Indonesia on the verge of a connectivity revolution

Forty-two years after Indonesia launched Palapa A1 to become the world’s first developing country to use satellite communications, it is now on the verge of completing the Palapa Ring, a 67,887-kilometer broadband fiber optic cable network stretching the length and breadth of the sprawling archipelago.

It has been a long time coming, starting as the less ambitious Nusantara 21 project in 1998, then expanding from an originally conceived east-west backbone into a national grid reaching all 34 provinces and 440 out of 514 cities and districts.

With fiber optic networks currently covering only the islands of Java, Sumatra and parts of Kalimantan, the Palapa Ring will be another feather in the cap of President Joko Widodo, whose bid for re-election next April has been boosted by a vast infrastructure program which planners hope will inject new life into the Indonesian economy.

“It is a fantastic concept, but a lot now depends on radio and cellular networks for delivery,” says one foreign telecom executive, who believes involving independent service providers outside of the big three — state-run PT Telkom and PT Indosat and publicly-owned XL-Axiata – will help keep costs competitive.

Crossing 35,280 kilometers of seabed and 21,807 kilometers over land, the US$1.3 billion Palapa Ring encircles all the seven main islands of Sumatra, Java, Kalimantan, Nusa Tenggara, Sulawesi, Maluku and Papua, and incorporates eight different connecting networks.

Information Minister Rudiantara says connectivity is vital with the economy projected to double to US$2.2 trillion by 2030, more than for all of the ten Association of Southeast Asian Nations (Asean) states combined. By then, too, Indonesia is expected to have 135 million new consumers and, more importantly, a population at peak productivity.

Indonesia ranks fourth behind Singapore, Malaysia and Thailand in broadband coverage, but as a much larger, non-contiguous nation it has greater challenges to overcome, particularly in bringing the Internet to the remainder of its 246,000 schools and 4,000 health clinics.

Government data shows that 73% of rural areas across Indonesia, or 83,200 villages, currently enjoy 3G broadband Internet coverage, while 55% now have access to the 4G long-term evolution (LTE) network, even if the speeds are not much more than 3G.

It was concerns about Indonesia’s unity that encouraged former president Suharto to take the visionary step of acquiring Asia’s first communications satellite, launched from Florida’s Kennedy Space Center in July 1976 – 14 years after America’s Telestar I pioneered satellite television and phone links.

Since then, Indonesia has been served over time by eight US-built A, B and C-series satellites and now a Franco-Italian Palapa D, which was powered into orbit from China’s Xichang launch center in 2009 and is expected to stay operational till 2024.

The Palapa project has been complemented since 1999 by PT Telkom, the country’s largest telecommunications company, which only last August launched a fourth satellite whose 60 transponders will serve both domestic customers and others in Southeast and South Asia.

It isn’t the only pioneer. In 2016, state-owned Bank Rakyat Indonesia (BRI) became the world’s first bank to own and operate its own satellite, allowing the country’s second biggest lender to digitally connect all of its 10,650 branches.

The government is currently in the process of acquiring a high through-put satellite (HTS) that is scheduled to enter service in 2021 and connect 145,000 far-flung sites in eastern Indonesia that are too expensive to include in the Palapa Ring network.

First developed in 2004, HTS provides greater data access with a capacity of up to 155 megabytes per second, 100 times higher than those offered by conventional Ku-band satellites, and applicable to all types of transponders.

Although the Palapa Ring project was launched in 2007, the global economic downturn the following year was a major setback for Telkom, Indosat and PT Bakrie Telecom, the original partners in a venture that now includes XL-Axiata, PT Infokom Elektrindo, PT Macca System Infocom and PT Powertek Utama Internusa.

In the end, the actual construction of the network finally began in 2016. Divided into three packages – west, central and east – it will function as an information toll, with particular benefits for areas that are not commercially profitable.

Already in operation, the 2,000-kilometer Palapa Ring Barat (West), built by a consortium comprising Sinar Mas subsidiary PT Mora Telematika (Moratelindo) and PT Ketrosden Triasmitra, connects Sumatra to the outlying Riau islands in the South China Sea.

The 2,700 kilometer middle package, linking Kalimantan, Sulawesi and North Maluku, is being built by state-owned PT LEN Telekomunikasi Indonesia, subsidiary PT Global Research Technology Investama and three other minority partners and is now about 80% complete.

In the east, the more difficult US$920 million project covering southern Maluku, Papua and Nusa Tenggara, a consortium made up of Moratelindo, Sinar Mas stablemate Smart Telecom and PT Bangun Sejahtera, is also close to completion.

Equality of service is the main goal. For example, once the Palapa Ring is in place, easternmost Papua’s average Internet through-put speed of three megabytes per second (mgps) is expected to ramp up to seven mgps, similar to Jakarta’s speed.

Industry regulator Telecommunications and Information Services Agency (BAKTI) has already implemented a tariff scheme under which bandwidth capacity will be measured by the value of the investment, market price and the number of service users.

At the more expensive western end of the Palapa Ring, pricing ranges from 20 million rupiah (US$1,316) a month for one gigabyte to as much as 445.6 million rupiah (US$29,333) for 10 gigabytes, the maximum permitted for one user.

A second scheme for passive dark fiber or unused optical cable available for leasing from a network service provider, sets tariffs of 12 million rupiah (US$790) and 36 million rupiah (US$2,370) per kilometer a month for land and sea routes respectively.

BAKTI manages the Universal Service Obligation (USO), an annual 2.5 trillion rupiah (US$164.5 million) fund raised from a 1.5% levy on the gross revenues charged to all carriers, which is being used to partly fund the Palapa Ring.

Industry sources say while the principle behind USO projects is sound and results in large amounts of bandwidth previously unavailable in more remote areas, the challenge lies in the distribution of services which in the past has often been stalled by red tape and corruption.

This so-called “last-mile” to the customer can be more expensive than the last 100 miles, due to a number of reasons, ranging from constructing infrastructure in rough terrain to obtaining permits to access or cross private or government land.

Even in city centers and populated areas there are significant last-mile obstacles because of the additional problem of gaining entry to buildings and industrial parks, where the owners can often charge exorbitantly for the privilege.

As it is, the government provides little or no support to providers in the building of infrastructure, particularly where they have to pay fees for road access with no protection against the vagaries of local regulations and no certainty of rights.