CellFone Nusantara Telephone Infrastructure Project &
The Development of the Revenue-Sharing Concept
In a Monopoly Environment
Background - Monopolies
Folks living in an environment where a monopoly—any monopoly—doesnot exist will take it for granted that one has a choice—in fact, it is one's right to choose—be it a television channel, the utilities, and even the telephone service provider. For folks living in other parts of the world, this freedom of choice is NOT always available. Never mind that it is one's inherent right.
The aim of a monopoly, according to its supporters, is for the welfare and benefit of the common people. In practice, however, it does not work that way. Monopolies in general are complacent, inefficient and its staff get their salaries whether or not they do their job. People do not get fired for not doing their jobs because a monopoly is almost always regulated and mostly run by a government, and government employees are usually not dismissed even in an economic downturn.
The Indonesian monopoly environment -- from 1945 up to 1998 -- equated telecommunications and categorizing it as a "strategic" effort similar to weapons & arms manufacture, basic food staples distribution (rice, sugar, flour), and power and electrical production and distribution.
No one, including Indonesian citizens, were allowed entry into these monopolies. Any efforts to repair a phone line on a pole in front of one's home, for example in the 1970s by the person using it, can be interpreted as an attempt to subvert a strategic state-owned entity, and therefore the Government. To obtain a telephone line one had to be "really nice" to telkom employees. If a potential customer did not please them, the customer would never get his phone line. This was the environment at that time up until 1997. But this would not happen if there were more than one service provider.
Why this sensitivity to national security? To keep the country together is a major effort, particularly as it is made up of more than 17,000 islands spread over 5,600 kilometers and 3 time zones spread over an area wider than the continental U.S.A.
Visualize governing England, France, Holland, Germany, Spain, Portugal, Italy, Yugoslavia, Turkey and Iran, the equivalent geographical distance which makes up Indonesia. Then visualize these different countries having different values and mores.
To run and then transform it into one of Asia's economic tigers is akin to a miracle. Indonesia's national emblem is "Unity In Diversity" (similar in meaning to the U.S.' national motto "E Pluribus Umum") where 583 different languages and nearly as many cultures and 5 recognized religions wanting one thing and another part of the country wanting something else.
While now the country is facing an economic meltdown and its currency is worth only 20% of its previous value towards the U.S. dollar which in turn also affected locally-produced products (a product that used to cost 1 now would cost 5 while the salary levels remained at 100) and made worse by the increasing number of unemployed of up to 20 million people (from a total of about 90 million), the resiliency, the inherent wealth of the nation, the large market potential of 205 million people making it the 4th. largest population nation in the world, cannot be discounted.
The country's Government 50 years ago was, and still is under the Soeharto Administration and now under Habibie, very sensitive to any encroaching to its sovereignty. The 350 years of Dutch colonial rule and later attempts to re-install the Dutch by the Allies in the early 1940s gives it the present character of Indonesian methods of ruling the country.
It may, or may not be, acceptable to other countries--and just recently also unacceptable to the majority of the Indonesian people who since May 1998 when Mr. Soeharto stepped down after 4 innocent students died of security forces' bullets, and recently November 11-14 when 12 people died and hundreds injured by shootings of innocent students and people. People are taking to the streets to vent their dissatisfaction on the political makeup and the K.K.N. (corruption, collusion and nepotism) that was rampant in the country. But for the country as a whole, unless there is another method which is better, Indonesia will be run the best way it knows how, with priority of keeping the nation together as one nation, over and above the rights of any single individual, or groups, or any specific culture, race or religion.
With this historical background and recent events sparked by the economic crisis in Indonesia,CellFone Nusantara founders as early as 1986 viewed the Telkom Indonesia monopoly as an entity run by not more than 40,000 people who dictate what fees and what tariffs the rest of the 205 million nation must pay.
The Telkom monopoly is also against the tenets of the state ideology, Pancasila, the five principles governing Indonesia's "way of life", among which is Belief in God and Social Justice. It was the lack of social justice, the glaring difference between what is theory as defined by the law books and regulations and actual practice, and the K.K.N. that dominated businesses and the political scene that pushed its citizens to go into a rampage than later forced Mr. Soeharto to retire.
CellFone Nusantaraas a 100% Indonesian entity feels it has the same rights as any other Indonesian entity, including the 40,000 strong monopoly, and feels that the 205 million population must have the inherent right to choose its telephone service provider as well as the television channel it chooses to watch, and radio stations it chooses to hear.
