alongside with the changing
world, Indonesian government set several initiatives to embrace the opportunity in
the digital economy from setting up the network infrastructure, network utilization,
education, and community and institutional participation to adapt with the evolving
world.
The digital economy is unavoidable and has become a need. It has attained a
scale and level of impact that no business, industry, or government can ignore
alongside with the accentuation of ubiquitous and fast internet connectivity. It
presents a myriad of opportunities.
For the last ten years, Indonesia internet users have increased sevenfold into
143 million internet users or more than half of its population (APJII & TeknoPreneur,
2017). However, there is a stark digital divide in Indonesia with more than 50% of
internet user is concentrated on Java, less than 20% in Sumatra and the rest of central
and eastern Indonesia only count less than 7% (APJII & TeknoPreneur, 2017).
Indonesia internet user growth mainly supports by the extension of mobile-cellular
growth with mobile connectivity is count 157% of the total population (We Are Social,
2018). The mobile internet in Indonesia is more affordable with a price of 1.44% of
GDP per capita (Kementerian Komunikasi dan Informatika, 2018). However, despite
its sizeable mobile connectivity, Indonesia mobile service coverage mostly dominates
by 2G networks which cover 59.67% nationwide, while 3G and 4G/LTE network is
only cover for 33.5% and 14.15% nationwide (Kominfo, 2018). However, Indonesian
internet users considered the most optimist user globally, where 71% believes new
technologies offer more opportunities than risks (We Are Social, 2018). Another
highlight point for Indonesia digital performance is from the Networked Readiness
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Index (NRI) and the ICT Development Index (IDI). In 2016, Indonesia NRI scored 4
with 4 of 10 indicators are poorly performed, they are the political and regulatory
indicator from environment dimension, infrastructure indicator from readiness
dimension, government indicator from usage dimension, and economic indicator
from social aspect (Baller, Dutta, & Lanvin, 2016). While IDI in 2017 scored 4.33 that
count two-fold from 10 years ago with most substantial contribution improvement
came from mobile broadband subscriptions from use sub-index and percentage of
household with internet access from access sub-index. (ITU, 2017)
The Internet is a worldwide service available to the public and is accessible via
a multitude of telecom networks. The rapid growth of internet giants with its OTT
services has disrupted the traditional mechanism of the telecommunication industry.
Nevertheless, OTT services also give benefits to society. As the physical and digital
worlds keep on converge new technologies and platforms, governments will
intensively encounter with pressure to shift their current approach to public
engagement and policymaking. In Indonesia, the disruption of OTT complained by all
telco operators that urged government intervention to regulate OTT. To parry with
those accentuations, the government led by the Ministry of Communication and
Information Technology (MCIT) responded by proposing a policy to cope with the rise
of OTT.
This thesis tries to assess the OTT regulatory proposal set by the MCIT. The
assessment will try to find the benefits and costs of the proposed regulation to the
digital stakeholders. The approach of the evaluation will concentrate on the
Regulatory Impact Analysis. Furthermore, this study will discuss whether the
proposed OTT policy and regulation is necessary and justified and if so, it will identify
the regulatory option that provides the most substantial benefits to society. This study
will be a normative study with the site of study at MCIT.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 1 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
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We are at the verge of a technological revolution that is going to change how we
live fundamentally, work, and interrelated to each other. The digital economy is
unavoidable and has become a need. It immense its potential to drive competition,
innovation, and productivity. Digital economy marks with the transition from an
individual to a highly internetworked organization accompanied by technological
shifts that create newer ways which will make things much more efficient and
responsive to the growing needs of the modern age. It allows free accessibility of
information and facilitate knowledge transfer across borders to different people that
have reduced transaction costs, asymmetry of information, and led to creative
disruption. Hence, they all depend on ubiquitous and increasingly fast connectivity.
1.1.
Technology and digital development are enablers for changing the economic
structure and social welfare. The term of digital economy was coined by Don Tapscott
in 1995 in his work, The Digital Economy: Promise and Peril in The Age of Networked
Intelligence, it engulfs and revolts the phenomenon driven by the convergence of
advancements in human communication, computing, and content to generate
information. This term gives new insight on how to perceive the traditional
definitions of the economy, wealth creation, business organizations, and other
institutional structures. Another definition of Digital Economy coined by Amir
Hartman as the virtual arena in which business is conducted, the value is created and
exchanged, transactions occur, and one-to-one relationship mature by using any
internet initiative as a medium of exchange (Hartman, Sifonis, & Kador, 2000).
The evolution of the industrial revolution has shifted the traditional economy
into the digital economy. The logistics network created the first industrial revolution.
It was ushered by mechanical production, railroad construction, and the steam engine
invention. Then the second industrial revolution was built the energy network. It
marked with mass production on manufacturing which fostered by the advent of
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 2 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
electricity and the assembly line. The third industrial revolution was created the
information network. It was marked with the birth of the computer and the digital
revolution. And now, we are facing the fourth industrial revolution. It is the digital
economy era with a new rise and more advancement of innovation such the sharing
economy, blockchain technology, artificial intelligence, Internet of Things, 3D
printing, AR (augmented reality), VR (virtual reality), cloud computing, big data, the
blockchain, and many more.
Figure 1. 1 The Industrial Revolution
Source: (Zheng, 2018)
Several countries have set up their strategies to respond to the 4th industrial
revolution, namely, the Germany introduced its strategy called “Industry 4.0”, the USA
with the strategy of “Industrial Internet of Things”, China with “Industrial
Internet/Internet plus advanced manufacturing industry”, and Indonesia with
“Indonesia 4.0”.
The digital economy has reached a scale and level of impact that no business,
industry, or government can ignore. With its range and speed, it presents myriad
opportunities, which consumers have been quick and enthusiastic to grasp and
businesses, particularly small and medium enterprises (SMEs), eager to adapt. In the
digital economy, every critical aspect of a business relies on technology. Its boundary
to the old economy is blurred and moving where technologies, companies, and
markets are changing rapidly. The economic impact of the digital economy is getting
bigger and gives a growing contribution to GDP. The growth fuels in large by more
users, faster and ubiquitous access of connectivity.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 3 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Figure 1. 2 Digital Economy as Percentage of GDP
Source: (The Boston Consulting Group, 2015)
1.2.
The internet's scale and pace of change are accelerating whether for the number
of users and its utilization. The speed development of internet infrastructures and
devices have smooth out the birth of OTT. According to International
Telecommunication Union (ITU) World Telecommunication/ICT Policy Forum, the
term OTT relate to applications and services that are accessible atop the internet and
ride on operators’ networks offering internet access services, for instance, the social
networks, search engines, amateur video aggregation sites etc. (ITU Secretary
General, 2013). While according to ASEAN report on OTT Project, it summarizes OTT
to a form of service delivered via the internet which bypasses the traditional network
service provider, complete with service offered by the telecom operators, and/or
effect to the quality of networks and service (Vietnam Telecommunication Authority,
2015).
OTT offers their services over the existing deployed telecommunication
networks and is mainly classified as content distributors (e.g., YouTube), social
network operators (e.g., Twitter), and companies that offer communication services
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 4 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
(e.g., WhatsApp and Skype) similar to the conventional services provided by the
network operators. Network operators argue that the OTT use their network to
transfer vast amounts of traffic without generating direct revenues for their benefit.
On the other hand, OTT providers, invoking the network neutrality rules, consider
network providers as common carriers who should not be given the right to prioritize
the traffic.
For most network operators, OTT is disruptive for traditional
telecommunication market. The OTT aptitude, to replace traditional services
provided by the network operator, has changed the pattern of investment and the
industry itself. The issue on OTT had raised for discussion at international institution
level like ITU, it is a United Nations agency mandated for information and
communication technology issues, and the global focal point in developing networks
and services for governments and the private sector. OTT, while never having been
defined in the ITU, is yet another critical topic expected to be discussed by the agency.
The focus conveyed are concentrate on economic implications of OTT services,
classification of OTT for regulatory and financing structures, and the security
implications of OTT applications, mainly related to security and privacy of data
(Internet Society, 2016).
OTT took Indonesian government attention by 2014 and henceforth where the
government has openly discussed towards the strategy and action to accommodate
the growth of OTT against the industrial development in unison with the
stakeholders, viz., telecom operators, academia, a consumer organization, and several
experts. The consequent has yielded to the circular letter issued by Minister of
Communication and Information Technology number 3 the year 2016 on 31 March
2016, which specify about the urges for OTT providers and other telco operators to
adhere for impending OTT regulation. And later was the public discussion of Draft of
Ministry Decree on Provision on Application Service and/or Content over the Internet
(OTT).
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 5 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
1.3.
Based on described earlier, the objective of the thesis is to assess the OTT
regulatory proposal set by the government with case study the Ministry of
Communication and Information Technology (MCIT) of Republic of Indonesia
regulatory policy. The assessment will try to find the benefits and costs of the
proposed regulation to the digital stakeholders; they are the users, telco operators,
OTT providers, and the government. The approach for the assessment will
concentrate on Regulatory Impact Analysis.
The significance of this study will discuss whether the proposed OTT policy and
regulation is necessary and justified and if so, it will identify the regulatory option that
provides the most substantial benefits to society. It is expected that with this
approach, the government will have a good practice when setting out a policy.
1.4.
The case study within this thesis arises out of the desire to understand complex
social phenomena to withstand the holistic and meaningful characteristics of real-life
events in which the structure of a given industry may be investigated. This study will
be a normative study with the site of study at MCIT. It starts by imposing questions as
the field of study then it will review primary data and secondary data to produce
sufficient in-depth understanding. The primary data will obtain from direct
observation of information from public discussion of the regulatory proposal and
forum group discussion, while the secondary data will gain from the literature review
of various secondary data such as legal literature, articles, journals, reports and so on.
The study will start from understanding the digital profile of Indonesia and
identification of main political actors on the digital industry in Indonesia. Following
the assessment of the regulatory proposal which will start from a description of
regulation and its necessity, then the options for the problems, risks emerge from
policy proposals and conclude the expected benefits and costs from it.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 6 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
1.5.
The format and systematics of this study comprised of several sections:
Introduction, Literature Review, Indonesia Outlook, Digital Stakeholders, Regulatory
Analysis, then Result and Conclusion.
The introduction takes up about the background of the study reckon to the
digital economy condition and the new growth industries ecosystem in very closely
related to the rise of OTT. Further, it explains the field of study and its significance.
Moreover, this chapter will give hints on what methodology utilize to answer the field
of study.
The literature review will explain the concepts and theories on policy analysis
and the Regulatory Impact Analysis (RIA) as attribution of government intervention.
This section will explain the process of conducting RIA to examine the benefits and
costs of the proposed regulation.
Indonesia outlook section will give insight into Indonesia’s profile. It will
describe the profile of the government by its leaders. After that, the journey of the
digital growth specifically on the digital economy trend and the empirical data on the
digital divide in Indonesia. Furthermore, this section will provide data from Indonesia
digital measurement performances.
The digital stakeholders' section will try to gain knowledge utilizing direct and
indirect observation from the case study environment. This section will explore the
digital ecosystem which has very closely related and shared value chains. This section
will define the actors within the digital ecosystem; they are the government, telco
operators, OTT provider, and users. It will elaborate their relation and the disruption
effect and the debatable discussion about network neutrality principle. The study is
utilizing the indirect observation and collected data about the nature of each actor
that obtained through collaboration with the Directorate of Telecommunication at
MCIT.
The regulatory analysis section will exercise the proposed regulation of OTT by
MCIT utilizing the RIA. This section will answer the objective of the thesis about the
benefits and cost of the proposed regulation.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 7 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Latter is a result, discussion and limitation section that would discuss whether
the proposed OTT policy and regulation is necessary and justified. From the
discussion, the limitation found within the study would recommend for future study.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 8 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
2
2.1.
Policies are concepts that come from an analytical construct by studying the
activities of actors involved in dealing with public problems. Public policy is a means
of intervention made by the government to solve the public problem by articulating
stakeholders interests. Hence, in public policy making it is essential to considered
pluralism decision to accommodate stakeholder’s interests, albeit several limitations
lead to this is due to time limitation and resources boundary to provide all interests.
Public policy is defined in numerous ways. Thomas Dye was described as the
public policy as anything a government chooses to do or not to do. Three main points
specify Dye’s definition: government as the primary agent of public-policy making;
public-policy making involves a fundamental choice for the government to do
something or to do nothing about a problem; and public policy is a conscious choice
of government (Dye T. R., 1972). Another definition of public policy describes as a set
of interrelated decision subtract by a political actor or group of actors as regards to
choice of goals and the methods of achieving them within a given situation where
those decisions should, by nature, be within the power of those actors to achieve
(Jenkins, 1978). Jenkins presents the policy-making as a dynamic process and
acknowledges the result of a set of the interrelated decision, or in other words,
governments rarely address the problem with a single decision, instead of a series of
decisions that cumulatively contribute to the outcome. From several definitions, the
nature of public policies contains the following points:
a. Public policy is goal oriented, where it formulated and implemented to attain the
objectives which the government viewed as the ultimate benefit for the public.
b. Public policy is the product of the government’s collective action where the
pattern of interaction of all the actors as their discrete and segregated decisions.
c. Public policy is what the government indeed decides or choose to do. It is the link
of the government units to the particular field of political surroundings in an
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 9 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
exceedingly given body system. Public policy can take a variety of forms like law,
ordinances, court decisions, executive orders, decision, or many more.
d. Public policy is confident in the means that it portrays the government's concern
and involves its action on a specific issue on which the policy is made. Or
negatively, where it consists of a decision by the governmental officials regarding
not taking any action on particular issues.
Policy-making process is a very close relation with politics and political actions.
Hence policy, politics, and political action are grouping as a political system in a
society which used to maintain recognized procedures for allocating valued
resources. Public policy is more ‘‘art and craft’’ than science (Wildavsky, 1979). It
requires a lot of bricolage and can be based on very few certainties. The emergence of
collective problems or the recognition that a problem is collective has been the object
of modifications in time and space, and what is considered as clearly public in one
country, is not always in another.
Policies and goals are two crucial aspects, where there are distinctions between
those. Goals are what the policies aimed or hope to achieve. A goal is a desired state
of affair that actors or group of actors attempt to realize. Goals are seen in different
perspectives by actors. It could be abstract values that would like to acquire or
specific, concrete values.
Regulation is an abstract concept of a set of rules and trends in the management
of complex systems. Regulation history is not a cohesive government strategy, but a
response to changing goals and requirements in different countries, industries and
policy contexts (Bardach, 2009). Most people intuitively relate the word regulation to
government intervention in liberty and choices through legal rules or perceive it as
control or constraint (Orbach, 2012). Regulation is an essential part of the policy tools
used by the government to achieve goals. It usually has widespread effects on many
different groups in society which mostly the results are hidden or difficult to identify.
It can directly influence or adjust conduct or tend to have only indirect influence.
Regulation costs are significant, poor quality regulation increases the cost of
compliance and leads to unnecessary complexity and associated uncertainty as to
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 10 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
regulatory obligations and reduces the ability of the government to achieve its
objectives. It also can stifle economic growth by putting obstacles in the way of doing
business and by creating perceptions of a negative environment. Designing a one size
fits all approach is not possible; analysts need to exercise professional judgment in
tailoring the analysis for an individual regulation.
2.2.
The Regulation Impact Analysis (RIA) is an instrument permitting to determine
the consequences of introducing new regulations. It reflects a well-established and
widely-used approach for collecting, organizing, and analyze data on the impacts of
policy options, to promote evidence-based decision-making. RIA describes the
consequences of the regulation instead of advocating a selected approach.
RIA is an instrument for reflecting on a decision. It is a set of logical actions
structuring the elaboration and drafting of policies at the general level, and normative
acts in particular. It furnishes politicians with complete information for making
decisions that contribute to quality governance and a better society according to the
underlying regulatory objectives sought. The most important contribution of RIA to
the quality of decisions is not the precision of the calculations used, but the action of
analyzing, questioning, real-world understanding impacts, and exploring
assumptions. The core of the RIA is an assessment of the benefits and costs of
regulatory and other policy options in comparison to a “without regulation” (or “no
action”) baseline.
Figure 2. 1 RIA Components
Source: (U.S. Department of Health and Human Services, 2016)
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 11 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
According to RIA components, the first three steps in conducting an RIA involves
defining the problem to be addressed, identifying the policies to be assessed,
exploring their potential consequences, and developing the approach for subsequent
analytic work while the next step is conducting the benefit-cost analysis. It is a
systematic framework for assessing and comparing the positive and negative impacts
of policy options. It addresses the issue of whether, in the aggregate, those affected by
the policy value the benefits they receive more than the costs they incur. In assessing
the benefit-cost analysis involves uncertainties, including difficulties related to
quantifying some potentially essential effects. The goal is to ensure that decision-
makers and other stakeholders understand the extent to which key uncertainties
affect the main analytic conclusions.
2.2.1.
Conducting RIA involves process the problem to be addressed, identifying the
policies to be assessed, exploring their potential consequences, and developing the
approach for subsequent analytic work. The first step of RIA is framing the analysis.
It involves defining what will be assessed and promoting the general analytic
approach. In problem definition, the most common justification for the regulatory
action comes from the description of the market failure. From the description of the
problem definition that leads to the need for regulatory action, justification to the
significant of the regulation should be indicated with a range of regulatory or non-
regulatory alternatives. Because analytic resources are limited, the ideal regulatory
analysis will not assess all policy options, nor quantify all outcomes, with equal
precision. In some cases, the cost for analyzing a particular policy option or
quantifying a specific result will be higher than the likely benefit of assessing it, given
its importance for decision-making. Importance may depend on the magnitude of the
impacts; it may conjointly rely on the necessity to retort the need to respond to
questions to be raised.
