As an archipelagic state, comprising of more than seven major islands, and world’s big three most populated country, connecting and reaching out to the people throughout the country pose challenges for Indonesia’s telecommunication sector. On the other side, with such demography, Indonesia has a lot of potential and opportunity as the world’s big digital economic powerhouse in the making.

Since the first period of our President Jokowi’s government, their development strategic plan has included information and communication technologies (ICT) sector as one of the top priority programs, hence the digital roadmap was introduced ever since. The growth of ICT-based infrastructure development has been pushed to support the government’s strategic plan. In 2020, despite the COVID-19 pandemic and its effect on Indonesia’s economy, the ICT sector, telecommunication in particular, has shown significant rise in its realisation of investment according to the data disclosed by Indonesia Investment Coordinating Board (Badan Koordinasi Penanaman Modal/ BKPM)[1].

Attempting to take benefit out of the rare opportunity of COVID-19 pandemic, the Government of Indonesia (“GOI”) has taken a significant step to speed up the fifth-generation network (5G) roll out, including provision of 5G infrastructure development, and open partnership opportunity with private sectors. In the Ministry of Communication and Informatics’ (“MCI”) strategic plan, in the next year until 2024, the MCI is focusing the 5G network and infrastructure development in six provincial capitals in Java island, the most populated and developed island, five super priority tourist destinations (in Nusa Tenggara, North Sumatera, North Sulawesi, and Central Java provinces), new capital city of Indonesia to be constructed in Borneo island, and in a manufacture industry zone.

The preparation stage of the 5G network launch, including technical trials, has been conducted from 2017. In terms of legal framework support, the GOI enacted an omnibus law, i.e. Law No. 11 of 2020 on Job Creation (“Job Creation Law”) at the end of last year. The objective of the Job Creation Law comes with a major reform of business licensing regime and relaxation of investment, including in the telecommunication sector. The decision to speed up rolling out the 5G network followed by action plans to prepare a series of regulations to enable the 5G network industry and its supporting infrastructure to exist aims to support the investment ecosystem.

Investment overview: New risk-based business licensing regime

Post enactment of the Job Creation Law, the GOI introduced a new licensing regime through the Government Regulation No. 5 of 2021 on the Implementation of Risk Based Business Licensing (“GR 5/2021”), which will categorise business activities into four levels of risk activities, i.e. low risk, medium-low risk, medium-high risk and high-risk.

• low-risk activities, only requires Business Identification Number or Nomor Induk Berusaha (“NIB”) which also serves as, among others, the Importer Identification Number or Angka Pengenal Importir, Customs Access Rights or Hak Akses Kepabeanan, Halal Guarantee Statement, Indonesia National Standard or Standar Nasional Indonesia,
• medium-low risk activities, required licenses are NIB and Standard Certificate, where the Standard Certificate is issued by OSS containing the company’s statement to fulfil the business standards usually set out through regulations issued by relevant ministries.
• medium-high risk activities, the required licenses are similar with the medium-low risk activities. However, there is an additional requirement for the Standard Certificate to be issued based on the verification of relevant business standards fulfilment by the company. So, OSS will first issue an unverified Standard Certificate, and it subsequently has to be verified by the relevant authority so the company can commence its business activities.
• high-risk activities, a NIB and a license will be required in order to commence the commercial/operational activities, and such license will be issued upon the applicant meeting all of the requirements for the relevant business operations.

Investment in Indonesia is largely driven by the investment restriction list. Previously the list was known as the negative list of investment. After the Job Creation Law, with the spirit to reform business licensing regime, the GOI enacted the Presidential Regulation No. 10 of 2021 on Investment Business Activity as amended by Presidential Regulation No. 49 of 2021 on the amendment of Presidential Regulation No. 10 of 2021 on Investment Business Activity (“Positive List of Investment”), that replace the negative list of investment. The Positive List of Investment reflects an almost revolutionary shift from the previous restrictive foreign-investment paradigm, which in line with the ideals expressed in the modified Investment Law.

5G network potential development

Over the past few years, the 5G network is becoming a hot issue all over the world, including in Indonesia. This 5G network offers approximately 10 to 100 times faster speed than the current generation, 4G. The 5G technology is also a very flexible technology. Which means that this 5G can be applied to types of Mobile Broadband, Fixed Broadband or Fixed Wireless Access (FWA) services.

To enable the operation of 5G network, it requires a certain radio frequency spectrum, in at least three tiers, as follows:

• low band, covering for frequency bands below 1 Giga Hertz, which are ideal for network rollout in rural regions and improving indoor network quality in urban areas;
• middle band, covering for frequency bands in the range of 1-6 Giga Hertz, which are ideal for the purpose of improving the quality of mobile broadband and data transfer; and
• high band or also known as Super Data Layer or Millimetre Wave Band, covering for frequency bands above 6 Giga Hertz, which are used to support industrial sector automation and strengthen fixed broadband penetration.

Indonesia still needs to develop more radio frequency spectrum to achieve the MCI strategic plan in 5G sector, among others, total 11 locations reached by 5G, and up to 1120MHz frequency spectrum installed in 2023. By 2024, the MCI targets to add two more location reached and up to 1310MHz frequency spectrum installed. Thus, our government more specifically the MCI is intensively discussing potential commercialisation of this new 5G network sector.

