Legal Certainty and the Indonesian Telecommunications Sector

Legal Updates
Legal Certainty and the Indonesian Telecommunications Sector
24 June 2014

By Harry Kuswara

A ruling by the High Court hearing the appeal in a closely watched case involving an internet service provider has done little to provide legal certainty for the sector and could force telecommunications companies to rethink their investment plans in Indonesia.

In July 2013, the Corruption Court, in South Jakarta, issued a decision in the case of Indar Atmanto, a former President Director of PT Indosat Mega Media (IM2), a subsidiary of PT Indosat (Indosat). The case concerned a cooperation agreement that allowed IM2 to use Indosat's resources in order for IM2 to provide internet services to the public. The Corruption Court found Indar guilty of illegally enriching the company by misusing the 2.1-gigahertz (3G) telecommunication frequency and sentenced him to four years in prison and fined him 200 million Rupiah (about US$17,000 at the current exchange rate). It also ordered IM2 to pay 1.3 trillion Rupiah (about US$110 million) to the state as reimbursement for financial losses.

The Corruption Court found that IM2, by implementing the cooperation agreement with Indosat, had unlawfully used the 2.1-gigahertz frequency and did not pay the duties incurred by such use, resulting in financial losses for the state.

In the appeal at the High Court, the jail sentence for Indar was doubled to eight years. The judges, however, dismissed the monetary penalty against IM2, ruling that Indar, not the company, had been charged with corruption and it was therefore improper to order IM2 to pay compensation. The Attorney General's Office is filing a cassation appeal with the Supreme Court in an attempt to have the penalty against IM2 reinstated.

The significance of the above decisions primarily arises from the information discovered in the court proceedings, in particular that cooperation agreements such as the one between IM2 and Indosat that the Corruption Court found illegal are common between telecommunications network providers and telecommunications service providers.

According to reports, most internet service providers in Indonesia operate under similar agreements with network providers. Article 9, paragraph 2 of Law No. 36 of 1999 regarding Telecommunications (the "Telecommunications Law") provides that telecommunications service providers shall use and/or lease telecommunications networks owned by telecommunications network providers. Article 13 of Government Regulation No. 52 of 2000 regarding the Operation of Telecommunications ("GR 52/2000") states that telecommunications service providers shall use the networks owned by telecommunications network providers.

These provisions are the basis of the cooperation agreements between telecommunications network providers and telecommunications service providers. One of the more highly regulated sectors in Indonesia, the telecommunications sector is administered by the Ministry of Communications and Informatics (MOCI). Articles 1 and 6 of the Telecommunications Law give the MOCI oversight of the telecommunications sector.

Article 2 of Government Regulation No. 53 of 2000 regarding the Use of the Radio Frequency Spectrum and Satellite Orbit ("GR 53/2000") puts the use of the radio frequency spectrum under the administration of the MOCI. Article 3, paragraph (1) of GR 53/2000 provides that in carrying out the administration as contemplated in Article 2, the MOCI shall employ the functions of policy making, regulation, supervision and control, while paragraph (2) of the same article includes monitoring, observation and enforcement of the use of the radio frequency. The MOCI also has investigators with special powers referred to in the Indonesian Criminal Procedure Code to investigate criminal offenses in the telecommunications sector.

So, the MOCI is well equipped to conduct its own criminal investigations. As the institution authorized by law to issue licenses and warnings, impose sanctions and in general manage the telecommunications sector in Indonesia, the MOCI appeared to take the view that the cooperation agreement between Indosat and IM2 did not violate the laws and regulations of Indonesia. It was confirmed during the Corruption Court proceedings that from the time the cooperation agreement between Indosat and IM2 took effect in 2006 the MOCI had never issued a warning to the two parties or fined them for the agreement. The MOCI, in fact, never issued a sanction of any kind, or even a warning of such a sanction.

On the contrary, the MOCI has been public and unceasing in its support of Indosat and IM2. In a letter to the Attorney General's Office, the MOCI confirmed that the cooperation agreement between Indosat and IM2 was legal.

Another important aspect of this case is that the Corruption Court determined Indar's guilt based on the notion that a loss of state revenue had occurred as a result of the cooperation agreement. Such loss was determined by an audit report from the Finance and Development Supervisory Agency (Badan Pengawasan Keuangan dan Pembangunan or "BPKP"). Apparently, this audit report had already been declared invalid by the Jakarta State Administrative Court in May 2013.

The Jakarta State Administrative Court, in decision No. 231/G/2012/PTUN-JKT, indicates that there was never a request from the MOCI, as the authorized institution dealing with telecommunications activities in Indonesia, to audit the cooperation agreement and that the BPKP was therefore not in a position to audit IM2 and Indosat. Therefore, the Jakarta State Administrative Court ordered the BPKP to revoke its audit report. However, the Corruption Court viewed that the decision from the Jakarta State Administrative Court had not obtained permanent legal force and that the audit report was still valid and could be used as the basis for determining loss of state revenue.

The cassation process is ongoing at the Supreme Court, so there is still a chance for a better ending for Indar Atmanto. But if the High Court decision is upheld by the Supreme Court, we can expect the Attorney General's Office to go after more individuals for actions similar to those of Indar, and that will send a chill through the telecommunications sector. In a broader sense, whether or not the appeals process goes in favor of Indar, the case has already caused legal uncertainty for companies in Indonesia's telecommunications sector and distorted the procurement of internet services in the country.

This publication is intended for informational purposes only and does not constitute legal advice. Any reliance on the material contained herein is at the user\'s own risk. You should contact a lawyer in your jurisdiction if you require legal advice. All SSEK publications are copyrighted and may not be reproduced without the express written consent of SSEK.

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