2.2.2.
Each regulatory and non-regulatory options should be compared to a “no new
regulatory action” baseline that reflects expected future conditions. If the regulation
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 12 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
is required by statute, the analysis ought to correlate with the absence of the statutory
requirement. The review should, at the minimum, compare conditions with and
without the policy once the policy is fully implemented. The analysis should cover the
full-time period between when the impacts first occur and when benefits and costs
are expected to achieve equilibrium. Analysts should explore likely trends rather than
merely assuming that current conditions will continue.
2.2.3.
Regulatory requirements generally caused a series of consequences. It is
essential to distinguish between the initial condition, subsequent events, the outcome,
and its evaluation. Analysts often find it useful to map these relationships as a decision
tree (Raiffa 1968) or as a logic model (Centers for Disease Control and Prevention
(CDC) 2007, Sundra et al. 2003, Wholey et al. 2010).
2.2.4.
The most vital objectives of the RIA are to indicate whether regulation is be
required and justified, and, if so, to identify the regulatory option that is most
economically efficient, providing the most considerable net benefits. RIA uses several
approaches to recognize the benefits and costs of regulation, those are:
1. Cost and Benefit Analysis
The Cost and Benefit Analysis (CBA) considered as an approach to guiding
decision-making and as a specific methodology for conducting RIA. This approach
ensures that regulation is only made when the benefits of the regulation are more
significant than the costs imposes and if the society as a whole is to be made better
off. And if the conditions are not met, then the regulation should usually not be
used.
CBA based on quantifying benefits and costs and comparing them over a suitable
period. It provides a strong basis for comparing alternatives and for guiding
decisions makers on the likely implications of different options. Nevertheless, the
distinction between benefits and costs is not always clear. Generally, impacts
categorized as benefits should relate to the intended outcomes of the regulation.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 13 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
And impacts classified as costs should refer to the investment or inputs needed
to achieve those outcomes. Nevertheless, it is prevalent in RIA to find that
essential benefits and costs cannot be quantified. Thus, a partial CBA can be
generated by narrowing the range of issues that must be dealt with through more
subjective, qualitative analysis by drawing some conclusions about their relative
importance.
2. Break-even Analysis
The Breakeven Analysis is conducted where the expected benefit derived from
regulation is clear, but the regulation’s likely effectiveness in generating those
benefits will be subject to much uncertainty. Thus, the breakeven analysis used
to estimate how effective must the regulation be for the benefits to be seen as
justifying the costs. Judgments can then be made by policy-makers as to whether
the regulations are expected to have the degree of effectiveness.
3. Cost-Effectiveness Analysis
CEA is a more limited methodology than CBA and is less demanding of resources
and expertise. The method derives from the idea to choose the option which said
to be the most cost-effective or the most efficient option. The benefit of CEA for
conducting RIA is that there is no need to quantify benefits or to value them in
monetary terms. Instead, only considered the costs imposed by the regulation.
However, CEA does not answer the fundamental question of whether regulation
should proceed at all. Instead, it gives the cost to occur when the regulation
imposed and give the preferable most efficient option.
4. Multi-Criteria Analysis
The Multi-Criteria Analysis (MCA) allows systematic and transparent decisions to
be made even where quantification of significant regulatory impacts is not
possible. It involves identifying the underlying policy objectives and then
determining all of the factors or criteria that would indicate the achievement of
these objectives by weighing those criteria appropriately. The weighted scores
then added along to decide which option consistent with the policy objectives.
MCA characteristic may improve confidence in RIA, however, it should be seen as
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 14 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
an additional tool, rather than an alternative, since it necessarily provides less
objective and verifiable information to decision-makers.
5. Tables and graphics
Tables and graphics are often useful for highlighting non-quantified effects, to
ensure that decision-makers and others do not overlook them. One option is only
to list the effects in a table; however, the list is likely to be more useful if the
consequences can be categorized in a way that indicates the implications for
decision-making. This categorization could include whether the effects are likely
to be large or small and to lead to over- or underestimates. Separate categories or
exhibits could be used to report the strength of the evidence that links the effect
to the regulation, the likelihood of its occurrence (e.g., high or low), or the extent
to which it is reversible, as well as other attributes that will be salient for decision-
making.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 15 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
3
Indonesia is home to more than 265 million people, the fourth largest
population in the world with “demography bonus” of the young median age of 30
years. Its land spread over 5,069,591 km² and consider the extremely diverse country
in terms of its culture with over 300 local languages spoken, six nationally recognized
religions, and more than 300 ethnic groups. Located on the equator, just 36 percent
of Indonesia’s total territory is land, while the rest is the ocean. More than 17,000
islands, yet only about 6,000 are inhabited. Most of the population is concentrated on
the island of Java, followed by the four other major islands of Sumatra, Kalimantan,
Sulawesi and Papua with more than half the population lives in urban areas.
On 17 August 1945, Indonesia proclaimed its independence. In the early years
of nation building, conditions were exacerbated by economic disruption, the wartime
and post-war devastation of vital industries, unabated population growth, and
resultant food shortages. After 73 years of its independence, many things have
changed with Indonesia, although it is moving into positive trends of development,
there are still a lot of home works to be done as a nation with its own identity to give
better opportunities for future generation as part of world society.
Figure 3. 1 Indonesia GDP Growth (%)
Source: (The World Bank, 2017)
-15%
-10%
-5%
0%
5%
10%
15%
19
61
19
63
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65
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67
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81
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85
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01
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07
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09
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11
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17
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 16 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Figure 3. 2 Indonesia Inflation, GDP Deflator (%)
Source: (The World Bank, 2017)
Indonesia economic between 1965 to 1997 growth on average of almost 7%
which had made Indonesia grow from the low-income country into a middle-income
country, alas, the Asian Financial Crisis on the late 1990s had a disastrous
consequence that caused the growth to plummet into -13,6%. However, during the
Global Financial Crisis in the late 2000s, Indonesia suffered a minor effect compared
to other country and able to have growth on 4,63% in 2009. But for the last five years,
the average GDP growth of the country is languishing at 5% which considered slow
and created the trend of the middle-income trap.
On 2012, the World Bank reported that Indonesia middle-income class income
has reached around 30% of the total population and predicted will grow twice by
2020-2030 according to Boston Consulting Group (BCG) and McKinsey. Thus, this
indicator has shown Indonesia already has consumers basis power to boost the
national demand and significantly trigger the growth of domestic investment ever
since.
-150%
-100%
-50%
0%
50%
100%
150%
200%
250%1
96
1
19
63
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65
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REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 17 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Figure 3. 3 Indonesia GDP Components (% of GDP)
Source: (TheGlobalEconomy.com, 2019)
Table 3. 1 Indonesia Macro Economy Indicators
2011 2012 2013 2014 2015 2016 2017 2018
GDP Growth (%) 6.2 6.0 5.6 5.0 4.8 5.0 5.1 5.2
Inflation (%) 5.4 4.3 8.4 8.4 3.4 3.0 3.6 3.1
Debt to GDP (%) 23.1 23.0 24.9 24.7 27.4 27.9 28.5 31.5
Currency (IDR/USD) 8,773 9,419 11,563 11,800 13,389 13,309 13,381 14,250
Current Account Balance to GDP (%)
0.2 -2.8 -3.3 -3.1 -2.1 -1.8 -1.7 -3.0
Population (millions)
245 248 251 254 258 261 264 267
Poverty (%) 12.5 11.7 11.5 11.0 11.2 10.7 10.1 10.0
Unemployment (%) 6.6 6.1 6.3 5.9 6.2 5.6 5.5 5.3
Foreign Exchange Reserves (in bill
USD)
110.1 112.8 99.4 119.9 105.6 116.4 130.2 117.2
Source: (Indonesia Investments, 2019)
2010
2011
2012
2013
2014
2015
2016
2017
2010 2011 2012 2013 2014 2015 2016 2017
Net-export 1.9 2.48 -0.4 -0.8 -0.74 0.43 0.77 1.2
Investment 32.88 32.98 35.07 33.83 34.6 34.17 34.29 34.28
Government 9.01 9.06 9.25 9.52 9.43 9.75 9.54 9.1
Consumption 56.22 55.42 56.39 56.83 57.14 57.45 57.79 57.31
Net-export Investment Government Consumption
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 18 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
In the last five decades, Indonesia’s GDP shares from three main economic
sectors (agriculture, industry, and services) changed from being an economy that was
highly dependent on agriculture into a more balanced economy in industry and
service which indicates the government focusses on stimulating the establishment of
downstream processing industries to deliver value-added products.
Table 3. 2 GDP Composition by Sector (%)
1965 1980 1996 2010 2017
Agriculture 51 24 16 15 14
Industry 13 42 43 47 40
Service 36 34 41 37 46
Source: (Indonesia Investments, 2019)
3.1.
Indonesia elected their first president, Soekarno (1945 – 1967) who was known
with guided democracy era. The Indonesian economy at that time marked with
government investment in public infrastructure and takeover of Dutch enterprises by
the government. At the end of its period, the Guided Economy system leads Indonesia
into mounting inflation and foreign debts.
Following Soekarno’s downfall, the new order reign by the lead of President
Soeharto (1967 – 1998). The new order regime had put the economy back on course
with a variety emergency of stabilization measures. Various economic reforms were
commenced including a managed devaluation of the rupiah to recuperate export
competitiveness, and de-regulation of the financial sector. Indonesia's economic
development during New Order government can be divided into three periods, each
characterized by specific policies aimed at specific economic contexts, those are the
economic recovery (1966-1973), the rapid economic growth and increasing
government intervention (1974-1982), and the export-led growth and deregulation
(1983-1996). In the new order era, the private sector became dominated by large
conglomerate corporations mainly due to monopoly privileges or quota system on
production and imports of key industrial products. On the trade and industrial sector,
Indonesia agreed to sign the General Agreement on Tariffs and Trade (GATT) Export
Subsidy Accord in 1985. Under the New Order administration, Indonesia enjoyed
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 19 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
sustained economic development, but rampant corruption within the bureaucracy
and government.
In mid-1997, the Asian financial crisis began to affect Indonesia than followed
by the 1998 riots became an economic and political crisis. The financial and economic
crisis has had severe effects. Rapid currency depreciation had mounting public debt.
The economy reached its low point in 1998 with real GDP growth for the year was
plummeted to -13% and inflation reached 72%. Following Soeharto resignation and
the collapse of the Indonesian economy, B. J. Habibie took power from 1998 to 1999.
During his presidency, Indonesia oversaw its democratic transition which marked by
government consent to hold a referendum on East Timor province under supervised
of United Nation which resulted in the relinquishment of the new sovereign state of
Timor Leste. His government was considered strong on management but weak on
legitimacy. In the economy, he was committed to economic reform and cooperation
with the IMF to stabilize the economy, such as abolishing market-distorting regulation
and monopolies.
In 1999, Abdurrahman Wahid became the president of Indonesia (1999 - 2001)
through People’s Consultative Assembly votes. At that time, Indonesia still in
multidimensional crisis. Indonesia’s economy yet the sickest in Asia with many banks
and companies paralyzed by debts. Almost the same thing as what Habibie did,
Abdurrahman Wahid made few continuations that were first taken as initiatives
during Habibie’s presidency to make economic restoration through policy
implementation in financial governance, corporate and bank restructuring, and
privatization. Even though the Indonesian economy shows signs of recovery in terms
of macro-indicators, the country still faces a massive problem of poverty.
Megawati Sukarnoputri (2001 – 2004) became the fifth president of Indonesia
after the legislature impeached Abdurrahman Wahid for incompetence. Learning
from her predecessors, Megawati builds her government based on three main pillars
of a state: the government, the market, and its people. Under Megawati presidency,
Indonesia’s economy improved slightly, growing by about 5% annually. However, the
growth was still not enough to create jobs for millions of unemployed.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 20 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
In 2004, Susilo Bambang Yudhoyono (2004 – 2014) won the presidential
election and became the sixth president of Indonesia. Five years after the most
profound economic collapse in history, he inherited an economy that was still very
fragile. Over his decade-long presidency, Indonesia has enjoyed one of the highest
economic growth rates in the world thanked to the commodity boom until 2012. It
has elevated the income and welfare of Indonesians, created jobs, lifting people out of
poverty, strengthened the government's fiscal stance and enabling the government to
reduce debt financing in its budget. Despite the increase of wealth and the alleviation
in poverty, the gap between the rich and the poor has widened during his presidency.
In 2014, Joko Widodo came in office as the seventh President of Indonesia. Like
all his predecessor, he is inherited several unfinished tasks from previous
government to complete. During his tenure of the presidency, the inflation has shown
a better direction with declining and relatively stable trends. Jokowi government
came to power on 20 October 2014 with a national agenda called “Nawa Cita”
consisting of nine development priorities:
1. Returning the State to its task of safeguarding all citizens and ensuring a secure
environment ;
2. Developing clean, effective, trusted and democratic governance;
3. Development of peripheral areas;
4. Reforming law enforcement agencies;
5. Improve the quality of life;
6. Increasing productivity and competitiveness;
7. Promoting economic independence through developing strategic domestic sectors;
8. Overhauling the character of the nation;
9. Strengthen the "diversity unity" and social reform spirit.
The Nawa Cita translated into National Midterm Development Plan or RPJMN
(Rencana Pembangunan Jangka Menengah) that set out five years national plan
(2015-2019) which consists of three parts: National Development Agenda, Sectoral
Development Agenda, and Regional Development Agenda. The Nawa Cita visioned the
nation’s sovereignty in political, economic, and cultural arenas, derived from an
assessment that the country suffers from three types of situations: (1) incapability to
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 21 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
ensure the safety of all citizens, (2) poverty, inequality, environmental degradation,
and natural resource over-exploitation, as well as (3) intolerance and crisis of national
character.
Convergences exist between the Nawa Cita, the RPJMN and the SDGs set up by
the UN whereby global goals are in large part reflected in the national agenda.
Following are the intersection between Nawa Cita, RPJM, and SDGs.
Table 3. 3 Convergence of Nawa Cita, RPJM and SDG
Nawa Cita RPJM SDGs
Returning the state to its
task of protecting all
citizens and providing a safe
environment
Chapter 6.1:
• Foreign politics
• Defense
• Maritime Development
• Protection of Indonesian citizens
abroad
• Protection of Indonesia migrant
workers abroad
• Global cooperation
• Globalization
• Military industry
• National police development
• Population data
G3. Ensure healthy lives and
promote well-being for all at all
ages
G10. Reduce inequality within
and among countries
G16. Promote peaceful and
inclusive societies for
sustainable development,
provide access to justice for all
and build effective,
accountable and inclusive
institution at all levels
G17. Strengthen the means of
implementation and revitalize
the global partnership for
sustainable development
Developing clean, effective,
trusted and democratic
governance
Chapter 6.2:
• Democracy
• Women representation
• Transparency
• Bureaucracy reform
• Public participation
G16. Promote peaceful and
inclusive societies for
sustainable development,
provide access to justice for all
and build effective,
accountable and inclusive
institutions at all levels
Development of peripheral
areas
Chapter 6.3:
• Decentralization
• Regional development
• Poverty
G1. End poverty in all its forms
everywhere
G2. End hunger, achieve food
security and improved nutrition
and promote sustainable
agriculture
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 22 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
G3. Ensure healthy lives and
promote well-being for all at all
ages
G4. Ensure inclusive and
equitable quality education and
promote lifelong learning
opportunities for all
G5. Achieve gender equality
and empower all women and
girls
G6. Ensure availability and
sustainable management of
water and sanitation for all
G7. Ensure access to
affordable, reliable, sustainable
and modern energy for all
G8. Promote sustained,
inclusive and sustainable
economic growth, full and
productive employment and
decent work for all
G9. Build resilient
infrastructure, promote
inclusive and sustainable
industrialization and foster
innovation
G10. Reduce inequality within
and among countries
G11. Make cities and human
settlements inclusive, safe,
resilient and sustainable
Reforming law enforcement
agencies
Chapter 6.4:
• Food
• Water
• Energy
• Natural resources
• Maritime
• Finance
• Fiscal
G1. End poverty in all its forms
everywhere
G2. End hunger, achieve food
security and improved nutrition
and promote sustainable
agriculture
G3. Ensure healthy lives and
promote well-being for all at all
ages
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 23 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
G4. Ensure inclusive and
equitable quality education and
promote lifelong learning
opportunities for all
G5. Achieve gender equality
and empower all women and
girls
G8. Promote sustained,
inclusive and sustainable
economic growth, full and
productive employment and
decent work for all
G9. Build resilient
infrastructure, promote
inclusive and sustainable
industrialization and foster
innovation
G12. Ensure sustainable
consumption and production
patterns
G13. Take urgent action to
combat climate change and its
impacts
G14. Conserve and sustainably
use the oceans, seas and
marine resources for
sustainable development
G15. Protect, restore and
promote sustainable use of
terrestrial ecosystems,
sustainably manage forests,
combat desertification, and
halt and reverse land
degradation and halt
biodiversity loss
Overhauling the character
of the nation
Chapter 6.8 G3. Ensure healthy lives and
promote well-being for all at all
ages
G4. Ensure inclusive and
equitable quality education and
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 24 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Source: (UNDP Indonesia, 2105).