5G network legal framework

The GOI has consistently supported and monitored the 5G’s network prospects and market conditions, with the hope that with the presence of 5G in Indonesia, will accelerate innovation and technology adoption thereby, encouraging digital transformation in four strategic sectors: digital infrastructure, digital government, digital economy and digital society, this was conveyed by MCI in one of their press releases.

As of August 2021, there are still no specific regulations that regulates the 5G network in Indonesia. However, at least we have several regulations that supports the proposed implementation of 5G network in Indonesia, namely:

• Job Creation Law
• Law No. 36 of 1999 on Telecommunication as amended by Job Creation Law (“Telecommunications Law”);
• Law No. 11 of 2008 as amended by Law No. 19 of 2016 on Information and Electronic Transactions;
• Government Regulation Number 46 of 2021 on Post, Telecommunication and Broadcasting (“GR 46/2021”);
• Government Regulations No. 53 of 2000 on the Use of Radio Frequency Spectrum and Satellite Orbit; and
• Minister of Communication and Informatics Regulations No. 5 of 2021 on Telecommunications Operations (“MCI Regulation 5/2021”).

The passage of a Job Creation Law is likely to have a beneficial impact on the investment climate for many industries, including the telecommunications industry. The government’s assistance for the acceleration of Indonesia’s digital economy, for implementation in the 5G network in Indonesia, through optimising spectrum utilisation in the 5G era, is one of the objectives of the amendment to the Telecommunications Law.

Opportunities for business actors

It is expected that this new 5G network in Indonesia, is intended to open up new opportunities for business actors, not just in the telecommunications industry, but also in other industries such as in financial industries, health care industries, infrastructure industries or even in the trade industries. This is in line with the rapid development of digitalisation around the world, with artificial intelligence and the internet of things emerging as two of the most prominent industries today. This 5G network, with its advertised high-speed and low-latency functionalities as its goal, will provide vast interconnectedness and immediately open up new prospects for various business actors.

As one of the most impacted business actors, an Indonesian telecommunications network operator is assisting in the commercialisation of 5G in the country. As of August 2021, there are already three cellular operators providing commercial 5G services, namely PT Telekomunikasi Selular (Telkomsel), which began operations on May, 2021, PT Indosat Ooredoo, which began operations in June 2021 and lastly PT XL Axiata, began its 5G operations in August 2021. By launching 5G commercially, Indonesia will further enliven the national cellular telecommunication industry and expand the space and opportunities available to our digital economy today and in the future.

The emergence of 5G in everyday life in Indonesia has received full backing from the GOI. The GOI anticipates that 5G services will be available in the not-too-distant future, and that they will be expanded in accordance with the view to shift to industry 4.0.

5G network business licensing

With the aim to simplify the process of licensing, the Online Single Submission System (OSS) was introduced back in 2018. Since then, the licensing for telecommunications sector has been delegated to central government, where previously, such licenses were issued by the MCI.

In order to operate the 5G network, telecommunications operators are required to hold a Telecommunication Network Operator License issued by OSS, by way of submitting several technical and supporting documents, one of which is the operational feasibility test that was conducted or Uji Laik Operasi then followed by the issuance of the operational eligibility certificate or Surat Keterangan Laik Operasi as one of the prerequisite requirement to obtain the Telecommunication Network Operational License, as set out on the MCI Regulation 5/2021.

According to the Positive List of Investment, telecommunication network operator business is 100% accessible to foreign investment. Further, pursuant to the GR 5/2021, the telecommunications network activities are classified under the high-risk category, which requires a NIB and license in order to commence their operational/commercial activities.

5G network supporting infrastructure

The efforts to accelerate 5G network development in Indonesia must also be supported by an equally expeditious and consistent development of its supporting infrastructure. In general, the Job Creation Law and GR46/2021 generally divides telecommunications infrastructure into (a) active infrastructure, e.g. Radio Access Network (RAN), and (b) passive infrastructure, e.g. duct, tower, pole, cable holes, etc. Particularly in relation to 5G network, the required infrastructure includes both active and passive telecommunication infrastructure, among others, the base trans receiver station (“BTS”), fiber optic cables, adequate radio spectrum frequency, stable electricity, and of course, the compatible equipment e.g. cell phones, routers, etc.

In order for 5G network to reach vast coverage, Indonesia needs to establish as much BTS as possible. MCI through its press release states that the type of BTS developed for the 5G network will be dominated by small cell BTS that are low but closely placed from one to another. The BTS will then have to be connected to one another using backhaul network, which will also connect the BTS to fiber optic cables. It is an absolute necessity to develop connection between BTS and fiber optic cables for high-speed network like the 5G network instead of just relying on microwave as 4G network has been.

Aside from fiber optic cables, 5G network connection also requires certain and wider radio frequency spectrum than the existing ones in order to work and deliver its functions as a high-speed network with low latency. In light of this, the Job Creation Law and GR 46/2021 has allowed existing telecommunications network operator license holders to cooperate by way of a sharing and/or joint use of their respective allocated radio frequency spectrums, or even transfer said allocated radio frequency spectrum license to fellow telecommunications network operators, to embrace any “new telecommunication technology in Indonesia”.

