The FCC, TWC, Skype, And The Cellular Industry

On March 1, 2007, the FCC ruled in favor of a petition brought by Time Warner Communications, stating that local exchanges cannot deny access to wholesale telecommunication carriers (TWC) to provide services and exchange traffic, including voice over Internet protocol (VoIP).

The decision overturned rulings in South Carolina and Nebraska that allowed local rural exchanges to deny access to wholesale carriers, arguing that the wholesale providers were not true telecommunications providers, as they do not offer services directly to the public.The FCC disagreed stating: “denying wholesale telecommunications service providers the right to interconnect with incumbent LECs… are inconsistent with the Act and Commission precedent and would frustrate the development of competition and broadband deployment.”

In another somewhat related petition, VoIP provider Skype has asked the FCC to apply the Carterphone decision of 1968 to the cellular phone industry, effectively forcing the cellcos to allow outside devices and applications to connect to their network.

The Carterphone ruling determined at the time that AT&Ts telephone network stopped at the phone jack, ending a monopoly on user hardware, and spurring a massive influx of new devices and technological innovations in the market.

The Skype petition opens up a whole new can of worms for the US cell phone industry, bringing them to the forefront of the grass roots Net Neutrality debate. In his paper Dr. Tim Wu details the techniques used by the cellcos Verizon, Sprint, AT&T, and T-Mobile, to limit consumer access to devices and applications such as WiFi, VoIP, Internet browsing and more.

Cell phone companies in the US not only control the public airwaves they have been entrusted with, they also sell the equipment that is used to connect to their networks, much like AT&T did before the Carterphone ruling. They control access to their networks by either disabling the SIM chip on the phones they sell, effectively locking it to the network, or by requiring cell phones be registered with the carrier network through their Electronic Serial Number (ESN).

Strict control of services allowed on the American cellular networks has stifled developers and impeded the development useful applications, severely limiting competition and consumer choice. VoIP over WiFi connections, advanced GPS features, Bluetooth wireless capabilities, and the development of advanced SMS applications are just some of the technology that has at one time or another been hindered by the US cellular industry.

By ruling in favor of Time Warner, the FCC sided with the big boys, and rightly so. Consumers should be able to choose from a wide variety of applications, including VoIP, if it is technologically feasible. For a service provider to deny them that, simply because it doesn’t benefit the carrier, is not only non competitive, but somehow, just un-American.

Skype has also asked the FCC in its petition to consider a method to create transparent and neutral standards in the cellular industry, perhaps something like the IEEE standards committee that has worked so well for wireless networking. Sounds great! Developers and device manufacturers could work together to foster competition and technological innovation, ultimately with enormous benefit to the consumer.

Obviously, this is not something that the US cellular industry would want, and would undoubtedly marshal all of their considerable resources in opposition. A project of this magnitude would also be an enormous undertaking for the FCC, and could conceivably lead to yet another level of bureaucracy.

If it is truly the mission of the FCC to foster competition, new technology, and to protect consumer rights as the TWC decision implies, then there is a golden opportunity for them to do just that in the petition from the little guy, Skype. As guardian of the people’s communication systems and the public airwaves, to apply the Carterphone principals equally to all the players in the Telecommunications Industry would seem, to me at least, to be a no brainer.

Indonesian Cellular Industry Overview and Opportunities

Indonesia is the world’s fifth largest telecom market in terms of cellular subscribers after China, India, USA and Russia. It is also one of the fastest growing markets in the world with total number of cellular subscribers increased from 163.7mn in 2009 to 262.3mn in 2012. Indonesia’s large population (fourth largest in the world) and steady economic growth have supported strong demand for telecom services in the country.

Telecom services in Indonesia have been provided by a succession of state-owned companies since 1961. The Indonesian Government, through the Ministry of Communication and Information Technology (MOCIT), has extensive regulatory authority and supervisory control over the country’s telecom sector. While the government has historically maintained a monopoly over telecom services in Indonesia, reforms initiated since 2000 have attempted to create a regulatory framework to promote competition and accelerate infrastructure investment in telecom facilities.

The cellular market in Indonesia is currently dominated by three major operators: Telkomsel, Indosat, and XL Axiata. Together they hold about 94% market share in the Indonesian cellular industry. These operators primarily offer cellular services using GSM technology. Starting in 2002, the Indonesian government issued new cellular licenses for using CDMA technology to Mobile-8 and fixed wireless access services licenses using CDMA technology to Telkom, Indosat, and Bakrie Telecom. There are also other smaller players in the Indonesian cellular market, such as HCPT, Axis, Smartfren and STI. Competition in the industry is based primarily on service quality, pricing, availability of data services and value-added features such as voice mail and text messaging.

Since its introduction in 1998, prepaid service has been popular in Indonesia, because it permits customers to register for wireless service without undergoing a credit review. Prepaid service also gives customers more control over monthly expenditures. SMS has proven to be popular in Indonesia, particularly on the prepaid platform, as it provides a convenient and cost-efficient alternative to voice and e-mail communications. The contribution from data services to industry revenues is growing steadily. This is in line with the trend of increase in people’s need for data supported by cellular phones with internet capabilities and growing use of value added services such as over the top services (OTT services like Skype, Viber, WhatsApp, etc.), IP Messaging, and Cloud services.

Cellular penetration in Indonesia has increased above 100%, indicating the industry is gradually maturing. However, this rate is still below as compared to some of the other Asian countries like Thailand, Malaysia, South Korea, Singapore, and Hong Kong, indicating some more growth potential is left in the industry. Industry growth going forward is expected to come from regions outside Java, where the cellular penetration rate is still low. In addition to the growth in core markets, there are sizable emerging segments of strong growth, primarily in the consumer broadband and mobile towers segment. Indonesia’s cellular industry and demand for wireless telecommunication services are expected to continue grow as Indonesia develops and modernizes. As such, stocks and bonds (mostly high yield bonds due to sovereign rating cap) issued by Indonesian telecom companies offer good investment opportunities for global investors.