Indonesian government aims to make Indonesia the biggest digital economy in
Southeast Asia by 2025 as part of the National Development Plan 2005-2025. It is a
general plan that incorporates a cross-departmental approach across government for
the improvement of countrywide systems such as transportation and utilities as well
as national connectivity and digital services. Within the ICT roadmap, there are four
main pillars which serve as the bedrock upon which the objectives of the Roadmap
are achieved, and those are the infrastructure and security, adoption and creative
utilization, regulation and legislation, funding.
promote lifelong learning
opportunities for all
G11. Make cities and human
settlements inclusive, safe,
resilient and sustainable
Strengthening the spirit of
“unity in diversity” and
social reform
Chapter 6.9 G5. Achieve gender equality
and empower all women and
girls
G10. Reduce inequality within
and among countries
G16. Promote peaceful and
inclusive societies for
sustainable development,
provide access to justice for all
and build effective,
accountable and inclusive
institutions at all levels
G17. Strengthen the means of
implementation and revitalize
the global partnership for
sustainable development
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 25 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Figure 3. 4 Indonesia National ICT Roadmap 2005 – 2025
Source: (Frost & Sullivan, 2018)
For the infrastructure and security roadmap, several initiatives are taken by the
government, such: launch several infrastructural projects and policies associated with
digital technology. The government created the ‘Indonesia Broadband Plan’ (Rencana
Pita Lebar Indonesia) 2014-2019 through the Presidential Regulation number 96
year 2014 to answer several common issues about broadband on public sector, such
reliable and high quality of connectivity, data management and security, centralized
planning and budgeting, and concern on clear and consistent direction or guidance
related to broadband access.
By 2019, the national broadband plan aims to provide broadband Internet to
30% of the total Indonesian population. Other targets set in this plan include raising
the ratio of Indonesian households connected to fixed broadband (20 Mbps) to 71%
by 2019, and mobile broadband (1 Mbps) penetration to 100%. The target for the sub-
urban area is set to cover 49% of household penetration (10 Mbps) and 52% of mobile
broadband penetration.
Aside from infrastructure target, the regulation aims for the adoption of the
broadband utilisation for 4,5 million government employees, 50 million students, 3
million teachers and 60 million household users by the end of 2019 following the
broadband price below 5% of the monthly average income of the market. The national
broadband plan focusses in three main groups. First, the economy connectivity with
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 26 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
leading project Palapa Ring. It aims to provide national fibre optic backbone to all
districts, shared duct which seeks to construct a shared pipe or duct to accommodate
fibre optics from different operators, and regional terrestrial broadband piloting, that
aims to serve as an extension of palapa ring project in most rural area using a wireless
solution. Second, government networks and consolidated data warehouse which seek
to build a secured dedicated, high-speed government network and consolidated data
centre. And third, enabling, that is a flagship which aims for USF (Universal Service
Fund) reform to accommodate more extensive use of USO fund to cover broadband
ecosystem development and the national digital literacy program and local ICT
industry.
For the roadmap of adoption and creative utilisation, the Indonesian
government plans to support the digitisation of 8 million SMEs by 2020. This is a slit
of the government’s target to increase the value of SMEs by USD 10 billion by 2020
(Frost & Sullivan, 2018). In line with the roadmap, the government also set a plan in
creating 1000 digital talent programme which aims to develop local startups and
create certified IT workers in tech companies that keep in surging demand to face the
industry 4.0. Meanwhile, the priority sectors set as the pilot project are the e-
Government which aims to integrate all government institutions enabling a more
efficient way to communicate and share data; e-Health and e-Education, strive to
manage the demographic bonus; and e-Logistic and e-Procurement aim to support the
prompt flow of commodities and promote efficiency in government spending.
For the regulation and legislation, the government intensively try to reassess
the policy about sharing of passive infrastructure, open access and spectrum
management to increase industry efficiency which enables the operators to launch
affordable services and gain the profit while the policy of spectrum management is to
anticipate the new evolution of technology such 5G.
Despite all the target and prediction stated, Indonesia suffers a significant digital
divide with one of the lowest internet penetration rates. Indonesia must address the
digital divide beyond physical access issues. Aside from coverage, speed, security and
privacy, the matter of education, and community and institutional structures should
consider narrowing this divide.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 27 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
3.2.
Internet users worldwide have grown significantly since it first introduced in
1994 from around 16 million users into more than 4 billion users by 2018. Today half
the world's population is online, 42% are on a social network, and around 68% are
mobile (We Are Social, 2018).
Figure 3. 5 Growth of Internet in the world
Source: (Internet World Stats, 2018)
Today society is characterised by the ‘always on society’ as the result of the
development of the number of internet user and smartphone user. According to ITU,
ICT development at this moment in time stirs by the dispersion of mobile-broadband
services. The growing of mobile broadband has largely outpaced fixed broadband.
Much of this development has been encouraged by more affordable smartphones and
mobile data plans. Moreover, more than half of today's handsets are smart devices,
making it increasingly easy for people to enjoy a wealth of internet experience
wherever they are. This trend also occurs in Indonesia, the boost of mobile-cellular
Internet users in Indonesia is growing each year with total 90% adults (aged 18+) are
using the mobile phone, and 60% are use smartphones (We Are Social, 2018).
0%
10%
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REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 28 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Figure 3. 6 Global ICT developments, 2001-2017*
Source: (ITU, 2018)
According to APJII (Indonesia Internet Provider Association), for the last ten
years Indonesia internet users has increased sevenfold into 143 million internet users
(APJII & TeknoPreneur, 2017). While some other perspective from different data
providers states that Indonesia internet user by early 2017 still far from reach 50%
of the total population (We Are Social, 2018).
Figure 3. 7 Indonesia Internet Users
Source %
APJII 51.29%
Internet World Stats 51.29%
ITU 26.01%
Internet Live Stats 20.56%
CIA World Fact Book 26.05%
Source: (APJII & TeknoPreneur, 2017), (We Are Social, 2018).
Despite the different version of Indonesia’s Internet users, the reports aim to
show Indonesia penetration rate that lies below the average of Southeast Asia
countries of 58% and the worldwide average of 53% (We Are Social, 2018). This work
0
20
40
60
80
100
2001 2003 2005 2007 2009 2011 2013 2015 2017*
Per
10
0 in
hab
itan
ts
Mobile-cellulartelephonesubscriptions
Individuals usingthe Internet
Fixed-telephonesubscriptions
Active mobile-broadbandsubscriptions
Fixed-broadbandsubscriptions
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REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 29 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
will review the predicament Indonesia faces, which has digital divide within the
country, not only on issues of physical access but more into aspects of education,
community, and institutional structures.
According to APJII survey, more than 50% of internet user is concentrated on
Java, the most populated and most advanced economy growth within the nation,
which the total user only counts for 57.07% penetration within the region. Second
most internet user in Indonesia is from Sumatra which composition is less than 20%
and count 47.2% penetration in the area. While the rest of the centre and eastern
Indonesia only count less than 7% of internet users. (APJII & TeknoPreneur, 2017)
Figure 3. 8 Indonesia Internet User and Penetration Rate per Region
Region Sumatra Java Kalimantan Bali-Nusa Sulawesi Maluku-
Papua
% of national
Population
(BPS: 2015)
22% 57% 6% 6% 7% 3%
% of national
internet
users
19% 58% 8% 6% 7% 2%
% of regional
penetration 47% 58% 72% 54% 47% 42%
Source: (APJII & TeknoPreneur, 2017).
Indonesia internet user growth mainly supports the growth of mobile-cellular
growth. Mobile connectivity in Indonesia is counted 157% of the total population
while the unique mobile phone user only counts 67%, where 76% of mobile
connectivity is using pre-paid option and the other 24% with post-paid option (We
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 30 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Are Social, 2018)(We Are Social, 2018). This indicates there are more SIM cards used
than phone used by Indonesians. This is happening because the mobile internet in
Indonesia is more affordable with price 1.44% of GDP per capita than the fixed
internet with price 7.1% of GDP per capita (Kementerian Komunikasi dan
Informatika, 2018). Despite its sizeable mobile connectivity, the quality of mobile
connectivity in Indonesia only reach 9.8 Mbps for average mobile connection which
far behind worldwide average connection speed of 21.3 Mbps and not far from the
mobile connection performance, fixed internet connection speed only at 13.8 Mbps
which also far behind global average of 40.7 Mbps (We Are Social, 2018). Indonesia
mobile service coverage mostly dominates by 2G networks which cover 59.67%
nationwide, while 3G and 4G/LTE network is only cover for 33.5% and 14.15%
nationwide (Kominfo, 2018).
Figure 3. 9 Indonesia Mobile Service Coverage
Source: (Kementerian Komunikasi dan Informatika Republik Indonesia, 2017)
Government target on mobile broadband penetration applied with Mobile
Broadband Radio Frequency Spectrum Plan which targeted cumulative additional
350 MHz spectrum allocation for mobile broadband with neutral technology by 2019
(Kementerian Komunikasi dan Informatika, 2018). This strategy inline with the
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 31 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
backbone penetration plan in Indonesia National Broadband Plan 2014-2019 which
try to stifle infrastructure access and performance divide.
Figure 3. 10 Palapa Ring Project
Source: (Menkominfo, 2017)
Moving from internet user experience based on physical access, the behavior of
Indonesian internet users most likely the most optimist user globally. Indonesia count
for 130 million social media users as 49% of the total population. Indonesian user
mentioned as the 4th user with a high average time spent on a day using the internet
count for 4 hours 51 minutes. Unique study on the population states that 71% of
Indonesian internet user considered digital optimists that believe new technologies
offer more opportunities than risks. (We Are Social, 2018).
Figure 3. 11 Indonesia Economic Digital Potential
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 32 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Source: (APJII & TeknoPreneur, 2017), (We Are Social, 2018).
Figure 3. 12 Most Active Social Platform in Indonesia
Source: (We Are Social, 2018).
3.3.
There is no standardized measurement in the digital economy. However, two
approaches of analysis are used as a proxy for measuring the digital development of
Indonesia. The World Economic Forum assesses the state of networked readiness
using the Networked Readiness Index (NRI) to measures the capacity of countries to
leverage ICTs for increased competitiveness and well-being while the International
41
53
130
89
133
265
mCommerce user
eCommerce users
social media users
mobile phone users
internet users
population
(in millions)
14%
15%
16%
24%
25%
27%
28%
33%
38%
40%
41%
43%
Skype
FB Messenger
Google+
BBM
Line
Youtube
Social Network
Messenger / Chat app / VoIP
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 33 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Telecommunication Union (ITU) set up the ICT Development Index (IDI) to measure
ICT development process and it evolutions towards becoming an information society.
3.3.1.
The framework of measurement on digital economy set up by the World
Economic Forum, the Network Readiness Index (NRI), rests on six principles: a high-
quality regulatory and business environment; ICT readiness; leveraging ICTs users in
the ecosystem; impact of ICT use on the economy and society; generation of
sustainable cycle by the set of drivers; and clear policy guidance. NRI scored ranging
from 1 to 7, which 7 is the best performance from several indicators, those are:
a. Environment
Measures the overall environment for technology use and creation (political,
regulatory, business, and innovation). This category divides into a political and
regulatory environment; Business and innovation environment. (Baller, Dutta, &
Lanvin, 2016)
b. Readiness
Index of networked readiness in terms of ICT infrastructure, affordability, and
skills. The measurement of this category is infrastructure, affordability, and skills.
(Baller, Dutta, & Lanvin, 2016)
c. Usage
This category measures technology adoption or usage. Groups of stakeholders
put on this category are individual usage, business usage, and government usage.
(Baller, Dutta, & Lanvin, 2016)
d. Impact
This category measures the economic and social implications of the new
technologies. (Baller, Dutta, & Lanvin, 2016)
Indonesia Network Readiness Index in 2016 scored 4, increase 11% from 10
years before, but still lag from the global average of 4.18 and ASEAN average of 4.06.
Indonesia positioned at 73 out of 143 countries, going up from 79 in 2015. In ASEAN
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 34 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
level, Indonesia NRI score still lacks behind Singapore (rank 1), Malaysia and
Thailand. (Baller, Dutta, & Lanvin, 2016)
Figure 3. 13 Network Readiness Index
Country 2016
Rank Value
Singapore 1 6.0
Malaysia 31 4.9
Thailand 62 4.2
Indonesia 73 4.0
Philippines 77 4.0
Viet Nam 79 3.9
Laos 104 3.4
Cambodia 109 3.4
Myanmar 133 2.7
(a) Indonesia NRI Growth (b) ASEAN NRI 2016
Source: (Knoema, 2018), (Baller, Dutta, & Lanvin, 2016)
Figure 3. 14 Indonesia and ASEAN Countries Ten Pillars of NRI
Source: (Baller, Dutta, & Lanvin, 2016)
3.50
3.70
3.90
4.10
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
2.70
3.30
2.40
3.00 3.30
1.80
2.60 2.30 2.40 2.40
5.90 6.00
6.60 6.80 6.50 6.40
5.40
6.30 5.90
6.20
3.80
4.40
2.90
5.90
5.10
3.80 4.00 4.00
3.20
4.30
Po
litic
al &
Reg
ula
tory
Bu
sin
ess
&In
no
vati
on
Infr
astr
uct
ure
Aff
ord
abili
ty
Skill
s
Ind
ivid
ual
Bu
sin
ess
Go
vern
men
t
Eco
no
mic
Soci
al
Sco
re b
etw
een
1-7
Average Indonesia
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 35 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
The distribution score of the ten pillars of NRI in the ASEAN level, positioned
Indonesia as the 4th out of 9 members without Brunei Darussalam is not on WEF
observation (Baller, Dutta, & Lanvin, 2016). From 10 indicators of NRI, 4 indicators
from each dimension of NRI should be concerned since they only score below the
average of ASEAN, those are: the political and regulatory indicator from environment
dimension (3.80 from average of 3.91); infrastructure indicator from readiness
dimension (2.90 from average of 3.60); government indicator from usage dimension
(4.00 from average of 4.01); and economic indicator from social dimension (3.20 from
3.40).
Table 3. 4 Political and Regulatory Indicators
Global
rank Score Trend
Distance from
best
Source: (World Economic Forum, 2016)
The environment dimension consists of political and regulatory environment
together with the business and innovation environment as an essential measurement
for building out the digital economy. The political and regulatory environment pillar
appraise the magnitude to which the national legal structure extenuate ICT adoption
and safe development of business activities, considering the general features of the
regulatory environment as well as more ICT-specific dimension such: the passing of
laws relating ICT or the software piracy rates. It consists of nine variables as shown
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 36 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
on the above table. Indonesia’s score showing the policy and regulatory is still lacking
behind and even could stifle the business and innovation. Some concerned should be
noticed can be looked up to the declining trend from the variables such effectiveness
of law-making bodies, laws relating to ICT, software piracy rate and time to enforce a
contract. Relaxing on this, the government should collect information whether the
current system such as legislative, legal system, availability of latest technologies and
number of procedures to start a business, support the movement of business and
innovation for the new wave of digitalization.
Table 3. 5 Infrastructure Indicators
Global
Rank Score Trend
Distance from
best
Source: (World Economic Forum, 2016)
The readiness dimension composed of three pillars of infrastructure and digital
content, affordability, and skills. This dimension measures the degree of preparation
of a society to make good use of an affordable ICT infrastructure and digital content,
with a total of twelve variables. The readiness dimension shows a high score of
affordability and skills while on the contrary, the infrastructure readiness gives a
terrible indicator. The indicators show improvements in affordability, to capitalize on
this positive trend, infrastructure will need to keep up as the number of users is
increasing, the existing infrastructure is starting to be stretched. The pillar of
infrastructure and digital content captures the development of ICT infrastructure as
well as the availability of digital content. It consists of four variables as shown in the
above table. Despite the high score on mobile network coverage variables, it is
inversely proportional with the internet bandwidth per user and secure of internet
servers. The trend of the number of PoPs is increasing, and in contrary, the internet
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 37 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
bandwidth per user shows declining, this could tell that most network mobile in
Indonesia is a legacy network that is not enough to compete with the demand of
digitalization new wave. Apart from that, we could see that Indonesia still lack for
electricity supply for its vast people. Therefore, to optimize Indonesia readiness for
the digital economy, the lack of existing infrastructure must accelerate to catch up
with the positive trends of the increase of internet user.
Table 3. 6 Government Usage Indicators
Global
Rank Score Trend
Distance from
best
Source: (World Economic Forum, 2016)
The usage dimension assesses the individual efforts of the leading social agents
that is individuals, business and governments, to increase their capacity to use ICT, as
well as their daily actual use activities with other agents. On the usage dimension, the
government and individual usage need to encourage to be more involved in digital
usage. Specifically, the government uses that is score under the average in comparison
with ASEAN government usage. The government usage pillar provides perspectives
further into the significance of ICT policies for competitiveness and well-being by
governments and the efforts they are making to implement their ICT development
visions and the number of government services they are providing online. Three main
indicators of the government use of ICT that is the government vision on ICT,
government online service index, and ICT promotion shows the Indonesia
government involvement on ICT need to be more intensify.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 38 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Table 3. 7 Social Impact Indicators
Global
Rank Score Trend
Distance from
best
Source: (World Economic Forum, 2016)
The impact dimension gauges the broad economic and social impacts accruing
from ICT to boost competitiveness and wellbeing and that reflect the transformations
towards an ICT and technology savvy economy and society. It composed of social and
economic impact. It shows the digital current effects not well performed yet in
building the digital economy. These indicators show that the digital divide is still
extensive in Indonesia and there is a lot of commitment to be done to the digital
agenda.