As with the philosophy of Indonesia's national founders over 50 years ago, priority must go to the interests of the majority of the people, not to any particular group or even monopolies. CellFone Nusantara places its loyalty on today's 205 million ordinary folks, not the K.K.N. practitioners. CellFone Nusantara also wants to prove that a privately-run entity can do a better job than the present monopoly.
CellFone Nusantarafounders under the name of another corporation, P.T. Marina Jaya founded in 1972, had a successful track record of installing nationwide mobile radio communication systems in 1979-1982 in 1,700 locations over a 5,600 kilometer area for the Department of Defense, the Army and the National Police. This system was used for the nation's General Elections at that time.
Privatization Is Not Freedom From A Monopoly
To privatize a monopoly or transferring ownership from one entity (usually a government) to many private entities is still a monopoly if the operator is the sole operator. A sole operator is a monopoly; multiple operators with the same tariffs dictated by a sole source -- for example, the Department of Communications in Indonesia's environment -- is still a monopoly.
Likewise, 100 different super markets selling a kilo of sugar with the same price is a sugar monopoly because the consumer has no choice. Indonesia's 11 private telecom service providers all have the same tariffs, and all 60 ISPs (internet service providers) must conform to the same tariffs of Rp 15.000 monthly subscription fee and Rp 2.500 per hour. Indonesia's telecommunications environment, therefore, is a monopoly.
Reformasi in telecommunications and other sectors of the economy require consumers to have the freedom of choice, not only among the service providers, but more importantly thefreedom to choose the tariffs -- just like any reasonable and just society can choose different qualities of sugar.
The recent economic crisis which hit Indonesia is forcing the Government to sell its government-owned companies, referred to as B.U.M.N., an acronym for state-owned companies, and majority-ownership of P.T. Telkom Indonesia is being offered for sale. The Government, however, is still not offering other businesses the opportunity to enter into the telecommunication services, preferring to maintain a monopoly although under someone else's ownership.
With this historical background in mind, the founders of CellFone Nusantara conceptualized an idea in 1986 where the national private sector can participate through cooperation (musyawarah, a cultural characteristic of the Javanese Race which dominates the Indonesian nation) where the monopoly is awarded a fee,.
we conceptualized an idea which in 1988 became to be known formally as "revenue sharing", a concept ideal for a government monopoly environment where (a) the private sector invests, (b)the government because of its monopoly operates the project funded by the private sector and (c) the revenues generated by the private investment is thereafter shared between the government and the private sector where the private sector receives the majority of revenues. It was known as P.B.H.,then later came under another name, K.S.O. and under varied other names including B.O.T. (Build, Operate & Transfer) where the heart of the concept was revenue sharing. This concept was then adopted by the Soeharto Administration, and it in turn gave life to Soeharto-owned or related companies in the GSM (global system mobile, a worldwide roaming mobile phone system) and satellite fields, the power generation fields, toll construction and fields monopolized by the government.
we began to formally introduce to the Indonesian Government the concept of “private participation” in the investments of telephone network development, a monopoly of PERUMTEL (acronym for Perusahaan Umum Telekomunikasi, or Public Telecommunications Corp.), the Government-owned telecommunications monopoly corporation.
two private businessmen and theYayasan Serangan Umum 1 Maret 1949 Foundation, a social welfare foundation founded in October 1986 by Mr. Soeharto, the nation’s President, Mrs. Soeharto, the Nation’s First Lady, and other leaders of Government and Indonesian society, formed the P.T. CellFone Nusantara Company Limited on January 27, 1988, under Articles of Incorporation No. --- for the purpose of providing affordable telephone communications to the nation.
While outwardly the CellFone Nusantara Company was formed under a presidential welfare foundation, and theoretically, therefore, it had political 'clout', in reality this clout was only on paper, hence a lot of support was given by many officials, but no real assistance was implemented as the "nepotism" part in the Kolusi,Korupsi & Nepotism above was far too dominant. Officials, including cabinet ministers, who were involved in major projects had to consult the president; this included heads of other government agencies who were the president's personal assistants, not assistant approved and seconded by Parliament which elected the head of state as president. Any major project immediately had to involve his children, a fact which made the Indonesian people revolt against Mr. Soeharto's administration and his K.K.N. because it was the collusion of his "cronies", and their predatory and cartel practices that caused the rise of basic food commodities in an economic downturn, and which in turn caused the political upheaval which removed a 32 year-reigning head of state.
