February 24, 2023
JAKARTA – For decades, submarine cables have been the backbone of the internet, the invisible lines carrying 98 percent of intercontinental data traffic. As an archipelagic nation, Indonesia depends on this physical infrastructure to ensure internet connectivity in all parts of the country.
As of 2022, Indonesia has 217 submarine cable segments and 42 underwater pipeline segments. However, these are not sufficient to provide connectivity to rural areas, in part due to the lack of geographically diverse deployment and basic protection measures. In addition, they lack redundancy, meaning that any loss of bandwidth from a broken cable cannot be rerouted to other cables.
Significant investments in submarine cables are indeed necessary. Geopolitical tensions have yielded Indonesia a timely opportunity to attract investors, as it has emerged as a favored destination among cable providers to build more routes away from the disruption-prone areas of the South China Sea and Hong Kong.
For example, stretching across 16,460 kilometers, the Bifrost cable system will be the first transpacific cable system connecting Indonesia, Singapore, the Philippines and the United States via the Java Sea. With installation expected to finish by 2024, the project is being developed by a consortium of telecommunication companies and tech giants consisting of Meta, Amazon, Telekomunikasi Indonesia International (Telin) and Keppel T&T.
Despite this progress, it is clear that significant challenges remain. While interest is growing among private investors to build cables, financial and regulatory risks remain key barriers to potential investment.
The issues are threefold.
First, in 2021, the government issued Fisheries and Marine Affairs Ministerial Decree (Kepmen) No. 14/2021 on submarine pipelines and cable systems. Given that submarine cables have been one of the most underregulated sectors for decades, the decree’s issuance indeed signaled the government’s commitment to better managing marine space and to providing investors with more legal clarity.
A year after its implementation, however, a challenge loomed large over ocean management. Technically speaking, submarine cables need to be carefully routed to avoid hazards, such as earthquakes and underwater landslides, as well as accidental damage caused by human activity. To minimize potential damage, the cables are buried beneath the sea floor, which could temporarily impact the surrounding marine environment.
Thus, surveying the entire submarine cable system is necessary to select the most suitable routes and to ensure their durability. While the survey is highly time-consuming and resource-heavy, what has made it more problematic is that accurate deep ocean and seabed data are not always available.
Furthermore, there is no uniform, timely and integrated map that lays out both existing cables that were deployed long before 2021 and the new submarine cable “corridor” regulated under the 2021 ministerial decree. At least 145 of 327 cables deployed in Indonesian territorial waters are outside the designed route, while 193 apparently have not come online.
Meanwhile, cables are typically visible only to their cable operators, making it difficult for the government to monitor them and take appropriate measures. This has impeded the cable surveying process and led to high-cost maritime management, as well as delays in the repair and response mechanism.
Without an integrated database, the 2021 decree is not very effective.
Second, in the following year, the fisheries minister issued Kepmen No. 42/2022 on the mechanism for the construction and/or placement of marine structures and installations. The decree assigns different line ministries and state agencies, from the Information and Communication Ministry, the Investment Ministry, the fisheries ministry, the Defense Ministry and to the Environment and Forestry Ministry, as well as the Indonesian Navy Hydrography and Oceanography Center (Pushidrosal), to collaborate on the licensing process to ensure optimal use of marine space and ease of doing business.
In practice, such a licensing process rather amplifies the most salient issues in Indonesia’s regulatory environment, namely overlapping institutional jurisdictions and the lack of interagency coordination, which indirectly result in cost overrun and high compliance costs.
One stakeholder with whom we talked revealed that on one occasion, cable deployment had to be postponed suddenly while a cable laying vessel was on standby. Regardless of the fact that the cable consortium was licensed, it had to put its operations on hold due to delays in the issuance of the Marine Spatial Use Approval (PKKPRL). Readying a cable laying vessel is already capital-intensive, with a daily rate of around US$5,000.
Another case involved incomplete information during the licensing process. Due to data silos and fragmentation among line ministries, the submarine cable operator was somehow misinformed of marine conservation zones, where all economic activities are prohibited.
It is only after the submarine cable comes online that specific environmental impacts begin to appear, exposing operators to large, unexpected regulatory risks, such as administrative sanctions that otherwise could have been mitigated.
Last but not least, the submarine cable communication network is a capital-intensive infrastructure investment. Operational expenditure, or opex, which is used as a benchmark for investors, often becomes disproportionately higher, especially with overlapping regulations and authorities.
Therefore, its incentive structure and financing model should be addressed earlier, even before a robust business plan. With the increasing demand for more reliable networks, innovative financing mechanisms that can adjust incentives and lower risks, as well as help interconnect state-owned telecommunication networks, need to be scaled up.
A consortium model can be one of the viable options for making high-cost investments more palatable by spreading the cost effectively. Through a consortium, cable investors can design the route together and negotiate directly with the supplier, contributing to cost reduction and enabling better competitive services through an “open system”.
This is much more feasible compared to the network ownership model, which requires users to buy capacity from private cable operators that monetize access to their cables.
In Indonesia, a consortium model mechanism has often led to dissent that over-the-top (OTT) service providers and foreign enterprises could have direct control of network assets if the consortium model is promoted. As a matter of fact, this is not always the case.
It all depends on the level of contribution and financing that adds significant political positioning to the Indonesian side of a project, such as by gaining early cash inflow or achieving equity partnerships through the consortium model.
Indonesia, as the biggest digital market in Southeast Asia, is poised to become a digital hub. To achieve this, connectivity infrastructure, including submarine cables and cable landing points, should be the main priorities.
Regulatory clarity, collaborative efforts between governments and operators, as well as interagency coordination, are all essential to ensure the ongoing resilience of the digital ecosystem that is vital to Indonesia’s economic strength.