Several momentums across NRI pillars is somewhat heterogeneous. The
technologies are rapidly evolving and can be expected to have a profound impact on
economies and societies. This new governance structures will also urgently need to
be put in place to channel technological forces in ways that bring broad-based gains
to societies. A reasonable basis for building the digital economy in Indonesia required
more reformed regulatory and business environment through strong government ICT
vision and engagement in the digital economy.
3.3.2.
Another measurement set by ITU is the ICT Development Index (IDI). The IDI is
a combination index that concatenates 11 indicators into one benchmark measure
that can be utilized to monitor and contrast developments in ICTs between countries
and over time (ITU, 2017). The IDI was developed by ITU in 2008 with objectives to
measure the access to ICT and to accelerate the agenda for sustainable development
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 39 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
to bridge the digital divide and encourage the global population for the digital
economy. It weighs a country’s ICT development process and its evolutions towards
becoming an information society. ITU describe three stages of evolution:
a. Stage 1: ICT readiness
This stage capture ICT readiness with infrastructure and access to ICT indicators
such fixed-telephone subscriptions, mobile-cellular telephone subscriptions,
international Internet bandwidth per Internet user, households with a computer,
and households with Internet access; (International Telecommunication Union,
2018)
b. Stage 2: ICT intensity
This stage is reflecting the level of use of ICTs in society. Several indicators set for
this stage are the number of individuals using the Internet, fixed broadband
subscriptions, and mobile-broadband subscriptions. (International
Telecommunication Union, 2018)
c. Stage 3: ICT impact
This stage is reflecting the results or outcomes of more efficient and effective ICT
use. It captures capabilities or skills which are essential for ICTs with three proxy
indicators mean years of schooling, gross secondary enrolment, and total tertiary
enrolment. (International Telecommunication Union, 2018)
Figure 3. 15 ITU Stages in The Evolution Towards an Information Society
Source: (ITU, 2017)
The information society defined by ITU can be gain through the combination of
the presence of ICT infrastructure and access, an advanced level of ICT usage, and the
competence to use ICTs effectively, derived from relevant skills. These three
ICT Readiness (infrastructure,
access)
ICT Use (intensity)
ICT Capability (skills)
ICT Development Index
ICT Impact (outcomes)
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 40 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
dimensions, ICT access, ICT use, and ICT skills, form the framework of IDI. ITU
considered IDI as proxy indicators concerned with capabilities within countries to
leveraging full potential social and economic development. Economic growth and
development will remain below potential if economies are not capable of exploiting
new technologies. ITU construct a composite index, which seeks to capture the
evolution of the information society as it goes through stages of development; those
are the access sub-index, use sub-index, and skills sub-index. Access sub-index
captures ICT readiness includes five infrastructure and access indicators, such as
fixed-telephone subscriptions, mobile-cellular telephone subscriptions, international
Internet bandwidth per Internet user, households with a computer, and households
with Internet access. Use sub-index captures ICT intensity includes three intensity
and usage indicators, such as individuals using the Internet, fixed-broadband
subscriptions and mobile broadband subscriptions. Skills sub-index seeks to capture
capabilities or skills that are important for ICTs. It includes three proxy indicators,
such as mean years of schooling, gross secondary, enrolment, and total tertiary
enrolment. As these indicators not directly measuring ICT-related skills, the skills
sub-index is given less weight in the computation of the IDI than the other two sub-
indices. (ITU, 2017)
Table 3. 8 Weight used for the indicators and sub-indices in IDI
Reference
value Weight
ICT Access 0.40 Fixed-telephone subscriptions per 100 inhabitants 60 0.20 Mobile-cellular telephone subscriptions per 100
inhabitants 120 0.20
International internet bandwidth per internet user 1 Mbps 0.20 Percentage of household with a computer 100 0.20 Percentage of households with internet access 100 0.20 ICT Use 0.40 Percentage of individuals using the internet 100 0.33 Fixed-broadband subscriptions per 100 inhabitants 60 0.33 Active mobile-broadband subscriptions per 100
inhabitants 100 0.33
ICT Skills 0.20 Mean years of schooling 15 0.33 Secondary gross enrolment ratio 100 0.33 Tertiary gross enrolment ratio 100 0.33
Source: (ITU, 2017)
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 41 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
IDI scores between 1-10 where ten is the maximum score compute from all
indicators. Indonesia IDI in 2017 scored 4.33, count two-fold from 10 years ago,
nevertheless still lag from a global average of 5.11, Asia-Pacific average of 4.83 and
ASEAN average of 4.93. Indonesia positioned at 111 out of 176 economies, slightly
going up from position 114 in 2016. In ASEAN level, Indonesia IDI score placed behind
six other ASEAN countries such as Singapore, Malaysia, Brunei Darussalam, Thailand,
Philippines, and Viet Nam. (ITU, 2017)
Figure 3. 16 Indonesia IDI Growth
Source: ITU
Figure 3. 17 ASEAN Countries IDI 2016
Country Rank Score
Singapore 18 8.05
Brunei 53 6.75
Malaysia 63 6.38
Thailand 91 5.48
Philippines 101 4.67
Viet Nam 108 4.43
Indonesia 111 4.33
Cambodia 128 3.28
Myanmar 135 3.00
Laos 139 2.91
Source: (ITU, 2017)
According to ITU, Indonesia is one of the most dynamic countries in IDI value
with change improvement of IDI value 0.47 with the difference of 0.10 from the most
improved value IDI, Namibia. The most substantial contributions came from mobile
2.15 2.46
3.11 3.14
3.70 3.83 3.94 3.85
4.33
2007 2008 2010 2011 2012 2013 2015 2016 2017
Sco
re b
etw
een
1-1
0
4.93
4.83
5.11
Sin
gap
ore
Bru
nei
Mal
aysi
a
Thai
lan
d
Ph
ilip
pin
es
Vie
t N
am
Ind
on
esia
Cam
bo
dia
Mya
nm
ar
Lao
s
Sco
re b
etw
een
1-1
0
ASEAN Asia Pacific World
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 42 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
broadband subscriptions from use sub-index with an increase of 60% followed with
the percentage of household with internet access from access sub-index with the
growth of 23% from 2015. Despite the rise of IDI value, compare to the average level
of ASEAN, Asia-Pacific and worldwide, demonstrate the digital divide among ASEAN
countries in particular. Indonesia needs many things to catch-up especially on access
and uses sub-indices.
Figure 3. 18 Indonesia IDI Indicators
(a) 2015 and 2016 Indicators
(b) 2016 Indicators Comparison
Source: (ITU, 2017)
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 43 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Recent developments in ICT markets are moving towards mobile-cellular
network, and an increase in the utilization of mobile phone both are already well
implemented by Indonesia. On the contrary, both increases are not followed by
growth in bandwidth as one of the indicators for access sub-index. Indonesia ICT
index shows a very significant number on adoption of mobile-subscription comparing
to the average of the ASEAN, Asia-Pacific and the world. However, ITU highlight that
the population coverage of 2G networks is extensive and by 2011, there were more
mobile phone subscriptions than people in Indonesia. As a result of multiple SIM
cards, the actual level of availability is lower and only count 88% of households in
2015. The development of mobile service in Indonesia is on the transition into the
mobile broadband network. Nevertheless, the coverage of 3G/LTE/WiMAX followed
with the percentage of individuals using the internet and the bandwidth growth still
far behind the movement of mobile-subscription adoption.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 44 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
4
Information and Communications Technology (ICT) is a significant component
of the digital economy. A dynamic and energetic ICT industry can provide
opportunities to other business sectors, public sector, and consumers. Digital
ecosystems can be viewed as a net underneath the emerging technologies that
encompass of companies, people, data, processes and connected things to allow
collaboration and provide mutually beneficial results to all parties involved. They
create a collection of flexible services that can shift around and quickly be adapted to
the ever-changing needs.
The digitalization of society, politics and the economy affect the very
foundations of societal life. Its transformations create the emerging digital society
with its demands and objectives. A new society creates new stakeholders where the
role of stakeholders is integral to the sustainability of the community. Stakeholders
can potentially include citizens, businesses, trade unions, civil society organizations,
public sector organizations, or government. This work will focus on three-parties
stakeholder who holds a vital role in Indonesia digital growth, and those are the
government, the industry, and the users.
The government and industry collaboration holds an essential role in providing
access, wherein the use of digitalization by all three stakeholders increase digital
economy impact. According to March and Olsen (1989, p. 17) definition, the
government and industry considered policy actors because it has sufficient internal
consistency and collective control of the resources used. While according to basic
types of actor, government subsumes into bureaucratic actors because of its
legitimacy that the law entrusts with the power to intervene in the policy. Whereas
the industry considers as special interests actors, who legitimate their intervention
on the fact that they are directly affected either in a positive, negative or neutral
means by the policy decision. And the users who usually represent by association or
NGO or foundation acts as the general interests actors who legitimate their claim on
the fact that the interests they represent are general.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 45 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Actors hold their resources as a value to have their stake by utilizing their
strategic capabilities through the pattern of interaction. The government equipped
with a legal resource that is the power entrusted by the law and relationship resource
which improves trust and sustain new cooperation in the problem solving between
actors. And the industry holds the economic resource which able to move the money.
4.1.
Indonesia had twice its population on mobile subscribers in total, with
accelerating smartphone penetration and data usage. At the same time, Indonesia is
just at the beginning of its digital transformation, with considerable growth potential
ahead. With the fourth largest population in the world and a young demographic
structure, Indonesia is an enormous growth market for digital. This strategy also
encouraged by the behaviour of Indonesian consumer which consider price sensitive
consumer with high elasticity.
The growth of OTT service in Indonesia undeniable has a robust correlation
with the growth of telecommunication access, particularly with the utilization of
mobile internet access. OTT service is part of the digital economy ecosystem in
Indonesia that some OTT service successfully improves quality of life by means ease
to obtain information, communication, job opportunity, and as far as market
penetration opportunity for small-medium enterprises.
The digital economy ecosystem far-ranging from the concept of D-N-A, by
means the device industry, network provider, and application provider, nonetheless
the users itself as the center of the ecosystem. To stressed-out, revisiting the discourse
of OTT service regulation essentially is as an enhancement of service quality for the
user.
4.2.
A disruptive innovation marked with the new emerging market or similar
market to new wave that grants an entirely new population of consumers at the
lowermost of a market admittance to a product or service that was previously only
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 46 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
attainable to consumers with a lot of money or a lot of skill (Christensen, n/d).
Disruptive technologies carry out to a market a very different value proposition than
had been available previously and distort the market, which in consequence it asked
for regulator intervention.
ICT in Indonesia mostly support and organize by the telecommunication
industry as the provider of connectivity access to various services The
telecommunication industry has played an essential role in the development of
Indonesia’s economy. Not only it increases connectivity across the country, but it also
plays a crucial role as enabler in stimulating the growth of other sectors such as but
not limited to banking, finance, healthcare, education, tourism and trade, and so on.
Telco operators across the globe are facing a serious challenge by the heaps of
OTT services which its nature operates in cross border industry. The existence of OTT
is a disruptive trend for traditional telecommunication market. Without a clear
regulatory framework imposed into the industry, the current network operators have
accused the OTT players as a free-rider in using their network infrastructure and
subsequently urge for protection from the government. Whereas, absent of content
delivered over the network infrastructure, directly impact on network operator’s
economic performance. In a sense, the presence of network infrastructure and the
contents that runs on it are the complementary units.
On the other hand, the OTT trend creates technology dependence in many
aspects of life, particularly on economies term. Unlike most OTTs,
telecommunications companies must comply with national legislation, licensing
obligations, and rules. Many services offered are regulated directly in terms of price
and scope.
OTT players differ from operators not just in their business models, such as
limited investment, few employees, high growth, global footprint, and so on., but also
in regulatory and tax rules that apply to them. They have so far benefited from little
or no regulation, while highly regulated telecommunications operators are for their
part. Besides, they can put in place the international tax optimization strategies, given
the variation in regimes applied in this regard by different countries.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 47 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
States and regulators are progressively interested in OTT favorable market
conditions and are questioning the advantages they enjoy tax optimization, dominant
positions in certain markets, data privacy, their effect on the security of states against
the background of strengthening global terrorism, and the free flow of data across
telecommunication networks.
Table 4. 1 Telecommunication Companies and OTT Players Comparison of Market Condition
Regulation Telecommunication Companies OTT Players
Licensing Subject to license and license fee No service license required
Quality of Service SLAs are included in the service
license
No quality requirement
Interconnection Interconnection is mandated No interconnect requirements
Universal Service Usually subject to universal service
obligation
Not subject to universal service
regime
Consumer Protection Subject to (enforceable) consumer
protection policy
No or little enforcement power
Legal interception Usually part of a license condition Country dependent
Taxation Subject to national tax regime Service dependent
Source: (Detecon Consulting & Telecommunication Regulation Authority Kingdom of
Bahrain, 2014)
The implication of the imbalance of regulation as mention in the above table
creates a significant difference on each party business model. The telecommunication
company business models are determined by regulatory requirement, whereas the
OTT players are free of such limitations. Besides, many telecommunication companies
lack the necessary innovation speed and readiness against the OTT players. This
condition resulted in the competition to be highly dysfunctional to the benefit of
creating dominant OTT players and significant loss of revenues in core services while
the cost for network expansion and operation remain high.
4.2.1.
Operators around the world are seeking to grow their subscriber bases through
improved services and new features such as 5G. The competition among the operators
likely a zero-sum game, with power concentrating to the industry’s top players.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 48 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Network Investments in consequence to the birth of new technologies was consistent
and immense.
The phenomenal adoption of mobile devices and applications creates an
unprecedented need for providing end users with ubiquitous and uninterrupted
Internet connectivity. By 2018, global mobile penetration was 104 percent with the
total number of mobile subscriptions was around 7.9 billion (Ericsson, 2018). This
situation has two immediate effects, as the existing network operators are prompted
to invest to extend and upgrade the network infrastructure, while the
telecommunications market expansion motivates new players involved in service
provisioning. The proliferation of mobile communications has brought new
stakeholders to the spotlight, the OTT players who offer their services over the
existing deployed telecommunication networks.
Figure 4. 1 Global Mobile Subscription in 2018 (million)
Source: (Ericsson, 2018)
When the smartphone started conquering the world, the OTT players proffering
services via apps began thriving. For example, WhatsApp catches an essential part of
the SMS revenue of operators. Telecom companies had no option but to immediately
shift to data, protecting revenue by selling data packs and bundles of data, voice, and
SMS. By 2018, mobile data traffic grew close to 88 percent from last year. This growth
is driven by both the rising number of smartphone subscriptions and an increasing
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 49 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
average data volume per subscription, fueled primarily by more contents over the
internet. (Ericsson, 2018)
Figure 4. 2 Global Data and Voice Traffic
Source: (Ericsson, 2018)
The price war is a normal phenomenon on market mechanism for operators to
boost selling and market share. With the rise of data era and declining legacy usage of
voice and SMS, telco operators are struggling with the ongoing competition and poor
financial results whereas the growth of internet companies are in the positive trends
with the rise of the global digital revolution.
Table 4. 2 Top 10 World’s Telecommunication and Internet Company’s Market Values 2019
Telecommunication Company Market Value Internet Company Market Value
China Mobile Ltd. $217.5 billion Alphabet Inc. $763.03 billion
Verizon
Communications Inc $221.39 billion
Amazon $707.75 billion
AT&T Inc. $211.688 billion
Tencent
Holdings $535 billion
Vodafone Group plc $48.39 billion Facebook $521.4 billion
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 50 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Telecommunication Company Market Value Internet Company Market Value
Nippon Telegraph &
Telephone
Corporation
$81.564 billion
Alibaba $479.43 billion
Softbank Group
Corp. $98.785 billion
Netflix $121.62 billion
Deutsche Telekom
AG $67.334 billion
Priceline $88.683 billion
Telefonica S.A. $43.01 billion
Baidu $86.25 billion
América Móvil $52.505 billion
Salesforce.com $81.76 billion
China Telecom $42.558 billion
JD.com $66.83 billion
Source: (Parietti, 2019)
In Indonesia, the mobile network is more dispersed compared to the fixed
system and as such the majority of internet users gain access via the mobile network.
Smartphones contribute to increased internet penetration, although penetration
remains low at 23.7% and highly concentrated in Jakarta and Java and Sumatra's
secondary cities (Frost & Sullivan, 2018). The more immediate problem is that the
heavy reliance on mobile networks for internet access is straining capacity and is
adversely affecting internet and telephony quality. Indonesia’s youth is leading its
telecommunications revolution. Young Indonesians, especially the rapidly growing
urban middle-class areas, are early adopters of mobile technology and internet
technology.
There are seven mobile operators in Indonesia, namely state-owned PT
Telekomunikasi Seluler (Telkomsel), PT Indosat, Tbk. (Indosat), PT Hutchison 3
Indonesia (Tri), PT XL Axiata, Tbk. (XL), PT Smartfren Telecom, Tbk and PT Smart
Telecom (Smartfren), and PT Sampoerna Telekomunikasi Indonesia (Net1). Four of
the operators, Telkomsel, Indosat, Tri, and XL, operate GSM networks, while
Smartfren and Net1 operate on LTE networks.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 51 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Table 4. 3 Indonesia Telecommunication Industry Overview 2016
Mobile Subcriptions 388.04 million
Mobile Penetration Rate 150%
Fixed Line Penetrationn 1.7%
Internet Penetration 31%
Mobile Broadband Penetration 30%
Mobile Coverage
2G : 49.8%
3G : 38.9%
LTE : 11.4%
Number of MNO 7
Source: (Frost & Sullivan, 2018)
The implementation of OTT regulation and policy would enhance the digital
economy for the country and its collateral effects. Another distinct outlook on how
the policy and regulation of OTT in Indonesia would encourage local OTT providers
and extend the emergence of new local startups and entrepreneurship.