Although 5G network operations is not specifically named in the existing regulatory framework, it does fall into the category of new telecommunication technology covered therein. Therefore, any stipulations regarding the same shall apply to the current and continuous development of 5G network in Indonesia. That being said, it is hoped that new regulations and policy regarding the cooperation and transfer radio frequency spectrum can promote the maximum use of existing frequency for future optimum operations of 5G network in Indonesia and further accelerate its development.

Another crucial infrastructure for the successful development and subsequent operations of 5G network is no other than electricity. A stable electricity plays a crucial role in the operations of all other 5G network infrastructures as the “life provider” of BTS. In light of this, the GOI must ensure an absolute stability of electricity is provided for both the development and operations of 5G network.

Local component requirement for 5G network business

The GOI definitely will not miss the opportunity to involve and empower Indonesian local industry in the development of this new technology. In developing the above 5G network infrastructure, particularly 5G network equipment and BTS, the GOI planned to set out certain level of local components (Tingkat Komponen Dalam Negeri or “TKDN”) that must be met.

Although the regulation has yet to be issued, MCI together with Ministry of Industry (“MoI”) are currently discussing the appropriate TKDN, based on collective evaluation of previously set out TKDN for 4G network equipment and BTS. It is important to note that since the previous required TKDN for 4G network equipment is at the minimum 30%, it is expected that 5G network equipment will also have at least 30% of required minimum TKDN, if not more. In fact, MCI and MoI are said to have discussed the possibilities of setting a minimum of 35% TKDN for 5G network equipment.

In addition to MCI, 5G infrastructure business activities are also under the purview of MoI, as well as Ministry of Public Works and Housing for certain works i.e. construction of BTS, etc. Although, MCI definitely is the main authority in regulating any 5G network-related activities, including the development and/or operations of its infrastructure.  While it is true that no regulation has been passed to specifically address 5G network business and/or infrastructure, it is also safe to say that the new reform of telecommunications operations post-issuance of Job Creation Law and its implementing regulations supports 5G network and/or infrastructure development in Indonesia.

Investment and license for 5G infrastructure company

The reform brought upon by Job Creation Law also provides opportunity to foreign investors to invest in 5G infrastructure related activities, as the Indonesian Positive List of Investment relaxed the previous restrictions of foreign ownership for a maximum of 67% foreign ownership in most telecommunications businesses into a 100% open for foreign ownership, including in 5G infrastructure related activities.

The risk of 5G infrastructure related activities is slightly different than that of the 5G network business activities carried out by telecommunication network operators. Under the risk-based licensing regime, 5G infrastructure related activities, for example fiber optic cable companies and BTS development companies, are classified into medium-high risk businesses. Therefore, besides NIB, a company is required to obtain a Standard Certificate, to operate in 5G infrastructure related activities.

5G infrastructure industry players and noteworthy updates of 5G infrastructure development

This promising development of 5G infrastructure in Indonesia renders industry players preparing themselves to enter into the 5G era and market all over Indonesia. Although telecommunications network operators can also participate in the developments of 5G infrastructure, it can also be carried out by non-telecommunications network operator companies. So far, there has been a number of telecommunications infrastructure industry players who already made a move, including PT Sarana Menara Nusantara Tbk and PT Tower Bersama Infrastructure Tbk, both of whom confirmed that more BTS needs to be constructed in order to extend coverage for 5G operations as additional supporting infrastructure to the existing BTS that are currently used for 3G and 4G operations.

This plan presents investment opportunities for potential investors who intends to participate in the 5G infrastructure industry in Indonesia, however, the estimated amount of investment needed is currently unavailable and shall be further contemplated awaiting further regulations on the 5G infrastructure industry to be issued by relevant authorities which hopefully will bring clarity to the currently existing policies.[2]

Besides industry players focusing on BTS, other 5G industry players in other 5G infrastructure sectors such as 5G equipment has also made a move. One of which is Oppo Indonesia, who issued its new phone line that supports 5G network. However, since the current prevailing laws and regulations do not provide detailed provisions on 5G equipment, the 5G feature is on lock and shall be unlocked upon issuance of comprehensive regulations on 5G equipment.[3]

If you have any questions or require any additional information, please contact Afriyan Rachmad, Louise Patricia Esmeralda, Amanda Herodita Kansil and Hana Permata Putri of Roosdiono & Partners (a member of ZICO Law).

This alert is for general information only and is not a substitute for legal advice.

[1] https://www.bkpm.go.id/id/publikasi/siaran-pers/readmore/2413001/68601

[2] https://industri.kontan.co.id/news/respons-tower-bersama-tbig-dan-gihon-telekomunikasi-ghon-terkait-persiapan-5g and https://industri.kontan.co.id/news/sejumlah-pelaku-industri-siap-siap-masuk-ke-era-5g

[3] https://industri.kontan.co.id/news/sejumlah-pelaku-industri-siap-siap-masuk-ke-era-5g