POLITECNICO DI MILANO...Lystio Ratna HUTABARAT Matr: 833316 Academic Year 2017/2018 i ii The grace...

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

iv

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

v

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

vi

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

viii

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.

xii

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.

xiii

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

xiv

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

1

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


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.


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


(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).


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.


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.


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.


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


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 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)


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


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.


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


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.


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%

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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%

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100%

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250%1

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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


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


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.


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


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







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




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


industrialization and foster

innovation


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



ages






G5. Achieve gender equality


girls

G8. Promote sustained,


economic growth, full and

productive employment and

decent work for all

G9. Build resilient

infrastructure, promote


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


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


ages




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.



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


girls


and among countries







institutions at all levels

G17. Strengthen the means of

implementation and revitalize

the global partnership for



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


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.


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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500

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Internet Users % Penetration


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

0%

10%

20%

30%

40%

50%

60%

0

50

100

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200

20

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Internet Users % Penetration


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


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


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


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%

Wechat

Skype

Linkedin

FB Messenger

Google+

Twitter

BBM

Line

Instagram

Whatsapp

Facebook

Youtube

Social Network

Messenger / Chat app / VoIP


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


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


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


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


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


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


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.


Table 3. 7 Social Impact Indicators

Global

Rank Score Trend

Distance from

best


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


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)


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)


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

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1-1

0

ASEAN Asia Pacific World


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)


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.


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.


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


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.


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.


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


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


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.


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).


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


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)


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


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.


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)


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


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


(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.


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


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.


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.


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.


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


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


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.


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.


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;


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.


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


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.


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.


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


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


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.


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)


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


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


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-


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


(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


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.


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.


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)


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




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.


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


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


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


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


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.


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.


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


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


for them to sustain in the evolving digital ecosystem and response to OTT

existence.

Table 5. 7 Benefits and Cost for Telco Operators


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)



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


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


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


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



▪ 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


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.


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


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


protection, consumer protection, permanent establishment, the safe harbor policy,

and regulatory sandboxes.

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