19 December, 2013
Legal News & Analysis – Asia Pacific – Indonesia – TMT
A recent court ruling has introduced legal uncertainty for internet service providers in Indonesia and could force telecommunications companies to rethink their investment plans in the country.
First, the background. 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. The Court sentenced Indar to four years in prison and fined him 200 million Rupiah (about US$12,000 at current rates). It also ordered IM2 to pay 1.3 trillion Rupiah (about US$108 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.
Notwithstanding the technical aspects of this case, the significance of this decision 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 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 (“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 for the administration of the telecommunications sector. Another related provision is Article 2 of Government Regulation No. 53 of 2000 regarding the Use of the Radio Frequency Spectrum and Satellite Orbit (“GR 53/2000″), which puts the use of the radio frequency spectrum under the administration of the MOCI.
Article 3, paragraph (1) of the same Regulation 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 who have special powers referred to in the Indonesian Criminal Procedure Code to investigate criminal offenses in the telecommunications sector. Thus, 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 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.
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.
An appeal of the Corruption Court decision in the IM2 case is in progress, so there is still the chance of a better ending for Indar Atmanto and for the many parties that have cooperation agreements similar to the one between Indosat and IM2. But if the Corruption Court decision is upheld, 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.
For further information, please contact:
Harry Kuswara, Soewito Suhardiman Eddymurthy Kardono