E-Business Online

Indonesia

Economic News

22 Jul 2010
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A government ministry has announced this week the creation of a regulatory agency to oversee the growth of e-commerce in Indonesia, creating a clear framework for the further development of online commerce.



The director of e-commerce at the ministry of communication and information, Hafni Septiana, unveiled on November 8 the creation of the Certification Authorities Regulatory Agency (BPCA), which will become operational in 2008. The agency will award operating licenses to companies wishing to act as certification authorities.



"We have completed drafting the technical regulations necessary for the launch of BPCA's operation," Septiana said.



The move will allow more digital certificates to be awarded, in order to ensure protection for internet consumers from cyber-crime and identity theft. Members of the agency will include information technology experts as well as academics and government officials. Criteria to get a licence will include an evaluation of the integrity of the companies bidding for the licences, as well as whether they meet standards set by the ministry.



"The initiative [...] is very important to create security in online transactions," Tony Chen, president director of PT Microsoft Indonesia, told OBG. "However the government should also enact the cyber-law project that has been under elaboration for three to four years now."



At present, companies that provide certification only do so for internal purposes. The plan is to expand this to outside companies, instituting a form of peer review. The digital signatures issued by the certifiers will protect website owners and users themselves, providing security as to the identity of users and suppliers.



With the growth of internet scams such as 'phishing' for personal information through fraudulent emails and identity theft, the digital signatures will create a framework of security, reassuring both users and sellers.



"In a commitment made during the World Summit on Information Society in 2003, Indonesia has pledged to connect 50% of its population by 2015," Chen told OBG. "No country can isolate itself from the international e-commerce arena, and Indonesia should be very open to these opportunities."



Indonesia's number of internet users is set to reach 25m, 10% of the population, by the close of 2007, according to the Indonesian Infocom Society. This is a significant rise over the 16m users recorded in 2005, yet markedly low when compared with other countries in the region, where internet penetration is 16% in the Philippines and 48% in Malaysia.



Physical infrastructure still represents a stumbling block for growth, with high-speed internet access still limited to big cities. An affordable option for the country's middle class is a monthly subscription for Rp99,000 (about $10.73) for a 384kbps connection. However this service is only available in the largest cities of Java, such as Jakarta and Surabaya. A monthly fee of Rp100,000 ($10.84) is considered the threshold for mass adoption.



As telephone lines are a precondition to most basic internet access, the government has been implementing a strategy of providing telephone access to all villages throughout the country by 2010. This is being done through partnerships with the main telecoms operators in Indonesia such as Telkomsel and Indosat. As many of 43,000 of Indonesia's 72,000 villages still lack a telephone line.



At the same time the ministry of communication and information is in the process of installing 10,000kms of fibre optic cables by 2008 to connect all the major islands of Indonesia. With the development of the basic infrastructure needed to ensure internet access, e-commerce is set to significantly grow.



However the legal framework for online transactions has remained unclear in the absence of an applicable cyber law. Although the government has submitted draft legislation to the house of representative for approval in 2005, it is still under debate.



As a result, the existence of certification authorities is imperative to ensure the security of transactions through the application of digital signatures.



"The regulations of the BPCA and the certification authorities will be in line with the draft cyber bill," Septiana said. "So we can protect consumers while waiting for the house to endorse the legislation."



Although foreign direct investment is allowed into internet-related businesses in Indonesia, the lack of a clear regulatory framework for the development of e-commerce has dampened investor interest. This week's move stands to support the development of this sector, providing certainty to consumers and investors about the security of this sales medium.

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