After much debate, Law No. 11 of 2020 on Job Creation was finally enacted on 2 November 2020. In anticipation of the questions that will arise, we will be launching a series of client update titled "Omnibus Law 2020: Overview Series" within the upcoming weeks. The updates will dissect and discuss the various elements and issues of the Omnibus Law.
We continue to monitor this evolving situation, with various teams currently examining the bill to produce updates that are relevant to you. As always, we are committed to supporting you with advice and guidance. You can find a list of our past client alerts on our AHP Newsletters.
If you have any questions or concerns, please contact our attorneys or the BD team at BD@ahp.id.
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Sharing is the New Normal for the Telecommunications Sector
The eighth edition of "Omnibus Law 2020: Overview Series" will highlight changes in the telecommunications sector. This is the first alert on telecommunications and broadcasting.
One of the main themes of the Omnibus Law (Law No. 11 of 2020 on Job Creation) is efficiency. This theme can be seen, among others, in the streamlining of licenses and their application. In the telecommunications sector, the Omnibus Law amends the Telecommunications Law (Law No. 36 of 1999) and the Broadcasting Law (Law No. 32 of 2002), by introducing efficiency through sharing of radio frequency spectrum, transfer of radio frequency spectrum, and sharing of infrastructure.
Keen observers were quick to identify that the relaxation in the sharing and transfer of radio frequency spectrum will indeed significantly impact the telecommunication industry. Further, the Omnibus Law obliges owners of telecommunication infrastructures to share passive network infrastructures, which was previously left to the discretion of the owners. These three topics will be discussed in detail below. We will also touch on the draft implementing regulation to the Omnibus Law on the telecommunication sector ("draft government regulation").
Sharing of Radio Frequency Spectrum
Holders of radio frequency spectrum license can collaborate with another telecommunication network operator for the joint use of its radio frequency spectrum to implement new technology. The determining factor on whether collaboration or sharing can occur is 'new technology.' Pundits were quick to suggest that the new technology on the drafters' mind is the 5G technology. Effective use of 5G technology does require a radio frequency spectrum that is wider than the existing allocation for the current license holders. Consequently, this situation necessitates sharing and joint use. However, some are sceptical of the development of 5G technology and felt that the limitation of 'new technology' to just 5G technology would be restrictive and negates other opportunities presented by radio frequency spectrum sharing.
In direct response to the above concerns, the draft government regulation clarifies that 'new technology' is any telecommunication technology implemented in Indonesia after the effective date of the Omnibus Law. This means that it will not be limited to 5G technology. On the other hand, it would appear to still restrict and exclude current technologies (e.g. 3G and 4G) from possible benefits of radio frequency spectrum sharing.
In the draft government regulation, radio frequency spectrum sharing can be done for the following objectives:
optimising usage of radio frequency spectrum;
reducing the construction cost of telecommunication infrastructure that utilises radio frequency spectrum;
expanding the territorial reach of the telecommunication network;
improving the quality of telecommunication services;
providing new telecommunication services;
ensuring the affordability of telecommunication services for the general public; and/or
safeguarding the national interest.
It is clear from the foregoing that optimising or getting more out of the current allocation of radio frequency spectrum is clearly the primary objective for radio frequency spectrum sharing.
The draft government regulation further details three possible scenarios on how radio frequency spectrum sharing will be implemented. First, a party can jointly use the radio frequency spectrum that has been allocated to another telecommunication network operator. Second, parties can jointly use the combined radio frequency spectrum that are allocated to two or more telecommunication network operators. Finally, the draft opens the possibility of any other forms of joint use, which will be determined by the Minister of Communication and Informatics based on technological development. The guidance provided is useful as it clarifies the question of whether parties can pool users (the first form of sharing) in addition to the more traditional pooling of resources (the second form of sharing).
Transfer of Radio Frequency Spectrum
The Omnibus Law only allows the transfer of radio frequency spectrum to another telecommunication network operator. This is consistent with the optimisation objective noted above, as it consolidates radio frequency spectrums and does not invite new players to the already crowded pool. It is also consistent with the provisions on radio frequency spectrum sharing.
The draft government regulation allows two types of transfer:
a straightforward transfer from the holder of the radio frequency spectrum right to another telecommunication network operator; or
an exchange of radio frequency spectrum rights between two or more holders.
The draft further states that either transfer must ensure the optimisation of the utilisation of the radio frequency spectrum, and/or improvement in the performance of the telecommunications sector. We should note that the first type of transfer will result in the revocation of the transferor's right to use the radio frequency spectrum for the benefit of the transferee as the new right holder.
The draft also allows the transfer of right to use of radio frequency spectrum in conjunction with a consolidation and/or merger of the transferor into the transferee. Here, approval for the transfer will be given for the entire radio frequency spectrum of the transferring/merging entity. It seems that the reference to consolidation or merger is included to address past ambiguities in transactions involving the consolidation of telecommunication network operators who each hold right to use radio frequency spectrum.
Sharing of Passive Infrastructure
The Omnibus Law categorised telecommunication infrastructure into active and passive infrastructure. Active infrastructure is the radio frequency spectrum discussed above. Meanwhile, passive infrastructure includes ducting, towers, poles, and other infrastructures utilised in rolling out a telecommunication network.
The new norm for passive infrastructure is that it is now mandatory for telecommunication network operators that own passive telecommunications infrastructure to provide access to such infrastructure to other telecommunication network operators. The draft government regulation confirms this principle. What is interesting to note is that the section on sharing of passive infrastructure includes a provision that seems to be out of place as it discusses active infrastructure. Article 22(2) of the draft government regulation states that access to active infrastructure can be provided to either telecommunication network operators or broadcasting operators. There are no further elaborations on this provision.
While the sharing of active infrastructure to broadcasting operators is certainly consistent with efficiency, sharing across sectors is a new concept. Telecommunication and broadcasting activities are different from one another. Hence, their radio frequency spectrum allocation is completely different. It certainly raises questions of whether the Minister would like to see more convergent of the two sectors. Here, it seems that the government is recognising the blurring of the traditional divide and, again, the importance of optimising the utilisation of a scarce resource.
The exclusivity of radio frequency spectrum allocation, which was once held sacred, is no longer the case. Access to radio frequency spectrum as a scarce resource is now possible through joint use resulting from the 'sharing' and 'transfer' of radio frequency spectrum. Given the 'new technology' restriction, it remains to be seen whether the proposition of efficiency from joint use can be achieved.
Meanwhile, the Omnibus Law provides a pathway for the convergence between the telecommunication and broadcasting sectors, which have been discussed for some time, through the joint use of radio frequency spectrum. It would be interesting to see whether there is indeed an appetite for the collaboration and sharing of resources between the two industries.
Today, the commotion surrounding the enactment of the Omnibus Law has grown quiet as the public shifts their focus to the drafts of the implementing regulations. So far, the government has published 44 drafts in total, consisting of 40 government regulations and 4 presidential regulations. As detailed above, the draft government regulation for the telecommunications sector, for the most part, is likely to be received favourably as it brings not only clarification but also major reforms.
The Indonesian government enacted Law No. 11 of 2020 on Job Creation on 2 November 2020. In anticipation of the questions that will arise, we are monitoring this evolving situation, with various teams currently examining the law to produce updates that are relevant to you. As always, we are committed to supporting you with advice and guidance. You can find our alerts on the Omnibus Law here.
If you have any questions or concerns, please contact our attorneys or the BD team at BD@ahp.id.