4.2.2.
OTT businesses are mushroomed everywhere and keep on growing. The term
‘over-the-top’ or OTT was probably first introduced by industry analyst Dean Bubley
on his presentation at the eComm conference in June 2011 (Bubley, What's Next in
Telecom, Mobile and Internet Communication, 2011). It was used to describe the
growing phenomenon of telecom operators launching their services that use the
public Internet as a platform, rather than their own managed network infrastructure.
According to ITU World Telecommunication/ICT Policy Forum, the term over-the-top
(OTT) refers to applications and services which are attainable over the internet and
prevailed on operators’ networks offering internet access services, e.g. social
networks, search engines, websites for amateur video aggregation, etc. (ITU Secretary
General, 2013). While according to ASEAN report on OTT Project summarize OTT
refers to a form of service delivered via the internet which bypasses the traditional
network service provider, complete with service offered by the telecom operators,
and/or effect to the quality of networks and service (Vietnam Telecommunication
Authority, 2015).
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 52 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
OTT services are used and are increasing by more than a third of the world's
population. They offered the number of advantages over the functions of telecom
operators:
1. The absence of borders. OTT players can offer their services easily across many
countries, while telecom operators are connected by design to the state in which
they operate.
2. Multi-devices. OTT services can also be easily accessed via apps from a computer,
smartphone or tablet, while mobile operator services such as SMS and MMS were
"built" for mobile use only.
3. The price, and richer functionality. The OTT players’ free communication services
compete directly with the operators’ voice and SMS services, but also offer new
features such as accessibility on different devices, a simplified customer
experience, fast message exchange, rich voice and message communications, photo
and video, fluid and simple.
Figure 4. 3 Digital Ecosystem
OTT services are dependent on the network of internet provider. In the digital
ecosystem, OTT services, Internet access, and devices are complementary from the
user’s perspective. This signifies none has value on its own.
ITU depicted three OTT business models based on their positioning in the value
chain of the digital ecosystem. Nevertheless, ITU said that, on the continuation, OTT
would innovate different business strategies and scope of services offered that will
create various revenue sources and positioning in the ecosystem, for instance, OTT
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 53 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
that vertically integrated into conjunction with device manufacturers or with the
operating systems developers for these devices. Apple is a case of a vertical device
and operating system integration. In which this vertical integration may constitute a
source of market power or allow anti-competitive behavior among competing for
OTT.
Figure 4. 4 OTT Business Models
Source: summarized/modified from (International Telecommunication Union (ITU),
2015)
On business model type 1, OTT operator (OTT1) provided their services directly
to users and imposed the charge accordingly. Charges may be levy by an ISP for the
OTT or directly charged by the OTT. Example of OTT1 are Cloud services providers or
Skype. The business model type 2, OTT operator (OTT2) provide their services “for
free” to users. Still, users have to authorize the OTT to place cookies. By allowing this,
users provide OTT information they can sell to advertisers to effectively target
consumers in exchange for some revenue. Therefore, consumers indirectly provide
revenue by being exposed to advertising and providing data that can be used by the
OTT to improve the effectiveness of advertising. The most worldwide prominent
brands that belong to this type are Facebook, Google, and YouTube. The business
model type 3, OTT operator (OTT3) connects content and application developers to
users. In this case, the OTT charges the users upon the service or good obtained and
the content application providers to putting them up to sell to users. Examples of
OTT3 include Apple iTunes or Amazon. (International Telecommunication Union
(ITU), 2015)
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 54 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
The business models of OTT are two-sided platforms, as they must manage the
matching between two distinct groups of participants, for instance, the end users and
advertisers. ISP is also two-sided platforms, as they provide the connection between
users and OTT. Two-sided market theory shows that when a platform owner sets
prices on both sides, cross-group externalities are generally taken into account to
maximize participation on both sides. (Rochet & Tirole, 2004). With two-sided
characteristics, all the participants should not be considered in isolation, whether
they are users or ads company.
OTTs are not jurisdictionally restricted. Their extent of action is supranational,
and their offers are global. Likewise, the internet provider or ISP generally operate at
the national level. From a regulatory standpoint, this raises the imbalance of laws or
regulations in a serviced country. A similar problem appears to exist with taxes.
The penetration levels of mobile broadband will experience exponential rise.
Once again, investment in submarine cables connected to the global high - speed
broadband infrastructure favors OTT's development.
4.2.3.
Network neutrality is the general principle where Internet service providers
and governments should treat all data on the internet without discriminating or
charging by the user, content, site, platform, application, type of attached equipment
or mode of communication differently. The term network neutrality was first coined
by Tim Wu in 2003 in his paper about “Network neutrality, Broadband
Discrimination” which imposed the conflicts between the private interests of
broadband providers and the public's interest in an internet centered competitive
innovation environment. It tries to compare three general approaches to the
regulation in broadband — first, structural remedies as a means for promoting
network innovation. Second, a non-discrimination regime which means to give users
the right to use non-harmful network attachments or applications. And third, self- or
non-regulation which arise from basic economic theory recommend that operators
have a long-term interest coincident with the public where both should entail a
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 55 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
neutral platform that bolsters the emergence of the very best applications. (Wu,
2003).
As a concept, neutrality is finicky and depends entirely on what set of topics you
choose to be neutral among. A policy that seems neutral in a certain period, such as
'all men can vote', may lose its neutrality in a later period when the range of subjects
is widened (Wu, 2003). Prevalent with the development of technology and business
model in the internet industry, the perspective of network neutrality are also varied
among several regulators. The principle of net neutrality, as emphasized in the United
States and Europe, is favorable to OTT players. The communications regulator in the
United States, the Federal Communications Commission (FCC), reaffirmed the
principles of neutrality regarding services, applications, and legal content. In terms of
Internet content, three obligations apply to telecommunications operators in line
with the principles of freedom laid down in the US Constitution:
a. No blocking: Internet Service Providers (ISPs) may additionally no longer
prohibit online access to content, applications or legal services, that is preventing
censorship activity or discrimination against specific sites or services.
b. No throttling: ISPs cannot wittingly offer different terms to sites or intentionally
slow down (or speed up) the loading of their data. The objective: to prevent the
introduction and development of a two-tiered Internet.
c. No paid prioritization: It is now forbidden for Internet service providers to put
upon a premium charge to sites to prioritize access to their content.
On October 27th, 2015 the European Parliament voted for legislation
establishing a principle of net neutrality identical to that applied in the US. The
European Parliament, however, allows certain exceptions, which considered to
favored telecom operators. Practices known as Zero Rating would be permitted.
These practices consist of not counting towards average utilization of the data used
on some precise websites. For example, a client should have a package deal imparting
1GB of data a month, for €10, however, would additionally have the right to unlimited
use of Facebook. Fast lanes would be permitted to establish certain services that
cannot operate without such prioritization, such as very-high-definition IPTV services
or video conferencing.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 56 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
4.3.
Telecommunication industry in Indonesia come to a new change with the
stipulation of Act number 36 the year 1999 on Telecommunication which entrusts the
shifting of monopoly regime into competition and eradication of government function
as telecommunication agent of development. Even though the government had left
the development of telecommunication infrastructure to the business entity, the
government still maintain the equity of access within the nation. Another essential
notion to the regulation was to accommodate technology changes, national crisis,
government monopoly, value shifting from public goods into commodity goods, low
telecommunication density, foreign investment on telecommunication sector, low
infrastructure penetration, and shifting the paradigm of the world economy from an
industrial society into an information society.
Competition-based regulatory policies and regimes are assumed to amplify
customers’ welfare while encouraging private financing of expected investments for
network development and innovation, under overall conditions of efficiency, equity,
and access. Introduction of competition by regulatory design in Indonesia reshaping
the mutual relationship between two main functional operators, telecommunication
network infrastructure provider and telecommunication service provider. The
driving idea is to functionally separate infrastructure provision from service
provision, which relies on access to that infrastructure network to make the
communication and information service delivered. The competition-based regulatory
approach is derived from prevailing wisdom that always favors competition for
welfare improvement.
Deregulation of the telecommunication industry is a common practice all over
the world. In most countries, deregulation conducts when access density is above
10% or near 20%, wherein, Indonesia deregulate its industry in 2000 when the access
density level reach only 4%. Thus, since its early introduction of telecommunication
deregulation, the main issue faced by the government is national telecommunication
access and infrastructure asymmetry between islands, urban and rural area, west and
east region of Indonesia. (BAPPENAS, 2014)
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 57 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Table 4. 4 Telecommunication Regulation Timeframe
Sector
Restructurisation Duopoly
Universal Service
Obligation Convergence Broadband
Stipulation of Act
36 Year 1999 on
Telecommunication
that mandates the
eradication of
monopoly and
separation function
and role of
government.
Industry
restructurisation on
fixed network provider
by terminating
exclusivity rights of PT
Telekomunikasi
Indonesia and PT
Indosat as starting
point of duopoly from
monopoly.
Provisioning of
telecommunicatio
n service and
internet service
on non-
commercial area
through Universal
Service Obligation
programmes.
ICT regulatory
restructurisation
to anticipate
convergence of
industry and
stipulate
regulation on IPTV
as starting point of
new convergence
service.
Intensify
government
intervention with
broadband
penetration through
universal service
fund to speed up
deployment of
national broadband.
Telecommunication density
1999 2002 2009 2010 2016 -
4.1% 9.0% 86.1% 109.4% 149.04%
Early deregulation
of
telecommunication
industry which still
concentrate on
fixed network
(copper)
Increase of
telecommunication
access density support
by growth of fixed
mobile access users.
Rapid growth of telecommunication access density as a result
from high competition of wireless technology and supported by
government regulation on spectrum since 2006.
Average growth for cellular density from 2011-2016 is 7.71%.
Source: (BAPPENAS, 2014), (Kementerian Komunikasi dan Informatika Republik
Indonesia, 2017)
Interpretation of the Telecommunication Act in Indonesia creates the digital
industry structure and value chain through license obligation. Market structure for
commercial telecommunication industry under the regulation can be distinguished
into two main categories, and those are telecommunication network operator and
telecommunication service operator. The distinction between two that is the
telecommunication network operator obliges to provide the physical network for
telecommunication purposes, while the telecommunication service operator obliges
to provide telecommunication services utilizing the network provided by the network
operator. And there is no exclusivity or restriction of a single entity to acquire both
licenses, which means, same entity could provide telecommunication from upstream
to downstream of the service value chain of telecommunication as long as it grants
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 58 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
with a permit. Critical objectives for licensing implementation is flexible, technology
and service neutral, create growth of telecom services, level playing field, consumer
benefits, and promotion of competition. Another important point on license
authorization as mandated by the regulation is to give business opportunities to the
investor under term and condition.
The shifting age of telecommunication industry in Indonesia from monopoly to
full competition give rights of the equal level playing field for all telecommunication
operator. Despite its original purpose to serve as a link to connect all part of the
nation, the competition creates a massive gap in telecommunication infrastructures
and services. Competition made the most of player in the relevant market only
targeting the market with high potential capacity thus made the infrastructure of
Indonesian telecommunication is still count far from sufficient to reach out all of its
territories.
Table 4. 5 Telecommunication Market Structure based on Telecommunication Regulation Framework
Licensed Structure
Network Provider Service Provider
Fixed Mobile Basic
telephony Value-added
telephony Multimedia
Terrestrial,
Cellular, Satellite
Premium Call,
Call Centre, Calling Card
Internet Service, Network Access,
Internet Telephony, Data Communication,
Mobile Content
License Type Individual License
Market Design
Competition/ exclusivity Competition
Market Composition
158 18 5 23 525
Source: (Kementerian Komunikasi dan Informatika, 2018)
ICT development creates ubiquitous digitalization that dependent on the
presence of the internet. ICT in Indonesia mostly support and organize by the
telecommunication industry as the provider of physical access to various services.
The regulations on the internet and IP are based on the Telecommunication Law and
regulated by MCIT. As on license structure in Indonesia, the internet service provider
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 59 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
(ISP) and network access provider (NAP) holds an essential role in providing internet.
ISP provides last miles internet access to the end users, wherein NAP provides
wholesales access for ISP to interconnect to the global internet. ISP and NAP
themselves positioned on the upper layer of license structure, which means it is
heavily dependent on the lower layer one, that is the network provider. As per 31
December 2017, there are 314 ISP providers and 41 NAP providers (Kementerian
Komunikasi dan Informatika, 2018).
The rapid development of ICT urges government as a digital stakeholder to
support sustainability and transformation of digital society to be able to gain digital
dividend for the nation. Several problems on telecommunication industry that
required government attention are the infrastructure and access inequality, low
national industry efficiency, and the digital gap between urban and rural area. To
reach the advanced stage of digitization and realize the wide-ranging benefits it offers,
support from the highest levels of government is vital. Policy and regulation of
digitalization should promote the public interest. They are a policy that support open
access, avoid abuse of market power, foster competition, create a favorable
investment climate, and narrow the development gap. Another essential role of
government as policy and regulator is to minimize the digital divide and balancer
between industry and users interest that is by maintaining the growth of industry but
also preserve the availability, quality, and affordability of the access to the user.
Development of telecommunication technologies, media, and the internet goes
beyond convergence and give an advent to multiple applications or content over the
internet network or what commonly coined as over-the-top (OTT). OTT could come
from a local provider or global provider. Internet network that has already connected
globally boost globalization and contribute to invasion of the new era of digital
industry.
OTT business impact several stakeholders, namely the telco operator, device
provider, and end user, had raised several concerns by the government. Rampant of
OTT business raised concern on public protection, opportunity, competition and
safeguard of local capabilities.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 60 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Concern about the contents, e.g., audio, video, image, text, or application, relate
to public protection from the negative content issue raised on content compliance
with local content regulation, such as Cinematography Act, Anti-Pornography Act, and
Electronic Information and Transaction Act, due to public easiness access to the
content. Public protection means is about the negative content that violates public
interest in the manner of content displaying unauthorized personal data, gambling,
defamation, extortion, threats and false information leading to economic loss, and
content inciting hatred. While the concern on the new business opportunity in regards
with OTT benefits for the country in term of the opportunity of new investment,
increase the national income, provide new job opportunity, and following the new
global trend on commerce. Another safeguard of local capabilities concern is about
lawful interception access, local language service, local content empowerment, and
national payment gateway.
Table 4. 6 Government Concerns on Digital Society
OTT TELCO OPERATOR DEVICES END USER
audio, video, image, text,
apps, messaging, call, TV network and service hardware, software
individual, corporation,
pre-paid, post-paid
▪ Public protection from
negative contents
▪ Information Security
▪ Lawful interception access
▪ New Business Opportunity
▪ Encourage Competition
▪ Local language service
▪ Local Content
Empowerment
▪ National Payment Gateway
▪ Leverage into
Digital Player
▪ Security and QoS
Manufactured local
content level
▪ Consumer protection
▪ Digital Economy
▪ Creative Economy
Awareness about the overlapping of OTT and telco market give a new level of
competition. The difference between OTT, particularly global OTT, and
telecommunication operator are about how OTT works and produces international
and use big scales and size to their advantage while in contrast, telco produce and
operate networks and services locally in the individual countries with very limited
scale effects across the country. OTT elaborates how new technology implements the
principle of economies of scale and scope which allows for cross-border presence. The
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 61 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
OTTs worked with the scalability of the international footprint where they can offer
their services across the globe and beyond local requirements with almost no
customization apart from language. Thus, this issue raised the government’s concern
about the same service same level rule, issues on telco 'dumb pipe' for OTT business,
and discussion about beneficial collaboration between OTT and telco. Relaxing to this
condition, the government encourages the telco player to leverage their business into
the digital player in the way by increasing the digital broadband penetration, partake
as a digital aggregator or content delivery network (CDN) player, and step in a content
creator. Nevertheless, by keeping security and quality of service (QoS) assurance to
the users.
Government’s concern for the end user mainly focuses on consumer protection
that is the compliance of consumer right from OTT provider and expectation for OTT
to drive community creative economy that will empower local content and give a
stimulant to new start-ups and the new industrial 4.0 that induced by the digital
economy.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 62 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
5
The Internet is a global service available for public and accessible through a
multitude of telecom networks. As the physical and digital worlds remain to merge
new technologies and platforms, governments will increasingly encounter oppression
to change their current approach to public engagement and policymaking. The
government must be able to maintain the interest of the consumers along with the
public at considerable while carry on to bolster innovation and technological
development by embracing agile governance. This means regulators must
continuously accommodate to a new, fast-changing surround, reinventing themselves
so they can thoroughly comprehend what it is they are regulating. To do so,
governments need to collaborate closely with business and civil society.
The rapid growth of internet giants with its OTT services has disrupted the
traditional mechanism of the telecommunication industry. Nevertheless, OTT
services also give benefits to society. In Indonesia, the disruption of OTT complained
by all telco operators. They urged government intervention to regulate OTT operators
as consequence of their disruption on telco market for providing substitute service,
the ‘same service same rules’, tax avoidance, network free-riders and seek protection
for revenues downfall.
To parry with those accentuations, the government led by the Ministry of
Communication and Information Technology (MCIT) responded by proposing the
policy to cope with the rise of OTT. Several background motivations drive the
Indonesian government to regulate OTT in Indonesia are:
a. Growing of OTT service used and popular among Indonesians.
b. The contribution of OTT service to increase the economic growth and quality of
life.
c. The ability of OTT to set forth the Small Medium Enterprises and creative sector in
Indonesia.
d. Claim from telco operators that OTT, particularly OTT communications, has
inflicted the loss of revenue and no equal playing field.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 63 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
e. The potential loss of national income tax from the digital advertisement on OTT as
its location outside the country.
f. Aptness, some of foreign OTT, provide contents that not comply with Indonesian
regulation.
g. Foreign OTT has no obligation for consumer protection.