A former president-director of the state-owned P.T. Telkom once informed the CellFone Nusantara chairman, Major General Nichlany Soedardjo (ret..), who represented the presidential welfare foundation, Telkom will assist the company provided one of CellFone's founders and chief executive officer was removed because the CellFone c.e.o. "did not accept any cooperation" (a cooperation that would entail KKN). General Nichlany's comment, after calling in CellFone's c.e.o. for an explanation why the c.e.o. of the telecoms monopoly had this attitude, was Perumtel's head was "afraid" of the CellFone program, to which CellFone's c.e.o. replied there was no reason for Perumtel to be "afraid" because no matter what, CellFone Nusantara cannot by law appear as the operator because of the monopoly law, while in fact, Perumtel enjoyed the investment efforts of CellFone and receiving all the credit for this effort from the public.
the concept of "revenue sharing" was invented, lobbied & promoted to various government circles, including foreign government representatives, using the P.T. Marina Jaya Corp. as a vehicle for promotion. In September 1987 a memorandum of understanding was signed with a major European telecommunications manufacturer.
January 1988 onwards,
The P.T. CellFone Nusantara Co. Ltd. was set up by Notary Public January 27, 1988. We provided input and printed information from all over the world to “Komisi V” (Committee 5) of the Indonesian Parliament (DPR/MPR), responsible for modification of the Indonesian Law for Telecommunications which was last revised in the year 1964. We persuaded members of “Committee V” of Parliament to modify the 1964 Telecommunications Law in line with the concept of private investment and private participation.
April 27, and June 20th., 1988,
the newly-formed CellFone Nusantara Company formally offered in a proposal to the GovernmentJune 20, 1988,
the development of the Indonesian telephone system on a “nationwide basis”, using CellFone’s privately-sourced investments freeing government funding, to undertake the function of a “private perumtel” in cooperation with PERUMTEL and to change the perception of telephones as a high-cost luxury item to a U.S.- Singapore-Hong Kong philosophy where everyone can afford to have it.
we formally offered a proposal in our telephone development program which consisted of the following main points:August 8, 1988,
The development of a nationwide telephone infrastructure with a density of 11.5% (11.5 telephones for every 100 persons) in 20 years in the year 2009 (as versus a density of 0.4% in 1988); The development of 29,300,000 line units (LUs) at an approximate cost of US$ 62,000,000,000 (sixty two billion U.S. dollars) based on the Perumtel investment figure of US$ 2,060 per telephone line at that time. The creation and development of an electronics and telephone industry to support our program; The creation of job opportunities for approximately 410,000 employees, based on the formula that each 3,000 telephone lines will require 42 persons for its operations and maintenance. This means 1 person will be required for every 71 telephones (compared to Australia’s telephone network which needs 1 person for every 90 lines).
we were formally invited by the Secretary General (Deputy Minister) of the Department of Parpostel (Tourism & Telecommunications) in his letter No. PB.103/2/3.PTT to present our concept of “private participation” in the Perumtel telephone monopoly.
August 26, 1988,
we made our formal presentation based on our concept of “revenue sharing” (“Pola Bagi Hasil” or PBH in the Indonesian language) to approximately 115 officials from the Department of Parpostel, the BAPPENAS National Planning Board, the Ministry of Industry, Directors of PERUMTEL State Telephone Corporation, PT INTI (State Telecommunications manufacturing firm), PT INDOSAT Satellite corporation. Present were the Parpostel Deputy Minister and other ranking officials from other government departments.
August 31, 1988,
the Government formally adopted the “revenue sharing” concept introduced by the company when the Parpostel Minister, Mr. Soesilo Soedarman, issued Letter No. 49/MPPT/VIII/88, dated 31 August 1988, naming 5 companies including P.T. CellFone Nusantara, as “investors” for the “pilot” development of 200,000 telephone lines “using the revenue sharing/pola bagi hasil (PBH) concept”.
October 4 1988,
the Perumtel State Telephone Corporation monopoly (thereafter became P.T. Telkom Indonesia) made a “feasibility study” No. KV 032/KVG 13/4 Okt 1988, based on the 200,000 LUs as referenced by the Minister’s letter No. 49/MPPT/VIII/88 above. A copy of this feasibility study was given to CellFone Nusantara and is the basis for the P.T. CellFone Nusantara nationwide development projects. Many of the points contained in this “feasibility study” included references as made in our August 26 1988 presentation during the question-answer period which lasted some 4.5 hours. Some of these points were, e.g. a 70-30% division of revenue where 70% is for the investor.
