Divakar Goswami & Onno Purbo Indonesia’s WiFi Access Innovation Usable Knowledge for Growing the Telecom Sector Park Hotel, New Delhi, March 6, 2006 Divakar Goswami & Onno Purbo

Research Objectives Why does Indonesia have more Wi-Fi deployed to connect to the Internet than most developing countries? What lessons can we learn from WiFi innovations in Indonesia for other developing countries? What steps must be addressed for hastening Internet growth in Indonesia?

What is WiFi? Wi-Fi is based on a family of standards that allow data to be transmitted at high speeds wirelessly up to 15 kilometres away. 802.11 (2Mbps); 802.11b (11Mbps); 802.11a (54Mbps); 802.11g (54Mbps). Where wired infrastructure is poorly developed (rural regions) wireless technologies like Wi-Fi, can be a viable solution to bridge digital divide. Many countries, including USA, EU, India, Indonesia etc. have unlicensed portion of 2.4 Ghz band necessary for Wi-fi. Advantages: Quick deployment time, low-cost, minimal rights of way needed, “free” bandwidth. Disadvantages: Prone to interference, weather conditions, steep range/bandwidth tradeoff, doesn’t offer carrier class reliability.

Why WiFi? Has WiFi deployment in Indonesia led to higher Internet access compared to other developing countries?

Internet penetration 1.03 1.75 3.76 9.64 6.86 34.53 60.97 47.17 50.88 - 0.01 0.02 0.07 0.44 23.3 18 10.1 Internet Users Broadband users

Internet growth rate comparison India’s CAGR for an eight-year period between 1998-2005 was 58.4% in comparison with Indonesia’s CAGR during the same period of 35%. Per capita: Indonesia-$3500, India-$3100

Why Study WiFi in Indonesia? There is more WiFi deployment in Indonesia than most developing countries: 40 towns and cities in different islands have WiFi deployed by entrepreneurs WiFi deployment in other developing countries (Cambodia, Costa Rica, India, Bhutan etc.) small-scale, experimental basis, non-commercial. Compared to developed countries, WiFi uniquely deployed in Indonesia

Typical ISP Network Fiber optic Coax cable Twisted copper pair ADSL Link to higher tier ISP ISP A ISP B ISP C Typical ISP Network Coax cable Cable modem Twisted copper pair ADSL Dialup Infrastructure Network Access Network

Network Characteristics-Indonesia ISP A WiFi 2.4 IIX Ethernet Ring Microwave ISP B ISP C School B School C Wifi 5.8 WiFi 5.8 House School A $4000/pm (Internet link+ international bandwidth) ADSL UTP Cable Infrastructure Network Neighbourhood Network 50 houses+ $35/pm Corporate Customer $200/pm UTP Cable Access Network

Uniqueness of Indonesian WiFi WiFi deployed in Indonesia in unique manner: Not inside home; not available for free. Blurring of access and infrastructure network; used as low-bandwidth backhaul; up to curb WiFi, last mile aerial cable. Many tiered retailing of Internet service.

Innovations Around Constraints Inadequate supply of network infrastructure-”backbone” & leased lines WiFi fills “missing link” High price of last mile infrastructure, i.e., domestic leased lines WiFi provides service at substantially lower costs High price of international bandwidth “Unlegal” use of satellite for international link High retail price of Internet Service Unlicensed reseller-ISPs using WiFi to recoup high price

Annual Leased Line Prices-Domestic & International 2Mbps link 2km 200km Indonesia US$18,000 US$45,000 India US$376.00 US$7,603 EU Benchmark US$4,802 US$9,219 Ratios India EU 1:6 1:5 Ratios India EU 1:48 1:4 Full-circuit INDOSAT (Incumbent) DT Putra (Satellite link) India (price ceiling) EU (Denmark) Benchmark 2 Mbps US$108,528 US$146,400 US$29,555 US$36,868 India EU 1:4 1:3 India EU 1:5.0 1:4.0 Data compiled from Lokanathan, lirneasia.net, EU 10th report, interview with Indonesian ISP & Network Service Provider

Bandwidth Indonesia India Ratio 64 Kbps US$393 US$128 3:1 128 Kbps 4:1 1 Mbps US$3776 US$970 Data from Indonesian ISP provider & BSNL, India

Comparison of ADSL Retail Prices (monthly) in Indonesia & India Bandwidth Indonesia* India** Ratio 384 Kbps Usage limit: 1 GB* 2GB** US$74 USD$23 3 : 1 512 Kbps Usage limit: 2 GB* 5GB** USD$93 USD$41 2 : 1 Data from PT Telkom, Indonesia & BSNL, India

Barriers to Market Participation Limited competition Competitive No competition Telecom services Telecom operations Fixed wireline local Exclusive right 1996-2010 PT Telkom Fixed domestic LD Exclusive right 1996-2005 PT Telkom Fixed wireless local Limited competition (PT Telkom & Indosat ) Fixed international Duopoly 1995-2004 (Indosat & PT Telkom) Mobile Competitive (Satelindo, Excelkomindo, Telkomsel etc.) Internet service provision (Quasi?) Competitive Currently 124 ISPs official, 54 unlicensed

Barriers to Internet Growth: Some Solutions Inadequate supply of network infrastructure (a) introduce more players to extend network [policy] (b) government invests in rolling out network High leased line prices (a) introduce more players in leased line market [policy] (b) regulator introduces access regime for leased lines (b) regulator compels operators to lower prices High price of international bandwidth (a) introduce more players in international gateway market [policy] (b) regulator issues price ceiling like in India High Internet retail prices The above steps will take care of high retail price Is Policy & Regulatory environment conducive to above solutions?

Regulatory environment DG POSTEL is an unit of the Ministry of Communication & IT Two regulatory bodies: DG POSTEL & BRTI BRTI under-staffed, powers under transition, chairman is DG of POSTEL Minister of Communications and Information Technology Telecommunications Regulatory Committee (BRTI) DDG of Adm. Affairs DGPT DDG of Telecom & IT DDG of Frequency Management DDG of Standardization DDG of International Affairs DDG of Pos Notes : BRTI (Indonesian Telecommunications Regulatory Body) Line of Command Line of Coordination Report to

Regulatory environment Exclusivity clauses extending historical monopolies Indonesian govt owns 51% share in PT Telkom & 15% in Indosat plus “golden share” Structure of licenses preventing ISPs from deploying infrastructure Licenses for Telecom Network & Service providers No local loop unbundling Exclusivity until 2015 No regulation of leased line prices Non-regulation of uncompetitive market

Lessons for the Indonesia Wi-Fi “innovations” in Indonesia are not a result of enlightened policy designed to extend communication infrastructure to unserved areas but rather a workaround solution to hostile market and regulatory conditions. Any sustainable development of Internet growth in Indonesia must address policy & regulatory environment-credible regulatory reform For quickest results, regulator must reduce leased line prices. Number of studies have shown the correlation between lower leased line prices and rapid diffusion of the Internet (Petrazzini & Guerrero 2000; Fan 2005;) Findings from this study are being used by stakeholders and media to pressure government to lower leased line and international bandwidth prices.

Lessons for India & developing countries Hastening of broadband Internet deployment in India & developing countries if ISPs can use Wi-Fi in the access network to bypass incumbent’s local loop. Wi-Fi can bridge digital divide by providing Internet connectivity leap-frogging difficult terrain and lack of wired infrastructure in rural areas. Wi-Fi deployment can be commercially viable.