5.1.
There are some government authorities responsible for establishing digital law
and policy in Indonesia. They include the Ministry, the Secretariat of the Cabinet, the
House of Representatives and other related Departments. Besides, other ministries
need to be involved in the law being proposed comes under their authority. According
to state governance in Indonesia, MCIT mandates to administer government affairs in
the ICT sector in Indonesia. MCIT has several functions, including, inter alia, the
formulation, and designation of policies and regulations in the postal services,
information technology and management of information sectors; the implementation
of policies and regulations in the postal services, information technology and
management of information sectors; the provision of technical guidance and
supervision in the postal services, information technology and management of
information sectors; and managing research for the development of the sector. The
first regulation and policy on management of post and informatics resources and
organization regulated with the Telecommunication Act, the current one is
Telecommunication Act number 36 the year 1999. As a regulator, MCIT can impose
sanctions for violations of the issued regulations.
The initiatives of government interventions on the provision of OTT services
highlights on several policies as follows:
a. On 31 March 2016, MCIT issued a circular letter No. 3 The year 2016 on Provision
on Application Service and/or Content over the Internet (Over-The-Top). The
circular letter aims to convey grace period for the OTT providers to be on alert
for future requisition to carrying out the OTT business in Indonesia to avert
interdict of their business operation.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 64 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
b. On 29 April – 16 May 2016, MCIT carries out a public consultation on Draft of
Ministry Decree on Provision on Application Service and/or Content over the
Internet (Over-The-Top).
c. On 24 October 2016, the Minister of Finance sent out a letter to Minister of MCIT
about the issuance of Ministry of MCIT on OTT and proposal about Permanent
Establishment clause for oversea OTT.
d. On 6 February 2017, the Directorate General of Tax issued a circular letter about
Definition of Permanent Establishment for OTT Application Services and/or
Content Provider as a Tax Subject.
e. On 21 February 2017, the Head of Central of Statistic Body stipulate regulation
on New Standard Classification of Business Field related to Digital Platform (Code
63121 and 63122).
f. On 10 May 2017, coordination meeting between Directorate General of Posts and
Informatics Operation and Directorate General of Tax about Permanent
Establishment clause on legal drafting of Ministry Decree on OTT.
g. On 21 June 2017, the Governor of Bank of Indonesia stipulate a regulation on
National Payment Gateway.
h. On 7 August 2017, MCIT carries out a public discussion Draft of Ministry Decree
on Provision on Application Service and/or Content over the Internet (Over-The-
Top).
5.1.1.
The call for regulation of OTT come to rise with the acknowledgment of
disruption on the telco industry that creates market failure. The controversy points
out market failures in term of market control and externalities.
OTT players are not jurisdictionally constrained. The inherent benefits of OTT
players are the low barriers to launch a service, with no need to invest in
infrastructure in each country for the service is to be made available. OTT players can
develop and deploy the solution in one country, and benefit from almost immediate
global reach. From a competitive point of view, this is highly advantageous compared
to telco operators. Their locus of action is supra-national with global offers. On the
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other hands, telco operators generally operate at the national level although some
may be present in many countries at the same time. When an OTT becomes dominant
and powerful, the availability of the content or service provides by OTT may be critical
for telco operator in attracting users. The availability of access to a single telco
operator customer base is less risky for a global OTT, because, if blocked, it only loses
a tiny fraction of its user base. Therefore, the bargaining power of the telco operator
vis-à-vis the (dominant) OTT, in this case, is relatively low. Thus, the balance between
market forces is not working.
Most of the telco operators worldwide basic service offered to the customer is
voice service and internet access. Presence of OTT service and internet access are
complimentary. It triggers higher internet access demand for accessing the various
OTT services. Although the relation on the presence of OTT creates positive
externalities for telco operators, at some point OTT service may create a massive
increase in traffic demand constraining telecommunications and networks capacity.
The option to properly handle such amounts of traffic without deteriorating the
quality of the user experience translates into a need for further network investment
for telco operators.
Additionally, OTT services such as voice and messaging contributed to a
significant loss of telco operator’s revenues. With these services, customers are
benefits for a lower price and alternative solution. On the other hand, it creates
significant blows for telco operators. The service act as a new competitor for their
existing one but with no baseline of same service same rules clause.
Other concern raised by the nature of OTT business models is the data and
information flows. Data moving across borders is critical for the OTT services, and by
the increased of the digital economy, data analytics, artificial intelligence, and
blockchain, the role of data is principal. Data could be monetized to improve efficiency
and competitiveness for small or large businesses. This condition urges the need for
consumer data protection and privacy.
Another important issue raised, aside from the industry and consumer interest,
is the issue of global OTT taxation. As the domination of OTT giant expansion, the
traditional principle of cross-border business strategy is dramatically changed. The
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cross-border development for OTT giant to offer their services no longer required
physical presence at a designated market. For example, the presence of Google or
Facebook in Indonesia. They only have status as a representative office in Indonesia,
which in this case, according to the tax authority, they are exempt from tax obligation
since there is no permanent establishment or in other words, Google Indonesia or
Facebook Indonesia is not doing any business in Indonesia, while the fact says in
reverse. This trend attracted tax authority concerns mostly on the potential practice
of profit shifting by global OTT. To minimize the potential, the government prepared
some undertaking precaution, such as ratification of Multilateral Instrument on Tax
Treaty (MLI) and agreement on Automatic Exchange of Information (AEoI) about
taxation.
In summarise, to what extent the above-aforementioned claims justify whether
OTT players at some point require regulation to support digital ecosystem
sustainability and, if so, how this could be achieved.
5.1.2.
Reflecting from the identified problems, the Indonesian government through
MCIT proposed the grand design of OTT policy direction that aims to make local OTT
become the dominant player in Indonesia, create economic benefits for Indonesia
market, equal level playing field between local and global OTT, and creating local OTT
as global players. In the grand design, the government will promote and foster the
growth of domestic digital creative industry sectors as the primary catalyst for digital
growth, as well as put forth the principle of national security and sovereignty,
consumer data privacy and protection.
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Figure 5. 1 Grand Design of OTT Policy Direction
Source: (Direktorat Jenderal Penyelenggaraan Pos dan Informatika, 2017)
5.1.
National cyber sovereignty is not a simple matter, particularly when concerning
the complexity of OTT. Retrace to the problem identification and the objective desired
in an evolving industry ecosystem, the need for regulatory intervention has to be
translated into concrete policy options. This thesis promotes two alternatives of
policy options, and those are the regulatory proposal from the draft of Ministry of
MCIT Decree about the Applications and/or Content Service Provider, and policy
option of not regulating or maintaining status quo.
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5.1.1.
MCIT has proposed the draft of Ministry Decree on OTT. It consists of 18 articles
and divided into ten chapters. The primary arrangement of the draft describes the
following (Kementerian Komunikasi dan Informatika RI, 2017):
a. Definition of OTT
The draft defines OTT as application services and/or contents services over the
internet.
b. Objectives of the regulation
The draft represents the regulatory goals to protect national, people and telco
operator’s interest; give equal level playing field and legal certainty; strengthen
national economy, competitiveness, equality, and sovereignty; and provide
protection on privacy rights, accuracy, and transparency on OTT user charging
price.
c. Permanent Establishment Clauses for oversea OTT provider:
Global OTT that operates (have users/consumer) in Indonesia is subject to a
minimum of office representatives or presence of local employees as a
representation of the overseas company that has authority to act on behalf of the
company itself.
Global OTT that operates or have users/consumer in Indonesia subject to have
Permanent Establishment (PE). The PE obliged to conduct minimum activities of
contract agreement on payment, sales, and billing; bank account opening for sales
transaction; provide contact center information, after-sales service, and legal
issue. The PE clause refers to the circular letter of Directorate General of Tax about
Definition of Permanent Establishment for OTT Application Services and/or
Content Provider as a Tax Subject.
d. Registration
OTT provider is subject to do registration before starts its service, if the service
generates earnings or revenues from such business as a field of marketing and
selling of OTT services; advertising on OTT services; OTT user data collection;
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and/or electronic transaction over OTT services. Some OTT providers may
exclude from registration obligation.
e. Obligation
OTT provider is subject to oblige following conditions: comply to related inter-
sector specific regulation; data protection and privacy; negative content filtering;
utilization National Payment Gateway; access guarantee for lawful interception;
option for local language for user manual; and provide data or information about
OTT provision if requested.
For global OTT provider that conducting business in Indonesia, obliged to do
settlement of agreement for payment, sales, and collection; own an account in
local Bank; provide contact center information and after-sales service.
f. Contents
Guidelines on the responsibility of the platform provider and user in the scope of
an electronic transaction based on user-generated content.
g. Range of business
The draft defines OTT responsibility for the transaction within the scope of
business such as selling, marketing, advertising, consumer data collection, and e
data transaction.
h. Data storage
OTT providers oblige to store transaction and traffic data for three months
(minimum). In the case of legal enforcement, data stored based on law enforcer
request.
i. Collaboration with telco operators
According to the needs, the OTT operator may have a cooperation agreement with
telco operators and obliged to have PE to do so.
j. Compensation
The user has the rights to file a complaint about loss or damage directly to the OTT
provider.
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k. Annual report
OTT providers obliged to send a yearly report to the government.
l. National OTT Forum
The draft mandates the establishment of National OTT Forum and defines its
duties and responsibilities.
m. Sanction
The drafts allowed bandwidth management sanctions and the procedure to do so
to OTT provider based on National OTT Forum recommendation.
5.1.2.
The OTT is a new emerging market that comes from the liberalization of a
previously restricted sector, in which new entrants face low barriers, and the effect is
an increase of competition and innovation in services. Regulation of OTT services
perhaps more similar to try to control the uncontrollable. OTT providers are
substantially heterogeneous in terms of their offerings, positioning in the value chain
and size. Imposition of obligations should be based on proportionality. A one size fits
all regulation applied to OTT players would undoubtedly cause a reduction of
consumer welfare and stifle innovation. The characteristics of the current digital
ecosystem recommend the avoidance to impose one size fits all solutions. Looking
from its complexity, there is no definition of the best interest standard in regulating
OTT, and it is confusing. Thus, it would be more accurate for regulation status quo.
The status quo is taken as a reference point, and any change from that baseline is
perceived as a loss.
5.2.
The parennialy transformation of the regulatory environment increases the
vulnerability of compliance risk. The complexity of the risk landscape found thorough
assessments of compliance risk exposure. The compliance risk assessment will try to
comprehend the full series of its risk exposure, incorporate with the probability that
a risk event may occur, the reasons it may happen, and the potential severity of its
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 71 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
impact. Compliance risk assessment also helps to prioritize risks and effectively
allocate resources to risk mitigation.
The regulatory proposal of the draft of Ministry Decree on OTT will legally
define new actors within the digital market structure that is the OTT providers. By the
new regulatory proposal, OTT providers shall abide by several required directions.
Several compliance mandates set by the new regulatory proposal are described in the
following section as risk identification of changing the current situation while the risk
of maintaining the status quo will expose the problem raised as the framework from
the absence of regulatory proposal and the likelihood condition of the digital market
structure.
The risk identification aims to adequately evaluate potential risks from
stakeholder’s behavior of violating the new regulatory proposal or the likelihood of
occurrence happen as for remain status quo option. The risk-level assessed in this
study will use the low-mod-high scale. For the risk-level on changing the current
situation, the low-risk level means the likelihood of regulatory compliance is low,
while the medium-risk level implies the probability of regulatory compliance is
moderate, and the high-risk level in the risk assessment means the likelihood of
compliance violation is very high. While for the risk-level on maintaining status quo,
the low-risk level means minimal possibility the occurrence to happen, the medium-
risk level means reasonable likelihood the incident to happen, and the high-risk level
indicates very high probability the event to occur.
5.2.1.
When a new regulation is introduced to serve another regulatory goal, it will be
added to a portfolio of regulations with which economic operators and civil society
must comply. Complying with regulations, and proving such compliance, is a
significant business cost. For a regulator, observation at the effort of compliance from
the business viewpoint is vital to evaluate the effectivity of the regulation towards its
objective.
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Relaxing to the proposed regulation of OTT by MCIT, there are several issues for
industry compliance. These mandates exert as risk, shown below that potentially
could hinder the industry compliance.
Table 5. 1 Risk Identification of Changing Current Situation
No Risk Identification Risk Level
1 Registration compliance High
2 The compliance to collocate the server within Indonesia data
center
High
3 Bandwidth management sanction High
4 Permanent Establishment for global OTT High
1. Registration Compliance
The regulatory proposal subjected the OTT provider that operates or have
users/consumer in Indonesia, with operational activities of sale and marketing of
OTT service, advertising in OTT service, consumer data collection of OTT service,
and provide electronic transaction through OTT service, oblige to do registration
towards the government, that is the MCIT. The countermeasure of this obligation,
MCIT instigate the registration mechanism of OTT Provider to employ the same
established registration mechanism of Electronic System (ES) Provider through
online platform https://pse.kominfo.go.id.
From a regulatory perspective, the regulatory proposal of OTT Provider and the
existing regulation of ES Provider, the Government Regulation number 82 the
year 2012, are harmonized, yet there is one specific obligation mandate from the
regulation of ES Provider that hard to comply by the OTT Provider that is the
obligation to have High-Level Domain Name in Indonesia. The likelihood of OTT
provider to have High-Level Domain Name is low since the varies of OTT service
in which not all OTT service necessarily required a Domain Name, for instance,
the OTT application.
Another critical perspective for this obligation is how to enforce the OTT
provider, specifically the global OTT to comply with registration arrangement.
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Even though OTT provider does not carry through the registration arrangement,
they still can run their service freely, in the sense of try to control the
uncontrollable. The dynamic existence of OTT services is high whether in
numbers of services or the variety of the services. The popular OTT services could
be identified, yet another unpopular OTT services could run smoothly deep down
below the radar.
In summarising, the risk of setting forth this obligation will highly result in the
high-level risk of violation of compliance.
2. The Compliance to Collocate the Server within Indonesia Data Center
The technical topology of OTT service provision involves the role of the server to
store and deliver the content to the user. Looking at the aptitude of the internet,
wherein the OTT service runs over it, OTT provider will have several servers in
various location to reach out to its user/consumer. Content Delivery Network
(CDN) is a globally distributed network of servers, whose purpose is to provide
faster delivery, and highly available content. The role of CDN is crucial on OTT
service, especially for video service content OTT like Youtube or Netflix, while for
other clients/server OTT service like Whatsapp, the role of CDN is less significant
since the user device have the dual function as the client and server itself.
Based on the outcome of first public consultation on 2016 and public discussion
on 2017 for the regulatory proposal of OTT, most OTT players, particularly the
global OTT, disagree with this arrangement. They reasoned about the additional
cost borne by them and the concern of security and force majeure likelihood to
happen in Indonesia which vulnerable to natural disaster.
Although there was high rejection by OTT players about the obligation to
collocate the server within Indonesia, this arrangement most likely will be still in
place to prevent contradictory regulation and to support the principle of mutually
reinforcing regulations. The regulation of ES Provider, the Government
Regulation number 82 the year 2012, mandates this arrangement; and to support
Indonesia Tax Treaty regulation to determine Permanent Establishment (PE) in
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the form of servers collocation in Indonesia as an indication the Foreign Tax
Subject operates business or activities in Indonesia.
Reflecting from several arguments collected, particularly from the public
consultation and public discussion, the risk for putting down this arrangement
will result in a high-risk level of compliance violation.
3. Bandwidth Management Sanction
Bandwidth management is the process towards estimating and bridle the
communications (traffic, packets) on a network link, to elude filling the link or
overfilling the link, which would lead to network congestion and poor
performance of the network. It was done by the telco operator by controlling the
internet traffic, for instance, limitation of traffic, priority access on specific service
on a certain period, and another traffic engineering, which can be said as a form
of violation of net-neutrality principle.
The OTT forum group discussion on 2017 stated that there is no legal standing
for telco operators to do the bandwidth management. The Telecommunication
Act number 36 the year 1999 only recognized administrative sanction for
violating the compliance. Another point is, the bandwidth management execution
technically challenging to implement by the telco operators and the risk of lousy
network connectivity perception from users to related operators. They suggest
that instead of performing the bandwidth management, better to implement the
content blocking mechanism. It considers technically feasible to achieve and not
jeopardizing telco operator’s reputation to the user.
To summarize, the risk of bandwidth management sanction is categorized the
high-risk level of compliance violation since there is already a clear statement of
objection from telco operators as the executioner party.
4. Permanent Establishment for Global OTT
Under the Income Tax Regulation, Permanent Establishment (PE) is an enterprise
that is used by individuals who are not domiciled in Indonesia or individuals who
are domiciled in Indonesia for not over 183 days within 12 months or
corporations that are neither established nor domiciled in Indonesia but operate
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businesses or activities in Indonesia. Determination of PE shall consider that the
business or activities performed by the Foreign Tax Subject are not preparatory
or auxiliary activities.
The rational proposal of PE obligation for global OTT from the Tax Authority is
national sovereignty; national taxation rights from OECD Tax Convention clause;
tax fairness, counter the aggressiveness of tax evasion, commitment of Base
Erosion and Profit Shifting (BEPS) projects; and to bind OTT representative’s
business activity from preparatory or auxiliary into operational accordance to
their real activities.