November 21, 1988,
Minister Co-ordinator for Economy, Industry & Development Supervisor, Dr. Radius Prawiro, in his letter stated his approval for the “pilot” development of 100,000 LUs.
the President-director of P.T. CellFone Nusantara read the R.U.U.. (white paper on the law for telecommunications prior to its implementation as law) and provided his comments to members of Committee V of Parliament.
mid February 1989,
PT CellFone’s board of directors and supervisory board, represented by the Foundation, met the Minister for Parpostel for 2 hours 9 minutes, and it was agreed by the Minister that CellFone be permitted to develop “as many telephone lines as possible” outside the official 100,000 telephone lines as agreed by the Minister Co-ordinator, because the development of only 20,000 LUs would not be economically feasible unless 20,000 LUs were part of a larger project. The figure 20,000 comes from 100,000 LUs divided equally among the 5 companies (see enclosed news clipping).
1 April 1989,
“Law of the Republic of Indonesia No. 3/1989” dated 1st. April 1989, was enacted, modifying Law No. 5/1964 & 6/1964 “regarded as no longer in line with the technological progress and demands for the needs of the people....”.
An important point of Law No. 3/1989 states:
“...with a view to promoting the organization of telecommunications, it is necessary to make continued and effective efforts and public participation to guarantee the availability of telecommunication services to its maximum for the public...”
mid May 1989,
President-director of PERUMTEL, Ir. (engineer) Cacuk Soedarijanto and his logistics director, Colonel Nasution, visited CellFone’s chairman, Mr. Nichlany Soedardjo, to reconfirm the Minister’s statement that CellFone should build as many telephones as possible outside the official 100,000 LUs stated in the Minister Coordinator’s 21 November 1988 letter.
Developments After 1994
As of 1994, the Government adopted the KSO, or “Kerja Sama Operasi” or “Joint Operations” concept. Under the KSO program, the underlying principle of “Revenue Sharing” is still applicable because P.T. Telkom as the sole and monopoly telecommunications service provider still requires a sharing of the revenues derived from KSO contractors and the take over of assets built by the investor.
The KSO concept was foreseen in discussions by Director-General of PARPOSTEL, Ir. Soekarno Abdulrachman, in the year 1988 with P.T. CellFone Nusantara when the P.T. Telkom monopoly (at the time “PERUMTEL”) would, at a later stage, be unable to service the fast expansion of nationwide telecommunications because of lack of personnel and that the revenue sharing contractors would have to operate the new systems on its own supervised by PERUMTEL.
The “Revenue Sharing” or “KSO” concept will no longer be applicable when the P.T. Telkom monopoly is eliminated and when a private service provider can operate without sharing its revenues or relinquish its assets to P.T. Telkom.
Government Income After Free Competition Era
Government income after the Telkom monopoly should derive from corporate income taxation. CellFone’s aim is free competition, the construction of infrastructure and installation of telecommunication lines throughout the country and competition on tariffs the ceiling to be determined by the Government.
The AFTA & APEC Accord
As per AFTA (ASEAN Free Trade Area) after the year 2003, and APEC agreements signed by Indonesia, the P.T. Telkom monopoly should be eliminated by the year 2005.
April 1994 - Development Plan Raised To 70 Million Lines
P.T. CellFone Nusantara in cooperation with British, American and Canadian telecom consultants renewed the Company’s feasibility study conducting a national installation survey at a cost of US$ 400,000. It was concluded that a reasonable national density should be increased to 27% or 70 million lines. The recommended areas for telephone installation and its local densities were included that were based on existing densities.
Developments After June 1997 - A Presidential Statement
At the meeting of 8 heads of governments known as the “D-8 Meeting” in Istanbul, Turkey in June 1997, President Soeharto stated “... willing or not, ready or not we are going to face international competition ...”. In the very near future, Indonesia will face international telecommunications competition in the domestic market, using the latest technology. Because of Indonesia agreement to enter into international and global competition, foreign companies will be able to determine a more competitive tariff. TheWorld Bank in its press statement in June 1997 quoted by the Jakarta Post“ ...the development of telecommunications in Asia progressed rapidly because of the existence of revenue sharing ...” exceeding all other types of investments.