Eric Pratama Santoso

Partner (Corporate & Securities)

esantoso@idsattorneys.com

A: Sona Topas Tower 15th Floor

Jalan Jenderal Sudirman Kav. 26

Jakarta 12920, Indonesia

T: +62 21 2506737

F: +62 21 2506738

E: contact@idsattorneys.com

W: www.idsattorneys.com

In light of the mushrooming emergence of providers of apps and content services delivered over the internet, widely known as OTT services, the Indonesian government via the Ministry of Communication and Informatics (“MCI”) has been preparing a draft ministerial regulation on the subject (“MCI Regulation”). The 1st draft MCI Regulation has been circulated for public review since April 2016 and is currently in the process of revision taking into account inter-ministry discussions, with target completion sometime within this year.

In overview, this update will highlight the anticipated impact of the MCI Regulation (when it comes into effect) on the business operation of foreign OTT service providers in Indonesia.

1. Direct Presence in Indonesia

Given its digital business model which relies on internet connectivity, foreign OTT service providers may not see physical presence in Indonesia as a necessity. The MCI Regulation will see a change to that situation. To engage in the business and have access to Indonesian users, foreign OTT service providers will be required to establish a limited liability company or a permanent establishment in Indonesia.

As part of the requirement of having direct presence in Indonesia, a foreign OTT service provider will also be required to, among others:

- Register its form of business entity and line of business and also submit periodical reports to the Indonesian Telecommunication Regulatory Body (BRTI);

- Set up a local contact center to accommodate user questions or complaints;

- Apply content filtering and censorship mechanism which conforms with the prevailing regulations;

- Use a national payment gateway (for paid OTT services);

- Use an Indonesian IP number and place a part of its server in a data center located within Indonesian territory;

- Guarantee access to lawful interception and collection of evidence in criminal investigation by law enforcement authorities.

2. Cooperation with Telco Operators

As indicated in the draft MCI Regulation, the government is still mulling over whether OTT service providers must enter into a cooperation with a telco operator. If the OTT service has similar or substitutive functions with telecommunication service (e.g. instant message or call), the relevant OTT service provider might be required to cooperate with an existing telco operator or become a telco operator itself.

3. Sanctions

OTT service providers who do not comply with the MCI Regulation may be subjected to sanction in the form of bandwidth management, which will be enforced via instruction to the local telco operators.

4. Adjustment Period

OTT service providers will be required to fully comply with provisions of the MCI Regulation within 9 months after its enactment.

In anticipation of the MCI Regulation coming into effect, foreign OTT service providers should carefully assess their business model for Indonesian market.