The Corruption Court on Monday sentenced a subsidiary of telecommunication giant PT Indosat ' controlled by Qatar Telecom ' to pay Rp 1.3 trillion ( US$131 million ) in liable state losses, and handed down a four-year prison term to its former executive.
The court ruled the company was guilty of misusing Internet frequency licenses. The verdict has sent jitters to telecommunication companies as it accentuated legal uncertainty that could stunt the industry from
expanding amid the high demand for faster Internet and data access.
Presiding judge Antonious Widiantoro said the court had found PT Indosat Mega Media ( IM2 ) former president director Indar Atmanto guilty of enriching the company by misusing the 2.1 gigahertz telecommunication frequency.
Indar was also told to pay Rp 200 million, or face an additional three months in prison.
IM2, an Internet service provider ( ISP ), was told to pay for the incurring losses caused by the misappropriation of the frequency within a year after the verdict.
Communications and Information Minister Tifatul Sembiring said that the ministry regretted the verdict, and that he would report the issue to the President.
'This will definitely affect the investment climate in a very negative way, and many foreign investors will question the legal certainty of doing business here,' he said.
The ministry, as well as other players in the industry, has repeatedly pointed out that the IM2 business model is legal and commonplace.
Indosat president director Alexander Ruslie said the company would file an appeal against the verdict. 'We will continue to lend our support to Indar,' he said.
Indosat spokesman Adrian Prasanto said that the court 'has not taken into account all the facts presented during the trial'. 'This includes a letter from the Communications and Information Ministry stating that the business model between Indosat and IM2 is not against the law.'
The case revolves around allegations filed in 2011 by an NGO called Indonesian Telecommunication Consumer ( KTI ), whose chairman Denny AK is currently serving prison time for extorting Indosat last year.
Despite the weak allegations, the Attorney General's Office ( AGO ) took the case and launched its prosecution last year.
The AGO and the court argued that IM2 had been operating illegally for failing to secure frequency licenses based on a regulation issued by the Communication and Information Ministry barring telecommunication firms from handing over frequency allocations to other companies.
Indosat, and the regulators, have repeatedly pointed out that the regulation could not be used as the basis for the prosecution as Indosat functions as a network provider while IM2 is a service provider.
IM2 is not required to secure additional licenses as Indosat, as its parent company, has already secured the required permits as a network provider, according to Indonesian Telecommunication Regulatory Body ( BRTI ) executive Nonot Harsono.
Indosat also argued that IM2, which has an assets worth Rp 700 billion, was just renting the allocated frequency, instead of taking it over.
Industry regulators and players are concerned that the verdict would act as a precedent to file similar cases against other operators and ISP.
'The verdict will make investors, particularly the new ones, think twice about putting their money in the industry,' he said.
Chairman for the Indonesian Internet Service Provider Association ( APJII ) Semmy Pangerapan said the verdict could become a basis for any party to prosecute telecommunication operators and ISPs.
'The verdict also threatens to thwart efforts by the industry to pump up Internet usage in Indonesia. It's a very bleak day for the industry,' he said.
Chairman of the Indonesian Telematics Society ( Mastel ) Setyanto P. Santoso suggested Indosat, via Qatar Telecom, to take the case up with the International Center for Settlement of Investment Disputes ( ICSID ), an international arbitration court associated to the World Bank.
Although foreign-direct investment soared to all-time high, legal uncertainty still plagues Indonesia.
Aside from the Indosat case, the AGO is also at the dismay of the oil and gas industry for imprisoning four workers of a local unit of US energy giant Chevron in an investigation into alleged corruption at the firm's green project. The trial is currently ongoing.