Reflecting the global situation of tech giant of OTT providers that massively
concentrate on the US, namely Google, Facebook, and so on, nonetheless, has no
physical presence in Indonesia yet operated and gain revenues from Indonesian
market, notably raised attention to the Tax Authority. Although there still no
correct tax approach for most countries to counter the OTT movement, under the
existing Tax Regulation, global OTT providers could be named as Tax Foreign
Subject under the formation of PE. Reflecting on this, the compliance violation
risk to enforce the global OTT to have PE in Indonesia considered a high-level risk.
5.2.2.
Telecommunications faces a series of thrive challenges, whether or not within
the kind of new waves of disruptive innovation or shifting regulatory demands.
Despite this, the prognostication for the industry is refining, as operators extend their
solution sets and target at a new wave of growth opportunities. Regulatory
frameworks are shifting as convergence and disruption undermine traditional market
and service provider definitions.
The Status quo described as the current or existing state of affairs and to
maintain the status quo is to preserve substance the way they are. Despite industries
shifting, customers change behavior, and occasionally natural disasters cause havoc,
there always reasoning always to stay the same. Compromise with the status quo
means to make a conscious decision to reject adaptation and change. This brings us
to several risks happen as mention below.
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Table 5. 2 Risk Identification of Maintaining Status Quo
No Risk Identification Risk Level
1 Dereliction to comprehend new roles in evolving industry
ecosystems
High
2 Insufficiency of regulatory certainty on new market structures High
3 Ignoring new imperatives in privacy and security High
1. Dereliction to comprehend new roles in evolving industry ecosystems
In a world where disruption is happening, new ecosystems emerge, new
technological innovation comes out, the new business model creates and
competition changes. The landscape in the telecommunications industry
increasingly predicated on shared-value cooperation and cross-industry
collaboration. In this environment, the most significant opportunity is for service
providers that can play a leading role in creating new ecosystems. The 4th
industry revolution creates a new wave of digitalization with advanced use of
Internet of Things (IoT), big data analytics, the blockchain, robotics, and many
more. The advanced use of IoT has created a new ecosystem where the telco
industry plays specific roles as the connectivity element. Government ignorance
on evolving industry ecosystem could be jeopardizing the growth of the industry.
Figure 5. 2 IoT Ecosystem
Source: (Oh, 2018)
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 77 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Relaxing to the fact of the evolving trend of digital society in the long term, the
risk identified as a failure to realize new roles in evolving industry ecosystems,
with or without maintaining the status quo, is very likely to happen is very high.
2. Insufficiency of regulatory certainty on new market structures
Many countries now have digital strategies that recognize the importance of ICTs
as a catalyst for long-term productivity growth. The future market structure
remains uncertain. Many operators are increasingly vocal in their demands that
regulators treat OTTs in the same way as infrastructure owner. Regulatory
attitudes toward rational market structures are mandatory to support long-term
network investment. Relaxing on the change of market structure where the
definition of traditional market structure disrupted, the likelihood of new market
structure emerges is a necessity. Hence, when the government decides to remain
status quo, the occurrence of lack of regulatory certainty on new market
structures to happen is very high.
3. Ignoring new imperatives in privacy and security
Data privacy and security are now predominant affairs for consumers and
businesses. Massive use of digitalization has cause cross-border flow of traffic
data and information. One of the basic principles of the Indonesian state and the
primary purpose of the government is to protect all the people of Indonesia. When
the government decides to remain status quo, set back with the trend of free-flow
of data and information, the likelihood of the risk of ignoring new imperative in
privacy and security absolutely will occur.
5.3.
In policy making, sometimes, outcomes cannot be quantified but may have
important implications for decision-making. In this section, the assessment will use
table and text approaches based on RIA to illustrate the potential consequence of
proposed regulation.
The cost imposed by regulation could be measured either from accounting costs,
opportunity costs, social costs or any other costs. The opportunity costs are the value
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of the benefits that could have been provided by devoting the resources to their best
alternative use. While the accounting costs are the cost of actual expenses plus
depreciation of capital equipment from resources use. And, the social cost is the sum
of the resource costs incurred as a result of implementing the regulation or cost
response to the compliance. However, to capture all the social cost is usually
impractical given data, time, and resource constraints.
Furthermore, most regulations are prone to set aside impacts on price, in which
case such complex modeling is not necessary to understand the critical effects. While
quantifying benefits in monetization term is hard since the information needed for
estimating the impact of the rule on the prevalence to the industry ecosystem
challenging to calculate. However, regulations were promulgated despite the absence
of a formal cost-benefit analysis that monetized all the costs and benefits. The table
and text approach will focus the assessment from the notion benefits from the impact
of regulation.
To answer the field of study about the impact of the proposed regulation to the
stakeholders, identification of impact from alternatives policy is required. Further
after impact definition, the potential magnitude on the likelihood of the effect will be
identified utilizing categorization on the probability of the impact tends to be large or
small. The categories will lead to over- or underestimates benefits that link the effect
to the regulation will be salient for decision-making.
5.3.1.
Given the above discussion, it is critical to analyze all the impacts of
implementing the regulatory proposal of OTT. From the proposed regulation, several
notions of benefits from impact identified, in which each benefit could serve as
overstating benefits, understate benefits or between the two of them. This
categorization will estimate whether the effects are likely to be large or small and to
lead to over- or underestimates. Several impacts identify are:
1. Local content empowerment
Indonesia is home to more than 265 million people, the fourth largest population
in the world with “demography bonus” of the young median age of 30 years. It
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 79 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
extremely diverse country in terms of culture with over 300 local languages
spoken, six nationally recognized religions, and more than 300 ethnic groups. In
term of local content empowerment, human capital is a key element to increase
productivity and sustain competitiveness. OEDC assert human capital as “the
knowledge, skills, competencies, and attributes embodied in individuals that
facilitate the creation of personal, social and economic well-being”. In the 4th
industrial revolutions era, human capital plays a crucial role as a level playing
field for all economies, because investing in technology without investing in
digital skills will not yield meaningful productivity gains. Local contents
empowerment and human capital are reciprocal ones to another. They help to
drive employment, develop local skills, transfer technology, promote R&D
performance, and create wealth for the nation.
Although the OTT service could serve globally, the one fits all philosophy in digital
content not always helps well. To gain competitiveness, the term thinks global
and act local is important. Thus, the opportunity for local content become host in
its own house should serve the needs of the market.
The proposed OTT regulation urges to the birth of more to come local content that
reaches with local wisdom and uniqueness for the market. It obliges for OTT
services delivered in Indonesia to use Bahasa Indonesia for information and
instruction of service usage. Thus, the impact of OTT regulation to empowering
the local content considered as an overstate benefit from the regulation and will
have a large magnitude of benefits.
2. New business opportunity
The proposal of OTT regulation defines the ecosystem within the OTT industry
value chain. By definition, it categories actors within the ecosystem; they are the
user, the internet-connected devices, telco operator, OTT-platform provider, and
OTT-content provider. For the users, the regulation focused on protection, trust,
and clarity of user positioning within the ecosystem. On the connected device, the
focus is to minimize the digital gap within the nation, while for telco operators,
the focus is to make a clear regulation direction for them and assistance for
operators positioning and opportunity within the value chain. While for OTT-
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platform provider, the focus is to give transparency for each actor within the
value chain to built trust.
Figure 5. 3 OTT Platform to Access the Content
Built upon the proposed regulation, four new business models estimated will
arise and could be maximized by each player. The taxonomy of OTT business
models are: the full-OTT business model, OTT-device business model, hybrid
business model, and non-full-OTT business model.
Figure 5. 4 OTT Business Model by OTT Regulation Proposal
(a) Full-OTT business model
(b) OTT-Devices business model
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(c) Hybrid business model
(d) Non Full-OTT business model
The first business model is full-OTT where each actor is independence one to
another. The second business model is where there is collaboration between the
device provider and the OTT-platform, for example, embedded android or IOS
system within the smartphone. These two business models are the most common
environment of OTT where telco claims to be a dumb pipe functions to stream the
contents over its network. While the other two business models consider the new
business opportunity for some players. The third business model is the hybrid
business model for telco operators where they can adopt this model with
collaboration with the global or local OTT provider. With this model, the telco
operator offered not only the network but also OTT service with co-brand by the
telco. The fourth business model is where the telco player is leveraging as a digital
player. In this model, the telco, OTT-platform, and OTT-content are collaborated
to provide service for the users. For these two models, the telco operator should
maintain its neutrality and avoid bandwidth prioritization that can deter their
quality of service to the users.
The proposed OTT regulation inline for these implemented businesses models.
The first and second business models will keep the birth of new startups, new
business channels, boost with the shifting of the traditional economy to the digital
economy. While the third and fourth business model gives a new business
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opportunity for telco operators to grow. Thus, the impact of OTT regulation to
provide new business opportunity considered as an overstate benefit from the
regulation and will have a large magnitude of benefits.
3. Encourage competition
Aforementioned about the business models of the digital ecosystem, the proposal
of OTT regulation gives a new level of competition between telco operators and
OTT provider. In the proposed regulation, telco operators urge to collaborate
with OTT provider or to leverage into the digital player to encourage competition
between both parties. OTT business model moves at a fast pace and changes the
traditional revenue split. Thus telco operators should have flexibility and
innovation to monetize future opportunity as the rule of the ongoing rules of the
ecosystem.
Figure 5. 5 Telco Operators and OTT Business Impact
Source: (Detecon Consulting & Telecommunication Regulation Authority
Kingdom of Bahrain, 2014)
The basis of competition within the ecosystem is mobile computing. With more
than 700,000 applications that are encompassing all users needs, high internet
and device usage, combined with the trend of low data price have created a
multitude of choices and service flexibility for users.
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The proposed OTT regulation aims to create a fair environment to encourage
competition, is expected to boost numbers of player on the market results to the
diversity of product offered to the market and subsequently will increase quality
for the users. Thus, the impact of OTT regulation to encourage competition
considered as an overstate benefit from the regulation and will have a large
magnitude of benefits.
4. Telco operator level up into the digital player
The proposed OTT regulation encourage telco operator to level up into the digital
player as forth business model describes on above section 2 about the new
business opportunity. The capability and willingness to innovate play significant
roles in determining whether a company will be able to survive in the long-run.
The primary business models and means of operations in almost every industry
keep evolving, and there are many epitomai of big companies not being able to
keep up with the changes, and consequently, going out of business.
The proposed OTT regulation opened the opportunity for telco operators to Inline
for these implemented businesses models. The first and second business models
will keep the birth of new startups, new business channels, boost with the shifting
of the traditional economy to the digital economy while the third and fourth
business model gives the unique business opportunity for telco operators to
grow. Thus, the impact of OTT regulation to give telco operator a chance to level
up into the digital player considered as an overstate benefit from the regulation
and will have a large magnitude of benefits.
5. Creative economy empowerment
The creativity is one of the keys for Indonesian economic growth. According to
John Hawkins, creative economy defines as a new economic system that deals in
ideas and money. It is the initial form of economy where imagination and
ingenuity drive what people desire to do and produce. It is a new, novel economic
paradigm which relies on ideas or creativity generated by individuals as its core
product instead of hard commodities produced by machines, which nonetheless
carry the potential to affect systemic changes in society.
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Indonesia’s creative economy as the newest economic pillar has positively rising
trends of contributions towards the GDP. The government supports it through the
Indonesian Agency for Creative Economy (BEKRAF), since January 2015, to
provide breakthroughs as well as support for this burgeoning economic sector,
with the intention to explore the potential and maximizing opportunities while
conquering the challenges of the Creative Economy in Indonesia.
Table 5. 3 Creative Economy Contribution to GDP
Year Contribution
(IDR in Trillion)
2019 1,211
2018 1,105
2017 1,009
2016 922.59
2015 852
Source: (Bekraf, 2018)
The growth of the digital industry in Indonesia already takes account within the
economic pillars. In 2016, Indonesia already had 8,203,826 businesses in the
creative economy sector with highest growth subsectors in TV and radio; film,
animation, and video; performing arts; and communication visuals. Indonesia
estimated has 52% of the population with internet access, where 63% of it had
an online transaction. In South East Asia, Indonesia contributes 3 from 7 unicorn
startups in the region. And by 2020, the government projected 11% of a
contribution of GDP from the digital economy. (Bekraf, 2018)
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 85 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Figure 5. 6 Indonesia’s Unicorn Startups
Valuation Est. (May 2018): US$ 5Bn (Rp
69.4 Tn)
Valuation Estimation (May 2018): US$
1.062 Bn (Rp 15 Tn)
Valuation Estimation (May 2018): US$ 2 Bn
(Rp 28 Tn)
Valuation Estimation (May 2018): US$ 1 Bn
(Rp 14 Tn)
Leading Investors: Sequoia Capital,
Temasek Holdings, Google Inc, Tencent,
JD.com, Meituan-Dianping, KKR,
Warburg Pincus, Farallon Capital,
Capital Group Markets, GDP
Venture, Rakuten Ventures, Allianz, dan
Astra International
Leading Investors: Alibaba, CyberAgent
Ventures, SIMI (Softbank Internet and Media Inc.),
Sequoia Capital, SB Pan Asia Fund
Leading Investors: Tencent, Expedia,
East Ventures, JD.com
Leading Investors: Emtek, 500 Startup, dan QueensBridge Venture Partners
Unicorn status in 2016
Unicorn status in 2016
Unicorn status in 2017
Unicorn status in 2018
The OTT regulation proposal consistent with other government facilitation and
support for the creative economy sector, such: construction of the palapa ring,
which will serve as the backbone of the nation’s digital economic ecosystem;
building 4G network connections throughout the archipelago; issued the e-
commerce road map, a roadmap for electronic-based national trade system; and
established BEKRAF.
The OTT regulation proposal supports for new to come to the content creation
that hopefully will overcome the global OTT. Thus, this impact of the regulation
to empower creative economy considered as an overstate benefit from the
regulation and will have a large magnitude of benefits.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 86 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
6. Data protection and data privacy
Indonesia internet users are count to more than 50% of its population (APJII &
TeknoPreneur, 2017). With its potential growth, the increased interactions and
transactions on the internet have raised critical issues on the user's data
protection and data privacy. Data protection is about the safeguarding of the
user’s information, whereas data privacy is about the safeguarding of user
identity. The specific distinction, however, is more intricate, and there can
certainly be areas of overlap between the two. User's data privacy is a value for
the business, which can be the target of profiling and data mining activities for
specific purposes such as surveillance or advertising. It can be collected in large
quantities and has a high economic value, so the potential violation of information
privacy is more substantial.
Privacy and security risks in OTT services is very high, in particular, the theft or
misuse of personal data, either by the fraud or unconsciousness of the user itself.
The direction about data protection and data privacy allude in the proposed
regulation of OTT. It has covered the notion to protect the collection, distribution,
and usage of information from users, which has a significant impact on building a
safe and trustworthy environment, on preserving constitutional rights and law
supremacy, and on protecting consumer rights to privacy in the digital era.
However, detail direction about monitoring and evaluation of compliance of data
protection and data privacy not described further. Thus, this impact of the
regulation to information privacy and security could understate the benefit of
regulation and that give negative magnitude to the benefits.
7. National payment gateway
Indonesia’s e-commerce has been a lucrative market as many businesses are
interested in its enormous potential. The country’s large population and its digital
explosion, local and foreign companies, and investors have launched e-commerce
websites, applications, and marketplaces. Reflecting on the enthusiastic market
of e-commerce in Indonesia, the proposed OTT regulation require the use of
national payment gateway for paid OTT services.
Figure 5. 7 Shopping Behaviour in Indonesian E-Commerce Market
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 87 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Source: (Bekraf, 2018)
The national payment gateway mandatory in the proposed OTT regulation is
consistent with the Bank of Indonesia (BI) initiatives to launch the National
payment Gateway (GPN) system in 2017. Three purposes of GPN are to establish
an interconnected ecosystem of payment systems that employ interoperability
and is capable of carrying out transactions including authorization, clearing, and
settlement. Second, to enhance consumer protection by safeguarding customer
data during an electronic transaction. Lastly, to ascertain the presence and
integrality of the national payment systems transaction data to promote the
effectiveness of monetary policy transmission, intermediation ability, and
financial system resilience. The notion of utilization national payment gateway
system for paid OTT service indirectly give impacts to the benefits with positive
magnitude for the ecosystem.
8. Lawful interception
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 88 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Lawful Interception is a legal security action wherein a service provider or
network operator garner and support law enforcement officials with intercepted
communications of private individuals or organizations. The proposed OTT
regulation guarantees access to lawful interception and retrieval of evidence to
investigate or investigating criminal cases by law enforcement officers. It obliges
OTT providers to keep service transactions records and traffic records for at least
3 (three) months. And for law enforcement purposes of the judicial process, OTT
providers oblige to keep records of data until the judicial process is terminated
and / or the court decision has permanent legal force. The notion of lawful
interception within the proposed OTT regulation indirectly gives impact to the
benefit with positive magnitude for building trust and interest of national security
to the ecosystem.
Reflecting from above recognize the impact of regulations, using the tables and
graphics approach several implications as explain above presented into their
potential magnitude and categories on the chart below.
