Recommended strategy & policy for broadband in Indonesia

1. Recommended strategy & policy for broadband in Indonesia By : Jan van Rees, World Bank

2. Contents • Current status • Main issues to be addressed: • Broadband backbone • Mobile/wireless Broadband • Fixed Broadband • Investments required • Role of Central Government • Recommended Regulation • Role of local Government • Role of Public works and PLN • Conclusions and proposed Time Schedule

3. Current status of Broadband in Indonesia • In West-Indonesia the main fiber optic backbone between all provinces is in place • Submarine routes to abroad are available and new routes are added • Broadband access still in early stage: • Mobile Internet/broadband shows rapid growth and is the main broadband access for individual users

4. Regional comparison

5. Broadband Quality Source : Global broadband quality study sponsored by Cisco

6. Main issues to be addressed • Broadband backbone • Inter province backbone in Sumatra-Java-Kalimantan-Bali-South Sulawesi exists • East Indonesia is missing (Palapa Ring East) • Extension to many Kabupaten still to be implemented • Mobile/wireless Broadband • 3G deployed on part of the network in 2100/1900 MHz band, focused on cities • WiMAX auctioned • Requires cost-effective mobile broadband everywhere • Fixed Broadband • Monopoly on copper infrastructure ADSL (up to 1 Mb/s, Speedy, PT Telkom) • Monopoly on cable TV network • Very limited Fiber To The Home • Requires large scale fiber optic deployment

7. Backbone investments required • Palapa Ring East: $ 186 million • Completing Palapa Ring East with Sorong-Manokwari-Biak-Jayapura and Sorong-Fak-Fak- Timika-Merauke. Estimated at $ 145 million • Extension to remaining Kabupaten Sumatra-Kalimantan- South Sulawesi, 9.820 km, $ 113 million of which $ 31 million is expected to be not feasible commercially • Extension to Kabupaten in Eastern Indonesia. If possible $ 225 million. However most non-coastal Kabupaten in Papua lack any infrastructure to lay fiber optic cable along (no roads, pipelines, etc.). Some intermediate use of microwave might be required. Total: $ 444 million + (part of) $ 225 million Kabupaten extensions in Eastern Indonesia

8. Mobile/Wireless broadband access investments required • Passive infrastructure (towers and facilities) already established • Upgrade of active radio network required (3G everywhere, future upgrade to LTE) • Backhaul from towers to backbone • On the largest network about 5.000 out of 32.000 basestations are 3G. Current 3G spectrum is not cost effective for rural roll-out (would require many more towers). However if 850/900 MHz is used a simple overlay can be deployed. Estimated costs: $ 500 – 1000 million • Backhaul is crucial. Could cost around the same amount as the active infrastructure Note: Short-term, activate EDGE feature everywhere instead of only GPRS

9. CAPEX/OPEX impact Source : GSA Information Paper UMTS 900 September 4th, 2008

10. Fixed broadband access investments required • Future requirement is 100 Mb/s+, many countries are deploying FTTH (like Singapore, Australia, etc.) • Main investment (50-80%) is passive infrastructure • The largest investment in the future telecom infrastructure will be in the migration to fiber optic access networks • Assuming $ 800/home then the replacement of current copper network (8 million lines) would be in the order of magnitude of $ 6400 million. Connecting up to 40 million homes would increase this to $ 32000 million • Smart and opportunistic deployment required to reduce investment level Note: Short-term, deploy ADSL on all copper networks, increase speed to technology limit (20 Mb/s) where possible

11. Analysis • The mobile (broadband) market is highly competitive. Operators have made, and continue to make, multi-billion $ investments each year • The number of mobile operators/networks is quite high and consolidation should be anticipated. Fewer mobile networks & more MVNO’s are a likely scenario. • Use of lower frequency bands (850/900 MHz) is critical for cost-effective mobile broadband everywhere • Fixed broadband (ADSL) over copper wires, has been more or less a monopoly business although cable Internet is a competitor. Investments have been limited • A more competitive fixed broadband market is required. This implies a transition from “monopoly” on copper to “competition” on fiber. Source : Point Topic Broadband by technology Q4 2008

12. Central Government role • Timely issuance of permits and rights of way • Facilitate coordination between entities responsible for different infrastructures for example ensuring that construction of new roads, railways, power lines and pipelines provides for co-location of fibre-optic cables. Such practice is widespread around the world for new infrastructure development • Financial incentives like a minimum subsidy for a backbone extension to a marginal Kabupaten in return for Open Access and early deployment (ICT fund) • Demand aggregation

13. Regulatory measures required (1) • Infrastructure sharing. • For towers this has already been done. This should be extended to include other passive infrastructure like ducts, poles, dark fibers, etc. • Open access requirements: • Passive infrastructure for essential and not easily replicated infrastructure • Active layer/service layer. IP level is open and net neutrality should be maintained • The transition from “monopoly” on copper to “competition” on fiberimplies that a fully “unified” license is provided: • Licensed operators can deliver all services (local, SLJJ, SLI, Mobile, Internet, IPTV, etc.), typically over the broadband access. Current legacy regulation focused on individual services should be phased out This is a prerequisite for a competitive fixed broadband market.

