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W&P Newsletter – Digital Transformation Acceleration – New Promising Rules

Ease of communication and good information access are among the key elements for Indonesia’s national development.

To accelerate the digital transformation program, the Indonesian Government recently amended various regulations in the postal, telecommunication, and broadcasting sectors by issuing Government Regulation No. 46 of 2021 on Post, Telecommunications, and Broadcasting (“GR 46/2021”).

This edition of our newsletter discusses the material changes brought by GR 46/2021.

  1. Postal Business

Relaxation under GR 46/2021
Under the previous regime, a foreign postal organizer (“FPO”) that wishes to conduct a postal business in Indonesia must comply with the following requirements: (i) the FPO is required to form an Indonesian joint venture company (“JVC”) with a domestic postal organizer (“DPO”), and the majority shares in the JVC must be owned by the DPO; (ii) the FPO and its affiliates are only allowed to cooperate with one DPO; and (iii) the operating areas for the postal services are limited to provincial capitals that have international airports or international seaports.

GR 46/2021 now provides more flexibilities to business by omitting and modified the above requirements. As for the operating area limitation, JVCs still have to operate in provincial capitals, but they are no longer restricted to operate only in the provincial capitals that have international airports or international seaports.

In addition, unlike the previous negative list which restricted direct foreign shareholding in a postal business to a maximum of 49%, the recently issued negative list has removed the restriction and the postal business is now opened to 100% foreign ownership. Notwithstanding such relaxation of the foreign shareholding limitation, please note that GR 46/2021, which is one of the main sectoral regulations, still requires the FPO to incorporate a JVC with at least one DPO, which may have a minimum shareholding in the JVC, to carry on its business in Indonesia. It seems the policy requiring the formation of a JVC and the policy limiting the JVC’s operating areas are still maintained to boost cooperation with DPOs.

Alternative business
Given the seemingly tough restrictions imposed on the postal business, particularly with respect to the limitation of the areas of service, investors often consider engaging in an alternative business line with similar commercial objectives such as the freight forwarding business. To some, the freight forwarding business tends to offer more flexibility, since there is no restriction on the areas of service, particularly, in comparison with the postal business.

When considering this alternative, the relevant investors need to check whether the scope of the freight forwarding business license (under Indonesian laws) accommodates all the activities that they intend to cover. This is because in Indonesia, companies are only permitted to perform the business activities that are strictly within the scope of the licenses granted to them. Business activities carried out outside the scope of the relevant license(s) may trigger compliance issues.

In addition, although there may be no restriction on the operating areas of service, it may be prudent for investors to check what other requirements that may be applicable to the freight forwarding business before they decide to go down this route. For example, a foreign investment freight forwarding company is subject to a mandatory minimum investment of USD 4 million, which is higher compared to the postal business.

 

  1. Telecommunication Business

Sharing of Passive Infrastructure for Telecommunication Networks
In line with the Omnibus Law, GR 46/2021 affirms the requirement for any business actors owning passive infrastructure (e.g., ducts, towers, poles, and manholes) to share access to such passive infrastructure with other telecommunication operators.  In addition, GR 46/2021 also regulates the lease of telecommunication networks amongst telecommunication network operators as well as the lease of telecommunication networks by non-telecommunication operators (e.g., broadcasting institutions). These common-use arrangements are expected to increase efficiency and encourage the accelerated development of telecommunication-related multisector in Indonesia.

Omission of Utilization Right Cost Payment Obligation
Under GR 46/2021, telecommunication operators using a satellite location in orbit are no longer required to pay the so-called ‘Utilization Right Cost’ (Biaya Hak Penggunaan).

Changes in Mandatory Contributions
In the context of universal service obligation, the previous regulatory regime specifically regulated which telecommunication operators must make what contribution. For example, the obligation to construct and operate telecommunication networks in designated universal service areas was imposed on local fixed network operators, whilst the obligation to provide universal services (in the form of making payment of the interconnection cost components) was imposed on network operators (other than the local fixed network operators). However, such provisions have been omitted by GR 46/2021, thus suggesting that the Indonesian Minister of Communication and Informatics (“MOCI”) may have broad powers to decide on the matters. Furthermore, GR 46/2021 expressly stipulates that telecommunication operators must make a pecuniary contribution, the amount of which is calculated based on a certain percentage of their gross income. Making contribution in other forms seems also possible, although GR 46/2021 does not specify or set out details of such other forms of contribution. We expect this to be clarified further in the relevant implementing regulations. It is interesting to see how this space develops and how the changes set out in GR 46/2021 will play a role in promoting the growth of the telecommunication business in Indonesia as well as accelerating the digital transformation in the country.

No Regulatory Obligation to Construct Broadcasting and Transmission Network Facilities
Special telecommunication operators for the broadcasting purpose (“STO”) are no longer required by the regulation to construct their own broadcasting and transmission network facilities. This relaxation increases flexibility for an STO in its operation, including, to lease the facilities from other parties.

 

  1. Broadcasting Business

To avoid redundant or overlapping legal requirements that had burdened the investors in the past, GR 46/2021 also removes the obligation previously imposed on broadcasting companies to report certain amendments to their articles of association to MOCI. This simplification is intended to support the Government’s efforts to make Indonesia more attractive to investors.

If you have further inquiries about this newsletter, please reach out to us at info@wplaws.com or any of our lawyers.