Table 5. 4 Summary of Effect from Changing Current Situation
Effect of Nonquantified Impacts on Net Benefits Potential Magnitude
Analysis overstate net benefits
▪ Local content empowerment
▪ New business opportunity
▪ Encourage competition
▪ Telco operator level up into the digital player
▪ Creative economy empowerment
Analysis understate net benefits
▪ Information privacy and security
Analysis over- and understate benefits
▪ National payment gateway
▪ Lawful interception
From above-nonquantified impacts summary and their potential magnitude,
five impacts overstate the benefits with four implications are positively have
overstated benefits, and one effect lessens the overstate benefits. While one effect
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 89 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
identified as understating the benefit and two identified as indirect neutral benefit
impacts. Thus, in conclusion, the proposed regulation on OTT give more overstate
benefits than the understate benefit from identified impacts may occur.
5.3.2.
To analyze the impact from remain status quo is similar to analyze current
condition with the absence of regulation. Although several problems identified as the
basis of the necessity of the regulations, nevertheless, the status quo condition also
gives benefits at a certain point. This part will try to convey several impacts as it is
without the presence of regulation as follows:
1. The diverse selection of services for users
Indonesia is in a nascent stage of digitization, and it has a vibrant start-up
ecosystem. Although, ICT infrastructure is weak and digital usage is uneven
within and among various business sectors. Indonesia's connected citizens are
considered tech-savvy. The increase of smartphones inflicts high demand for
OTT services. For users, OTT services give innovative solutions, efficient, and
convenient through OTT experiences to tailored to the user’s unique habits. It
plays a role in driving internet adoption, and reciprocally, as more people go
online expands other OTT services to come. The growth of OTT services gives a
diverse selection for the users, wherein the case of user preference and choice
offers benefit to the user as in the economic concepts of utility maximization,
choices, and decision making.
In the absence of regulation of OTT gives no restriction for government
interference such filtering and give net neutrality rules that in response boost the
growth of OTT. The state of status quo gives total freedom for OTT services to
grow and it gives benefit impact to users with a large and diverse selection of
facilities, thus it gives the large magnitude of benefits either for the users and OTT
providers which will magnify the ecosystem.
2. No potential new income for the government
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 90 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Going digital is an all-encompassing shift beyond the economic sphere, which
impacts society, culture, politics, and technological development. Thus,
governments and public bodies accountable for the welfare of citizens need to
comprehend what the digital portray, and what challenges and opportunities it
offers. The 4th industrial era is happening now where the digital economy
become one of the economic pillars contributes to national GDP. The new digital
economy landscape gives benefits to society. Nonetheless, the government might
intervene if when the market does not achieve efficient outcomes, income
distribution and social welfare condition. With the digital gap in Indonesia, the
government slowly to intervene in narrowing the gap, and it requires public
financing for the government to do so.
OTT give innovation to the existing economy and creates newer economy
activities. The taxation issues on OTT services is a common discussion on most
countries, and each has their approach. The current situation of no OTT
regulation gives no legal standing for the government to collect income from OTT
players, particularly, the cross-border OTT. In summarize, the absence of OTT
regulation offers benefits to some players those are the OTT provider, especially
the giant OTT players from abroad, and user but give a setback for the
government to create potential new incomes.
3. Increase of cybercrime
Where there is an opportunity, crime may exist, and OTT could bring a plethora
of new opportunities for cybercrime. Over the last few years, cybercrimes have
grown increasingly intense, sophisticated and potentially debilitating for
individuals, organizations, and nations. Targets have mounted up exponentially
due to the increasing dependency of people on the internet. Cybercrimes were
restricted to computer hacking till some time ago, have diversified into data theft,
ransomware, child pornography, attacks on Critical Information Infrastructure
and so on. One reason why cybercrimes are becoming more advanced and better
orchestrated is that many of the perpetrators operate beyond the jurisdiction of
the victim’s country. The internet penetration rate in Indonesia is proliferating.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 91 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
However, insufficient awareness and netiquette make most of the user’s likely
target for cybercriminals.
OTT users are at an all-time high and climbing. This rapid growth in OTT has
opened the door for fraudulent intenders to profit from the rising OTT accessed
directed toward the users. The current situation of no OTT regulation gives no
solid legal standing for the government to put consumer protection for OTT
services accessed in Indonesia. In summarize, the absence of OTT regulation
exploits user vulnerability towards OTT services.
4. Telco acts as a dumb pipe
OTT providers regarded as a high competitor for telco operators where they can
freely utilize the available network to access the market without having any
contribution in building it. According to ATSI (Asosiasi Telekomunikasi Seluruh
Indonesia), on 2011 telco operators in Indonesia on average spent 90% of their
capex to expand the network infrastructure and paid 60% more on the
consecutive year. However, the expected return was far below the investment.
This condition made the telco operator pointing hand to OTT providers for the
loss. Disruption services offered by OTT provider have turned the telco operators
as a dumb pipe that channeled OTT services to the users. The current situation of
no OTT regulation makes telco provider to seek protection from government to
regulate OTT providers for industry protection that contribute to employment,
tax compliance, and function to narrow the digital access gap within a nation. In
summarize, the absence of OTT regulation gives dilemma to the government in
protecting the existing industry or stifle the creativity of a new growth industry.
In summarize, the status quo condition for telco operator will make two choices
for telco itself, whether to remain status quo that leads to be a dumb pipe or
transform to adapt with the disruption that consequently will change their
business model and service offering.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 92 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
Reflecting from above recognize the impact of remain status quo, using the
tables and graphics approach several implications as explain above are presented into
their potential magnitude and categories on the chart below.
Table 5. 5 Summary of Effect from Remain Status Quo
Effect of Nonquantified Impacts on Net Benefits Potential Magnitude
Analysis overstate net benefits
▪ Diverse selection of OTT services for users
Analysis understate net benefits
▪ No new income for the government
▪ Increase of cyber crime
▪ Telco act as dumb pipe
From above-nonquantified impacts summary and their potential magnitude,
there is only one impact that overstates the benefits that positively have overstate
benefits, while three implications identified as understating the benefit. Thus, in
conclusion, the condition of remain status quo give less overstate benefits than the
understate benefit from identified impacts may occur. This provides a hint that there
should be a new approach to better handle this evolving condition in the digital
ecosystem and being the status quo is not the right answer to this.
5.4.
Revisiting the field study to assess the benefits and costs that might occur to the
digital stakeholders to the regulatory options, this section will elaborate on them
reflecting from previous section identification.
1. User
OTT services should regard as the outcome of technological progression and
market forces generating innovative and creative services and products. The OTT
services provide significant benefits for users but simultaneously set some
consequences as of costs. Several benefits and expenses for the user are identified
below compare with the regulatory options. From below recognized benefits and
costs, OTT impacts more benefit for the user, exceedingly, with the present of OTT
regulation more benefits promised for the user. Neither both regulatory options
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 93 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
can eliminate user’s vulnerability to the threat of fraud and cybercrime, however
with the proposed regulation, and the government strives to give protection to
the user as the center of interest, especially on the protection of data and privacy
rights.
Table 5. 6 Benefits and Cost for User
OPTION BENEFITS COSTS
OTT
Regulation
▪ Better services
▪ Low cost
▪ Consumer surplus
▪ Wider range of content and
services offerings with local
language support
▪ Advertising targeted to personal
interests
▪ Access to contact information
center in Indonesia
▪ Protection of data and privacy
rights
▪ Accuracy and transparency on
OTT charging price
▪ More advertising
▪ Target to fraud and
cybercrime
Status
Quo
▪ Lower costs
▪ Consumer surplus
▪ Wider range of content and
services offerings
▪ Advertising targeted to personal
interests
▪ More advertising
▪ Loss of protection of data
and privacy rights
▪ Target to fraud and
cybercrime
2. Telco operators
To adapt to the digital age, telco operators should pursue strategic imperatives
that will spearhead growth and efficiency. They should be able to tailor services
and product offerings to the client and to seek out new ways to grow and innovate
and to understand the network structure of tomorrow. Several benefits and costs
for telco operators identified below which show more costs than benefits
whether with the OTT regulation or status quo options. Reflecting from the
previous analysis, either with regulation or status quo condition, telco operator
tends not to be in the excellent position. Therefore, the transformation is a must
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 94 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
for them to sustain in the evolving digital ecosystem and response to OTT
existence.
Table 5. 7 Benefits and Cost for Telco Operators
OPTION BENEFITS COSTS
OTT
Regulation
▪ Increased demand and
revenue from data services
▪ Increased market power
▪ Leveraging opportunity to be
digital player
▪ Create a level playing field
with OTT providers
▪ Better bargaining power with
global OTT
▪ Reduction of revenue for legacy
voice and SMS services
▪ Possible loss of market power
▪ Possible loss of branding value
▪ Diminution of customer
relationships
▪ Need for additional capital
investment to handle increased
broadband demand
▪ Increasing network congestion
▪ High cost of capital due to higher
perceived risk/market volatility
▪ Need to acquire additional
International Mobile
Telecommunication (IMT)
spectrum to support wireless
demand growth
▪ Increased competition
Status
Quo
▪ Increased demand for and
revenue from data services
▪ Increased market power
▪ Leveraging opportunity to be
digital player
▪ Reduction of revenue for legacy
voice and SMS services
▪ Possible loss of market power
▪ Possible loss of branding value
▪ Diminution of customer
relationships
▪ Need for additional capital
investment to handle increased
broadband demand
▪ Increasing network congestion
▪ High cost of capital due to higher
perceived risk/market volatility
▪ Need to acquire additional
International Mobile
Telecommunication (IMT)
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 95 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
OPTION BENEFITS COSTS
spectrum to support wireless
demand growth
▪ Increased competition
3. OTT provider
OTT service is a disrupter in the digital ecosystem, yet, it is the motor that moves
the ecosystem. Several benefits and costs for OTT operators identified below
which show more benefits than costs. With both regulatory options.
Table 5. 8 Benefits and Cost for OTT Operators
OPTION BENEFITS COSTS
OTT
Regulation
▪ More users
▪ Increased revenue from
subscription, advertising, and
so on
▪ Monetising personal
information of users
▪ Increased economies of scale
▪ Develop more creative
contents
▪ Light FDI regulation for global
OTT
▪ Increased provisioning costs
▪ Regulatory compliance costs
▪ May find it necessary to
invest to address bottlenecks
(e.g., international submarine
cables) and offer significant
exclusive content for
differentiation (e.g., Netflix,
Amazon)
Status
Quo
▪ More users
▪ Increased revenue from
subscription, advertising, and
so on
▪ Monetising personal
information of users
▪ Increased economies of scale
▪ Increased provisioning costs
▪ May find it necessary to
invest to address bottlenecks
(e.g., international submarine
cables) and offer significant
exclusive content for
differentiation (e.g., Netflix,
Amazon)
4. Government
Digital technologies escalate across regulatory areas of responsibility and impact
industries from all sectors of societies. In the rise of the digital economy,
governments, along with competition authorities, have to address the challenges
for safeguard and consumers empowerment in a complex and rapidly developing
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 96 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
online environment, while enabling growth in the business environment. Several
benefits and costs for government identified below which show almost contradict
of costs and benefits between the regulatory options. However, any regulatory
framework should be forward-looking and flexible to keep pace with and benefit
from technological advances.
Table 5. 9 Benefits and Cost for Government
OPTION BENEFITS COSTS
OTT
Regulation
▪ Increased welfare of consumers
▪ Increased efficiency and
competitiveness
▪ Platform for the establishment
of new and innovative
disruptive industries/ businesses
▪ Give safe harbor policy for user
generated contents
▪ New tax income from PE
▪ Ensure of lawful interception
access
▪ Give user protection for filtering
and censorship set up
▪ Promote national payment
system
▪ Decreased capacity for
regulatory intervention
▪ Need to devote additional
resources for regulatory
compliance
Status
Quo
▪ Increased welfare of consumers
▪ Increased efficiency and
competitiveness
▪ Platform for the establishment
of new and innovative
disruptive industries/ businesses
▪ Decreased capacity for
regulatory intervention
▪ Reduced ability to provide
national security and policing
function (e.g., reduced
interception capability)
▪ Need to devote additional
resources to develop new
regulatory
models/mechanisms
▪ Loss of tax revenue
▪ Possible undermining of
national culture
▪ No guarantee of lawful
interception access
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 97 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
OPTION BENEFITS COSTS
▪ No user protection for filtering
and censorship set up
▪ Neglected national payment
system
5.5.
Every government operates within the context of its legacy institutions, policy-
making system, and its socio-economic circumstances. Accordingly, the approaches
towards creating a policy framework for the digital economy vary quite notably even
among countries with equal levels of economic development and access to innovative
technologies. Each state has different approaches policies upon the digital economy,
for instance, the government-led approach in the EU, the private sector-led approach
in US, innovative approach in China, or regulated approach in Japan.
The EU takes the position that regulating the digital economy needs to happen
through frameworks set and developed by national governments, for instance, the
EU’s Data Protection Directive established a standard arrangement for creating a high
criterion of protection for European citizen’s data both at home and when transferred
across borders. While in the US, the government is seeking to create an enabling
environment for private sector initiatives, yet, it is arguable whether this is due to the
clustering effects of locations such as Silicon Valley.
In China, the growth of the digital payment ecosystem was enabled by the
government’s “wait and see” approach to regulation which allows for innovation by
industry participants within informal limits, under strict supervision by the pertinent
regulators, creating new business opportunities and increasing financial inclusion.
From an international business perspective, this threatens a high degree of regulatory
uncertainty, but for Chinese capital, it is a well-understood environment. While Japan
has a more risk-averse and regulation-centric approach to managing technological
change coupled with strong government involvement and a top-down approach, the
failure of digital payments to take off in Japan can be attributed to this risk-averse
regulatory approach by the government coupled with Japan being an early adopter of
advanced technology almost two decades ago. In the early 2000s, Japanese flip phones
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 98 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
could already be used to pay at stores and offered mobile wallet services, but
ironically, their advanced functionality resulted in Japan becoming a technology
laggard when it relates to interoperable smartphone adoption, and without a broader
ecosystem driving payments usage, digital payments have been slow to take off.
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 99 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
6
In this recent digital economy, every country confronted with unprecedented
opportunities and challenges which are in essence different from the previous
revolution. Entire industries are being disrupted and transformed. Current platforms
of collaboration and competition among the public, private and people sectors are
presenting urgent imperatives for governments to innovate, to redesign services, and
to rethink policies. Digital government policies are necessary to nurture agility,
innovation and value creation.
Different approaches to digital economy planning and deployment intended to
create initiatives to transform digital disruption into a dominant contributor to
economic and social development in the form of better public services conveyance,
fast economic growth, intensify financial inclusion, and so on. Thus, imposing one size
fits all solutions should be avoided reflecting on the characteristics of the current
digital ecosystem. Regulation of over the top services is perhaps more similar to try
to control the uncontrollable. However, Indonesia is a challenge in how to regulate
OTT but also still encourages OTT growth in correlation with network investment and
growth, even the growth of Internet penetration.
Regulation of digital services and service providers is strenuous as regulators
must determine whether regulation will restrict market entry or whether regulation
is handy and enforceable. If regulation is overly prescriptive, it can stifle innovation,
drive up costs, and limit the growth of the Indonesian economy. While from a
competition standpoint, the issue is whether the entry barriers prevent competition
and whether they are natural or induced, for example, by anticompetitive practices or
by exclusive licenses. Any regulatory framework should be forward-looking and
flexible in order to keep pace with and benefit from technological advances.
From the outlook of the ecosystem, Indonesia’s stakeholders are very good
adopters, accompanying with innovation focused on tailoring how the service
delivered to meet the local taste and wisdom which spur the domestic OTT growth.
However, the main issue of Indonesia digital ecosystem is the wide digital gap. This
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 100 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
issue should put as the priority but also put in close collaboration with the issue of
evolving digital ecosystem within the context. As consequences, the government will
have a close relationship with telco operators as the agent of development to cope
with the digital gap.
Regulating OTT requires a holistic and comprehensive view. In controlling not
only related to the formulation of regulations involving multi and cross laws, but also
efforts are needed to improve and build a digital ecosystem so that OTT can live to
grow and develop in Indonesia and provide maximum benefit for the people of
Indonesia. The analysis of ecosystem condition in chapter four seen the regulation is
needed to give a level playing field for competitive growth for each actor.
From cost and benefits assessment identified in the previous chapter, several
conclusions can be drawn for each stakeholder. With the OTT regulation, users have
more benefits than remain status quo where the costs arise from being status quo can
handle by the regulation. From the regulatory option, we can see that the users
represented as the center of interest without diminishing its status quo benefits. As
for telco operator, either with regulation or status quo condition, it most likely gives
more costs than benefits. It is inevitable for telco operators to transform to sustain in
the evolving digital ecosystem and to respond to OTT existence. For OTT providers,
given with both regulatory options, unexpectedly provide more benefits than costs.
However, the rise of compliance costs for OTT providers as explain in risks
assessment provides a very high level of violation by the nature of OTT itself. Last, for
the government, the OTT regulation offers more benefit than cost. The costs identified
borne by the government by remaining status quo are on the contrary shift into
benefits through the OTT regulation.
In conclusion from the previous regulatory analysis, the regulation for OTT is
justified because it most likely gives more benefits than costs. However, the limitation
of data on market analysis in this study needs further improvement to have a better
appraisal. In-depth market analyses and some adaptation of quantitative analysis of
costs, prices and revenues might be required for new development. Nevertheless,
there are considerable areas of regulation attention are better to start towards a more
leveled playing field of the digital ecosystem through consumer’s privacy, data
REGULATORY POLICY OF OVER-THE-TOP INDUSTRY 101 Case: Ministry of Communication and Information Technology of Republic of Indonesia Regulatory Policy
protection, consumer protection, permanent establishment, the safe harbor policy,
and regulatory sandboxes.
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