14. Regulatory measures required (2) • Equal access to buildings • Remove all monopoly practices related to access to the building and the in-building cable system. • Allow non-Telco entities (construction companies, real estate developers, local Government) to construct and provide passive infrastructure. However mandate open access • Number portability (mobile & fixed) for consumer protection and additional competition Mobile/wireless broadband • Allow in-band migration to 3G/4G technologies • Release more spectrum for the long-term (700 MHz, 2500 MHz). • 700 MHz requires an accelerated migration from analogue to digital TV to free-up the Digital Dividend • 2500 MHz is currently mostly used for satellite TV

15. Regional/local Government role What can be done to accelerate deployment? • Timely issuance of permits and rights of way • Provide and prepare passive infrastructure whenever constructing other infrastructure like roads. • Example: Kabupaten without extension to the backbone and without fiber infrastructure • Invest in the passive infrastructure to lower the barrier for entry. Stand-alone or as co-investor. • Aggregate initial demand (schools, puskesmas, Government offices) and tender this demand in return for early service and deployment of open access backbone and local fiber optic network

16. Public Works role • By default Public works should incorporate the need for ducts whenever constructing roads, etc. • Arrange a general agreement between Telco’s and the Government with respect to the use of passive infrastructure.

17. PLN role • PLN is operating a very large passive infrastructure of power lines and electricity access network on poles. • Fair and equal access to this passive infrastructure is important to deploy cost-effectively. • Arrange a general agreement between Telco’s and PLN with respect to the use of this passive infrastructure.

18. Conclusions

19. Conclusions (1) The future of telecom is Broadband (10+ Mb/s today and 100+ Mb/s tomorrow). Fixed broadband is essential to provide real high capacity cost-effectively Mobile broadband can be deployed fast to provide initial connectivity Main backbone (West+ East) and extension to all Kabupaten in West Indonesia + South Sulawesi requires a remaining investment of $ 444 million. Remaining (in particular non-coastal) Kabupaten in East Indonesia Eastern Indonesia might require intermediate solutions like microwave Transition from “monopoly” on copper to “competition” on fiber through regulatory steps: Fully “Unified License” for all services and phase out of legacy service by service regulation. Infratructure sharing Open access

20. Conclusions (2) Mobile broadband in the lower frequency bands (850/900 MHz) is critical for cost-effective rural deployment Short-term fixes based on existing infrastructure: Deploy ADSL at all local PSTN switches. Where there is copper there should be ADSL Activate the EDGE feature on the GSM network everywhere to provide, almost instantly, better mobile internet all over Indonesia Use demand aggregation and investments in passive infrastructure to accelerate fiber optic roll-out of backbone and access. Consider use of the USO/ICT fund for those areas which are commercially not feasible. Local/regional Governments can play an important role to realise broadband in their area. However it is important that the Central Government arranges the regulatory prerequisites to create a “competitive” fixed broadband market.

21. Proposed time schedule

22. ANNEX Why Lower frequency bands are critical for rural mobile broadband

23. Why are lower frequency bands so important? • 850 and 900 MHz bands offer a much better coverage than 2100 MHz • Many countries do have very extensive rural areas which could benefit from 3G (mobile as well as in “fixed” deployment) to deliver telephony and broadband service • Typically spectrum use in rural areas is less intensive making it easier to allow in-band migration to 3G at much lower cost • Examples: • Telstra Next G network (850 MHz). Covers > 2.000.000 km2 • Elisa Finland/Estonia (900 MHz) • Vodafone New Zealand (900 MHz), Australia under construction • Optus in Australia (900 MHz) • AIS Thailand (900 MHz) • Europe is anticipated to accept UMTS 900 widely, many trials/plans on-going

24. No of UMTS basestations required • A lower frequency band results in a much more cost efficient roll-out in rural areas. UMTS 900 is already standardised. Source : UMTS Forum presentation

25. Cell Coverage Comparison in typical urban case Source : GSA Information Paper UMTS 900 September 4th, 2008

26. CAPEX/OPEX impact Source : GSA Information Paper UMTS 900 September 4th, 2008

27. Example: Telstra HSDPA at 850 MHz • 3GPP standard allows > 200 km. Telstra demonstrated 2 Mb/s even up to 200 km for high elevation basestations and free of obstructions Source : Telstra presentation at Mobile World Congress in Barcelona 2008

28. Co-existence issues • UMTS 900  GSM 900 uncoordinated (2.8 MHz) • UMTS 900  GSM 900 co-located (2.6 MHz) • UMTS 900  GSM 900 micro/pico cells (> 2.8 MHz) • Suggested frequency arrangements: Source : ECC Report 82