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Summary

The Indonesian Ministry of Communications and Information Technology (MCIT) has issued draft regulation for the provision of content over the Internet by over-the-top (OTT) providers. This would require OTT providers to operate as permanent establishments and to register their activities with the Indonesian telecommunications regulatory authority, BRTI. The providers would also be subject to various other competition, advertising, and taxation laws.

OTT providers should prepare to be "captured" by more regulatory frameworks in the future

Due to their disruptive effect on the telecoms market, regulators and policy-makers around the world are increasingly considering ways to tackle OTT providers from a regulatory point of view. However, many are yet to decide whether this would mean more regulation on OTT providers in an effort to level the playing field or whether the regulation imposed on traditional players can be reduced. Operators have found it difficult to compete with OTT players, which they see as having an unfair advantage due to a lack of regulation. As a result, operators have complained that their revenues from voice and SMS have declined sharply but revenues from data services remain too low to fill the gap. In Indonesia, the MCIT has opted to respond to this by "leveling up" the existing regulatory environment so that OTT players are subject to similar obligations currently faced by traditional players.

The new regulation, which will be tested publicly until May 12, 2016 before it comes into effect, will introduce a similar regime to the one used by the Indonesian oil and gas sector. Companies will be required to operate as a permanent establishment, bentuk usaha tetap (BUT), falling therefore under Indonesian Tax Law. The obligation will see OTT providers registering as a local entity with sole ownership or through a joint venture with local partners and will be required to pay a Telecommunication Operation Rights Fee. OTT providers will also have to share their business activities with the BRTI at least 30 working days prior to providing any services.

The proposed regulation also tackles customer service and consumer protection issues by ensuring OTT providers run a customer care center in the country. Providers will be prohibited from conducting monopolistic practices and unfair business competition. They will also have to adhere to rules and regulations on trading, intellectual property, censorship, content filtering, broadcasting, and advertising. The original proposal stated that initially regulation will be applied to international OTT players and will then be extended to locally owned providers; however, the final draft legislation states that it will apply to all players from the outset.

OTT providers will need to be prepared for other regulators to start taking their role in the communications sector more seriously and could begin including them in future regulatory frameworks. In particular, data privacy will be a key concern because OTT providers need to be held accountable for storing and using the extensive amounts of personal data they access. However, it will be critical that new regulation does not act as an unnecessary barrier to entry into the market for OTT players, because increased compliance costs such as those in Indonesia may actually reduce competition. Therefore, in certain policy areas, regulators may find it suitable to "level down" the regulatory environment, thereby encouraging competition and innovation.

Appendix

Further reading

"BEREC has a big task ahead in tackling IoT, OTT, and roaming," TE0007-001001 (March 2016)

"African regulators are considering the role of OTTs in communications markets," TE0007-000986 (February 2016)

"Regulators are now considering OTTs' impact on communications markets," TE0007-000964 (December 2015)

Author

Sarah McBride, Analyst, Regulation

sarah.mcbride@ovum.com

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