State Control and the Privatisation of the Indonesian Telecommunications Industry: From Ownership to Regulation.

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lontrol and the Privatisation of the lndonesian Telecommunications lndusky: From Ownership to !,:|p Latipulhayat

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State

Control and the Privatisation of the Indonesian Telecommrurications

Industry:

From Ownership to Regulation

Atip

Latipulhayat

Senior Lecturer in International Law and Telecommunications Law Padjadjaran University Law School, Bandung - Indonesia

atiphayat@yahoo.co.id

Abstract: _{The International experience including Indonesia shows that after privatizing their} telecommunications, countries employed three new methods of state control; creating a golden share

mechanism, establishing an independent regulatory body and employing

a

licensing-system.

All

these methods represent the paradigm shift of control from state ownership to state regulitory based

control. This paper examines Indonesian telecommunications privatization and its implicaiions in

terrns of

tle

meaning _{of state control under the Indonesian Constitution} of 1945. Privatization, with

larious

definitions

and

its

rhetoric, opposes state intervention

in

the

economy. Meanwhile, telecommunications is a classic example of a strategic sector under direct control of the state. The

centra1 issue of this paper concerns the methods of state control applied following the privatization

oi

telecommunications, the adequacy

of

these methods and their implications

in

the

contex

of

Indonesian legislation stipulating that telecommunications

is a

strategic sector that should be

conbolled

by

the

state.

The

ultimate

conclusion

of

the

paper

is

that

privatization

of

ielecommunications is not intended to remove state control, but rather change the manner from a dircct into an indirect control

-

from state ownership to state regulation.

I

lntroduction

-'-e

lelecommunications

ildustry

has always been given special treatment because

of

its great importance to

i-':--:'

Melody, 2001). In Canada, for example, this industry has legally been recognized for ils

signifiLnt

role in :-E :':aintenarce of Canada's_identity and sovereigntSr. Traditionally, therefore, the telecommuniJations industry

:.<

]een state-owned and subject to a complete monopoly, leaving the government

with

full

control over this

'---::r

(Zhao, 1999). The Indonesian Telecommunications Act stipulates that the telecommunications sector is

of

-"=:nal

stratggig importance and must therefore be controlled by the state. This provision is basically derived

- :

Article 33 (2) of the Indonesian Constitution

of

1945, which states: 'sectors of production that are important

:-r

i:e

country and affect the

life of

the people shall be controlled by the sate". This constitutional provision

-:,'-cularl]

the

words "shall be

controlled

by

State" (state

control)

-

indicates that Indonesia

ii

properly :--a-cterized as an interyentionist state. In other words, this is a constitutional justification for state intervention

-'"

=

strategic sector such as telecommunications.

Since the late 1980s, there has been a radical policy reversal whereby governments have progressively -=:":ced their ownership and involvement

in

this sector by increasing private sector participation-Advances in ::-=ommunications technolory, the inefliciency

of

the state-owned enterprises (SOEs) and the changing market

!--{rure

of the telecomrnunications industries are commonly seen as the three most important factorJbelind the

lr'itlll€Dt

(Wallstein,

1999). One country

after

another,

including

_Indonesia,

has

reformed

_their

:=-+;ommunicatiors indusfy by privatizing this sector, as well as introducing other reforms (Cho and Lee, l9g7). As discussed by

Noll

(1999) and Wallsten (1999), privatization of the telecommunications sector signali a

:-?-Ratic shift from state-dominated institudons

to

market institutions

in

nnny

countries. The main aim

is

to

:

'nande a rnonopoly and,to enhance _{competition over the sector by allowing private participation. One}

of

_the

-:Prtant

implications of this is that governments become less able to carry out direct political control over the ir- iJf.

The privatization

of

the Indonesian telecommunications industry, therefore, raises a critical question; in I ^ "jt

i'.f

might the government maintain its control over the sector when privatization reduces state ownership in S":;Fs? This paper examines the privatization of _{the Indonesian telecommunications industry and its implication}

::r

ihe notion

of

state control over the sector. More specifically,

it

examines the method

of

.tatu control after

:i'atiTation

of the Indonesian

telecommunications

industry. Finally, the paper

will

conclude by articulating :=',r' meanings

of

state control and advocate that Indonesia should

give

greater consideration

to

these

post-: -.; arization state confols,